United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2006] UKVAT(Excise) E00999, [2006] UKVAT(Excise) E999

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Tina and Robert Day v Revenue & Customs [2006] UKVAT(Excise) E00999 (09 November 2006)

E00999

EXCISE DUTY – importation of 31.5 kilograms of tobacco – seizure of tobacco and vehicle used to carry it – owners of vehicle challenging lawfulness of seizure – condemnation proceedings commenced but later withdrawn – owners seeking restoration of vehicle – importation of tobacco deemed unlawful by para 5 sch 3 CEMA 1970 – whether Commissioners refusal to restore vehicle unreasonable – no – appeal dismissed

MANCHESTER TRIBUNAL CENTRE

TINA AND ROBERT DAY Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: David Demack (Chairman)

Mrs Mary Ainsworth (Member)

Sitting in Manchester on 19 October 2006

The Appellants appeared in person

Jennifer Blewitt of Counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2006

DECISION

Excise duty is payable on certain types of goods, including cigarettes and tobacco which are imported into the United Kingdom for a commercial purpose, but by the Excise Duties (Personal Reliefs) Order 1992 (S1 1992/3155) such goods imported by a Community traveller, i.e. a person travelling from another member state of the European Union, are exempt from duty provided the importation is for the traveller's own use. If goods imported are above certain guidelines (in the case of hand rolling tobacco, 3 kilograms per person) the question arises as to whether they are indeed for a commercial purpose, i.e. either not for own use or not as personal gifts to other people.

Although HMRC can prosecute for fraudulent evasion of duty, much more frequently they use their statutory powers of forfeiture of goods unlawfully imported on which duty has not been paid, or ancillary items such as the motor vehicles in which the goods have been carried. By section 49 of the Customs and Excise Management Act 1979 (CEMA) goods imported without the payment of duty are liable to forfeiture, and by section 141 of that Act so too is any vehicle carrying them.

On 2 December 2005, the appellants, Mr Robert Day and his wife Mrs Tina Day, returned to the UK from a day trip to France and Belgium bringing with them 31.5 kilograms of hand rolling tobacco. When they arrived at Eastern Docks, Dover, officers of Her Majesty's Commissioners for Revenue and Customs ("HMRC") seized both the tobacco and the vehicle in which they were travelling as liable to forfeiture. By letter of 5 December 2005 Mr and Mrs Day challenged the seizure and requested that the seized items be restored to them. HMRC refused the request by letter of 10 January 2006. On 19 February 2006, Mr and Mrs Day asked for the decision not to restore to be reviewed. The review officer, Mrs D G Gillespie, wrote to them on 4 April 2006 upholding the earlier decision that neither tobacco nor vehicle should be restored. It is against the decision on review, but only in relation to the vehicle, that they now appeal.

In their Notice of Appeal, given on 3 May 2006, Mr and Mrs Day gave their reason for appealing as: "We wish to appeal for the return of our Land Rover Discovery. We were not buying tobacco for a commercial purpose."

Mr and Mrs Day appeared in person. HMRC were represented by Mr Christopher Watson of counsel. He produced a bundle of copy documents, to which were added two items produced by Mr and Mrs Day. We took oral evidence from Mrs Gillespie, and from both Mr and Mrs Day. From that evidence we find the following facts to have been established.

On 22 November 2005, Mr and Mrs Day completed the sale of their house in Kirby Muxloe, the sale price being £136,000. Following redemption of the mortgage on the house and payment of various expenses connected with the sale, they received £49,369.66, which was credited to Mr Day's bank account with Barclays plc. On the same day, Mr Day withdrew £7,250 in cash to pay the balance of the purchase price of a Land Rover Discovery estate car ("the car") on which he had paid a non-refundable deposit of £500 on 21 October 2005. In the days immediately following completion, Mr Day discharged some, but not all, his and his wife's other debts; and on 28 November 2005 he withdrew £12,089.74 from his bank account in cash leaving a balance standing to his credit of £9,225.97.

Anticipating the sale of the house, Mr and Mrs Day had arranged a trip to Eire, their intention being to have a short break and to spend some of their newly acquired funds. On 20 November 2005 they booked return rail tickets from Leicester to Holyhead and return ferry tickets from Holyhead to Dublin, intending to travel out on 1 December and return on 6 December. Unfortunately industrial problems on the Irish ferries caused their arrangements initially to be postponed, and eventually to be cancelled. They then decided instead to take a trip to the continent travelling in the car and by ferry from Dover to Dunkirk. Their ferry booking was made on the day of travel, 2 December 2005. They arrived in Dunkirk at 11.15 am that day, and returned at 3.30pm. (All the travel arrangements referred to in this paragraph are fully documented).

