CFL Fuels Ltd v The Commissioners for HMRC

The Appellant (“CFL”) appeals against HMRC’s decision (“the Decision”) made on 27 June 2022 and confirmed following a review on 22 February 2023 refusing to offer restoration to CFL of 12,000 litres of fuel (“the fuel”) and vehicle registration number HXZ 9215 (“the vehicle”).

CFL did not challenge the forfeiture of the vehicle or the fuel in the magistrates’ court but sought restoration of the vehicle on the basis that the fuel was duty paid and had been the subject of innocent contamination. They say that HMRC failed to consider properly (or at all) the possibility of ‘innocent contamination’ and that the fuel in the vehicle was UK-purchased and duty paid. For these reasons, CFL says, the Decision is unlawful: it is not in accordance with the legislation, not based on the correct facts, unreasonable and disproportionate.

On 7 April 2022, HMRC Mobile Enforcement Team (MET) Officers attended Craigantlet Service Station, Holywood, Belfast.

HMRC Officer Scott established that the vehicle contained approximately 12,000 litres of fuel and, with agreement from the driver, took three samples of fuel from the tanker unit. The Officer then advised the driver that the samples would be sent for preliminary analysis and both the vehicle and fuel would be detained pending test results.

On 11 April 2022, Officer Scott issued a Notice of Seizure (“the Notice of Seizure”) letter to CFL. The letter advised that the fuel and vehicle had been seized as liable to forfeiture under section 24(4) HODA and section 141(1)(a) and (b) CEMA 1979. The Notice of Seizure did not explain why the goods or vehicle were liable to forfeiture. The Notice of Seizure included the following text:

“If you claim that the goods were not liable to forfeiture you must within one month from the date of this notice of seizure give notice of your claim in writing in accordance with paragraphs 3 and 4 of the Schedule 3 to the Customs and Excise Management Act 1979.

…

If you do not give notice of claim within the said period of one month or, if any requirement of the above mentioned paragraph 4 is not complied with, the goods will be deemed to have been condemned as forfeit.”

On 25 April 2022, Tiernans Solicitors (CFL’s representative) wrote to HMRC asking for restoration of the seized fuel and vehicle. So far as relevant, their letter reads as follows:

“We act on behalf of the above named client an (sic) confirm that our client instructs that the goods and tanker seized are not liable to forfeiture and hereby formally seeks the restoration of the said items. No evidential basis for seizure has been served or presented to our client.”

On 5 May 2022, HMRC considered the request and wrote back to CFL’s representative to explain that they were awaiting the results of the formal samples sent to Eurofins Forensic Services, a government approved chemist, and therefore no restoration decision could be made yet. We should note two passages in this letter (the underlining and bold text are in the original letter):

“Thank you for your letter dated 25 April 2022 on behalf of your above named client. You have confirmed you are seeking restoration of the fuel and vehicle seized from your client on 11 April 2022.

…

I note the fuel and vehicle were seized as initial field tests on the fuel indicated fuel irregularities. I can advise that formal fuel samples will now be tested by the Government Chemist. This process may take several weeks before tests results are provided to HM Revenue and Customs.

In light of the above, please be advised that no restoration decision can be made until such times as test results of fuel analysis are available from the Government Chemist.”

In due course, the fuel samples were tested by Eurofins Forensic Services (“Eurofins”), a government approved chemist. The results (with Date Reported of 6 June 2022 for sample 256107 and 23 May 2022 for sample 246106 – we were not given a copy of the report for sample 246108) were as follows:

On 27 June 2022, HMRC wrote to CFL’s representative to refuse (“the Decision”) restoration of the fuel and vehicle. The letter (“the Decision Letter”) explained the reasons for this, the background to the seizure, the Eurofins’ test results and an explanation of HMRC’s restoration policy and the provisions under which the goods were seized. Importantly, the letter contains the following passages:

“Thank you for your letter dated 25th April 2022 on behalf of your above-named client. Your clients have requested restoration of these seized items. …

In your letter dated 25th April 2022, you request restoration of the seized fuels and vehicle …

Separately, your client has not submitted a Notice of Claim contesting the legality of this seizure.

Seizure of the fuels

All the things described below were seized under the authority of Section 139 of the Customs & Excise Management Act 1979 (“the Act”).

The Heavy Oil fuels were liable to forfeiture under Section 24A of the Hydrocarbon Oil Duties Act 1979 (“HODA”) because they were found to contain laundered UK rebated fuel.

…

Customs’ Policy for the Restoration of Seized Road Fuel

The Commissioners general policy is that seized fuel should not normally be restored but each case is examined on its merits to determine whether or not restoration may be offered exceptionally.

Customs’ Policy for the Restoration Excise Goods

The Commissioners general policy is that any excise goods seized because of an attempt to evade payment of duty should not normally be restored. In this instance your clients have sought restoration of the seized vehicle described above.

In all cases any other relevant circumstances will be taken into account in deciding whether restoration is appropriate.

This Department’s efforts are directed towards deterring and detecting fraud, failure to pay excise duty that is due, irregularities and encouraging compliance with procedures established to control movements of excise goods. In this way protection will be given to both Revenue and legitimate trade in the UK. It is appropriate that this objective is applied consistently throughout the UK. The creation of the Single Market meant the removal of fiscal frontiers; this significantly increases opportunities for smuggling and irregular movement of goods with less risk of detection. Thus routine restoration, even on fairly stringent terms, would thoroughly undermine the Department’s objectives. To maximise deterrence and encourage compliance, the normal policy in these cases is to refuse to restore seized goods.

