United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2003] UKVAT(Excise) E383, [2003] UKVAT(Excise) E00383

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Rainbow v Customs and Excise [2003] UKVAT(Excise) E00383 (04 February 2003)

E00383

Excise duty – Restoration of goods - Restoration of car – Proportionality – Half imported goods for own use, half for resale at cost – Seized goods not offered for restoration – Whether decision reasonable – Yes - Seized car offered for restoration on payment of amount equal to excise duty on all imported goods – Whether offer reasonable and proportionate – Decision quashed on basis that amount demanded should relate to excise duty on the goods imported for resale – Matter sent back for further review – CEMA 1979 s.152(b)

LONDON TRIBUNAL CENTRE

JOHN ELTON RAINBOW Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: STEPHEN OLIVER QC (Chairman)

ELIZABETH MACLEOD JP, CPIM

Sitting in public in Plymouth on 16 January 2003

The Appellant in person

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

© CROWN COPYRIGHT 2003

DECISION

John Elton Rainbow appeals against two decisions of the Commissioners. The first is their refusal to restore excise goods consisting of 450 litres of wine, some 8 kilogrammes of hand-rolling tobacco, 800 cigarettes and 6.3 litres of spirits ("the excise goods"). The other decision appealed against is to restore an X-registration Citroen Berlingo motor car on payment of the revenue value of the excise goods, calculated at £1,625.23. The decision was dated 22 May 2002.

The decision appealed against was taken following a further review that had been made of the original decision not to restore. That further review was taken in consequence of the decision of the Court of Appeal in Lindsay v Customs and Excise Commissioners [2002] 1 WLR 1766.

The car had been stopped at Plymouth Ferryport in the early morning of Friday 13 April 2001. The officer who stopped it for questioning was Michael Welsford. He had chosen to stop the car because features of it fitted a profile of vehicles used to carry excessive amounts of excise goods; these features were two male passengers in a car that looked initially like a van.

We shall now summarize the review decision. This was carried out by David Harris, a senior officer of Customs and Excise who also gave evidence. Mr Rainbow, the registered keeper, was driving the car and in the passenger seat was a Mr Anthony Burgham. Some initial questions were asked and in response Mr Rainbow had explained that he had purchased all the excise goods and that he had paid for them by credit card, with the exception of the hand-rolling tobacco for which he had paid cash. He said that he had not been given any money towards the goods by any other person. He told the officer that he normally smoked Golden Virginia hand-rolling tobacco at the rate of 2½ (40 gram) pouches per week. He said that he had no intention to supply others and would place the goods in a secure store at his home. He admitted to being aware of the guidelines in force at the time concerning the bringing into the United Kingdom of excise goods and knew that it was an offence to sell them. Mr Rainbow produced from the glove pocket an earlier decision of this Tribunal following an appeal in which he had been successful (1995 Ex dec.7). Mr Rainbow said that he had last travelled abroad with Mr Burgham in December 2000 and that he had made three trips abroad in the last twelve months. At that point the officer read out a formal statement to him which said that he, Mr Rainbow, was required to satisfy the officer that the goods qualified for relief from UK excise duty by being for own use.

An interview then ensued. Mr Rainbow was asked who the goods belonged to and he replied "I suppose at the moment – me … because I paid for them". He explained that he would sell the goods at cost to Mr Burgham, who was unemployed, when Mr Burgham required them. That, observed Mr Rainbow, meant that Mr Burgham had got half the goods on credit. Mr Rainbow agreed that when he took others who were low on money with him he would supply them with cigarettes and tobacco and they would eventually pay him. He repeated that the arrangements were like "advance credit" which he did not regard as a sale, saying "If they had the cash they would have paid for it".

The interviewing officer then seized the excise goods. These amounted to 350 litres of Gamay wine, 100 litres of Cavalette wine, 6.4 kilos of Golden Virginia hand-rolling tobacco, 1.2 kilos of Old Holborn hand-rolling tobacco, 0.4 kilos of Samson hand-rolling tobacco, 800 Lambert & Butler cigarettes, 4.2 litres of Edmonson Gin and 2.1 litres of Boriskov vodka. Also seized was the vehicle used to transport these goods.

