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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> FTU Pod Trans v Revenue and Customs (EXCISE DUTY AND WRONGDOING PENALTY - cigarettes smuggled into UK - whether the haulier holding the cigarettes and therefore liable for the excise duty) [2025] UKFTT 753 (TC) (17 June 2025)
URL: http://www.bailii.org/uk/cases/UKFTT/TC/2025/TC09560.html
Cite as: [2025] UKFTT 753 (TC)

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Neutral Citation: [2025] UKFTT 753 (TC)

Case Number: TC09560

FIRST-TIER TRIBUNAL

TAX CHAMBER

Taylour House, London

 

Appeal reference: TC/2023/01146

 

EXCISE DUTY AND WRONGDOING PENALTY - cigarettes smuggled into UK - whether the haulier holding the cigarettes and therefore liable for the excise duty - whether the haulier liable for a wrongdoing penalty - reasonable excuse - quality of disclosure - excise duty assessment upheld - penalty assessment varied

 

Heard on: 22 January 2025 and 18 March 2025

Judgment date: 17 June 2025

 

Before

 

TRIBUNAL JUDGE ROSA PETTIFER

MR MOHAMMED FAROOQ

 

 

Between

 

F.T.U. POD TRANS

Appellant

and

 

THE COMMISSIONERS FOR HIS MAJESTY'S REVENUE AND CUSTOMS

Respondents

 

Representation:

 

For the Appellant:         Mr Gary Bromelow of Saunders Solicitors Limited

 

For the Respondents:    Ms Charlotte Brown of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs

 


DECISION

Introduction

1.             The Appellant appeals:

(1)          An excise duty assessment of £472,378 dated 29 April 2021 (the Assessment). HMRC issued the Assessment on the basis that the Appellant was making delivery of excise goods or was holding excise goods intended for delivery where the excise duty was not paid.

(2)          A penalty assessment of £307,045 dated 29 April 2021 (the Penalty). HMRC issued the Penalty on the basis that the Appellant was handling excise goods where the excise duty was not paid.

2.             The appeal was made out of time, therefore the hearing included an application to appeal out of time which we allowed.

3.             For the reasons given below

(1)          The Assessment is upheld.

(2)          The Penalty is affirmed but varied to reflect the decision that the Appellant's behaviour is prompted but not deliberate and to allow a greater reduction percentage for quality of disclosure.

 

preliminary matters

Documents and evidence

4.             For the hearing we were provided with a hearing bundle of 746 pages and an authorities bundle of 488 pages. Mr Podgorski, the sole owner of the Appellant and Officer Ross Weir of HMRC both provided witness statements and were cross examined. Mr Podgorski supplied a translated witness statement, and he gave evidence during the hearing through a Tribunal appointed interpreter.

Parties' submissions

5.             We are grateful to Mr Bromelow and Ms Brown for their skeleton arguments, submissions, and willingness to engage with our questions and to the witnesses for their evidence. We set out below our summary of those submissions on the law and the facts. The parties should, however, be assured that when preparing this decision, the terms of the skeletons were reread and our notes of the hearing reviewed. Because we do not deal specifically with any point it does not mean that it was not considered in the round when reaching our decision.

Late appeal

6.             It was common ground that the Appellant's appeal was late. HMRC did not object to the lateness of the appeal. We reviewed the correspondence between the parties and between the Appellant and Border Force and considered the test in Martland v HMRC [2018] UKUT 178 (TCC). In the circumstances of this appeal, we grant permission for this late appeal to be brought.

 

the issues and burden and standard of proof

The issues

7.             The issues in this appeal are:

(1)          Whether the Appellant was holding excise goods intended for delivery where the excise duty was not paid pursuant to r13(2)(b) Excise Goods (Holding, Movement and Duty Point) Regulations 2010 (HMDP). [HMRC's skeleton argument confirmed that they were no longer pursuing the argument that the Appellant had been making delivery of excise goods.]

(2)          Whether the Appellant was handling excise goods where the excise duty was not paid, and the associated behaviour was 'deliberate and concealed' pursuant to paragraph 4 Schedule 41 Finance Act 2008 (Schedule 41).

(3)          Whether the Appellant had a reasonable excuse pursuant to paragraph 20 Schedule 41.

(4)          Whether the amount of the Penalty should be reduced - should further reduction be given for the quality of the Appellant's disclosure pursuant to paragraphs 12 and 13 Schedule 41.

(5)          Are there are special circumstances that permit a reduction of the Penalty pursuant to paragraph 14 Schedule 41.

Burden and standard of proof

8.             It is for the HMRC to show that the Assessment and Penalty have been correctly issued ie there are no procedural defects.

9.             It is for the Appellant to show that it is not liable for the Assessment, see s16(6) Finance Act 1994.

10.         It is for HMRC to show that the Appellant is liable for the Penalties.

11.         It is for the Appellant to show that it has a reasonable excuse or that a special circumstance exists.

12.         The standard of proof is on the balance of probabilities.

 

the law

The excise and penalty legislation and case law

13.         The excise and penalty legislation and case law relevant to this appeal was recently set out (with some very helpful summaries) in the First-tier Tribunal decision in Kent Couriers Limited v HMRC [2024] UKFTT 145 (TC) we set out the relevant paragraphs from the passage at [13] to [49]:

 

THE EXCISE DUTY

Introduction

13. Regulation 13 of the Excise Goods (Holding, Movement and Duty Point) Regulations 2010 (SI 2010/593) (the "Regulations") provides as follows:

 "13. —

(1) Where excise goods already released for consumption in another Member State are held for a commercial purpose in the United Kingdom in order to be delivered or used in the United Kingdom, the excise duty point is the time when those goods are first so held.

(2) Depending on the cases referred to in paragraph (1), the person liable to pay the duty is

the person—

(a)  making the delivery of the goods;

(b)  holding the goods intended for delivery; or

(c)  to whom the goods are delivered.

(3) For the purposes of paragraph (1) excise goods are held for a commercial purpose if they are held—

(a)  by a person other than a private individual; or

(b)  by a private individual ("P"), except in a case where the excise goods are for P's own use and were acquired in, and transported to the United Kingdom from, another Member State by P."

14. Regulation 13 of the Regulations was enacted by Parliament in order to reflect Article 33 of Directive 2008/118/EC (the "Directive"), which lays down common rules within the European Union (the "EU") on the holding, movement and monitoring of goods that are subject to excise duty.

15. Article 33 of the Directive provides as follows:

"1. Without prejudice to Article 36(1), where excise goods which have already been released for consumption in one Member State are held for commercial purposes in another Member State in order to be delivered or used there, they shall be subject to excise duty and excise duty shall become chargeable in that other Member State.

2...

3. The person liable to pay the excise duty which has become chargeable shall be, depending on the cases referred to in paragraph 1, the person making the delivery or holding the goods intended for delivery, or to whom the goods are delivered in the other Member State."

.......

17. It may be seen that each of Regulation 13 of the Regulations and Article 33 of the Directive specifies three different categories of person who are liable to the excise duty. Those are:

(1) the person making the delivery of the goods;

(2) the person holding the goods intended for delivery; or

(3) the person to whom the goods are delivered.

.......

