Hammonds of Knutsford Plc, R (on the application of) v HM Revenue and Customs, Court of Appeal - Civil Division, February 08, 2018, [2018] EWCA Civ 135

Resolution Date:February 08, 2018
Issuing Organization:Civil Division
Actores:Hammonds of Knutsford Plc, R (on the application of) v HM Revenue and Customs
 
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Case No: C3/2016/2398

Neutral Citation Number: [2018] EWCA Civ 135

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)

(Mrs Justice Whipple and Judge Roger Berner)

[2016] UKUT 195 (TCC)

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 08/02/2018

Before :

LADY JUSTICE ARDEN

and

LORD JUSTICE NEWEY

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Between :

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Mr Michael Firth (instructed by Morrisons Solicitors LLP) for the Appellant

Mr James Puzey (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Respondents

Hearing dates: 12 and 13 December 2017

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JudgmentLord Justice Newey:

  1. Where goods on which excise duty has been paid in the United Kingdom are exported to another Member State of the European Union, the exporter may be entitled to ``drawback'' of the duty. However, the Excise Goods (Drawback) Regulations 1995 (``the 1995 Regulations'') provide for goods on which drawback is claimed to have been made available for inspection by HM Revenue and Customs (``HMRC'') for not less than two business days after they had been given notice of the intended export. Where that requirement, which the Upper Tribunal termed the ``inspection facility rule'', is not met, HMRC will not normally allow a drawback claim unless it is the first occasion that the claimant has breached it. This appeal raises issues as to the lawfulness of that approach.

  2. The appellant, Hammonds of Knutsford plc (``Hammonds''), is an alcohol wholesaler selling to customers in both the United Kingdom and other countries. The present proceedings arise out of HMRC's refusal of drawback claims made in 2010 and 2011 on the basis that Hammonds had not complied with the inspection facility rule. The 2010 claims related to two consignments of beer held to Hammonds' order by a third party. Hammonds faxed ``Notices of Intention'' to HMRC in respect of the consignments and instructed the third party not to export the goods before 24 March. In the event, however, without Hammonds' knowledge, the beer left storage at about 5 pm on 23 March, some seven hours before the end of the period required by the inspection facility rule. Similarly, the three consignments of beer which were the subject of the 2011 drawback claims left storage on 28 June (and so earlier than was permissible under the inspection facility rule) even though the third party holding the goods to Hammonds' order had been instructed not to export them until 29 June.

  3. Following the decision of the Court of Justice of the European Union (``the CJEU'') in Case C-663/11 Scandic Distilleries SA v Direcþia Generalã de Administrare a Marilor Contribuabili [2014] STC 1, Hammonds alleged that HMRC had not been entitled to refuse its drawback claims. In 2015, Hammonds was granted permission to apply for judicial review and the matter was subsequently transferred to the Upper Tribunal pursuant to section 31A of the Senior Courts Act 1981. In a decision released on 20 April 2016, the Upper Tribunal (Whipple J and Judge Roger Berner) dismissed the application, but Hammonds now appeals.

    The legislative framework

    EU Directives

  4. Two EU Directives are relevant.

  5. Council Directive 92/12/EEC on the general arrangements for products subject to excise duty and on the holding, movement and monitoring of such products (``the 1992 Directive'') applied to the 2010 claims for drawback. Article 6 provided for excise duty to become chargeable at the time of release for consumption and to be ``levied and collected according to the procedure laid down by each Member State''. Article 7 stated that, in the event of products subject to excise duty and already released for consumption in one Member State being held for commercial purposes in another Member State, the excise duty was to be levied in the Member State in which the products were held (see Article 7(1)). Where, accordingly, products already released for consumption in one Member State were delivered, intended for delivery or used in another Member State for the purposes of a trader carrying on an economic activity independently or for the purposes of a body governed by public law, excise duty was to become chargeable in that other Member State (Article 7(2)), while the excise duty paid in the first Member State was to be reimbursed in accordance with Article 22(3) (Article 7(6)). Under Article 7(5), a trader was to comply with the following requirements:

    ``(a) before the goods are dispatched, make a declaration to the tax authorities of the Member State of destination and guarantee the payment of the excise duty;

    (b) pay the excise duty of the Member State of destination in accordance with the procedure laid down by that Member State;

    (c) consent to any check enabling the administration of the Member State of destination to satisfy itself that the goods have actually been received and that the excise duty to which they are liable has been paid.''

