United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2003] UKVAT(Excise) E384, [2003] UKVAT(Excise) E00384

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Mitchell v Customs and Excise [2003] UKVAT(Excise) E00384 (17 February 2003)

E00384

EXCISE – Restoration refusal – Goods – Not for own use – Family paying cost – 2600 cigarettes and 2kg tobacco bought on Cross-Channel ferry - Appellant unaware that doing wrong and fully open and co-operative – Review officer did not consider proportionality – Lindsay [2002] STC 588 considered – Further review directed – Excise Goods (Sales on Board Ships and Aircraft) Regs 1999 (1999 S.I. No.1565)

LONDON TRIBUNAL CENTRE

MRS CHRISTINE MITCHELL Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: THEODORE WALLACE (Chairman)

A J RING FTII, FCA

Sitting in public in London on 18 December 2002

The Appellant appeared in person

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

© CROWN COPYRIGHT 2003

DECISION

This appeal is against the refusal to restore cigarettes and tobacco seized from a foot passenger on her return by ferry from France. The Appellant is not a smoker and bought the goods for her family who were to pay her the cost.

The goods were seized because they did not qualify for relief from excise duty, being neither for the Appellant's own use or for gifts by her. There is no procedure for payment of duty at the time of entry into the UK.

This case has similarities to Lindsay v Customs and Excise Commissioners [2002] STC 588 where goods were imported for the traveller's family with money provided by them; however that case concerned a vehicle rather than goods. The Court of Appeal upheld the tribunal's decision that the review officer when refusing to restore Mr Lindsay's car failed to have regard to all material considerations in particular the need for proportionality.

Lindsay concerned a car only, there being no appeal in relation to the goods. This is the first case, of which we are aware, to come before the Tribunal since Lindsay involving importation for family at cost where the restoration of goods is in issue, no car being involved.

Mr Matthew Barnes for the Commissioners submitted that the decision in Lindsay has no application to the non-restoration of goods. He submitted a skeleton argument which made no mention of that decision or of proportionality, although the Appellant was given a copy of Lindsay before the hearing. Unfortunately, as is usually the case with appeals of this type, the Appellant was not represented.

There were only two witnesses, the Appellant and the Review Officer. On 16 July 2002 the Tribunal directed that the Commissioners serve statements from the interviewing and seizing officers and that they should attend for cross-examination unless the Appellant notified the Tribunal that their evidence was agreed. A statement by the interviewing officer was served outside the time directed; the Appellant did not notify her agreement to the statement; the officer did not attend. The officer's evidence was based on short notes made after the interview. There was no substantial conflict between the officer's and the Appellant's evidence; in so far as there was a difference, we accept the evidence of the Appellant who was a good witness.

The facts

We find the following facts.

The Appellant travelled to Calais by a P&O Stena ferry from Dover on the morning of 16 January 2002 returning on the following morning. She went to visit a friend in Calais and stayed with her overnight. Her daughter knew that she was going and asked her to bring back some cigarettes. The Appellant also bought some cigarettes for her niece and her cousin and some tobacco for her ex-husband and her daughter's husband.

On the journey out she bought 800 Benson and Hedges for £82, 1600 Superkings Lights for £158 and 200 Berkeley Mentholated for £20.75, a total of £260.75 for which she paid cash. She produced the receipt which had a UK VAT number.

On the return journey the Appellant bought 1½ kilogrammes of Golden Virginia hand-rolling tobacco and ½ kilogramme of Old Holborn for £113, paying £100 by Visa Card and the balance by cash. She produced a receipt headed "Calais duty paid shop" carrying a French VAT number; the card voucher said "P&OSL Calais duty paid shopping."

The Appellant left the ferry at Dover with an overnight zip case on her shoulder and a holdall about two feet long in her hand. She was carried a short distance by courtesy bus before walking through inbound Customs controls. She was stopped by one of five Customs officers who asked her politely if she could search her belongings. The Appellant was in a jovial mood having enjoyed visiting her friend and replied, "I thought you might, I've got rather a lot." She put her bags on the table and opened them. The Appellant formed the impression that the officer thought that she had more than tobacco and cigarettes.

The officer's note included the following (the officer's name being Jacqueline Pope):

"JP Is this all your luggage?

CM Yes, I'll tell you I've got too much it's for the family. I don't even smoke. They asked me to get it for them. I'm a coach driver and I don't usually buy duty free, you use up all your wages on it.

JP Who's paying for the goods?

CM They are. I'm being honest."

The Appellant agreed that this was the substance of what she said but said that it was more conversational; she said that the notes were not made at the time. She said that when the tobacco was laid on the table the officer asked her to wait a moment and went away.

When she returned the officer looked rather awkward and said, "I am afraid I have got to take it you've got too much." The officer wrote out the seizure form which the Appellant signed. The reasons recorded were that the goods were in excess of the minimum indicative limits and "Family had financed goods, Mitchell did not smoke herself." The Appellant agreed that the officer told her that the only way she could bring back excise goods for her family was as a gift. The officer recorded the duty as £549.96; £193.62 of this was for the tobacco, the balance being for the cigarettes.

