United Kingdom VAT & Duties Tribunals (Excise) Decisions

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URL: http://www.bailii.org/uk/cases/UKVAT/Excise/2007/E01041.html
Cite as: [2007] UKVAT(Excise) E01041, [2007] UKVAT(Excise) E1041

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Afton Chemicals Ltd v Revenue & Customs [2007] UKVAT(Excise) E01041 (04 May 2007)

E001041

Excise Duty - Whether additives to motor fuel produced from "mineral products" are subject to Excise Duty, as motor fuel, under the 1992 and 2003 Community Directives - whether such additives could be taxed under the UK domestic legislation if the 2003 Directive itself did not require imposition of Excise Duty - whether we should refer any of the points in dispute to the European Court of Justice for guidance or whether we should reach our own decisions on any or all of the points in contention - Appeal Dismissed

LONDON TRIBUNAL CENTRE

AFTON CHEMICALS LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: HOWARD M NOWLAN (Chairman) PROFESSOR ROY G SPECTOR, MD PhD FRCP FRCPath

Sitting in public in London on 26 and 27 March 2007

Steve Cook of Vantis Plc, for the Appellant

Mario Angiolini, counsel, for the Respondents

© CROWN COPYRIGHT 2007


 


DECISION

Introduction

1. This was a case where none of the facts were in dispute and where everything therefore turned on our interpretation of certain badly-drafted provisions of three Community Directives. It involved a dispute as to whether certain additives manufactured by the Appellant that were later added to petrol and diesel motor vehicle fuel were to be subjected to Excise Duty, just as if they were the fuel itself. The issue was governed until 2004 by the terms of the EC harmonising Directive 1992/81EEC ("the 1992 Directive") and thereafter by Directive 2003/96/EC ("the 2003 Directive"). We decide the two substantially similar points of interpretation in favour of the Respondents. Had we decided the point in dispute under the 2003 Directive in favour of the Appellant, the Respondents would have had a second basis for saying that the Excise Duty was properly chargeable under UK domestic law, which the Appellant also disputed. This issue was in part dependent on a crucial difference in the terms of the 1992 and 2003 Directives, but also on the terms of another 1992 Directive, namely Directive 1992/12/EEC ("the 1992/12 Directive"). Since this matter was strictly irrelevant in the light of our decision on the two basic points of interpretation, we have given no decision on this further issue, though we will give some comments on the matter in case the Appellants should appeal against our decisions on the primary points of interpretation, and in case the matter should be referred to the European Court of Justice ("the ECJ").
2. The Appellant had paid all the tax in dispute and was thus making a repayment claim. We understood that the total tax covered by the actual repayment claim made for the period from 19 November 2000 until 31 October 2004 was £2,825,215.61. We assume that more tax was involved for periods after those covered by the particular claim that was the subject matter of the appeal.
3. There was a further difference between the parties as to whether we should give any decision ourselves, or whether alternatively the entire dispute should be referred immediately to the ECJ. The Respondents gave various reasons why they considered an immediate reference preferable to our making a decision, and the Appellant gave various reasons why they requested us to make a decision. We will explain why we chose to give a decision on the primary points of interpretation, and why we chose not to give a decision on the points that we were able to treat as strictly irrelevant to the outcome of the dispute.

The Facts

4. The Agreed Statement of Facts recited that the Appellant made various additives that were designed to be added to motor fuel (both petrol and diesel) which additives were intended to be mixed by the Appellant's customers with the fuels, usually in quantities of 1 to 1000 or 2000. The additives were always sold on a duty-paid basis, and it was the duty paid on those additives that the Appellant was seeking to recover in this appeal.
5. None of the additives were designed to function as fuel as such. We were told that in the United States it was now quite common for as much as 30% of fuel put into vehicles to constitute various alcohol additives which were designed to combust and thus to act as fuel. The additives in dispute in this case were not designed to power vehicles. Instead they included one or more of the following components:

•    Cleaning Agent - which removes and prevents carbon-based deposits;

•    Anti-foam - which prevents fuel foaming leading to more complete tank filling and reduced spillage;

•    Demulsifier - which prevents formation of undesirable fuel/water emulsions in fuel storage tanks;

•    Carrier Fluid - which ensures that the gasoline cleaning agent is distributed evenly;

•    Solvent - which is used to ensure acceptable low temperature viscosity;

•    Cetane Improver - which reduces the ignition delay in diesel engines;

•    Lubricity Improver - which protests fuel pumps against wear; and

•    Corrosion Inhibitor - which protects vulnerable metal surfaces against corrosion.

