First-tier Tribunal (Tax)

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URL: http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00035.html
Cite as: [2009] UKFTT 56 (TC), [2009] UKFT 00035 (TC)

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Doherty v Revenue & Customs [2009] UKFTT 56 (TC) (22 April 2009)
EXCISE DUTY HYDROCARBON OIL - (See also EXCISE RESTORATION OF VEHICLE)
Assessment

TC00035

Excise - assessment - Hydrocarbon Oil Duties Act 1979 s 6 commercial vehicles - importation of diesel fuel from Republic of Ireland - Travellers' Relief [Fuel and Lubricants] Order 1995 - use of non fixed storage tanks - pods- commercial vehicles also fitted with non standard tanks - whether assessment made to best judgment - yes - whether adjustment to be provided - adjustment undertaken- appeal allowed to that extent

BELFAST TRIBUNAL CENTRE

ANTHONY DOHERTY Appellant

-and -

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: Alistair F W Devlin (Chairman)

Mr A Hennessey FCA

Sitting in public in Belfast on 21st November 2008

for the Appellant Mr Donal Farrell of counsel on the instructions of James O'Brien & Co., Solicitors

for the Respondents Mr Richard Chapman of counsel on the instructions of the Solicitor to H.M Revenue and Customs

© CROWN COPYRIGHT 2009

The appeal

This is an appeal by the Appellant against the decision on review to uphold an assessment made in respect of the Appellant on 21 February 2007 in the sum of £109,093.00. The assessment in question was made pursuant to section 12 of the Finance Act 1994.

The factual background

The following facts were not in dispute before the Tribunal. The Appellant is and has been at all material times a sole trader carrying on in business as the proprietor of a firm involved in the production and transportation of ready mixed concrete, from premises at 91, Anticur Road, Dunloy, County Antrim.

On the early morning of 21 May 2006 the Appellant was observed on the Culmore Road, Londonderry, driving a Daf lorry towards the border with the Republic of Ireland. The vehicle was stopped by police, and the Appellant was spoken to and asked to identify himself which he duly did. The vehicle in question was a flatbed lorry. On the rear of the vehicle at that time were a number of large empty containers. including in particular two large empty square containers, known as 'pods'. The Appellant explained that he was on his way into the Republic, and he was permitted to continue with his journey. A short time later the Appellant's vehicle was again observed travelling citybound from the direction of the Republic. The lorry was again stopped by police, and liquid was found to be present in the previously empty containers located at the rear of the vehicle. Upon being asked where and in what circumstances the liquid in the containers had been obtained, the Appellant stated that he had just purchased diesel fuel in the Republic. The Appellant explained that he had just purchased approximately two and a half thousand litres of diesel fuel at Muff in the Republic. Police impounded the vehicle on behalf of the Respondents, and the Appellant subsequently attended voluntarily at Waterside Police Station in Londonderry.

The Appellant was then interviewed under caution by two of the Respondents officers, Messrs Cuckson and Farrell., and the questions posed and the answers received at that interview were formally recorded. Upon being asked how frequently he would have entered the Republic of Ireland in order to purchase bulk diesel fuel and transport it by means of such a container or containers, the Appellant claimed that this would only have occurred on approximately three or four occasions during the previous year and a half, which was the period during which he had owned this particular vehicle. The two 'pods' were capable of each containing approximately one thousand litres, and the Appellant estimated that his total purchase of diesel fuel in the pods during the period of eighteen months being referred to by him would have been no more than five thousand litres.

The Appellant was then requested to produce his records for inspection and examination, such records to include fuel purchase records and tachograph records, as held by him. These records, on their face, suggested that the amount of diesel fuel purchased by the Appellant in the Republic during the period of eighteen months immediately prior to May 2006 would have been very considerably greater than the Appellant's estimate of five thousand litres. The vast bulk of the fuel purchased by the Appellant had been purchased at Muff, in the Republic of Ireland, just across the border from the city of Derry. These purchases had been made via a series of fuel cards, three of which were supplied by the Appellant to the Respondent's officers on 21 May 2006. By letter dated 21 February 2007 the Respondents notified the Appellant of an assessment for unpaid excise duty in the sum of £109,093.00.

