United Kingdom VAT & Duties Tribunals (Excise) Decisions

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URL: http://www.bailii.org/uk/cases/UKVAT/Excise/2007/E01026.html
Cite as: [2007] UKVAT(Excise) E1026, [2007] UKVAT(Excise) E01026

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Robert Cain & Company Ltd v Revenue & Customs [2007] UKVAT(Excise) E01026 (20 February 2007)

EO1026

EXCISE — appeal against refusal of applications for registration as a trade facility warehouse and an excise warehouse — whether decisions were reasonable — sections 92(1), 93(1) and 100G(1) and (2) CEMA 1979, section 16(4) Finance Act 1994 — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

ROBERT CAIN & COMPANY LIMITED Appellant

- and -
THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Ian Vellins (Chairman)

Alban Holden

Sitting in public in Manchester on 22 January 2007

Mr Sudargharra Dusanj, director, for the Appellant

Mr Richard Chapman, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007


 


DECISION

The Appeal

1. In this appeal the Appellant is Robert Cain and Company Limited. The Appellant carries on business as a brewer from premises at Stanhope Street, Liverpool and is registered for the purposes of Value Added Tax. The Appellant appeals against the decisions of the Respondents to reject the applications of the Appellant for approval as an Excise warehouse keeper and the refusal to consider the Appellant's application to approve its premises as a trade facility warehouse as notified to the Appellant in a letter from the Respondents dated 13 December 2005.

Those decisions were upheld by the Respondents on review which was notified to the Appellant in a letter dated 17 February 2006. The Appellant appealed by Notice of Appeal dated 28 April 2006.

2. At the hearing of this appeal at Manchester on 22 January 2007, the Appellant was represented by its director, Mr Dusanj, and the Respondents by Mr Richard Chapman of counsel.
3. The short issue in this appeal is as follows. In order to undertake canning operations in respect of duty suspended cider, a person or company needs approval from the Respondents to operate as a trade facility warehouse. In December 2004, the Appellant undertook to can cider for a large manufacturer when the Appellant was not registered as an excise warehouse keeper and trade facility warehouse. Despite having been warned and advised by an officer of the Respondents that the Appellant required approval and registration as an excise warehouse keeper and trade facility warehouse before carrying out such activities, the Appellant did not apply for approval and registration until May and June 2005. Applications by the Appellant were rejected finally in December 2005, after which the Appellant requested a departmental review of the decisions, and on 17 February 2006 an officer of the Respondents upheld the decisions to refuse the approvals and registrations. The issue in this appeal was whether the decision of the Respondents was reasonable. The facts in the appeal were not in dispute.

The Legal Framework

4. The legislative framework grants to the Respondents a discretion as to the approval and / or registration of occupiers of excise warehouses and excise dealers.
5. By virtue of section 92(1) of the Customs and Excise Management Act 1979 ("CEMA"), the Respondents may approve for such periods and subject to such conditions as they think fit, places of security for the deposit, keeping and securing of goods manufactured or produced in the United Kingdom and permitted by or under the Customs and Excise Acts to be warehoused without payment of any duty of excise chargeable thereon.
6. Section 93 CEMA permits the Respondents to make regulations that prohibit the depositing or keeping of goods in a warehouse except where the occupier of the warehouse has been approved by the Respondents in accordance with the regulations and where such conditions as may be prescribed in the regulations in relation to that occupier are satisfied.
7. Section 100G CEMA provides that for the purpose of administering, collecting or protecting the revenues derived from duties of excise, the Respondents may by regulations confer or impose such powers, duties, privileges and liabilities as may be prescribed in the regulations upon any person who is or has been a registered excise dealer and shipper, and the Respondents may approve, and enter in a register maintained by them for the purpose, any revenue trader who applies for registration under that section and who appears to them to satisfy such requirements for registration as the Respondents may think fit to impose.
8. By the Warehouse Keepers and Owners of Warehoused Goods Regulations 1999 paragraph 3(1) the Respondents may approve occupiers of excise warehouses and register them as registered excise dealers and shippers in accordance with section 100G(2) of CEMA.
9. The Appellant's right of appeal arises under Finance Act 1994 Schedule 5(2)(n).
10. By Finance Act 1994 section 16(4) the Tribunal is only entitled to grant relief in respect of the decision if the Respondents could not reasonably have arrived at the decision.
11. In Associated Provincial Picture Houses Limited v Wednesbury Corporation [1948] 1KB223 at pages 229 – 230, the court stated the test of reasonableness as follows:

"A person entrusted with a discretion must so to speak, direct himself properly in law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules he may truly be said, and often is said, to be acting unreasonably … it is true to say that, if a decision on a competent matter is so unreasonable that no reasonable authority could ever have come to it, then the courts can interfere."