Customs’ Policy – Mis-use of rebated fuels

Where the offence committed relates to the deliberate misuse of rebated fuels e.g. fuel laundering, the Departments general policy is that the seized apparatus [including vehicles] should not normally be restored but each case is examined on its merits to determine whether or not restoration may be offered exceptionally.

My Decision

I have considered your request under section 152 (b) of the Customs & Excise Management Act 1979 (“the Act”) and our policy.

In considering restoration I have looked at all of the circumstances surrounding the seizure, but I do not consider the legality or the correctness of the seizure which in this case has not been contested under Schedule 3 of CEMA. I also take account of Revenue and Customs policy in these matters.

It is for me to consider in all of the circumstances whether restoration of the seized fuel and vehicle should be offered, with or without conditions. Alternatively, I also have the discretion to refuse restoration.

I conclude that there are no exceptional circumstances that would justify a departure from the Commissioners policy.

Regrettably, on this occasion the seized fuels and vehicle HXZ 9215 will not be restored.”

There then followed further correspondence between CFL and HMRC. On 18 January 2023 HMRC accepted an e-mailed letter dated 20 November 2022 as a request for a late review of the Decision. The review was asked to consider the following matters:

The review (“the Review”) was concluded, and the Decision was upheld in a letter (“the Review Letter”) dated 22 February 2023. Officer Gordon explained that HMRC’s policy on the restoration of seized goods and vehicles was that alcohol, tobacco, vehicles, and other things (such as cover loads) seized as liable to forfeiture should generally not be restored. The Review Letter made it clear that Officer Gordon was “unable to consider the legality of the seizure itself. This is because the legality of the seizure can only be considered by the Magistrate’s Court should you appeal it. In your case, you did not appeal the legality of the seizure”.

She said that she did not accept CFL’s contention that they did not accept the results of the Eurofins tests, which were “demonstrative of ‘innocent contamination’.” This was because Eurofins was a tried and tested company which had been used by HMRC and provided reliable results. In addition, CFL had given no explanation of what the “innocent contamination” was or how the laundered fuel came to be in the vehicle. She noted that official tests “were conclusive that laundered fuel was contained” within the vehicle. Later she said that the fuel could not be restored “because official tests confirm it contains laundered fuel, which is non UK duty paid”.

She concluded by observing that, although she had not been provided with any information regarding hardship or humanitarian issues, she had considered this as part of her review of reasonableness and proportionality. She concluded that the Decision was both reasonable and proportionate.

By way of background, “red diesel” is the term used for gas oil that is intended for use other than as fuel in road vehicles. Its use is restricted to certain industries/activities, most notably agriculture, horticulture, fish farming and forestry. Red diesel is functionally the same as ordinary (white) diesel, but is subject to a lower level of excise duty than gas oil intended for use in diesel engine road vehicles (DERV), which is why it is often called rebated fuel or rebated diesel. Red diesel is so called because it has been a requirement since 1961 for it to be marked with a red dye, as well as chemical markers (other than in circumstances where a technical marking waiver is granted), to prevent its misuse in road vehicles. It is possible to remove the red dye (and to an extent other markers) from red diesel (an activity known as fuel laundering), but it is illegal to do this.

Section 24 of the Hydrocarbon Oil Duties Act 1979 (“HODA”) authorises HMRC to make regulations for the purposes of certain specified provisions in that Act “and in particular for the purposes specified in Schedule 4 to this Act”. One of the subjects listed in Schedule 4 HODA for regulations under section 24 of that Act is:

“9.

Prohibiting the removal from any oil of any prescribed marker or prescribed colouring substance.”

The Hydrocarbon Oil (Marking) Regulations 2002 (the “Regulations”) were made under section 24 of and Schedule 4 to HODA. These regulations deal with prescribed markers and colouring substances. They also provide prohibitions relating to prescribed markers (regulation 14). In particular, regulation 14(2) provides that “no marker may be removed from any oil”.

Section 24(4) HODA provides as follows:

“Where any person contravenes or fails to comply with any regulation made under this section his contravention or failure to comply shall attract a penalty under section 9 of the Finance Act 1994 (civil penalties), and any goods in respect of which any person contravenes or fails to comply with any such regulation shall be liable to forfeiture.”

Section 24A HODA provides as follows:

“(1)

Marked oil shall not be used as fuel other than for an excepted machine.”

The section goes on to provide penalties for using marked oil in contravention of this rule and for the forfeiture of marked oil in a vehicle other than an excepted machine.

Section 141 of the Customs and Excise Management Act 1979 (“CEMA”) provides as follows:

“ (1) Without prejudice to any other provision of the Customs and Excise Acts 1979, where any thing has become liable to forfeiture under the customs and excise Acts -

(a)

any ship, aircraft, vehicle, animal, container (including any article of passengers' baggage) or other thing whatsoever which has been used for the carriage, handling, deposit or concealment of the thing so liable to forfeiture, either at a time when it was so liable or for the purposes of the commission of the offence for which it later became so liable; and

(b)

any other thing mixed, packed or found with the thing so liable

shall also be liable to forfeiture”

Section 1 of CEMA defines “the customs and excise Acts” to include HODA.

Section 139 and Schedule 3 CEMA make provision for the detention, seizure and condemnation of goods. So far as relevant, section 139 provides:

“(1)

Any thing liable to forfeiture under the customs and excise Acts may be seized or detained by any officer or constable or any member of Her Majesty’s armed forces or coastguard.

…

(6)

Schedule 3 to this Act shall have effect for the purpose of forfeitures, and of proceedings for the condemnation of any thing as being forfeited, under the customs and excise Acts.”

