European Brand Trading Ltd v HM Revenue and Customs

Where excise duty should have been paid on imported goods, but has not been, those goods are liable to forfeiture under the Customs and Excise Management Act 1979 (“the 1979 Act”). Where goods are liable to forfeiture HMRC has power to seize or detain them. Once goods have been seized or detained, the owner of the goods has one month to challenge the seizure on the ground that the goods seized are not liable to forfeiture. If no challenge is made then at the end of the month the goods are deemed to have been duly condemned as forfeited. If a challenge is made in time, then HMRC must take proceedings for condemnation in the magistrates’ court or the High Court. If the court finds that the goods were liable to forfeiture it must condemn them to be forfeited. Running alongside these provisions HMRC has a discretionary power to restore to the owner anything “forfeited or seized” under the provisions of the 1979 Act. Where HMRC have decided not to restore the owner of the goods can ask for a review of the decision under the Finance Act 1994 (“the 1994 Act”) and, if dissatisfied with the review appeal to the First Tier Tribunal (“the FTT”).

The question on this appeal is whether after goods (a) are deemed to have been duly condemned or (b) have been condemned by the magistrates, an officer of HMRC exercising that discretionary power can or should investigate a claim that the goods were not liable to forfeiture after all. In a decision promulgated on 23 May 2014 ([2014] UKUT 0226 (TCC)) the Upper Tribunal (Morgan J) held that the answer to that question was “No”. I agree and would dismiss the appeal.

I can take the facts from the decision of the Upper Tribunal. In June 2009, a large quantity of wine and beer belonging to EBT was in a warehouse in Letchworth. On 17 June 2009, HMRC detained those goods. HMRC gave written notice to EBT that the goods were detained for the following stated reason: “Proof of Duty Payment”. On 13 July 2009, HMRC gave a further notice to EBT listing the items detained “pending proof of excise duty payment being confirmed”. The listed items excepted some of the goods initially detained and the excepted goods were released to EBT. On 22 July 2009, HMRC removed the detained goods from the warehouse in Letchworth. On 19 August 2009, EBT’s solicitors wrote to HMRC asking for answers to a number of questions and protesting at HMRC's conduct. On 20 August 2009, HMRC replied stating that a notice of seizure would be served that day.

On 20 August 2009, HMRC sent EBT a notice of seizure of most of the goods detained. The notice was given pursuant to the 1979 Act. The notice said that the goods were liable to forfeiture under the Act. The notice also said that if EBT did not give notice of claim pursuant to schedule 3 to the 1979 Act, then the goods would be duly condemned as forfeited. The notice went on to say that it was the policy of HMRC not to restore goods which were liable to forfeiture. It then said that if EBT did not agree with the decision not to restore the goods, it could ask for a review of the decision. HMRC’s formal policy at the relevant time was set out in the form of Notice 12A then current which said:

“Our general policy is not to return seized excise goods (such as alcohol or tobacco products) vehicles used for commercial smuggling or any seized prohibited thing (such as illegal drugs, offensive weapons or endangered plant and animal species). However, we will consider all requests taking into account all relevant facts.”

Those goods that had been excluded from the notice of seizure on 20 August were the subject of a separate notice on 20 August 2009 stating that they remained detained pending proof of payment of excise duty.

On 17 September 2009, EBT’s solicitors wrote to HMRC. The letter was treated both as a notice of claim under paragraph 3 of schedule 3 to the 1979 Act and a request for restoration of the goods and/or a review of the earlier decision not to restore the goods. The letter referred to certain matters which were relied upon by EBT as showing that duty had been paid on at least some of the goods which had been seized.

On 1 October 2009, EBT’s solicitors wrote a lengthy letter to HMRC. It said that EBT had already challenged the legality of the seizure and it now requested a review of the decision not to restore the goods. It said that a request for a review could be considered by HMRC while a challenge to the legality of the seizure was being pursued. The letter set out in detail EBT's case that duty had been paid on all or some of the goods which had been seized. The letter said that EBT had difficulties in some respects in establishing that duty had been paid on all of the goods. The letter contained significant criticisms of the way in which HMRC had conducted matters and in particular had failed to communicate with EBT.

