United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2007] UKVAT(Excise) E01027, [2007] UKVAT(Excise) E1027

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Charles Rush v Revenue & Customs [2007] UKVAT(Excise) E01027 (08 March 2007)

E01027

EXCISE DUTY – RED DIESEL – Appellant using a motor car with red diesel – Vehicle restored – civil penalties in the sum of £500 imposed – Respondents wrongly treat the Appeal as one against restoration – Tribunal decides Appeal against imposition of civil penalties – Appellant puts forward honest mistake – finds that the Appellant did not exercise due diligence – no reasonable excuse – Appeal dismissed.

MANCHESTER TRIBUNAL CENTRE

CHARLES MICHAEL RUSH Appellant

- and -

HER MAJESTY'S REVENUE and CUSTOMS Respondents

Tribunal: MICHAEL TILDESLEY OBE (Chairman)

JOHN KIPPEST (Member)

Sitting in public in Birmingham on 8 January 2007

The Appellant appeared in person

Marc Brown, counsel instructed by the Acting Solicitor for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The Appeal

The Appellant was appealing against the Respondents' decision on review dated 22 June 2006 restoring a Citreon Xanita registration number P828 XCG, (known as "the vehicle") subject to the payment of a fee in the sum of £500.

The grounds of appeal were as follows:

"Fuel added to tank was by mistake as did not know red diesel was different from normal diesel. And I only added a gallon of fuel to the tank. I wish the fuel to be tested from my sample".

The Issue in Dispute

On 11 April 2006 Customs Officers took a sample of fuel from "the vehicle" at Oxford Road Service Station. The sample of fuel contained duty rebated fuel (red diesel) which was being unlawfully used in the vehicle. At the time the Appellant was driving "the vehicle" which belonged to his brother. The Officers interviewed the Appellant who accepted responsibility for fuelling "the vehicle" with red diesel. The Officers seized "the vehicle" and the fuel but then restored the vehicle on the payment of £500 by the Appellant.

On 10 May 2006 the Appellant wrote appealing against the fine for using unrebated fuel in the "vehicle". On 12 May 2006 the Respondents acknowledged his letter advising him that a review of the decision would be carried out by an independent officer. Mr David Harris undertook the review and confirmed the decision taken by the Customs Officers on 11 April 2006.

The Appellant considered the decision harsh for an isolated mistake honestly made.

The issue was whether Mr Harris' decision confirming restoration of "the vehicle" subject to payment of £500 was a decision which no reasonable body of Commissioners could have arrived at. In order for the decision to have been reasonable Mr Harris must have considered all relevant matters and must not have taken into consideration irrelevant matters.

The Evidence

We received evidence from the Appellant and Mr Harris, the review officer. The Respondents provided a bundle of documents.

The Seizure of the Vehicle

On 11 April 2006 Customs Officers seized "the vehicle" after it was found to contain red diesel in its fuel tank. At the time of seizure the vehicle was being driven by the Appellant with his brother, Mr David Rush, as the passenger and owner of "the vehicle".

The Officers decided to restore the vehicle subject to a nil payment but with conditions that the Appellant drained and flushed the fuel system with ordinary white diesel and replace the fuel filter within 24 hours. In addition the Officers issued an assessment for a civil penalty in the sum of £500 to the Appellant for contraventions of the Hydrocarbon Oils Duties Act 1979. The sum of £500 was made up of two separate civil penalties of £250 each for using the red diesel in "the vehicle" and putting the red diesel in "the vehicle".

The Officers issued a letter dated 11 April 2006 to the Appellant which stated that

"The above vehicle was seized from you under section 141(1)(a) of the Customs and Excise Management Act 1979 as a result of the goods on the attached schedule being found therein. On this occasion the vehicle has been restored on payment of £0 with an EX601 to the value of £500 enclosed calculated as per attached schedule".

The Review Decision on 22 June 2006

Mr Harris was guided by the Respondents' policy for "the seizure and restoration of vehicles misusing either duty rebated fuel or marked fuel." Mr Harris noted that the policy incorporated reference to civil penalties which can be imposed for misuse of duty rebated or marked fuel. Under the statutory regime for civil penalties a person can raise the defence of reasonable excuse for avoiding the penalties. Mr Harris considered whether the Appellant had a reasonable excuse for avoiding the penalties. Mr Harris stressed, however, that he was reviewing the restoration decision not the imposition of civil penalties. He acknowledged that the quantum of the restoration fee was discretionary which was not fixed by the civil penalty regime.

Mr Harris placed weight on the Appellant's admission that he put red diesel in "the vehicle" and thereafter drove it. Mr Harris considered that the Appellant had a duty of care to ensure that the red diesel was not used unlawfully.

Mr Harris gave credence to the Appellant's account of the events in his interview rather than those set out in the subsequent letter of Appeal from the Appellant. The interview, which was signed as accurate by the Appellant, was conducted immediately after the discovery of red diesel in the fuel tank. The principal discrepancy between the two accounts was whether the Appellant had bought the red diesel. Mr Harris preferred the account given in the interview that the Appellant purchased the red diesel from a friend.

Mr Harris stated that he paid particular attention to the degree of hardship caused by the loss of the vehicle until it was restored. Although Mr Harris was sympathetic to the Appellant's difficulties, he found no exceptional hardship in this case.

Mr Harris concluded that the application of the Respondents' policy in the particular circumstances treated the Appellant no more harshly or leniently than anyone else. He, therefore, decided that there were no reasons to vary the Respondents' policy in the Appellant's case.

