United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2005] UKVAT V19263

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Beds & Pine Ltd v Her Majesty's Revenue and Customs [2005] UKVAT V19263 (22 September 2005)

EO00920

EXCISE DUTY RELIEF — tied oil regime — delivery of oil by approved trader to non-approved trader — inadvertent breach of Regulations brought about by method of transportation — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

BROWN & FORTH LIMITED Appellant

- and -

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Lady Mitting (Chairman)

Marilyn Crompton

Sitting in public in Manchester on 15 September 2005

Michael Bennett, managing director, for the Appellant

Jonathan Cannan, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

DECISION

The disputed decision of the Respondents is the deemed review decision to uphold an assessment made in relation to the Appellant pursuant to section 12A(3)(c) Finance Act 1994 in the amended sum of £15,953.43.

The Appellant trades as a chemical merchant and the assessment was raised to recover the duty on two duty free consignments of oil, which the Respondents maintained were not eligible to be delivered free of duty. The two deliveries in question were:-

(i) 21 May 2003 28,176 litres to Triumph Trading

(ii) 30 January 2003 1,000 litres to Isca UK

We heard oral evidence on behalf of the Appellant company from its managing director, Mr Michael Bennett, and on behalf of the Respondents from the assessing officer, Mrs Hazel Havard.

The statutory and regulatory provisions

This case revolves around the operation of the tied oil regime, the statutory framework for which is as follows:

Section 6(1)(b) Hydrocarbon Oil Duties Act 1979 ("HODA") provides:

"(1) … there shall be charged on hydrocarbon oil—

(a) imported into the United Kingdom; or

(b) produced in the United Kingdom and delivered for home use from a refinery or from other premises used for the production of hydrocarbon oil or from any bonded storage for hydrocarbon oil, not being hydrocarbon oil chargeable with duty under paragraph (a) above,

[a duty of excise …"

Section 9 HODA provides:

"9 Oil delivered for home use for certain industrial purposes

(1) The Commissioners may permit hydrocarbon oil to be delivered for home use to an approved person, without payment of excise duty on the oil, where —

(a) it is to be put by him to a use qualifying for relief under this section; or

(b) it is to be supplied by him in the course of a trade of supplying oil for any such use.

(5) In this section —

(a) "an approved person" means a person for the time being approved in accordance with regulations made for any of the purposes of subsection (1) or (4) above under section 24(1) below, …

(b) …"

Section 24(1) HODA permits the Respondents to make regulations for the purpose of implementing Section 9(1) and these regulations are to be found in the Hydrocarbon Oil (Industrial Relief) Regulations 2002 (SI 2002/01471). Regulation 4(c) provides that the Commissioners may approve a person as an approved tied oil trader "subject to conditions".

Section 24(4B) HODA states:

"Where—

(a) any oil is delivered without payment of duty, and

(b) a person contravenes or fails to comply with any requirement which, by virtue of any regulations made under this section, is a condition allowing the oil to be delivered without payment of duty,

the Commissioners may assess an amount equal to the excise duty on like oil at the rate in force at the time of the contravention or failure to comply as being excise duty due from that person, and notify him or his representative accordingly."

The Appellant's approval and the conditions relating thereto

The Appellant company was at all material times an approved tied oil trader but pursuant to Regulation 4(c) the Respondents had imposed the following conditions upon its approval:

"This approval is subject to your compliance with the requirements of Notice 184(A) and the conditions attached. Failure to comply may result in cancellation of your approval."

Notice 184(A) sets out the detailed terms of the tied oil scheme. The effect of the scheme is that an approved oil trader can only supply tied oil to other approved traders. What is crucial is the nature of the approval of the recipient trader. Such a trader can either be individually approved or subject to class approval. Section 2(3) of the Notice provides that where tied oils are delivered in containers greater than 210 litres, or in bulk, the recipient trader must have individual approval. Deliveries in containers of less than 210 litres can be made to class approved traders.

