United Kingdom VAT & Duties Tribunals (Customs) Decisions

FFG Hillebrand v Revenue & Customs [2007] UKVAT(Customs) C00242 (20 September 2007)

C00242

Customs duty – warehousing regime – defective goods – taken away from Customs and Excise warehouse premises – proposed destruction – arrangements under discussion – destruction by third party agent before supervision could be arranged – whether declarant liable to duty as a result of destruction – yes – appeal dismissed

LONDON TRIBUNAL CENTRE

FFG HILLEBRAND Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: JOHN CLARK (Chairman)

SHEILA EDMONDSON FCA

Sitting in public in London on 17 July 2007

Raymon Perry, Operations Director, for the Appellant

Mario Angiolini of counsel, instructed by the Acting Solicitor for Her Majesty's Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1. The issue in this case is whether the Respondents ("Customs") were correct in upholding their decision to demand customs duty of £1.975.65 and import VAT of £1,961.35 on a consignment of wine imported into the UK which, having been declared by the Appellant (FFGH") to the Customs and Excise Warehouse operated by Corby Bottlers plc, was instead sent for destruction without following Customs' instructions given in this connection and without affording Customs the possibility of supervising that destruction.
2. The Notice of Appeal given by FFGH indicated that it was appealing against a decision to impose a penalty under section 26 of the Finance Act 2003. As it was clear on the facts that no such penalty had been imposed on FFGH, we and both parties treated the appeal as having been made against the decision to uphold the demand for customs duty and import VAT.

The law

3. For ease of reference, we set out the relevant law, which is contained in EC Council Regulation 2913/92/EEC ("the Customs Code") and in Commission Regulation (EEC) No 2454/93 (the Implementing Regulation").
4. Article 37 of the Customs Code provides:

"1. Goods brought into the customs territory of the Community shall, from the time of their entry, be subject to customs supervision. They may be subject to control by the customs authority in accordance with the provisions in force.

2. They shall remain under such supervision for as long as necessary to determine their customs status, if appropriate, and in the case of non-Community goods and without prejudice to Article 82(1), until their customs status is changed, they enter a free zone or free warehouse or they are re-exported or destroyed in accordance with Article 182."

5. Article 99 of the Customs Code provides:

"A customs warehouse may be either a public warehouse or a private warehouse.

'Public warehouse' means a customs warehouse available for use by any person for the warehousing of goods;

'Private warehouse' means a customs warehouse reserved for the warehousing of goods by the warehousekeeper.

The warehousekeeper is the person authorised to operate the customs warehouse.

The depositer shall be the person bound by the declaration placing the goods under the customs warehousing procedure or to whom the rights and obligations of such a person have been transferred."

6. Article 101 of the Customs Code provides:

"The warehousekeeper shall be responsible for—

(a) ensuring that while the goods are in the customs warehouse they are not removed from customs supervision;

(b) fulfilling the obligations that arise from the storage of goods covered by the customs warehousing procedure; and

(c) complying with the particular conditions specified in the authorisation."

7. Article 102 of the Customs Code provides:

"1. By way of derogation from Article 101, where the authorisation concerns a public warehouse, it may provide that the responsibilities referred to in Article 101(a) and/or (b) devolve exclusively upon the depositor.

2. The depositor shall at all times be responsible for fulfilling the obligations arising from the placing of goods under the customs warehousing procedure."

8. The relevant part of Article 182(3) provides:

"Save in cases determined in accordance with the committee procedure, re-exportation or destruction shall be the subject of prior notification of the customs authorities."

9. Article 203 provides:

"1. A customs debt on importation shall be incurred through—

— the unlawful removal from customs supervision of goods liable to import duties.

2. The customs debt shall be incurred at the moment when the goods are removed from customs supervision.

3. The debtors shall be—

— the person who removed the goods from customs supervision,

— any persons who participated in such removal and who were aware or should reasonably have been aware that the goods were being removed from customs supervision,

— any persons who acquired or held the goods in question and who were aware or should reasonably have been aware at the time of acquiring or receiving the goods that they had been removed from customs supervision, and

— where appropriate, the person required to fulfil the obligations arising from temporary storage of the goods or from the use of the customs procedure under which those goods are placed."