  6. Article 22 of the 1992 Directive read as follows:

    ``1. In appropriate cases, products subject to excise duty which have been released for consumption may, at the request of a trader in the course of his business, be eligible for reimbursement of excise duty by the tax authorities of the Member State where they were released for consumption when they are not intended for consumption in that Member State.

    However, Member States may refuse request for reimbursement where it does not satisfy the correctness criteria they lay down.

  7. In the application of paragraph 1, the following provisions shall apply:

    (a) before dispatch of the goods, the consignor must make a request for reimbursement from the competent authorities of his Member State and provide proof that the excise duty has been paid. However, the competent authorities may not refuse reimbursement on the sole grounds of non-presentation of the document prepared by the same authorities certifying that the initial payment had been made;

    (b) movement of the goods referred to in (a) shall take place under cover of the document specified in Article 18(1);

    (c) the consignor shall submit to the competent authorities of his Member State the returned copy of the document referred to in (b) duly annotated by the consignee which must either be accompanied by a document certifying that the excise duty has been secured in the Member State of consumption or have the following details added:

    - the address of the office concerned of the tax authorities in the Member State of destination,

    - the date of acceptance of the declaration by this office together with the reference or registration number of that declaration;

    (d) products subject to excise duty and released for consumption in a Member State and thus bearing a tax marking or an identification mark of that Member State may be eligible for reimbursement of the excise duty due from the tax authorities of the Member States which issued the tax markings or identification marks, provided that the tax authorities of the Member State which issued them has established that such markings or marks have been destroyed.

  8. In the cases referred to in Article 7, the Member State of departure is required to reimburse the excise duty paid only where the excise duty was previously paid in the Member State of destination in accordance with the procedure laid down in Article 7(5).

    However, Member States may refuse this request for reimbursement where it does not satisfy the correctness criteria they lay down.

    ...

  9. The tax authorities of each Member State shall determine the monitoring procedures and methods applying to reimbursement made in their territory. Member States shall ensure that the reimbursement of excise duty does not exceed the sum actually paid.''

    (Emphasis added.)

  10. The CJEU explained the different roles of, on the one hand, Article 22(1) and (2) and, on the other, Article 22(3) in the Scandic case. It said (in paragraph 27 of its judgment):

    ``The reimbursement scheme set out in art 22(1) and (2) of [the 1992 Directive] applies to situations in which the products subject to excise duty in a member state, where the excise duty has been paid, are transported under suspension arrangements to another member state where the products are also subject to excise duty, without it being necessary that the excise duty have been paid in that latter member state already. By contrast, in situations falling within art 22(3), excise duty is reimbursed only where it is paid in both the member state of departure and in the member state of destination.''

  11. Article 22(1) and (2) allowed the United Kingdom to introduce ``warehousing for export'' (or ``WFE'') arrangements under which a trader could claim drawback in respect of goods which had not been exported but which had been returned to duty suspension by being placed in an excise warehouse. WFE was, however, withdrawn in 2009.

  12. By the time the 2011 claims for drawback were made, the 1992 Directive (which, as Advocate General Sharpston observed in the Scandic case, was ``not the easiest of directives to read'') had been superseded by Council Directive 2008/118/EC concerning the general arrangements for excise duty (``the 2008 Directive''), which took effect from 1 April 2010. Chapter II of the 2008 Directive, headed ``Chargeability, Reimbursement, Exemption'', encompasses Article 9, which includes this:

    ``Excise duty shall be levied and collected and, where appropriate, reimbursed or remitted according to the procedure laid down by each Member State.''

  13. Article 33 of the 2008 Directive, which is to be found in Chapter V, dealing with ``Movement and Taxation of Excise Goods after Release for Consumption'', provides:

    ``1. Without prejudice to Article 36(1), where excise goods which have already been released for consumption in one Member State are held for commercial purposes in another Member State in order to be delivered or used there, they shall be subject to excise...

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