[2014] UKFTT 158 (TC)
TC03296
Appeal number: TC/2008/07098
Customs duties – VAT - call on guarantee – diversion
from legitimate route- Article 203 and 233 of Community Customs Code - procedural
irregularities- held – Article 233 applicable – procedural irregularities no
impact on whether customs debt due - appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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TXT INTERNATIONAL
BV (in bankruptcy)
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE RACHEL SHORT
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HARVEY ADAMS
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Sitting in public at 45 Bedford Sq London on 29 April to 1 May and 4 September 2013
Mr Rietveld and Mr Luinstra for
the Appellant
Mr Beal QC, instructed by the
General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT
2014
DECISION
1.
This is an appeal against a letter from HMRC of 23 June 2008 refusing re
payment of sums claimed from the Appellant’s guarantor amounting to £228,174.34
and claiming payment of the balance owing of £98,963.36 from the Appellant. The
sums paid under the guarantee represent sums payable in respect of a
“comprehensive guarantee” given by Rabobank, (reference number A101124) on
behalf of the Appellant in respect of the inter community transport of
cigarettes and in particular cigarettes transported under consignment number
T1/04NL56827800482793 dated 22 January 2004. The total amount in dispute is
£327,137.70, made up of £271,420.00 in excise duty, £5,557.95 in customs duty and
£50,159.75 of VAT.
2.
At the hearing on 4 September 2013 the Tribunal requested written closing
submissions from both parties. The Appellant’s written submissions were
received late but the Tribunal granted an extension of time for the submission
because the late submission was due to an administrative error. Both parties
submitted supplemental submissions which have been taken account of to the
extent that they respond to specific matters of law which had not previously
been raised before the Tribunal.
3.
The Appellant, TXT International BV, (“TXT BV”) a Dutch company, is now
in the Dutch equivalent of liquidation and this appeal was brought through the
trustee in bankruptcy, (R. Kuizenga) represented by Mr Rietveld and Mr
Luinstra. The Appellant operated as a freight haulage business and has a sister
company in the UK, Txt International Logistics Limited. (“TXT International”)
4.
The cigarettes in question were part of an excise diversion fraud for
which criminal investigations have already been successfully brought. This
investigation was known as Operation Budget. This appeal relates to the civil
liabilities in respect of two million cigarettes which were part of this fraud.
5.
TXT BV was not prosecuted as part of this criminal investigation and
neither were charges brought against its director Jan Barnett. The individual
who was prosecuted Peter Barnett, was not a director of TXT BV. Mr Peter
Barnett was a director of the sister UK company TXT International. As a result
of this criminal investigation the cigarettes were destroyed by HMRC on or
before 29 August 2006
6.
The inter community transport in question concerns 2 million Yes branded
cigarettes which were imported from the Netherlands to the UK for onward
transport to Lome in Tongo, outside the EU. This meant that they could be
brought into the UK without any excise duties or VAT being payable under the so
called external community transit procedure. This procedure is documented as a
T1 external procedure.
7.
The relevant legislation is the Common Transit Convention and the
Community Customs Code (“The Code”). Council Regulation no 2913/92, in
particular:
(1)
Article 91(1)(a) allows for the movement of non Community goods between
two points within the customs territory of the Community without the payment of
duties and other charges provided that certain criteria are met. This was the
basis on which the cigarettes were being transported from the Netherlands to the UK.
(2)
Article 94 says that the principal for the transit shall provide a guarantee
to ensure payment of any custom debt. This is the basis for the comprehensive guarantee
provided by Rabobank for TXT BV.
(3)
Article 96 says that the principal shall be the holder of the external
Community transit procedure and shall be responsible for production of the
goods at the office of destination and the other provisions of the Community
transit procedure. TXT BV was the principal in respect of the transit
procedure for these cigarettes.
(4)
Article 203 states, in the context of security given for a customs debt that
a customs debt shall be incurred through the unlawful removal from customs
supervision of goods liable to import duties and that this debt is incurred at
the moment when goods are removed from customs supervision. The debtors shall
be; the person removing the goods from customs supervision; any person who
participated in this removal and who was aware, or should reasonably have been
aware that the goods had been removed from supervision; any persons who
acquired or held the goods in question and were aware, or reasonably should
have been aware at the time of acquiring or receiving the goods that they had
been removed from supervision; the person required to fulfil the obligations
arising from temporary storage of the goods or from the use of the customs
procedure under which those goods are in place. This is the basis on which HMRC
argue that TXT BV is liable for this customs debt.
(5)
Article 233(c) says that, in respect of goods declared for a customs
procedure entailing the obligation to pay duties, a customs debt is extinguished
if, before their release, the goods are seized and simultaneously or
subsequently destroyed on the instructions of the customs authorities. This is
the basis on which the Appellant argues that a customs debt did not arise
because the cigarettes were destroyed by UK customs before they were released
by the customs authorities.
