United Kingdom VAT & Duties Tribunals (Excise) Decisions

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URL: http://www.bailii.org/uk/cases/UKVAT/Excise/2008/E01138.html
Cite as: [2008] UKVAT(Excise) E1138, [2008] UKVAT(Excise) E01138

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Pierhead Purchasing Ltd v Revenue & Customs [2008] UKVAT(Excise) E01138 (03 September 2008)

E01138

Excise duty - Appeal against review decision in relation to seizure of 18,000 bottles of whisky - Inaccuracies in completion of AAD form - Restoration subject to payment of duty although export likely – Need for proportionality in conditions for restoration – Condition unreasonable – Appeal allowed - Directions given as to matters to be taken into account at further review and indications of compensation that Customs should consider giving to Appellant - General indications of how a case such as this should have been handled

LONDON TRIBUNAL CENTRE

PIERHEAD PURCHASING LIMITED Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: HOWARD M NOWLAN (Chairman)

SUNIL K DAS, ACIS

Sitting in public in London on 28 July 2008

John Shelley of Shelley & Co, Chartered Tax Advisor, for the Appellant

Sarabjit Singh, counsel, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

Introduction

This was an Excise Duty case where there has already been one Tribunal hearing, and three review decisions, albeit that one of them was agreed by all to be invalid. We are going to order a fourth or third valid review, notwithstanding that counsel for the Respondents contended that this would be pointless because the outcome of that review would be the same as the outcome of the last review. We will explain why we consider first that the outcome of the review should indeed be different from that in the last review. We will also suggest that the Commissioners should give very serious consideration to compensating the Appellant for the losses that the Appellant has incurred as a result of the various actions on the part of the Commissioners.

The case involved the seizure in September 2004 of approximately 18,000 bottles of fairly low quality whisky, on account of various errors in completing the AAD form that accompanied the whisky on its intended transfer from a bonded warehouse in Germany to a bonded warehouse in the United Kingdom. The Appellants, the United Kingdom purchasers of the whisky, who had been totally unaware of the errors in the AAD form, requested a review in January 2005 of the decision in which the refusal to return the goods was confirmed. The refusal to return the goods was again confirmed. Leaving aside at this stage the detail of a confused further review which all admitted now to have been invalid, in June 2007 the third review accepted that the whisky should be returned to the Appellant, on payment of the full duty. By this time however the Appellant was seriously concerned that the whisky would have been rendered unsaleable by virtue of its retention beyond its sell-by date, and the Appellant was also reluctant to pay the duty when the whisky would either be destroyed or sold for export, in either of which events the duty would be refunded. The Appellant claimed that in its experience there could be 6-8 month delays in refunding duty, and that as the cost of the duty now considerably exceeded the value (if any) of the whisky on account of the deterioration of the whisky by its retention for 3 years, it could not pay the duty when it was virtually certain that no duty would ultimately be owing. The Appellant contended that the errors in the AAD form were "trivial", and the Appellant's representative also remarked candidly that this was a case that should never have been brought, since as a matter of common sense the whisky should have been returned to bond, following the initial seizure, without the duty being charged. We agree with those contentions and observations. In fact if the Commissioners had at the outset been prepared to release the whisky immediately against payment of the duty, we do not think that that decision would have been unreasonable or that the Appellant would have objected to it. In the circumstances that now prevail, however, we consider that the release of the whisky on payment of the full duty is no longer an appropriate outcome, and we consider that the Appellant has a serious grievance in this case that should be redressed.

The relevant law

The following are the few legal points that appear to be relevant in this case. First it is clear that when dutiable goods such as the whisky in this case are in a bonded warehouse, duty must be paid on their removal from the warehouse, unless inter alia they are to be moved to another bonded warehouse. When they are to be so removed, the transferring warehouse operator must complete a form referred to as the AAD form, and European Regulations require the form to be completed accurately, in all its various boxes. The form must then accompany the goods in transit, and if on inspection by HMRC officers any error is found in the form, however trivial that error may be, the goods are treated as having been removed from bond, occasioning an immediate liability to pay the duty, and the removal is taken to have occurred in the country where the irregularity has been detected. The goods can thereupon be seized by the officers, and then matters might proceed in a variety of different ways.

