[2009] UKFTT 375 (TC)

TC00313
Appeal numbers MAN/2008/8029,
LON/2008/8125

EXCISE DUTY – beer duty – whether calculated at the level of the container – no – whether truncation of fractions of a penny is to be made at the level of each container – no 

FIRST-TIER TRIBUNAL

TAX 

	CARLSBERG UK LIMITED (1), INBEV UK LIMITED (2)	Appellants

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (beer duty)	Respondents

		TRIBUNAL: 	JOHN F AVERY JONES CBE (TRIBUNAL JUDGE)

Sitting in public in London on 10 and 11 December 2009

Sam Grodzinski and Jeremy White, counsel, instructed by Lawrence Graham LLP for the Appellants

Andrew Macnab, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	These are preliminary issues in the appeals by Carlsberg UK Limited and Inbev UK Limited against assessments to beer duty.  The issue is essentially at what point in the calculation of the duty one ignores fractions of a penny (“truncation”).  Is it per container, as contended for by the Appellants, or monthly, as contended for by HMRC?  The Appellants were represented by Mr Sam Grodzinski and Mr Jeremy White, and the Respondents (“HMRC”) by Mr Andrew Macnab.
2.	The preliminary issues are:
(1)	“Whether, pursuant to the relevant provisions of the Alcoholic Liquor Duties Act 1979 (“ALDA”) and the Beer Regulations 1993 (“the Regulations”), the Appellants were entitled (in relation to the periods covered by HMRC’s assessments at issue in these appeals) to calculate the amounts of duty payable on beer by reference to the volume of beer held in each container.
(2)	In the event that the Appellants were so entitled, whether they were then entitled, having calculated the duty payable per container, to disregard any fractions of a penny produced by such calculations, in accordance with section 137(4) of the Customs and Excise Management Act 1979 (“CEMA”).” 
3.	The effect of the issue can best be shown by the Appellants’ example of a delivery of 3 cases of beer each containing 24 cans of 440 ml each, with an alcohol by volume of 5%, and a duty rate of £16.15.  The duty is 0.44/100 * 5 * £16.15 = £0.3553 per can.  The Appellants say that one rounds this to 35p per can and so the total is 35p * 24 * 3 = £25.20.  If there were 1,000 such deliveries in the month’s accounting period the duty payable would be £25,200.00.  HMRC says that the calculation is 3 * 24* 0.44/100 * 5 * £16.15 = £25.5816.  On the 1,000 deliveries the total would be £25,581.60 and no fractions of a penny arise for truncation.  In other words, the Appellants do the truncation at the level of each can of beer, and HMRC at the level of the monthly payment.  The effect of these fractions of a penny is important to the Appellants as is demonstrated by the assessments being for over £10m for the first Appellant and nearly £18m for the second Appellant.
Contentions of the parties
4.	Mr Grodzinski and Mr White contend in outline:
(1)	Section 2(3A) of ALDA envisages duty being charged on beer “contained in any bottle or container”.  Regulation 17 of the Regulations made pursuant to s 49 ALDA for the purpose of “prescribing the method of charging he duty” sets out in the means for determining the amount of beer “in any container.”  Having calculated the duty at container level s 137(4) CEMA requires fractions of a penny to be ignored.
(2)	Nothing in ALDA dictates any specific method of calculating the duty.  Part VI of the Regulations is entitled “Determination of the Duty” and includes reg 17 entitled “The amount of beer in any container.”  Thus the regulations clearly envisage the container being the item on which duty arises.  This is supported by the terms of reg 17(2) dealing with large packs.  The explanatory note to the regulations inserting this provision says that “The amount of excise duty payable will be determined by reference to the nominal (or labelled) volume of the container because if the container contains more than this quantity, relief from excise duty is afforded on the excess.”  It goes on to say that if the tolerance is exceeded duty is payable on the actual volume of beer in he container.  This implies that the calculation of duty is made per container.
(3)	All beer must be in some type of container and so HMRC’s argument that where there is no duty suspension the volume needs to be measured before it is put into a container, for example when “the beer reaches that state of maturity at which it is fit for consumption,” does not arise because the beer must already be in a container in this situation.