10. Article 220(2) provides:

"2. Except in the cases referred to in the second and third subparagraphs of Article 217(1), subsequent entry in the accounts shall not occur where—

(a) the original decision not to enter duty in the accounts or to enter it in the accounts at a figure less than the amount of duty legally owed was taken on the basis of general provisions invalidated at a later date by a court decision;

(b) the amount of duty legally owed was not entered in the accounts as a result of an error on the part of the customs authorities which could not reasonably have been detected by the person liable for payment, the latter for his part having acted in good faith and complied with all the provisions laid down by the legislation in force as regards the customs declaration."

11. Article 239 provides:

"1. Import duties or export duties may be repaid or remitted in situations other than those referred to in Articles 236, 237, and 238—

— to be determined in accordance with the procedure of the committee;

— resulting from circumstances in which no deception or obvious negligence may be attributed to the person concerned. The situations in which this provision may be applied and the procedures to be followed to that end shall be defined in accordance with the committee procedure. Repayment or remission may be made subject to special conditions.

2. Duties shall be repaid or remitted for the reasons set out in paragraph 1 upon submission of an application to the appropriate customs office within 12 months from the date on which the amount of the duties was communicated to the debtor.

However, the customs authorities may permit this period to be exceeded in duly justified exceptional cases."

12. Article 199(1) of the Implementing Regulation provides:

"1. Without prejudice to the possible application of penal provisions, the lodging with a customs office of a declaration signed by the declarant or his representative shall render him responsible under the provisions in force for—

— the accuracy of the information given in the declaration,

— the authenticity of the documents attached, and

— compliance with all the obligations relating to the entry of the goods in question under the procedure concerned."

13. The relevant parts of Article 842 of the Implementing Regulation provide:

"1. For the purposes of Article 182(3) of the Code, notification of destruction of goods shall be made in writing and signed by the person concerned. The notification must be made in sufficient time to allow the customs authorities to supervise the destruction.

2. Where the goods in question are already the subject of a declaration accepted by the customs authorities, they shall make a reference to the destruction on the declaration and invalidate the declaration in accordance with Article 66 of the Code.

The customs authorities present when the goods are destroyed shall specify on the form or declaration the type and quantity of any waste or scrap resulting from the destruction in order to determine the items of charge applicable to them and to be used when they are assigned another customs-approved treatment or use."

The facts

14. The evidence consisted of a bundle of documents. In addition, Mr Perry gave information in the course of presenting his case; although this was not formal evidence, we have taken it into account. Customs did not give any oral evidence. Broadly, the parties did not disagree in relation to the facts.
15. The consignment consisted of 23955 litres of Californian Bulk Wine shipped from E & J Gallo Winery in the United States to its associated company E & J Gallo Winery Europe Ltd, a UK company ("Gallo UK"), to be bottled in the UK by Corby Bottlers plc ("Corby Bottlers"). The consignment was shipped in a flexibag inside a container. It arrived in Thamesport on 2 July 2005. The consignment was entered under Customs Procedure Code 71 00 00 (customs warehousing) under import entry number 065 005163F. The end warehouse specified was that of Corby Bottlers. There was a delay in obtaining clearance, which was given on 14 July 2005.
16. FFGH is a UK-based limited partnership between FFG International Ltd and JF Hillebrand (UK) Ltd, a subsidiary of the JF Hillebrand Group, the head office of the latter being in Germany. FFGH is a specialist logistics provider to the wine and spirits industry. At all material times FFGH was agent for both Gallo companies referred to above, and was the person making the customs declaration in respect of the consignment.
17. FFGH was requested to deliver the consignment to Corby Bottlers on 27 July 2005, and FFGH's haulier went to Thamesport to uplift the container. The driver noticed that wine was leaking from the container, so the dock company moved the container to the "soak area" within the dock pending further investigation.
18. On 28 July 2005 a representative from Gallo UK went to the dock area to ascertain the nature of the leakage and to decide on what action had to be taken. The representative found that there was a slow leak from the flexibag, which he believed could not be repaired, and felt that the use of a soak pad would not assist in curbing the possible spillage. The container could not travel on the road to Corby and the Gallo representative agreed that the wine could be cross-pumped to a steel bulk container to enable it to be delivered to the bottling plant under the customs warehousing procedure.
19. On 2 August 2005 the wine was cross-pumped under supervision to the steel bulk container for delivery to the bottling plant under bond on 4 August. Gallo's Quality Manager, Chris Brazier, who attended the cross-pumping, noted at that stage that the wine foamed slightly in cross-pumping. This suggested to him that there might be some yeast infection and secondary fermentation, but he felt that this would not create a quality problem if the wine was protected and processed by Corby Bottlers as soon as possible.
20. The consignment, now in the steel bulk container, was transported to Corby Bottlers' premises by FFGH's haulage contractor on 4 August 2005. Chris Brazier and a colleague were present to carry out a quality check on the wine. In an e-mail sent shortly afterwards that morning to the US head office, headed "Rejection of SV Chard Tanker at Corby", Chris Brazier commented:

