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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> HM Revenue and Customs v Répertoire Culinaire Ltd [2017] EWCA Civ 1845 (20 November 2017) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2017/1845.html Cite as: [2018] STC 958, [2017] EWCA Civ 1845

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Mr Justice Birss and Judge Hellier
[2016] UKUT 0104 (TCC)

		Royal Courts of Justice Strand, London, WC2A 2LL
		20/11/2017

Lord Justice Henderson:

Introduction and background

1. This is a case about the liability to excise duty on consignments of cooking wine, cooking port and cooking cognac (to which I will refer collectively as "cooking liquors"), imported into the United Kingdom from France by the respondent Répertoire Culinaire Limited ("RCL") which is a wholesale trader in the food business based in Hackney, London E8.
2. The cooking liquors in question are ordinary red or white wine, port and cognac, produced in the usual way, to which salt and pepper have been added in sufficient quantity to make them undrinkable, although they remain suitable for consumption when used as an ingredient in cooked food or other culinary products.
3. The case has had a prolonged and rather complex procedural history, which began when a consignment of cooking liquors despatched by road to RCL by a French supplier, Ravel SA, was intercepted at the UK Customs Control Zone at Coquelles in France on 10 July 2002. Following inspection, the load was found to consist of 2,800 litres (in 70 boxes) of red wine, the same quantity of white wine, 160 litres (in 20 boxes) of port, and 80 litres (in 10 boxes) of cognac. The red and white wine had an alcoholic content by volume ("ABV") of 11%. The ABV of the port was 19%, and of the cognac 40%. There was no evidence that excise duty had been paid on the goods, either at Coquelles (which was a UK excise duty point) or elsewhere in France. Nor was there any Accompanying Administrative Document for the goods. The goods were therefore detained, and following further enquiries by the National Discreditation Team of HMRC they were formally seized on 16 July 2002 as liable to forfeiture under Regulation 16 of the Excise Goods (Holding, Movement, Warehousing and REDS) Regulations 1992 ("the 1992 Regulations") and section 49(1) of the Customs and Excise Management Act 1979 ("CEMA 1979"). The notice of seizure was addressed to the French consignor of the goods, Ravel SA.
4. It is common ground that the goods seized were all cooking liquors. The consignment note accompanying the goods described them as "vin de cuisine", and the invoice addressed to RCL from the supplier added the description "salé-poivré" against each of the items. RCL appointed a leading firm of London solicitors, Dechert, to act for it in relation to the seizure of the goods, and also in relation to the assessments to excise duty which I will shortly mention. On 2 August 2002, Dechert requested immediate return of the seized goods. This was refused, and a departmental review of the decision was then sought, which in turn upheld the original decision on 17 October 2002. RCL then exercised its right to appeal to the VAT and Duties Tribunal (as it then was) ("the VAT Tribunal") against HMRC's refusal to restore the goods.
5. Meanwhile, on 12 July 2002 HMRC's Holding and Movement Team had visited RCL's London premises where they met the company's marketing manager and a member of the purchasing team. It transpired that RCL had imported similar goods on a number of previous occasions, and that none of the goods were used by RCL itself to manufacture or process other goods, but all of them either had been, or were intended to be, sold on to external purchasers in the same state as they arrived in the UK. HMRC's officers examined 14 delivery notes dated between August 2001 and May 2002, as well as the relevant stock in hand which was still awaiting onward sale or delivery. On the basis that the goods were subject to duty, the total excise duty payable was calculated to be £59,737, and the stock in hand was detained in RCL's warehouse.
6. On 18 July 2002, HMRC made two assessments on RCL to excise duty, the first for £53,853 in respect of the imported stock which had already been sold on, and the second for £5,884 in respect of the stock in hand in the warehouse. The assessments were made on the basis that the goods were subject to duty at the time of importation into the UK under paragraph 4(1) of the 1992 Regulations, that the person liable to pay the duty on an importation from another Member State was the importer, and that RCL had not been approved to receive excise goods under duty suspension, nor had the duty been prepaid. A departmental review of the assessments was then requested, but the assessments were upheld on 27 September 2002. For reasons which remain obscure, however, no appeals were made by RCL against the assessments, even though they related to goods which were entirely separate from the consignment which had been detained at Coquelles and subsequently seized. In his oral submissions to us, Mr Mercer QC for RCL frankly accepted that the assessments ought to have been appealed within the usual time limit. We are in no position to say whose fault it was that nothing was done, but that timely appeals should have been brought can scarcely be doubted.
7. To avoid confusion, I will refer to the goods which were seized at Coquelles as "the seized goods", and to the imported goods which were the subject of the two assessments as "the imported goods". The managing director of RCL subsequently gave evidence to the VAT Tribunal that RCL had sold imported cooking liquors to 59 restaurants, three outside caterers, two hotels and one wholesaler whose customer base consisted entirely of restaurants. It is common ground that when cooking liquors are used as an ingredient in accordance with any recognised recipe, the finished product will always have an ABV of less than 5%.

The charge to, and exemption from, excise duty on cooking liquors under EU law, and the purported implementation of these provisions in domestic UK law

8. At this point, it is convenient to introduce the basic provisions of EU law which (as the Court of Justice of the European Union ("the CJEU") has now decided in the present case) apply to cooking liquors, and to describe the now admittedly defective manner in which these provisions of EU law were purportedly implemented in domestic UK legislation. As a preliminary observation, it should be noted that in 2002 there was no agreement within the EU about how such products should be treated, and many Member States, including France, took the view that cooking liquors fell wholly outside the scope of excise duty, with the consequence that they were entitled to move freely within the EU without any accompanying documents.
9. The governing directive for present purposes is Council Directive 92/83/EEC of 19 October 1992, on the harmonisation of the structures of excise duties on alcohol and alcoholic beverages ("the Excise Directive"). The following recitals relating to exemptions are relevant:

"Whereas it is necessary to lay down at Community level the exemptions which apply to goods which are transported between Member States;

Whereas, however, it is possible to permit Member States an option to apply exemptions tied to end-uses within their territory;

…

Whereas Member States should not be deprived of the means of combating any evasion, avoidance or abuse which may arise in the field of exemptions;

Whereas Member States should be permitted to give effect to the exemptions required by this Directive by way of refund;

…"

10. Article 7(1) provides that: "Member States shall apply an excise duty to wine in accordance with this Directive".
11. Section V of the Excise Directive is headed "Ethyl Alcohol", and provides materially as follows:

"Article 19

1. Member States shall apply an excise duty to ethyl alcohol in accordance with this Directive.

2. Member States shall fix their rates in accordance with Directive 92/84/EEC.

Article 20

For the purposes of this Directive the term "ethyl alcohol" covers:

all products with an actual alcoholic strength by volume exceeding 1,2% volume which fall within CN [combined nomenclature] codes 2207 and 2208, even when those products form part of a product which falls within another chapter of the CN,

products of CN codes 2204, 2205 and 2206 which have an actual alcoholic strength by volume exceeding 22% vol.,

potable spirits containing products, whether in solution or not."

CN codes 2207 and 2208, to which reference is made in the first indent of Article 20, include various forms of spirit and (expressly) cognac. Wine is covered by CN 2204.

12. Section VII of the Excise Directive deals with exemptions. The main relevant provisions of Article 27 are as follows:

"1. Member States shall exempt the products covered by this Directive from the harmonised excise duty under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any evasion, avoidance or abuse:

…

(f) when used directly or as a constituent of semi-finished products for the production of foodstuffs, filled or otherwise, provided that in each case the alcoholic content does not exceed 8,5 litres of pure alcohol per 100 kg of the product for chocolates, and 5 litres of pure alcohol per 100 kg of the product for other products.

…

6. Member States shall be free to give effect to the exemptions mentioned above by means of a refund of excise duty paid."

13. Turning now to domestic law, the provision which must have been intended to give effect to the exemption in Article 27(1)(f) of the Excise Directive was enacted as section 4 of the Finance Act 1995 ("FA 1995"), as follows:

"4. Alcoholic ingredients relief

(1) Subject to the following provisions of this section, where any person proves to the satisfaction of the Commissioners that any dutiable alcoholic liquor on which duty has been paid has been-

(a) used as an ingredient in the production or manufacture of a product falling within subsection (2) below, or

(b) converted into vinegar,

he shall be entitled to obtain from the Commissioners the repayment of the duty paid thereon.

(2) The products falling within this subsection are –

(a) …,

(b) chocolates for human consumption which contain alcohol such that 100 kilograms of the chocolates would not contain more than 8.5 litres of alcohol, or

(c) any other food for human consumption which contains alcohol such that 100 kilograms of the food would not contain more than 5 litres of alcohol.