(6)
Article 233(d) provides that a customs debt shall be extinguished where
goods in respect of which a customs debt is incurred in accordance with Article
202 are seized upon their unlawful introduction and are simultaneously or
subsequently confiscated. This is the basis on which the Appellant argues that
no customs debt was incurred and the guarantee should not be called upon.
(7)
Article 355 of the Implementing Regulation, Commission Regulation
2454/93 stipulates that goods must be carried to their office of destination
along an “economically justified route”. The office of destination in this
instance was Felixstowe and the starting point was the UK end of the Channel Tunnel.
(8)
For VAT purposes the relevant legislation is at s 16 Value Added Tax Act
1994 and provides that the EU legislation relating to customs duties shall
apply in respect of VAT chargeable on the importation of goods from outside the
EU in the same way as they apply to any customs or excise duty.
(9)
Reference is made to the legislation as set out in the Code. The Code
is derived from the Common Transit Convention and it is assumed that there is
no distinction between that Convention and the implementing legislation of the
Code.
8.
HMRC’s argument is that this legislation was contravened because the
cigarettes which were the subject of this guarantee were diverted to a non
bonded warehouse in Kent, rather than sent to the designated port of
destination, which was Felixstowe, therefore triggering both a customs and VAT
obligation, which HMRC claimed from the Appellant’s guarantor, Rabobank, on 15
September 2004. The debt arose under Article 203 of the Community Customs Code
and/or Article 114(1) (a) of the Common Transit Convention. The customs debt
arose because of the goods being unlawfully diverted from customs’ supervision.
The act of diverting and unloading the goods at a place not approved by the
Customs authorities is an unlawful removal of goods from customs supervision
for these purposes.
9.
On the basis of the evidence provided, we have found the following
facts;
Facts – The consignment of 22 January 2004.
10.
Consignment number T1 04NL56827800482793 was a load of 2 million Yes
cigarettes which were picked up from a bonded warehouse in the Netherlands by Mr Kevin Brown on behalf of TXT International. The goods were to be
transported under the “external transit procedure” in accordance with Article
91(1)(a) of the Code, referred to as the Customs Intra Community Movement Duty
Suspension System.
11.
Their export documentation stated that they were to be exported from
the UK via Felixstowe. The TAD (Transit Accompanying Document) for this
consignment identified the Appellant as the exporter. The T1 was signed by the
Appellant, meaning that the Appellant was the principal for the purposes of
Article 96 of the Code. The goods were guaranteed by the Appellant under number
A101124. The cigarettes were driven to an industrial unit at the West Kent Cold
Storage Depot near Sevenoaks (“The West Kent Depot”). This facility was not a
bonded warehouse. The delivery lorry was stopped as it tried to leave the depot
and was found to contain boxes of photocopier paper, not cigarettes. 2 million
Yes cigarettes were found at the industrial unit, with order labels referring
to TXT International.
Facts – The communication between UK and Dutch Customs officials.
12.
The standard means of communication between EU customs authorities to
query the whereabouts of an undischarged T1 is through a TC 20. This is a
standard enquiry form in which specific fields can be marked as relevant. These
enquiries are handled in the UK by the CCTO – the Central Community Transit
Office.
13.
A TC 20 enquiry was sent on 18 February 2004 from the Dutch authorities
to the UK and a letter was sent to the Appellant on the same date querying the
whereabouts of this consignment of cigarettes.
14.
A TC 20 received by HMRC from Dutch authorities was returned on 2 March giving
“interim response”, iv (3). The Appellant responded to their letter, saying
that “the container appears to have been seized by UK customs”.
15.
On 2 March 2004, HMRC wrote to Felixstowe (Langard terminal) requesting
confirmation of whether the consignment had reached its port of destination.
16.
On 16 March 2004 HMRC wrote to Peter Barnett confirming that the
consignment had been seized at the West Kent Depot.
17.
On 25 March 2004 – HMRC responded to a TC20 sent from the Dutch Customs
with interim response iv (5) “no information can be obtained”.
18.
A second TC 20 enquiry was sent on 8 July 2004 from the Dutch
authorities to the UK, stating that according to the Principal, the goods had
been confiscated, to which the UK responded that their investigations were
still on going and that the container had presumably been confiscated. (a iv (3)
response).
19.
On 14 July 2004 CCTO wrote again to Felixstowe stating that the Netherlands authorities had confirmed that there had been no confirmation of the community
transit procedure. On 15 July CCTO returned a TC20 giving a iv (3) response.
On 30 July CCTO responded to a further TC20 this time with a iv (5) response.
20.
On 3 August 2004 CCTO were informed by Customs at Felixstowe that the
goods had been seized.
21.
