United Kingdom VAT & Duties Tribunals (Excise) Decisions

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> United Kingdom VAT & Duties Tribunals (Excise) Decisions >> The Vintry v Revenue & Customs [2006] UKVAT(Excise) E00969 (10 July 2006)
URL: http://www.bailii.org/uk/cases/UKVAT/Excise/2006/E00969.html
Cite as: [2006] UKVAT(Excise) E969, [2006] UKVAT(Excise) E00969

[New search] [Printable RTF version] [Help]

The Vintry v Revenue & Customs [2006] UKVAT(Excise) E00969 (10 July 2006)

E00969

EXCISE DUTY – drawback – failure to notify before export – Customs refuse drawback claim – reasonable? – no – appeal allowed.

LONDON TRIBUNAL CENTRE

THE VINTRY Appellant

and –

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Richard Barlow (Chairman)

Sheila Edmondson FCA

Sitting in public in London on 3 May 2006

For the Appellant Mr Martin Knight director of the appellant

For the Respondents Mr Matthew Barnes of counsel instructed by the solicitor for the Revenue and Customs

DECISION

Introduction

The appellant is described as "the Vintry" in the title to this appeal. That is in fact the trading name of The Vintry Wine Company Limited, a UK company.

The appellant appeals against a review decision dated 5 September 2005 by which the Commissioners upheld their earlier decision to refuse the appellant's claim to drawback of excise duty on wine which it had sold in the Republic of Ireland (Ireland) after having paid UK excise duty before the wine was exported.

The Commissioners' Statement of Case does not state when they have accepted the claim for drawback was made but it does contend that such claims can only be made in respect of duty paid within 3 years before the claim. Mr. Barnes, who represented the Commissioners, said in his skeleton argument without contradiction from Mr. Knight who represented the appellant; that the claim was made on 31 May 2005.

The sum in dispute is approximately £11,800 according to Mr. Knight and it is readily ascertainable from schedules produced to the Irish authorities and apparently not disputed by UK Customs. We were not asked to consider quantum.

The sole ground upon which Customs have refused the claim is that prior notice of export was not given.

Narrative

The facts relied upon by the appellant were not disputed by the Commissioners at the hearing and we can state them briefly. The appellant is a relatively small company with a turnover at the relevant time of about £500,000 per annum giving it a loss in 2004 and a small profit in 2005 according to accounts for those years. The appellant's business is wine sales and for some years it has exported wines to Ireland and sold them there to customers who have placed orders direct with the appellant. Sales to Ireland are a relatively small part of the turnover.

Before starting to sell wine in Ireland the shippers engaged by the appellant advised that where duty has been paid in the UK wine can be exported to Ireland without payment of Irish duty. The shippers are a large and respectable company but that advice was later proved to be wrong. The appellant cannot afford sophisticated legal advice on technical issues and had no reason to doubt the shippers' advice was correct.

The Irish authorities became aware of the sales in Ireland and claimed duty for the 3 years preceding the making of an assessment or demand which also led to the imposition of a 15% penalty. The duty and penalty amounted to €24,271.28.

As a result of that the appellant made enquiries leading to its decision to claim drawback of the UK duty paid on the exported wine.

On 20 July 2005 the appellant sent an email to the Commissioners asking for advice about documents that a public notice previously sent to it suggested were needed to support its claim.

On 21 July 2005 the office of the Commissioners to which the appellant had sent its email replied. That reply included the following:-

"I consulted the National Drawback Centre in Scotland and they advised that if the wine has already been dispatched to Eire you cannot claim back the Excise duty. This is because prior notice is required that the goods are being dispatched. Section 8 of Notice 207 refers."

The appellant requested a review of that decision on 25 July 2005 and the review dated 5 September 2005 contained the following statements:

"On 21^st July 2005 Mrs. Cole wrote to Mr. Knight [the email referred to above]. She advised him that the Vintry was unable to claim back the excise duty, as prior notice is required before to the dispatch of the goods…."

"As stated above, drawback claims must comply with the requirements of EGDR [the Excise Goods (Drawback) Regulations 1995]. One of these conditions is that they must comply with Section 8 which is lodging information with HM Revenue and Customs prior to export. You have not complied with this condition."

