England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
The Hon Mrs Justice Proudman
Appeal Nos FTC/23/2010 and FTC/24/2010

		Royal Courts of Justice Strand, London, WC2A 2LL
		08/02/2012

The Master of the Rolls:

1. These are second appeals brought by two brewers, Carlsberg UK Ltd and Inbev UK Ltd (together 'the appellants'), against the decision of the Upper Tribunal (Tax and Chancery Chamber), upholding the decision of the First-Tier Tribunal in favour of the Commissioners for Her Majesty's Revenue and Customs ('HMRC'). The decisions concern beer duty, which is, as Proudman J said in her decision in the Upper Tribunal at [2011] UKUT 195 (TCC), para 2, 'an excise duty charged on alcoholic drinks under the Alcoholic Liquor Duties Act 1979 as amended', which I shall refer to as 'ALDA'.
2. There are, as there were below, two points at issue. As Dr John Avery Jones CBE said at first instance at [2009] UKFTT 375 (TC), para 1, both points are ultimately directed to the question as to 'what point in the calculation of the duty one ignores fractions of a penny', in accordance with section 137(4) of the Customs and Excise Management Act 1979 ('CEMA'). The two points at issue were set out in the following paragraph of his decision, and they are:

(1)  Whether, pursuant to the relevant provisions of ALDA and the Beer Regulations 1993 [SI 1993/1228] ('the Regulations'), the appellants were entitled (in relation to the periods covered by HMRC's assessments at issue in these appeals) to calculate the amounts of duty payable on beer by reference to the volume of beer held in each container.

(2)  In the event that the appellants were so entitled, whether they were then entitled, having calculated the duty payable per container, to disregard any fractions of a penny produced by such calculations, in accordance with section 137(4) of CEMA.

3. The appellants contend that the answer to each of the two questions is in the affirmative, and that they have to succeed on both questions if they are to win on the ultimate question. Dr Avery Jones decided the first point in the negative, thereby rejecting the appellants' case, and he did not address the second question as it was unnecessary to do so. In the Upper Tribunal, Proudman J agreed with him on the first question, but she went on to address the second question, which she indicated she would also have answered against the appellants. She gave the appellants permission to appeal to this court on the ground that the case raised 'an important point of principle or practice as to the manner of charging and calculating beer duty'.
4. In his very well presented arguments before us, Mr Sam Grodzinski QC, who appeared with Mr Jeremy White for the appellants, has pointed out that Proudman J's reasoning on the first question was rather different from that of Dr Avery Jones. I agree, but, as so often happens in appeals concerned with statutory interpretation, it is probably easiest to set out the relevant facts and statutory provisions, and then express my own views on the two questions, referring to the decisions below where appropriate.

A summary of the facts and issues

5. The appellants are brewers, who are bound to pay duty on beer by virtue of, and pursuant to, the provisions of ALDA and the Regulations. Under the Regulations, duty is, in principle, payable in respect of beer at the earliest of a number of specified points in time, including when the beer is placed into containers and when the beer leaves the brewery. However, for many brewers, including virtually all (and maybe all) the substantial brewery companies, and in particular the appellants, there is a scheme contained in the Regulations which simplifies payment of duty, for the benefit, it would appear, of both HMRC and brewers. Under this scheme, duty is payable on the 25^th day of each month, in respect of beer on which duty has been assessed during the whole of the previous calendar month.
6. As its name suggests, CEMA applies to the collection of all customs and excise duties, including beer duty. Indeed, section 1(2) of CEMA provides that CEMA 'and the other Acts included in the Customs and Excise Acts 1979 [which include ALDA] shall be construed as one Act …'. Under section 137(4) of CEMA (which was repealed in 2008), where duty would otherwise be due in an amount which includes a fraction of a penny, the fraction is to be ignored – i.e. the amount of duty actually to be paid is to be rounded down to the nearest penny.
7. The appellants' case is that the duty on beer is to be assessed on each container, and, so long as it was in force, the rounding down exercise under section 137(4) of CEMA was therefore to be carried out in relation to the duty assessed on each container. HMRC contend that duty is assessed every month, and therefore the rounding down exercise is to be carried out in relation to the sum due on the 25^th of each month. HMRC put their case in two alternative ways, namely, (i) on the true construction of ALDA and the Regulations, and (ii) on the true construction of section 137(4) of CEMA, in the light of the terms of ALDA and the Regulations. Hence, the two questions which fall for determination.
8. I propose first to identify the relevant statutory provisions, and then turn to the two questions. However, before doing so, it is right to record that, although the ultimate issue in this case appears somewhat esoteric, even abstruse, we understand that tens of millions of pounds hang on it in these two appeals alone. That is because these appeals relate to duty paid over a number of years by the appellants, who claim to have overpaid because they paid an amount calculated in accordance with HMRC's case, rather than their case. Hundreds of thousands of litres of beer are brewed and delivered by each of the appellants every month. Accordingly, the sum arrived at by aggregating every eliminated fraction of a penny of duty assessed on each container, measured over a number of years will, self-evidently, be substantial.