Mr and Mrs Day travelled on from Dunkirk to Adinkerke in Belgium where, according to receipts before us, they purchased from Tobacco Roberto '30 divers and 1 spirits' for 64.5 Euros and '600 Golden Virginia' for 1710 Euros. Both purchases were made for cash. When they returned to Dover, the car, driven by Mr Day with Mrs Day as passenger, was stopped by officers of HMRC. In initial questioning Mr and Mrs Day said that they had had no previous contact with HMRC, had been to Adinkerke to buy tobacco, were both employed as cleaners by the same company, and knew it was illegal to import guns, drugs, etc. They were also asked about the quantity of tobacco they had, and the officer, D Green, noted their answer as "5 boxes", "10 packs of 10 in a box", ie 25 kilos. Both Mr and Mrs Day signed the officer's notebook at that point.

As the officer was dissatisfied with the answers he or she received, Mr and Mrs Day were formally informed that HMRC wished to question them further about the tobacco they had imported, and which appeared to HMRC not to have borne the duty it attracted. The two elected to stay for interview.

In interview, Mr Day explained where the money had come from to buy the tobacco, and stated that he thought the tobacco would last 8 to 12 months. He estimated he smoked almost a packet of tobacco a day, depending on what he was doing. The tobacco was in part for himself and his wife, and in part for his son as a Christmas present. Mr Day claimed to get 30 to 40 cigarettes from a pouch of tobacco rolled on a machine in the car. He had travelled to Adinkerke some three months earlier and had brought back "a box and 3 or 4 packs" plus "a couple of packs of Superkings". He disclosed his income as £900 per month gross, £810 net. Of Mrs Day's smoking habits, Mr Day claimed that she smoked as much as he did; "as soon as she opens her eyes she has a fag in her hands". He claimed not to be aware of HMRC guidelines as to tobacco importations, and said he had not seen Customs Notice 1 before. When at home, he bought his tobacco from the local supermarket for £9 a packet. On his last trip abroad he had brought back "14 packs of 10" and in the previous year had made 3 or 4 trips to buy tobacco. £14,000 from the sale of the house was to be applied in discharging credit card debts, which would leave other credit card debts of between £4,000 and £5,000.

Mrs Day confirmed in interview that the tobacco seized belonged to her and her husband, saying that some was for the family, but the majority was for the two of them: three and a half boxes between the two of them and possibly a couple of boxes for others in the family. Mrs Day thought the tobacco had cost "1,700". (We record that Mrs Gillespie assumed the figure to be £1700, but the interviewing officer's notebook makes no mention of the currency concerned). She said that no one had assisted the two in their purchase of the tobacco. She normally smoked tobacco, some "30 [cigarettes] a day, more at weekend", and thought she obtained 100 roll-ups from a pouch of tobacco. She and her husband would not be receiving any money for the tobacco they intended to give to others. Mrs Day disclosed her income as £838 per month, and said that following the sale of the house she and her husband were living in a mobile home paying rent of £222 per month plus bills. She claimed that debts of £37,000 had been repaid out of the net proceeds of sale of the house of £49,000. They had £18,000 savings, and had paid for the car out of the proceeds of sale of the house, the £7,050 balance of its purchase price being included in the £37,000 debts. The house had had to be sold to repay credit card debts. Mrs Day said she had had no contact with HMRC previously, and had last travelled abroad the previous July when she and her husband had "only bought a couple of boxes of tobacco", none of which had been given away. She estimated the tobacco purchased would last about a year. To confirm her smoking habit, she produced her smoking paraphernalia. She claimed to be unable to remember the registration number of the vehicle she and her husband owned prior to the car.

The HMRC officer, claiming to be satisfied that the tobacco was held by Mr and Mrs Day for a commercial purpose and not for own use, seized it under section 139(1) of CEMA as being liable forfeiture under both regulation 16 of the Excise Goods (Holding, Movement, Warehousing and REDS) Regulations 1992 and section 49(1)(a)(i) of CEMA. The car was seized under section 139(1) of CEMA as being liable to forfeiture under section 141(1)(a) having been used for the carriage of goods liable to forfeiture.

