United Kingdom VAT & Duties Tribunals (Excise) Decisions

BAT (UK and Export) LTD v Revenue & Customs [2003] UKVAT(Excise) E00515 (03 November 2003)

E00515

Excise Duty Appeals – Jurisdiction – Assessment to excise duty – Assessment withdrawn before review required – Duty liability on cut rag tobacco unresolved – Review carried out – Whether statutory review possible under FA 1994 s.14(2)(b) when assessment withdrawn – No – Appeal struck out

LONDON TRIBUNAL CENTRE

BAT (UK AND EXPORT) LTD Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: THEODORE WALLACE (Chairman)

Sitting in public in London on 22 October 2003

Michael Conlon QC for the Appellant

Andrew O'Connor, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

1. This hearing concerned the jurisdiction of the Tribunal under the Finance Act 1994 on an appeal concerning the liability to excise duty of "cut rag tobacco" following the despatch of a consignment of 13,000 kg to the factory of an associate company in Prague for processing into cigarettes.
2. On 12 September 2002 the Commissioners wrote formally to a company in the Appellant's group stating that it was liable for payment of £27,653.08 customs duty £1,258,530 excise duty because evidence had not been received that goods had been presented in Prague under Article 96 of the Community Customs Code, which relates to the external Community transit procedure.
3. It was common ground that, although the letter did not state this, it constituted notification of an assessment to excise duty under section 12 of the Finance Act 1994.
4. The BAT considered that cut rag tobacco was not liable to excise duty under the Tobacco Products Duty Act 1979 and that in any event it had been delivered.
5. In a letter dated 20 September 2002 BAT requested a formal departmental review stating, "cut rag tobacco does not have an excise liability and, as such, the demand is without lawful authority."
6. The request was acknowledged on 24 September, BAT being informed that the review would be notified by 7 November.
7. Meanwhile, unknown to the writer of the letter of 24 September, the demand dated 12 September had been withdrawn because the necessary evidence had been received. The notification of withdrawal was dated 18 September, two days before the request for the Review and appears to have crossed it in the post.
8. On 26 September the Review Officer wrote that she was closing the Review because the request for charges had been withdrawn.
9. BAT wrote back on 2 October stating that whereas the demand had been withdrawn the issue of excise liability remained and asked for the question of liability to be submitted for formal departmental review.
10. The Review officer wrote on 4 October that she had re-opened the review. On 11 November, which is outside the 45 days period from the request of 20 September, the Review officer wrote a letter, headed "Mandatory Departmental Review Decision", ruling that cut rag tobacco falls within the definition of a "cigarette" in the Tobacco Products (Cigarettes and Cigars) Order 1977. She told BAT that it could appeal to a Tribunal within 30 days.
11. The Appellant appealed against that decision. Before the Statement of Case the Review officer purported to issue a new Review Decision dated 29 May 2003 ruling that the tobacco was either hand-rolling tobacco or other smoking tobacco. The matter proceeded with the Statement of Case being served on 2 June 2003 after four extensions. The Statement of Case stated that the disputed decision was "that a consignment of the Appellant's 'cut rag tobacco' was liable to excise duty". The appeal was notified on 22 August to be heard before a chairman and member for 1½ days starting 22 October.
12. On 20 October, two days before the hearing, the Commissioners applied to the Tribunal under Rule 6 for the appeal to be struck out on the grounds that since the assessment had been withdrawn there was no appealable matter.
13. Under Rule 6(1) an application of this type should be made "as soon as practicable after the receipt by them of the notice of appeal." In spite of the lateness of the application the appeal could not properly proceed unless the Tribunal had jurisdiction and the application was therefore heard under Rule 23(2).

The Statutory Provisions

14. By section 2 of the Tobacco Products Duty Act 1979 excise duty is charged on tobacco products imported into or manufactured in the United Kingdom at the rates shown in Schedule 1. At the relevant time the Schedule showed cigarettes as dutiable at 22% of the retail price plus £92.25 per thousand cigarettes, hand-rolling tobacco at £96.81 per kg and other smoking tobacco and chewing tobacco at £59.21 per kg. Section 7 provides for regulations for the management of duty. The Tobacco Products Regulations 2001 provide for duty to be payable when tobacco products are released from bond but regulations provides for duty suspension arrangements. Tobacco products moved under the external Community transit procedure under Article 91 of the Community Customs Code, Council Reg (EEC) 2913/92 are regarded as covered by duty suspension arrangements. The procedure involves the goods being produced at the customs office of destination and evidence being provided to the office of departure.
15. The assessment was raised because at that stage the evidence under Article 96 had not been received. The Appellant contends that cut rag tobacco is at an intermediate stage and is not a dutiable tobacco product until further processes have been carried out.
16. Section 12 of the Finance Act 1994 provides for the Commissioners to assess and notify excise duty.
17. Section 14 provides for a requirement in writing for the Commissioners to review decisions specified in subsection (1). These include,

"(b) So much of any decision by the Commissioners that a person is liable to any duty of excise, or as to the amount of his liability, as is contained in any assessment under section 12 above".

