Trapps Cellars Ltd (in liquidation) v Revenue & Customs [2014] UKFTT 149 (TC) (11 November 2013)
DECISION
Background
1.
The appellant (“Trapps”) was approved as a general storage and
distribution warehouse under s 92 of the Customs and Excise Management Act 1979
(“CEMA”). It moved excise goods in duty suspension to other approved excise
warehouses.
2.
HMRC raised three assessments on the appellant on 14 August 2002
relating to movements of excise goods from its warehouse in 2001. The
appellant appealed and did not pay the assessments. As the assessments were
not paid, HMRC withdrew its warehouse licence. That decision is under appeal
but stayed behind this appeal which concerns only the assessments.
3.
The appellant went into administration on 25 October 2002 and a
liquidator was appointed on 14 May 2003. The liquidator authorised the former
director of the company, Mr John Davis, to pursue the appeal on behalf of the
company in this Tribunal.
4.
The three assessments were on transactions which fell into three
categories: those where the goods were to be moved from Trapps to Serio Import
Export warehouse in Italy (which we shall refer to as Serio), those where the
goods were to be moved from Trapps to a warehouse in Italy called Micholotti
Renato SRL (which we shall refer to as “MTB”) and those to be moved to a
warehouse in Portugal, Garcias Comercio e Industria. Just before the start of
the hearing the appellant withdrew its appeal in relation to the Garcias
movements and we do not refer to these transactions again.
5.
One of the two disputed assessments was for £848,071 and was in respect
of eight despatches to MTB. The assessment was later reduced by £209,389 to
£638,682 because two of the consignments had been originally stopped by HMRC
from leaving Trapps. (They left later but under the owner’s guarantee so HMRC
now accept that the appellant has no liability in respect of them.) The other
disputed assessment was for £962,344 and was in respect of 8 movements to Serio.
It was later agreed that the assessment had been miscalculated by £123,370 and
this assessment was reduced to £838,974.
6.
The appeal in front of the Tribunal was therefore only concerned with
the assessments arising out of the Serio and MTB movements.
Facts
7.
Under s 16(6) Finance Act 1994 the burden of proof in this appeal is on
the appellant. This provides:
S 16(6)
On an appeal under this section the burden of proof
as to –
(a) [not relevant]
(b) [not relevant]
(c) [not relevant]
shall lie upon the Commissioners; but it shall
otherwise be for the appellant to show that the grounds on which any such
appeal is brought have been established.
Background
8.
There was an agreed statement of facts and we make the findings of facts
in §§ 9-12 based on it.
9.
The appellant’s premises were at Tooley Street in London. It was
registered as an authorised warehousekeeper under the WOWGR regulations with
effect from 1 August 1999. It was approved under CEMA as both a customs and
excise warehouse.
10.
Its excise warehouse approval meant that it was entitled (amongst other
things) to move excise goods in duty suspension to an approved tax warehouse
elsewhere in the EU. It was only entitled to move goods within the EU on
payment of the duty OR if the goods were despatched to another excise approved
warehouse.
11.
It was a condition of its approval that it complied with all relevant
provisions of the law and the conditions set out in notice 197. One of these
requirements was to have in place a guarantee from a bank or similar to
guarantee the payment of duty that would become payable if a duty suspended
movement was subject to an irregularity. It was agreed that Trapps did have a
movement guarantee in place.
12.
All the goods were released under Administrative Accompanying Documents
(“AADs”). The parties were agreed that the warehousekeeper was required by law
to issue a 4-part AAD when the goods were despatched to another Member State. One copy is kept and the goods are accompanied by the other three copies.
The receiving warehouse should endorse one of these three copies and return it
to the UK warehouse keeper no later than 15th day of month after
month of despatch. If the warehousekeeper does not receive the AAD, it is
required to notify HMRC. In this case Trapps did receive back AADs in respect
of all 14 consignments, but does not challenge HMRC’s case that the AADs were
not properly endorsed.
The witnesses
13.
The evidence of some witnesses, and in particular those described as the
shipping line witnesses, was uncontested, and we refer to this below. Evidence
from the remaining witnesses was contested, and we make the following findings
based on the evidence which we heard:
The veracity of the HMRC officers who gave evidence
14.
Mr Young challenged the evidence of some of the HMRC officers. We
consider whether any of the challenges were justified.
DCLs
15.
We find from what Officer Mountford (a senior HMRC officer in policy)
said that letters known as “DCLs” were used by HMRC in excise matters to
circulate information to targeted HMRC officers. They were used in the 1980s
and 1990s and were replaced by computer messages and online guidance in around
2000. Officer Mountford was uncertain whether DCLs were still used in 2001.
16.
This evidence was consistent with what Mrs Thompson, who was also a
longstanding if more junior officer in excise, said. She believed that DCLs
stood for “dear collector letters” although counsel believed it stood for “dear
colleague letters”. Each officer whose name was on the circulation list
attached to the DCL was required to read the letter and then sign to say that
they had read letter before passing it on.
17.
Officer Mercer did not know what a DCL was. While she was a
long-standing HMRC officer, she only joined excise (from VAT) in about 2001.
We had no evidence that DCLs were used on the VAT side of HMRC at that time and
therefore we accept her evidence that she did not know what they were. They
were phased out before or at about the time that she joined excise. Therefore
we do not find that there was any reason for her to have come across a DCL.
18.
Officer Davies also gave evidence that he did not know what a DCL was.
Counsel put it to him that he was lying. He denied this and we accept his
denial. Officer Davies was a criminal investigator who had previously been in
VAT investigations prior to joining excise investigations in about 2001.
Again, we do not find that there was any reason why he would have known what a
DCL was.
19.
The only relevance that DCLs have to this appeal was that it was part of
Mr Young’s case that the evidence given by HMRC officers was untruthful
(especially with regards whether there was a live investigation into excise
fraud involving the appellant in 2001) and he relied on what they said about
DCLs to show that, in his opinion, their evidence could not be trusted.
20.
We reject his case on this. For the reasons we have explained, the
evidence on DCLs does not show any of the HMRC officers’ evidence to be
unreliable.
London City Bond
21.
Another not directly relevant matter which Mr Young relied upon to
demonstrate that in his opinion the officers were untruthful was the
investigation involving London City Bond (“LCB”) in the 1990s which led
ultimately to the Butterfield report of 2003.
22.
Officer Mercer’s evidence was that she was unaware of the very public
criticism of HMRC over the LCB investigation at the time and only became aware
of it some time after becoming an intelligence officer, which was after the
events in this appeal. Mr Young did not consider this truthful because, he
said, the LCB “scandal” was reported in newspapers. We do not agree: Officer
Mercer’s evidence seems entirely credible to us. It is nothing but a
groundless assumption on Mr Young’s part that all HMRC officers read everything
published in newspapers and would have known about the LCB “scandal”.
23.
Mrs Thompson’s evidence was that she was at the time unaware and
remained unaware of the LCB “scandal”. Mr Young suggests that this evidence
was not credible. However, apart from his assumption that all HMRC officers
would know about it, we were given no reason to find that Mrs Thompson would
have known about it. She was a fairly junior officer in Glasgow doing a very
specific job and with no connection to any criminal investigations undertaken
by HMRC in London. It seems to us quite credible that she would not have known
about it and we accept her evidence on this.
Location of 13 August meeting
24.
A third seemingly irrelevant matter on which Mr Young pinned an allegation
of dishonesty was the location of a meeting on 13 August 2002 between Officer
Parsons (part of the Fulcrum Initiative, described below) and Officers Mercer
and Lawler, who had responsibility within HMRC for Trapps at the time. At this
meeting Officer Parsons showed the assurance officers the evidence he had
collected that demonstrated in his opinion that the consignments the subject of
this appeal had failed to arrive at their destination warehouse. Officers
Mercer and Lawler agreed that Trapps should be assessed on the basis of this
evidence and immediately raised the assessments, which were served on Trapps
the following day.
25.
The evidence showed that this meeting took place at Dorset House in London. Part of that evidence was Officer Mercer’s witness statement which stated that the
meeting was at Dorset House. Mr Young’s submission was that her oral
evidence was inconsistent with this and placed the meeting at an hotel, thus
making (in his opinion) all her evidence unreliable. However, the notes of both
members of the panel record her oral evidence was that the meeting was at
Dorset House: the reference to a hotel came about because she mentioned that
she had stayed in an hotel overnight before the meeting. So we find that there
was no inconsistency in her evidence.
26.
In summary, we found nothing in these allegations by Mr Young to make us
doubt the veracity of the HMRC officers who gave evidence to this Tribunal. In
any event, Officer Mercer’s evidence was peripheral to the main issues. And
while Officer Parson’s evidence did concern the Fulcrum Initiative and the
question of whether there was a live HMRC investigation in 2001, it was
consistent with what other HMRC officers said, whose veracity was not
challenged. We accept as reliable all the evidence given to us by the HMRC
officers concerned.
Keeping of pocket books
27.
Mr Grunwell was the UK’s fiscal liaison officer (“FLO”) in Italy in the second half of 2001. His evidence was that he did not keep pocket books at
that time. All the notes he made would have been condensed into intelligence
reports which were sent back to the UK and retained (and disclosed in this
appeal), while the notes were not kept. He said that at the time it was not a
requirement for FLOs to keep pocket books although this has now changed.
28.
Mr Young said Mr Grunwell’s evidence on this was not credible. Mr Young
relied on Officer Davies’ evidence that HMRC officers did use pocket books at
the time. However, we find Officer Davies was talking about HMRC officers in
the field and was making no comment on whether FLOs were at the time required
to keep pocket books. Therefore, we find no evidence to contradict Mr
Grunwell’s evidence that at the time he was not required to, and did not, keep
a pocket book. We accept Mr Grunwell’s evidence.
Conclusion
29.
We were unable to accept as justified any of the criticisms made of
HMRC’s witnesses. We accepted their evidence.
Mr Davis
30.
Mr John Davis was the sole director of appellant. He founded the
company in 1982, after many years of working as an employee in bonded
warehouses. Trapps had a turnover of about £1million per annum.
31.
It had about 1,000 predominantly private clients with small holdings of
fine wines and high quality cognac, who paid Trapps to store them. It had a
small number of commercial clients, which accounted for a significant part of
its revenue. These clients moved goods between bonded warehouses. Most
movements involving Trapps prior to the deals at issue in this appeal involved
imports to the UK rather than exports from the UK
32.
It lost its main commercial customer in Spring 2001 and was looking for
new business to replace it. It found a new client in Goldhirst Ltd, and later
in Mr Coutts. Mr Davis’ evidence was that he assessed that physically Trapps’
warehouse could cope with the movements of bonded goods required by these
businesses but he carried out no other kind of risk assessment on the new
business.
33.
We find this new business was exporting large quantities of generic
branded sprits such as Smirnoff and Famous Grouse whisky.
34.
