Wnek v Director of Border Revenue [2013] UKFTT 575 (TC)

FTT-Tax
Wnek v Director of Border Revenue
[2013] UKFTT 575 (TC) · 2013-10-17
[16]“ As may be seen from the Court's case-law, Union citizenship is destined to be the fundamental status of nationals of the Member States, enabling those who find themselves in the same situation to enjoy within the scope ratione materiae of the Treaty the same treatment in law irrespective of their nationality, subject to such exceptions as are expressly provided for (see, inter alia, Case C-184/99 Grzelczyk [2001] ECR I-6193 , paragraph 31; Case C-224/98 D'Hoop [2002] ECR I-6191 , paragraph 28, and Case C-148/02 Garcia Avello [2003] ECR I-0000, paragraphs 22 and 23).[17]The situations falling within the scope of Community law include those involving the exercise of the fundamental freedoms guaranteed by the Treaty, in particular those involving the freedom to move and reside within the territory of the Member States, as conferred by Article 18 EC (see, inter alia, as cited above, Grzelczyk , paragraph 33; D'Hoop , paragraph 29, and Garcia Avello , paragraph 24). The Court’s judgement then continues with the following paragraphs, which, although written in the context of discrimination arising in the citizen’s home state, are instructive.[18]In that a citizen of the Union must be granted in all Member States the same treatment in law as that accorded to the nationals of those Member States who find themselves in the same situation, it would be incompatible with the right of freedom of movement were a citizen, in the Member State of which he is a national, to receive treatment less favourable than he would enjoy if he had not availed himself of the opportunities offered by the Treaty in relation to freedom of movement ( D'Hoop , paragraph 30).[19]Those opportunities could not be fully effective if a national of a Member State could be deterred from availing himself of them by obstacles raised to his residence in the host Member State by legislation of his State of origin penalising the fact that he has used them (see, by analogy, D'Hoop , paragraph 31).[20]National legislation which places at a disadvantage certain of its nationals simply because they have exercised their freedom to move and to reside in another Member State would give rise to inequality of treatment, contrary to the principles which underpin the status of citizen of the Union, that is, the guarantee of the same treatment in law in the exercise of the citizen's freedom to move ( D'Hoop , paragraphs 34 and 35). Such legislation could be justified only if it were based on objective considerations independent of the nationality of the persons concerned and proportionate to the legitimate aim of the national provisions ( D'Hoop , paragraph 36).[21]It is therefore necessary to establish whether, in a situation such as that in the main proceedings, the Law on enforcement introduces, as between Finnish nationals who continue to reside in Finland and those who have established their residence in Spain, a difference of treatment which places the latter at a disadvantage simply because they have exercised their right to move freely and whether, if proved, such a difference of treatment can, where appropriate, be justified in the light of the criteria noted in paragraph 20 of this judgment. 65. And in Schwarz v Finanzamt Bergisch Gladbach , [2008] STC 1357, which concerned a German tax provision which gave tax relief for the payment of school fees if the school was in Germany, the ECJ, having repeated the content of [16] to [19] of Pusa , held:[90]“The Schwarz children, by attending an educational establishment situated in another Member State , used their right of free movement. As is shown by the judgment in Case C-200/02 Zhu and Chen [2004] ECR I-9925 , paragraph 20, even a young child may make use of the rights of free movement and residence guaranteed by Community law.[91]National legislation such as that at issue in the main proceedings introduces a difference in treatment between taxpayers subject to income tax in Germany who have sent their children to a school in Germany, and those who have sent their children to a school established in another Member State.[92]In so far as it links the granting of tax relief for school fees to the condition that those fees be paid to a private school meeting certain conditions in Germany, and causes such relief to be refused to payers of income tax in Germany on the ground that they have sent their children to a school in another Member State, the national legislation at issue in the main proceedings disadvantages the children of nationals solely on the ground that they have availed themselves of their freedom of movement by going to another Member State to attend a school there.[93]National legislation which places at a disadvantage certain of the nationals of the Member State concerned simply because they have exercised their freedom to move and to reside in another Member State is a restriction on the freedoms conferred by Article 18(1) EC on every citizen of the Union ( DeCuyper , paragraph 39; Case C-192/05 Tas-Hagen and Tas [2006] ECR I-10451 , paragraph 31).