(4)	The Appellants’ method gives the same result whether the accounting period is one day (for a CEMA approved excise warehouse) or one month (for ALDA registered premises).  HMRC’s suggestion that taxpayers could reduce the duty by packing beer is smaller containers is not realistic.  The result is an inevitable consequence of truncation required by s 137(4) CEMA.
(5)	“Due” in s 137(4) CEMA must mean payable.  Duty is calculated in the return on the 15th of the month and is then due and payable, but it does not have to be paid until the 25th of the month.  In reg 15 of the Regulations the duty point is explained as “the time when the duty is payable by a person”.  The duty is due and payable at the duty point but may be deferred.
(6)	The duty must be known at the time the beer leaves the registered premises when it is “chargeable” under art 6(1) of Directive 92/12/EEC.  On HMRC’s interpretation the amount can depend on the amount of beer released for consumption in the rest of the month.
(7)	The ECJ cases on VAT relied on by HMRC show that member states are permitted to enact provisions relating to rounding.  There was no practical need in Wetherspoon to round fractions of a penny at the stage of retail transactions, but there is a practical need to round fractions of a penny at the duty point in wholesale transactions.
5.	Mr Macnab for HMRC contends in outline:
(1)	Duty is calculated by reference to the total volume of beer delivered to home use in a given monthly accounting period.  Truncation takes place at that point.  If the Appellants were right the duty is less if the size of the container is reduced.  For example, based on 97 gallons (440.97 litres) of beer at 4% strength and a duty rate of £16.47, the duty on the total is £289.87; if calculated on 1 litre bottles it is £286; on 440 ml cans it is £280; on 250 ml bottles it is £281.60.  These calculations were backed up by a number of spreadsheets giving a range of possibilities.  As a reductio ad absurdum if the strength of the beer were marginally over the 0.5% minimum in Council Directive 92/83/EEC, say 0.51%, and it was packaged in 100 ml bottles the duty would be nil.  (The Appellant objects that 0.51% would be rounded down to 0.5% and so there would be no duty anyway, and in any case the minimum dutiable strength in UK law is 1.2%.)
(2)	There is no support in the legislation for the Appellants’ method of calculation, except in the highly exceptional case that only one container passes the duty point in a month.  A practical method has to be adopted for measuring volume in reg 17 of the Regulations.  That regulation does not specify how or when duty on the volume of beer so determined is calculated or paid.  That is based on the monthly return.
(3)	Truncation was provided for to avoid payments of halfpennies before their abolition in 1984, as a result of which s 137(4) was eventually repealed in 2008.
(4)	Cases exist where beer is not in a “bottle or other container” at the duty point, for example in he absence of duty suspension “when the beer reaches that state of maturity at which it is fit for consumption.”
(5)	Similar arguments relating to rounding have been rejected by the ECJ in elation to VAT in Ahold Case C-484/06 and JD Wetherspoon plc Case C-302/07. 
The first issue
6.	The Appellants’ argument depends on first s 2 of ALDA (as substituted by the Alcoholic Liquors (Amendment of Enactments Relating to Strength and to Units of Measurement) Order 1979) and in particular s 2(3A) (which was added in 1981):
“2     Ascertainment of strength, volume and weight of alcoholic liquors
(1)     Subject to subsections (5) and (6) below, this section applies to spirits, anything that would be spirits if it were of a strength exceeding 1.2 per cent, … and any fermented liquor [this includes beer] other than wash, and “liquor” shall be construed accordingly.
 (a)     except where some other measure of quantity is specified, any computation of the quantity of any liquor or of the alcohol contained in any liquor shall be made in terms of the volume of the liquor or alcohol, as the case may be;
 (b)     any computation of the volume of any liquor or of the alcohol contained in any liquor shall be made in litres as at 20° C; and
 (c)     the alcoholic strength of any liquor is the ratio of the volume of the alcohol contained in the liquor to the volume of the liquor (inclusive of the alcohol contained in it);
and in this Act, unless the context otherwise requires—
 “alcohol” means ethyl alcohol; and
 “strength” in relation to any liquor, means its alcoholic strength computed in accordance with this section, the ratio referred to in paragraph (c) above being expressed as a percentage.