The relevant legislative provisions: ALDA

9. According to its heading, section 2 of ALDA is concerned with 'Ascertainment of strength, volume and weight of alcoholic liquors'. Subsection (1) provides that the section applies to liquor, which includes beer, above a specified alcoholic 'strength', which is defined as 'the ratio of the volume of the alcohol contained in the liquor to the volume of the liquor (inclusive of the alcohol contained in it)' as at 20° C.
10. Subsections (3) and (3A) of section 2 of ALDA are in these terms:

'(3)     The Commissioners may make regulations prescribing the means to be used for ascertaining for any purpose the strength, weight or volume of any liquor, and any such regulations may provide that in computing for any purpose the strength of any liquor any substance contained therein which is not alcohol or distilled water may be treated as if it were.

(3A)     Without prejudice to the generality of subsection (3) above, regulations under that subsection may provide that for the purpose of charging duty on any … beer … contained in any bottle or other container, the strength, weight or volume of the liquor in that bottle or other container may be ascertained by reference to any information given on the bottle or other container by means of a label or otherwise or to any documents relating to the bottle or other container.'

'Container' is defined in section 1(1) of CEMA as including 'any bundle or package and any box, cask or other receptacle whatsoever.'

11. Section 36(1) of ALDA imposes the 'charge to excise duty' on beer (a) imported into, or (b) produced in, the UK. Section 36(1AA) (a) states that the rate at which excise duty is to be charged on beer is a specified sum 'per hectolitre per cent of alcohol in the beer.' Section 36(2) provides that:

'Subject to the provisions of this Act—

 (a)     the duty on beer produced in, or imported into, the United Kingdom shall be charged and paid, and

 (b)     the amount chargeable in respect of any such duty shall be determined and become due,

in accordance with regulations under section 49 below and with any regulations under section 1 of the Finance (No 2) Act 1992.'

12. Section 49 (1) of ALDA provides that the Commissioners may 'make regulations' for various purposes, including '(e) for determining the duty and rate thereof and, in that connection, prescribing the method of charging duty.'

The relevant legislative provisions: the Regulations

13. The Regulations, promulgated pursuant to sections 2(3) and 49(1) of ALDA, contain various provisions which were said to be relevant for present purposes. I propose to identify the relevant provisions for the purposes of these appeals, albeit in what appears to me to be a logical order, which does not wholly reflect the sequencing in the Regulations themselves.
14. Part III is headed 'Production', and it includes regulation 8(2), which is concerned with defining when, for the purpose of section 36 of ALDA, 'beer shall be deemed to have been produced'. That moment is to be in accordance with any directions by the Commissioners, 'or in the absence of any such direction at the earlier of' certain specified events, including '(a) the time when the beer is put into any package; (b) the time when the beer is removed from the brewery', the other events being when the beer is (c) consumed, (d) lost, or (e) matured so as to be fit for consumption.
15. Regulation 16 states that '[t]he duty shall be paid at the rate in force at the duty point', and regulation 19(1) provides that 'The person liable to pay the duty shall be the person holding the beer at the duty point….'.
16. Regulation 15 is concerned with 'the duty point', and is in these terms:

'(1) Save where any duty suspension arrangements apply to the beer, the duty point (the time when the duty is payable by a person) shall be the time when the beer is charged with the duty by section 36(1) of the Act, that is to say, the time when it is imported into the United Kingdom or, as the case may be, produced in the United Kingdom.

