[2010] UKFTT 9 (TC)

TC00328

EXCISE DUTY – hydrocarbon oil – assessment to duty – taking in and use of red diesel on public roads – whether quantum of assessment reasonable and to best judgment – appeal dismissed – Sections 12 and 13 (1A) Hydrocarbon Oils Duties Act 1979

FIRST-TIER TRIBUNAL (TAX CHAMBER)

                                          MARK PEERS T/A ALWAYS ACCESS                        Appellant

- and -

THE COMMISSIONERS FOR

                                      HER MAJESTY’S REVENUE AND CUSTOMS         Respondents

Tribunal:        Ian Vellins (Judge)

                        Mary Ainsworth (Member)

Sitting in public in Manchester on 18 November 2009

The Appellant appeared in person

Kim Tilling, counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

The appeal

1.           The Appellant, Mark Peers, is a partner in a mobile access plant hire and window cleaning business operating under the trading style of Always Access from an address in Cheshire.  He appeals against the decision of the Respondents (“HMRC”), on review dated 2 December 2008, upholding a decision to assess the Appellant pursuant to Section 13 (1A) of the Hydrocarbon Oils Duties Act 1979 (“HODA”) in the sum of £800.40, following HMRC having ascertained that there had been a taking in and use of rebated heavy oil (red diesel) in a road vehicle owned by the Appellant.  Officers of HMRC on 22 April 2008 had tested the fuel in a Mercedes van which was one of the vehicles owned by the Appellant, and found that a fuel sample tested positive for red diesel.  HMRC had thereafter requested the Appellant to supply records in order to enable HMRC to undertake a road fuel audit on the fuel usage of the vehicles used in the Appellant’s business, and after correspondence with the Appellant, HMRC had issued a notice of assessment dated 27 August 2008 in the sum of £800.40, which HMRC had assessed as representing an amount equal to the rebate of duty in respect of the Appellant’s misuse of red diesel in respect of the Appellant’s six vehicles for the period of three years prior to the date of detection.  The Appellant then requested a formal review of that decision, which was made by HMRC on 2 December 2008 upholding the original decision in full.

2.           At the hearing of this appeal the Appellant attended in person to represent himself, and gave evidence.  Evidence was given on behalf of HMRC by Carol Kunderan, the review officer.  We had before us a bundle of documents produced by HMRC.

The issue in dispute

3.           The Appellant did not dispute that red diesel oil had been taken into his road vehicle as fuel, and had been used as fuel for his Mercedes van vehicle in contravention of Section 12 of HODA 1979.  Further, the Appellant did not dispute that HMRC had the power to make an assessment against him.  The issue in dispute was as to the quantum of the assessment, and whether the Commissioners acted reasonably and to best judgment in assessing the amount of £800.40 as being the amount of excise duty due from the Appellant.

The law

4.           Section 12 (2) of the Hydrocarbon Oils Duties Act 1979 (“HODA”) provides that no rebated heavy fuel shall;

            “(a) be used as fuel for a road vehicle; or

              (b) be taken into a road vehicle as fuel”.

5.           Section 13 of HODA provides that where oil is used, or taken into a road vehicle, in contravention of Section 12 (2), HMRC may;

“(a) assess an amount equal to the rebate on like oil at the rate in force at the time of the contravention as being excise duty due from any person who used the oil or was liable for the oil being taken into the road vehicle, and

 (b) notify him or his representative accordingly”.

The background

6.           On 22 April 2008 officers of HMRC detected rebated fuel, otherwise known as gas oil (red diesel) in the fuel tank of one of the Appellant’s vehicles, a Mercedes van, which had been driven by an employee of the Appellant, Gary John Wignal, on a public road.  The officers interviewed Mr. Wignal under caution and established that the vehicle was owned by the Appellant, who owned other vehicles including cherry pickers and vans in respect of the Appellant’s business based in a yard in Cheshire.  Mr. Wignal told the officers that Mr. Wignal had not refuelled the vehicle and was unaware of how red diesel came to be in the running tank of the vehicle, but that the Appellant stores red diesel in a tank at the yard in Hyde, Cheshire for the purposes of fuelling the plant.

