[2010] UKFTT 130 (TC)

								
TC00439

Appeal number LON/2007/8103

Excise Duty – Duty chargeable – Excise Duty Point – Tax warehousekeeper releasing excise goods under duty suspension arrangement for export to EU – Goods fraudulently diverted – Revocation of Registered Owner status -  Whether reasonable – Yes  – Assessment of duty correct – Appeal dismissed

FIRST-TIER TRIBUNAL
TAX CHAMBER

	ASPEN WHOLESALE LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (Excise Duty)	Respondents

				TRIBUNAL: 	DR K KHAN (Judge)
						MS H FOLORUNSO

Sitting in public in London on 11-12 January 2010

Dr David Southern, Counsel, for the Appellant 

Mr Andrew Macnab, Counsel, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	The consolidated appeal as served on 26 June 2008 under section 16 Finance Act 1994 (“FA 1994”) against four decisions of the Commissioners which are:

(a)	A decision of 25 June 2007 imposing conditions under Regulation 18(1) of the Warehousekeepers and Owners of Warehouse Goods Regulations 1999 (“WOWGR”) referred to as, “WOWGR Conditions Decision”. This decision was made by officer Lee Fulton (National Registration Unit).

(b)	A decision of 9 July 2007 to revoke the Appellant’s registration as a Registered Owner of Duty Suspended Goods under the WOWGR. This would be referred to as the “WOWGR Cancellation Decision”.  This decision was taken pursuant to section 100G(5) of the Customs and Excise Management Act  1979 (“CEMA”).  This decision was made by officer A M Kerr (National Registration Unit).

(c)	A decision of 3 August 2007 to lapse a Financial Security, movement guarantee No.1195M, dated 10 May 2007 and provided by Lloyds TSB Bank.  This would be referred to as “Financial Security decision”.  The security was required pursuant to Regulation 16 of the WOWGR and revoked pursuant to section 100G(5) CEMA.  This decision was made by officer Alison Young (Financial Security) and

(d)	An assessment, dated 7 August 2007, for excise duty in the sum of £30,518 which would be referred to as the “Assessment”.  The Assessment was made pursuant to section 12(1)(A) of the FA 1994 by officer Roy Queralt (Compliance South).

2.	In fact, the WOWGR Cancellation decision and the Assessment are the primary concerns of the Tribunal since the lapse of the financial security would be a consequence of the revocation of the Appellant’s registration.

3.	Each of the decisions was required to be, and was, reviewed pursuant to FA 1994.  The officer undertaking the review was Higher Officer Alan Donnachie, who also gave oral testimony.  The other witness was Mr Sohail Munawar, for the Appellant.  Witness statements were provided by Mr Sohail Munawar (for the Appellant) as well as officers Paul John Moody, Roy Queralt, David Nigel Turner, Alan Donnachie, and Gareth Jennings (for the Commissioners).

Background

The main facts in this case are not disputed.

4.	The sole director and shareholder of the Appellant is Sohail Munawar.  The Appellant’s main business was as a trader dealing in duty-suspended excise goods, namely alcohol beverages.  The Appellant was a representative agent in the UK of a Pakistani brewery.

5.	The Appellant company was formed on 17 March 2005 and commenced trading on 11 May 2007.

6.	On 22 and 26 July 2005 a meeting took place between the Commissioners and the Appellant to discuss a proposed operation and financial security required to cover the movement of duty suspended goods (i.e. where an authorised warehousekeeper is relieved of the obligation to pay excise duty on goods in their warehouse).  The Appellant stated that they would be transporting a maximum of four consignments of goods (beer and wine) per week.  On the basis of this information, the Commissioners accepted a £30,000 guarantee would be sufficient to cover the Appellant’s trading activities, which was anticipated to be low with small profits initially.

7.	On 16 April 2007 a Lloyds TSB Bank Plc approved guarantee (number 1195M) was given by the Appellant in the sum of £30,000.  On 10 May 2007, the guarantee was accepted by the Commissioners.

8.	By letter dated 16 May 2007, conditions were imposed on the Appellant’s Owner of Goods status under the Appellant’s WOWGR registration. The several conditions imposed are summarised as follows:

(a)	The Commissioners to be notified of all sales at least twenty-four hours before the goods leave for their onward destination.

(b)	The Appellant to confirm warehouses storing the Appellant’s goods.

(c)	The Appellant to provide information relating to goods to be moved including volume, type, sale and purchase price and purchaser.

(d)	The Commissioners to be informed of any changes to the information provided or to business activity.

(e)	The information to be faxed.

