[2009] UKFTT 93 (TC)

TC00061	
					      Appeal Number: Man/08/8027 

FIRST TIER TRIBUNAL TAX

EXCISE DUTY – RESTORATION WITH CONDITIONS – Appellant’s vehicle with red diesel in fuel tank – innocent mistake – took steps to ensure that drivers did not put red diesel in fuel tank – review officer did not give due weight to individual circumstances – decision unreasonable – Appeal dismissed.

DECISION NOTICE (WITH FULL REASONS)
Rule 35(2) The Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009 

	C PLUMB & SONS (HATFIELD) LIMITED	Appellant

	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal: MICHAEL TILDESLEY OBE	 (Judge)
				      ELIZABETH POLLARD            (Member)	  

Sitting in public at Leeds on 28 April 2009

Andrew Hamilton Plumb and Theresa Plumb for the Appellant

Nigel Bird counsel instructed by the Solicitor’s office of HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2009

DECISION
The Appeal
1.	The Appellant was appealing against the HMRC’s decision on review dated 17 December 2007 and 21 February 2008 offering restoration of a Leyland DAF 60 HGV registration number P135 JHE  (hereinafter known as “the vehicle”) for a fee in the sum of £500.  HMRC had seized the vehicle after finding red diesel in the fuel tank.
2.	The Tribunal heard evidence from Miss Theresa Plumb and Mr Andrew Hamilton Plumb for the Appellant. Miss Plumb handled the Appellant’s accounts. She had no personal knowledge of the events surrounding the seizure of the vehicle but was able to give evidence on the correspondence with HMRC about the dispute. Mr Hamilton Plumb was the manager of the Appellant’s business and in attendance when the Officers visited the Appellant’s premises and seized the vehicle.
3.	Mr Andrew King, Mr Keith Edward Cousins and Mrs Julie Wiggs gave evidence for HMRC. Mr King and Mr Cousins were the HMRC Officers involved with the seizure of the vehicle and the events leading up to it. Mrs Wiggs conducted the review of the restoration decision.
The Dispute
4.	The dispute concerned whether Mrs Wiggs’ decision on review to restore the vehicle upon payment of a fee of £500 was a decision which no reasonable body of Commissioners could have arrived at. In order for the decision to have been reasonable Mrs Wiggs must have considered all relevant matters and must not have taken into consideration irrelevant matters.
5.	The Appellant contended that it had no intention of breaking the law and the use of red diesel in the tank was an accidental occurrence. The Appellant questioned the legality and quality of the interview with its driver. Finally the Appellant considered the review decision was based on erroneous information.  
Summary Findings of Fact and Reasons
6.	On 8 August 2007 Officers Cousins and King stopped the vehicle at Spotborough on the A1 and found red diesel in its tank. The driver of the vehicle was a Mr Swiatkowski who had been working for the Appellant for just over two weeks as an agency driver. The vehicle was seized and then offered for immediate restoration on payment of £500.
7.	Mrs Wiggs took account of the following matters in upholding the decision to offer restoration on payment of a fee:
(1)	The Appellant’s reliance upon  driver error for the contravention did not amount to a reasonable excuse under the Finance Act 1994 which imposed civil penalties for using vehicles with red diesel.
(2)	The Appellant did not mark appropriately the tanks holding diesel and red diesel.
(3)	The Appellant did not put in place measures to prevent the erroneous use of red diesel, and kept no audit trail for the use of the fuel.
8.	Mrs Wiggs found no reason to depart from HMRC restoration policy for vehicles misusing either duty rebated fuel or marked fuel.  HMRC policy was to provide increasingly hard restoration terms for the first two detections of vehicle found misusing rebated fuel with a strict non-restoration policy on third detection. In the Appellant’s case Mrs Wiggs applied the sanction for a first offence which was seizure of the vehicle and restoration for an amount equal to the civil penalties for the offence, 100 per cent of the revenue evaded, and any removal and storage costs incurred by HMRC. 
9.	The Tribunal found the following facts:
(1)	The Appellant was a long established family business which started off as a coal merchant eventually moving into the recycling of plastics. 
(2)	The Appellant had no previous contraventions for the misuse of red diesel.
(3)	The Appellant’s premises were based on an industrial estate in Rotherham comprising a yard and warehouse. The Appellant owned two lorries (including the vehicle) which were used for the collection and disposal of the plastic, and several fork lifts for operations on the premises.
(4)	Two fuel tanks, one holding diesel fuel and the other red diesel, were located within the Appellant’s warehouse. The red diesel was for use by the fork lifts. The tanks were separately marked on the front as Diesel and Gas Oil (red diesel). The signs were clearly visible.
(5)	The Appellant employed a manager who was present at all times on the premises supervising the operations except when on holiday or illness. The manager was responsible for the training and supervising of the Appellant’s employees.
(6)	The Appellant preferred to employ its own drivers. On the occasions the Appellant engaged agency drivers the manager himself would fill the tank of the lorry with the correct fuel.
