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Pemberton Brewing Company Pty Ltd as Trustee for the PBC Unit Trust and Commissioner of Taxation [2011] AATA 11 (11 January 2011)

Last Updated: 14 January 2011

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 11

ADMINISTRATIVE APPEALS TRIBUNAL )

) No 2010/2009

TAXATION APPEALS DIVISION
)

Re
PEMBERTON BREWING COMPANY PTY LTD as trustee for the PBC UNIT TRUST

Applicant
And
COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal
C Walsh, Senior Member

Date 11 January 2011

Place Perth

Decision
The Tribunal affirms the Commissioner’s objection decision dated 3 May 2010.


...(sgd) C Walsh..........
Senior Member

CATCHWORDS

Excise duty - Manufacturer’s licence – excisable goods – beer manufacture and sale - refusal to renew manufacturer’s licence - periodic settlement permission – “fit and proper company” – “necessary for the protection of the revenue”

LEGISLATION

Excise Act 1901 (Cth) – Part IV - section 39(F)(3) – section 39G(1) – section 39I – section 39L – section 59- section 61 – section 61A - section 61C


CASES

Re Francisco Martino and the Australian Taxation Office [2002] AATA 1242

Hughes and Vale Pty Ltd and anor v State of NSW and others [No. 2] [1955] HCA 28; (1995) 93 CLR 127

Australian Broadcasting Tribunal v Bond & Ors [1990] HCA 33; (1990) 170 CLR 321


REASONS FOR DECISION


11 January 2011
C Walsh, Senior Member

INTRODUCTION
  1. The Pemberton Brewing Company Pty Ltd (PBC), which company trades under the name “Jarrah Jacks Brewery”, has been carrying on the business of brewing and selling beer and operating a café restaurant in the historic and rural South West town of Pemberton, Western Australia, for approximately six years. Jarrah Jacks Brewery is located at Lot 2, Kemp Road, Pemberton. PBC leases that premises from Marriwood Estate Pty Ltd (Marriwood). Marriwood is a shareholder in PBC and is owned by PBC director, Mr Liebeck, and his wife. Marriwood operates a vineyard at the same premises and Marriwood’s wine is sold to PBC’s customers, along with PBC’s beer, at PBC’s café restaurant. PBC also sells its beer to other customers, such as liquor stores.
  2. Part IV of the Excise Act 1901 (Cth) (Act) details the legislative requirements for, among other things, the granting, cancellation, suspension and renewal of “manufacturer licences”, which expression is defined in section 4 of the Act to mean a licence authorising the manufacture of “excisable goods”, which includes beer.
  3. PBC first applied to the Commissioner for a licence to manufacture beer on 3 March 2005, pursuant to section 39 of Part IV of the Act. On 15 April 2005, the Commissioner issued PBC with “Manufacturer Licence No. 3374”, pursuant to Part IV of the Act (ML 3374). ML 3374 permitted PBC to manufacture excisable beer in any quantity at the brewery for the period 15 April 2005 to 31 December 2005.
  4. Also on 15 April 2005, the Commissioner issued PBC with “Periodic Settlement Permission number: 3375” pursuant to section 61C(1) of the Act (PSP 3375). PSP 3375 permitted PBC to deliver excisable beer for home consumption (that is to physically remove beer from the brewery and enter into the domestic market for sale), in any quantity.
  5. By virtue of section 61C(3) of the Act, a permission (issued by the Commissioner pursuant to section 61C(1) of the Act) may be issued subject to the condition that the person to whom that permission is given complies with such requirements as specified in the permission, being such requirements that, in the opinion of the Commissioner, are necessary for the protection of the revenue or for the purpose of ensuring compliance with the Act.
  6. PSP 3375 contained various general conditions, including requirements that PBC:
  7. However, when it was first issued to PBC, PSP 3375 did not specify that PBC was required to lodge a return if no sales of beer were made or is no beer was delivered into home consumption.
  8. Like ML 3374, PSP 3375 would expire on 31 December 2005. The issue by the Commissioner of PSP 3375 was necessary since ML 3374 only authorised the manufacture of beer, not its removal from the brewery for sale: see sections 61 and 61C(2) of the Act.
  9. On 21 November 2005, ML 3374 and PSP 3375 were renewed by the Commissioner for the period from 1 January 2006 to 31 December 2006. However, due to a change in the law, ML 3374 became due to expire earlier on 30 September 2006, instead of 31 December 2006. The Commissioner notified PBC of that change and PBC duly lodged a further application for renewal of ML 3374 with the Commissioner. On 24 October 2006, the Commissioner granted PBC a renewal of ML 3374 for the three year period from 30 September 2006 to 30 September 2009.
  10. The fact that PBC was producing substantial quantities of beer but failing to lodge excise returns in respect of that beer first came to the attention of the Commissioner’s “Alcohol Industry Group” in February 2007. As a consequence, on 15 February 2007 the Commissioner wrote to PBC notifying it of its failure to lodge excise returns for the period 1 December 2005 to 8 February 2007 and advising it that the Commissioner was considering revoking PSP 3375 and inviting it to furnish reasons why that should not occur.
  11. On 8 September 2009, the Commissioner wrote again to PBC advising it that ML 3374 was due to expire on 30 September 2009 and notifying it that the Commissioner proposed not to renew PBC’s licence unless PBC could convince the Commissioner otherwise. Specifically, that letter stated:
“For the reasons stated in the attachment enclosed with this letter we are of the view that this licence should not be renewed. If you want to keep your licence for the next three years, you will need to write to us on or before 30 September 2009 and formally seek renewal. You should state your case for why your licence should be renewed and respond to our stated reasons for why the licence should not be renewed.”