"Nigel and I tasted the wine and felt that it was no longer of an acceptable or recoverable quality (not even for Sunset Bay White). Since it was cross pumped from leaking container on Tuesday, it appears to have become more yeasty and aldehydic. The yeast could be filtered out but the aldehydic/infected character could not be corrected."

21. As the wine had further deteriorated and was no longer suitable for bottling, it was decided that the consignment should be withdrawn from the premises of Corby Bottlers. It is not clear from the evidence who took that decision. FFGH thought that the container had been admitted to the bonded area at Corby Bottlers' premises, but were unsure whether the consignment had been landed into the warehouse stock control. (In a later communication to Customs, Mr Perry indicated that this had probably not been done. He also explained that "aldehydic" meant "oxidised".) The container was resealed and returned to the haulier's yard.
22. Over the following week or so there were various discussions between FFGH and the other parties to try to ascertain the reasons for the wine having deteriorated between its first examination at Thamesport and its arrival at Corby Bottlers. No conclusive result was found, but the possibilities considered were contamination within the steel container into which the wine had been pumped, or that a dirty pump had been used in the transfer.
23. Following these discussions, it was decided that the wine should be destroyed. Mr Perry sent an e-mail to Nicky Lyons at Corby Bottlers asking whether, when the order had been rejected, they had advised their "Tax warehouse Officer" of the rejection, as FFGH would now need to notify the responsible Customs office of the intention to destroy the wine. In her reply sent early the next day, she said that she had been away, and would investigate. Over subsequent days Mr Perry sent several further messages to her asking about the progress of her enquiries, ultimately indicating that in the absence of a response, rental on the tanker would be charged to Corby Bottlers.
24. Before any reply was received from Corby Bottlers, on 25 August 2005 E & J Gallo's head office confirmed that the wine was to be destroyed.
25. FFGH were under a great deal of pressure from their haulier to confirm to the latter when destruction was to take place, as the haulier wanted to have its container back empty and available for other use. On 25 August 2005 FFGH was able to confirm to the haulier that agreement had been given to the destruction of the wine, and told it that details of and authorisation for the destruction would be sent to it at a later stage.
26. Subsequently, Corby Bottlers informed FFGH that although they were the receiving warehouse, it was not their responsibility to obtain the permission for destruction, and if the wine was to be destroyed FFGH should contact Paul Hayhurst of Customs in Blackburn. On 29 August Mr Perry attempted to e-mail Mr Hayhurst from home, but the message failed to transmit and was re-sent by FFGH on 31 August.
27. By that stage Mr Perry was on holiday, and the matter was left with FFGH's section supervisor John Hay, who had the task of liaising with the haulier and with Paul Hayhurst for permission to destroy the wine.
28. On 7 September 2005 John Hay sent an e-mail to Paul Hayhurst saying that as FFGH had not received a message to their message of 31 August, it was assumed that he had no objection to the destruction. John Hay confirmed to him the location where destruction was to take place, and that this was to be on 12 September at 10 am.
29. On 8 September 2005 Paul Hayhurst responded to John Hay. In the first paragraph of his message he said:

"I have spoken to Ray Parry's [sic] office and Corby Bottlers and have advised both that as these goods have been declared to Corbys [sic] Customs and Excise Warehouse they must physically travel there and be booked in. If these conditions are not met we will require payment of the duty."