9.	The Appellant commenced trading in duty suspended alcohol and made all sales to ALB UK Ltd with the exception of one sale to Elbrook Cash and Carry Ltd.  All movement of goods were from excise warehouse of Rangefield Import Export Ltd (“Rangefield”), Purfleet, Essex RM15 4YA or from an excise warehouse operated by D Edwards Beers and Minerals Ltd (“Edwards”). Leighton Buzzard.  The goods were moved to a warehouse operated by M T Manutention in Couquelles, France.  The haulier in all cases was KPH Logistics Ltd (“KPH Logistics”), County Leitrim, Ireland (Eire). The Commissioners believed that the Appellant was Despatching more consignments of duty-suspended goods than agreed with the result that the financial guarantee in place was sufficient to cover the level of trading carried out.  The financial guarantee relates to the number of loads and an increased guarantee would be required for increased loads. By letter on 25 June 2007 and pursuant to Regulation 18(1) WOWGR the Commissioners imposed further conditions on the Appellant including that no more than three full loads of beer per week may be Despatched and the Appellant was to notify the Oxford Alcohols Team of all Despatches at least 25 hours before the goods left the warehouse. These additional conditions gave rise to the first appeal, the WOWGR Conditions decision appeal.

10.	On 19 June 2007 (or thereabout) the Appellant notified the Commissioners of  a movement of beer from Rangefield, which were due to take place on 20 June 2007.  On 20 June 2007, the Commissioners conducted an inspection of an articulated lorry (registration P626NNO) at Cheriton Outbound (Euro Tunnel complex) prior to the vehicles entering the Channel Tunnel. The vehicle was travelling under an Administrative Accompanying Document (“AAD”) (European Community document relating to products subject to excise duty). The document number was 06/0030.  The document described the load of duty-suspended goods, namely 1,960 cases of Carling Black Label, Stella Artois, Kronenbourg and Fosters Beer.  The document recorded that the consignment had been sent from Rangefield to MT Manutention (Excise Warehouse) (“MT Manutention”), Coquelles, France.  The “transporter” was stated on the form to be “Aspen Wholesale Ltd/KPM Logistics”.  Box 10, stated “guarantee” and referred to movement guarantee 1195M which indicated that the Appellant was the party responsible for arranging the guarantee for the movement of the goods.

11.	The trailer was inspected and found to be empty.  The drivers (Stephen Moore and Paul Booth) were interviewed by the Commissioners and stated that, after collecting the duty-suspended goods at the Rangefield depot, they had travelled to a location in Thurrock, Essex and exchanged trailers, continuing on to the border crossing with empty trailers.  The documentation AAD/06/0030, showed that the consignee, MT Manutention, confirmed (or purported to) receipt of the goods on 21 June 2007 and indicated that there was a shortage of 40 cases of Stella Artois beer.

12.	On 22 June 2007 (or thereabout) the Appellant notified the Commissioners of a movement of quantities of beer from Edwards to MT Manutention which was due to be made on 25 June 2007, under the Appellant’s reference number ASP 1020.

13.	On 25 June 2007, officer Turner conducted an inspection of a vehicle, registration X179 NOO, at Cheriton (Outbound).  The consignment was under Administrative Accompanying Document (AAD) D1080/8240 which was described as 2,060 cases of Carlsberg, Grolsch, Heineken and Holsten Pils lagers.  The AAD stated that the consignment had been consigned from an excise warehouse operated by Edwards to MT Manutention of Coquelles, France.  The transporter was stated to be “KPH Logistics” and Box 10 (guarantee) indicated the Appellant was the party arranging the guarantee of the movement.  The trailer was found to be empty.  The driver (Alan Hickey) informed officer Turner that he had exchanged his trailer in an industrial estate in the UK and the trailer did not match the contents on the relevant AAD form.  The consignee confirmed receipt of the goods on 26 June 2007. 

14.	On a visit by HMRC officers (Queralt and Jennings) Mr Munawar confirmed that he had no knowledge of any irregular movements nor the location of the missing goods from their consignment. He was surprised that his WOWGR registration was to be removed due to a lack of due diligence and evidence that the goods were involved in diversions.

15.	By a letter on 9 July 2007, HMRC officer Kerr notified the Appellant that the registration as a registered owner of a duty-suspended goods under WOWGR had been revoked.  The reasons given for the decision were stated as follows:

(a)	The business was not a viable business.
(b)	The owner was not a fit and proper person and was a risk to the revenue and exceeded the number of loads per week which the movement guarantee allowed.
(c)	There was a failure to undertake reasonable due diligence checks on the suppliers and hauliers.
(d)	On two occasions the vehicle declared to be transporting goods under duty-suspension to a destination outside the UK was detected leaving the UK unladen.  The Appellants were unable to offer a satisfactory explanation of why this had arisen.

16.	As a result, the Appellant’s WOWGR registration was revoked and the movement guarantee lapsed.  This was notified to the Appellant on 3 August 2007 by letter.  The bank, Lloyds TSB, was informed of the lapse of financial security.  