Respondents' Policy for the Seizure and Restoration of Vehicles misusing either duty rebated fuel or marked fuel

The Respondents' policy is to provide increasingly hard restoration terms for the first two detections with a strict non-restoration policy on third detection. However restoration is always considered to uninvolved third parties, such as hire and finance companies. Every case is decided on its own merits including militating circumstances. Exceptional hardship is always considered:

• First offence – seizure of the vehicle and restoration of the value of the civil penalties, 100 per cent of the revenue evaded on that occasion and any storage costs incurred by the department or the value of the vehicle whichever is the lower.

• Second offence - seizure of the vehicle and restoration of the value of the civil penalties, 200 per cent of the revenue evaded on that occasion and any storage costs incurred by the department or the value of the vehicle whichever is the lower.

• Third offence - seizure of the vehicle and non-restoration.

The Appellant's Evidence

On 11 April the Appellant took out his brother's vehicle for a spin because it had a "noise" from the engine. The Appellant stopped at Oxford Road service station to enquire about the hire of a van. The Appellant's brother had owned "the vehicle" for about two years and was currently worth about £650.

When the Appellant was talking to the garage staff, the Customs Officers checked the fuel in "the vehicle" and found that it contained red diesel. The Officers, however, agreed that the concentration of red diesel in the fuel was low. According to the Appellant the officers described it as a very weak mix.

The Appellant's brother who had been a passenger in the vehicle became very agitated, particularly after being told about the seizure of his vehicle. The Appellant was concerned for his brother who was ten years older than him and suffering from leukaemia. The Appellant realised that he must have been responsible for putting the red diesel in "the vehicle". The Appellant had previously purchased some red diesel from a friend for use in a space heater. His friend obtained the red diesel from a vehicle in a scrapyard. The Appellant kept the red diesel in a green one gallon can, alongside another can of the same description which contained white diesel. The Appellant mistakenly put red diesel in "the vehicle" rather than the white diesel in the other can.

The Appellant only realised it was an offence to use red diesel when told by the Customs Officers. The Appellant considered that he made an honest mistake by picking up the wrong can. His brother had recently filled up "the vehicle" with white diesel, which in the Appellant's view indicated that they did not deliberately break the law.

The Appellant's relationship with his brother has become strained as a result of the incident. His brother considered that the engine problems of his vehicle arose from the red diesel which the Appellant put in its fuel tank.

The Appellant had never previously been in trouble with Customs.

Reasons for Our Decision

The form C65 "Agreement for the Return of Seized Property" and the Respondents' letter dated 11 April 2006 clearly stated that "the vehicle" was returned for nil payment. The C65 did not state that the £500 penalty was a condition for the return of "the vehicle". The penalty of £500 has been imposed under section 9 of the Finance Act 1994 (hereinafter 1994 Act) not as a condition for restoring the "vehicle".

We consider that the Respondents have erroneously treated the Appellants' appeal as one against restoration rather than against the imposition of civil penalties under section 9 of the 1994 Act. No Appeal lies to the Tribunal where no conditions have been attached to the restoration of the vehicle (para.2r sch. 5 1994 Act) The Appellant in his letter dated 10 May 2006 clearly stated that he was appealing against the "fines" for using unrebated fuel in his brother's car.

We have decided to treat the Appeal as one against the imposition of civil penalties rather than an Appeal against restoration. In which case we have full appellate jurisdiction in that we can substitute our own decision for that of the Respondents rather than being restricted to assessing the reasonableness of the Review Officer's decision. We are satisfied that a review has taken place under section 14 of the 1994 Act, albeit on the wrong premise, or alternatively a deemed review has occurred under section 15(2). We, therefore, have jurisdiction to determine the Appeal against the imposition of the civil penalties in the sum of £500.

Under section 10 of the 1994 Act, the Appellant is not liable for the civil penalties if he can establish that he had a reasonable excuse for using the red diesel and or putting the red diesel in "the vehicle". Reasonable excuse is strictly construed by the legislation. Under statute insufficiency of funds and reliance upon the default of others cannot amount to a reasonable excuse. Reasonable excuse is not the same as mitigation. Thus, although we have full Appellate jurisdiction in dealing with penalties under section 9 of the 1994, the only ground upon which we can find for the Appellant is whether he had a reasonable excuse.

In the Tribunal decision of Barbagello [2004] Excise Decision Number E00833 the Tribunal defined reasonable excuse in the context of red diesel cases as:

"that an Appellant would show a reasonable excuse if the exercise of reasonable foresight and due diligence and a proper regard for the fact that it is unlawful to drive with red diesel in the tank would not have avoided the conduct complained of, but the excuse would be exhausted by the date on which such foresight, diligence and regard would have alerted him to the fact that he was committing the conduct complained of"

The Appellant asserted that he made an honest mistake in using the wrong one gallon can to top up his brother's car with fuel. An honest mistake on its own, however, is not sufficient to constitute a reasonable excuse. The Appellant has to demonstrate that he acted with reasonable foresight and due diligence. On the Appellant's evidence he knew that one of the cans contained red diesel which was to be used for a space heater rather than a vehicle. The Appellant took no steps to ensure that he was using the correct can of fuel when he topped up his brother's car. Thus the Appellant, did not exercise due diligence when filling "the vehicle" with fuel.

The Appellant's assertion that he did not know that it was an offence to use red diesel in a motor vehicle is not relevant, as ignorance of the law is no defence. Equally the Appellant's claim that he has not been in trouble previously with Customs was not a relevant consideration for the issue of reasonable excuse.

We, therefore, decide that the Appellant did not have a reasonable excuse for his use of red diesel and putting it in his brother's vehicle. We dismiss the Appeal and uphold the civil penalties in the sum of £500. We make no order for costs.

MICHAEL TILDESLEY OBE

CHAIRMAN

RELEASE DATE: 8 March 2007

MAN/06/8035