(3)     The Commissioners may make regulations prescribing the means to be used for ascertaining for any purpose the strength, weight or volume of any liquor, and any such regulations may provide that in computing for any purpose the strength of any liquor any substance contained therein which is not alcohol or distilled water may be treated as if it were.
(3A)     Without prejudice to the generality of subsection (3) above, regulations under that subsection may provide that for the purpose of charging duty on any spirits, beer, [added 1991] cider, [added 1997] wine or made-wine contained in any bottle or other container, the strength, weight or volume of the liquor in that bottle or other container may be ascertained by reference to any information given on the bottle or other container by means of a label or otherwise or to any documents relating to the bottle or other container.”
The Appellants point to the words “for the purpose of charging duty on any…beer… contained in any bottle or other container” as indicating that the duty is charged at the level of the container.  Next they rely on the form of the Regulations, Part VI of which is headed Determination of the Duty and contains reg 15:
“15 The duty point
(1) Save where any duty suspension arrangements apply to the beer, the duty point (the time when the duty is payable by a person) shall be the time when the beer is charged with the duty by section 36(1) of the Act, that is to say, the time when it is imported into the United Kingdom or, as the case may be, produced in the United Kingdom.
…
(2) If any duty suspension arrangements apply to the beer, the duty point shall be the earlier of-
(a) the time when the duty ceases to be suspended in accordance with those arrangements;
(b) the time when there is any contravention of any requirement relating to those arrangements; and
(c) the time when the duty ceases to be suspended by virtue of paragraph (3) below.
(3) The duty ceases to be suspended when-
(a) the premises on which the beer is held cease to be registered premises under Part IV of these Regulations;
(b) the person holding the beer ceases to be registered under Part IV of these Regulations;
(c) the beer is consumed; or
(d) the beer leaves any registered premises unless- 
(i) the beer is consigned to other registered premises or an excise warehouse in accordance with requirements prescribed in Part V of these Regulations and Part IV of the Excise Goods (Holding, Movement, Warehousing and REDS) Regulations 1992; or
(ii) the beer is delivered for export, shipment as stores or removal to the Isle of Man.”
Regulation 8(2) is relevant when duty suspension does not apply (duty suspension will normally apply) in determining when the beer is deemed to have been produced:
“(2) For the purposes of section 36 of the Act (the charge of excise duty) and these Regulations, beer shall be deemed to have been produced at the time determined in accordance with any direction given by the Commissioners or in the absence of any such direction at the earlier of-
(a) the time when the beer is put into any package [defined in relation to beer to mean to but put beer into tanks, casks, kegs, cans, bottles or any other receptacles of a kind in which beer is distributed to wholesalers or retailers];
(b) the time when the beer is removed from the brewery;
(c) the time when the beer is consumed;
(d) the time when the beer is lost;
(e) the time when the beer reaches that state of maturity at which it is fit for consumption.”
Regulation 16 is headed Rate of duty:
“The duty shall be paid at the rate in force at the duty point.”
Regulation 17, being the regulation made under s 2(3A), provides:
“17     The amount of beer in any container
(1)     Except in the case of beer to which paragraph (2) below applies the amount of beer in any container shall be deemed to be the greater of—
 (a)     the amount determined in accordance with section 2 of the Act;
 (b)     the amount ascertained by reference to information on the label of the container of the beer; and
 (c)     the amount ascertained by reference to information on any invoice, delivery note or similar document issued in relation to the beer.
(2)     The amount of beer in a large pack [defined as a container that is intended to contain a volume of more than 10 litres but not more than 400 litres] may be ascertained by reference to any information on the label of that pack or any information in any invoice, delivery note or similar document indicating the amount of beer in that pack and, except in a case where the tolerance requirements set out in Schedule 6 below are not met, any beer in excess of that amount is relieved from duty at the duty point.”
