United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2006] UKVAT(Excise) E994, [2006] UKVAT(Excise) E00994

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Kerry Logistics (UK) Ltd Herbert Watson Freight Services Ltd v Revenue & Customs [2006] UKVAT(Excise) E00994 (03 October 2006)

E00994

EXCISE DUTIES — cigars imported from Spain — liable to United Kingdom duty — importers' agents making duty declarations by reference to weights recorded on AADs — weights recorded understated — whether Respondents' estimation of true weights acceptable for duty calculation — yes — joint and several liability of agents for unpaid duty — Excise Directive, art 6 — FA 1994, ss 12, 16 — REDS Regulations 1992, regs 4, 5 — joint and several liability established — appeals dismissed

MANCHESTER TRIBUNAL CENTRE

KERRY LOGISTICS (UK) LIMITED

HERBERT WATSON FREIGHT SERVICES LIMITED

Appellants

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS

Respondents

Tribunal: Colin Bishopp (Chairman)

Jon Denny

Sitting in public in Manchester on 14, 15 and 16 August 2006

Richard Barlow, counsel, instructed by Hassan Khan & Co for the Appellants

Andrew Macnab, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2006

DECISION

These are the joined appeals of Kerry Logistics (UK) Limited ("Kerry") and Herbert Watson Freight Services Limited ("Watson") against demands by the Respondents, set out in letters dated respectively 14 January and 4 January 2002, that Kerry and Watson pay sums of excise duty said to be due to the Respondents from Counterview Limited ("Counterview") and Hammond Shipping Limited ("Hammond") for which, the Respondents say, Kerry and Watson are jointly and severally liable (that is, with Counterview and Hammond respectively, but not with each other). Kerry acted as agent for Counterview and Hammond, and Watson acted as agent for Hammond, in the importation by those companies of consignments of cigars from Spain. The duty alleged to be payable by Kerry is £68,604; Watson is said to owe £116,730. In both cases reviews were requested but they were not carried out within the permitted time, and the decisions were deemed to be upheld.

The Respondents contend that the weights of the cigars were understated at importation and that in consequence the United Kingdom duty due on them, which, by virtue of sections 1 and 2 of, and Schedule 1 to, the Tobacco Products Duty Act 1979, is assessed by reference to weight, was greater than that actually paid; the sums demanded represent the difference between the amount due and the amount paid, after taking into account an error Watson had made by accounting for some duty at a higher rate than that actually chargeable at the time. Kerry and Watson dispute the legal basis of the Respondent's demands against them, and they also challenge the Respondent's estimation of the correct weight of the consignments. Counterview and Hammond have not paid the duty (Counterview has been dissolved) and neither took any part in these appeals.

Kerry and Watson were represented before us by Richard Barlow and the Respondents by Andrew Macnab, both of counsel. We had bundles containing all the relevant documentation, and heard evidence from the following witnesses:

Paula Bisby, Watson's office manager;

Gary Wilcock, Kerry's managing director;

Gerry Gaffney, manager of Kerry's airfreight business;

Alan Cooke, at the relevant time Kerry's sales and operations manager;

Michael Cullen, the warehouse manager of Hunters and Frankau Limited, importers and distributors of cigars;

Jacqueline Leach, Richard Gledhill, Colin Buckley and Chantelle Tunnicliffe, all officers of HM Revenue and Customs.

We had also the unchallenged and purely formal statements of a number of other HMRC officers.

There was little dispute about the basic facts of the case which, from the evidence we heard and the documents produced to us, we find to be as follows. Counterview, and after that company entered into creditor's voluntary liquidation in October 1999, Hammond (an Isle of Man registered company) were controlled by one Matthew Evans. His father, Frank Evans, controlled or, at least, was involved in the management of a Spanish company, Encigarro SL. Encigarro supplied cigars manufactured by a Cuban company, Habanos SA, to Counterview and, after that company's entry into liquidation, to Hammond. The cigars were sent by air from Madrid to Manchester, not under duty suspension. Between March 1999 and April 2000 Kerry (which was then known as Trident International Limited) handled the consignments on their arrival at Manchester as agent for Counterview and subsequently Hammond; Hammond then instructed Watson in place of Kerry, although there was a brief overlap. Kerry had become a registered excise dealer and shipper ("REDS") shortly before it handled the first of Counterview's consignments (it procured registration in order that it could act as its agent). Watson handled a few consignments using the "occasional importer" system before it was advised by the Respondents that Hammond's importations were too frequent to be dealt with in that way, and it then successfully applied for registration as a REDS.

