United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2008] UKVAT(Excise) E1148, [2008] UKVAT(Excise) E01148

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Gerard Rourke v Revenue & Customs [2008] UKVAT(Excise) E01148 (07 November 2008)

E01148

EXCISE DUTY – Non-restoration of excise goods and vehicle – Appellant asserting own use – Respondents concede evidence of own use did not constitute abuse of process – satisfied Appellant purchased goods for own use – Review Officer did not consider own use because a matter normally reserved for the magistrates – own use a relevant fact to be taken account of – Review Officer not privy to the Appellant's full circumstances regarding exceptional hardship – was the decision not to restore the goods and vehicle reasonable – no – appeal allowed and further review directed.

MANCHESTER TRIBUNAL CENTRE

GERARD ROURKE Appellant

- and -

HER MAJESTY'S REVENUE and CUSTOMS Respondents

Tribunal: MICHAEL TILDESLEY OBE (Chairman)

ELIZABETH POLLARD (Member)

Sitting in public in Leeds on 23 September 2008

Mrs Sharon Lowrie, Appellant's daughter, appeared for the Appellant

Nigel Clive counsel instructed by the Solicitor of HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

The Appeal

The Appellant was appealing against the Respondents' decision on review dated 2 August 2007 refusing restoration of excise goods (6,400 cigarettes and 6 kilograms of hand rolling tobacco) and a motor vehicle, a Skoda Octavia, registration number MA56 BYC (hereinafter known as the vehicle).

The Appellant's grounds of Appeal were that

"The goods were bought in a country which is a member of the EU (Belgium). The tax was paid on them. The quantity was in the guidelines stated by HM Customs. The goods I purchased were for my own use. The goods my wife purchased were for our family's use. We have never sold any products"

The Dispute

On 10 May 2007 at Dover Eastern Docks, the Appellant was stopped by Customs Officers whilst driving the vehicle. Mrs Sheena Rourke, the Appellant's wife, was a passenger in the vehicle. Mr Rourke told the Officers that he had been to Calais and Belgium for a day trip and bought 16 sleeves of cigarettes and three kilograms of tobacco each. Following the interviews of the Appellant and his wife, Officer Timothy Little was satisfied that the excise goods were held for a commercial purpose and seized the goods and the vehicle.

On 14 May 2007 the Appellant requested restoration of the goods and vehicle which was refused on 11 June 2007. On 21 June 2007 he requested a review of the refusal which was conducted by Mrs Hodge on 2 August 2007 who upheld the decision not to restore the cigarettes, tobacco and vehicle.

The Appellant did not challenge the seizure in the magistrates' court but instead requested restoration of the excise goods and vehicle. The Appellant stated that he followed Officer Little's advice on the Appeal procedure, which the Appellant interpreted as steering him down the restoration route. After hearing the evidence of the Appellant and Officer Little, Respondents' counsel acknowledged that the Appellant may have genuinely misinterpreted Officer Little's advice. In those circumstances the Respondents conceded that it would not be an abuse of process for the Tribunal to consider the facts relevant to the seizure when considering the reasonableness of Mrs Hodge's decision.

The factual issue in dispute was whether the Appellant imported the excise goods for own use or commercial purposes. Own use includes use as a personal gift. The Appellant stated that the cigarettes and tobacco were purchased for himself and his sons. In support of his assertion of own use the Appellant relied on the facts that the quantities of cigarettes and tobacco did not exceed the indicative levels, the goods were not concealed in his vehicle and that he had the means with which to pay for them. The Respondents, on the other hand, contended that the Appellant's importation was for a commercial purpose which was demonstrated by the frequency of travel, payments in cash, inconsistencies in the Appellant's explanation about the use for the goods, and Mrs Rourke's untruth about being a smoker. If the Tribunal found against the Appellant on the question of own use, the Respondents submitted that Mrs Hodge's decision was reasonable and that the Appellant had suffered no exceptional hardship from the non-restoration of the vehicle.

We are required to determine whether Mrs Hodge's refusal of restoration of the excise goods and vehicle was a decision which no reasonable body of Commissioners could have arrived at. In order for the decision to have been reasonable Mrs Hodge must have considered all relevant matters and must not have taken into consideration irrelevant matters.

