United Kingdom VAT & Duties Tribunals (Excise) Decisions

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URL: http://www.bailii.org/uk/cases/UKVAT/Excise/2008/E01156.html
Cite as: [2008] UKVAT(Excise) E1156, [2008] UKVAT(Excise) E01156

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Transania-Katarzyna Maciejewska v Revenue & Customs [2008] UKVAT(Excise) E01156 (11/12/2008)

E01156

Excise Duty – Smuggling tobacco – Restoration of vehicle – Whether reasonable checks of load by driver and haulier – No – Whether penalty imposed is proportionate – Yes – Appeal dismissed

LONDON TRIBUNAL CENTRE

TRANSANIA-KATARZYNA MACIEJEWSKA Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: DR K KHAN (Chairman)

MR A McLOUGHLIN

Sitting in public in London on 30 October 2008

The Appellant appeared in person (together with a Polish translator Barbara Sicalbania)

Mr R Jones, Counsel, instructed by HMRC, for the Respondents

© CROWN COPYRIGHT 2008


 


DECISION

1. The disputed decision is contained in a letter, dated 10 April 2007, in which the Respondents notified the Appellant that after a review there would be no restoration of a Volvo FH 4X2400 tractor unit registration number PZ0837C and its tilt trailer, registration number PZ93392 (referred to as "the vehicle") seized on 6 October 2006.

Background facts

2. On 6 October 2006 Mr Slawomir Ratajczak ("the driver") was intercepted at UK Customs control zone at Coquelles, France, whilst driving the vehicle which was carrying 759,600 cigarettes (attracting £120,974.34 in Excise Duty and VAT) hidden in a load of garden pellets. The cartons which were labelled garden pellets had no delivery labels and contained pellets on top of and to the sides of cartons of cigarettes. On questioning, the driver provided the Customs Officer with three CMR notes covering three loads from three companies in Poland. Two of the CMRs were for unspecified loads to British companies in Nottingham and Manchester respectively and the other CMRs were for one load of "garden purifier" to a Velto Ltd, in Isleworth. This is the load which contained the cigarette consignment. HM Customs Officers arrested the driver once the cigarettes were found in the vehicle. The driver was interviewed with the help of an interpreter and stated the following.

(a) That he had been working for Transania for five months. On 2 October, Peter, the transport manager for the Appellant, asked him to load the vehicle with five pallets in Poznan, Poland and to take these to England on 5 October. The goods were loaded by two men who gave him the CMR note which he signed. These were the pallets which contained the cigarettes and he claimed he did not know then what the load contained. He was later met in Poznan by Peter, the transport manager, who bought fuel for the vehicle which was then left unlocked at the loading depot until 5 October when he returned to collect the vehicle to take it and its cargo to the UK. On the 5^th and before leaving, two further loads of six pallets covered by the other two CMRs, were added to his load. He now had three loads altogether including the load of five pallets (containing the cigarettes). The CMR notes which were given to him showed the registration number of his vehicle and trailer.

(b) He drove to Calais via Belgium where he delivered a load of pipes. Before leaving Poland however, he received a text message from Peter, the transport manager, who gave him a new delivery address for the five pallets of garden purifier/cigarettes. The new address was to GBS Freight Ltd in Belvedere, Erith which was the address provided when he was stopped by HMRC.

3. After being interviewed, the Respondents were satisfied that the cigarettes were held for a commercial purpose which made them liable for forfeiture under section 49(1)(a) of the Customs and Excise Management Act 1979 ("CEMA") and under regulation 16 of the Excise Goods (Holding, Movement, Warehousing and REDS) Regulation 1992. The vehicle was liable to forfeiture under section 141(1)(b) of CEMA. All the cigarettes and vehicle were seized under section 139(1) of CEMA.
4. When the cigarettes and the vehicle were seized the driver was issued with a "Seizure Information Notice" and Customs Notice 12A. The Appellant did not challenge the legality of the seizure and the vehicle and the cigarettes were condemned as forfeit under paragraph 5 of Schedule 3 of CEMA.
5. On 6 October 2006 the Appellant wrote to the Respondents requesting restoration of the vehicle. By a letter dated 9 October 2006, the Respondents replied asking the Appellant for details of the vehicle and the following:

(1) A copy of the terms and conditions of the driver's contract;

(2) Copies of employment references from previous employers;

(3) Details of any measures the Appellant takes to prevent its vehicles being used for smuggling;

(4) Checks which the Appellant makes of the legitimacy of the consignor, consignee and loads;

(5) Details of any physical checks made of the load, and

(6) Copies of any instructions or written procedures the Appellant issues to its drivers or other staff.

6. On 18 October 2006 Katarzyna Maciejewska of the Appellant replied providing details of the vehicle and a long letter explaining her business practice, policy on smuggling and checks which are carried out by her staff and their CMR procedure. She also provided a copy of the driver's contract of employment and an employment reference (not for the driver concerned but another driver) and a copy of a report made to the District Prosecutors Office regarding the fraud perpetrated.
7. On 19 January 2007, HMRC replied offering to restore the vehicle on payment of £32,750. On 23 February 2007, the Appellant wrote asking for a review of the decision dated 19 January 2007. The Appellant said she was innocent and did not know of the smuggled cigarettes and that paying the fine would bankrupt her business and deprive her children of an income. She explained that the vehicle was leased and instalment payments were due. On 2 March 2007 the Respondents wrote explaining the review process and invited the Appellant to provide any further information in support of her case. No information was received.
8. On 27 March 2007 the Respondents wrote to Velto Ltd based in Isleworth, the consignee of the load containing the cigarettes enclosing a copy of the CMR with their address. No reply was received. It was found that there was no name or address for the company and the company was not registered for VAT. The mobile phone number on the CMR note was unobtainable.
9. On 10 April 2007 the Respondents wrote stating that having conducted a non-restoration review the vehicle would not be restored to the Appellant. On 28 August 2007 Raiffeisen Leasing Polska (owner of the vehicle) wrote to the Respondents confirming they were the legal owners of the vehicle confirming the leasing contract and confirming that they were not responsible for any of the fees or any other payments required by HMRC. They did not request a return of the vehicle but supported the actions of the Appellant in conducting oral proceedings for the purpose of the restoration of the vehicle.

The law

10. Pursuant to section 152(b) of the Customs and Excise Management Act 1979 the Customs may, as they see fit, restore, subject to such conditions (if any) as they think proper, anything forfeited or seized. In deciding, whether the exercise of Custom's discretion is reasonable, the Tribunal must be satisfied that they acted as a reasonable panel of commissioners and did not take into account irrelevant matter or disregarded any matter which should have been considered. Further, the Tribunal should look to see whether the non-restoration of the vehicle was proportionate as observed in Lindsay v Customs and Excise Commissioners (2002) 1 WLR 1766.
11. Let us look at these points in detail. First it should be noted that the review officer Brian Rayden was called as a witness. The case for the Appellant was conducted by the owner of the business Katarzyna Maciejewska with the aid of a Polish interpreter, Barbara Sicalbania (National Register of Public Service Interpreters (NRPSI) No. 13291).

The Appellant's case

12. In the Notice of Appeal dated 20 July 2007, the Appellant presented her case as follows:

"Breach of legislation regarding the fees for smuggling goods and seizures, no basis for seizure. Seized unit is the property of third person and does not belong to the Appellant. The fee is in breach of principle of proportionality and payment will cause the bankruptcy of the Appellant who was not involved with the smuggling goods".

The Respondents' case

13. The Respondents contend that the review decision not to offer the seized goods for restoration was reasonably arrived at for the following reasons:

(a) The Respondents applied their policy statement (as stated in the Summary of HM Revenue and Customs' Restoration Policy For Freight Vehicles) which states:

"If the Commissioners conclude that the driver, but not the haulier, was involved or complicit in the smuggling attempt then restoration depends on whether or not the Commissioners are satisfied that the haulier took reasonable steps to prevent drivers smuggling.