7.           On 25 April 2008 the Appellant was interviewed by officers of HMRC, during which he confirmed that he was the owner of the Mercedes van, and that he owned a number of other vans and access platform trucks.  He stated that he was unaware why red diesel was detected in his vehicle but theorised that one of his employees had fuelled it from the storage tank containing red diesel at the yard, although he did not know which employee had done so.  He told the officers that ordinarily the vehicles were refuelled at a Texaco petrol station in the locality of his yard, and that he paid for the fuel over the telephone at the time of fuelling using his debit card.  He also stated that otherwise the vehicles were fuelled at Morrisons petrol station and that he met the drivers there and paid for the fuel with his debit card.  He stated that he purchased red diesel from Watson Petroleum, which was kept in a storage tank in his yard which had a capacity of 5,000 litres and was refilled every two months.  He stated that the red diesel storage tank was kept locked and the key was kept at the yard, but that records as to the use of the red diesel from the storage tank were not kept and no meter was attached to the red diesel storage tank.  He confirmed to the officers that he took responsibility for the detection of the red diesel in the Mercedes van which had been driven by Mr. Wignal.  By letter dated 2 June 2008 HMRC contacted the Appellant and requested records in order to undertake a road fuel audit on the fuel usage of the business, identifying the nature of the documents required.  The Appellant provided some of the records requested by the Respondents, but on a number of subsequent occasions HMRC requested MOT certificates for the vans, current odometer thereof and other documentation which had been earlier requested but not received.  Thereafter, there were various letters between HMRC and the Appellant, and an audit by HMRC based on a reconciliation of the receipts of ordinary DERV fuel provided by the Appellant and an analysis of the fuel required to perform the total miles travelled by the Appellant’s vehicles, which showed that there was a shortfall in the receipted purchases of DERV.

8.           By letter dated 4 August 2008 the Appellant challenged the calculations in HMRC’s audit on the grounds that HMRC’s audit figures covered the fuel usage of all the vehicles in the ownership of the Appellant, whereas red diesel had been detected in only one vehicle.  In addition the Appellant advised HMRC that a number of his receipts had been lost or never received, that three of the vehicles had also been used for private mileage by the drivers, and the fuel purchases for such use had not been retained.  The Appellant further argued that his brother had used two of the vehicles in the course of the brother’s own business and had purchased fuel for which the Appellant did not have the receipts.  He also claimed that some of his employees had fuelled the vehicles and not claimed back the costs of the same, and therefore he had no receipts to show for this.

9.           By letter dated 19 August 2008 HMRC replied to the points made by the Appellant in his earlier letter and requested documentary or suitable alternative evidence to support the Appellant’s assertions as to the nature of extent of the use of the vehicles, and the claim that further purchases of DERV had been made in the course of the business, allowing the Appellant an additional period until 26 August 2008 to provide the additional information.

10.        In the absence of any additional submissions by the Appellant, HMRC issued a notice of assessment dated 27 August 2008 in the total sum of £800.40 with a covering letter providing an explanation of the grounds of assessment and attached a schedule of calculations used to arrive at the assessment.  The assessment represented an amount equal to the rebate of duty in respect of the Appellant’s misuse of red diesel, the basis of which was (a) the mileage of each of the Appellant’s six vehicles owned within the period of assessment as recorded in their respective MOT certificates, (b) the miles per gallon achieved by each vehicle as published by objective sources, (c) limiting the assessment to the period of three years prior to the date of detection and taking into account the period of ownership of each vehicle, and (d) applying the relevant duty during the period of the assessment.

11.        Following a request by the Appellant, HMRC undertook and issued a formal review of the decision dated 2 December 2008 advising that the issuing officer’s earlier decision to assess the Appellant had been upheld in full.

