Butlers Ship Stores Ltd v The Commissioners for HMRC

The hearing was held in order to consider:

The substantive appeal concerns a claim made by BSS for drawback of excise duty under the Excise Duty (Drawback) Regulations 1995 (SI 1995/1046) (the ‘Drawback Regulations’) following an unsuccessful appeal against an assessment to excise duty made on 19 October 2014.

As invited by the parties, I addressed the strike out application first as, if this were successful, the disclosure application would be redundant.

The appeal is struck out on the basis that BSS’ ground of appeal that it is an eligible claimant has no reasonable prospect of success

HMRC applied to strike out the appeal on the following grounds:

BSS argued that (4) above was abusive, and that HMRC should not be permitted to contend that BSS was not an eligible claimant, given their earlier statements in submissions at previous tribunal hearings and also the contents of correspondence between the parties.

s16(3) FA 1994 states that an appeal against a relevant decision shall not be entertained if the amount of relevant duty which HMRC have determined to be payable in relation to that decision has not been paid or deposited with HMRC, or a hardship application has been granted by HMRC or the Tribunal. s13A FA 1994 includes, in the definition of ‘relevant decision’, any decision by HMRC as to whether or not a person is entitled to drawback, or the amount of drawback to which a person is entitled.

The excise duty assessed in 2014 and unsuccessfully appealed has never been paid. HMRC contend that, as the duty has not been paid and no hardship application has been granted, the tribunal has no jurisdiction to consider this appeal.

BSS contend that s16(3) is a sweeping catch-all provision and the statute refers to payment of “the amount of relevant duty which HMRC have determined to be payable in relation to that decision”. It is contended that, in the refusal of a drawback claim as in this instance, there has been no determination by HMRC of an amount to be payable in relation to that refusal. Any amount payable was determined by the assessment which was unsuccessfully appealed; BSS contend that that is not an amount payable in relation to the relevant decision.

Further, BSS contended that this was not a matter that merited strike out; if hardship is engaged, they contend that the appropriate course of action is to stay the appeal to allow time for the parties to settle the question of hardship.

The effect of BSS’ contention is that hardship would not be engaged in any drawback claim: a drawback claim is a request for repayment (whether directly or by way of setoff against another debt). A refusal of such a claim will never directly determine an amount of duty to be payable as it can only confirm that an amount of duty should not be repaid.

s16(3) FA 1994 nevertheless includes decisions in respect of drawback within the definition of “relevant decision”. It is therefore clear that Parliament intended that decisions in respect of drawback should be subject to the hardship provisions.

BSS also contended that “taxpayers might have to deposit an amount equivalent to the amount they were seeking to return” would apply equally to appeals regarding disallowed input VAT on a repayment return. It is well established that the hardship provisions apply in such a case. BSS’ further contention that the statute requires a determination that a payment to HMRC is now required that was not required before is adding words to the legislation that are not there; the words of the statute are clear and do not require that addition. All that is required is a determination that an amount be payable “in relation to that decision”.

The statute reference is to an amount determined “in relation to that decision”, rather than an amount imposed by the decision. A drawback claim would (if successful) reduce the amount of duty in dispute or (if unsuccessful) confirm that duty amount in full. I conclude that the drawback claim decision therefore determines that an amount of duty is payable.

I consider that, as HMRC have refused drawback in respect of an amount of duty, they have therefore made a decision that determines that the amount of the original assessment remains payable. That is, in my view, a determination that an amount of relevant duty is payable and is a determination made “in relation to that [drawback] decision”.

It therefore follows that the hardship provisions do apply and so the amount of duty must be paid or deposited, or hardship granted, before the appeal can be entertained.

However, I do not consider that it is appropriate to strike out this appeal immediately: as the question of hardship has been in dispute, it is not particularly surprising that no payment, deposit, or application has been made in respect of the decision under appeal. This part of the strike out application is therefore refused.

BSS suggested in the hearing that the grant of hardship in a previous appeal should, in effect, be read across to apply to this appeal because it related to the same amount. I do not agree; this is an appeal against a different decision, even if it involves the same amount, and the statute is clear that this appeal, against that different decision, requires resolution of hardship before it can be entertained by the Tribunal.

If this appeal is not otherwise struck out (noting that there are other aspects of the application), I consider that the appropriate course of action is to stay the appeal for a reasonable period of time to enable the hardship provisions to be complied with.

The Notice of Appeal requests (at box 19) that the claim for drawback to be allowed and “the excise duty assessed should be remitted in full” and section 11 includes an amount under the heading “I want HMRC to repay”, although the tick box next to the figure has not been ticked.