6. The 1992 and the 2003 Directives both used certain definitions contained in the Community Combined Nomenclature. The definitions changed their names in that the relevant definition in the 1992 Directive was that of "mineral oils", whereas it was changed to "energy products" in the 2003 Directive. The only point to make in this context is that it was agreed between the parties that all of the additives in dispute were "mineral oils" (or more specifically "minerals oils as falling within CN code 38.11") under the 1992 Directive, and they were "energy products as falling within CN code 38.11" in the context of the 2003 Directive. The technical significance of this in taxation terms will become clear below but we should simply add at this point that the Appellant's additives were all in some way or other derived from mineral oils (later called "energy products"), whereas other additives might be produced from quite different products.

The relevant terms of the Directives, the various contentions of the Parties, and our Decision on each point of interpretation.

7. It would be fairly confusing to describe the terms of the 1992, the 2003 and the 1992/12 Directives, and then to list all the Appellant's contentions, the Respondents' contentions and finally to give our decision. We consider that it will instead be clearer:

•    first to take the few relevant terms of the 1992 Directive;

•    then establish the points on that Directive that are common ground between the parties;

•    then summarise shortly the basic difference in interpretation of the provisions between the parties;

•    then list the various arguments relevant to the interpretation advanced by both parties in turn, and

•    then finally give our decision on the proper interpretation of the 1992 Directive.

We will then deal separately with the 2003 Directive. We will then comment on some suggested anomalies in relation to 2-stroke fuel that were drawn to our attention and that the Appellant contended supported its case. Finally we will give those comments that we consider may be worth adding in relation to the point that we have already said that we are not formally having to decide.

The Relevant terms of the 1992 Directive

8. The relevant terms of the 1992 Directive were as follows:

"Article 2(1).

For the purposes of this Directive, the term "mineral oil" shall apply to products:

…

…

(k) falling within CN code 38.11 …

Article 2(2)

Mineral oils other than those for which a level of duty is specified in the rates Directive of 92/82/EEC shall be subject to excise duty if intended for use, offered for sale or used as heating fuel or motor fuel. The rate for duty to be charged shall be fixed according to use, at the rate for the equivalent heating fuel or motor fuel.

Article 2(3)

In addition to the taxable products listed in paragraph 1 [that is Article 2(1) quoted above], any products intended for use, offered for sale or used as motor fuel, or as an additive or extender in motor fuels, shall be taxed as motor fuel. Any other hydrocarbon, except for coal, lignite, peat or other similar solid hydrocarbons or natural gas, intended for use, offered for sale or used for heating purposes shall be taxed at the rate for the equivalent mineral oil.

..

Article 8(1)

In addition to the general provision set out in Directive 92/12/EEC on exempt uses of excisable products, and without prejudice to other Community provisions, Member States shall exempt the following from the harmonised excise duty under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any evasion, avoidance or abuse;

(a) mineral oils used for purposes other than as motor fuels or as heating fuels;

.."

The points of common ground on the 1992 Directive

9. As we have already said, both parties accepted that the additives produced by the Appellant were "mineral oils", since they fell within CN code 38.11. Both parties also accepted that the additives did not function as fuel. Accordingly they did not fall to be taxed under Article 2(2) because they were not "intended for use, offered for sale or used as … motor fuel". Both parties accepted that the wording of Article 2(3) was perfectly clear when it provided that "In addition to the taxable products listed in paragraph 1, any product intended for use, offered for sale or used as motor fuel… shall be taxed as motor fuel". What this means is that if scientific developments mean that something can be marketed as motor fuel notwithstanding that it does not fall within any of the great list of substances (listed in Article 2(1)) that are defined to be "mineral oils", then that newly-discovered substance, when offered for sale as motor fuel, will be taxed as motor fuel. The parties were also in agreement that the basic purpose of the quoted part of Article 8(1) was to provide that no excise duty should be charged on "other" uses of mineral oils than the specified ones. Naturally mineral oils can be used in producing plastics and countless other products, and the mineral oils used in these applications are not meant to suffer Excise Duty in the way that the use of mineral oils as motor and heating fuel are meant to attract such duty.
10. There is one other point that was agreed (with a qualification in relation to one of the Appellant's arguments) between the parties and this point comes much closer to the basic point of disagreement. It was however virtually common ground that if additives to motor fuel were produced from substances that were not "mineral oils", then it would follow that they would be treated and taxed as motor fuels by Article 2(3). For by virtue of not being mineral oils they would be a product that was something "in addition to the ... products listed in paragraph 1", and they would be additives within that further phrase of Article 2(3), dealing with additives and extenders. Both parties would then have agreed that Article 8(1) (a) could not on any interpretation have operated to exclude the non-mineral oil additives from being taxed as "motor fuel", because the exemption given by that paragraph applies only to substances that are "mineral oils", not to additives that on this hypothesis would be produced from non-mineral oils.

