TC02865
Appeal
number: TC/2012/08461
EXCISE DUTIES — whether consignment of wine sent from Spain
to UK in a sealed container was short when loaded or miscounted on arrival — on
balance of probabilities, short when loaded — appeal allowed
FIRST-TIER TRIBUNAL
tax chamber
J F HILLEBRAND UK LIMITED Appellant
- and –
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE & CUSTOMS Respondent
TRIBUNAL: JUDGE COLIN
BISHOPP
Sitting in public in London on 4 September 2013
Mr Ian Saward, General Operations Manager, for the
Appellant
Mr Simon Pritchard, counsel, instructed by the General Counsel and Solicitor to HM
Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2013
DECISION
1.
The appellant, J F Hillebrand Ltd (“Hillebrand”) carries on business as
(to quote from its letter heading) a global beverage logistics contractor. It
has operations in, among other countries, the United Kingdom and Spain. In April 2011 it agreed to arrange for the transport of 2200 cases (9900 litres) of
Spanish sparkling wine from the premises of Freixenet SA (“Freixenet”) in Spain to a warehouse owned and operated by Tesco Stores Ltd (“Tesco”) in Milton Keynes. This was
merely one of a very large number of similar consignments of sparkling wine
sold, over several years, by Freixenet to Tesco whose transport was arranged by
Hillebrand.
2.
It is common ground that the routine procedure for such consignments was
adopted in this case. On or about 12 April 2011 Hillebrand’s Spanish company
arranged for an empty container to be delivered, on a lorry, to Freixenet’s
premises, where it was loaded by Freixenet’s staff. The container was then
sealed. It is agreed that it is unlikely that the lorry driver was able to
watch and check the loading, although he signed a receipt for what should have
been in the container. The container and the goods then began a duty-suspended
movement to Tesco’s warehouse, being taken first to the port of Barcelona where they were loaded on a ship which delivered them to Felixstowe, from where they
proceeded to the warehouse. On arrival, on 21 April, the seal on the container
was broken, by Tesco staff, and the container was unloaded, also by Tesco
staff. It is agreed that the seal and the container had not been tampered with during
the journey, and that the goods which arrived at Tesco’s warehouse were those
loaded into the container by Freixenet.
3.
Tesco say that there were only 1800 cases of wine in the container when
it was unloaded, while Freixenet maintain there were 2200 cases on departure. As
there is no suggestion of fraud, deceit or tampering with the load in this
case, it follows that one company or the other is mistaken; the question I must
decide is which. The consequence, and purpose, of a duty-suspended movement is
that duty is payable in the country in which the goods are released for
consumption, rather than the country of manufacture. If goods are released
irregularly from such a movement the combined effect of regs 6 and 8 of the
Excise Goods (Holding, Movement and Duty Point) Regulations 2010 is to make the
UK-registered consignee liable for payment of the duty, which may be assessed
in accordance with s 12 of the Finance Act 1994. As those statements of law are
undisputed, I shall not dwell on them. The irregularity on which HMRC rely is
that the goods were released to consumption on arrival at Tesco’s warehouse, but
duty was paid on 1800 rather than on all 2200 cases. The answer to the question
I have identified matters for Hillebrand, since HMRC contend that, as consignee
of the goods, it is Hillebrand which is liable to pay the duty on the 400
cases, amounting to £5,561.
4.
Hillebrand was represented before me by Mr Ian Saward, its general
operations manager, and HMRC by Mr Simon Pritchard of counsel. I heard oral
evidence from Mr Saward and from Mrs Helen Hardy, the HMRC officer who took the
decision that the “missing” 400 cases had arrived and that Hillebrand was
liable for the duty; that decision led to an assessment against which
Hillebrand has appealed. I also had some documentary evidence, which I describe
below. I had no live evidence from either Tesco or Freixenet.
5.
Duty suspended movements of excise goods of this kind must comply with
the requirements of Council Directive 2008/118/EC and Commission Regulation
(EC) No 684/2009. The principal purpose of the Directive and the Regulation, so
far as this appeal is concerned, is to replace the former paper-based method of
monitoring such movements by an electronic system. A paper document accompanies
the goods, so that lorry drivers and others with custody of them can show if
necessary that they are subject to a duty-suspended movement, but in every
other respect movements are recorded and tracked by a system known as the
Excise Movement and Control System, or EMCS.
6.