If the haulier took reasonable steps then the vehicle will normally be restored free of charge unless the same driver is involved (working for the same haulier) on a second or subsequent occasion when the vehicle will normally be restored for 100% of the revenue involved in the smuggling attempt (or the value of the vehicle if lower) except that if the second or subsequent occasion occurs within six months of the first, the vehicle will not normally be restored.

Otherwise, on the first occasion the vehicle will normally be restored for 100% of the revenue involved (or the value of the vehicle if lower). On a second or subsequent occasion the vehicle will not normally be restored. If the revenue involved is £50,000 or more and the Respondents are not satisfied that the haulier and driver are involved in the smuggling attempt then their policy is the vehicle may be seized and not restored".

14. The Respondents contend that the Appellant and/or the driver were involved in the smuggling attempts. The revenue (the unpaid excise duty and VAT on the cigarettes) involved in this case is £120,974.34. The concealment of the cigarettes was planned and organised in that they were placed deep inside the load and were probably put there when the goods were loaded in Poland. If the cigarettes had been loaded later during the journey from Poland to the UK then the other cargo consignment would have to unloaded and reloaded to hide the cigarettes.
15. If the Appellant were not involved in the smuggling then they had not taken reasonable care to make checks of the driver to prevent smuggling. The driver was not properly checked and his employment contract did not contain a provision for gross misconduct involving a failure to check loads and CMR notes, criminal activities or Customs irregularities.
16. The seizure is at least the second occasion involving the Appellant. In 2002 one of the Appellant's vehicles was seized for transporting 450,800 cigarettes and restored free of charge. On 23 August 2006 (six weeks before this seizure) another of the Appellant's vehicles was seized for transporting 470,000 cigarettes and restored free of charge despite the vehicle being driven by the same person (in both cases a different driver to the one in this case). As this is the second seizure from the Appellant, the vehicle should not be restored as a matter of policy. The two previous seized vehicles were restored free of charge and the Appellant should have put in place a robust checking procedure to prevent a re-occurrence of this situation.
17. The Appellant's client (the consignor) and the driver did not comply with the procedures for moving goods between authorised tax warehouse under duty suspension and importation of excise goods into the UK under REDS regulations or by paying duty. Further, the Appellant did not comply with the checks required by CMR Convention which states:

"On taking over the goods, the carrier should check the accuracy of the statements in the consignment note as to the number of packages and their marks and number, and the apparent condition of the goods and their packaging".

None of the packages had the appropriate labels and appeared not to have been checked.

