Qais Majeed Ali v The Commissioners for HMRC

Under this ground, which Judge Richards (as he then was) articulated for Mr Ali, having considered Mr Ali’s grounds on the papers, it is argued that the FTT erred in failing to conclude that an assessment for some or all of the excise duty could only lawfully be made against The Price 30, irrespective of whether HMRC considered that they would be able to recover excise duty from The Price 30. In other words, the FTT ought to have held that the assessment against Mr Ali could not stand because the only lawful assessment that could be made was against The Price 30. It did not matter if HMRC considered they would be unable to recover excise duty from The Price 30. An arguable error of law was said to arise in the light of the fact the FTT had not referred to the Upper Tribunal’s decision in Davison and the particular paragraphs we have summarised above (see [8]) (which made the point that HMRC were obliged to assess at the earliest duty point and that, if they had not, an assessment made in relation to a later duty point could be challenged before the FTT).

We have already addressed the relevant case-law on prior excise duty points. The authorities consistently refer to the question of whether HMRC can assess excise duty not whether they can recover it. However, by disposing of the prior excise duty point issue by reference to a trader no longer being in business, it would appear, as Mr Ali’s ground identifies, that the FTT confused recoverability with the ability to assess and thus erred in law.

Mr Davies’ first line of response was that the FTT had made no error. HMRC’s case had always been that there was no-one to assess, not that there was someone, but that recovery could not be made against them. The FTT, he submits, well understood that. Its reasoning in FTT [32], that HMRC was not precluded from assessing Mr Ali because it was unable to assess any person involved in an earlier duty point, did not follow from the FTT’s statement in the preceding paragraph that the only trader which could be identified was one that was no longer in business. That statement was simply describing the evidence that was before the FTT, and the two paragraphs were to be read disjunctively.

We reject that interpretation. The plain reading of these two paragraphs is that the FTT considered that, for there to be an earlier duty point established that would assist Mr Ali’s case, HMRC would have needed to be able to assess the earlier person liable. However, it also considered HMRC would not be able to assess a person who was no longer in business. It is not clear to us why HMRC would be unable (as opposed to unwilling) to assess against a person who was no longer in business. The question whether a person is still in business is different from the question whether a person is still in existence. Putting that to one side, however, what is clear is that the FTT considered that the question whether a person was still in business was relevant to the question whether there was an earlier duty point against which HMRC could assess. We can understand how the FTT might have concluded that the fact that an entity was no longer in business might be relevant in the light of the authorities in this area post B&M but prior to Davison. In circumstances where it was considered HMRC had a discretion as to whom to pursue, rather than an obligation to pursue the first duty point they could identify, one could see how the FTT might think that the low prospects of recovery when pursuing a trader who was no longer in business would be a relevant factor.

However, given the subsequent clarification of HMRC’s position in Davison, it was an error to assume that considerations relating to recoverability were at all relevant. The correct position is that, if there was someone who HMRC had sufficient information to assess, then HMRC had to assess that person irrespective of the prospects of recovery.

Accordingly, while the FTT was correct to consider HMRC’s ability to assess was key, it erred in considering that an ability to assess depended on whether a trader was still in business. The fact a trader was no longer in business or lacking in resources would not prevent an assessment being made, although it might well affect the prospects of recovery in respect of any such assessment depending on the resources of the company.

That error of law arose, in our view, in the light of the FTT’s decision not taking account of Davison and of the acceptance HMRC gave there (that was noted by the Upper Tribunal) that the question of whether HMRC should pursue a person liable at an earlier duty point was not one of discretion. The FTT cannot however be criticised for that error. Davison came out after the hearing had taken place and there is no indication that either party then drew the decision to the FTT’s attention.

HMRC also argue the FTT’s findings did not amount to a finding that “The Price 30” actually existed or that it held tobacco so that it could have been assessed for duty. We agree. The FTT did not make any definitive finding that “The Price 30” was an identifiable person. Its reasoning was to the effect that, even if there was such a person, that would not help Mr Ali because HMRC would not be assessing it because it was no longer in business. (That does not of course detract from there being the error identified in Ground 1 regarding considering recovery rather than ability to assess as the guiding principle.)

Having identified the above error, the question that then arises is whether the error is material so as to warrant setting aside the FTT decision and either remaking it ourselves or remitting it to the FTT. As set out by the Court of Appeal in Degorce v HMRC [2017] EWCA Civ 1427 at [95] the tribunal does not need to be persuaded that the error, had it not been made, would have led to a different outcome. It is enough, for the error to be considered material, if the decision might be different.

For the reasons explained below, while we disagree with certain of the points HMRC advance, we ultimately agree with them that the outcome would not have been different even if the error the FTT made had been corrected. The error was not therefore material and the FTT decision should not be set aside.

HMRC submit that their ability to assess against an earlier duty point is dependent on the availability of evidence to establish “how, when, where and by whose acts the excise duty point occurred” (Davison [67]) but that they were unable to establish these matters. They do not accept the invoices were genuine or that the purported seller “The Price 30” existed as a legal entity (because of various discrepancies: VAT was charged but there was no VAT number, the prices were less than duty owed, there was inconsistent adding up). Also, they point to the fact that the invoices only covered 185kg out of 515kg of tobacco and the branding was consistent with a smuggled product.

