Appeal reference: TC/2022/13288 |
TAX CHAMBER
Judgment Date: 9 January 2025 |
B e f o r e :
LESLIE HOWARD
____________________
MARIUSZ LYCZKOWSKI |
Appellant |
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- and - |
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THE COMMISSIONERS FOR HIS MAJESTY'S REVENUE AND CUSTOMS |
Respondents |
____________________
For the Appellant: No Appearance
For the Respondents: Mr Max Schofield of Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs
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Crown Copyright ©
CUSTOMS & EXCISE DUTY – civil evasion penalty – tobacco products seized – no challenge to legality of the seizure – goods duly condemned as forfeit – whether penalty correctly applied – yes – appeal solely on the basis of inability to pay the penalty – Appeal dismissed
Introduction
Issues
(1) HMRC have established conduct involving dishonesty; and
(2) the Appellant has provided an innocent explanation.
Burden and standard of proof
Documents
Background facts
Relevant law
"1. This Order may be cited as the Travellers Allowances Order 1994 and shall come into force on 1st April 1994.
2.—(1) Subject to the following provisions of this Order a person who has travelled from a third country shall on entering the United Kingdom be relieved from payment of value added tax and excise duty on goods of the descriptions and in the quantities shown in the Schedule to this Order obtained by him in a third country and contained in his personal luggage.
(2) For the purposes of this article—
(a) goods shall be treated as contained in a person s personal luggage where they are carried with or accompanied by the person or, if intended to accompany him, were at the time of his departure for the United Kingdom consigned by him as personal luggage to the transport operator with whom he travelled;
(b) a person shall not be treated as having travelled from a third country by reason only of his having arrived from its territorial waters or air space;
(c) "third country", in relation to relief from excise duties, shall mean a place to which Council Directive 92/12/EEC of 25th February 1992(2)does not apply; and, in relation to relief from value added tax, shall have the meaning given by Article 3(1) of Council Directive 77/388/EEC of 17th May 1977(3)(as substituted by Article 1.1 of Council Directive 91/680/EEC of 16th December 1991(4)).
3. The reliefs afforded under this Order are subject to the condition that the goods in question, as indicated by their nature or quantity or otherwise, are not imported for a commercial purpose nor are used for such purpose; and if that condition is not complied with in relation to any goods, those goods shall, unless the non-compliance was sanctioned by the Commissioners, be liable to forfeiture..."
CEMA
Excise Duty
"Penalty for evasion of excise duty
8(1) Subject to the following provisions of this section, in any case where-
(a) any person engages in any conduct for the purpose of evading duty or excise, and
(b) his conduct involves dishonesty (whether or not such as to give rise to any criminal liability), that person shall be liable to a penalty of an amount equal to the amount of duty evaded or, as the case may be, sought to be evaded.…
"(4) Where a person is liable to a penalty under this section-
(a) the Commissioners or, on appeal, an appeal tribunal may reduce the penalty to such amount (including nil) as they think proper; and
(b) an appeal tribunal, on an appeal relating to a penalty reduced by the Commissioners under this subsection, may cancel the whole or any part of the reduction made by the Commissioners.
(5) Neither of the following matters shall be a matter which the Commissioners or any appeal tribunal shall be entitled to take into account in exercising their powers under subsection (4) above, that is to say-
(a) the insufficiency of the funds available to any person for paying any duty of excise or for paying the amount of the penalty;
(b) the fact that there has, in the case in question or in that case taken with any other cases, been no or no significant loss of duty."
Customs Duty and Import VAT
"25 Penalty for evasion
(1) In any case where—
(a) a person engages in any conduct for the purpose of evading any relevant tax or duty, and
(b) his conduct involves dishonesty (whether or not such as to give rise to any criminal liability),
that person is liable to a penalty of an amount equal to the amount of the tax or duty evaded or, as the case may be, sought to be evaded…"
29 Reduction of penalty under section 25 or 26
(1) Where a person is liable to a penalty under section 25 or 26—
(a) the Commissioners (whether originally or on review) or, on appeal, an appeal tribunal may reduce the penalty to such amount (including nil) as they think proper; and
(b) the Commissioners on a review, or an appeal tribunal on an appeal, relating to a penalty reduced by the Commissioners under this subsection may cancel the whole or any part of the reduction previously made by the Commissioners.