Each of the consignments handled by Kerry and Watson arrived at Manchester airport accompanied by an Administrative Accompanying Document ("AAD") in the form prescribed by Commission Regulation 2719/92/EEC and set out in Annex 1 to that Regulation (in most cases the simplified version was used). Each AAD was, or appeared to have been, completed by Encigarro. It identified Counterview or Hammond as the consignee, and Kerry or Watson, as appropriate, as the consignee's agent, and (save in respect of those consignments handled by Watson in accordance with the occasional importer system) quoted their REDS registration particulars. It contained a brief statement of the nature of the consignment, and referred to an accompanying invoice in which the goods were listed, by quantity, trade description and price. Each AAD recorded the gross and net weights of the consignment (or, if the Respondents are correct, purported to do so).

On arrival at Manchester all the consignments were initially removed from the aircraft in which they had been transported, and transferred to the airline's secure warehouse at the airport. Once Kerry or Watson had been made aware of the arrival of the goods, their staff arranged for their collection and, thereafter, delivery to Counterview or Hammond. Between collection and delivery both Kerry and Watson checked each consignment, to ensure that it matched the AAD and that it was undamaged. They also dealt appropriately with the AADs, and calculated the duty due on the consignments. Mrs Bisby told us that she weighed each load, to confirm that its gross weight tallied with that shown on the AAD and on the air waybill, but both Kerry and Watson relied on the net weight declared on the AAD in calculating the duty which they entered on their monthly returns. They collected the duty so calculated from Counterview or Hammond, and accounted to the Respondents for it. Both Mrs Bisby and Mr Wilcock told us they had been advised by the Respondents that it was acceptable to use the net weight recorded on the AAD for the purpose of the duty calculation. Mrs Bisby also said that she would have undertaken some further enquiry if she had found a significant difference between the gross weight recorded on the AAD and the actual gross weight of the consignment, but there had never been such a difference.

On 29 June 2001 Miss Tunnicliffe paid a routine visit to Watson's offices, where she saw Mrs Bisby. Nothing now turns on that visit save that it was agreed that Watson would let her know when the next consignment destined for Hammond was expected, and that was duly done. On 3 July 2001 Miss Tunnicliffe and Mrs Leach attended at the airport in order to examine that consignment of cigars, which had arrived during the evening of the previous day. It had been sent, as in the case of the other consignments, by Encigarro. The consignment was within British Airways' secure area, and was still in the wrapping in which it had been transported. The goods had not yet been checked by Watson. Mrs Bisby would normally have been responsible for the check, but she was on holiday. Her assistant, Jessica Kavanagh, was asked by Miss Tunnicliffe to attend the secure area, apparently in order to identify the goods and to be present, as a representative of the REDS, when Miss Tunnicliffe and Mrs Leach detained them (as, it seems, they had already decided to do).

While the consignment was still within the secure area, the two officers systematically unwrapped samples of the goods (one box of each brand included within the shipment), and weighed them. They discovered that, assuming all the cigars of each brand corresponded with the weighed samples, the total net weight of the cigars amounted to 28.945 kgs, whereas the net weight recorded on the relevant AAD was 8.01 kgs. In fact, the ascertained net weight exceeded the gross weight declared on the AAD of 28 kg, and the true gross weight was as much as 59.5 kg. There was a further oddity about the gross weight since the air waybill recorded that it was 38 kg. Mrs Bisby told us that the discrepancies between the true gross weight and that recorded on the documents, and the discrepancy between the documents, would have been discovered if she, or Miss Kavanagh in her absence, had carried out Watson's usual checks, and that the discovery would have led to further investigations, but the Respondents had intervened before they had had the opportunity of carrying out a check. That may well be right but it is not, we think, relevant since the Respondents do not seek to recover the duty due on these cigars from Watson; rather, this consignment is treated as evidence in support of the Respondents' contention that Encigarro had consistently under-stated the net weights of the consignments it was sending to Counterview and Hammond.