Mr Davis also said that at the time of the movements in question, by law
only warehousekeepers could give movement guarantees. Later he was shown
Notice 197 which states that a movement guarantee could also be provided by the
owner or transporter and he agreed his earlier statement was wrong. He said
that he was previously unaware of this and regretted that Trapps had not got
the owner or transporter to provide guarantees in respect of the 14
consignments at issue. This shows that at the time Mr Davis was not fully
aware of the contents of Notice 197, even though it was a requirement of his
licence that he complied with the Notice.
35.
Mr Davis accepted that there were accounting isssues at Trapps in the
year to June 2001. We find that the accounts for that year were qualified by
the auditors on the grounds Trapps’ “system of internal controls is inadequate
to provide safeguards of assets and to assure proper recording of
transactions”. The notes to the accounts record that staff in the accounts
department were replaced.
36.
A visit by Officer Lawler in March 2002 discovered problems with Trapps’
systems and security. We further find that Mr Davis wrote to HMRC on 24 May
2002 in response to an error made by Trapps in April 2002 and identified by
HMRC, saying “we accept that prior to 12 April 2002 our business records were
in a less than satisfactory state, caused in part by over-stretched and
under-confident staff. However, the staff member in charge of keeping business
records has been replaced by two people…..we acknowledge and appreciate that
the imperfections of our former record keeping system were of concern to
HMRC….” Officer Mercer’s evidence is that she wrote to Trapps in July 2002
about the poor state of their business records and in particular that her visit
to them a week earlier had shown that they had two separate systems of
recording goods which could not be cross referenced making it impossible to
verify status, owner, or location of goods within bond. She found it was
impossible to audit that what was in the warehouse was in the warehouse’s
records.
37.
Mr Davis was adamant that the accounting/recording inadequacies in 2001
and 2002 were of very limited nature. We do not accept this assessment of the
deficiencies, however understandable, as reliable. We find that at the time in
question Trapps’ methods of recording movements were unreliable and led to
qualified accounts and concerns from HMRC.
Trapps’ movement guarantee
38.
All the 14 AADs at issue in this case recorded that the movement
guarantee was provided by Trapps. It was agreed by Mr Davis that a condition
of Trapps’ licence was that it held a movement guarantee and that it did hold
one during the period at issue in this appeal.
Serio
39.
All 8 movements in issue which stated on their AADs that they were
destined for Serio involved large quantities of popular bulk spirits, such as
Smirnoff and Famous Grouse whisky.
40.
In all 8 movements the owner of the spirits was Mr Frazer Coutts trading
as Rocket Fuel Drinks Company (“RDF”), the buyer was stated to be Valletta
Trade and Consultancy (“Valletta”), and the haulier was stated to be Graham
Chadwick. All 8 AADs were (at least purportedly) signed and stamped as received
by Serio and by the Italian tax authorities in Bergamo.
41.
For the first three movements the AADs were all dated 8 October 2001.
For the next three movements the AADs were all dated 11 October 2001. The
seventh AAD was dated 17 October and the eight was dated 19 October 2001.
Serio’s bonded warehouse licence
42.
It was not in dispute and we find that Serio’s bonded warehouse licence
was revoked on 29 June 2001 which was before any of the shipments at issue in
this appeal.
43.
We accept the evidence from HMRC obtained from the Italian tax
authorities that, bar two consignments earlier on, Serio never operated as a
warehouse and its licence was revoked because it had lost possession of its
purported warehouse.
Valletta Trade & Consultancy
44.
HMRC’s evidence, based on information from the Maltese authorities via a
mutual assistance request, which we accept, is that the company was not
registered in Malta and its given address (Milito Street in Malta) was false.
Mr Coutts
45.
Mr Coutts traded as Rocket Fuel Drinks. He had virtually no trading
history. He was assessed for unpaid duty, appealed, made bankrupt, and the
appeal was withdrawn. There have been no payments to his creditors.
Did the Serio goods arrive?
46.
HMRC produced evidence from the Italian Tax authorities that from an
inspection of the warehouses books, none of the 14 consignments arrived.
Indeed, as noted above, Serio was not even operational at the time of the
consignments to it from Trapps. We find that the goods did not arrive at
Serio. We find that they were diverted after they left Trapps.
47.
As the goods did not arrive, it must be the case that the stamps affixed
to the AADs showing the goods’ arrival were false. We also accept HMRC’s
(hearsay) evidence from the Italian tax authorities that the stamps were
forged.
MTB consignments
48.
All 6 movements stated to be to MTB involved large quantities of popular
bulk spirits, such as Bells and Famous Grouse whisky.
49.
In all 6 movements the owner was Goldhirst Ltd (“Goldhirst”). The
Director of Goldhirst was a Mr Abid Mahmood. Goldhirst’s buyer was stated to
be L’Alambic, a business in France. The haulier was stated to be Maybank
Transporters. All 6 AADs were (at least purportedly) signed and stamped as
received by MTB and the Italian tax authorities in Trento.
50.
The AADs for the first four movements were dated 15, 29, 30 and 31
October 2001. The fifth and sixth were both dated 7 November 2001.
MayBank Transport
51.
We accept the evidence which shows that the address given by Maybank was
false. It was for “Barclay Avenue” in Reading, which does not exist. “Berkeley Avenue” does exist but we accept Mr Busson’s evidence that the address at the time
belonged to the business (Lok’n’store) of which he was the manager and was
nothing to do with Maybank Transport. Indeed, the evidence of the officer who
attempted to contact Maybank in December 2001 indicated that the person on the
other end of the phone did not want to be traceable.
Did the goods arrive at MTB?
52.
We accept HMRC’s hearsay evidence (which was not in dispute) from mutual
assistance requests to the Italian tax authorities that none of the consignments
from Trapps were shown in MTB’s books. We also accept the (albeit hearsay)
evidence that the AADs had false stamps and signatures. There would be no
point in forging the release on the AADs had the goods actually arrived. We
find that none of the 6 movements consigned by Trapps to MTB arrived at their
destination. The goods were diverted at some point after departure from
Trapps.
53.
In any event the burden of proof is on the appellant if it wishes to
assert that the goods arrived and we find that it has failed to do so. There
is consistent, albeit hearsay, evidence from the Italian tax authorities that
none of the 14 consignments to Serio and MTB arrived and that the stamps on the
AADs were false. We accept that evidence.
Did the 14 consignments leave the UK?
54.
Both parties were agreed that the evidence did not establish whether the
goods left the UK.
55.
Of the 8 Serio despatches, the only record from the various shipping
line (including Eurotunnel) witnesses, was that one vehicle left UK 6 days after it left Trapps and then it was in the tourist channel.
56.
Of the 6 MTB despatches, 3 of the vehicles were recorded as leaving the UK the day after the goods were despatched by Trapps. But at least one of the vehicles was
recorded as travelling empty and one returned too soon to have been to Italy and back.
57.
Both parties were agreed that this evidence proved little. Of the
vehicles which did cross the channel, there was no evidence that they were
hauling the same trailer with which they collected the goods from Trapps, or
even if they were, whether that trailer still contained the excise goods. But
this was true the other way around: there was no evidence that the goods
collected from Trapps with a tractor which did not cross the Channel remained
in the UK. A different tractor could have taken the trailer across, or the
goods could have been transferred to a different trailer and taken across.
58.
This is therefore a question which turns on who has the burden of proof
and we discuss this below at § 214.
SEED checks and fiscal checks
59.
Under EU law the UK was required to and did maintain a database which
contained EU-wide information on whether or not a warehouse within the EU was
authorised to receive excise goods. HMRC was required to and did undertake
checks of the information held on the database at the request of traders. The
database was called the SEED database.
60.
Mrs Thompson was the HMRC officer responsible for the SEED database at
the time of the events at issue in this appeal. Mrs Thompson was a long-standing
HMRC excise officer at the time but left HMRC in 2006. We found her to be a
confident and careful witness. She was very clear about what she did know or
remember and what she did not. As we have said above, we reject the
appellant’s criticisms of her evidence. We accept her evidence.
61.
It was only Mrs Thompson’s very small team which could enter information
on the SEED database. Only her team had a live copy of the database on which
changes could be entered. Each member State was obliged under EU law to send a
monthly update of its authorised warehouses to every other member State. Mrs Thompson’s team would update the information received from all other member
States onto the SEED database. We accept her evidence that the updates were
uploaded promptly and normally within 24 hours, although of course there was an
in-built delay as updates were only monthly and in any event the database could
only be as good as the information with which Mrs Thompson’s team was provided.
62.
In between monthly updates, her team would also add notes to the
information on the database if more up to date information was obtained. For
instance, if as a result of a specific, fiscal check (explained below) with a
member state she discovered that a particular warehouse had lost its approval,
she would not change the approval column in the databases but she would add a
note that traders were to be informed that that warehouse was not approved.
63.
The other responsibility for her team was to carry out checks of the
database (“SEED checks”) on behalf of traders and HMRC officers. Although some
HMRC offices might have a “dead” copy of the database (into which they could
not enter changes) they were not supposed to carry out SEED checks on behalf of
traders. If a SEED check request was received, her team would check the live
database and give the result to the trader. The SEED check would be negative
unless the details of the warehouse (name, address and authorisation number)
provided by the trader exactly matched the details on the SEED database.
64.
If the trader was not happy with the result, they could and sometimes
did ask her team to carry out a specific check with the relevant tax
authority. This was a type of mutual assistance request and was referred to as
a “fiscal check”. The result of this request would be communicated to the
trader, and might, if relevant, be used to update the notes in the SEED
database as mentioned above.
65.
It was Mrs Thompson’s evidence that if the Italian tax authorities had
included Serio’s loss of authorisation in June 2001 in their monthly updates,
this would automatically have been uploaded onto the live SEED database held by
Mrs Thompson’s team. We accept this evidence. We have no reason to doubt her
veracity and in any event it was consistent with evidence from the other HMRC
officers that no one knew of the loss of authorisation until 26 October 2001
when it was discovered following a fiscal check.
66.
We accept Mrs Thompson’s evidence that she had not seen Mr Grunwell’s
reports and was not aware in 2001 that MTB and Serio were the subject of an
Italian investigation (see §§111-126 below). We find that the first Mrs
Thompson knew about Serio losing its licence was 26 October 2001 (see § 79 and
128). We accept her evidence that she had no involvement with the Fulcrum
Initiative (see § below) other than to provide her witness statement on SEED
checks.
The SEED spreadsheet
67.
Immediately before the commencement of the hearing in 2012 the
appellant’s advisers asked HMRC to disclose copies of all the SEED checks
undertaken by the appellant. The appellant’s position was that all its records
were uplifted on 14 August 2002 (see § 110) and that HMRC had only returned
incomplete records and in particular had not returned the records of SEED
checks.
68.
Mrs Thompson’s team maintained not only the SEED database, but a
spreadsheet which recorded all enquiries made of the SEED database.
69.
In November 2012 all the Tribunal had in evidence was an extract,
attached to Mrs Thompson’s first witness statement made in 2003, from the SEED
spreadsheet showing checks on Serio by Goldhirst and one other trader (not
Trapps). At the hearing, after this length of time, she did not want to commit
herself to saying whether the extract showed all the enquires made in respect
of Serio, or just the enquiries made by these two particular traders in respect
of Serio.