The undisputed evidence shows that Freixenet entered the consignment
onto EMCS on 12 April 2011, when it was dispatched, and in doing so generated
an “eAD” (electronic accompanying document); a paper copy of the eAD is what
accompanies the goods. The next entry to EMCS, in an ordinary case, should be
of discharge of the goods from the duty-suspended movement. That discharge (at
least, of the 1800 cases undoubtedly received by Tesco) occurred when they
arrived at Tesco’s warehouse on 21 April. Article 24 of the Directive requires
the consignee to make the discharge entry “without delay and no later than five
working days after the end of the movement”. The entry was in fact made outside
that time limit, on 5 May. Nothing turns on the fact of the lateness; it is what
occurred between the discharge and the entry which is important.
7.
Mr Saward explained that Hillebrand transports a very large number of
consignments of goods for Tesco, so many that it has access to Tesco’s computer
records of receipts in order that Hillebrand may make from them the entries to
EMCS which are required. Ordinarily, said Mr Saward, the Hillebrand clerk
making the entries accesses Tesco’s computer within about 24 hours of the
arrival of the goods. It is clear that Hillebrand first learnt that Tesco had
recorded receipt of only 1800 cases when its computer record was interrogated. There
was no record in this case of when precisely the clerk undertook that task; Mr
Saward suggested that some of the delay may have occurred because the clerk was
on holiday, but I do not think the reason matters much for present purposes.
8.
On 27 April a member of Hillebrand’s UK staff sent an email to its
Spanish associated company stating that Tesco had claimed that the load was 400
cases short, and asking that a check be made with Freixenet. The response, on
the same day, was “Freixenet has confirmed 2200 boxes were loaded”.
9.
The next development of which there was evidence available to me
occurred on 3 May 2011 when Hillebrand wrote to HMRC at Glasgow, identifying
the consignment, and stating that
“We have been advised that 400 cases which were covered by
the above eAD [were] missing when they arrived into the UK. We have therefore not paid any duty for this consignment and also returned the eAD back
to the supplier ‘as no goods received’. We have also advised the consignor of
the missing 400 cases. We have also had confirmation from the haulier that the
seal was intact on arrival at the Tesco depot.”
10.
It was put to Mr Saward that the letter (which he did not write) was not
entirely candid in that it did not mention the email exchange of 27 April, and
the supplier’s response, and Mr Saward accepted that the letter might have been
better expressed.
11.
On 5 May 2011 the requisite entry was made to EMCS, to record the
discharge. I deduce that the lateness was due, at least in part, to the fact
that there was some uncertainty about how many cases had arrived. I had no
explanation of the entry on the EMCS record of the date of arrival of the
consignment as 3 May, but it seems to me that it was probably due to simple
error. One of the fields to be completed on the screen before the completed
entry is submitted requires the entry of a code, of which there are several,
though only two are relevant here: 1, which signifies “Receipt accepted and
satisfactory” and 2, “Receipt accepted although unsatisfactory”. It is
undisputed that the entry actually recorded on EMCS used the code 1. I should
add, if only for completeness, that it is not possible to amend an entry once
it has been submitted. It seems that the discrepancy between that entry and the
letter of 3 May led to HMRC’s realisation that there was, or potentially was,
an under-payment of duty since, as Hillebrand said in the letter (even if
somewhat confusingly) it had not paid the duty on the 400 cases.
12.
Mr Saward told me that Hillebrand uses its own bespoke software which
forms an interface between Hillebrand’s systems and EMCS, and he produced some
screenshots showing the entry in the course of being made, and before
submission. These screenshots show that the code 2 has been selected, and that
a further sub-screen has been opened to record that the reason why the receipt
was unsatisfactory was that there was a shortage. However, it is not possible
to determine when and for what purpose the screenshots were taken, and it is
quite possible they are later re-creations, rather than contemporaneous.
Although code 1 is entered on EMCS, Hillebrand’s own record, generated by the
same software, shows that code 2 has been entered. Mr Saward asked the software
suppliers whether the various entries made could be traced in order to provide
an audit trail as a means of determining how the mis-match had occurred but was
told, in an email produced to me, that it was not possible.
13.
Mrs Hardy’s evidence was that, had the software house been able to offer
an explanation of the error she might well have accepted it but, in the absence
of any explanation, she felt obliged to regard the EMCS entry as accurate.
Nevertheless, she decided to make some further enquiries before raising the
assessment which is the subject of this appeal.
14.
