[2009] UKFTT 338 (TC)

TC00279

Appeal number LON/2008/8101
                                    and LON/2008/8123

EXCISE DUTY -  history of appellant's commercial vehicles being used by its drivers for smuggling cigarette – deemed forfeiture of vehicles and tobacco – vehicles previously restored to appellant for fee – appellant warned that in future vehicles may not be restored - whether non-restoration of tractor unit and trailers reasonable - appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                                        SPEDSERVICE SP Z.O.O.                       Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                     REVENUE AND CUSTOMS (Excise Duties)  Respondents

                                                TRIBUNAL: Nicholas Aleksander (Tribunal Judge)

                                                                        R A Watts Davies

Sitting in public in London on 19 November 2009

Mark Sutherland-Williams of Counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

The Appellant having failed to attend the hearing but the Tribunal being satisfied that reasonable steps had been taken to notify the Appellant of the hearing and that it was in the interests of justice to proceed with the hearing.

© CROWN COPYRIGHT 2009

DECISION

1.     The Appellant, Spedservice Sp. z.o.o., appeals against reviews by David Harris and by Deborah Hodge (each officers of HM Revenue and Customs) contained in  letters dated 30 October 2008 and 24 November 2008, by which they confirmed earlier decisions refusing to return trailers and a tractor unit.

2.     We had presented to us witness statements of Mr Harris and Mrs Hodge.  We also had two bundles of documents.

3.     On the day before the hearing, the tribunal received a fax from Adam Gosiewski of Mirage OhiU, the Appellant's representative.  Mr Gosiewski apologised to the tribunal that he would be unable to attend the hearing because he was ill, but asked for the hearing to proceed in any event in his absence given the time that has elapsed since the seizures.  Mr Gosiewski also noted that the Appellant has ceased trading and is in administration and attached a copy of the relevant Polish court order (although without a translation). Mr Gosiewski attached to his fax copies of earlier correspondence with HMRC in which were set out the Appellant's arguments for restoration of the trailers and tractor unit.  Mr Gosiewski indicated in his letter that he would be available to talk to the tribunal by telephone and the tribunal attempted to establish a telephone conference call facility to allow Mr Gosiewski to participate in the hearing remotely, however this was not successful.  Given Mr Gosiewski's express instructions in his fax that the hearing should proceed, we were of the view that it was in the interests of justice for the hearing to proceed in the absence of the Appellant and its representative.

Background Facts

4.     The background facts, which are not in dispute, are as follows:

5.     On 29 September 2007, Mr Andrezejczak (one of the Appellant's drivers) was stopped by Customs while attempting to bring 4150 cigarettes into the UK. 

6.     On 7 January 2008, Mr Brogdan Czerwinski was stopped by Customs while driving one of the Appellant's vehicles and attempting to bring 20,000 cigarettes into the UK concealed over the engine block and in an overhead locker.  The cigarettes and the vehicle were seized.  The vehicle was restored on payment by the driver of £3025, representing 100% of the duty evaded.  HMRC wrote to the Appellant on 16 January 2008 warning that if this vehicle (or any other vehicle owned or operated by the Appellant) was found carrying smuggled goods in the future, it may not be restored.

7.     On 6 February 2008, Mr Andrezejczak was stopped while driving one of the Appellant's vehicles and attempting to bring 14,000 cigarettes into the UK. The cigarettes and the vehicle were seized.  The vehicle was restored on payment by the driver of £5300 (representing 200% of the duty in view of the previous offence on 29 September 2007).

8.     On 29 April 2008, Mr Jagielski was stopped while driving one of the Appellant's vehicles and attempting to bring 20,000 cigarettes into the UK. The cigarettes and the vehicle were seized.  The vehicle was restored on payment by the Appellant of £4000.  The Appellant reclaimed the payment from the driver.  The Appellant did not sack the driver, as he had no other way of earning the money needed to repay the Appellant.

9.     On 1 May 2008 Mr Cywka was stopped at Dover Eastern Docks while driving the Appellant's tractor unit GD3398K towing trailer GD6596P.  The vehicle was examined by Customs officers, and they found two large black suitcases within the rear portion of the trailer covered by a box.  Concealed in the suitcases were 29,980 cigarettes. The cigarettes and the trailer were seized. 

10.  On 3 July 2008 Mr Jagielski was stopped at Ramsgate while driving the Appellant's tractor unit WND27GX  towing trailer WND68FH.  The vehicle was examined by Customs officers, and they found a large number of unmarked boxes at the front of the trailer containing 928,000 cigarettes.  The cigarettes, the tractor unit and trailer were seized.  We were told that Mr Jagielski was subsequently prosecuted for smuggling, to which he pleaded guilty and for which he received a custodial sentence.