On 3 August 2004 Gill Kudela of the CCTO sent a fax to the Netherlands confirming that the goods had been confiscated and that the file should be transferred
to the UK. HMRC then notified Dutch customs (Douane Moerdijk) that their
enquiry was re activated and that the goods had been seized. HMRC also notified
the Dutch authorities on the same date that the goods were in the UK and that the UK would take responsibility for recovering any charges.
22.
On 4 August 2004 Notification was sent from Douane Moerdijk to HMRC that
the community transit procedure had not been completed, that HMRC had competence
to collect the debts and providing details of the guarantor. On that date the
Dutch authorities recorded in the NCTS system that the T1 procedure for this
consignment had been discharged. (The NCTS system is the Customs authorities’
electronic communication system).
23.
On 20 August CCTO, HMRC wrote to the Appellant notifying it that as a
result of the failure to complete the transit procedure within the proposed
time limit, customs and excise duties and VAT totalling £327,137.70 would be
imposed.
24.
On 26 September 2006 the UK Revenue authorities made an entry in the
NCTS system which stated that the T1 for this consignment had been cancelled in
transit.
Facts – Payments under the Guarantees from Rabobank.
25.
We were not provided with copies of the guarantee documents entered into
between Rabobank and the Dutch Customs Authorities. The Guarantee confirmation
issued by the Dutch Customs authorities on 11 August 2003 (reference A1101124)
refers to a guarantee given by Rabobank reference 118146 for an amount of Euro 205,380
(later increased to 329,420). The Guarantee confirmation refers to a “comprehensive
guarantee for the transit of high risk goods” of Euro 105,380 plus Euro 50,000
relating to local import procedures and Euro 50,000 relating to Type C
warehouse authorisations. At the time when guarantee amount was increased, the
Guarantee confirmation refers to Euro 279,240 as a “comprehensive guarantee for
the transit of goods which carry a high risk of fraud” and Euro 50,000 for the
Type C warehouse authorisation.
26.
Later documentation concerning the increase in the guarantee amount (15
December 2003) refers to a Rabobank guarantee number 118982. When payment was
claimed from Rabobank under its guarantees it made payment under guarantee
number 118982 of Euro 144,328.00 on 19 October 2004 and Euro 83,857.46 under
the same guarantee number, 118982 on 31 March 2005. Correspondence from HMRC
of 3 March 2005 refers to payment of Euro 144,322.88 having been made under
guarantee number 118146.
The witness evidence:
27.
We were provided with witness statements of Simon Brissenden, officer of
HM Revenue and Customs, dated 26 September 2009 and 15 February 2011. Witness
statements of Bill Hudson, Officer of HMRC, dated 9 November 2009. Witness
statements of Julie Rowles Higher Officer of HMRC, dated 28 February 2013. Mr
Brissenden, Mrs Rowles and Mr Hudson gave oral evidence before the Tribunal and
were cross examined by the Appellant.
Mr Brissenden
28.
Mr Brissenden is an officer of HMRC and was the case officer involved in
Operation Budget. He confirmed a number of specific details relating to the
cigarette shipment of 22 January 2004, including the lodgement of the
guarantee, (the T31) the basis on which it was calculated and that it was
signed by Jan Barnett. The guarantee was initially set at Euro 205,380.00 in
August 2003 to cover movements of up to 1 million cigarettes at a time. This
guarantee was increased on a number of occasions to cover increased sizes of
cigarette consignments, being set at Euro 329,420.00 on 20 October 2003.
29.
Mr Brissenden provided specific details about what occurred at the West
Kent Cold Storage depot on the night of 22 January 2004. He explained that a
surveillance operation had been undertaken as a result of previous
investigations at Southampton of loads of cigarettes which had been imported
from Loendersloot in the Netherlands but when searched at Southampton were
found to be copier paper rather than cigarettes.
30.
He informed the Tribunal that on 22 January that surveillance operation
identified that a consignment of 2 million cigarettes seal number 0000059, were
removed from container number DVRU 1434220 which had been carried on the
vehicle driven by Kevin Brown, an HGV van registration number M727 EBJ from the
Euro tunnel to the West Kent depot. These cigarettes had been collected from
Loendersloot customs warehouse in the Netherlands by TXT BV on behalf of a
company based in the Luxembourg called Eldrige Marketing Inc. Kevin Brown had
driven from the M20 taking the A25 to the West Kent Depot. He was arrested on
leaving the depot and container number DVRU 1434220 was found to contain
photocopy paper. The unit in which his vehicle had been parked at the depot
was found to contain 2 million Yes brand cigarettes. Mr Brissenden told us
that after his arrest Mr Brown had admitted that he saw the cigarettes being
unloaded and replaced with new shrink wrapped pallets.
31.
Mr Brissenden said that Dutch customs seals which had been applied to
the container at Loendersloot were recovered and on the basis of forensic
examination were found to have been severed and glued back together. It was
also established that there was a duplicate set of metal company seals in
circulation which would be used to replace seals.
32.