12.        The Appellant appealed and in his notice of appeal stated as the grounds of his appeal;

“I have not put red fuel into my company vehicles over the last three years, but the VAT are assuming I have because I can not provide all of my fuel receipts due to three office moves and not keeping receipts for fuel I can not claim VAT on.  Included in the Customs mileage total they have not allowed for the fact my brother had use of one of my vans for trading at summer shows up and down the country.  I also tow a caravan for which I did not keep the fuel receipts but I can prove a visit to France”.

The evidence at the hearing

13.        In HMRC’s bundle of documents was a witness statement from the officer who had interviewed the Appellant’s driver, which was accepted by the Appellant, who did not challenge the Appellant’s liability to an assessment as the owner of the vehicle under Section 27 HODA.  The bundle contained the correspondence and documents, including schedules of the DERV fuel receipts which had been produced by the Appellant.  The bundle contained the interview notes.

14.        We heard evidence from the review officer, Carol Kunderan.  She explained how the quantum of the assessment had been made by the original officer, Mr. Goodliffe, as set out in his schedules.  These schedules had been compiled from information provided by the Appellant.  The officer had made calculations based on the six vehicles owned by the Appellant and used for his business, not including the access platforms.  In respect of each of the six vehicles, documentation had been received as to the dates during which the Appellant had owned the vehicles, the opening mileage and closing mileage figures and dates, and applying a three-year cap the officer had calculated the number of days used, the average daily miles, and applying a miles per gallon figure from objective sources, had calculated the amount of litres of fuel required for each vehicle to perform that mileage.  The officer had calculated that the total litres required for all six vehicles during the relevant period was 20,809 litres.  The officer then calculated in schedules the total of the receipts or invoices provided by the Appellant for the purchase of fuel for the six vehicles, which totalled 19,104 litres.  There was therefore a difference of 1,705 litres, representing a shortfall which was not accounted for in the Appellant’s invoices and receipts.  The officer then calculated the duty in respect of such shortfall as £800.40, which was the amount assessed against the Appellant.

15.        Officer Kunderan confirmed that all of the receipts provided by the Appellant for the purchase of fuel for the six vehicles had been taken into account in the calculations.  She confirmed that she had considered in her review decision the contention of the Appellant that his brother had used one of the vehicles for his own business and for holiday purposes, but she stated that HMRC had not been provided with any evidence that the brother of the Appellant had actually used the vehicle, and no evidence of the mileage so undertaken.  She also confirmed that she had considered the Appellant’s claim that one of the vehicles had been used by the Appellant for a visit abroad, but she considered that no evidence had been provided by the Appellant to prove that he actually did take a vehicle abroad on holiday or how much mileage was performed.  No satisfactory evidence had been produced by the Appellant that he had purchased additional fuel to that contained in the invoices and receipts supplied.

16.        We heard evidence from the Appellant himself, who argued that he did not consider that it was fair and reasonable that HMRC should assess him on the basis that red fuel would have been used over three years in his six vehicles, when it had only been detected on one occasion in one of his vehicles.  He stated that he had moved premises to two further premises during the course of the three years, and while he kept fuel receipts and invoices in envelopes in the form of document wallets, he had been unable to provide each and every receipt and invoice for fuel purchased in respect of the six vehicles during the three year period.  He agreed that he was unorganised and was unable to find all the receipts.  He agreed that he had not attempted to find any missing information by reference to his bank statements, which should reveal if there had been any further purchases of fuel from the relevant garages in addition to those shown on the receipts and invoices he had provided to HMRC.  He confirmed that he had not kept records or details of mileage in respect of private use of any of the six vehicles by himself, his brother, or any of his employees.  He stated that he had used two of the vehicles to tow his caravan on holidays, but had not provided details of such mileage, or any receipts for fuel, or bank statement as evidence of the purchase of such fuel.  He stated that his brother had used one van during two summer periods for the brother’s own business selling bags at shows, but he had not obtained any evidence from his brother as to the purchase of fuel during those periods, or the mileage covered.  He stated that his brother now lives in Denmark.

