Hayman Group Ltd v Revenue & Customs (Export of vodka under suspension - consignment never arrived at destination) [2021] UKFTT 195 (TC)

FTT-Tax
Hayman Group Ltd v Revenue & Customs (Export of vodka under suspension - consignment never arrived at destination)
[2021] UKFTT 195 (TC) · 2021-05-11
[18]“18. Article 10 deals with the consequences of irregularities and lays down the basic rule that the release for consumption (which gives rise to a charge to duty under Article 7) occurs in the Member State where the irregularity occurred. Thus, if the goods travelled properly out of the United Kingdom but were diverted from their proper course and custody in France, then duty is chargeable in France. However, it may not be possible to determine where the irregularity occurred. That case is covered first by Article 10(2). This deals with the case "where an irregularity has been detected during a movement of excise goods under a duty suspension arrangement", but it is not possible to determine where the irregularity occurred. In that case it is deemed to have occurred in the Member State where, and at the time when, it was detected.[19]A different case is dealt with by Article 10(4). Here, as the paragraph reads, no irregularity giving rise to a release for consumption under Article 7(2)(a) has been detected during the movement, but the goods have not arrived at their destination. The provision is that an irregularity is deemed to have occurred in the Member State of dispatch, at the time when the movement began, unless within four months of the start of the movement, satisfactory evidence is provided either of the regular arrival of the goods, so that the movement is shown to have ended in accordance with Article 20(2), or of the place where the irregularity occurred, so as to bring Article 10(1) into play. This is the provision which lies at the centre of the main issue in the present case … When does a movement of goods under a duty suspension arrangement come to an end?[28]This question lies at the heart of some of the present issues. Article 20(2) shows that it shall end in the relevant case where the consignee has taken delivery of the excise goods. However, in a typical case of diversion of the goods (of which Movements 1, 2 and 3 seem to be examples) the goods never do reach the consignee, so the end of the movement provided for in that Article will not occur. Can it follow that the movement continues indefinitely? That idea seems nonsensical. Article 7(2)(a) provides that excise goods are released for consumption when they depart from a duty suspension arrangement, including on an irregular departure. A regular departure following a movement will occur after delivery to the consignee. An irregular departure is likely to prevent the goods ever reaching the consignee, and will give rise to an immediate charge to excise duty under Article 7(1). Surely, if goods have departed from a movement under a duty suspension arrangement, the movement cannot be treated as still continuing? Article 7 does not deal only with goods that are being or have been moved under a duty suspension arrangement. In Article 7(3) which does relate to goods moving under such an arrangement, it deals with cases of regularity not irregularity. But it seems to me that where all the excise goods comprised in a particular movement have departed irregularly from that movement, for example by being improperly removed from the relevant means of transport, that movement cannot be treated as still continuing. The goods will never reach the intended destination, so Article 20(2) will never be satisfied, but the movement has, and must be treated as having, come to an end, at the moment of the departure of the goods from the duty suspension arrangement, which is also the moment at which duty becomes chargeable. I agree with paragraph 44 of the UT's decision on this point …. Detection of an irregularity during a movement of excise goods[31]Another important question is this: what is meant by the phrase in Article 10(2) "where an irregularity has been detected during a movement of excise goods under a duty suspension arrangement giving rise to their release for consumption"? Such an irregularity means a departure of the goods from the duty suspension arrangement: see Article 7(2)(a). For reasons just explained, this brings the movement to an end as regards the goods so departing. In what circumstances could that irregularity be detected during the course of the movement? The course of the movement does no doubt include the moment at which the movement ends, so that if the diversion of the goods were detected while it was happening this could be a detection during the course of the movement. In any other circumstances, the detection must occur after the irregularity has occurred, and therefore after the movement has come to an end at least as regards the particular goods, but often as regards the entire consignment. Article 10(2) itself shows that this must have been envisaged and provided for, because it speaks of an irregularity having been detected during a movement but of it being impossible to determine where the irregularity occurred. Thus it is manifestly not concerned with the case where the irregularity is detected as it is happening, the guilty persons being caught red-handed, and it must include the case of detection after the event, by which time at least some, and in many cases all, of the goods have gone.