"Holding"

20. The leading decision on the meaning of the word "holding" in this context is the decision of the European Court of Justice (the "CJEU") in The Commissioners for Her Majesty's Revenue and Customs v WR (C-279/19) ("WR"), a decision which is binding upon us notwithstanding the United Kingdom's withdrawal from the EU.  The reasons why it is binding upon us despite that withdrawal were set out at some length by Newey LJ (with whom Baker and Snowden LJJ agreed) in The Commissioners for Her Majesty's Revenue and Customs v Perfect [2022] EWCA Civ 330 ("Perfect CA2") at paragraphs [13] to [23] and we do not propose to repeat them in this decision.

21. In WR, the CJEU was asked to consider whether a lorry driver who, at the excise duty point, was found to be in physical possession of goods in respect of which duty had not been paid was liable under Article 33 of the Directive to pay the duty.  In that case, the lorry driver in question had no right to, or interest in, the goods he was transporting and was unaware, and had no reason to believe, that the goods were subject to excise duty. 

22. The CJEU held that:

(1) the word "holds" in Article 33 of the Directive has to be given an autonomous and uniform interpretation across the EU and this means that its meaning has to be determined according to the usual meaning of the term in everyday language, taking into account the context in which it is used and the objectives pursued by the legislation of which it forms part;

(2) the concept of a person who "holds" goods refers, in everyday language, to a person who is in physical possession of those goods and, in that regard, the question of whether the person concerned has a right to, or any interest in, the goods which the person holds is irrelevant;

(3) there is nothing in the wording of Article 33 of the Directive to indicate that the status of the person liable to pay the excise duty, as being "the person holding the goods intended for delivery", depends on ascertaining whether the person is aware, or should reasonably have been aware, that the excise duty is chargeable;

(4) that literal interpretation is borne out by the general scheme of the Directive - for example, the absence of any language requiring the holding of a right or interest or awareness in the provisions of Articles 7(1), 7(2)(b) or 8(1)(b) of the Directive (which impose duty on the person holding goods at the point when they are released for consumption) as compared with the inclusion of language which requires awareness in the provisions of Articles 4(7) and 8(1)(a)(ii) of the Directive (which impose duty on an irregularity during the movement of goods under a duty suspension arrangement). It follows that, where the EU legislature intended an intentional element to be taken into account for the purpose of determining the person liable to pay the excise duty, it had laid down an express provision to that effect in the Directive;

(5) furthermore, limiting the persons who are to be treated as holding the goods for the purposes of Article 33 of the Directive to those persons who are aware, or should reasonably have been aware, that excise duty is chargeable would not be consistent with the objectives of the Directive, which include the prevention of tax evasion, avoidance and abuse.  The objective of the Directive is to ensure that the chargeability of excise duty is identical in all Member States and that the duty can be collected and, to that end, a broad definition of the category of persons liable for the duty is appropriate. Limiting the category to persons who are aware, or should reasonably have been aware, that excise duty is chargeable would make it difficult, in practice, to collect the duty from the persons with whom the tax authorities are in direct contact;

and

(6) in the light of the foregoing, Article 33 of the Directive has to be interpreted as meaning that a person who transports, on behalf of others, excise goods to another Member State, and who is in physical possession of those goods at the moment when they become chargeable to excise duty, is liable for that excise duty, even if that person has no right to, or interest in, the goods and is not aware that the goods are subject to, or have become chargeable to, that excise duty

– see WR at paragraphs [23] to [36].

23. Of course, the Respondents accept that the Appellant did not have physical possession of the alcohol when the excise duty point arose in this case.  However, the question which arises following the decision in WR is the extent to which something other than physical possession can be sufficient to amount to "holding" for the purposes of Article 33 of the Directive and Regulation 13 of the Regulations.

24. There are a number of decisions of the English domestic courts prior to the decision in WR which suggest that de facto or legal control of goods, without physical possession of them, can also amount to "holding" for those purposes - see the Court of Appeal, Criminal Division, in R v Taylor and another [2013] EWCA Crim 1151 ("Taylor") and R v Tatham [2014] EWCA Crim 226 and the Upper Tribunal in Dawson's (Wales) Limited v The Commissioners for Her Majesty's Revenue and Customs [2019] UKUT 296 (TCC) ("Dawson's UT") at paragraphs [131] to [149]. However, these were decisions based on English law whereas it is now clear following the decision in WR that the term "holding" must be given an independent EU law meaning.  As Asplin LJ put it in Dawson's (Wales) Limited v The Commissioners for Her Majesty's Revenue and Customs [2023] EWCA Civ 332 ("Dawson's CA"), all decisions preceding WR need now to be construed "through the prism of the decision of the CJEU in [WR]" (see Dawson's CA at paragraph [66]).

25. The question at issue in Dawson's CA was whether the appellant, which had been assessed to excise duty on the basis that it had physical possession of the goods, could identify a person who should be regarded as "holding" the goods outside the duty suspension arrangement before it did, because then there would have been an earlier excise duty point. The appellant alleged that its supplier, who had never had physical possession of the goods, had had de facto and/or legal control of the goods and was, by virtue of that, "holding" the goods so that the earlier excise duty point arose. It should be observed that the case concerned the application of Articles 7 and 8 of the Directive, as opposed to Article 33 of the Directive.  However, both parties in Dawson's CA agreed - and the Court of Appeal, in any event, held, at paragraphs [70], [97] and [98] - that:

(1) the word "holding" in Articles 7 and 8 of the Directive must be given the same meaning as in Article 33 of the Directive; and

(2) as the Regulations gave effect to the Directive, they needed to be construed in conformity with the Directive.

26. In answering the question of whether an earlier "holder" of the goods could be identified and hence an earlier excise duty point could be established, the Upper Tribunal in Dawson's UT had held, albeit on an obiter basis, that this was a mixed question of fact and law and required the answer to four questions - namely:

(1) who had physical possession of the goods at the time when the alleged earlier excise duty point occurred?

(2) who is the person alleged to have had de facto or legal control over the goods who it is said should be assessed rather than the subsequent holder (if it is the case that it is not appropriate to assess the person who was in physical possession of the goods) and how is that person said to have had control and on what basis was it being exercised?

(3) the time at which the excise duty point arose; and

(4) where the goods were being held at the relevant time

- see Dawson's UT at paragraph [149].

27. In Dawson's CA, Asplin LJ, with whom Arnold and Elisabeth Laing LJJ agreed, agreed that this was a mixed question of fact and law and held that, in each case, the answers to questions (1), (3) and (4) posed by the Upper Tribunal in Dawson's UT were crucial to the determination of whether an earlier "holder" of the goods outside the duty suspension arrangement could be identified and, hence, an earlier excise duty point arose.  Asplin LJ did not comment on question (2) posed by the Upper Tribunal apart from noting that it was not disputed by the appellant in that case.  She went on to say that she expressed no view on the question of whether de facto or legal control of goods, without physical possession, could be sufficient to amount to "holding" for the purposes of the Directive and the Regulations, noting that "[that] issue was not directly before us and may need consideration on another occasion"

– see Dawson's CA at paragraph [72].