17.	On 7 August 2007, the Commissioners notified the Appellant that as regards the two Despatches (Rangefield and Edwards), irregularities had occurred during the movement of duty-suspended excise goods and an excise duty point had been created pursuant to regulation 3 of the Excise Duty Points (Duty-Suspended Movements of Excise Goods) Regulation 2001 (the “DESMEG Regulations”).  Under regulation 7(1) DESMEG, the Appellant, as the party providing the movement guarantee was primarily liable for payment of excise duty in respect of those consignments.  The Commissioners accordingly raised an assessment in the sum of £30,518 pursuant to 1(1)(a) of the Finance Act 1994 to account for duty arising from these consignments.

18.	The decisions were subject to review, and they were reviewed and were all upheld on review.

The law

19.	European legislation

Article 15(3) of Council Directive 92/12/EEC (“the Directive”) provides that:

“The risks inherent in intra-Community movement shall be covered by the guarantee provided by the authorised warehousekeeper of despatch, as provided for in Article 13, or, if need be, by a guarantee jointly and severally binding on both the consignor and the transporter.  The competent authorities in the Member States may permit the transporter or the owner of the products to provide a guarantee in place of that provided by the authorised warehousekeeper of despatch.  If appropriate, Member States may require the consignee to provide a guarantee.

The detailed rules for the guarantee shall be laid down by the member States.  The guarantee shall be valid throughout the Community.”

Article 20 of the Directive provides:

“1.	Where an irregularity or offence has been committed in the course of a movement involving the chargeability of excise duty, the excise duty shall be due in the member State where the offence or irregularity was committed from the natural or legal person who guaranteed payment of the excise duties in accordance with Article 15(3), without prejudice to the bringing of criminal proceedings …”

UK legislation

Section 157(1) CEMA provides that:

“Without prejudice to any express requirement as to security contained in the customs and excise Acts, the Commissioners may, if they see fit, require any person to give security [(for further security) by bond, guarantee] or otherwise for the observance of any condition in connection with customs of excise.”

Section 100G of CEMA deals with registered excise dealers and shippers and provides that:

(4)	The Commissioners may approve and register a person under this section for such periods and subject to such conditions or restrictions as they may think fit or as they may by or under the regulations prescribe

(5)	The Commissioners may at any time for reasonable cause revoke or vary the terms of their approval or registration of any person under this section.

The DSMEG Regulations implements Article 20 of The Directive (92/12/EEC).  They define a “duty-suspended movement” as a movement of excise goods which:

(1)	starts at a tax warehouse in one member State and is intended to finish by the arrival of those goods with either:

(i)	the authorised warehousekeeper at a tax warehouse or a registered or non-registered trader in another member State, or
(ii)	the authorised warehousekeeper at a tax warehouse in the same member State having passed through at least one other member State during the course of the movement; and

(2)	in respect of which the excise duty to which those goods are subject by virtue of Article 5 of the Directive is suspended pursuant to suspension arrangements as defined in Article 4(c) of the Directive; and

(b)	does not include any movement that has been discharged as described in Article 19(3) of the Directive;

The DSMEG Regulations define “guarantee” as meaning:

The guarantee provided in accordance with the provisions of Article 15(3) of the Directive (92/12/EEC)

The DSMEG Regulations define “irregularity” as meaning:

An irregularity or offence within the meaning of Article 20 of the Directive (92/12/EEC)

Regulation 3 of the DSMEG Regulations concern irregularities “occurring or detected in the United Kingdom” and provide:

(1)	This regulation applies where:

(a)	excise goods are:

(i)	subject to a duty-suspended movement that started in the United Kingdom; or
(ii)	imported into the United Kingdom during a duty-suspended movement; and

(b)	in relation to those goods and that movement, there is an irregularity which occurs or is detected in the United Kingdom.

(2)	Where the Commissioners are satisfied that the irregularity occurred in the United Kingdom, the excise duty point shall be the time of the occurrence of the irregularity or, where it is not possible to establish when the irregularity occurred, the time when the irregularity first comes to the attention of the Commissioners.

Regulation 7 of the DSMEG Regulations concern payments and provide:

(1)	Subject to paragraph (2) below, where there is an excise duty point as prescribed by regulation 3 or 4 above, the person liable to pay the excise duty on the occurrence of that excise duty point shall be the person shown as the consignor on the accompanying administrative document or, if someone other than the consignor is shown in Box 10 of that document as having arranged for the guarantee, that other person.

(2)	Any other person who causes or has caused the occurrence of an excise duty point as prescribed by regulation 3 or 4 above, shall be jointly and severally liable to pay the duty with the person specified in paragraph (1) above.

Regulation 8 of the DSMEG Regulations concern time for payment and provides:

Any excise duty that any person is liable to pay by virtue of this Part shall be paid by that person at or before the excise duty point.

Regulation 5 of WOWGR  deals with registered owners and provides:

(1)	For the purposes of section 100G of the Act, the Commissioners may approve revenue traders who wish to deposit relevant goods that they own in an excise warehouse and register them as registered excise dealers and shippers in accordance with section 100G(2) of the Act.

(2)	A revenue trader who has been so approved and registered shall be known as a registered owner.