18. In relation to the two other loads being carried on the vehicle (those loads without cigarettes) the two CMR notes do not describe the nature of the goods in box 9 as required by the CMR regulations, did not describe the marks and numbers in box 6, did not state the number of packages in box 7, and did not describe the method of packaging in box 8. The paperwork was not accurate and was not properly completed.
19. The Appellant and/or the driver did not meet with the Respondent's expectations of reasonable checks of the loads and the lack of proper labelling on the illicit packages should have caused the driver to examine them internally. In addition, the changing of the delivery address for the garden pellets by means of a text message on a mobile phone should have been regarded with suspicion by the driver. The Respondents say that since the Appellant's transport manager provided the new delivery address this would indicate their involvement in the diversion of the cigarettes.
20. The Appellant's vehicles, over the three seizures, have been involved in the attempted smuggling of over one and a half million cigarettes and evasion of a quarter of a million pounds in duties and VAT. The duty and VAT evaded in this importation was approximately £120,000. The Glass's guide provides a valuation of the 2003 Volvo tractor of £32,000 and the refrigerator trailer of about £17,000. In the circumstances, the Respondents contend that non-restoration of the vehicle was proportionate. Further, the Respondents contend that a non-restoration while causing hardship was not an exceptional hardship over and above what one would expect and therefore the appeal should be dismissed.
21. Les us look at the facts and the law.
22. In addition to the information provided in the bundle presented by the Respondents, the Appellant also provided information on their leasing payments, balance sheet of the company and outstanding invoices. These are in Polish but were translated by the translator and the Tribunal had a proper understanding of those documents.
23. The Tribunal can find no clear and unequivocal evidence that the Appellant was involve in smuggling though there are questions around the role of Peter, the transport manager, in his dealing with the driver and cargo. The Respondents say that the smuggled cigarettes were concealed deep inside the load which is evidence that those goods were packed with legitimate consignments whilst in Poland and, establishes, on the balance of probabilities, that the Appellant were involve in smuggling. The Tribunal does not share this view. If neither the driver or the haulier were involved or complicit in the smuggling attempt then restoration depends on whether both parties carried out basic checks to establish the illicit load. There are guidelines used by HMRC, where hauliers are involved in transporting of goods over international frontiers, to see whether the Appellant conducted reasonable checks to prevent smuggling and to ensure drivers were not involved in smuggling. (Appendix E and F in evidence presented). The guidelines are meant to be indicators and non-binding. The review letter stated, "as a matter of routine I would expect … a haulier to "vet" the driver extremely carefully, that they include extremely strict rules and penalties in their contract, ensuring that all drivers are covered by these (guidelines) arrangements". The Tribunal is not convinced that the provision of a gross misconduct clause for smuggling in the employment contract would necessarily prevent drivers smuggling and that the absence of such a clause suggests that reasonable penalties were not imposed to prevent smuggling. The use of such a clause would raise issues of employment law, the employment law in Poland and whether such a provision would be enforceable as a matter of EU laws. In any event, such a provision would be an implied term of the contract. In this case, the employment contract of the driver contained no such gross misconduct provision. It should be obvious to a driver who uses his lorry for smuggling that he would be putting his job at risk, regardless of any contractual provisions.
24. The review letter draws reference to a summary of procedures for the movement of excise goods from one EU country to the UK. This is found in Appendix D called Note about the Convention on the Contract for the International Carriage of Goods by Road (CMR). Article 8 states:

"On taking over the goods, the carrier shall check:

(a) the accuracy of the statements in the consignment note as to the number of packages and their marks and numbers, and

(b) the apparent condition of the goods and their packaging.

