E00397

EXCISE DUTY – Appeal heard in the absence of the Appellant under VAT Tribunals Rules 1986, Rule 26(2) – Appeal under s.16 FA 1994 against a review decision to offer restoration of a freight tractor unit on payment of a restoration fee equal to the trade value of the unit – driver of unit not knowingly involved in smuggling excise goods but carrying an illicit load – driver of unit failed to make basic reasonable checks which would have identified the illicit load – whether the decision reasonably proportionate to the aim of deterring illicit importations – whether the Commissioners took into account irrelevant matters or failed to take into account relevant matters in arriving at the decision – held the decision lacked the necessary proportionality – the policy applied in reaching the decision for that reason an irrelevant matter – Appeal allowed – A further review directed under s.16(4)(b) FA 1994
LONDON TRIBUNAL CENTRE

	COLGAN TRANSPORT LIMITED	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

	Tribunal:	MR. JOHN WALTERS, Q.C. (Chairman)
			MRS. SHAHWAR SADEQUE
			MR. ALEX McLOUGHLIN

					 	
Sitting in public in London on 10th February 2003

Ms. Katrine Sawyer, of Counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

The Appellant did not appear and was not represented

© CROWN COPYRIGHT 2003

DECISION

1.	The Tribunal heard this appeal in the absence of the Appellant pursuant to rule 26(2) of the VAT Tribunals Rules 1986.
2.	The appeal is brought under section 16 Finance Act 1994 (“FA 1994”) with respect to a decision by the Commissioners on a review under section 15 FA 1994.  The Commissioners (by their review officer, Mr. K.G. Harman, who gave evidence before us) had reviewed a decision (made by an officer in the Commissioners’ Post Seizure Unit, Mr. S. Clapson) under section 152(b) of the Customs and Excise Management Act 1979 (“CEMA”).  
3.	Officer Harman’s review decision, against which the appeal is brought, was made by a letter dated 11th June 2002 to solicitors then acting for the Appellant, Saunders & Co. of 71 Kingsway, London WC2B 6ST.  Officer Clapson’s  decision was made by a letter dated 3rd May 2002 to the Appellant, “care of” Saunders & Co. 
4.	Officer Clapson’s decision under section 152(b) CEMA was to offer restoration of a Scania vehicle, registration number M707 NBE, to the Appellant on payment of £13,925.  Officer Harman’s decision on review was to offer restoration of the vehicle on payment of £9,975. 
5.	The Tribunal’s function in this appeal is to consider whether or not Officer Harman “could not reasonably have arrived at” his decision (section 16(4) FA 1994).  The burden of proof in this matter is on the Appellant (section 16(6) FA 1994).

The facts

6.	On 1st March 2002, Mr. Patrick Michael Colgan was stopped by Customs’ Officers at the UK Control Zone, Freight terminal, Coquelles, France, driving the vehicle registration M707 NBE, which is a freight tractor unit, which was drawing a trailer.
7.	Mr. Colgan declared 800 cigarettes in the vehicle and that he had a load of vodka in the trailer.  Customs Officers then investigated the importation of the load of vodka.  They sought to interview Mr. Colgan to establish details of the load, but Mr. Colgan refused to take part in an informal interview because he was tired.  Customs Officers were unable to confirm that the vodka was legitimately imported and detained the vehicle, the trailer and the load, pending further inquiries.
8.	Mr. Colgan had an Accompanying Administrative Document (“AAD”) indicating a consignee for the vodka in Twickenham.  Customs Officers ascertained that the consignee was not expecting delivery of the goods, that the consignee was not authorised to receive spirits under the duty suspension regime and that no legitimate importer had come forward to claim the goods.  They therefore formed the view that the AAD was a forgery.
9.	Customs Officers seized the vodka (17,292 litres, with a revenue value of £126,836.82) and the vehicle on 2nd March 2002.  
10.	On 4th March 2002, the Commissioners received a fax from the Appellant requesting the release of the tractor unit (the vehicle) and trailer.  Included were details of the purchase of the vehicle in March 2000 at the cost of £19,975 and registration particulars of the vehicle as proof of ownership.
11.	On 9th April 2002, the Appellant’s solicitors requested on behalf of the Appellant that the vehicle be returned due to loss of business that was being suffered by the Appellant. It was confirmed that the Appellant had no interest in the vodka seized and that the Appellant’s involvement was limited to picking up the load in France and delivering it to the consignee in the UK.  The solicitors informed the Commissioners that the Appellant had no reason to believe that the load was anything other than legitimate.
12.	The Appellant informed the Commissioners that the trailer was on hire from another company, AT&T Rentals.  The Commissioners were able to contact that company, who were unaware that their trailer had been seized. We make no further reference to the trailer.
13.	The Appellant’s solicitors, on requesting a review of Officer Clapson’s decision, stated that the tractor unit (the vehicle) was valued at £6,000 and that a hire purchase agreement was outstanding on the vehicle.
      The law
14.	The commercial movement of excise goods is governed by The Excise Goods (Holding, Movement, Warehousing and REDS) Regulations 1992 (“the REDS Regulations”).  “REDS” is the acronym for Registered Excise Dealers and Shippers.