On 19 April 2001 Mr Rainbow requested the return of the vehicle. On 22 June 2001 the Commissioners notified Mr Rainbow that the decision had been reached not to restore the goods. A tribunal hearing was listed for 2 May 2002. This did not take place as the decision had been taken to re-review Mr Rainbow's case in the light of the Lindsay decision at the Court of Appeal.

The review letter went on to say that because of the volume of excise goods that Mr Rainbow had imported he had been required, when asked to do so, to satisfy the Customs officer that the goods were for his own use and to rebut the statutory presumption of commerciality. Mr Harris stated in the review letter that it had been plain to him from Mr Rainbow's answers to the initial questions and from the interview that some of the goods that he had bought were not intended for his own use and were intended for Mr Burgham. In evidence before us Mr Harris said he had been satisfied that Mr Rainbow had paid for all the goods and that he had complete control over them and that Mr Burgham could not have obtained access to them without first asking Mr Rainbow. On that basis Mr Harris had concluded that the goods intended for Mr Burgham had not been obtained by Mr Rainbow for his own use in the course of cross-border shopping and therefore they fell outside the scope of relief under the Personal Reliefs Order.

The review letter then turned to the matter of restoration and Mr Harris explained that he had examined all the relevant documentation including that supplied by Mr Rainbow. Also, he had examined the earlier tribunal decision (Rainbow v Customs and Excise Commissioners) and had noted the comments of the tribunal. He went on to explain the policy of the Commissioners following the Lindsay decision. This was to the effect that cars seized, where alcohol or tobacco goods were detected and the officer was satisfied that they were not intended for own use but for sale at cost, i.e. not for profit, would, on the first detection, be seized and restored for 100% of the revenue or value of the vehicle, whichever was the lower. The letter said that restoration of the car would be offered in return for a sum equal to 100% of the revenue. No offer for the restoration of the goods would be made. On that basis the restoration terms would be on payment by Mr Rainbow of £1,625.23.

Mr Harris added, when giving oral evidence, that he had seen no exceptional circumstances in Mr Rainbow's case. (He also explained that a new policy had been introduced from 29 October 2002, the effect of which was for payment to be required as the condition for restoration of a seized car only where the goods were three times the new "minimum indicative limits"; he observed however that, as the 450 litres of wine in Mr Rainbow's car came to more than three times the current minimum indicative limit, that policy would not apply in his case.)

When he came to give evidence Mr Rainbow said that he was a local councillor in Newquay. He had been a Customs officer employed in the VAT office at Gloucester until his resignation in 1989. He owned a house in Newquay which he let to six to seven tenants, including Mr Burgham. His financial position was secure and he travelled to France from Plymouth twice each year to stock up with alcohol and tobacco. On recent occasions he had been accompanied by Mr Burgham. He and Mr Burgham were both heavy smokers. Mr Rainbow said he smoked 10-30 hand-rolled cigarettes with filters each day. He said he drank a litre of wine a day.

Mr Rainbow told us that he had been stopped by Customs before, in May 1995. On that occasion he had been accompanied by another individual. Each of them had had 4.7 kilogrammes of hand-rolling tobacco with them. The tobacco had been seized. Mr Rainbow had appealed and the tribunal, in the decision referred to above, found as a fact that the tobacco had been bought in for Mr Rainbow's own use. On all subsequent occasions when Mr Rainbow took his car shopping in France he carried a copy of the tribunal's decision in the car's glove pocket "in case there was any trouble".

Mr Rainbow and Mr Burgham had gone over to France on the night of Wednesday/Thursday 11/12 April and returned on the overnight ferry on Friday 13 April. While Mr Burgham had previously been unemployed he had, Mr Rainbow told us, a job starting that Friday. The arrangement, Mr Rainbow said, was for him to buy the goods and for Mr Burgham to buy them off him. He qualified this in cross-examination by saying that "it was just like a loan". On the outward journey the van had taken 45 empty 10-litre box "barrels" to be filled at a warehouse with a red wine called Gamay. The warehouse had been short of their brand of wine and had supplied only 350 litres. The remaining ten boxes were filled with a red wine called Cavalette. The goods bought in France had not been divided up, but would, said Mr Rainbow, have been when they got home. More or less half of the goods were, he said, for Mr Burgham. The whole consignment of goods would be kept in a locked-up room.