Regulation 18, headed The strength of the beer, is not necessary to set out but it should be mentioned that the form mirrors that of reg 17(1).
7.	The Appellants’ case is that Part VI contains all the elements of the calculation and that always depends on the beer being in a container, from which they deduce that, to quote their skeleton argument, “Thus the Regulations clearly envisage the container being the item on which duty arises.”
8.	I do not find the Appellants’ argument convincing.  Section 2 of ALDA treats the volume of  “any bottle or other container” as a special case, having set out the normal rule for measuring volume in subs (2) and then providing for regulations to be made about this under subs (3), to which subs (3A) is a special case applying “without prejudice to the generality of subsection (3) above.”  Container is a defined expression in s 1(1) of CEMA: “‘container’ includes any bundle or package and any baggage, box, cask or other receptacle whatsoever.”  By s 1(2) of CEMA: 
“(2)     This Act and the other Acts included in the Customs and Excise Acts 1979 shall be construed as one Act but where a provision of this Act refers to this Act that reference is not to be construed as including a reference to any of the others.”  [ALDA is one of the Customs and Excise Acts 1979.]  
The draftsman of s 2(3A) referred to “any bottle or other container”.  If the defined term “container” was intended to apply to s 2(3A) the reference to a bottle would be superfluous as it is must be an “other receptacle.”  The context therefore requires that the definition of container should not be applied.  In my view “any bottle or other container” refers to the type of container, like a bottle, in which the alcoholic liquor might be sold.  Regulation 17 provides a special method of measuring volume of beer in a container (it does not mention “bottle” but this is necessarily included), presumably designed to prevent the container being labelled with less beer than it actually contains (thus envisaging that a container is likely to state the volume on a label), or the invoice doing the same; and, by a later addition, makes an exception for large packs so that within the tolerance the volume is to be taken as the stated amount on the label.  The explanatory note dealing with reg 17(2) quoted by the Appellants does not in my view assist their argument.  If there is more beer than stated on the label of a large pack but the excess is within the tolerance, the volume is measured by the label and so any excess within the tolerance is automatically exempt from duty because it is not included in the volume on which duty is calculated.  This is true whether one calculates the duty per container or per month.
9.	On this meaning of “bottle or other container,” a charge to duty can arise when the beer is not in a “container” in this sense, although of course the beer must be contained in something.  With duty deferment the charge could arise when the beer leaves any registered premises in a tanker (not being a container in this sense) or without duty deferment when the beer is removed from the brewery a tanker.  Also, without duty deferment the charge could arise “the beer reaches that state of maturity at which it is fit for consumption” while remaining in the vat (if that is the right expression) (also not being a container in this sense) in which it has been brewed or matured.
10.	Accordingly I do not consider that reg 17 provides a comprehensive measure of volume applying in all cases, from which it could be argued that “the Regulations clearly envisage the container being the item on which duty arises.”  There is no requirement to calculate the duty per container.  The duty is calculated on the totals at the duty point under reg 15, or in practice where duty suspension applies at the end of each monthly accounting period, and not per container.  The fact that on the Appellants’ interpretation the duty would vary with the size of the container (also assuming that the truncation is done at the container level) also suggests that such an interpretation was not intended.
The second issue 
11.	On that basis the second issue does not arise but I will consider when truncation applies.  This depends on the interpretation of the word “due” in s 137(4) CEMA 1997:
137     Recovery of duties and calculation of duties, drawbacks, etc
(1)     Without prejudice to any other provision of the Customs and Excise Acts 1979, any amount due by way of customs or excise duty may be recovered as a debt due to the Crown.
