Varsani, R. v [2010] EWCA Crim 1938

[2010] EWCA Crim 1938Case No 200903932 C1 AND 200906012 C1IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM IPSWICH CROWN COURT
His Honour Judge McKittrick
T20080459
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 05/08/2010
Before
LORD JUSTICE MOORE-BICKMRS JUSTICE RAFFERTYHIS HONOUR JUDGE GILBERT QC (SITTING AS A JUDGE OF THE HIGH COURT)
Between
ReginaRespondentValji Lalji VARSANIAppellant
Tom Little (instructed by the Crown Prosecution Service) for RespondentRonald Jaffa (instructed by Tuckers Solicitors) for AppellantHearing Hearing date: 20 th July 2010
Judgment
[1]On 27th April 2009 in the Crown Court at Ipswich the appellant Valji Lalji Varsani pleaded guilty to three counts of being knowingly concerned in the fraudulent evasion of duty contrary to section 170(2)(a) of the Customs and Excise Management Act 1979. On 26th June 2009 in the same court he was sentenced concurrently on each count to 5 years imprisonment. On 2nd October 2009 in the same court in confiscation proceedings under the Proceeds of Crime Act 2002 he was found to have benefited in the sum of £2,241.761.29. His realisable assets were deemed to be £516,278.50 and a confiscation order was made in the same amount payable within 8 months with 18 months imprisonment in default consecutive to the substantive offence. An available amount, £516,217.50, was agreed, the benefit figure of £2,241.761.29 was not.[2]He appeals against sentence by leave of the single judge and the Registrar has referred his application for leave to appeal against the Confiscation Order to the Full Court. We grant leave.[3]The appellant was involved in the importation of 11.5 million cigarettes from China. On 29th and 31st March 2008 and 27th April 2008 at Felixstowe docks, containers, purportedly containing DVDs, were searched. Each revealed a large quantity of counterfeit cigarettes and a small number of DVDs. The consignee for the first was DVD Media Wholesale Limited (“DVD”), incorporated in February 2006, Ruben Komal and Ramesh Varma named as directors, aliases used by the appellant. DVD’s fax number was the same as that for Vision Warehouse Limited (“Vision”), of which the appellant was the sole director. Vision had a tenancy agreement on the industrial estate where the items were delivered; an agreement varied to the location of the delivery. The consignee for the second and third containers was DVD Products Direct Limited, incorporated in November 2007 and Vision, with whom it shared a fax number, paid the setting up fee. A few days after the first container was examined by Customs officers the appellant, Ruben Komal copied in, emailed the importing agents, Mayner Imports Limited, and paid their fees. Komal’s email address had been set up at the leisure centre of which the appellant was a member. The appellant had sat in a motor car whilst a number of men unloaded the first container. Telephone analysis revealed that he had been in contact with two of them. He was arrested in possession of £4,860. Interviewed on two occasions he made no comment.[4]The prosecution calculated the duty as approximately £2.2 million. The appellant argued it should a lower figure because the cigarettes were counterfeit and would be sold at a substantial discount. The prosecution accepted some discount but argue that the fact the cigarettes were counterfeit was irrelevant for two reasons: as a matter of law the value of the duty, as calculated according to section 5(1)(b) of the Tobacco Products Duty Act 1979, should ignore the fact the goods were counterfeit and be interpreted in accordance with the principle of fiscal neutrality; and, as a matter of sentencing policy a smuggler of counterfeit goods should not be treated more favourably than one of genuine goods. The Judge, after considering Goodwin [1998] EUECJ C -3/97 and R v. Carlo Citrone and John Citrone CA 26th November 1998 (unreported), agreed with the principle of fiscal neutrality and said it should be used to calculate the duty payable in section 5(1)(b). If wrong on that he agreed with the prosecution’s second point concerning sentencing policy.[5]As to sentence there were four aggravating features: the Appellant had played an important organisational role; there were three separate importations; it was a sophisticated and professional smuggling operation; and legitimate businesses were used as a front. He was 42 and had been of good character. The starting point was 6 years, some credit for plea reducing the term to 5 years. The maximum is 7 years.[6]Grounds of appeal as to imprisonment are as follows:- 1. The Judge erred in finding that the words in the Tobacco Products Duty Act 1979 section 5(1) (b) “the highest price at which cigarettes of that description are normally sold by retail at that time in the United Kingdom” can be taken to mean the retail price of genuinecigarettes manufactured and sold in the UK; 2. The Judge erred in finding that even if his interpretation of those words was wrong then the principle of fiscal neutrality should be used to put the smuggler of counterfeit cigarettes which attract a lower excise duty for sentence on the same basis as the smuggler of genuine cigarettes which attract a higher excise duty[7]As to the confiscation[8]On the same day as sentence but prior to mitigation and sentence there was legal argument about the correct amount of excise duty. The nub was that the prosecution had calculated the excise duty on the retail price of genuine Benson and Hedges, Sovereign Kingsize cigarettes manufactured and sold in the UK. The defence submitted that the calculation should be on the basis of the highest price at which cigarettes of that description are normally sold by retail at that time in the United Kingdom, i.e. the retail price of counterfeit cigarettes of the description of the ones imported. The excise duty is calculated on the basis of the retail price.