Regulation 18 of the WOWGR deals with conditions and restrictions applying to registered owners and provides:

(1)	The approval and registration of every registered owner shall be subject to the conditions and restrictions prescribed in a notice published by the Commissioners and not withdrawn by a further notice.

Section 12 of the Finance Act 1994 deals with assessments to excise duty and provides:
(1)	Subject to subsection (4) below, where it appears to the Commissioners – 

(a)	that any person is a person from whom any amount has become due in respect of any duty of excise; and
(b)	that there has been a default falling within subsection (2) below,

The Commissioners may assess the amount of duty due from that person to the best of their judgment and notify that amount to that person or his representative.

The Appellant’s submissions

20.	As regards the WOWGR Conditions Decision and the WOWGR Cancellation Decision, the Appellant says that these were premature and the Appellant had been put out of business without giving the company an opportunity of proving itself in the trade.  The Appellant commenced trading on 11 May 2007.  The conditions were imposed on 25 June 2007 after six weeks trading.  The revocation was made on 9 July 2007 i.e. after eight weeks trading.  This was too short a period on which to judge the Appellant.  There was nothing which occurred between 11 May and 25 June 2007 to justify the imposition of the WOWGR Conditions, or between 25 June and 9 July 2007 to justify the revocation of the registration.  The Appellant says that the conditions imposed “were likely, if not calculated to, prevent the Appellant from establishing a viable  business”. 

21.	The Appellant’s estimate of four containers a week was made on 22 July 2005 which was two years before the company commenced trading.  That forecast was reasonable at the time but could not be relied upon when trading commenced two years later.  The period over which the trade was carried on was too short to establish any pattern in trading.  It does not follow that because the financial guarantees were considered inadequate the WOWGR registration should be cancelled or that it was an appropriate response.  

22.	Regarding the revocation of the Appellant’s financial security, the Appellant says that although due diligence checks were undertaken, the level of knowledge expected from the Appellant by the Commissioners was too onerous.  The Appellant says that it was an unreasonable exercise of the Commissioners’ discretion in revoking the Appellant’s financial guarantee.  The Appellant says that it is “quite unrealistic to require a small trader to carry out credit checks and criminal record checks” since this was the standard normally required of larger traders.

23.	The Appellant also says that where a supply chain involves a series of intermediaries, and one of those links is suspect, innocent links in the chain of supply cannot be made answerable for the shortcomings of other links in the chain in the absence of demonstrable fault (Blue Sphere Global Ltd v Revenue and Customs Commissioners [2009] STC 2239 at 12-44 and Teleos Plc v Revenue and Customs Commissioners (Case C-409/04) [2008] STC 706 at para 68).

24.	The Appellant says that they are innocent with respect to the irregular consignments of goods and that they conducted appropriate due diligence and it was the responsibility of the Despatching warehouse to ensure that the goods were loaded in accordance with the AAD.  The Appellant also says that a trailer swap need not involve illicit conduct or irregularity providing the AAD remains with the trailer.  There was no evidence that the AAD was separated from the goods and the receipt by the warehouse of Despatch of receipted AADs from the receiving warehouse established a presumption of regularity and there is no basis for assuming that the trader swap constitutes an irregularity.  There is therefore insufficient evidence to assume the occurrence of an irregularity of the two consignments under review.

25.	Finally, it is contended that the extent of the Appellant’s liabilities is limited to the amount of the movement guarantee.  

Commissioners’ submissions

26.	The Commissioners state that the burden of proof is on the Appellant in respect of all matters.  They refer to section 16(6) FA 1994.

27.	The Commissioners say that as regards the WOWGR Conditions Decision, the WOWGR Cancellation Decision and the Financial Security Decision, the burden is on the Appellant to establish that the Commissioners or other person making the decisions on review could not reasonably have arrived at those decisions (section 16(4) FA 1994).

28.	The particular trade (alcohol beverages), is susceptible to excise duty fraud.  Article 13 of Directive 92/12/EEC provides that a guarantee is mandatory to cover movement of goods in duty-suspension within the EU.  Article 15(3) of the Directive 92/12/EEC provides that the guarantee should be provided by the Despatching warehousekeeper but Member States may allow the transporter or the last owner of the goods within the warehouse to provide the guarantee.  There is no discretion in the requirement for a movement guarantee to be in place to cover the movement of the goods in duty-suspension.

29.	The Commissioners say that the Conditions Decision, Cancellation Decision and Financial Security Decision are all manifestly reasonable having regard to the facts, the Appellant’s trading history and the unacceptable risk which the Appellant and their activities posed to the Revenue.  The decisions took into account all relevant matters.  Reference was drawn to the cases of Lindsay v Customs and Excise Commissioners [2002] EWCH Civ 267; Customs and Excise v J H Corbitt (Numismatists) Ltd [1981] AC at 60 per Lord Lane; and Chamberlain v Customs and Excise Commissioners [1989] STC 505 at 508 per McCowan J.