On 5 December 2005 Mrs Day wrote to HMRC appealing against the legality of the seizure of both the tobacco and car. In her letter she also sought restoration of both. She claimed that the tobacco was for the "sole use" of herself and her husband; that the car was needed to tow their caravan; and that they could not afford to buy another car. Mrs Day also supplied HMRC with various financial documents. HMRC then commenced legal proceedings for condemnation in the Magistrates' Court to deal with the allegation that the seizure of goods and car was unlawful. In the midst of the correspondence referred to in the first paragraph of our decision, on 3 February 2006 to be precise, an officer connected to HMRC's Law Enforcement Detection South section wrote to Mr and Mrs Day saying that he or she had been instructed to carry out an independent examination of the circumstances surrounding the seizure, and confirmed that HMRC would be contesting the claim that the seizure was unlawful. In the final section of the letter, entitled "What happens now ?" the officer said :

"I must also inform you that should the Court decide that the things should be condemned as liable to fortfeiture, HMRC normally ask for a contribution towards the costs to be awarded which are likely to be not less than £1,500 each."

In evidence to us, Mrs Day said that as a result of that statement she and her husband decided to abandon their claim as to the legality of seizure, and to seek restoration of the vehicle alone. She produced to us a copy of a Customs leaflet in which, at paragraph 2.18, it is stated that if the court finds in favour of HMRC and orders fortfeiture of seized items it "may also order you to pay our costs, likely to be not less than £750."

In the review letter, which was written following withdrawal of the condemnation proceedings, Mrs Gillespie stated:

"As you have withdrawn your challenge to the legality of the seizure the goods are confirmed as held in the UK for a commercial purpose and they, along with the vehicle are condemned as forfeit to the Crown by the passage of time under paragraph 5 of schedule 3 of CEMA."

Mrs Gillespie explained HMRC's general policy to be that seized excise goods should not be restored, but that each case was examined on its merits to determine whether restoration might exceptionally be offered. She added details of the policy as to 'Not for profit' importations. (As we are quite satisfied that the importation was not a 'Not for profit' one, we may ignore it).

In the next section of her letter, Mrs Gillespie summarised HMRC's policy for the restoration of private vehicles. She set out their general policy as "that private vehicles used for the improper importation or transportation of excise goods should not be restored", explaining it to be robust to protect legitimate trade. Having given a number of examples when vehicles might be restored, none of which we consider relevant in the instant case, Mrs Gillespie proceeded to deal with "aggravated cases" into which, since Mr and Mrs Day's importation exceeded 6 kilograms of hand-rolling tobacco, the instant case falls. Since it is important, we rehearse the relevant paragraphs of her letter :

"Aggravated cases depend on how many aggravated offences have occurred within the previous 12 months:

For a first aggravated detection vehicles will normally be seized and restored for 100% of the revenue involved

…

The 100% … restoration fees are subject to a maximum of the trade buying price of the vehicle in Glass' Guide.

In all cases any other relevant circumstances will be taken into account in deciding whether restoration is appropriate…"

In her consideration of Mr and Mrs Day's case, Mrs Gillespie explained that she had looked at all the circumstances surrounding the seizure, but had not considered the legality or the correctness of the seizure itself. She added that in the case of Barry Gascoyne v Commissioners of Customs and Excise [2005] 2WLR 222, Buxton L.J said, at paragraphs 46 and 47 of his judgment: "I do not think it can have been intended that the appellant before the tribunal would have a second bite at the cherry of lawfulness, having failed in the condemnation proceedings or let them go by default ……… [T]he importer cannot have that liberty …….. because of the English law rules of res judicata or abuse of process". Mrs Gillespie concluded that Mr and Mrs Day had not provided her with "details of exceptional circumstances that would result in my deciding to restore the goods to you under the Commissioners' policy." She then proceeded to set out the following "positive additional reasons for concluding that the goods should not be restored":

(1) that they disclosed having only 25 kilograms of tobacco when they had 31.5 kilograms, saying that they had failed to disclose all their goods, and thus had misled HMRC as to their true quantity. On that ground alone, Mrs Gillespie stated that she had "good reason to doubt your credibility. Furthermore, as you were carrying receipts for the full quantity, you clearly knew that you were misleading the officer."

(2) that the tobacco imported was commercial in quantity.

(3) that Mr Day's claim that the tobacco would last 8 to 12 months was based on his estimate of obtaining 30-40 cigarettes per pouch of tobacco, whereas on HMRC's estimate of 80-100 cigarettes being obtained, the tobacco would last about 3 years. Given that tobacco had a shelf life of around 12 months, Mrs Gillespie concluded that the majority of it would have gone stale before consumption.

