United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2006] UKVAT(Excise) E968, [2006] UKVAT(Excise) E00968

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Konstantin Darscht v Revenue & Customs [2006] UKVAT(Excise) E00968 (06 July 2006)

E00968

EXCISE – Restoration of vehicle – Very large consignment of cigarettes concealed in the middle of a large load of car parts – Excise goods could not have been loaded without some mechanical aid – Driver/owner present at all vehicle loadings claimed to be unaware of their presence – Review decision upheld – Appeal dismissed

LONDON TRIBUNAL CENTRE

KONSTANTIN DARSCHT Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: MISS J C GORT (Chairman)

MR P D DAVDA FCA

Sitting in public in London on 16 June 2006

No appearance by or on behalf of the Appellant

Mr S Singh of counsel, instructed by the Solicitors office, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

This is an appeal against a decision of the Respondents to refuse to restore the Appellant's vehicle and trailer, seized on 5 July 2005. The vehicle and trailer were seized after 799,800 cigarettes upon which UK excise duty had not been paid were found hidden in the trailer. It was not disputed on behalf of the Appellant that the seizure was lawful.

In his notice of appeal it is stated:

"Mr Darscht had no knowledge that cigarettes were concealed in five pallets on the loading area of the trailer. Mr Darscht had been in attendance during loading and had no reason to suspect that any of the packages loaded contained cigarettes. Even a thorough examination of the loading area would not have revealed the presence of the cigarettes. When Mr Darscht was stopped by Customs at Dover and told there were 46 pallets on the loading area of the trailer he was confused and handed the incorrect paperwork to the Customs officer. The paperwork stated 46 pallets."

This notice of appeal was submitted on behalf of the Appellant by Wendt & Co, London solicitors who were then acting on behalf of Mr Darscht. Subsequently Wendt & Co, by a letter dated 3 January 2006, withdrew their representation. In the circumstances, there being no explanation by or on behalf of the Appellant as to his non-appearance, we heard the appeal in his absence under the provisions of rule 26(2) of the Value Added Tax Tribunals Rules 1986.

The legislation

The Tobacco products Duty Act 1979 provides:

"1. Tobacco products

(1) In this Act `tobacco products' means any of the following products, namely:-

(a) cigarettes;

(b) cigars;

(c) hand-rolling tobacco;

(d) other smoking tobacco; and

(e) chewing tobacco;

which are manufactured wholly or partly from tobacco or any substance used as a substitute for tobacco, but does not include herbal smoking products.

(2) Subject to subsection (3) below, in this Act `hand-rolling tobacco' means tobacco –

(a) which is sold or advertised by the importer or manufacturer as suitable for making into cigarettes; or

(aa) which is of a kind used for making into cigarettes; or

(b) of which more than 25 per cent by weight of the tobacco particles have a width of less than 1mm.

2.Charge and remission or repayment of tobacco products duty

(1) There shall be charged on tobacco products imported into or manufactured in the United Kingdom a duty of excise at the rates shown, […] in the Table in Schedule 1 to this Act.

(3) …"

The Excise Goods, Beer and Tobacco Products (Amendment) Regulations 2002:

The Tobacco Products Regulations 2001 state:

"4-(1) Amend the Tobacco Products Regulations 2001[8] as follows:

(2) In the definition of "duty" in regulation 3(1) before the word "means" insert -

"except in regulation 12(1B) 9d) below,"

(3) In regulation 12, after paragraph (1) insert –

"(1A) In the case of tobacco products acquired by a person in another member State for his own use and transported by him to the United Kingdom, the excise duty point is the time when those goods are held or used for a commercial purpose by any person."

(1B) For the purposes of paragraph (1A) above –

"(a) `member State' includes the Principality of Monaco and San Marino, but does not include the island of Heligoland and the territory of Busingen in the Federal Republic of Germany, Livigno, Campione d'Italia and the waters of Lake Lugano in the Italian Republic, Ceuta, Melilla and the Canary Islands in the Kingdom of Spain, or the overseas departments of the French Republic …"

(b) "own use" includes use as a personal gift,

(c) if the goods in question are –

(i) transferred to another person for money or money's worth (including any reimbursement of expenses incurred in connection with obtaining them), or

(ii) the person holding them intends to make such a transfer,

those goods are to be regarded as being held for a commercial purpose,

(d) if the goods are not duty and tax paid in the member State at the time of acquisition, or the duty and tax that was paid will be or has been reimbursed, refunded or otherwise dispensed with, those goods are to be regarded as being held for a commercial purpose,

(e) without prejudice to sub-paragraphs (c) and (d) above, in determining whether excise goods are held or used for a commercial purpose by any person regard shall be taken of –

(i) that person's reasons for having possession or control of those products,

(ii) whether or not that person is a revenue trader (as defined in section 1(1) of the Customs and Excise Management Act 1979),

(iii) that person's conduct, including his intended use of those goods or any refusal to disclose his intended use of those products,.