On 7 October 2009, HMRC wrote to EBT’s solicitors accepting that the letter of 17 September 2009 was a claim under schedule 3 to the 1979 Act. HMRC said that the case would be prepared for condemnation proceedings in the magistrates' court within six months. HMRC also accepted, in response to the letter of 1 October 2009, that it would review the decision not to restore the goods contained in the letter of 20 August 2009. On three occasions, in October and November 2009 and in January 2010, HMRC asked for extensions of time within which to complete the review of the decision not to restore the goods. The letters explained that time was being taken to establish the supply chains for the goods which had been seized. This suggested that HMRC was investigating whether duty had been paid on some or all of those goods.

On 16 February 2010, HMRC served on EBT notice of seizure of the goods which had been detained on 20 August 2009 but which had not been the subject of the notice of seizure served on that date. The notice of 16 February 2010 did not refer to any question as to the restoration of the goods which were the subject of that notice.

On 25 February 2010, a review officer of HMRC wrote to EBT’s solicitors upholding the decision not to restore the goods seized on 20 August 2009. She said that from the documents available to her, she was not satisfied that excise duty had been paid on those goods.

On 2 March 2010, EBT appealed to the FTT against the review decision of 25 February 2010. The main ground of appeal was:

“We maintain that the goods are duty paid, they were purchased from a number of regular suppliers and the purchase invoices stated that the goods were duty paid.”

The grounds of appeal also said that if HMRC established that duty had not been paid on some of the goods then EBT had acted in good faith and that HMRC should use their discretion to restore the goods to EBT as an innocent party.

On 4 March 2010, agents for EBT requested restoration of the goods seized on 16 February 2010.

On 16 March 2010, HMRC issued a summons in the Manchester City Magistrates' Court for condemnation as forfeited the goods seized on 20 August 2009. The summons recited the history of the matter and stated that the goods were liable to forfeiture on the ground that the goods were chargeable to excise duty and no excise duty had been paid on the goods. The summons also said that the burden of proving that duty had been paid or secured on the goods was on EBT.

On 29 March 2010, HMRC served this summons on EBT. On the same day, HMRC wrote to the agents for EBT stating that the request for restoration of the goods seized on 16 February 2010 was rejected.

On 22 April 2010, the solicitors for EBT wrote to HMRC stating that EBT was not pursuing its claim under schedule 3 to the 1979 Act that the goods seized on 20 August 2009 were not liable to forfeiture. The solicitors completed a form to be sent to the magistrates' court stating that EBT no longer wished to contest the summons and agreed to HMRC asking the court to give them an order enabling them to keep the goods seized.

On 13 May 2010, the magistrates' court made an order, reciting the contents of the summons, which included paragraph 4 as follows:

“the goods were liable to forfeiture … in that:

a)

they were chargeable with excise duty …; and

b)

no excise duty had been paid on the goods.”

The formal part of the order read:

“IT IS THIS DAY ADJUDGED that the Complaint is true and it is ordered that the said goods be condemned as forfeit.”

The order also said that the reasons for forfeiture were that EBT had not supplied evidence of duty payment and no longer contested the condemnation.

On 22 June 2010, EBT’s agents asked for a review of the decision not to restore the goods seized on 16 February 2010. This was treated as a valid request for a review and a review officer of HMRC wrote to EBT’s agents on 22 July 2010 confirming the decision not to restore those goods. The letter said that as there had not been a challenge to the forfeiture of the goods seized on 16 February 2010, those goods were deemed to have been duly condemned as forfeited under paragraph 5 of Schedule 3 to the 1979 Act. The letter then referred to HMRC’s policy in relation to applications for restoration of goods where duty had not been paid and concluded that the review officer was not satisfied that duty had been paid with the result that the goods should not be restored to EBT.

In July 2010 EBT appealed to the FTT against HMRC’s refusal to restore. Once again the main ground of appeal was:

“We maintain that the goods are duty paid, they were purchased from a number of regular suppliers and the purchase invoices stated that the goods were duty paid.”

The appeal came before the FTT, which allowed the appeal by consent. However, in making its order the FTT gave directions which led HMRC to appeal to the Upper Tribunal. In the course of explaining its reasons the FTT said at [30]:

“We agree that it was for [HMRC] to establish that duty had not been paid on the seized goods or at least to show that there was no evidence that duty had been paid. We should expect the new review directed correctly to reflect the law.”

Thus the third of the directions that the FTT made was that the new review must examine:

“… material relevant to the duty paid status of the seized goods.”

It is that paragraph of the directions which is the focus of this appeal. It seems to me that it was the FTT’s statement at [30] which was the reason why that direction was made; and Mr Pickup QC, for EBT, accepted that that paragraph was wrong in law.