At the extreme end of the scale, the goods might never be restored to the owner, the vehicle in which they were being transported might also be seized and further penalties might be imposed. In a less serious case, the goods might be returned to the owner, against payment of the duty, and once the duty is paid the goods would then be treated as "duty paid" goods that could be traded freely in the United Kingdom. If at a subsequent point the goods were exported rather than sold in the United Kingdom, or if indeed the goods were destroyed because their condition rendered them unsaleable, the duty paid would be refunded. The Appellant had considerable experience of trying to recover duty and indicated that there was often a delay of 6-8 months in getting the duty refunded from the date when the refund was claimed.

Another possibility is that if the HMRC officers consider that returning the goods on payment of the duty would for some reason be unduly burdensome for the owner, the goods could be released back into bond, whereupon no duty would be payable immediately; none would be payable if the goods were re-exported or transferred to another bonded warehouse, and duty would of course be payable if the goods were later removed from bond to be sold freely in the United Kingdom.

Customs and Excise officers are meant to make their decision as to what to do with goods seized for some infringement, such as there being some slip in the form AAD, "proportionate". Where their decision is challenged by the owner of the goods, this Tribunal can order a review of the case if the Tribunal considers that the treatment has been unreasonable.

Whilst the following point is not strictly a legal point, we should add that it is the responsibility of the "consigning" bonded warehouse to complete the form AAD, albeit that if there is some slip in the form which comes to light when the goods have been sold, say, to a United Kingdom buyer and the goods are in transit to a bonded warehouse in the United Kingdom, the party that suffers if the goods are seized is the current owner of the goods. We asked the Appellant in this case if there was any practice of consigning warehouses contracting or warranting that they had completed the forms accurately, so that losses resulting from errors in the AAD form would fall upon the party that had failed to complete the form accurately in every respect, and we were told that there was absolutely no practice of there being such indemnification. It follows that in a case such as the present, where an irregularity has been detected in the AAD form, the United Kingdom purchaser (where the error is detected in the United Kingdom) is at risk of losing the goods that it owns, notwithstanding that it did not complete the relevant form itself, and notwithstanding also that in most cases it will not even have seen the form prior to being notified by HMRC officers that its goods have been seized for some irregularity.

The facts

The facts are very simple. The Appellant purchased from a vendor in Germany approximately 18,000 bottles of Lawrence Whisky in about September 2004 for roughly £20,000. The whisky was held in a bonded warehouse in Germany, and the purchaser arranged for transport of the whisky from Germany to the United Kingdom, the intention being that it would be transferred from the bonded warehouse in Germany to a bonded warehouse in the United Kingdom operated by a company affiliated to the purchaser. The Appellant's objective in buying the whisky was to remove it from bond, at that point paying the duty of just in excess of £100,000, and sell it to various London hotels for consumption in the Christmas season of 2004.

The whisky was seized at Dover by HMRC officials because the AAD form that accompanied the whisky on its transfer from the German bonded warehouse to the United Kingdom bonded warehouse contained a number of errors. The errors largely replicated errors that had been in the previous AAD form that had accompanied the whisky on an earlier transfer from a Belgian seller and a Belgian bonded warehouse when the whisky was sold to the German seller that later sold to the Appellant. Clearly the operator of the German bonded warehouse simply copied out the details from the earlier form, save where it was obvious that the answers should be changed to reflect the new transaction, rather than the earlier sale from Belgium to Germany.

In fairness to the Respondents we should confirm that there were a number of errors in the completion of the form. The Appellant contended that most of the errors were trivial, and we did not explore whether many of them were trivial or not. The fundamental argument on behalf of the Respondents did not render this factor to be of much importance. This was because it was basically argued that the European Directive that laid down the requirements of the form, and the stipulation that every item had to be completed correctly paid no regard to whether the errors in any of the 24 boxes on the form were trivial or not. Indeed even if boxes were left blank, rather than crossed through, that would constitute an error, and the result of the error was that the goods being transported were immediately treated as having been removed from bond, whereupon they were liable to seizure, and at the very least the full duty was immediately due. The Respondents also contended, quite correctly, that the goods were liable to seizure regardless of the fact that the Appellant, the owner of goods that had been seized, had taken no part in completing a form that, at the point of seizure, it had not even seen.