The Appellant's solicitors wrote to the Respondents by letter dated 28 March 2007. In this letter it was stated that the Appellant wished to appeal against the assessment. This letter was taken as amounting to a formal request for a review of the assessment pursuant to section 14 of the Finance Act 1994. and the Appellant was notified of this by letter dated 3 April 2007. On 3 April 2007 and again on 24^th April 2007 the Appellant was invited by the Respondents to forward any information or evidence in support of the request for review. These invitations received no substantive response. By means of a letter dated 25 April 2007 the Appellant's solicitors again restated their client's wish to appeal against the assessment, and for r review to be undertaken, and they asked to be kept updated as to when a review might take place. The letter dated 25 April 2007 however contained no additional information or evidence in support of the request for review.

By letter dated 11 June 2007 the Respondents notified the Appellant's solicitors that a review could not be completed within the 45 day time period prescribed by virtue of section 14 of the Finance Act 1994 due, it was claimed, to the absence of further information from the Appellant. Under section 15[2] of the 1994 Act, the original decision was deemed to be upheld.

By means of a Notice of Appeal dated 25 June 2007 the Appellant's solicitors indicated the intention of the Appellant to appeal against the assessment. The grounds for the appeal were subsequently set out in a further letter dated 3 July 2007 which stated that the grounds for appealing the decision were that the assessment carried out by HM Revenue & Customs was incorrect.

Evidence and findings of fact.

The Tribunal heard evidence from the Appellant in person. The Tribunal also received evidence in the form of a summary of fuel analysis prepared by the Appellant's accountants, Henry & Company of Broughshane Street, Ballymena. The Tribunal also had evidence adduced before it from Mr Colin David Tunnah, the assessing officer, and from Ms Angela Cook, the reviewing officer. The Tribunal also admitted in evidence details of the question and answer session held after caution between Messrs Cuckson and Farrell of the Respondents and the Appellant at Waterside police station on 21 May 2006, together with the notes of a further interview held with the Appellant on 7 December 2006. On the basis of the evidence adduced before it, the Tribunal makes the following additional findings of fact.

The Appellant worked as a sub-contractor for Creagh Concrete Products, and was involved in the manufacture, transportation and delivery of ready mixed concrete. The Appellant had been in business on his own account in that capacity for approximately seven years prior to May 2006. At the time in question, the Appellant owned and operated a total of three lorries, two of which were specially adapted mixer lorries, and the third of which was a flatbed lorry. The Appellant employed two drivers, and also drove himself. The Appellant had acquired for himself a diesel storage facility consisting of a six hundred gallon tank, which he had installed at his home, and which he used for his lorries.

The Appellant presented a manuscript sheet on the headed notepaper of his accountants, upon which were set out details of the vehicles owned and operated by the Appellant. No vouching documentation in respect of any of this information was provided to the Tribunal. The details appearing on the face of the sheet were in addition inconsistent with other information adduced in evidence by the Appellant. For example, the sheet produced purported to indicate that the flatbed lorry NKZ 6330 had been purchased by the Appellant in January 2004; this was inconsistent with the Appellant's previous assertion to Messrs Cuckson and Farrell on 21 May 2006 to the effect that he had at that time only owned the flatbed lorry for approximately a year and a half. The sheet also suggested that the Appellant's previous flatbed lorry, namely S626 KFL had been sold by the Appellant as at January 2004; in oral evidence, when challenged, the Appellant sought to suggest that this was an error and that the date of the sale of this vehicle was in reality June 2004. No vouching documentation in respect of the acquisition or sale of any of the Appellant's vehicles was however adduced before the Tribunal.

In the fuel purchase records produced by the Appellant, purchases were being recorded in respect of S626 KFL up until late January 2005, but not beyond that date. From early February 2005, purchases were being recorded in respect of NKZ 6330, but not before. The Tribunal concludes that on the balance of probabilities the Appellant owned and operated the flatbed lorry S626 KFL up until late January 2005, when he sold that vehicle and replaced it with a replacement flatbed lorry NKZ 6330, which he operated from early February 2005 onwards.

