United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2002] UKVAT(Excise) E389, [2002] UKVAT(Excise) E00389

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Pasquet Online (t/a Balade Gourmande) v Revenue & Customs [2002] UKVAT(Excise) E00389 (10 December 2002)

E00389

EXCISE - Restoration refusal - Commercial import of champagne and whisky - French exporter's van stopped at Dover - Documentation defective - Negligence but no evasion alleged - Disparity between duty and high value of goods - Failure to consider proportionality - Further review directed - FA 1994 s.16(4)(b) - Appeal allowed

PRACTICE - Non-appearance of Appellant - Application by Customs under Rule 26(1) rejected because sub-rule not applicable - Appeal considered in Appellant's absence under Rule 26(2) - Trib Rules, r.26(1)(2)

LONDON TRIBUNAL CENTRE

PASQUET ONLINE Appellant

T/A BALADE GOURMANDE

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: THEODORE WALLACE (Chairman)

RAY BATTERSBY

Sitting in public in London on 20 November 2002

The Appellant did not appear and was not represented

Matthew Barnes, Counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2002

DECISION

This is an appeal by a French trader against a review decision refusing to restore 323.4 litres of whisky and 159.75 litres of champagne seized at Dover on 26 January 2002 because the documentation was defective.

The notice of appeal was lodged by Deloitte and Touche in Paris; however on 11 July they notified the Tribunal that they were no longer acting. The notice of the hearing was posted to the Appellant at the address in France given on the Notice of Appeal. The Appellant did not inform the Tribunal that he was not attending.

Mr Barnes made an initial application for the appeal to be struck out under Rule 26(1) of the VAT Tribunals Rules 1986. This provides,

"(1) If, when an appeal or application is called on for hearing no party thereto appears in person or by his representative, a tribunal may dismiss or strike out the appeal or application …"

Alternatively he asked the Tribunal to consider the appeal in the Appellant's absence under Rule 26(2) which provides,

"(2) If, when an appeal or application is called on for hearing, a party does not appear in person or by his representative, the tribunal may proceed to consider the appeal or application in the absence of that party."

In the case of a decision under Rule 26(1), the Appellant can apply to reinstate the appeal within 14 days; in the case of a decision under Rule 26(2), he may apply within 14 days to set aside the decision.

Mr Barnes' submission as to Rule 26(1) was that the words "no party" should be interpreted as meaning "either party" since it would be absurd if the Commissioners would have been better off if they had waited outside the Tribunal instead of appearing. He said that following the withdrawal of Deloittes the Appellant had done nothing to prosecute the appeal. It was for the Appellant to show that the Review Decision was defective.

There is some force in Mr Barnes' submission as to absurdity; however by no stretch of imagination can the words "no party" be interpreted as meaning "either party". His interpretation is the complete opposite of what the Rule states. It is not easy to know what was intended by the Commissioners of Customs and Excise who were responsible for making the Rules, however the reference to "a party" in Rule 26(2) is clearly different from the wording in Rule 26(1) and is the wording which one would expect to find in Rule 26(1) if Mr Barnes was right.

It is to be observed that Rule 26(1) is one-sided as regards appeals because it only gives power to dismiss or strike out an appeal as opposed to allowing it. Such a provision is wholly out of line with modern thinking; there is no equivalent in the Council on Tribunals Model Rules. The only case in which Rule 26(1) has been applied to the knowledge of the chairman is Hazelacre Ltd v Commissioners of Customs and Excise [2000] V&DR 185, where the Commissioners' solicitor had notice the Appellant would not attend and informed the Tribunal that he was available at the Tribunal if needed. The facts were totally different from the present case. In the present case the Commissioners did appear so that the provisions of Rule 26(1) did not apply. To avoid any doubt we would make clear that this is not a case where we would have considered it appropriate to have applied Rule 26(1) even if Mr Barnes had remained outside without appearing. Rule 26(2) contemplates in terms the consideration of an appeal in the absence of a party. With an overseas Appellant for whom representation or even attendance would clearly involve considerable expense, quite apart from language problems, to dismiss or strike out at the first hearing would not be a proper use of the Tribunal's powers.