…

(2) If any duty suspension arrangements apply to the beer, the duty point shall be the earlier of-

(a) the time when the duty ceases to be suspended in accordance with those arrangements;

…. and

(c) the time when the duty ceases to be suspended by virtue of paragraph (3) below.

(3) The duty ceases to be suspended when-

….

(c) the beer is consumed; or

(d) the beer leaves any registered premises ….'.

17. The duty suspension arrangements referred to in regulation 15 arise under regulations 5, 6 and 7, which enable a brewer to apply for registration, and to be registered, with HMRC, and regulations 9, 10 and 11, which enable a registered brewer to apply, and be registered by HMRC, for duty suspension in respect of specified premises.
18. Regulation 21 is concerned with the furnishing of returns to HMRC. It provides:

'(1)     Save, in the case of a registered holder, as the Commissioners may otherwise direct, every person who is registered or was or is required to be registered in accordance with these Regulations shall, in respect of every period of a month furnish the Commissioners, not later than the 15th day of the month next following the end of the period to which it relates, with a return on a form approved by the Commissioners showing the amount of duty payable by him …

(2)     Returns shall be furnished at such place as the Commissioners may direct and, unless furnished in person when that place is open to the public for business, may be furnished in such other manner as the Commissioners may allow.'

19. Regulation 20 is headed 'Time and method of payment', and, so far as is relevant, it provides:

'(1) Subject to paragraph (2) and save as the Commissioners may allow, the duty shall be paid at the duty point.

(2) Where the person liable to pay the duty is a registered brewer or registered holder, save as the Commissioners otherwise direct, the duty shall be paid not later than the 25th day of the month next following the month containing the duty point in relation to the duty.'

20. Regulation 17 concerns 'The amount of beer in any container' and states that, subject to a specific exception,

… [T]he amount of beer in any container shall be deemed to be the greater of—

(a) the amount determined in accordance with section 2 of the Act;

(b) the amount ascertained by reference to information on the label of the container of the beer; and

(c) the amount ascertained by reference to information on any invoice, delivery note or similar document issued in relation to the beer.'

21. Regulation 18 is concerned with the 'strength of beer', and provides that, save as HMRC otherwise allow, the strength of any beer is to be assessed in accordance with measurement criteria which reflect section 2 of ALDA, or, if higher, as stated on the container or in any invoice or similar document.
22. We were referred to other provisions of the Regulations, but I do not think that they take matters further in these appeals.

The relevant legislative provisions: CEMA

23. Given the appellants' position on the first issue, I should refer to the definition of '"container" in section 1 of CEMA. That definition (which applies to ALDA and the Regulations) states that the word 'includes any bundle or package and any box, cask or other receptacle whatever'.
24. Section 137 of CEMA is headed 'Recovery of duties and calculation of duties, drawbacks, etc', and, at least at the relevant time, was to this effect, so far as relevant:    

'(1)     Without prejudice to any other provision of the Customs and Excise Acts 1979, any amount due by way of customs or excise duty may be recovered as a debt due to the Crown.

….

(4) For the purpose of calculating any amount due from or to any person under the customs and excise Acts by way of duty, drawback, allowance, repayment or rebate any fraction of a penny in that amount shall be disregarded.'

The first issue: is beer duty calculated per container?