The point of disagreement between the parties in outline

11. The conclusion reached in paragraph 10 is of little direct relevance to this case because we have already said that all of the Appellant's additives were agreed to be "mineral oils", as falling within CN code 38.11, and they were thus the very reverse of the products considered in paragraph 10.
12. It is when additives or extenders are produced from mineral oils that the parties are in dispute. The Appellant asserts that additives produced from mineral oils do not fall within Article 2(3) because the products are not something "in addition to the taxable products listed in paragraph 1" (i.e. Article 2(1)), because they were indeed "mineral oils", and so were one of those listed products. The Appellant also contends that as its additives do not function to power the vehicle they are not "used as fuel", so that Article 8(1)(a) would override a charge under Article 2(3), even if the Appellant was wrong in saying that there was no charge in the first place under that sub-Article. Article 8 (1)(a) would apply because the relevant use of the additives would be something other than "for purposes … as motor fuel".
13. The Respondents say that additives that constitute or are produced from mineral oils are taxable under Article 2(3). They stress the use of the word "any" in the phrase "any products intended for use, offered for sale or used as motor fuel, or as an additive or extender in motor fuels", and say that the word "any" clearly includes products that were listed in paragraph 1. They then say that Article 8(1) does not oust the charge, and they explain this first by saying that it would be absurd for the general exemption for entirely non-fuel-related uses of mineral products to reverse a charge specifically imposed on a particular use that has just been declared to be a use to be "taxed as motor fuel". Alternatively they say that in Article 8(1)(a) the reference to exempted uses of mineral products applies to mineral oils used for purposes other than as motor fuels, and did not repeat the narrower phrase of "used as motor fuels". Additives are used in connection with motor fuel, and so are (striking out the double negatives) used for purposes … as motor fuels, albeit that it was accepted that they were not used "as fuel".
14. Whilst the parties have advanced further arguments in support of their different contentions, the difference of interpretation of Article 2(3), and Article 8(1) just summarised is the main point of dispute between the parties, the wording of the 2003 Directive on this point being nearly identical.