(iv) the location of those products,

(v) the mode of transport used to convey those products,

(vi) any document or other information whatsoever relating to those products,

(vii) the nature of those products including the nature and condition of any package or container,

(viii) the quantity of those products, and in particular, whether the quantity exceeds any of the following quantities-

3,200 cigarettes

400 cigarillos (cigars weighing no more than 3

grammes each)

200 cigars

3 kilogrammes of any other tobacco products

(ix) whether that person personally financed the purchase of those products,

(x) any other circumstance that appears to be relevant,

(4) In regulation 23(1), after paragraph (a), insert-

"(aa) they were acquired by a person in another member state for his own use and transported by him to the United Kingdom."

(Emphasis added)

By Regulation 16 of the Excise Goods (Holding, Movement Warehousing and REDS) Regulations 1992 (SI 1992/3135) excise goods, in respect of which duty has not been paid, shall be liable to forfeiture where there has been a breach of regulations.

Section 49(1)(a) of the Customs and Excise management Act 1979 ("CEMA") provides:

"1. Where –

(a) except as provided by or under the Customs and Excise Acts 1979, any imported goods, being goods chargeable o their importation with customs or excise duty, are, without payment of duty -

(i) unshipped in any port,

(ii) unloaded from any aircraft in the United Kingdom,

(iii) unloaded from any vehicle in, or otherwise brought across the boundary, into, Northern Ireland, or

(iv) removed from their place of importation or from any approved wharf, examination station or transit shed;

… those goods shall … be liable to forfeiture."

Section 49(1)(f) of CEMA 1979 provides:

"1. Where –

(f) any imported goods are concealed or packed in a manner appearing to be intended to deceive an officer, those goods shall … be liable to forfeiture."

Section 139 CEMA 1979 provides:

"(1) Anything liable to forfeiture under the customs and excise Acts may be seized or detained by any officer or constable or any member of Her Majesty's armed forces or coastguard."

Section 141 CEMA 1979 provides as follows:

"(1) … where anything has become liable to forfeiture under the Customs and Excise Acts –

any ship, aircraft, vehicle … which has been used for the carriage, handling, deposit … of the thing so liable to forfeiture … and

… any other thing mixed, packed or found with the thing so liable, shall also be liable to forfeiture."

Section 152(b) CEMA 1979 provides that the Commissioners may as they see fit, restore, subject to such conditions (if any) as they think proper, anything forfeited or seized. Section 152 CEMA 1979 provides that:

"The Commissioners may, as they see fit –

(a) …

(b) restore, subject to such conditions (if any) as they think proper, any thing forfeited or seized under the Customs and Excise Acts."

The jurisdiction of the Tribunal is pursuant to the Finance Act 1994, section 16(1), 16(4) and Schedule 5. This matter falls to be an ancillary matter as defined in Schedule 5 to the Act and the Tribunal, if it finds that the Respondents have acted unreasonably in not restoring the thing seized, can make an order under the Finance Act 1994, section 16(4):

"…

(a) to direct that the decision, so far as it remains in force, is to cease to have effect from such a time as the tribunal may direct;

(b) to require the Commissioners to conduct, in accordance with the directions of the tribunal, a further review of the original decision, and

(c) in the case of a decision which has already been acted on or taken effect and cannot be remedied by a further review, to declare the decision to have been unreasonable and to given directions to the Commissioners as to the steps to be taken for securing that repetitions of the unreasonableness do not occur when comparable circumstances arise in future."

The facts

Mr Darscht was the owner driver of the tractor and trailer who worked for a company called Seifert Logistics. He had been instructed by them to collect a load on 4 July 2005 at Schalchen in Austria, the second load was to be collected from Ulm and a third from Oberkirch. According to Mr Darscht's answers at interview, he had started work at about 5.30am on 4 July when he had driven to Schalchen with some empty plastic sacks. These were unloaded by him and twelve pallets were then loaded onto the trailer. Mr Darscht himself had, with the aid of a pump truck, loaded the pallets, ten of which had been piled on top of each other and two had been placed on the floor of the trailer. He was given blank paperwork and left for Ulm, not stopping on his way.