30. On 14 September 2005, Peter Roberts of Corby Bottlers informed Paul Hayhurst that they would instruct FFGH to deliver the consignment to Corby the next week and that notice of its arrival would be given to Customs so that an officer could inspect it if desired. FFGH would then be instructed to take the tank to the relevant location for destruction on the written instructions of Corby Bottlers.
31. On 15 September 2005 John Hay sent a message to the haulier in which he said:

"Customs have confirmed that the destruction of the wine can go ahead on the 21/9 (confirmation from Paul Hayhurst). The tank must arrive into Corby Bottlers for 14:00 hrs on this date. Your driver will be issued with written confirmation that the wine is to be destroyed due to contamination with copy's [sic] going to FFG and Customs. Paul Hayhurst may attend at 14:00 pending work loads, will confirm next week if he will attend.

Once all documents have been completed at Corby the driver will be allowed to leave and deliver the tank to it's [sic] final destination (Viridor Waste).

Please can you confirm by return that haulage is covered and everything set up with the destruction point."

32. On 19 September the haulier responded:

"This has been disposed of already, last discussion we had suggested ok to go ahead unless you called me back after discussion with Customs? We had already cancelled disposal prior to this. I trust you can explain misunderstanding to Customs – will forward disposal documents as before."

33. On the following day Mr Perry e-mailed Paul Hayhurst of Customs to inform him that the wine had already been destroyed; copies of the earlier e-mail exchanges were attached to his message. Mr Perry continued:

"Our Contractor – Braids – defense [sic] is that they were aware we were in consultation with you but they had planned the destruction for Friday 9th September and maintain that as they had not heard from us to the contray [sic] that they went ahead and destroyed the wine."

34. The certificate issued to the haulier confirmed that the date of destruction of the wine was 9 September 2005. The quantity shown on the certificate was "Approx 22,000 lts" [ie litres]. We noted that the copy of the certificate contained in the bundle was incomplete, part of the left margin having been missed in the copying process. The holder of the waste was shown as "Freightways Ltd"; no evidence was given as to the relationship between the latter and Braid, the only haulier mentioned in the rest of the evidence.
35. Although Paul Hayhurst was able on 13 October 2005 to send a brief acknowledgement of Mr Perry's message, it was not until 22 December 2005 that he e-mailed a fuller response:

"After careful consideration we have been left with no option but to assess for the duty on this consignment as although it was declared to Corby's Customs and Excise Warehouse it failed to reach failed [sic] the destination and therefore did not satisfy the Customs warehousing regulations. Our intention is to assess the wine owners for the duty and I would therefore be grateful if you would provide me with details of the Customs entry number and the port where the goods were held."

36. The formal Demand for customs duty and import VAT was issued on 13 September 2006. FFGH's cheque for £3,937.00 in settlement of the amounts demanded was dated 28 September 2006.
37. On 13 October 2006 Mr Perry wrote to Customs requesting a Departmental review. The review officer, Steve Palmer of Customs' Frontiers and International Reviews and Appeals Team, replied on 7 December 2006 setting out the results of the Departmental review. The conclusion was that after careful consideration of all the information available, the C18 Demand was correct in law and that Customs' decision to seek customs duty and VAT totalling £3,937 was upheld. Mr Palmer agreed with Paul Hayhurst's decision that the wine had been unlawfully removed from customs supervision and that as a result the suspended duty and reclaimable VAT became due.
38. Mr Palmer referred to the fact that other parties may have been at fault; this could not alter the fact that the debt was due. It was the responsibility of Gallo UK, with FFGH acting on their behalf, to ensure that customs procedures were complied with. The only means of repaying or remitting the duty would be by way of Articles 220(2)(b) or 239 of the Customs Code, neither of which was thought to be applicable in this case.
39. He stated that a decision whether to charge excise duty was still being considered. He pointed out that excise and customs duties were based on entirely different legislation, a key difference being that Customs duty was based on European law, whereas excise duty was a domestic tax.
40. On 8 January 2007 FFGH gave notice of appeal to the Tribunal. We have already agreed to treat the appeal as having been made against the review decision rather than against a penalty. The Notice of Appeal was dated 8 January 2006. We accept that this was incorrect, and that it should be treated as if it were dated 8 January 2007. It is clear from the Tribunal's "Received" stamp that the Notice was served on 9 January 2007.