Schedule 3 CEMA provides (in paragraph 1) for the giving in certain circumstances of notice of seizure of any thing as liable to forfeiture. It goes on to 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.”

Section 152 CEMA enables HMRC to mitigate penalties and restore forfeited or seized items. So far as relevant, it provides:

“The Commissioners may, as they see fit—

(a)

compound an offence (whether or not proceedings have been stituted in respect of it) and compound proceedings or for the condemnation of any thing as being forfeited under the customs and excise Acts; or

(b)

restore, subject to such conditions (if any) as they think proper, any thing forfeited or seized under those Acts; …”

HMRC’s policy on restoration is set out in a document entitled “Forfeiture of Excise Goods (Alcohol, Tobacco, and Oils) – Appendix F: Restoration Policy for Disclosure”. This document begins with the rubric “This redacted version of restoration policy for goods and vehicles may be disclosed for court or tribunal proceedings and used in correspondence” and Officer Gordon referred to it in her evidence as HMRC’s “disclosable policy”. All of this might suggest that there is more to HMRC’s policy in this area than is set out in this document. We asked Mr Edwards about this and, after taking instructions during the short adjournment, he confirmed that, despite the unsettling description, this is a complete and accurate summary of HMRC’s policy, and we have proceeded in reliance on that assurance. The key provisions of this policy are as follows:

“The policy for restoration of seized goods and vehicles

• is that alcohol, tobacco, vehicles and other things (such as cover loads) seized as liable to forfeiture must not generally be restored

• must be applied firmly but not rigidly

• allows for each case to be considered on its merits to determine whether restoration may be offered and under what terms

• offers restoration exceptionally but not as a matter of course

• does not allow for restoration where fiscal marking and/or duty stamp legal requirements would be breached

• recognises there will be occasions when overriding humanitarian or hardship issues warrant a departure from usual restoration criteria

• is aimed at those who are profiting from offences under customs and excise legislation

• does not intend to penalise innocent third-parties

• aims to address instances where innocent third-parties do not learn from mistakes and omissions that facilitate offences

• allows for goods that are found, mixed or packed with goods liable to forfeiture to be restored in certain circumstances. If the goods have been used to deliberately mislead officers or to conceal a fraud, they will only be restored in very exceptional circumstances

• allows for things to be restored shortly after they have been seized so it is not necessary to remove them to a Queen’s Warehouse.”

Sections 14 and 15 of the Finance Act 1994 (“FA 1994”) enable a person in CFL’s position to ask HMRC to review their decision, which is what was done here. Section 16 FA 1994 allows an appeal to be brought against a decision on a review under section 15. Section 16(4) FA 1994 sets out the jurisdiction of this tribunal in relation to an appeal against a decision as to an ancillary matter as follows:

“(4)

In relation to any decision as to an ancillary matter, or any decision on the review of such a decision, the powers of an appeal tribunal on an appeal under this section shall be confined to a power, where the tribunal are satisfied that the Commissioners or other person making that decision could not reasonably have arrived at it, to do one or more of the following, that is to say—

(a)

to direct that the decision, so far as it remains in force, is to cease to have effect from such time as the tribunal may direct;

(b)

to require the Commissioners to conduct, in accordance with the directions of the tribunal, a review or further review as appropriate of the original decision; and

(c)

in the case of a decision which has already been acted on or taken effect and cannot be remedied by a review or further review as appropriate , to declare the decision to have been unreasonable and to give directions to the Commissioners as to the steps to be taken for securing that repetitions of the unreasonableness do not occur when comparable circumstances arise in future.”

Section 16(8) FA 1994 provides that (subject to certain exceptions which do not apply here) “references in this section to a decision as to an ancillary matter are references to any decision of a description specified in Schedule 5 to this Act”. Among the decisions listed in Schedule 5 (at paragraph 2(1)(r)) is:

“any decision under section 152(b) as to whether or not anything forfeited or seized under the customs and excise Acts is to be restored to any person or as to the conditions subject to which any such thing is so restored;”

If we are satisfied that the "person making [the relevant] decision could not reasonably have arrived at it", we can direct that the decision should cease to have effect and may require HMRC to carry out a further review of the original decision. The approach to be taken here was helpfully discussed in Paccar Financial Polska SP. Z O.O v Director of Border Revenue (“Paccar”), [2024] UKFTT 642 (TC) at [50]-[52] and [101]-[102], and we distil the following points from that discussion :

Where HMRC have a published policy, it is open to an appellant to contend in the Tribunal that the decision on restoration was not reasonable (within the meaning of section 16(4) FA 1994) on the grounds that it was based upon an unreasonable or otherwise unlawful policy (Gora & Ors v HMRC, [2003] EWCA Civ 525 at [38]), but no such contention has been made in this case.

Although the Tribunal has a fact-finding role, there is one very important limitation on that role and the Tribunal’s freedom to review HMRC’s decision more generally, which flows from paragraph 5, Schedule CEMA. In HMRC v Jones, [2011] EWCA Civ 824, Mummery LJ, giving the only judgment in the Court of Appeal, commented (at [71]) on the effect of this provision as follows:

“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)

… . 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.”

So, the important limitation on the Tribunal’s role, where the seizure of goods is not challenged under the Schedule 3 CEMA process, is that a person in CFL’s position cannot argue that the goods were not “duly” condemned, nor can they challenge any fact that forms part of that conclusion. Similarly, the Tribunal must proceed on the basis that the goods were “duly” condemned and accept the factual matrix that led to that conclusion.

