United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2008] UKVAT(Excise) E01154, [2008] UKVAT(Excise) E1154

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H W Humphreys & Son v Revenue & Customs [2008] UKVAT(Excise) E01154 (26 November 2008)

E01154

EXCISE – Appellant dealing as bulk distributor of fuel – discrepancy in sales and purchases of gas oil and kerosene – no satisfactory explanation from the Appellant – assessment raised – assessment appealed but no attendance by the Appellant at hearing – appeal dismissed

MANCHESTER TRIBUNAL CENTRE

HW HUMPHREYS & SON Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Lady Mitting (Chairman)

John Denny (Member)

Sitting in public in Manchester on 27 October 2008

The Appellants did not attend and were not represented

Julian Winkley, Counsel, instructed by the General Counsel and Solicitor to Her Majesty's Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2008

DECISION

The decision under appeal is a deemed decision on review following a decision dated 17 September 2007 to assess the Appellants pursuant to Section 20AAB(4) of the Hydrocarbon Oils Act 1979 ("HODA") in the sum of £13,086. The Respondents did not review the decision to assess within the requisite time limit and therefore in accordance with Section 15(2) of the Finance Act 1994, the decision was assumed confirmed.

When the case was called on for hearing the Appellants were not present and were not represented. The tribunal clerk telephoned and spoke to Mr. Humphreys. Mr. Humphreys advised the clerk that he had received notification of the hearing but had not understood it and neither had he passed it on to his representative. He made no application for an adjournment and did not give any indication of any intention to attend. Given Mr. Humphreys's confirmation that the hearing notice had been received, it appeared to us to be abundantly clear that the case was to be heard today. If there had been a genuine failure to understand it, Mr. Humphreys could have phoned up for an explanation but he did not. We decided to hear the case under rule 26(2) Value Added Tax Regulations Act 1986.

We heard oral evidence from Craig Little, the assessing officer. Mr. Little had previously put in a witness statement which had not been challenged by the Appellants.

Legislation

The relevant legislation is to found in Sections 20AAA(1) and 20AAB(4) HODA, which provide as follows:

"20AAA Mixing of rebated oil

(1) A duty of excise shall be charged on a mixture which is –

a) Produced by mixing fully rebated heavy oil with heavy oil which is not fully rebated, and

b) Supplied for use as fuel for any engine, motor or other machinery.

…

20AAB Mixing of rebated oil: supplementary

(4) Subject to subsection (7) below, where it appears to the Commissioners –

a) that a person has produced or supplied a mixture on which duty is charged under section 20AAA above, and

b) that he is the person liable to pay the duty

they may assess the amount of duty due from him to the best of their judgement and notify that amount to him or his representative.

(5) An assessment under subsection (4) above shall be treated as if it were an assessment under section 12(1) of the Finance Act 1994."

Evidence

The Appellants are a partnership and are registered dealers in controlled oils who carry on business as a bulk distributor of fuel. In mid-2004, officers had visited the Appellants' premises to carry out a stock reconciliation exercise. The information gleaned during the exercise indicated to the officers that fully rebated kerosene had been mixed with partially rebated gas oil and accounted for as gas oil sales. The Appellants gave contamination by the use of wet line hoses to carry out deliveries as a possible explanation. The officers decided on that occasion to take no further action but wrote to the Appellants on 27 July 2004 advising them that the production of such a mixture gave rise to a duty liability and warning that when using wet line hoses, levels of contamination were to be kept to an absolute minimum.

We were told that contamination arises when the same hose is used to deliver both gas oil and kerosene. If a driver is delivering gas oil to one customer but is due to deliver kerosene to the next, before he completes his gas oil delivery and towards the end of that delivery he will run kerosene through the hose to sluice it out, thus ensuring clean, uncontaminated delivery of kerosene to his next customer. However this means that the gas oil customer is receiving a mixture of gas oil and kerosene for which he is invoiced at a gas oil price.

Mr. Little and a colleague visited the Appellants' premises on 28 November 2006. An examination of twelve months' stock records revealed plus sales of gas oil and minus sales of kerosene. Additional stock records were requested and produced, covering the period 1 July 2004 to 31 December 2006. These revealed plus sales of 233,539 litres of gas oil; plus sales of 7,780 litres of diesel and minus sales of 236,388 litres of kerosene. On the face of the records therefore the Appellants had sold more gas oil than they had purchased and conversely by the same approximate figure had not sold a quantity of kerosene. It therefore appeared that once again the Appellants were supplying mixed fuels.