  1. A series of correspondence subsequently passed between PBC and the Commissioner before the Commissioner finally advised PBC, by letter dated 4 February 2010, that a decision had been made that ML 3374 (which had expired on 30 September 2009) would not be renewed.
  2. On 17 February 2010, PBC formally objected to the Commissioner’s decision not to renew ML 3374. On 3 May 2010, the Commissioner disallowed PBC’s objection and found that the Commissioner’s decision dated 4 February 2010, not to renew PBC’s licence ML 3374 pursuant to section 39F(3) of the Act, was correct. PBC now seeks a review of the Commissioner’s objection decision by the Tribunal.

COMMISSIONER’S DISCRETION TO REFUSE TO RENEW A MANUFACTURER’S LICENCE UNDER THE ACT

  1. Section 39F(3) of the Act provides that the Commissioner “may refuse to renew the licence if the collector is satisfied that, if the licence were renewed, he or she would be entitled to cancel the licence”.
  2. Section 39L(1) of the Act states that the Commissioner may “cancel” a licence if the Commissioner is entitled to “suspend” the licence under section 39G of the Act, which section provides that the Commissioner may “suspend” a licence if the Commissioner has reasonable grounds for believing, among other things, that:
  3. It is clear from the Commissioner’s objection decision that the Commissioner’s reason for disallowing PBC’s objection was based on findings that he had reasonable grounds for believing that: (i) PBC was not a “fit and proper company” within the meaning of section 39G(1)(e) of the Act ; and (ii) it was “necessary for the protection of revenue”, in terms of section 39G(1)(m) of the Act, that PBC’s licence ML 3374 not be renewed.
  4. Each of these issues is considered by the Tribunal, in turn, below. However, before turning to those issues, it is necessary to provide a brief summary of the history of PBC’s compliance with ML 3374 and PSP 3375. The following summary is based on the evidence before the Tribunal.