25. The first issue in these proceedings is concerned with identifying what Mr Grodzinski conveniently referred to as the chargeable item, i.e. what constitutes the item of beer which is to be charged.
26. His contention on behalf of the appellants is that ALDA and the Regulations require duty to be assessed by reference to the beer in each container. The argument starts by focussing on section 2(3A), which appeared to be his primary point. He argued that that section, with its reference to beer duty being charged on 'any … beer … contained in any bottle or other container' demonstrates that the legislature envisaged that duty would be assessed by reference to the amount of beer in each container.
27. I do not agree. While the appellants' case is quite consistent with section 2(3A), all that provision does is to give to HMRC the option to charge duty on any beer in 'a bottle or other container' on the assumption that the volume and strength of the beer is as stated on the label. As a simple matter of logic, that does not mean that an assessment always has to be made on a container by container basis. The fact that an assessment can be carried out in relation to beer in a container on a certain basis does not mean that that assessment must be limited to that beer, and cannot, as a matter of law, also extend to beer in other containers.
28. To take a simple example, if a single batch of beer was transferred, in one operation, into 20,000 bottles, all with identical labels, nothing in section 2(3A) would be inconsistent with the notion that the duty was to be assessed, or charged (to use the verb in the section) on the totality of the beer in the 20,000 bottles, rather than discretely on the beer in each bottle.
29. It would be surprising if section 2(3A) had the effect for which Mr Grodzinski contends, at least in the absence of any other statutory provision having the same effect. Section 2(3A) was not originally in ALDA, having been inserted by the Finance Act 1981. Its intended purpose is limited (and arguably unnecessary), namely to enable HMRC to charge duty by reference to the information on a beer container label. It therefore seems unlikely that it was intended to change or limit the basis upon which beer duty could be charged. All the more so given the terms of sections 36(2) and 49(1)(e), which at least suggest that it is to the Regulations, rather than to ALDA, that one should look in order to see how beer duty is to be charged.
30. As to the Regulations, Mr Grodzinski relied on regulation 17, his argument being similar to that which he ran on section 2(3A). For the same reasons (save that in the immediately preceding paragraph of this judgment) as I have given for rejecting his case based on section 2(3A), I would reject his case on regulation 17. Furthermore, as regulations 8(2)(c) and (d) show (and this may be equally true of regulation 8(2)(b) and (e)), the Regulations envisage that beer duty may be chargeable before the beer concerned is placed in any container. That point seems to me to raise a fundamental problem for the appellants, as it means that there cannot be an absolute rule that the chargeable item is a bottle or other container.
31. In my view, while it has elements of circularity, the item of beer on which duty is charged is that beer which the Regulations provide should be charged with duty at the duty point. That seems to me to be the natural implication of regulation 15, and it is supported in terms of practicality and logic by regulation 16.
32. Regulation 15(1) provides that 'the duty point' is the time when beer is 'charged with … duty', which suggests, at least in the absence of any provision to the contrary, that one identifies the beer at any particular duty point, and that that beer is, as it were, the unit which is to be the chargeable item. That conclusion is supported by, or at least consistent with, regulation 16, which fixes the rate of duty to the rate prevailing at the duty point. (I consider that it is also consistent with regulation 20(1) for the same reason). It also makes goods sense.
33. As I have indicated, this is the natural conclusion which I would draw from regulations 15(1) and 16, and I can see nothing in the other regulations, or in ALDA, which calls this conclusion into question. Where regulation 15(1) applies to a brewer (as opposed to beer importer) and suspension arrangements do not apply, the duty point is effectively defined by reference to regulation 8(2). Thus, in many circumstances where the suspension arrangements do not apply, regulation 8(2)(a) may apply, so that the beer in an individual bottle, or other container, may be the chargeable item.
34. We are here, of course, concerned with brewers who have entered into suspension arrangements ('suspension brewers', as they are known), so that the duty point is identified by regulation 15(2) and (3), rather than by a combination of regulations 15(1) and 8(2). The likely duty point in those circumstances would appear to be when the beer leaves the premises in which it was brewed, by virtue of regulation 15(3)(d), so I suspect the chargeable item would normally be a lorry-load.
35. In reaching this conclusion, I am rejecting HMRC's submission, advanced below and before us by Mr Macnab, that the chargeable item in the case of suspension brewers is the totality of the beer on which duty is chargeable in a month (and payable on the 25th day of the subsequent month) pursuant to regulation 20(2). In my view, that submission confuses charging with payment, and is impossible to justify in the light of the wording of the Regulations. Additionally, it seems to me to present difficulties in terms of practicality bearing in mind the effect of regulation 16. In my judgement, Mr Grodzinski was right to say that this submission involves rewriting the Regulations, and would lead to an inconsistent approach to the assessment of the chargeable item in the case of suspension brewers and other brewers. In the Upper Tribunal, Proudman J endorsed the support Dr Avery Jones gave to HMRC's submission, but appreciated the difficulties it involved.

The second issue: to what sum was section 137(4) of CEMA applicable?