Arguments for FFGH

41. In his letter of 13 October 206 requesting the Departmental review, Mr Perry had set out the following grounds of appeal against the decision to demand customs duty and import VAT. These were the background to the points which he put to us:

(1) Whilst FFGH accepted that it had failed to follow Customs' exact instructions due to a misunderstanding between FFGH and the haulier, it believed that the imposition of customs duty and VAT on the transaction was not justified. The actions of all other parties involved were also open to question;

(2) Corby Bottlers had failed to action the goods correctly when they were delivered on 4 August: they should not have released the container from their bonded premises and should at the time have held the product pending a final decision on its disposal;

(3) Customs had been slow in coming forward with their instructions, and even slower in following up to reach a decision on the action that they wished to take;

(4) The haulier had been at fault, as it should have waited for final instructions from FFGH confirming that the wine could be destroyed. (In fairness to the haulier, FFGH would not have anticipated the return of the wine a second time to Corby; FFGH would have expected that it would go direct to the destruction point.) The haulier had, to say the least, been naive to think that Customs might not want to witness the destruction, and should have waited or checked that it was still in order to destroy the product;

(5) The importer, Gallo UK, had left the destruction to their sub-contractors, namely FFGH and Corby Bottlers, and had therefore been unaware of the subsequent events;

(6) FFGH requested that the imposition of customs duty and VAT should be rescinded and replaced with the more appropriate civil penalty;

(7) The wine had been destroyed by a reputable company, as confirmed by the certificate of destruction, and there had been no loss of revenue to the Crown. It was therefore inappropriate for Customs to demand the customs duty and VAT.

42. Mr Perry outlined the facts. He stated that when the wine was delivered to Corby Bottlers, it had been rejected on the basis of the quality issue. Corby Bottlers had given instructions that the steel container was to be removed from their premises. He emphasised that FFGH's haulier should not have been told to take the tanker away.
43. He accepted that it was FFGH's responsibility to move the goods to the warehouse. However, it was not FFGH's responsibility to move the goods into the warehouse. He argued that Corby Bottlers had broken the rules by turning the goods away; it was their obligation to accept them. As a result the goods had been removed to an unapproved and unidentified location.
44. FFGH had delivered the goods; it could not enter them into the warehouse keeper's records. FFGH had complied with its responsibilities. The warehouse keepers had accepted documentation from FFGH. Corby Bottlers had never told FFGH that they had not entered the goods into the warehouse regime.
45. The destruction of the wine on 8 September 2005 had been carried out by the haulier, which had done this without the knowledge of the interested parties. The haulier had taken it upon itself to deal with the destruction.
46. FFGH had decided to appeal, which necessitated paying the tax, on the basis that common sense would prevail. Mr Perry accepted that FFGH had not followed Customs' instructions. However, he considered that it would have been more appropriate for a civil penalty to be imposed. Reference had been made to the possible imposition of excise duty, but this had not yet been charged.
47. In summary, he could not dispute the law. There was some "nit-picking" about dates. He maintained that the container should not have been allowed to be removed.