11.  In relation to trailer GD6596P, the Appellant faxed HMRC on 8 May 2008 requesting that the trailer be restored.  The legality of the seizure of the cigarettes and trailer was not challenged, and the cigarettes and the trailer were therefore deemed condemned as a result of the passage of time under paragraph 5, schedule 3, Customs and Excise Management Act 1979 ("CEMA").  Following correspondence, on 15 May 2008, HMRC wrote to the Appellant refusing restoration of the trailer.  The Appellant requested a review of that decision by letter dated 23 June 2008.  The review was conducted by Mr Harris, and following correspondence with the Appellant and its representative, he wrote to the Appellant on 31 July 2008 upholding the decision to refuse restoration of the trailer.

12.  In relation to the tractor unit WND27GX and trailer WND68FH, the Appellant requested restoration of the tractor unit and the trailer on 4 July 2008.  The legality of the seizure of the cigarettes, the tractor unit and the trailer was not challenged, and the cigarettes, the tractor unit and the trailer were therefore deemed condemned as a result of the passage of time under paragraph 5, schedule 3, CEMA.  Following correspondence, on 9 July 2008, HMRC wrote to the Appellant refusing restoration of the trailer.  The Appellant requested a review of that decision by letter dated 21 August 2008.  The review was conducted by Mrs Hodge, and following correspondence with the Appellant's representative, she wrote to the Appellant on 24 September 2008 upholding the decision to refuse restoration of the trailer.

HMRC Review

13.  The Appellant's appeal to this tribunal is in respect of the review decisions to uphold the non-restoration of the tractor unit and the two trailers.

14.  Our jurisdiction in appeals of this nature is limited. Under section 16, Finance Act 1994 we cannot just allow the appeal.  We can only do one or more of the things mentioned in section 16(4), and then only if we are satisfied that the disputed decision is unreasonable.  The three things are: (a) to direct that the disputed decision ceases to have effect; (b) to require HMRC to conduct another review in accordance with any directions that we may give; and (c) to declare the decision to have been unreasonable.

15.  HMRC's policy on the restoration of commercial goods vehicles that have been used for smuggling depends upon who is responsible for the smuggling attempt – (a) neither the haulier nor the driver; (b) the driver but not the haulier; or (c) the haulier.  In this appeal, the Appellant asserts that the circumstances fall within (b), the drivers, but not the haulier, were responsible for the smuggling attempt.  HMRC's policy in such circumstances is to allow restoration of the vehicle free of charge providing the hauler can provide evidence showing that it took reasonable steps to prevent drivers smuggling.    However, if the same driver is involved (working for the same haulier) on a second or subsequent occasion, then the vehicle would normally be restored for a fee equivalent to 100% of the duty involved (or the value of the vehicle if less), except that if the second occasion occurs within 6 months of the first, the vehicle will not normally be restored.  Otherwise, on the first occasion the vehicle will normally be restored for a fee equivalent to 100% of the duty involved (or the value of the vehicle if less).  On a second or subsequent occasion, the vehicle will not normally be restored. 

16.  In reaching his decision in relation to trailer GD6596P, Mr Harris took into account the following principal factors:

(1)  The history of smuggling and seizures involving the Appellant and its drivers, and the fact that the Appellant was warned in the letter dated 16 January 2008 that if any vehicle owned or operated by the Appellant was found to carry smuggled goods in future, it may not be restored.

(2)  The fact that the trailer's seals were intact.  The trailer would have been sealed at the time it was originally loaded and in the presence of the driver.  This must mean that either the driver was aware of the suitcases of cigarettes having been loaded onto the trailer, or alternatively, the seals must have been broken at some subsequent point when the suitcases were loaded (presumably in the absence of the driver).  However in the latter case, the CMR would have had to be amended to reflect the replacement seal, and this could not have been done without the driver's knowledge.  Mr Harris considered that it was not credible – as the driver claimed – that he had no knowledge of the suitcases being on the trailer.

(3)   The procedures adopted by the Appellant to counter smuggling, including the vetting of drivers.  Although the Appellant had provided copies of extracts from various contractual documents, they do not address smuggling excise goods.  In particular the extracts provided do not deal with the consequences of gross misconduct such as failure to check loads and CMR notes, criminal activity or customs irregularities. 

17.  Mr Harris concluded that the Appellant had not taken reasonable steps to prevent driver smuggling, and that as this was a second or subsequent attempt, restoration should be refused.

18.  In reaching her decision in relation to tractor unit WND27GX and trailer WND68FH, Mrs Hodge took into account the following principal factors:

(1)  The history of smuggling and seizures involving the Appellant and its drivers, including the fact that the same driver had been responsible for a previous smuggling attempt less than three months previously.

