Ellis (t/a D E International Transport) v Revenue & Customs [2011] UKFTT 181 (TC) (16 March 2011)

DECISION

1. The Appellant (“Mr Ellis”) appeals against the Respondents’ decision dated 3 November 2006 and confirmed on 14 February 2007, to raise an assessment for excise duty in the sum of £462,319.

The relevant facts

2. The business is located at 219-220 Western International Market, Hayes, Road, Southall, Middlesex UB2 5XH and operates as a transporter of duty suspended goods. On 21 September 2005 and 5 October 2005 Her Majesty’s Revenue and Customs (“HMRC”) uplifted records from the business which included 21 Accompanying Administrative Documents (“AADs”) detailing movements of wine from the UK to France. The documents showed that the wine cargos were arranged by Mr Ellis on behalf of Executive Wines and Beers Ltd (“Executive”) for which Mr Ellis provided a movement guarantee. The documents also showed that the transportation was self-contracted by Mr Ellis to CDG Transport Services Ltd (“CDG”).

3. Each of the AADs stated that the consignor was Abbey Forwarding Ltd (“Abbey Forwarding”), and the consignee was Polley Logistique Sarl (“Polley Logistique”) based in Calais. The documents stated that the goods were to be consigned into the account of “Sarl Global” at Polley Logistique and that the transporter of the goods was Mr Ellis.

4. There was a stamp on each AAD, supposedly made by French Customs in Calais, which indicated that the goods had entered France and that the French Customs had seen the AAD. There was a further stamp on each AAD, apparently made by Polley Transport which indicated that the goods had reached their stated destination in France.

5. Between 6 November 2005 and 21 December 2005, the Respondents received intelligence from the French Customs authorities which indicated that the goods were not delivered to the destination stated in the AADs.

6. The AADs indicated that the goods were destined for the account of Sarl Global in Polley Logistique. Sarl Global was a new company and had been created in March 2005 as a drinks distributor with limited storage space and a small number of customers. It had an extensive takeaway licence. It did not have the status of an approved warehouse and had never held an account at Polley Logistique. Polley Logistique had never received goods sent by Abbey Forwarding destined for Sarl Global.

7. On 27 April 2006, HMRC visited Mr Ellis at his business premises and explained that certain loads transported on behalf of Executive had not reached their destination. A substantial amount of documents were lifted from Mr Ellis’ premises by HMRC. Since Mr Ellis’ guarantee had been used to secure payment of the excise duty on the goods, an assessment for excise duty was raised against him on 3 November 2006.

8. The Appellant requested a review of this decision on 12 December 2006. The review was not completed within 45 days of the Appellant’s request. The original decision was therefore deemed to have been confirmed under section 15(2) Finance Act 1994.

9. The Respondents completed an out of time review on 14 February 2008. On 8 March 2007, the Respondents agreed to the Appellant’s request to submit an appeal to the Tribunal by no later than 6 April 2007. The Appellant appealed against the decision to raise the assessment on 29 March 2007.

The law

10. As far as is relevant, Council Directive 92/12/EEC (“ the Directive”) provides that:

Article 15

3. The risks inherent in intra-Community movement shall be covered by the guarantee provided by the authorised warehousekeeper of dispatch, as provided for in Article 13 or, if need be, by a guarantee jointly and severally binding on both the consignor and the transporter. The competent authorities in the Member States may permit the transporter or the owner of the products to provide a guarantee in place of that provided by the authorised warehouse keeper of dispatch. If appropriate, Member States may require the consignee to provide a guarantee …

Article 20

1. Where an irregularity or offence has been committed in the course of a movement involving the chargeability of excise duty, the excise duty shall be due in the Member State where the offence or irregularity was committed from the natural or legal person who guaranteed payment of the excise duties in accordance with Article 15(3), without prejudice to the bringing of criminal proceedings.

Where the excise duty is collected in a Member State other than that of departure, the Member State collecting the duty shall inform the competent authorities of the country of departure.

2. When in the course of movement, an offence or irregularity has been detected without it being possible to determine where it was committed, it shall be deemed to have been committed in the Member State where it was detected.

3. Without prejudice to the provision of Article 6(2), when products subject to excise duty do not arrive at their destination and it is not possible to determine where the offence of irregularity was committed that offence or irregularity shall be deemed to have been committed in the Member State of departure, which shall collect the excise duties at the rate in force on the date when the products were dispatched unless within a period of four months from the date of dispatch of the products evidence is produced to the satisfaction of the competent authorities of the correctness of the transaction or of the place where the offence or irregularity was actually committed.

11. The relevant provisions of the Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001 (to be referred to as “the DSMEG Regulations”) provide that:

Failure of excise goods to arrive at their destination

4(1) This regulation applies where:

(a) there is a duty suspended movement that started in the United Kingdom; and

(b) within four months of the date of removal, the duty suspended movement is not discharged by the arrival of the excise goods at their destination; and

(d) there has been an irregularity.

(2) Where this regulation applies and subject to paragraph (3) below, the excise duty point shall be the time when the goods were removed from the tax warehouse in the United Kingdom.

(3) The excise duty point as prescribed by paragraph (2) above shall not apply where, within four months of the date of removal, the authorised warehousekeeper accounts for the excise goods to the satisfaction of the Commissioners.

Payment of Excise Duty

Payment

7(1) Subject to paragraph (2) below, where there is an excise duty point as prescribed by regulation 3 or 4 above, the person liable to pay the excise duty on the occurrence of that excise duty point shall be the person shown as the consignor on the accompanying administrative document or, if someone other than the consignor is shown in Box 10 of that document as having arranged for the guarantee, that other person.

(2) Any other person who causes or has caused the occurrence of an excise duty point as prescribed by regulation 3 or 4 above, shall be jointly and severally liable to pay the duty with the person specified in paragraph (1) above.