Subsection (2) specifies the persons entitled to require a review. Paragraphs (a) and (b) read,

"(a) any person whose liability to pay any relevant duty or penalty is determined by, results from or is or will be affected by any decision to which this section applies,

(b) a person in relation to whom, or on whose application, such a decision has been made, or …"

Subsection (3) provides for a notice requiring a review to be given within 45 days if "the day on which written notification of the decision, or of the assessment containing the decision, was first given to the person requiring the review."

18. Section 15 covers the review procedure. Subsection (1) provides,

"(1) Where the Commissioners are required in accordance with this Chapter to review any decision, it shall be their duty to do so and they may, on that review, either –

(a) confirm the decision; or

(b) withdraw or vary the decision and take such further steps (if any) in consequence of the withdrawal or variation as they may consider appropriate."

19. Section 16 governs appeals to the Tribunal. Under subsection (1) an appeal lies with respect to any decision on a review under section 15 including a deemed confirmation under section 15(2) or any review of a decision to which section 14 applies when the Commissioners have undertaken a late review.
20. The right of appeal is dependent on a statutory review (or a deemed confirmation) and the review must in turn be of a decision of type specified in section 14.

Submissions

21. Mr Conlon for the Appellant accepted that customs duty would have been due under the external transit procedure in the absence of evidence to discharge the liability but said that no excise duty is payable on cut rag tobacco and no excise liability therefore arose on the tobacco in the state in which it was. It had been imported as leaf tobacco, manufactured to cut rag at the Appellant's Darlington factory and then despatched to the Appellant's Prague factory to undergo the secondary manufacturing process whereby it would be turned into cigarettes.
22. The issue of liability was important to the Appellant since around 10,000 tons were involved each year and, although no UK duty would be payable on tobacco covered by the external transit procedure provided evidence was produced, a global guarantee had to be arranged for which the bank required a substantial collateral in liquid form.
23. He said that although the Tobacco Products (Description of Products) Order 2003 (2003 S.I. No.1471) which came into effect on 1 August 2003 amended the description of tobacco products it did not involve any change in the law since it merely gave effect to Articles 3 to 7 of Council Directive 95/59/EC on which the Appellants was entitled to rely in any event.
24. He said that the Appellant had sought to get the Commissioners to confirm their ruling on samples provided in July 2003 but the Commissioners had declined to assess the samples.
25. He said that it might be open to the Appellant to seek a declaration in the High Court or apply for judicial review but Parliament had designated this type of matter to be dealt with by the specialist Tribunal. The statutory provisions in the Finance Act 1994 should be given a fair meaning in that context, consistent with the principles of effectiveness and the right to a fair trial.
26. Mr Conlon said that the letter dated 12 September 2002 clearly contained decisions within section 14(1)(a) in relation to customs duty and within section 14(1)(b) as to excise duty. He stressed the words "so much of any decision … that a person is liable to any duty of excise, or as to the amount of his liability." The letter must be the notification of an assessment under section 12.
27. He said that the Appellant which was a person within section 14(2)(a) required the Commissioners to review the decision. Although the Commissioners had withdrawn the assessment they agreed on 4 October to carry out the review and on 11 November gave a decision on the review. Section 16(1) provides a right of appeal as to "any decision" on a review. He said that since there had been such a decision the Appellant had a right of appeal. The crucial point was that there had been a decision on review, see Customs and Excise Commissioners v Gil Insurance Ltd [2000] STC 204 at paragraphs 34 to 36 and Customs and Excise Commissioners v Cresta Holdings Ltd [2001] STC 386.
28. Mr Conlon said that the right to a review and thus to an appeal was not affected by the withdrawal of the assessment, the Appellant could still appeal against the part of the decision that the Appellant was liable to duty. The right to review was as to both liability and quantum.
29. Mr O'Connor for the Commissioners accepted that the 2003 Order does not effect any substantial change in the law since the previous provisions had to be interpreted consistently with the Directive.
30. He said that the Commissioners understood the Appellant's wish to clarify the duty position on cut rag tobacco and would facilitate a test case with a speedy review. He accepted that the jurisdiction point should have been raised last autumn but said that since the jurisdiction is statutory it is not possible to confer jurisdiction by agreement of the parties.
31. Mr O'Connor said that no point was taken as to the fact that the letter of 12 September 2002 notifying liability, the request for the review and the appeal were by different companies in the group. He accepted that a parent company could ask for a review of its subsidiary's liability.
32. He said that section 14(1)(b) depended on the existence of an assessment, emphasising the words "as is contained in any assessment." At the time of the request for a review on 18 September, the assessment had been withdrawn although the writer of the letter did not know. The use of the present tense in both section 14(1)(b) and section 14(2)(a) show that the assessment must be in existence. It was clear that no review could be required if there was no assessment. This was the position when the Review here was required.
33. He said that if the Commissioners had refused on 4 October 2002 to carry out a review the position would have been the same as in Trapps Cellars Ltd v Customs and Excise Commissioners (2003) Decision E441 where there was no extant decision to review. He also relied on Jeff Dee Ltd v Customs and Excise Commissioners (1997) Decision E59. The position is the same when a decision was withdrawn before a Review was completed as it is if it is withdrawn before the requirement for a review: without an assessment there is no reviewable decision and therefore no right of appeal under section 14(1)(b).
34. He said that is since there was no statutory requirement under section 14 there was no statutory review. There is no power to carry out a statutory review without a requirement, although the Commissioners could undertake a review following a late request.
35. Mr Conlon, in reply, said that if Mr O'Connor was correct the Review of 11 November 2002, the Review of 27 May 2003 and the Statement of Case were all nullities.
36. He said that it is irrelevant that the assessment was withdrawn. No significance should be attached to the use of the present tense in section 14(1)(b). Although the assessment had been withdrawn, the decision as to liability remained a live issue which must be decided at some stage.