CFL’s submission is that HMRC were wrong to have failed to consider their arguments that the fuel was subject to “innocent contamination” and purchased duty-paid. They cannot, therefore, run (and therefore cannot expect HMRC to consider) that argument if it is inconsistent with the fuel and vehicle being “duly” condemned or the factual matrix on which that conclusion rests.

We heard from four individuals, whom we found to be straightforward witnesses, and we have no reason to doubt anything they said to us.

Mr Watters is the sole director of CFL. The business was set up in 2013 and supplies solid fuels, petrol and diesel. He used to deal in agricultural (red) diesel but stopped doing this in 2017. He bought the vehicle in 2017. The vehicle has 5 “pots” (segments of the tank) each with a 4,000 litre capacity. He explained that different combinations of pots are used in the vehicle to balance the load. He used pots 2, 3 and 4 to balance his load, but Mr. Mone did not use pot 3.

He says that he disputes HMRC’s assertion that the fuel was not consistent with UK duty paid fuel.

He says that the fuel was purchased within the UK from WR Kennedy & Co under invoice 991491 and he exhibited a copy of the invoice. He says that the invoice shows that the fuel was purchased on 4 April 2022. The fuel was collected from the terminal and offloaded in CFL‘s yard on 5 April 2022. Mr Watters exhibited CFL’s VAT account for the period, which (he says) clearly shows the fuel. His VAT returns have not been queried.

On 5 April 222 Mr Watters was contacted by Paul Mone of Black Hill Energy, who was looking to borrow the vehicle as he needed it to move a stock of fuel from his storage facility in Keady to his service station. Mr Mone collected the tanker on 5 April 2022 and moved 8,000 litres of diesel using pots 2 and 4 in the vehicle, which he returned later on 5 April 2022.

Mr. Watters says that when Mr Mone returned the vehicle to him and he loaded his own fuel, the pots in the vehicle were empty. The vehicle is loaded from the top. By lifting the lid on each pot, it was possible to look down into the tanker and as far as he could see it was empty. He did not wash out the pots as that leaves a trace of water.

On 6 April 2022 Mr Watters received an order for 12,000 litres of DERV from Top Service Station, Craigantlet. He loaded the vehicle at about 5 or 6 o’clock in the evening. He had received a price alert that DERV was dropping in price the next day, so he asked the driver to delay delivery to Craigantlet in order that he could pick up DERV at the reduced price.

On 7 April 2022 HMRC intercepted the vehicle whilst making a delivery and HMRC say that they took 3 samples. Mr Watters says that he was not provided with any samples or notice of sampling, and this is a breach of Schedule 5 HODA. He says that this makes the only evidence HMRC have inadmissible. He says that the fuel was bought in the UK and HMRC had the invoice from the outset.

Mr Watters accepts that the best way to protect one fuel from adverse traces of other fuels is not to use a pot for more than one fuel. He doesn’t loan his remaining vehicle anymore and only supplies one product.

Since the vehicle was forfeited, his sales have gone down, although to some extent this may be the result of Covid. If he had two tankers, he could put different products in different lorries and deliver for other people. Now he only delivers white diesel and petrol that he is dealing in. Only having one tanker restricts who he can deliver for as well as how much he can sell. He exhibited a copy of a letter from his accountants, written in very general terms, which indicated that CFL has been struggling financially with increased costs and competitive market and this has resulted in trading losses in the last couple of years. The accountant said that a loss of a major asset of the company would make it more difficult for it to continue as a going concern.

Mr Edwards put it to Mr Watters that he should know of the risk of fuel being contaminated, but Mr Watters’ view was that he did not think that was a real risk with very small quantities of a previous load.

Mr. Edwards asked Mr Waters why he did not challenge the seizure in the magistrates’ court, where the points he is making now could have been more fully exploited. Mr Watters position is that he was legally advised and he did what his advisers told him to. When asked why he did not ask his advisers to appeal the seizure, Mr. Watters said that that was what he thought they were doing.

In re-examination, Mr Watters was asked about Officer Spratt’s evidence and whether he had any explanation to offer. His view was that, if you put white diesel on top of red diesel, that would produce a contaminated sample. He had no explanation for the presence of solvent traces in the sample. He emphatically denied removing markers, laundering fuel or trying to profit from fuel laundering activities. 

Mr Mone is a director of Black Hill Energy. He has storage facilities in Keady, County Armagh and a fuel supply business in Craigavon. His business consists of fuel distribution. He is a registered dealer in controlled oils, which allows him to trade in rebated fuel (red diesel).

On 5 April 2022 he asked Mr Watters if he could borrow the vehicle to move some fuel. He needed to move 8,000 litres of red diesel from Keady to Craigavon and his tanker only had a capacity of 5,000 litres. He drove to CFL’s premises and collected the vehicle. He loaded pots 2 and 4 on the lorry with 4,000 litres of red diesel which he transported to Craigavon. He then returned the vehicle to Mr Watters on the same day.

Officer Spratt is an officer in HMRC’s MET based in Belfast. He has worked for HMRC for 46 years and in the MET since 2002.

On 7 April 2022, at 22:59 he was on duty at the Top Craigantlet Filling Station with Officers Fitzpatrick, Fearon and Scott. The vehicle was parked on the forecourt, and the driver informed him that fuel pots 2,3 and 4 were full of fuel and that pots 1 and 5 were empty. Under his instruction HMRC’s contractors confirmed that pots 1 and 5 were empty and took preliminary samples from pots 2,3 and 4. Officer Spratt conducted chemical field tests on these samples and the results of these tests were found not to be consistent with UK duty paid fuel. The contractors under his supervision took formal samples in accordance with Schedule 5 of HODA. These samples were taken in the presence of the driver and all his actions were recorded by Officer Scott.