[9]The judge, as did this court, had photographs of the counterfeit and of genuine Benson and Hedges cigarettes manufactured in the UK and saw a packet of the latter purchased in the UK. Differences included the absence on the counterfeit of the health warning and of photographs of cancerous growths, and the writing on the counterfeit cigarettes was in Cyrillic script. It was not argued that if presented to Customs they would have been treated as genuine. The defence argued that the system in S5 Tobacco Products Duty Act 1979for deciding “the highest price at which cigarettes of that description are normally sold by retail at that time in the United Kingdom” would not have led Customs to decide that the correct figure was the price of genuine cigarettes. The judge found in favour of the prosecution and sentenced on the basis of duty of £1,907,881.95 and VAT of £333.879.34. The importance of quantifying the amount of excise duty stems from the guideline case of R. v. Czyzewski [2004] 1 Cr.App.R.(S.) For cases up to £1million appropriate starting points on conviction of a person with no relevant previous convictions would be up to five years and in excess of that amount, up to seven years.[10]If the correct method of calculating the excise duty were not by reference to the retail price of genuine cigarettes manufactured by Benson and Hedges then it was not disputed that the prosecution would have to produce evidence of the retail price at which counterfeit cigarettes are sold. As a guide the prosecution computed the duty on the basis of the retail price of genuine Benson & Hedges at £4.88 per pack of 20 cigarettes or £48.80 per sleeve of 10 packs. To assist, the Appellant suggests that these counterfeit cigarettes would be sold for about £16-22 per 10-pack sleeve, 33% -45% of £48.80. Hence, so the submission goes, duty evaded would have been below £1 million and the starting point for sentence 5 years or less.[11]The Judge concluded that the retail price as stated in section 5(1)(b) should be decided in accordance with the principle of fiscal neutrality and referred to Goodwin and to Citrone. Even if he were wrong about the effect of section 5(1)(b), he found that smugglers of counterfeit goods should not be better off than smugglers of genuine goods. The Appellant submits that the Judge was not applying the principle correctly. Fiscal neutrality as discussed in Goodwin merely refers to the equal treatment for VAT purposes of genuine and counterfeit goods where the sale of such goods (e.g. cigarettes) is not intrinsically illegal. It does not purport to decide at what retail price goods are sold. Goodwin related to whether VAT applied to counterfeit perfume, Citrone to prescription-only anabolic steroids sold illegally in contravention of the Medicines Act 1968.[12]There is in our judgment no need to cloud the issue in this case by reference to fiscal neutrality, which we were grateful to note Mr Little for the Respondent mentioned before us with the lightest of touches. The issue for us is simply expressed; it is the proper construction of the phrase “of that description”. The legislation is directed primarily towards genuine products. The question posed throughout argument is how to apply it to counterfeit products. That such distinction goes to the issue of the benefit amount is no more than a consequence of legislation whose primary purpose is revenue-raising rather than sentencing. The Appellant’s contention that the pertinent question for the court is “What is the right retail price?” and that it would be odd were the answer “The same as that of non-counterfeit goods” seems with respect to counsel rather to stray from the point. Counterfeit goods are by their very definition designed to resemble, as closely as can be achieved, the genuine article. They must be made to look similar – that is the whole point of the illegitimate exercise.[13]The Respondent submits that the duty evaded on the 11,510,600 counterfeit Sovereign King Size cigarettes was the same as that on the genuine. Even were the retail price of the cigarettes seized lower than that contended for by the Respondent, the duty evaded would still have been well in excess of £1,500,000. Accordingly the amount of duty would not have been below £1,000,000.00 if the cigarettes were worth between 33% and 45% of the value contended for by the Respondent.[14]To determine whether a defendant has benefited from his criminal conduct the court must look at what property he has obtained as a result of or in connection with the conduct (Section 76(4) POCA) or determine the monetary value of any pecuniary advantage obtained as a result of or in connection with the conduct (Section 76(5) POCA). A defendant obtains a pecuniary advantage by evading duty even though the smuggled goods were seized before they could be sold on (Smith [2002] 1 WLR 54) so long as the defendant is the person who “caused the tobacco products to reach an excise duty point” (Regulation 13(3)(e) of the Tobacco Product Regulations 2001). It was not in issue that the Appellant qualified as one such. Accordingly his benefit was calculated on the basis of the duty he evaded.[15]S5 Tobacco Products Duty Act 1979 reads where relevant :
“5. Retail price of cigarettes. (1) For the purposes of the duty chargeable at any time under section 2 above in respect of cigarettes of any description, the retail price of the cigarettesshall be taken to be— (a) the higher of— (i) the recommended price for the sale by retail at that time in the United Kingdom ofcigarettes of that description, and (ii) any (or, if more than one, the highest) retail price shown at that time on the packaging of the cigarettes in question, or (b) if there is no such price recommended or shown, the highest price at which cigarettes of that description are normally sold by retail at that time in the United Kingdom. (1A)In subsection (1) above“recommended price”— (a) in relation to a case in which cigarettes of the applicable description are manufactured by a manufacturer in a member State, means any price recommended by that manufacturer; and (b) in relation to a case which does not fall within paragraph (a) above, means any price recommended by an importer of cigarettes of the applicable description.”
