Kostova v Revenue & Customs (EXCISE DUTY : assessment for duty and penalty) [2020] UKFTT 192 (TC)

FTT-Tax
Kostova v Revenue & Customs (EXCISE DUTY : assessment for duty and penalty)
[2020] UKFTT 192 (TC) · 2019-11-28
[71]“I am in broad agreement with the main submissions of HMRC. For the future guidance of tribunals and their users I will summarise the conclusions that I have reached in this case in the light of the provisions of the 1979 Act, the relevant authorities, the articles of the Convention and the detailed points made by HMRC. (1) The respondents' goods seized by the customs officers could only be condemned as forfeit pursuant to an order of a court. The FTT and the UTT are statutory appellate bodies that have not been given any such original jurisdiction. (2) The respondents had the right to invoke the notice of claim procedure to oppose condemnation by the court on the ground that they were importing the goods for their personal use, not for commercial use. (3) The respondents in fact exercised that right by giving to HMRC a notice of claim to the goods, but, on legal advice, they later decided to withdraw the notice and not to contest condemnation in the court proceedings that would otherwise have been brought by HMRC. (4) The stipulated statutory effect of the respondents' withdrawal of their notice of claim under paragraph 3 of Schedule 3 was that the goods were deemed by the express language of paragraph 5 to have been condemned and to have been "duly" condemned as forfeited as illegally imported goods. The tribunal must give effect to the clear deeming provisions in the 1979 Act: it is impossible to read them in any other way than as requiring the goods to be taken as "duly condemned" if the owner does not challenge the legality of the seizure in the allocated court by invoking and pursuing the appropriate procedure. (5) The deeming process limited the scope of the issues that the respondents were entitled to ventilate in the FTT on their restoration appeal. The FTT had to take it that the goods had been "duly" condemned as illegal imports. It was not open to it to conclude that the goods were legal imports illegally seized by HMRC by finding as a fact that they were being imported for own use. The role of the tribunal, as defined in the 1979 Act, does not extend to deciding as a fact that the goods were, as the respondents argued in the tribunal, being imported legally for personal use. That issue could only be decided by the court. The FTT's jurisdiction is limited to hearing an appeal against a discretionary decision by HMRC not to restore the seized goods to the respondents. In brief, the deemed effect of the respondents' failure to contest condemnation of the goods by the court was that the goods were being illegally imported by the respondents for commercial use. (6) The deeming provisions in paragraph 5 and the restoration procedure are compatible with Article 1 of the First Protocol to the Convention and with Article 6, because the respondents were entitled under the 1979 Act to challenge in court, in accordance with Convention compliant legal procedures, the legality of the seizure of their goods. The notice of claim procedure was initiated but not pursued by the respondents. That was the choice they had made. Their Convention rights were not infringed by the limited nature of the issues that they could raise on a subsequent appeal in the different jurisdiction of the tribunal against a refusal to restore the goods. (7) I completely agree with the analysis of the domestic law jurisdiction position by Pill LJ in Gora and as approved by the Court of Appeal in Gascoyne . The key to the understanding of the scheme of deeming is that in the legal world created by legislation the deeming of a fact or of a state of affairs is not contrary to "reality"; it is a commonly used and legitimate legislative device for spelling out a legal state of affairs consequent on the occurrence of a specified act or omission. Deeming something to be the case carries with it any fact that forms part of the conclusion. (8) The tentative obiter dicta of Buxton LJ in Gascoyne on the possible impact of the Convention on the interpretation and application of the 1979 Act procedures and the potential application of the abuse of process doctrine do not prevent this court from reaching the above conclusions. That case is not binding authority for the proposition that paragraph 5 of Schedule 3 is ineffective as infringing Article 1 of the First Protocol or Article 6 where it is not an abuse to reopen the condemnation issue; nor is it binding authority for the propositions that paragraph 5 should be construed other than according to its clear terms, or that it should be disapplied judicially, or that the respondents are entitled to argue in the tribunal that the goods ought not to be condemned as forfeited. (9) It is fortunate that Buxton LJ flagged up potential Convention concerns on Article 1 of the First Protocol and Article 6, which the court in Gora did not expressly address, and also considered the doctrine of abuse of process. The Convention concerns expressed in Gascoyne are allayed once it has been appreciated, with the benefit of the full argument on the 1979 Act, that there is no question of an owner of goods being deprived of them without having the legal right to have the lawfulness of seizure judicially determined one way or