On an unknown date (since none is recorded on it) but which was plainly
in late 2011 Mrs Hardy arranged for a mutual assistance request to be sent to
the Spanish tax authorities, asking that the size of the consignment be
checked. The response, also undated, but sent to Mrs Hardy by a colleague in Glasgow on 9 January 2012, reads as follows:
“Dear Colleague
We can confirm the dispatch of 9,900 litres of cava de
12° by Comercial Grupo Freixenet SA with e-AD with ARC no. [given] of
12/04/2011 with destination J F Hillebrand.
This is recorded in the accounts books and no differences
have been detected between what is stated in the books and the stock in the
warehouse. In addition, the shipper states they are not aware of any incident.
The delivery note is attached with the signature for acceptance of the load by
the haulier (Hillebrand).
Kind regards [redacted].”
15.
The outcome of that enquiry led Mrs Hardy to the conclusion that she
could not be satisfied that the load had consisted of only 1800 cases, and she
raised the disputed assessment.
16.
Soon after, Mr Saward made some enquiries of his own of Tesco. He
received an email dated 9 May 2012 from a person described as an accounts
executive in Tesco’s indirect tax and duty office, stating that “The supplier
was paid for 1800 cases only”. Included in the email was a screenshot of
Tesco’s accounting record, showing an entry dated 23 May 2011 with 2200 entered
in a column headed “quantity” and with a figure in a column headed “cost”, a
further entry of the same date of -400 in the “quantity” column and a negative
figure in the “cost” column, and a third entry of 3 August 2011 showing zero in
the “quantity” column and a figure matching that in the previous line, but
positive instead of negative, in the “cost” column.
17.
Mr Saward told me that the Milton Keynes depot had now closed, and that
he had since made further enquiries of Tesco, the result of which was available
to me. Tesco produced a copy of their stock listings, showing purchases from
Freixenet, including this consignment; it show an order for 2200 cases and the
receipt of 1800. The covering email states that there were no stock
adjustments, save for three cases which were added and then almost immediately
removed again, and no occasion on which Freixenet were shown as having
delivered more cases than were ordered (which might account for the missing
cases). Mr Saward added that no discrepancies had been found when the
warehouse was closed and the remaining stock removed. Mrs Hardy, however, told
me of other instances in which Tesco had made mistakes; although the errors had
been resolved they nevertheless were errors, and she could not rule out the
possibility of such an error on this occasion when the supplier was adamant
that the full quantity had been sent. In addition, she was aware that goods off
loaded by Tesco from a container were laid out on the warehouse floor before
counting, which did not always occur immediately, and it was possible the 400
cases had been removed to the storage racks before they were counted in this
case. Mr Saward retorted that such an eventuality was unlikely as goods were
always put in the racks before being removed for dispatch to stores or other
warehouses.
18.
It is common ground that the burden of showing that the duty is not
payable—which in the circumstances of this appeal is the equivalent of showing
that the 400 cases did not arrive—rests on Hillebrand, by virtue of s 16 of the
Finance Act 1994. The standard is the balance of probabilities, and the
question I must resolve is whether that burden has been discharged by the
evidence I saw and heard, unsatisfactory (since it is incomplete) as it is.
19.
It is, of course, human to err and I start from the proposition that
either Freixenet or Tesco could be mistaken. In favour of the proposition that
it is Tesco which has erred are the facts, first, that there is no evidence
before me of an error by Freixenet in any other supply to Tesco transported by
Hillebrand; that it has been asked by Hillebrand itself to confirm the quantity
of stock in the consignment and has asserted that 2200 cases were sent; and it
has been asked a similar question by the Spanish tax authorities.
Nevertheless, I am bound to say I have some concerns about the quality of that
evidence.
20.
I was surprised to see that the document produced, as the response from
the Spanish authorities and not simply a translation of it, was on plain paper
and in flawless English. The mutual assistance responses I have seen in the
past have been on official stationery, and written either in the writer’s own
language or in less than perfect English. It is, of course, entirely possible
that the writer of this response does have an excellent command of English and
I do not read much into that factor. But it is also surprising, and in my
experience unusual, to see that the writer’s name has been redacted.
Additionally, there is nothing to indicate the standing within Freixenet of the
source of the information, nor how thorough the checks were; “no differences
have been detected” may mean no more than that nothing has come to light, and
does not imply a positive check. The statement that the shipper is “not aware
of any incident” would be untrue if Tesco had paid for only 1800 cases rather
than the 2200 supplied, since the reduced payment can scarcely have gone
unnoticed.
21.