Shortly after her visit to the airport, Miss Tunnicliffe went with Mr Gledhill to Hammond's premises, in Manchester, and detained the stock of cigars they found there. That stock was then removed and every cigar within it was later weighed by HMRC officers. It was not possible to identify the cigars to the various importations Hammond had made, because the same brands were imported on several occasions and some of the imported cigars had been sold. Matthew Evans did, however, tell the officers that almost all the cigars found within Hammond's premises had been imported during the previous six months.

All the detained cigars were subsequently seized. The seizures were challenged by Hammond and condemnation proceedings ensued in the magistrates' court, but before the proceedings reached a hearing Hammond conceded that the goods had been properly seized and they were consequently condemned as forfeit to the Crown.

Miss Tunnicliffe ascertained that there was only one authorised importer of Habanos cigars into the United Kingdom (authorised, that is, by Habanos itself), namely Hunters and Frankau Limited. She contacted Mr Buckley, an excise assurance officer responsible for verifying Hunters and Frankau's duty returns, who, at her request, obtained from Hunters and Frankau details of the weights they had recorded when checking incoming consignments. Mr Cullen, who, as Hunters and Frankau's warehouse manager, was responsible for those returns, told us that samples of each type of cigar were individually weighed in the warehouse. The method adopted—which was the same as that used by HMRC officers on their periodic checks of Hunters and Frankau's stock—was to weigh a box of cigars, then to remove and weigh all of the packaging, and to determine the net weight by deducting the weight of the packaging from the weight of the full box. As a check, the net weight so ascertained was compared to a list provided by Habanos of the intended weights, but Hunters and Frankau based their duty declarations on the weights as found, rather than on the list—indeed, as Mr Buckley confirmed, they were not permitted to use the list for their duty declarations.

Mr Cullen told us that, because the cigars Hunters and Frankau import from Cuba are hand-made, and their tobacco content is not precisely controlled at manufacture, their actual weights do not correspond exactly with the intended weights as shown on the list, but the variations are very small, usually in the range of two to three per cent. The cigars are more likely to be above than below the intended weight since, when they are received by Hunters and Frankau, they are fresh and tend to have a relatively high moisture content. Occasionally larger variations are found but, Mr Cullen told us, they are rare; he had found variations of as much as 11 or 12 per cent but such a difference was extremely unusual.

Hunters and Frankau informed Miss Tunnicliffe that a representative of Habanos, a Mr Morejon, would be in London on 29 August 2001 and she arranged to meet him on that day. At the last minute Mr Morejon cancelled the appointment because an earlier meeting had overrun and he needed to catch his flight to Cuba, and Miss Tunnicliffe was able to speak to him only by telephone. He explained to her (she said) that each brand of cigar had its own unique criteria of length, circumference and weight (a statement which Mr Cullen confirmed and which we accept). Those manufactured by Habanos were described in its list, a copy of which he promised to provide. Such a list later arrived and Miss Tunnicliffe produced it as she gave evidence; copies had been supplied to the Appellants some time in advance, though it appears neither had a copy, or even knew of its existence, at the time they were handling the importations. Mr Barlow made the point that the provenance of the list was unsupported by evidence, and its authenticity was doubtful as it bore a date which fell after the dates of the importations with which we are concerned. However, Mr Cullen told us that he recognised the list as one produced by Habanos and that the lists changed only when new brands of cigar were added, or existing brands were deleted; the specifications of cigars which remained on the list did not change. We accept that evidence.

It became very clear from the evidence—not only of Mr Cullen but of the HMRC officers involved in the case—that the weighing of individual cigars is an extremely laborious process. Each cigar must be removed from the entirety of its packaging (even the paper band is taken off), weighed and then re-wrapped (the same process is necessary even if it is the wrapping rather than the cigar which is weighed). It became obvious that considerable care is required if the cigars are not to be damaged, and Mr Cullen told us that those members of Hunters and Frankau's staff who undertook weighing underwent prolonged training. Mrs Bisby, in addition to thinking that the weighing of individual cigars was not required, also thought it impractical. We agree that for a company such as Watson or Kerry, acting as a REDS in the importation of cigars, a requirement that it should weigh each cigar would not be realistic. The labour costs alone would exceed a normal charge for a REDS' services, and there would be an ever-present risk of damaging the customer's goods. Nevertheless, Mr Barlow did not (nor could he) challenge the proposition that duty is assessed by reference to actual, rather than assumed, weight.