12. The material provisions of the Finance Act 1994 state that:

12. Assessments to excise duty

(1A) Subject to subsection (4) below, where it appears to the Commissioners:

(a) that any person is a person from whom any amount has become due in respect of any duty of excise; and

(b) that the amount due can be ascertained by the Commissioners;

the Commissioners may assess the amount of duty due from that person and notify that amount to that person or his representative.

(3) Where an amount has been assessed as due from any person and notified in accordance with this section, it shall, subject to any appeal under section 16 below, be deemed to be an amount of the duty in question due from that person and may be recovered accordingly, unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced.

(4) An assessment of the amount of any duty of excise due from any person shall not be made under this section at any time after whichever is the earlier of the following times, that is to say-

(a) subject to subsection (5|) below, the end of the period of three years beginning with the time when his liability to the duty arose; and

(b) the end of the period of one year beginning with the day on which evidence of facts, sufficient in the opinion of the Commissioners to justify the making of his assessment, comes to their knowledge;

but this subsection shall be without prejudice, where further evidence comes to the knowledge of the Commissioners at any time after the making of an assessment under this section, to the making of a further assessment within the period applicable by virtue of this subsection in relation to that further assessment.

Witnesses

13. The following people provided witness statements and gave oral evidence at the hearing.

1. HMRC officer Gurbaksh Dosanjh

2. HMRC officer Farshad Salili

3. David Ellis

14. A witness statement was provided by Mrs Margaret Ellis, wife of the Appellant.

15. The Tribunal was provided with a ring binder of documents and correspondence as well as details of the visit reports dated 2005 and 2006. The Tribunal was not provided with a separate ring binder of authorities and law.

16. At the hearing the Appellant provided sample copies of his and his wife’s handwriting, a short report from CDG and the Appellant’s copy sales invoices. The Tribunal was provided with a letter from the Appellant’s previous solicitors Lovegrove and Eliot dated 7 June 2007. After the hearing, the Tribunal was provided with a copy of the Appellant’s movement guarantees.

The Appellant’s arguments

17. The Appellant stated that he was away on 24 July, 2 August and between 5 and 10 August. On those days he was in France doing repairs to two of his lorries which had broken down. He indicated that he was away at another time in August but could not confirm the dates. He did confirm that on that occasion he was away for between 5-7 days.

18. The Appellant’s main argument is that he was the victim of a well organised criminal network. He was not responsible for the diversion of goods nor the excise duty due under the movement guarantees which was provided. His guarantee number was not issued by him. It was illegally issued and unauthorised. He said that the guarantees were misused by Executive to divert goods without his knowledge.

19. Mr Ellis says that because he was not notified of the diversion until 27 April 2006, up to nine months after the goods were despatched, it was not possible for him to prove that the movements as stated on the AADs had taken place. He places reliance on the case C-395/00 Distillerie Fratelli Cipriani Spa v Ministero delle Finanze [2002] ECR I-11877 (“Cipriani”) and the principle of the rights of defence, which requires that parties whose interests are significantly affected be placed in a position where they could effectively make known their views.

20. The power to collect excise duty under Article 20(3) of the Directive does not apply if “within a period of four months of the date of the despatch of the products evidence is produced to the satisfaction of the competent authorities of the correctness of the transportation or of the place where the offence or irregularity was actually committed”. Similarly, no excise duty point arises under regulation 4(2) of the DESMEG Regulations if “within four months of the date of removal [of the goods from the tax warehouse in the UK], the authorised warehouse keeper accounts for the excise goods to the satisfaction of HMRC” (Regulation 4(3)).

21. The guarantor has therefore to be notified within a four month period of the removal of the goods that there is an irregularity to be given an opportunity to make their views known before an assessment is raised.

22. Mr Ellis said he invoiced Executive for the transportation costs since he himself was invoiced by CDG. At the time of invoicing Executive, he was not aware that there was an irregularity in the transportation of the goods. He accepted that CDG had performed the transport jobs for Executive as his subcontractor . Executive was his existing client and he had transported their goods in the past.

23. Mr Ellis said that Executive (Mr Dhillon) had unilaterally completed the relevant authorisations of the movement guarantees. This was later confirmed by Executive to Mr Ellis. It was done since Executive could not make contact with Mr Ellis. All the relevant movement guarantees were provided to the Appellant by Executive as a batch of documents complete with authorisations. The Appellant asserts that Executive stole guarantee authorisation forms, left lying around in his office, completed the forms without his authorisation or agreement and these were the authorisations used in the illegal transactions. The Appellant says that he did not know the transactions were illegal, but came to know that the authorisations were given without his permission. He invoiced Executive for the shipments made under the said unauthorised movement guarantees. Mr Ellis said that he contacted Mr Dhillon when the transport invoices arrived and he became aware of the use of his guarantee and told him not to use the guarantee.

24. He said that the authorisation of movement guarantees forms were all completed in a handwriting which was neither that of his wife or himself, the only persons who completed those forms on behalf of his Company. He said that he was out of the country either on holiday or repairing broken down vehicles in France at the relevant times when the forms were allegedly completed by him.

25. He says that the Respondents have confirmed that he was not involved in any fraudulent trading and he has been honest throughout. He acted in good faith in all relevant movements between July and September 2005. There is no pleaded case of dishonesty. The Appellant drew reference to the case of Netto Supermarkt GmBH & Co OHG v Finanzamt Malchin (Case C-271/06) which stated that any sharing of the risk between the supplier and the tax authorities, following fraud committed by a third party, must be compatible with the principle of proportionality.

