E01051

RDCO Scheme – Revaluation of previous approval for RDCO trading – appeal against decision to review – appeal dismissed

LONDON TRIBUNAL CENTRE					REF. LON/05/8085

GAVIN VALLELY	           Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS

Respondents

Tribunal	:	IAN W HUDDLESTON (Chairman)
A. HENNESSEY

Sitting in public in Belfast on 15th June 2007
Mr. C. Gibson BL for the Appellant 
Mr J. Puzey, BL for the Respondents

© CROWN COPYRIGHT 2007

DECISION

	The Appeal

1.	The Appellant’s appeal is against a review decision issued pursuant to Section 15 of the Finance Act 1994 (“FA”) confirming an earlier decision to revoke the approval and registration of the Appellant as a registered dealer in control of oils (“RDCO”) under the Registered Dealer in Controlled Oils Scheme (“the RDCO Scheme”).  The original decision was notified to the Appellant by a letter dated 8th March 2005.  The review decision (which is the decision for consideration by this Tribunal) was notified to the Appellant by a letter dated the 28th June 2005.

	Background
2.	At the relevant time, in 2003, the Appellant traded from premises at Seacon Service Station, 109 Newbridge Road, Ballymoney, County Antrim, BT53 6QN.  He also has carried on a similar trade from fuel stations at Craigantlet, Millisle and Newry Street Service Station, Newtownhamilton, which were taken over by him at various later stages.

3.	The Appellant at the relevant time carried on business (amongst other things) as a supplier of marked rebated gas oil (“MGO”, commonly known as red diesel) and marked rebated kerosene/paraffin (ie. home heating oil), being “controlled oils” within the meaning of Section 27 of the Hydrocarbon Oil Duties Act 1979 (“HODA”).

4.	On the 10th August 2003 the Appellant applied to the Respondents for approval to become a registered dealer in controlled oils under the RDCO Scheme. 

5.	On the 26th September 2003, as part of the standard approval process, officers from HM Customs & Excise visited the Appellant’s premises at Seacon Service Station, 109 Newbridge Road, Ballymoney, County Antrim, BT53 6QN and conducted an arranged interview with the manageress, Ms. Angela Cooper.  During this visit it was established that the Appellant had taken over the business with effect from the 22nd June 2003 and had been supplying marked gas oil since that date.  At the visit, Mrs. Cooper was advised that the business was not allowed to receive any further supplies of MGO until the approval had been given, but that the business could, however, sell the MGO stock which was in hand.

6.	On the 13th November 2003 the Appellant was granted approval to operate as a registered dealer in controlled oils under the RDCO Scheme and was issued with a Certificate to that effect and ascribed the registration number 3932 7603.  Evidence was given that at the same time as the approval was issued the Appellant was given a copy of information booklet Notice 192, which effectively provides Customs’ requirements for those who operate under the RDCO Scheme.  It is worthwhile pointing out at this point that the Approval Certificate makes specific reference to the detail of Notice 192 and, specifically in relation to the requirement for the submission of returns, states as follows:

“As an approved Registered Dealer in Controlled Oil you are required to submit a completed and signed H05 Return to the Mineral Oils Relief Centre by the 21st day of the month following the end of the return period.”

7.	The Appellant obviously continued to trade, but failed to make returns as required under the RDCO Scheme and, in fact, failed to either complete or deliver a total of 11 returns for the period from approval until the autumn of 2004.

8.	On the 11th October 2004 the Respondents wrote to the Appellant advising him that he had not submitted any returns and requiring him to do so by the 25th October 2004.  On that occasion he was also asked to contact HM Customs & Excise in Belfast to arrange a suitable date and venue whereby the business records maintained in respect of his RDCO and VAT affairs could be examined.

9.	On the 25th October 2004, the Respondents again wrote to the Appellant advising him that no RDCO returns had been received.  He was advised on that occasion that if all outstanding returns were not received at the Respondent’s office in Southend by the 8th November 2004 a civil penalty would be issued.

10.	On the 8th November 2004 HM Customs & Excise in Belfast issued a civil penalty for £250 for non-submission of all outstanding RDCO returns.  It subsequently transpired that the Appellant had, in fact, on that very day lodged the outstanding returns with the Respondent’s office at Southend, but clearly the Belfast Office, in issuing the civil penalty, was not aware of that fact.  It is probably worthwhile mentioning at this stage that the civil penalty was, in fact, eventually withdrawn by the Respondents, although this did not happen until October 2005 – namely after the revocation of the approval under the RDCO Scheme.