15.	Relevantly to this case, the REDS Regulations make provision for the movement of excise goods where the duty has not been paid and the goods are moved under duty suspension arrangements.  Where there is a breach of the Regulations on excise goods being imported, as there was in this case, the goods are liable to forfeiture (see: regulation 16).
16.	By section 141 of CEMA (so far as it is applicable to this case), where goods are liable to forfeiture, any vehicle which has been used for the carriage of the goods is also liable to forfeiture.
17.	By section 152(b) of CEMA:
“The Commissioners may as they see fit –
…
(b) restore, subject to such conditions (if any) as they think proper, anything forfeited or seized” under the customs and excise Acts.
      The review decision

18.	Officer Harman’s review decision describes the Commissioners’ restoration policy with reference to heavy goods vehicles and trailers.  Officer Harman states that the policy described has been effective since 16th July 2001.  It is as follows (reading from the decision letter dated 11th June 2002):
“(1) Where the Commissioners cannot be satisfied that the driver or haulier are not knowingly involved in smuggling excise goods and the revenue is significant, on the first detection the vehicle and trailer may be seized and not restored.
(2) In other cases where the Commissioners cannot be satisfied that the driver or haulier are not knowingly involved in smuggling excise goods, on the first detection the vehicle and trailer may be seized and restoration offered for a fee equal to 100% of the revenue involved or the trade value of the vehicle and trailer; whichever is lower.  On the second occasion, the vehicle and trailer may be seized and not restored.
(3) Where the Commissioners are not satisfied that the driver or haulier has carried out what Customs consider to be basic reasonable checks, which would have identified the illicit load, on the first occasion the vehicle may be seized and restoration offered for a fee equal to 20% of the revenue involved or the trade value of the vehicle and trailer; whichever is the lower.  On the second detection. the vehicle and trailer may be seized and not restored.
(4) Where the Commissioners are satisfied that the driver and haulier have taken all reasonable steps to ensure the legitimacy of the load, the vehicle and trailer may be seized and restored free of charge.
(5) Any vehicle or trailer adapted for the purpose of smuggling may not be restored.”
19.	Officer Harman noted in his review decision that the seizure of the goods and vehicle had not been challenged.  The goods (the load of vodka) had been improperly imported contrary to the REDS regulations and the goods and vehicle were correctly seized pursuant to sections 49 and 141 of CEMA.
20.	With regard to restoration, Officer Harman applied the paragraph numbered (3) of the policy set out above.  The trade value of the vehicle was assessed by reference to the well-known trade publication, Glass’s Guide, at £9,975.  This amount is less than 20% of the revenue evaded (which would be £25,367.36) and so the vehicle was offered for restoration on payment of a fee of £9,975.
21.	Inherent in his decision to “impose” (his word) paragraph (3) of the policy, was the Commissioners’ acceptance that Mr. Colgan was not knowingly involved in smuggling the vodka (otherwise either paragraph (1) or paragraph (2) of the policy would have been in point).  This was, it could be said, rather reluctantly conceded in the terms of Officer Harman’s decision letter, but conceded it was, and Officer Harman emphasised to the Tribunal in his oral evidence that he had decided that paragraph (3) rather than paragraph (1) contained the policy correctly applicable to this case.
22.	Also inherent in that decision was the fact that the Commissioners were not satisfied that Mr. Colgan had carried out what they consider to be “basic reasonable checks” which would have identified the load as being illicit – see the text of paragraph (3) of the policy.
23.	Officer Harman gives reasons for this in his decision letter as follows:
“Colgan Transport had not enquired with the importer whether they were expecting the load of spirits to be delivered.  Colgan Transport have not demonstrated any effort to ensure that this importation was legitimate prior to arriving at Customs controls.