Arguments for Customs

48. Mr Angiolini explained that he had supplied a full skeleton argument as FFGH was not legally represented. He provided certain additional documents not mentioned in Customs' original list.
49. He submitted that the case was very simple. FFGH had had control of the consignment, but had not followed Customs' instructions relating to the supervision of the destruction. It was an essential part of the process that the procedure was strictly followed. FFGH as declarant was always responsible for the customs debt. It was FFGH which was responsible for fulfilling the obligations. Accordingly, FFGH could not say that Corby Bottlers were responsible for not accepting the load. FFGH, through its agent, had failed to follow Customs' instructions.
50. FFGH had suggested that a financial penalty should have been imposed instead of the charge to duty and VAT. There was no provision for such a penalty to be charged.
51. On the facts the shipment had never reached the bonded warehouse. The goods had been destroyed on 9 September 2005. There had apparently been a breakdown in communication between FFGH and the haulier. Mr Angiolini suggested that arguably FFGH should seek recourse against the haulier, rather than seeking it through the Tribunal.
52. The message from Peter Roberts of Corby Bottlers dated 14 September 2005 showed that at each stage the goods were to be subject to Customs' supervision. It was clear from subsequent exchanges that John Hay of FFGH continued to act under the belief that the goods were still available. In fact, the goods had been destroyed on 9 September, making it impossible for Customs to supervise the destruction.
53. Mr Angiolini argued that the problem of the breakdown in communication between FFGH and the haulier remained one between those parties and was not a matter which should fall on Customs (and thus, indirectly, on the community). He referred to the certificate recording the destruction. Customs had not been present; they had not been given any possibility of attending. Due to the conduct of FFGH and its agent, the haulier, any supervision by Customs had been entirely prevented.
54. Customs' case was that the circumstances under which the destruction of the consignment took place constituted an unlawful removal from customs supervision. FFGH had failed to follow the conditions laid down by Customs, and, in particular, had not transported the consignment to Corby Bottlers in order for it to be entered in their records, nor had FFGH allowed Customs sufficient time to supervise the destruction of the consignment as required by the key provision, Article 842 of the Implementing Regulation. That unlawful removal triggered a liability to customs duty and import VAT which, under Article 199 of the Implementing Regulation, fell to be discharged by FFGH, as declarant for the consignment. There were no provisions under which the C18 demand could, or should, be set aside, nor were there any provisions by which the customs duty demand could be replaced by a fine or a penalty, as FFGH had suggested.
55. Once the consignment cleared Customs on 14 July 2005 and entered the customs warehouse procedure, it was under customs supervision. It appeared that when the consignment arrived at Corby Bottlers on 4 August, it must merely have reached the loading area of their premises, which was not part of the bonded warehouse. It was then removed from that loading area before it entered the bonded warehouse and thus it was not recorded in Corby Bottlers' records as having entered the warehouse.
56. As a result, the consignment was never "received" at the customs warehouse to which it had been entered when it arrived there on 4 August 2005, yet it remained subject to customs supervision by virtue of FFGH's declaration made on clearance at Thamesport on 14 July.
57. As soon as goods were in the warehouse procedure, they were under customs supervision. FFGH had accepted that it had not followed Customs' instructions as to the destruction or how the goods were to be dealt with. Customs did not attend on every occasion to supervise destruction, but it was important to have the ability to attend, in order to avoid abuses of the system. Customs needed to ensure that the documentation and procedures were correct. Supervision would be meaningless if taxpayers could avoid following instructions. FFGH knew what it had to do to comply with Customs' instructions. The community could not be penalised for the lack of communication between FFGH and its agents.
58. Mr Angiolini emphasised that all the obligations in respect of supervision fell on the declarant. It was to receive entry, then to take the sole responsibility for the transport of the goods to whichever warehouse was named in the declaration. Customs' involvement was very limited; they could physically supervise, but in most cases the process was left to the declarant and the warehouse. Any responsibility for breach fell on the declarant. This was clear from Article 102(2) of the Customs Code.
59. The wine had never entered the customs warehouse. This meant that it was outside the possibility of supervision by Customs. This was another reason for liability; removal to an unapproved location could amount to unlawful removal from customs supervision. Mr Angiolini referred to Article 203(3) of the Customs Code, which indicated which persons would be liable in the case of unlawful removal.
60. Thus it was a distraction to point to the non-acceptance of the consignment by Corby Bottlers. Unlawful removal had occurred; FFGH, the declarant and depositor, was responsible. Whichever way the matter was looked at, it was FFGH which was liable for the duty. It had failed to follow the specific instructions given to it.
61. FFGH had argued that the demand for duty was unjustified. The first ground was that it was a reputable company and had produced proof that the consignment had been properly destroyed; in the circumstances, there had been no loss to the Exchequer. This amounted to saying that, given that Customs had given permission for the wine to be destroyed, what had occurred was merely a failure to follow due process.
62. The second ground was that FFGH was not the only or even the main party at fault.
63. Mr Angiolini contended that both these grounds were without merit. He emphasised the strict nature of the supervisory regime under the Customs Code, and pointed to FFGH's failure to ensure that its own obligations under that code were met.
64. He argued that there was no provision for repaying or remitting the duty. Neither Article 220(2)(b) nor Article 239 could assist FFGH. Customs had made no mistake; they had issued clear instructions, which had been communicated before the consignment had been destroyed and had been disregarded. In relation to Article 239, there were no "special circumstances", and FFGH had been guilty of "obvious negligence" by the failure to follow Customs' instructions.
65. In summary, the goods had been subject to customs supervision and had been unlawfully removed from that supervision. FFGH was liable to the duty. There was no legal basis for remitting the duty. Accordingly, the appeal should be dismissed. Customs were not seeking costs.