(2) In exercising their powers under subsection (1), neither the Commissioners nor an appeal tribunal are entitled to take into account any of the matters specified in subsection (3).
(3) Those matters are—
(a) the insufficiency of the funds available to any person for paying any relevant tax or duty or the amount of the penalty,
(b) the fact that there has, in the case in question or in that case taken with any other cases, been no or no significant loss of any relevant tax or duty,
(c) the fact that the person liable to the penalty, or a person acting on his behalf, has acted in good faith."
"Where HMRC give a demand notice to a person or his representative, the person or his representative may make an appeal to an appeal tribunal in respect of
(a) their decision that the person is liable to a penalty under section 25 or 26, or
(b) their decision as to the amount of the liability."
"The powers of an appeal tribunal on an appeal under this section include
(a) power to quash or vary a decision; and
(b) power to substitute the tribunal's own decision for any decision so quashed."
Appeal hearing
Preliminary matters
"Hearings in a party's absence
33.- If a party fails to attend a hearing the Tribunal may proceed with the hearing if the Tribunal-
(a) is satisfied that the party has been notified of the hearing or that reasonable steps have been taken to notify the party of the hearing; and
(b) considers that it is in the interests of justice to proceed with the hearing."
HMRC's case
(1) The Appellant, when stopped at Dover Eastern Docks, was found to be in possession of 50 times his permitted allowance of tobacco. According to the Travellers Allowance Order 1994, the maximum amount of tobacco permitted to be imported is 200 cigarettes or 250g of Hand-Rolling Tobacco. The Appellant had 10,000 cigarettes, thus exceeding his allowances by 50 times.
(2) The Goods were hidden in the cab of the Vehicle and the Appellant denied having any dutiable goods prior to the seizure. The Appellant did not challenge the legality of the seizure and the Goods are duly condemned as forfeit.
(3) Dishonest conduct for the purposes of evading customs duty and/or import VAT and/or excise duty renders a person liable for a penalty under s 25 (1) FA 2003 and s 8 (1) of FA 1994, respectively.
(4) There are signs at UK ports which outline the restrictions and allowances on bringing goods into the UK. The signs are visual aids with pictures of dutiable goods, including tobacco products. The ordinary and honest person would have sought out these signs, or sought advice from a Border Force Officer if there was any doubt about allowances.
(5) The Appellant was provided with Notice 12A at the time of the seizure. The Appellant did not appeal against the seizure of the Goods. The Goods have been condemned as forfeit and are, therefore, no longer considered to be the Appellant's Goods. It is not open to the Tribunal to consider if the Goods were imported for a commercial purpose; that is held as fact as the Goods have been condemned.
(6) The Appellant's contention that the Border Force Officer explained that immediate payment of the fine would end the case was in relation to restoration of the Vehicle, which is a separate matter to this appeal. The Appellant signed the BOR156 and BOR162 forms, taking responsibility for the Goods.
(7) If it is accepted by the Tribunal that the Appellant genuinely did not appreciate that he was acting dishonestly, then the Appellant's behaviour was nevertheless dishonest by the standards of ordinary decent people.
(8) HMRC have not applied any reduction to the penalty amount, as the Appellant provided no responses to the information that was requested of him in the questions posed in HMRC's letter dated 7 February 2021.
(9) The customs civil evasion penalty raised under s 31 FA 2003 is in time. There are no statutory time limits for HMRC to issue the excise civil evasion penalty raised under s 8 FA 1994. However, HMRC have complied with their internal policy and issued proceedings within 12 months of the seizure.
Findings of fact
"WARNING
The goods listed on the attached schedule (as detailed on Form BOR156) have been seized under Section 139 of the Customs and Excise Management Act 1979. This is without prejudice to any further action that may be taken against you in connection with this matter. This may include, but is not limited to, Border Force sharing information with:
HM Revenue & Customs who may take action against you such as issuing you with an assessment for any evaded tax or duty and a wrongdoing penalty, and or
Other agencies or organisations who may wish to take action (which may include prosecution) in relation to this seizure."