(3) A repayment of duty shall not be made under this section in respect of any liquor except to a person who –

(a) is the person who used the liquor as an ingredient in a product falling within subsection (2) above or, as the case may be, who converted it into vinegar;

(b) carries on a business as a wholesale supplier of products of the applicable description falling within that subsection or, as the case may be, of vinegar;

(c) produced or manufactured the product or vinegar for the purposes of that business;

(d) makes a claim for the repayment in accordance with the following provisions of this section; and

(e) satisfies the Commissioners as to the matters mentioned in paragraphs (a) to (c) above and that the repayment claimed does not relate to any duty which has been repaid or drawn back prior to the making of the claim.

(4) A claim for repayment under this section shall take such form and be made in such manner, and shall contain such particulars, as the Commissioners may direct, either generally or in a particular case.

(5) Except so far as the Commissioners otherwise allow, a person shall not make a claim for a repayment under this section unless –

(a) the claim relates to duty paid on liquor used as an ingredient or, as the case may be, converted into vinegar in the course of a period of three months ending not more than one month before the making of the claim; and

(b) the amount of the repayment which is claimed is not less than £250.

(6) The Commissioners may by order made by statutory instrument increase the amount for the time being specified in subsection (5)(b) above;

… "

14. Section 4 of FA 1995 was clearly intended to take advantage of the freedom given by Article 27(6) of the Excise Directive to Member States to give effect to the exemption in Article 27(1)(f) by means of a refund of excise duty paid, because it operates as a "refund scheme": the relief is only granted to a person who proves that "any dutiable alcoholic liquor on which duty has been paid" has been used as an ingredient in the making of a product within subsection (2), and the right conferred is to obtain "repayment of the duty paid thereon". The right to obtain a repayment is then curtailed by other restrictions, which have no counterpart in the Excise Directive. First, by virtue of subsection (3), the claimant must itself be a manufacturer of the finished product in which the cooking liquor is used as an ingredient, and must itself carry on business as a wholesale supplier of such products. This condition alone would exclude claims for relief by a company such as RCL which does not itself manufacture any finished products, but merely acts as a wholesaler of imported cooking liquors. Secondly, repayment claims are subject to the short time limit in subsection (5)(a), the effect of which is that a claim must relate to duty paid within a three month period ending no more than one month before the claim is made. Duty paid more than four months before the date of the claim is therefore irrecoverable. Thirdly, the amount claimed must be not less than £250, subject to any increase in the statutory minimum amount effected by secondary legislation: see subsections (5)(b) and (6).

The reference to the CJEU

15. RCL's appeal against HMRC's refusal to restore the seized goods came on for hearing before the Tax Chamber of the First-tier Tribunal ("the FTT"), although still sitting as the VAT Tribunal, on 10 and 11 December 2008. The members of the Tribunal were Judge John Walters QC and John Robinson. Counsel appearing for RCL, then as now, were Hugh Mercer QC and Philippe Dewast, while HMRC were represented by Sarabjit Singh. On 24 April 2009, the Tribunal released a decision ("the first FTT Decision") which gave its reasons for deciding to refer four questions for a preliminary ruling to the CJEU. By its directions for reference of the same date, the FTT stayed all further proceedings on the appeal until the CJEU had given its ruling. An "agreed statement of undisputed facts" was attached to the first FTT Decision, upon which I have drawn in setting out the facts down to this date. The FTT also heard evidence, and made findings, about the position as it was understood to be in France at the time, as well as evidence from the managing director of RCL to which I have already referred.
16. The uncertainty about the correct treatment of cooking liquors for excise duty purposes was in due course reflected in paragraph 84 of the Opinion of Advocate General Kokott, when she said:

"The cooking liquors at issue here, however, are goods which the tax authorities of the Member State of manufacture (France) do not regard as liable to excise duty at all. That was confirmed by Répertoire Culinaire and the French Government in response to a question during the hearing before the Court. The cooking liquors had thus been released into free movement in the State of manufacture from the beginning precisely because, in the view of the authorities in that State, no excise duty at all was payable on them."

See Case C-160/09, Répertoire Culinaire Ltd v The Commissioners for Her Majesty's Revenue and Customs [2010] ECR I-12717, [2011] STC 465 at 483-4.

17. A further complicating factor was that the CJEU had recently held in the case of Gourmet Classic (Case C-458/06, Skatteverket v Gourmet Classic Ltd [2008] ECR I-4207) that a form of cooking wine composed of a mixture of approximately 40% of ordinary wine and 60% of de-alcoholised wine to which a small amount of salt had been added, with an overall ABV of 4.5%, was subject to excise duty under the first indent of Article 20 of the Excise Directive, but without prejudice to the exemption provided for by Article 27(1)(f). HMRC submitted that this recent ruling was authoritative, and there was no sensible basis upon which it could be distinguished; while RCL submitted that the ruling had been essentially unreasoned, and had not considered a number of arguments which RCL now wished to advance, including in particular arguments that cooking liquors do not fall within the definition of "ethyl alcohol" in Article 20.
18. The four questions referred to the CJEU by the FTT were, in summary, as follows:

(1) Are cooking wines and cooking port subject to excise duty under the first indent of Article 20 of the Excise Directive, on the grounds that they are within the definition of "ethyl alcohol"?

(2) Is it consistent with the Member States' obligation to give effect to the exemption contained in Article 27(1)(f) of the Excise Directive to restrict the exemption for cooking liquors to cases where they have been used as an ingredient, and to restrict the applicants for exemption to those who satisfy the conditions in section 4 of FA 1995?

(3) Should the cooking liquors, if liable to duty, be treated as exempt from excise duty at the point of manufacture under Article 27(1)(f)?

(4) In the light of Articles 10 and 28 EC, what effect (if any) does it have on Member States' obligations under Articles 20 and 27(1)(f) of the Excise Directive if cooking liquors have been released by the Member State of manufacture from the excise movement system under Directive 92/12/EEC into free movement within the EU?

19. The answer given by the Third Chamber of the CJEU to the first question, in its judgment delivered on 9 December 2010, was that cooking wine and cooking port (the question did not extend to cooking cognac) were within the definition of "ethyl alcohol" under the first indent of Article 20. In reaching its conclusion on this issue, which it dealt with quite shortly, the Court followed its previous judgment in Gourmet Classic and declined to follow the advice of Advocate General Kokott, who was of the opinion that Gourmet Classic had been wrongly decided. It followed from the Court's clear ruling on this issue that all the cooking liquors in the present case, including the cognac which clearly could not be treated differently, were in principle liable to duty under Article 20, subject only to the possibility of exemption under Article 27(1)(f); and that the view of the French authorities, and certain other Member States, that cooking liquors fell outside the scope of the Excise Directive was wrong and could no longer be supported.
20. The Court's answer to the third question was that the relevant exemption in the present case is that under Article 27(1)(f), not the exemption under Article 27(1)(e) for products "used for the production of flavours for the preparation of foodstuffs": see the judgment at paragraphs 31 to 36.
21. The Court then considered the fourth question, on which it expressed its core reasoning as follows:

"40. It follows that, in order to ensure the proper functioning of the internal market and to ensure the free movement of goods, the products subject to excise duty must be determined, and the exemptions applied, in a uniform manner within the European Union, unless otherwise provided.

41. The uniform application of the provisions of Directive 92/83 requires that the imposition or not of excise duty on a product and the exemption from duty of a product in a Member State must, as a rule, be recognised by all the other Member States.

42. Any other interpretation would compromise the attainment of the objective of Directive 92/83 and would be likely to hinder the free movement of goods.

43. However, in that context, a Member State cannot be bound by an incorrect application of the provisions of Directive 92/83 by another Member State nor denied the possibility, recognised by the twenty-second recital in the preamble thereto and by Article 27 of that directive, of adopting measures to combat any evasion, avoidance or abuse which may arise in the field of exemptions and to ensure the correct and straightforward application of such exemptions.

44. Nevertheless, the finding that such measures have been applied incorrectly or the adoption of such measures must be based on concrete, objective and verifiable evidence (see, to that effect, Case C-482/98 Italy v Commission [2000] ECR I-10861, paragraphs 51 and 52)."

This reasoning was then reflected in the answer to the question given in paragraph 45, and repeated in paragraph 3 of the dispositif.

