Stark Building Materials (UK) Ltd v The Commissioners for HMRC

Mr Brodsky submitted that on its proper construction s 9(4) requires a claimant to be an “approved person” at the time it makes its application for relief.

He relied upon the wording of s 9(4) and 9(5) and also upon his construction being consistent with the statutory scheme as a whole

In support of his submission Mr Brodsky made the following points.

That the provision should, as a matter of statutory interpretation, be read purposively, interpreting the statutory language, to the extent possible, in the way which best gives effect to the purpose of the provision. He cited in this regard a number of cases including the Supreme Court decisions in USB AG v HMRC [2013] UKSC and Uber BV v Aslam [2021] UKSC 5.

That a meaning which avoids absurdity, irrational and/or unworkable consequences is to be preferred, and that the law should be coherent and self-consistent – he referred here to Bennion, Bailey and Norbury on Statutory Interpretation.

Mr Brodsky focused first on what he regarded as the overall purpose of s 9. He saw this as being to ensure that duty is charged on oil used as a fuel – but not charged where the oil is used or is to be used for purposes that qualify for relief. In this context s 9(1) provides for relief where an approved person is to use the oil for a suitable purpose and has been given the necessary permission by the Commissioners and s 9(4) provides for relief where an approved person has used the oil for a suitable purpose but has not been given permission by HMRC for relief under s 9(1).

He stressed here that the language used in s 9(4) and, in particular, the words “the permission is for any reason not given [by the Commissioners]” (his emphasis) indicated that a broad non-restrictive interpretation should be given to the provision.

He saw this, together with s 9(5) which defines an “approved person” as one approved “for the time being” as indicating that approval was required at the time of making a claim.

He noted also that if his interpretation was incorrect and a taxpayer had to be an approved person at the time of importation of the oil then; (a) a taxpayer who was not approved at that time but who had put the oil to a qualifying use and subsequently became approved would be unable to obtain relief for duty paid, and (b) delays by HMRC in conferring approved person status on a taxpayer would unfairly disadvantage a taxpayer. He added that the utility of the retrospective relief mechanism would be materially undermined. This is because if a claimant needed to be approved in advance, there would be little point in having an ability to claim retrospective relief under s 9(4) - as in all likelihood relief would have been available under s 9(1) in the first instance. He found it hard, therefore, to see where and in what circumstances a duty payer would want to or try to rely on s 9(4) if approved person status was needed at the time of importation or delivery.

He commented that if HMRC’s interpretation was correct, it would be perverse to have goods which (in his view) qualified for relief under the express wording of the legislation but in respect of which there was no avenue for obtaining that relief. This would in his view be contrary to the fundamental purpose of the statute.

He also made the point that the margin for error or abuse of the excise duty system if the Appellant’s interpretation was adopted was small – as HMRC would need to be satisfied in each case that the oil had been put to a qualifying use by an approved person. HMRC’s contention that such an interpretation risked the integrity of the excise duty system was therefore not a strong one.

He went on to say that his view of the statutory scheme coincided, broadly, with the way in which the Court of Appeal in British Steel v Customs and Excise Commissioners [1997] 2 All ER 366 recognised the statutory scheme.

Mr Duffy submitted that on its proper construction s 9(4) requires a claimant to be an approved person at the time the oil in question was imported.

In support of his submission he relied, as did Mr Brodsky, upon the language of s 9(4) and his construction being consistent with what he regarded as the statutory scheme as a whole and its purpose.

Mr Duffy also cited the judgment in British Steel as supportive of his submissions.

Mr Duffy submitted that on its wording s 9(4) is “parasitic” on s 9(1) – and can apply only in circumstances where s 9(1) would have applied. As s 9(1) operates to disapply the charge under s 6(1) that would otherwise arise on importation, the relevant time by which a person must be “approved” is the time of importation.

He pointed out that under s 9(1) HMRC is able to confer approved person status on a taxpayer but can also choose not to give that approved person prospective relief from excise duty chargeable under s 6(1). This is why s 9(1) is framed permissively using the term “may”.