PBC’S COMPLIANCE WITH ML 3374 AND PSP 3375

  1. On 30 May 2005, PBC achieved its first brew. On 29 November 2005, PBC lodged its first excise return, which covered the period 11 November 2005 to 27 November 2005. Evidence was given that no return was lodged before that date since, at that early stage of production, no beer had been delivered for home consumption or no sales of beer had been made.
  2. In the following 17 months or so, PBC produced some 2,183.9 litres of beer, attracting excise duty of $74,128.98. However, PBC failed to lodge any excise returns with the Commissioner in respect of that period. As noted above, the Commissioner wrote to PBC on 15 February 2007 pointing out that it had failed to lodge any excise returns for the period 1 December 2005 to 8 February 2007 and warning it that consideration was being given to revoking PSP 3375 for “the protection of the revenue of the Commonwealth” and invited PBC to furnish reasons why this should not occur within 14 days. In that same letter, PBC was also directed by the Commissioner to “lodge all outstanding Excise Returns and pay the resulting excise liability in full, or if that [was] not possible, enter into a formal payment arrangement for [its] current debt.”
  3. By the end of May 2007, excise returns covering the missing periods had been lodged with the Commissioner and, therefore, a decision was made by the Commissioner not to revoke PSP 3375 (and with it ML 3374) and PBC was notified accordingly, by letter dated 3 May 2007. In that same letter, the Commissioner informed PBC that the conditions attached to PSP 3375 would be altered, effective 14 May 2007, such that PBC must lodge a weekly excise return, regardless of whether any beer was delivered for home consumption in that week. In other words, from that date PBC was required to lodge a weekly return even if no beer had been sold in the week concerned.
  4. Despite lodging these excise returns with the Commissioner, PBC did not make any payments, apart from three weekly payments of $500 in January and February 2007. Consequently, PBC’s excise account was $88,868.46 in debit by August 2007.
  5. From May 2007 until June 2008, PBC’s excise return lodgement was reasonably consistent, with lodgements being up to date on 3 June 2008. However, of the 53 weekly excise returns lodged in the year ending 3 June 2008, 16 were lodged more than 10 days late and 6 more than 20 days late. Moreover, PBC frequently did not remit payment of excise duty with its returns, as required by PSP 3375. As a result, by June 2008, PBC’s excise debt had increased to approximately $94,000.
  6. From early June 2008, PBC failed to lodge any more weekly excise returns for another four months (i.e. until 6 October 2008), at which time, five returns, covering the that period, were lodged (bringing PBC’s excise return lodgement up to date, except for one return covering the period 30 June 2008 to 7 July 2008). The excise returns lodged in that period, disclosed only small quantities of beer being delivered for home consumption and, it follows, small excise duty liabilities, which PBC paid on lodgement of its returns. Also during that period, PBC made regular weekly payments of $500 to the Commissioner in respect of its excise liability, thereby reducing that liability back to approximately $88,000 by 7 October 2008.
  7. From October 2008, PBC then failed to lodge any more excise returns with the Commissioner for another nine months (i.e. until 22 July 2009), at which time a further six excise returns were lodged by PBC with the Commissioner, again bringing it up to date with its lodgement requirements. Those returns revealed a total excise liability of $27,951.20. Again, despite lodging its excise returns for that period, PBC failed to remit to the Commissioner the excise liability disclosed. Accordingly, despite the payment of some seventeen $500 instalments in the period from October 2008 to April 2009 (totalling $8,500), PBC’s total excise debt to the Commissioner had increased to $107,097.59 by 23 July 2009.
  8. The next excise return to be filed by PBC was on 11 November 2009, some four months later. That return purported to cover the period from July 2009 to November 2009. The associated self-assessed excise liability of $2,568.09 was not remitted to the Commissioner. The next excise return to be filed after that was on 7 January 2010. Once again, the associated excise liability of $2,568.09 was not remitted to the Commissioner. From that date, until 9 February (being the date on which PBC’s application to renew ML 3374 was formally refused by the Commissioner), the four weekly excise returns PBC was required by PSP 3375 to lodge, were lodged on time. However, yet again, no remittances were received by the Commissioner for the excise liability associated with those returns, which totalled $13,283.62.
  9. PBC’s current excise debt is $191,208.47, which amount is not disputed by PBC. This includes a further $66,876.45 the subject of a statutory demand issued by the Commissioner to PBC on 19 May 2010 resulting from an audit of PBC by the Commissioner in January and February 2010. That amount represents the excise liability arising from an understatement of the quantum of beer entered for home consumption as disclosed in the excise returns lodged with the Commissioner by PBC. PBC is entitled to object to that statutory demand pursuant to section 162C of the Act, but it lodged no such objection with the Commissioner.

IS PBC A “FIT AND PROPER COMPANY” WITHIN THE MEANING OF SECTION 39G(1)(E) OF THE ACT?