28. Such another occasion has in fact recently arisen, in the case of Agniezska Hartleb T/A Hartleb Transport v The Commissioners for His Majesty's Revenue and Customs [2024] UKUT 34 (TCC) ("Hartleb").  In Hartleb, the Upper Tribunal was considering whether the FTT had erred in concluding that an employer was "holding" goods which, at the excise duty point, were in the physical possession of her employee acting in the course of his employment.  In dismissing the appeal, the Upper Tribunal:

(1) referred to the cases cited above as demonstrating that:

(a) the word "holding" in Regulation 13 of the Regulations and Article 33 of the Directive needs to be interpreted consistently across all Member States in the context of the Directive and its objectives and not from the perspective of UK domestic law;

(b) the word should be defined broadly in order to ensure that, so far as possible, the excise duty is collected;

(c) the determination of "holding" is a mixed question of fact and law; and

(d) the four questions identified by the Upper Tribunal in Dawson's UT are "a useful guide in determining who to regard as holder in circumstances where physical possession and de facto and/or legal control are separated as they are in our situation, noting in this regard that the second factor must now be seen in the context of Perfect and WR" - see Hartleb at paragraph [78];

(2) said that the four questions posed by the Upper Tribunal in Dawson's UT were just as applicable in the circumstances of Hartleb - where the appellant was claiming that she should not be liable to duty on the basis that she did not have physical possession and was therefore not "holding" the goods - as it was in Dawson CA and Dawson UT - where the matter in issue was whether there was an earlier excise duty point against which the assessment should have been made;

(3) went on to say the following:

"Although the initial focus, given the scheme and wording of the legislation together with the case law, is necessarily on the physical location of goods so giving weight to physical possession - that is not the end of the matter and a more detailed consideration of the facts is needed"

- see Hartleb at paragraph [82];

(4) identified the fact that, whereas the appellant's employee had had physical possession of the goods at the excise duty point, the appellant herself had had de facto and/or legal control of the goods at that point;

(5) held that, in the circumstances of that case, where the appellant had entered into an arrangement with the manufacturer of the goods for the transportation of the goods by her business and was discharging her obligations under that arrangement by directing her employee to deliver the goods accordingly, it was legally correct and consistent with the operation of the Directive and the Regulations to treat the appellant and not her employee as "holding" the goods. "Put simply, the circumstances in which the Appellant had control outweigh the fact that physical possession of the excise goods was with her employee" - see Hartleb at paragraph [90]; and

(6) referred to passages from the Advocate General's opinion in WR at paragraphs [37] to [39] which suggested that, in the Advocate General's view, where an employee was making a delivery of goods on behalf of his employer and was therefore in physical possession of the goods, it was the employer - with de facto or legal control over the goods - who would be the person liable for the duty and not the employee.

29. We are, of course, bound by the decision in Hartleb. It follows that we are bound to hold that de facto and/or legal control of goods without physical possession of them can be sufficient to amount to "holding" the goods in an appropriate case.  However, that does not mean that de facto and/or legal control of the goods will always be sufficient to amount to "holding" the goods. In each case, it is necessary to consider all of the relevant facts by reference to the four questions set out in Dawson's UT. 

30. Of critical significance in this regard is that it is implicit in the nature of the four questions - and indeed it is explicit in the decision in Hartleb at paragraphs [88] to [90] - that, in a case where physical possession of the goods and de facto and/or legal control of the goods are in separate hands at the excise duty point, we are bound to decide which of the relevant persons is to be regarded as "holding" the goods at that point to the exclusion of the other or others.  It is not possible to treat more than one of the relevant persons as "holding" the goods at that point.  In Hartleb, the Upper Tribunal applied the four questions set out in Dawson's UT to determine whether it was the appellant or her employee who should be treated as "holding" the goods at that point. It did not suggest that both the appellant and her employee could be treated as "holding" the goods at that point.  Similarly, in Dawson's UT at paragraph [147], the Upper Tribunal did not suggest that both the person in physical possession and the person with de facto or legal control of the goods at the excise duty point could be treated as "holding" the goods at that point. It clearly envisaged that one of the persons would be "holding" the goods at that point to the exclusion of the other. We are bound to adopt a similar approach in this case and therefore to consider whether, on the basis of applying the four questions set out in Dawson's UT to the facts in this case, it was the Appellant or someone else - whether Palletways, as the controller of the Network through which the delivery was being made, or the driver of the lorry carrying the goods - who should be treated as "holding" the goods at the excise duty point.  A finding that one of those persons was "holding" the goods at the excise duty point necessarily precludes a finding that the other or others was or were doing so and therefore a comparative  exercise is required in which the position of each potential candidate must be weighed up against the other or others.

.......

THE WRONGDOING PENALTY

Introduction

36. We now turn to the second issue involved in the appeals, namely whether or not the Appellant is liable to the wrongdoing penalty.

37. The legislation relevant to this second issue is set out in Schedule 41 to the Finance Act 2008 ("Schedule 41"). 

38. Paragraph 4(1) of Schedule 41 provides that a penalty is payable by a person (P) where:

(1) after the excise duty point for any goods which are chargeable with excise duty, P acquires possession of the goods or is concerned in carrying, removing, depositing, keeping or otherwise dealing with the goods, and

(2) at the time when P acquires possession of the goods or is so concerned, a payment of duty on the goods is outstanding and has not been deferred.

39. It can be seen that liability for the penalty does not depend on whether P falls within any of the three categories of person set out in Article 33(3) of the Directive or Regulation 13(2) of the Regulations.  Thus, curiously, it is not necessary for P to be liable to the excise duty in question in order to be liable to the wrongdoing penalty in respect of that duty. Instead, it is merely necessary for P to acquire possession of the goods or be concerned in carrying, removing, depositing, keeping or otherwise dealing with the goods.

40. Paragraphs 5 and 6B of Schedule 41 then specify that the amount of the penalty is to be determined by reference to whether P's acquisition of possession of the goods, or P's being concerned in dealing with the goods, was:

(1) "deliberate and concealed", in which case the penalty is 100% of the duty in question,

(2) "deliberate but not concealed", in which case the penalty is 70% of the duty in question; or

(3) neither of the above, in which case the penalty is 30% of the duty in question.

41. Paragraphs 12 and 13 of Schedule 41 then provide for a reduction in the penalty to be made by reference to:

(1) the type of disclosure which P has made to the Respondents;

(2) whether or not that disclosure was "prompted" or "unprompted"; and

(3) the quality of the disclosure.

42. As regards the types of disclosure, paragraph 12(2) of Schedule 41 refers to three different types of disclosure as follows:

(1) telling the Respondents about the act or failure ("telling");

(2) giving the Respondents reasonable help in quantifying the duty unpaid by reason of it ("helping"); and

(3) allowing the Respondents access to records for the purpose of checking how much duty is so unpaid ("giving").

43. As regards whether or not the disclosure was "prompted" or "unprompted", paragraph 12(3) of Schedule 41 provides that a disclosure of an act or failure is "unprompted" if it is made at a time when the person making it has no reason to believe that the Respondents have discovered or are about to discover the relevant act or failure and, otherwise, is "prompted".

44. As regards the quality of disclosure, paragraph 12(4) of Schedule 41 provides that, in relation to disclosure, "quality" includes timing, nature and extent.

45. Paragraph 13 of Schedule 41 specifies the amount of the reduction which is to be made by reference to the matters described in paragraphs 42 to 44 above. In the case of a deliberate but not concealed act or failure, where the standard penalty for a prompted disclosure is 70% of the unpaid duty in question, the penalty can be reduced to 35% of the unpaid duty depending on the quality of the disclosure.  In the case of a non-deliberate act or failure, where the standard penalty for a prompted disclosure is 30% of the unpaid duty in question, the penalty can be reduced to 20% of the unpaid duty depending on the quality of the disclosure.