22. The Court left to the end its consideration of the second question, which it dealt with in paragraphs 46 to 56 of the judgment. Its answer was to the general effect that the exemption in Article 27(1)(f) may be made conditional on compliance with conditions such as those laid down by section 4 of FA 1995 only if it is apparent from concrete and verifiable evidence that those conditions are necessary to ensure the correct and straightforward application of the exemption and to prevent any evasion, avoidance or abuse, it being for the national court to ascertain whether that is true of the conditions laid down by section 4.
23. After reformulating the second question in paragraph 46, the Court continued as follows:

"47. In that connection, it must be borne in mind at the outset that, in accordance with Article 27(6) of Directive 92/83, and read in conjunction with the eighteenth and twenty-third recitals in the preamble to that directive, the Member States are to be free to give effect to the exemptions under that directive by means of a refund of excise duty paid.

48. Furthermore, it must be recalled that the objective of the exemptions contained in Directive 92/83 is, in particular, to neutralise the impact of excise duties on alcohol used as an intermediate product in other commercial or industrial products (see Italy v Commission, paragraph 4, and Case C-62/06 Profisa [2007] ECR I-3239, paragraph 17).

49. Thus, it follows from Article 27(1)(f) of Directive 92/83, read in conjunction with the twentieth recital in the preamble to that directive, that the application of the exemption under that provision by a Member State depends on the end-use of the products in question.

50. Similarly, Article 27(1), read in conjunction with the twenty-second recital in the preamble to Directive 92/83, provides that the Member States may lay down conditions for the purpose of ensuring the correct and straightforward application of the exemptions under that provision and of preventing any evasion, avoidance or abuse.

51. In that context, it must also be recalled that the Court has held, first, that the exemption of products covered by Article 27(1) of Directive 92/83 is the rule and refusal is the exception, and, second, that the power granted to Member States by that provision to lay down conditions for the purpose of "ensuring the correct and straightforward application of such exemptions and of preventing any evasion, avoidance or abuse" cannot detract from the unconditional nature of the obligation imposed by that provision to grant exemption (see Italy v Commission, paragraph 50, and Profisa, paragraph 18).

52. It follows that, in exercising that power, the Member State concerned must put forward concrete, objective and verifiable evidence of a serious risk of evasion, avoidance or abuse (see, to that effect, Italy v Commission, paragraph 52) and that the conditions laid down by that Member State by virtue of the power thus conferred on it cannot go beyond what is necessary to attain that objective.

53. Consequently, although the Member States may give effect to the exemption under Article 27(1)(f) of Directive 92/83 by means of a refund of excise duty paid, depending on how the products in question are used, they cannot, on the other hand, make the application of that exemption conditional on compliance with conditions which are not proven, by concrete, objective and verifiable evidence, to be necessary to ensure the correct and straightforward application of such an exemption and to prevent any evasion, avoidance or abuse.

54. The evidence submitted to the Court seems to indicate that the conditions laid down by the national legislation at issue in the main proceedings, that is to say, a restriction of the persons authorised to make a claim for recovery, a four-month period for bringing such a claim and the establishment of a minimum amount of repayment, are not necessary either to ensure the correct and straightforward application of the exemption under Article 27(1)(f) of Directive 92/83 or to prevent any evasion, avoidance or abuse.

55. However, it is for the national court, before which a dispute in the main proceedings has been brought and which must assume responsibility for its subsequent judicial decision, to ascertain, on the basis of concrete, objective and verifiable evidence in its possession, whether that is the case."

This reasoning was then reflected in the answer to the second question given in paragraph 56, and repeated in paragraph 4 of the dispositif.

24. A number of significant points may be derived from the reasoning of the Court on this issue. First, the Court clearly had well in mind, and expressed no criticism of, the freedom afforded to Member States by Article 27(6) to give effect to the relevant exemptions by means of a refund of excise duty paid. Secondly, the Court recognised in paragraph 49 that application of the exemption under Article 27(1)(f) "depends on the end-use of the products in question". It would seem to follow that entitlement to the exemption cannot arise unless and until such use has actually taken place. The wording of Article 27(1)(f) says "when used directly or as a constituent of semi-finished products for the production of foodstuffs", not "when intended to be used". Indeed, all the exemptions in Article 27(1) and (2) are worded with a past participle, usually "when used" (see Article 27(1)(c) to (f) and (2)(a) to (e)), but also "when distributed" (in paragraph (1)(a)) and "when denatured … and used" (in paragraph (1)(b)). Thirdly, the Court emphasised in paragraph 51 that "the exemption of products covered by Article 27(1) … is the rule and refusal is the exception", so the power granted to Member States to lay down conditions must be strictly confined to conditions for the purpose stated in Article 27(1) and (2), namely ensuring the correct and straightforward application of such exemptions and the prevention of any evasion, avoidance or abuse. Fourthly, the imposition of any such condition must be justified by "concrete, objective and verifiable evidence of a serious risk of evasion, avoidance or abuse", and "cannot go beyond what is necessary to attain that objective": see paragraph 52. Finally, the Court expressed a preliminary view that the conditions contained in section 4 of FA 1995 were not necessary to ensure the correct and straightforward application of the exemption in Article 27(1)(f), or to prevent any evasion, avoidance or abuse, but in accordance with its normal practice the Court left this issue to be determined by the national court.

The procedural history (continued): the second FTT Decision

25. I can now pick up the procedural history after the CJEU had given its judgment.
26. The adjourned hearing of RCL's appeal took place before the FTT, constituted as before, on 12 and 13 June 2012. The FTT eventually released its decision ("the second FTT Decision") nearly 11 months later, on 30 April 2013, but as the FTT explained (at [24] to [34] of the second FTT Decision) a further problem of a jurisdictional nature had arisen which needed to be confronted. Although the reference to the CJEU had been designed to clarify whether the seized goods were in principle liable to excise duty, and (if so) whether they benefited from the exemption in Article 27(1)(f), the only appeal before the FTT was the appeal against HMRC's refusal to return the seized goods. In the light of the recent decision of the Court of Appeal in Revenue and Customs Commissioners v Jones and Another [2011] EWCA Civ 824, [2012] Ch 414, it now appeared that the jurisdiction of the FTT was confined to hearing an appeal against HMRC's discretionary decision not to restore the seized goods. In the absence of any notice of claim by RCL under paragraph 3 of schedule 3 to CEMA 1979, the seized goods were conclusively deemed to have been duly condemned as forfeited, and it was therefore no longer open to the FTT to conclude that they had been legally imported: see in particular the judgment of Mummery LJ, with whom Moore-Bick and Jackson LJJ agreed, at [71](4) and (5).
27. In order to circumvent this problem, the parties proposed (with the FTT's encouragement) that the FTT should grant permission for a new appeal to be brought out of time against the departmental review communicated to Dechert on 27 September 2002, whereby the two assessments to excise duty on the imported goods had been confirmed. Since the imported goods were entirely separate from the seized goods, and since the review letter expressly relied on the "manufacturer" condition in section 4 of FA 1995 as a reason for confirming the assessments, the way would then be open for the FTT to rule on the liability issues which the parties had always wished to have determined. As the FTT explained at [32], HMRC were prepared to consent to this procedure precisely because it would enable the FTT to determine whether excise duty was properly payable in respect of the cooking liquors which were the subject of the assessments. The FTT accordingly made the necessary directions to enable the new appeal to be brought and consolidated with the existing appeal.
28. On the issue of liability, RCL's submissions to the FTT were briefly as follows. Section 4 of FA 1995 should be interpreted consistently with the UK's EU obligations under the principles in the Marleasing case (Case C-106/89 Marleasing SA v La Comercial Internacional de Alimentacion [1990] ECR I-4135) by "reading down" into the section the guidance given by the CJEU. Alternatively, RCL was entitled to rely on the direct effect of Article 27(1)(f), because the exemption was "unconditional" (as the CJEU had said in paragraph 51 of its judgment) and its terms were sufficiently precise to be capable of having direct effect. As to the requirement to pay excise duty in advance of obtaining a refund, RCL submitted that this was a condition which could be justified only by concrete, objective and verifiable evidence, which HMRC had not adduced. Furthermore, it was sufficient for the purposes of the exemption that the cooking liquors were, as a matter of fact, destined for culinary use: it was not necessary to show that they had already been used for that purpose.
29. RCL also argued that the UK was in any event bound by the treatment by France of the cooking liquors, and HMRC had adduced no evidence to show that France had applied the provisions of the Excise Directive incorrectly.
30. On behalf of HMRC, Mr Beal submitted that the proper course would have been for RCL to pay excise duty on the imported goods, and then seek a refund of the duty once appropriate proof of use (in the manufacture of foodstuffs) could be demonstrated. Mr Beal did not seek to rely on the conditions set out in subsections 4(3) and (5) of FA 1995, nor did he argue that they could be justified as measures required to ensure the correct and straightforward application of the exemption, or to combat evasion, avoidance or abuse.
31. In the section of the second FTT Decision headed "Discussion and decisions", beginning at [87], the FTT first concluded that HMRC had discharged the burden on them of showing that France's application of the Excise Directive in 2002 was incorrect. Accordingly, the UK had not been bound to treat the cooking liquors in question as outside the scope of the Excise Directive. No appeal has been brought against that conclusion, which seems to me plainly correct.
32. The FTT then turned to the question whether, in the light of the CJEU's judgment, the UK could properly require the payment of excise duty on the cooking liquors pursuant to section 4 of FA 1995. The FTT answered this question in HMRC's favour, for reasons which it expressed as follows:

"99. Here we consider that Mr Beal is on strong ground when he bases his submissions on [53] of the Judgment – the Court of Justice's recognition that a Member State may give effect to the exemption under Article 27(1)(f) of the Excise Directive by means of a refund of excise duty paid, depending on how the products in question are used.