  1. The phrase “fit and proper company” is not defined in the Act. In Re Francesco Martino and the Australian Taxation Office [2002] AATA 1242 the Tribunal considered whether an ‘associate’ of the applicant, in that case a natural person (not a company), was a “fit and proper person” for the purpose of section 39G(1)(a) of the Act in the context of a review of a decision by the Commissioner to disallow an objection against a decision to cancel a tobacco producer’s licences under Part IV of the Act. In examining that question, DP Forgie made reference to the following dicta of the High Court of Australia in Hughes and Vale Pty Ltd and anor v State of NSW and others [No. 2] [1955] HCA 28; (1995) 93 CLR 127 at 156:
‘The expression ‘fit and proper person’ is of course familiar enough as traditional words when used with reference to offices and perhaps vocations. But their very purpose is to give the widest scope for judgment and indeed for rejection. ‘Fit’ (or ‘idoneous’) with respect to an office is said to involve three things, honesty, knowledge and ability: ‘honesty to execute it truly, without malice affection or partiality; knowledge to know what he ought duly to do; and ability as well in estate as in body, that he may intend and execute his office, when need is, diligently, and not for impotency or poverty neglect it.” [Emphasis added]

  1. In Re Francesco Martino, DP Forgie also referred to the following comments made by Toohey and Gaudron JJ in Australian Broadcasting Tribunal v Bond and Others [1990] HCA 33; (1990) 94 ALR 11 at 56:
“The expression ‘fit and proper person’, standing alone, carries no precise meaning. It takes its meaning from its context, from the activities in which the person is or will be engaged and the ends to be served by those activities. The concept of ‘fit and proper’ cannot be entirely divorced from the conduct of the person who is or will be engaging in those activities. However, depending on the nature of the activities, the question may be whether improper conduct has occurred, whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur. The list is not exhaustive but it does indicate that, in certain contexts, character (because it provides indication of likely future conduct) or reputation (because it provides indication of public perception of likely future conduct) may be sufficient to ground a finding that a person is not fit and proper to undertake the activities in question.”