11.	On the 16th November 2004, the Respondents, through the Belfast Office, wrote to the Appellant asking him to contact them to arrange a suitable date and venue where the business records in respect of RDCO and VAT affairs could be examined.  In this letter the Appellant was advised that all outstanding returns had now been submitted and that consideration to the withdrawal of the civil penalty would take place after the RDCO returns had been verified.

12.	There was no response to that request and, accordingly, on the 1st December 2004, the Respondents wrote to the Appellant again requesting a suitable time and venue to examine the business records.  As a result of that second request, Ms. Christine Tully telephoned the Respondents on the 12th December 2004 and an appointment was made to examine the Appellant’s records on the 21st December 2004 at the Appellant’s accountants.  On that date, officers of HM Customs & Excise in Belfast conducted a visit with the Appellant and his accountant, Mr. G. Boyle.  Evidence was given by officers of the Respondents that the following irregularities were identified:

•	no RDCO sales records / till rolls had been retained by the business;
•	the figures declared on the RDCO returns submitted for the monthly periods November 2003 to October 2004 could not therefore be verified;
•	a marked gas oil pump on the service station at Seacon had not been subject to checks at the time of supply to ensure eligible sales.

13.	Mr. Peter Cunningham, an officer of the Respondents, who had previously written the various letters referred to above to the Appellant, was one of the officers who conducted the December 2004 review, and prepared a report upon the results of that visit which was subsequently sent to Mr. G. Frew at the Mineral Oils Relief Centre (“MORC”) in Newcastle.  

14.	At the time of the review the Appellant operated the service stations at Seacon, Millisle and Craigantlet and the Respondents called Mr. Cunningham to give evidence as to the accuracy of the report which he prepared as a result of his findings.  Mr. Cunningham gave evidence to the effect that he had established that:

•	to various degrees controlled oils were sold from each service station.  It was confirmed that no till rolls were retained as part of the business records;
•	the staff at each site had no knowledge of the RDCO Scheme or the records to be maintained / information to be recorded for it to be properly implemented;
•	in relation to the Seacon Service Station, the MGO pump was a self-service pump with no checks being undertaken at the time of supply to ensure eligible sales;
•	in addition, various fuel payments were noted through the bank statements for Seacon Service Station, for which no apparent purchase invoices could be associated. 

15.	At that review the Appellant gave information as to his current and previous suppliers and included in the latter were supplies from Liam Davidson trading as Hillside Fuels (whose RDCO registration had then recently been revoked) and Pilgrim Fuels, who had de-registered for VAT.  The Appellant confirmed that these supplies had either been paid in cash or cheque, but could not produce purchase invoices.

16.	At the conclusion of the meeting Mr. Cunningham had informed the Appellant and his accountant that the various areas of non-compliance highlighted would be forwarded to MORC for a decision as to whether the Appellant’s RDCO approval would remain valid – something which he obviously did through the report.  The conclusion of the report which was subsequently submitted to Mr. Frew was in the following terms:

“Mr. Vallely is non-compliant and has made no attempt to implement any aspect of the RDCO Scheme. Breaches of the conditions of RDCO approval and the history of fuel seized from the sites operated by Mr. Vallely would question as to whether Mr. Vallely is a suitable person to remain within the RDCO Scheme, and would indicate that Mr. Vallely is a high risk excise trader.”

17.	At this point it is probably sensible to set out the occasions on which seizures of fuel had been undertaken at the Appellant’s trading premises:

•	on the 30th September 2003, 5,900 litres of unleaded petrol had been seized from Seacon Service Station;
•	on the 9th December 2004, 3,250 litres of DERV had been detained from Millisle Service Station;
•	on the 5th January 2005, 5,000 litres of unleaded petrol had been detained from Millisle Service Station;
•	on the 5th January 2005, 1,220 litres of DERV and 6,600 of unleaded petrol had been detained from Craigantlet Service Station;
•	on the 28th January 2005, 1,800 litres of unleaded petrol had been detained from Newry Street Service Station.

18.	The basis of each seizure was the lack of availability of purchase invoices to substantiate each supply.

19.	The Tribunal was furnished with copies of the notices served under Section 51 of the Customs and Excise Management Act 1979 (“CEMA”) and the subsequent notices of seizure issued under Section 139(6) of CEMA in relation to the seizures.  In addition, the Respondents called evidence from the officers concerned who had both attended at the premises and subsequently issued both the Section 51 Notices and the subsequent Notices of Seizure.