I find it unusual that a freight haulage company had not made enquiries prior to this importation even if these enquiries had been simply to arrange arrival and delivery details.  Had these enquiries been made it would have become apparent that these goods were not expected or authorised for delivery to the importer.”
24.	This amounts to a criticism that Mr. Colgan had not made appropriate enquiries of the importer (stated on the AAD to be EHD Ltd of a given address in Twickenham) before arriving at Customs controls at Coquelles.
25.	The other aspects of the matter were that the AAD was (when Customs investigated it) suspected to be forged – although no criticism is made of Mr. Colgan for not suspecting this – and that in Mr. Colgan’s possession a letter, ostensibly from EHD Ltd, but with no named addressee, was found which, after detailing the collection and delivery addresses, concluded with a postscript as follows:
“P.S. Please make way to Junction 15 on A5, where one of our agents will meet the driver at the McDonalds Restaurant to assist them with the collection.”
26.	This arrangement is criticised by the Commissioners in their Statement of Case as being “highly irregular”. In her submissions, Ms. Sawyer contended that the irregular P.S. was another factor which should have alerted Mr. Colgan to the possibility of the load being illegitimate, and thus made more culpable his failure to make “basic reasonable checks, which would have identified the illicit load” in terms of the policy stated at paragraph (3) set out above.
27.	The Tribunal was shown a copy of an internal document, whose author is a Mr. Mike Wells and which is addressed to Regional Heads of Detection, Intelligence and Investigation.  The document is headed  “Excise Fraud – revised HGV Seizure and Restoration Policy”. We refer to this document below as “the Internal Policy Document”.  There was no suggestion that the Appellant in this case had seen the Internal Policy Document.  
The Commissioners’ submissions
28.	Ms. Sawyer submitted that Officer Harman’s decision to offer the vehicle for restoration on payment of a fee of £9,975 was reasonable.  She submitted that the seizure itself (which had not been appealed) was proportionate and reasonable, citing Air Canada v UK (1995) 20 EHHR 150 and Lindsay v Commissioners of Customs & Excise [2002] 3 All ER 118. She submitted that Officer Harman’s decision on restoration was proportionate; in particular it achieved a balance between the Appellant’s rights of ownership of the vehicle and the general interest of the community in deterring illegitimate trade in excise goods.  She submitted that Officer Harman had correctly interpreted the policy contained in paragraph (3) set out in paragraph 18 above and had correctly applied it to the facts of this case.  The Appellant had not carried out any basic reasonable checks, which would (if they had been carried out) have identified the importation of vodka as being illicit. The Appellant had not shown any exceptional factors which required the Commissioners to depart from their policy.
29.	After the hearing of the appeal, Ms. Sawyer sent to the Chairman of the Tribunal further supplementary submissions (in writing) in the light of the decision of Blackburne J in the case of The Commissioners of Customs and Excise v Alzitrans SL which had been handed down on 29th January 2003, but which first came to her attention on 19th February 2003.  The Tribunal is very grateful to Ms. Sawyer for bringing this decision to its attention and for her supplementary submissions.
30.	In the Alzitrans case, which concerned a decision not to offer for restoration a vehicle which had been used in an illicit importation of vodka to the UK, the Tribunal decided that the decision was disproportionate and unreasonable, and Blackburne J dismissed the Commissioners’ appeal.
31.	Ms. Sawyer points out that, in the Alzitrans case, the Commissioners alleged that the haulier (Alzitrans) was knowingly involved in the smuggling attempt, and the Tribunal found as a fact that it was not.  She reminds this Tribunal that in this case no comparable allegation is made against the Appellant.  She also stresses that the Alzitrans case concerned an application of paragraph numbered (1) of the policy, leading to no offer of restoration, whereas in this case, concerning as it does paragraph numbered (3) of the policy, restoration is offered on payment of a fee.  She submits, therefore, that Blackburne J’s decision in Alzitrans is not binding on this Tribunal in this case.