(2)  The many unanswered questions relating to the smuggling attempt.  Who financed the purchase of the 928,000 cigarettes? The Appellant continued to employ Mr Jagielski after the first seizure in order that he could repay the restoration fee and maintain his family, Mr Jagielski could therefore not have had the funds to pay for the cigarettes.  Secondly, why was sufficient space left in the trailer to allow such a large quantity of cigarettes to be loaded

(3)   Although the Appellant adopted procedures to counter smuggling by drivers, these were ineffective, as illustrated by the fact that this was the second attempt at smuggling by the same driver within 3 months, and the sixth incident including all other drivers.

19.  Mrs Hodge concluded that the Appellant had not taken reasonable steps to prevent driver smuggling, and that as this was a second or subsequent attempt, restoration should be refused.

20.  The Appellant's argument is that the actions of HMRC in seizing the tractor unit and the trailers is disproportionate, given the case history and the Appellant's level of cooperation and organisation.  As a direct result of the disproportionate action and the delaying tactics adopted by HMRC (resulting in this matter taking over two years to come to a hearing), the Appellant has gone into administration with the loss of over 100 jobs at a time of economic hardship.

21.  Turning first to the question of delay.  The first seizure which is the subject of this appeal took place on 1 May 2008.  HMRC's review of the seizure was concluded by the review letter dated 31 July 2008, a period of two months.  The second seizure took place on 3 July 2008 and HMRC's review was concluded by the initial review letter dated 31 July 2008, and following further submissions by the Appellant by the final review letter dated 24 September 2008, a period of less than three months. Neither of these periods can be considered excessive. The appeal notices relating to these reviews were lodged with the tribunal on 30 August and 23 October 2008 respectively.  It has taken just over one year for the two appeals to come to trial from the date of the appeal notices – which is not outside the boundaries of the time that Excise matters take to reach trial. Overall, it has taken 18 months to get to the hearing from the date of the first seizure, not "over two years".  The reason for the appeals taking this length of time to come on for hearing may be in part as an indirect result of the application by the Respondents for the two appeals to be heard together.  There was clear justification for the two appeals to be heard together.  We do not consider that the application made by the Respondents for this to happen to be a delaying tactic.  Although we can sympathise with the desire of the Appellant that these appeals should have been heard sooner, the overall time taken is not so long that it gives rise to injustice.

22.  We regard the cooperation and organisation of the Appellant as being, at best, a neutral factor in the appeal.  Although the Appellant eventually provided copies of documents, with translations, when asked by HMRC for further information, its initial reaction in relation to the seizure of trailer GD 6596P, was to refuse to provide the information on the basis that it was confidential.  When documents were supplied, they were extracts only.  Although the Appellant asserted that it took smuggling by drivers seriously, and undertook appropriate training and imposed appropriate disciplinary measures – there was no evidence to support these assertions.  Assuming such training and disciplinary measures were in place, they were clearly ineffective, given the history of smuggling by the Appellant's drivers using its vehicles and trailers.

23.  The Appellant refers to the seizures being disproportionate given the case history.  The case history of the Appellant is that its drivers and vehicles were involved in five cases of smuggling in a period of five months.  One of its drivers had been involved in a previous case of smuggling.  The smuggling by Mr Jagielski involved 928,000 cigarettes attracting nearly £160,000 of excise duty.  We were told by counsel for HMRC that Mr Jagielski received a custodial sentence for this offence. 

24.  The Appellant had been warned in writing that if its vehicles continued to be used for smuggling, they would be seized and not restored. Given the history of the use of the Appellant's vehicles for smuggling, we consider that the measures taken by the Appellant to prevent its drivers from smuggling were inadequate. 

25.  We are therefore of the opinion that Mr Harris and Mrs Hodge acted reasonably in reaching their decisions that the tractor unit and the two trailers should not be restored to the Appellant.

26.  We note from the papers before us, that the tractor unit was being leased by the Appellant from Handlowy Leasing Sp. Z. o. o.  There is no suggestion that the lessor was in any way complicit in the smuggling.  We were assured by the Respondents that Handlowy Leasing would be given an opportunity to seek restoration of their tractor unit once these appeals had been resolved.

Conclusions

27.  The appeal is dismissed.  The Respondents did not apply for costs, and no order as to costs is made.

28.  The hearing having taken place in the absence of the Appellant, the Appellant has a right to apply for this decision to be set aside.  The Appellant has a right to apply for permission to appeal against this decision.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this Decision Notice.

Nicholas Aleksander

TRIBUNAL JUDGE

RELEASE DATE: 2 December 2009