Dawson’s (Wales) Ltd v Her Majesty’s Commissioners for Revenue & Customs [2019] UKUT 0296

Dawson’s (Wales) Ltd v Her Majesty’s Commissioners for Revenue & Customs [2019] UKUT 0296 (TCC) is a decision of the Upper Tribunal (Falk J and Judge Herrington) dismissing an appeal by Dawson’s (Wales) Limited against a First-tier Tribunal decision concerning three preliminary issues in an excise duty assessment case. The Upper Tribunal dismissed a parallel judicial review claim and remitted the substantive question whether an earlier excise duty point existed to the First-tier Tribunal for determination by full fact-finding.

Dawson’s (Wales) Limited was a wholesaler of alcoholic drinks. On 17 October 2013 HMRC assessed it to excise duty of £3,729,381 under section 12(1A) of the Finance Act 1994 and regulation 6(1)(b) of the Excise Goods (Holding, Movement and Duty Point) Regulations 2010, on the basis that duty unpaid excise goods were physically held by the appellant outside a duty suspension arrangement. HMRC considered that the appellant was the first known person to hold the goods and therefore liable under regulation 10(1) of the Regulations. The goods had been supplied to the appellant between February 2011 and May 2012. HMRC traced the supply chains back to missing, deregistered or hijacked companies and had no evidence that excise duty had been paid. On the agreed facts the appellant’s suppliers had not physically received or held the goods but had the power to instruct the physical holder to deliver them direct to the appellant.

The First-tier Tribunal determined three preliminary issues on assumed facts. First, the Proportionality Point was whether regulation 6(1)(b) and article 7(2)(b) of Directive 2008/118/EC were incompatible with proportionality and legal certainty generally or where the person assessed had identified its supplier. The First-tier Tribunal rejected the challenge. Second, the Jurisdiction Point was whether the First-tier Tribunal had jurisdiction on an appeal under section 16(5) of the Finance Act 1994 to consider a challenge to an assessment based on its unreasonableness or public law principles. The First-tier Tribunal held it did not. Third, the Holding Point was whether a person with de facto and/or legal control but not physical possession “holds” goods for the purposes of regulation 6(1)(b) consistently with the definition in regulation 33. The First-tier Tribunal found in the appellant’s favour on this third point, treating it as obiter given the other two determinations.

The appellant appealed on all three points. Meanwhile HMRC challenged the Holding Point finding in a respondent’s notice. The appellant also brought judicial review proceedings challenging the decision to assess on grounds of error of law, unreasonableness and legitimate expectation. Following the Upper Tribunal’s decision in Davison & Robinson Limited v HMRC [2019] STC 694, which held as a matter of law that HMRC must assess the first established excise duty point and have no discretion to assess a later one, the parties common ground shifted. The appellant accepted the legislation was proportionate and that it had a full merits appeal against the assessment on the ground that HMRC had not assessed the first established excise duty point. The Proportionality Point and Jurisdiction Point therefore became academic, and the Upper Tribunal declined to resolve the latter, emphasising that the courts and tribunals should not decide hypothetical questions.

The Upper Tribunal dismissed the judicial review claim on the basis that a suitable alternative remedy existed through the statutory appeal. It cited Glencore Energy UK Ltd v HMRC [2017] EWCA Civ 1716 to the effect that judicial review is ordinarily a remedy of last resort unless exceptional circumstances create a compelling need to intervene. Because the appellant could pursue its challenge through the statutory appeal, no pressing public interest required judicial review to proceed.

On the Holding Point, the Upper Tribunal conducted a detailed review of the relevant authorities on the meaning of “holding” in article 7(2)(b) of the Directive and regulation 6(1)(b). It began by emphasising that the term must be given an autonomous European Union law meaning, consistent with the harmonising objective of Directive 2008/118 and the need to avoid divergent application across member states. It reviewed the text in different official language versions, noting that the French version used the term “detention” meaning possession and equivalent terms appeared in Spanish and German. The Upper Tribunal also emphasised the context and purpose of the Directive, namely the need to ensure unpaid excise duty is collected when goods are released for consumption within the European Union, as established in B & M Retail Limited v HMRC [2016] STC 2456 and confirmed by the Court of Appeal in R v Perfect [2019] EWCA Civ 465.

The Upper Tribunal analysed van de Water v Staatssecretaris van Financien (Case C-325/99) [2001] ECR I-2729, in which the Court of Justice held that the holding of excise goods outside a duty suspension arrangement constituted a release for consumption under the predecessor Directive. It noted that van de Water placed much emphasis on the location of goods and whether they were being held within a duty suspension arrangement. The Upper Tribunal also considered BP Europa SE v Hauptzollamt Hamburg-Stadt (Case C-64/15) (2016) and Polihim SS EOOD v Nachalnik na Mitnitsa Svishtov (Case C-355/14) (2016). The latter held that the sale of excise goods within a tax warehouse did not bring about their release for consumption until they were physically removed from the warehouse, supporting the proposition that the scheme focuses on the physical location of goods and whether a release for consumption has occurred.