The Appellant's contentions in more detail

15. Whilst the Appellant did not concede this, it appeared to us that the Appellant's contentions were really expressed in two different ways. The first involved strict points of interpretation along the lines of those summarised in paragraph 12 above. The Appellant also advanced what we will describe as a more substantive approach to construction, whereunder it was suggested that the drafting was designed to achieve a particular end result, and the wording of the provisions was then said to support this substantive argument. It seemed to us that the two different approaches were not supportive of each other. Indeed they were almost incompatible. However we will summarise both.
16. The points made in support of the argument along "strict construction" lines were as follows.
17. It was stressed that the opening phrase of Article 2(3), namely the words "In addition to the taxable products listed in paragraph 1", plainly applied to both of the following phrases. As regards he first following phrase, namely the words, "any product intended for use, offered for sale or used as motor fuel", the opening phrase made perfect sense. The result of the two phrases together was that newly-discovered products that were not "mineral oils", and which had not thus been treated as taxable by Article 2(2) albeit "used as motor fuel", would be so treated as taxable by Article 2(3). And if the word "any" in the phrase "any product" included "mineral oils", then that would be irrelevant and superfluous, since mineral oils would already have been treated as taxable when covered by the identical wording of Article 2(2), i.e. "if intended for use, offered for sale or used as … motor fuel". Not only would it be superfluous for the word "any" to cover "mineral oils", but it would be decidedly odd too in that the products covered by the first composite phrase of Article 2(3) were plainly meant to be newly-discovered products that were not mineral oils. And purely as a matter of wording, the words "In addition to the taxable products listed in paragraph 2, any product …" were entirely consistent with this sensible construction of the words. If the products dealt with by Article 2(3) were meant to add to the products already dealt with by the previous Article 2(3), it seemed an entirely fair inference that the products added by Article 2(3) would be different products from "mineral oils", i.e. thus not "mineral oils".
18. The Appellant then argued that the same construction had to be adopted when coupling the opening words with the second of the following phrases. Thus in the composite phrase "In addition to the taxable products listed in paragraph 1, any product intended for use, offered for sale or used as … an additive or extended in motor fuels" had to be interpreted in a similar fashion so that the products that were taxable as "additives or extenders" would also have to be "additional products", and something different from "the taxable products listed in paragraph 1". Therefore this composite phrase would only render "additives or extenders" taxable as motor fuel if they were produced from products other than "mineral oils". The Appellant's products were all produced from mineral oils, so that they were not taxable under Article 2(3).
19. The Appellant next stressed that the very opening phrase of Article 2(3) referred back to "paragraph 1" which meant Article 2(1), and decidedly not to Article 2(2). Had it referred to Article 2(2), and to the products treated as taxable by that Article, then the interpretation that the Respondents were advancing might make more sense. For one of the products dealt with by Article 2(3) would have not been taxed by Article 2(2) for one reason, and the other product dealt with by Article 2(3) would not have been taxed by Article 2(2) for a different reason. In other words the newly-discovered product used as motor fuel that was not taxed by Article 2(2) would have escaped tax under that provision solely because it had not been a "mineral oil". And the other products, additives and extenders, would have escaped tax under Article 2(2) for the different reason that, whether they were mineral oils or not, they were not used as motor fuel. In that sense both of the limbs of Article 2(3) would have dealt with something new that had fallen outside the charging provision of Article 2(2), and therefore the words "Any product … in addition [to something taxed under] Article 2(2)" would have made good sense. The critical factor however was that Article 2(3) did not refer back to products taxable under Article 2(2), but referred to the "taxable products listed in paragraph 1", which means to the list of "mineral products". Thus it was not possible to avoid the clear implication that the products dealt with by both limbs of Article 2(3) (i.e. newly-discovered products used as motor fuels, and additives or extenders) were both required to be something "in addition to mineral oils".
20. Consistently with the above arguments, the Appellant pointed out that even if its above argument was wrong, Article 8(1) (a) would in any event override any tax change on mineral oils used as additives or extenders, except where the additives or extenders were used as fuel. As has already been mentioned various alcohol products are apparently used in proportions as large as 30% with mineral oils in fuels, and the alcohol products then perform as fuels. Thus, regardless of which limb of Article 2(3) might have been treated as applicable in bringing the alcohol products into charge (i.e. whether they were charged as "other products used as fuels" or "additives or extenders"), Article 8(1)(a) would not provide an exemption for the two reasons that the alcohol product was not a mineral oil, and it was used as motor fuel. The Appellant's products were however mineral products and it was admitted by the Respondents that they were not used "as motor fuels", so that the Appellant contended that Article 8(1)(a) would override any charge even if the above arguments in paragraphs 17-19 were wrong.
21. It seems to us to be fair to summarise the effect of what we describe as the Appellant's strict points of interpretation as follows. Additives or extenders constituting mineral products are not taxable under Article 2(3) because they do not consist of "additional products", beyond those listed in Article 2(1), and are in any event exempted by Article 8(1)(a). Additives or extenders consisting of non-mineral products are taxable under Article 2(3), and cannot be exempted by Article 8(1)(a) because that Article only exempts mineral products.
22. We turn now to the Appellant's alternative argument which we have described as the more substantive argument. We should add that the Appellant did not express the two arguments as "alternatives", though it seems to us that they are different, and indeed not particularly consistent.
23. The substantive argument was that additives were taxable when they were "fuel-like". None of the Appellant's additives were used as fuel, and so it was suggested that they were not "fuel-like". The basis for saying that the charge under Article 2(3) on additives only applied to "fuel-like" additives was that one had to concentrate on the compound expression, namely the words "used as motor fuel, or as an additive or extender in motor fuel". It was suggested that products such as ethyl alcohol, which were not mineral oils, would not ordinarily be called motor fuel or ordinarily be thought to have a use as motor fuel. Thus if the charging words of Article 2(3) had referred only to "products used as fuel", there would have been no charge on ethyl alcohol, which was more realistically described as an additive. By virtue of the composite phrase, however, it was only fuel-like additives that were taxable, but since ethyl alcohol was fuel-like it was the sort of additive that was taxable. Other non-fuel-like additives were not caught by the composite phrase and so were not taxable.
24. Some support for the Appellant's argument was said to derive from the treatment accorded by HMRC to lubricants, generally produced of course from mineral oils. It was not disputed that the oil lubricant in a 4-stroke engine, pumped up from the sump to the cylinder head and pumped through the crank shaft to the "big-ends" was not an additive to fuel and so was not taxed. Even the oil in a 4-stroke engine would slowly be consumed by combustion but this was not sufficient for it to be treated as an additive to fuel. Much more significantly, the oil added to petrol in a 2-stroke engine was not in fact taxed either, notwithstanding that the oil was added to the fuel and that it thus appeared to become an additive, albeit a lubricant additive and not a fuel-like additive. We were told that the oil could be added to the fuel in one of three ways. Either both petrol and oil could be separately poured into the fuel filler pipe; or a pre-mixed petrol/oil combination could be poured into the fuel pipe, or the oil could be injected into the combustion chamber when the fuel was ignited. The Appellant contended that this acknowledged treatment of 2-stroke mixture supported its case that non-fuel-like additives were not taxed, so that its non-fuel-like additives should also not be taxed. We will comment below on the treatment of 2-stroke lubricating oil, though should say at this point that counsel for the Respondents argued that the present case had nothing to do with lubricating oils and that we should not deal with lubricating oils.
25. The respect in which it seems to us that the Appellant's two arguments are not particularly compatible is that on any fair construction of the words, the result of the argument based on strict interpretation is that whether or not additives and extenders produced from "mineral oils" are excluded from charge, we find it difficult to see that an additive produced from non-mineral oils can be excluded from charge, even if its function is to clean or lubricate, and so not to be remotely "fuel like". Furthermore, whilst there was no scientific evidence on this point, we rather assume that if an expert was asked whether additives produced from mineral oils were more or less likely to be "fuel-like" than additives produced from non-mineral oils, we suspect that the mineral oil additives would be more likely to be "fuel-like". Thus the interpretation argument seems to suggest that the wrong additives are taxable and not taxable if the "fuel-like" test is to be applied to the additives that are seemingly chargeable without dispute under the interpretation argument.