12. The courts have affirmed that the appropriate questions to be asked by a tribunal are:

"Could a decision-maker acting reasonably have reached this decision?"

and,

"Did the officer direct herself properly in law, did she take into account any irrelevant matter, and did she disregard something to which she should have given weight?".

13. The burden of proof of establishing unreasonableness is upon the Appellant, pursuant to section 16(6) of the Finance Act 1994.

Facts and Conclusions

14. We make the following findings of fact, and reach the following conclusions in this appeal.
15. The Appellant carries on business as a brewer from premises in Liverpool and is registered for VAT. In December 2004 the Appellant undertook a canning operation for cider for another brewer and wrongly accounted for the duty on its beer duty return rather than on a separate return relating to cider.
16. In February and March 2005 the Respondents became aware of this and informed the Appellant that they would have to be approved as an excise warehouse in order to receive any further consignments of cider to can.
17. On 24 March 2005 the Appellant's accountant e-mailed the Respondents confirming that the Appellant would be canning cider for Merrydown Plc and asking how to apply for approval. On 30 March 2005 the Respondents e-mailed and gave the Appellant details of the forms to obtain approval, that is to apply for a trade facility warehouse. By a letter dated 25 April 2005 the Respondents asked for further information as to whether or not the canning was taking place and again informed the Appellant that cider could not be received by the Appellant under Beer Duty approval.
18. The Appellant applied for approval and registration as a Trade Facility Warehouse on 16 May 2005 and as an Excise Warehouse Keeper on 14 June 2005. The Respondents undertook pre-approval inspections of the Appellant on 30 June 2005 and 6 July 2005 and rejected the applications on 3 August 2005.
19. The Appellant made a request for a formal departmental review of these decisions on 5 August 2005. The decisions were withdrawn by the Appellant on review, as the review officer considered that the Respondents had not produced sufficient evidence to the Appellant in support of the decisions and that the Respondents had not properly explained the reasons for these decisions to the Appellant. The Appellant was notified of this by a letter dated 16 September 2005 from the Respondents and the applications were therefore effectively reinstated.
20. The Respondents undertook a further pre-approval inspection on 12 October 2005 and established that further consignments had been received by the Appellant. The Respondents issued an assessment in the sum of £126,854 on 7 November 2005, which the Appellant paid on 17 November 2005.
21. The Appellant's applications were again rejected by the Respondents on 13 December 2005. The Appellant requested a formal departmental review of these decisions on 30 December 2005.
22. On 17 February 2006 an officer of the Respondents, Ms Manley, notified the Appellant that the formal departmental review carried on by her had upheld the Respondents' decisions.
23. By a Notice of Appeal dated 28 April 2006 the Appellant sought to appeal the review decisions on the grounds:

"To have the formal review of my application for a trade facility warehouse overturned as I feel we have a reasonable excuse for the misunderstanding that a different type of duty form was required to can cider. Also we are a large canners of beer and cider canning would be less than 10 per cent of our turnover also other brewers do all offer this service".