30.	Regarding the Conditions Decision, the imposition of further condition was reasonable and necessary in June 2007.  The Appellant’s trading activity was at a level substantially in excess of that covered by the movement guarantee and in excess of the estimate of trading activity in 2005 on which the movement guarantee had been based.  The Appellant was under a continuing obligation to advise the Commissioners of changes in trading and to increase the level of its guarantee accordingly.  This is required in HMRC Notice 197 (May 2004 edition).   

31.	The WOWGR Conditions imposed in May 2007 included an express requirement that the Appellant inform HMRC in writing of any changes to the Appellant’s general business trading.  The intention is that there would be a guarantee sufficient to meet any liability arising out of irregular consignments under its control.  Where the guarantee is insufficient, the Commissioners’ decision to impose restrictions on the Appellant is warranted.

32.	The concerns that led to HMRC imposing the WOWGR conditions were aptly borne out by information that came to light regarding Rangefield and Edwards Despatches.

33.	The Cancellation Decision was made after proper consideration of the Appellant’s history as a trader and was proportionate and reasonable in the circumstances.  It arose after several meetings with the principal, Mr Munawar and detailed investigations into the credibility of the business, the Appellant’s attitude to compliance and the concerns of the Commissioners concerning the validity of the business. The decision that the Appellant was not a fit and proper person to be a registered owner was reasonable in the circumstances.  This was borne out in the evidence of diversion fraud discovered by the Commissioners in relation to the two Despatches mentioned earlier.

34.	The Financial Security Decision is ancillary to the Cancellation Decision and is justified on the same basis.

35.	The Appellant provided movement guarantees with regard to two irregular consignments of goods on 20 and 25 June.  An excise duty point arose in each of those instances pursuant to regulation 3(2) of the DSMEG Regulations.  Regulation 7(1) of the DSMEG Regulations sets out a strict liability with regard to the liability for payment.  A person liable to pay the excise duty on the occurrence of the excise duty point.  The liability falls on the person shown in Box 10 of the AAD, who arranged the guarantee.  The Appellant provided the guarantee.  Under Regulation 8 of the DSMEG Regulations, the Appellant, as guarantor, is liable to pay the excise duty at or before the excise duty. 

36.	The Commissioners say that as a matter of law the Appellant is liable to the full amount of the assessment not only the amount guaranteed in the Lloyds TSB guarantee.  The Commissioners draw reference to the cases of Anglo Overseas Ltd v HMRC [2008] UK VAT (Excise) E01090 para 80-89; Garatt Trading Ltd (No.2) v HMRC [2008] UK VAT (Excise) E01126.

37.	The facts as outlined previously are not disputed.  The evidence of the witnesses for the Commissioners including Paul John Moody, Roy Queralt, David Nigel Turner, Alan Donnachie and Gareth Jennings is not in dispute.  Mr Donnachie, as explained earlier, gave oral testimony and was not examined by the Counsel, for the Appellant.  Mr Sohail Munawar, for the Appellant, gave oral evidence and was cross-examined by Mr Macnab for the Commissioners.  In all cases, a witness statement was given to the Tribunal.

Decisions

38.	Let us start at clarifying the individual decisions which are under appeal.

Conditions Decision

39.	 Specific conditions were imposed on the Appellant to ensure that the Commissioners were provided with sufficient information to identify and track duty-suspended consignments released from warehouse in the name of the Appellant.  Conditions were laid down in a letter by officer Nicholas Dyer on 16 May 2007.  The conditions were imposed when the Commissioners became aware that the amount of trade undertaken by the Appellant exceeded the amount advised during the initial visits by the Commissioners to Mr Munawar in July 2005.  It also exceed the Financial security limit of £30,000 which was agreed before trading commenced.  The conditions imposed required the Appellant to give at least 24 hours notice before Despatching any goods and to obtain prior written approval before Despatch.  On 25 June 2007, the Commissioners through officer Lee Fulton changed the conditions imposed in their letter of 16 May 2007.  Further conditions were imposed limiting the number of consignments of beer allowed to be released from warehouse under duty-suspension since the Appellant has exceeded the limits of the existing financial guarantee by removing consignments in excess of the number advised to the Commissioners.  In the period 1 June to 21 June 2007 there were 15 loads in 17 days.  Mr Southern provided evidence (handwritten chart prepared by himself) for the period 24 May to 9 September 2007 showing that there were 22 loads in 47 days.  The Tribunal accepts the figures for the period 1 June-21 June 2007.

Cancellation Decision

40.	The Appellant’s approval as Owner of Goods was revoked under the CEMA Regulation 100G(5).  A decision letter given to the Appellant on 9 July 2007 stated that the Appellant was not approved as a WOWGR Owner of Goods.  The letter stated that the business was not viable and there were concerns about his business contacts and funding.