  1. DP Forgie concluded (at para 43) that the matters that must be taken into account in determining what constitutes a “fit and proper person” for section 39G(1)(a) purposes will always depend upon the context of a particular case. She also commented that it seemed to her that the privileges, obligations and responsibilities of a licence holder under the Act must have some hand in shaping the matters to which regard must be had in deciding whether an ‘associate’ is a “fit and proper person”. In DP Forgie’s opinion, those privileges, obligations and responsibilities are clearly relevant in establishing what matters regard may be had to in resolving whether the licence holder, itself, is a ‘fit and proper person”.
  2. At paragraph 46 of Re Francesco Martino, DP Forgie remarked that the nature of the privileges, obligations and responsibilities of the holder of a tobacco production licence were such that qualities of diligence, honesty and the likelihood of his or her observing the law appeared to be pivotal characteristics to be taken into account in ascertaining whether the ‘associate’ of a licence holder, in that case a natural person (not a company, as is the case here), was a “fit and proper person” under the Act. The Tribunal takes the view that similar considerations apply to the question whether a company is a “fit and proper company” for the purposes of possessing a beer manufacturer’s licence, issued pursuant to Part IV of the Act.
  3. Before the Tribunal, Mr Liebeck, one of the directors of PBC, gave evidence that PBC’s failure to lodge excise returns during the period from November 2005 to May 2007, when its business was in its initial stage, could be explained by the occurrence of the following unforeseeable events:
  4. According to Mr Liebeck , PBC’s failure to lodge excise returns with the Commissioner from May 2007 onwards, can be attributed to the following factors:
  5. Mr Hooper, who has been PBC’s accountant for about five years, also presented evidence to the Tribunal. In summary, Mr Hooper informed the Tribunal that:
  6. In determining whether a company is a “fit and proper company” for the purpose of section 39G(1)(e) of the Act, section 39I makes it clear that the Commissioner is entitled to have regard, among other things, to:
  7. In this regard, it is noteworthy that the evidence before the Tribunal was that PBC demonstrated a similar pattern of non-compliance as regards the lodgement of its monthly Business Activity Statements (BASs) and payment of associated income tax, pay-as-you-go, withholding (ITW) liabilities and its payment of goods and services tax (GST) to the Commissioner. More particularly, in the period 16 March 2006 to 12 January 2009, 12 of PBC’s 41 BASs were lodged late enough to incur a failure to lodge penalty. In that period, PBC’s running balance account (RBA) (which account recorded, among other things, PBC’s ITW and GST liabilities, i.e. separate from its excise liabilities and payments) increased from $12,903.94 to $104,141.74. Intermittent instalments of $500 were made by PBC to the Commissioner in relation to that debt but such payments were insufficient to meet the on-going ITW and GST liabilities being incurred by PBC, let alone reduce its pre-existing debt. On 11 November 2008, the Commissioner served a Creditor’s Statutory Demand on the applicant pursuant to section 459E of the Corporations Law in respect of PBC’s RBA account debt, then standing at $97,419.51. PBC did not pay that debt nor did it apply to the court to have the statutory demand set aside. Further, no BASs were lodged by PBC with the Commissioner between 10 February 2009 and 26 November 2009 and PBC’s RBA account debt currently stands at $238,230.66. That debt is in addition to its current excise debt of $191,208.47. In other words, the total debt currently owed by PBC to the Commissioner and, it follows, the Commonwealth is $429,439.13 (exclusive of any penalties or interest). The evidence before the Tribunal was that during the time PBC has been in business it has entered into at least four payment arrangements with the Commissioner in respect of its various taxation liabilities. PBC defaulted on each of those arrangements.
  8. In addition, as no response was received by the Commissioner to a superannuation audit notice issued to PBC, an “Intention to make a default assessment of superannuation guarantee charge” letter was sent by the Commissioner to PBC on 18 September 2008.
  9. As detailed above, PBC’s track record in meeting its obligations under the Act, as well as under other revenue legislation administered by the Commissioner, can only be described as poor. Over extended periods, PBC simply did not lodge any weekly excise returns with the Commissioner and, when those returns were finally lodged, the excise liability they disclosed was not paid by PBC as it fell due. Although sporadic attempts were made by PBC to repay its excise debt in $500 weekly instalments, because new excise liabilities were not honoured as and when they arose, PBC’s total excise debt continued to escalate rapidly and currently totals $191,208.47. Mr Liebeck told the Tribunal that he was personally very distracted by the legal dispute which took place with former shareholders of PBC (also unit-holders of the PBC Unit Trust) during 2007, 2008 and 2009, at the expense of his excise obligations. According to Mr Liebeck there was a significant improvement in PBC’s record keeping following settlement of the legal dispute. That may be so but, unfortunately for Mr Liebeck that improvement did not amount to full compliance with Part IV of the Act.