The Respondents’ submissions

26. The Appellant had provided a guarantee for the movement of the goods, the excise duty on the goods was due from him under Article 20(1) of the Directive. The goods did not arrive at their destination and it is not possible to determine where the irregularity was committed. Consequently, the irregularity was deemed to have occurred in the state of departure (UK) under Article 20(3) of the Directive, and the excise duty point arose when the goods were removed from the tax warehouse in the UK, under Regulation 4(2) of the DSMEG Regulations.

27. Under Regulation 7(1) of the DSMEG Regulations, the person liable to pay excise duty on the occurrence of the excise duty point was the Appellant as the provider of the guarantee for the movement of goods. The Respondents correctly assessed the Appellant for the excise duty due on the goods under section 12(1A) of the Finance Act 1994.

28. The assessment was raised on the basis of intelligence received from the French Customs authorities between 6 November 2005 and 21 December 2005. This intelligence indicated that the goods never arrived at the destination stated in the AADs. As the assessment was raised on 3 November 2006, it was raised within one year of the evidence from the French authorities, and so was raised in time under section 12(4)(b) of the Finance Act 1994.

29. The Respondents dispute the Appellant’s claim that the goods arrived at the destination stated in the AADs since no evidence was provided to the Respondents to confirm this position. The Respondents say that Polley Logistique confirmed that they had not received the goods from the consignor and Sarl Global never had an account with Polley Logistique.

30. The Appellant relies on Case C-395/00 Cipriani where the ECJ stated that Article 20(3) could not be relied upon against a trader who had guaranteed payment of excise duty but was unaware that an irregularity had occurred until after the expiration of the four month period from the date of the despatch of the goods. This rule, based on the principle of the rights of defence, requires that addressees of decisions which significantly affected their interests should be placed in a position where they could effectively make known their views. The Respondents say that the Appellant was informed of the irregularities in the movements of goods on 27 April 2006. From that date at the latest, the Appellant knew that the duty-suspension arrangements may not have been discharged and had the opportunity to make known his views. The Respondents’ assessment was not made until 3 November 2006, six months later. Therefore, the Respondents say, the Appellant had ample time to investigate the suspected movements and to produce evidence that the goods have reached their intended destination. Therefore the principle of the rights of defence was respected by the Respondents and accordingly the Cipriani case does not assist the Appellant.

31. The Respondents refute the Appellant’s claim that they should seek to recover the duty from the party who arranged the transportation of the goods, namely Executive, who are effectively the consignor, though not named as the “consignor” on any of the AADs. The Respondents say that the Appellant is liable to pay the duty. It is possible that another party may have a joint and several liability with the Appellant, if they also caused the occurrence of the excise duty point.

32. The Respondents made the following observations at the hearing.

1. There is no allegation of fraud against the Appellant and the Respondents believe that the Appellant was not aware of any fraudulent transaction taking place as regards to the goods.

2. The Appellant knew that Executive had completed the excise duty movement guarantee authorisations and he had allowed their use. In the alternative, the Respondents say that if the movement guarantees were expressly authorised to be used by Executive then they were impliedly authorised by reason of the conduct of the Appellant. He had done nothing to stop their use or to alert any party that they were in use without authority.

3. The Respondents refute the Appellant’s statement that he was not in the UK in July and August 2005 when the movement guarantees were being used and further refute his argument that it is not his or his wife’s handwriting on the relevant movement guarantee form.

4. The Appellant knew on 15 of the 21 occasions that his movement guarantee forms were being used and he elected to charge for the deliveries made by issuing invoices to Executive. It was the Appellant’s argument that he issued invoices because he had to pay subcontractors (£250) but this was not credible since he stood to lose more (at least £20,000) than the invoice amount if he became liable to pay the excise duty.

33. The Respondents argue that all of the evidence suggests that the Appellant had authorised the use of his movement guarantees. The only relevant consideration is whether it was an express or implied approval of the use of the guarantees. Since the Appellant had authorised the use of the guarantees, therefore he is liable for the excise duty. The blameworthiness of the Appellant is not relevant to his liability to pay the excise duty on the diverted goods. The Appellant guaranteed to pay that duty, he is liable to pay it regardless of whether he was himself involved in the diversion. The purpose of the guarantee is to cover “risk inherent in Intra-Community movement” of goods as stated in Article 15(3) of the Directive. The Respondents say that it is not credible that the Appellant would be invoicing Executive for the movements of goods he had not in fact authorised use of the movement guarantee.

34. The Appellant should not have allowed his guarantee to be used by another party and if he did and the other party abused the guarantee to perpetrate a fraud then the Appellant must take the responsibility for the payment of the excise duty and therefore the assessment should be upheld and the appeal should be dismissed. They refute the Netto argument since the Appellant did not take every step which could reasonably be required of him to satisfy himself that the transaction which he is a party to does not result in his actual or implied participation in tax evasion.

Finding of Facts

35. There were 21 AADs detailing movements of wine from the UK to France, which the documents showed that the Appellant arranged on behalf of Executive and for which they showed that the Appellant provided a guarantee. According to the documents, the transportation was sub- contracted by the Appellant to a firm called CDG. There was no movement guarantee given for certain deliveries between 31 August 2005 and 19 September 2005 (seven movements).

36. The Company SARL Global, to whom the supplies were made in France, did not exist and never held an account at Polley Logistique. This was confirmed by French Customs. The goods which were transferred under these documents did not arrive in France and the stamps on the AADs purporting to be from French Customs were false.

37. It is accepted by the Respondents that the Appellant was not involved in fraudulent dealings on the relevant transactions. The Appellant did not know that there were irregularities with regard to the consignment of goods but knew that the movement guarantee authorisations were given without his permission. The Appellant issued invoices for the shipment of goods under the movement guarantees.

38. On at least 15 occasions the Appellant elected to invoice for deliveries made under AADs from the relevant period.

39. The Tribunal has seen the movement guarantees provided by the Appellant and dated 20 July 2004 and 21 September 2004. Under the documents, the “Guarantor” under the agreement is HSBC Bank Plc and the “Principal” is Mr Ellis.