41.	The actual business operation was examined including the number of loads of excise duty-suspended goods consignments being removed from warehouse on duty-suspension.  Initially, in July 2005, Mr Munawar advised officers that he would remove a maximum of four consignments per week, mainly beer, with the occasional consignments of wine.  Based on this information, the officers accepted the financial guarantee proposed before trading commencing at £30,000.  Trading commenced two years later on 11 May 2007.  The Commissioners discovered that a number of loads being Despatched exceeded the maximum of four per week initially proposed by the Appellant so the financial security in place was insufficient to cover the level of trade actually being undertaken.  The Appellant did not make an approach to HMRC to request an increase in the level of security to cover the increased level of trade being carried out as required under HMRC Notice 197.

42.	The Commissioners were also concerned about the due diligence checks being undertaken.  The checks, if any, were not substantial.  Mr Munawar could not provide satisfactory explanations as to how he came into contact with Rangefield and ALB.  Further, other than the VAT registration check, no other fiscal or corporate checks were carried out on the business with which trade was being conducted.  

43.	In addition, there were two instances of vehicles alleged to be carrying excise duty-suspended goods from the account of the Appellant (Rangefield and Edwards) which when checked by HMRC officers were found to be travelling empty.  The AAD number in each of those consignments showed that the guarantor of the movements was the Appellant.  The Commissioners came to the conclusion that the Appellant was not a fit and proper entity to hold a WOWGR Owner of Goods approval and therefore it was revoked.

Financial Security
 
44.	The decision to lapse the Financial Security 1195M was made on 3 August 2007 by Alison Young, an officer of HMRC.  The letter explained that the Commissioners did not think the business was viable and there were inconsistencies in the information provided at the initial visits to the Appellant (July 2005) which related to the way business contacts were made, the number of loads being removed from warehouse under duty-suspension, due diligence checks and the fact that vehicles carrying the excise duty-suspended goods from the Appellant were found to be empty on leaving the UK.

Assessment

45.	This relates to an assessment dated 7 August 2007 for excise duty in the sum of £30,518 made pursuant to the Finance Act 1994.  The assessment in dispute was raised to recover the excise duty relating to the two consignments (Rangefield and Edwards) after it was discovered that both vehicles transporting the goods were travelling empty.  The assessment was raised under the DSMEG Regulations.  The guarantee showed that both AADs (Box 10) had the Appellant as the guarantor and their movement guarantee number 1195M.  The primary liability therefore for the duty is with the Appellant.

46.	Let us now review the evidence.  The burden of proof is on the Appellant in all matters..  With regard to the Conditions, Cancellation and Financial Security Decisions, the burden is on the Appellant to establish that the Commissioners (or other person) making the decision on review could not reasonably have arrived at those decisions (16(4) FA 1994).  The Tribunal will also look at the assessment to establish whether the Appellant is liable for the full amount of the assessment or only liable for the amount guaranteed.

47.	Mr Southern, for the Appellant makes several points regarding the Conditions and Cancellation Decisions.  The first point concerns the chain of supply.  He says that where a chain involves intermediaries and one of those intermediaries is suspect then an innocent party in the chain of supply cannot be made answerable for their shortcomings in the absence of demonstrable fraud.  He said that the Tribunal must look at the “every reasonable measure in his power” test as applied in the case of Teleos (2008) which asks whether a party (in that case) had taken every reasonable measure in their power to ensure that there was no tax evasion.  The case relates to VAT and not excise duty.  He goes on to say that the standard of due diligence required of a small sole trader in undertaking credit and criminal record checks is too onerous and unworkable.  The test must be subjective not objective.  He draws reference to his client’s solicitor letter of 26 July 2007, which states:

“Our client deals with goods at arms length. Our client will not have the opportunity to inspect the trailer, vehicle, driver etc.  We would add that it is plainly ridiculous to require our client to specify to HMRC the route a haulier will take.  There is no way our client in the normal course of trade would be privy to this information”.

48.	He draws a distinction between new traders and traders within an established pattern of trading.  His client he said was a new trader who had commenced trading on 14 May 2007 with WOWGR conditions imposed by HMRC on 18 May 2007.  There was compliance with these conditions.  On 25 June 2007 new onerous WOWGR conditions were imposed.  They required, inter alia, additional due diligence procedure and a restriction to despatch no more than three full loads of beer a week.  Counsel said that given the unpredictable nature of business and the way new orders were received, it would be impossible to satisfy the compliance required by HMRC.  The new conditions on 25 June 2007 were imposed after six weeks of trading and the security revocation was made after eight weeks after trading.  This was too short a period in which to judge the Appellant’s ability to trade and to establish whether the business was viable.  Mr Southern said that the HMRC’s argument on the lack of due diligence and Mr Munawar not being a fit and proper person to operate as a trader were unreasonable in the circumstances. He also questioned HMRC’s figures on weekly loads sine the average over a forty-seven day period was 3.27.

49.	Mr Southern looked at the question of Financial Security and assessment.  Mr Southern made the point that the legislation required only that the AAD accompany the goods and the fact that there was a trailer swap need not involve illicit conduct or irregularity provided the AAD remained with the trailer.  He said that it was significant in all the reviews that there was no evidence that the AAD was separated from the goods and the fact that the receiving warehouse confirmed that the goods had arrived created a presumption of regularity.  There was therefore insufficient evidence to assume the occurrence of an irregularity with regards to the two missing consignments.   He did not comment on the evidence of the drivers of the vehicles concerned.