[94]Such a difference in treatment can be justified only if it is based on objective considerations independent of the nationality of the persons concerned and is proportionate to the legitimate aim of the national provisions ( D'Hoop , paragraph 36; DeCuyper , paragraph 40; Tas-Hagen and Tas , paragraph 33)66. Both Pusa and Schwarz relate to the situation in which the citizen’s own State discriminated against his exercise of the right of freedom of movement. But the principle plainly applies the other way around as well – as can clearly be seen in [18] in Pusa . A Member State may not place at a disadvantage citizens of another Member State because they have chosen to remain resident in that other State or to exercise their right to move between that State and the other State unless such treatment can be justified.67. In each of these and other cases, the concern of the ECJ has not been that a particular person has been disadvantaged, but that the relevant provision may disadvantage such a person. It matters not that Mr Wnek might have escaped the disadvantage by complying with the provision or that for many persons the provision is never relevant. The issue is whether the provision may hinder the exercise of the freedom. .68. For that reason we reject Mr Culver’s suggestion that Treaty rights should be ignored in the application of paragraph 4(1) because Mr Wnek could have made his reliance on them explicit.69. In ICI v Colmer [1999] STC 1089 Lord Nolan explained the effect of section 2 of the European Communities Act 1972 when a provision of national legislation was precluded by the directly enforceable rights of a citizen. The case related to the definition of a holding company in the UK Taxes Acts which discriminated against companies with subsidiaries in other member states and thus could militate against the right to freedom of establishment in the treaty. The ECJ had held that legislation which had such an effect was precluded by the Treaty. Lord Nolan said: “ It remains to consider the question of disapplication in accordance with the provisions of section 2(1) and (4) of the European Communities Act 1972 . Explaining the effect of the section in Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. [1990] 2 AC 85 , Lord Bridge of Harwich said, at p. 140B-D: "By virtue of section 2(4) of the Act of 1972 Part II of the Act of 1988 [the Merchant Shipping Act] is to be construed and take effect subject to directly enforceable Community rights, and those rights are, by section 2(1) of the Act of 1972, to be recognised and available in law, and . . .enforced, allowed and followed accordingly. . . . This has precisely the same effect as if a section were incorporated in Part II of the Act of 1988 which in terms enacted that the provisions with respect to the registration of British fishing vessels were to be without prejudice to the directly enforceable Community rights of nationals of any member state of the E.E.C." So, in the present case, the effect of section 2 of the Act of 1972 is the same as if a subsection were incorporated in section 258 of the Act of 1970 which in terms enacted that the definition of "holding company" was to be without prejudice to the directly enforceable Community rights of companies established in the Community. As the concluding paragraphs of the judgment of the Court of Justice make plain, this in no way affects the application of the definition to companies established outside the Community; cf. in this connection the comments of Lord Keith of Kinkel on the effect of the Factortame decision in Reg. v. Secretary of State for Employment, Ex parte Equal Opportunities Commission [1995] 1 AC 1 at 27D-E.[70]See also Autologic Holdings plc v IRC [2005] STC 1357 , 1365 and Fleming/Conde Nast [2008] 1 WLR 195 , 216.71. There is no doubt that the rights to freedom of establishment and freedom to move within the EU are directly enforceable rights.72. Thus, unless the difference in treatment can be justified, Article 4(1) must be read as subject to the right of an EU citizen not to have to comply with the requirement to appoint a UK solicitor. Can the difference in treatment be justified?73. We accept that the efficient conduct of litigation is a legitimate aim; the issue is thus whether the restriction imposed by paragraph 4(1) is proportionate to that aim - in other words whether it goes beyond what is necessary to attain that aim.74. We find it difficult to believe that it is proportionate. In an age: in which it is easier to travel from Calais to Dover than from Aberdeen to Dover, in which postal services remain efficient, and in which e-mail is an almost universal speedy tool of communication, there is nothing to be gained in the efficient conduct of the litigation of a claim to adjudicate the legality