R A International v. HMRC

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R A International Ltd v The Commissioners for HM Revenue & Customs
Special VAT Appeals Tribunal: Lady Mitting (Chairman) and Mr M Farooq: (E01004) (2006): 29 November 2006
Derek Payne, VAT consultant, for the Appellant, RAIL
Peter Woodhouse, counsel, for the Respondent, HMRC
HMRC Commissioners were justified in raising an excise point assessment for £26,790 against the carrier, R A International Ltd, (as the named guarantor) of excise goods, where the carrier had been unable to provide the Accompanying Administrative Document ("AAD") as proof of the transfer of the excise goods between bonded warehouses in England and France.

The Commissioners had jurisdiction under DSMEG Regulation 3(1)(b) to raise the excise point since the irregularity (the lack of a receipted copy AAD) had been detected within the UK by a UK Customs officer.

On the facts, HMRC Commissioners were not obliged to accept alternative evidence that the excise goods had been delivered, in that the requirements of Notice 197, sections 71.1 and 71.2 had not been complied with; ‘every reasonable effort’ had not been made to provide acceptable alternative AAD proof of delivery and ‘exceptional circumstances’ did not exist which would justify other forms of evidence to prove delivery. In particular, the CMR document, which had been qualified on delivery as to ‘quality and quantity’ and had inconsistent vehicle and trailer numbers, did not evidence delivery of the excise goods for the purposes of UK duty.

DMC Category Rating: Developed

By Jim Leighton, BSc (Hons), LLB, LLM (Maritime Law), Claims Consultant and International Contributor to DMC’s CaseNotes

The decision appealed was that of the HM Revenue & Customs Commissioners ("the Commissioners"), taken on review, confirming an assessment to excise duty in the sum of £26,790. The assessment was raised on 26 September 2005 and related to one single consignment of beer being carried under duty suspension by R A International Ltd ("RAIL") from UK Excise Warehouse Promptstock Ltd ("Promptstock") and to be delivered to EDW Marck Excise Warehouse ("EDW") in France.

The provisions governing the movement were set out in rr.3,1 42 and 73 of the Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001 (SI 2001/3022) ('the DSMEG Regulations').

Promptstock had, on their W1 warehousing return declared a consignment of 1,920 cases of Special Brew beer being moved under cover of an Accompanying Administrative Document ("AAD") reference 1071 to EDW. The AAD should have been discharged by the return by EDW to Promptstock of a certified copy. It came to the Commissioners’ attention that this had not occurred, indicating that the excise goods appeared not to have been received by EDW. The Commissioners duly wrote to Promptstock advising that it had failed to discharge AAD 1071. In response Promptstock faxed the Commissioners a copy CMR document. The CMR document referred to AAD 1071; described the goods being carried as 1,920 cases of Special Brew and referred to the transporting vehicle as registration number L898 NNW and the trailer as 106. It bore an EDW stamp and carried the handwritten qualification "Sous réserve de qualité et de quantité" ("Under reserve as to quality and quantity"). Promptstock also provided the Commissioners with a copy of their copy of the AAD.

Four months after despatch, the AAD had still not been returned and an excise duty point was created. RAIL’s name had been inserted in box 10 of the AAD as guarantor. In accordance with r.7, RAIL was to bear liability for payment of the UK duty, so the Commissioners raised their assessment against RAIL. RAIL applied to the Commissioners by letter for a departmental review maintaining that the excise goods had been properly delivered as witnessed by the CMR, duly stamped by EDW. The review was carried out and the assessment upheld by the Commissioners, who relied strictly on rr.3, 4 and 7.

It was open to the Commissioners to accept alternative evidence proving receipt of the excise goods under ss.71.1 and 71.2 of Notice 197 "Excise Goods Holding and Movement". Essentially, where reasonable efforts had been made to obtain the original receipted AAD and it had not been found, the Commissioners could accept a receipted copy or replacement AAD or a letter from the importing country’s Customs officer confirming receipt of the AAD goods by the consignee. In exceptional circumstances, where the consignor could not provide one of these alternative forms of evidence, the Commissioners could consider alternative evidence on a case-by-case basis. This required clear alternative evidence establishing that: (1) the goods were received at the consignee’s premises; (2) the goods were declared; and (3) the goods must have been clearly identified as those shown on the original AAD.