What was however apparent from the contents of the manuscript sheet produced by the Appellant was that all of the Appellant's lorries, at whatever time he owned them, and whether they be concrete mixer vehicles, or alternatively flatbed lorries, had in advance of May 2006 been fitted with substantially larger diesel running tanks than those vehicles had originally been fitted with. According to the Appellant himself, the flatbed lorry NKZ 6330 had been altered so as to fit it with a total running tank capacity of 870 litres, substantially beyond what would have been the standard tanks of 340 litres fitted to such a vehicle. The Appellant's evidence was that he had subsequently reduced the tankage of NKZ 6330 down to 400 litres. Again, according to the Appellant, its predecessor, S626 KFL, had been fitted with additional fuel tanks so as to give it a total running tank capacity of 1020 litres. Again, according to the Appellant himself, the running tankage of his two concrete mixers had also been increased by means of the addition of supplementary tanks, so as to bring the tankage capacity of KKZ 8634 from 340 litres up to 920 litres, and of YIW 6953 from 300 litres up to 1050 litres.

The Appellant admitted having two IBC containers, known as 'pods'. He accepted that the capacity of these pods was approximately one thousand litres each, but he maintained that whenever he used them, he would have filled them with only approximately nine hundred litres of fuel, so as not to fill then right up to the top. The Tribunal heard evidence that on 7 December 2006 the Appellant had been interviewed by Mr Tunnah and Mr Wilson, two of the Respondents' officers. At that interview, the Appellant stated that he did not realise that it was illegal to purchase diesel fuel in pods, and then to import it from the Republic into Northern Ireland without paying the duty on the imported fuel. The Tribunal accepts that this was indeed the case.

The Appellant stated at this interview that on most occasions whenever the flatbed lorry would have gone down to the Republic of Ireland for fuel, it would have had at least one pod of one thousand litres capacity on board, together with another smaller tank, which he estimated to have been approximately seven hundred litres in capacity. At this interview, the Appellant however went on to claim again that he would only ever have filled a pod four or five times in total, totalling somewhere between four and five thousand litres of fuel. The Tribunal found this evidence wholly unconvincing, and was wholly satisfied that in reality the level of such purchases, both in pods, and also in the additional running tanks fitted to the Appellant's vehicles was dramatically larger than the level to which the Appellant was prepared to admit. If the Appellant was of the belief, as he himself admitted, that that it was not illegal to purchase diesel fuel in pods, and then to import it from the Republic into Northern Ireland without paying the duty on the imported fuel, one would have thought it almost inevitable that much more frequent and substantial purchases of such fuel would have taken place than the Appellant was prepared to admit to. In his evidence the Appellant claimed that generally all three of his vehicles would have travelled in convoy to the Republic of Ireland together. Whilst the Tribunal accepts that there may well have been occasions whenever this occurred, the Tribunal is nevertheless satisfied that these occasions would have been reasonably infrequent, and would certainly have been very much the exception rather than the rule. If, as the Appellant himself admitted, at the time he believed that he was able with impunity to purchase diesel fuel in pods, and then to import it from the Republic into Northern Ireland without paying the duty on the imported fuel, there would have been no reason for all three of the Appellant's vehicles at the same time to have travelled the very considerable distance from Dunloy to the border with the Republic and back again solely for the purpose of fuel collection. If the Appellant believed that he was able to lawfully purchase diesel fuel in bulk in the Republic of Ireland and import it into Northern Ireland without payment of duty, the obvious way for this to have been effected would have been by repeated and frequent use of the flatbed lorry and by making as much use as possible of the various containers which the Appellant admitted he held and used, including the two one thousand litre fuel pods.