The key provisions of the 1979 Act for present purposes are paragraphs 3, 5 and 6 of Schedule 3, which provide:

“3.

Any person claiming that any thing seized as liable to forfeiture is not so liable shall, within one month of the date of the notice of seizure or, where no such notice has been served on him, within one month of the date of the seizure, give notice of his claim in writing to the commissioners at any office of customs and excise.

…

5.

If on the expiration of the relevant period under paragraph 3 above for the giving of notice of claim in respect of any thing no such notice has been given to the Commissioners, or if, in the case of any such notice given, any requirement of paragraph 4 above is not complied with, the thing in question shall be deemed to have been duly condemned as forfeited.

6.

Where notice of claim in respect of any thing is duly given in accordance with paragraphs 3 and 4 above, the Commissioners shall take proceedings for the condemnation of that thing by the court, and if the court finds that the thing was at the time of seizure liable to forfeiture the court shall condemn it as forfeited.”

Thus paragraph 5 deals with a case in which the thing in question is deemed to have been “duly condemned” as forfeited, while paragraph 6 deals with a case in which the thing is actually condemned as forfeited by a magistrates’ court. This court considered the effect of these provisions in HMRC v Jones [2011] EWCA Civ 824, [2012] Ch 414. HMRC had seized Mr and Mrs Jones’ car which was carrying a large quantity of alcohol and tobacco. Mr and Mrs Jones made a claim under paragraph 3, but later withdrew it. HMRC did not, therefore, take proceedings for condemnation. Mr and Mrs Jones then applied for restoration of their car (and the goods) but HMRC refused. The question for the court was whether, on appeal to the FTT from HMRC’s refusal to restore the car or the goods, the FTT were entitled to find that the goods in question had been imported for Mr and Mrs Jones’ personal use and were therefore not liable to excise duty, with the result that they (and the car) should not have been condemned as forfeited. Mummery LJ summarised HMRC’s argument at [6]:

“HMRC say that, on the proper interpretation of the statutory provisions and their application to the facts of this case, the goods and the vehicle in question were, following the owners' withdrawal of their notice of claim, deemed by statute to have been duly condemned and forfeited as illegal imports for commercial use. In consequence the FTT had no power to treat them as legal imports on the basis of its factual finding of importation for own use. The FTT's finding flatly contradicted what the 1979 Act deemed to be illegal importation for commercial use following the withdrawal of the owners' notice of claim.”

Having considered previous case law Mummery LJ summarised his conclusions at [71]. It is only necessary to quote parts of that summary:

“(4)

The stipulated statutory effect of the owners' 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 owners 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 owners 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 owners. In brief, the deemed effect of the owners' failure to contest condemnation of the goods by the court was that the goods were being illegally imported by the owners for commercial use.

…

(7)

… 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.”

In part of the summary which I have not quoted Mummery LJ also concluded that the statutory opportunity to challenge the seizure and forfeiture was compatible both with article 6 of the ECHR and also with article 1 of the First Protocol, because Mr and Mrs Jones were entitled to challenge in court, in accordance with ECHR compliant procedures, the legality of the seizure of their goods.

Mummery LJ summarised his conclusions at [73] as follows:

“To sum up: the FTT erred in law; the UT should have allowed the HMRC's appeal on the ground that the FTT had no power to reopen and redetermine the question whether or not the seized goods had been legally imported for the owners' personal use; that question was already the subject of a valid and binding deemed determination under the 1979 Act; the deeming was the consequence of the owners' own decision to withdraw their notice of claim contesting the condemnation and forfeiture of the goods and the car in the courts; the FTT only had jurisdiction to hear an appeal against a review decision made by HMRC on the deemed basis of the unchallenged process of forfeiture and condemnation; and the appellate jurisdiction of the FTT was confined to the correctness or otherwise of the discretionary review decision not to restore the seized goods and car. No Convention issue arises on that outcome, as the process was compliant with article 6 and article 1 of the First Protocol : there is no judge-made exception to the application of paragraph 5 according to its terms; the owners had the option of contesting in the courts forfeiture on the basis of importation for personal use; they had decided on legal advice to withdraw from their initial step to engage in it; and that withdrawal of notice gave rise to the statutory deeming process which was conclusive on the issue of the illegal purpose of the importation.”