of seizure from requiring a claimant to have UK solicitor act for him.75. Nor can we see any legitimate need to ensure the presence of the claimant or a party appearing on his behalf at the trial of the issue. If the appellant is not present or represented at the condemnation hearing then UKBA are a free to put their evidence and make their case.76. As noted above this tribunal's rules do not require an appellant to appoint a UK solicitor or any other sort of UK representative, and that is the case whether the appeal involves small or large amounts of tax, or vast or negligible penalties. Nor can we see the relevance of the inability of the Magistrates Court to compel attendance. In theory this tribunal might direct the attendance of an appellant, but not only are we not aware of the tribunal (or its predecessors) ever having done so, but we cannot see how the existence of that power makes the need to appoint a UK solicitor necessary compensation for its absence. (Nor could we quite see how section 122 of the Magistrates Court Act had the effect which Mr Culver claimed for it., or how that argument was relevant to proceedings in the High Court under Sch 3 (see para 8 thereof).77. We conclude that the discrimination occasioned by Regulation 4(1) is not justified. As a result we conclude that regulation 4(1) is precluded in the case of citizens of the EU by the Treaty. It is plainly impossible to construe that provision in conformity with the Treaty. Thus it must be this applied in relation to a citizen of the Union "without prejudice to his community law rights". (c) If para 4(1) is effectively disapplied , what is the effect of Sch 3;78. As a result, the notice which Mr Wnek gave contesting the legality of seizure on 15 November 2011 must be taken as a valid notice given for the purposes of paragraph 5 and the requirements of paragraph 4(1) as satisfied.79. As a result of the deeming provisions of paragraph 5 do not apply.80. The Respondent had argued that the effect of the Court of Appeal decision in Jones meant that the legality of the seizure could not be tested by this tribunal. However Jones was a case which proceeded on the basis that paragraph 5 Schedule 3 applied. See for example Mummery LJ’s summary at [71]: subparagraphs (4), (5) and (6) of that summary address the situation in which “the owner does not challenge the legality of the seizure in the allocated court by invoking and pursuing the appropriate procedure”. (d) Were the goods liable to duty?81. There is an argument that this issue is a matter of law which could be questioned by this tribunal even if para 5 Sch 3 applied. We do not however consider the issue on that basis; we address it on the basis of our conclusion above that para 5 does not apply and accordingly that this issue is not one which is deemed to have been determined.82. Mr Crouch told us that he had been advised that the tobacco transported by Mr Wnek was a "tobacco product" within section 1(1) Tobacco Products Duty Act 1979.83. Section 1 and 2 of that Act provide:
"1. (1) In this Act "tobacco products" means any of the following products, namely -- (a) cigarettes; (b) cigars; (c) hand rolling tobacco; (d) other smoking tobacco; and (e) chewing tobacco, which are manufactured wholly or partly from tobacco or any substance used as a substitute for tobacco, but does not include herbal smoking products. (2) ... (3) The Treasury may by order made by statutory instrument provide that in this Act references to cigarettes, cigars, hand rolling tobacco, or other smoking tobacco and chewing tobacco shall or shall not include references any product of a description specified in the order, being a product manufactured as mentioned in subsection (1) above but not including herbal smoking products; ... 2. Charge and remission or repayment of tobacco products duty (1) There shall be charged on tobacco products imported into or manufactured in the United Kingdom the duty of excise as the rates shown in the Table Schedule 1 to this Act. ..." 84. Mr Crouch explained to us that raw undried leaf tobacco, if kept in an un-dried state, quickly loses its structure and goes mouldy. Therefore before transport it is dried and compressed into bales. 85. Mr Crouch told that when hand rolling tobacco is made, the tobacco in the bales is chopped and usually mixed with other chopped tobaccos and certain chemicals. 86. At the hearing we discussed with Mr Culver (i) whether the dried tobacco leaves were properly described as "manufactured from tobacco" within the words of the tailpiece of section 1(1); and (ii) if they were, under which heading, if any, of section 1(1) they fell. "