The Appellant's evidence was that whenever he travelled into the Republic to purchase diesel fuel, he made use of one or more of several fuel cards provided to him by the fuel retailers. The Tribunal accepts this evidence, and indeed this is corroborated by the details appearing on the Appellant's records of fuel purchases as submitted. These records show the use of many different fuel cards and their corresponding numbers over the period in question. The Tribunal finds nothing particularly surprising in this; many such fuel cards are issued to commercial users in multiple form, and most in any event have expiry dates incorporated into the technology which they rely upon, rendering the cards obsolete after a particular date, and necessitating the obtaining of a replacement card or cards in such circumstances. In the fuel purchase records provided by him to the Respondents, the Appellant also drew out attention to certain irregularities surrounding the vehicle registration numbers recorded adjacent to fuel card numbers. The Tribunal has no difficulty in accepting that at the filling station, on occasions, little if any attention may have been paid to the registration number of the vehicle or vehicles purchasing the fuel. This is amply demonstrated by the appearance, on occasions, on the Appellant's fuel purchase records of what are clearly made up registration numbers, such as for example ABC 1234 or BCD 2345. However, in the Appellant's fuel purchase records as submitted by him, on the vast bulk of the occasions upon which fuel was purchased, a proper vehicle registration number was recorded. On the basis of the evidence adduced before it, the Tribunal finds that where these various registration numbers appear, they do not necessarily correspond with the registration number of the vehicle or vehicles which would actually have collected the acquired diesel at the time of its purchase, but they did certainly broadly correspond with the registration numbers of the various vehicles owned by the Appellant at any particular time.

Methodology of the assessment

The methodology of the calculation of the assessment arrived at by Mr Tunnah was explained to the Tribunal. As part of the fuel audit undertaken by him, Mr Tunnah on 19 September 2006 received details of the vehicles owned by the Appellant from the DVLNI. He also scheduled details of the fuel purchases as made by the Appellant and as provided by him onto an Excel worksheet. Mr Tunnah then obtained details of dates of manufacture, estimated miles per gallon figures, and original tankage capacity in respect of the Appellant's vehicles. These details were obtained from the locally based Service Manager of TBF Thompson, DAF Trucks, Mallusk, County Antrim. Mr Tunnah subsequently obtained from the Appellant's accountants additional fuel receipts in respect of the period from 25 February 2005 up until 21 May 2006, as these had not previously been obtained, and added details obtained from these further receipts to the Excel worksheet. Mr Tunnah, together with a colleague Mr Wilson then met with and interviewed the Appellant on 7 December 2006. Mr Tunnah sought advice from the Respondents Policy Division as to how an assessment could be arrived at in reliance upon the information available to him. Having done so, he then set about calculating the weekly fuel usage figure for the flatbed lorry NKZ 6330 using the tachograph information available to him. He then sought to establish how much fuel in total had been purchased by the Appellant during the period in question; he then allowed a weekly usage figure, and subtracted that figure as grossed up from the total amount of fuel which had been purchased, and made his assessment by reference to the difference obtained as a result.

Using the tachograph information provided to him by the Appellant, Mr Tunnah calculated a weekly mileage figure for S626 KFL and NKZ 6330, and subsequently a weekly fuel usage figure in respect of each such vehicle. In the case of S626 KFL, the estimated weekly fuel usage figure was 935.34, and in the case of NKZ 6330, the figure was 848.94. In the case of S626 KFL, that weekly usage figure was applied in respect of the forty eight week period between 22 February 2004 and 23 January 2005, producing an estimate of fuel actually used in respect of the vehicle itself of 44,896.32 litres. In the case of NKZ 6330, the weekly usage figure of 848.94 litres per week was applied in respect of the 68.6 week period between 24 January 2005 and 21 May 2006, being the date of detection, producing an estimate of fuel actually used in respect of the vehicle itself of 58,458.00 litres.

The Appellant's fuel purchase records established that in the period between 22 February 2004 and 21 May 2006, a total amount of 189,263.04 litres of fuel had been purchased by the Appellant. On this basis, there was in respect of the vehicle S626 KFL a surplus of 100,815.53 litres, and in respect of NKZ 6330 a surplus of 130,805.04 litres, giving a total surplus of 231,805.04 litres, which would for the purposes of the assessment, be presumed to have been purchased by either of the two vehicles concerned, and placed in either pods, or in smaller containers, or else placed into additional tanks installed alongside the original running tanks of each of the two vehicles, and some of which would subsequently have been decanted for storage purposes into the Appellant's own storage facility at his home address. To the surplus figure of 231,805.04 litres, Mr Tunnah applied the duty rate of £0.471 per litre, giving the figure of his assessment in the sum of £109,093.29.