Mr Darscht told the interviewers that at Ulm a forklift driver off-loaded the twelve pallets, loaded on a further twelve pallets and then re-loaded the original twelve. He then left for Oberkirch and arrived there at 5.00pm, not having stopped at all on the way. When there he had to wait two hours before being given a Consignment Movement Regulations document ("CMR") which showed that twenty-two pallets had been loaded. When it came time to load the pallets, according to Mr Darscht only seventeen were in fact loaded. These were put straight on behind the further twelve pallets which had been loaded at Ulm. According to a time-table submitted by Seifert Logistics, Mr Darscht loaded the pallets at Oberkirch himself with a pump truck and checked the quantity against the delivery note. Mr Darscht claimed to have been given two sets of paperwork, one of which showed twenty-two pallets, and the other showed only seventeen pallets. He completed the second set showing only seventeen once he discovered that there were only seventeen pallets loaded at Oberkirch.

Mr Darscht further stated that he had left Oberkirch at about 7.00pm and driven for three hours to Luxembourg. He made only two stops of ten minutes each for coffee and fuel, with the lorry remaining in his sight throughout. However, between 11.00pm and 7.30am he had a rest period when he did not remain with the lorry, but left it in a parking area next to the motorway. He did not seal the trailer, and went off with a woman he had picked up, whom he subsequently admitted was a prostitute, returning at 5.30am to the lorry for a short sleep. At no time did he check the load in the trailer. At 7.30am he left the area driving until 9.00am when he stopped for some ten minutes only. He made a further two stops of some forty minutes. When he arrived at Jabbeke services, he left the vehicle for a further hour to see a friend and then drove to Calais.

Mr Darscht was stopped at Dover Eastern Docks on 5 July 2005 at 20.15pm, where the officer found that there were forty-six pallets in total in the trailer, five pallets of which contained a total of 799,800 cigarettes, the excise duty on which would have been £120,161.95. Prior to the search of the trailer Mr Darscht had handed to the officer a CMR dated 4 July 2005 which showed forty-six pallets of car parts consigned from various exporters in Germany, all of which were going to T R W Automotives in Houghton-Le-Spring. The boxes containing the cigarettes were all shrink wrapped, and all were similarly addressed to T R W Automotive Ltd in Houghton-Le-Spring.

The five pallets of cigarettes were in boxes marked "Commodity Name Meat Grinder". They were found in the front half of the trailer on the bottom level of the load. The officer searching the trailer also found another CMR with the same date and details as the first one except that, instead of twenty-two pallets, described as `PWO', there were shown to be seventeen such pallets, giving a total of forty-one pallets in all. Mr Darscht was arrested, and the following day he was interviewed on three separate occasions with an interpreter and a legal representative present. Mr Darscht claimed not to have understood the questions put to him initially by the officer. It was in the course of the later interviews that Mr Darscht gave the details set out above as to his journey.

Mr Darscht was issued with a "Seizure Information Notice" and Customs Notice 12A which relates to the process of appeal either by challenging the legality of the seizure in a magistrates court or by applying for restoration of the goods with a subsequent right of appeal to the Taxes and Duties Tribunal. No challenge was made by Mr Darscht to the legality of the seizure, but on 8 July 2005 he wrote asking for restoration of the vehicle and the trailer.

On 20 July 2004 Seifert Logistics wrote to Customs stating that Mr Darscht had worked for them for about two years, he had no written contract and had provided no references prior to his employment. They also provided a timetable of Mr Darscht's whereabouts.

Various letters were written on behalf of Mr Darscht by Wendt & Co. They stated inter alia that Mr Darscht had no knowledge of the cigarettes being loaded onto the trailer and that he would not have allowed anybody to load goods during transit onto the loading area of the trailer. Furthermore he had no reason to suspect that at any time during transit anybody had gained unauthorised access to the trailer and loaded goods onto it. It was stated that the tractor unit and trailer were subject to a hire purchase agreement over sixty months, the monthly instalments being €2,099.62. The total cost was €160,290.96. To date Mr Darscht had paid forty-one instalments giving a total of €86,084.42, leaving an outstanding balance of €74,206.54. Since the seizure Mr Darscht had been unable to work for Seifert Logistics or any other company, and had had no income. He had continued to pay the finance company the monthly instalments due on the tractor unit and trailer. The consequence of the seizure was that he was suffering considerable financial hardship and he had now exhausted his savings. In addition it was stated that he had no criminal record.

On 30 August 2005 Wendt & Co wrote to the Commissioners saying that the finance company which owned the tractor unit and trailer had requested that the tractor unit and trailer be restored to them in the event that the initial decision not to restore them to the Appellant was upheld on review.