other by an impartial and independent court or tribunal: either through the courts on the issue of the legality of the seizure and/or through the FTT on the application of the principles of judicial review, such as reasonableness and proportionality, to the review decision of HMRC not to restore the goods to the owner. (10) As for the doctrine of abuse of process, it prevents the owner from litigating a particular issue about the goods otherwise than in the allocated court, but strictly speaking it is unnecessary to have recourse to that common law doctrine in this case, because, according to its own terms, the 1979 Act itself stipulates a deemed state of affairs which the FTT had no power to contradict and the respondents were not entitled to contest. The deeming does not offend against the Convention, because it will only arise if the owner has not taken the available option of challenging the legality of the seizure in the allocated forum.” 38. Jones was concerned with the situation where an appellant who had not challenged legality of seizure by way of condemnation proceedings sought nonetheless to argue in an appeal against a restoration refusal that the relevant goods were for own use. However, in Race , Warren J stated:
“26. Jones is clear authority for the proposition that the First-tier tribunal has no jurisdiction to go behind the deeming provisions of paragraph 5, Schedule 3. If goods are condemned to be forfeited, whether in fact or as the result of the statutory deeming, it follows that, having been bought in a Member State and then imported…, they were not held by the taxpayers for their own personal use in a way that exempted the goods from duty. The reasoning and analysis in Jones did not turn on the fact that the case concerned restoration of the goods and not assessment to duty. … 33. … It is clearly not open to the tribunal to go behind the deeming effect of paragraph 5 Schedule 3 for the reasons explained in Jones… The fact that the appeal is against an assessment to excise duty rather than an appeal against non-restoration makes no difference because the substantive issue raised by Mr Race [that the goods were in fact for own use] is no different from that raised by Mr and Mrs Jones. … 39…the First-tier Tribunal could no more re-determine, in the appeal against the Penalty Assessment, a factual issue which was a necessary consequence of the statutory deeming provision than it could re-determine a factual issue decided by a court in condemnation proceedings. The issue of import for personal use…has been determined by the statutory deeming.” 39. In HMRC v Susan Jacobson [2018] UKUT 18 TCC , the Upper Tribunal stated at [24]: “We respectfully agree with Warren J in Race that the reasoning and analysis in Jones applies to an appeal against a penalty in exactly the same way as it applies to an appeal against an assessment for excise duty. The deemed effect of Ms Jacobson’s failure to contest the seizure of the HRT was that it was duly condemned as forfeited as, in the terms of regulation 88 of the 2010 regulations, goods liable to excise duty which had not been paid in contravention of the Regulations.”
Reasonable Excuse 40. In Christine Perrin v HMRC [2018] UKUT 156 (TCC) , the Upper Tribunal considered an appeal relating to a late filing penalty in which the Appellant submitted there was a reasonable excuse because she genuinely believed that her tax return had already been filed (even though it had not been) and this is why she did not file the return on time. The Upper Tribunal stated: 71. In deciding whether the excuse put forward is, viewed objectively, sufficient to amount to a reasonable excuse, the tribunal should bear in mind all relevant circumstances; because the issue is whether the particular taxpayer has a reasonable excuse, the experience, knowledge and other attributes of the particular taxpayer should be taken into account, as well as the situation in which that taxpayer was at the relevant time or times (in accordance with the decisions in The Clean Car Co and Coales ). 72. Where the facts upon which the taxpayer relies include assertions as to some individual’s state of mind (e.g. “I thought I had filed the required return”, or “I did not believe it was necessary to file a return in these circumstances”), the question of whether that state of mind actually existed must be decided by the FTT just as much as any other facts relied on. In doing so, the FTT, as the primary fact-finding tribunal, is entitled to make an assessment of the credibility of the relevant witness using all the usual tools available to it… 73. Once it has made its findings of all the relevant facts, then the FTT must assess whether those facts (including, where relevant, the state of mind of any relevant witness) are sufficient to amount to a reasonable excuse, judged objectively. 