100. We do not accept the submission of Mr Mercer and Mr Dewast that the requirement to pay duty before it can be refunded on proof of a qualifying use of the products concerned is a condition, to compliance with which the exemption is subject. It is a direct consequence of the explicit link in the language of Article 27(1)(f) of the Excise Directive between the exemption and the use of the products to be exempted. Once a use within Article 27(1)(f) is shown the duty paid must be refunded. It does not prejudice the unconditional nature of the exemption, because once the use is shown the benefit of the exemption accrues unconditionally.

101. Nor do we accept that HMRC is guilty of any abuse of process in advancing the contention that an exemption with refund of excise duty paid is a legitimate implementation of the Excise Duty Directive …

102. We conclude, therefore, that excise duty was properly payable on the cooking liquors, both those seized on 16 July 2002, and those in respect of which the assessments were raised on 18 July 2002. No "reading down" of the guidance given by the Court of Justice into section 4, FA 1995, or invocation of the direct effect of Article 27(1)(f) of the Excise Directive can avail RCL on this point. The establishment in the UK of a system of exemption with refund of excise duty paid is, in our judgment, immune to either of these attacks.

103. It follows that we must dismiss the New Appeal."

33. Having disposed of the new appeal, the FTT then considered RCL's original appeal against HMRC's refusal to restore the seized goods. Their conclusion, at [108], was that HMRC's decision to refuse restoration without expressly informing RCL of the procedure it should follow, namely to pay the excise duty and seek a refund once appropriate proof of use of the goods could be demonstrated, caused the decision to be fundamentally flawed. Accordingly, the FTT allowed the original appeal and directed HMRC to conduct a further review of the original decision dated 28 August 2002 in accordance with section 16(4) of the Finance Act 1994: see [119]. No appeal has been brought against this part of the FTT's decision, but we were informed that the further review directed by the FTT still remains in abeyance pending the outcome of the present appeal.
34. In the course of its discussion of the original appeal, the FTT made a number of findings of fact which I will mention because RCL places reliance on them. At [110], the FTT said:

"Furthermore, we consider that it is relevant at this point to have regard to the evidence that RCL's use of the cooking liquors which it successfully imported was overwhelmingly likely to lead to their use in the manufacture of foodstuffs giving rise to a qualification for the exemption by way of refund of duty paid. Although no appropriate proof of any specific use has been shown, we find, from the evidence of RCL's trade, that in all probability all cooking liquors taken into stock by RCL are in fact eventually used in the manufacture of foodstuffs giving rise to qualification for the exemption."

To similar effect, the FTT said at [117]:

"As we have indicated above, we regard it as reasonably certain that if the cooking liquors had not been seized their end use would have been one which would have qualified them for exemption from excise duty pursuant to Article 27(1)(f) of the Excise Directive."

The decision of the Upper Tribunal

35. RCL's appeal to the Upper Tribunal was heard by Birss J and Judge Charles Hellier on 18 and 19 January 2016. By its decision released on 26 February 2016 ("the UT Decision"), the Upper Tribunal allowed RCL's appeal in relation to the larger of the two assessments, which related to the imported goods which had been sold on, but dismissed the appeal in relation to the smaller assessment, which related to the goods which were still in RCL's warehouse in July 2002. The basic issue on the appeal was whether the imported goods were exempt from duty by virtue of the direct effect of Article 27.
36. After setting out the relevant provisions of Article 27, and section 4 of FA 1995 in full, the Upper Tribunal pointed out that section 4 does not refer to an exemption from duty as such, but instead provides for the refund of duty subject to a number of requirements. The first such requirement was that the duty to be repaid had been paid, and a claim for a repayment made in prescribed form. They then labelled the other three conditions as "the Manufacturer Condition", "the Time Condition" and "the Amount Condition" respectively ("the Three Conditions"). At [13], the Upper Tribunal said that the rationale for each of the requirements was "clear enough". The first one reflected the simple point that a refund presupposes payment in the first place. The idea behind the Manufacturer Condition was "that it will be the manufacturer who is in a position to know and demonstrate what the liquor has actually been used for. The provision identifies the person who can claim and receive the payment". The Time Condition set a period within which the refund claim must be made, while the Amount Condition prevented claims for small amounts. Because RCL was not a manufacturer, but an importer and wholesaler of cooking liquors, it was clear that it did not fall within the provisions of section 4 "conventionally construed without reference to EU law": see [14].
37. The Upper Tribunal then referred to the form for making claims under section 4 which had been specified by HMRC at the relevant time pursuant to section 4(4). The form stated, inter alia:

"You may only claim relief if you are a manufacturer who uses alcoholic ingredients in the production of eligible articles for wholesale supply."

The claimant also had to sign a declaration that the information given on the form was "true and complete". As the Upper Tribunal commented, at [17]:

"It is clear that a person who was not a manufacturer would have some difficulty in making a claim using this form."

38. The Upper Tribunal then described the reference to the CJEU, and the return of the appeal to the FTT, before reciting the parties' arguments in more detail at [28] to [32]. Mr Beal's argument for HMRC, shortly stated, was that section 4 must be read and applied as if it had never incorporated the Three Conditions. So read, the section did not exclude RCL from claiming a refund, but RCL's prior obligation to pay the duty remained, and its only right under EU law was to obtain a refund. Furthermore, even if the duty had been paid, there was no evidence to show that the goods had been used in the relevant way, and without proof of such end use of the goods RCL could have no right to exemption.
39. On this last point, Mr Mercer for RCL acknowledged that the FTT had made no explicit finding that RCL satisfied the use condition in relation to the imported goods, but submitted that other factual findings by the FTT provided an adequate basis for concluding that the cooking liquors, or at least those actually sold on by RCL, were in fact used for a qualifying purpose. He submitted that the FTT should have found that the use condition was satisfied.
40. On that footing, RCL submitted that it had an enforceable EU law right to exemption from duty under Article 27, to which the UK had failed to give effect because:

(a) section 4, as it stood, excluded RCL from its scope because RCL was not a manufacturer;

(b) HMRC's administrative practice provided no route by which RCL could claim the exemption to which it was entitled; and

(c) section 4 could not be read down or moulded so as to permit RCL to have made the necessary claim. The section should either be completely disapplied, leaving RCL with "a direct right to exemption unalloyed by any refund system", or, even if the section were moulded by deletion of the Three Conditions, it still failed to give effect to RCL's rights to exemption, either because such moulding could not be read back to 2002, or because the hurdles placed in RCL's path by the form of the domestic legislation and HMRC's practice at the time did not satisfy the EU law principle of effectiveness.

41. The Upper Tribunal then recorded, at [31] and [32], an argument discussed in the course of oral submissions which RCL had adopted. As I understand it, this argument was in fact first suggested by the Tribunal. As recorded, it runs as follows:

"31. … The section 4 regime as enacted could be regarded as a scheme for refunds for manufacturers. That regime may have had features which were precluded by EU law (in the form of the Time and Amount Conditions), but the effect of a finding that those two conditions cannot be supported is to remove them from the manufacturer's refund scheme. A manufacturer's refund scheme without those conditions is compliant with EU law as a way of giving effect to a manufacturer's Art 27 rights.

32. However by limiting the refund to manufacturers, the UK has not given effect to the right to exemption held by other persons under Art 27, either by direct exemption or by giving effect to the exemption via a refund. Those persons are entitled to exemption one way or another, but no exemption is provided for in section 4. Therefore section 4 must be read as subject to that right held by those persons. There is nothing which permits HMRC to seek to give effect to that right via a refund."