25. It is evident that the garden pallet packaging containing the cigarettes did not have the appropriate labelling. Further the CMR notes did not describe the nature of the goods, the mark and boxes and did not state the number of packages nor describe the method of packaging. The paperwork was not accurate and did not comply with the CMR Convention.
26. There is a question as to whether the Appellant and/or the driver made reasonable checks of the load. The driver had made no attempt to check that what was contained in the load conformed with what was described in the paperwork. The loading of the illicit goods was not properly supervised by the driver and in fact the lorry was left open in the period between the loading and when he commences his journey to the UK one day later. We are not saying that the driver would have detected a sophisticated concealment of the goods, but knowing that checks are required a basic checking of the goods to establish that they complied with the paperwork is essential.
27. The role of Peter, the transport manager of the Appellant raises some question. He provided a text message on a mobile phone asking for a diversion of the goods from the address stated on the paperwork to another address. The change of address should have alerted the Appellant that there was something unusual. There is a well known smuggler's scheme where goods, at the last minute, are diverted from one address to another address where illegal goods are extracted from the cargo. This is called "slaughter" and hauliers are familiar with this scheme..
28. In evidence the Appellant confirmed that Peter was her partner and she was aware that the new delivery address was communicated to the driver by text. This raise serious concerns especially where the contact details for the recipient Velto Ltd were not accurate, the telephone numbers did not work and there was no VAT registration for the company. One would have expected some form of communication between the haulier and the company receiving the goods but this appeared not to be the case. A basic level of communication is essential to establish the bona fides of the recipient, the address and contact details and the load. This checking was not done.
29. The Appellant's vehicles have been involved in attempted smuggling previously. These incidents occurred in 2002 and in 2006 and involved more than one and a half million cigarettes and evasion of roughly quarter million pounds of taxes. The fact that the Appellant's vehicles have been involved in two previous seizures should have made the Appellant more vigilant with their checking of the paperwork, destination address and especially the changed delivery address in suspicious circumstances. It is well known that the UK is a target for cigarette smuggling and one would have expected in the circumstances that checks would have been carried out on the load itself to identify whether illicit goods had been concealed with the legitimate cargo. The warning signs were present and the Appellant choose to ignore these signs..
30. The role of Peter the Transport Manager does raise questions. He was responsible for the change of delivery address, checking address details, the directing of the lorry to the collection point for the goods, paying for fuel for the journey and was present when the goods were loaded in Poznan, Poland. Being a responsible officer of the company and knowing the previous history of smuggling, one would have expected him to be very vigilant in making reasonable checks to prevent smuggling. He was at the very least, negligent in the conduct of his duties.
31. As regards checks undertaking by the haulier to prevent drivers smuggling, it is clear that references were not taken for the driver before the commencement of his contract of employment. He had been working for the company for only five months. There were no express references and clearly no enquiries of previous employers. It was therefore not possible to clearly establish whether there were any "previous dealings with Customs". The only reference provided to the Tribunal was for another driver, not involved in the attempted smuggling.
32. The Appellant confirmed that she had had bad experiences with drivers in the past and one would have thought that the recruiting process for drivers would have been more stringent in that there would be more vetting of drivers including their previous employment details, convictions for smuggling and letters of reference from employers. The checking of drivers appeared to be lax and not sufficiently probing.
33. The Tribunal feels that reasonable checks were not undertaken by the haulier nor the driver to prevent smuggling and this would support a decision not to restore the vehicle.
34. The issue of proportionality of the penalty has to be considered. The vehicle is valued at approximately £32,000 and the refrigerated trailer £17,000. An offer was made to restore the vehicles on payment of approximately £32,000. The total duty sought to be evaded was approximately £120,000. The submission has been advanced that there is exceptional hardship which means that the Appellant would not be able to meet payments on the lease contract, with the remaining three vehicles (out of five) being unable to keep the company viable. This would also cause personal financial hardships for the owner of the business.
35. From the records looked at the company turns over approximately £300,000 per year with a 10% return which means a profit margin of £30,000. The business is run as a cash business and there are no bank facilities. It is a small family run business.
36. It is the important that the Tribunal looks at the degree of hardship caused by the loss of the vehicle. There will be hardship caused as a result of having a vehicle seized by Customs and there will be financial difficulties experienced as a result. This is a natural consequence of having the vehicle seized. The question however is whether the hardship is exceptional. We must also look to see whether the penalty imposed is proportionate.
37. In the circumstances of this case the non-restoration of the vehicle is reasonable and proportionate. There is no doubt that it could cause hardship and loss of earnings. But it is not felt that these would be exceptional hardship. There was some evidence presented to the Tribunal to show the turnover of the company and the difficulties in meeting lease rental payments for the vehicle. The owner of the business indicated in oral evidence that her family would suffer financial hardship. The Tribunal understands the submissions made. However, there is a previous history of smuggling and some attempt at concealment in this case. The amount of duty which would have been evaded is significant when compared with the value of the vehicle and the offer for restoration which was made. There is no doubt that there will be the loss of income from the seized vehicle which will cause hardship. The Tribunal does not consider this hardship to be exceptional and the penalty is proportionate when all the facts are considered.
38. We would dismiss the appeal. The parties are at liberty to apply on matters relating to costs.

DR K KHAN

CHAIRMAN

RELEASED: 11 December 2008

LON 2007/8050