The Respondents' contentions

26. The Respondents contended first that it was extraordinarily odd to suggest that the Directive would distinguish between additives and extenders produced from mineral oils, and those produced from other substances, and odder still for the charge to be imposed on the less likely category of product, and not on the core subject matter of the charge to excise duty, namely mineral oils.
27. The Respondents then contended that Article 2(3) of the Directive did contain the words "any product", and that "any" naturally meant "any, including mineral products".
28. It was then contended that there were two reasons why Article 8(1)(a) did not exclude the charge. First, it was inconceivable that there should be a specific charge on additives and extenders under one provision that could apply to mineral oil products as well as other products, only for that charge to be eliminated by general wording whose wider purpose was clear and obvious. In other words, the 1992 Directive intended to require all Member States not to charge excise duty or similar taxes on non-motor fuel and non-heating fuel uses of mineral products and this was aimed at countless products such as plastics. It was not meant to reverse a specific charge just imposed.
29. Secondly it was suggested that a wide interpretation might be given to the wording of Article 8(1)(a) when it was observed that it referred to "mineral oils used for purposes other than as motor fuels or as heating fuels", instead of referring to "mineral oils used as motor fuels or as heating fuels". The addition of the further words covered the use of additives which when performing a cleaning function could be said to be used for the purpose of motor fuel, even though not constituting fuel or serving as fuel itself.

Our Decision on the points of interpretation in relation to the 1992 Directive

30. We firstly reject the Appellant's substantive argument. We find nothing in the wording at all that supports the proposition that the intention or effect of Article 2(3) is only to tax fuel-like additives and extenders. It would actually seem perfectly possible for the various alcohols to be taxed under Article 2(3) as fuels, rather than under the other limb dealing with additives and extenders, but whether or not this is so we see absolutely nothing in the wording of Article 2(3) that suggests that only one category of additives, fuel-like ones, should be taxable. Beyond this clear conclusion on the wording, it seems odd that the more natural reading of the words (assuming at this stage that the Appellant's contentions on strict interpretation are correct) is that the charge would be imposed on non-mineral oil additives, rather than those perhaps more likely to be fuel-like, namely mineral oil additives. We entirely accept that all of the Appellant's mineral oil additives are not fuel-like, but we still assume that the additives more likely to be fuel-like would be the mineral oil ones, rather than the ones that on the Appellant's strict construction are the only ones to be taxed.
31. We accept the point made by counsel for the Respondents that Community Directives should be interpreted purposively. We also agree with counsel for the Respondents that it seems extraordinarily counter-intuitive that a charging provision that essentially imposes tax on mineral oils when used for certain purposes should then impose tax on additives and extenders which are not necessarily used as fuel at all, and then distinguish between additives and extenders produced from mineral oils and from other products, and impose the charge only on the latter. In other words it would appear, on this approach, to be imposing the charge on the wrong category of additives and extenders, were it the intention to distinguish between the two categories.
32. We therefore approach the matter of interpreting the provisions from the perspective that;-

•    there is nothing in the wording of Article 2(3) that supports the Appellant's substantive argument that the charge should only be imposed on "fuel-like" additives;

•    the Appellant's strict construction of the wording of Article 2(3), while appearing persuasive as a matter of strict construction, appears to produce a result which we believe cannot have been intended; and

•    we agree with the Respondents that a construction, if tenable, that imposes a charge on all additives and extenders, regardless of whether they are produced from mineral oils or other products would appear to produce a far more sensible result, and one that it can fairly be assumed that the draftsman had in mind.