[32]In my judgment the correct interpretation of this phrase, as was contended for by Miss Simor Q.C. for HMRC, is that the irregularity has to occur during the movement, which may include the case where it is the irregularity that brings the movement to an end, but the detection may occur later. Otherwise the circumstances provided for in Article 10(2) could never occur. The same applies to the similar words in Article 10(4). That is supported by the wording of paragraph (11) of the Preamble, cited above (paragraph 15) …. Conclusion[67]I therefore hold as follows: (i)… (ii) A movement of excise goods under a duty suspension arrangement comes to an end, as regards all or any of the goods comprised in the movement, if and when those goods are released for consumption on an irregular departure from the duty suspension arrangement, for example on being delivered to a location other than the specified tax warehouse. (iii) The phrases in Article 10(2) and (3) referring to an irregularity being detected during a movement must be understood as referring to the detection, whether during or after the movement, of an irregularity occurring during the movement. An irregularity which brings the movement to an end occurs during the movement.”75. It is clear, and accepted by all parties, that there was an irregularity in this appeal as there was a diversion of the Meridian Vodka during its movement from the appellant’s premises to La Cave. What is not known is the nature of the irregularity, that is to say, how and where this took place.76. It is clear that the realisation by the Italian authorities that the goods were not delivered as intended is not in itself the irregularity for the purposes of Articles 7 and 10 . The distinction between the detection and the irregularity is drawn out by the Court of Appeal in Logfret . Thus the irregularity that must occur “during the movement” but the detection can happen later ([31]-[32] and [67(iii)]).77. I find that the Italian authorities “detected” that there must have been an irregularity for the purposes of Article 10. They told HMRC that there has been an irregularity and HMRC had to follow up with the appellant but it is not correct to describe HMRC’s activities as detecting the occurrence of the irregularity.78. However, there remains a question as to whether what the Italian authorities detected is sufficient to amount to say they had detected “ an irregularity”. Thus, for Article 10(2) to be engaged does it require the precise nature of the irregularity to be known by the party detecting it or it is sufficient for that party merely to know that, the goods not having arrived, there must have been an irregularity of some kind. Before considering that issue it is relevant to consider Article 10(4). Article 10(4)79. Article 10(4) provides that where goods have not arrived at their destination and no irregularity has been detected then the irregularity is deemed to occur in the Member State of dispatch:
“4. Where excise goods moving under a duty suspension arrangement have not arrived at their destination and no irregularity giving rise to their release for consumption in accordance with Article 7(2)(a) has been detected during the movement, an irregularity shall be deemed to have occurred in the Member State of dispatch and at the time when the movement began… ” 80. Article 10(4) also provides a mechanism for a taxpayer to provide evidence of dispatch but the appellant did not do so in this matter and so the issue is not in point. 81. The appellant argues that the Italian authorities detected the irregularity when the goods failed to arrive at La Cave so Article 10(4) cannot apply. In any event Article 10(2) applies. 82. HMRC argue that the goods clearly did not arrive but the Italian authorities’ surveillance does not amount to an irregularity being “ detected during the movement”
. As described above, HMRC’s argument is that the Italian authorities simply obtained information and provided it to the UK. Accordingly the irregularity should be deemed to occur in the Member State of dispatch, being the UK. 83. In my view, as the goods did not arrive at their destination, La Cave, Article 10(4) applies if it can be said that no irregularity during their movement was detected by the Italian authorities. I have found that the Italian authorities detected that an irregularity must have occurred. Again, as described at paragraph 77 and 78 above in relation to Article 10(2), the issue becomes the meaning of detecting an irregularity and whether it is sufficient to know that one must have occurred or is more information required. Detecting an irregularity 84. To summarise, is my view that this appeal turns on which of one of the following propositions are correct: (1) “ an irregularity has been detected” by the Italian authorities : if so Article 10(2) applies and the appellant succeeds (2) “ no irregularity…has been detected”: if so Article 10(4) applies and the appellant’s appeal fails 85. Specifically, the issue is whether Article 10 requires the precise nature of the irregularity to be known or it is sufficient for it to be known that, the goods not having arrived at La cave, an irregularity must have occurred. 86. The Italian authorities knew at the time of writing the Detention Order if not earlier: (1) that the appellant had shipped the Meridian Vodka to La Cave as they had the ARC number. (2) the goods never arrived. (3) the receipt was falsely entered in EMCS. 87. However, no one knows how or where the diversion took place. 88. No authority was presented to me on this point and the point is difficult. There is no suggestion that the provisions in Article 10 apply in any order of priority, indeed, Sir Timothy Lloyd in Logfret does not envisage any overlap ([19]) . The same point was made by the Upper Tribunal ( [2018] UKUT 422 (TCC) at paragraphs [33]-[35]). 89. However, the descriptions given by Sir Timothy Lloyd of Articles 10(2) and 10(4) both apply in this appeal. 90. Thus, describing Article 10(2) at [18]:
“…if the goods travelled properly out of the United Kingdom but were diverted from their proper course and custody in France, then duty is chargeable in France. However, it may not be possible to determine where the irregularity occurred. That case is covered first by Article 10(2) .”