Mr Barnes asked us, in the alternative, to proceed to consider the appeal under Rule 26(2) but to adjourn after the initial hearing pending the judgment of the Court of Appeal in Customs and Excise Commissioners v Hoverspeed Ltd which was heard on November 5 and 6. In Hoverspeed the Divisional Court [2002] 3 WLR 1219 held that Customs and Excise officers can only stop and search a vehicle at an internal frontier of the European Community if there are reasonable grounds to suspect that the particular vehicle is carrying chargeable goods on which duty has not been paid or secured. These Commissioners have appealed against this part of the decision in Hoverspeed.

We agreed to proceed under Rule 26(2) and to hear the two witnesses for the Commissioners who were present.

Simon James Carr, Customs officer based at Dover, told us that at 6.30am on 26 January 2002 he stopped a blue Mercedes Sprinter van passing through the Inward Freight Examination Area through which all lorries and commercial vehicles pass. He told us that he had some recollection of the incident. He said that the vehicle was stopped as part of a profile selection. The vehicle was travelling on a cash account with Seafrance and had been recorded before with the same driver although not often. The load was recorded on the manifest as wine. The purpose of the interception was not to find excise goods but other prohibited imports such as drugs. His witness statement referred to profile selection under section 78 of the Customs and Excise Management Act 1979. We observe that he must have been relying on section 78(2), since section 78(1) does not apply to Community travellers arriving by sea.

Mr Carr directed the driver M. Bernard Donze to lane 1 of the Freight Check Canopy and spoke to him in French. M Donze handed him two French ID cards, one for himself and one for the passenger, his wife. M Donze said that the load was wine and handed Mr Carr an invoice dated 25 January 2002. This showed 450 bottles of whisky and 10 magnums of champagne costing 11,425 euros plus 1,500 euros for freight and French VAT of 2,533.30 euros, a total of 15,458.30 euros. There was a typed delivery address in SW4 and the delivery date was 26 January. The name "James Col" was in manuscript. There were two other manuscript names on the invoice with addresses in South London. M Donze told him that was the only document and that he had no drugs, arms or other illegal imports. Mr Carr opened the boot and saw the champagne. In view of the large quantity he stated that he began dealing with the vehicle under section 163(a) of the 1979 Act. He directed the vehicle to examination bays and handed over to another officer, Mr Rhoades.

Mr Carr said that he was present later when M Donze, who did not seem to realise that there was a serious problem, asked to contact the customers. Two customers answered the telephone but appeared to hang up when Customs were mentioned. The third refused to speak to Customs. Mr Carr was not present when the goods were seized.

Another officer, Mr Rhoades, who did not attend the hearing, searched the van and found boxes of champagne and whiskey. He noted that no customs documents were produced and no evidence of tax payment. A further officer spoke to the driver and passenger and was told that the goods had been ordered by telephone from the UK. The bottles were listed. The boxes were marked "John Allan", "Wells" and "James Col" which were the names written on the invoice. The boxes marked "John Allan" contained 12 bottles of Laurent Perrier, 60 Dom Perignon and 12 Moet et Chandon. Those marked "Wells" contained 48 bottles of Krug and 60 Dom Perignon. Those marked "James Col" contained 10 magnums of Moet et Chandon in presentation cases, one Dom Perignon in a presentation case, 150 bottles of Jack Daniels whisky with presentation mugs, 150 bottles of Chivas Regal and 153 bottles of Black Label whisky. Mr Rhoades seized the goods at 7.45am. The van was not seized "due to disabled passenger." On that evening Mr Rhoades noted that he was "handed some photocopies of Customs occasional import forms relating to the goods … . These forms were incomplete and very poor quality and hand written."

These forms which were exhibited were headed,

"COMMUNAUTÉ EUROPÉENNE DOCUMENT SIMPLIFIÉ

ACCISES D'ACCOMPAGNEMENT

CIRCULATION INTRA-

COMMUNAUTAIRE –

PRODUITS DÉJÀ MIS À LA

CONSOMMATION"

The details on one of the three forms corresponded to the typed invoice, showing the supplier as "Balade Gourmande" of Poitiers, the same customer as the invoice, the same goods and the same price under "valeur Commerciale" as on the invoice excluding freight and VAT, namely 11,425 euros. It was dated 25/01/02. Half of the boxes were left blank, including the competent authority in the country of destination, the number and date of declaration and the CN code. The means of transport was given as "Europe Express".