The Review Decision

A correspondence then followed. The Commissioners refused to restore the goods. The Appellant asked for a review and on 18 April 2002 Jeremy Francis Michael Tooke, the Review Officer, confirmed the decision to refuse restoration in a letter of seven pages.

Mr Tooke's decision stated that the items were not for the Appellant's own use but were being funded by others not travelling; the relief was personal, duty had not been paid and the goods were liable to forfeiture. He wrote that the Department's policy was that seized goods should not be restored but that each case was examined on its own merits to determine whether or not restoration should exceptionally be offered. His review included the following,

"… there has never been any suggestion that you have been anything other than fully open and co-operative with the Department … It has not been claimed that you were to profit from the sale of the goods."

Mr Tooke concluded,

"I regret that nothing concerning the seizure, nor anything brought to my attention subsequent to it, has persuaded me that there are any exceptional circumstances that would warrant restoration of the seized items."

Mr Tooke told the Tribunal that he had considered the matter afresh, considering the officer's notes and the correspondence. He said that he did not consider that he should give the goods back; he gave as his reasons the deterrent value and the fact that the Appellant was a coach driver. We observe that the Review contained only a passing reference to the Appellant being a coach driver and that it did not appear among his reasons in the Review decision.

He said that he was aware of Lindsay but considered that it had no bearing because no vehicle was involved in the present case. He said that the main reason for non-restoration was that the goods were not for the Appellant's own use and they were liable for UK duty. It was not policy to return the goods on payment of duty while keeping a record. He agreed that there was no opportunity to pay duty at the time and no positive attempt to evade duty and said that it was quite likely that the Appellant was not aware at the time that she was breaching the requirements. Mr Tooke assumed that the goods had borne French duty but not British but was unable to tell us the legal basis on which excise duty is or is not charged on the ferries.

Submissions

Mr Barnes, for the Commissioners, said that, regardless of whether she knew she was doing wrong, the Appellant was importing for her family without paying duty. There was nothing in the legislation that said that if non-payment was not intentional the goods should be restored. The legislation was there to ensure compliance and some sanction was needed. He submitted that it was proportionate to refuse to restore the goods which cost £373.75 to support the charge to duty. If the goods were restored on payment of UK duty, the Appellant would suffer no loss. The position of the Appellant's family was relevant. Non-restoration was a general deterrent. He accepted that the Appellant did not know she was doing wrong.

Mr Barnes said that Mr Tooke did not need to consider Lindsay which was directed at restoration of cars. Mr Tooke had considered all the factors including the fact that the Appellant was not trying to mislead. If the non-restoration was itself proportionate, there was no need to consider proportionality. Here no car was involved and there was nothing inherently disproportionate in refusing restoration of the goods, regardless of the quantity, the fact that it was a first offence and that there was no concealment. The figures involved were not disproportionate. There was a legitimate aim to protect the UK revenue and UK traders. The loss to the Appellant was only £373. He was unable to tell us the legal basis governing liability to excise duty and VAT on the ferries.

We asked at the hearing and in a subsequent letter to be informed of the position and the statutory basis but received no response until 31 January 2003. This delayed the decision by several weeks.

The Commissioners' eventual response by Mr Neill Brettell referred to bilateral arrangements under Article 7.9 of the Excise Directive (Council Directive (EEC) No 92/12) which applies,

"Where products subject to excise duty are moved frequently and regularly under the conditions specified in paragraph 7 …"

Paragraph 7 of Article 7 applies,

"Where products subject to excise duty and already released for consumption in a Member State are to be moved to a place of distinction in that Member State via the territory of another Member State …"

It appears that this is regarded as applying to goods sold on cross-channel ferries, presumably on the basis that goods released for consumption in France are to be moved via Dover back to Calais. This is an odd interpretation if the goods are sold to persons returning to the UK.

Mr Brettell's letter did not say what the bilateral arrangements were but stated that Article 7.9 is implemented by the Excise Goods (Sales on Board Ships And Aircraft) Regulations 1999 which make provision for two procedures, the standard procedure and the simplified procedure. He wrote as follows,

"… under the standard procedure, excise goods offered for sale as merchandise for take away on board a ship operating on the cross channel routes will at all times be duty paid, either at the UK, French or Belgian rates depending on the territory in which the sales are made.

Where the simplified procedure is used, no sales for take away may be made whilst the ship is in UK territory as the goods have not been duty paid in the UK.

As any excise goods sold for take away must be duty paid within the EU, under either of the procedures adopted by the vendor, a passenger can import limitless quantities for his/her own personal use."

Leaving aside those regulations, as we understand the law, UK excise duty is payable when a ship comes within the port limits, see CEMA 1979 s.5(2). The VAT treatment differs from excise in that goods supplied on board ship in the course of a community transport are treated as supplied at the point of departure, see article 4 of the Value Added Tax (Place of Supply of Goods) Order 1992, implementing Article 8.1(c) of the Sixth Directive.

Conclusions

This is one of the first cases since Lindsay where non-restoration of goods alone has arisen.