I draw attention to this argument because, as will soon become apparent, it weighed heavily with the Upper Tribunal in deciding how effect should be given to RCL's right to an exemption under Article 27(1)(f).

42. In the next section of the UT Decision, headed "Discussion" and beginning at [33], the Upper Tribunal said at [36] that it was first necessary "to consider what the nature of any right under Art 27 is and whether RCL has established such a right in this case". Having done so, they could then test that right against section 4 of FA 1995.
43. The first step in the Upper Tribunal's analysis was to find that the exemptions conferred by Article 27 were sufficiently clear, precise and unconditional to be directly enforceable against the State: see [37] to [39], and Case C-346/97, Braathens Sverite AB v Riksskatteverket [1999] ECR I-3419. The Upper Tribunal then accepted RCL's submission that the fundamental nature of the right conferred by Article 27 was unaffected by the fact that effect could be given to it by a refund of duty paid. They said at [40]:

"Article 27 is not conferring a right to a refund, it confers a right to be exempt from duty in the relevant circumstances. If the State wishes to give effect to that right by a refund mechanism it is free to do so but that is another matter."

44. Accordingly, said the Upper Tribunal, the next question they had to decide was one which the FTT had not felt it necessary to answer directly, namely whether RCL had in fact established that it had a right to exemption under Article 27 in relation to the imported goods. They then referred, at [42], to section 12(4) of the Tribunals, Courts and Enforcement Act 2007 ("TCEA 2007"), which permits the Upper Tribunal to make such findings of fact as it considers appropriate if it sets aside and decides to remake any decision of the FTT, having first found the FTT's decision to be erroneous on a point of law. In the light of that provision, the Upper Tribunal thought it must be open to them "to make a finding of fact on an issue which the FTT did not decide if it is necessary to do so in order to determine whether the FTT erred in law". They then said:

"Put another way, if the FTT did not make a factual finding in relation to whether the cooking liquors had or had not actually been used for a qualifying purpose the FTT would in effect have determined that even if qualifying use were proven the appeal would fail, and that in our judgment would be an error of law which enables us to make a factual finding on the issue if we are able to do so."

45. The Upper Tribunal then proceeded to consider the facts, after directing itself by reference to paragraph 49 of the CJEU's judgment that "the application of the exemption … depends on the end-use of the products in question", and that end-use is a condition of the exemption: see [43] and [44]. After reviewing the FTT's findings of fact, including those quoted above in paragraphs [110] and [117] of the second FTT Decision, the Upper Tribunal reached the following conclusion at [51]:

"51. Bearing all this in mind, it is much more likely than not that the cooking liquors which were the subject of the larger assessment, i.e. the products which had been sold by RCL in and before 2002, have been used for a qualifying purpose. We make that finding of fact. This is not a conclusion that goods are exempt at source nor is it a conclusion the likely destiny of a given bottle of cooking wine is sufficient for the exemption; it is a conclusion that on the balance of probabilities all the products which were sold were in fact used for a qualifying purpose."

The position was different, however, in relation to the cooking liquors still held in RCL's warehouse, because it was plain that they had not been used at all. Since they had not been used for a qualifying purpose, those goods could not benefit from any exemption from duty: see [53].

46. These findings meant that RCL's appeal against the lesser assessment had to be dismissed in any event. With regard to the larger assessment, however, RCL had established a directly effective right to exemption from duty, and the next question was whether section 4 of the 1995 Act gave effect to that right: see [55] and [56].
47. The Upper Tribunal began their discussion of this question by observing, at [57], that "[h]andling inconsistencies between UK legislation and EU law is an important topic addressed in a number of cases". They then referred to the following authorities:

(a) Autologic Holdings Plc v Inland Revenue Commissioners [2005] UKHL 54, [2006] 1 AC 118, where Lord Nicholls of Birkenhead said at [16]:

"Where such an inconsistency exists the statutory provision is to be read and take effect as though the statute had enacted that the offending provision was to be without prejudice to the directly enforceable Community rights of persons having the benefit of such rights. That is the effect of section 2 of the European Communities Act 1972, as explained by your Lordships' House in R v Secretary of State for Transport, Ex p Factortame Ltd [1990] 2 AC 85, 140, and Imperial Chemical Industries Plc v Colmer (No.2) [1999] 1 WLR 2035, 2041."

Lord Nicholls then said, at [17]:

"Accordingly, if an inconsistency with directly enforceable Community law exists, formal statutory requirements must where necessary be disapplied or moulded to the extent needed to enable those requirements to be applied in a manner consistent with Community law."

(b) The decision of this court in Vodafone 2 v Revenue and Customs Commissioners [2009] EWCA Civ 446, [2010] Ch 77, where Sir Andrew Morritt C distinguished between the process of reaching a conforming construction of the inconsistent UK provision and its disapplication at [26], and then summarised the principles applicable to a conforming construction, derived from a number of cases, at [37] to [38]. As the Upper Tribunal encapsulated those principles, at [59]:

"Such a construction had a broad and far reaching nature permitting departure from the strict literal meaning of the words and did not require legislative precision, but could not provide an interpretation which did not "go with the grain" of the legislation in the sense that it produced a result which was inconsistent with a fundamental feature of the legislation, or require a court to make a decision for which it was not able or equipped to evaluate."

(c) Fleming v Revenue and Customs Commissioners [2008] UKHL 2, [2008] 1 WLR 195, where Lord Walker of Gestingthorpe explained at [49] that:

"The process of disapplication does not involve reading words into the national legislation (that would be … to confuse it with conforming interpretation). It involves the identification of the class or classes of taxpayers who are so circumstanced that the offending provisions must not be invoked against them, either in particular cases or at all."

(d) Litster v Forth Dry Dock & Engineering Co Ltd [1990] 1 AC 546, as an example of a case in which the House of Lords, following Pickstone v Freemans Plc [1989] AC 66, decided that words had to be implied into the relevant UK regulations, as a matter of purposive or conforming interpretation, so as to implement the presumed intention of Parliament to legislate in such a way as to give effect to the provisions of the relevant directive.

48. The Upper Tribunal next recorded Mr Beal's submission that the right way to read section 4 of FA 1995 today is simply to treat as deleted those paragraphs which apply the Three Conditions, i.e. paragraphs (a), (b) and (c) of subsection (3) and paragraphs (a) and (b) of subsection (5). So read, together with other minor consequential adjustments to the rest of the section, it leaves a regime under which duty has to be paid in every case, and a repayment of duty paid can then be obtained on application with proof of use. This proposed solution was in fact similar in all essentials to that about to be adopted in a new statutory instrument intended to give effect to the judgment of the CJEU, and which was subsequently promulgated as The Alcoholic Liquor Duties (Alcoholic Ingredients Relief) Regulations 2015, SI 2015 No. 2050 ("the 2015 Regulations"). The simplest way to explain the effect of the 2015 Regulations, which came into force on 1 February 2016, is to quote from the Explanatory Note which accompanied them:

"Regulation 2 amends section 4 [of FA 1995] so that claimants are no longer restricted to wholesaler manufacturers, there is no minimum amount for a repayment claim and except as the Commissioners may otherwise allow, the time limit for making a claim is no later than 3 years after the end of the period of 3 months during which the liquor was used.

These Regulations implement Article 27(1)(c) and (f) of [the Excise Directive]."

49. For his part, Mr Mercer submitted that section 4 should be disapplied by reading it as implicitly subject to the directly effective right of anyone who was entitled to an exemption but did not satisfy the Three Conditions. In support of this submission, Mr Mercer relied on Joined Cases C-397/98 and C-410/98, Metallgesellschaft Ltd and Others and Hoechst AG and Another v Commissioners of Inland Revenue and HM Attorney General [2001] ECR I-1727, [2001] Ch 620, where the CJEU had held in answer to the fifth question referred to it by the English High Court that it would breach the principle of effectiveness if the non-UK resident claimants' claims for restitution in respect of the time value of prematurely levied advance corporation tax ("ACT") could be defeated on the basis that they should have made group income elections, although under UK domestic law such elections could only be made by UK-resident companies, and should then have appealed against the inevitable refusal of such claims relying on the direct effect of EU law.
50. In relation to this argument, the Upper Tribunal said at [69]:

"We are not in the position of a court hearing a restitutionary claim. Our function is to determine the assessments. But we take from Metallgesellschaft that it can be a breach of the principle of Effectiveness to treat, as a reason for withholding the benefit of an EU law right to which a party was entitled, a failure by that party to apply to the State for a remedy which, at the time, was prohibited by the relevant legislation."