70.
The discovery and production of the complete spreadsheet later in the
hearing showed that this extract was in fact a list of all the enquires made in
respect of Serio in that period of time.
71.
The reason for the discovery of the complete spreadsheet arose out of a
disclosure request made by the appellant. When questioning Mr Davies, Mr Young
complained that all the evidence which was kept for the potential criminal
prosecution of Goldhirst and Mr Mahmood (see §110) had not been disclosed to
the appellant. Mr Hill’s instructions were that all this material had been
thoroughly searched following disclosure orders made in the Trapps appeal and
relevant material disclosed. Nevertheless, it was agreed by counsel that HMRC
officers would conduct a search for the index to the material, in order to
disclose the index to Mr Young. They did so and in the process discovered the
SEED spreadsheet. We ordered it to be disclosed to the appellant. (An order was
required as it included names of many other traders).
72.
HMRC then applied for it to be admitted into the hearing. This was
opposed by the appellant. We admitted it. Firstly, the appellant only put the
SEED checks in issue immediately before the start of the hearing so HMRC could
not be criticised for not realising the relevance of the spreadsheet earlier.
Secondly, Mrs Thompson had referred to it in her evidence. Thirdly, it had the
potential to resolve the heated question of whether HMRC had failed to return
the alleged SEED check results to Trapps and in particular the question of
whether Trapps had made SEED checks and if so with what result.
73.
Mrs Thompson was recalled to give evidence in May 2013. Her evidence
was that the spreadsheet produced to the Tribunal was a complete record of all
SEED checks made on and between 1 December 2000 and 17 December 2001 in Glasgow by her team.
74.
The spreadsheet terminated on 17 December 2001 as on that date the old
SEED database was replaced by a new SEED database which allowed enquiries to be
logged directly into the database, obviating the need for a separate
spreadsheet. As this post-dates the movements in this appeal, we do not mention
it again.
75.
Mr Young criticises Mrs Thompson’ evidence. At the time of her second
witness statement she was no longer an HMRC officer and could not access the
SEED database. We consider this is true but irrelevant: she was entitled to
rely on her memory and in any event the old SEED database no longer exists and
at the time did not record checks made (the checks being recorded on the
spreadsheet)
76.
Mr Young suggested to Mrs Thompson that the spreadsheet was not complete
– even though each check was numbered and the spreadsheet contained every
number sequentially until the day it ceased. Mr Young put it to Mrs Thompson
that it was odd that it showed no checks against MTB at all. However, this was
a mistake by counsel. There were quite a few checks against MTB in the
spreadsheet.
77.
Mr Young also suggested it was not credible because it showed only one
check being undertaken by Trapps in just over one year. However, it seems there
is no basis to say that this is incredible. Mr Davis does not claim to have
carried out any SEED checks himself (§ 90). His claim is that his employees
would have done this, but they were not called to give evidence. We also note
that we have found that Trapps’ record keeping was unsatisfactory (§ 37) which
does not inspire us with confidence that SEED checks would have been carried
out. All in all, we were given no grounds on which we could assume that Trapps
would have carried out regular SEED checks, so we have no reason to doubt the
spreadsheet just because it shows that Trapps did not.
78.
Mr Young also stated that it was obvious that the spreadsheet was not a
complete record of all SEED checks in the relevant period because (he said) it
did not record some of the SEED checks which were in evidence in the Tribunal.
We could and do reject this criticism out of hand because he did not make it until
closing and failed to put it to Mrs Thompson, thereby depriving her of the
chance to give an explanation. It is a fundamental rule of justice that
witnesses ought to be given the chance to answer challenges to their evidence.
79.
Nevertheless, we note in passing that even without any explanation
which Mrs Thompson could have given had she been given the chance, the
criticisms are unfounded. For instance, the Tribunal had a SEED check carried
out by Mr Coutts t/a Rocket Fuel Drinks into Serio on 26 October 2001. It was
not, as Mr Young pointed out, listed in the spreadsheet for 26 October. But,
as cursory inspection shows, the spreadsheet was in numerical order. The fax
result contains the number of the check. Looking at the numbered check on the
spreadsheet the information is that Mr Coutts first requested a SEED check into
Serio on 5 October. The result was negative. Mr Coutts then asked for a
fiscal check which took place on 9 October. The spreadsheet then goes on to
record that the reply was not received until 26 October, and it appears that
this led to the result being faxed to the trader on 26 October, and this was
the document in front of the Tribunal. (We note that the spreadsheet appears
to contain an error in that the answer in the fax was “no”, Serio was not
approved, but the spreadsheet records a “Y”). In other words the 26 October
SEED check was in the spreadsheet.
80.
There were other SEED checks drawn to the Tribunal’s attention where
they did not appear on the spreadsheet for the day shown as the date of the
faxed answer to the trader. However, similarly, they could all be located in
the spreadsheet by using the number of the SEED check which was recorded
on the fax as well as the spreadsheet. All the entries relating to a
particular check were logged onto the spreadshett on the day the check was
originally requested by the trader. Mr Young’s criticisms were misplaced.
81.
Mr Young in closing drew other alleged discrepancies to our attention,
such as what were in his opinion incorrectly negative results. An example is a
negative check on Trapps itself on 2 July 2001 which was at a time when it did
hold a warehouse licence. Again this was not put to Mrs Thompson so she was
not given a chance to explain. From her earlier evidence (see § 63), we can
speculate that the answer would have been that the trader who requested the
check had misspelt the appellant’s name as the spreadsheet records the check as
being on “Trapp Cellar”. There were other alleged false negatives, all of which
would appear to be explainable because the check was against a wrong name
and/or number. It does not matter. It was not put to the witness so we
disregard the challenge.
82.
Mr Young also criticised in his closing submission the spreadsheet on
other grounds, such as that for some reason the first page recorded only checks
made by HMRC officers. We don’t know why this was so (although no doubt we
could speculate it was perhaps a test of the database). In any event we
disregard the criticism. It was not put to the witness. She was not given a
chance by Mr Young to explain it. Natural justice means we must disregard it.
83.
Mr Young relied on all these criticisms, which he had failed to put to
the witness, as evidence the database was manipulated by HMRC. We reject the criticisms
on grounds of natural justice. We have noted they all appear unfounded in any
event. We find no evidence whatsoever that the database was manipulated by
HMRC. We accept Mrs Thompson’s evidence that it was not.
X99 and Dover SEED checks
84.
When Mrs Thompson was recalled in May 2013 to give evidence about the
complete spreadsheet, Mr Young produced to her an undated HMRC document called
X99. HMRC did not object to the document coming in although the Tribunal would
probably have upheld such an objection as it was wrong for counsel to seek to
spring surprises on witnesses. The undesirability of surprise such attacks can
be seen from the fact that it gave HMRC no time to check the date of the X99.
85.
The X99 showed that out-of-hours SEED checks could be undertaken at
Dover HMRC offices when Glasgow was closed. We asked for the date of the
document. Counsel was unable to provide it, although he later sought in
submissions to “prove” that it was in force in 2002/3 by relying on a direction
given in an earlier Tribunal case (Grapevine Storage Services Ltd [2008]
UKVAT(Excise) E01100) which referred to the X99 existing in 2002/3.
86.
This seems to us to be very weak evidence, but in any event, it was
clear that the X99 was, like so many guidance notes published by HMRC, a
document which was updated over time. The question is not whether the X99
existed in 2002/3 or in 2001, but whether the version of it shown to Mrs
Thompson was the current one in 2001. Even if we were inclined to rely on it,
which we are not, the Grapevine Storage direction gives no help on the
question of which version was in force in 2001.
87.
We accept Mrs Thompson’s evidence that Dover did not carry out SEED
checks in her time and in particular did not carry out SEED checks in 2001. It
follows that the version of the X99 shown to Mrs Thompson was not in force in
2001, because it indicates that out-of-hours SEED checks could be made with
Dover HMRC office.
88.
In any event, the only significance of all this evidence is whether
Trapps carried out SEED checks. The complete spreadsheet shows that Trapps
carried out no checks on MTB or Serio. Mr Young’s case, as we understand it,
is that the complete spreadsheet of checks which took place at Glasgow would
not record out-of-hours checks being made with Dover. However, Mr Davis’
evidence, given long before the X99 was produced in the hearing, was that SEED
checks were made by Trapps with Glasgow. He made no mention of Dover. So while we have reservations about Mr Davis’ evidence on what SEED checks were
actually made with Glasgow (see below), it is clear that he did not even
suggest that Trapps made checks with Dover. They did not. The X99 was a
complete red herring.
89.
We accept Mrs Thompson’s evidence that the spreadsheet was a complete
record of checks made by her team in the period 1/12/00 to 17/12/01 of the live
SEED database and that no other HMRC office carried out SEED checks for traders
at that time.
Did Trapps undertake SEED checks?
90.
Mr Davis’ evidence was that Trapps carried out SEED checks. He did not
claim to do them himself: it was his evidence that this was entrusted to two
employees (Mr Ozieh and Mr Spicer). Mr Davis said that they would have checked
every new destination warehouse before the first consignment and all
destination warehouses on a regular, weekly basis if not before every
consignment. He said he had controls in place to ensure that these SEED checks
were carried out.
91.
We are unable to find this evidence reliable. We find that the
spreadsheet shows that Trapps carried out only one SEED check and that was on
an unrelated company: it never carried out a SEED check on Serio or MTB at
all. Mr Davis was mistaken in thinking that the employees carried out the
checks and mistaken in thinking that his controls were sufficient.
92.
He did produce copies of SEED checks carried out by his customers. In
so far as it was his case that he relied on the Serio checks, we reject it. Mr
Coutts carried received only two checks on Serio and they were both negative
(the second was after the negative fiscal check referred to in §79; the first
which was in early October 2001 says “the information you have supplied is not
on SEED”). Goldhirst had received positive checks on MTB, the earliest being
dated 5 October 2001.
93.
We can find nothing in the appellant’s allegation that HMRC failed to
return uplifted documents. Copies of SEED checks were not returned to Trapps because
they did not exist. We find Trapps did not carry out SEED checks on either MTB
or Serio.
Early warning system
94.
It was a condition of Trapps’ warehouse approval, as with all other
warehouses, that details of proposed movements had to be provided to HMRC 24
hours prior to their taking place. This was known as the Early Warning System
(“EWS”).
95.
It was Mr Davis’ evidence that Trapps had complied with its EWS
obligations to notify all its movements to HMRC. HMRC did not challenge this
evidence. Indeed, Officer Parson’s evidence was that relying on the EWS
information provided by Trapps, HMRC intervened to stop the two movements (that
no longer form part of the assessment) referred to at § 5 above.
96.
Mr Young’s submission was that prior to any movement the Respondents had
imposed a condition that they were to be provided with advanced notification in
order to obtain their approval and that “unqualified approval was given by the
respondents which was relied on by the appellant”.
97.