40. The AADs did not have the Appellant’s name stated but had his movement guarantee number. The Appellant said he was away between 4 July to 2 August, 5 August, 10 August and at another time in August for between five to seven days. He had gone to France to repair a broken down lorry. The Tribunal has not seen any documentary evidence to support these absences. Mr Ellis went on holiday between 18 and 27 September and provided a bank statement to support this holiday period. The Tribunal accepts that he was away in this period.

41. The Tribunal has seen no evidence provided by the Appellant to indicate that the goods arrived at the destination stated in the AADs.

Evidence of witnesses

42. Evidence of HMRC Officer Gurbaksh Dosanjh

Officer Dosanjh gave oral evidence at the hearing as well as providing a witness statement which was dated 29 April 2009. She made the following points in evidence:

1. She visited the premises of the Appellant on 21 September 2005. At the time various records were uplifted from the Appellant’s office. The records uplifted comprised mainly sales invoices dated between July 2002 and July 2005.

2. She said that on 28 September 2005 she was informed by HMRC Officer Farshad Salili that he had concerns over movements of goods involving the Appellant. In particular, alcohol sent to France from the trader, Executive.

3. On 5 October 2005 Officer Dosanjh paid another visit to the business premises of the Appellant and went through a questionnaire (seven pages with 42 questions), which asked questions about the business. In the answer box to questions 39 and 40, which asked which transporters were used, the Appellant confirmed that CDG were the transporters and, with regard to the AADs which accompanied EU goods, it was explained by the Appellant that they were signed by the receiving warehouse and returned to Mr Ellis via Abbey Forwarding.

4. On 27 April 2006 Officer Dosanjh again visited the Appellant and explained that certain loads which his movement guarantee had covered and which were transported on behalf of Executive did not reach their destination and as he provided the guarantee he would be liable for the outstanding duty. The Appellant expressed surprise and said he had assumed that the goods had arrived as he had copies of the AADs signed by the French Bonded Warehouse and by the French Customs. It was explained to him that these were forgeries.

5. Officer Dosanjh obtained copies of various documents including instructions given to the Appellant from Executive, instructions given from the Appellant to their subcontractors and to Abbey Forwarders as well as copies of AADs documentation.

6. The Appellant was asked why the AADs were addressed to Polley Logistiques when in fact the goods were going to Polley Transport. The Appellant said he understood Polley to be one company and Abbey Forwarding had done their compliance checks when they completed the AADs.

7. On a visit by Officer Dosanjh on 4 May 2006, the Appellant was asked whether he had contacted his subcontractor, CDG, to see if they could provide proof of delivery to the address shown on the AADs. The Appellant said he trusted CDG and if they said that they had delivered the goods then he would accept that as correct. He did not need any proof.

8. Officer Dosanjh said that she concluded that 21 AADs did not arrive at the destination address and some bore false French Customs and Polley Transport stamps. There was documentation showing that the Appellant had given instructions to their subcontractors CDG to pick up the loads and deliver them to Polley Transport. In all these cases the Appellant’s guarantee covered the movement and the goods never arrived at their destination.

9. The Appellant was issued with an assessment letter for £462,319 on 3 November 2006.

43. The evidence of HMRC Officer Farshad Salili

Officer Salili gave oral evidence on 14 May 2009 as well as the witness statement. He gave evidence to say the following:

1. On 26 September 2005 he conducted an audit of records which he had uplifted from Executive. He established that 22 supplies of duty suspended goods had been made to a company named SARL Global. These supplies had been made under duty suspension from Abbey Forwarding to the customer’s account, SARL Global at Polley Logistique Bonded Warehouse in France under the movement guarantee of the transporter, the Appellant.

2. On 11 November 2005 he received information indicating that SARL Global did not exist and had never held an account at Polley Logistique.

(3) He confirmed that on 10 January 2006 he received information from French officials that confirmed that the stamps on the AADs were false.

44. Evidence of David Ellis

Mr Ellis gave a witness statement dated 10 November 2008 and oral evidence at the hearing. Mr Ellis made the following general points.

1. He had no knowledge of any VAT fraud being perpetrated and was only made aware of any impropriety when HMRC informed him of that position.

2. He can confirm that faxes regarding the loads under investigations were not sent by him.

3. He confirmed that he was not in the UK between 18 and 27 September 2005 as both he and his wife were in Southern Ireland on holiday at that time. He provided a copy of an HSBC credit card statement to support their expenditures.

4. Mr Ellis also indicated that he was out of the country at other times in 2005 but did not disclose these to HMRC since they related to work and not holiday.

5. Mr Ellis said that it was his usual practice to send invoices dated the same day goods were delivered.

6. He said that there were movement guarantee authorisation forms which were “lying around” his office and the perpetrators of the fraud in this case must have got hold of those forms and completed them. He was aware that Executive had used his guarantee forms but he did not know they related to false and illegal transactions at that time. He invoiced Executive because he had to pay CDG the transport cost. He had not given Executive any power to use his movement guarantees.

7. Mr Ellis said he had personally done transportation work for Executive and had used his movement guarantee. They would have known his movement guarantee number.

8. Mr Ellis said that a third party is guilty of the fraud and he should not be made liable for the excise duty. The innocent party should not be made liable.

9. The handwriting on the forms authorising use of his movement guarantees showed that neither he nor his wife completed the forms and they were fakes and therefore not guarantees.

10. The movement guarantee authorisations were prepared by Executive and given to him “in a batch”. They were prepared by Executive because Mr Ellis was away at the time. He had no knowledge that there was a fraud. He prepared invoices for the transport costs based on the guarantees because he had to pay his subcontractors and he had no knowledge of the fraud at the time for invoicing.