(7)	The Appellant intended to take on Mr Swiatkowski, as an employee. In those circumstances the manager showed him as part of his induction which fuel tank to use for the lorry and demonstrated in Mr Swiatkowski’s presence how to open and close the tank holding the diesel. The manager did not instruct Mr Swiatkowski on how to operate the gas oil tank holding the red diesel. The manager considered that a physical demonstration of which fuel tank to use was a better and more effective method of ensuring Mr Swiatkowski’s compliance with the legal requirements than telling him about the differences between red and ordinary diesel fuel. The manager believed that as Mr Swiatkowski was a Polish National he would not understand the legal niceties between red and ordinary diesel fuel.
(8)	HMRC found no trace of red diesel in the fuel tank of the other lorry used by the Appellant for its business.   
(9)	HMRC decided not to recover the excise duty on the red diesel used in the vehicle.
(10)	 Mr Swiatkowski made an error when he filled up the vehicle with red diesel. The manager was not present when this happened.
(11)	 The Appellant’s contravention involving Mr Swiatkowski was an isolated incident. The Appellant had no history of misuse of red diesel. The quantity of red diesel used by Mr Swiatkowski was insignificant. HMRC decided not to recover the excise duty on the red diesel. The steps taken by the Appellant to prevent misuse of red diesel were appropriate for the size and type of business, and effective except for this isolated incident. 
(12)	The Appellant was not culpable for an innocent mistake made by Mr Mr Swiatkowski.
10.	The jurisdiction of the Tribunal was to find the primary facts and to decide whether in the light of those findings Mrs Wiggs’ decision was reasonable. The Tribunal found that the Appellant was not to blame for Mr Swiatkowski’s innocent mistake. 
11.	The Tribunal finds that Mrs Wiggs placed no weight on the fact that the contravention was caused by Mr Swiatkowski’s innocent mistake. Mrs Wiggs considered that the Appellant’s reliance on the default of another person could not amount to a reasonable excuse, and therefore not relevant to the decision on restoration. The Tribunal considered that Mrs Wiggs’ approach was contrary to the requirement that each case should be decided on its own merits including any mitigating or militating circumstances. The legislation dealing with restoration placed no fetters on what constituted mitigating or militating circumstances.
12.	The Tribunal finds that Mrs Wiggs’ assessment of the Appellant’s culpability was flawed. Her first assessment in the review decision of 17 December 2007 was based upon four facts. The Tribunal disagreed with her finding that the diesel and gas oil tanks were not appropriately marked. Mrs Wiggs relied on the recollection of Officers King and Cousins that the tanks were not marked. The Tribunal preferred the Appellant’s evidence that the respective tanks were separately marked with the markings clearly visible. Officers King and Cousins fairly stated that they held no contemporaneous notes of the markings on the tanks. Their statement about the tanks in the witness statements was made some nine months after the event and did not definitely declare that the tanks were not marked. Mrs Wiggs acknowledged that her first review of 17 December 2007 inaccurately recorded that the Appellant did not specifically show Mr Swiatkowski the tank from which he was to fuel.  
13.	Mrs Wiggs asserted in evidence that she stood by her decision even if the tanks carried markings. Further she pointed out that the Appellant had not told Mr Swiatkowski about not using the red diesel. Despite Mrs Wiggs’ clarifications of the factual matrix for her decision, the Tribunal considers that her conclusion that the Appellant was responsible for the misuse of red diesel was diluted by the enforced revisions to the four facts relied on in her initial decision of 17 December 2007. 
14.	The Tribunal finds that Mrs Wiggs failed to examine the Appellant’s culpability from the perspective of the individual circumstances of the case. Her assessment did not address the question whether the steps taken by the Appellant were effective and appropriate to the needs of the Appellant’s business. The fact that the Appellant had no previous contraventions for misuse of red diesel was relevant in deciding whether the contravention was a result of a systematic failure in the Appellant’s processes or an isolated event. Mrs Wiggs response that she applied the policy for a first offence disregarded the overriding policy consideration that each case should be decided on its own merits. In the Tribunal’s view Mrs Wiggs closed her mind to the possibility that the overriding principle permitted her not to impose the penalty for a first offence if merited by the individual circumstances of the case. 
Decision
15.		The Tribunal holds on the reasons given above that HMRC decision of 17 December 2007 and 21 February 2008 was unreasonably arrived at within the meaning of section 16(4) of the Finance Act 1994. The Tribunal allows the Appeal. 
Orders
16.	The Tribunal is not entitled to order HMRC to refund  the fee of £500  to the Appellant. 
17.	In exercise of the  powers on Appeal  under section 16(4) of the Finance Act 1994 the Tribunal make the following orders:
a.	The decision to offer restoration of the vehicle subject to a fee 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 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 9 to 14 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 North Region, 1st Floor Southwest, Queens Dock, Liverpool L74 4AG.
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
TRIBUNAL JUDGE
   RELEASE DATE: 6 May 2009

Notes
18.	A party wishing to Appeal this decision to the Upper Tribunal must seek permission by making   an application in writing to the Tribunal within 56 days of being provided with full written reasons for the decision. An application for permission must identify the alleged error(s) in the decision and state the result the party making the application is seeking.