HMRC accept that, whilst the shop at the address (30 Queensway) had a sign saying “The Price”, there was no evidence of a legal entity called “The Price 30” and there was no good evidence that “The Price 30” corresponded to an identifiable earlier tenant. We probed with Mr Davies whether he was right to say the relevant questions (“how, when, where and by whose acts…”) were not answered. Mr Ali’s evidence was to the effect he bought and received tobacco at a specified address, and the invoices he provided specified dates. There was nothing in his account to suggest that whoever he had bought the tobacco from had not themselves been in possession and control of the tobacco when he bought it from them. Also, some of the criticisms HMRC made of the invoices (that the amounts were higher than the duty) went to whether the tobacco was duty unpaid, and whether Mr Ali knew or ought to have known that. Those points were not necessarily inconsistent though with the invoices constituting evidence that Mr Ali had bought the tobacco.

In his oral submissions Mr Davies’ reiterated that the fundamental difficulty for Mr Ali was the lack of evidence (in regard to a matter in relation to which he bore the burden of proof) as to the identity of the person said to be liable by reference to an earlier duty point. There was no evidence as to who or what “The Price 30” was. Without that, Mr Davies submitted, “The Price 30” was just “a collection of words”. The question of establishing the identity of that person was a necessary precursor to asking whether they had physical possession, and whether they had legal or de facto control.

We considered the findings of the FTT and the documentary evidence that was before it which, as well as the invoices Mr Ali showed, included the notebook evidence of the HMRC officer who visited the address where Mr Ali said he had bought the tobacco. We also queried with Mr Davies various issues around HMRC’s view that the person they visited at the address (and who told HMRC the previous occupant had gone away) was not the person who Mr Ali bought the tobacco from. The officer’s notes had indicated that the person they had visited in 2017 had gone on to deny there was tobacco on the premises when asked, yet upon a search immediately after they said that tobacco was then found under the counter. Taking HMRC’s account at face value, that raised questions as to the reliability of the evidence from that person around the previous occupant having gone away, although, as Mr Davies fairly pointed out, it is well established that, even if a person had not told the truth in one respect, that did not necessarily mean that all of their account was to be rejected. The HMRC officer had also noted the invoices at the premises looked to be of a different type to the ones Mr Ali had produced. However, given some time had passed between those invoice dates in 2016 and the visit in 2017, that difference in type of invoice did not necessarily mean the receipts had not been given by the occupant HMRC visited.

Standing back however, we would agree with Mr Davies’ point that, even taking such matters into account, Mr Ali has not produced any evidence which identifies the person who was holding the tobacco according to his account and the invoices he provided. Furthermore, it could not be overlooked that the remainder (and indeed the clear majority) of the tobacco was not accounted for by those invoices, which only covered 185kg of the 515kg seized. Also, those invoices did not necessarily resolve the question of the timing of the duty point (as pointed out by the Upper Tribunal in Dawsons, invoices could not be conclusive on timing when one does not know who was in possession of goods at time). Even if the invoices were evidence of some kind of transaction having taken place relating to some of the tobacco, they did not resolve the question of the nature of who or what “The Price 30” was and so the identity of a person who was liable by reference to an earlier duty point.

We have also considered whether this is the sort of error of law where, if the FTT had been aware of the correct position following Davison, it would have approached its fact-finding differently. But, even under the law as understood at the time under B&M, if Mr Ali had wanted to argue that he should not be liable because HMRC could have pursued someone else who was liable prior to him, then it was for him to identify that someone. Davison just confirmed, in the light of the acceptance HMRC gave, that HMRC had to then go after that person; they could not pick and choose between that person and a later holder. This only serves to reinforce our view that, although we have identified an error of law, it is not a case where the FTT decision should be set aside. We are satisfied that, even if the error were corrected and the FTT had considered only whether an identified person could be assessed rather than taking into account the recoverability of any assessment against such person, it would have to reach the conclusion that HMRC were unable to assess anyone else This is because Mr Ali had not produced any (let alone sufficient) evidence to identify anyone else who might be liable, and (as Dawson’s makes clear) a person who asserts that there is an earlier duty point HMRC can assess must be able to identify the person it is said HMRC can assess.

Having considered the FTT’s findings and the evidence before it, we cannot see that there is anything which suggests Mr Ali could have shown the FTT that HMRC had evidence which would have allowed them to identify an earlier person who should be assessed. While Mr Ali showed a picture on his phone taken from an internet search of a shop fascia showing “The Price 30” and it is not in dispute that there was or may still be such a fascia at the address HMRC visited, this does not address the difficulty of establishing the identity of the particular person whom HMRC could have assessed instead of Mr Ali.

In conclusion, although we have identified an error of law, we come to the view that it is immaterial and does not warrant setting the FTT decision aside.