11. He said that the AADs did not have his name but only his number and he did not authorise the guarantees. Mr Ellis said that the movement guarantee number should only have gone to Abbey Forwarding but somehow Executive had his number and had used it.

45. Witness statement of Margaret Ellis

Margaret Ellis, the spouse of the proprietor of the business, gave her witness statement on 10 November 2008. She did not give oral evidence. The following points were made.

1. She confirmed that her husband and her herself were on holiday between 18 and 27 September 2005. She provided a copy of an HSBC credit card statement to support their expenditures.

2. She expressed that the view that her husband had been “unknowingly caught-up in a VAT fraud”.

Conclusion

46. The Appellant is the sole proprietor of a business for the transportation of goods from the UK to the continent. His wife, Maragaret Ellis, did the back office administrative and paperwork jobs relating to the business. Mr Ellis arranged the transport, repairs of vehicles and incidental matters relating to the actual transportation of goods including the subcontracting of jobs. The Appellant appeals against a decision of HMRC to raise an assessment on 29 March 2007 for excise duty amounting to £462,315. The Tribunal understands that the assessment is based on intelligence received from the French Customs, that there had been an evasion of excise duty on duty suspended alcohol which had been stored at Abbey Forwarding Bonded Warehouse in South East London.

Movement Guarantee

47. When traders are trading in duty suspended excise goods in the EU there is certain documentation which must be carried by the transporter and accompany the consignment at all times. At the time these goods were being carried it was required that AADs accompany the cargo. The Tribunal was provided with copies of the AADS used in the transportation of these goods. It is normally the obligation of the consignor (Abbey Forwarding) to complete the AADs. It is a standard form document which contains various information including the identity of the consignor, consignee, and nature of goods, transporter and the party providing the movement guarantee. The AAD form has four duplicate copies. The first copy is retained by the consignor. The second is retained by the consignee and the third stamped by the Customs authorities in the destination state. This copy is returned to the consignor. The fourth copy is retained by the Customs authorities in the destination state. The AAD form (except for the first duplicate copy) must accompany the goods while those goods are in transit. The warehouse keeper would rely on the stamped third copy for obtaining payment. The AAD is therefore an important document for all parties in the delivery chain and for the obtaining of payment and invoicing.

48. The movement of goods takes place once there is in place a movement guarantee. The movement guarantee is intended to safeguard HMRC from any fraud which may occur within the duty suspended regime by requiring the potential liability to excise duty to be guaranteed by a party. It is therefore a financial bond which HMRC requires in undertaking the movement of duty suspended excise goods such as alcohol. It is provided by either the owner of the goods, the bonded warehouse or the transporter. The rationale is that a party having a direct connection to the goods must provide the movement guarantee. It seems to have become common practice for traders, who have a guarantee, to allow others to use their guarantee . This defeats the idea of the movement guarantee since a party using the guarantee may not have a direct connection with the goods or the movement. HMRC have long considered this practice undesirable and inconsistent with the provisions of the Directive. It is possible, for example, that a party can become liable for duty on goods in which they have no interest and over which they have no control. It is the responsibility of the warehouse consignor to draw up all the paperwork and make a charge for that service. The consignor will normally have details of the transporter’s movement guarantee number. Since the consignor does not have control of the goods after it leaves the warehouse, it is necessary to conduct a great deal of due diligence to establish all the relevant facts for the completion of the forms including the guarantee. It is the responsibility of the consignor to ensure that the guarantee for the movement of goods is given by one of the parties authorised by HMRC to give that movement guarantee. HMRC has made clear that where a party is not certain that the guarantee details given are acceptable they should make further enquiries of the owner or transporter to satisfy themselves that the guarantee given is appropriate for the movement and if not satisfied the guarantee should not be accepted. The movement guarantee can create a large tax liability for the party giving it since it is a financial security for the amount of excise duty payable on the goods being transported. In this case, the movement guarantee of the transporter, D E International, was used by adding their number in Box 10 of the AAD form.

49. The liability under the guarantee can be the liability for all outstanding duty arising from any irregularities during the movement of goods. The guarantor runs the risk of having to pay the full amount of excise duty on a cargo which is not delivered to the address stated on the AAD form. The liability of the guarantor is not dependent on participating in any fraudulent activity which may have been conducted and which resulted in the goods not being delivered to the address stated on the AAD forms.

Burden and standard of proof

50. A word about the burden and standard of proof. The Appellant is appealing against the assessment and in such a case the burden of proof is on the Appellant to show that the assessment is wrong. The Appellant may show that there were no irregularities occurring or that their movement guarantee was not authorised to be used. In this case, there is no allegation of fraud by the Respondents and in any event such an allegation will have to be expressly pleaded.

51. The standard of proof is on a balance of probabilities. It means, simply put, that the facts in issue must be proved to have been more probable than not to have occurred.

Rights of defence arguments

52. The Appellant was informed that the goods had not reached their destination when the Respondents visited on 27 April 2006. He was warned that an assessment would be raised if he could not provide the Respondents with further evidence of where the goods were delivered. There was a second visit by the Respondents on 4 May 2006 and a request for more information was made at that time.

53. In her witness statements officer Desanjh stated:

“9. On 27 April 2006 Officer, Roger Buckles and I visited DE International and met with Mr David George Ellis. We explained that certain loads that his movement guarantee had covered that he transported on behalf of Executive Wines and Beers Ltd had not reached their destination and as he provided the guarantee for these loads he would be liable for the outstanding duty.

10. Mr Ellis was surprised as (sic) this as he said he had assumed that goods had arrived as he had copies of three of the Administrative Accompanying Documents signed by the French Bonded Warehouse and by the French Customs. We informed Mr David George Ellis that we had information that the stamps were forged.