46. Although it is not set out in Schedule 41, the Respondents' practice is to calculate the reduction in the penalty for the quality of disclosure by allocating a maximum of 30% of the potential reduction for "telling", a maximum of 40% of the potential reduction for "helping" and a maximum of 30% of the potential reduction for "giving". 

47. Paragraph 14 of Schedule 41 provides that the Respondents may reduce the penalty if they consider that "special circumstances" apply.

48. Paragraphs 16 to 19 of Schedule 41 provide that:

(1) an assessment to a wrongdoing penalty is to be treated for procedural purposes in the same way as an assessment to tax;

(2) an appeal against a wrongdoing penalty is to be treated in the same way as an appeal against an assessment to the tax concerned; and

(3) on appeal against the Respondents' decision to assess a wrongdoing penalty, the FTT may affirm or cancel that decision and, on an appeal against the quantum of a wrongdoing penalty, the FTT may affirm the Respondents' decision or substitute for that decision another decision that the Respondents had the power to make.

49. Paragraph 20 of Schedule 41 provides that no liability to a penalty arises in relation to a non-deliberate act or failure if P is able to satisfy the Respondents or, on appeal, the FTT that there is a reasonable excuse for the act or failure. 

We adopt the defined terms from Kent.

The meaning of deliberate

14.         There is no statutory definition of deliberate for the purposes of Schedule 41. We agree with HMRC that the meaning of "deliberate" to be applied in the Appellants' case should follow the principles established by Tooth v HMRC [2021] UKSC 17 (Tooth). In that case at [43], in the context of the Taxes Management Act 1970 (TMA), the Supreme Court said: 

Deliberate is an adjective which attaches a requirement of intentionality to the whole of that which it describes, namely 'inaccuracy'.

15.         The Supreme Court added at [47] (referring to the relevant section of the TMA): 

...for there to be a deliberate inaccuracy in a document within the meaning of section 118(7) there will have to be demonstrated an intention to mislead the Revenue on the part of the taxpayer as to the truth of the relevant statement...

16.         In Hare Wines Limited v HMRC [2023] UK FTT 25 (TC) (Hare Wines) at [121] - [131] the First-tier Tribunal considered the meaning of deliberate in the context of Schedule 41 following the Supreme Court's decision in Tooth, concluding at [131]:

A person is liable to a penalty under Sch 41 if he "acquired possession of...goods on which a payment of duty is outstanding and has not been deferred", with higher penalties charged if that person acted "deliberately". Applying the meaning of "deliberate" as established in Tooth to that statutory context, I find that a person has acted "deliberately" if he intentionally acquires possession of goods knowing that the payment of duty is outstanding, and intentionally does not pay that duty.

17.         Ms Brown also cited another First-tier Tribunal decision: Chohan Management Limited v HMRC [2021] UKFTT 196 (TC) (Chohan) at [112] - [113], as authority for the proposition that "deliberate" included "Nelsonian or blind-eye knowledge".

 

the facts

18.         We set out the majority of our findings of fact in this part of our decision. Most of them require no discussion as they were not in dispute. However, where they were in dispute we provide the reasons for our findings below. We also make some findings of fact in other parts of this decision where it is clearer to do so.

The facts not in dispute

19.         The Appellant is a Polish registered haulage company. The sole owner of the company is Mr Podgorski. The Appellant is a small business originally having three vehicles but it now has two as it has sold one.    

20.         On 20 January 2020 UK Border Force (BF) officers stopped a vehicle and trailer at Coquelles, France. Mr Bartolmiej Szcepan Solyga (the Driver) was driving the vehicle which had a trailer attached (the Vehicle). The paperwork for the load stated he was carrying 36 drums of overhead line (the Cable Reels) on 18 pallets. The BF officers conducted a search of the vehicle and trailer and discovered 1,583,500 mixed brand cigarettes concealed within the Cable Reels (the Cigarettes). The Cable Reels had been wrapped with blue plastic cellophane with an NKT logo on and secured with a white security tie. To gain access to the Cigarettes the BF officers had to remove the screws and bolts holding the Cable Reels together. We refer to the Cable Reels concealing the Cigarettes as the Load.  

21.         The Driver handed over the paperwork he had which was a CMR, a packing list and a certificate relating to the cables. The details on the CMR were:

(1)          Consignor: NKT S.A. - in Warszowice, Poland (NKT SA).

(2)          Consignee: Cleveland Cable Company - in Middlesborough.

(3)          Carrier: the Appellant.

(4)          Delivery address: Cleveland Cable Company - in Milton Keynes. 

(5)          Nature of the goods: 18 pallets, 36 drums of overhead line.

(6)          Collection address: in Warszowice, Poland.

22.         The Driver was arrested and interviewed by BF officers.

23.         The Driver was employed by the Appellant from on or around 10 June 2013 until on or around 31 March 2020.

24.         The seizure of the Vehicle, Cable Reels and Cigarettes was not challenged.

25.         BF dealt with the seizure of the Vehicle and refused a restoration request. A review of that decision was requested but it was deemed upheld because BF did not complete its statutory review in time.

26.         The matter was also referred to HMRC, that referral was dealt with predominantly by Officer Weir.   

27.         In November and December 2020 Officer Weir was in contact with Mr Michael Hvidt the Ethics & Compliance Officer for NKT Cables Group (NKT). Consequently, Officer Weir concluded that NKT SA as the 'Consignor' was in no way involved in the movement of the Cigarettes and their details had been hi-jacked. That correspondence gave numerous reasons why this was the case including: NKT SA did not deliver to the UK; the wrapping of the Cable Reels did not reflect how NKT SA would repackage the relevant cables if repackaging was required (as shown in the pictures provided by NKT); the lengths of cable stated to be on the Cable Reels were unlikely to be rewound and repackaged; the product codes used were for products typically produced outside of Poland (as shown in pictures provided by NKT); the drum numbers on the paperwork did not match the number format that NKT SA uses (as shown in pictures provided by NKT); NKT SA vehicles were weighed on entry and exit and so any discrepancy would have been picked up; described the detailed security measures in place at NKT SA; and the packing list and CMR did not match authentic NKT SA packing lists and CMRs (as shown in the pictures provided by NKT).  However, we note that it did confirm that NKT SA sells the type of cable on the Cable Reels.

28.         An employee of the Cleveland Cable Company provided a witness statement that explained that the 'Consignee' had no knowledge of the movement or the Cigarettes. The witness did confirm that the Cleveland Cable Company had dealt with NKT SA the 'Consignor' in 2013. Officer Weir decided not to contact the Cleaveland Cable Company as he had concluded that the 'Consignee' was in no way involved in the movement of the Cigarettes.

29.         Officer Weir also concluded, based on his interview with BF officers, that the Driver was not involved in the smuggle.

30.         The conclusion of that referral was the issue of the Assessment and the Penalty.

31.         The Appellant has not previously been involved in any seizures.

 

Correspondence

32.         Following the seizure of the Appellant's Vehicle there was correspondence and attempted correspondence between the Appellant and BF and the Appellant and HMRC. In some instances the Appellant had difficulty sending what it wanted to send electronically because: it had technological difficulties with the file size; or it or its representatives did not complete the correct form of authority to communicate with HMRC electronically. It is not necessary to rehearse all of the details of that correspondence. However, it was agreed that the Appellant wrote letters to BF/HMRC on 22 April 2020, 24 June 2020 and 14 January 2021 explaining its position in relation to the seizure of its Vehicle which was the same as its position in relation to the Assessment and the Penalty. Relevantly the Appellant says and HMRC accepts that it re-sent those letters to Officer Weir for him to consider on 8 March 2021 as part of his investigation. However, HMRC say and the Appellant accepts that those letters did not reach Officer Weir personally.  