The results of the weighing by the officers of the cigars seized at Hammond's premises were very similar to those shown by the evidence Mr Buckley had obtained from Hunters and Frankau—that is, the actual weight of an individual cigar might differ from the target weight shown on the Habanos list, but in almost every case by only a small amount, while, overall, it was more likely that the true weight would exceed, rather than fall short of, the target. Those results led Miss Tunnicliffe and Mr Gledhill, who took over the case from Miss Tunnicliffe as she was about to move to other duties, to the conclusion that the Habanos list was a reliable guide. We agree with both the reasoning and the conclusion.

Mr Gledhill, who raised the assessments, was able (with the benefit of the work already carried out by Miss Tunnicliffe) to identify Counterview's and Hammond's importations and the AADs and invoices relevant to each of those importations. By applying the target weights derived from the list to the cigars recorded in the invoices he ascertained the aggregate target weight of each consignment, which he then compared to the net weight recorded in the AAD, which was in turn reflected in the duty declaration made by Kerry or Watson. In every case, if his assumptions were right, there was a substantial under-declaration of duty. He therefore made assessments for the difference between the correct amount of duty, as he had ascertained it, and the amount declared and paid. Those assessments were made against Counterview and Hammond, as the importer but, as we have said, they have not paid the duty. It is for that reason that the Respondents now look to Kerry and Watson, as the importers' agents.

The assessments were made in accordance with the provisions of section 12(1) of the Finance Act 1994. So far as material, that section is as follows:

"(1) Subject to subsection (4) below, where it appears to the Commissioners—

(a) that any person is a person from whom any amount has become due in respect of any duty of excise; and

(b) that there has been a default falling within subsection (2) below,

the Commissioners may assess the amount of duty due from that person to the best of their judgment and notify that amount to that person or his representative …

(2) The defaults falling within this subsection are—

(a) any failure by any person to make, keep, preserve or produce as required or directed by or under any enactment any returns, accounts, books, records or other documents;

(b) any omission from or inaccuracy in any returns, accounts, books, records or other documents which any person is required or directed by or under any enactment to make, keep, preserve or produce …

(2A) In subsection (2)(a) and (b) above 'enactment' includes directly applicable Community provisions."

The remainder of section 12 is not relevant, though we should mention that subsection (4) imposes time limits, which are of no application to this case.

Mr Barlow raised two arguments about the application of section 12. The first relates to the manner in which the Respondents and, on appeal, this tribunal, must approach the determination of the amount of duty which is due. As section 12(1) indicates, the Respondents must determine it "to the best of their judgment". Mr Barlow did not contend that they had failed to exercise their "best judgment" in the sense described by the Court of Appeal in Customs and Excise Commissioners v Pegasus Birds Limited [2004] STC 1509—that is, he did not suggest that the assessments were capricious or otherwise fatally flawed. He acknowledged that the evidence available to the Respondents, if it could be relied on, showed that too little duty had been declared and paid and he did not challenge the arithmetic of the assessments. But, he said, the Respondents should not have adopted the Habanos list, either at all or, alternatively, as a fair and reasonable guide to the weights of the cigars.

We are satisfied that the decision to use the list as the basis of the assessments was both fair and reasonable. It was, obviously, impossible to identify the individual cigars included in each importation and to weigh them; a method of estimating the true weight of each consignment was required. Mr Gledhill could have taken the weights found by the HMRC officers, and have applied those to the cigars included in the consignments, but there are two objections to his doing so: not every type of cigar which had been imported was found among Hammond's stock, and the weights found by the officers, like those found by Hunters and Frankau, were, on average, a little higher than those shown on the list. His adoption of the list remedied the first objection, and favoured the Appellants, if only modestly, in respect of the latter. We have already indicated our view that the list used did accurately record the target weights set by Habanos.

That conclusion does not, however, dispose of the second of Mr Barlow's points. We accept that the weights of individual cigars did not exactly match the target weights, and it is the actual weight which determines the duty, a fact reflected in the requirement imposed by the Respondents themselves on Hunters and Frankau that they use the actual weights rather than the list. It was not enough, Mr Barlow said, that, taking an average of all cigars weighed, the weights achieved by Hunters and Frankau exceeded the target weight for the same cigars—the mere fact that there was a discrepancy must lead to the conclusion that an allowance should be made. He did not suggest a particular measure for the allowance save that it should be generous, but contended that, as the Respondents had made no reduction, we, on appeal, should do so.