74.Where a taxpayer’s belief is in issue, it is often put forward as either the sole or main fact which is being relied on - e.g. “I did not think it was necessary to file a return”, or “I genuinely and honestly believed that I had submitted a return”. In such cases, the FTT may accept that the taxpayer did indeed genuinely and honestly hold the belief that he/she asserts; however that fact on its own is not enough. The FTT must still reach a decision as to whether that belief, in all the circumstances, was enough to amount to a reasonable excuse. So a taxpayer who was well used to filing annual self-assessment returns but was told by a friend one year in the pub that the annual filing requirement had been abolished might persuade a tribunal that he honestly and genuinely believed he was not required to file a return, but he would be unlikely to persuade it that the belief was objectively a reasonable one which could give rise to a reasonable excuse.” Evidence and findings of fact 41. The Appellant gave sworn evidence to us. She used an interpreter to do this. The Appellant told us: (1) she is a Bulgarian national; (2) she has lived in the UK since 2016; (3) since living in the UK she has had a number of jobs; (4) she goes back to Bulgaria once every nine months or so; (5) as at December 2017/January 2018, she was living in a shared house with a number of other Bulgarian nationals; (6) in December 2017, she travelled to Bulgaria. She stayed in Bulgaria over the festive period - travelling back to the UK on 10 January 2018; (7) the tobacco products were purchased in Bulgaria; (8) the cigarettes were for her. The hand rolling tobacco was for Nikolay Hadzhyski who at that stage was just a good friend (and is now her boyfriend). Mr Hadzhyski did not live in the shared house with the Appellant; (9) in addition to the hand rolling tobacco (a gift for Mr Hadzhyski), the Appellant purchased 4 different brands of cigarettes. She had smoked all of these brands previously and was happy to chop and change between these brands. She smokes 30 cigarettes per day. The cigarettes would last her approximately 9-12 months and bringing them into the UK from Bulgaria would help her save money as they were much cheaper in Bulgaria; (10) English is not her first language. She did not have the benefit of an interpreter when speaking with the Border Force officer; (11) the letters sent to HMRC by the Appellant had been written by her manager at work. The letters were wrong to suggest that the tobacco products were to be shared with her housemates. There may have been some misunderstanding when she explained things to her manager. The only gift she planned to make was to Mr Hadzhyski; (12) she accepted she was given a Seizure Information Notice relating to the tobacco products and that the Seizure Information Notice refers to Notice 12A also having been given to her. She does not recollect whether she was given Notice 12A. In any event, she did not understand that there was a way of challenging the seizure. Nor did she understand that further action might be taken against her by way of assessments/penalties; and (13) she did not challenge the seizure because she did not realise that she had any right to do so. 42. HMRC did not challenge the Appellant’s account. The only question put in cross examination related to whether, prior to travelling, the Appellant had looked online to ascertain whether there were any limits on the amount of tobacco that could be brought into the UK for own use. The Appellant replied that she had not looked on the internet but had understood that there was no limit where the tobacco was for own use. 43. We asked the Appellant some questions about her evidence. Her answers were clear and convincing. As stated above, we found the Appellant to be honest and credible. Her evidence was also corroborated to some extent by Mr Hadzhyski. We accept the entirety of the Appellant’s account. 44. Mr Hadzhyski gave sworn evidence to us. He used an interpreter to do this. Mr Hadzhyski told us: (1) the Appellant is a chain smoker. She will smoke anything; (2) when he had previously travelled to Bulgaria for a visit, he had brought the Appellant cigarettes back. The Appellant did not pay him for these cigarettes. They were a gift; and (3) the Appellant said that when she was next in Bulgaria she would buy him some hand rolling tobacco. 45. Mr Hadzhyski was an honest and straightforward witness. His account was not challenged by HMRC. We accept his evidence in its entirety. 46. HMRC called only one witness, Officer Sean Reed. Officer Reed had no involvement in the seizure of the tobacco products but subsequently considered the papers and made the decision to assess the Appellant to excise duty and to issue her with a penalty. In addition to Officer Reed’s evidence, HMRC relied upon the documents in the bundle including the notes of the Border Force officer (identified only as “K.Shaw”) who seized the tobacco products. 47. Officer Shaw’s notes recorded the following: (1) the Appellant arrived in the UK on the Sofia flight; (2) the Appellant had been in Bulgaria for Christmas, having left the UK on 23 December 2017; (3) the Appellant said she had 44 cartons of cigarettes and some hand rolling tobacco; (4) the Appellant’s luggage contained 44 cartons of cigarettes (4 different brands) making a total of 8800 cigarettes plus 800 grammes of hand rolling tobacco; (5) the Appellant stated the cigarettes were hers and “tobacco for my friend”; (6) the Appellant agreed to stay for interview; (7) when asked “are you happy to continue in English?”, the Appellant replied “I can try” to which the officer said “If for any reason you want a translator, we’ll get a telephone interpreter”; (8) in response to questions asked by Officer Shaw, the Appellant: (a) stated she had lived in the UK since 2016; (b) stated she had purchased the cigarettes over the previous few days. She had paid in cash; (c) stated she