20.	Following consideration of Mr. Cunningham’s report, Mr. Frew, on the 8th March 2005, wrote to the Appellant revoking the Appellant’s approval as a registered dealer in controlled oil, pursuant to Section 100G(5) of CEMA with effect from the 9th March 2005, and advised the Appellant of his right to ask for a review.
21.		The reasons for the revocation which Mr. Frew cited in his letter are as follows:

•	failure to register for approval as a RDCO before commencing dealing in controlled oils;
•	failure to maintain and retain business records;
•	failure to render complete and accurate returns by the due date;
•	failure to pay civil penalties issued for the non-submission of returns;
•	failure to respond to requests from officers of HM Customs and Excise to arrange visits to his trading premises for the purposes of inspecting books and records contrary to section 188B of CEMA; and
•	failure to ensure that his staff was aware of the checks that should be carried out before making a supply of controlled oils.

In addition, Mr. Frew cited the seizures which are referred to above.

22.	On the 4th April 2005 Tara Walsh, solicitor on behalf of the Appellant, wrote a letter to the Mineral Oils Relief Centre seeking a review.  That letter appears to have been misplaced and a subsequent letter was sent on the 3rd June 2005 enclosing a copy of her original request.

23.	The review as conducted by Mr. Brian McCann, a member of the Review and Appeals Team, based in Glasgow.  After what I would have to say is a very detailed letter, both as to the facts and the legislation involved, Mr. McCann upheld Mr. Frew’s decision, basing himself, in the main, on the following points (and here I paraphrase):

•	the Appellant’s failure to apply for registration when he became owner of the Seacon Service Station;
•	failure to submit monthly returns as required under the RDCO Scheme;
•	failure to maintain or provide sufficient business records;
•	the fact that there had been a number of seizures of fuel on the basis a failure to supply evidence of supplier / purchase invoices.
23.	It is Mr. McCann’s review which is the subject of this appeal.

The Appeal Notice

24.	The Appellant’s grounds of appeal (as cited in the appeal notice) state as follow:

“The 6 reasons specified in the initial refusal are incorrect.  The appropriate returns were completed and lodged with relevant office.  Records were maintained and inspected by C&E.  During said inspection my client was informed that he need not concern himself with any civil penalties issues.”

During the pre-trial stages, no other documentation was lodged in support of the Appellant’s case.

The Respondent’s Case

25.	The Respondent called evidence from each of Mr. Peter Cunningham, Mr. Gordon Frew and Mr. Brian McCann.  In addition, the Respondents called Mr. Seamus Boyle and Mr. Mark Cahoon, who individually had been responsible for undertaking the fuel seizures which are referred to above to formally prove the Section 51 Notices and the subsequent Notices of Seizure.  The evidence of the various customs officers was adduced essentially to establish the factual situation which has been detailed above.  In essence the Respondent’s case boiled down to the fact that based on that matrix of facts - which related to the Appellant’s trading record - he was not a fit and proper person to be registered under the RDCO Scheme.
The Appellant’s Case

26.	The Appellant did not himself give evidence.  His Counsel, however, focused on essentially three issues to advance his client’s case.

27.	In the first instance, through his cross examination of Mr. Cunningham and Mr. Frew he advanced the argument that his client was not fully aware of the requirements of RDCO.  Referring to the obligations which are summarised in paragraph 5.2 of Notice 192, he suggested that the phrase there cited (relating to supplies of less than 100 litres) suggested to any lay observer (and therefore, it was suggested, the Appellant) that there was no requirement to keep any “additional records beyond those held for the purpose of conducting the business”.  The Tribunal did not find that argument convincing.

28.	In the first place, the Notice of Approval which had been sent to the Appellant incorporated reference to Notice 192 and, in addition, specifically referred to the form of return which each business trader was required to submit.  That return requires (in relation to each category of controlled oil) information as to:

•	the total quantity supplied during the period of the return (in litres);
•	the number of customers supplied.

Unless that very basic information was available, the Appellant could never have accurately made a return.  In short, the Tribunal was of the view that the Appellant must have known what information was required to make a return, had clearly made the eleven returns from the period from November 03 to October 04 on a questionable basis, and that the Respondents had, therefore, been entirely reasonable in being sceptical as to the accuracy or veracity of those returns when they had undertaken the December 04 inspection.