The Upper Tribunal then observed:

"70. On the other hand in Autologic Lord Nicholls, with whom the majority agreed, said (at [30]) that to require a claimant to make a group relief election which, as the law stood, would inevitably be refused and which would require statutory adaptation on appeal to accommodate the claim, did not render the statutory route practically impossible or excessively difficult. As a result he did not view the Effectiveness principle as requiring that the claim could not be brought through the normal statutory appeal mechanism rather than as a separate action. Lord Nicholls distinguished between the position of a claimant against whom the defence had been raised that it had not pursued the statutory channels and a claimant who had open to it the possibility of pursuing that course and wished to pursue another."

51. At [72], the Upper Tribunal considered that a difficulty with HMRC's proposed solution was that it left untouched section 4(4) of FA 1995, which requires a repayment claim under the section to be made in such form as HMRC may direct. The only form in existence at the relevant time was one which clearly applied only to manufacturers, and therefore did not apply to RCL. That is true, but the difficulty does not seem to me to be of a different character from the procedural obstacle which was identified by Lord Nicholls in Autologic, and which in his view did not mean that the prescribed statutory machinery could be bypassed on the ground that it breached the principle of effectiveness. The Upper Tribunal were, however, clearly impressed by this difficulty, which they referred to again in [73] as "the stumbling block" in the way of HMRC's submissions.
52. The Upper Tribunal then set out their main conclusions, in a passage which I need to quote in full:

"74. A Member State which makes it practically impossible or excessively difficult to exercise a community law right does not give effect to that right. The effect of Art 27 is to give the taxpayer a right to exemption. A refund procedure which would deprive the taxpayer of the ability of exercising the right to exemption without making a challenge to the domestic legislation and domestic practice in circumstances where the correct path is uncertain because of the way the State implemented the Directive, is a procedure which makes it excessively difficult to exercise the right.

75. In our judgment reading section 4 in the manner proposed by HMRC does not give effect to the EU law rights of parties such as RCL. Deleting this sort of limitation from this sort of provision has the effect of widening its scope after the event. The Manufacturer's Condition excluded from the UK refund scheme an entire class of persons. Those excluded persons (such as RCL) were still obliged by the legislation as a whole to pay the duty. It is the disapplication of that exclusion which creates the Metallgesellschaft problem. Conversely, reading in to section 4 an implicit exception for persons who do not satisfy that Condition gives full effect to the principle of Effectiveness.

76. A further reason why we prefer to read in an implicit exception into the legislation is that to take that approach "goes with the grain" of the legislation much more than simply disapplying whole parts of provisions enacted by Parliament. The repayment regime is a workable regime for anyone who satisfies the Three Conditions. For a manufacturer who makes the claim within the appropriate time and for an appropriate sum of money, the scheme works and gives effect to Art 27. At most one might need to disapply the second and third conditions, leaving a scheme for refunds for manufacturers, which is what Parliament unquestionably intended. In a case in which the State had a choice how to give effect to the exemption right under Art 27, it risks usurping the function of Parliament for the court to assume that it intended to give refunds to anyone else."

53. As I read this passage, the Upper Tribunal took the view that there would be a breach of the principle of effectiveness if the repayment machinery of section 4 were applied to RCL, even if section 4 were shorn of the Three Conditions, because it would still have been excessively difficult for RCL, or other wholesalers in a similar position, to assert their directly enforceable rights to an exemption under Article 27 in circumstances as they stood in 2002: see paragraph [74]. This conclusion alone would therefore seem to require the disapplication of the domestic repayment machinery for non-manufacturer wholesalers of cooking liquors, just as the requirement for the making of a group income election had to be disapplied in Metallgesellschaft. However, the Upper Tribunal were clearly conscious of the tensions between such a solution and the guidance given by Lord Nicholls in Autologic, quoted at [47] above, so their preferred solution, as I understand it, was to reach the same end result by a different route. The starting point, on this preferred analysis, was that section 4, as enacted, provided a perfectly acceptable repayment regime for manufacturers who could satisfy the Three Conditions. Parliament clearly intended to introduce a workable regime for such manufacturers, and the least violence would therefore be done to the will of Parliament if that regime were left in place, albeit perhaps without the Time and Amount Conditions which "one might need to disapply" (paragraph [76]). By a further process of conforming interpretation, an exception should then be read into section 4 for persons such as RCL which did not satisfy the Manufacturer Condition. On this interpretation, section 4 would have no application to RCL which would thus be able to rely on its directly effective right to exemption as a defence to the larger assessment.
54. This reasoning was then reflected in the final two paragraphs of the UT Decision, as follows:

"81. For the reasons set out above, we have concluded that the UK did not give effect to RCL's rights. As a result we conclude that the FTT were wrong in concluding that RCL's rights arose under the UK's refund scheme. We have therefore set aside the decision and shall remake it.

82. We have found as a fact that RCL is entitled to exemption from duty in relation to the larger assessment. Since the legislation has to be read as implicitly subject to the EU law right of a person entitled to exemption from duty who is not within the Three Conditions, RCL does not owe any duty for that consignment of cooking liquor. Accordingly we will allow the appeal on the larger assessment."

The issues

55. HMRC now appeal to this court, with permission granted by Briggs LJ on 7 November 2016. The grounds of appeal allege that the Upper Tribunal made four errors of law:

(1) first, it erred in its construction of Article 27 of the Excise Directive, and of the directly effective rights conferred by that Article;

(2) secondly, the effect of the UT Decision is wrongly to deprive the UK of its ability to give effect to the exemption in Article 27(1)(f) by using the refund system permitted by Article 27(6) and the CJEU's judgment;

(3) thirdly, the Upper Tribunal exceeded its jurisdiction under section 12 of TCEA 2007 by purporting to make factual findings in order to determine whether or not the FTT had made an error of law. Further or alternatively, there was no error of law made by the FTT, so the Upper Tribunal had no jurisdiction to set aside the FTT Decision or to make factual findings of its own; and

(4) fourthly, the Upper Tribunal erred in its approach to the question of construing and applying (or disapplying) the relevant provisions of FA 1995 in the light of the CJEU's judgment, and also erred in concluding that the continuing application of the refund system would somehow impede reliance by RCL on its directly effective EU law rights.

56. By a respondent's notice, and with permission also granted by Briggs LJ on 21 February 2017, RCL cross-appealed on two grounds. The cross-appeal relates only to the dismissal by the Upper Tribunal of RCL's appeal in relation to the lesser assessment, i.e. the assessment relating to the imported goods which had not been sold on and were still retained in RCL's warehouse. Rather confusingly, RCL's grounds of appeal define these goods as "the Seized Goods" and do not appear to distinguish clearly between them and the goods seized by HMRC in France, which are the "seized goods" in my nomenclature and have never been the subject of any assessment. In the interests of clarity, I will therefore use the expression "the warehouse goods" to describe the imported goods which were still in RCL's warehouse, and which were the subject of the lesser assessment.
57. In relation to the warehouse goods, RCL's first ground of appeal is that the Upper Tribunal erred in finding that they were not exempt, because it was only HMRC's unlawful detention of them in breach of RCL's directly effective rights which prevented their use, and the principle of effectiveness requires full account to be taken of this when assessing "use". Accordingly, the Upper Tribunal's reasoning in relation to section 4 applies equally to the warehouse goods. The second ground is that the Upper Tribunal should have construed Article 27(1)(f) as extending to goods which would have been used in the specified manner if such use had not been prevented by unlawful action on the part of the national revenue authority.
58. HMRC then filed a respondent's notice in relation to the cross-appeal on 27 March 2017, contending (among other matters) that:

(a) there is no exemption at source for cooking liquors;

(b) RCL cannot show a qualifying use for imported goods that have never been used;

(c) the requirement for a trader to show a qualifying use does not impair the practical effectiveness of the exemption, since it is an inherent requirement in the Excise Directive itself; and

(d) there is no warrant for construing "use" in Article 27 as encompassing a hypothetical use if circumstances had been different. Since the warehouse goods were never used in a finished food product, the criteria for the exemption were never met.

Discussion

59. Given the interlocking nature of the grounds of appeal, I will adopt a thematic approach to the issues, beginning with the context and interpretation of Article 27 itself, and then moving on to consider:

(a) the implementation of Article 27(1)(f) in UK domestic law;

(b) the nature of RCL's directly effective rights derived from the Excise Directive; and

(c) how effect should be given to those directly effective rights in the present case.