The legal framework

Section 6 of the Hydrocarbon Oil Duties Act 1979 provides that excise duty shall be chargeable upon hydrocarbon oil which is imported into the United Kingdom, at the rate of duty specified in the 1979 Act itself. The Travellers' Relief [Fuel and Lubricants] Order 1995 however makes provision for certain reliefs which are available to persons entering the United Kingdom from another Member State. Article 3 [1] of the 1995 Order provides as follows:

"Subject to the provisions of this Order, a person who has travelled from another Member State shall on entering the United Kingdom be relieved of excise duty on the fuel and lubricants contained in a commercial vehicle that he has with him".

Article 3[2] of the 1995 Order goes on to provide:

"The reliefs afforded by this Order apply only to fuel that -

[a] is contained in the vehicle's standard tanks; and

[b] is being used or is intended for use by that vehicle".

Submissions of the parties

For the Respondents, it was submitted that this assessment had been made to best judgment and should be upheld. The methodology adopted, it was submitted, was logical, rational and wholly sustainable. Reliance was placed upon the fact that, in spite of having been afforded ample opportunity in which so to do, the Appellant had failed to provide sufficient information to the Respondents in connection with the carrying out by the Respondent of the fuel audit which it had directed. No further information or details at all had been provided in connection with the request for a review. It was submitted that in light of the strictly limited information made available to him the assessing officer had done his level best. It was submitted that this was a classic case of best judgment; that the burden rested upon the Appellant to establish that the assessment had not been effected to best judgment, and that this had not been discharged.

Reliance in particular was placed upon the decision arrived at by this Tribunal in Chestnutt trading as Chestnutt Animal Feeds -v- Customs and Excise Commissioners [2005] UKVAT [Excise] E00893.

For the Appellant, it was argued that the assessment was not to best judgment and should be set aside. Counsel for the Appellant sought to criticise Mr Tunnah in respect of the methodology adopted by him, and in respect of the reliance placed by him upon nothing more than estimated mileage per gallon figures, as obtained by him from the locally based vehicle dealership. It was submitted that the Respondents had before them an insufficiency of information upon which to base not only their calculations, but also the sweeping assumptions which those figures incorporated; and that even upon the limited information available to the Respondents, the basis of their assessment and its computation could not either fairly or properly be made out. Alternatively, counsel for the Appellant argued for an adjustment of the assessment figure, so as to more properly reflect and take into account the oral evidence of the Appellant which the Tribunal was urged to accept as worthy of credibility.

Conclusions and reasons

For the reasons set out below, the Tribunal is satisfied that this assessment should be adjusted, and the appeal allowed if only to that limited extent. The Tribunal is mindful of the observations previously made by Carnwath LJ in Pegasus Birds -v- Customs and Excise Commissioners [2004] EWCA Civ 1015:

"The Tribunal should remember that its primary task is to find the correct

amount of tax, so far as possible on the material properly available to it the

burden resting on the taxpayer. In all but very exceptional cases, that should be the focus of the hearing, and the Tribunal should not allow it to be diverted into an attack on the Commissioner's exercise of judgment at the time of assessment."

Scrutiny of the fuel records submitted by the Appellant, and covering inter alia the full period of the assessment in question, namely the period between 22 February 2004 and 23 May 2006 reveal a number of features which the Tribunal has found to be of assistance. The vast bulk of the diesel purchases made by the Appellant during the period of the assessment were multiple purchases; the records show two, three, four and on occasions anything up to as much as seven purchases on a particular day. Since the times of the various purchases are recorded, the Tribunal is able to observe that where, for example, on a particular day more than four purchases are made, some of these appear to have been made at different times during the day. Where two or three or on some occasions four purchases are made on a particular day, the pattern is that purchases generally appear to have been made all at the same time. There are of course exceptions in the records to each of these generalised patterns. The date of the detection, namely 21 May 2006, is one such exception. Six purchases are recorded, on foot so it appears of four separate fuel cards, and all taking place between 06:05 am and 06:49 am., and amounting in total to a purchase of some three thousand litres of fuel. The evidence suggests that all of these purchases were made by the Appellant alone, driving the flatbed lorry NKZ 6330, and it was never suggested by the Appellant that any other of his vehicles had been with him in the vicinity of Muff at the time of the purchases on 21 May 2006.