Mr Young’s submission is that Mr Davis’ evidence was that Trapps relied
on HMRC’s approval. But we do not agree that that was his consistent
evidence. Having said Trapps relied on the EWS, Mr Davis then admitted that he
did not know if HMRC sent traders an approval to state that the movement could
go ahead. He then said that at the time of the deals he was unaware of excise
diversion as a “foreseeable risk” and did not want to agree with Counsel that
the reason for the EWS was because of the risk of diversion, repeatedly stating
instead that Trapps were just complying with the regulations when providing
advance notification. In conclusion, we do not accept Mr Davis’ evidence that
Trapps relied on the EWS as approval.
98.
We accept Mr Parsons’ evidence that the EWS did not involve approving
movements. Movements would be stopped if HMRC considered that they had
sufficient evidence of likely diversion. Otherwise no action was taken: the
movement was neither approved nor stopped. We find that HMRC did not expressly
authorise any movement by Trapps. We reject the appellant’s case on this.
There was no approval from HMRC; and the appellant did not rely on the non-existant
approval.
Trapps’ due diligence
99.
Mr Davis had only a couple of fleeting meetings with Mr Mahmood of
Goldhirst. Nevertheless he chose to conduct business with him without bank
references or credit checks. Similarly he chose to do business with Mr Coutts,
who had only just started his business and only just been WOWGR registered,
without bank references or credit checks.
100. It was put to Mr
Davis that this was an uncommercial attitude bearing in mind that he invoiced
in arrears. Mr Davis’ explanation was that he held other stock belonging to
that customer so he felt secure against non-payment. It was pointed out that
this might not be the case as all stock could have been despatched. Mr Davis
said, rather unconvincingly, that he would have checked that he had sufficient
stock levels.
101. We also find
that Trapps undertook no due diligence on its hauliers, on the consignees nor
on the destination warehouses. Mr Davis’ explanation of this was that none of
these people were his customer. This is true. However, what it means is that
Trapps either did not understand or did not care that it was exposed to excise
duty liability if the goods were diverted and that one way to reduce this risk
in advance was to carry out a risk assessment on the persons involved in the
movement, even if they were not its customer. In any event, as stated above,
it did not even carry out due diligence on its customers in these deals.
102. It did keep
records of the names passport numbers of the lorry drivers. Mr Davis said this
was “completely different” but failed to explain in what way it protected
Trapps against the risk of diversion.
103. It was the
appellant’s case that HMRC effectively authorised it not to carry out
due diligence because it was not a requirement of its warehouse authorisation
that it carry out due diligence. We reject this. While the law may require a
warehouse operator to obtain a licence, and to comply with conditions in order
to obtain the licence, successfully obtaining the licence did not abrogate the
warehouse operator’s responsibility to conduct its business properly. In
particular, the fact that due diligence was not required for the licence was no
explanation of why Trapps did not take sensible precautions to ensure that it
would be paid and its consignments would not be diverted while it was exposed
to the excise duty liability.
104. There was
absolutely no suggestion that Trapps had known in advance that the 14
consignments would be diverted. However, we find simple due diligence would
have shown it that:
·
The haulier (Maybank) on the 6 loads to MTB gave a false address;
·
The consignee (Valletta) on the 8 loads to Serio gave a false
address.
105. Instead it seems
Trapps’ only due diligence was to check that the AADs were returned. However,
as this took place about a month after shipment, it was obviously inadequate to
protect Trapps against the risk of diversion. We have already noted that Trapps
did not undertake SEED checks and did not rely on any approval from HMRC under
the EWS system (there wasn’t any). Trapps either did not understand or chose
to ignore the risk it was taking. This naivety may be explained by the fact
that it was operating in a market new to it (see § 31-33).
Fulcrum initiative
106. We find that in
early November 2001 HMRC put in extended controls at two UK warehouses, Rangefield Import Export (“Rangefield”) and Oakwood Storage Services (“Oakwood”).
They did this because they suspected consignments from Westwood Vintners Ltd
were intended for diversion after leaving these two warehouses. The extended
controls were then put in place at three other warehouses in mid-November, in
order to prevent further loss of revenue by the brokers moving their business
from Rangefield and Oakwood to other London warehouses. One of those three
warehouses was Trapps. The imposition of the extended control was after all 14
consignments the subject of this appeal had left the warehouse.
107. HMRC’s
inspection of Oakwood’s records led them to commence a criminal investigation.
They called this Operation Fulcrum. Arrests were made on 7 February 2002.
Following this, Officer Parson’s analysis of uplifted records led to
identification of other targets for investigation. This further investigation
was known as the Fulcrum Initiative and we accept the consistent evidence of the
officers that it was launched in March/April 2002. We find it was a
retrospective investigation looking at suspect movements in the previous year.
108. We reject the
appellant’s case that the investigation commenced in 2001. There is no
evidence of this and it is contradicted by the consistent evidence of the
officers, which we find reliable. We accept, in particular, the evidence of
Officer Lowe that, due to failings which were the subject of the Butterfield
Report, HMRC in the early years of this century would no longer carry out
“live” investigations. In particular, they would not undertake live
investigations which involved letting loads, likely to be diverted, run so HMRC
could catch the criminals in the act. We accept that the Fulcrum Initiative
was a 2002 investigation into various movements, including the 14 movements the
subject of this appeal, which took place in 2001.
109. We reject the
appellant’s case that HMRC knew or suspected at the time in 2001 that all or
any of the 14 consignments the subject of this appeal would be diverted; we
reject the appellant’s allegation that HMRC chose to let them run in order to
follow them. There is no evidence to support these allegations and it is
inconsistent with the evidence of the HMRC officers which we accept as
consistent and reliable.
110. The Fulcrum
Initiative involved simultaneous civil and criminal proceedings. The targets
of the investigation were 5 brokers and, by late 2002, one warehouse. One of
the brokers investigated was Goldhirst. Mr Coutts was not criminally
investigated. Trapps was not an object of the criminal investigation.
Nevertheless, a search warrant was executed at Trapps’ premises, and a number
of other premises, on 14 August 2002, the day on which Trapps was assessed in
respect of the 14 consignments the subject of this appeal. This was when its records
were uplifted. Mr Davis later provided a witness statement to be used in a
potential criminal prosecution of Mr Mahmood.
Midolo report
111. This was a
report compiled by a Officer Midolo, an Italian tax official, about an Italian
investigation into excise irregularities. Officer Midolo is not a witness in
this case.
112. We find that the
report was written by Officer Midolo in January 2004 in a response to a
commission rogatoire from HMRC in November 2003 seeking information about the
Italian criminal investigation referred to below. We accept Mr Parsons’
evidence that HMRC had never seen the report before it was sent to them in
March 2004 (and available to be read in April 2004 after it had been translated).
113. The report was
disclosed by HMRC to the appellant in one of the rounds of disclosure in these
very extended proceedings and the appellant relies on it. HMRC do not object
to the report being relied on in the proceedings: their case is that the report
does not bear the interpretation which the appellant puts on it. In other
words, the report is hearsay, but neither party objects to it being in evidence
on that basis. We accept the report as reliable.
114. In broad
outline, it was the appellant’s case that at the time of the consignments the
subject of this appeal, there was a large investigation involving both the
Italian and British tax authorities into movements to and from two Italian
warehouses, and that as part of that investigation HMRC chose to allow the
appellant to release goods to these warehouses in Italy.
115. We find (relying
on the Midolo report) that at the time of the shipments at issue in this appeal
the Italian tax authorities were carrying out an extensive investigation into
the organisers of three tax warehouses in Italy, two of which were MTB and
Serio. This investigation seemed to have started around September 2000,
involved telephone taps and appears to show a substantial fraud orchestrated by
an Italian organised crime syndicate. The investigation resulted in a number
of successful prosecutions.
116. The report shows
that in the opinion of the Italian tax authorities the fraudsters were involved
in three different types of fraud. The first involved a genuine arrival of
excise goods at one of the three suspect Italian warehouses (including MTB and
Serio) with proper AADs. These goods then left the warehouses with proper
AADs, but did not reach their destination and the AADs were discharged by
forged stamps. The second method does not concern this Tribunal. The third
method was for goods to leave bonded warehouses elsewhere in the EU with
appropriate AADs purportedly destined for one of the three suspect warehouses,
but then they would be diverted en route and fail to arrive at the suspect
warehouses and their AADs would be discharged by false stamps.
117. That the first
kind of fraud took place is evidenced by other reports which described an
investigation into AADs issued by Serio for goods purportedly transported to Ireland and Greece. The Midolo report itself mentions an AAD issued by Michelotti on 27 March 2001
for a delivery to Trapps in UK with forged stamps (ie suggesting the goods
never reached Trapps). It contained reports of other similar forgeries
involving purported deliveries to other traders.
118. Mr Young said
that the fraud at issue in this appeal was of the first sort. We find that he
has failed to prove that. Not only has he failed to prove that the goods
arrived at any of the three Italian warehouses the subject of the report, he
has failed to prove that the goods even left the UK. Moreover, goods the
subject of the first type of fraud would have had a genuine Italian stamps
affixed to their AAD as the fraud included their genuine arrival in the Italian
warehouse of purported destination: in this case we find that the AADs had
false Italian stamps affixed to them because they never arrived at the Italian
warehouses. The fraud in this case was of the third and not first type.
119. The Midolo
report shows that on a few occasions the Italian tax authorities made mutual
assistance requests to HMRC, normally about whether a particular load had
actually arrived in Britain. These requests did not concern Trapps. We also
find that on a few occasions HMRC had seized some consignments coming into the UK acting on information received from Italy.
120. The Midolo
report records that a meeting was held on 1st December 2000 in Trento between Italian authorities and liaison officers from other member States (including
the then British liaison officer which was not Mr Grunwell) in which it appears
the Italians outlined their investigations into MTB. There was also a liaison
meeting between EU tax authorities on 15 October 2001 which Mr Grunwell
attended and it was agreed “there should be an ongoing exchange of
information…in order better to co-ordinate action against the smuggling of
alcoholic products.”
121. We find that at
the time HMRC had very limited involvement in or knowledge of the Italian
investigation into MTB and Serio
122. We note that
there was a very limited overlap of names, even British names, from the
Italian investigation in the subsequent British investigation (Fulcrum).
Trapps, for instance, is mentioned, in respect of the above mentioned telephone
tap information. It is mentioned as the source warehouse of the goods in
respect of the some of the AADs to which false discharge stamps had been
applied. But the subjects of the Italian investigation, which were it seems
members of an Italian organised crime syndicate, were not the subjects of the
Fulcrum Initiative.
123. We also note
that the first and main fraud investigated by the Italian authorities were
genuine despatches from the Italian warehouses which were diverted en route to
their ostensible destination warehouses elsewhere in Europe; the frauds the
subject of the Fulcrum Initiative were despatches from UK warehouses ostensibly
to the three Italian warehouses but which were diverted en route and discharged
by forged stamps.
124. We find that the
British liaison officer in Italy (Mr Grunwell from April 2001) was aware of an
investigation by the Italian tax authorities into Serio and MTB at the time of
the consignments at issue in this appeal. This information was communicated to
the UK by way of an intelligence report in May 2001. The UK were asked by the Italian tax authorities to provide documents evidencing consignments to or from
Serio, but there was no evidence that HMRC ever complied with the request.
