United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2005] UKVAT(Excise) E906, [2005] UKVAT(Excise) E00906

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Jones (t/a Jona Haulage) v Revenue & Customs [2005] UKVAT(Excise) E00906 (8 September 2005)

EO00906

EXCISE DUTY — fuel imported from France in tractor units — whether tanks on units "standard" within Article 8(2) of Council Directive 92/81 EEC — and whether relief against fuel duty could be claimed — appeal allowed in part

MANCHESTER TRIBUNAL CENTRE

MICHAEL WALLACE JONES trading as JONA HAULAGE Appellant

- and -

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Elsie Gilliland (Chairman)

Peter Whitehead

Sitting in public in Manchester on 12 July 2005

Tim Nesbitt, of counsel, for the Appellant

Nigel Poole, of counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

DECISION

The appeal before the tribunal is that of the Appellant, Michael Wallace Jones, then trading as a sole proprietor haulage contractor under the name of Jona Haulage against an assessment raised by Customs on 15 February 2001. The sum assessed was subsequently reduced and after reviews and by the time of the hearing it was agreed that the amount in dispute was £22,312. The assessment was a calculation of excise duty claimed by Customs to be payable by the Appellant in the United Kingdom on fuel purchased in France where duty on the fuel had already been paid. We were told that in amending the assessment Customs accepted the Appellant's figures and in the re-review letter dated 31 August 2001, addressed to the Appellant's solicitors, the reviewing officer, Huw Lloyd Griffiths, confirmed that he was able "to agree the schedule submitted with your letter of 17 August 2001 and have recalculated the assessment accordingly". The principal issues before us are whether tanks fitted to two tractor units (of which the registration numbers were G433 PNX and F864 YKD) qualified as "standard" for the purposes of the relevant legislation affording relief from payment of the duty in the United Kingdom and whether certain associated conditions were met.

Legislation

There is a charge to duty at varying rates on hydrocarbon oil (which includes diesel) imported into the United Kingdom. (The Hydrocarbon Oil Duties Act 1979 section 6 (1A)). Heavy oil is deemed to be used as fuel for a road vehicle if "but only if, it is used as fuel for the engine provided for propelling the vehicle or for an engine which draws fuel from the same supply as the engine …" (section 12 of the Act).

There is provision for relief from excise duty on the importation of fuel into the UK from other EU member states. The reference to "standard tanks" arises in Article 8a of the Council Directive 92/81/EEC (the Directive) where it is provided that:

"1. Mineral oils released for consumption in a Member State, contained in the standard tanks of commercial motor vehicles and intended to be used as fuel by those same vehicles as well as in special containers and intended to be used for the operation, during the course of transport, of the systems equipping those same containers shall not be subject to excise duty in any other Member State."

The Article goes on to define "standard tanks" as:

" - the tanks permanently fixed by the manufacturer to all motor vehicles of the same type as the vehicle in question and whose permanent fitting enables fuel to be used directly, both for the purpose of propulsion and, where appropriate the operation, during transport, of refrigeration systems and other systems."

The provisions as to special containers and apparatus for refrigeration and other systems are not relevant to the instant case.

The Directive (including the definition of "standard tanks") is brought into English law in the Travellers Reliefs (Fuels and Lubricants) Order 1995 SI 1995/1777 (the Order). The reliefs afforded by the Order are to relate only to fuel that is contained in the vehicle's standard tanks and being used or intended for use by that vehicle. Excise duty must have been paid in the member state where it was acquired at a rate appropriate to the use to which the fuel is being or is intended to be put and that excise duty must not have been remitted repaid or drawn back. The reliefs are to apply only to fuel taken into the vehicle within the European Union and to be "of a type and quantity necessary for the normal operation of the vehicle during its journey." (3(4)).