On the other hand, it is not immediately apparent why Freixenet should
claim that the full consignment had been shipped if it had in fact been paid
for only 1800 cases. It is conceivable that there is, or was, a dispute between
Freixenet and Tesco and Freixenet felt it had to maintain its position that the
full consignment had been sent; but this possibility, which is in any case
speculative, does not explain why Freixenet should state that it was unaware of
any incident.
22.
The evidence obtained from Tesco, too, is not entirely satisfactory; it
would, in particular, have been helpful to see the remittance advice, or more
probably its electronic equivalent, by which Tesco informed Freixenet that it
was paying for only 1800 cases, and any response. Mr Pritchard suggested that
the screenshot produced by Tesco was unreliable because the third line of it as
I have described it above might indicate that the missing 400 cases had been
found, and that Tesco had after all paid for them. I do not accept that
argument; the screenshot was quite clearly included in the email by its writer
as the evidence supporting her statement that payment had been made for only
1800 cases. Mr Pritchard and I may struggle to understand a Tesco accounting
document, but I find it impossible to believe that a member of Tesco’s accounts
staff would make a statement supported by a document which revealed to anyone
who could understand it that her statement was untrue. I am satisfied by this
evidence that, by a date more than a year after the consignment was dispatched,
Tesco had paid for only 1800 cases.
23.
The evidence showed that errors had occurred in Tesco’s warehouse in the
past. Mrs Hardy described a cluster of errors which had take place shortly
before the time at which this consignment had arrived, and which had resulted
in management intervention. She said that the errors had apparently been
resolved at that time, but thought this might have been a recurrence, albeit
isolated. She was critical of Tesco’s method of removing goods from a container
but not immediately checking the quantity and, in correspondence between the
parties during the course of the dispute, it was suggested that Tesco should
have carried out a stock check, in order to verify that the missing cases were
not, after all, in the warehouse. In my view that was an unrealistic
suggestion; as Mrs Hardy and Mr Saward agreed, the warehouse was vast and the
undertaking of a full stock take, in order to discover whether or not what (by
the standards of the warehouse) was a small quantity of goods was present,
would have been disproportionate. I mention again that there is no evidence
that a similar request was made of Freixenet.
24.
I accept, as did Mr Saward, that code 1 (“Receipt accepted and
satisfactory”) was entered to EMCS, but I am satisfied that was a mistake. I
place no reliance on the screenshots which Mr Saward produced, since it is not
clear they are contemporaneous. But I find it difficult to accept that
Hillebrand would write to HMRC on 3 May to report a short delivery, only to
make, intentionally, an entry reporting a full delivery two days later, and I
reject that as a possibility. I attach some weight to the fact that
Hillebrand’s own records show that code 2 was entered, but as I had no evidence
of the manner in which its software functioned I do not regard this point as
decisive. However, it should be remembered that what Hillebrand entered to EMCS
is merely evidence of what its staff understood at the time, which was no more
than what Tesco’s records showed; it is not evidence which helps me decide
whether the counting error lay with Freixenet or Tesco.
25.
As I have said, it is for Hillebrand to satisfy me, on the balance of
probabilities, that the 400 cases were not loaded into the container in Spain and taken out of it in Milton Keynes. It will be apparent from what has gone before that the
evidence available is of poor quality, and that much of it can be criticised.
For those reasons I have not found this an easy case. However, I am persuaded
that the weight of the evidence favours Hillebrand, and that it has discharged
the burden.
26.
In reaching that conclusion I accept that the Tesco stock records are
consistent with there being a shortage, and with there being no late discovery
of an otherwise unexplained excess of stock. I accept too the evidence that
Tesco paid for only 1800 cases; for the reasons I have given I reject the
argument that the third line of the relevant screenshot might show a late
payment. Both of those pieces of evidence support the proposition that the
delivery was short. The evidence from the supplier, by contrast, amounted to
nothing more than assertion; it was backed up by no stock records, nor any
evidence that Tesco had paid in full. In addition, as I have said, the
contention that the supplier was unaware of any incident is difficult to
understand; even if, on Mr Pritchard’s hypothesis and contrary to my finding,
Tesco paid initially for 1800 cases and later for the additional 400, the
supplier ought to have been aware that something untoward had happened. I bear
in mind that there is some evidence of mistakes by Tesco (albeit mistakes which
were corrected), and none of other mistakes by Freixenet, but in my judgment,
on the evidence available to me, it is nonetheless more likely that the error
lay with Freixenet than with Tesco.
27.
For those reasons I have concluded that the appeal is to be allowed, and
the assessment discharged.
28.
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.
COLIN BISHOPP
TRIBUNAL JUDGE
RELEASE DATE: 10 September 2013