125. A letter from Mr
Grunwell in September 2001 to the Italian authorities states that HMRC knew
that the Italian authorities were continuing to investigate MTB, but HMRC just
wanted MTB closed down and the fraud disrupted to stop the flow of goods.
126. However, we find
at the time (in October and November 2001) the existence of this investigation
was not known to Mrs Thompson or any of the other officers who gave evidence in
this appeal. And while the liaison officer (Mr Grunwell) knew of the
investigation, he did not know of any planned movements from the UK to those warehouses and in particular no knowledge of any planned movements by Trapps.
We find it was not a joint British–Italian investigation. It was an Italian
investigation.
When did HMRC know that Serio was not authorised?
127. Mr Young’s case
is that HMRC knew that Serio had lost its authorisation but chose to let loads
destined for Serio run in order to carry out its own live investigation (or
presumably assist the Italians with theirs). However, we find that there is no
evidence that HMRC knew before 26 October 2001 that Serio’s licence had been
revoked.
128. As mentioned
above in §66 and 79, Mrs Thompson requested a fiscal check on Serio in early
October 2001 and the faxed reply from the Italian authorities on 26 October
2001 was that Serio was not authorised. Mrs Thompson faxed on this information
to Officer Stone, who relayed this to Officer Parsons. Officer Parsons then
told his team to contact all London warehouses with this information. It was
not clear whether Trapps was told, but the answer is irrelevant in so far as
this appeal is concerned as the date of this information was after the date of
the last of the 8 consignments. These actions demonstrate that the information
that Serio’s licence was withdrawn was news to the officers.
129. There is no
evidence that prior to 26 October any HMRC officer knew that Serio’s licence
had been revoked and we find that they did not.
Law
130. By closing the
Appellant no longer maintained its argument that its liability was limited by
the amount of its movement guarantee. Its movement guarantee was only for
£10,000. We agree with HMRC that for the reasons given in Mr Hill’s closing
and in particular following Anglo Overseas Limited E01090 (2008) and
Garrett Trading E01126 (2008) (No 2), that the appellant’s
liability is not limited by the amount of its movement guarantee.
131. In its closing
the appellant’s three contentions were as follows:
(1)
The appellant was not liable to duty because there was a fortuitous
event;
(2)
The assessments were not to best judgment because they failed to take
account of the matters which the appellant asserts amount to a fortuitous event
(whether or not they do amount to a fortuitous event); and
(3)
And if wrong on the above, and Article 20 applies, Article 20(2) deems
the offence and irregularity to have taken place in Italy so there is no liability
to UK duty.
Fortuitious event?
132. It is the
appellant’s case that it was inadvertently caught up in an (alleged)
British-Italian investigation and that amounted to a fortuitous event; and/or
that at the time (it alleged) HMRC suspected that the goods would be diverted
but chose to let the consignments run in any event either through negligence or
because they thought it would assist their (alleged) live investigation and
that that amounted to a fortuitious event; it was also its case that Serio had
its warehouse licence revoked before the shipment and this was a fortuitous
event; and/or the (alleged) deliberate or unwitting failure by HMRC or the
Italians to update the SEED database in June 2001 to show that Serio’s licence
was revoked was a fortuitous event.
133. Article 14(1) of
Directive 92/12/EEC allows for relief from duty in cases where losses are
attributable to fortuitous event. There was discussion in the hearing of an
error in the Official Journal which contained the Directive as it referred to “fortuitous
events…established by the authorised of the Member States concerned.”(our
emphasis). This was an obvious error and it is clear from the CJEU decision in
Société Pipeline Méditerranée et Rhône Case C-314/06 [2007] ECR I-12273
that properly Article 14(1) should be read as follows:
Article 14(1)
“Authorised warehousekeepers shall be exempt from
duty in respect of losses occurring under suspension arrangements which are
attributable to fortuitous events or force majeure and established by the [authorities]
of the Member State concerned. They shall also be exempt, under suspension
arrangements, in respect of losses inherent in the nature of the products
during production and processing, storage and transport. Each Member State shall lay down the conditions under which these exemptions are granted. These
exemptions shall apply equally to the traders referred to in Article 16 during
the transport of products under excise duty suspension arrangements.”
The remainder of Article 14 reads as follows:
Article 14(2)
“Losses
referred to in paragraph 1 occurring during the intra-community transport of
products under excise duty suspension arrangements must be established
according to the rules of the Member State of destination.”
Article 14(3)
“Without prejudice to Article 20, the duty on
shortages other than the losses referred to in paragraph 1 and losses for which
the exemptions referred to in paragraph 1 are not granted shall be levied on
the basis of the rates applicable in the Member States concerned at the time
the losses, duly established by the competent authorities, occurred, or if
necessary at the time the shortage was recorded.”
134. The appellant
accepts that the goods were diverted at some point between departure from
Trapps and arrival at the destination warehouse. Its case is that such
diversion was, from Trapps’ point of view, a fortuitous event.
135. It is clear from
Article 14 that “fortuitous events” does not refer events which result in
losses inherent in the nature of the goods, such as evaporation or breakage in
transit, because these are separately mentioned in the next sentence of Article
14. “Fortuitous events” are also to be distinguished from events resulting
from force majeure. Is the diversion of goods a loss within Article 14(1)?
Is the Tribunal bound to accept the appellant’s claim that there were
losses?
136. We do, of
course, accept (and HMRC did not suggest otherwise) that Article 14 is of
direct effect. It has not been enacted into UK domestic legislation but this
is irrelevant. If it is applicable, the appellant can rely on Article 14.
137. Article 14
applies where there are “losses… which are attributable to fortuitous events”.
So the appellant must not only show that there was a fortuitous event but that
there were losses within the meaning of Art 14.
138. In his closing
Mr Young raised an argument that “losses” in Article 14 cannot be determined in
this Tribunal because Article 14(2) says that:
“losses referred to in paragraph 1…must be
established according to the rules of the Member State of destination”
Mr Young’s case is that this Tribunal cannot say what is
or is not a loss but must simply accept the appellant’s claim that it suffered
a loss because:
(a)
the UK had failed to implement Article 14 and therefore had failed to
establish any rules as required by 14(2); and/or
(b)
HMRC had failed to establish what if anything were the rules on ‘losses’
in Italy, which was the Member State of destination, and therefore the State’s
whose rules apply under Article 14(2).
139. We do not
agree. Article 14(2) does not empower Member States to determine the meaning
of “losses”. ‘Losses’ has an EU-wide meaning. Its meaning is the same
anywhere in the EU. Article 14(2) is merely empowering Member States to have
national rules on quantification of ‘losses’ within the meaning of
Article 14(1). Quantification of the loss is not an issue in this case and
therefore Article 14(2) is irrelevant. What is relevant is whether a diversion
could be within the meaning of “losses” at all. So what does the Directive
include within “losses”?
What are losses?
140. It is HMRC’s
position that Article 14 as a whole deals only with goods which have become
unusable or not consumable, as opposed to remaining useable (and presumably
sold on for use) but diverted and “lost” so far only as excise duty is
concerned. HMRC’s reason for this interpretation is that under Article 14(2),
“losses” during carriage “must be established according to the rules of the member State of destination”. But under Art 20 an irregularity (as discussed below) may lead
to the member State of departure’s rules applying. Therefore, reasons HMRC,
Article 20 and Article 14 are dealing with different types of situations. They
do not overlap, so that an irregularity under Art 20 cannot be a fortuitous
event under Art 14.
141. HMRC also rely
on Article 14(3), which provides for the levying of duty on shortages and
losses not falling within Article 14(1) and is prefaced by the words “without
prejudice to Article 20”. HMRC’s view is that Article 14(1) and (2) are not
prefaced with the same words, because they do not deal with the same sort of
situation and therefore the drafters did not need to determine whether Article
14(1) or Article 20 took priority. They are mutually exclusive.
142. We agree with
this reasoning and find that the “losses” to which Article 14(1) and (2) apply
are not diversions to which Article 20 applies. The goods are not lost,
even if the tax authorities are unable to ascertain where they are or collect
the excise duty owing. The tax is lost; not the goods.
143. We agree with
HMRC that this analysis is also supported by the leading case on Article 14,
which is Société Pipeline Méditerranée et Rhône. That case concerned
the leakage of fuel from a pipeline and the Court of Justice said that:
[30] “excise duties are, as a rule, also chargeable
on shortages and losses in respect of which exemptions have not been granted by
the competent authorities. The exemption provided by the first sentence of
Article 14(1) of Directive 92/12 for losses attributable to force majeure constitutes
a derogation from that general rule, which must therefore, as the Advocate
General pointed out at point 43 of her Opinion, be interpreted strictly”.
144. While the CJEU
did not expressly refer to it we note that in her Opinion, in that case, Advocate
General Kokott stated at paragraph 18 that there was:
“… no doubt that a ‘loss’ of fuel within the meaning
of Directive 92/12 has taken place. That obtains, as the Commission rightly
points out, even if the concept is interpreted in accordance with the similar
concept referred to in Article 4 of Directive 79/623/EEC. The Court has decided
with regard to that provision that there is no loss where there is a risk that
the missing product would be put into circulation within the Community, which
is in particular possible in the case of theft. In the present case, however,
the fuel has seeped irretrievably into the ground, with the result that the
mixture must be disposed of as waste. It is therefore impossible for it to be
put into circulation within the Community”.
145. The Advocate
General relied on the case of Esercizio Magazzini Generali [1983] ECR
2951 C-186/82 and 187/82. In that case, the issue was whether the manager of a
customs warehouse was liable for customs duty (and VAT) on imported whisky and
tobacco which had been stolen from the warehouse. The relevant Directive
on the harmonisation of the customs debt (Directive 79/623/EEC) had similar
exempting provision to Art 14(1) which applied where there was:
total destruction [or] irretrievable loss of the
said goods by reason of the nature of the goods themselves or because of
unforeseeable circumstances or force majeure”.
146. The Court of
Justice held in paragraph 14 of its judgment that:
“… the reasons for the extinction must be based on
the fact that the goods have not been used for the economic purpose which
justified the application of import duties. In the case of theft, it may be
assumed that the goods pass into the Community commercial circuit. It follows
that “loss” of the goods for the purposes of the directive does not embrace the
concept of theft, regardless of the circumstances in which it has been
committed”.
147. This line of
reasoning was applied to diversion of excise goods by the First-tier Tribunal
in Butlers Ship Stores [2012] UKFTT 371 (TC). That case was an excise
duty case in which dispatches of duty suspended spirits failed to reach their
destination. The Appellant relied on the doctrine of fortuitous event/force
majeure. However, the FTT found at §§ 91-97 that the warehousekeeper could not
claim an exemption from excise duty for the relevant consignments under Article
14(1) of Directive 92/12, since the diversion of the relevant consignments “did
not constitute losses within the meaning of Art 14.1 of the 1992 Directive”,
expressly applying the analysis of the Court of Justice in Esercizio
Magazzini Generali.