  10. It is apparent from the evidence before the Tribunal that PBC is lacking at least two of the qualities that, the High Court referred in dicta in Hughes and Vale (and as applied by the Tribunal in Re Francesco Martino), a “fit and proper” licence holder should necessarily possess for the purposes of Part IV of the Act, namely knowledge and ability. Based on PBC’s poor compliance history as outlined above, it cannot be said that PBC possessed the knowledge to know what it ought duly to do for the purposes of Part IV of the Act or that it (or its office holders) had the ability to carry out what was required of it under the Act diligently and without neglect: Re Francesco Martino applied. There was nothing in the evidence to cause the Tribunal to call the “honesty” of PBC and its directors into question. Mr Liebeck told the Tribunal that PBC had never disputed the debt, that it and its directors had always been open and accountable and had never been deceitful and that PBC’s problems had come about as a result of “abnormal events or circumstances” beyond its control. Mr Liebeck told the Tribunal that his first priority, as a director of PBC, was to defend the company (and the business) in the legal dispute it was involved in and then to restructure. It is regrettable that Mr Liebeck chose to prioritise the resolution of his company’s problems in that way but, unfortunately for Mr Liebeck and PBC, that does not excuse PBC’s non-compliance with Part IV.
  11. The Commissioner contended before the Tribunal that it is apparent from the evidence that Mr Liebeck’s approach to PBC’s problems is that of ‘the past is the past’ and that he (and the Tribunal) should instead focus on the changes that PBC says it has made and will make to ensure its future compliance. According to the Commissioner, if PBC’s past conduct as the holder of a manufacturer’s licence is at all indicative of its likely future conduct as a licence holder, then future compliance by PBC seems unlikely: Australian Broadcasting Tribunal v Bond. The Commissioner further submitted that if PBC’s compliance record, since it was given notice by him on 8 September 2009 of his intention to refuse renewal of PBC’s licence, its future compliance with its excise (and other revenue) obligations seems doubtful. Also according to the Commissioner, although Mr Liebeck provided evidence to the Tribunal that PBC has applied to various lending institutions for funding and that PBC has approached outside investors, it was clear that no firm undertakings concerning additional finance had yet been obtained from any third party. Whilst it is clear that PBC’s past compliance with its excise and other revenue obligations has been poor, it is impossible to predict what its compliance may be like in the future. It remains possible that PBC could resolve its financial problems and clear its debts with the Commonwealth. It is also possible that PBC may learn from its past mistakes. In which case, if it were issued with a new licence, it would appreciate that compliance with the Act is critical.
  12. It is apparent from the evidence before the Tribunal that during the relevant period PBC did not have sufficient human resources or expertise to meet its excise compliance obligations. That is regrettable. Whilst the Tribunal acknowledges the many difficulties which have faced PBC in attempting to carry on a successful boutique brewing business, the Tribunal considers that the Commissioner’s decision to refuse to renew PBC’s licence on the ground that it was not a “fit and proper company” for the purposes of Part IV of the Act was a decision which was open to him and was the correct or preferable decision in the circumstances.
  13. In evidence, Mr Liebeck made much of the impact that the on-going legal dispute with former unit-holders had on PBC’s ability to meet its obligations as a manufacturer’s licence holder under the Act. That dispute was ultimately settled by the payment by PBC of the relatively modest sum of $40,000, which amount was small in comparison to the excise and other tax liabilities that PBC has incurred and failed to remit to the Commissioner (being, as noted above, a total of $429,439.13). Questions must be asked regarding how the legal dispute impacted upon PBC’s ability to lodge its excise returns and pay the relevant liability as it became due. That fact again points to PBC’s lack of human resources and finances and reflects upon its standing to be characterised as a “fit and proper company” for the purposes of the Act.
  14. Despite all of the problems and set-backs which have faced PBC, Mr Liebeck maintains that Jarrah Jack’s Brewery is a major tourist attraction in Pemberton and that it could turn itself around and be a great success. He stated that non-renewal of PBC’s licence has resulted in the closure of Jarrah Jack’s Brewery and the loss of employment in a small rural town. Mr Liebeck contended that the Commissioner’s action in refusing to renew PBC’s beer manufacturer’s licence was unfair, unreasonable and that he acted suddenly and without warning in doing so, causing PBC “to be severely penalised”. Mr Liebeck contended that the Commissioner should have engaged in direct consultation with PBC regarding the current status of its business affairs, its refinancing status and given it appropriate time to restore its business operations, after resolution of its legal dispute, before cancelling its manufacturer’s licence, without notice. However, it is clear from the evidence that PBC was out on notice by letter dated 15 February 2007, some 3 years before the Commissioner refused to renew PBC’s licence on 9 February 2010. In addition, on 8 September 2009, almost five months before finally deciding (on 4 February 2010) not to renew PBC’s licence, the Commissioner wrote to PBC notifying it of his intention not to renew its licence and offering it an opportunity to explain its conduct. Further, there was a vast amount of correspondence concerning renewal of PBC’s licence which passed between the Commissioner and PBC in the period preceding the Commissioner’s decision not to renew PBC’s licence (i.e. in the period 8 September 2009 to 4 February 2010). In those circumstances, it cannot be said that the Commissioner acted, unfairly, unreasonably and without notice.
  15. Whilst it is most regrettable that PBC suffered various unfortunate setbacks and unforeseeable events in its start-up phase, and subsequently, the Tribunal’s view is that, in the circumstances, PBC cannot be considered to be a “fit and proper company” for the purposes of Part IV of the Act. Its compliance with the Act and other revenue legislation administered by the Commissioner has, for a number of years now, been unacceptable: refer to section 39I(ba) of the Act.