The tribunal was referred also to the "ADR Regulations" ie the ADR Carriage of Dangerous Goods by Road Regulations 2002. These are essentially health and safety measures involving the transport of hazardous materials and operate within Europe. Annex A Article 1.1.3.3 under the head "Exemptions related to the carriage of liquid fuels" provides that the ADR Regulations do not apply in the carriage of:

"Fuel contained in the tanks of a vehicle performing a transport operation and destined for its propulsion or for the operation of any of its equipment."

"The fuel may be carried in fixed fuel tanks, directly connected to the vehicle's engine and/or auxiliary equipment, which comply with the pertinent legal provisions, or may be carried in portable fuel containers …"

"The total capacity of the fixed tanks shall not exceed 1500 litres per transport unit and the capacity of a tank fitted to a trailer shall not exceed 500 litres."

Evidence

In his witness statement dated 23 September 2003 produced to the tribunal and in his evidence the Appellant gave the history of the two vehicles G433 PNX and F864 YKD to which the appeal relates. Both were ERF vehicles and had been purchased by him second-hand. He had had other units not the subject of the appeal. He had never purchased a new tractor unit. In his witness statement he had described the tanks which were on the units at the time of purchase as cylindrical mounted on half-moon shaped brackets with an anti-slip material in between to stop the tanks rolling in the bracket. The anti-slip material retained and absorbed water which caused the tanks to rot over a time. So far as G433 PNX was concerned one tank only was replaced in August 1999 as it was rotting. The total fuel capacity of the tanks on it prior to the replacement was shown on the schedule produced by the Appellant's solicitors to have been 728 litres but that had been increased to 1182 litres by the replacement. As to F864 YKD leaks due to rotting had developed in September 1999 and the four tanks on it were replaced by two large ones. After replacement the total capacity of the tanks as scheduled increased from 364 litres to 2182 litres. He thought that the tank for G433 PNX had been replaced by SB Components (International) Ltd who were not the manufacturers although they supplied many of the major manufacturers. Because of cost he could not afford to have the tanks replaced by ERF. There was little in the way of documentation produced to us by the Appellant as to the replacement of the tanks and no maintenance records were provided. There was an invoice from Aluminium and Welding Co. Ltd of Swadlincote, Derbyshire dated 31 August 1999 "to make and fit diesel tank" (and aluminium ramps as required). There was also a quotation dated 28 July (no year shown in the heading) from SB Components (International) Ltd of Wisbech for two aluminium tanks and a top tank. It had a handwritten note (the Appellant said that it was not his writing) that it related to G433 PNX. The Appellant said that it did apply to it and although he could not find the invoice that the tanks had been supplied. The top tank had been paid for but not used because of a discrepancy; of the other two, one was fitted and the other went into stock as a spare.

The Appellant became aware of the possibility of taking advantage at weekends of competitively priced crossings to France via EuroTunnel where fuel could be purchased more cheaply. The arrangements he made were that one tractor unit would pull a low loader on which there would be two other tractor units. These two were unloaded at Ashford Services and the three tractor units would be driven to the train. After filling up at Calais the three would return and two would again be put on the low loader for the journey back to Walsall. Each unit used its load of fuel during the following week. The Appellant denied that the fuel brought back in the tanks had been used for any other units and it is clear that the "decanting" of fuel which would infringe the provisions of the Order formed no part of the case presented by Customs. Evidence was given to the tribunal both by the Appellant and by one of those attending (Michael Edward Brennan) of a visit made to the Appellant's business premises on 22 October 2000 by officers of Customs. Mr. Brennan's evidence was that at that time there was no mention of "rotting". The issue was raised as to what were "standard tanks". In a letter dated 8 January 2001 addressed to Grove Business Services, who then acted for the Appellant, Customs confirmed their interpretation of the term.