148. We agree with
the Advocate General, and the FTT in Butlers Ship Stores, that Article
14(1) and (2) were intended to apply to losses of the product in order
to relieve persons from excise duty in the events the goods were lost and could
not be sold within the EU. Art 14(1) was not intended to relieve from excise
duty persons liable to pay it where the goods remained available to be sold
within the EU. Indeed, it would make Article 20 virtually obsolete whereas the
intention behind Article 20 was to ensure that excise duty was chargeable when
goods were diverted. To interpret “fortuituous event” in Article 14 as
including diversions would be to undermine the Directive.
149. In conclusion, a
diversion in transit, even one of which the person liable to the duty was
unaware, does not result in a loss to which Art 14(1) applies.
150. Therefore, there
is no need to consider the remainder of the appellant’s case on fortuitous
event because there was no “loss” within Article 14(1) even if the various
matters which the appellant allege amount to fortuitous events (as to which see
§ 132) are in law fortuitous events. Nevertheless, we deal with the matter as
it was argued in front of us in case it goes further.
Pre-conditions for a fortuitous event?
151. A fortuitous
event is not easily established. The CJEU in Société Pipeline Méditerranée
et Rhône said at §31 that an authorised warehousekeeper could only claim
the benefit of the exemption
“if he is able to demonstrate that there are
abnormal and unforeseeable circumstances, extraneous to him, the consequences
of which, in spite of the exercise of all due care, could not have been
avoided”.
In paragraph 33, the ECJ explained that the reference to
“extraneous” circumstances referred to “circumstances which are objectively
outside the authorised warehousekeeper’s control or situated outside his sphere
of responsibility”.
152. When the Court
turned to the facts of the case before it, which related to the leakage of
mineral oils from a pipeline, it concentrated on whether “the occurrence was in
no way foreseeable” and whether “the authorised warehousekeeper had no way of
checking it” (see paragraph 35). It then mentioned that “the authorised
warehousekeeper must show necessary diligence” (see §36). The Court then went
on to say in §37 that:
“Although compliance with the technical requirements
concerning the quality, construction, maintenance and operation of a pipeline
may be considered to be a necessary condition for a finding of diligence, that
compliance is not, in itself, decisive. Sufficient diligence requires, in
addition, continuous action aimed at identifying and assessing potential risks
and the ability to take appropriate and effective steps in order to avoid them”
153. Finally, the
Court indicated in §38 that the fact that the opening and authorisation of tax
warehouses is subject to authorisation and monitoring by the national tax
authorities is not a relevant factor in determining whether the conditions for
force majeure are fulfilled. Those provisions:
“merely seek to ensure that [the warehousekeeper]
is sufficiently reliable for the purposes of the tax suspension procedure” –
they do not exonerate the warehousekeeper from itself displaying “sufficient
diligence”.
154. It is therefore
clear from that judgment that it is not enough for an excise warehousekeeper to
establish that it acted in good faith. The absence of fault is
insufficient: the fortuitous event must be unforeseeable and the
warehousekeeper must have undertaken appropriate measures to limit risk.
155. We agree with
HMRC that in this case, the risk of consignments going missing was not
unforeseeable. As Officer Mountford explained in his witness statement and his
oral evidence there was a significant problem with excise duty fraud after the
abolition of routine fiscal controls in 1993. Indeed, the risk of diversion of
duty suspended excise goods being transported between Member States was
recognised in Directive 92/12/EEC itself – Article 15(3) refers in terms to the
“risk inherent in intra-Community movement”. It was also noted by the High
Court at paragraphs 2 and 4 of its judgment in In re Arena Corporation [2003] EWHC 3032.
156. We find that the
Appellant did not take due care to prevent the consignments going missing: see
§§99-105. Had it undertaken this due diligence it ought to have discovered
that in one case the consignee and in the other the transporter were using
false addresses. This would have put it on notice that diversion was likely.
157. Therefore, even
if the various matters relied on by the appellant as amounting to fortuitous
events, could be fortuitous events in law, the appellant would be unable to
rely on Article 14 because it had failed to undertake basic precautions which
it should have undertaken and which, if it had undertaken, ought to have put it
on notice that diversion was a likely outcome.
Can “fortuitous event” include actions by taxing authorities?
158. We have set out
above the various matters which the appellant consider amount to a fortuitous
event at § 132.
159. We do not need
to consider most of these as a matter of law because as a matter of fact the
appellant has failed to establish either (a) that the British customs’
authorities failed to inform Trapps of an active investigation at the time of
the consignments (because we have found there was no such investigation – see §
108) or (b) that the British customs authorities failed to update the SEED
system. We have found no such failure by the British (see § 65) and in any
event it is irrelevant as we have found that the appellant failed to carry out
any SEED checks in respect of any of the 14 consignments (§ 91).
160. We do accept
that as a matter of fact that at the time of these consignments (a) some HMRC intelligence
officers ought to have had suspicions of MTB and Serio, even though they
would not have known of any intended consignments to those warehouses (see §
124); and (b) there was an active Italian investigation into the persons
operating the Serio and MTB warehouses at the time of the appellant’s
consignments (see §§ 115) and the appellant was not warned of this. The
failure of the SEED database to reflect the withdrawal of Serio’s approved
status is irrelevant as the appellant failed to carry out any SEED checks in
respect of any of the 14 consignments (§ 91).
161. We understand
the appellant’s case is that if it had known that there were suspicions about
Serio and MTB at the time, it would not have released the consignments to those
warehouses.
As a matter of law, could the Italian investigation be a fortuitous event?
162. The Appellant
relies on the judgment of the CJEU in the customs duty case of De Haan
[1999] ECR I-5003 C-61/98 as support for a wider interpretation of the concept
of fortuitous events/force majeure in Article 14. In De Haan,
the ECJ had to consider whether a customs agent was liable for customs duty on
the diversion of several consignments of cigarettes which were diverted onto
the Dutch market before they could be exported. The issue was whether customs
authorities were under any duty to inform a customs agent that they suspect or
are investigating a possible fraud, thus enabling the agent to take action to
avoid incurring a customs debt in respect of goods fraudulently removed from
customs supervision.
163. The Court held
at paragraph 36 that EU law did
“not impose on customs authorities which have been
informed of a possible fraud in connection with external transit arrangements
any obligation to warn a principal that he could incur liability for customs
duty as a result of the fraud, even where he has acted in good faith”.
164. However, the
Court went on to hold in paragraph 53 that:
“the demands of an investigation conducted by the
customs authorities or the police constitute, in the absence of any deception
or negligence on the part of the person liable, and where that person has not
been informed that the investigation is being carried out, a special situation
within the meaning of Article 13(1) of Regulation 1430/79. Although it may be
legitimate for the national authorities, in order better to dismantle a
network, identify perpetrators of fraud and obtain or consolidate evidence,
deliberately to allow offences or irregularities to be committed, to place on
the person liable the burden of the customs debt arising from the choices made
in connection with the prosecution of offences is inimical to the objective of
fairness which underlies Article 905(1) of Regulation No 2454/93 in that it
puts that person in an exceptional situation in comparison with other operators
engaged in the same business”.
165. We find that the
exemption from customs duties provided for “special situations” under Article
13(1) of Regulation 1430/79 is based on the existence of the “general fairness
clause” provided for in Article 905 of Regulation 2454/93. Article 905(1) of
Regulation 2454/93 states that where a trader seeks remission of customs duties
on grounds other than those expressly set out in Articles 900 to 903 of the
Regulation “but the application is supported by evidence which might
constitute a special situation resulting from circumstances in which no
deception or obvious negligence may be attributed to the person concerned, the
Member State to which this authority belongs shall transmit the case to the
Commission”, which alone has the power to decide to remit the relevant customs
duties.
166. Unlike this
provision, Directive 92/12/EC does not reserve to the Commission a general
power to remit duties on grounds of fairness. Instead, it is for Member
States’ tax authorities to apply the grounds of exemption set out in Article 14
of the Directive. Those grounds have to be interpreted strictly (see § 143
above) and they focus on whether the trader took action aimed at identifying
and assessing potential risks and also took appropriate and effective steps in
order to avoid them (see § 151-2). We have already said why (§ 156) we do not
consider that the appellant took reasonable care to avoid the risk. We note
that further, even if we are wrong, and “fortuitous event” should be given the
wide De Haan meaning, we would not find that the appellant had acted
without obvious negligence for the reasons given at §§ 99-105.
167. Putting that
aside, even accepting that “fortuitous event” could cover the events in Da
Hann, Da Haan is limited to cases where the taxing authorities
“deliberately …allow offences or irregularities to be committed”. There is
absolutely no evidence that the Italian authorities deliberately allowed
offences in relation to these 14 consignments to occur. There is no evidence
that they even knew about them before HMRC asked them, many months after they
took place and via mutual assistance requests, to confirm whether or not the
goods had arrived.
168. It seems that it
is part of the appellant’s case (although mentioned only in closing) that the
Italian authorities permitted Serio and MTB to continue to trade while under
investigation. This is true, but it is (under UK law) entirely lawful. Merely
suspecting someone of committing criminal offences is not sufficient ground to
put them out of business or close them down. The appellant’s allegation has to
be understood as an allegation that the Italian authorities failed to close
down MTB and Serio as soon as it had sufficient evidence to bring the
criminal conspiracy to an end. We find that there is nothing in the evidence
presented on which the appellant could even begin to make out a case on this,
irrespective of whether such behaviour would be within Da Haan in any
event.
169. It is clear that
the Italian authorities were very suspicious of Serio and MTB at the time of
the consignments. They warned HMRC FLO of this, but did not generally
publicise it. Even under Da Haan ‘special situations’ there is no
requirement to remit duty just because the tax authorities have suspicions.
See § 163 above. Da Haan only applies where the taxing authorities
“deliberately… allow offences or irregularities to be committed”. A taxing
authority is not obliged to warn any taxpayer of its suspicions. It would be
unable to operate effectively if this was the case. A failure to warn of
suspicions is not a Da Haan special situation and certainly not an
excise duty ‘fortuitous event’.
170. And it therefore
follows that even though some HMRC intelligence officers knew of these
suspicions, their failure to communicate them within HMRC or to traders at
large including Trapps is neither a special circumstance nor a fortuitous
event. A taxing authority has no obligation to tell anyone of its suspicions:
indeed to publically communicate mere suspicions might well lay it open to legal
action. A failure to do so therefore cannot be a fortuitous event.
171. The appellant
cannot therefore rely on De Haan on the facts or the law. In any event,
as we have said there was no “loss” within the meaning of Article 14 so the
discussion at §§ 151-170 was obiter in any event.
172. The effect is
that the appellant cannot rely on exemption from excise duty. But its next
claim is that it was assessed to UK excise duty whereas it could only be
assessed to Italian tax. So the UK assessments, it says, should be discharged.
Is the liability to British or Italian excise duty?
173. The parties were
agreed that there was an “irregularity” in the movements of the 14
consignments, in that they had not arrived at their destination warehouses.
They were agreed that for the appellant to be liable to UK excise duty resulting from that irregularity, the duty point had to arise in the UK.