(2)     Any duty, drawback, allowance or rebate the rate of which is expressed by reference to a specified quantity or weight of any goods shall, subject to subsection (3) below, be chargeable or allowable on any fraction of that quantity or weight of the goods, and the amount payable or allowable on any such fraction shall be calculated proportionately.
(3)     The Commissioners may for the purposes of subsection (2) above determine the fractions to be taken into account in the case of any weight or quantity.
(4)     For the purpose of calculating any amount due from or to any person under the customs and excise Acts by way of duty, drawback, allowance, repayment or rebate any fraction of a penny in that amount shall be disregarded.
In the context of subs (1) one would expect “recovered as a debt due to the Crown” to mean something presently payable that the Crown could sue for.  The question is whether the same applies to “amount due” in subs (4) so that it relates to the time of actual payment.
12.	Section 36 of ALDA imposes the charge to excise duty on beer:
36     Beer: charge of excise duty
(1)     There shall be charged on beer—
 (a)     imported into the United Kingdom, or
 (b)     produced in the United Kingdom,
a duty of excise at the rates specified in subsection (1AA) below.
…
(2)     Subject to the provisions of this Act—
 (a)     the duty on beer produced in, or imported into, the United Kingdom shall be charged and paid, and
 (b)     the amount chargeable in respect of any such duty shall be determined and become due,
in accordance with regulations under section 49 below and with any regulations under section 1 of the Finance (No 2) Act 1992.
The draftsman has used extremely precise language in subs (2), drawing a distinction between the duty being “charged,” and “paid;” and the amount “chargeable” in respect of the duty being “determined” and “become due,” all of which is to be determined by regulations, here the Regulations.
13.	One would have expected the draftsman of the Regulations to use the same expressions as in ALDA but he seems to vary this.  I have already set out reg 8 which determines when the production of beer is completed.  I have also already set out reg 15 which deals with the duty point, defined in Reg 4 to mean “the time when the duty is payable by a person, whether or not payment may be deferred.”   Regulation 15(1) equates the duty point (“payable”) with the time when the duty is “charged” in s 36:
“…the duty point (the time when the duty is payable by a person) shall be the time when the beer is charged with the duty by section 36(1) of the Act, that is to say, the time when it is imported into the United Kingdom or, as the case may be, produced in the United Kingdom.”
As the definition of duty point makes clear, the duty can be “payable” when the payment is deferred and payment is not then required. Normally duty suspension arrangements apply, in which case the duty point is determined by reg 15(2) and (3), usually when “the beer leaves any registered premises.”
14.	I have already considered Part VI of the Regulations, dealing with the “Determination of the Duty.”  Part VII is headed “Payment of the duty and returns.”  This part includes reg 19:
“19     Person liable to pay the duty
(1)     The person liable to pay the duty shall be the person holding the beer at the duty point….”
15.	Logically Reg 21 comes next laying down how HMRC are informed in a return about the amount of duty to expect.
“21     Furnishing of returns
(1)     Save, in the case of a registered holder, as the Commissioners may otherwise direct, every person who is registered or was or is required to be registered in accordance with these Regulations shall, in respect of every period of a month furnish the Commissioners, not later than the 15th day of the month next following the end of the period to which it relates, with a return on a form approved by the Commissioners showing the amount of duty payable by him and containing full information in respect of the other matters specified in the form and a declaration signed by him that the return is true and complete.
(2)     Returns shall be furnished at such place as the Commissioners may direct and, unless furnished in person when that place is open to the public for business, may be furnished in such other manner as the Commissioners may allow.”
16.	Reg 20 deals with the time when payment should be made (“shall be paid”) which in any normal case when duty suspension applies will also be the time of actual payment because the payment must be made by direct debit under reg 20(3):
“20     Time and method of payment
(1)     Subject to paragraph (2) and save as the Commissioners may allow, the duty shall be paid at the duty point.