24. The reasons given by the Respondents for rejecting the Appellant's application for registration as a trade facility warehouse were that the Appellant had not complied with the excise regime in that they had firstly received duty suspended products into non-approved premises, secondly, had failed to satisfactorily account for excise duty, (at 19 May 2006 the Appellant owed the Respondents over £800,000 in respect of outstanding duty payments), and thirdly, the Appellant had failed to correct action in relation to sediment allowances.
25. The Respondents had not considered the Appellant's application for registration as a warehouse keeper because the Appellant's application to be registered as a trade facility warehouse had been rejected.
26. Mr Dusanj, a director of the Appellant, outlined the background history. Mr Dusanj and his brother had purchased the Appellant business in 2002 at a time when the business was making a substantial loss and was liable to close. Since then, the profitability of the business has been turned around and it now makes a profit. The Appellant is now one of the biggest regional canners in the United Kingdom, canning beer for supermarkets and regional breweries. It pays duty monthly of over £1 million.
27. In December 2004, for the first time, the Appellant commenced canning cider under a large contract from Merrydown Plc. Mr Dusanj stated that at that time he was not aware that he needed to apply for further approvals or registration. The Appellant inserted the details of the cider on the same forms on which beer was detailed. Mr Dusanj maintained that he had not known that it was wrong to do so. He maintained that he had accounted for the duty on the cider and paid this in the same way that he had been paying the duty on the beer.
28. In February and March 2005, the Respondents had become aware that the Appellant had been canning cider for Merrydown and wrongly accounting for the duty on its beer duty return rather than a separate return relating to cider and that the Appellant had been canning the cider without having been approved as an excise warehouse keeper, and without its premises being approved and registered as a trade facility warehouse.
29. Despite the Respondents informing the Appellant that cider could not be received under Beer Duty approval, and despite the Respondents notifying the Appellant as to how they could obtain approval, the Appellant failed to respond to letters from the Respondents enquiring as to whether or not the canning was taking place and did not apply for approval and registration until 16 May 2005 and 14 June 2005. The Appellant carried on canning cider without the applications having been approved and despite the applications being rejected.
30. Mr Dusanj at the hearing maintained that Appellant thought that they could continue canning in the meantime. We find that the Appellant had no grounds for believing that they could in fact continue canning in the meantime. We find that the Respondents had notified the Appellant of the legislative requirement and at no time had the Respondents informed the Appellant that they could continue canning without approval and registration.
31. Mr Dusanj maintained that the Appellant was paying duty on the cider and that they were not attempting to avoid paying any duty. We find, however, from the correspondence, that on 3 February 2006 the Respondents had notified the Appellant that they owed duty for the period from 1 December 2005 to 31 December 2005 of £996,446 and imposed a penalty of £49,842. That debt was not enforced but was paid by the Appellant to the Respondents by instalments of over £150,000 per month and was finally cleared by the Appellant in October 2006. At the same time, the Appellant had been paying the duty on beer of over £1 million per month.
32. The Appellant did not discontinue the canning of cider for third party companies until after the final review by the Respondents.
33. The correspondence revealed that the cider canning was less than 10 per cent of the turnover of the Appellant. Mr Dusanj had argued that the refusal of the applications had put the Appellant at a disadvantage in that other brewers who had obtained approval and registration were able to can cider.
34. Mr Dusanj accepted at the hearing that the Appellant did not comply with the legislation and regulations, but maintained that he had misunderstood the situation and thought that it was not a major issue if the Appellant carried on the canning of cider without stopping such services.
35. Ms Manley, the review officer of the Respondents, had taken into account the large sums of duty being paid by the Appellant, although she considered that as the Appellant was a registered trader, these were sums that the Appellant had to pay in any event. She had taken into account and given due weight to the fact that cider canning was less than 10 per cent of the turnover of the Appellant, and that other brewers offered the services of canning, after having been approved and registered.
36. We find the Appellant is a registered brewer and should therefore be aware of the responsibilities of a revenue trader.
37. We find that on 30 March 2005 and 25 April 2005 the Appellant had been informed by the Respondents that they must obtain separate authorisation for canning cider. The Appellant continued to receive and can duty suspended bulk cider, receiving consignments in July and October 2005. The Appellant was aware that this cider was duty suspended. Indeed the Appellant had signed documents which stated that the cider was duty suspended and was aware that duty had to be paid on the cider. At the beginning of the contract between the Appellant and Merrdown Plc, the Appellant was aware that duty must be paid, as confirmed in an e-mail from Merrydown Plc dated 24 October 2005.