HMRC contend that this seeks repayment of duty that has never been paid and that the Tribunal has no jurisdiction to order repayment where no payment has ever been made. I note that the Notice of Appeal, at box 19, requests remittance in full. It does not request repayment.

BSS contended that this was a technicality due to the limitations of the Tribunal form and (as noted above) that the requested result in text was remittance, not repayment. The repayment box had been completed because it appeared to be the closest option, as the decision related to a request for HMRC to grant drawback of the relevant amount.

I do not consider that it is appropriate to strike out an appeal simply because an incorrect box has been completed , particularly when there is no lack of clarity as to what is being appealed.

With hindsight it is obvious, looking at the Notice of Appeal in the bundle, that BSS should have completed the ‘Other’ box within section 11 with the relevant details. However, it is entirely clear what is being appealed: the refusal of the drawback claim. The outcome sought is that the claim should be allowed; the reference to the amount being remitted in full is a reference to the effect that would result from the claim being allowed in full. It is not a request for repayment of an amount that has not been paid.

Accordingly, this part of HMRC’s strike out application is refused.

HMRC contended that BSS had included legitimate expectation within their grounds of appeal and such an argument had no reasonable prospects of success, given the limitations on the jurisdiction of this Tribunal.

BSS contended that they have advanced no such ground of appeal and so the appeal cannot be struck out on this basis.

The grounds of appeal set out ground 1 (eligible claimant) and ground 2 (eligible goods); there is then a third heading which is “Scope of the Appeal - limiting factors”. The first paragraph under this heading states (in full):

“To the extent that HMRC now seek to argue that Butlers is not an eligible claimant because it did not export the goods, or that the goods themselves were not eligible goods because the duty assessment had not been paid; HMRC would not be acting lawfully”.

The following paragraphs state (in summary) that HMRC’s actions have created a legitimate expectation that BSS is an eligible claimant and that HMRC would be acting unlawfully if their participation in proceedings breached that legitimate expectation. There is an acknowledgement that legitimate expectation is not part of the Tribunal jurisdiction, and that BSS will reserve its position on making an application for judicial review of the underlying debt. There is a note that “the Tribunal may direct HMRC not to make or pursue any argument on those points” on the basis that the Tribunal has full conduct of its own proceedings under Rule 5(1) of the Tribunal Rules.

In its skeleton argument for this hearing, BSS states that it set out in its grounds that the Tribunal should not permit HMRC to make the submissions it is now pursuing although it was suggested that this might be at the Tribunal’s own initiative.

Reviewing the grounds of appeal, I find that the paragraphs under this heading do not contain a ground of appeal. The paragraphs under the third hearing state only that BSS considers that HMRC should not make certain statements and that BSS considers that the Tribunal may (ie: has power to) make a direction that HMRC cannot make certain arguments: there is no request that the Tribunal make any such direction nor any contention that the Tribunal has power to consider legitimate expectation.

On that basis, I consider that these paragraphs are merely commentary. They do not contain any grounds of appeal and so, it follows, there is nothing to which any prospects of success could attach. Accordingly, this part of the strike out application is refused.

With regard to BSS’ effective invitation in the hearing to the Tribunal to make a direction that HMRC should not be permitted to make certain submissions, I consider that this is misplaced. BSS have been aware since HMRC’s refusal of their drawback claim that HMRC did not agree that they were an eligible claimant. The appropriate route to challenge that, if they considered that they had a legitimate expectation that HMRC would not dispute their eligibility as a claimant, was by way of judicial review. I do not consider that it is appropriate, particularly given that the burden of proof as to eligibility is on BSS, to issue any direction on the Tribunal’s own initiative to (in effect) bar HMRC from repeating the conclusion of the appealed decision that BSS is not an eligible claimant.

At the hearing, BSS contended (in summary) that HMRC’s application to strike out on the basis that BSS had no reasonable prospects of success of showing that it was not an eligible claimant was abusive. This was because BSS contended that HMRC’s submissions in prior appeals and the content of correspondence precluded them from asserting that BSS was not an eligible claimant, as they had stated that BSS had a remedy by way of drawback claim and that the only question was whether they could provide the necessary evidence of export. It was contended that in the circumstances it would be unfair to allow HMRC to pursue this application, and it would bring the proceedings into disrepute.