[16]So far as counsel or this Court has discovered there is no reported case, criminal or civil, in which the ambit of this section has been considered. The Respondent below argued the calculation on the basis of S5(1)(b) but on reflection submits that reasoning should begin with S5(1)(a). Only if that does not apply should the Court move to S5(1)(b).[17]The Respondent contends that an interpretation of S5(1) consistent with the intention of Parliament is plainly the maximization of duty charged. Hence S5(1)(a) refers to ‘the higher of’ and ‘the highest’ and S5(1)(b) to ‘the highest’. Such construction is consistent with the protection of Her Majesty’s Revenue & Customs and of lawful from unlawful trader. It cannot have been Parliament’s intention to require from the Commissioners detailed research into the retail price of counterfeit cigarettes on both the grey and black market. We find this a compelling argument.[18]The Respondent argues that the cigarettes seized were of the same description as genuine branded Sovereign King Size for the purposes of the Act. The duty owed has been calculated by using the recommended retail price at the time for genuine Sovereign King Size cigarettes in accordance with S5(1)(a). In order to assist the Court (in relation to both the sentence and confiscation arguments) the Investigating Officer produced a table setting out the duty evaded based on a number of different retail prices for the cigarettes as well as a detailed calculation of the duty evaded if, as the Respondent submits is not the case, the cigarettes had no retail value at all. The duty is calculated as a two stage process, first the calculation of the ad valorem amount based on 22% of the retail price and second with the addition of a fixed sum of £112.07 per 1000 cigarettes. The retail price of the cigarettes is irrelevant for this second stage. For the purposes of our decision it is not necessary to set out the table since the mathematics of this appeal are not in issue.[19]The whole point of counterfeit cigarettes is that they should be of the same description as those they purport to be. If the Respondent be right it does not matter if the retail price of the counterfeit cigarettes be slightly lower as long as both real and counterfeit cigarettes are of the same description. The Respondent reminds us that if we do not accept the Respondent’s arguments as to statutory construction and conclude that cigarettes “of that description” does not include the counterfeits then the Applicant has put forward no evidence, from himself or otherwise, to show that the retail price of counterfeits was any lower than non-counterfeits. In those circumstances it submits that even if the Court were to conclude that the Respondent’s interpretation is not correct there is no alternative factual basis (supported by evidence) upon which to calculate the benefit figure using S5(1)(b).[20]We unhesitatingly accept the submissions of the Respondent. The purpose of the legislation is to establish the rate of duty to be paid on various types and descriptions of tobacco products. For that purpose Parliament can be taken to have recognised that different makes and brands of cigarettes are sold at different prices, but it cannot be taken to have intended that counterfeit goods should attract a lower rate of tax than the genuine goods which they seek to imitate. The expression “cigarettes of that description” includes both genuine goods and counterfeit goods of substantially the same type made up to resemble them. On these facts, we are confident that “of that description” includes “Sovereign cigarettes” offered for retail sale in the UK. To test our conclusion one could remind oneself that the script on the seized goods was Cyrillic. Assuming its origin were Russia, could it seriously be suggested that genuine Sovereign cigarettes packed for the Russian market were not caught by “of that description”? We think not. The adjective “counterfeit” is never likely to feature in any written description, but the statutory phrase must be wide enough and sufficiently generic to gather in both non-counterfeit and counterfeit. Any other conclusion on this issue would lead to the unhappy prospect of the smuggler being by virtue of legislation placed in a position better than that of the legitimate trader.[21]We reject this appeal against the confiscation order. It was conceded that were we against the Appellant on the confiscation there was no merit in his appeal against sentence. That said, we reject that also.

order

The Judge decided the benefit figure of £2,241,761.29 on the wrong basis.

Cited in 2 later judgments