Article 27 of the Excise Directive

60. I have already described the main relevant provisions of the Excise Directive and Article 27: see [9] above. The general scheme of Article 27 is in my judgment straightforward. Article 27(1) provides for a series of mandatory exemptions from the harmonised excise duty on alcoholic products covered by the Directive. Each of these mandatory exemptions is tied to the end use of the product in question, and most of them (including that in Article 27(1)(f)) are introduced by the words "when used". Article 27(2) then provides for a series of discretionary exemptions, all of which are again dependent on the actual use of the alcoholic product for a specified purpose, and are introduced by the words "when used". The conditions which Member States are authorised to impose on any of the exemptions (whether mandatory or discretionary) are strictly confined to conditions for the purposes of (a) ensuring the correct and straightforward application of the exemptions, and (b) preventing any evasion, avoidance or abuse ("the authorised conditions").
61. Paragraphs 3, 4 and 5 of Article 27 then contain special provisions relating to the exemptions for denatured alcoholic products contained in Article 27(1)(a) and (b). For present purposes, nothing turns on those special provisions. Article 27(6), however, is of general application, and states without any qualification that Member States "shall be free to give effect to the exemptions mentioned above by means of a refund of excise duty paid". This wording reflects the equally unqualified penultimate recital of the Excise Directive, which states that "Member States should be permitted to give effect to the exemptions required by this Directive by way of refund".
62. The judgment of the CJEU has now confirmed, if it was not already clear enough from the wording of Article 27 itself, that:

(a) Article 27(6) means what it says (paragraph 47 of the judgment of the Court);

(b) the application of the exemption in Article 27(1)(f) "depends on the end-use of the products in question" (paragraph 49);

(c) the exemption of products covered by Article 27(1) "is the rule and refusal is the exception" (paragraph 51);

(d) the power of Member States to impose the authorised conditions cannot detract from the "unconditional nature" of the mandatory exemptions contained in Article 27(1) (paragraph 51); and

(e) the authorised conditions must be justified by "concrete, objective and verifiable evidence", and "cannot go beyond what is necessary to prevent evasion, avoidance or abuse" (paragraphs 52 and 53).

63. Against this background, the option for Member States to give effect to the exemptions by way of a refund of excise duty paid appears to me to be of central importance in many types of case if the exemptions are to operate in a workable fashion. Unless the products in question have already been used in one of the qualifying ways before the excise duty point at which duty would otherwise become payable, no right to exemption can yet have accrued, however probable it may be that the product will in due course be used for a qualifying purpose. Furthermore, if the exemption were to be granted in such cases on a provisional basis, subject to confirmation of its availability when a qualifying use has later been demonstrated, there would be obvious practical difficulties both for the revenue authorities and for importers who did not intend to use the products themselves. How and when would the necessary evidence of qualifying end use be provided, and how would the revenue authorities keep track of the goods pending such use, possibly in the hands of numerous onward consignees and at widely differing times? In practical terms, it might often be very difficult, if not impossible, for the unpaid duty to be recovered if the goods were not in fact ever used in a qualifying manner.
64. None of these practical difficulties arise if a refund system is adopted. Moreover, the adoption of such a system accords with the language of the exemptions themselves in any case where the qualifying use has not already occurred before the relevant excise duty point. Thus, for example, if cooking liquors have already been incorporated in finished products when they are imported into the UK, no problem arises. Provided the terms of Article 27(1)(f) are satisfied, the exemption is available. But if the liquors have not yet been used, as in the present case, there is no subsisting right to exemption at the excise duty point, and nothing to displace the normal requirement that duty be paid. A refund system reflects this simple point, while ensuring that the duty will in due course be repaid upon proof of actual qualifying use.
65. I have so far assumed that the correct construction of the words "when used" in Article 27(1)(f) is that the right to exemption for cooking liquors can arise only when they have actually been used for the production of foodstuffs with an alcoholic content below the specified limits. That is in my opinion the clear import of the past participle "used", in this and most of the other Article 27(1) exemptions. Furthermore, this construction finds strong support in the judgment of the CJEU at paragraphs 47 and 48, quoted at [23] above, where the Court stated that the objective of the exemptions was "to neutralise the impact of excise duties on alcohol used as an intermediate product in other commercial or industrial products" (my emphasis), and that the exemption under Article 27(1)(f) "depends on the end-use of the products in question". Indeed, it is precisely this point which seems to me to lie behind the express freedom for Member States to give effect to the exemptions by way of a refund of duty paid. The position is thus quite different from cases where exemption is granted for goods which are intended to be used in a particular way, such as the mineral oils at issue in the Braathens case which were exempted under Directive 92/12/EEC when "supplied for use as fuels for the purpose of air navigation other than private pleasure flying" (my emphasis).
66. Nevertheless, Mr Mercer submitted in oral argument that the words "when used" in Article 27(1)(f) cannot mean "has been used", but must mean something like "when habitually used", at least where the context permits sufficient confidence that such use will in fact take place. Mr Mercer gave the example of cooking liquors imported for onward sale to appropriate outlets, such as restaurants or hotels, where qualifying use would be almost bound to occur. When pressed on this point by Asplin LJ, Mr Mercer also accepted that it would be necessary to show that the goods had actually been supplied to such outlets, or at least that arrangements for such onward supply were in place at the date of import. He agreed that the warehouse goods in the present case could not qualify for exemption, because they were just stored and never put to any use at all.
67. Mr Mercer sought to derive support for this argument from paragraph 31 of the written observations of the EU Commission to the CJEU in the present case, where they said:

"The Commission considers that such a mechanism [i.e. a refund mechanism] is not the only acceptable way of ensuring compliance with the conditions of the exemption. In its view the right to benefit from the exemption may be acquired once there is a sufficient degree of certainty that the product will be used for production of foodstuffs of the kind covered by the exemption. Such a degree of certainty may be achieved, for example, by the addition to the products subject to excise of ingredients which effectively preclude their use for any purpose other than that envisaged by the exemption … It should be borne in mind in that regard that there are no uniform standards for the preparation of cooking wines and the nature and amount of added ingredients may vary significantly."

68. I am unable to accept these submissions. As I have said, I consider the language of Article 27(1)(f) to be clear, and I can find no indication in the judgment of the Court that it adopted the suggestion put forward by the Commission in its written observations. Furthermore, the Commission's observations on this point were made in the context of the second question referred to the Court which focused on the issue whether the Three Conditions were consistent with EU law, not on the true construction of Article 27(1)(f) itself. An obvious difficulty with the construction advocated by Mr Mercer, as with the suggestion put forward by the Commission, is that it does not cater for cooking liquors which are in fact never put to a qualifying use after their import into the UK, even if they are not fit for any other use. Mr Mercer recognises this difficulty in relation to the warehouse goods, but the logic of his argument seems to me to require that they be treated in the same way as the goods which RCL sold on, since the question has to be judged (as he accepted) at the date of import. As at that date, there is in my judgment everything to be said for a simple bright line test, which simply asks whether the products in question have already been put to a qualifying use. If they have, the goods are in principle entitled to immediate exemption. But if they have not, duty is payable in the usual way, subject to the possibility of obtaining a refund upon proof of subsequent qualifying use. There is nothing unfair or unreasonable about such a system, which is easy to understand and avoids all the practical problems associated with a prospective, or anticipatory, construction of the words "when used".
69. For these reasons, I would reject RCL's submissions on the construction of Article 27(1)(f). It follows, in my view, that RCL had no immediate right to exemption from duty in respect of any of the cooking liquors when they were imported into the UK, and duty on them should have been paid accordingly. Furthermore, in the absence of such payment, it was never open to RCL to seek relief under section 4 of FA 1995, because relief under the section is available only for "dutiable alcoholic liquor on which duty has been paid". This condition was never satisfied in relation to any of the cooking liquors which were the subject of the two assessments.