Officer Spratt said that it was a little unusual for the vehicle to be delivering fuel at 11 o’clock at night, but where diesel is concerned this is not impossible, and the driver here had keys to the tank so that he could deliver to the filling station himself. Officer Spratt explained that petrol must be delivered during the hours of daylight, but diesel which is less flammable can be delivered at all times of the day and night.

Office Spratt explained that the markers in red diesel include a red dye and two chemical markers, Quinizarin and Accutrace S-10. If these markers are present, it means that the fuel is not UK duty paid. Officer Spratt said that the red dye and Quinizarin can be removed from red diesel, but Accutrace S-10 cannot be eliminated. If the fuel is re-distilled, a solvent trace remains. Here, the Eurofins samples from two of the pots have very small traces of Accutrace S-10 and Quinizarin and solvent traces. If the fuel was legitimate white diesel, there should be no solvent traces at all. So, sample 246106 contains 1% Accutrace and 6% Quinizarin. Solvent was detected but no other statutory markers. Eurofins commented that this sample is consistent with laundered UK gas oil. On the other hand, no Quinizarin or Accutrace was detected in sample 246107 and Eurofins concluded it was commercial DERV.

Although some solvent had been detected, he was clear that he was not saying that the fuel could only be laundered fuel, only that the samples were consistent with that. As he put it, he wasn’t ruling anything out and was certainly not saying that there could not be another explanation. 

Officer Spratt confirmed that he was not aware of any criminal proceedings in this case.

Officer Gordon is currently part of HMRC’s Solicitors Office and Legal Services, (“SOLS”) Indirect Excise Review team. She has been employed by HMRC (or its predecessor departments) since 1986 and has worked in SOLS since April 2018. She was the officer allocated to review the Decision.

She said that she examined all documentation provided to CFL, its representatives, and officers from HMRC. After examining all the evidence and following consideration of the events leading to the Decision, she was satisfied that she had been provided with sufficient evidence that HMRC had reasonable cause to refuse restoration of the fuel and vehicle. She concluded that the Decision was legally and technically correct and she did not find sufficient or compelling reasons to offer restoration. She considered the Decision to be both reasonable and proportionate in relation to the circumstances of the case.

She did not review the seizure itself. As there was no challenge to the seizure, the goods were condemned as forfeit, and her review therefore focussed on the decision not to restore the goods.

The fuel was liable to forfeiture on the grounds that the official Eurofins test concluded that two of the three of the samples of fuel taken on the day of the seizure (samples 246106 and 246108) were consistent with laundered UK gas oil and one sample (sample 246107) was found to contain commercial DERV or white diesel. The vehicle is a “singular type tanker” (one where the tanker and tractor unit cannot be separated). As the laundered fuel was being transported in the vehicle, she was satisfied that the vehicle was also liable to forfeiture and as such, it was reasonable and proportionate under the terms of HMRC’s restoration policy, not to restore it.

In coming to her conclusion, Officer Gordon says that she referred to HMRC’s policy for the restoration of goods and considered whether CFL’s case was exceptional so as to warrant a deviation from that policy, as HMRC’s general policy for the restoration of seized road fuel and excise goods is not to return the goods where there has been an attempt to evade payment of any duty.

HMRC’s “disclosable policy” (her phrase) is set out in a document entitled “Forfeiture of Excise Goods (Alcohol, Tobacco, and Oils)” summarised at [19] above. She explained that the policy is that oil and vehicles seized as liable to forfeiture must not generally be restored. Restoration may be offered, but only exceptionally and not as a matter of course. She said that restoration had never been allowed in any case she has been involved with. While this policy must be applied firmly (but not rigidly) it allows for each case to be considered on its merits to determine whether restoration may be offered and under what terms. Officer Gordon was satisfied that the Officer making the Decision had considered all relevant matters and did not ignore any that should have been considered when making the Decision.

HMRC submit that CFL was entitled to challenge the legality of the seizure in the magistrates’ court by lodging a Notice of Claim within 30 days of the seizure. As there was no challenge, paragraph 5 of Schedule 3 CEMA provides that the goods in question shall be deemed to have been duly condemned as forfeited. In their submission, this effectively closes the door on CFL’s “innocent contamination” argument.

Mr Edwards says that CFL have not engaged in this process at all. They did not appeal the seizure to the magistrates’ court and have been very casual in advancing their case for restoration. The Decision was contained in a letter date 27 June 2022. Tiernans say that they wrote to HMRC on 12 July 2022 to indicate that disagreement with the Decision. HMRC have no record of receiving that letter and it was resent by Tiernans under cover of another letter on 20 November 2022. On any basis, therefore, it took more than four months after Tiernans wrote to HMRC in July for them to follow up the lack of reply.

Tiernans’ letter challenging the Decision is extremely brief. It indicates that CFL does not agree with the decision. It then contains three basic assertions, that the test results are demonstrative of innocent contamination, that CFL had lent the vehicle to another supplier in the days prior to the seizure, and that the fuel had been purchased duty paid within the UK. These assertions are not explained, nor is any evidence supplied or identified which might support them. The question of financial hardship was never flagged, and some of the issues now being raised, for example proportionality, are raising their head for the first time now.

As far as the Decision itself is concerned, Mr. Edwards says that the absence of criminal proceedings is irrelevant. There are lots of situations where HMRC would not prosecute someone in CFL‘s position, for a whole range of reasons.