Manufactured". 87. We noted at the hearing that the tailpiece of section 1(1) might be construed as imposing the condition that in order to fall within any of the sub paragraphs of that subsection the products must be "manufactured wholly or partly from tobacco [etc]": so that even if a product could be classed as, for example hand rolling tobacco, it would not be a "tobacco product" unless it was manufactured from tobacco. 88. Mr Culver suggested that the closing words of the subsection might be read simply as requiring that the products be constituted from tobacco rather than that some manufacturing process had been applied to them. 89. To our minds that does not give proper weight to the use of the word "manufactured". The same word apply appears in subsection 3 and connotes to us something more than simply "comprised". 90. "Manufactured" to our minds connotes the application of a process which results in a product materially different from those products which entered process. Thus the washing of potatoes would not be the manufacture of washed potatoes, but the squashing of grapes to produce wine would be the manufacture of wine; and it would not in our view be proper to call grain which had been dried by a farmer after harvest "manufactured" since the grain would be recognisably be the same after drying even though, as a result of the drying process it would have a lesser moisture content. Nor would the mere packing of a product make it “manufactured”. 91. It seemed to us that dried tobacco leaves fell close to the borderline. A process had been applied to the leaves - drying them in the sun or a furnace. That process would have changed the appearance of the leaves but would leave them recognisable as leaves. The process of drying however would no doubt have changed the cellular composition of the leaves making it impossible to restore them to their previous state by the simple addition of water. On balance these considerations incline us to the view that the process of drying the leaves resulted in a product which might properly be said to have been "manufactured from tobacco". The headings in the sub paragraphs of section 1(1). 92. At the hearing we had some debate as to whether the dried tobacco leaves could be "other smoking tobacco” within para (d) or “hand rolling tobacco” within para (c). It seemed clear that none of the other paragraphs applied. That debate however was superceded by a little research conducted by the tribunal after the hearing. The Tobacco Products (Description of Products) Order 2003 (2003/1471) (as later amended by 2010/2852) was made under subsection (3) of section 1. Relevantly this order provides: “ Hand-rolling tobacco 6. - (1) References to hand-rolling tobacco in the Act include any product that would, but for the reference to hand-rolling tobacco in article 7(1) below, be other smoking tobacco and - (a) in which more than 25% by weight of the tobacco particles have a cut width of less than 1 millimetre, or (b) that is sold or intended to be sold for making into cigarettes by hand, or (c) that is of a kind used for making into cigarettes by hand. (2) In this regulation - (a) the references to "making into cigarettes by hand" in paragraph (1)(b) and (c) above include making into cigarettes by hand with the aid of a mechanical device, and (b) the use for making into cigarettes referred to in paragraph (1)(c) above must amount to more than occasional use but need not amount to common use. Other smoking tobacco 7. - (1) Subject to paragraph (2) below, references to other smoking tobacco in the Act include any product that is not cigarettes, cigars, or hand-rolling tobacco and comprises - (a) tobacco that has been cut or otherwise split, twisted or pressed into blocks, and is capable of being smoked without further industrial processing,or (b) tobacco refuse put up for retail sale that can be smoked. (2) References to other smoking tobacco in the Act include products consisting in whole or in part of substances other than tobacco that otherwise conform to a description in paragraph (1) above, unless they are herbal smoking products . (3) For the purposes of paragraph 1, “tobacco refuse” means the remnants of tobacco leaves and the by-products of the processing of tobacco or the manufacture of tobacco products.”[our italics] Chewing tobacco 8. - (1) Subject to paragraph (2) below, references to chewing tobacco in the Act include any product that - (a) is not cigarettes, cigars, hand-rolling tobacco , or other smoking tobacco , (b)consists of or includes tobacco , and (c) has been prepared so that it can be chewed. (2) References to chewing tobacco in the Act include any product prepared for chewing that does not include tobacco but consists in whole or in part of a substitute for tobacco , except for such a product that is intended solely as an aid to persons to give up smoking.” 93. Although the words of regulation 6 are words of inclusion, when taken together with Mr Crouch’s description of the normal process for producing tobacco for smoking, to our minds they suggest that a degree of mixing or chopping is required before tobacco leaves can be said to be hand rolling tobacco. We therefore concluded that the dried loose leaves were not hand rolling tobacco. 