He also confirmed a number of specific details of bank transfers between
TXT International in the UK and TXT BV, including that Peter Barnett received a
transfer of £201,000 from Txt BV on 28 January 2004. His evidence also
confirmed that Peter Barnett had described himself as a director of TXT BV as part of the criminal prosecution. He also made reference to a specific document
found at Peter Barnett’s house relating to the sale of TXT BV, suggesting, in
Mr Brissenden’s view, that TXT BV was a joint operation between father and son.
Mrs Rowles.
33.
Mrs Rowles explained the normal procedures for dealing with customs
enquiries between customs authorities, being the use of the TC20 form to which
standard responses would be given.
34.
Mrs Rowles confirmed HMRC's consent to the destruction of the 2 million
cigarettes on 16 March 2004.
35.
Mrs Rowles explained in detail how the responses to the queries between
the customs authorities had been handled; both in March and July 2004 HMRC had
responded to the Dutch requests for further information, confirming that they
did not know the whereabouts of the goods. It was correct that at this time Customs
officers at Dover did know where the goods were, because they had been notified
of the seizure of the goods, but this had not been notified to the CCTO. HMRC
had responded correctly on the basis of the evidence which they had at the
time. HMRC were not informed by the Dover Customs officials until 3 August 2004
that the goods had been diverted and seized. Mrs Rowles stated that in her view
HMRC had followed the correct procedures at all times, there was no question of
any conspiracy having been carried out. It was not HMRC’s obligation to
routinely make enquiries about T1 forms, but they relied on UK ports to inform them of irregularities.
36.
Mrs Rowles explained that despite the purported transfer of authority to
the Dutch in July 2004 as a result of the TC20 enquiry, as soon as it was
established that the goods were located in the UK, authority would
automatically transfer back to the UK.
37.
In respect of the references to the goods having been released in
transit made by the UK authorities on 26 September 2006, she said that this was
an error and had arisen from a mistake of the UKCS help desk and the incorrect
discharge error being sent.
Mr William Hudson.
38.
Mr Hudson’s evidence related to a description of the standard form
documents used as part of the external transit procedure and the documents
which were in place for this consignment. He confirmed the existence and
details of the transit documents relating to the 2 million cigarettes and said
that, since the goods in question were cigarettes, the standard documentation
should have included a prescribed itinerary under Article 355(2) of the
Implementing Regulation. Unusually, no specified itinerary had been agreed for
this consignment, however there Article 355(1) requires that goods placed under
the external transit procedure must be carried to the port of destination on an
“economically justified route”. In his view travelling from the Channel Tunnel
to Felixstowe via the West Kent Depot in Sevenoaks, was not an economically
justifiable route.
39.
Mr Hudson also said that the unloading of the goods while under the
external transit procedure is not permissible other than in circumstances of
imminent danger (Article 360(1) (d) of the Implementing Regulation).
40.
Neither Jan nor Peter Barnett provided evidence before the Tribunal.
41.
The onus of proof is on the Appellant to demonstrate that the customs,
excise and VAT debts have not arisen and the amounts claimed under the
guarantee should be re-paid and that no further amounts are payable.
The Appellant’s Arguments
42.
The Appellant’s arguments relate to a great extent to the failure to
correctly follow procedure by the Dutch and UK Customs authorities and a
dispute as to the provision of the Community Transport Code which is relevant
to these circumstances. The Appellant contested the relevance of the evidence
from the criminal prosecution, and the manner in which that evidence had been
made available to the Appellant. The Appellant argued that that Peter Barnett
was not an actual or shadow director of the Appellant and there was no proven
connection between the UK company of which he was a director (TXT International)
and the Appellant. The Appellant also disputed whether, as part of the surveillance
evidence referred to by Mr Brissenden, there was specific proof that the 2
million cigarettes were removed from the lorry and placed in the warehouse and
whether the West Kent Depot was a legitimate route for this transportation.
Procedural Issues.
43.
According to the Appellant, the T1 document was discharged on 4 August
2004 on the NCTS system by the Dutch authorities and that means that the
guarantee should also be released on that date, since there had been an
effective discharge on the NCTS system. The fact that this was not made clear
by the Dutch officials suggests that there was some collusion between the Dutch
and UK authorities to ensure that the guarantee could not be released. Further
evidence provided to Mr Rietveld by the Dutch authorities on 19 August 2013
(after the date of the initial hearing) confirmed that the “attending officer
awarded at the time, by mistake, unfortunately and unjustly, the document the
status of “purified”. In the Appellant’s view this should nevertheless be
treated as a clearance in transit, meaning that the UK authorities no longer
had any right to start recovery procedures.
44.