It is also significant to note in the fuel records that on a very significant number of occasions purchases are made of amounts of diesel fuel closely approximating to 900 litres; the same amount which the Appellant admitted to filling into a pod. The Tribunal is satisfied that wherever a purchase of 900 litres or thereabouts appears in the Appellant's fuel records, it relates to the filling of one of the two pods held by the Appellant. Many other offending purchases will however have been made by the Appellant during the period in question, either of lesser amounts into one or both of the Appellant's pods, or into other smaller containers such as those which the Appellant had with him on 21 May 2006, or into the additionally installed tanks on the flatbed lorry NKZ 6330, or during the period prior to 23 January 2205 or thereabouts, its predecessor S626 KFL

On the basis of the evidence adduced before it, The Tribunal is wholly satisfied that out of the various purchases of diesel fuel made in the Republic of Ireland and recorded in the fuel records submitted by the Appellant to the Respondents in respect of the subject period, the vast bulk of these were made by means of the flatbed lorry NKZ 6330, or during the period prior to 23 January 2205 or thereabouts, its predecessor S626 KFL. The diesel obtained as a result of these purchases will; have been stored either in the Appellant's pods, or alternatively in smaller containers, or alternatively into the additional tanks installed upon each of the two vehicles. This fuel will subsequently have been decanted by the Appellant into his 600 gallon home based fuel storage facility.In respect of all of these purchases, duty ought properly to have been paid by the Appellant upon importation of the fuel in question into Northern Ireland, and was not paid.

The Appellant claimed that generally his three vehicles, the flatbed lorry and the two concrete mixers, all travelled into the Republic together and in convoy to purchase fuel. The Tribunal rejects this evidence. There may have been occasions upon which fuel was purchased in the Republic by means of a vehicle or vehicles other than the two flatbed lorries. However, it is the Tribunal's finding that such occasions are likely to have been relatively rare; and are probably represented by at least some of those occasions upon which according to the fuel records multiple purchases of four or more are made on a given day, but at different times. Similarly, there might have been occasions upon which all three of the Appellant's vehicles, or even two of them may have travelled into the Republic to collect fuel, but the Tribunal believes such occasions to similarly have been rare.

Even in respect of such occasions however, the Appellant is not entitled to full credit in respect of a notional deduction of duty otherwise chargeable. If on these isolated occasions the fuel purchased was placed into additional tanks fitted to the vehicle or vehicles, above and beyond the original running tanks, duty would properly have been chargeable. The Tribunal is prepared to adjust the assessment downwards, but only relatively marginally. This adjustment is to reflect the level of purchases made by the Appellant during the period in question, likely in the estimation of the Tribunal to have been effected by means of either of the concrete mixer vehicles, and likely to have been placed into the standard running tanks of those vehicles, but not otherwise, and to have been intended for use by that vehicle but not otherwise. The Tribunal is satisfied on the basis of the evidence adduced before it that this type of fuel purchase will have accounted for a relatively small proportion of the Appellant's total diesel fuel purchases during the period of the assessment, and that these purchases can properly be reflected by an adjustment downwards of the current assessment figure by 15%.

The assessment will therefore be reduced by 15% from £109,093.00 to £92,729.05, and the appeal allowed but only to that extent. We are not prepared to award any costs in favour of the Appellant, being wholly satisfied that an outcome broadly similarly to that now achieved could probably have been arrived at in connection with the previous review undertaken by Ms Cook at the Appellant's request, had the Appellant been prepared at an earlier stage to provide additional information and detail to the reviewing officer in accordance with her request. There shall therefore be no order as to costs.

CHAIRMAN

RELEASED: 22 April 2009