Discussion and conclusions

66. We accept Mr Angiolini's argument that the Customs Code imposes a strict supervision regime; this is clear from the provisions set out above. When FFGH, as agent for Gallo UK, made the declaration enabling the consignment to clear Customs, it became responsible for ensuring that the wine was transported to Corby Bottlers, the named Customs and Excise warehouse to which it had been "entered". If the wine had not proved to be defective, Corby Bottlers would have assumed responsibility as warehouse keeper for the functions mentioned in Article 101 of the Customs Code. (It was not explained to us whether Article 102 would have been relevant.)
67. Where matters started to go wrong was at the point of the intended delivery to Corby Bottlers. It is not clear to us who took the decision that the load should be rejected. Mr Perry maintained that this was Corby Bottlers' decision.
68. We make no specific finding on this point. Irrespective of who was responsible for the decision, the result of it was that the consignment was taken away. It appears to us that this was an unlawful removal of the goods from customs supervision and that on this basis Customs would have been justified in imposing customs duty and import VAT by reference to this event. However, this was not the reason given by Customs for imposing those charges, nor was any reference made to this question in Mr Palmer's review letter dated 7 December 2006.
69. If Customs had taken the point, this would have raised the issue of the responsibility of other parties in respect of that removal. Under Article 203(3) of the Customs Code, there is scope for treating other persons as liable to the customs debt. This means that all parties should have considered whether the suggested removal could have resulted in disadvantage to them. We suggest that what should have happened before any question was raised of removing the consignment from Corby Bottlers' premises was that an approach should have been made to Customs (probably to Paul Hayhurst or another colleague in his department) to explain the position and to ask for Customs' view as to the appropriate way in which to deal with the problem.
70. We have considered whether the effect of removing the consignment from Customs supervision by moving it to the haulier's premises was to remove it altogether from customs supervision and thus make the subsequent events irrelevant. This was not a matter specifically raised in argument at the hearing. Having considered Article 37 of the Customs Code, it appears to us that the removal did not have this effect, as Article 37(2) requires that goods are to remain under customs supervision for as long as necessary to determine their customs status. Thus a breach of the obligation to keep the goods under customs supervision does not have the effect of absolving the relevant parties from their obligations to continue the supervision until one of the events mentioned at the end of Article 37(2).
71. As the wine was not retained in Corby Bottlers' Customs and Excise warehouse, FFGH retained responsibility for it under the supervision regime. Under Article 37(2), this obligation was to continue until the goods had been destroyed in accordance with Article 182. This required destruction to be subject to prior notification given to Customs.
72. We accept that the action of destroying the wine was undertaken by the haulier before proper authority had been obtained from FFGH or from Customs. The haulier should have waited until such authority had been obtained. John Hay of FFGH followed an incorrect approach by assuming, in the absence of any objection from Customs, that the destruction could go ahead. Paul Hayhurst of Customs did respond during the late afternoon of 8 September, the day before the haulier dealt with the destruction of the wine, so that there might have been at least a brief opportunity for John Hay of FFGH to contact the haulier before 12.55 on 9 September, the time shown on the certificate of destruction as the time of arrival at the waste site.
73. The destruction of the wine was not in accordance with Customs' instructions, and took place without prior notification, while details of the proper process were still under discussion between FFGH, Corby Bottlers and Customs. Although FFGH could not be described as directly responsible for the carrying out of the premature and unauthorised destruction, it remained liable under the Customs Code and the Implementing Regulation to ensure that the arrangements for destruction were dealt with in accordance with the customs supervision regime. The actions of the haulier resulted in FFGH failing to comply with its obligations under that regime.