The manner in which the competence to deal with the customs debt was
passed from the Dutch to the UK authorities was incorrect and HMRC did not have
competence to enforce the debt. As a result of the TC 20 on both the 25 March
and 30 July which gave a “iv (5)” response, competence for enforcement of the
debt should have passed to Dutch Customs. As a result, the UK authorities were not in a position to reactivate their enquiries on 3 August 2004. (While
this issue was raised before the Tribunal, later evidence supplied by the Dutch
customs authorities in their letter of 19 August 2013 to the Appellant and
provided to HMRC and the Tribunal made clear that the Dutch authorities
believed that competence had been passed to the UK on 3 August 2004).
45.
The Appellant also argued that the conditions of Article 450(c) of the
Implementing Regulations were not met by the customs authorities, because the
provision, (relating to the authorities’ obligation to notify a guarantor that
the customs procedure has not been discharged) can only be used when a recovery
procedure is on going, which was not the case given the discharge in the NCTS
system of 4 August.
46.
The Appellant suggested that the slow response of HMRC to the Dutch
Customs Authorities’ statement of 8 July that the goods had been confiscated
indicated the Customs authorities were not proceeding as they should.
47.
In addition, the UK authorities knew, and had told the Appellant, that
the cigarettes had been seized on 22 January, but they did nothing to start
proceedings to recover this debt until August 2004. In the Appellant’s view
this delay was an intentional attempt by the UK authorities to delay notifying
the Appellant of the seizure to ensure that the debt could be collected (rather
than extinguished as a result of the seizure). The Appellant also claimed that
HMRC knew that the Appellant had been made bankrupt before 20 August 2004 and
that their actions were part of a conspiracy with the Dutch customs to ensure
that the guarantee remained in place.
The Guarantee
48.
The guarantee covering this shipment of cigarettes was a complex
security bond, covering more than just these cigarettes. The maximum which could
be called under this guarantee was Euro 105,380, meaning that HMRC had claimed
in excess of the amount which they should have done. The guarantee given by
Rabobank, reference 118982 NRW was not in respect of this consignment of
cigarettes and should not have been called on.
The Customs Code
49.
The relevant article of the Customs Code is not article 203, but Article
233 (c) or (d), which means that the customs debt is extinguished because the
goods have been destroyed. The Appellant argues that Article 233(c) is the
relevant provision in this instance because although no excise duties were
payable, a guarantee was required.
50.
If Article 233 does apply, the Appellant is not the debtor as regards
this customs and VAT debt because the goods were seized by UK customs before
they were released, as evidenced by the correspondence from the Dutch customs
officials and particularly their letter of 4 August 2004 which refers to the
fact that the consignment had been discharged on that date.
51.
The Appellant refers to the recent Dutch decision LJN BC1862, Customs
Division of the Amsterdam Court of Appeal 05/00927 which concluded that a joint
debtor cannot be designated unless there is a conviction for theft or
infringement of a customs procedure, which has not been established for TXT BV.
52.
The Appellant also contends that if a customs debt has been incurred,
the person who is liable for that debt is not the Appellant, but the owner of
the warehouse in Kent where the goods were unloaded, on the basis of Article
233(d) and the Unamar decision [ C- 140/04 ], United Antwerp
Maritime Agencies nv [2005] ECR I- 8245.
53.
The Appellant argues that no customs debt can arise in this case because
the goods were never released for consumption. The fact that they were
unloaded at the West Kent Depot does not mean that they were “released” because
they were not made available for consumption. The goods were in temporary
storage in the West Kent Depot.
54.
The Appellant argued that there was no evidence of Dutch seals being
attached to this consignment and therefore the suggestion by HMRC that the
seals had been broken and replaced when the cigarettes were unloaded cannot be
supported. In particular, there was no evidence of a seal number on the T1
(Box D), for this consignment.
55.
Finally, the Appellant suggested that the route taken via the West Kent Depot
was a legitimate, normal route and that it is acceptable for drivers to take a
break and park in a protected area at a suitable location on a journey such as
this.
HMRC’s arguments
56.
HMRC started by asking the Tribunal to consider whether evidence of the
criminal convictions of a number of those involved in the activities as West
Kent Depot on 22 January 2004 could be taken account of as part of these
proceedings. Their conclusion was that this Tribunal is not subject to the
strict rules of evidence under the Civil Evidence Act 1968, and the more
flexible Tribunal Rules (in particular Rule 15(2) of the Tribunal Procedure
(First – tier Tribunal) (Tax Chamber) Rules 2009) should mean that this is admissible
evidence to the extent that it is relevant.
57.
HMRC contend that the Appellant was responsible for the fulfilment of the
relevant customs procedure under Article 96 of the Code. The procedure was not
completed because the goods were diverted to the West Kent Depot. There had
been an irregularity in the transit procedure under Article 203(1) and 215(1)
of the Code and therefore the Appellant is liable for the customs and VAT debt
in accordance with Article 203(3) of the Code (or 115(1) (d) of the Common
Transit Convention).
58.
HMRC’s interpretation of the Community Customs Code is that Article 203
is the only relevant article and is binding on the Appellant as the principal
holder of the external transit procedure, the T1 because the transit procedure
was not completed.