Evidence

We heard evidence from the Appellant and Mrs Sheena Rourke. Officers Richard Lee and Tim Little gave evidence about the events surrounding the seizure of the goods and the vehicle on 10 May 2007. Mrs Deborah Hodge testified about the making of her review decision. A bundle of documents was received by the Tribunal.

The Facts Found

Own Use or Commercial Purpose?

This question needs to be considered in the context of the legislative framework. Council Directive (EEC) No. 92/12 lays down a number of rules on the holding, movement and monitoring of products subject to excise duty, in particular so as to ensure that chargeability of excise duties is identical in Member States. The Directive draws a distinction between, on the one hand, goods held for commercial purposes, in respect of which accompanying documents are required for transportation purposes, and, on the other hand, goods held for personal use. Under Article 8 of the Directive, excise duty for goods held for private use is payable in the Member State in which they are purchased. No document is required when they are transported to another Member State. For Article 8 to apply, however, a number of conditions must be satisfied. The goods on which excise duty is chargeable must have been acquired by private individuals for their own use and transported by them. Article 9.2 sets out criteria for establishing whether goods transported by private individuals are intended for commercial purposes.

The provisions of the Directive were originally implemented in the United Kingdom by The Excise Duties (Personal Reliefs) Order 1992 SI 1992 No.3155. The 1992 Order was replaced by the Excise Goods, Beer and Tobacco Products (Amendment) Regulations 2002 SI 2002 No. 2692. Regulation 12 gives guidance on whether the goods are held for own use or commercial purposes.

The relevant provisions of regulation 12 are as follows:

1B(b) "own use" includes use as a personal gift,

(c) if the tobacco products in question are -

(i) transferred to another person for money or money's worth (including any reimbursement of expenses incurred in connection with obtaining them), or

(ii) the person holding them intends to make such a transfer, those products are to be regarded as being held for a commercial purpose,

(d) if the products are not duty and tax paid in the Member State at the time of acquisition, or the duty and tax that was paid will be or has been reimbursed, refunded or otherwise dispensed with, those products are to be regarded as being held for a commercial purpose,

(e) without prejudice to sub-paragraphs (c) and (d) above, in determining whether tobacco products are held or used for a commercial purpose by any person regard shall be taken of -

(i) that person's reasons for having possession or control of those products,

(ii) whether or not that person is a revenue trader (as defined in section 1(1) of the Customs and Excise Management Act 1979),

(iii) that person's conduct, including his intended use of those products or any refusal to disclose his intended use of those products,

(iv) the location of those products,

(v) the mode of transport used to convey those products,

(vi) any document or other information whatsoever relating to those products,

(vii) the nature of those products including the nature and condition of any package or container,

(viii) the quantity of those products, and in particular, whether the quantity exceeds any of the following quantities -

3,200 cigarettes,

3 kilogrammes of any other tobacco products,

(ix) whether that person personally financed the purchase of those products,

(x) any other circumstance that appears to be relevant."

The facts of this Appeal relevant to the criteria set out in regulation 12 1B(e) are as follows:

i. The Appellant stated that he purchased the cigarettes and tobacco for his personal use. Mrs Rourke's purchases were to be given to their two sons who were both smokers. The sons supplied letters to the Tribunal confirming that they were smokers and that they received cigarettes from their parents at no monetary cost. Although the sons were in employment, the Appellant did not take any money from them because they helped him out with jobs around the house. The Appellant smoked about 20 cigarettes a day, and used the hand rolling tobacco as a standby or to give to his sons The Respondents considered the Appellant's explanation of using the hand-rolling tobacco as a standby incongruous with the quantity purchased.

ii. The Appellant was not a revenue trader.

iii. Since being stopped by the Officers the Appellant has maintained consistently that the excise goods were bought for own use. There was no evidence of the Appellant not co-operating with the Officers' enquiries or deliberately misleading them on any substantive matter. Instead the Respondents relied on a lie told by Mrs Rourke to the Officer about being a smoker. Mrs Rourke persisted with this lie for a good part of the interview, although at the end Mrs Rourke admitted that she did not smoke. The Respondents suggested that Mrs Rourke's lie indicated that the Appellant and his wife were involved with a commercial importation of cigarettes and tobacco. Mrs Rourke explained that at the time of being stopped she was suffering from anxiety and stress and had been referred by her doctor to the Community Mental Health Team, which was confirmed by a letter from her doctor to the Tribunal. Mrs Rourke stated that the lie was a spur of the moment. She was concerned about the welfare of her dog which had been kept in the caravan whilst they had travelled to France. Mrs Rourke thought that if she told the Officers that she smoked she would be able to get on her way more quickly. Her belief was derived from her previous experience of being stopped on 18 March 2005 when 3,200 cigarettes were seized because she told the Customs Officers that she did not smoke.