Section 5.5 provides that where deliveries are made to an individually approved recipient, the distributor must obtain the approval number of the customer before making the supply and must satisfy himself that the customer is eligible to receive tied oil.

Section 9 sets out in rather greater detail the checks which a distributor must make before delivery including ensuring the validity of the recipient's approval.

The facts

The facts were not in dispute and we find them to be as follows. The deliveries to both recipients were made in containers larger than 210 litres. Triumph was supplied by means of one single tanker load. Isca was supplied in one single bulk container. Both would therefore have had to have been individually approved to receive their deliveries, duty unpaid, within the scheme. Neither were.

The Appellant has been trading since 1967 and deals in chemicals and solvents, specifically in recycled solvents which were the subject of these deliveries. Deliveries were normally made by the Appellant in 25 litre cans or 205 litre drums and Triumph and Isca, who have both been customers of the Appellant for a number years, have routinely taken their deliveries in this form.

Isca, however, on this occasion, asked if their delivery of 1,000 litres could be transported in one single container, rather than five separate drums, purely for the ease of handling. Similarly, Triumph had regularly received deliveries of the quantity in question, but usually in loads of 80 to 100 drums. On this occasion, Triumph saw a cost saving if the oil could be conveyed to them by tanker and then transferred on their premises into their own drums. The Appellant's staff saw no reason to refuse either request and this is how the two consignments came to be made, both contrary to the normal practice of delivery to them.

That the method of transportation breached the Regulations was not picked up by the Appellant and was not spotted until Mrs Havard carried out a routine inspection in April 2004. Part of her enquiry was to ensure the requirements for the movement of tied oil were being complied with. She immediately spotted from the records that the movements to Triumph and Isca had not complied and the oil had not therefore been eligible to be delivered to them relieved of duty. She pointed this out to Mr Bennett, who as soon as he realised what had happened, contacted Triumph and Isca, both of whom still had the oil on site and he arranged for the oil to be returned to him by independent haulier, which it was. Both customers were refunded. Mr Bennett then invited the Respondents to inspect the returned oil but they declined as "the duty point had been created" on the supply of the oil.

Conclusions

It was Mr Bennett's submission that a genuine mistake had been made which, on discovery, he had immediately sought to rectify by securing the return of the goods. The breach, he argued, had only been in the nature of the transportation, not the nature of the goods supplied or the quantities in which they were supplied.

We have every sympathy with Mr Bennett and with the company but the Regulations are quite clear. The Appellant was an approved trader but its approval was, quite legitimately, subject to the conditions clearly set out in Notice 184(A). For a delivery in the manner adopted here, it was necessary for the recipient traders, Triumph and Isca, to each have individual approvals, which they did not. They were therefore, quite simply, not eligible to receive the oil upon which duty had not been paid and the Appellant was not entitled to deliver it duty free. A breach occurred as soon as delivery in this fashion took place.

There is no question of intent being necessary for a breach and the fact that the breach was inadvertent therefore does not aid the Appellant.

Neither does it aid the Appellant that Mr Bennett arranged for the redelivery of the oil as soon as the mistake had been pointed out. Triumph and Isca had each placed an order with the Appellant. The order had been accepted; it had been processed; delivery had been made and accepted; the recipients had been billed and they had paid. There matters lay until Mrs Harvard intervened a year later. Whatever happened then cannot detract from the fact that there were two completed contracts, two completed deliveries and two completed supplies. These supplies cannot be reversed. Section 24(4B) HODA permits the Commissioners to raise an assessment as soon as oil is delivered without payment of duty in contravention of the conditions permitting rebated delivery.

The duty became due at the time of delivery and the mere fact of the return of the goods appreciably later cannot affect this.

For these reasons, we have to dismiss the appeal. Mr Cannan, in our view quite properly, made no application for costs and no order is made.

LADY MITTING

CHAIRMAN
Release Date: 23 October 2005