33. We certainly accept that Article 2(3) is badly drafted and that it contains three points that confuse the drafting.
34. Firstly by incorporating two concepts, namely the charge on new fuels not produced from mineral oils, and also the charge on additives and extenders (where there is every expectation that the charge was meant to be imposed regardless of whether the additives and extenders were produced from mineral oils or other substances), and then by prefacing them both with the phrase that they are both meant to be products that are additional to mineral oils, considerable confusion is caused. The "additional" notion makes perfect sense in relation to the "new fuels" limb of Article 2(3) and it appears initially to make no sense in relation to the second limb dealing with additives and extenders.
35. The second curious thing about the drafting lies in the fact that the opening wording refers back to Article 2(1), and to the list of mineral oils, rather than to the items taxed under Article 2(2). Had it referred back to Article 2(2), then both categories of product charged under Article 2(3) would have in some sense been products additional to those charged under Article 2(2). New fuels would plainly be an additional item to be charged because Article 2(2) only charged mineral oils. And additives and extenders would have been an additional item to be charged because Article 2(2) only applies to fuels, and not to additives and extenders, at least unless they already rank as fuels. The opening phrase of Article 2(3) does however commence with the words "In addition to the taxable products listed in paragraph 1…" (i.e. in Article 2(1)), so that it appears at this stage that the coherent structure that would have existed had the reference back been to Article 2(2) cannot be established.
36. It seems to us however that the clue to the proper interpretation of these three linked sub-Articles is that there is a third drafting slip in the opening words of Article 2(3) in that it refers to "the taxable products listed in paragraph 1", and no taxable products are listed in paragraph 1 at all. Paragraph 1 simply lists various products and provides that the term "mineral oil" shall apply to the listed products. It does not as such charge tax at all, and it is not the case either that mineral oils as such are taxable products. They are taxable of course if they are used, offered for sale or intended for use as motor fuels or heating fuels, just as they are specifically not to be taxed if they are used for purposes other than as motor fuels or as heating fuels.
37. It appears to us, however, that whether this was intended or not, the wrong reference to "taxable products listed in paragraph 1" contains the key to the proper and sensible interpretation of these three related sub-Articles.
38. There is only one provision that can possibly be contemplated by the opening phrase of Article 2(3) which refers to "taxable products", and that is of course Article 2(2) because, leaving aside Article 2(3) itself, Article 2(2) is the only provision that actually imposes tax on mineral oils when used in a particular way. Thus because the reference is to "taxable products", we decide that a fair and unstrained construction of the opening words of Article 2(3) is that they mean "In addition to the products listed in Article 2(1), when taxable in accordance with Article 2(2)….". It immediately follows from this construction that the rest of Article 2(3) makes perfectly good sense because both limbs of the Article then charge tax on something additional to the items listed in Article 2(1) and taxed in accordance with Article 2(2). Whilst this point of construction was not put to us in argument, it seems to us that it is plainly right, and that it is not straining the language. The realisation that no taxable products are listed in paragraph 1 at all indicates that there must be this implicit cross reference back to both of the earlier paragraphs, and it is this that undermines in our view the Appellant's argument on strict construction.
39. We accordingly decide that Article 2(3) imposes a charge on all additives and extenders, whether produced from mineral oils or from other substances. We turn now to the next issue of whether Article 8(1) exempts those additives and extenders from the charge when they are produced from mineral oils.
40. We agree with the Respondents that it would not be coherent for additives and extenders produced from mineral oils to be exempted from charge whilst others were left in charge. We also agree with the Respondents that it would be singularly odd for a charge specifically to be applied to additives and extenders and for that charge then to be overridden by a general exemption more obviously designed to ensure that use of mineral oils in producing plastics and countless other products should not be taxed.
41. We do not agree with the Respondent's technical argument on the wording of Article 8(1)(a), to the effect that the words "used for purposes" are wider than the word "used" in the phrase "used as motor fuel", so that a fuel-connected use is treated as a use as fuel. The words "used for purposes" appears in the wrong part of the sentence for this to be a tenable construction. The phrase "used for purposes other than" is addressing all the other possible uses of mineral products, and contrasting them with "use as motor fuels or as heating fuels". The Respondents are trying to reconstruct the sentence as if it said "mineral oils used for purposes other than any use for the purpose of motor fuels or as heating fuels."
42. It seems to us that a far preferable reconciliation between Article 2(3) and Article 8(1)(a) lies in the argument that Article 2(3) provides that additives and extenders "shall be taxed as motor fuels". Additives and extenders are effectively deemed to be fuels, and we decide that it therefore follows that Article 8(1)(a) no more exempts something deemed to be fuel from charge than it exempts motor fuel from charge. This entirely accords with the more general argument that the general exemption can hardly be expected to override a specific charge which we also consider to be a sufficient justification for our decision.
43. We accordingly decide that additives and extenders in motor fuels, whether produced from mineral oils or from other substances are taxable under Article 2(3) and are not exempted from charge by Article 8(1) of the 1992 Directive.