50.	Mr Southern said that the Revenue’s approach was based on the assumption of liability and the Appellant was not given an opportunity to establish his business and there was insufficient evidence to justify the irregularities which were alleged with regard to the two consignments.

Evidence of Mr Sohail Munawar

51.	Mr Munawar is the director and sole shareholder of the Appellant company.  He gave a witness statement (three pages) dated 21 January 2009.  The witness statement gave some background as to how he came to be the UK agent of Murree Brewery which is based in Pakistan.  He explained the opportunity came from personal contacts.

52.	He was asked in cross-examination by Mr Macnab, Counsel for the Commissioners, what checks he undertook on business associates. He confirmed that he had undertaken no criminal record or credit checks but had taken copies of passports, a certificate of incorporation, registration certificate, VAT registration certificate and EC validation certificate.  This was confirmed in the witness statement of officer Roy Queralt (para 11).  He confirmed that he did not carry out checks relating to credit ratings, financial history or taken references from banks or other businesses. The witness statement of officer Queralt showed that there was a discussion with Mr Munawar on the need for more effective fiscal checks.  He was made aware of excise duty fraud where excise goods were commonly diverted from their destination and it was explained that these checks were required to prevent illegal diversions.

53.	Mr Munawar was asked about the estimated four loads per week which he intended to transport.  It was confirmed in the witness statement of officer Gareth Jennings that Mr Munawar intended to start trading with for containers per week consisting of mainly beer and some wine. It was established in that witness statement that Mr Munawar had explained that the initial financing for his business had come from his family.  The £30,000 movement guarantee was agreed between Mr Munawar and HMRC officer, Steve Kirby. Mr Munawar was asked about how he came into contact with his business associates.  He said that he found Rangefield on Yell.com and Elbrook Cash and Carry (supplier to the Appellant) through his business connection.  He confirmed that he had used the internet to establish business connections.  He also said that Rangefield had provided a set of hauliers as contacts and this is how he found KPH Logistics used in all transactions.

54.	Mr Macnab, asked Mr Munawar how he agreed his transport charges and referred to the witness statement of officer Roy Queralt (para 10) which states:

“Mr Munawar said that this was £275 per load, which he felt was good value.  When asked about researching the price, he replied that he had not obtained any other quotes for comparison, and was also unable to give any idea of the cost of an HGV Ferry or Channel Tunnel ticket, but did not think it strange that the cost was low as they were probably also carrying a load in the other direction.  However he did not know this was the case.”

55.	Mr Munawar confirmed to Mr Macnab that he obtained no further quotes for haulier’s charges.  In the Appellant’s Documents (pages 261-90 of the bundle) the Tribunal can find no evidence of actual haulier’s charges being charged. Mr Munawar said that “may be the document was not put in the file”.

56.	Mr Munawar confirmed that “through the web he would find clients who wanted to purchase goods” and conducted market research on the web to establish customer information, drinking habit and product information.

57.	Mr Munawar was asked to confirm details of all Dispatch notification received by HMRC.  He was given a document (Dispatch Document created by HMRC) showing transaction between 23 May 2007 and 27 June 2007.  He confirmed that he was given an opportunity by the Tribunal to study the documentation during the luncheon break, and confirmed that it correctly represented Dispatches made for that period.  He was asked by Counsel how he came into contact with ALB UK Ltd, his main customer, but was unable to provide an explanation.  All transactions except one was with ALB UK Ltd.

58.	Mr Munawar was asked by the Tribunal to explain the phrase in his witness statement that he “came across” a company in Pakistan called Murree Brewery, for whom he became their UK agents. There seemed to be no documentation appointing him or the Appellant as their agent and the relationship seemed to be very fluid.  He said the relationship was based on an honour system and he was introduced to the company by a family friend.  The Tribunal noted that the relationship did not seem to be recorded as a commercial one.

59.	Mr Munawar, in his witness statement, stated that had he carried out due diligence checks involving company searches, utility bills, bank statement and VAT registration as well as checks on the bond account in the receiving bond.  However he was unable to provide any of documentary evidence to support the fact that these checks were undertaken and the paperwork evidencing the actual checks, parties, date and time of these investigations.  

60.	The Tribunal found Mr Munawar’s oral evidence to be vague and his witness statement to be very limited in its contents (3 pages).   Statements made in the witness statement was not substantiated and could not be relied upon.  It is clear that there was no real due diligence conducted by the company and checks which were detailed as having been undertaken were not supported by any evidence to show that they were undertaken.  The answers given to questions raised by Mr Macnab, Counsel for the Commissioners, were vague and did not add to the information presented in his witness statement.  Mr Munawar provided corroborative evidence to show that the goods in Rangefield and Edwards consignments did arrive at their destination in France.