He contended that the decision to give prospective relief under s 9(1) is a matter of discretion for the Commissioners and there could be specific reasons why they might decide to not allow relief in certain circumstances. For example, they might require additional conditions to be satisfied for excise protection by the approved person in respect of the expected oil deliveries. It was, essentially, for the Commissioners to decide how to “police” the prospective relief mechanism under 9(1).

Relief under s 9(4) had to be seen in this context. In his view it was not a provision of general application but one of relatively narrow application which applied where the Commissioners had given a taxpayer approved status but (for whatever reason) chose not to give prospective relief. In these circumstances HMRC would be obliged to give retrospective relief if satisfied that the oil had been used for a qualifying purpose. He pointed out that s 9(4) was expressed in mandatory terms using the word “shall” in contrast to s 9(1) and its permissive drafting which supported his view of how the two mechanisms in s 9 are intended to operate together.

As identified by the parties, determination of this appeal is a matter of statutory construction. The single question is: at what point in time must a claimant be an “approved person” in order to make a claim under s 9(4) for repayment of excise duty charged under s 6(1).

The opening words of s 9(4) provide that it operates (a) “where the Commissioners are authorised to give permission under [9(1)] in the case of any oil” and (b) the permission is for any reason not given. “Permission” in this context means permission to deliver oil without payment of excise duty under s 6(1).

The starting point in determining its application must, therefore, be to establish the circumstances in which the Commissioners are authorised to give permission under s 9(1).

S 9(1) provides for permission to be given where oil is “delivered for home use to an approved person” in two circumstances. The first circumstance is set out in 9(1)(a) and is where the oil is to be put to use by that person for a qualifying purpose, and the second is set out in 9(1)(b) and is where the oil is to be supplied by that person in the course of a trade. These are, so far as relevant, the only circumstances in which the Commissioners can disapply the primary charge under s 6(1).

The threshold requirement for each of the circumstances in s 9(1) is that the oil in question is “to be delivered for home use to an approved person”.

As s 9(1) operates prospectively, the Commissioners must, logically, have to give permission at or prior to the time the oil is imported in order for the primary charge under s 6(1) to be disapplied.

Without more, this scenario must logically be “where” (as per the opening words of s 9(4)), the Commissioners “are authorised to give permission under [9(1)]”.

Importantly s 9(4) does not expand or alter the circumstances in which the Commissioners can give permission under s 9(1) or deem them to be able to give permission in any other circumstance. It simply looks to whether they are so authorised and if so whether permission is given.

As s 9(4) is limited by the scope of 9(1), the consequence must be that repayment of excise duty chargeable under s 6(1) can be made under s 9(4) only if the claimant was an approved person at (or before) the time of importation of the oil – so enabling the Commissioners to give permission under s 9(1). The status of the claimant at the time of making the application for retrospective relief under 9(4) does not alter this requirement.

On the facts of this case the Commissioners would have needed to conclude at or before the time of importation of the relevant oil that it was to be delivered to an approved person to be used for a qualifying use – as per s 9(1)(a).

Accordingly, we prefer Mr Duffy’s analysis. S 9(4) must be read in the context of s 9(1). As Mr Duffy put it 9(4) is, on its wording, dependent on s 9(1).

This interpretation of the interaction between s 9(1) and s 9(4) ties in with Mr Duffy’s analysis of the “legislative scheme” as a scheme under which s 9(1) enables but does not compel the Commissioners to give an approved person prospective relief, with s 9(4) operating to require the Commissioners to give retrospective relief where they have chosen not to give prospective relief to an approved person but are satisfied that the oil has nonetheless been put by an approved person to a qualifying use.

This is a far narrower scheme than that which Mr Brodsky postulated for retrospective claims – but it is not one which is “absurd, irrational or unworkable” or which is incoherent and inconsistent. It is also the one which we consider fits the interpretation of the legislative wording.

We noted Mr Brodsky’s comments on purposive construction and we do not disagree with the statements of law that he made.

However, the wording of s 9(1) and s 9(4) is not, in our view, sufficiently ambiguous to permit the interpretation of those provisions sought by Mr Brodsky and so that jurisprudence is of limited application.

We noted Mr Brodsky’s comments about the adverse impact of potential delay by HMRC on a claimant who applied for approved person status noting also that on the facts of this case some of the oil in question had been imported after the Appellant had applied (on 26 March 2021) for approved person status but before that status was granted (18 May 2021) – there being some delay with the process.