36. The appellants' case is that the answer to the first issue is dispositive of the second issue. That is because, according to Mr Grodzinski's argument, once one has identified the chargeable item for the purpose of ALDA and the Regulations, the amount of duty on that chargeable item is to be rounded down in accordance with section 137(4) of CEMA.
37. HMRC's case is that the answer to the first issue is effectively irrelevant to the second issue. That is because, rather than being concerned with the duty which is charged, Mr Macnab contends that section 137(4) of CEMA is concerned with the sum which is liable to be paid by way of duty. On that basis, the rounding down exercise is to be carried out to the sum which would be payable on the 25th day of each month under regulation 20(2).
38. As the chargeable item will normally be a lorry-load of beer leaving a brewery, rather than the monthly amount of beer leaving a brewery, the second issue is potentially of some relevance (although it seems clear that it is of very substantially less significance than if the appellants had succeeded on the first issue).
39. In my view, HMRC's case on the second issue is to be preferred. That conclusion is ultimately based on the meaning of the expression 'amount due' in section 137(4). I consider that it is a reference to the total sum which is to be paid by way of duty – i.e. in relation to a brewer such as the appellants212, the sum due on the 25th day of each month. The word 'due', in relation to an amount of money, can have different meanings, but it seems to me that, as a matter of ordinary language, it would normally be understood to mean the amount which is to be paid – i.e. a present debt. I consider that that is the meaning of the word in section 137(4) for three reasons, namely the use of the same word in section 36 of ALDA, the terms of section 137(1), and practicality. I shall develop those reasons in turn.
40. The word 'due' is found in section 36(2) of ALDA, but, although ALDA and CEMA are to be construed together, the same word can have a slightly different meaning in different contexts in the same statute. Having said that, the way in which a word is used in one Act may be legitimately invoked to assist in deciding the meaning to be ascribed to the word when used in the other Act. Accordingly, it seems to me that there is a real case for saying that 'due' in section 137(4) of CEMA should have the same meaning as it has in section 36(2) of ALDA, and I think that that latter meaning is 'liable to be paid'. The expressions used in paras (a) and (b) of section 36(2) are in rather an odd order. Be that as it may, 'become due' was presumably intended to have a different meaning from 'charged', 'paid, or 'determined', and its natural meaning, in those circumstances, appears to me to be 'become liable to be paid'.
41. (I am unimpressed with the appellants' point that, as duty is charged on, say, a lorry-load of beer, section 36(2) therefore means that that duty falls 'due' as a discrete sum. A particular chargeable sum can become due as part of a larger sum consisting of aggregated chargeable sums: the point is very similar to the point made in paras 27 and 28 above.)
42. I consider that section 137(1) provides some support for HMRC's case, providing, as it does, that 'any amount due by way of … duty' can be 'recovered as a debt due'. While the use of the second 'due' can be said to render any argument in this connection circular, it appears to me that the thrust of the subsection is that once duty is 'due' there is an enforceable recoverable debt. That would not always be true if 'due' meant 'chargeable', as the appellants contend (in particular, in relation to suspension brewers), but it would be true if the word had the meaning contended for by HMRC.
43. Practicality is also significant, in my opinion. The purpose of section 137(4) is to avoid problems arising from duty being a figure which includes a fraction of a penny. There is no conceptual or practical problem about duty being charged in a sum which includes a fraction of a penny, but there is obviously a practical problem if duty has to be paid in sum which includes such a fraction. Therefore, it seems to me that the legislative purpose would best be served if the rounding down was applied to the sum which had to be paid, rather than to any sum which was assessed and then aggregated with other sums to arrive at the sum which had to be paid.
44. Mr Grodzinski advanced an argument that the conclusion that HMRC's contention confused suspension of duty with deferral of duty. I do not agree. HMRC's case draws a distinction between (i) duty being charged and (ii) duty having to be paid, and effectively raises the contention that it is duty in the second category which is 'due' for the purposes of section 137(4) of CEMA. For the reasons given above, I consider that that analysis is correct.

Conclusion

45. For the reasons which are given above, I would dismiss these two appeals.

Lord Justice Pitchford:

46. I agree.

Lady Justice Rafferty:

47. I also agree.