17.        The Appellant said that the employees who drove the vans could take the vans to their homes overnight, but were required to pay for their own fuel to drive to and from work or for private purposes.  He contended that such private use had not been taken into account in HMRC’s calculations.  However, when questioned about this matter he confirmed that he had not sought evidence from the employees as to the extent of any such private use, and when questioned about the place of residence of each employee, it appeared that the employees lived either in the same town as the Appellant’s premises or within only a few miles of the premises.  He had no evidence of the private use of any employees in respect of the vehicles.

18.        The Appellant denied that he or his wife – who were in partnership in the business – had ever fuelled the vehicles with red diesel, and he contended that the red diesel found by HMRC in one of his vehicles on the date in question, had been inserted by one of his employees who could not be bothered to take the vehicle to the filling station and had fuelled the vehicle from the Appellant’s red diesel tank.

19.        The Appellant could not explain why all the invoices for fuel had not been retained in his envelopes.  He confirmed that the diesel fuel tank in his yard, although locked, was accessible by a key which was available 24 hours a day at his premises.  He did not keep records as to the amounts of red diesel fuel used, and there was no meter on the red diesel fuel tank.  He confirmed that he was registered for VAT, had a bookkeeper and used an accountant.  He said that neither he nor his bookkeeper had considered looking at the bank statements for evidence of fuel purchased that had not been covered by the invoices and receipts in the envelopes.

Our findings of fact and our decision

20.        We find that the Appellant is a partner in the plant hire and window cleaning business, trading as Always Access.  In addition to other vehicles, the Appellant owns and operates in connection with his business six vehicles.  On 22 April 2008 officers of HMRC detected and tested that red diesel oil was being used in the fuel tank of one of those vehicles, a Mercedes van, driven on a public road by an employee of the Appellant.  Red diesel had accordingly been taken into a road vehicle as fuel and had been used as fuel for the road vehicle in contravention of Section 12 of HODA 1979.  Under Section 13 of HODA, HMRC had the power to assess the Appellant to excise duty.  The Appellant as the owner of the vehicles is liable for the amount so properly assessed.  The Appellant in this appeal has accepted that there has been a breach of Section 12, that he has a liability under Section 27, and that he is liable to an assessment of excise duty.  He contests the amount of the assessment.  The issue in this appeal therefore is as to the amount of the assessment; namely as to quantum.

21.        The Appellant stored in his yard red diesel in a tank which was for a use not connected with the fuelling of these six vehicles.  That tank was locked but was not metered.  The key to the tank was left at the Appellant’s premises for 24 hours each day where it could be accessed by the Appellant’s employees.  The Appellant did not keep a check or records of the amount of red diesel taken from the red diesel tank.  The Appellant assumed, and indeed told the officers of HMRC, that one of his employees must have filled the Mercedes van with red diesel fuel from the yard, being too lazy to go for fuel to the normal white diesel fuel outlet.  The Appellant asserted that this was a one-off incident, but he was unable to provide any satisfactory evidence that this was the case.

22.        In order to investigate further, HMRC requested the Appellant to provide evidence of the use of the vehicles, and the fuel purchased in respect of such vehicles.  HMRC requested the invoices and receipts for the purchase of white diesel fuel to compare with the mileage recorded for the vehicles, and the amount of fuel required for such mileage.  The officers having conducted that investigation found a difference of 1,705 litres between the litres required for the vehicles and the litres of white diesel fuel purchased as shown in the Appellant’s receipts and invoices.  The officers considered that this difference of 1,705 litres represented red diesel fuel which had been used in the vehicles, for which the appropriate excise duty had not been paid, such duty amounting to £800.40.

23.        The Appellant was asked by HMRC to provide evidence that this shortfall of 1,705 litres did not result from red diesel fuel being used by the vehicles.  The Appellant did not supply satisfactory evidence in relation to such shortfall despite numerous requests by HMRC.