Whilst we did not explore the contention that all of the errors were trivial, it certainly seemed to us that those to which attention was given (seemingly the more important) were fairly trivial, and there was no suggestion that they were somehow directed to securing any avoidance of duty. We turn now to the few errors that were commented on and explored in a little more detail.

Somewhat perversely, HMRC officers initially contended that two boxes that were meant to indicate the identity of the consigning bonded warehouse, and the transferee bonded warehouse, had been wrongly completed and should have identified the seller and purchaser instead. The boxes had in fact identified the correct information, namely the identity of the bonded warehouses, and since the bonded warehouse system relies strongly on the feature of consignment from one bonded warehouse to another, we thought that these two boxes were indeed important. The fact therefore that the form gave the correct information in these two boxes was highly significant, and it was somewhat disturbing that HMRC officials made their initial decisions, whilst advancing incorrect points in relation to the information in these two boxes.

There was some considerable discussion about errors in two adjacent boxes, one dealing with the description and packaging of goods being transported and the other headed "Quantity". The insertions in the former box indicated that the transferred goods consisted of 18,411 bottles of Lawrence Whisky, each bottle being of 0.70 l, and an alcohol content of 40%. The second box contained the quantity number 5155.08 litres.

The first dispute about the content of these two boxes was that HMRC officials counted the pallets and the bottles, and claimed that there were 18,273 bottles. They then corrected this and said that their first count had been incorrect, and that they now thought that there were 18,261 bottles. Some of the difficulty in calculating the correct number of bottles resulted from the fact that although most of the pallets contained a full quantity of bottles, one or two contained odd numbers. The Appellants contacted the consigning warehouse personnel who confirmed that the bottles had been counted on three occasions and that there were found to be 18,411 bottles on all three counts. The Appellants have asked to be allowed to examine both the condition and quantity of the seized goods and have not been allowed to do either. Accordingly we were unable to conclude whose count had been correct. It was mentioned that the goods were transported in a canvas sided truck, from which theft was said always to be a possibility, but there was no evidence that any of the bottles had been removed in transit. All that we can do is to conclude that we do not know how many bottles are currently held, but we do note that as the AAD form indicated that there were more, rather than fewer, bottles in the consignment, with thus the possibility that if duty ended up being paid on the wrong quantity of bottles it might be paid on more bottles than in fact there were, this seemed to be an error of no significance to the proper collection of duties. Furthermore, if 150 bottles had at some point been stolen, it seems rather onerous on the unfortunate owner whose goods have been stolen that HMRC subsequently seize the rather more significant quantity of bottles that had not been stolen.

The other point of dispute in relation to the contentious two boxes on the form related to the number, namely 5155.08 litres, that appeared in the "Quantity" box. Great significance was placed on this error in the second valid Review Decision in that the Reviewing Officer, after mentioning various other trivial errors, remarked that:-

"It is my view [that] the discrepancies recorded above must throw into question the veracity of the document concerned. Therefore, I consider that during the course of this movement an irregularity has been detected, in that the volume declared on the AAD differs greatly from the volume that was imported".

We will comment in due course on whether we consider that summary and conclusion to be realistic and to be a reasonable inference to be drawn from the content of the two boxes.

The earlier Reviews

The whisky was originally seized along, for a short period, with the lorry in which it was being transported, on 16 September 2004. Notice of seizure was given on 11 December 2004. On 16 December Mr. Shelley, the Appellant's representative in this case, applied for restoration, and was informed on 25 January that restoration was refused. On 31 January Mr. Shelley asked for a Review and on 1 March the conclusion of the Review was that the decision to refuse restoration was confirmed.

