EXCISE DUTY – Post clearance demand – Time limits – Whether "assessment" made more than a year from the date on which sufficient evidence of fact came to the knowledge of the Commissioners – Yes – Appeal allowed – FA 1994 s.12(4)
LONDON TRIBUNAL CENTRE
BB SUPPLY CENTRE LIMITED Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: STEPHEN OLIVER QC (Chairman)
CAROLINE de ALBERQUERQUE
Sitting in public in London on 26 and 27 August 2003
A Brown, of W J B Chiltern, consultants, for the Appellant
Zoë Taylor, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents
© CROWN COPYRIGHT 2003
DECISION
- The Appellant, BB Supply Centre Ltd ("BBSC") appeals against a review decision dated 26 November 2002. The decision under review had been made on 3 July 2002 and its effect was that a post clearance demand notice should be issued to BBSC. The 3 July decision was for the post clearance demand notice to be issued in respect of 729 import entries over the period 2 March 1998 to 26 February 2001 and the amount of duty was £170,290.55. On review the amount of the demand was reduced to £103,531.04 because 281 entries with dates on or before 2 July 1999 were out of time for assessment.
- The disputed decision arises because of an admitted error in the entries completed by or on behalf of BBSC in relation to its imports of Budweiser "Budvar" beer. Alcoholic liquor duty is imposed by reference to the alcohol by volume (ABV) percentage of the imported goods. For duty purposes the ABV percentage is that shown on the label of the goods or, if higher, the actual ABV percentage of the particular product. See the Beer Regulations (SI 1993/1228). In the entries to which the disputed decision relates BBSC had, through its agents, returned the actual ABV percentages shown on the invoice for each consignment; those ABV percentages were all below 5%. In fact the labels displayed the ABV percentages as 5%. Alcoholic liquor duty was therefore properly to be charged on the basis of a 5% ABV.
- BBSC's error came to the attention of the Commissioners as a potential error in March 2001. The Commissioners issued an assessment in the form of the post clearance demand notice of 3 July 2002. Relevant to this appeal is Finance Act 1994 section 12(4) which provides that the assessment must be made at 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 making the assessment comes to their knowledge. BBSC contend that evidence of such facts had come to the Commissioners' knowledge in March 2001; consequently the assessment was out of time. The Commissioners argued that such evidence only came to their knowledge in January 2002.
The facts
- We heard evidence from Lynne Zilkho who had been director and chief executive of BBSC throughout the relevant period. Witnesses for the Customs were Messrs Christopher Hollett and F K Salvage and Miss Ann Thomas, the review officer (all Customs Officers).
- BBSC had been the sole official importer and distributor of Budvar beer throughout the period to which this appeal relates.
- Budvar beer is marketed as "premium lager beer". Throughout the period of BBSC's distributorship all imported Budvar beer bottles have been marked with 5% as the ABV percentage on the label.
- Each batch of Budvar beer is tested by the head brewer of the brewery in the Czech Republic before despatch. The actual ABV frequently deviates above and below 5% and the actual percentage is entered in the entry forms when the goods come into the UK.
- In 1986 and 1987 Customs officers at Dover took samples of the imported beer. At that time beer strengths were measured by reference to their "Original Gravity". No discrepancies between figures for Original Gravity on the entry form and those disclosed by the samples were found.
- Alcoholic Liquor Duties Act 1979 sections 3 and (3A) provide for regulations to be made for prescribing the means of ascertaining the strength of imported beer for the purpose of charging duty. Regulation 18 of the Beer Regulations 1993 provides, as already noted, for the strength of beer for duty purposes to be the strength on the label (of the bottle or can) where this is greater than the strength shown on the invoice.
- Budvar beer has used freight forwarders to handle its import formalities. In the letter of engagement of the freight forwarders the following passage is found:
"All the Budvar invoices carry the ABV of the beer which you can use for your entries (ranges between 4.9% to 5.1%). Through Freightflow we only used up to one decimal point, i.e. if the invoice specified 4.98%, this was entered as 4.9%. This was to Customs and Excise's satisfaction."
(Freightflow were the predecessor freight forwarders.)
- All entries made throughout the period to which this appeal relates declared the strength of the Budvar beer in ABV as shown on the invoices covering the entry. In each case it was rounded down to the nearest percentage point (e.g. strength shown in the invoice as 4.97% was entered as 4.9%).