 

Witness evidence

Mr Podgorski's evidence

33.         The parties proceeded on the basis that as the sole owner of the Appellant Mr Podgorski was in effect the Appellant. Therefore, what Mr Podgorski knew is crucial to our determination of the appeal against the Penalty.

34.         Mr Podgorski's evidence was:

(1)          The Driver was acting in the course of his employment by the Appellant.

(2)          He accepted that NKT SA and the Cleaveland Cable Company had had their details hi-jacked and they were not involved in the smuggle.

(3)          The Appellant's drivers, including the Driver, undertook anti-smuggling training which covered excise goods. The Appellant had undertaken checks on the Driver and his paperwork was in order. Mr Podgorski was aware of the details of the anti-smuggling training.     

(4)          On 15 January 2020 the Appellant accepted a booking from a well-known online portal that it frequently used for obtaining work. At the relevant time anybody could use the website but now you need to have a verified account to use the website. A short description of the job was on the portal however the finer details were agreed during a phone call between Mr Podgorski and a man called Wiktor. Mr Podgorski did not know Wiktor's surname. Mr Podgorski was not entirely clear who Wiktor worked for but was under the impression that he was some sort of sub-contractor for NKT SA as he transported a lot of loads for them although he accepted that he did not know precisely who Wiktor worked for. The reason given for the job was that Wiktor's vehicle had broken down and delivery was due by 21 January 2020 to the Cleaveland Cable Company.  

(5)          The Load had been moved from Wiktor's trailer to the Appellant's trailer.

(6)          That NKT SA were a big company in Poland that produced different types of cable. Further, Mr Podgorski had googled both NKT SA and the Cleaveland Cable Company and he was satisfied that they were big reliable companies and that is why he agreed to take the Load. He did not have evidence of these searches as he does not know how to archive a Google search.

(7)          Before the Driver collected the Load the Appellant received a booking confirmation document via post from Wiktor.  The booking confirmation document relevantly states:

(a)          Collection was of a semi-loaded trailer from a Shell parking lot in Swiecko between 6pm - 10pm on 18 January 2020.

(b)         The contact was Wiktor and a phone number is provided for Wiktor.

(8)          That at the relevant time lots of bookings were accepted without much detail. However, the detailed documentation including the CMR could be checked against the loads on collection which was what happened generally and what had happened here.

(9)          Mr Podgorski said that the lack of information about Wiktor/who Wiktor was working for was in part why he asked the Driver to undertake some more detailed checks. When asked whether he was suspicious of what was going on Mr Podgorski said in effect that he was always slightly suspicious because they are responsible for the load, the most important thing was that the load is what it is supposed to be according to the specifications. Mr Podgorski explained that the envelope that had contained the booking confirmation document had had Mr Wiktor's address on it but he no longer had the envelope.

(10)      The Driver had provided photos of Cable Reels on accepting the Load on 18 January 2020. Before setting off the Driver had called Mr Podgorski to confirm that he had checked the documents and the Load. Further that this was the limit of checks the Driver could undertake: he was not permitted under Polish law to break down the Load in any way. For example, to take the blue cellophane off the Cable Reels.

(11)      He had not seen the CMR or other documents the Driver collected before the seizure.

35.         Ms Brown challenged parts of Mr Podgorski's evidence and drew out some apparent inconsistencies in his evidence, as follows:

(1)          She put it to Mr Podgorski that Wiktor was a fabrication, or that at the very least there were suspicious circumstances surrounding the Load and that Mr Podgorski had turned a 'blind eye'. Mr Podgorski did not accept either point.

(2)          She highlighted that in a letter dated 14 January 2021 from Mr Podgorski he said that the 'ordering party' had picked up the Load on 18 January 2020. This appeared to be inconsistent with the position that Wiktor had the Load on 15 January 2020.

(3)          She pressed Mr Podgorski as to whether the job he accepted could really be described as urgent. This was on the basis that Wiktor's vehicle had broken down on 15 January and the Driver did not collect the Load until 18 January. Ms Brown also asked why, if the job was urgent, wasn't anything emailed or texted to Mr Podgorski. Mr Podgorski's explanation was that the arrangements made meant that the Load could reach the Cleaveland Cable Company in time.

(4)          She highlighted that the CMR:

(a)          did not have any details for Wiktor or his company in Box 16 which is the for the carrier's details, which you would expect given he was the original carrier; and

(b)         provided that the original collection from NKT SA was on 17 January 2020 which did not fit with Mr Podgorski's evidence that he had identified the job on 15 January 2020 by which point Wiktor had the Load.

Further, that these points should have raised concerns about the circumstances surrounding the Load. Mr Podgorski agreed but pointed out that the Driver had raised no concerns with the CMR and he had not seen the CMR until after the seizure.

(5)          She again took Mr Podgorski to the letter dated 14 January 2021 that said:

When the driver did not arrive at the place of unloading and I had no contact with him, I was very concerned. The client called me several times asking why the cargo did not arrive. When the driver called me and told me what was going on, I couldn't believe it. I called the client and told him what had happened. He assured me that it was impossible, that it was somehow a mistake.

Then to a letter dated 22 April 2020 from Mr Podgorski that said:

Unfortunately, it was only after stopping the driver and the vehicle that I tried to contact the customer, who has not picked up to this day and I have not contacted him so far.

 

Ms Brown made the point that Mr Podgorski had given inconsistent accounts about whether he had spoken to Wiktor after the seizure. In his oral evidence Mr Podgorski was clear that he had not spoken to Wiktor after the seizure. The explanation he offered for the discrepancy was that the translations of the letters were not perfect.

(6)          She pointed to a letter dated 7 December 2022 from Mr Podgorski to HMRC saying:

The load was fully sealed when arrived to my place to be loaded onto my lorry.

and made the point that this was inconsistent with Mr Podgorski's previous evidence that the Load had been collected at a Shell petrol station ie not at his premises. Mr Podgorski said that this was not what he meant, he had been trying to convey that the Cable Reels had been professionally packed when they arrived at the designated place for collection (the Shell garage).

(7)          She also pointed out that the logos on the packing list and the certificate were different. Mr Podgorski accepted this and said that he had no explanation for why this was and pointed out again that the Driver had not reported this to him and he was not aware of this until after the seizure. Further that the date of the certificate was 2016.  

36.         Ms Brown's points go to the credibility of Mr Podgorski. Where possible we resolve these points by reference to the relevant documents.   

37.         We will deal first the point about whether Mr Podgorski spoke to Wiktor after the seizure or not. The inconsistency that Ms Brown highlights is in the English versions of the letters which were translated from Polish. The letter of the 22 April 2020 accorded with Mr Podgorski's evidence during the hearing (that he had not spoken to Wiktor after the seizure). Therefore, we understood Mr Podgorski's issue with translation to be in relation to the letter of 14 January 2021. The point being made in the excerpt of the letter of 14 January 2021 above (relating to phone calls) is not a subtle point: it clearly recalls a number of conversations that must have occurred after the seizure, that is quite different to saying that there had been no contact at all. Further, Mr Podgorski confirmed that this particular letter had been translated by someone from the 'translation office' and that he always used translators from the 'translation office'.  Therefore, on balance, we accept Ms Brown's point that Mr Podgorski's evidence was inconsistent with what he had written in the letter of 14 January 2021.