Reverting to the interview on13 April 2001, Mr Rainbow said that he had been tired and hung-over the time. He had been up drinking until 2.00am and had been asleep until about ten minutes before disembarkation. He was, he said, "malfunctioning" at the time of the interview. In the course of the interview Mr Rainbow had admitted that he would be selling the goods to Mr Burgham at cost price. He said – "Its like advance credit basically" and "He's got half those goods". He was asked about previous occasions when he had bought goods and when he had had other passengers with him; he said they sometimes paid for their own and sometimes not, depending on what their finances were. He said that usually he purchased the goods because he was the only person with a credit card.

Asked in the interview about selling the goods to others at cost, Mr Rainbow said of the wine – "You know late night sessions and they just get the barrel out and have some, you know". Mr Rainbow said in evidence that he had not used the word "They"; his recollection was that he had said "I".

Asked about the evidence he had given at the tribunal hearing in 1995, Mr Rainbow said that he had not told the tribunal that he had been buying goods for others.

Anthony Burgham gave evidence. He said that he had, on Wednesday 11 April (the day of the trip), signed off unemployment benefit. He had received £107 cash as his benefit for two weeks. He had, he said, given £50 of this to Mr Rainbow to buy 800 cigarettes on the voyage out because he did not like to be in debt. Asked whether half of the goods purchased in France were for him, he said "I was not interested in how much we were buying". He had not chosen the wine. So far as he was concerned it was red wine. He had not been concerned with the cost. He had not specified what his requirements were or how much he wanted. He accepted that this had been the arrangement on previous occasions.

The interviewing officer was asked about Mr Rainbow's condition at the time. He said that it had been a dark cold morning. Had he suspected that Mr Rainbow was incapacitated, he said, he would not have interviewed him. The other officer at the interview said that Mr Rainbow had not mentioned that he had only been awake for a short time; she said he seemed fine.

Conclusions on the facts

We find that the Customs officer who stopped Mr Rainbow at Plymouth Ferryport (Mr Barker) had reasonable grounds to suspect that Mr Rainbow had dutiable excise goods in the car with him when he arrived at Plymouth. We accept that the two men driving a car that looked initially like a van could fit the relevant profile.

We are satisfied from the evidence that Mr Rainbow was bringing excise goods into the country for sale. They were his property and were to remain in his control until the sales took place. His answers at the interview on this topic established this. We think he meant what he said despite his claim to have been hung-over. We reject any suggestion that Mr Rainbow was giving Mr Burgham credit and that Mr Burgham had been purchaser of some of the goods brought here on that occasion. Mr Burgham played no part in choosing them and did not know how much was being purchased. At the hearing Mr Rainbow said that about half of the goods were Mr Burgham's "share": we accept that roughly a half of the excise goods in question were to be sold by Mr Rainbow.

We should mention that Mr Burgham stated in evidence that he had given Mr Rainbow £50 to enable Mr Rainbow to buy cigarettes for him on the ferry. This was contradicted by the evidence of Mr Rainbow, both in interview and before the tribunal, that he had paid for all the goods out of his own money. In any event it seems strange to us that Mr Burgham should have given Mr Rainbow the money when Mr Burgham could quite easily have bought the cigarettes himself.

It was not in dispute that Mr Rainbow had been lawfully stopped and searched. Under section 163A of the Customs and Excise Management Act 1979, if a Customs officer has reasonable grounds to suspect that a person has with him goods which are chargeable to duty and are liable to forfeiture, he may -

"… require the suspect to permit a search of any article that he has with him at that place, and if the suspect is not under arrest, detain him (and any surchargeable) for so long as may be necessary to carry out the search."