The other two forms corresponded with the manuscript addresses on the invoice. The quantities and commercial values shown were 60 bottles of Dom Perignon, 18 Moet et Chandon and 12 Laurent Perrier for 5,793 euros and 60 Dom Perignon and 48 Krug for 13,380 euros. The names on the boxes corresponded with the forms.

On 5 February, the Paris office of Deloittes faxed Customs stating that the Appellant would like to pay the duty and free the goods which were needed for wedding receptions in that week. The fax stated that M Pasquet, of Balade Gourmande, had recently agreed to sell champagne and spirits to a number of London restaurants, delivering to their premises; this was the first time that he had encountered problems with Customs. They said that he had been told by a French Customs officer that because French excise duties had been paid they were in free circulation in the European Union and no additional UK excise duty was due. Based on this advice the goods had left Poitiers under a French Customs document stating that the goods were for intra-community circulation and that French duty had been paid. He now knew that the advice was wrong and that UK duty was due.

Customs wrote on 14 February refusing restoration stating that the goods were improperly imported as they were not accompanied by the correct documentation and there was no evidence of pre-payment of duty.

Deloittes wrote by return asking for formal reconsideration. They wrote that French duty had been paid and, believing the goods to be in free circulation in the EU, the Appellant had transported them without the appropriate customs declaration. There had been confusion over the advice from French Customs. He had been given a document stating that French excise duty had been paid and the letter said that evidence of payment was enclosed; it was in fact enclosed. Deloittes wrote that once M Pasquet realised that he had not complied with UK excise rules he had taken advice and had appointed a fiscal representative through which he was already importing new goods to the UK having paid duty. He had acted in good faith and his action since the seizure proved that it was a general mistake. It was a young start up company and M Pasquet risked losing his business if the goods were destroyed because it would affect the financial situation of the company. The letter gave a telephone number if any additional information was required.

The Review was carried out by Raymond Alfred Payne being dated 28 March 2002. The Review set out the facts as to the seizure on 26 January stating that the driver was unable to produce any Customs documents or evidence of payment of UK tax; copies of three "Occasional importer" documents had been faxed on 26 January hand-written and incomplete. The Review referred to Deloittes' letter of 5 February, Customs' reply and Deloittes' further letter.

Mr. Payne's Review then set out regulation 7 of the Excise Goods (Holding, Movement, Warehousing and REDS) Regulations 1992 (SI 1992/3135), followed by regulation 19(1)(a), regulation 15(3)(a)(ii) which applies to occasional importers and regulation 16 governing forfeiture. The Review also referred to section 49 of the Customs and Excise Management Act 1979. Under "Restoration policy - goods" the Review stated,

"It is this Department's general policy that seized excise goods should not be restored. However, each case is examined on its merits to determine whether or not restoration may be exceptionally offered."

The Review stated this,

"The question for me to address is whether or not the goods should have been restored …

The goods were liable to forfeiture because the duty was not properly secured, and no subsequent evidence has been provided to indicate that Mr Pasquet's company had done so prior to importing the goods. From the information you have provided me with, I am quite prepared to accept that this seizure resulted from a mistake rather than a fraud. However, it is true to say that had the vehicle not been intercepted on that day, then it is highly likely that Mr Pasquet's company would have continued to have imported excise goods without making proper arrangements for the payment of UK excise duty, to the financial benefit of his company and his customers."

The Review concluded that Deloittes had not made out a case for disapplying the policy of non-restoration.

Mr Payne told the Tribunal in evidence that the explanations in Deloittes' letters did not affect his view of the legality of the seizure; the real issue was whether the goods should be restored. Both the Appellant and the customers were commercial operations, he expected more investigations and more professionalism. There was no evidence that the Appellant had offered to pay on the day; that was not the purpose of the regulations. Mr Payne said that it was possible that the Appellant had done this before. Two of the three faxed documents were not covered by the invoice: he had not mentioned this in the Review because it was a clear case. He was looking for exceptional evidence for restoration in line with Departmental policy: some evidence that the importer had complied with the procedures.

Mr Payne told the Tribunal that he did not know the amount of excise duty lost nor did he know the value of the goods when conducting the Review. He said that when conducting the Review he had not given any consideration as to whether the refusal to restore was proportionate. He said that he noted that Deloittes had written that this was the first time the company had had problems : the inference was that there had been previous consignments. He said that he had also considered the liability to VAT, there was no VAT number on the invoice and he would have expected arrangements to have been made to pay VAT.