- In 1998 and in 1999 examinations by the Commissioners were carried out of importations by BBSC of Budvar beer. Entries relating to the examinations, were following the request of BBSC's representatives in preparation for these proceedings, found to have been destroyed.
- An examination of a consignment of Budvar beer was carried out on 19 March 2000. The circumstances of this were that a vehicle carrying the consignment was seen to have a torn tilt. A full police inspection took place to discover whether the vehicle had been carrying illegal immigrants. A comprehensive tally of the contents was taken by the Customs. The contents are recorded in the Commissioners' record as a quantity of bottles each marked "Budweiser Budvar, best before end 2000, 5% volume, 330 millilitres. Sole distributor in the UK: BB Supply Centre Ltd".
- On 2 March 2001 Mr Christopher Hollett, an officer of Customs and Excise at Dover, was checking through the "MS Trading System" database of entries of beer. He noticed that a number of entries had been made showing the alcoholic strengths as 4.9% ABV and lower although the label strength was in fact 5%. On that basis he saw a potential underdeclaration of duty. The same day he made a report which we refer to as "the Hollett Report".
- The Hollett Report was headed –
"Re: Potential Underpayment Exceeding £150,000
Importer: BB Supply Centre
Goods: Czech Budweiser Beer".
The Report contains the following passages:
"Whilst checking through MSS for the above, I have noticed that hundreds of the entries have been completed incorrectly, resulting in potential underpayments totalling around £180,000 over the past three years. The errors are threefold, as under:-
- …
- …
- Over 750 instances, of Dover and Felixstowe Home Use entries, where the alcoholic strength has been entered as being between 4% and 4.9%, although the labelled strength is shown as 5%, as attached. … (Copy instruction and beer labels attached).
Over the past three years this continuous error has resulted in the loss of revenue of around £115,000 excise duty and £20,000 VAT, or future additional revenue averaging over £45,000 per annum."
…
"BB Supply Centre are the sole importer of this brand of beer …"
…
"A check with HQ will be required to confirm and update these figures, and also to ascertain the excise duty rate changes over the past three years. The reasons for these errors not coming to light before are possibly due to inexperience of the EPU officers, especially in excise matters, regularity of this traffic causing less depth checking, and the fact that over the last twelve months the incidence of these entries attaining Route 1 status has dropped to less than 1%".
- "Route 1" refers to a simple inspection by which the goods are matched to the details on the entry form. Route 2 examinations involve a physical examination covering all aspects of the goods. Route 3 examinations are the most intensive.
- Mr Hollett had available to him a computer printout dated 3 March 2001 drawn from the MSS Trader System when he made his report of 9 March 2001: this is referred to at the start of the extract set out above. The printout runs to 77 pages and it itemizes all BBSC entries of Budvar beer from the start of March 1998 until 28 February 2001. Each itemized entry specifies, for example, its "Entry number", the "Customs value" and the "Nett mass".
- The words "beer labels attached" in the above extract referred to two beer labels. One of these, said Mr Hollett, was an old label which showed the "Original Gravity" reading as its strength. The other he said he had purchased from a supermarket; this showed the 5% ABV as the beer's strength.
- The Hollett Report was passed to Mr Reg Payne, a senior officer. He referred it on to Mr Keith Hailwood, head of the fiscal freight team. Mr Hailwood referred it to Mr F K Salvage, an officer in that team. Mr Salvage looked at it to determine whether it contained evidence of fraud or "connection" between the parties to the transactions. He decided that there was no such evidence. His decision, Mr Salvage said, had been taken at the "very beginning" but after March 2001. A decision, to which Mr Salvage was party, was taken to subject the BBSC importations to a Route 2 examination. Because the system and particularly the computer capacity had other priorities, this examination was not carried out until October 2001.
- In the meantime Mr Hollett went through all the entries itemized in the MS Trader System printout of 2 March 2001. He made manual entries of the additional excise duty and the "VAT thereon" for each item on the basis that the duty and the tax should have been calculated by reference to the 5% ABV and not the lower percentage shown in the invoice. Mr Hollett's calculations worked out at £118.10 short of the amount actually assessed on 3 July 2002 (i.e. £170,290.55 shown in the post clearance demand notice).