"Section 7(1)(a) of EGDR states that "save as the Commissioners may otherwise allow". During my review I took advice about the possibility of using this regulation to exceptionally consider your request. I must advise you that, from the information available, H.M. Revenue and Customs do not consider your circumstances are "exceptional circumstances." It is your responsibility to avoid double taxation by discovering your obligations in respect of drawback prior to exporting the goods."

That review was conducted by Miss F. Manley who gave evidence for the Commissioners. She produced the review letter and confirmed that she had seen the detailed document headed Notice of Appeal which has been produced by the appellant. She said that nothing in that document led her to change her mind about the review.

Mr. Knight did not cross examine her but in answer to questions from the tribunal Miss Manley said that the phrase exceptional circumstances in the review was not a quotation from another document despite it being in speech marks. She said the Commissioners would look at the facts in every case and that she would have looked to see if there was any unforeseen event. She could not remember if she knew the shippers had advised the appellant that Irish duty did not need to be paid. She knew that Irish duty and a penalty had been paid as well as UK duty on the wine. She said: "I noted it had been paid but they had not complied with the UK regulations."

The following exchange then occurred:

Tribunal: "It seems you did not think that was relevant?"

Miss Manley: "I looked at the UK legislation and it states notice must be given."

Tribunal: "Did you think it was the end of the matter that the UK legislation has not been complied with."

Miss Manley: "I looked at Mr. Knight's documents and decided there was nothing that would allow me to change the decision."

Mr Barnes then asked questions arising from the answers to the Tribunal's questions. Miss Manley said exceptional circumstances was a phrase which Customs use and that it was in the review letter because "I took advice from our policy section to see if there was any way I could allow this claim."

When Mr. Barnes asked what circumstances might be exceptional she said it would have to be something unforeseen and she gave as an example a bereavement.

The Law

Regulation 8 of EGDR reads, so far as is relevant:

8(2) "Where an eligible claimant intends to claim drawback after export he shall, before export, comply with the following conditions-

(c) he shall deliver to the Commissioners …a notice in writing stating that he intends to claim drawback and containing the following particulars –

[a number of requirements then follow]."

Regulation 7, so far as is relevant, reads:-

"Subject to paragraph (2) below and without prejudice to any condition imposed by, or in accordance with section 133 of the Act every eligible claimant shall

(a) save as the Commissioners may otherwise allow, comply with conditions imposed by these Regulations …"

The Tribunal's Jurisdiction

This is an appeal to which section 16(5) of the Finance Act 1994 applies. So far as is relevant that provision reads:-

"… the powers of an appeal Tribunal on an appeal under this section shall also include power to quash or vary any decision and power to substitute their own decision for any decision quashed on appeal."

Mr. Barnes argued that although the tribunal has the power to quash a decision under appeal and to substitute its own decision where, as here, the decision under appeal is the Commissioners' refusal to exercise a discretion in favour of the appellant, the tribunal should only quash the decision and substitute its own after forming a judgment about quashing the Commissioners' decision by applying public law principles. He added that that means the decision should only be quashed if it so unreasonable as to be wrong.

Section 16(5) of FA 1995 empowers the Tribunal to substitute its own decision if it quashes the Commissioners decision. That does not necessarily mean that the tribunal has an unfettered power to quash the Commissioners' decision where it is a decision relating to the exercise of a discretionary power. Two possibilities arise, namely that the tribunal can quash the original decision only if it is unreasonable or that it can quash the original decision if it would not have arrived at the same decision; even though the Commissioners could not be said to have been unreasonable.

Analogy with VAT cases like John Dee –v- Customs & Excise Commissioners [1995] STC 941 and Georgiou –v- Customs and Excise Commissioners [1996] STC 463 would suggest that the tribunal's jurisdiction to quash a decision relating to a discretion may be limited, though it is clear that if it does decide to quash it, it has the power to substitute its own decision. The closest analogy may therefore be to Hadmor Productions Ltd v Hamilton [1983] 1 AC 191 at 220.

This case involves only a relatively small sum and the appellant was not legally represented. We are not therefore well placed to make a ruling about the precise nature of the tribunal's jurisdiction based on a full argument. Clearly Mr. Barnes' formulation of our jurisdiction is not the most favourable possibly open to the appellant but, as we have reached a conclusion in favour of the appellant even on the basis of acting upon that formulation of our jurisdiction, we do not find it necessary to resolve the issue about the precise nature of our jurisdiction.