38. Paragraph 17.1 of the Appellant's Notice 197 specifically stated that applicants "should not assume that HMCE will authorise you".
39. We find that the review officer of the Respondents acted reasonably in upholding the decision of the Respondents to reject the application by the Appellant for registration as a trade facility warehouse. It follows from this that the Respondents were correct to consider that there was no basis for registration of the Appellant as an excise warehouse keeper.
40. We find that Ms Manley, the review officer of the Respondents, directed herself properly in law. We find that she did not fall into any error of law. We find that her consideration of the law in the review decision was correct and in accordance with the law. We find that Ms Manley did not take into account any irrelevant matter, and that she did not disregard something to which she should have given weight. We find that a decision-maker acting reasonably could have reached the decision reached by Ms Manley.
41. We find that Ms Manley had taken into account that the Appellant initially had included the cider on the beer duty form. She had taken into account the allegation by the Appellant that this was due to a misunderstanding. She had taken into account that the Appellant had initially accounted for duty on the cider in the same way as accounting for duty on beer.
42. We find that the Appellant had been told in March 2005 by the Respondents' officers that they needed to apply for approval. We find that the Appellant's e-mail of 24 March 2005 requesting information as to approval was submitted at a late stage after four consignments had been received by the Appellant as two consignments had been received on 8 March 2005 and a further two on 22 March 2005. We find that the Appellant failed to respond to questions of the Respondents' officer as to whether canning was continuing. The application for approval was not made until May or June 2005 when the goods had already been despatched (information which the Respondents only obtained in October 2005 when they probed the documents of the Appellant). The Appellant had not made the Respondents aware of the further consignments at the pre-approval visits in June and July 2005. The Appellant received a further eight consignments of cider for canning between the periods from 13 July 2005 to 28 September 2005 despite the Appellant not having obtained approval from the Respondents. This resulted in an assessment for £126,850.
43. As well as receiving duty suspended cider on unapproved premises, the Appellant had been invoicing Merrydown Plc on a VAT inclusive process and had failed to account to the Respondents. This was notwithstanding confirmation from the Appellant that duty would be accounted for by Merrydown's deferment guarantee. We conclude accordingly that the Appellant was aware that they had funds for which they were not accounting to the Respondents. The application forms themselves clearly stated that an applicant must not assume that the Respondents would authorise an applicant. We find that the failure to comply is an important consideration as it is indicative of the level of risk to the Respondents. It is a crucial consideration and goes to the integrity of whether the Respondents consider that the Appellant is fit to be registered.
44. In any event, there are further matters which could properly and reasonably have precluded the grant of approval by the Respondents. Firstly, beer duty for December 2005 was unpaid at the time of the review decision, and secondly, the Appellant had failed to take correct action in relation to sediment allowances, as set out in the correspondence.
45. In view of these facts, we find that Ms Manley did not take into account any irrelevant matter.
46. We find that the proportion of turnover in relation to cider is not a relevant consideration. We find that the proportion of turnover has no impact on the likelihood or otherwise of the Appellant's complying with its obligations. We find that the sums involved are still considerable as shown by the assessment in the sum of £126,854 even though cider is less than 10 per cent of the turnover of the Appellant.
47. We find that the position of other brewers who are approved and registered is not a relevant consideration. The activities of the other brewers does not offer any assistance in assessing whether or not the Appellant will comply with the excise regime. No evidence has been provided to suggest that the Appellant has been treated any differently to any other applicant for approval or registration.
48. We have concluded that Ms Manley has not disregarded something to which she should have given weight. We find that she has taken due regard of the contentions of the Appellant when reaching her review decision.
49. We find accordingly that the Respondents were entitled to exercise their discretion to reject the applications of the Appellant. We find that the decisions of the Respondents were decisions which they had reasonably arrived at. We find that their decisions were in accordance with the law, and in particular in accordance with the legislation and the case law. We find that the Respondents directed themselves properly in law. We find that the Appellant has failed to satisfy the burden of proof upon the Appellant. We find that the Appellant is not entitled to any relief and that the appeal should be dismissed.
50. Accordingly, we dismiss the Appellant's appeal. The Respondents did not make any application for costs against the Appellant, and we make no order as to costs.

IAN VELLINS

CHAIRMAN
Release Date: 20 February 2007

MAN/06/8021