The essence of the Commissioners’ submission was that the CMR document merely identified a shipment of goods but not necessarily the shipment of goods in question. This was unlike an AAD, which recorded consignor/consignee excise numbers, the name of the guarantor and - once receipted by the consignee - evidenced the delivery of the specific consignment in question.

RAIL submitted that: 
the Commissioners had no evidence that any irregularity occurred within the UK; 
the transaction was outside the jurisdiction of UK duty; 
this was a perfectly normal transaction recorded properly in RAIL’s books and with an audit trail showing its progress from start to finish; 
the CMR should have been accepted by the Commissioners as alternative evidence as it clearly showed delivery and receipt for the consignment.

The Jurisdiction Point
The tribunal pointed out "Regulation 3(1)(b)
1 specifically provides for the regulations to engage when the irregularity either occurs within or is detected within the UK. The irregularity was quite clearly discovered within the UK when [the UK Customs officer was] checking for the discharge of the AAD." The transaction, therefore, clearly fell within the scope of UK duty and the DSMEG Regulations.

The Notice 197 Point
The tribunal stated: "the very specific requirements set out in section 71.1 and 71.2 of Notice 197 are not present. We are not at all satisfied that [RAIL] ‘made every reasonable effort’ to obtain the original receipted copy 3 and [RAIL] was unable to produce a receipted copy 2 or a replacement copy 3." Therefore, 71.1 was not complied with.

Additionally, the tribunal did not consider the circumstances of the case to be ‘very exceptional’ and therefore saw no reason for 71.2 to apply. In any event "the alternative evidence acceptable under 71.2 ‘must clearly identify the goods as those shown on the original AAD’." In the tribunal’s view the CMR did not do that for a number of reasons: "the description of the goods is certainly similar but the CMR is specifically qualified to the effect that the load has not been checked as to quality or as to quantity. Whoever stamped the CMR was not therefore guaranteeing the load. We have no idea who stamped the CMR or whether it was a valid EDW stamp. The CMR refers to vehicle 898 with trailer 106. We know from [RAIL’s] evidence that it was not 898 which made the delivery and there is no firm evidence that 106 was the trailer in question either. Clearly whoever stamped the CMR did not check the registration number and the trailer number otherwise the discrepancy in registration would have been noted. For all these reasons the decision of [the Commissioners] that there was no acceptable alternative evidence was the only reasonable decision which could have been reached."

The Complete Audit Trail Point
In the tribunal’s view the documents did not provide a complete audit trail, in that they did not clearly specify the goods to which the AAD referred.

The tribunal held that RAIL "has not discharged the burden of proof and has not satisfied us on the balance of probability that the goods were duly received by EDW." As a result, the assessment to excise duty had been made correctly.

This case highlights the danger that exists for carriers of excise goods between bonded warehouses with EC Member States. As the named guarantor, the carrier is liable to pay the outstanding excise duty owed where there is insufficient proof of delivery. It must be borne in mind that the burden of proof (on the balance of probabilities) to establish proper delivery of the excise goods in question is upon the carrier-guarantor. The carrier must therefore ensure that the original AAD or one of its official copies or replacements is available for inspection by Customs and maintain a comprehensive audit paper trail as a backup, clearly establishing that the excise goods collected were the same ones transported and delivered to their intended destination.

1. The DSMEG Regulations, r.3:
"(1) This regulation applies where:
(a) excise goods are:-
(i) subject to a duty suspended movement that started in the United Kingdom; or
(ii) imported into the United Kingdom during a duty suspended movement; and
(b) in relation to those goods and that movement, there is an irregularity which occurs or is detected in the United Kingdom.

(2) Where the Commissioners are satisfied that the irregularity occurred in the United Kingdom, the excise duty point shall be the time of the occurrence of the irregularity or, where it is not possible to establish when the irregularity occurred, the time when the irregularity first comes to the attention of the Commissioners.

(3) Where it is not possible to establish in which member State the irregularity occurred, the excise duty point shall be the time of the detection of the irregularity or, where it is not possible to establish when the irregularity was detected, the time when the irregularity first comes to the attention of the Commissioners."

2. The DSMEG Regulations, r.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 
(c) there is no excise duty point as prescribed by regulation 3 above; 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."

3. The DSMEG Regulations, r.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."

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