[2011] UKFTT 224 (TC)

TC01089

Appeal number TC/2010/07934

Excise Duty – Rebated gas oil (red diesel) found in tank of vehicle – civil penalty – Whether reasonable excuse – Yes – Appeal allowed – sections 9 and 10 Finance Act 1994

FIRST-TIER TRIBUNAL

TAX 

	CABLING UTILITIES LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL: JOHN BROOKS (TRIBUNAL JUDGE)
						ANDREW PERRIN FCA (MEMBER)

Sitting in public at Eastgate House, Newport Road, Cardiff CF24 on 17 March 2011

Leon Evans director of the Appellant Company for the Appellant

Graham Walters, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.	On 13 November 2007 Mr Leon Evans, a director of Cabling Utilities Limited (the “Company”), wrote to HM Revenue and Customs (“HMRC”) requesting clarification on the use of rebated gas oil (red diesel) on two vehicles a ‘Cherry Picker’ and, as it is described in the Notice of Appeal, a “Pole Erection Unit” (the “Vehicle”) which is a vehicle with machinery for digging holes to erect telegraph poles. He enclosed photographs with the letter and the photograph of the Vehicle showed it carrying telegraph poles.
2.	The reply he received from HMRC, dated 23 November 2007 confirmed that only one of the vehicles, the Pole Erection Unit, as a  Digging Machine, “would be allowed to use red diesel as per Schedule One of the Hydrocarbon Duties Act 1979”. The letter continued:
As such this vehicle is an excepted vehicle and is therefore permitted to use rebated gas oil providing it meets the conditions outline in the definition as follows.
Digging Machine
(1) A digging machine is an excepted vehicle
(2) in sub-paragraph (1) above a “digging machine” means a vehicle which is designed, constructed and used for the purpose of trench digging, or any kind of excavating or shovelling work, and which
(a) is used on public roads only for that purpose or for the purpose of proceeding to and from the place it is to be  or has been used for that purpose, and
(b) when so proceeding does not carry any load except such as is necessary for its propulsion or equipment.
The definition used in the letter is taken from the applicable legislation, namely schedule 1 of the Hydrocarbon Act 1979 (“HODA”).
3.	On 11 May 2010 the Vehicle was carrying telegraph poles and being driven by Mr Evans. It was stopped in Bridgend by HMRC officers who detected red diesel in the tank contrary to s 12(2) HODA. As it was carrying a “load” (the telegraph poles) the Vehicle was not considered to be an “excepted vehicle”, as defined in schedule 1 HODA, and was seized under s 139 of the Customs and Excise Management Act 1979 (“CEMA”) as liable to forfeiture by virtue of s 141(a) CEMA as it was used for “carriage, handling, deposit or concealment of the fuel.” However, the Vehicle was restored free of charge on the day.
4.	Although s 13 HODA provides that any person using red diesel contrary to s 12(2) HODA shall attract a penalty under s 9 Finance Act 1994, s 10 Finance Act 1994 provides that a penalty shall not arise where there is a reasonable excuse for the conduct that gave rise to the penalty.
5.	In this case penalties amounting to £500 were issued on 19 July 2010 for the use of the red diesel in a road vehicle and taking it into a road vehicle. 
6.	The Company appealed to the Tribunal against the penalties on 4 October 2010 on the grounds that there was “non-deliberate use [of the red diesel] with reasonable excuse.” Mr Evans expanded on this before us explaining that his understanding of the letter of 23 November 2007 from HMRC was that he was entitled to use red diesel in the Vehicle. Although the letter had referred to the statutory conditions Mr Evans understood, especially as he had sent photographs of the Vehicle carrying telegraph poles to HMRC, that the telegraph poles, although a load, were “necessary for its equipment” as that was the purpose of the Vehicle ie digging holes to erect telegraph poles.
7.	Mr Walters, for HMRC, contended that the telegraph poles carried by the Vehicle was a load which was not necessary for its equipment and, as such, the Vehicle could not be an “excepted vehicle” within schedule 1 HODA. Therefore, he submitted, the penalties were correctly imposed and if Mr Evans had misunderstood the law, as stated in HMRC’s letter of 23 November 2007, as ignorance of the law could not amount to a reasonable excuse the appeal should be dismissed and the penalties confirmed.
8.	Although we were not referred to any authorities by the parties in relation to whether ignorance of the law can constitute a reasonable excuse we have derived some assistance from the VAT case of Neal v Customs & Excise Commissioners [1988] STC 131 in which Simon Brown J, considered this issue, he said (at 135):
“It seems to me essential to recognise a distinction between on the one hand basic ignorance of the primary law governing value added tax including the liability to register and on the other hand ignorance of aspects of law which less directly impinge upon such liability.”
He continued (at 136): 
“This case was simply not concerned with the taxpayer's ignorance other than of basic value added tax law let alone ignorance of mixed law and fact. Had it been, then in my judgment the tribunal ought certainly to take such matter into account as part of the overall facts of the case. 
9.	Applying this to the present case it is necessary for us to recognise a distinction between ignorance of the basic or primary law governing the use of red diesel and ignorance of other aspects of the law to which we should have regard in considering whether there was a reasonable excuse,. 
10.	Clearly Mr Evans and the Company were not ignorant of the basic law governing the use of red diesel otherwise he would not have written the letter and sent the photographs to HMRC on 13 November 2007. However, in the light of the, in our view unhelpful, reply he received from HMRC on 23 November 2007 Mr Evans understood that red diesel could be used in the Vehicle when carrying telegraph poles on the way to and from a place where they were to be erected as they were “necessary for its equipment”. 
11.	Whether or not he was correct in his understanding depends on the construction of “necessary for its … equipment” in schedule 1 HODA and its application to the facts of the particular case a matter which, in our judgment, goes beyond the knowledge of primary law governing the use of red diesel. 
12.	Having found that Mr Evans and the Company were not ignorant of the basic law we consider that, having regard to the overall facts of this case, in particular the response received from HMRC after Mr Evans had sought clarification on the use of red diesel and had sent photographs of the Vehicle carrying telegraph poles, there was a reasonable excuse for the use of red diesel in the Vehicle. 
13.	We therefore allow the appeal. 
14.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JOHN BROOKS

TRIBUNAL JUDGE
RELEASE DATE: 5 APRIL 2011