iv. The cigarettes and tobacco were located in the vehicle boot where they were not concealed.

v. The excise goods were transported in the Appellant's private vehicle which had been bought from new in October 2006 and valued at around £12,000 when seized.

vi. The Appellant produced receipts for the goods which showed that he and Mrs Rourke purchased the tobacco and cigarettes from a tobacconist in Adinkerke, Belgium for a total value of £1,306.

vii. The goods imported were cigarettes and tobacco. The UK excise duty payable on the goods was £1,741.06.

viii. The quantities of the goods imported, 3,200 cigarettes and three kilograms of hand rolling tobacco for the Appellant and Mrs Rourke each corresponded exactly with the indicative guideline quantity.

ix. The Appellant and Mrs Rourke used cash to purchase the excise goods. They supplied evidence of bank statements which showed that they each took £400 from their separate bank accounts on 7 and 8 May 2008. Mr Rourke was retired from work, receiving an occupational pension of £600 per month. In April 2007 Mrs Rourke took early retirement from her employment as a Practice Nurse from which she earned £1,000 a month. They had savings of £100,000. The Respondents contended that payments in cash were a common feature of buying excise goods for onward commercial sale. In their view purchasers used cash because they received cash in advance from prospective buyers, and the value of their tobacco purchases was not recorded on bank or credit card statements. The Respondents considered it implausible that the Appellant would spend twice his monthly pension on cigarettes and tobacco unless they were destined for commercial purposes. The Appellant explained that they received a discount on the purchases if they paid by cash, which was drawn from their bank accounts. He was a smoker, and made significant savings from buying tobacco and cigarettes on the continent. The Appellant saw nothing untoward in giving away cigarettes and tobacco to his sons even though they were in work and could afford to reimburse him.

x. The Respondents pointed out that in the 18 months prior to being stopped the Appellant and Mrs Rourke travelled to France in his vehicle on seven occasions. Further the Appellant had booked three trips to Calais in May 2007. Finally in April 2007 the Appellant and Mrs Rourke visited Spain by air, and brought back 800 cigarettes. The Appellant and Mrs Rourke had been intercepted on three previous occasions, 9 December 2000, 7 June 2001 and 18 March 2005 bringing excise goods into the United Kingdom. On the 18 March 2005 Customs Officers seized 3,200 cigarettes from Mrs Rourke. The Respondents concluded from these facts that the Appellant was making frequent trips abroad to purchase cigarettes and tobacco, particularly as he was found in possession of excise goods on each occasion he was stopped.

The Appellant contested the conclusion drawn by the Respondents. The Appellant and Mrs Rourke regularly took short holidays in Kent with their caravan. They would normally travel down on a Tuesday evening and return on the Sunday. In May 2007 they were on a three week holiday in their caravan staying on a site in the Hythe area. As part of their holiday they would take a day trip to France usually on a Saturday. They did not bring back tobacco and cigarettes on every trip. The last time prior to May 2007 they returned with cigarettes and tobacco from France was in the summer 2006. The Appellant stated that he had been stopped on occasions by Customs Officers, other than those recorded by the Respondents, when he had no excise goods in his possession. Mrs Hodge acknowledged that the Respondents may not have kept a record of interceptions which did not involve the import of excise goods.

Mrs Rourke pointed out that she received a cheque from the Respondents as compensation for the cigarettes seized in March 2005, which suggested that the seizure was unlawful.

The Respondents sought to undermine the Appellant's assertion that he last bought in tobacco and cigarettes from France/Belgium in summer 2006 by contending that he would have run out of them well before being stopped on 10 May 2007. The Appellant stated that he still had tobacco and cigarettes left from the previous trip when he made the journey in May. He also brought in 800 cigarettes from his recent trip to Spain. According to the Appellant he smoked about 20 cigarettes a day which would last him about four months.