There can, in my judgment, be no doubt that the formal order of the magistrates’ court, declaring the complaint (including paragraph 4) to be true and condemning the goods as forfeit, creates a rem judicatam as between HMRC and EBT. Although Mr Pickup submitted (correctly) that no evidence was called before the magistrates, EBT cannot go behind the formal order. Both EBT and HMRC are bound by the decision of a court of competent jurisdiction, which decided the very issue that EBT now wish to raise. It is true that HMRC v Jones was concerned with the deeming provisions of paragraph 5 of the Schedule (because Mr and Mrs Jones withdrew their challenge before condemnation proceedings had actually started), but there can in my judgment be no different conclusion where the goods have actually been condemned by a court. It would be extraordinary if a deeming provision had a different impact than a decision of a court which the deeming provision was designed to replicate. The deeming provision says that what is deemed to have happened is that the goods have been “duly” condemned; and that in my judgment must mean that the effect of the deeming provision is the same as the effect of a judgment of the magistrates’ court.

Mr Pickup argues that HMRC v Jones is concerned only with the jurisdiction of the FTT. Although the decision of the magistrates’ court creates a rem judicatam between HMRC and EBT it does not directly impact on HMRC’s discretionary power to restore goods, or on the power to review. The decision to restore or not to restore is a different issue which was not that raised in the condemnation proceedings. HMRC must make its decision on restoration in the light of all relevant factors, which will include the duty paid status of the goods in question. If I have understood this argument what is said is that in deciding whether or not to exercise the discretionary power to restore things seized or forfeited HMRC must consider the question (if it is raised by the applicant) whether excise duty was in fact payable and, if so, whether it had in fact been paid. But HMRC’s decision is only one part of the overall process. If HMRC refuse to restore, them the applicant can appeal to the FTT. If HMRC have refused to restore on the ground that excise duty was payable and has been deemed not to have been paid, then the clear effect of HMRC v Jones is that the FTT cannot investigate that question. It would make for an incoherent system if HMRC was required to investigate the question whether duty had been paid, but any appeal against its decision had to be conducted on the basis of a different set of assumed facts. The answer to this argument is, in my judgment, to be found in two passages from the judgment of Mummery LJ in HMRC v Jones. First, at [71] (5) he said:

“In brief, the deemed effect of the owners' failure to contest condemnation of the goods by the court was that the goods were being illegally imported by the owners for commercial use.”

This is a general statement, not confined to the FTT. Second at [71](7) he said:

“…in the legal world created by legislation the deeming of a fact or of a state of affairs is not contrary to “reality…”

The “reality” in this legal world is the reality created by the statute. It is not possible for the decision to restore or not to restore to be conducted in a different legal world. In one subsequent case in the FTT (Pioneer Traders (UK) Ltd v HMRC [2014] UKFTT 552 (TC)) it was suggested that in HMRC v Jones the court had extended the scope of the deeming provision. This was a reference to Mummery LJ’s statement at the end of [71] (7) that:

“Deeming something to be the case carries with it any fact that forms part of the conclusion.”

As Mr Pickup accepted this criticism is misplaced. Mummery LJ was doing no more than giving effect to the deeming provision in accordance with well-established principles. To take one well-known example, in East End Dwellings Co Ltd v Finsbury BC [1952] AC 109, 132 Lord Asquith said:

“If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it.”

It is a necessarily corollary of a condemnation (whether actual or deemed) that the excise duty has not been paid.

The next argument is that the provisions of Schedule 3 potentially contravene EBT’s rights under article 6 of the ECHR or article 1 of the First Protocol. The first of these entitles the citizen to a fair and impartial determination of his civil rights; and the second protects him against deprivation of property. Both these questions were considered in HMRC v Jones, which decided that there was no infringement. It is true that in an earlier case (Gascoyne v HMRC [2004] EWCA Civ 1162, [2005] Ch 215) Buxton LJ raised the question whether there might be an infringement, not as the result of an actual condemnation by the magistrates’ court which Buxton LJ considered would be Convention compliant, but by virtue of the deeming provision. But that question has been answered by HMRC v Jones: there is no infringement. The obiter observations of Buxton LJ (which were fully considered in HMRC v Jones) do not represent the law, and the contrary is unarguable in this court. Moreover in our case EBT did exercise their right of challenge in relation to one batch of goods but, for reasons which must have seemed good at the time, they abandoned it.