The Upper Tribunal then turned to domestic authorities interpreting “holding”. In R v Taylor & Wood [2013] EWCA Crim 1151 the Court of Appeal held that a person exercising de facto and legal control over cigarettes was holding them even without physical possession, where the hauliers in actual possession were innocent agents without knowledge of the smuggling. The Court placed emphasis on who was exercising de facto and legal control at the time the excise duty point arose. Similar reasoning was applied in R v Tatham [2014] EWCA Crim 226. In McKeown v HMRC [2017] STC 294 the Upper Tribunal held that a person must be capable of exercising de jure and/or de facto control to be holding goods, and that a person lacking both actual and constructive knowledge of the goods and the unpaid duty cannot be said to be holding them. That proposition was endorsed in the Upper Tribunal’s decision in Perfect [2017] UKUT 476 (TCC), though the correctness of the knowledge requirement is now the subject of a reference to the Court of Justice by the Court of Appeal in Perfect.

The Upper Tribunal distilled from the authorities that a person able to exercise legal or de facto control of excise goods and intending to assert that control against others, whether temporarily or permanently, is regarded as holding the goods. Depending on the circumstances a person having physical possession and sharing legal possession with the person in control may be regarded as holding them. An innocent agent having physical possession is not to be regarded as holding the goods, and actual or constructive knowledge of physical possession might be sufficient to constitute holding and take a person outside the status of innocent agent. The Tribunal clarified that the correctness of the latter principles may be affected by the outcome of the pending reference in Perfect.

The Upper Tribunal then set out its conclusions. It rejected the appellant’s submission that once a person earlier in the supply chain is established to have had de facto or legal control that is sufficient to conclude that person was the holder at the time the release for consumption occurred. It held that the case law demonstrates that the starting point in determining who is holding the goods must be the person who has physical possession of them. The focus of the scheme established by the Directive is on the goods themselves and what is happening to them at any particular time. While a person with de facto or legal control can be treated as holding the goods, the cases are consistent with an approach that establishes first who has physical possession and then considers whether the circumstances of that possession are such that it is inappropriate for that person to be considered to be holding the goods. The Tribunal rejected HMRC’s submission that “holding” has a narrower meaning in article 7 than in article 33 of the Directive, agreeing with the First-tier Tribunal that the word was intended to have the same meaning throughout the Directive.

The Upper Tribunal held that in order for a person other than the person found to be in physical possession to be assessed, a factual enquiry must be undertaken as to who was in physical possession at the time that it is alleged that another person had de facto or legal control. It will then be necessary to determine whether in all the circumstances it is appropriate to assess that other person rather than the person in physical possession. The Tribunal endorsed HMRC’s policy that the concept of holding primarily means physical possession of the goods. It set out at paragraph 149 the matters which must be established for a challenge to succeed where the person found holding excise goods in respect of which duty has not been paid challenges an assessment on the basis that an earlier excise duty point can be established: who had physical possession at the time the alleged earlier excise duty point occurred; who is the person alleged to have de facto or legal control and how that person is said to have such control and the basis on which it was being exercised; the time at which the excise duty point arose; and where the goods were being held at the relevant time. The Tribunal held that precise temporal exactitude is not essential but the date of an invoice is not sufficient without establishing who was in possession at some identified point or points in time. It also held that goods need not necessarily be shown to have been static at a particular place at a single fixed point in time.

The Upper Tribunal could not determine the Holding Point in the appellant’s favour on the basis of the agreed and assumed facts on which the preliminary issues hearing proceeded. The assumed facts contained no detail as to who physically held the goods before delivery to the appellant, and the First-tier Tribunal had assumed that person could not be identified. The First-tier Tribunal therefore made an error of law in concluding that the supplier was holding the goods within the meaning of regulation 10(1) of the Regulations. The First-tier Tribunal also made an error of law on the Proportionality Point given the development of the law in Davison & Robinson. The decision to hold a preliminary issues hearing on the Holding Point itself involved an error of law, as the question could not properly be determined without extensive fact-finding as to the circumstances in which the goods were held prior to delivery to the appellant.

The Upper Tribunal set aside the decision of the First-tier Tribunal and remitted the matter to the First-tier Tribunal for the Holding Point and any other outstanding issues to be determined at a substantive hearing in the light of the Upper Tribunal’s findings and the full facts. It will be open to the appellant to adduce evidence to establish that there was an earlier excise duty point prior to the supply to the appellant of the goods which were the subject of the assessment. In short, HMRC were entitled to assess the appellant as the first known holder of the goods on the evidence available at the time, but it remains open to the appellant to adduce evidence at a full hearing establishing that an earlier excise duty point existed such that the assessment should be discharged.

Robinson Limited v HMRC [2019] STC 694
Finance Limited v HMRC [2016] UKFTT 30
Glencore Energy UK Ltd v HMRC [2017] EWCA Civ 1716
R v HM Attorney-General, ex parte Rushbridger and Another [2003] UKHL 38, [2004] 1 AC 357
HM Revenue & Customs v Perfect [2019] EWCA Civ 465
R v Bajwa [2012] 1 WLR 601
Taylor and Wood [2013] EWCA Crim 1151
Re Atlantic Computer Systems plc [1990] BCC 899
Tatham [2014] EWCA Crim 226
McKeown v HMRC [2017] STC 294
HMRC v Jacobson [2018] UKUT 18
Wrottesley v HMRC [2016] STC 1123

HM Revenue & Customs v Perfect [2017] UKUT 476