174. The Excise Duty
Points (Duty Suspended Movements of Excise Goods) Regulations 2001 SI 2001/3022
(“DSMEG”) provide for duty points in two situations as follows:
Irregularity occurring or detected in the United Kingdom
3. (1) This regulation applies where:
(a) excise goods are:
(i) subject to a duty suspended movement that
started in the United Kingdom; …and
(b) in relation to those goods and that movement,
there is an irregularity which occurs or is detected in the United Kingdom.
(2) Where the Commissioners are satisfied that the
irregularity occurred in the United Kingdom, the excise duty point shall be the
time of the occurrence of the irregularity or, where it is not possible to
establish when the irregularity occurred, the time when the irregularity first
comes to the attention of the Commissioners.
(3) Where it is not possible to establish in which member State the irregularity occurred, the excise duty point shall be the time of the
detection of the irregularity or, where it is not possible to establish when
the irregularity was detected, the time when the irregularity first comes to
the attention of the Commissioners.
(4) For the purposes of this regulation, detection
has the same meaning as in Article 20(2) of the Directive.
Failure of excise goods to arrive at their
destination
4. (1) This regulation applies where:
(a) there is a duty suspended movement that
started in the United Kingdom; and
(b) within four months of the date of removal, the
duty suspended movement is not discharged by the arrival of the excise goods at
their destination; and
(c) there is no excise duty point as prescribed by
regulation 3 above; and
(d) there has been an irregularity.
(2) Where this regulation applies…. the excise duty
point shall be the time when the goods were removed from the tax warehouse in
the United Kingdom.
175. We find these
regulations were intended to and do implement Article 20 of Council Directive
92/12/EC ‘on the general arrangements for products subject to excise duty and
on the holding, movement and monitoring of such products’ which provides:
“Article 20
1. Where an irregularity or offence has been
committed in the course of a movement involving the chargeability of excise
duty, the excise duty shall be due in the Member State where the offence or
irregularity was committed…..
2. When, in the course of movement, an
offence or irregularity has been detected without it being possible to
determine where it was committed, it shall be deemed to have been committed in
the Member State where it was detected.
3. …when products subject to excise duty do
not arrive at their destination and it is not possible to determine where the
offence or irregularity was committed, that offence or irregularity shall be
deemed to have been committed in the Member State of departure….
176. There was no
dispute that if the duty point arose in the UK then Trapps was liable. This is
provided by reg 7(1) DSMEG which imposed (in accordance with the Dirctive)
liability on the person who provided the movement guarantee as shown in box 10 of the AAD. In the case of all 14 consignments we find that that was Trapps.
Regulation 7(2) imposed joint and several liability on other persons and this
was why Mr Coutts and Goldhirst were also assessed (but those assessments have
not been paid).
177. The issue was
whether a duty point arose in the UK.
Complete provision
178. It was HMRC’s
case, which we accept, that the purpose of Article 20 of Council Directive
92/12/EC was to make provision for the division of jurisdiction between the
Member States in relation to excise offences or irregularities. In particular,
its purpose was to avoid conflicts between Member States by ensuring that only
one Member State would have jurisdiction in relation to any specific offence or
irregularity and, secondly, to ensure that one Member State did clearly have
jurisdiction so as to ensure that the relevant excise duty was collected.
179. As HMRC pointed
out, this was explained by the CJEU in Case C-395/00 Cipriani [2002] ECR
I-1187:
[46]“the purpose of Article 20 of the Directive is
in particular to determine the Member State entitled to collect the excise duty
on the products where, in the course of a movement, an offence or infringement
has been committed”.
180. The purpose of
Article 20 is to avoid both double taxation and non-taxation, ensuring in each
possible circumstance that only one Member State has jurisdiction to assess and
that the relevant excise duty is in fact collected.
181. In this case
Trapps has not been assessed by the Italian tax authorities who have in any
case stated, we find, that they consider the UK to have the responsibility to
assess for the lost excise duty in this case. HMRC point out that if this
Tribunal decides that the UK taxing authorities did not have jurisdiction to
assess for the duty then the duty would go uncollected anywhere in the EU.
While it appears that this is true, it cannot affect the interpretation of the
Directive.
182. The
question is not whether the Italian authorities have chosen to leave the
assessments to the UK, but whether the UK tax authority is the authority with
the right to tax under Article 20.
Which provisions determine the duty point?
183. The
Commissioners’ case is that jurisdiction in the present case is determined by
Article 20(3) of Directive 92/12/EC, which was implemented into UK law by Regulation 4 of DSMEG. In other words they see this as a case where the goods
did not arrive at their destination, and not a case where an irregularity was
detected in the course of a movement.
184. They cited the
CJEU in Cipriani:
“Where products subject to excise duty do not arrive
at their destination and it is impossible to determine where the offence or
irregularity was committed, Article 20(3) of the Directive provides, in
particular, that the offence or irregularity is deemed to have been committed
in the Member State of departure, which is therefore entitled to collect the
excise duty”.
185. They also rely
on what Advocate General Mischo stated in paragraphs 75 to 80 of his Opinion in
Cipriani, that Article 20(3) is alone applicable where it is not
possible to determine where the irregularity or offence was committed and the
relevant goods do not arrive at their destination.
186. They also cite
Lawrence Collins J in paragraph 12 of his judgment in Arena [2003] EWHC 3032 (Ch):
“The rationale of these provisions is that in cases
of diversion it is often very difficult, or impossible, to determine the moment
or place of the diversion (and thus the moment of “release for consumption” of
the goods under Article 6). Accordingly Article 20(3) provides that where it is
not possible to determine where the offence or irregularity was committed, the
offence or irregularity is deemed to be committed in the Member State of departure”.
In other words, where as in this case, it is not possible
to determine where the irregularity occurred, the authorities are that Article
20(3) determines the duty point.
187. The appellant
does not agree. It considers that (2) applies in preference to (3) and that
the duty point is the member State in which the offence was detected. The
appellant’s case is that that was Italy.
188. There is merit
in the appellant’s position in that because article 20(2) precedes Article
20(3) it should be considered first. Only if it does not apply should article
20(3) be considered.
189. However, we
agree with HMRC that Art 20(2) is restricted to irregularities detected in
the course of a movement. This was the opinion of Advocate General Mischo
in Cipriani:
“Paragraphs 1 and 2 of Article 20 both address the
situation in which an offence or irregularity has been committed in the course
of a movement. Within this context, paragraph 1 concerns the situation in which
the place of the said offence or irregularity is known and paragraph 2 the
situation in which it is not.”
190. We also agree
with the Tribunal’s reasoning in SDM European Transport Ltd [2011] UKFTT 211 (TC):
“[429] The words ‘in the course of the movement’
show that the time of detection was limited to the movement. While they may
cover a shortage or irregularity being discovered on arrival at the
destination, the words did not in our judgment cover a situation where an
irregularity was discovered as a result of later enquiries…”
191. If Art 20(2) was
to be interpreted as including a situation where the irregularity detected was
the failure of the goods to arrive at the destination warehouse, this would
deprive 20(3) of any meaning. Article 20(2) should be applied first, but it
has a restricted application. It applies only to detections made during the
course of a movement and does not refer to a detection made after the end
of the movement even though almost inevitably that detection is of an
irregularity which must have occurred during the movement.
Postcript – where was the irregularity detected?
192. In any event, if
we had agreed with the appellant that Art 20(2) applied even where the
detection took place after the termination of the movement, we do not agree
that the offence was first detected in Italy.
193. Although there
is a great deal of evidence that the Italian tax authorities were investigating
the use of MTB and Serio by organised crime to commit excise fraud, there is no
evidence that the Italian tax authorities knew anything about the particular 14
consignments from Trapps as they never arrived at MTB and Serio.
194. In so far as it
is the appellant’s case that “detected” refers to detection of related crimes
and irregularities (such as the forgery of the AADs), rather the particular
diversion which gave rise to the excise duty liability in question, we reject
it. It is obvious that Art 20(2) is referring to the particular offence or
irregularity which gave rise to the duty point. Any other interpretation is
not logical and would create an uncertainty which would make it very difficult
for tax authorities to decide where a duty point arose, when the purpose of Art
20 was to avoid such difficulties.
195. In so far as it
is the appellant’s case that it was the Italian tax authorities rather than the
British which first detected that the particular 14 consignments the subject of
this appeal were diverted, we reject this on the evidence.
196. It is clear from
the above evidence (§ 116 & 123) that the frauds which the Italians were
principally investigating were excise goods leaving the three suspect
warehouses but not arriving at their purported destination, and the affixing of
false stamps to assist with inward bound frauds where goods were purportedly
despatched to the three suspect warehouses but never arrived. They were not
actually investigating the diversion of goods purportedly en route for Italy beyond their interest in the forging of the stamps on the AADs.
197. It was also Mr
Young’s case that the fraud was detected in Italy specifically because of the
telephone tap evidence. This shows that telephone tap information on 25 October
2001 led the Italian tax authorities to discover a number of envelopes sometime
after 7 November 2001. These envelopes contained AADs with false stamps
attached and related to movements including three from Trapps supposedly to
Serio. However, the Italian authorities did not ask HMRC to confirm that
Trapps had indeed released the relevant consignments.
198. We agree with
the Tribunal in SDM at §432 that the words “where it was detected” in
Article 20(2) “must involve at least a provisional judgment that there has been
an irregularity”.
199. We consider that
a provisional view that the 6 MTB consignments had not reached their
destination was reached by Officer Parsons, sometime after the movements in
question, arising out of the investigations into Goldhirst he was undertaking
as part of the Fulcrum Initiative. It led him to make enquiries of the Italian
authorities who confirmed in July 2002 that MTB had not received the
consignments.
200. Similarly we
find Officer Parsons had a provisional view, arising out of his investigations
and the knowledge that Serio was not authorised, that the Serio consignments
had not reached Serio. An Italian officer confirmed in January 2002 that the
AADs had false stamps. The Italian tax authorities later confirmed, in response
to an enquiry, that Serio had not received the consignments.
201. In other words
we find, were we called to do so, that it was HMRC and not the Italian
authorities which detected that the 14 consignments had not arrived. However,
for reasons we have already stated, the Tribunal is not called upon to make
determinations like this unless the detection is during the course of the
movement. Apart from detections in the course of a movement, Article 20 deems
the excise duty point to arise, if the goods do not arrive, at the point of
departure. It does this in order to provide rules that are simple to apply to
carve up jurisdiction between the member states; it should not be interpreted
in such a way that the question of jurisdiction can only be decided by
determining difficult questions of which member State ‘detected’ a diversion
when, inevitably, the fact of that diversion can only be proved by reliance on
mutual assistance requests made between member States. The Directive was not
intended to give rise to such fine distinctions about whether a ‘detection’
took place before or after the destination member State answers a mutual
assistance request about whether the goods actually arrived.
202. In any event
this discussion in §§ 192-201 is besides the point as the irregularity was not
detected in the course of the movement of the goods so Article 20(2) does not
apply. Article 20(3) applies.