In the review letter dated 7 October 2005, Mr G Morgan the review officer, sets out the Commissioners' policy for restoration of goods vehicles. In principle it was the policy that if the Commissioners concluded that the haulier was involved in the smuggling attempt, then, if the revenue involved were less than £50,000 and it were the first occasion, the vehicle would normally be restored for 100% of the revenue involved (or the trade value of the vehicle if less). On a second or subsequent occasion within twelve months, the 100% would be increased to 200%. If the revenue involved was £50,000 or more, the vehicle would not normally be restored.

The matters which Mr Morgan took into consideration were inter alia that in this case there was no casual concealment, or one that could easily have been made without the knowledge of Mr Darscht. Not only were the smuggled cigarettes concealed, but they were placed in the middle lower part of the load, making it most likely that they were put there when the vehicle was loaded with the legitimate consignments, it was therefore difficult to see how Mr Darscht could not have known about the concealment. Whilst it was possible that the cigarettes could have been hidden later, during the journey from Germany to the United Kingdom, that would have required most of the legitimate consignment to be unloaded and re-loaded using a forklift truck or other machinery. The officer noticed that the trailer had not been sealed and that Mr Darscht had not kept it on his return from his break.

In addition the review officer took account of the fact that any person wanting to take advantage of the driver's rest period would have had to follow the lorry for an unknown period of time waiting for an opportunity. In the event they would have had to have followed the vehicle for 17 hours, furthermore, the five pallets of cigarettes had address labels with the name of the importer on them, which indicated that it was not a speculative smuggling attempt.

The officer took account of the fact that Mr Darscht had been aware that there were only seventeen pallets loaded at Oberkirch and not twenty-two, and yet when he was stopped at Dover he gave the officer a CMR showing forty-six pallets. At this point the trailer had been scanned, after which Mr Darscht had given the officer the CMR which showed the correct number of pallets on board including those containing the cigarettes. The other CMR showing forty-one pallets was found by one of the officers.

As well as the above matters, the review officer took account of the amount of over £120,000 of excess duty which Mr Darscht had attempted to avoid, with a potential loss of revenue to the United Kingdom which would have caused great damage to the legitimate UK trade, but he also took account of the degree of hardship caused by the loss of the vehicle. He did not regard either the inconvenience or expense in the present case constituted exceptional hardship over and above that which was normally to be expected. On behalf of Mr Darscht it had been said that he had been unable to work since the seizure, but the officer noted that on 27 July 2005 Mr Darscht had been stopped by Customs whilst driving a vehicle ROVB 707. There is no description of the type of vehicle or the purpose of Mr Darscht's journey on that occasion.

Decision

We concur with the reviewing officer's decision that it is most unlikely that the cigarettes were loaded onto the trailer without either Mr Darscht's specific knowledge, or else his deliberate concurrence. We endorse the reasons given by Mr Morgan.

With regard to the proportionality of the decision, we endorse the submission of Mr Singh on behalf of the Commissioners that the Commissioners' policy of non-restoration where there was such a large amount of excise duty evaded was necessary for the protection of the revenue, given the adverse effect it would have had on legitimate trade.

Furthermore in the case of Lindsay v Customs and Excise Commissioners (2002) 1 WLR 1766, the Court of Appeal had held that this policy was lawful, stating:

"63. Those who deliberately use their cars to further fraudulent commercial ventures in the knowledge that if they are caught their cars would be rendered liable to forfeiture cannot reasonably be heard to complain if they lose their vehicles. Nor does it seem to me that in such circumstances the value of the car used need be taken into consideration. Those circumstances will normally take the case beyond the threshold where that factor can carry significant weight in the balance. Cases of exceptional hardship must always, of course, be given due consideration."

We do not find that there is any evidence of exceptional hardship in the Appellant's case. We have heard no evidence of hardship beyond his alleged inability to work, yet he appears to have been able to obtain the use of another vehicle, as evidenced by the fact that Customs' records show that on 20 July 2005 he travelled to the United Kingdom in another vehicle. We have no specific details of the circumstances of his coming over on that occasion.

We accept the submission on behalf of the Respondents that the decision struck a fair balance between the deterrence of smuggling and the protection of the revenue on the one hand, and the right to enjoyment of property under article 1 of Protocol 1 of the European Convention on Human Rights on the other.

In all the circumstances this appeal is dismissed. Because there was no appearance by or on behalf of the Appellant, he may apply under the provisions of rule 26(1) of the Value Added Tax Act Tribunals Rules 1986 within fourteen days after the date when this decision is released for the appeal to be reinstated. The Tribunal then has the power to reinstate it on such terms as it may think just.

MISS J C GORT

CHAIRMAN

RELEASED: 6 July 20056

LON/05/8115