(4) that there were discrepancies between Mr and Mrs Day's statements as to the number and frequency of their visits to the continent to purchase tobacco, and they were unable to remember the registration number of the vehicle in which they had travelled previously. From that evidence, Mrs Gillespie concluded that their declared tobacco consumption rates were "implausible", and that in failing to disclose the vehicle's registration number, they were attempting to prevent HMRC ascertaining their true frequency of travel

(5) that storage of 31.5 kilograms of tobacco would present problems in a mobile home.

(6) that a cash purchase of such magnitude incurred "the inconvenience and risks of carrying a large amount of cash". Not for profit purchases were often made for cash, and it was a common feature of excise goods purchases made for commercial sale. Further, some travellers made cash purchases in order to avoid the creation of evidence in the form of credit card and bank statements.

(7) that the only reason they had given for disapplying HMRC's policy was that the tobacco was purchased for their own use: that was a matter for the Magistrates' Court, and not a reason for restoration.

In relation to Mr and Mrs Day's request for restoration of the car, Mrs Gillespie first declined restoration under HMRC's not for profit policy. She then stated:

"In my opinion the goods, or most of them, were in fact to be sold for profit and the vehicle should not therefore be restored, regardless of its value. In coming to this conclusion I placed particular importance on your dishonesty in failing to declare all of the excise goods; the frequency of travel; and the discrepancies in your accounts".

Having justified that conclusion by reference to the judgments of the Court of Appeal in Lindsay v Customs and Excise Commissioners [2002] STC 588, Mrs Gillespie went on to say:

"For first offences involving small quantities of excise goods the Commissioners' policy is to consider restoring vehicles. However, because 31.5 kilos of tobacco does not qualify as a small quantity, I have not applied the provision".

Finally, Mrs Gillespie considered a claim to hardship by Mr and Mrs Day, but dismissed it. She concluded that neither the tobacco seized nor the goods should be restored.

As mentioned earlier, we took evidence on oath from both Mr and Mrs Day. We did not consider them to be dishonest, but found their approach to monetary matters naïve and somewhat foolish. It appeared to us that, having sold their house and realised some money, the cash into which they converted a large part (for reasons which they did not explain, and which completely escape us) was burning a hole in their collective pocket, and had to be spent in one way or another. In the event, it was in part spent on tobacco; and on a quantity that bore no relationship whatsoever to their needs.

It is not easy to explain to a lay person how the jurisdictions of the Magistrates' Courts and these tribunals interconnect. The Magistrates' Courts have jurisdiction to deal with the legality of seizure of goods and motor vehicles; the tribunals' jurisdiction is restricted to determining whether the exercise by HMRC of their discretion to restore goods and vehicles has been exercised reasonably. The tribunals' jurisdiction does not extend to directing HMRC to restore seized items.

In the instant case, on Mr and Mrs Day withdrawing their claim as to the unlawfulness of the seizure of their tobacco and vehicle, the tobacco and the car were condemned as forfeited by paragraph 5 of Schedule 3 to CEMA. That paragraph provides that:

"If, on the expiration of [one month of the date of the notice of seizure or, where no such notice has been served on [the person whose offence or suspected offence occasioned the seizure], within one month of the date of the seizure], … or if, in the case of any such notice given, any requirement of paragraph 4 is not complied with, the thing in question shall be deemed to have been duly condemned as forfeited."

Forfeiture results in the property in the items seized passing to the Crown. In other words, ownership of the items passes from the owner to the Crown. Condemnation proceedings in the Magistrates' Court result in one of two things: if HMRC succeed, the item seized is forfeited; if the taxpayer succeeds, the item seized is not liable to forfeiture and HMRC must return it to its owner, or pay him its market value. Additional to requiring HMRC to bring condemnation proceedings, Mr and Mrs Day invited HMRC to exercise the discretionary power provided by section 152 of CEMA to restore the car to them. Section 152 states that HMRC may, as they see fit, "restore subject to such conditions, if any, as they think proper, anything forfeited or seized" under CEMA. If HMRC refuse to exercise that discretion, the person aggrieved by their decision may require it to be reviewed. That is what Mr and Mrs Day did in the instant case. Mrs Gillespie carried out the review and, since Mr and Mrs Day were dissatisfied with its result, they appealed to these tribunals.