11. We requested that he provided us with copies of the following:

1. Instructions given to him from Executive Wines and Beers;

2. Instructions from D E International to their sub-contractors;

3. Instructions from D E International to Abbey Forwarding (the destination);

4. Copies of the (AAD) Administrative Accounting Documents.

12. These were uplifted and he was provided with a receipt. We asked Mr Ellis why his instructions stated that the goods should go to Polley Transport and why the AADs were addressed to Polley Logistiques. Mr David George Ellis said he thought it was one company and he presumed Abbey had done checks when they completed the AAD. I then returned the documents that were uplifted on 21 September 2005. I also warned Mr David George Ellis that an assessment would be issued to him if he could not provide us with further evidence of where the goods were actually delivered”.

54. On 28 July 2006, officer Desanjh informed the Appellant of her intention to raise an assessment and stated that: “Before I make an assessment relating to these movements, I would like to give you the opportunity to contact your sub-contractor to provide further evidence that the excise goods arrived at their destination”. The Appellant provided a letter from CDG Transport Services Ltd which stated that the loads had been “cleared and redirected to Sarl Global, 170 Qual De Mahoire Calais 62100”. An assessment was issued on 3 November 2006.

55. Let us now turn to the law. The law has an underlying principle - the respect for the rights of defence. This is reflected in Article 10(4) of Directive 118/2008 which replaces Directive 92/12. Article 10(4) of Directive 118/2008 states that:

“Where the person who guaranteed the payment in accordance with Article 18 has not been, or could not have been, informed that the goods have not arrived at their destination, a period of one month from the date of the communication of this information by the competent authorities of the Member State of dispatch shall be granted to enable him to provide evidence of the end of the movement in accordance with Article 20(2) or of the place where the irregularity has occurred”.

56. It is clear that the Appellant was given more than one month to produce the appropriate evidence before the Respondents issued the assessment. Further, it cannot be said that the Appellant provided any satisfactory evidence of the arrival of the goods at their destination. The Tribunal finds that the assessment was not raised out of time. The assessment was raised on the basis of intelligence received from the French Customs authorities between 6 November 2005 and 21 December 2005, which indicated that the goods never arrived at the destination stated on the AADs. The assessment was raised on 3 November 2006 and so was within one year of the evidence from the French Customs coming to the Respondents’ attention, and so was raised in time under section 12(4)(b) of the Finance Act 1994.

57. The Tribunal therefore does not think that the Appellant’s rights of defence have been infringed and the case of Cipriani is not applicable.

Was the Movement Guarantee authorised?

58. A person seeking to have a movement guarantee would make an application to the appropriate body and would be issued with a number evidencing that they have been approved to have a movement guarantee. The person therefore has to be approved by HMRC to act as a guarantor. The guarantee itself is part of the commercial relationship between the customer and the guarantor, who carries enormous risk and responsibility.

59. Given the level of fraud in this sector, it is important that appropriate precautions are taken and checks are properly carried out to establish the validity and lawfulness of movement guarantees before goods are released. The trade association, the United Kingdom Warehousing Association, in its Memorandum of Understanding with HMRC (2006) outlined some of the problems facing businesses. They explained that movement guarantees are liable to be abused and aside from establishing the validity of the guarantee and conducting appropriate checks to establish and verify the contracting parties, care should be taken to check that the movement guarantees are not wrongly or illegally used.

60. Let us look at the facts as presented.

61. Firstly, Mr Ellis says that he did not authorise the use of his movement guarantee in the transactions relating to the assessment. The Respondents say that either Mr Ellis did expressly authorise the use of his movement guarantee and gave authorisations to do so or alternatively he impliedly authorised the use of those guarantees by his conduct since he did nothing to stop their use when he found out they were illegally used. The question which the Tribunal must ask itself is whether the Appellant expressly authorised the use of his movement guarantee and if he did not expressly authorise did he impliedly do so. It should be borne in mind at all times that the movement guarantee number and authorisation passes between different parties. The commercial situation requires that almost all parties see the movement guarantee number. The movement guarantee number is stated on the AADs and given that the system is essentially a paper system with information passing between the parties and copies of documentation being held by those parties or accompanying the goods in order that that information is available to authorities and other bodies, it is clear that the information is not private. A party may have knowledge of an authorisation number from previous dealings. It is relatively easy to get hold of the number.

62. The Appellant denies that the documentation is his or was prepared by him. He says there are several discrepancies in the authorisations which are purported to have come from him. He said the documents are purported to be faxed but there are no fax numbers on the page evidencing it had been faxed. The signature on the document was neither his nor that of his wife who would normally sign on behalf of the business. The layout of the information on the page also did not resemble his layout. For example, he would not number his pages in the way that they were numbered and in sending a fax to the consignor’s warehouse he would write “Tracy/Abby” and not “Abbey Forwarding”. He claimed not to know Polley Transport in Calais, the destination company, and in giving details of the vehicle he would normally write TBA not TBC. He said in all, the document appeared to be a photocopy of his and details were added by a party perpetrating the fraud. He said at the time these documents were prepared he was away and out of the country either on holiday or repairing his vehicles which had broken down in France.

63. In his oral evidence, Mr Ellis gave evidence that he did not know the movement was done by CDG as a subcontractor. He said the entire shipment was arranged without his knowledge or consent and that, while he had a historic relationship with Abbey Forwarding and knew that Executive had also had a relationship with CDG, he knew nothing of the use of his movement guarantee nor did he authorise it. He said the authorisation was done by simply completing Box 10 of the AAD with his movement guarantee number. Normally, Abbey Forwarding would have done the appropriate checking and would, from a course of dealings, be familiar with various details to be completed on the documentation. Normally, the Appellant would be consulted in order to obtain his authorisation. This was not done. The Appellant alleges that Executive or a party connected with them was responsible for the completion of the authorisation. This is somewhat borne out by correspondence between the parties. On 30 August 2005 the Appellant wrote to Executive as follows:

“I have received an invoice from CDG Transport Services for deliveries of to France on the 9, 10, 17 (two deliveries), 18 and 19 August.