- The decision to set up a Route 2 investigation was taken because, as Mr Salvage explained, they had to see the goods and for this they needed a "scheme of control". Mr Salvage said that the examination had to be conducted with "an actual bottle in one hand and the entry documents in another, "otherwise" the goods are not in our control". Mr Salvage explained that he had no power to go to a supermarket to buy a bottle of Budvar beer. Why the label provided from the bottle purchased by Mr Hollett from a supermarket, and submitted with the Hollett Report of 9 March 2001, was not sufficient for assessment purposes was not adequately explained. While the Customs admitted that BBSC were the sole official importers and distributors, it was suggested for the Commissioners that they could not properly rely on the label on the bottle purchased by Mr Hollett from the supermarket because it might have come from a non-BBSC consignment (e.g. a bootlegged consignment). Another reason for setting up the Route 2 examination was because an encyclopaedia referred to by Mr Hollett disclosed two types of Budvar beer, one with a red label and a published strength of 5% ABV and another with a blue label with a much lower strength. Mr Hollett accepted that the information showed that the blue label brand was for sale in the Czech Republic only.
- At some time between 9 March and 14 July 2001 Mr Salvage went through the figures in the printout attached to the Hollett Report. His calculations produced the figure that was £118 greater than that calculated by Mr Hollett. Both calculations had been based on 5%.
- On 14 July 2001 Mr Hollett adjusted his calculations of underpayments of duty and tax to take in the entries from March to early July 2001.
- The Route 2 examination covered an entry on 16 October 2001 for a consignment of goods covered by an invoice that showed the strength as 4.89% ABV. The examination involved the determination of the labelled strength of 0.5 litre and 0.33 litre bottles together with sampling to determine the actual strengths by distillation process. A printout reads as follows:
"On examination the Budweiser beer at this entry was found to be labelled at a strength of 5.0% by volume. Under the Alcoholic Liquor Duties Act, section 2(3A), the entered strength is to be the labelled strength or the documented strength, whichever is the higher, please amend entry accordingly.
C Hollett"
A manual record gives an account of the examination and this confirms the reading of the label to show the strength as 5% ABV.
- The next recorded event is a further report from Mr Hollett dated 18 January 2002. This states that examinations of both sizes of bottles had been carried out "as per attached schedules with all bottles labelled with a strength of 5% ABV".
- Mr Salvage had started producing a further itemized schedule containing all the entries to be covered by the intended post clearance demand notice. Pressures of work meant that this task took him from October 2001 until May 2002. BBSC, he said, would not have understood his methodology without an entry by entry itemization.
- The post clearance demand notice was issued on 3 July 2002. The underdeclarations covered by the assessment are only those cases where the alcoholic strength are shown in the invoices less than 5% ABV. The matter was referred at BBSC's request for a review. Ann Thomas conducted the review. She considered the schedule produced by Mr Salvage, the Hollett Report and the notes provided by him and the MSS Trader System printout of 2 March 2001. She upheld the assessment in principle but reduced it to exclude entries that had taken place more than three years before (i.e. before 3 July 1999).
The law and the contentions
- Finance Act 1994 section 12(1) provides that the Commissioners may assess the amount due from "a person from whom any amount has become due in respect of any duty of excise" and there has been a default. It is not in dispute that BBSC was in default; its underdeclarations of duty owed on the import of beer fell within section 12(2). So far as is relevant for the purposes of this appeal, section 12(4) provides that the assessment must be made by –
"(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 the assessment, comes to their knowledge".
- For BBSC it was argued that the Commissioners had evidence of such facts since the date of the 19 March 2000 examination; failing that, they had evidence since 9 March 2001 when the Hollett Report was presented to Mr Keith Hailwood. On that basis the assessment in the form of the post clearance demand notice of 3 July 2002 was out of time. The Commissioners say that they did not have evidence of such facts until Mr Hollett's follow-up report of 18 January 2002; the assessment was therefore in time.
Conclusions
- As a matter of principle we have to be satisfied that any assessment made in either March 2000 (i.e. immediately after the March 2000 examination) or on 9 March 2001 would have stood up to scrutiny as being to best of judgment. In this connection we are aware that "evidence of facts" coming to the Commissioners' knowledge does not, as Potts J in Customs and Excise Commissioners v Post Office [1995] STC 745 at 755c said, "encompass constructive knowledge".