The Parties' Submissions

Mr. Knight emphasised that the appellant had received and acted upon advice from a source that it was reasonable to rely upon as the shippers who advised no duty would be payable in Ireland were a large and reputable company. He emphasised that the appellant's error had been one of procedure only not of substance and that there is no doubt that, had the correct procedure been followed, drawback would have been available. He emphasised that the Commissioners' decision will lead to double taxation if it is upheld.

Mr. Knight also relied upon Council Directive 92/12 EEC 'on the general arrangements for products subject to excise duty and on the holding, movement and monitoring of such products' (the Directive). In particular the first recital refers to the need for free movement of goods in the Community to include excise goods. The eighteenth recital reads:-

"Whereas payment of the excise duties in the Member State where the products were released for consumption must give rise to the reimbursement of those duties when the products are not intended for consumption in that State."

Mr. Knight also cited Schedule 1 to the Human Rights Act i.e. the Protocol to the Treaty and relied upon the right to peaceful enjoyment of possession.

He argued that Customs had adopted the wrong approach by seeking "exceptional circumstances" before exercising a discretion in favour of the appellant and pointed out that EGDR does not make any mention of exceptional circumstances and by using the phrase "save as the Commissioners may otherwise allow" conferred an unfettered discretion on the Commissioners.

Mr. Barnes argued that it was reasonable and proportionate for Customs to look for exceptional circumstances. He characterised the meaning of exceptional circumstances as being something that is an exception from the general rule.

Mr. Barnes argued that although the result of the Commissioners' decision would be double taxation that is the consequence of a failure to follow the correct procedures and that it is a requirement placed upon traders to find out what the correct procedure is and to follow it. It is no excuse that the trader took advice. It was their obligation to discover the correct procedure.

Conclusions

Customs have a discretion to allow drawback even though the conditions in EGDR have not been complied with. There is nothing in the regulations which limits or defines how that discretion should be exercised. Certainly one possible meaning of the phrase "exceptional circumstances" would be, as Mr. Barnes submitted, simply that the discretion would not be exercised in the trader's favour as a matter of routine and that something outside the normal course of events would be required. However the phrase normally conjures up an image of an event well outside the normal course of events and that was borne out by Miss Manley's reference to a bereavement.

We are satisfied that the Commissioners adopted an unreasonably restricted approach to the question whether they should allow the drawback despite the failure to comply with the conditions.

Just because the Commissioners adopted the wrong approach it does not follow that their decision was unreasonable.

However, our conclusion is that the decision was unreasonable. In this case the revenue was never at risk because it had been paid and the result, if the decision stands, is double taxation. If the goods had gone astray without the duty being collected by the Member State to which they were sent, that would not be the case but where, as here, the Irish authorities have secured the duty on the goods in question there would be double taxation.

We regard the appellant as having been entitled to rely upon the shippers' advice and we hold that they acted responsibly given the resources available to them, in not seeking more specialist advice.

We regard it as important that the appellant's error has been procedural only and that it was cooperated fully with the Irish authorities and the UK authorities. This has led to the identification of the goods in question and the duty in question being established quickly and accurately.

Our decision is that the Commissioners' decision was sufficiently unreasonable as to be wrong by which we mean that it clearly fell outside the range of decisions that could be considered reasonably necessary for the protection of the revenue or the operation of the systems in place for the operation of the drawback regime. The revenue was not at risk and the systems were inconvenienced but their integrity was not threatened.

Accordingly the appeal is allowed. The decision to refuse to pay drawback in respect of the wine exported to Ireland by the appellant in the three years ending 31 May 2005 and on which Irish duty has been paid is quashed. We substitute a decision that the drawback of UK duty paid on that wine should be paid to the appellant.

This decision is in principle only and if any issues of quantum arise they will need to be resolved at a further hearing, though as the wine and duty paid has already been identified in the schedules produced for the Irish authorities that should not be necessary.

Accordingly the appeal is allowed subject to that caveat about quantum.

RICHARD BARLOW

CHAIRMAN

RELEASED: 10 July 2006

LON/.05/8109