The provisions of the 2003 Directive

44. We can deal with the provisions of the 2003 Directive quite shortly, because they are in very similar terms. There are three relevant differences. The first is purely that of a changed definition in that "mineral oils" become "energy products", but this is purely a change of name and it has no effect on the points made in relation to the 1992 Directive.
45. The second point of difference is that the equivalent of Article 8(1) of the 1992 Directive, numbered Article 2(4) in the 2003 Directive, does not provide any longer that "Member States shall exempt" the non-fuel, non-heating uses of mineral oils. It simply states that "This Directive shall not apply to … energy products used for purposes other than as motor fuels or as heating fuels." This would be a very material change if we were to decide that the Appellant succeeded in its basic argument that an Excise Duty charge was not required and imposed by the critical Article of the 2003 Directive, again in fact by Article 2(3), because the Respondents would then advance their argument that the change in concept from "exemption" to "outside the scope" involved in the changed wording of the new Article 2(4) would have enabled HMRC to impose a charge to duty on additives and extenders under the UK domestic legislation. Such a charge is imposed and the Respondents would thus have advanced a second justification for the charge.
46. There is one other change between the 1992 and 2003 provisions and that is contained in the wording of one of the paragraphs of Article 2(3) which now reads as follows:-

"In addition to the taxable products listed in paragraph 1, any product intended for use, offered for sale or used as motor fuel, or as an additive or extender in motor fuels, shall be taxed at the rate for equivalent motor fuel"

The change in wording is in the final words where the earlier wording that provided that additives and extenders should be "taxed as motor fuel" now provides that it shall be "taxed at the rate for equivalent motor fuel". The possible significance of the change is in the context of the point that we made in paragraph 42 above, where we concluded that the wording of the earlier Article effectively deemed additives and extenders to be fuel.

47. Whilst there is a change in the wording, we do not consider that this change affects our conclusion. If there is a specific direction that additives shall be taxed at the rate for equivalent motor fuel, we consider that the additive is still being taxed "as fuel", so that when the wording of Article 2(4) is considered (this being for present purposes in identical terms to the previous wording of Article 8(1)(a)), we consider that the use of the additive is still to be treated as a fuel use, rather than a use "for purposes other than as motor fuels". In any event, we consider that the general exemption (plainly aimed at countless non-fuel, non-heating uses of energy products) cannot override, and thus render entirely pointless a specific and detailed charge just imposed on fuel additives and extenders. On this alternative, and additional, ground we consider that the charge imposed by Article 2(3) is not overridden by Article 2(4).

2-stroke engine fuel

48. We considered that the meaning of the various Articles considered above was sufficiently clear for us to decide the points of interpretation without dealing with the point raised by the Appellant that if HMRC applied the interpretation of additives that they have advanced in this case consistently then it should follow that the oil and lubricant content of 2-stroke fuel should be taxed as an additive in the same way that the Appellant's products are taxed.
49. We understand the basis on which lubricant used in a 4-stroke engine is accepted not to be taxable. It is plainly not fuel, and so could only be taxed if it were an additive to fuel. Since it is injected into the engine otherwise than by the fuel line, and is only consumed at a very slow rate, this being an unfortunate inefficiency of the process that engineers would prefer to eliminate if they could, it seems undoubtedly correct to conclude that lubricating oil in a 4-stroke engine is not fuel or a fuel additive.
50. Taking the example of a pre-mixed petrol and oil fluid poured into the fuel filler cap of a 2-stroke engine, the explanation of why the oil is not then treated as an additive is a little more difficult. One possible explanation is that the treatment is concessionary, but this would seem not to be consistent with the Directive. Another possible explanation which has nothing to do with science or with the issue of whether the oil might or might not strictly be an additive is simply that to treat the oil in 2-stroke mixture as not being an additive at least creates a symmetrical position with the oil used in a 4-stroke engine. Another possible explanation is a linguistic and again not a scientific one. As a matter of common speaking if a person was asked what to put into a 2-stroke engine, the answer would commonly be "a mixture of petrol and oil". In other words two different substances would be mixed or mixed in the tank on being put into the filler separately, but people would naturally refer to putting petrol and oil into a 2-stroke engine. They would never say that they just put petrol in, treating the oil as an un-mentioned additive. Whether this is the explanation we do not know, but we simply observe that;-

•    there is something slightly curious about the treatment of 2-stroke mixture (particularly when offered for sale as a pre-mixed combination of the two components); but that

•    we nevertheless have no doubt that the curious treatment of 2-stroke fuel mixture does not influence us to change our decision on the basic interpretation of the provisions that we have reached above.

The third issue, and the proper interpretation of Article 2(4) of the 2003 Directive and the provisions of Article 3 of the 1992/12 Directive.

51. Had we decided the point of interpretation under the 2003 Directive in favour of the Appellant, the Respondents would still have argued that because Article 2(4) no longer required Member States to exempt non-motor fuel and non-heating fuel uses of energy products from Excise Duty, and merely provided that they were outside the scope of the 2003 Directive, it was open to HMRC to tax additives (or "energy product" additives) under UK domestic law. The Appellant argued however that the provision of Article 3(2) to the 1992/12 Directive still precluded the UK Parliament from enacting a law imposing an excise duty on additives, unless the conditions of that Article were satisfied.
52. Article 3 (1) provides that the Directive:

"shall apply at Community level to the following products as defined in the relevant Directives:

- mineral oils"

Article 3 (2) provides that:-

"The products listed in paragraph 1 may be subject to other indirect taxes for specific purposes, provided that those taxes comply with the tax rules applicable for excise duty and VAT purposes as far as determination of the tax base, calculation of the tax, chargeability and monitoring of the tax are concerned."