Matters then became somewhat confused, and it is unnecessary to summarise the facts in detail. In the course of an Application to this Tribunal to order a further Review, on 25 July 2005 HMRC wrote to Mr. Shelley conceding the appeal and stating that they consented to the Tribunal agreeing to a re-review and that they would pay the Appellant's costs to date. There was then a further Review, which was held by the Tribunal to have been invalid, but the outcome of this Review was that the goods would be restored to the Appellant on payment of the full duty. There was then discussion between the parties, and it was alleged by the Respondents that the Appellant had agreed that the dispute would be settled on the terms of the invalid Review. By November 2005 the goods had not been collected from the Queen's Warehouse and HMRC officers notified the Appellant that the goods would be disposed of if not collected within 14 days. In early December 2005 the Appellant notified HMRC that they had sold the goods free of duty for export, so that it would amount to a penalty for the goods only to be restored on payment of the full duty, since no duty would be owed on the exportation of the goods.

In short, the outcome of the Tribunal Hearing on 8 December 2006 before Theodore Wallace was that the Review referred to in paragraph 17 was held to have been invalid (rightly it was conceded by counsel for HMRC in the current hearing) and Mr Wallace also held that there had not been an agreement to settle or indeed any agreement at all. That decision, E1014, is reported at [2007] V&DR 102.

There was then a further Review, the third, or the second valid, Review in June 2007, in which we are not clear precisely what was argued, though nevertheless we understand that the Appellant had certainly intimated by this time that it seemed extremely likely that the only possible sale of the whisky would be an export sale; that having paid £20,000 for the whisky it was not prepared to pay £100,000 in duty to achieve the release of the goods when the duty would be refundable on export and when experience suggested that there would be a 6-8 months' delay in refunding the duty. It was obviously explained that one export sale had already been lost on account of the failure to release the goods and the Appellant's reluctance to pay the duty, only to have to reclaim it. Whatever was argued, the outcome of the Review was that the goods would only be restored on payment of the full duty. In two paragraphs that we find slightly contradictory, the Reviewing Officer said the following:-

"I am of the opinion that the application of the Commissioners' policy in this case treats your client no more harshly or leniently than anyone else in similar circumstances, and I can find no reason to vary the Commissioners' policy not to restore in your client's case.

For the reasons set out above I conclude that the seized excise goods should be restored to your client on payment of the excise duty considered due, £100,077.57"

We have already quoted a passage from this Review, at paragraph 15 above, where we think it reasonable to summarise that, whilst the Review confirmed rightly that there had been a number of inaccuracies in the AAD form, the feature that stood out, and that essentially explained the decision in the Review, was the very substantial under-declaration of the quantity of goods imported.

The Appellant's contentions

It was contended on behalf of the Appellant that:-

• although it was conceded that there had been errors in the AAD form, the Appellant had been unaware of all of them, and considered most of them to be trivial anyway.

• insofar as there was a discrepancy in the calculation of the number of bottles of whisky imported, the HMRC officials had changed their own count of the bottles; they had refused to allow the Appellant to re-count them, and the figure declared on the AAD form was of a greater number of bottles not a lesser number so that under-declaration of duty seemed to be a rather unlikely concern on account of the anyway very small discrepancy;

• the large discrepancy in the stated quantity of whisky transported was accounted for not by the fact that there was any intention to understate the quantity but by the fact that the figure inserted in the relevant box addressed the quantity of alcohol, at 40% strength, and not the litres of whisky. This was made absolutely clear and transparent by the fact that the adjacent box indicated that 18,411 bottles of 0.70 litres each, with a 40% alcohol strength, had been transported. The quantity of whisky in 18,411 bottles of 0.70 litres each is 12,887 litres, 40% of which is the figure inserted in the quantity box, namely 5155.08 litres. Thus, even if the quantity box was meant to have referred to the quantity of whisky rather than alcohol, it was glaringly obvious how the discrepancy had arisen, and there was clearly no intention to underestimate the duty owing. Since the duty was payable on the alcohol and the amount of duty could not be calculated until one referred to the box indicating the alcohol content, and that box indicated that there were, on anyone's guess, about 13,000 litres of whisky in the 18,000 odd bottles, the correct figures from which to calculate the duty owing were absolutely obvious; and

• even if the Respondents were right to say that the decision to release the whisky on payment of the full duty involved no penalty, and that the duty would be refunded if the whisky was either destroyed or exported, it was still unacceptable for the Appellant to have to pay the duty;