24.        When the Appellant and his employees purchased fuel for the vehicles various systems were used for such payment.  Payment was either made by a fuel card, by the Appellant going to the petrol station to accompany the driver, by payment being made by telephone with the aid of a banker’s card, or an employee making payment and giving the Appellant the receipt.  All these systems would require the Appellant to have documentary evidence of the purchase of fuel in the form of a receipt, or invoice, with evidence of payments by banker’s card being noted in the Appellant’s bank statements.

25.        The Appellant is registered for VAT and is required to keep adequate and satisfactory records.  The Appellant has claimed that the shortfall can be accounted for by an explanation that there was fuel purchased for which the Appellant has been unable to find his invoice or receipt.  He has moved premises, but gave evidence that he did keep all his receipts and invoices for fuel purchased in filed envelopes.  The Appellant has not produced the missing invoices or receipts, and has not sought from his bankers evidence from his bank statements and debit or credit card statements showing the purchase of white diesel fuel from garages for which he had not found the invoices or receipts.  The Appellant has not satisfied us that there were purchases of white diesel fuel for the vehicles during the relevant periods, which had not been revealed in the invoices and receipts which he supplied to HMRC.

26.        The Appellant further claimed that some of the difference in the mileage could be explained by his claim that he used one of the vehicles to pull his caravan on holidays, the fuel for which he paid in cash.  The officers were not satisfied with such explanation, and we find that that explanation is not credible.  The Appellant has not produced any documentary evidence as to such claimed cash purchase, nor has he provided any figures for the number of miles so travelled.  Another explanation for some of the shortfall in mileage put forward by the Appellant was that his brother, during two summer periods, used the Appellant’s vehicles to transport some of the stock of the brother’s business to various shows.  No evidence of such use has been provided by the Appellant or his brother, nor details of the amount of any such claimed mileage.  The Appellant has also claimed at the hearing that some of his employees paid for and put in to the vehicles petrol for their own private use to travel to and from work, but the evidence of the Appellant was that all the employees lived in the same town or near the Appellant’s place of business, and no evidence has been provided by the Appellant that any employees paid for and put into the vehicles fuel for their own private use.  We find that the assertions of the Appellant relating to the shortfall are unsubstantiated.

27.        We find that in the absence of the Appellant providing appropriate records or other evidence to demonstrate the credibility of the claimed additional purchases of white diesel fuel, HMRC acted reasonably in making an assessment on the basis that the difference between the calculated fuel used for the mileage of the vehicles, and the white diesel fuel evidenced as purchased in the Appellant’s records was red diesel fuel which had been fuelled into the Appellant’s six vehicles and used on the roads.  We find that the calculations made by HMRC were based on satisfactory methods, calculated in respect of each vehicle for an appropriate period and for a mileage performed by each such vehicle.

28.        We find that the officers acted reasonably and to best judgment in reaching their assessment and decisions.  We find that from a starting point of some red diesel found in the tank of one of the Appellant’s vehicles, for reasons which the Appellant could not explain, HMRC were clearly entitled via the rest of the evidence to reach the conclusions that they did as a matter of inference that red diesel fuel had been used over a period of three years in the Appellant’s vehicles, the amount of which was properly calculated as the difference between the fuel consumed by those vehicles and the amount of white diesel fuel evidenced as purchased by the Appellant in his records of invoices and receipts retained by him.

29.        We find that the assessment was issued and calculated reasonably by the officers of HMRC and to the best of their judgment.  We find that they have based their assessment on all the evidence before them and that they have not disregarded any material matter.  We find that the assessment was not raised capriciously or dishonestly, and we find that the assessment was based on a genuine attempt to calculate the amount of duty due, having given the Appellant every opportunity to substantiate his assertions.  We find that HMRC were justified in making the assessment and in calculating the assessment in the sum of £800.40.

30.        We therefore dismiss the appeal.

MAN/2008/8010

IAN VELLINS

JUDGE
Release Date: 8 January 2010