The evidence given by the Appellant was that the replacement of the tanks was undertaken for maintenance reasons but that since that they had to be replaced he took commercial matters into consideration and it made economic sense to fit the tanks of the type and size he would have had fitted if he could have afforded new vehicles direct from the manufacturer. That meant larger tanks for increased fuel capacity and thus less reliance on the fuel card scheme as filling-up could be done from tanks at his business premises or with the cheaper fuel abroad. There was only one tank which exceeded the capacity of 1500 litres as referred to in the ADR Regulations and the Appellant's explanation as to the background of that was that the fitter came out and took measurements producing a tank that filled the available area.

The Appellant still adhered to the view that his replacement tanks could qualify as "standard" and many hauliers had larger tanks than his and indeed that many took advantage of the opportunity to purchase cheaper fuel abroad. Despite the number of occasions that his vehicles had been stopped and tested or checked no concern had been expressed by any Customs officer as to the size of the tanks. Insofar as there had appeared to have been correspondence on 26 February 2000 from Customs with his office he had had no knowledge of this and it had been conducted by an employee with no authority on fuel-purchasing policy.

The Senior Policy Adviser of Customs (Pol David Curley) gave evidence on the policy of Customs on the interpretation of the legislation and we had also in the papers before us a copy of a letter addressed to the Road Haulage Association by the Business Services and Taxes Department of Customs dated 15 September 2003 which was by way of an explanatory consolidation of the approach of Customs on the issue of "standard tanks". In considering the position where there were replacement tanks these could fall within the category of "standard" but only when replaced for damage or routine maintenance and to the same specification as the original. Customs acknowledged that the owners of second- hand units might not know the background of the tanks and so Customs would consider replacement tanks to a second-hand vehicle fitted prior to purchase by the current owner to be "standard". However this would only be if those tanks met other regulations governing the size of tanks that can be fitted to a commercial vehicle. Applicable would be the limit of 1500 litres since capacity in excess of this figure made the vehicle and the driver subject to the ADR regulations. The view of Customs was that tanks over 1500 litres were unlikely to have been fitted by the original manufacturer and thus would not be deemed to be "standard". Even here however it is acknowledged in the copy letter that where there are tanks with over a 1500 litre capacity if the haulier is able to prove that the ADR regulations are met and the documentation is in order and a satisfactory explanation given as to why so much fuel is required the tanks may be accepted as standard but those tanks would nevertheless have had to have been fitted by the manufacturer.

Decision

The powers of the tribunal are set out in section 16(5) of the Finance Act 1994 and as this is not an "ancillary matter" include the power to quash or vary the review decision of Customs and to substitute its own decision for any quashed on the appeal. To succeed in his appeal the Appellant must establish on the balance of probabilities that he has met the legislative criteria and thus could claim the reliefs against a double payment of duty on the fuel he imported into the United Kingdom.

The interpretation of the term "standard tank" in the Directive and the Order and its application causes difficulty as it does not in itself address the position in respect of ageing tanks which need to be replaced and purchases of second-hand vehicles where there is no record of the maintenance, repair and replacement that may have been necessary. Counsel for the Appellant has submitted that the interpretation of European legislation must be purposive and that the reading of the phrase "standard tank" should be taken as covering categories or types of tanks ordinarily available for installation on vehicles fuelled to the engine for propulsion. Customs have through policy (though this does not have the force of law) sought to avoid any injustice to those who have bought second-hand vehicles by an interpretation that would not limit the scope of the relief only to those who have purchased new vehicles.

We have been given no information by the Appellant as to the earlier history of the tanks he replaced for instance whether they had been fixed by the manufacturer. It is unlikely that he knows. Customs accept in their policy statement that in the case of a second-hand vehicle this might not be ascertainable. The Appellant's vehicles were second-hand. We accept his evidence that the initial reason for replacement of the tanks was because of damage discovered by regular in-house maintenance checks made on his vehicles. Indeed on G433 PNX one tank only had been replaced. We find also that the fuel in the tanks was used to propel the units and used or intended to be used by those vehicles. We do not consider the fact that certain units might be carried on a low loader to save some fuel on the journeys within the United Kingdom relevant and in any event the point was not put to us.