An appeal from a decision not to restore, and a review of such a decision, are referred to as an "ancillary matter" in section 16(4) of the Finance Act 1994, the section which provides for appeals to the tribunal. Section 16(4) confines the tribunal to a power where the tribunal is satisfied that HMRC, or the person making the decision, could not reasonably have arrived at it :

a) to direct that the decision shall cease to have effect;

b) to direct HMRC, in accordance with the tribunal directions, to conduct a further review of the original decision;

c) in the case of a decision that has already been acted on, to declare it unreasonable and give directions to HMRC for the avoidance of a repetition of the unreasonableness"

In the case of Gora v Customs and Excise Commissioners [2003]3 WLR 160, the Court of Appeal, the second highest court in the land after the House of Lords and by whose decisions we are bound, took the view that it was not open to an appellant in the tribunal to impugn the legality of a seizure if he had failed to invoke the condemnation proceedings for which Schedule 3 of CEMA provides. And, as we have already mentioned in the context of Mrs Gillespie's review letter, in Gascoyne v Customs and Excise Commissioners [2005] 2 WLR 222, Buxton LJ (also in the Court of Appeal) said at paragraph 46 of his judgment:

"I do not think it can have been intended that the importer before the tribunal would have a second bite at the cherry of lawfulness having failed in the condemnation proceedings or let them go by default."

In other words, letting condemnation proceedings go by default does not give an importer an opportunity to argue, or re-argue, the lawfulness issue before the tribunal.

However, Buxton LJ did go on to say, in paragraphs 55 and 56 of his judgment, that in a case (such as the present one) where the deeming provisions of paragraph 5 of Schedule 3 to CEMA are applied, "the tribunal can reopen those issues", but must have in mind "considerations of or similar to abuse of process" in considering whether it should do so. He continued, "The mere fact that the applicant has not applied to the Commissioners and, therefore, that there have been no condemnation proceedings would not, in my view, be enough, but in my judgment it goes too far to say that the deeming provisions have always, in every case, got to be paramount."

But as Lewison J observed at paragraph 20 of his judgment in Commissioners of Revenue and Customs v Smith (2005) unreported:

"20. Just pausing there, what Lord Justice Buxton is saying is not enough is the mere fact that the applicant has not applied to the Commissioners, requiring them to invoke condemnation proceedings. Not enough for what ? Well, clearly, in my view, not enough to enable the tribunal to reopen the question or, indeed, open the question for the first time. There must, therefore, be something more than a failure on the part of the applicant to invoke condemnation proceedings before the tribunal is empowered to question the legality of the forfeiture."

At paragraph 22 of his judgment, Lewison J added:

"22. It is, in my judgment, clear … that in the run of the mill case where there has been a failure to give a paragraph 3 notice invoking the condemnation proceedings the deeming provision will operate against the applicant in any subsequent appeal to the tribunal. The tribunal's function, therefore, is analogous to a sentencing court once a defendant has been convicted. No matter that the defendant still protests his innocence of the charge against him, the function of a sentencing court is to accept mitigation but not to question the original conviction."

There being no exceptional circumstances in the present case, and Mr and Mrs Day having chosen not to pursue their claim as to unlawfulness of seizure, we consider it would be an abuse of process were we to allow them to reopen the question of personal use of the tobacco. Consequently, since that was the only ground on which they based their appeal, we can only conclude that the tobacco they imported was imported unlawfully, and, by a process of elimination, commercially. It follows that it was not unreasonable for Mrs Gillespie to determine that the car should not be restored to them. In doing so, she was effectively confirming the observation of Buxton LJ at paragraph 87 of his judgment in Gascoyne, where, in relation to an importation of 32 kilograms of tobacco, he said : "The amount brought in in this case was enormous, and the Commissioners were entitled to take the serious view that they did." That observation applies with equal force in the present case. It follows that we must dismiss the appeal.

We cannot conclude without mentioning one matter that concerns us. As we also mentioned earlier, the Customs leaflet produced by Mr and Mrs Day indicated that in the event of a finding in HMRC's favour in condemnation proceedings the court might order the traveller to pay their costs, "likely to be not less than £750". Yet in their letter to Mr and Mrs Day of 3 February 2006, they indicated that they normally asked for a contribution towards the costs "which are likely to be not less than £1,500 each". If HMRC give an indication in public documents that they are likely to apply for costs, and their level is indicated, they should not in correspondence with individual appellants suggest that they might make application for costs at a far higher level – a level that might be thought a deterrent by travellers having genuine claims to unlawful seizure.

DAVID DEMACK

CHAIRMAN
Release Date: 9 November 2006

MAN/06/8017