The decision of the Court of Appeal in Customs and Excise Commissioners v the Queen on the application of Hoverspeed & Others [2002] EWCA Civ 1804 establishes that the Customs officer in question is permitted to rely on profiles and trends to establish whether there are reasonable grounds for suspicion: see paragraph 39(iv) of that decision. As indicated above, we are satisfied that the Customs officer was relying on profiles in the present case. The check was therefore valid. As a result of the check, it was discovered that Mr Rainbow was in possession of the excise goods referred to above. As already noted, we are satisfied that Mr Rainbow had purchased the excise goods and that he would (but for the seizure) be selling some of them to Mr Burgham at cost price.

Mr Rainbow was only entitled to relief from payment of duty on these excise goods if they were for his own use. Article 2(1) of the 1992 Personal Reliefs Order defines own use as including:

"… use as a personal gift provided that if the person making the gift receives in consequence any money or money's worth (including any reimbursement of expenses incurred in connection with obtaining the goods in question) his use shall not be regarded as his own use for the purpose of this Order."

That definition was cited with approval by both the Divisional Court and the Court of Appeal in Hoverspeed (see, for example, the Court of Appeal's decision at paragraph 65(ii)). For the purpose of the 1992 Order, goods which are not held for own use are held for a commercial purpose. (See the Court of Appeal decision in Hoverspeed at paragraph 64.) Thus as the excise goods were not held for Mr Rainbow's own use but were held for a commercial purpose he was required to pay duty on them.

Article 5(1) of the 1992 Order sets out that, where excise goods are held for a commercial purpose, and duty has not been paid on them, those goods should be liable to forfeiture. This is supported by section 49(1)(a) of CEMA which sets out that, where goods chargeable with excise duty are, without payment of that duty, unshipped in any port, those goods shall be liable to forfeiture. Furthermore, under section 139(1) of CEMA, any thing mixed, packed or found with the goods liable to forfeiture shall also be liable to forfeiture. As Mr Rainbow had done nothing by the time of importation to divide the goods between those for his own use and those for onward sale, we have to conclude that they were all mixed, packed and found together. All were therefore liable to forfeiture. Mr Rainbow's car had been used to transport the goods and was also liable to forfeiture. By section 39(1) of CEMA, any thing liable to forfeiture under the Customs and Excise Acts may be seized and detained by any officer. As such, the goods were, we think, correctly seized.

The decision of the Divisional Court in Hoverspeed establishes that the 1992 Personal Reliefs Order fails to implement the 1992 Directive, which has direct effect, in that:

(a) it makes excise goods imported from another Member State chargeable to UK excise duty without it being established that the goods are imported into the UK for a commercial purpose and

(b) it places a persuasive burden of proof on the individual to prove that the goods are not held for commercial purposes where the goods are in excess of the minimum indicative limits.

However, the seizure of the excise goods in the present case was not invalidated by the fact that the Customs officer had not understood the correct legal position in regard to who had to show that the goods were held for a commercial purpose. This had not, we think, played any relevant part at all in the decision to seize. The evidence that the goods were being bought here for sale was strong (and included Mr Rainbow's admission in the interview) and satisfied the seizing officer, in just the same way as it has satisfied us.

Turning now to forfeiture, the relevant provisions are set out in Schedule 3 to CEMA, given effect by section 139(6) of that Act. Schedule 3 provides a mechanism by which the legality of the seizure by the Commissioners of any thing liable to forfeiture can be challenged. Any person wishing to bring such a challenge can, within 30 days of the notice of seizure, enter a notice of claim. Where no claim is entered within the proper time the thing is deemed to have been duly condemned as forfeited. No such claim was entered here.

The issue here concerns the non-restoration of the excise goods and the offer to restore the car on payment of £1,625. Under section 152(b) of CEMA, the Commissioners may, if they see fit, "restore, subject to such conditions (if any) as they think proper, any thing forfeited or seized" under the customs and excise Acts. Here the Commissioners duly exercised their power to consider restoration. They refused it with regard to the goods but allowed it subject to a condition as to payment with regard to the car. They came to that decision on the basis of the facts and circumstances summarized in the review letter. Essentially these come down to the fact that Mr Rainbow had imported the goods for a commercial purpose and that they were therefore dutiable. He had therefore attempted to evade paying the duty and in doing so he was damaging legitimate trade. A failure to penalize those who are in breach of the statutory requirements would render those requirements meaningless and inoperable. In favour of Mr Rainbow, however, it was accepted that he intended to sell the goods at cost price, rather than for a profit, and that this was the first time he had been detected.