94. The word "comprises” in the opening words of regulation 7 and the provisions of 7(1)(a) makes it plain that dried tobacco leaves are not "other smoking tobacco". 95. We considered that the dried leaves would not normally be chewed and had not been prepared so that they could be chewed. We concluded that they were not chewing tobacco within section 1(1)(e). 96. We therefore conclude that the dried tobacco leaves in Mr Wnek's van were not tobacco products within section 1(1) of the Act. As a result that Act does not impose excise duty on their importation. Appraisal: the letter of review. 97. Putting to one side for the moment the issues raised in the preceding parts of this decision in relation to notice of claim and to liability to duty, we could not detect in Mr Crouch’s letter any irrelevant considerations which had been taken into account or any relevant considerations which he had failed to consider. Nor, whilst we believe that his decision to apply UKBA’s policy bore harshly on Mr Wnek, did we find any element of his decision unreasonable on this basis. 98. As a result if we were precluded from considering whether the leaves were liable to duty we would not set aside his decision. 99. However we have concluded, because paragraph 5 of Schedule 3 does not apply, that whether or not the van was duly forfeit and whether or not the leaves were liable to duty are issues which are not deemed to have been concluded and on which we are permitted to conclude. We have concluded that the leaves were not liable to excise duty. 100. A decision is not reasonable for the purposes of section 16 FA 1994 if it takes into account irrelevant considerations, if it fails to take in to account relevant considerations, if it is tainted by a material error of law or is one which no reasonable tribunal could have reached on the material before it. 101. UKBA’s restoration policy expressly links the question of restoration –unconditionally or subject to conditions - to the amount of excise duty which should have been paid and was not. Mr Crouch took into consideration (see the passages quoted above) the duty which would have been forgone. Thus it seems to us that the question of the amount of duty properly payable is a relevant consideration in addressing whether the van should have been restored. By taking the leaves as liable to duty Mr Crouch made a mistake of law or took into account an irrelevant consideration. That consideration clearly fundamentally affected his decision and it could not be said that his decision would inevitably have been the same if had he not made that mistake. As a result the decision should be set aside on these grounds. 102. Mr Crouch also proceeded on the basis that paragraph 5 Schedule 3 applied so that he should make his decision on the basis that the forfeiture was legal. If paragraph 5 did not apply then Mr Crouch was not required to assume that the leaves had been validly forfeit; and whether or not the leaves and the van were legally forfeit was clearly a relevant consideration in making a decision as to whether or not to restore the van. Thus Mr Crouch failed to take into account a relevant consideration. The decision must therefore be set aside for this reason too. 103. If the leaves were not liable to duty then they would not have been liable to seizure under the provisions quoted by Mr Crouch in his letter. It may be that the conveyance of the leaves into the UK in the manner Mr Wnek adopted infringed other statutory provisions. Whether or not it did would be a relevant consideration in making a decision as to whether the leaves or the van were legally forfeit. We were not addressed on the detail of any such provisions but our decision cannot be taken as a conclusion that there was or was not any such infringement. Conclusion 104. At the commencement of the hearing the Respondent applied for the appeal to be struck out as having no reasonable prospect of success. We refuse that application. 105. We DIRECT that: (1) Mr Crouch’s decision be set aside; (2) a new decision be made taking into account our conclusion that the leaves were not liable to excise duty as tobacco products, and all relevant consequences of that conclusion. A Reference to the ECJ 106. We raised with Mr Culver the possibility of referring the question of the compatibility of paragraph 4(1) with the treaty to the CJEU. He was not enthusiastic about the idea. Having given some thought to the issues we were not convinced that we should make a reference. Although we did not hear full argument on the question we were satisfied with our conclusions; and if the Respondents appeal our decision, there might be fuller argument which would enable more informed consideration to be given to the question of whether or not a reference is necessary. Rights of Appeal 107. 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. CHARLES HELLIER TRIBUNAL JUDGE RELEASE DATE: 17 October 2013 1. [1] (The Respondent officers were known as the UK Border Agency (“UKBA”) ) [LB1] check

Cited in 3 later judgments