We find that the facts relevant to some of the criteria set out in regulation 12 1B(e) were not challenged by the Respondents and supported the Appellant's case. The Appellant co-operated with the Customs Officers in their enquires, with no obvious inconsistency in his answers to their questions. The tobacco and cigarettes were not concealed in the boot of the car. Their quantities did not exceed the indicative levels in the Regulations.

The Respondents used a range of arguments to challenge the credibility of the Appellant's explanation of own use, namely:

(1) His frequent travel abroad;

(2) The supposed inconsistency between the products purchased and the smoking habits of the Appellant;

(3) The financial arrangements of the purchase;

(4) Mrs Rourke's lie to Customs Officers about being a smoker.

The Respondents formed the view that the Appellant must have brought in excise goods each time he travelled abroad. Their view was derived from the fact that on each occasion the Appellant had been stopped by Customs Officers excise goods were found in his possession. The validity of their reasoning, however, was questioned by Mrs Hodge's acknowledgement that the Respondents did not necessarily record stops where no excise goods were discovered, which gave credence to the Appellant's evidence of being stopped with no tobacco in his possession. Also on those occasions when he was stopped with excise goods, the quantities of those goods did not exceed the indicative levels as specified by the 2002 Regulations. The seizure of excise goods in Mrs Rourke's possession in March 2005 appeared to be a mistake in view of her evidence of compensation for the goods seized. We regarded as plausible the Appellant's explanation for his regular trips to France. Essentially his purpose for the trips was one of enjoyment as part of his caravanning holiday in Kent rather than for the purchase of cigarettes. His evidence of travelling down to Kent on a Tuesday evening visiting France on Saturday and returning on a Sunday was consistent with the Respondents' record of when the Appellant was stopped. On balance we accept the Appellant's evidence that he did not bring into the United Kingdom tobacco and cigarettes on the majority of his visits to the continent, and that his primary purpose in travelling abroad was for enjoyment.

Respondents' counsel contended that the Appellant's purchase of large quantities of hand rolling tobacco to be used as a standby for cigarettes was incomprehensible unless the tobacco was for onward sale at a profit. The force of his contention was diluted by our finding that the Appellant did not buy tobacco on each occasion he travelled abroad.

The Respondents considered it improbable that the Appellant would spend twice his monthly income on one purchase of cigarettes and tobacco and give away majority of the goods to his sons, who were in full-time employment. We found that the Appellant had the means with which to make the payment, holding some £100,000 in savings. Also his sons had provided the Tribunal with letters confirming that they received cigarettes from their parents at no cost to themselves. On balance we drew no adverse inferences from the extent of the Appellant's expenditure of 10 May 2008 on cigarettes and tobacco.

The Respondents decided that the Appellant's payments in cash for the excise goods were indicative of a commercial purpose, in particular they represented pre-paid orders for cigarettes and tobacco. We considered that the Respondents' supposition was undermined by the Appellant's documented evidence that the majority of the cash had been drawn out of his and Mrs Rourke's bank account prior to their departure. Further we found the Appellant's explanation for cash payments plausible, in that the price of the goods was discounted, and he had the means with which to make the payments.

Counsel for the Respondents described Mrs Rourke's responses in interview as a tissue of lies with the intention of deceiving the Officers about her being a smoker. The Respondents considered that Mrs Rourke's blatant lie clearly indicated that she had something to hide which was her involvement in a commercial importation of excise goods. Mrs Rourke, however, explained that at the time of her interview she was in a highly anxious state, concerned about her dog and wanted to leave as quickly as possible. Further when she was stopped in March 2005 she told the Customs Officers that she was not a smoker, which resulted in the goods being wrongly seized. Mrs Rourke denied that she was a party to a commercial importation, and that she was acting under the instructions of her husband, the Appellant. Mrs Rourke supplied the Tribunal with a letter from her doctor which confirmed that she was suffering from anxiety at the time when she was stopped. There was no excuse for Mrs Rourke to lie to the Customs Officers. We, however, found her to be a credible witness and her evidence believable. We are satisfied that her deception was a reflection of her state of mind rather than a deliberate attempt to disguise her motives for bringing in the cigarettes and tobacco.

Having regard to the criteria in the 2002 Regulations and the facts found we are satisfied that the cigarettes and hand rolling tobacco brought in by the Appellant on 12 May 2007 were for his own use.