BSS did not seek to suggest that the Tribunal had any jurisdiction to consider whether there was a legitimate expectation that they were entitled to remedy by way of drawback claim subject to providing evidence of export. It was accepted that, if the appeal is not struck out, the burden of proof is such that BSS would have to demonstrate at a substantive hearing that it is an eligible claimant.

HMRC contended that it was unsatisfactory for this point to be raised at the hearing without advance notice and that it was not established that BSS had any grounds for claiming legitimate expectation with regard to this aspect of the legislation. HMRC’s position in submissions had been made in the context that, if BSS were correct in their assertion that they had exported the goods, the issue of duty would normally be dealt with by way of drawback. HMRC had, in effect, responded to BSS’ submissions; they could not have been responding to a drawback claim as no such claim had been made at the time.

Given my conclusion above on the invitation to bar HMRC from stating that BSS are not an eligible claimant, it is perhaps not surprising that I do not agree that the application is abusive such that it renders the proceedings unfair.

Even if for some reason HMRC were to be barred as contended for by BSS, BSS would still have to satisfy the Tribunal that they are an eligible claimant in order to succeed in their appeal. As acknowledged by BSS, this Tribunal has no relevant judicial review function. This is therefore not a situation where an appellant is being forced to deal with something that it was entitled to consider was settled in some way; BSS acknowledges that it has the burden of proof of showing that it is an eligible claimant and has known throughout the proceedings that HMRC does not consider that it is an eligible claimant.

I therefore do not consider that it is abusive for HMRC to apply for strike out on the basis that a ground of appeal has no reasonable prospects of success in these circumstances.

HMRC contended that BSS has no reasonable prospects of success in respect of their argument that they are an eligible claimant.

An eligible claimant is one which is “a revenue trader in the course of whose business the alleged exports took place” as required by Regulation 6(2) of the Drawback Regulations.

BSS contended that Article 33(6) of Directive 2008/118/EC, which applied at the time of the relevant exports, meant that:

BSS contended that, following Marleasing (Case C-106/89), there was an obligation to read the Drawback Regulations provisions sufficiently widely to allow for the principles of Article 33 to apply.

BSS contended that “a person whose business is to sell to exporters knowing that they will export goods, intending that they should export the goods as expected and retaining the burden of excise duty, can be said to be someone in the course of whose business the goods were exported. Their business can incorporate their business relationship with their customer and incorporates the steps that their due diligence has determined are to be expected. Their business can incorporate the retained liability and related rights to excise duty that are triggered on the export of the goods.”

They also contended that “[a]pplying such a wide definition was required to ensure that if a person sold goods without the excise duty to their customer in order to be dispatched to another member state they would be able to have that excise debit remitted or any duty they paid returned to them.” It was also contended that the definition of ‘exporter’ in the Customs and Excise Management Act 1970 (CEMA) also supports a broad definition as it “includes the shipper of the goods”. Further, no-one else could make the claim as BSS’ customers had not paid the duty; as BSS had paid the duty it should therefore have the right to make a claim.

Finally, it was contended that, as Regulation 14 of the Drawback Regulations imposes a penalty where a claim is made by someone who is not an eligible claimant, the regulations required a wide definition of ‘eligible claimant’ in order to ensure that a person did not unintentionally stray into penalties.

Article 33 applies “where excise goods which have already been released for consumption in one Member State are held for commercial purposes in another Member State in order to be delivered or used there”. The goods will become subject to excise duty in that other Member State. Article 33(6) therefore applies to the reimbursement or remittance of duty paid in one Member State where it is established that duty has subsequently also been paid in a second Member State.

With regard to the category of persons able to have duty reimbursed or remitted, BSS agree that the goods in this case were not goods dispatched to another member state in order to be duty paid there. Article 33 is not, therefore, of direct relevance. BSS contend that identical provisions applied to goods dispatched to member states as to goods exported out of the community and that these must therefore have the same meaning in all situations. No statutory support for this was provided.

The history of this matter is that the goods which gave rise to the assessment to which the drawback claim relates were imported into the UK and held in BSS’ warehouse in Scotland which was approved as a customs warehouse and as an excise warehouse. The goods were dispatched by BSS to two customers. Those customers sold the goods on to purchasers who exported the goods from the UK. BSS’ customers also had warehouses in Scotland, but those warehouses were only approved as excise warehouses. The goods were held by BSS in their customs warehouse capacity and so, as the goods were dispatched to an excise warehouse, the removal of the goods from BSS’ warehouse was an irregular importation into the UK. The FTT, upheld by the UT, concluded that, as there was no duty suspension arrangement in place, an excise duty point therefore arose on dispatch to BSS’ customers and so BSS were liable for the duty assessed.