61.	Mr Munawar’s evidence lasted from 11.40 to approximately 2.35 (including one hour lunch) on Monday 11 January 2010.

HMRC reviews and reasons

62.	The lawyers for the appellant, Hepburns, stated that the conditions imposed were unreasonable and restrictive.  The Commissioners indicated that the conditions were imposed in order to have adequate information available to enable verification of intended destination, transport routes and transporters, quantities, potential duty and to allow verification of goods movements before Despatch, if necessary.  The limiting of the number of consignments that could be removed under duty-suspension was tightened when it was found that the Appellant has exceeded the limits of the financial guarantee on a number of previous occasions.  The limiting of the consignments to three per week was imposed to ensure future duty liability and the movement of duty-suspended goods would not exceed the existing fiscal guarantee.

63.	The Appellant argued they were placed at a substantial trading disadvantage by the onerous conditions.  The imposition of the conditions was to allow HMRC to control the Appellant’s business in relation to the movement of the excise duty-suspended goods. It was known to the Commissioners that there were two consignments from the warehouse where the vehicles were found on examination to be travelling empty.  This precipitated the imposition of revised more onerous conditions.  The drivers of the vehicles were interviewed and they confirmed the vehicles departing from the original warehouses swapped trailers with the intention of taking an empty trailer to France.  The Appellant’s AAD number as guarantor was found on the documentation  relating to the two consignments.

64.	The Appellant says that while the initial conditions attaching to the movement of goods was commercially viable, within five weeks of the Appellant starting to trade, the Commissioners set conditions which were “anti competitive”. The Commissioners say that the conditions which were set on 22 July 2005 allowing a maximum of four containers per week matched the level of the guarantee of £30,000.  However, when trading commenced on 11 May 2007, it was found that by June 2007, there were approximately 17 consignments.  This breached the conditions imposed initially.  The financial security therefore was insufficient to cover this level of trading and further conditions were introduced to meet the increased trading, The Commissioners say this is normal practice for any business and additional security would be taken to manage the increased risk.  

65.	The Appellant said that the due diligence information requested by the Commissioners, relating to clients was difficult to obtain and placed an onerous obligation.  The Tribunal feels that given the parties were operating on an arm’s length basis where commercial due diligence and documentations forms part of that relationship fulfilling the due diligence requirements should not have been difficult to obtain.  The information requested was to ensure that the Commissioners were provided with information from the Appellant to show contract, UK suppliers, warehouses and overseas purchasers and allow the Commissioners to consider the details and creditability of the trading.  The request was reasonable and appropriate in the circumstances.

66.	Mr Donnachie, the Review Officer, made several points. He said that the information presented by the Appellant in 2005 was different to the information arising from the trading patterns in July 2007.  There were inconsistencies relating to the transporter, their quoted prices and the profit margins. Further the Commissioners felt unable to understand how Mr Munawar made contacts in the alcohol trade and to provide the financial backing, to move from his core business in textiles to alcohol trading.  Immediately after starting the alcohol trade, the number of loads being Despatched exceeded the maximum of four a week initially proposed by the Appellant.  This impacted on the financial security provided.  The Appellant did not approach the Commissioners to explain these differences and with a view to negotiating new arrangements in a fully disclosed and transparent manner. The Tribunal agrees that the Cancellation and Conditions Decisions were reasonable and proportionate.

67.	One would have expected the Appellant to provide financial security to support their trading on the understanding that such security be used to pay any excise duty owing.  Traders must take a rigorous line in undertaking commercial due diligence on the bona fides of the parties with whom they were dealing since failure to do so on result in the security given being used to offset any duty levied on irregular consignments of goods.  That is what happened in this case.  

68.	The Tribunal believes that the assessment is correct and reasonable in the circumstances.  There were two irregular consignments of goods as described before and an excise duty point arose in each of these instance pursuant to Regulation 3(2) of the DSMEG Regulations.  Regulation 7(1) of the DSMEG Regulations places a strict liability with regards the liability with regards to the payment of excise duty at the excise duty point.  The person liable to pay that duty is the person shown in Box 10 of the AAD as having been the party who arranged the guarantee.  The Appellant was the person providing the movement guarantee.  The Appellant, as guarantor, becomes liable to pay the excise duty at or before the excise duty point.  The Appellant argues that the liability is limited to the amount guaranteed by the Lloyds TSB guarantee.  This is not correct.  The Appellant is liable to the full amount of the assessment.  The Appellant has undertaken to provide a guarantee for the amount of duty owing.  This view is supported by the case of Anglo Overseas Ltd v HMRC [2008] UK VAT (Excise) E01090 at pages 80-89.  The assessment was therefore correctly made.

69.	For the reasons given above, this appeal should therefore be dismissed.

70.	The parties may make representations as to costs.  The agreed cost position is that prior to 1 April 2009.

DR K KHAN
TRIBUNAL JUDGE
RELEASE DATE: 24 March 2010