Conclusions

37. This appeal illustrates the difficulties which arise in a significant number of cases under the two-tier appeal structure introduced by the Finance Act 1994.
38. The Commissioners carried out what purported to be a statutory review, which they now contend was not such a Review. The Statement of Case was delayed by over four months for Headquarters Policy to consider the review and was settled on the basis that there was a valid appeal and just two days before the appeal hearing the Commissioners applied for the appeal to be struck out. Furthermore the Review officer purported to vary the decision as to liability without withdrawing it, when it was under appeal : this she had no power to do.
39. If the Commissioners have such difficulty in applying the legislation, it is hardly surprising that Appellants many of whom are unrepresented find it arcane and difficult.
40. It is clear that there can be no statutory review of a decision under section 14(1)(b) without an initial assessment. The statute contains no formal requirement for notification of an assessment, although the duty cannot be recovered unless it is notified. Making an assessment and notifying it are not the same, see House v Customs and Excise Commissioners [1996] STC 154 at 162. Although the letter contained no reference to an assessment or to section 12, it is evidence that an assessment had been made and I am not aware of any provision other than section 12 under which it could have been made. I hold therefore that an assessment to excise duty in the stated sum had been made.
41. I would observe that it is clearly desirable that the notification of an assessment to excise duty under section 12 should state expressly that it is such an assessment, particularly where as here it is combined with a demand for a different duty.
42. The wording of section 14(1)(b) is curious. The assessment is in reality of an amount of duty payable as a result of the person's liability. The assessment is a mental process even if a calculator is used. The notification of the assessment will inevitably notify the liability and the amount, but although those must be contained in the notification that is not the same as being contained in the assessment. The assessment is dependent on a decision as to liability and the statute must be used in this sense. Section 14(1)(b) must be based on the fact that a decision to assess encompasses a decision as to liability and as to amount. They are not however the same because the Commissioners may decide not to assess although a trader is otherwise liable to pay duty.
43. Mr Conlon's submission that the liability decision can be subject to a review requirement although the assessment is withdrawn before the requirement faces the difficulty that the decision for which a review can be required is "so much of any decision that a person is liable to any duty of excise … as is contained in any assessment."
44. Once the assessment or the decision to assess is withdrawn, I do not see how the liability decision can be "contained" in it. His interpretation seems to me to involve reading "is contained" as "was contained."
45. A further difficulty in Mr Conlon's way is that once the assessment was withdrawn, the Appellant or its subsidiary was no longer a person whose liability to pay any duty "is determined by" or "will be affected by" the initial decision as to liability or amount, because there was no longer any liability to pay any duty.
46. Section 14(1)(b) clearly concerns an assessment for a specific amount arising out of particular transactions or transactions in a particular period. Unlike section 83(b) of the VAT Act 1994 which covers an appeal against VAT chargeable on a supply without an assessment which is covered under (p), section 14(1)(b) is dependent on an assessment. In my judgment once an assessment is withdrawn, it is no longer possible to require a review.
47. It is not necessary to consider the further submission by Mr O'Connor that the obligation to carry out a review ceases if an assessment is withdrawn otherwise than under section 15(1)(b) after a review has been validly required.
48. I accept Mr O'Connor's submission that the fact that the Commissioners in fact carried out a Review, which they were not required to carry out under section 14, and could not have been required to carry out, did not give the Appellant a right of appeal under section 16.
49. The result is that the appeal must be struck out.
50. Mr O'Connor assured me that the Commissioners would facilitate an early review and appeal on a test sample. This will involve an assessment and a Review. I express the hope that any Review could be carried out in much less than the 45 day period and that any subsequent appeal can be expedited.

THEODORE WALLACE

CHAIRMAN

RELEASED: 3 November 2003

LON/02/8350