Exceptional Hardship?

Mrs Hodge concluded that the Appellant did not suffer exceptional hardship from the loss of his vehicle. In reaching her conclusion, Mrs Hodge took into account that the Appellant and his wife did not require the vehicle for work, and that the Appellant was a keeper of another vehicle, a Ford Mondeo, which had a "N" registration plate.

The Appellant pointed out that the Ford Mondeo was 13 years old and unreliable. The Appellant required a reliable motor vehicle because he was suffering from a prolapsed vertebral disc which restricted his mobility. The Appellant supplied the Tribunal with a letter from his general practitioner dated 1 September 2008 confirming that he was in severe pain and that he may require surgery at some point. Mrs Rourke ,who was also receiving treatment from her doctor, needed a vehicle to support her daughter who was eight months pregnant. It would take Mrs Rourke two hours to visit her daughter by public transport.

The Appellant told the Tribunal that the vehicle seized had been purchased from new in October 2006 for £13,000. The Appellant had only owned the vehicle for seven months before it was seized by the Respondents, and that it was the first new vehicle that the Appellant and his wife had ever owned.

The Respondents did not challenge the truth of the Appellant's evidence on hardship but questioned whether it constituted exceptional hardship. We consider that the loss of a new car together with the state of health of the Appellant and his wife were relevant considerations in deciding the question of exceptional hardship.

Was Mrs Hodge's Decision of 2 August 2007 Reasonable?

In her review Mrs Hodge did not consider the legality or correctness of the seizure of the excise goods and vehicle. Her review was predicated on the proposition that the tobacco and cigarettes purchased by the Appellant were not for his own use. Thus Mrs Hodge concentrated on the question whether the excise goods were held for profit or to be passed on to others on a not for profit reimbursement basis. Mrs Hodge was entitled to take this approach because facts surrounding seizure including own use are determined by the magistrates in condemnation proceedings. In this Appeal, however, own use became a live issue in view of Counsel's concession that it would not constitute an abuse of process if we considered own use as part of the factual matrix for the Appeal.

Our finding in paragraph 20 above that the cigarettes and hand rolling tobacco brought in by the Appellant on 12 May 2007 were for own use undermined the basis upon which Mrs Hodge made her decision to refuse restoration. A finding of own use was a highly relevant fact to which Mrs Hodge should have regard in deciding whether to restore the goods and vehicle. Since Mrs Hodge did not consider own use for the reasons advanced above we hold that the decision to refuse restoration on 2 August 2007 was unreasonable.

We also find that Mrs Hodge did not have before her the full grounds advanced by the Appellant supporting his claim for exceptional hardship, in particular the unreliability of the Ford Mondeo, the second car, the state of health of the Appellant and his wife, and that the seized vehicle was a new vehicle. We consider that these facts should be taken into account by Mrs Hodge in assessing the proportionality of non-restoration.

The Decision

We, therefore, conclude that Mrs Hodge's decision of 2 August 2007 was unreasonably arrived at within the meaning of section 16(4) of the Finance Act 1994. We, therefore, allow the Appeal. We make no order for costs, as none was requested.

Orders

We are not entitled to order the Respondents to restore the excise goods and vehicle to the Appellant with or without conditions. In exercise of our powers on Appeal under section 16(4) of the Finance Act 1994 we make the following orders:

a. The decision to refuse restoration of the goods and vehicle shall cease to have effect from the date of release of this decision.

b. The Commissioners shall conduct a further review of the decision not to restore the goods and vehicle and serve the same on both the Appellant and the Tribunal within 30 days of release of this Decision.

c. An Officer not previously involved with the case shall conduct the further review.

d. The further review shall be on the basis of the Tribunal's findings of fact set out in paragraphs 13 to 27 of this decision.

e. The Review Officer shall take account of any further material or representations made by the Appellant within 14 days from release of this decision. The representations shall be made to HM Revenue and Customs Review Team, Detection South Region, Crownhill Court, Tailyour Road, Crownhill, Plymouth, PL6 5 BZ.

f. The Appellant will have a further right of appeal to the Tribunal if dissatisfied with the outcome of the further review.

MICHAEL TILDESLEY OBE

CHAIRMAN

RELEASE DATE: 7 November 2008

MAN/2007/8068