38.         We do not accept on Ms Brown's 'ordering party point'. That is because when you read the relevant paragraph in full it rehearses that Mr Podgorski found the relevant offer of work on 15 January 2020 and goes on to state that the 'ordering party' had picked up the load on 18 January 2020 ie the letter is inconsistent with itself. In our view that it indicative of an error within the letter rather than demonstrable inconsistency on Mr Podgorski's part. Nor do we accept Ms Brown's point in relation to the 7 December 2022 letter. We note that the translation of this letter is markedly less sophisticated than the translation of eg the letter of 14 January 2021 (for example there are numerous grammar and spelling issues). Bearing that in mind we accept Mr Podgorski's explanation that is borne out in other documents for example the booking confirmation document as to what he was trying to convey.

39.         We do not accept Ms Brown's point about the urgency of the job. Ultimately, whether a job is urgent or not is a matter of opinion. On one view the nature of the job was urgent because the original transport had broken down. Another view is that given there were a number of days to sort out the problem the job was not urgent.

40.         In relation to the difference in the logo on the packing list and the certificate Mr Hvidt confirmed in correspondence with Officer Weir that the certificate was genuine and available on NKT's website. The logo on the packing list matches that on the correspondence from Mr Hvidt.  Therefore, we do not consider this point has any merit.

41.         We now consider HMRC's allegation that Wiktor does not exist. That allegation carries with it the conclusion that Mr Podgorski was central to the smuggle: Officer Weir classifies the Appellant's behaviour as deliberate on the basis that the Appellant was, through Mr Podgorski, acting on its own behalf. We consider that question in the context of what we have heard, including: the lack of phone records of Mr Podgorski's calls with Wiktor; the fact that the envelope with Wiktor's address is not available; Mr Podgorski's inconsistent evidence about whether he spoke to Wiktor after the seizure or not; the points that Ms Brown highlighted in relation to the CMR (see above). Most of these points focus on the lack of information available in relation to Wiktor. On HMRC's own case this smuggle involved the hijacking of two well established company's details, who had in fact dealt with each other previously. If Mr Podgorski was central to what appears to be a  sophisticated and high value smuggle it is wholly incongruous that when it came to his/the Appellant's involvement in the smuggle he would leave the Appellant so exposed ie that there would not be a similarly sophisticated smoke screen at least attempting to protect the Appellant. For example, why not hijack another company's details, why allow any inconsistencies on the CMR (which on HMRC's case Mr Podgorski would have had to produce). Therefore, on balance we find that Wiktor did exist.

42.         We turn now to Mr Podgorski's credibility. For the reasons set out above we have found that Mr Podgorski gave inconsistent evidence on one point. That does not mean that we should treat all his evidence as inconsistent or untrue. Notwithstanding the one point of inconsistency, we generally found Mr Podgorski to be an honest witness. For example Mr Podgorski accepted some points that were not helpful to the Appellant's case: there were some unusual circumstances surrounding the Load which was why he had asked the Driver to take photos of the Cable Reels; that it would have been prudent to undertake further checks about what was being transported before agreeing to provide transport; that on reflection he should have undertaken more due diligence in relation to Wiktor; and that the Driver was working in the course of his employment. Further, nothing shown to us by HMRC suggested that the Driver had raised any concerns with the Load which was consistent with Mr Podgorski's evidence.

43.         In light of the forgoing, except where we specify otherwise, we accept Mr Podgorski's evidence set out above as fact.  

Officer Weir's evidence

44.         We found Officer Weir to be an honest witness.

45.         Mr Bromelow's cross examination of Officer Weir focussed on:

(1)          Challenging whether Officer Weir's investigations into the circumstances around the seizure were sufficient. In particular that Officer Weir had simply accepted what the Cleaveland Cable Company and NKT had said and not probed them further in light of various facts, for example that various details on the sample CMR provided by NKT matched the CMR handed over by the Driver the point being that whoever had prepared all the details/documents appeared to know that the two companies had done business before. Further, that NKT had asked what information they could provide so that Officer Weir would be satisfied that there were not involved in the smuggle and he had provided that information along with lots of other information about his investigation, including details of the Driver's interviews. Mr Bromelow's point being that it was unusual to provide to someone under investigation with this kind of information. Officer Weir maintained that his investigations were sufficient.

(2)          Establishing that Officer Weir had not personally received copies of correspondence dated 22 April 2020, 24 June 2020, and 14 January 2021 from the Appellant that outlined its case and so he had not taken them into account when deciding to issue the Assessment and the Penalty.

(3)          Ascertaining how Officer Weir had established the number of cigarettes seized.

 

The Driver

46.         HMRC's case relies on a number of summaries of things said by the Driver. However, we neither heard nor saw (in the form of a witness statement) any evidence from the Driver. The hearing bundle did contain some notebook entries from BF officers and some witness statements from BF officers reporting what the Driver had said however this detail was minimal and did not cover the material relied on by HMRC. Therefore, we are not prepared to place any weight on those summaries. Our caution is supported by the fact that a summary of the Driver's interviews that Officer Weir sent to NKT via email at 12:52 on 5 November 2020 explains that the Driver when asked if he had been set up by his boss replied that he did not know. However, in HMRC's Statement of Case the Driver is reported as speculating that the Cigarettes had been placed in the Vehicle for revenge as the Driver was divorcing Mr Podgorski's daughter. It is clearly not possible to reconcile these two statements.

 

outline of the parties' case

47.         We set out below an outline of the parties' cases. Our discussion explains the parties' positions more fully.

HMRC's case

48.         HMRC say that the Appellant's appeal should be dismissed for the following reasons:

(1)          The Assessment was validly raised.

(2)          The Appellant was holding the Cigarettes and so is liable to the excise duty set out in the Assessment pursuant to r13(2)(b) HMDP.

(3)          The Penalty was validly raised.

(4)          The behaviour underpinning the Penalty was correctly classified as 'deliberate and concealed' therefore reasonable excuse if not available.

(5)          The reduction of the Penalty amount was correct in the circumstances.

(6)          There are no special circumstances in this case.

The Appellant's case

49.         The Appellant says that:

(1)          It is an innocent agent, that is it did not know (it did not have actual or constructive knowledge) that it was involved in a smuggle and in particular that the Cable Reels concealed the Cigarettes which means, for the reasons set out fully below, it cannot be liable for the Assessment (it was not holding the Cigarettes) or the Penalty (it has a reasonable excuse).

(2)          HMRC have not established all the elements of r13(2)(b) HMDP and consequently the Appellant is not liable for the Assessment.

 

discussion and findings

The Assessment

50.         Mr Bromelow's skeleton argument quotes Qais Majeed Ali v HMRC [2024] UKUT 176 (TCC) (Qais Majeed Ali) at [7] - [13], with a particular reliance on [10] and says:

(5) ... It is the case of the Appellant that given it is unknown as to where the excise goods were released for consumption and that it cannot be established that this was in a Member State.

(6) The duty point for the Respondent [sic] appears to currently be stated to be a Member State, this though is not specified and there is no evidence over and above that the goods have Belarusian Duty Markings.

(7) Given this the Appellant challenges the ability of the making of an assessment as the Respondents cannot show when, how, where and by whose acts the excise duty point occurred.