Please let me have authorisations for these so I may invoice you”.

64. The Appellant also wrote to CDG on 9 September as follows:

“I have received your invoices No.195 I will be grateful if you could fax me the details of deliveries carried out on 17, 18 and 19 August as I have no information on these and I would like to invoice Executive Wines”.

65. CDG provided the relevant information to the Appellant. Executive provided the authorisations requested “in a batch”. The provision of authorisations by Executive to the Appellant in this way would seem odd. There is no rational explanation why these authorisations in such form and quantity were in the hands of Executive and no evidence on the face of the document that they had in fact been faxed to or from Executive. This should have immediately alerted the Appellant to an irregularity and he should have made further enquiries.

66. The Appellant provides some explanation as to why the authorisations were in the hands of Executive. He said there could be several reasons. It is possible that the Appellant’s letter headed paper had been used, which may well have been acquired either from past dealings or copies made by photocopying genuine documents and then altering the copies. Alternatively, actual copies of blank authorisations may have been lifted (stolen) from his office when Executive visited the office. Copies of his letter headed paper were kept at his desk and this could easily have been lifted by a third party. The Tribunal found no evidence that the documentation was created in this way. There is no doubt that there was illicit activity. However, where there is an irregularity in the course of a movement involving the chargeability of excise duty and it is not possible to determine where the irregularity occurred, the person who guaranteed the payment of the excise duty becomes liable to pay.

67. The Appellant relied on Abbey Forwarding to get all the paperwork and information correct. Indeed, the whole transaction seemed to have been handled by Abbey Forwarding including the appointment of subcontractors. The Appellant acknowledged that he was sloppy and negligent in his own dealings with paperwork and he did not undertake any due diligence before issuing invoices as he had been assured by Abbey that all appropriate due diligence had been undertaken. In other words, the Appellant was relying on Abbey’s due diligence and therefore felt that he did not have to undertake any of his own. We know that it is normal practice for the consignor warehouse to draw up the documentation and to make a charge for those services. They will always have the guarantee number of the transporter which can be used in the completion of relevant documentation. Since warehousekeepers do not have control of goods after they have left the warehouse it is important that they undertake thorough due diligence. We are aware that HMRC and the trade association have issued guidelines of the due diligence required in these transactions. One would expect the Appellant to be aware of these guidelines and to have done or requested to be done on his behalf the requisite checking and due diligence before authorisations are given. If this was not done and the transactions appeared suspicious, then questions should have been asked.

68. The Appellant must have known that his movement guarantee was being used without his permission. There were approximately fifteen uses of the guarantee and invoices were issued by the Appellant for transport costs arising from goods delivered under the guarantee. The simple pattern which appears to have evolved is that Executive would use the guarantee, the Appellant would issue an invoice for transport costs and at no time did the Appellant complain about the use of his guarantee, although the Appellant said that he did so when he became aware of its use after the shipments had been made. The Appellant said that he issued invoices on the back of the documentation because he thought that the documentation was in order at the time of issuing the invoices. The Tribunal believes that the issue of invoices for transport costs on the back of movement guarantee authorisations which he had not given or completed and which he thought was not valid prima facie undermines his case that he did not authorise their use. The Tribunal cannot think why the Appellant would have considered the documents to be valid when in fact they were not his documents and he had not authorised their use. He did rely on those documents on face value to issue invoices for payment so that he could then pay his subcontractor from CDG. If the Appellant knew that he had not issued the authorisations then he would have acted in a way commensurate with the authorisations not having been issued. In other words he would have gone back to Abbey Forwarding and asked questions about the use of his authorisation number and the due diligence which they have undertaken. He would have taken further action to make Executive aware of his view of the position, in writing, and to insist that they do not abuse his guarantee and, probably, that they indemnify him for any use of it without his awareness. Additionally, he would have contacted HMRC to make them aware of his concerns. There is no evidence that any of this was done. It is clearly possible to use a movement guarantee without authorisation. The use of movement guarantees without authorisation has clearly been responsible for the incidence of fraud in this sector. If a person discovers that their movement guarantee has been used without permission or suspicion revolves around its use they should immediately contact both the authorities and the consignor warehouse to report the matter and to obtain verification of the transaction. This was not done. In fact, the Appellant continued to invoice Executive for their transport costs which was clearly not a sensible way forward.

69. It is clear to the Tribunal that the Appellant is not dishonest. There is no allegation of dishonesty against the Appellant and such an allegation has to be clearly pleaded. However, the Appellant, by his actions, must be taken to have impliedly authorised the use of the movement guarantees.

70. The Respondents argue that the Appellant has provided the guarantee for these cargos and it is up to him to pay the duty. They do not accept his blame of Executive nor the argument that the transactions were undertaken by “a well organised network”. If the Appellant believed that Executive were involved in fraudulent transactions, it seems very odd that he invoiced Executive for his fees on those transactions. The relationship between Executive and the Appellant appeared to be very good and the invoices were paid.

71. The Tribunal accepts the Appellant was out of the country between 18 and 27 September. He has provided documentary proof that this was the case. He has not provided documentary proof of any other occasion when he was out of the country. In the period when he was out of the country there was only one cargo involving Executive which was arranged at that time. It took place on the 20 September 2005. The Appellant cannot convince the Tribunal of his arguments on the basis of this one transaction. There is no evidence that he was away at the other times claimed. However, the Tribunal does note that there were no authorisations given for deliveries from 31/08/05 to 19/09/05 and these seven transactions (numbers 1189-1196) should be taken out of the assessment.

