EXCISE Refusal of application to approve a place of security for the deposit of excise goods Deemed decision made after expiry of 45 days Whether appeal against initial decision or review decision Both officers failed to disclose concerns about another bonded warehouse Whether those concerns influenced decision Decision purportedly taken on basis lack of commercial viability Both officers made mistakes in calculations Whether decision reasonable s.92(1) Customs & Excise Management Act 1979 S.16(4)(c) Finance Act Appeal allowed
LONDON TRIBUNAL CENTRE
GRAPEVINE STORAGE SERVICES LTD Appellant
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents
Tribunal: MISS J C GORT (Chairman)
MRS J M NEILL ACA
Sitting in public in London on 24 January and 4 April 2005, 27 February and 23, 24 and 25 April and 12 December 2007
Mr Andrew Young of counsel, instructed by Vincent Curley & Co LLP, for the Appellant
Mr Andrew O'Connor of counsel, instructed by the Solicitor's Office, for the Respondents
© CROWN COPYRIGHT 2008
- It is not physically possible to deal with the number of loads proposed with the number of staff to be employed.
"The original refusal to approve our application is based on four points against which we feel we can show that Customs and Excise are demonstrating poor judgment in their conclusion. We will show:-
(1) that we are capable of operating the business both efficiently and profitably, with no risk to government duties and VAT;
(2) that the cashflow figures re-calculated by Customs and Excise, only include changes to income with no regard to corresponding costs. The supposed £153k loss at the end of year 2, should in fact be a £47k profit.
(3) that we have commitments from potential customers, showing their knowledge of our proposed rates."
Section 92(1): The Commissioners may approve, for such period and subject to such conditions as they think fit, places of security for the deposit, keeping and securing
(a) of imported goods chargeable as such with excise duty (whether or not also chargeable with customs duty) without payment of the excise duty;
(b) of goods for exportation or for use as stores, being goods not eligible for home use;
(c) of goods manufactured or produced in the United Kingdom and permitted by or under the Customs and Excise Acts to be warehoused without payment of any duty of excise chargeable thereon;
(d) of good imported into or manufactured or produced in the United Kingdom and permitted by or under the Customs and Excise Acts to be warehoused on drawback,
Subject to and in accordance with warehousing regulations; and any place of security so approved is referred to in this Act as an "excise warehouse".
The Finance Act 1994 ("the Act") provides as follows:
Section 15 Review Procedure
(1) Where the Commissioners are required in accordance with this Chapter to review any decision it shall be their duty to do so and they may, on that review, either
(a) confirm the decision; or
(b) withdraw or vary the decision and take such further steps (if any) in consequence of the withdrawal or variation as they may consider appropriate.
(a) it is the duty of the Commissioners in pursuance of a requirement by any person under section 14 above to review any decision; and
(b) they do not, within the period of 45 days beginning with the day on which the review was required, give notice to that person of their determination on the review,
they shall be assumed for the purposes of this Chapter to have confirmed the decision.
(4) In relation to any decision as to an ancillary matter, or any decision on the review of such a decision, the powers of an appeal tribunal on an appeal under this section shall be confined to a power, where the tribunal are satisfied that the Commissioners or other person making that decision could not reasonably have arrived at it, to do one or more of the following, that is to say
(a) to direct that the decision, so far as it remains in force, is to cease to have effect from such time as the tribunal may direct;
(b) to require the commissioners to conduct, in accordance with the directions of the tribunal, a further review of the original decision; and
(c) in the case of a decision which has already been acted on or taking effect and cannot be remedied by a further review, to declare the decision to have been unreasonable and to give direction to the commissioners as to steps to be taken for securing that repetitions of the unreasonableness do not occur when comparable circumstances arise in future."
"We will be visiting this trader on Wednesday, it is the successor to Oakwoods."
This e-mail was only disclosed to the Appellant at the resumed hearing on 24 April 2007 together with a number of other previously undisclosed documents.
"Assuming that one forklift takes 1.5 hours to unload, stow away and complete the paperwork, in a 7.5 hour day they can unload five vehicles. If they are going to employ two forklift drivers, this gives them the capability to unload ten vehicles a day but it would have to be at the same time. This will be impossible if they only have one shutter open, additionally they will not be able to load any vehicles out if they do not have enough staff, forklifts or shutters open. There will be H&S implications with this."