The excerpt from Qais Majeed Ali discusses the principle that HMRC must assess against the first duty point that they can establish on the evidence before them (referring to both B & M Retail Limited v HMRC [2016] UKUT 429 (TCC) and Davison & Robinson Limited v HMRC [2018] UKUT 437 (TCC) (Davison & Robinson)). It goes on at [10], in the context of multiple duty points, to refer to Davison & Robinson at [67] which provides that HMRC can only make an assessment for a prior excise duty point if they have the necessary information and absent that information it must assess the person holding the goods. It then outlines the points which a person would have to show in order to successfully challenge an assessment on the basis that there was an earlier excise duty point by reference to the Dawsons UT and Dawsons CA decisions. Mr Bromelow's submissions simultaneously considered the elements of r13(2)(b) HMDP and whether there are multiple excise duty points. We will deal with both.   

Earlier duty point

51.         Insofar as Mr Bromelow's points relate to an earlier excise duty point against which HMRC should have assessed they cannot succeed. That is for the reasons set out in Hartleb at [123] - [130], in particular [129] which provides:

As the goods were first held outside a duty suspension arrangement in Poland, they will have been released for consumption at that time in Poland.  What Reg.13(1) seeks to identify is the first excise duty point in the UK and it looks therefore to the first time at which the goods are held for a commercial purpose in the UK.  The excise duty point for the purpose of Reg.13 is, consequently, not the release for consumption by Mr Drodz in Poland, it is the entry of the goods into the UK.   

This point holds good notwithstanding that on the facts of this case it is not known when or where the Cigarettes were first held outside a duty suspension arrangement in another Member State (and so released for consumption in another Member State). It is as Ms Brown says: they were at the very least held outside a duty suspension arrangement in France as this is the only route through which they could have arrived at Coquelles (and so were released for consumption in another Member State).    

Holding

52.         It was common ground that the Cigarettes were not excise duty paid.

53.         In light of the above the only element of r13(2)(b) HMDP that remains for us to consider is the issue of whether the Appellant was holding the Cigarettes for the purposes of r13(2)(b) HMDP.

54.         As set out above in WR the CJEU made it clear that the starting point for who is considered holding for the purposes of r13(2)(b) HMDP is the person with physical possession of the relevant goods. In this case the Cigarettes were in the physical possession of the Driver and not the Appellant.

55.         Following Hartleb, there are circumstances in which a person not in physical possession of goods can properly be considered as holding the goods pursuant to r13(2)(b) HMDP. HMRC say the facts of this case are on all fours with Hartleb.

56.         The Appellant seeks to argue that the fact that it is an innocent agent prevents it from being liable under the principles in Hartleb. We agree with Ms Brown that this is not permissible. Following the decision in Perfect CA2 and WR knowledge is no longer a requirement for liability based on holding under the HMDP. The Upper Tribunal also makes this clear in Hartleb at [120] and [121].

57.         Before expressing our conclusion on the application of the four factors originally set out by the Upper Tribunal in Dawson UT and more recently in relation to holding in Hartleb it is useful to consider the Appellant's approach to those four factors. The Appellant approaches the test as it is laid out in Dawson UT that is to consider whether there is an earlier excise duty point against which HMRC could have assessed. For the reasons set out above that cannot assist the Appellant and therefore is not the test to apply in this case.  

58.         We agree with the First-tier Tribunal's approach in Kent. That is before turning to the four factors we must consider the position of each potential holder identified by the parties in this case: the Appellant, the Driver, NKT SA, the Cleaveland Cable Company and Wiktor:

(1)          The Appellant does not suggest that the Driver was liable or complicit in the smuggle such that he had legal and/or de facto control. We have not seen or heard anything that warrants us disturbing that position.

(2)          We heard no arguments or evidence from either party, unlike in Kent, about the position with regard to legal control in light of the CMR nor the contract between the Appellant and Wiktor. Therefore, we make no finding about legal control.

(3)          Insofar as NKT SA and the Cleaveland Cable Company, Mr Bromelow submitted that the various issues he had pointed out with Officer Weir's investigation went into the basket of evidence when considering the test in Hartleb. However, Mr Podgorski when giving evidence accepted that NKT SA and the Cleaveland Cable Company's details had been hijacked and Mr Bromelow confirmed that this was the Appellant's position in submissions. Therefore, there is nothing to suggest that either NKT SA or the Cleaveland Cable company had legal or de facto control of the Load.  

(4)          Mr Bromelow submits that the Appellant never took control of the Load as he was merely the innocent agent for the person who arranged transportation ie Wiktor (Mr Bromelow clarified during the hearing that he was not suggesting that the Appellant was a contractual agent). However, for the reasons set out above that cannot assist: the state of the Appellant's knowledge is not relevant to the question of holding. Further, on the basis of what we have heard our starting point is that the Appellant was the person with de facto control of the Load as it was able to determine where it was transported by directing its employee who was driving the Vehicle (which belonged to the Appellant). We did not hear anything about the relationship between the Appellant and Wiktor that disturbs this position.

These conclusions also deal with Mr Bromelow's criticisms of Officer Weir's investigation and decision making (set out in the Officer Weir's evidence section above) insofar as they are relevant to the question of who was holding the Cigarettes. We do not have a general supervisory jurisdiction and we heard no arguments that we have a supervisory jurisdiction on the basis of the provisions relevant to this appeal.

59.         The application of the four factors is straight forward:

(1)          Physical possession is with the Appellant's employee (Factor 1).

(2)          The Appellant had de facto control of the Load for the reasons set out above (Factor 2).

(3)          There is no difference in timing between duty points between the Appellant and the Driver - this was when the Cigarettes were first so held in the UK, which was when they arrived in Coquelles on the Vehicle (Factor 3).

(4)          The location of the Cigarettes was the same - in this case on the Vehicle (Factor 4).

60.         As the Upper Tribunal in Hartleb explained at [88]:

It is then necessary for us to consider the circumstances in respect of which the Respondents contend that the Appellant (the person in control) rather than the employee (the person with physical possession) should be regarded as holder and whether those circumstances outweigh the Appellant's lack of physical possession. 

61.         Therefore, like the appellant in Hartleb at [89] the Appellant had entered into an arrangement with the Wiktor for the transportation and delivery by its business of the Load and was discharging its obligations under that arrangement by directing the Driver (its employee) who was driving its Vehicle to Deliver the Load. Therefore, the circumstances in which the Appellant had control outweigh the fact that physical possession of the Load was with the Driver and consequently it was holding the Cigarettes pursuant to r13(2)(b) HMDP.

 

The Penalty

62.         The parties proceeded on the basis that the Appellant was within the wide ambit of paragraph 4(1) Schedule 41. We agree with that position.

Quality of behaviour

63.         We agree with the analysis of the First-tier Tribunal's decision in Hare Wines at [121] - [131] therefore the Appellant will have acted "deliberately" if it intentionally acquired possession of goods or was concerned in carrying, removing, depositing, keeping or otherwise dealing with the goods knowing that the payment of duty is outstanding, and intentionally does not pay that duty.  

64.         HMRC's primary case that the Appellant's behaviour was deliberate was on the basis that the Appellant was acting, through Mr Podgorski, on its own behalf ie Wiktor did not exist. That argument cannot succeed because we have found that Wiktor did exist.

65.         Proceeding on the basis that Wiktor did exist HMRC say that the Appellant's behaviour was deliberate and concealed HMRC:

(1)          Highlight that the Cigarettes were concealed.