had taken £10,000 with her to Bulgaria, some of which she had spent and some of which she had put into her bank account in Bulgaria. She had saved this money from her wages; (d) stated that, prior to this visit to Bulgaria, she had previously been out of the UK in February 2017. On that occasion she had brought back 16 cartons of cigarettes; (e) stated she smoked “one pack and a half” per day; (f) stated that if she purchased a carton of cigarettes in the UK it cost £70 and a packet cost £6.50; (g) stated she lived in a shared house with other Bulgarian nationals; and (h) detailed her income and her outgoings. (9) “[I am] not satisfied these cigarettes are for your personal use…reasons for seizure are (1) quantity in excess of any guideline. (2) 4 different brands plus tobacco - someone who smokes 1 ½ packets a day are brand loyal. (3) no open cigarettes…you haven’t even broken into one carton. (4) you stated you….buy the carton for £70 - if you buy from a legitimate shop you would be paying £100… (5) not credible that you could have saved £10,000 with your outgoings and income… With this many different brands and living in a house with 6 others, this is indicative - symptomatic of people who do cigarette purchases for everyone else in the house.” (10) “Ms Kostova had an open packet of Dunhill in her pocket…I explained I believed the [800] Dunhill [in the luggage] were for her and allowed her to take them. The rest were seized.” (11) Notice 12A and various other notices were issued and explained. 48. We have no reason to doubt the accuracy of Officer Shaw’s notes. However, as explained above, having heard the Appellant’s evidence and having had chance to ask questions of her (with the aid of an interpreter), we do not share Officer Shaw’s concerns as to the veracity of the Appellant’s account. 49. The hearing bundle contained a Seizure Information Notice which was signed as having been received by the Appellant. That Notice records that the Appellant was also issued with Notice 12A. On balance, we find that the Appellant was provided with Notice 12A. 50. Officer Reed gave sworn evidence during which he confirmed the accuracy of his witness statement. That witness statement simply set out a chronology of events and exhibited the relevant correspondence. In response to questions from the Tribunal, Officer Reed gave the following further evidence: (1) “the fact that I gave a non-deliberate penalty means I accepted that [the Appellant] genuinely believed that [the tobacco products were] for personal use”; (2) a genuine belief that the goods were for personal use justifies a non-deliberate penalty but is not a reasonable excuse; and (3) the Appellant answered all questions and co-operated as much as possible save she did not admit the wrongdoing; 51. We found Officer Reed to be an honest and straightforward witness. We accept his evidence of fact. Decision 52. The Appellant’s central submission was that there was no UK duty point because the goods were for her own use. In view of the deeming provisions contained in the statutory scheme and the authorities cited above, we accept HMRC’s submission that, in both the excise duty appeal and the penalty appeal, it is not open to us to make a finding that the tobacco products were for own use (despite finding the Appellant to be honest and credible, and accepting her account in its entirety) and therefore to find that there was no UK duty point. We have reached the conclusion that this is so regardless of the reason for the failure to challenge the legality of the seizure (which we accept was because the Appellant, despite being provided with Notice 12A, had not understood that she could challenge the legality of the seizure). 53. However, we are of the view that neither the statutory scheme nor Jones, Race or Jacobson prevents us from holding that the Appellant’s genuine and reasonable belief that the goods were not for a commercial purpose constitutes a reasonable excuse within the meaning of paragraph 20 of Schedule 41 FA. 54. We are satisfied that the Appellant’s belief that the tobacco products were for own use and not for a commercial purpose was genuine. That was her evidence, which we have accepted. 55. We are also satisfied that the Appellant’s belief that the tobacco products were for own use and not a commercial purpose was a reasonable one when viewed objectively. The Appellant understood that there was no limit on the amount of tobacco that she could bring to the UK provided that the tobacco was not for a commercial purpose. The Appellant had no intention of selling the tobacco products or otherwise putting them to any commercial purpose (rather she intended for the cigarettes to be smoked by her and for the hand rolling tobacco to be gifted to Mr Hadzhyski ). It was therefore objectively reasonable for the Appellant to proceed on the basis that there would be no UK duty point and that the tobacco products could be held by her and brought into the UK without the payment of UK duty. 56. Given that we have held the Appellant has a reasonable excuse, she is not liable to any penalty. 57. In the result, the Appellant’s appeal against the excise duty assessment is dismissed and the Appellant’s appeal against the penalty is allowed. Right to apply for permission to appeal 58. 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. DAVID BEDENHAM TRIBUNAL JUDGE RELEASE DATE: 17 APRIL 2020