Is IT “NECESSARY FOR THE PROTECTION OF THE REVENUE”, WITHIN THE MEANING OF SECTION 39G(1)(M) OF THE ACT, THAT THE COMMISSIONER REFUSE TO RENEW PBC’S MANUFACTURER’S LICENCE?

  1. The phrase “necessary for the protection of the revenue”, as it appears in section 39G(1)(m) of the Act, is not defined in the Act. In Re Francesco Martino, DP Forgie considered the meaning of the “necessary for the protection of the revenue”, albeit in the context of the suspension and cancellation of a tobacco producer’s licence. At paragraph 44, DP Forgie stated:

“‘Necessary’ does not mean essential, but refers to something that is reasonably required.

‘Protect’ should have its ordinary meaning, which according to The Oxford English Dictionary is ‘keep safe’ or ’take care of’.

‘Revenue’ is to be defined according to the meaning expressed by Hodges J in Stephens v Abrahams (1902) 27 VLR 753 who considered the meaning of the word in the context of the Customs Act 1902, to be:

“.....moneys which belong to the Crown, or moneys to which the Crown has a right, or moneys which are due to the Crown....”” [Emphasis added]

  1. DP Forgie concluded by finding that the phrase “necessary for the protection of the revenue” meant ensuring that the Commonwealth receives all that it should in the form of any excise that is ultimately payable in respect of excisable goods.
  2. Further insight into the intended meaning of the phrase “necessary for the protection of the revenue” in section 39G(1)(m) of Part IV of the Act may be gleaned from an examination of the provisions of the Act more broadly. Such an examination reveals that the licensing provisions in Part IV of the Act are an integral part of a legislative scheme designed to ensure, as far as practicable, that the Commissioner collects the excise it is required to collect by Parliament. Under the Act, the manufacture and sale of beer (an excisable good) is strictly controlled. This is evident from a number of provisions in the Act, including section 25 of the Act (which provides that a person cannot manufacture alcohol without a licence being issued by the Commissioner), section 26 of the Act (which that the relevant excisable goods must be manufactured in accordance with the terms of the licence) and section 27 of the Act (which provides that the excisable goods, the subject of the licence, must be manufactured at the premises specified in the licence).
  3. Moreover, section 60(1) of the Act provides that a person who has possession, custody or control of the excisable goods must keep them safely and, when requested by the Commissioner to do so, account for them to the Commissioner’s satisfaction and section 61(1) of the Act provides that the excisable goods are subject to the Commissioner’s control until delivered for home consumption or for exportation to a place outside Australia, whoever occurs first. During the period the excisable goods are under the Commissioner’s control, they must not be moved, altered, interfered with except as authorised by the Act: section 61(2) of the Act. The Commissioner may give a person written permission to remove goods that are subject to his control from one place to another or to deliver certain goods for home consumption without entry: sections 61A and 61C. The Act makes it an offence to contravene a requirement specified in a permission issued pursuant to section 61C of the Act (such as PSP 3375), punishable by either imprisonment or the imposition of penalties: section 61C(4) of the Act. It may be said that the attaching of criminal sanctions to the failure to observe conditions contained in permission, issued under section 61C, emphasises the importance of compliance to the effectiveness of the licensing scheme in the Act. On this point, reference should be made to remarks made by DP Forgie in Re Francesco Martino (at para 44) to the effect that a tobacco farmer grows each crop for his or her own profit and also for the benefit of Australia’s revenue because it is subject to the payment of excise under the Excise Tariff Act 1921 (Cth).
  4. It is clear from the evidence presented to the Tribunal by Mr Liebeck that one of PBC’s difficulties was that it was not generating enough revenue from the sale of its beer to meet its operating costs (including servicing its equipment loans) and at the same time meet its excise and other tax obligations. This is confirmed by PBC’s income tax returns for the relevant income tax years which indicate consistent losses in the hundreds of thousands of dollars per year. PBC’s method of dealing with this was to subordinate its excise and other tax debts to those of other creditors (primarily to the lawyers defending the PBC’s legal dispute), including the Commissioner and, it follows, the Commonwealth (and the taxpayer). Mr Liebeck, by his own admission, stated that payment of the law firm who was defending PBC in its legal dispute with former PBC shareholders (and unit-holders of the PBC Unit Trust) was his first priority. That is an unfortunate choice as, had Mr Liebeck made the Commissioner his first priority, PBC may still be in possession of its manufacturer’s licence and carrying on business. Mr Liebeck also told the Tribunal that, in his view, when the Commissioner issues a person with a manufacturer’s licence he does so at his own “risk” and that his main concern was to defend PBC in the legal dispute and his business. That approach seems demonstrative of Mr Liebeck’s lack of “knowledge” of what PBC ought duly to have done as a licence holder which must comply with Part IV of the Act in order to retain, and be entitled to the privileges which attach to, its licence: Re Francesco Martino.
  5. Given PBC’s poor compliance history, it seems fair to assume that if the Commissioner was to renew PBC’s licence he would need to intensively supervise PBC’s business activities for some time which involve him providing PBC with his limited resources (bearing in mind the Commissioner is responsible for administering other revenue legislation) and would ultimately be funded by taxpayer through the Commonwealth. The Commissioner simply doesn’t have the resources to oversee and direct licence holders whose non-compliance is attributable to what appears to be a combination of what Mr Liebeck referred to as “abnormal events”, insufficient competent staff and inadequate financing. To so would place a burden on the Commonwealth (i.e. “revenue”) and, in turn, on the taxpayer. Consequently, from the Commissioner’s perspective it can undoubtedly be said that non-renewal of PBC’s licence is “necessary for the protection of the revenue” since it would inevitably involve the Commissioner:

“....spending more of the Commonwealth’s money than need be spent in carrying out its supervisory duties and responsibilities under the Act...”: refer to Re Francesco Martino, per DP Forgie at para 51.

  1. Based on the evidence before the Tribunal, it is apparent that PBC has remained afloat only as a result of being “propped-up” or cross-subsidized by Mr Liebecks’ family entity, Marriwood. The Tribunal heard from Mr Liebeck and Mr Hooper that one of the steps taken by PBC to improve its solvency was to arrange for Marriwood to assume responsibility for its equipment loans in early 2009. Since this support can be withdrawn at any time by Marriwood and given that Marriwood’s assets are beyond the reach of the Commissioner, such support does not provide the Commissioner with much comfort. The Commissioner can only look to PBC to recovers its debts. Accordingly, Marriwood’s financial position is irrelevant. Further, the evidence revealed that Mr Liebeck has made countless promises to the Commissioner in the past that Marriwood would assist PBC to extinguish its excise and other tax debts through the sale of property or other funding. Despite such promises, Marriwood has not seen fit to honour PBC’s excise and other tax debts.
  2. When considering the meaning of the phrase “necessary for the protection of the revenue” one must also give some thought to the issue of deterrence. That is, if obviously delinquent licence holders (such as PBC) are permitted by the Commissioner to retain their licences, then what message does that send to others in possession of licence? It says that there will be no adverse consequences associated with non-compliance. That is clearly an unacceptable outcome. It would also raise questions of fairness for those manufacturers who do comply. That is, a manufacturer that fully complies with Act (by proper record keeping, diligent preparation of its returns and timely payment of its excise liability) and thereby incurring additional operating costs would be disadvantage when compared to a licence holder (like PBC) who does not comply with its obligations under the Act.
  3. In all of the circumstances, the Tribunal agrees with the Commissioner’s decision that it was “necessary for the protection of the revenue” that PBC’s manufacturer’s licence not be renewed.

CONCLUSION

  1. For the above reasons, the Tribunal affirms the Commissioner’s objection decision dated 3 May 2010. More specifically, the Tribunal affirms the Commissioner’s decision to disallow PBC’s objection to the Commissioner’s decision on 4 February to refuse to renew PBC’s licence to manufacture beer ML 3374 (and with it PBC’s permission PSP 3375) on the grounds that PBC is not a “fit and proper company” for the purposes of the Act and that it was “necessary for the protection of the revenue” within the meaning of the Act.

I certify that the 53 preceding paragraphs are a true copy of the reasons for the decision herein of C WALSH, SENIOR MEMBER


Signed:.(sgd) T Freeman...........................

Associate


Date/s of Hearing 17 December 2010

Date of Decision 11 January 2011

Representative for the Applicant Mr R Liebeck

Solicitor for the Respondent Mr R McGrade

ATO Legal Services Branch



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