We are not persuaded by that argument. First, it does not meet the point made by Lord Lowry in Bi-Flex Caribbean Limited v Board of Inland Revenue (1990) 63 TC 515. That was a direct tax case, but in our view the same principles apply to "best judgment" assessments in both direct and indirect tax cases—indeed, that was the approach adopted by the Court of Appeal in Customs and Excise Commissioners v Pegasus Birds Limited [2004] STC 1509. In Bi-Flex, at p 522, Lord Lowry said

"The element of guess-work and the almost unavoidable in a properly made best of judgment assessment … do not serve to displace the validity of the assessments, which are prima facie right and remain right until the taxpayer shows that they are wrong and also shows positively what corrections should be made in order to make the assessments right or more nearly right."

Here, moreover, statute expressly places the onus of satisfying us of the correct amount of duty on the Appellants: see section 16(6) of the 1994 Act. Had the assessments been based on the slightly higher weights achieved by Hunters and Frankau (or had the weights on the list been adopted when those found by Hunters and Frankau and the Respondents themselves were lower) there would be some merit in Mr Barlow's argument. The assumption that the Habanos list could be relied on for the purpose of making an assessment when there was evidence that, taking an average, the cigars would probably weigh a little more, seems to us to be entirely reasonable. It is not enough to say that the true weight might have been less; if we are to adjust the assessments we must have some material on which we can properly do so—that is, material which reliable points to a lower aggregate weight. None has been produced and, therefore, we are not satisfied that there is any basis on which we might reduce the amount of duty assessed. We add for completeness that credit has been given in calculating the assessments for the duty which had been declared and paid on the cigars seized at Hammond's premises.

Mr Barlow's second argument was that the requirement of subsection (1) that, before an assessment could be made, there must be a default was not satisfied. "Default", he maintained, implied a degree of culpability on the part of Kerry or Watson in the completion of the duty returns. Mere inaccuracy, he said, was not enough and, even if we were satisfied that the returns were incorrect, we could not be satisfied that any blame attached to the Appellants. On the contrary, they had followed the Respondents' advice that they should use the net weight declared on the AADs when completing their duty returns, and had exercised due care in doing so: thus it could not be said that there was any default on their part. Mr Macnab accepted that no blame attached to either Kerry or Watson but, he said, that was irrelevant since blame was not an ingredient of default, as defined by the section.

We agree with Mr Macnab's argument. We see nothing in section 12(1) and (2) which suggests that culpability is a requirement; any of the failures and omissions listed in subsection (2) might be attributable to blameworthy conduct, but might as easily be attributable to mere oversight or other innocent mistake. It is conspicuous that the person said to be liable for the duty and the person whose failure or omission amounts to a default need not be one and the same, a further indication that blame on the part of the person said to be liable is not required. But if the Respondents are right in their belief that Encigarro, Counterview and Hammond set out to make, or procure that Kerry and Watson on their behalf made, false declarations of the net weights in order to reduce the liability for UK duty which Counterview and Hammond would otherwise have incurred, Counterview and Hammond plainly were blameworthy, and the assessments against them could not fail for the reasons advanced by Mr Barlow. Moreover, the purpose of the section is to enable the Respondents to secure the duty which is properly due; it would be remarkable if they could assess for under-declared duty only if they could show that the under-declaration was culpable. We are satisfied that inaccuracy in a return, without more, amounts to a default for the purposes of subsection (1). Accordingly we reject the argument that the assessments must fail.

The Respondents contend that Kerry and Watson are jointly and severally liable for the duty because of the provisions of regulation 5 of the Excise Goods (Holding, Movement, Warehousing and REDS) Regulations 1992 (SI 1992/3135) ("the Regulations": references hereafter to a regulation are to the provisions of the Regulations ). Regulation 5, so far as presently material, is in these terms:

"(1) The person liable to pay the duty in the case of an importation of excise goods from another member State shall be the importer of the excise goods.

(2) Each of the persons specified in paragraph (3) below having the specified connection with the excise goods at the excise duty point, shall be jointly and severally liable to pay the duty with the person specified in paragraph (1) above of this regulation.