It is different from many cases in that the Appellant stated from the outset that the excise goods were for her family who were paying and in that it is accepted that she was not aware of the fact that she was infringing the rules; it was not a case of smuggling and the amounts were a small fraction of the £50,000 average per vehicle seized mentioned at paragraph 60 of Lindsay.

The non-restoration of the Appellant's goods involved the deprivation of her property, within Article 1 of the First Protocol to the Human Rights Convention; such deprivation can only be justified if in the public interest and must "strike a fair balance between the rights of the individual and the public interest", see Lindsay at paragraph 52, per Lord Phillips MR. Lord Phillips continued,

"There must be a reasonable relationship of proportionality between the means employed and the aim pursued (Sporrong and Lönnroth v Sweden (1982) 5 EHRR 35, para 61; Air Canada v United Kingdom (1995) 20 EHRR 150, para 36). … 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."

At paragraph 54 Lord Phillips cited the following passage from the judgment of the Court of Justice in Paraskevas Louloudakis v Greece (Case C-262/99) [2001] ECR I-5547,

"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 freedoms enshrined in the Treaty."

At paragraph 58 Lord Phillips cited from paragraph 54 of Allgemeine Gold -und Silverscheideanstalt v United Kingdom (1986) 9 EHRR 1,

"For forfeiture to be justified under the terms of the second paragraph of Article 1 [of Protocol 1], it is enough that the explicit requirements of this paragraph are met and that the state has struck a fair balance between the interests of the state and those of the individual. The striking of a fair balance depends on many factors and the behaviour of the owner of the property, including the degree of fault or care which he has displayed, is one element of the entirety of circumstances which should be taken into account."

The italics are ours.

It is important to note that all of the above principles cited in Lindsay are general principles which were not directed to vehicles in any way. It follows that they were not confined to vehicles.

We do not accept the submission of Mr Barnes that there was no need for Mr Tooke to consider proportionality. This was not a case of smuggling for profit such as Lord Phillips mentioned at paragraph 63. The deprivation of goods costing the Appellant over £370 is a significant sanction for all but the most wealthy. The Appellant was of modest means.

Although Mr Barnes in his skeleton argument stated, "The Appellant had attempted to evade paying the duty", there was no evidence to support this and it was not pursued at the hearing. Indeed, it was contrary to Mr Tooke's evidence. Mr Tooke accepted that it was quite likely that the Appellant did not know that she was doing wrong. This was a first "offence" committed through inadvertence. The fault of the Appellant was to fail to find out what the excise rules were.

No questions were apparently put to her when interviewed as to what her understanding of the rules was; probably this was because this was not regarded as relevant. She was not asked whether she had driven coaches to the continent nor was there any reference to this in Mr Tooke's Review. If this really was one of his reasons for refusing restoration it is profoundly unsatisfactory that he omitted to state that in his seven page review. We do not accept that it was such a reason. We note that he made no reference to it in his statement prepared for this appeal.

This was a case, therefore, of an infringement not for profit by a person who however surprisingly did not know the rules. Customs themselves were unable to tell us at the hearing the provisions governing sales on the ferries. We do not find the position outlined in Mr Brettell's letter to be at all clear, in particular the statutory basis. It is however apparent that UK excise duty was not charged on the sales.

For this innocent infringement the Appellant has suffered the loss of goods costing her £373.75, unless her family have paid her. Mr Barnes argued that £373.75 was not disproportionate to the duty, i.e. £549.96. That is correct as a matter of arithmetic: it was not a case such as Pasquet Online (2000) E 375 where fine champagne costing over £50 a bottle was seized for non-payment of duty of £1.65 a bottle. That is however only part of the picture. The Appellant did not know that she was breaking the rules. She was not a smoker and there was no evidence that she knew how much duty was involved. She told us that she thought that duty had been paid on the boat although she must have thought that there would be a saving for her family.

We do not accept the proposition that since only goods were involved the question of proportionality did not arise. We accept that if the Appellant had known that she was breaking the rules, this would be decisive in nearly all situations, particularly if this was not the first occasion. This was however not such a case. Here it was open to the Commissioners to require payment of the duty as a condition of restoration of the goods. Such a requirement would clearly have been proportionate and appropriate.

We do not accept that a policy of non-restoration of goods as a general deterrent regardless of the degree of fault and care or the other circumstances is proportionate. Mr Barnes said that the Appellant would suffer no loss if the goods were restored on payment of tax. This assertion may be factually correct, however he produced no evidence that the addition of the duty to the price paid would involve no loss. In any event the use of non-restoration as a sanction without regard to the merits of a case is not in our view proportionate or reasonable where there is no intent to make a profit. The facts of this case may be unusual but they are not that unusual in that the Appellant was not seeking to make a profit, was not knowingly breaking the law and had not done so before. It may be administratively simpler for the Commissioners to ignore these factors, however it does not in our judgment strike the fair balance required by the law.

We direct that a further review be carried out in the light of this decision. The review should be by an officer who has not previously been involved in the matter. Copies of the Review should be served both on the Appellant and on the Tribunal to be received by 21 March 2003. If dissatisfied with the Review the Appellant will have a further right of appeal.

THEODORE WALLACE

CHAIRMAN

RELEASED:17 February 2003

LON/02/8120