The implementation of Article 27(1)(f) in UK domestic law

70. There can be no doubt that section 4 of FA 1995 was intended by Parliament to implement the exemption in Article 27(1)(f), together with the exemption in paragraph (1)(b) for dutiable products "when used for the production of vinegar falling within CM code 2209". Parliament chose to do so by adopting a refund system, enabling a claim for repayment of the relevant duty to be made in prescribed form subject to satisfaction of the Three Conditions. By virtue of subsection (8), section 4 is to be construed as one with the Alcoholic Liquor Duties Act 1979, which is the statute containing the charging provisions under which the duty to be repaid was payable.
71. Leaving aside the Three Conditions, I consider that the machinery of section 4 was in principle an entirely acceptable method of implementing the Article 27(1)(f) exemption in UK law. Not only does Article 27(6) expressly authorise the adoption of a refund system, but (as I have explained) in cases of the present type, where cooking liquors are imported prior to their use in qualifying finished products, the right to exemption does not arise at all unless and until the appropriate end use has occurred. In these circumstances, there is nothing to displace the normal charge to excise duty on the liquors at the relevant excise duty point, and in practical terms it is hard to see how the exemption could properly be granted otherwise than under a refund system.
72. As to the Three Conditions, it is now clear from the judgment of the CJEU that Parliament sought to circumscribe the right to exemption too narrowly, and HMRC wisely did not seek to argue the contrary when the case returned to the FTT. In particular, there can be no justification for confining the right to exemption to manufacturers, thereby precluding a wholesaler like RCL from taking advantage of it. The authorised conditions to which the exemption may legitimately be subjected are narrowly confined, and have to be based on "concrete, objective and verifiable evidence". It could not seriously be suggested that the exclusion of importers like RCL from the scope of the exemption could be justified as necessary in order to ensure either the correct and straightforward application of the exemption, or the prevention of evasion, avoidance or abuse. Similarly, the Time and Amount Conditions, although no doubt administratively convenient from HMRC's point of view, could not realistically be justified.
73. The situation is thus one in which Parliament chose to implement the exemption in what was in principle an entirely acceptable manner, but circumscribed it with conditions which cannot be justified under EU law. It follows, in accordance with well established principles, that the UK is unable to rely on the Three Conditions to the extent that they are in conflict with RCL's directly effective rights under Article 27(1)(f). It is common ground that RCL has directly effective rights under the Article, so the next question is to determine what those rights consist of.

The nature of RCL's directly effective rights under the Excise Directive

74. If my analysis is right thus far, the answer to this question is in my view straightforward. The only directly effective right which a taxpayer like RCL may derive from the provisions of Article 27(1)(f) is one which entitles it to the benefit of the exemption if the requirements for exemption are met. Where, as in the present case, the Member State has chosen to implement the exemption by means of a refund system, one of those requirements is that the duty must be paid before a claim for exemption is made. Furthermore, even in the absence of a refund system, the same result would follow in cases of the present type. When the relevant cooking liquors were imported by RCL, they had not been used in a qualifying manner when the charge to duty arose. Accordingly, RCL was unable to satisfy the conditions for exemption at the date of import and duty therefore had to be paid, leaving any claim for exemption to be made at a later date when the necessary end use had occurred and could be demonstrated to the satisfaction of HMRC.
75. With respect to the Upper Tribunal, it appears to me that they fell into two errors. First, they assumed that the adoption by the UK of a refund system was a mere matter of machinery divorced from the right to exemption, whereas it was in truth an integral part of the package of measures whereby Parliament chose to implement the exemption pursuant to the authority conferred by Article 27(6). Secondly, the Upper Tribunal failed to grapple with the problem that the right to exemption can only arise once the specified end use of the cooking liquors has taken place. There is no way, on the facts of the present case, in which such end use could already have occurred at the point when excise duty became payable.
76. Once the nature of RCL's directly effective right has been correctly identified, it is obvious that it could not afford RCL a defence to the two assessments. The simple fact is that no right to exemption had accrued before the cooking liquors were imported and duty on them became payable. The only directly effective right which RCL ever had was to claim repayment of the excise duty paid once the necessary conditions of use had been satisfied by RCL's retail customers. Because RCL was not itself a manufacturer, there was no possibility of those conditions being satisfied while the goods remained in RCL's possession. Nor, in the context of a refund scheme, was it ever possible for RCL to make a claim, even after such use had taken place, because the duty payable on import was never paid, with the consequence that there was nothing to refund.

How should effect be given to RCL's directly effective rights in the present case?

77. In the circumstances which I have described, the answer to this question becomes academic. In the absence of payment of the duty by RCL, no right to an exemption, directly effective or otherwise, can arise. Nevertheless, I will state my conclusion on this issue, because here too the Upper Tribunal in my respectful opinion fell into error. Since the UK chose to implement the exemption in Article 27(1)(f) by means of a refund system, and since the Three Conditions in section 4 of FA 1995 clearly cannot be justified, it seems to me all but self-evident that the appropriate way to give effect in English law to the directly effective rights of wholesale importers such as RCL is simply to disapply the Three Conditions. This solution accords with the well known guidance given by Lord Nicholls in Autologic, and recognises the principle that the domestic UK legislation must be applied without prejudice to directly effective rights which taxpayers are entitled to assert against the State. This was correctly recognised by the FTT at [102] of the FTT Decision, where they said that no invocation of the direct effect of Article 27(1)(f) could avail RCL in a situation where the UK had elected to give effect to the exemption by means of a refund system.
78. The Upper Tribunal saw two main objections to this solution. The first objection, if I understand it correctly, was that Parliament only intended to enact a refund scheme for manufacturers, and it would risk "usurping the function of Parliament for the court to assume that it intended to give refunds to anyone else": see the UT Decision at [76]. The difficulty with this, however, is that Parliament must be taken to have intended to implement Article 27(1)(f) correctly when it enacted section 4 of FA 1995. There is nothing, other than the wording of the section itself, to suggest that Parliament intended to breach its obligations under EU law by confining the scope of the exemption more narrowly than it should have done. Where a mistake of that kind is made by the national legislature, it seems to me to accord better with the presumed intention of Parliament to legislate in accordance with EU law if the framework of a refund system is maintained, but with the offending conditions disapplied, rather than to construe the national legislation in such a way as to confine its scope to only a sub-set of those entitled to benefit from it.
79. Secondly, the Upper Tribunal were impressed, as I have already pointed out, by the "stumbling block" that RCL could never have complied with the machinery for making a claim specified by HMRC pursuant to section 4(4). The answer to this objection, however, is again provided by Lord Nicholls in Autologic. After observing that "the remedial route prescribed by the legal system of a Member State" must be such as to comply with the EU law principles of equivalence and effectiveness, Lord Nicholls said at [30]:

"The statutory route prescribed for group relief claims was not designed for claims in respect of non-resident companies. So, as United Kingdom law presently stands, at the initial step a taxpayer's group relief claim will inevitably be refused by the Revenue. Further, as already noted, some statutory requirements will need adaptation to accommodate claims in respect of non-resident companies. But neither of these features should present any major problem. Neither of them renders the statutory route "practically impossible or excessively difficult". Adaptation of the formal requirements will be needed whichever route is followed, and the appropriate adaptation is a matter on which the Special Commissioners' [now the FTT's] practical expertise will be invaluable."

80. These observations were made by Lord Nicholls in the context of claims for group relief by non-UK resident companies, which fell outside the scope of the relevant UK legislation then in force. Mutatis mutandis, the same reasoning is in my judgment applicable in the present case. RCL had engaged the services of a leading firm of London solicitors when the assessments were made, and if an appeal had been brought in time against those assessments, I see no reason to doubt that RCL's rights (assuming them to be engaged) could have been effectively asserted by means of a suitably modified claim under section 4(4) of FA 1995. The position in the Metallgesellschaft case is readily distinguishable, as Lord Nicholls recognised in Autologic at [29], on the footing that it concerned a claim to restitution which could only be brought in the High Court, and there was no other route prescribed by statute by which the taxpayers could obtain recompense for the time value of prematurely levied ACT.

Conclusion

81. For these reasons, I am satisfied that HMRC's appeal must be allowed, the decision of the Upper Tribunal set aside, and the decision of the FTT re-instated. It is unnecessary to deal with HMRC's subsidiary grounds of appeal. RCL's cross-appeal must also be dismissed, because in the absence of payment of duty on the warehouse goods RCL never had a directly enforceable right to exemption in respect of those goods, nor could it ever have acquired such a right by selling them on to end users.
82. Finally, I should mention that on 11 October 2017, six days after we had reserved judgment at the end of the hearing on 5 October, RCL made an unheralded written submission that we should make a reference for a preliminary ruling to the CJEU on a number of issues which were said to arise from the hearing. HMRC responded to this submission on 13 October 2017. I would refuse this application. In my judgment, the relevant principles of EU law which lead to my conclusions are all clearly established, not least by the decision of the CJEU in the present case. The principles themselves require no further elucidation by the Court, and the only question is how they should be given effect in the actual circumstances of the present case.

Lady Justice Asplin:

83. I agree.

Lord Justice Patten:

84. I also agree.