Mr Matthew Barnes for the Commissioners argued that the Lindsay decision of the Court of Appeal was no longer good law to the extent that it supports the following propositions:

(a) a holiday maker bringing back goods for his friends and family, in anticipation that they will reimburse him for the purchase, cannot properly be said to be holding the goods for a "commercial purpose", as this does violence to the English language and

(b) there must be a third category, including travellers bringing back goods to sell to family and friends at cost price, which falls between "own use" and "commercial purpose".

It was pointed out for the Commissioners that the Court of Appeal had considered these propositions in Hoverspeed and concluded that the concepts of "own use" and "commercial purpose", as set out in the 1992 Excise Directive, are antithetical. The effect of this is that goods that are not held for "own use" are held for a "commercial purpose". As the Directive has direct effect, it has priority insofar as there are differences between its and the 1992 Personal Reliefs Order's apparent effect. It followed, argued Mr Barnes, that if Mr Rainbow was not bringing the goods for his "own use" he was bringing them in for a "commercial purpose"; and the Commissioners' decision could not be criticized for failing to take into account a distinction that did not exist.

The Commissioners' suggestion that Lindsay is no longer good law in the light of Hoverspeed is not in our view correct. The two cases were concerned with different issues. In Lindsay the issue was, as here, whether the Commissioners had acted reasonably in refusing to restore a car that had been seized. The Court had noted that the seizure or forfeiture and non-restoration of a person's property will constitute the deprivation of his possessions within Article 1, Protocol 1 of the ECHR. It is not enough that the State deems the action necessary. "There must be a reasonable relationship of proportionality between the means employed in the aim pursued": see the Lindsay decision at paragraph 52. In Lindsay at paragraph 63 Lord Phillips of Worth Matravers said that normally the circumstances of deliberate use of a car for smuggling to make a profit will take the case beyond the point where the value of the car can carry sufficient weight, although exceptional hardship must always be considered. He distinguished between such cases and importation for others but not for profit where proportionality requires consideration on the particular facts, including the quantity, whether it was a first offence, concealment, the value of the vehicle and hardship. He pointed to the lesser sanctions available. As we read the Lindsay decision it is concerned both with vehicles and to issues concerning the non-restoration of goods. The propositions cited at paragraphs 52-54 of Lindsay were not confined to vehicles. At paragraph 52 Lord Phillips accepted that it is necessary to consider the individual case.

By contrast the Hoverspeed decision was concerned with the question of whether goods were liable to seizure. The Divisional Court had, as already noted, decided that the burden of proof on an appellant to prove that goods over the indicative limits were not held for commercial purposes was incompatible with the Excise Directive. That had not been challenged on appeal. Nor had the ruling that the Commissioners have to show that the importation is for a commercial purpose. The Court of Appeal addressed the question of whether the importation in question was "commercial" and said that this factor should be considered on a case by case basis. In paragraph 65 of the Court of Appeal decision in Hoverspeed it is said -

"… that, if an individual acquires (or having acquired for his own use subsequently decides to hold) products for a purpose other than his own use, such products are to be regarded as held for commercial purposes."

It follows that goods will either be held for own use or for commercial purposes. There is no middle way. If, as here, a friend is reimbursing on a not-for-profit basis, this is nonetheless "commercial", in the special sense in that the Court of Appeal has construed that word, and duty is payable (or if it is not, the goods may be seized). But questions of restoration are a different matter.

This brings us to the issue in the present case which is whether the Commissioners came to a reasonable and proportionate decision in refusing to return the excise goods to Mr Rainbow and in requiring a payment for £1,625 as the "price" for the restoration of his car.

We have summarized the facts and circumstances that the review officer took into account.