(2)          Say that the Appellant's contact with Wiktor was suspicious, including that the contact was made through an online portal and although the job was described as urgent it was not.

(3)          Submit that there is no evidence of the Appellant's due diligence around Wiktor despite it being the first time they had dealt with him.

(4)          Say that there was inconsistent evidence about where the Load was collected. Further the Driver said that his instructions changed during the course of his journey to collect the Load. The evidence about the collection of the Load did not match the CMR.

(5)          Remind us that there is inconsistent evidence about whether Mr Podgorski spoke to Wiktor after the seizure or not.

HMRC then invite us to conclude that these factors contradict the Appellant's case that it was unaware of the true nature of the Load and therefore it acted with the necessary intention as per the Hare Wines formulation we set out above. HMRC go on to say that at the very least the Appellant turned a "Nelsonian or blind-eye" and this satisfies the requirements for deliberate behaviour. These are subjective tests.

66.         We explain above why we do not accept HMRC's points about inconsistency of where the Load was collected nor whether or not the job was urgent. For the reasons set out above we do not accept HMRC's submissions insofar as what the Driver said about his changing instructions.

67.         We have accepted Mr Podgorski's evidence that he frequently used the portal he used on this occasion to obtain work. Further that often bookings were accepted without much detail but that loads could be checked against detailed documentation on collection. We also note that the Appellant had not been subject to any previous seizures.

68.         Mr Podgorski did accept that some of the circumstances around the Load were suspicious and that is why he had asked the Driver to check the Load carefully and take photographs. We note that although they are not precisely the same that the photographs provided by NKT of its wrapped cable reels and the photographs that the Driver sent to Mr Podgorski of the Cable Reels look remarkably similar and the logo on the Cable Reels matches that on the correspondence from Mr Hvidt. Further we note that in his letter dated 14 January 2021 appended to his witness statement Mr Podgorski explains that the Load matched the details on the packing list (this is not something that HMRC disputed despite having access on seizure of the Load to the packing list and the Cable Reels). We have also accepted Mr Podgorski's evidence that: from his perspective the most important thing was that loads matched the paperwork; and on this occasion that the Appellant did not believe it could break down the Cable Reels eg by taking the blue cellophane off which would have permitted discovery of the Cigarettes. Mr Podgorski was also open about the fact that his due diligence had focussed on the NKT SA and the Cleaveland Cable Company who it has been borne out in HMRC's evidence were both legitimate companies. On this point we note that although Mr Podgorski accepted that he should have checked more carefully about who Wiktor was working for he had initially understood that Wiktor was a sub-contractor for NKT SA, and we note that the booking confirmation document bears an NKT SA stamp.     

69.         Mr Bromelow did not seek to argue that the Appellant was not fixed with the knowledge (of the Driver) that the CMR was inaccurate about the place and date of collection, nor that Box 16 did not contain Wiktor's details. Mr Podgorski accepted that these discrepancies raised additional concerns about the Load. We do note however, that in his letter dated 14 January 2021 (referred to above) Mr Podgorski explained that he had not been prepared to use Wiktor's trailer, HMRC did not challenge this. It does not make sense to us why the Appellant would insist on using its own trailer if it knew that the Load involved a smuggle.  

70.         On balance, we are satisfied that the Appellant has shown that it genuinely attempted to find out more about the circumstances of the Load and proceeded on the basis of its checks. Therefore, we are not satisfied that HMRC have shown that the Appellant intentionally acquired possession of goods or was concerned in carrying, removing, depositing, keeping or otherwise dealing with the goods knowing that the payment of duty is outstanding, and intentionally does not pay that duty ie that the Appellant's behaviour was deliberate. This conclusion also disposes of HMRC's submissions on "Nelsonian or blind-eye" knowledge.

71.         Our conclusion that the Appellant's behaviour was not deliberate means that reasonable excuse pursuant to paragraph 20 Schedule 41 may be available to the Appellant. Reasonable excuse in an objective test.

Reasonable excuse

72.         There is no statutory definition of reasonable excuse. However, the Upper Tribunal in Christine Perrin v HMRC [2018] UKUT 156 at [81] sets out a useful approach for us to take, as follows:

(1)          First establish what facts the Appellant asserts give rise to a reasonable excuse.

(2)          Second decide which facts are proven.

(3)          Third decide whether, viewed objectively, those proven facts do indeed amount to an objectively reasonable excuse for the default for this taxpayer in those circumstances and the time when that objectively reasonable excuse ceased.

(4)          Decide whether once the reasonable excuse ended whether the taxpayer remedied the failure without unreasonable delay.

73.         The Appellant says that it is an innocent agent and therefore it has a reasonable excuse. However, we agree with the First-tier Tribunal's conclusions in Kent at [63] that in Perfect v HMRC [2019] EWCA 465 the Court of Appeal did not rely solely on the fact that Mr Perfect was an innocent agent to uphold the Upper Tribunal's decision that Mr Perfect had a reasonable excuse.

74.          Even proceeding on the basis that the Appellant is an innocent agent we cannot agree that it has a reasonable excuse. That is because we do not consider that it was objectively reasonable for the Appellant to proceed with the transportation of the Load without conducting any due diligence on Wiktor who had provided little to no details about himself, including ascertaining who he was working for and especially given the unusual nature of some of the arrangements (for example collecting the Load from a petrol station).

Reduction for disclosure

75.         The standard penalty for a prompted disclosure where the behaviour is not deliberate is 30% of the unpaid excise duty, see paragraphs 5, 6B and 10 Schedule 41.  

76.         Such penalties must be reduced according to the quality of disclosure the statutory minimum in this case is 20% see paragraphs 12 and 13 Schedule 41. There is no statutory provision as to how officers are to apply such mitigation. However, HMRC takes the following approach: 

(1) 30% reduction may be applied for Telling;

(2) 40% reduction may be applied for Helping; and

(3) 30% reduction may be applied for Giving.

Mr Bromelow took no issue with this approach.

77.         HMRC applied the following reductions:

(1) 0% for Telling because the Appellant had not responded to HMRC's enquiries;

(2) 40% for Helping because no helping was required;

(3) 30% for Giving because no giving was required.

HMRC's case was that in the circumstances the reduction given was generous. Although Mr Bromelow made no particularised submission about the reduction as set out above HMRC accepted that the Appellant sent copies of its letters of 22 April 2020, 24 June 2020 and 14 January 2021 to Officer Weir on 8 March 2021 telling HMRC what its version of events was. Therefore, we consider that some reduction should be given for 'Telling'. Those letters have assisted in some respects in determining issues to do with the Penalty, and we agree with HMRC that the reduction given already is generous. Therefore, we consider that a 15% reduction for 'Telling' is appropriate, with the consequence that an 85% reduction should be applied.         

Special circumstances

78.         Finally, we are satisfied that there is nothing to warrant a special reduction to the Penalty pursuant to paragraph 14 Schedule 41.

 

conclusion

79.         For the reasons set out above:

(1)          The Assessment is upheld.

(2)          The Penalty is affirmed but varied to reflect our decision that the Appellant's behaviour is prompted but not deliberate and the greater reduction percentage for quality of disclosure. Any party has liberty to apply to the Tribunal for determination of quantum of the varied Penalty should the parties not agree what it is.

 

Right to apply for permission to appeal

80.         This document contains full findings of fact and reasons for the decision.  Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.  The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to "Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)" which accompanies and forms part of this decision notice.

 

Release date: 17th JUNE 2025

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