(1) the Goods were concealed;
(2) the Goods were undeclared; and
(3) the Goods were in excess of the allowances.
(1) At all ports of entry there is essential customer information detailing the allowances for tobacco products.
(2) When asked by Officer Phillips if he had any cigarettes or tobacco, the Appellant responded "No".
(3) The Appellant also appeared dismissive during other questioning from Officer Phillips. For example, when asked where his delivery was destined, he shrugged his shoulders and looked elsewhere.
(4) It was not credible that the Appellant could have believed 10,000 cigarettes were within his UK customs allowances.
Discussion
Whether dishonesty has been established and whether the Appellant has provided an innocent explanation
"62. Dishonesty is by no means confined to the criminal law. Civil actions may also frequently raise the question whether an action was honest or dishonest...Successive cases at the highest level have decided that the test of dishonesty is objective. After some hesitation in Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 AC 164, the law is settled on the objective test set out by Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378: see Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37; [2006] 1 WLR 1476, Abou-Rahmah v Abacha [2006] EWCA Civ 1492 ; [2007] Bus LR 220; [2007] 1 Lloyd's Rep 115 and Starglade Properties Ltd v Nash [2010] EWCA Civ 1314 ; [2011] Lloyd's Rep FC 102. The test now clearly established was explained thus in Barlow Clowes by Lord Hoffmann, at pp 1479-1480, who had been a party also to Twinsectra:
"Although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant's mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards. The Court of Appeal held this to be a correct state of the law and their Lordships agree."
63. Although the House of Lords and Privy Council were careful in these cases to confine their decisions to civil cases, there can be no logical or principled basis for the meaning of dishonesty (as distinct from the standards of proof by which it must be established) to differ according to whether it arises in a civil action or a criminal prosecution. Dishonesty is a simple, if occasionally imprecise, English word. It would be an affront to the law if its meaning differed according to the kind of proceedings in which it arose."
"74...The test of dishonesty is as set out by Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan and by Lord Hoffmann in Barlow Clowes: see para 62 above. When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual's knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest."
(1) subjectively, the Appellant knew that the Goods were over the legal-limit and intended not to declare them; and that any assertion that he did not know this could not be reasonably held; and
(2) objectively, the importation of the Goods for a commercial purpose while evading excise duty and import VAT would be regarded as dishonest by the standards of ordinary people.
(1) He did not understand the content of the letter(s) received from HMRC due to a language barrier. He thought the letters were not important because he had been re-assured that immediate payment of the fine will be the end of the matter.
(2) After receiving the Penalty letter, he realised he had to pay a large sum of money. He called a professional company providing comprehensive tax consultancy services. Having received a fee quotation for their services, he did not appoint them to assist.
(3) He is not challenging the illegal importation of the Goods. He is asking for total remission of the Penalty as he cannot afford it. He is the sole breadwinner in his family.
"I want to clarify that my decision to appeal to the Tribunal is not based on a claim of innocence in this matter. I fully acknowledge my responsibility for the illegal importation of the cigarettes. However, I am seeking recourse because I am unable to afford the payment of the excise duty"
(1) The Appellant knew he had the Goods in his Vehicle and he did not declare them.
(2) The Appellant denied having any cigarettes or tobacco when asked by Officer Philips and, therefore, made no attempt to declare them.
(3) The Goods were concealed in the cab, including in the refrigerator.
(4) The Appellant accepts his wrongdoing.
(5) Information is available at all ports of entry and that information sets out the allowances for tobacco products. The Appellant passed through this signage on at least one previous occasion.
(6) The number of cigarettes brought by the Appellant is significantly more than would be permitted for personal importation. Even if the Appellant did not know the exact amount, the Appellant did not try to establish the legal limit.
(7) The Appellant was generally dismissive and/or evasive under questioning.
(8) The Appellant is in the freight / cross-border transportation industry and is required to be vigilant.
(9) The Goods were not included in, or the subject of, any import documentation.