Officer Gordon did not unthinkingly confirm the Decision. On her evidence, she regards the policy is firm but not rigid and she considered such material as she had. However, she had no evidence or explanation to back up the assertions Tiernans made. She had clear evidence of the fuel being contaminated, but nothing to support a case for restoring the fuel or vehicle to CFL. Given that absence of evidence, it would be hard for her to conclude that deprivation was disproportionate.  

On CFL’s submission recorded at [64](4), Mr Edwards says that using the phrase “laundered or contaminated” did not indicate a concession by HMRC; they have evidence that the fuel was laundered.

HMRC’s restoration policy is not to restore vehicles and other things seized as liable to forfeiture, albeit this policy is to be applied firmly but not rigidly. This allows for each case to be considered on its merits and the policy does not intend to penalise innocent third parties. The policy is intentionally robust to give a proportionate and graduated response to the risk posed by diversion and smuggling. The policy of non-restoration includes these objectives because the seizure of vehicles used to transport diverted or smuggled goods has a significant deterrent effect. People not directly involved with illicit goods but otherwise associated with them, such as financing or profiting from the enterprise also suffer from losing the goods/vehicle. This also helps to protect legitimate trade.

The policy has been applied in CFL’s case, considering the facts as they appear to HMRC. In this respect, there is no unlawfulness. There was no basis for HMRC not to apply its policy on non-restoration. Accordingly, HMRC have reasonably exercised their discretion in this matter.

At the end of the hearing we were unsure about the ground on which the fuel and vehicle had been forfeited and how this interacted with the deeming rule in paragraph 5, Schedule 3 CEMA. We asked the parties for their written submissions on this issue.

Mr Edwards says that HMRC’s case is that CFL breached, or is responsible for the breach of, regulation 14(2) of the Regulations by virtue of removing a marker or markers from the fuel. He accepts that, in the non-restoration decision of 27 June 2022, reference was made to section 24A HODA, which imposes penalties for the misuse of marked oil. He says that it is arguable that section 24A could apply here, but (as the Review Letter makes clear) the specific legal basis on which the fuel was forfeited was the breach of regulation 14(2).

The Notice of Seizure gave as the ground on which the fuel and the vehicle were forfeited to the Crown that the fuel was contaminated fuel. However, the notice pre-dates the Eurofins test results, which reported between 23 May 2022 and 15 June 2022. These results indicated that samples from two of the pots of seized fuel were consistent with laundered fuel. Mr Edwards says that, for the purposes of defending this appeal, the HMRC’s position is that the fuel was laundered fuel or that it was contaminated fuel.

Mr Edwards explained that the initial on-site testing of the fuel on the day the vehicle was intercepted provided an indication that the fuel had been contaminated. That the fuel was laundered fuel was only confirmed later, when the Eurofins test results were received confirming that the fuel was consistent with laundered fuel because markers had been removed. Accordingly, in the Decision Letter, the basis of the forfeiture is explained as being that the fuel had been laundered, because of markers having been removed. That letter also explained the basis of the forfeiture decision as being authorised by section 24A(7) HODA and sections 139 and 141 CEMA, but the more apt basis for the forfeiture of the fuel is section 24(4) of and paragraph 9 of Schedule 4 to HODA, taken with the Regulations, in particular regulation 14.

As to the deeming rule, Mr Edwards submits that the Tribunal does not have jurisdiction to consider whether too much fuel had been seized (if it had been contaminated). The reasonableness or proportionality of the forfeiture decision, given the particular facts, goes to the lawfulness of the forfeiture decision and does not arise in an appeal against a non-restoration decision. No appeal having been brought against the forfeiture decision to the magistrates’ court, no aspect of the forfeiture decision itself can now be challenged or revisited, in the non-restoration appeal to this Tribunal.

Finally, Mr Edwards says that, even in an appeal against forfeiture, the focus must be on the breach, not on the amount or extent of contraband giving rise to it. This is a fortiori the case where no evidence supporting an alternative explanation of what was found has been produced to give HMRC an opportunity to consider the reasons for and nature of the breach. Indeed, even before the Tribunal, there was no contemporaneous evidence supporting CFL’s contention about how the laundered fuel came to be in the vehicle.

Mr McIlroy says that CFL could claim that Tiernans’ letter of 22 April 2022 should have been considered as a Notice of Claim to challenge the forfeiture/ seizure of the fuel and vehicle, it has (pragmatically) waived its entitlement to challenge this aspect to expedite the determination of the relevant issues in this appeal. We should say that we are not with him on this point. It is quite clear from HMRC’s reply of 5 May and the Decision Letter itself that they considered that only restoration (which they referred to in bold type, almost as if they were surprised by and were trying to clarify the point) was being sought. If Tiernans thought they were challenging the legality of the seizure, they should have put HMRC right straight away and taken the necessary steps to challenge the seizure.

Mr McIlroy says that, whilst it is not open to CFL to challenge the legality of the seizure itself, the Tribunal is able to consider the factual matrix (which he says is “exceptional given [Mr Watters’] acceptance of his own failure to act leading to the forfeiture/seizure”) when determining the extent of ‘blame’ attributable to CFL and the proportionality of HMRC’s actions in deciding not to restore the fuel and the vehicle to CFL, where the following factors are important:

In his written submissions Mr McIlroy described HMRC’s case in relation to the fuel as a “moveable feast”. He says that in April 2022 the fuel was contaminated; in June 2022, it was “consistent with laundered fuel”; in oral submissions before the Tribunal Mr Edwards stated it was “conclusively” laundered fuel; in Mr Edwards’ written submissions it first “was laundered fuel or alternatively, that it was contaminated fuel” and later in the same submissions “contaminated or laundered” and then finally it was “laundered fuel”. He says that, in contrast, CFL has been clear and consistent all along in saying that the fuel was contaminated, albeit as a result of innocent contamination.