Preconditions for Article 20(3)
203. As we have said,
neither the Italian nor UK tax authorities detected the irregularity during the
course of any of the 14 movements. The Italians were not aware of the
movements at the time they took place, and while HMRC would have known about
the movements under the EWS, they did not detect any irregularity in respect of
them until much later. Article 20(3) applies where:
(a)
The dutiable goods did not arrive at their destination and
(b)
it is not possible to determine where the offence or irregularity
was committed.
204. All parties are
agreed that the consignments did not arrive at their destination warehouses.
The appellant’s case was that the goods arrived in Italy and that was
sufficient to prevent the application of Article 20(3)(a). However, it is
clear that by “destination” in Art 20(3) the Directive is intended to refer to
the destination warehouse and not the country in which that warehouse was
located. The goods would not have reached their “destination” if they merely
crossed the border to Italy. They would not have reached their destination
until they arrived at the warehouse. And it was accepted and we find that the
goods did not arrive at their destination warehouses (see § 53) and therefore
condition (a) above is satisfied.
205. The appellant’s
case is that Article 20(3)(b) is not satisfied because, it says, it is possible
to determine where the offence or irregularity was committed: it was, says the
appellant, committed in Italy. If it if was known that goods were diverted in Italy then under Article 6 of the Directive the duty would be chargeable in Italy.
206. As the evidence
is evenly balanced on whether or not the goods left the UK (see § 54-57), we find out that the appellant has not made out its case that it is
possible to determine where the offence or irregularity was committed. It has
certainly not proved its case that the diversion took place in Italy.
207. The appellant’s
case that the goods arrived in Italy appears to be based on the Midolo report
that MTB and Serio were engaged in different kinds of fraud. We have set this
out at § 116-123 above. The appellant’s case was that the fraud in this case
was the first type when goods would arrive at MTB and Serio and then be
diverted on departure from those warehouses. We have already said that that
clearly was not the fraud at issue in this case: the goods never arrived at
MTB or Serio. Had that been the kind of fraud at issue, MTB and Serio’s
records would have recorded the arrival and departure of the goods. There
would have been no need to affix false stamps to Trapps’ AADs (see § 118).
208. In conclusion
Art 20(3) applies.
Which irregularity?
209. The appellant also
argued that HMRC could not say that the location of the offence or
irregularity could not be determined because it was obvious that the affixing
of false stamps to AADs was an offence and an irregularity that had occurred in
Italy. The Midolo report and logic support the appellant’s case that the
affixing of the false stamps took place in Italy and HMRC do not suggest
otherwise.
210. But it is
irrelevant. Article 20(3) is concerned with a particular offence or
irregularity as it refers to “the offence or irregularity”. And it is
clear that the offence or irregularity to which it refers, is the offence or
irregularity with which the article is dealing, which is that the excise goods
did “not arrive at their destination”. This is obvious because it is that
irregularity on which the excise duty liability which is the subject of Article
20(3) depends.
211. The excise duty
is chargeable because the excise goods have been released for consumption:
Article 6(1) gives liability to duty on any release for consumption including
an irregular release from excise suspension arrangements.
212. There is in any
event no other sensible interpretation of Art 20. Diversions of excise goods
may involve a number of different excise offences taking place in a number of
different places and at a number of different times. Unless Art 20 is read as
referring to the offence of the actual diversion of the goods, rather than the
application of false stamps to AADs or any other act undertaken to facilitate
the offence, it would be impossible to sensibly apply the law, which would
obviously be contrary to the purpose of Art 20.
Conclusion
213. As we have said
Articles 20(1) & (2) deal with the situation of an irregularity committed
during the course of a movement and, where it is not possible to determine where
it was committed, deems it to be in the member State of detection. Article
20(3) deals with the situation of an irregularity detected after a movement,
and where it is not possible to determine where it was committed, deems
it to be in the member State of departure. There is no need for Article 20 to
deal with the situation where it is known where the irregularity was committed
because Article 6 provides the answer to this. An irregular departure from
duty suspension triggers excise duty liability (article 6(1)(a)). If it was
known that the goods were diverted, say, in the UK, UK excise duty would be
chargeable as Article 6(2) provides that liability arises in the member State where the release for consumption takes place.
214. There is perhaps
a conceptual difficulty with Article 20 in that it is dealing with a situation
where it is not known where the diversion took place. Yet under common law the
courts habitually determine questions where the evidence is evenly balanced
both ways: it depends on who has the burden of proof. In practice this
Tribunal does not know whether the goods ever left the UK. As a matter of law, because the burden of proof is on the appellant and it is the appellant’s
case that the goods left the UK, we would determine that the goods never left
the UK.
215. However, it
seems to us that the European Council would not have in mind the various member
States’ rules on how to determine evenly balanced evidence. When article 20
uses the phrase “without it being possible to determine where [the
irregularity] was committed” it means without it being possible in practice
to determine where the irregularity was committed.
216. So it is Article
20 which determines where the liability falls in this case. We find that
Article 20(3) applies and that as the UK was the member State of departure then
it is for UK to assess the duty. The appellant was the consignor and guarantor
and it is therefore liable to that duty under regulation 7(1) of DSMEG.
217. But if we were
wrong on this interpretation of that phrase, we would find that it is possible
to determine where the irregularity was committed, because the rules on the
burden of proof means that the irregularity was committed in the UK. And
Article 6(1) would similarly place liability for the excise duty on the
appellant.
Asssessments not to best judgment
218. This was a new
matter raised by the appellant in closing. The allegation appears to be that
the assessment did not take into account all the matters which the appellant
allege amounts to a fortuitous event. We do not find that the assessments were
not to best judgment. We find that they were right and therefore it follows
they were to best judgment. There was no need to consider the matters which
the appellant allege were fortuitous events: they were not. And as they were
not fortuitous events, they were not relevant.
HMRC failed to ask the consignee for a guarantee
219. Another new
matter raised in closing by Mr Young was that he said, as at least some UK intelligence officers knew of the Italian investigation, they should have asked Serio or
MTB to provide a guarantee for any consignment to them. Article 15(3) does
permit a member State to require the consignee to provide a guarantee.
220. However, a
failure by HMRC to exercise a discretion which it has in law is not justiciable
in this Tribunal. See J H Corbitt (Numismatists) Ltd [1980] STC 231, Aspin
v Estill [1987] STC 72, HMRC v Hok Limited [2012] UKUT 363 (TCC) and
National Westminster Bank plc [2003] STC 1072. If the appellant
considers it can make a case out on this its only remedy is judicial review.
Our view, for what it is worth, is that HMRC cannot be required to act on mere
suspicions.
Lawful removal
221. Another ground
on which the appellant relied was that under s 94(3)(b) CEMA 79 it considers
that it cannot be assessed to duty as there was no unlawful removal of the
goods from a warehouse and therefore there was no liability to duty. This
makes little sense: the appellant is assessed under DSMEG on the grounds that
the goods failed to arrive at their destination and not under CEMA for
an unlawful removal from a warehouse.
222. The appellant’s
case on this has to be understood as a case under DSMEG that there was no irregular
departure from suspension arrangements because (alleges the appellant) HMRC
authorised it to release the goods. It authorised this, says the appellant, by
the EWS and/or a positive SEED check.
223. This fails on
the facts as we have found that HMRC did not under the EWS authorise any
release of the goods (see § 97-98) and as we have said repeatedly, the
appellant did not carry out SEED checks. In any event, as a matter of law,
even had HMRC either or both given an approval or a positive SEED check, that
would not alter the position. The position is that the goods did not arrive at
the destination warehouse and that therefore there was an irregular departure
from duty suspension arrangements and liability follows under DSMEG and Article
20.
224. Lastly, Mr Young’s
case on this might be understood as saying that even if under Article 20 the
appellant is liable to the duty, its assessments should be waived because HMRC
authorised the release and/or gave a positive SEED check. As above, this fails
on the facts as HMRC did neither of these things. And as a matter of law, such
a question is beyond the jurisdiction of this Tribunal (see 220). It could
only form the subject of a claim for judicial review and on the facts of this
case such a claim would appear bound to fail.
Conclusion
225. All the grounds
of appeals raised by the appellant have failed. The appeal is dismissed.
Footnote - Disclosure application
226. On 9 May 2013
counsel for the appellant asked the Tribunal in chambers for a disclosure order
for details of the criminal investigation into an ex- HMRC officer Mr “X”. We
redact the name because we understand this officer is currently bailed and may
face criminal prosecution and we do not wish to prejudice the possible criminal
trial. This is the reason also why Mr Young made the application in private.
227. Mr X had been an
HMRC officer who appeared to have some involvement with the appellant’s excise
affairs in 2001: the extent to which Mr X had day to day responsibility within
HMRC for the appellant’s affairs was not agreed. He was not a witness in the
hearing, and is not mentioned elsewhere in this decision as what little
information we had on him appeared irrelevant to the appeal. At the start of
the hearing in November, the appellant had asked, unopposed, for a witness
summons against him, which we granted, but Mr X failed to appear.
228. It seems that
the appellant’s advisers received information at lunchtime on 9 May 2013 that
Mr X had been (some time before) dismissed by HMRC for dishonesty. They
conveyed this information to HMRC’s solicitors, who made further enquiries and
discovered that Mr X was being criminally investigated by HMRC’s Internal
Governance, which has power to prosecute. We were informed by Mr Hill that his
information was that Mr X had been bailed pending investigation of allegations
that in 2011 in return for bribes he tipped off traders about HMRC enquiries
into excise matters.
229. Mr Young told us
that he wished to know if there was more to Mr X’s alleged criminal activities
than this and postulated that it was possible that in 2001 (ten years earlier)
Mr X was in conspiracy with the Italian fraudsters indicated in this appeal,
and that if this was the case it might have a bearing on the outcome of this
appeal.
230. He suggested
that while he did not want to stop the Tribunal proceedings pending discovery,
he did want something in writing from HMRC Internal Governance or HMRC’s
Solicitors Office so that, if it transpired there was more to Mr X’s alleged
criminal conduct than tipping off in 2011, he would be able to introduce this
new evidence (if relevant) on appeal to the Upper Tribunal if the First-tier
Tribunal decided the appeal against his client.
231. Our decision was
that there was no need for HMRC Internal Governance or HMRC Solicitors’ Office
to put anything in writing. The appellant had the assurance from Mr Hill,
counsel for HMRC. And I would not order HMRC to give any further assurance:
that would be enough of an explanation for the Upper Tribunal (should the
appellant require it) of why Mr Young was unable to take the matter any further
in this Tribunal.
232. And in so far as
it was a request for disclosure for the sake of seeking information, we would
not allow it in any event as it amounted to no more than a fishing expedition:
there was no evidence in the appeal to suggest that Mr X conspired with the
Italian mafia in 2001 or was otherwise criminally involved in the 14 diversions
the subject of this appeal. There was therefore nothing to suggest that
disclosure of the investigation against Mr X would reveal anything relevant to
these proceedings and we refused it.
233. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. 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.
BARBARA
MOSEDALE
TRIBUNAL JUDGE
RELEASE DATE: 11 November 2013