74. The consequence of that failure is that FFGH has incurred a customs debt on importation, and is thus liable to customs duty and import VAT in the amounts assessed by Customs. In his review letter, Mr Palmer referred to the VAT as being "reclaimable"; we assume that FFGH is a fully taxable person for VAT purposes, and that this amount of import VAT has been treated as input tax and thus fully offset. Significantly, Customs have confirmed that it is not their intention to seek excise duty in respect of the wine, so the only real economic effect of the events described above is that FFGH has suffered customs duty of £1,975.65.
75. We have referred to the strictness of the supervision regime. It is important to ensure that no abuse of the customs warehouse procedure takes place, since otherwise attempts might be made to evade customs duty by circumventing the strict requirements. In the present case, one factor has remained unresolved; the quantity of wine imported in the flexibag was 23955 litres, whereas the amount shown in the certificate of destruction was approximately 22,000 litres. It is possible that some wine was lost as a result of leakage, or on cross-pumping to the steel container. In addition, a minor amount was removed from the container for sampling purposes. However, it is far from clear whether the figure shown in the certificate was a broad approximation or was intended to be relatively accurate. If the latter, there is an unexplained discrepancy. Various suggestions were made to us to explain the difference. The point remains that if Customs had been given the opportunity to supervise the destruction, they could have verified the amount and thus could have eliminated the possibility that unauthorised removal of a quantity of the wine had taken place.
76. Despite the provisions of Article 203(3) of the Customs Code, it does not appear to have been suggested that any other party should be made liable to all or any part of the customs debt. Thus the only basis on which there could be any question of FFGH being relieved of liability for the customs duty of £1,975.65 would be under Article 220(2)(b) or Article 239 of the Customs Code.
77. Article 220(2)(b) requires that the person liable for payment has " . . . acted in good faith and complied with all the provisions laid down by the legislation in force as regards the customs declaration". As we have already found that FFGH has not complied with the relevant obligations, we do not consider that it can take advantage of this provision.
78. Article 239 allows repayment or remission of import duties, but this is possible only in ". . . circumstances in which no . . . obvious negligence may be attributed to the person concerned". We accept Mr Angiolini's contention that the failure to prevent the unauthorised destruction, which occurred before Customs could set out the conditions for the proposed supervised destruction, amounted to "obvious negligence". It should have been made clear to the haulier that no action should be taken until specific permission had been obtained from Customs.
79. In the absence of any grounds for remission or repayment of the customs duty, this appeal must be dismissed. In arriving at this decision, we must express some sympathy with FFGH, as the liability for duty is largely the result of actions or omissions of other parties. However, the customs duty supervision regime is strict, and imposes liability on the party making the declaration; for this reason, liability falls on FFGH despite other parties' roles in the events concerned.
80. We note Mr Perry's criticism of Customs' delay in dealing with matters. It is not clear to us why, at various stages, matters appeared to take a great amount of time for Customs to resolve. We suggest that Customs should review the history of this case in order to ensure that similar delays do not occur in the future.
81. We think it entirely appropriate that Mr Angiolini did not seek costs, and accordingly make no order in this respect.

JOHN CLARK

CHAIRMAN

RELEASE DATE: 20 September 2007

LON/07/7002