72. The Respondents say that there were irregularities in the movement of the goods. First the stamps on the AADs were false. Copy 3 of the AAD, which sought to provide Abbey Forwarding with confirmation that the goods had left the warehouses, was forged and it was sent by the perpetrators of the fraud. There is no satisfactory evidence that the goods ever left the UK to go to France. This is confirmed in an Excise and International Trade Report (Form DGT465D, May 2006). CDG were unable to provide evidence that the goods went to France. They said that the goods were sent to SARL Global and were delivered to Polley Logistique. Polley Logistique confirmed that they never received the goods sent by Abbey Forwarding which were destined for SARL Global. The French Customs stamp on the AADs was false as were the stamps of Polley Transports and the signatures associated with that firm. Their phone number, fax number and the Internet address had been erased from the stamps on the AADs. The goods did not arrive at the destination as stated in the AADs. All this goes to establish that there were clear irregularities in both the delivery and the documentation.

73. Where an irregularity had occurred and the Appellant had provided the guarantee for the movement of the goods, the excise duty on the goods was due from him under Article 20(1) of the Directive. As the goods did not arrive at their destination, it was therefore not possible to determine where the irregularity was committed and the irregularity was deemed to have occurred in the state of departure which is the United Kingdom, pursuant to Article 20(3) of the Directive. The excise duty point arose when the goods were removed from the warehouse in the UK under Regulation 4(2) of the DESMEG Regulations. The Tribunal finds that there was an irregularity and that the irregularity would result in an excise duty point and under the relevant regulations, Regulation 7(1) of the DESMEG Regulation, the person liable to pay the excise duty on the occurrence of the excise duty point was the Appellant as the provider of the guarantee for the movement of goods.

74. There is no definition of the word irregularity but the non-arrival of the goods and false documentation would certainly constitute an irregularity. The liability for the excise duty would be joint and several, with any other parties involved in the irregularity. The Tribunal has reviewed the guarantee provided after the hearing and from the documentation the word “Guarantor” under the agreement is HSBC Bank and the “Principal” is Mr Ellis. Under Clause 2.2 of the guarantee agreement, the maximum aggregated liability of HSBC is £25,000. The Principal’s liability is not limited to the bank maximum aggregated amount (Garett Trading Ltd) (No.2) Tribunal case E01126, 18 July 2008). The primary obligation to pay the excise duties is on the person who arranged for the guarantee.

75. The Tribunal accepts that the Appellant did nothing to prevent the misuse of his movement guarantee. He knew on at least fifteen occasions that the forms were being used and he elected to invoice all his charges on the basis that deliveries were made. There is no evidence that he told Executive to stop using his movement guarantees. or that he contacted the consignor warehouse to enquire about their due diligence or HMRC to obtain guidelines on how to proceed given that his movement guarantee was used without authorisation. He could for example have cancelled the guarantee on the grounds that he would have been exposed to more claims. In requesting Executive to provide copies of the authorisations (see letter dated 30 August 2005) he was relying on the authorisations being valid. The Respondents say that the request was made in such a way as to imply that the forms were being “sent back” to the Appellant and that they would have been previously sent by the Appellant to Executive. The Tribunal will not read this into the letter. The Tribunal believe that at the time the invoicing took place there was some fifteen occasions when the movement guarantee had been used and the Appellant elected to charge for his services on the basis of those deliveries. This would suggest that he gave Executive the “green light” to keep using the guarantees and did not object to their use. These actions may have been borne out of some negligence or poor internal arrangements for checking but either way, this would have been fatal to the Appellant saying they were unauthorised. The fact that nothing was done to prevent the guarantees being used would suggest at the very least that they were impliedly authorised.

General conclusions

76. The Tribunal does not believe that the Appellant was involved in any fraudulent activity. At the simplest level, the Tribunal understands that there has been an irregularity and the Appellant has provided a guarantee for the movement of goods and the excise duty on the goods was due from him since the goods did not arrive at their destination. The Appellant has not provided evidence that the goods had reached their destination. He was unable to establish that there were no irregularities in the movement of goods before the assessment was raised. The Appellant had to establish the goods had arrived or the documentation was not authorised. He was unable to prove either fact.

77. It is clear from the documentary evidence that the goods had not arrived at their destination. This is borne out by French Customs and the fact those documents were forged. The Appellant’s reliance on the movement guarantee authorisations to evidence the transportation of goods and consequently to invoice for transportation costs is sufficient to show an implied consent to the use of the guarantee. The movement guarantee seeks to safeguard the revenue at risk in individual movements of duty suspended excise goods and there is nothing unreasonable or disproportionate about making the Appellant liable for the excise duty where he invoices on the back of the very movement guarantee which he seeks to disclaim. Since there is little evidence that the Taxpayer had himself undertaken or had undertaken on his behalf, the necessary commercial due diligence and care in seeking to detect the fraud or verify the legitimacy of the transactions, the Tribunal finds that the Netto case is not of assistance. He cannot at the same time rely on the lawfulness of the transactions to invoice for his fees and to complain of their lawfulness.

78 The Respondents can, under Regulation 7(2) of the DESMEG Regulations, pursue any other party who has caused an excise duty point, to be jointly and severally liable to pay the duty with the guarantor. This does not absolve the Appellant from the liability to pay the duty but merely makes other parties jointly and severally liable with him.

79. In these circumstances the assessment, subject to the removal of the stated transactions for which no authorisation was given, was correctly made and accordingly the appeal is dismissed.

80. No issues of costs were raised.

81. 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.

First-tier Tribunal (Tax)

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

DR K KHAN

TRIBUNAL JUDGE

RELEASE DATE 16 March 2011

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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Ellis (t/a D E International Transport) v Revenue & Customs [2011] UKFTT 181 (TC) (16 March 2011) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2011/TC01050.html Cite as: [2011] UKFTT 181 (TC)