(3) The persons specified in this paragraph are—

(a) any authorised warehousekeeper or REDS acting on behalf of an importer of the excise goods in respect of the importation of those goods;

(b) any other person acting on behalf of the importer of the excise goods in respect of the importation of those goods …

(9) In this regulation 'importer of the excise goods' includes any owner of those excise goods or any person beneficially interested in those excise goods."

It was not in dispute that the "specified connection" is not a connection separately specified, but is nothing more than the connection implied by subsection (3) (see also section 1(4) of the Finance (No 2) Act 1992). The Respondents' contention is a simple one: Counterview and Hammond, respectively, were the importers of the goods and, by virtue of paragraph (1), became liable for the payment of the duty, Kerry and Watson were the "REDS acting on behalf of" the importer or, in the case of those occasional imports handled by Watson, "any other person acting on behalf of the importer", that they had the "specified connection" at the excise duty point and that they are therefore jointly and severally liable for the payment of the duty. Mr Barlow did not dispute most of that analysis. His argument focussed on the need for the person said to be jointly and severally liable to have the "specified connection" at the excise duty point.

The meaning of "the excise duty point" is to be found in regulation 4, which derives its authority from article 6 of Council Directive 92/12/EEC. The material parts of that article provide that:

"1 Excise duty shall become chargeable at the time of release for consumption …

Release for consumption of products subject to excise duty shall mean …

(c) any importation of those products … where those products have not been placed under a suspension arrangement.

2 The chargeability conditions and rate of excise duty to be adopted shall be those in force on the date on which duty becomes chargeable in the Member State where release for consumption takes place … Excise duty shall be levied and collected according to the procedure laid down by each Member State …"

Regulation 4 is in these terms:

"(1) … the excise duty point in relation to any Community excise goods shall be the time when the goods are charged with duty at importation …

(3) If duty suspension arrangements do not apply in respect of Community excise goods consigned, in accordance with these Regulations, to a REDS or to an occasional importer or to an importer for whom a REDS is acting, the excise duty point shall be the time when those goods are received by that person.

(9) This regulation—

(a) shall apply to fix an excise duty point with respect to any Community excise goods imported into the United Kingdom from another member State …"

"Community excise goods" are defined by regulation 1 in terms which, as was common ground, include the cigars with which we are concerned. The effect of the regulation, read with article 6, is that duty is chargeable on importation and, as a general rule, the duty point (that is, the liability to pay the duty) arises at the same moment but, in those cases which come within paragraph (3), the duty point is deferred until the goods are actually received.

Mr Barlow's argument was that the regulation was directed at receipt of the goods by Counterview or Hammond. At that moment, Kerry's and Watson's activities "in respect of the importation of those goods" had come to an end (they were, he said, then engaged only on tasks which were necessarily performed after importation) and the condition that the "specified connection" should subsist at the duty point was not satisfied. In our view that argument cannot succeed, and for two reasons.

First, it requires us to attribute to regulation 4(3) a meaning which it cannot bear, namely that "that person" means only the importer. We agree with Mr Macnab that the phrase "that person" refers to any of those identified—a REDS, occasional importer or importer for whom a REDS is acting, or their agents. The notion that the duty point is deferred until the goods have been delivered, away from the point of entry into the country, to their owner in person cannot be reconciled with the purposes of the Directive, namely that duty should be chargeable on importation and, subject only to national administrative arrangements, collected promptly. If Mr Barlow were right, an importer could defer the duty point, and the liability to pay the duty, indefinitely by having his goods handled exclusively by agents.

Second, Mr Barlow's suggested construction cannot be reconciled with the words of the regulation. The "specified connection" which the Respondents must establish is that the person said to be jointly and severally liable must be, or have been, "acting on behalf of an importer of the excise goods in respect of the importation of those goods". The moment at which importation occurs is defined by section 5 of the Customs and Excise Management Act 1979 (the enabling Act for the purposes of the Regulations). Subsection 2(b) provides that the time of importation shall be deemed to be

"where the goods are brought by air, the time when the aircraft carrying them lands in the United Kingdom or the time when the goods are unloaded in the United Kingdom, whichever is the earlier."