• the fundamental reason why it was now unacceptable to have to pay the duty was that the whisky, fairly low quality whisky, had been bottled in 1996; it had a shelf life of only 10 years; it could not now be sold in the United Kingdom market; and it was now very likely completely valueless since it was now doubtful whether it would be safe to drink. An independent firm of expert whisky traders had confirmed that the shelf-life of this particular whisky would be the 10 years just stated. There were export markets where the level of duty was much lower than in the United Kingdom, so that if the whisky could be sold, say for £60,000, on a full disclosure of condition, to a buyer in such a market then a sale might be feasible, but clearly whisky could not be sold in the United Kingdom for £60,000 if it would involve payment of £100,000 to facilitate a United Kingdom sale. Since the Appellant had been refused consent to count the bottles or to examine the condition of the whisky, the Appellant was now unaware whether the whisky would be sold for export or destroyed, but it was virtually certain that it would not be sold in the United Kingdom.

The contentions on behalf of the Respondents

It was contended on behalf of the Respondents that:-

• the failure to complete the form AAD accurately resulted in the whisky being liable to seizure, and since it was deemed to have been removed from bond, duty was automatically chargeable;

• the revised decision on Review meant that no penalty was being imposed on the Appellant, because the payment of duty on whisky being removed (or being treated as being removed) from bond involved no penalty, and if the whisky was destroyed or exported, the duty would be refunded; and

• a further Review would be pointless since the last Reviewing officer had had all the information that would be available on a further Review.

Our decision

Our jurisdiction is to order a re-review if we consider that the outcome of the last review was unreasonable. We do consider that it was unreasonable, and we do order a re-review.

We do not dispute that the technical position is that if there are errors in the AAD form, then regardless of the fact that there may be no fault, or indeed even no prior knowledge of this fact, on the part of the Appellant, the goods in transit are treated as having been removed from bond, and the duty becomes chargeable. It is nevertheless also right that HMRC officers should ensure that the results of their decisions and reactions to infringements of the Regulations are proportionate, and we consider that in this case, the 2007 review was unreasonable.

We agree with the Appellant that, although there were a number of errors in the completion of the AAD form, the more serious of the errors that were commented on and explained to us in the hearing were indeed trivial. We consider that the point about the counting of the bottles of whisky was trivial in that, without our knowing whose count was accurate, the discrepancy was one under which the figure in the AAD form could only have increased, rather than reduced, the duty chargeable. We are anyway far from convinced that the second count by HMRC officers is bound to be the correct one, in part because their earlier count was wrong and in part because they have refused to allow the Appellant to count the bottles and to try to verify the figure apparently reached on all three counts made by the consigning warehouse.

We reach the conclusion even more clearly that the wrong insertion of the quantity of alcohol, rather than the quantity of whisky, in the "quantity" box on the AAD form was trivial. Indeed we consider that the passage that we quoted from the review decision in paragraph 15 above over-emphasised the significance of this error. The quoted passage suggested that there was a major mis-statement of the quantity of whisky transported, and implicitly suggested that the wrong figure could result in an under-declaration of duty. It was perfectly clear from the adjacent box that if 18,000 odd bottles of whisky, each of 0.70 litres, had been transported, the total litres of whisky involved was obviously in the region of 13,000, and not just above 5,000. This conclusion required no detailed calculation or forensic genius. The point just leapt off the form, and it was also obvious that the figure of 5,155 litres was either "inexplicable" or, given a moment's thought and the fact that the alcohol content had been indicated at 40%, the figure of 5,155 reflected the litres of alcohol and not of whisky. It might thus superficially have been right to say that the amount of whisky had been understated, in that the amount of whisky is what should have been indicated in the relevant box, but the fundamental point is that it was glaringly obvious to anyone that the form had mistakenly recorded the quantity of the wrong thing, and the litres of whisky transported was readily and instantly capable of calculation from clear information in the very adjacent box. In this regard, we conclude that the key passage in the review decision did over-state the nature and significance of the error in the AAD form, presumably with a view to trying to diminish criticism of HMRC's earlier errors and to justify a conclusion that still insisted on the full payment of the duty.