On 12 April 2007, at the request of Mr. Humphreys, Mr. Little visited the premises again. Mr. Humphreys wanted to demonstrate to Mr. Little that his stock control system was not accurate and could not therefore be relied upon. Mr. Little accepted that the stock control system was not entirely accurate but that the degree of inaccuracy could not be calculated as the delivery pumps from the stock tanks were not calibrated. Mr. Little thought that the percentage degree of inaccuracy was not great but he could not agree any figure with Mr. Humphreys.

Mr. Little asked Mr. Humphreys to select twelve customers whom Mr. Little could visit to obtain samples of the fuel in their stock tanks. Mr. Little visited five of the twelve and tested their gas oil storage tanks. Three tested negative for kerosene but two were found to have a 3% and a 4% contamination respectively.

It appeared to Mr. Little that there was a clear mixing of fuels. Mr. Humphreys appeared to have done nothing to introduce any system of checks or balances to ensure against contamination following the first letter from the Commissioners and Mr. Little therefore made the decision to raise the assessment.

Following the raising of the assessment, an appeal against it was received from the Federation of Petroleum Suppliers Limited (Ms. Susan Hancock), acting on behalf of the Appellants. Ms. Hancock's first point was that the Commissioners had endorsed the industry Code of Practice on minimising wet line contamination. This endorsement, she contended, constituted an acceptance by the Commissioners that the use of a wet line hose can result in a mixing of fuels and a gain in the gas oil and a loss in kerosene stocks. The Commissioners were therefore accepting there should be a degree of tolerance allowed and the decision to assess was wrong and contrary to the Code of Practice. This point was countered by the Commissioners, saying that it was accepted that it was impossible to achieve zero contamination but the Code of Practice was endorsed because it was designed to minimise the extent of contamination and to set out procedures to follow when accidents occurred. In Mr. Humphreys's case, there was no indication that he had adopted any of the suggested procedures and the contamination appeared to have been occurring over a long period of time, not the result of a one-off accident. To the Commissioners, Mr. Humphreys was routinely sending a volume of kerosene down the line to complete each gas oil delivery when a kerosene delivery was to follow.

Ms. Hancock's second point was that the Appellants were sourcing from Shell's Stanlow refinery which produced a "hot product" above the standard accounting temperature. This product cooled in the distributor's storage tanks before being sold and delivered and thus a stock discrepancy would have arisen and the Appellants would already have paid this duty on the product when hot and before reduction. This was countered by the Commissioners to the effect that if this argument was correct then there should be a consistent effect on stock volumes but instead the gas oil stock holding showed a significant increase and the kerosene a significant loss. Again the Commissioners attributed the stock discrepancies to significant volumes of kerosene being supplied to complete orders of gas oil customers.

The Appellants' submissions

In the absence of any representation on behalf of the Appellants, we look to the Notice of Appeal, the grounds of appeal being given as follows:

"Refusal of the reviewing officer to take into consideration all the points submitted by the Appellant and allegations of intent to defraud made in the letter of 19 December 2000 in the response from HMRC Oils Policy Team."

Conclusions

Mr. Winkley advised that the tribunal had a full appellate jurisdiction. It appears that the officers had abundant grounds to justify the raising of an assessment. There was the evidence of the 2004 inspection. The visits in 2006 and 2007 quite clearly indicated a wide discrepancy for which the Appellants put forward no proper explanation. The Commissioners dealt with the submissions raised by Ms. Hancock and no further representation was put in by her. We have neither seen nor heard anything which leads us to believe that the Commissioners were anything but perfectly correct in their assumptions and were thus fully entitled to raise the assessment. No evidence was presented to the Commissioners that the Appellants had adapted their procedures since the 2004 inspection and they appeared to have done nothing since then to minimise the risk of contamination. In the absence of any further evidence we find the Commissioners were fully justified in raising the assessment. The Commissioners have to assess the amount of duty due to the best of their judgment. The assessment has been calculated on a daily basis to take account of the varying rates of duty and indeed we understand that at no time has any challenge been raised to the mathematical calculation. We find that the assessment was raised to best judgment and the appeal is dismissed in its entirety.

Given the absence of the Appellants, Mr. Winkley made an application for costs in the sum of £500, which we grant and direct that the Appellants should pay the Commissioners' costs in this sum.

MAN/08/8001

LADY MITTING

CHAIRMAN
Release Date: 26 November 2008