BSS did not export the goods, nor did it contend that it had done so. Instead, BSS argues (in summary) that, because they were selling to customers who subsequently sold the goods to purchasers who were expected to export the goods from the UK, the goods were exported ‘in the course of’ BSS’ business.

However, it was accepted in the hearing that there was no documentary evidence of a link between BSS and the eventual export of the goods in question. BSS’ only evidence in respect of any link was set out in the director’s witness statement. He stated that he expected that the goods would be exported because BSS’ customers were approved to sell duty suspended cigarettes for export and understood that they did so regularly. However, he did not know when the goods would be exported. From the information in the bundle, it is also clear that BSS did not know to whom goods would be, or had been, sold.

This is therefore not a case where goods were (using the description in BSS’ skeleton argument) “sold … in order to be dispatched to another member state”. Putting aside the limitation as to member state, the only evidence was that BSS assumed that the goods would be exported outside the jurisdiction at some point by a subsequent unknown customer of BSS’ customer. There was no evidence that at the point of sale, BSS had no control or even influence as to what would actually happen to the goods and so I consider that the goods could not have been “sold … in order to be dispatched” out of the UK and so the goods were not exported in the course of BSS’ business. The submission that a business can effectively incorporate the onward supply by the customers of the business, where there is only an assumption that the goods will be exported by unknown subsequent purchasers, is simply not made out.

I do not consider that the regulations, or any underlying EU directives, are required to be read so widely as to encompass a business whose only involvement in the export is that they were a supplier to a supplier which sold the goods to a customer which in turn exported them. The reference to the definition of ‘exporter’ in CEMA does not assist; the inclusion of a ‘shipper’ within the definition is still including a person with close involvement to an export, dealing with the logistics of the export. There is nothing in that definition that suggests it should be construed so widely as contended for by BSS.

The contention that the Drawback Regulations also requires a wide definition of ‘eligible claimant’ to ensure that businesses do not inadvertently stray into penalties is also not made out: there are many circumstances in which a misplaced belief can render someone liable to penalties. For the same reason, the fact that BSS paid the duty does not mean that they must necessarily qualify to make a drawback claim; the duty arose because of their error (as found by the FTT and UT). They have not, presumably, been able to pass on the resulting cost to their customer. Actions have consequences; this does not support a broad interpretation of legislation in order to relieve a person of the consequences of their actions.

I conclude that BSS’ contention that they are an eligible claimant does not, therefore have any reasonable prospect of success. As this is a fundamental requirement for a drawback claim to succeed, it follows that the entire appeal is struck out.

Given my conclusion on the application to strike out, the disclosure application falls away. However, as the parties made full submissions on the application the hearing, I have discussed those submissions below.

BSS have requested that HMRC make “reasonable disclosure of the relevant evidence they are holding in relation to these goods and their export. This must include evidence they hold, whether in electronic of paper form, that was collected during the original investigation leading to the assessment of duty on these goods.”

BSS does not have this evidence because their customers have refused to supply it to BSS: the customers have apparently passed on at least some information to HMRC. It was accepted that, given the passage of time, the information may no longer be held but BSS contended that there should still be a search for the information, including any notes or correspondence that are held as those internal notices may include information that refers to files which are no longer held and would set out HMRC’s views on the likelihood of the goods having been exported.

BSS made reference to the recent decision of United Wholesalers Grocers Limited [2025] UKFTT 01066 (TC) which concluded that wide disclosure should be made in respect of that excise duty appeal; BSS contended that this was a similar issue where HMRC had conducted relevant investigation work and were refusing to share the information.

HMRC objected to the disclosure application in the form applied for, but proposed adjustments to the proposed disclosure directions which they would be willing to agree to. The adjustments removed reference to the search being conducted ‘as if CPR … applied’, set a time period in respect of material to be searched for, removed a reference to internal notes and similar material and removed what they regarded as duplication.

There was some dispute as to the reference to a search “as if the CPR applied” given that this appeal deals with matters in Scotland where the CPR does not apply. In that context, I agree with Judge Redston’s conclusion in United Wholesalers, where the same issue arose, that this is not a request to apply the CPR outside its applicable jurisdiction but is instead providing a guide as to the extent of a disclosure exercise. The reference to the CPR would not, therefore, mean that the application is flawed nor would it be required to be removed from the proposed disclosure directions.