In the Notice of Appeal, the Appellant stated that the excise duty was £2,922.03 and the tax exclusive value approximately £18,760. This latter value would equate with the total commercial value (excluding VAT and freight) of 30,598 euros shown on the faxed documents at an exchange rate of around 1.63 euros to £1.

Mr Barnes, for the Commissioners, said that there was no dispute on the correspondence that the documentation was defective. The Appellant was not a registered excise dealer and shipper ("REDS"), he had not arranged for a REDS to account for the duty and the goods were not consigned to an approved warehouse. The only possible paragraph under regulation 7 of the REDS Regulations was (d) which covered occasional importers. Regulation 15 which applied to occasional importers had not been complied with : the duty had not been paid or secured and the consignor did not have a certificate under regulation 15(3)(a)(iii). Since the regulation had not been complied with, the goods were liable to forfeiture under regulation 16.

He said that the Appellant had accepted responsibility and had not sought to blame the customer, He accepted that the Appellant was not required to have the invoices; what was needed was C&E Form 1165.

Mr Barnes said that it was unlikely that the duty would have been paid. Deloittes' letter showed that goods had been brought in before without duty; he said that it might have happened ten or twenty times before.

He said that the mistake was negligent. The Appellant was a commercial enterprise with a responsibility to check the requirements and get it right. The documentation was woeful.

Mr Barnes said that the Commissioners were entitled to refuse restoration so as to ensure compliance. It was pointless to have regulations without enforcement. If the goods were returned there was no deterrent. It was crucial that the Appellant was a trader. He submitted that the Review Officer did not need to address proportionality in the circumstances. Although the value of the goods was stated to be around £18,000, he submitted that the cost to the Appellant was much less. He accepted that if the values were grossly disproportionate the decision was flawed but said that they were not grossly disproportionate. The message should go out that duty must be paid and regulations observed.

Conclusions

In spite of the non-appearance of the Appellant many of the relevant facts are clear.

This was a commercial importation, there being no suggestion at any time that it was for personal use. The alcohol was in a van, which was driven through the Inward Freight Examination Area. The load had been declared as wine on the manifest. Although the documentation was defective, the driver had not appeared to realise that there was a serious problem. The Review officer had accepted that the seizure resulted from a mistake rather than fraud. It was thus wholly different from a case of deliberate smuggling.

The seizure of the Appellant's goods and their non-restoration clearly fall within Article 1 of Protocol 1 of the European Convention on Human Rights. In spite of the wide words of the second paragraph of Article 1, it is well settled that the measures taken by States must be proportionate to the facts of the particular case, see Lindsay v Commissioners of Customs and Excise [2002] STC 588 at paragraph 52, where Lord Phillips MR said this, under "The Applicable Principles",

"Human rights

[52] The Commissioners' policy involves the deprivation of people's possessions. Under Article 1 of the First Protocol to the Convention such deprivation will only be justified if it is in the public interest. More specifically, the deprivation can be justified if it is 'to secure the payment of taxes or other contributions or penalties'. The action taken must, however, strike a fair balance between the rights of the individual and the public interest. There must be a reasonable relationship of proportionality between the means employed and the aim pursued (Sporrong and Lonnroth v Sweden (1982) 5 EHRR 35, para 61; Air Canada v United Kingdom (1995) 20 EHRR 150, para 36). I would accept Mr Baker's submission that one must consider the individual case to ensure that the penalty imposed is fair. However strong the public interest, it cannot justify subjecting an individual to an interference with his fundamental rights that is unconscionable."

Lord Phillips quoted the following passage from the judgment of the Court of Justice in Paraskevas Louloudakis v Greece (Case C-262/99) [2001],

"The administrative measures or penalties must not go beyond what is strictly necessary for the objectives pursued and a penalty must not be so disproportionate to the gravity of the infringement that it becomes an obstacle to the procedures enshrined in the Treaty."

Lord Phillips considered the reasons for the Commissioners' non-restoration policy when applied to those using their cars for smuggling goods to sell at a profit and referred at paragraph 63 to "those who deliberately use their cars to further fraudulent commercial ventures."

Where there is attempted fraud a strong response such as non-restoration will not be disproportionate and the question of proportionality will not generally be relevant.