- The investigation in March 2000 was, it is true, caused by a torn tilt that proved to be the result of someone tampering with the imported load. It did not have the effect of alerting the Commissioners to any other mistakes such as the underdeclarations of the strength of beer. Nonetheless it provided them with hard recorded evidence that the alcoholic strength of the imported Budvar beer was 5% ABV. However the Commissioners did not become alert to the fact that underdeclarations had been made until the Hollett Report of 9 March 2001. That report starts by referring to a "potential underpayment". But it goes on to demonstrate that the Commissioners had in their possession by that time:
(i) exact records of the amounts of Budvar beer imported in each entry;
(ii) statements of precisely how much duty and tax had been accounted for;
(iii) information showing that duty had been calculated on the basis of the invoice entries full strength, i.e. 4.9% ABV and lower and
(iv) a label from the Budvar beer bottle purchased by Mr Hollett from the supermarket showing the labelled strength as 5% coupled with the references to this fact in the Hollett Report.
These indicate that nothing had changed since the last examination of March 2000 which had actually put the information about the labelled strength into the Commissioners' possession.
- The evidence in the Commissioners' possession on 9 March 2001 required to calculate the amount payable by BBSC and assessable under a post clearance demand notice from that time on comprised the quantity of the beer imported, the dates of importation, the amounts actually declared on the entries and the labelled strength of each consignment. So long as the evidence of labelled strength was sufficiently reliable, a best judgment assessment could, we think, have been made from that date.
- The decision in Van Boeckel v Customs and Excise Commissioners [1981] STC 290 establishes that the use of the words "best of judgment" do not envisage the burden being placed on the Commissioners to carry out exhaustive investigations. They must fairly consider all the material before them and, so the judgment reads at 292j-
"As long as there is some material on which the Commissioners can reasonably act then they are not required to carry out investigations which may or may not result in further material being placed before them."
It seems to us that the Commissioners not only had sufficient material placed before them to enable them to assess but also that they were not obliged to carry out any more investigations than had actually been made by Mr Hollett in producing the Hollett Report. Reliance on the label from the bottle that Mr Hollett purchased at the supermarket would have sufficed to found a best of judgment assessment. A more exhaustive investigation, e.g. checking out more bottle labels relating to earlier consignments, should on Van Boeckel principles have been unnecessary. Rahman v Customs and Excise Commissioners [1998] STC 826 requires a finding that, for example, the assessment has been reached "dishonestly or vindictively or capriciously, or is a spurious estimate or guess in which all elements of judgment are missing or is wholly unreasonable" before an amount can be set aside. See the judgment at 835e. There is nothing about the Hollett Report that could possibly warrant setting aside any decision to assess based on it.
- In reaching this conclusion we have considered the reason put forward by the Commissioners for deferring any assessment until a Route 2 exercise had been made. Essentially the reason came down to this. The Commissioners wanted to be able to match an actual bottle taken from an actual consignment with the information in the corresponding entry paper to enable them to be absolutely sure that they had the correct labelled strength. The only reason advanced for disregarding the label exhibited to the Hollett Report was that it might not have come from a relevant consignment. There could, so the Commissioners' argument ran, be a lot of bootlegged bottles of Budvar beer on sale here; thus, although BBSC is the sole official importer and distributor, the bottle purchased by Mr Hollett from the supermarket for the purposes of his report might have come from an unorthodox source. We do not think that a best judgment assessment based on the label exhibited to the Hollett Report could possibly be impugned. The bottle had been bought from a supermarket; we cannot accept the inference that Mr Hollett bought it from an outlet that sold bootlegged goods. Moreover there is no conceivable reason why a bootlegged bottle of beer should show a different labelled strength from one that had come into the United Kingdom by proper means. The Commissioners could therefore have reached a best of judgment assessment and it would then, quite properly, have been for BBSC to seek to displace it (which, of course, they have not sought to do).
- Turning now to the October 2001 examination, this took place in relation to entries taking place long after the importations to which the present assessment relates and confirmed that labels had a strength of 5% ABV printed on them. The actual sampling of the beer as part of the examination did not reveal anything relevant to the assessing process.
- In reaching our conclusion that the assessment is out of time, we have taken into account Mr Hollett's own calculations. These were made within a few months of 9 March 2001. They produced a figure of underdeclared duty and tax which was only £118 short of the amount in fact assessed (i.e. £170,290) about a year later. If the facts available to the Commissioners to make that calculation were available in mid 2001, they could have made a best of judgment assessment at the same time.
- For those reasons we conclude that the assessment was out of time. We allow the appeal and award BBSC its costs of an amount to be agreed. If the costs cannot be agreed, the matter should be referred back for a further hearing.
STEPHEN OLIVER QC
CHAIRMAN
RELEASED:
LON/03/8050