Permission on this ground was granted on 19 December 2019 following an oral renewal of permission hearing. The legal landscape at that point was one where the Upper Tribunal in Dawson’s had issued its decision (4 October 2019) but the CJEU had not yet issued its decision in WR. The Upper Tribunal’s decision in Dawson’s revolved around the issue of whether control involved physical possession, as HMRC argued, or included de jure or de facto control over the goods (even if the person did not have physical possession) as the taxpayer there argued (to advance their case that HMRC should have assessed a person at an earlier duty point). Pending the CJEU’s decision in WR, the Upper Tribunal in Dawson’s proceeded on the basis of various propositions at [131] (derived from various other authorities before it), which included that an innocent agent of the person with legal or de facto control was not holding but that actual or constructive knowledge of physical possession of duty unpaid excise goods could take someone out of the status of an innocent agent. The Upper Tribunal went on to note that, while none of the authorities had covered the situation where physical possession had not been established, they did require, when seeking to establish that a person without physical possession of goods could be regarded as their holder, establishment of the basis on which it was said that legal or de facto control of the goods was said to arise (at [136]). Thus, the issue of whether there was sufficient control in order to be “holding” had been highlighted as a key factor.

The Upper Tribunal’s analysis in Hartleb above, and its suggestion that the factors explored in Dawson’s relevant to establishing whether someone was liable at an earlier duty point (which included control) were also useful to consider when examining whether someone was “holding” (see [15]), show how the issue of control is one of a number of factors that fall to be considered when looking at whether it is inappropriate to consider someone with physical possession as “holding”.

It is in that context that the FTT’s consideration of sufficiency of control must be assessed. When the factors in Dawson’s are worked through in relation to the facts found and the evidence before the FTT, we are unable to detect any error of law. Mr Ali did not contest that he had physical possession either in relation to the tobacco in the van or the unit (FTT [27]). Physical possession is not of course determinative, but the FTT did not consider that it was.

As regards sufficiency of control it is plain that the FTT rejected Mr Ali’s case that he was simply an employee driver for Palm Palace. The storage unit and the direct debit which paid for it was in his name. He had bought and paid for the goods, and he had not, up until the hearing, put his case in a way that suggested he was acting on behalf of Palm Palace as its employee. (The further Dawson’s questions do not, as HMRC rightly accept, throw light on the question of who was “holding” as between Palm Palace and Mr Ali, as the timing and location were the same as between the two).

It was thus clear 1) that Mr Ali had physical possession of the goods and 2) that there was nothing in the further factual circumstances of the case which the FTT considered to suggest that it was inappropriate to find that he was holding the goods. Those factual circumstances (his rental and his insurance of the storage unit and that he bought and paid for the goods) also distinguish him from the hypothetical delivery driver in the example addressed by the Advocate General in WR and mentioned by the Upper Tribunal in Hartleb (see [19]) in that they point to an assumption of some level of “entrepreneurial risk”.

At the hearing before us Mr Ali said that he could not understand why the rental agreement was in his name and pointed to the bank statements in Palm Palace’s name with the same account number as that which appeared next to his name on the direct debit. Those were however both matters which the FTT mentioned in its decision (at FTT [5(6)] and FTT [9(3)]). Neither would have necessarily meant, when considered with the totality of the evidence, that the FTT ought to have concluded that Palm Palace as opposed to Mr Ali had sufficient control.

We accordingly conclude there was no error of law in the FTT failing to find that Palm Palace, as opposed to Mr Ali, had sufficient control in order to be “holding” for the purposes of Regulation 10. We therefore do not need to address HMRC’s alternative arguments, that there could be more than one person who was a “holder” at any one time or that a person could be liable by virtue of being a person “involved in the holding” under the provision for joint and several liability under paragraph 2 of Regulation 10.

Under this ground it is argued that the FTT erred in law by failing to give sufficient reasons for its conclusion that Mr Ali was “holding” the tobacco for Regulation 10(1) purposes. As explained by the Court of Appeal’s comments on the duty to give reasons in Flannery v Halifax Estate Agencies [1999] EWCA Civ 811 (p 381), reasons should be such that a losing party can understand why they have lost (especially because without reasons they will not know whether the court or tribunal misdirected itself and whether they have an available appeal on the substance of the case).

We have already set out much of the content of the FTT’s reasoning for why it rejected Mr Ali’s case that he was simply an employee/driver of Palm Palace and could not be “holding” the tobacco (and which appeared in FTT [24] to [30]). The main issue is whether the FTT’s reasoning was sufficient to enable Mr Ali to understand why the FTT considered he was “holding” the tobacco for Regulation 10(1) purposes. We agree with HMRC that it was. Mr Ali’s case was to the effect that he was not “holding” because he was simply an employee/ driver of Palm Palace. The FTT addressed that case with sufficient reasons by explaining that Mr Ali was holding because he did not contest that he had physical possession of the goods, he was responsible for the lock up unit and van, he bought and paid for the goods and because of the contrast with the way he had put his case previously.

For the reasons above, Mr Ali’s appeal is dismissed.