The Appellant’s case
32.	Although the Appellant did not appear and was not represented before the Tribunal, we understand from correspondence before us that its response to the allegation that Mr. Colgan failed to make basic reasonable checks which would have identified the illicit nature of his load is that there was nothing in the AAD or the letter from EHD Limited to put him on enquiry that the importation might be illicit, and that he would have telephoned the consignee to confirm the time and place of delivery once he had arrived in England, but he was stopped by Customs officers in Coquelles before he had had a chance to do so.
33.	The Appellant asks for restoration of the vehicle without payment, or on payment of a lower fee than the £9,975 demanded.  He states that the vehicle is worth about £5,000 and £4,000 is owed under a current hire purchase agreement in relation to the vehicle.  The hire purchase payments amount to £395 per month and the detention of the vehicle is causing “considerable inconvenience and loss of income”.
Decision
34.	The background against which we must exercise our jurisdiction has been set by the Court of Appeal in Lindsay, in particular by Lord Phillips MR at paragraph [40] where he said:
“However, the principal issue before the tribunal was whether the commissioners’ decision not to restore Mr. Lindsay’s car to him was one that they ‘could not reasonably have arrived at’ – within the meaning of those words in section 16(4) of the 1994 Act.  Since the coming into force of the Human Rights Act 1998, there can be no doubt that if the commissioners are to arrive reasonably at a decision, their decision must comply with the European Convention for the Protection of Human Rights and Fundamental Freedoms 1950 (as set out in Sch 1 to the Human Rights Act 1998).  Quite apart from this, the commissioners will not arrive reasonably at a decision if they take into account irrelevant matters, or fail to take into account all relevant matters (see Customs and Excise Comrs v J.H. Corbitt (Numismatists) Ltd [1980] 2 All ER 72 at 80, [1981] AC 22 at 60, per Lord Lane).”  
35.	It is clear (and accepted by the Commissioners) that compliance with the Convention (article 1 of the First Protocol is engaged) requires that there must be a reasonable relationship of proportionality between the decision concerned and the aim pursued (in this case the deterrence of illicit importations).  Therefore the first issue in this case is whether the decision to offer restoration of the vehicle to the Appellant on payment of a fee of £9,975 exhibited the necessary reasonable relationship of proportionality to that aim.  
36.	The second issue is whether in this case the Commissioners took into account irrelevant matters, or failed to take into account all relevant matters, in arriving at their decision.
37.	As to the first issue (proportionality), the Tribunal has considered the Commissioners’ policy on restoration in the context of the statutory powers which are purportedly exercised when the policy is applied.  Those powers are contained in section 152(b) of CEMA (set out at paragraph 17 of this Decision).  They contain two discretions conferred on the Commissioners.  First, the Commissioners may “as they see fit” restore anything forfeited or seized.  Additionally, they may make such restoration “subject to such conditions (if any) as they think proper”.
38.	Ms. Sawyer submitted that in practical terms the section provided for one discretion conferred on the Commissioners to offer for restoration with or without conditions, or to decline restoration.  The Tribunal accepts that this is the practical effect of the statutory words.
39.	The Commissioners’ policy distinguishes between cases where they are satisfied that the driver or haulier is not knowingly involved in smuggling excise goods and cases where they are not so satisfied.  In this case, of course, they were so satisfied.
40.	In cases where they are satisfied that the driver or haulier is not knowingly involved in smuggling, the Commissioners’ policy distinguishes further between cases where they are satisfied that the driver or haulier has carried out “what Customs consider to be basic reasonable checks” to identify an illicit load, and cases where they are not so satisfied.  In this case, of course, they were not so satisfied.