Prior to making further observations on the 2007 review decision, we now revert to considering the initial decision and the first review that even refused to restore the whisky on payment of the full duty. We not only share the view of others that that decision was plainly unreasonable, but we actually agree with the Appellant that the appropriate action for HMRC officers to have taken at the outset would have been to release the whisky back into bond without payment of the duty. The errors in the form were relatively trivial, and there was not the slightest suggestion before us that the errors were designed to facilitate any non-payment of duty, and the sensible course would have been to leave the whisky in bond. There is something quite draconian in an innocent and ignorant purchaser of goods having those goods seized and confiscated on account of trivial errors made in a form completed by someone in Germany against whom the Appellant has (and apparently can have) no redress, and it therefore seems vital to the reasonable application of the Regulations, not that they be disregarded, but that they be applied with a sensible "light touch", and with just a modicum of common sense. And we agree with the remarks of the Appellant's representative that the common sense approach in this case would have been to restore the whisky to the bonded warehouse, and that that is what should have happened.

Having made the point in paragraph 26, we would not have considered it unreasonable for the initial decision (if made speedily) to have insisted on the payment of duty and the release of the goods into free circulation. That result would after all have merely accelerated the payment of duty that would in any event have been payable when, as intended, the whisky was going to be removed from bond and sold to the London hotels in advance of the 2004 Christmas season. Furthermore the speedy release of the whisky on payment of the duty would have enabled the Appellant to sell the whisky as it intended, and so would have occasioned no hardship.

Whether HMRC officials were aware of it or not, we fully accept the proposition on the part of the Appellant that while whisky matures in cask, and high quality whiskies are often those that have matured for 12, 20 or even more years in cask, once whisky is bottled, the process of maturing definitely ceases, and we accept that the whisky in this case may now very well have deteriorated seriously. We were told that the Appellant had sought expert advice and that it was likely that the shelf life of this whisky, bottled in 1996 would have been 10 years, expiring at 2006. We were not shown this expert report but we had no reason to doubt that it was genuine. We also accept that, for two reasons, the Appellant would not now be able to sell the whisky to its usual London customers, first because the risks involved geared to claims and loss of reputation would be too serious, and secondly because once duty of £100,000 is paid, to facilitate a United Kingdom sale, it would be impossible to find a buyer for flawed product even for a price equal to the duty paid.

We accordingly accept the proposition that by the time of the 2007 review decision, the Appellant was right to have said that the whisky would only ever be sold for export or destroyed. We repeat the point that the reason why it might have been capable of being sold for export is that even with its condition disclosed, a buyer in a jurisdiction with a lower level of duty might have been able to buy the whisky for a modest price, and still sell it in that home market as perhaps very poor whisky. Were that not possible in 2007, or indeed in 2008, then the whisky would have to be destroyed, which the Appellant contended was now the likely outcome. In either of these events, no duty would ultimately be borne and we also accept that the Appellant had had bad experiences of recovering duty on re-exporting goods in the past. Thus, having had its £20,000 investment in whisky seriously reduced in value or totally ruined by a decision of HMRC officers that has already been held to have been unreasonable, we consider it very understandable that the Appellant was reluctant to lay out a further £100,000 as a prelude to establishing that the actions of HMRC had indeed destroyed 18,000 bottles of whisky.

Beyond the fact that, in addressing the 2007 review, we consider that the reviewing officer should have bent over backwards to rectify the unfortunate consequences of past errors, the particular respects in which we find the 2007 decision unreasonable were that:-

the conflicting paragraphs that we quoted at paragraph 19 above from the review decision were endeavouring to diminish any official acceptance that the initial review had been wrong, which had anyway already been accepted on the part of HMRC, as it manifestly was wrong;

the mis-representation of the significance of the wrong figure in the quantity box in the AAD form was an endeavour to suggest that the wrong statement of the quantity of goods transported was somehow contrived to facilitate a wrong payment of duty. In reality, it was obvious to anyone, quite apart from the clear explanations offered by the Appellant, that at least 12,000, not 5,000, litres of whisky had been transported, and it was equally obvious that the 5,000 figure represented the dutiable alcohol content of the whisky and not the quantity of whisky;

the continued insistence on imposing the duty when it should have been clear to the reviewing officer that the whisky would not and could not be sold in the United Kingdom, so that no duty would ultimately be owed, all when this resulted entirely from the fact that the earlier actions of HMRC decisions had ruined 18,000 bottles of whisky; and

the disregard of the unreasonable burden that the review decision would impose on the Appellant in that the payment of duty of £100,000 would involve financing a payment of five times the cost of the whisky for a considerable period, all to prove that the actions of HMRC officers had ruined the whisky.