29.	The second argument advanced by the Appellant’s Counsel was somewhat confusing, but was largely based on the principles of natural justice.  The report following the December 04 inspection had raised the issue of supplies being received by the Appellant from Liam Davidson trading as Hillside Fuels and Pilgrim Fuels.  It was clear from the evidence of Mr. Cunningham that both suppliers were known to HMRC.  In the case of Liam Davidson, his RDCO approval had been revoked, and in the case of Pilgrim Fuels, they had been de-registered for VAT.  Counsel for the Appellant, in his cross examination of Mr. Frew, Mr. Cunningham and Mr. McCann, attempted to advance the argument that there was a sub-text to their actions/decisions which related to Customs investigation into fraudulent trading, but that that point, in express terms, had never been put to the Appellant, and therefore he had never been in a position to answer the charge and that, as a consequence, his RDCO approval had been withdrawn without him having the opportunity to fully address their concerns.  The Tribunal was not persuaded that such a line was relevant to the proceedings before it. The issue which the Respondents had considered in reviewing (and then revoking) the Appellant’s approval under the RDCO Scheme was whether the Appellant was a fit and proper person.  HMRC were not, save to the extent that it was ancillary to that decision, reviewing Mr. Vallely for the sources of his supply of fuel and that to suggest otherwise was to attempt to cloud the main issue.  Both Mr. Frew and Mr. McCann, in coming to their decisions, quite sensibly said that they had taken all the information in their possession into account and that the fact that the Appellant had been obtaining supplies from unauthorised sources had been only one of the many factors which had been taken into account.  Mr. Frew’s subsequent decision letter was quite clear in terms of the detail upon which he had based his conclusion that the Appellant’s approval ought to be revoked and, in the main, had concentrated on the “six reasons” and the seizures in relation to which evidence had been presented to the Tribunal.   Mr. McCann’s review letter was equally clear. Those factors, the Tribunal agreed, were very material as to the issue of whether the Appellant was a fit and proper person to be registered under the RDCO Scheme.  In that context, the Tribunal did not consider it either necessary or appropriate for HMRC to put any suspicions they might have had of fraudulent trading to the Appellant because he was not being assessed for fraudulent trading.  He was being considered purely as to whether or not he was a fit and proper person to be registered under the scheme – a decision which they had concluded in the negative, principally due to the absence of any cogent business records.

30.	As to the third line of defence, the Appellant’s Counsel then concentrated on one of the six grounds cited in Mr. Frew’s letter – namely the fact of the non-payment of the civil penalty.  The civil penalty had been imposed on the 8th November 2004 by the Belfast Office at a point when, unknown to them, the Appellant had actually filed the eleven late returns in Southend.  The civil penalty notice was subsequently revoked in October 2005 – evidence being given to the effect that it was maintained as a “live” penalty until the verification (or not) of the returns had been undertaken.  Once the attempted verification of the returns had established that the returns themselves were of dubious value and it was decided to revoke the Appellant’s approval, Customs then decided to revoke the civil penalty.  The Appellant’s Counsel, therefore, argued that the Respondents were wrong in taking the existence of the civil penalty into account on the basis that he was, in effect, being penalised twice for the same default.  The Tribunal found it hard to grasp exactly how the Appellant’s Counsel arrived at this argument, but suffice to say it was the Tribunal’s view that:
•	because the Respondents were unaware of the delivery of the returns on the 8th November 2004, it was logical that they would issue a civil penalty;
•	it accepted the evidence of the Respondents that it was normal practice that the civil penalty be held in abeyance until they had determined whether or not the returns stood up to verification;
•	that the Appellant had at all times the right to either appeal the civil penalty notice or to pay it in accordance with its terms – in the knowledge that if he had complied with Customs requirements that it would be refunded to him in due course;
•	in the present circumstances the Appellant chose to do nothing and that disregard was something which the Commissioners could properly take into account, because it was consistent with his attitude to other business dealings and records generally.

Decision

31.	The Tribunal’s jurisdiction in relation to this matter is limited by Section 16(4) of the Finance Act, and those powers only become exercisable “where the Tribunal are satisfied that the Commissioners or other person making that decision could not reasonably have arrived at it ………”.  When Mr. McCann undertook a review Mr. Frew’s decision to revoke the Appellant’s approval, given the facts before him as outlined above, the Tribunal would have to say that he acted entirely reasonably in his approach and in his conclusions that the Appellant was not a fit and proper person to be approved under the RDCO Scheme.  The Tribunal saw no reason to disturb his conclusions.

On that basis, the Appeal is dismissed.
No order as to costs.

CHAIRMAN

RELEASED: 5 July 2007

LON/05/8085