59.
In HMRC’s view Article 233(c) is not relevant in these circumstances
because that only applies when the customs procedure in question entails the
payment of duties. That was not the case for this consignment. Similarly, on
the basis of the Dansk Transport case (Case C – 230/08) which referred
in particular to the Veli Elshani authority (Veli Elshani v
Hauptzollamt Linz Case C- 459/07) Article 233(d) (relating to the
extinguishing of a debt when goods are destroyed) only applies when Article 202
is in point and so does not apply when goods are diverted from their legitimate
route and are seized at a place other than the first customs office inside the
territory. The fact that there was not a release for consumption does not mean
that the debt did not arise because release in these circumstances includes
irregular departure from a customs suspended route, as made clear in the Greenalls
decision. (Greenhalls Management Ltd v Customs and Excise Comrs [2005] WLR 1754)
60.
The Unamar decision cited by the Appellant is not relevant on
these facts; in particular the goods here were stored outside a bonded
warehouse, not, as in Unamar, unloaded with permission and held in
temporary storage.
61.
HMRC’s alternative arguments rely on the involvement of the Appellant in
the activities for which criminal charges were brought as part of Operation
Budget, through their related UK entity, their employee/drivers and through
their “shadow director”, Peter Barnett. In HMRC’s view, Peter Barnett was
acting as a “de facto director” as that term was defined in McKillen v
Misland(Cyprus) Investments Ltd ([2012] EWCH 521). Under Article 203 (2)
the Appellant is liable either as the person who removed the goods from
Customs’ supervision, or as a person who participated in such removal and who
was, or should have been aware that the goods were being removed. The relevant
perpetrators being in HMRC’s view Jan Barnett, director of the Appellant, Peter
Barnett, shadow director, Graham Smith, an employee of the TXT International and
Mr Kevin Brown, the driver who took the cigarettes to the West Kent Depot.
62.
As to the procedural irregularities and in particular the discharge of
the debt under the NCTS system in by the Dutch authorities on 4 August 2004,
HMRC say that this was an erroneous discharge which was not notified to the
authorities in the UK at the time and was made after the Appellant had been
notified of its debt obligation and was rectified by the later actions of the
customs authorities. The error had no impact in law or in fact on the UK authorities’ ability to commence recovery proceedings. Equally, there was no question of
competence for the collection of the debt not being with the UK authorities on
4 August 2004, competence automatically passed back to the UK when it was known
that the goods had been seized in the UK, and this is supported by the
statements of the Dutch Authorities in their letter to the Appellant dated 19
August 2013, where it was accepted that competence had passed to the UK
authorities on 3 August.
63.
In respect of the extent of the claims under the two guarantees given by
Rabobank, HMRC had followed the correct procedures in notifying the guarantor
of the total debt due and making a claim under the guarantees which were in
place, being both GA 118146 and 118982 NRW.
Discussion.
Admissibility of criminal evidence
64.
We agree with HMRC that since the strict rules of evidence do not apply
in this Tribunal, evidence of the criminal conviction is admissible to the extent
that it is relevant to the matters in dispute. We have taken account of
Appellant’s objections and in particular have taken the Appellant’s points
about the lack of prosecution of any individuals who were directors of TXT BV
or of TXT BV itself, but nevertheless Mr Brissenden’s evidence does establish
that the 2 million cigarettes were taken to the West Kent Depot a non bonded
warehouse and replaced with photocopy paper on the evening of 22 January 2004.
65.
The Appellant raised some questions about whether the containers had
been sealed and suggested that there was no evidence that the seals had been
broken and replaced as suggested by Mr Brissenden, but no other challenge was
made to the evidence provided by Mr Brissenden that the cigarettes were removed
from their container and replaced with photocopy paper on 22 January 2004 at
the West Kent Depot.
Procedural Irregularities.
66.
The Tribunal agrees with the Appellant that there was some
miscommunication between the Dover Customs authorities, HMRC and Dutch Customs
authorities, including the mistaken discharge of the procedure on 4 August 2004
and 26 September 2006 in the NCTS system. This meant that later communications
were technically in contravention of Regulation 450(c) as argued by the
Appellant. The Tribunal also accepts that the Customs authorities at Dover did not communicate very effectively with HMRC their knowledge that the goods had
actually been seized in January 2004. However, we have not been able to
conclude that this was due to any kind of conspiracy on behalf of the
authorities, as suggested by the Appellant. We agree with Mrs Rowles that HMRC
did correctly follow all procedures and provided evidence to the Dutch
authorities on the basis of what they knew at the time. We also consider that
any errors made by the Dutch authorities are explained in their letter of 19
August 2013. On that basis we have concluded that competence for enforcement of
the debt was with the UK authorities as a result of the seizure of the goods in
the UK from 4 August 2004 and that the discharge by the Dutch authorities on 4
August 2004 was as the result of an administrative error which should not be
determinative of whether the customs debt was properly claimed.