Beyond declaring that the 2007 review was unreasonable in the circumstances that then prevailed, and ordering a re-review in which the points made in this decision should be taken into account, we think it appropriate to make the following observations:-

• as already indicated we consider that failures in completing the AAD form should be approached with "a light touch" and a modicum of common sense. We are not suggesting that any should be ignored, but when the forms are completed by the despatching warehouse, and when the sanction of confiscation of goods falls on a party that has no responsibility for, or even knowledge of, the errors, the result can be so manifestly unjust when no under-payment of duty is suspected, that the rigorous application of the rules can only be described as ridiculous, manifestly unjust, and a result that cannot foster respect for the system;

• we consider that HMRC should consider making a voluntary payment to the Appellant to compensate the Appellant for all the losses that the Appellant has suffered in this case; and

• in the event that the next review should continue to insist on the payment of the full duty, we consider that HMRC should ensure that the duty is refunded without any delay, if the Appellant elects to recover the goods on paying the duty, and then either exports them or destroys them and reclaims the duty. We consider that the financing cost of the payment of duty for a period should be regarded as a further loss incurred by the Appellants for which the Appellants should be compensated.

As a sanity test of the conclusions given in this decision, we will summarise the difference in end result between what in our view could and should have happened, and what has actually happened. We consider that initially HMRC officers should simply have returned the whisky to bond, though we repeat that had the decision been that the whisky would be restored, on payment of the full duty, and this decision had been reached immediately, that would equally have been reasonable. It would then have followed that the whisky would have been available for sale as intended, and moreover that HMRC would have collected in excess of £100,000 in duty. As it is, there have now been three reviews, with a further one to follow; there have been various Tribunal directions and hearings; 18,000 bottles of whisky have most likely been ruined; HMRC is unlikely to collect any duty (though they will do so if duty is properly due), and HMRC are being informed that we consider that they should compensate the Appellant for the losses inflicted on it. Another way of testing the sense of our decision is to observe that if, as we advocate, the whisky is returned to bond without payment of the duty, then self-evidently the Appellant will seek to sell it as quickly as possible and whether it is sold for export or brought out of bond and sold in the United Kingdom, the correct duty consequence will follow fairly swiftly. If it is exported or destroyed, no duty will be owed and that will be an end of the liability for duty, and if it is removed for free sale in the United Kingdom, duty will of course be paid. If on the other hand, the outcome remains that the duty would have to be paid as a pre-condition to the release of the whisky then the Appellant has already indicated that unless on inspecting the whisky its condition is found to be better than feared, there is a distinct possibility that the Appellant will simply abandon the whisky as being valueless, whereupon no duty would be due anyway. That, we believe, illustrates that this case demonstrates first, as Mr Wallace recorded in the previous Tribunal Hearing, that this case was an object lesson in how not to approach review decisions, but more significantly still, on how not to apply rules over-rigorously when discretion is permitted and when a sensible exercise of discretion can lead to a fair, rather than unjust, result.

We were asked by counsel for HMRC to record that he objected to some aspect of this decision, though we were not entirely clear which particular aspect he objected to.

We conclude that the Review decision requiring payment of the duty as a condition of restoration was unreasonable and direct under section 16(4)(b) that a further review be carried out in accordance with our conclusions and findings in this decision. Such review should be carried out by an officer not previously involved in the matter and the review decision should be served on the Appellant and the Tribunal within 30 days.

Costs

We award the Appellant its reasonable costs.

HOWARD M NOWLAN

CHAIRMAN

RELEASED: 3 September 2008

LON 2007/8062