In relation to the percentage of contaminated fuel, CFL accepts that it cannot challenge the forfeiture decision. What it says is that the facts that the contamination was innocent and that the percentage of contaminated fuel was minimal are relevant factors when considering proportionality and, on this basis, the low percentage of contaminated fuel is a relevant factor when it comes to restoration.

It is not for us to decide whether the fuel or the vehicle should be restored to CFL. Nor is it for us to decide whether the fuel and the vehicle were properly forfeited. CFL did not challenge the seizure in the magistrates’ court, and so we must proceed on the basis that the forfeiture and the basis on which the forfeiture was made were correct.

Our task is to decide whether we consider that the Decision (as confirmed on Review) not to restore the fuel and vehicle to CFL is one which HMRC could not reasonably have arrived at in the light of the approach to be distilled from cases such as Paccar. It is for CFL to show that the decision is one which the reviewing officer could not reasonably have arrived at, not for HMRC to defend their decision.

If we conclude that the Decision one which HMRC could not reasonably have arrived at, we can direct that the Decision is to cease to have effect and require HMRC to conduct a further review of the Decision in accordance with such directions as we might make.

Although we are reviewing the Decision, we are entitled to carry out a fact-finding exercise and take into account such additional facts as we find.

The Review proceeded, entirely correctly, on the basis that the legality of the forfeiture was not in question. Officer Gordon went on to reject CFL’s challenge to Eurofins’ sampling and CFL’s assertion that the results were demonstrative of innocent contamination. One of the reasons the officer gave for that that was that no explanation or evidence had been provided to support the assertion of innocent contamination. She also said that the official tests were conclusive that laundered fuel was contained within the vehicle.

The presence of laundered fuel was not raised by HMRC at the time when the Notice of Seizure was given, nor had it been raised by the time the one-month period for challenging the Notice of Seizure expired.

The Notice of Seizure did not set out why the vehicle or the fuel had been seized, although it did refer to section 24(4) HODA. Section 24(4) imposes penalties for non-compliance with regulations made under that section, and provides that any goods in respect of which any person contravenes or fails to comply with any such regulation shall be liable to forfeiture. Section 24 allows HMRC to make regulations for the purposes of a number of provisions of HODA “and in particular for the purposes specified in Schedule 4 to this Act”. Schedule 4 HODA has 21 paragraphs which list subjects for regulations under section 24. So, without more, pointing to section 24(4) as the authority for a seizure is to assert that there has been a breach of at least one of quite a large number of provisions, but not to identify the particular breach relied on. All HMRC’s holding letter to Tiernans of 5 May 2022 referred to was unspecified “fuel irregularities”.

It is not possible to tell from the Notice of Seizure, or anything HMRC said before the time for appealing against the Notice of Seizure had expired, why the vehicle and the fuel had been seized.

The question of laundered fuel only seems to have raised its head after HMRC received the Eurofins sample results, well after the time for challenging the Notice of Seizure had expired.

In the Decision Letter HMRC said that the fuel was liable to forfeiture under section 24A HODA because the fuel was found to contain laundered rebated fuel. Section 24A HODA is, as we have seen, about the misuse of rebated fuel and is not the authority under which penalties are imposed for removing markers from fuels.

The deeming provision in paragraph 5, Schedule 3 CEMA provides that, if the seizure is not challenged within the period of a month after the date of seizure or the notice of seizure, the thing in question (here the fuel and the vehicle) shall be deemed to have been “duly condemned as forfeited”. This creates an important limitation on the Tribunal’s ability to find facts and the basis on which it must proceed.

As Jones makes clear, the Tribunal cannot make any finding of fact or proceed on any basis other than that the items in question (here the fuel and the vehicle) were properly seized and forfeited. Also, if the goods were seized for a particular reason, it is not open to the Tribunal to proceed on any basis other than that the stated reason is correct. So, for example, it could not find that goods which were seized on the basis that they had been imported for commercial use had in fact been imported for personal use.

The reason why we interrogated the reason HMRC gave for seizing the fuel and the vehicle and went so far to require written submissions on this point, was that we wanted to understand whether the fuel and the vehicle had been seized for a (deemed) reason which left room for CFL’s narrative that the fuel had been subject to innocent contamination. If such a narrative (if true) would not be inconsistent with the basis on which the fuel and the vehicle were forfeited, then any failure by the reviewing officer to accord proper weight to the possibility of innocent contamination could amount to an error of law, such as to make her decision unreasonable.

The problem we have is that in the Notice of Seizure HMRC only referred to section 24(4) HODA and they did not raise the presence of laundered fuel until well after the time for appealing against the Notice of Seizure had expired. If the question of laundered fuel was not raised until after the time for challenging the Notice of Seizure had expired, the fuel and vehicle cannot have been “duly condemned as forfeited” on the basis that some or all of the fuel was laundered. The seizure/forfeiture being lawful and the reason for the seizure/forfeiture being a breach which engages section 24(4) HODA are conclusively determined against CFL because of its failure to challenge the seizure in the magistrates’ court. But, as no further, more detailed allegation (most obviously here, the presence of laundered fuel) was articulated as part of the factual matrix underlying the seizure/forfeiture, that is all that is conclusively determined against CFL.

In addition, it was (and still remains) unclear to us whether HMRC are suggesting that all of the fuel was laundered (that the fuel in pots two and four comprises, is entirely made up of, laundered fuel) or whether its position is that within the totality of that fuel there is some laundered fuel (that the fuel in pots two and four contains some laundered fuel) and, if so, how much of the totality is laundered.