Where there is no attempted fraud or evasion however the position is very different. The Commissioners were entitled to take the view that the Appellant was negligent. The Tribunal agrees that the procedures followed and the documentation produced were clearly defective. However there is the world of difference between evasion and negligence. At paragraph 64 of Lindsay Lord Phillips pointed out that there is a wide range of lesser sanctions available, where forfeiture is not justified.

We accept that it is a reasonable inference that the Appellant had through ignorance sent other consignments on which UK excise duty had not been paid. However we regard Mr Barnes' suggestion that this may have happened ten or twenty times as total speculation. Deloittes had in fact written that the Appellant was a young start up company. Given that it was accepted that no fraud was involved, we regard the possibility that the Appellant might have sent more consignments without duty if not stopped as another irrelevant factor.

We turn now to consider the values involved. The consignment consisted of 323.4 litres of whisky invoiced to the UK customer at 10,875 euros plus transport and plus French VAT at 19.6 per cent. Ignoring the transport element, the invoiced charge for the whisky was 13,006.50 euros, equal to just under £8,000. Excise duty is based on the alcoholic content. Duty on 323.4 litres of spirits, 40 per cent proof, at £19.56 per hectolitre would be £2,529.15, less than a third of the invoiced value. It seems that some of the whisky must have been a higher % proof. The proportion of the value represented by duty is thus sharply lower than with tobacco.

The figures for the Champagne are totally disproportionate since the duty at £220.54 per hectolitre on 159.75 litres is only £352.31. This compares with the invoiced cost of the Champagne before French VAT of 19,723 euros or £12,100, with French VAT being another £2,372. The invoiced value of the Champagne including French VAT was thus over 40 times the excise duty. The explanation is that the excise duty is not ad valorem but a flat rate of about £1.65 for a 75 centilitre bottle. The Appellant's Champagnes on the other hand included very expensive marques, especially the Krug which comparing the faxed documents appears to have been invoiced at around £100 a bottle before tax and the Dom Perignon invoiced at over £50 a bottle.

Mr Payne readily admitted that he gave no consideration to proportionality. Since this was a case of negligence rather than fraud we regard Mr Barnes' submission that Mr Payne did not need to address proportionality as untenable.

The consignment had been sold for a consideration of approximately £18,760 plus French VAT at 19.6 per cent. In addition the Appellant would have recovered 1,500 euros plus VAT for transport from one customer and possibly some transport charge from the others. The result of the non-restoration was that the Appellant lost the sales for which he would have been paid over £23,500 compared with the excise duty of £2,922. His loss was over £20,000 on the basis that he would have been liable for the excise duty. The liability should have been his under Article 10.3 of the Excise Directive 92/12/EEC, although it is not clear how this has been implemented in the REDS Regulations, unless under regulation 5(3)(f).

In our judgment a penalty in excess of £20,000 for a mistake involving £2,922 excise duty is disproportionate even on the footing that the mistake was negligent and was not the first mistake.

Whatever the outcome of the Court of Appeal hearing in Hoverspeed, it is clear that the Review cannot stand since proportionality was not considered when it should have been considered and the effect of the decision was disproportionate to the gravity of the infringement. Furthermore, the Review officer was wrong in believing that VAT should have been paid before importation. It would have been the responsibility of the purchasers to account for the VAT on their next return.

Mr Barnes asked the Tribunal to adjourn after hearing the witnesses until after Hoverspeed. This however took no account of Lindsay and proportionality. In the circumstances we have concluded that there must be another review regardless of the outcome of Hoverspeed.

Another hearing before a review would add to costs, would further dealay and would server no real purpose. The Review officer should note that the question is not "whether the goods should have been restored" (para 20 above) but whether they should be restored. If the Review Decision is adverse, the Appellant will be entitled to appeal. We are allowing 25 working days to allow for the Christmas and New Years period.

We direct as follows:

(1) that the Commissioners carry out a further Review within 25 working days of the decision of the Court of Appeal in Commissioners of Customs and Excise v Hoverspeed plc;

(2) that the Review be carried out by an officer not previously concerned with this matter and shall be despatched to the Appellant and served on the Tribunal within the time specified above;

(3) that the Review officer take account of the facts in this decision, should specify what documentation was required stating the statutory basis and should consider the gravity of the infringement.

THEODORE WALLACE

CHAIRMAN

RELEASED: 10 December 2002

LON/02/8118-PAS.WAL