The decision in United Wholesalers is however addressing a somewhat different position to that in this case: that was a case in which HMRC assessed the appellant to duty as the first identifiable holder of the goods. The evidence sought was in respect of transactions in the supply chain prior to those involving the appellant and in respect of which there was no contention that those transactions arose “in the course of” the appellant’s business such that the appellant might be expected to have documents in respect of such transactions.

Although the burden of proof in United Wholesalers was on the taxpayer, HMRC were (in those circumstances) also under an obligation to assess the first duty point for which they had sufficient information and so needed to show what they had considered in arriving at the conclusion that the appellant was the first identifiable holder. It was therefore important to know what information HMRC had available to them. It was also information which the appellant would not ordinarily be expected to have in its possession given its position in the supply chain.

In this case, BSS is seeking information in order to meet the burden of proof on it to show that the goods in question had been exported. This is in the context of statutory requirements that also require that the goods have been exported in the course of BSS’ business; where activities occur in the course of a business, one would ordinarily expect the business to have the relevant information in its possession.

In Smart Price and others [2019] EWCA Civ 841 Rose LJ (as she then was) granted an application for disclosure but noted that: “These cases are different from the more common appeals against a tax assessment where most if not all the material considered is provided to HMRC by the tax payer.” The position in Smart Price involved the question of whether a wholesaler was a ‘fit and proper’ person; the Tribunal was required to consider whether HMRC gave proper consideration and weight to the information that it had when it made the decision.

However, BSS is unable to provide evidence of export because it has never had that evidence (which is unsurprising, as it was not involved with the exports and did not know who would purchase the goods from its own customers) and its customers have refused to provide whatever evidence they obtained from their own customers. Effectively, BSS is seeking to have HMRC search for and disclose material so that BSS could provide it to the Tribunal as evidence to discharge its own burden of proof.

In contrast to Smart Price, this appeal is one where the material to be considered by the Tribunal would have to be provided by the appellant; the decision appealed is not one where HMRC were required to undertake their own investigation to decide on a particular point prior to making the relevant decision. The question would be whether the appellant had satisfied the burden of proof on them, not whether HMRC’s decision was reasonable. Accordingly, the Tribunal would not have been exercising a supervisory jurisdiction, and I conclude that the breadth of disclosure considered to be appropriate in United Wholesalers and Smart Price would not have been appropriate in this case.

The approach taken in Addo [2018] UKFTT 0530 (TC) in which Judge Greenbank first considered the case law in this area and noted that (at [62] onwards) “… the guiding principle for the Tribunal in exercising its powers to order or direct the disclosure of documents is to ask what is required to enable it to deal with the case “fairly and justly”, in accordance with the overriding objective in FTR rule 2(1).

In this context, noting that the Tribunal at a substantive hearing would have required whatever evidence BSS may have been able to obtain directly in order to deal with the case fairly and justly and, given that BSS has never had the relevant documents and its customers have refused to supply those documents, if this appeal had not been struck out I would have considered it reasonable that the documents provided to HMRC by BSS’ customers, and the content of HMRC’s communications with those customers, should have been searched for and disclosed by HMRC to the extent that they were available (and I note that HMRC do not disagree).

However, in cases such as this where the burden of proof is wholly on the appellant, I do not consider that it is appropriate to order HMRC to disclose as widely as in cases where there has been an obligation on HMRC to determine a point or where the burden of proof to some extent falls on HMRC. In particular, I do not think it would be appropriate to require disclosure of internal documents which are requested because BSS considers that they may contain any references to documents which are no longer available and may provide details of HMRC’s consideration as to the likelihood of export. The question for the Tribunal would not have been whether HMRC considered that the goods were likely to have been exported; the question would have been whether BSS had shown on the balance of probabilities that the goods had been exported. I therefore do not consider that the Tribunal at a substantive hearing would require the internal HMRC documents in order to deal with the case fairly and justly.

Therefore, in the circumstances, if the application had remained relevant, I would have ordered disclosure in a form similar to that contended for by HMRC although I would not have agreed to the removal of the reference to the CPR, for the reasons set out above. Specifically in respect of the directions requested by BSS I would not have ordered the disclosure of internal notes and documents under heading 1(d) of the proposed disclosure directions. I would have agreed with HMRC as to the amendment to deal with duplication in paragraph 3 of the proposed disclosure directions. HMRC’s request to add the date of the drawback claim to paragraph 1 would have been accepted on the basis that it made it clear what was being referred to and did not change the scope of the disclosure as there was no suggestion that more than one drawback claim had been made by BSS.

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.