On that basis, it seems to us that it would be wrong to proceed on the basis that it is a conclusively determined, deemed fact that the fuel comprised or contained laundered fuel. It might very well do, and other evidence might show that it does, but this is not deemed to be the case.

The relevance of all this here is that, if, because of the deeming provision in paragraph 5, Schedule 3 CEMA, it was conclusively determined that all the fuel was laundered, then it seems to us that there would be no room for CFL’s argument that the fuel had been the subject of innocent contamination. If, on the other hand, all that is deemed is that there has been some (unspecified) breach that engages section 24(4) HODA, then that may leave the door open for CFL’s narrative of innocent contamination.

In the Review Letter Officer Gordon said that “Official tests were conclusive that laundered fuel was contained within the tanker unit of vehicle HXZ 9215, owned by you.” After observing that the legality of the seizure could no longer be challenged, she observed that “The seizure of goods and other things following the detection of rebated or laundered fuel is an important and effective measure to tackle the misuse of fuel commented.” We completely agree with her observation so far as it goes, but we consider that she was wrong to assume (as she seems to have done) that CFL’s failure to challenge the seizure meant that the fuel was deemed to be or to contain laundered fuel. Later in the Review Letter Officer Gordon wrote that,

“The laundering of fuel [is] prohibited under paragraph 9 Schedule 4 HODA1979. This is a serious offence, it is an attack on the system, defaults against the payment of revenue and damages legitimate supply chains. I have considered the seriousness of the offence alongside the fact that you have failed to substantiate any of your arguments with evidence, it is apparent that there are no exceptional circumstances in this case.”

It is quite clear that she took the view, based on the Eurofins test results, that the fuel “contains laundered fuel”, although it is not clear to us whether she thought that all the fuel was laundered, or only some of it and, if the latter, how much. The tone of her letter (including that she gave the Eurofins results as a reason for rejecting CFL’s innocent contamination argument) suggests she thought that all or a significant proportion of the fuel was laundered.

Officer Gordon overstated the position. The Eurofins sample results merely say that, in the case of two of the pots, the samples were “consistent with laundered UK gas oil”. Before us, Officer Spratt said that, although some solvent had been detected in the samples, he was clear that he was not saying that the fuel could only be laundered fuel, only that the samples were consistent with that; he wasn’t ruling anything out and he was certainly not saying that there could not be another explanation. As we have explained, CFL’s failure to challenge the seizure did not mean that the fuel was deemed to be or to contain laundered or rebated fuel.

Officer Gordon gave a second reason for rejecting the “innocent contamination” argument, that CFL had “given no explanation of what you consider “innocent contamination” or how the laundered fuel came to be in the tank unit”. In saying that she was absolutely right. The review request was a very short, quite brusque letter. It asserted (without any explanation or evidence) that the Eurofins results were not accepted and were “demonstrative of innocent contamination; that is if they are demonstrative of anything.” The next bullet in the letter said that CFL had loaned the vehicle to another supplier in the days prior to the detection, but it gave no further details and provided no evidence. The writer of the letter did not link these points. CFL’s position has been explained in greater detail to us and we have the evidence of Mr Watters and Mr Mone, but no one seemed to think it worthwhile sharing any of that with Officer Gordon. Nevertheless, although this is not a letter either of us would be very proud to have written, it seems to us tolerably clear that CFL was suggesting that there had been some innocent contamination resulting from the loan of the vehicle, and, if Officer Gordon had realised that innocent contamination might provide an explanation, she should not have brushed that possibility aside.

We consider that the Decision (as confirmed on Review) was based on the important, but wrong, assumption that either the Eurofins test results or CFL’s failure to challenge the seizure in the magistrates’ court provided conclusive proof (or deeming) of the presence of laundered fuel. This (in fairness, exacerbated by the way CFL failed to present its case) led Officer Gordon to reject the innocent contamination argument out of hand.

She also failed to explain why the Decision referred to section 24A HODA, whereas the authority for seizure of fuel from which markers have been removed is section 24(4) HODA, which is the provision referred to in the Notice of Seizure, or to be clear about whether HMRC’s position was that the fuel was contaminated by the presence of rebated or laundered fuel or was laundered fuel in its entirety and, as a result, did not consider whether the innocent contamination argument might be consistent with HMRC’s position.

We now have the evidence of Mr Watters and Mr Mone (the latter unchallenged) about what happened in the few days up to the interception of the vehicle. This, of course, supports the innocent contamination narrative. As far as the Eurofins test results are concerned, they are consistent with the presence of laundered fuel, but not (in their own words and on Officer Spratt’s evidence) conclusive on the point. If the results showed traces of rebated fuel (red diesel) only, that would be consistent with the innocent contamination argument. However, Eurofins found traces of solvents and we find this troubling, as we understand such traces will generally only be found after fuel has been laundered. Against that we have Officer Spratt’s evidence that there could be explanations other than fuel laundering for these results, so even the presence of the solvent traces is not necessarily conclusive evidence of fuel laundering (which would clearly undermine the innocent contamination argument).

 All of this is relevant because HMRC’s policy on restoration expressly states that they do not set out to penalise innocent third parties unless they do not learn from mistakes and omissions that facilitate offences. Given that there is no suggestion that CFL has made a similar mistake in the past, the innocent contamination narrative, if true, would be a powerful factor suggesting that HMRC should restore the vehicle and the fuel to CFL.

For completeness, we should just say that we considered whether we are in a position to make a finding of fact on the question of innocent contamination and, if we are, whether we should do that, but concluded that it would not be appropriate for us to do so.

We have decided that:

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.