The third argument is that to preclude HMRC from investigating the question whether excise duty has in fact been paid on the forfeited goods in the context of an application for restoration deprives the appeal process of any real content. I do not agree. First, HMRC’s power is a power to restore goods that have been either seized or forfeited. Take the case of goods that have been seized but not forfeited, either because proceedings for condemnation have not been concluded or because the one month time limit for giving notice of challenge has not yet expired. That would be a case in which HMRC would be required to investigate whether excise duty had been paid on the seized goods. Second, although it is HMRC’s general policy not to restore goods that have been forfeited for non-payment of excise duty, any policy admits of exceptions if the circumstances are exceptional. Third, as HMRC accept, where a decision not to restore is founded on the policy it would (at least in theory) be open to an applicant to challenge the lawfulness of the policy itself on the usual grounds for judicial review. This was HMRC’s position as recorded in the judgment of Pill LJ in Gora v HMRC [2003] EWCA Civ 525, [2004] QB 93 at [38] and remains their position on this appeal. Fourth, in the application of the policy HMRC will consider any mitigating circumstances. Such circumstances would include whether or not the owner of the goods knew that duty had not been paid, whether he believed that duty had been paid (even though it had not), what steps by way of due diligence he took to satisfy himself that duty had been paid, whether there were any other steps that he could have taken but did not, and any other relevant consideration. This was common ground before the Upper Tribunal and is referred to in its decision at [69]. Fifth, in exercising the discretionary power to restore goods that have been forfeited, HMRC must consider the proportionality of a refusal to restore. It might, for example, be disproportionate to refuse to restore a new Rolls Royce used to carry a small quantity of smuggled brandy. However, in the light of HMRC v Jones, the question of proportionality must be considered on the assumption that the goods on which excise duty was payable (and any vehicle in which they were carried) have been validly and lawfully forfeited and that the excise duty has not been paid. In our case EBT wishes to advance the argument that the excise duty has in fact been paid on the very goods that have been forfeited. In my judgment HMRC v Jones plainly prevents that argument from being raised once the goods have been condemned, either by the magistrates or by the deeming provision.

There is one further point that needs to be addressed. What is the position if, as in our case, the application for restoration is made before the goods are condemned or deemed to be condemned but, before a decision on the application is made, they are condemned or deemed to be condemned? That question was considered by the Upper Tribunal (Warren J) in Race v HMRC [2014] UKUT 331 (TCC) and followed by the Upper Tribunal (Barling J) in Shaw v HMRC [2016] UKUT 4 (TCC). What Warren J said was this:

“33.

…I do not consider it to be arguable that Jones does not demonstrate the limits of the jurisdiction. 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 and applied in EBT. 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 is no different from that raised by Mr and Mrs Jones.

34.

The Judge supported his contrary conclusion by referring to the period between the expiry of the one month time-limit for challenging seizure and the point at which the assessment to excise duty was issued. The Judge commented that the owner of seized goods should not be forced to seek condemnation proceedings simply to guard against the possibility of a future tax or penalty assessment: see at [31] of the Decision. But that is precisely what he must do if he wishes to assert, if he were to be assessed, that the goods were not subject to forfeiture. The effect of the deeming provisions is that the goods are legally forfeit. Notice 12A is clear that, unless the seizure is challenged, it is not possible subsequently to argue that the goods were not liable to forfeiture.” (Emphasis added)

I agree. The current form of Notice 12A reflects this. It says:

“If you want goods returned because you believe they should not have been seized in the first place, perhaps because you claim excise goods are for your ‘own use’, the only avenue open to you is to challenge the legality of the seizure by sending a Notice of Claim (see section 3). You cannot use the restoration process for this.”

It follows, in my judgment, that in our case Morgan J was entirely correct to hold at [61]:

“Since the review officer should make a decision on the basis that duty was not paid on any of the seized goods, it is not relevant to the decision to inquire whether there is evidence to suggest that duty was paid on some or all of the goods. It is therefore not necessary or appropriate to disclose to EBT documents which might help EBT to argue that duty was paid on some or all of the goods. Such documents will be irrelevant to the further review. It is similarly irrelevant to inquire whether HMRC, at an earlier point in time, did sufficient to investigate whether duty had been paid or to inquire what would have emerged if HMRC had made inquiries, or further inquiries. What now matters is the position which has been established that duty was not paid on any of the seized goods.”

Some tribunal judges have expressed dissatisfaction with HMRC v Jones. In reality, however, what they are dissatisfied with is the statutory scheme. But since this court has held in HMRC v Jones that the statutory procedure is Convention compliant, any perceived shortcomings in the scheme are matters for Parliament and not for the courts or tribunals. Their duty is to apply HMRC v Jones.

I would dismiss the appeal.

I agree.

I also agree.