Even if we are wrong in our first conclusion there is, we think, an obvious logical difficulty in Mr Barlow's way. If the duty point does not arise until the importer has personally received the goods, regulation 5 can never apply since the duty point, as defined by regulation 4, will invariably occur after the importation (save in the rare case when the importer is also flying the aeroplane). It cannot have been Parliament's intention to enact a provision which, by its own terms, could never become effective. Moreover if, as we think, the duty point arises when the goods are received by either the importer or his agent, that moment too will almost always be later than the moment of importation since (as in the case of the consignment inspected at Manchester airport) the goods are unloaded from the aircraft and moved to the airline's secure store before they are, or can be, received by the importer or his representative. Mr Barlow requires us to construe regulation 4 as if it read "any authorised warehousekeeper or REDS who is acting …"; in our view the true construction is "any authorised warehousekeeper or REDS who is or has been acting …". The only proviso is that the connection has not been severed by the time the duty point arises, which might occur if the goods were placed in a suspension arrangement, for example, but does not occur when the REDS is still dealing with the goods at the duty point.

We therefore reject Mr Barlow's argument that the requirements of regulation 5 are not satisfied. We also reject the subsidiary argument, set out in his skeleton, that the excise duty point had passed when the duty declarations were made at the end of each month. Neither section 12 of the 1994 Act nor regulations 14 and 15 (which deal with the requirements relating to the accounting for duty) depend upon any temporal connection of the REDS or occasional importer with the excise duty point.

Mr Barlow's final challenge related to the manner in which the demand had been notified to Watson. As the Respondents accept, it erroneously asserted that Watson had acted as a REDS in respect of all the relevant consignments when, as we have mentioned, it dealt with the first few as an occasional importer. That error, he said, meant that the demand, or assessment if that is the better description, could not stand, or at least could not stand so far as it purported to demand payment of the duty due on those consignments which had been treated as occasional imports. Mr Macnab's retort was that the error was cured by the remainder of the notification, since it clearly identified the consignments one by one and identified the statutory provisions on which the Respondents relied; and Watson could have been in no doubt about what was intended, even if the wording of the letter was inaccurate.

The Regulations say nothing about notification of his liability to a person said to be jointly and severally liable with an importer. The letters written by Mr Gledhill to Kerry and Watson by which he demanded payment of the sums now in dispute referred to his having made assessments against Counterview and Hammond, but did not indicate that he had made assessments against Kerry and Watson. In each case he merely asserted that Kerry or Watson was jointly and severally liable to pay the duty. But in our view, although he may not have adopted this line of thought at the time, Mr Gledhill was proceeding in accordance with section 12 of the 1994 Act. That section requires the Commissioners to assess the amount of duty which is owed, and to notify "that amount" to the person said to be liable. That is what Mr Gledhill did. As a matter of good practice it is incumbent on the Respondents to provide sufficient particulars to enable the person to whom such a letter is addressed to check for himself that he is legally liable to pay and that the amount assessed is correct, but there is no formal requirement that this should be done.

Here, the error could have been detected easily by Watson, by comparing the letter to its own records. The legal basis of the demand so far as it related to the occasional importer consignments differed from that relied upon for the REDS consignments, but to a very minor extent—it was paragraph (b), rather than paragraph (a), of regulation 5(3), but the letter referred only to regulation 5(3), and did not mention either paragraph specifically. We have no doubt that in this case, despite the error, Watson understood clearly the basis of the Respondents' contentions. We are not willing to discharge or reduce the claim because of a minor error of this kind.

Naturally one must sympathise with the Appellants, who find themselves obliged to pay large sums of money because of the defaults of others. But, if we may paraphrase what Lord Hoffman said in Greenalls Management Limited v Customs and Excise Commissioners [2005] 1 WLR 1754 at 1759, no-one is obliged to become a REDS. It is a privilege which carries obligations. In our view the law is clear: Watson and Kerry are liable for the payment of the duty assessed upon Counterview and Hammond, the duty has been properly determined, and the appeals must be dismissed.

Mr Macnab asked us to make a direction that the Appellants pay the Respondents' costs of the appeals, on the ground that they had always been bound to fail and that this was in consequence one of those exceptional cases in which the Commissioners sought directions in respect of costs. Mr Barlow did not resist the application, which we consider was properly made. We therefore direct that the Appellants pay the Respondents' costs. If the amount cannot be agreed, the costs are to be the subject of detailed assessment, on the standard basis, by a costs judge of the High Court.

COLIN BISHOPP

CHAIRMAN
Release Date: 3 October 2006

MAN/04/8113

MAN/04/8114