41.	In a case such as this one, where they are not so satisfied, they offer restoration (but only on the first detection) for a fee equal to 20% of the revenue sought to be evaded or the trade value of the vehicle, whichever is the lower.
42.	The Tribunal finds that the criterion that a driver or haulier should have made reasonable basic checks to ensure the legitimacy of the load before arriving at the Customs importation controls is a reasonable criterion for the Commissioners to have regard to as a matter of their policy in the exercise of their discretion under section 152(b) of CEMA.
43.	We also find that the Appellant and Mr. Colgan failed to make any basic reasonable checks to ensure the legitimacy of the load before arriving at the Customs importation controls.
44.	However, one aspect of the restoration fee, indicated by the Commissioners’ policy sought to be applied in this case, which concerned the Tribunal was that the parameter of 20% of the revenue sought to be evaded can only be indirectly relevant to the driver or haulier.  He is not knowingly involved in the smuggling, so the relevant shortcoming on his part is, to put it at its highest, carelessness.  It may simply be naivety.  The only relevance of the parameter of 20% of the revenue sought to be evaded (by someone else and not within his knowledge) seems to the Tribunal to be the deterrent effect of the fee.  In other words the parameter of 20% of the revenue sought to be evaded may serve as an encouragement to innocent drivers and hauliers to make “what Customs consider to be basic reasonable checks”.  But this does not remove what appears to the Tribunal to be the arbitrary effect of the parameter in practice – because the value of the illicit importation is not within the knowledge of the driver or haulier.
45.	As Ms. Sawyer acknowledged, there is no legal obligation on the driver or haulier to make these basic reasonable checks.  The Internal Policy Document is very vague as to what these checks are, although in context they are clearly such checks as can reasonably be made by a driver or haulier to ensure that they are not carrying illicit goods.
46.	As to publicity of this policy within the haulage industry, the Internal Policy Document (prepared before the introduction of the policy on 16th July 2001) states that “we [the Customs] are publicising it widely within the haulage sector through direct mailing, leafleting and advertising”.  However Officer Harman in his evidence could not say positively that the Appellant or Mr. Colgan had seen any publicity of the policy, and the Tribunal was not shown copies of any relevant leaflets or other advertising material. We would be reluctant, therefore, to accept that the policy in its application to this case exhibited the necessary proportionality by analogy with the policy of non-restoration in the case of cars used for commercial smuggling referred to by Lord Phillips MR in Lindsay at paragraph [63], because he clearly placed importance on the car-user having had prior knowledge of the policy of forfeiture before he set out on his commercial smuggling expedition – and, of course, having had the intent to carry out illicit commercial smuggling.
47.	But the aspect of the policy relating to the restoration fee under paragraph numbered (3) in paragraph 18 above which the Tribunal considers is most vulnerable to attack for lack of relevant proportionality is the fact that, in cases where the revenue evaded is very substantial, the formula results in a restoration fee equal to the trade value of the vehicle.  In economic terms, this is equivalent to confiscation of the vehicle (i.e.  non-restoration).
48.	In evidence, Officer Harman said that it is “quite common that the vehicle is worth a lot less than the duty evaded” and the Tribunal can readily accept that this is so.
49.	In the Tribunal’s judgment, the policy is not “fine tuned” to give a proportionate penalty in cases (such as this Appellant’s) where the driver or haulier is to be taken as guilty of nothing worse than naivety or carelessness, but nevertheless – unbeknown to him – the revenue sought to be evaded is substantially greater than the value of the vehicle.