Liability for Customs debt
67.
We can see no real argument that Txt BV is not the person with primary
responsibility for the Customs debt, and related VAT, if it is clear that a
debt arises, because it is the named person on the T1 which was signed by its
director, Jan Barnett.
The Customs Code
68.
The Tribunal accepts the Appellant’s approach that, on a first reading
it is not clear which of Article 202 or 203 should apply in these
circumstances, but on the basis of the relevant authorities, agrees with HMRC
that Article 203 is the relevant provision here, not Article 202 and 233. Considering
the application of Article 233(c), this only applies if there is an obligation
to pay duties on import, which is not the case for these goods and 233(d) is
only relevant if the debt in question arises under Article 202. Article 202
applies if a customs debt is incurred and the goods are seized at the first
customs office in the territory as is made clear in the Elshani decision
“the seizure of goods which takes place beyond the
first customs office situated inside that territory and which occurs
practically at random, is not capable of leading to the extinction of the
customs debt for the purposes of point (d) of the first paragraph of Article
233”.
69.
A customs debt arises under Article 203 if there has been an unlawful
removal of goods from Customs’ supervision. We were told that there was no
agreed itinerary for this cigarette consignment; nevertheless the Customs Code
obliges the transporter to use an “economically justifiable route”. We agree
with HMRC that it is not economically justifiable for a goods vehicle moving from
the Channel Tunnel port to Felixstowe to divert and unload goods at Sevenoaks
and the Appellant has not provided any justifiable rationale for this route.
70.
Considering the decision in Wandel ([2001] ECR I-873), we agree
with HMRC that “removal” for these purposes should be interpreted widely; “removal
must be understood as encompassing any act or omission the result of which is
to prevent, if only for a short time, the competent authorities from gaining
access to goods under customs supervision……. The removal of goods from Customs
supervision does not require intent, it is sufficient if certain objective
conditions are met, in particular the absence of the goods from the approved
place of storage at the time when the customs authorities intend to
carry out an examination of them”. On this basis the Tribunal has
concluded that the cigarettes were “removed” for these purposes either when the
vehicle carrying them diverted from the direct route to Felixstowe or, at
least, when they were unloaded from the vehicle at the West Kent Depot.
71.
The time at which the goods were seized is crucial to the Appellant’s
argument, which rests on the fact that the goods were seized before they were
released from the UK Customs procedure. The Tribunal has concluded, on the basis
of the evidence provided by Mr Brissenden about the events of the evening of 22
January that seizure of goods happened after they had been diverted, not
before. In our view the diversion occurred, if not at the point when Kevin
Smith’s lorry left the M20 and headed along the A25 to the West Kent Depot,
then certainly at the stage when, as Mr Smith admitted seeing, the cigarettes
were unloaded from his vehicle and replaced with different shrink wrapped
pallets. The cigarettes were released from the Customs’ procedure at that time.
72.
The goods were released by the Dutch Customs on 22 January 2004 and were
seized by UK customs later that day. In this respect the Tribunal agrees with
HMRC, particularly by reference to the Dansk decision, that the ground
for the extinction of a customs (or VAT) debt should be narrowly construed and
a debt is only extinguished if goods are seized before they go beyond the first
customs office situated inside that territory. This was clearly not the case
here; the goods were seized after they had left their port of destination,
after they had been unlawfully diverted and after they had been unlawfully
unloaded into a non bonded warehouse. The goods were seized after they had
left Custom’s supervision and therefore Article 233(d) of the Code does not
apply.
To what extent was TXT BV involved in the removal of
the goods?
73.
TXT BV was responsible for the transport of the goods as far as the
bonded warehouse in the Netherlands. They were recorded as the principal on
the T1. On the evidence presented to the Tribunal, there was no direct
involvement by TXT BV in their removal in the UK. No representatives of TXT BV were at the Kent Cold Storage depot on 22 January. There is no evidence for this
particular consignment, that they hired the drivers, or of any communication
between those acting in the UK and TXT BV. There is no evidence of any
involvement of Jan Barnett beyond the Dutch borders. We do not think it is
correct to say, as HMRC suggest, that there was “extensive involvement” of TXT BV in this import transaction.
74.
The Tribunal’s view is that HMRC have failed to make a clear distinction
between the actions of TXT International and TXT BV. HMRC’s reference to the
involvement of TXT BV with drivers in previous consignments is not strictly
relevant to this transportation. While there is some evidence that the two
companies were seen as closely linked by those involved, we have concluded that
this is not sufficient to suggest that TXT BV should be seen as implicated in
all the activities of its sister company in the UK.
To what extent did TXT BV nevertheless “participate”
in this removal ?
75.