However, it is the case that the tanks do not fall within the strict definition in the Directive and the Order as they were replacements and not permanently fixed by the manufacturer. We are permitted by the definition to refer to "all motor vehicles of the same type" and the "tanks permanently fixed by the manufacturer" to them. The evidence of the Appellant was that manufacturers would fit whatever was requested. We turn to the concession allowed in interpretation by Customs. We have been told the total capacities of the tanks in place before the replacements. In the case of each vehicle the 1500 litre limit referred to in the ADR regulations had not been breached prior to the placing of the new tanks. In the case of G433 PNX the total capacity was 728 litres and in the case of F864 YKD 364 litres.

With regard to the replacement tanks there has been some dispute as to the figures. Each party produced figures. Customs used a measurement obtained by officers at Dover on 26 February 2000 when they were examining vehicles including on that occasion the Appellant's unit G433 PNX. Their result was a total capacity of 1530 litres which is marginally over the 1500 litre limit. The Appellant's figure for the same unit was 1182 litres. This, he said, was the amount to fill given at a French petrol station. It however makes no allowance for what would already have been in the tank when it stopped for the fuel. Both means of testing are accordingly inaccurate. We consider that in each case there is risk of error. In our view it would be difficult to determine volume merely from a simple external examination. The only accurate method of ascertaining the capacity of an irregularly shaped tank in situ would be to drain it completely and measure the quantity taken to fill it from empty. Neither party did so. So far as the measurements from Customs are concerned the excess over 1500 litres is marginal and could just as easily have fallen in the other direction and the "fill-up" figure lends support to this by being lower by some 300 litres. A two per cent error in Customs "by sight" measurements would bring the tank capacity to 1500 litres. It is our view therefore that for the purposes of the appeal the tank on G4333 PNX can be viewed as "standard".

With regard to F864 YKD even the Appellant's measurement as to capacity is substantially in excess of 1500 litres. His Counsel submitted and the Appellant confirmed in his evidence that all his drivers and vehicles did comply with the ADR regulations because of the nature of the work he undertook and therefore these did not constitute any problem to him. Counsel submitted also that these limits should not be read into the definition of "standard". We prefer the evidence of Customs on this. We are satisfied that whilst larger capacity tanks may be put on vehicles in certain circumstances these would not be seen as standard by manufacturers as the usual run of purchasers would not have the nature of work where compliance would be necessary. It is worth noting that a vehicle would normally travel about 2000 miles on 1500 litres of diesel which is clearly a not inconsiderable distance. The Appellant had told Mr. Brennan that most of his work was in the United Kingdom.

We have been referred also to the tribunal decisions in Whitehead Machinery (LON/02/8285) and Penfro Peche Ltd.(LON/04/8042) where in each case the appeal of the haulier was dismissed. There were however additional factors involved that contributed to those decisions. It was put to us also that there was a variation within Customs areas as to the implementation of Customs policy. No evidence was produced other than an unsigned undated copy letter headed Trans-Action but without an address. We do not accept the proposition as no satisfactory evidence was produced to us to establish it and indeed Mr. Curley in cross-examination stated that efforts were made to standardise.

Accordingly on the appeal before us we allow the appeal in relation to unit G433 PNX but dismiss the same in respect of F864 YKD. This will necessitate an adjustment of the assessment. We accept the methodology of Customs. As we understand that the process of calculation had not been in issue we leave the figures with the parties.

On the question of costs each party has been successful in part. Customs had not sought costs whatever the outcome of the hearing. We propose to make no direction on costs other than to afford liberty to either party to bring the matter of the same to the tribunal to a Chairman sitting alone if agreement cannot be reached as to the Appellant's costs.

ELSIE GILLILAND

CHAIRMAN
Release Date: 8 September 2005

MAN/01/8264