50.	The Tribunal respectfully adopts the same approach to the proportionality issue in this case as that expressed by Simon Brown LJ in R. (on the application of International Transport Roth GmbH) v Secretary of State for the Home Department [2002] EWCA Civ 158; [2002] HRLR 31. Simon Brown LJ (who was in the majority) said this at paragraph [53]:
“Even acknowledging, as I do, the great importance of the social goal which the scheme seeks to promote, there are nevertheless limits to how far the state is entitled to go in imposing obligations of vigilance on drivers (and vicarious liability on employers and hirers) to achieve it and in penalising any breach.  Obviously, were the penalty heavier still and the discouragement of carelessness correspondingly greater, the scheme would be yet more effective and the policy objective fulfilled to an even higher degree.  There comes a point, however, when what is achieved is achieved only at the cost of basic fairness.  The price in Convention terms becomes just too high.  That in my judgment is the position here.”
51.	Roth (which was not cited at the hearing) was a case concerning a statutory scheme under which owners, hirers, drivers or operators of vehicles were subject to a fixed penalty of £2,000 if they intentionally or negligently allowed a person to gain illicit entry into the UK by concealing him or herself in a vehicle of theirs.  Although the scheme in this case does not involve a fixed monetary penalty, it does, in the class of case of which this is one, involve the economic equivalent of non-restoration of the vehicle and it is not, in the Tribunal’s judgment, compliant with article 1 of the First Protocol of the Convention, by reason of lack of the necessary proportionality.
52.	We now turn to the second issue which we have identified – whether in this case the Commissioners took into account irrelevant matters, or failed to take into account all relevant matters, in arriving at their decision.
53.	The wording used by Officer Harman in his decision letter – “Imposing item 3 of the above policy establishes that restoration should be offered at 20% of the revenue or the trade value of the vehicle whichever is the lower.” – might indicate that the Officer automatically applied the policy without considering the circumstances of the Appellant’s individual case – in particular those that had been represented to the Commissioners, namely the practical and financial difficulties to the Appellant’s business caused by the continued detention of the vehicle and the size of the proposed restoration fee.
54.	However, the decision letter makes reference to the letter dated 8th May 2002 in which these representations were made, and the Tribunal accepts Officer Harman’s evidence that he had regard to them and that he considered whether the Appellant had made a case that would warrant a departure from the Commissioners’ policy.
55.	The difficulty for Officer Harman in carrying out correctly his function of review in this case was, in our judgment, the inflexible and insufficiently proportionate nature of the policy he was bound to have regard to.  As we have found that the policy was not proportionate in its application to this case, it follows that the Officer (through no fault of his own) had regard to an irrelevant matter – namely an unreasonable policy.
56.	Accordingly we allow the Appellant’s appeal and direct the Commissioners to conduct a further review of the original decision, in terms of section 16(4)(b) FA 1994, taking our Decision into account. 
57.	One matter which we have not been able to decide, but which clearly must be looked at afresh by the Commissioners, is the value of the vehicle – represented by the Appellant to be £5,000 rather than the figure of £9,975 adopted by Officer Harman.  The damage to the Appellant’s business referable to the continued detention of the vehicle is also a relevant matter to be taken into consideration.
58.	As will be seen, we have not regarded ourselves as bound by the decision in Alzitrans, but we consider that our decision is consistent with it.
59.	The Tribunal considers that this is not a case in which it should make any order for costs

JOHN WALTERS, QC
CHAIRMAN

RELEASED: 28 March 2003

LON/2002/8186

££Colgan Transport Ltd v The Commissioners of  Customs and Excise  [2003] UKVAT(Excise) E00397 (28 March 2003)