(10) Although not claimed to be for personal use, the Goods are deemed to have been imported illegally for a commercial purpose owing to the lack of a challenge to the seizure (and art. 3 of the Travellers' Allowances Order 1994). The deeming effect has the consequence that the Appellant cannot argue that the Goods were for personal use.
Whether the Penalty has correctly been applied
"Notice 300: customs civil investigation suspected evasion
…
2.4 Penalty for evasion of the relevant tax or duty
A penalty may be imposed in any case where:
a person engages in any conduct for the purpose of evading any relevant tax or duty his conduct involves dishonesty (whether or not such as to give rise to any criminal liability)
The penalty that the law imposes is an amount equal to the relevant tax or duty evaded or sought to be evaded.
The penalty can be mitigated (reduced) to any amount, including nil. Our policy on how the penalty can be reduced is set out in section 3.
…
3. How can I reduce the penalty?
It is for you to decide whether or not to co-operate with our investigations, but if you do you should be truthful as making a statement to us you know to be false may render you liable for prosecution.
If you chose to co-operate and disclose details of your true liability then you can significantly reduce the amount of any penalties due.
You should tell us about anything you think is relevant when we are conducting the investigation. At the end of the investigation we will take into account the extent of your co-operation.
…
3.2 By how much can the penalty be reduced?
You should tell us about anything you thing is relevant during the investigation. At the end of the investigation we will take into account the extent of your co-operation.
The maximum penalty of 100% import duties evaded will normally be reduced as follows:
up to 40% - early and truthful explanation as to why the arrears arose and the true extent of them.
up to 40% - fully embracing and meeting responsibilities under the procedure by, for example, supplying information promptly, providing details of the amounts involved, attending meetings and answering questions.
In most cases, therefore, the maximum reduction obtainable will be 80% of the value of import duties on which penalties are chargeable. In exceptional circumstances however, consideration will be given to a further reduction, for example, where you have made a complete and unprompted voluntary disclosure."
"HMRC Notice 160 Compliance checks into indirect tax matters
2.3 How can penalties be reduced?
It's for you to decide whether or not to co-operate with our check, but if you do, you should be truthful. If you make a statement to us you know to be false during our check, you could face prosecution.
If you choose to co-operate and disclose details of your true liability then you can significantly reduce the amount of any penalties due.
You should tell us about anything you think is relevant when we are working out the level of the penalty. At the end of the check we will take into account how much you have co-operated.
2.3.1 Reductions under Civil Evasion Penalty Rules
The maximum penalty of 100% tax evaded will normally be reduced as follows:
up to 40% - early and truthful explanation as to why the arrears arose and the true extent of them
up to 40% - fully embracing and meeting responsibilities under this procedure by, for example, supplying information promptly, quantification of irregularities, attending meetings and answering questions.
In most cases, therefore, the maximum reduction obtainable will be 80% of the tax on which penalties are chargeable. In exceptional circumstances however, consideration will be given to a further reduction, for example, where you have made a full and unprompted voluntary disclosure."
(1) Up to 40% discounted for disclosure, for an early and truthful admission; and
(2) Up to 40% discounted for co-operation,5 providing information promptly, answering questions truthfully, co-operate with the investigation until its conclusion.
(1) The insufficiency of funds available to any person for paying any VAT due or for paying the amount of the penalty;
(2) The fact that there has, in the case in question or in that case taken with any other cases, been no or no significant loss of VAT; and
(3) The fact that the person liable to the penalty or any person acting on his behalf has acted in good faith.
Conclusions
(1) the Appellant was aware that there was a limited allowance for tobacco products, even if he did not know the precise quantities.
(2) It is reasonable to conclude that his purpose in failing to declare tobacco in excess of the allowances was to seek to evade the taxes and duties chargeable.
(3) His conduct involved dishonesty in that he knew that he was attempting to evade duties and taxes on the tobacco he was carrying.
(4) His conduct would be regarded as dishonest by the standards of ordinary people.
(5) Insufficiency of funds does not provide any relief for the Appellant in relation to the Penalty.
Right to apply for permission to appeal