- The company does not appear to be commercially viable, if all the money the directors need to take out is done (sic), they will not make a profit, based on flawed figures, until the 23rd month of trading.
- One director (Kevin Ellis) has no knowledge of warehousing and the other (Jeff Rivers) was the finance director for Oakwoods Storage.
Under the heading "conclusions" she stated that, based on the current information (i.e. before she received a reply to her letter to Mr Rivers) Grapevine were not likely to get a WOWGR registration or a warehouse approval, and on 31 October 2002 (after receipt of Mr Rivers' letter) she confirmed her previous conclusion not to approve the warehouse.
"I have found his knowledge of Health & Safety to be invaluable to this company, and his ideas for both rotation of stock and stock control have led to a more efficiently run warehouse."
The letter also stated that:
"Kevin has settled very quickly into an environment far removed from his previous occupation. "
and therefore it appears that whilst he had no previous warehouse experience at the time Miss Jolly made her decision, nonetheless he was capable of learning to operate a warehouse efficiently.
Potential Duty on month-end Stockholding Level of Security
<£100,00 but <£400,000 £100,000
>£400,000 but <£1m 25% as potential duty
>£1m but <£25m £250,000
>£25m but <£100m 1% of potential duty
We would come into the >£1m but <£25m category, the guarantee we would need to put in place would be £250,000. We would initially provide this guarantee by putting our properties up as collateral, but would expect to be able to free up the properties and deposit a cash sum towards the end of the second year."
The document then refers to the levels of security set by Customs which are the same as the chart above, and continues:
"As mentioned before all movements from bond would be under the hauliers' movement guarantee so no guarantee would be required from ourselves."
"Within our projected figures we have assumed a borrowing of £100,000 which we intend to pay back by the end of the first year. This borrowing is to cover three months running expenses and assumes that we will have no revenue until the end of the third month. We are quite confident that this is the worst case scenario and in fact some revenue will be generated before then.
"The guarantee, as mentioned earlier, will take the form of our properties being put up as collateral, and it is our intention to be able to free up the properties and deposit a cash sum towards the end of the second year."
"I write with regard to the above client and wish to confirm that I was seriously considering financial proposals from Mr J Rivers in respect of an excise warehouse located around the Essex area although a formal offer of assistance was not made due to the early stages of our discussions."
It was Mr Rivers' evidence that the bank were only willing to give the finance to the company once the warehouse licence had been obtained, and therefore it was not possible to obtain from the bank a more definite commitment to the provision of finance.
"We calculate the Duty and the VAT payable and advise Venus, who will need to draw a bankers draft made payable to HMC&E. The draft needs to be with us, as explained, prior to the goods leaving the warehouse. We then need to complete a form W5 showing details of the duty calculation and lodge with the draft at Customs & Excise at Tilbury. There will be an admin charge to Venus for this service."
"Teresa Jolly shall by the end of February 2004 lodge a witness statement explaining the following passage in that note (of 7 February 2003)
"I have no disclosable evidence at this point about J Rivers' involvement of the fraud carried out by Oakwoods, as the tribunal process is still taking place".
and if the decision appealed against in these proceedings is in any manner based on the understanding that J Rivers was involved in the fraud carried out by Oakwoods, Teresa Jolly shall provide a list of the documents and other materials upon which that understanding is based."
"I have no documentary evidence, I have been advised by the assurance staff that visited Oakwoods, that J Rivers was responsible for the financial records and as such must have been aware of what was happening (word cut off in the Tribunal's copy) the business, although he has denied knowing anything. I was not involved with Oakwoods myself, which is why I was asked to deal with the approval.
"I have not used this statement to reject the approval as I do not hold any evidence to show that J Rivers was involved. The rejection was based primarily on the viability of the business and the potential risk to the revenue."
" I wish to clarify my knowledge of a warehouse named Oakwoods Storage Services Ltd at the time I was dealing with an application by the appellant to become approved as a bonded warehouse.
Closure of Oakswoods by HMC&E took place before I joined the H&M team. To the best of my knowledge, broad events were as follows:
- Notice to revoke approval issued October 2001
- Notice of closure issued and to be closed 31/12/01
- HMC&E running warehouse from 1/1/02
- Poor record keeping and evidence of diversion fraud but this was not pursued
- Tribunal/High Court process regarding closure of Oakwoods
I joined the H&M team 24/6/02
Grapevine's application came into my office August 2002
In September 2002 I was tasked with dealing with the application because
- Mr Rivers was involved in the application
- I was not involved in Oakwoods in any way, and my manager wanted the application to be dealt with by someone who had not been involved with Oakwoods previously.