(emphasis added) 91. Article 10(4) is described at [19]:
“A different case is dealt with by Article 10(4). Here, as the paragraph reads, no irregularity …has been detected during the movement, but the goods have not arrived at their destination…” 92. Only one of Articles 10(2) and 10(4) can apply. In my view on balance the natural reading of Article 10 is to require the nature of the irregularity to be known, not just that an irregularity must have occurred. If that were not the case then Article 10(4) would be redundant. Thus if, as required by Article 10(4), goods have not arrived at their destination then necessarily an irregularity has occurred. That fact would be known by one or more tax authorities, if only because an assessment would have been raised. If a tax authority knowing that goods have not arrived amounts to detecting an irregularity then the second condition for the application of Article 10(4), that the irregularity has not been detected, cannot be satisfied. 93. That cannot be the case and in my view Article 10940 best applies to the facts of this appeal. decision 94. I have found that the Seized Vodka was counterfeit and so cannot be the basis of an assessment by HMRC. 95. However, in my view Article 10(4) applies to the movement of the Meridian Vodka which is the subject of this appeal. The goods did not arrive at their destination and no irregularity giving rise to their release for consumption has been detected, save the inference that one must have occurred because the goods did not arrive. 96. For the reasons set out above, I therefore dismiss this appeal. Right to apply for permission to appeal 97. 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. IAN HYDE TRIBUNAL JUDGE RELEASE DATE: 27/05/2021 Appendix 1. The Excise Goods (Holding, Movement and Duty Point) Regulations 2010 1. Regulation 5 provides insofar as relevant: “5. Subject to regulation 7(2), there is an excise duty point at the time when excise goods are released for consumption in the United Kingdom.” 2. Regulation 6 provides insofar as relevant: “6(1) Excise goods are released for consumption in the United Kingdom at the time when the goods— (a) leave a duty suspension arrangement …” 3. Regulation 7 provides insofar as relevant: “7(1) For the purposes of regulation 6(1)(a), excise goods leave a duty suspension arrangement at the earlier of the time when — …(h) there is an irregularity in the course of a movement of the goods under a duty suspension arrangement which occurs, or is deemed to occur, in the United Kingdom…” 4. Regulation 9 provides insofar as relevant: “ 9(1) The person liable to pay the duty when excise goods are released for consumption by virtue of an irregularity in the course of a movement of the goods under a duty suspension arrangement which occurs, or is deemed to occur, in the United Kingdom is — (a) in a case where a guarantee was required in accordance with regulation 39, the person who provided that guarantee…” 5. Regulation 39 provides insofar as relevant: “ 39(1) Except for movements between tax warehouses which the Commissioners may specify in a notice, excise goods may not be moved under duty suspension arrangements unless — (a) the risks inherent in the movement are covered by an approved guarantee provided by the authorised warehousekeeper of dispatch, the registered consignor or any other person the Commissioners may allow in accordance with paragraph (2) which secures such amount of the duty chargeable on the goods as th e Commissioners may require…” 6. Regulation 80 provides insofar as relevant: “80 (1) This regulation applies where — (a) excise goods are moved under a duty suspension arrangement; and (b) in relation to those goods and that movement, there is an irregularity which occurs or is detected in the United Kingdom. (2) Where an irregularity occurs in the United Kingdom, the excise goods are released for consumption in the United Kingdom at the time of the irregularity or, where it is not possible to establish when the irregularity occurred, the time when the irregularity is detected or first comes to the attention of the Commissioners. (3) Where an irregularity is detected in the United Kingdom but it is not possible to establish in which Member State the irregularity occurred, it shall be deemed to have occurred in the United Kingdom and at the time it is detected or first comes to the attention of the Commissioners. (4) Where the circumstances mentioned in paragraphs (2) or (3) apply, and the goods were dispatched from another Member State, the Commissioners must inform the competent authorities of that State.” 7. Regulation 81 provides insofar as relevant: 81(1) This regulation applies where — (a) there is a movement of excise goods under a duty suspension arrangement; (b) the movement starts in the United Kingdom; (c) the movement is not discharged by the arrival of the goods at their stated destination; and (d) no irregularity is detected in the course of the movement. (2) Where this regulation applies an irregularity shall be deemed to have occurred, and the goods accordingly released for consumption, in the United Kingdom at the time when the movement started. (3) Paragraph (2) does not apply if, within four months of the start of the movement, the person (“P”)— (a) who guaranteed payment of the duty in accordance with regulation 39; or (b) where no guarantee was required, the consignor of the goods, satisfies the Commissioners that — (a) the goods have arrived at their stated destination; or (b) there has been an irregularity in another Member State. (4) If, at the time P is informed by the Commissioners that the excise goods have not arrived at their stated destination, P does not know, or could not reasonably have known, that the goods have not so arrived, P may, no later than one month after that time, provide evidence to satisfy the Commissioners that — (a) the goods have arrived at their stated destination; or (b) there has been an irregularity in another Member State. (5) Where the Commissioners are satisfied with any evidence provided in accordance with paragraph (4), paragraph (2) does not apply. (6) In this regulation “stated destination” means the destination stated in— (i) the ele ctronic administrative document…” 2. The Finance Act 1994 1. Section 12(1A) provides insofar as relevant: “… where it appears to the Commissioners — (a) that any person is a person from whom any amount has become due in respect of any duty of excise; and (b) that the amount due can be ascertained by the Commissioners, the Commissioners may assess the amount of duty due from that person and notify that amount to that person or his representative ” 2. Section 13A(2) provides insofar as relevant : “13A—Meaning of “relevant decision” … (2) A reference to a relevant decision is a reference to any of the following decisions — (a) … (b) so much of any decision by HMRC that a person is liable to any duty of excise, or as to the amount of his liability, as is contained in any assessment under section 12 above; (c) …” 3. Section 16(5) of the Finance Act 1994 provides insofar as relevant : “(5) In relation to other decisions, the powers of an appeal tribunal on an appeal under this section shall also include power to quash or vary any decision and power to substitute their own decision for any decision quashed on appeal.”