Article 3(3) provides that:-

"Member States shall retain the right to introduce or maintain taxes which are levied on products other than those listed in paragraph 1 provided, however, that those taxes do not give rise to border-crossing formalities in trade between Member States".

53. It seems to us clear that it cannot be argued by the Respondents that the provisions of the Hydrocarbon Oil Duties Act 1979 (that clearly impose Excise Duty on motor fuel and additives in the way that we have concluded was justified by the terms of both the 1992 and 2003 Directives) could have fulfilled the conditions of Article 3(2) of the 1992/12 Directive just quoted, were our decision on the interpretation of the 2003 Directive to be over-turned on appeal, because the charge on additives was simply a part of the overall charge on fuel and additives. There was accordingly no aim to impose "an other indirect tax for specific purposes" in the manner that the case law of the ECJ clearly demonstrates is required for a tax to be imposed under the enabling provision of Article 2(3). As we understand the contention on behalf of the Respondents, they were indeed not purporting to operate under the enabling provision of Article 2(3) of the 1992/12 Directive, but rather contending that they were free to impose any Excise Duty that they chose to impose, absolutely disregarding "special purposes". The Appellant by contrast contended that the domestic tax provision could only be imposed under the enabling wording of Article 2(3) and that because the UK Parliament had not even purported to do that when including additives with fuel in the provisions of the Hydrocarbon Oil Duties Act 1979, the charge on additives would have been in breach of the Directive.
54. We refrain from making any decision on this issue because:-

•    in the light of our decision on the point of interpretation in relation to the provisions of Article 2(3) of the 2003 Directive, which require rather than simply justify the imposition of the tax on additives, the further question is irrelevant;

•    the further question is also of wider relevance than the rather tight points of interpretation on which we have given our decisions; and

•    the point in dispute is very nearly touched on in the Opinion of Advocate General Sharpston delivered on 19 April 2007 in the Joined Cases C-145/06 and C-146/06, Fendt Italiana Sri v. Agenzia Dogane Ufficio Dogane di Trento, albeit that we confess to remaining unclear whether the Opinion justifies the domestic law charge by reference to Article 3(2) or on the broader basis that Member States are free to do whatever they are not precluded from doing. We tentatively assume the latter. However the judgment itself has not been delivered and were we to make any decision on the point, it would be likely to be confusing at the least, and possibly overtaken by the judgment in the case just referred to.

We accordingly have no doubt in saying that for these reasons we will not reach any decision on the points in dispute under the 1992/12 Directive.

55. We were asked by counsel for the Respondents to refrain from reaching decisions on the points under the 1992 and 2003 Directives where we have given our decision. While we accept that the Directives were badly drafted so as to occasion doubt as to the intended meaning, just indeed as the provisions material to the dispute referred to in paragraph 54 are also badly drafted, we nevertheless considered that;

•    it was open to us to reach a decision because we were not the final court of appeal;

•    the Appellant requested us to make the relevant decisions because the case might thereby the resolved much more quickly;

•    should the Appellant appeal our decision, it is still open to the Appellant to join with the Respondents in making what might then well be a joint request that this case be referred to the ECJ;

•    if the Appellant is reluctantly content to accept our decision and not to appeal our decision, the case will have been dealt with more swiftly and more cheaply than would have been possible with a reference to the ECJ; and finally

•    we considered the point of interpretation to be a relatively straight-forward one once we concluded that the purposive construction of the relevant provisions did match what we consider to be the correct strict construction of the provisions.

Costs

56. Counsel for the Respondents asked for an award of costs in the event that the Respondents succeeded in this appeal as they have done. It was argued that the sums at stake and the difficulty of the case meant that the case fell clearly within the Ministerial Statement indicating where HMRC would generally seek an order for costs in such appeals.
57. We accept the point that the case fell within the terms of the Ministerial Statement, as just suggested. The Appellant contended however that the proceedings had been brought at all stages, until the Respondents' Skeleton Argument was filed approximately one week before the hearing, on the basis that the Respondents would not seek their costs. In the light of this we will make no order for costs at this stage in the hope that the parties will refer to whatever had been agreed, and then act accordingly. Should the parties be unable to agree the costs issue amicably, they should apply for a Hearing before this Tribunal, with the current Chairman sitting on his own, in order to resolve the costs issue.

HOWARD M NOWLAN

CHAIRMAN

RELEASED: 4 May 2007

LON/2005/8108