- I had experience in testing commerciality of businesses
For the period in which I was considering the application I had no involvement in the enquiries that were going on into Oakwoods, nor did I discuss them with anyone. During that period I was not aware of any evidence of diversion fraud having taken place at Oakwoods.
My decision of 18 November 2002 was made purely on the grounds set out in my letter. I did subsequently become aware, from the other members of my team (whose identities I cannot now remember) that there was evidence of diversion fraud having taken place at Oakwoods, although I did not discuss these matters in any details.
The source of my statement that Mr Rivers has denied knowing anything was a colleague who accompanied me on my visit to Grapevine. He stated that Mr Rivers explain to him as an assurance officer visiting Oakwoods that he only knew about the accounts side and nothing that went on outside his office i.e. the warehouse."
"One of the directors has no knowledge and the other has limited knowledge I also suspect there is someone else behind this but have no evidence to support that."
Whilst it may well have been that there was no evidence of diversion fraud at Oakwoods, we do not accept that Miss Jolly's decision was made 'purely on the grounds set out in my letter', as she claimed in her witness statement. Her note to Miss Park implies quite the opposite.
"The checks were completed by the NAVC on the directors and the proposed customers. The directors are `clean' with regard to CEDRIC but J Rivers was involved in the running of the Oakwoods warehouse which was closed by the Department for diversion fraud and not meeting C&E requirements. A number of the customers have positive indicators on CEDRIC and these are enclosed in the file."
This makes it abundantly clear that Miss Park had been informed about Oakwoods and also that Miss Jolly herself had had Oakwoods in mind. With regard to the e-mails with the Unit of Expertise, in an e-mail dated 3 February 2003 Miss Park wrote:
"Reading between the lines of this case, one of the Directors was previously employed in a warehouse that Customs has shut down, I don't think we have any evidence to link this individual to anything and most of the potential customers are known to Customs, most of them are involved in ongoing potential frauds. However, none of these is/has been disclosed. My problem being that my review can therefore only look at the reasons for refusing the approval and I can't (at this stage) see enough to uphold the officer's decision. Also should the case go to the Tribunal, I think we'd have difficulty justifying our decision. Unless we can come up with more concrete reasons, I have no choice but to overturn the officer's decision, this then means the approval would have to be granted. One of my colleagues here felt that because we didn't go down the route of approving with conditions/securities we probably couldn't go back and approve with conditions."
In his reply to this e-mail Mr Murdo Macleod stated that he had not come across commercial viability being given as a reason for rejecting approval and he continued:
"Also if the bank is prepared to lend money on the strength of their business case, we are hardly qualified to say that the Co. is not commercially viable I take the view that commercial viability should be accepted if there is evidence that a bank is prepared to back them. If they satisfy the approval criteria we can still impose conditions and financial guarantees."
Mr Macleod forwarded this to his seniors and a Mr Eddie McCormack replied to Mr Macleod stating he was particularly interested in the compliance history of the individuals, and he asked various questions about them. He stated that commercial viability could reasonably be cited as a reason for rejecting an application.
"You must only approve the warehouse for an initial period of 12 months. Within that time, preferably after three months you must review the working of the approval and the trader's compliance with the conditions of the approval. You may then add or vary the conditions, as necessary, before confirming the approval.
"If you consider that, even with additional security, the approval is still risky you must refuse the application."
Miss Park claimed that she did not consider it relevant that the approval would only be for a period of 12 months. She had discounted imposing additional security, despite Mr Macleod informing her in his e-mail that it would be possible to impose conditions and financial guarantees. Although Miss Park had no experience with letters from banks, she was prepared to say that she did not consider the letter from HSBC was sufficiently precise to be accepted as an offer of funds. She had not considered the difference between imposing a security requirement on the personnel or on the premises. She claimed not to have been told by Mr Rivers that if the business were not profitable enough initially, then he would defer repaying the guarantee. In cross-examination Miss Park was asked whether she understood the concept of proportionality, and it was apparent from her answer that she did not.
The Respondents' case
The Appellant's case
The Respondents' reply
Reasons for decision
MISS J C GORT
RELEASED: 19 March 2008