(2)     Where the person liable to pay the duty is a registered brewer or registered holder, save as the Commissioners otherwise direct, the duty shall be paid not later than the 25th day of the month next following the month containing the duty point in relation to the duty provided that—
 (a)     where the last day for making payment would, if determined in accordance with the foregoing provision of this paragraph, fall on a day which is not a business day, the duty shall be paid not later than the last business day before that day; and
 (b)     save as the Commissioners otherwise agree, the duty is secured by an approved guarantee.
(3)     Save as the Commissioners otherwise allow, the duty shall be paid by direct debit.
(4)     The duty shall be paid to the Commissioners.
(5)     In this regulation “business day” means a day which is a business day within the meaning of section 92 of the Bills of Exchange Act 1882 for the purposes of the General Account of the Commissioners of Customs and Excise at the Bank of England in London.”
17.	To summarise, the Regulations deal with the answers to the following questions (the equivalent words used in s 36 being referred to in square brackets), 
(1)	On what?  [Charged] On beer produced in, or imported into, the UK; 
(2)	When payable?  [When charged] At the duty point, being the time the beer is produced by reg 8 when there is no duty suspension, or reg 15(3) when there is; 
(3)	On whom?  The person holding the beer at the duty point Reg 19;
(4)	How much?  [The amount chargeable shall be determined].  The amount determined by applying regs 16, 17 (or other measure of volume if the beer is not in a bottle or other container), 18;
(5)	When paid?  [The question is whether it is the same as: The amount chargeable shall become due] At the duty point (if no duty suspension), or the 25th of the month after the month containing the duty point: Reg 20.
18.	The missing word in the Regulations in “due.”  Is it the same as the words in the Regulations “payable” (the duty point), as the Appellants contend even when duty suspension applies, or is it when the duty payable ceases to be deferred and payment has to be made (and in normal cases will be made), as I have questioned in (5) above?    The regulations equate “payable” with when the duty is “charged” in s 36.  I consider that it is clear that the Regulations would not also equate “payable” with “due,” but would equate the ending of the payment being deferred with its becoming “due” in s 36.  It seems a proper use of language to say that when “duty shall be paid” is the same as when it is due.  This interpretation is supported by the context of “debt due to the Crown” in s 137(1) of CEMA, meaning a debt that is presently due.
19.	On that basis I agree with Mr Macnab that truncation occurs when payment is required to be made, which is the duty point if duty suspension does not apply, or the 25th of the following month if it does, so that for the purpose of calculating the amount to be actually paid one truncates the amount to remove fractions of a penny.  That is a statement of the obvious because there is now no means of paying a fraction of a penny, but no doubt s 137 CEMA dates from the time when there were halfpennies (indeed probably old farthings for earlier versions of it).  It is not surprising that s 137(4) was eventually repealed in 2008 on the ground that it had been superfluous since the half penny ceased to be legal tender, although I do not use the reason stated for its repeal as an aid to its construction.
20.	I have considered the ECJ cases on rounding for VAT and consider that they do not assist on what is essentially an issue of construction of ALDA and the Regulations.
21.	Accordingly, my answers to the preliminary issue are:
(1)	Whether, pursuant to the relevant provisions of ALDA and the Regulations, the Appellants were entitled (in relation to the periods covered by HMRC’s assessments at issue in these appeals) to calculate the amounts of duty payable on beer by reference to the volume of beer held in each container.
Answer: no (except that the volume in each container forms part of the total at the duty point if duty suspension does not apply or the monthly total if it does).
(2)	In the event that the Appellants were so entitled, whether they were then entitled, having calculated the duty payable per container, to disregard any fractions of a penny produced by such calculations, in accordance with section 137(4) of CEMA.
Answer: not applicable. 

JOHN F AVERY JONES

TRIBUNAL JUDGE
RELEASE DATE: 17 December 2009