Mr Rainbow argued that the excise goods should be restored to him. He had not been purchasing goods for resale at a profit. Moreover there were two of them on the trip. The arrangements between them should be regarded as equivalent to a credit sale for the seized goods. On this basis it should be accepted that half of the goods were for Mr Burgham. Moreover, the quantities purchased for each of them were well within their particular needs for their own use.

It was not, we observe, in issue that half the total quantity of the imported goods was for Mr Rainbow's "own use".

We do not see that there was anything disproportionate in the Commissioners' decision not to restore the excise goods to Mr Rainbow. He was, we think, well aware that he was bringing goods into the country for resale and, in so doing, he was evading excise duty. It is proportionate that the whole "mixed bag" of goods should be taken from and not restored to him in those circumstances.

Turning now to the decision not to restore the car unless payment of £1,625 was made, Mr Rainbow argued that this was disproportionate and wrong. At the time of seizure, his car was worth (he estimated) £7,670 while the "revenue" value of the goods was £1,625. To take the car from him is therefore to penalize him by a multiple of 4.72 times the value of the goods. But compare that with the circumstances of the Lindsay case. That was a non-profit making venture. The car was worth £10,500 and the net value of the goods was £3,500 (see paragraph 22 of the decision of the Court of Appeal). There (Mr Rainbow pointed out) Mr Lindsay was penalized by a multiple of only three times the duty; moreover, the Court of Appeal directed that the case should be sent back for a further review. Our reaction to that argument is as follows. The decision Mr Rainbow appeals against is not a decision to retain the car without the option of release on payment of a sum of money. It is a decision to restore on payment of an amount equal to the revenue value of the goods. That was not an issue in Lindsay. Second, if the decision in Lindsay had been to restore on payment of one-third of the value of the car (which of course it was not, but Mr Rainbow has asked us to use Lindsay as a point of comparison), Mr Rainbow would come off more lightly because he would be required to pay less than a quarter of the value of the car.

Mr Rainbow's other main point was that he was not bringing goods back for resale at a profit. There were two of them on the trip. The arrangements between them should be accepted as a credit sale of the seized goods. It should be accepted that half of the goods were for Mr Burgham and that this made the entire consignment well within the "personal consumption" needs of the two of them.

We have dealt with this latter argument above. It seems to us to be inescapable that Mr Rainbow was bringing the goods in for a "commercial" purpose, notwithstanding the suggestion that in due course half the goods might be sold to Mr Burgham for his own consumption.

That the importation was "commercial" (as that word was interpreted by the Court of Appeal in Hoverspeed) is, we think, well established by the evidence. Moreover Mr Rainbow was damaging legitimate trade and to fail to penalize him would, we agree, render the statutory requirements meaningless and inoperable. There was, as we have already noted, a suggestion in cross-examination that Mr Burgham was not the only possible buyer in Mr Rainbow's market. But that, despite Mr Rainbow's evasive and ambiguous answers at the interview, cannot be sustained. Mr Rainbow's answers when interviewed created a general air of suspicion about his cross-border shopping activities. But that also is far too insubstantial to be a relevant consideration, and in fairness to Mr Harris we recognize that it was not taken into account by him in reaching his decision.

On the other hand we are satisfied that the scale of the importation was not large; the "commercial" element of the imported goods was only half, and that half was not in any event to be sold at a profit. There is no suggestion that any attempt was made to conceal the goods. Mr Rainbow has lost all the excise goods he paid for on the shopping trip and, as we have already decided, it was reasonable not to restore those to him.

It seems to us that when all those factors are taken into account, the sum required from Mr Rainbow is disproportionately large. It represents the excise duty on all the goods seized on 13 April 2001. We think that an appropriate amount to demand would, bearing in mind that Mr Rainbow has lost all the goods he imported, be the duty on the goods bought here for sale, i.e. half the amount in the Commissioners' decision.

We direct that the decision not to restore the imported excise goods be upheld and the decision to restore the car on payment of £1.625 be quashed. We direct that the matter be sent back for a further review taking into account our conclusion in paragraph 41 above.

We make no order for costs.

STEPHEN OLIVER QC

CHAIRMAN

RELEASED: 4 February 2003

LON/02/8151