However the consequence of potential delay by HMRC in administering the legislative scheme is not an issue that can impact our analysis of the legislation and any remedy for delay is outside the jurisdiction of this Tribunal.

Both parties cited the Court of Appeal decision in British Steel as support for their submissions.

The case dealt with the question of whether British Steel (“BS”) used the correct form of action in which to make a claim for repayment of excise duty paid under s 6(1) in circumstances where its claim for prospective relief under s 9(1) had been rejected by the Commissioners.

Its claim for relief under s 9(1) was rejected as the Commissioners did not agree that the use to which BS intended to put the oil was a qualifying use for the purpose of s 9.

The case centred on whether BS’ claim for repayment of the duty should have been brought by way of judicial review, a claim for restitution under common law or another private law claim. The case discusses the relief mechanism under s 9(1) and the possibility of relief under s 9(4) but it is not entirely on point as:

Millett LJ did, however, make detailed observations about the relief mechanism under s 9 which include some consideration of timing and it is this which Mr Duffy referred to specifically in his submissions.

We set out below the key passage from Millet LJ’s judgment:

“Once oil is released from bond it is beyond the control of the commissioners, and some safeguards are obviously necessary in order to prevent duty-free oil from being mixed with or treated as duty-paid oil and diverted to the black market or otherwise put to use for a non-qualifying purpose, The mechanism which Parliament had adopted is to confine the relief from duty to “approved persons”, that is to say persons for the time being approved by the commissioners in accordance with regulations made by them … . Approval may be granted subject to conditions and providing for the conditions to be varied or the approval revoked for reasonable cause, The conditions may restrict the mixing of duty free oil, regulate the storage and movement of oil, and authorise the inspection of premises … .

Approval is, therefore, a condition precedent to relief. The commissioners’ authority to permit the release of oil from bond without payment of duty is confined by s9(1) to oil-

‘to be delivered for home use to an approved person … where - (a) it is to be put by him to a use qualifying for relief under this section; or (b) it is to be supplied by him in the course of a trade of supplying oil for any such use.’

Similarly the commissioners’ liability under s 9(4) to repay duty previously paid arises only if they are satisfied ‘that the oil has been put by an approved person to a use qualifying for relief under this section’ (my emphasis). A person who intends to put oil to a qualifying use and who wishes to obtain relief from duty, therefore, must first obtain approval and comply with any conditions which the commissioners impose. Approval is not a formality, even in the case of a responsible applicant, It is an essential protection of the excise, since it provides the commissioners with the opportunity to agree conditions as to storage and so on which will prevent seepage to the black market. Unless and until the supplier or end user is an approved person the commissioners have no authority to permit the release of the oil without payment of the duty and no obligation to repay the duty even if the oil is afterwards out to a qualifying use.” [p.380]

In this passage Millett LJ focuses strongly on the “excise protection” aspect of the approved persons regime and on the fact that once “released”, the Commissioners have little control over the oil.

His approach could be taken as support for the proposition that it is the time of “release” of the oil (which in this case would be its importation) which is the critical point for the purpose of the regime and therefore the point in time at which approval is necessary.

However, we note also Mr Brodsky’s submission that the excise protection proposition is not compelling as in order to give repayment relief under s 9(4) the Commissioners must “be satisfied that the oil has been put by an approved person to a use qualifying for relief” – and so if they have concern about potential excise evasion having occurred they are not obliged to grant the relief. Although there would, as Mr Duffy, pointed out be potential practical and evidential issues that could be difficult for the Commissioners to address, Mr Brodsky’s point is not an unreasonable one.

We are hesitant consequently to conclude that the judgment is clear support for either Mr Duffy or Mr Brodsky’s propositions as there is some ambiguity in it and in any event the issue in question was not a central part of the case. Millet LJ did not need to examine in detail the issue that we are now required to.

We conclude that the case does not, therefore, materially assist either party

For the reasons given above we prefer HMRC’s interpretation of s 9(4) and conclude that it is necessary for a claimant to be an “approved person” at (or before) the time the oil in respect of which excise duty has been paid is imported.

Accordingly, the Appellant’s claims for repayment of duty under s 9(4) are dismissed.

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.