Even if TXT BV cannot be said to have been directly involved in the
unlawful removal of the goods in the UK, the Tribunal has concluded that TXT BV did participate in the removal because they were involved in the supply chain which
started in the Netherlands. They relied on their UK sister company for on ward
shipment to Tongo, and knew that the goods were going via the UK when they could have gone directly to their destination from the Netherlands. They must have
known that entry into the UK served no commercial purpose.
Should Peter Barnett be treated as a representative of
TXT BV for these purposes – either as a shadow director or as a shareholder?
76.
HMRC relied on the evidence referred to by Mr Brissenden given by Jan
Barnett himself (on 25 August 2004) as part of Operation Budget to establish
the extent of his father’s involvement with the Dutch sister company. This
interview evidence does make clear that Jan Barnett relied on his father’s
finance and expertise in setting up and running TXT BV and that his father was
involved in some of the strategic decisions relating to TXT BV, including some
of the contracts with Eldridge in Luxembourg (the supplier of the cigarettes
for export.)
77.
However, there is no evidence that Peter Barnett was involved in
directing any of the operations of 22 January with TXT BV, though it is clear that
he was involved with the UK sister entity. The Tribunal does not consider that
the mere fact that he is a shareholder of TXT BV is sufficient to implicate him
as a shadow director or directing mind of Appellant. The evidence of Mr
Brissenden demonstrates some links between the two entities, including a cash
transfer from TXT BV to Peter Barnett on 28 January 2004, soon after the fraud
had been discovered. His evidence also demonstrated that on earlier occasions
there had been some contact between drivers engaged by TXT International in the
UK and TXT BV. However HMRC did not provide any specific evidence of the
direct involvement of Peter Barnett in the decisions made by TXT BV in respect of the transaction which was undertaken on 22 January 2004.
78.
Neither has HMRC provided any evidence that any of the other participants
who were involved in the 22 January operations (the driver Kevin Brown and the
fleet manager Graham Smith) were operating under the instructions of anyone
other that TXT International in the UK. The Tribunal disagrees with HMRC that,
at least for this consignment, Peter Barnett “assumed overall management and
control” of the Appellant’s transport operation. The Tribunal does not think
that the actions of Peter Barnett should be attributed to TXT BV as far as this
consignment of cigarettes is concerned.
79.
In conclusion, the Tribunal’s view is that Article 203(3) applies to
Appellant primarily because it was the principle in charge of ensuring that the
goods arrived at their destination, and secondly, as a person participating in
the unlawful removal of the goods from their legitimate commercial route and
that a customs debt and VAT charge arises under Article 203(3) and s 16 VATA
1994 for those reasons.
Is anyone else liable for the debt?
80.
The Appellant argued that in accordance with the decision in Unamar,
it was the person who had physical custody of the goods when they had been
unlawfully removed from Customs supervision who was primarily liable for the
debt. We agree with the Appellant that the persons listed under Article 203(3) include
the person “required to fulfil the obligations arising for temporary storage of
goods”. However, we agree with HMRC that this is not applicable to the
warehouse owner at the West Kent Depot, who had no obligations as far as these
goods were concerned, because the warehouse was not a bonded warehouse. Even
if that were incorrect, the Appellant cannot remove his obligations under
Article 203(3) by reference to another party since Article 213 makes it clear
that in respect of Customs debts the liability arising under Article 203 is joint
and several.
The amount of the Guarantee.
81.
Mr Rietveld suggested on behalf of the Appellant that, if any amount was
payable under the guarantee, that amount was up to a maximum of Euro 105,380,
the rest of the guarantee amount did not relate to the transport of cigarettes,
but to other issues such as the provision of bonded warehouses. On the basis
of the evidence provided the Tribunal cannot agree with this interpretation of
how the guarantee amounts were to be applied. It is clear from the confirmations
of the Guarantees provided by the Dutch Customs Authorities that TXT BV’s requests
to increase the guarantee amount from its original Euro 205,380 to Euro 329,420
in October 2003 related to an increase in the comprehensive guarantee for the
transport of high risk goods to Euro 279,420, with only the remaining Euro
50,000 relating to the bonded warehouse regime.
82.
The Appellant also argued that guarantee number 118982 provided by
Rabobank should not have been called upon since it did not relate to this
consignment of cigarettes. We did not see evidence of the terms of the guarantees
provided by Rabobank, but on the basis of the references in the Dutch Customs
Authorities’ Guarantee confirmation documents to both guarantee numbers 118982
and 118146 and Rabobank’s own reference to payment being made under guarantee
number 118982 in respect of this consignment, we cannot see any basis for
arguing that this guarantee could not have been called.
83.
For these reasons this appeal is dismissed.
84.
The Respondents to be awarded costs in their favour on the standard
basis, to be assessed by the Tribunal if not agreed.
85.
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.
RACHEL
SHORT
TRIBUNAL JUDGE
RELEASE DATE: 30 January 2014
