First-tier Tribunal (Tax)

‘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.’

‘1. Are cooking wine and cooking port subject to excise duty under [Council Directive 92/83/EEC of 19 October 1992 – “the Excise Directive”] in the Member State of importation on the grounds that they are within the definition of ‘ethyl alcohol’ under the first indent of Article 20 of [the Excise Directive]’? – “the First Question”;

2. Is it consistent with the Member State’s obligation to give effect to the exemptions contained in Article 27(1)(f) of [the Excise Directive], when read with Article 27(6), and/or with Article 28 EC and/or with the direct effect of those obligations and/or with the principles of equal treatment and proportionality to restrict the exemption for cooking wine, cooking port and cooking cognac to cases where alcoholic beverages have been used as an ingredient and to restrict the applicants for exemption to those persons who have used alcoholic beverages as an ingredient in products and/or those persons who carry on business as wholesalers of such products and/or they produced or manufactured such products for the purposes of that business and subject to further conditions that claims be made within an overall period of four months from the payment of duty and that the amount of the repayment be not less than £250? – “the Second Question”;

3. Should the cooking wine and cooking port, if liable to duty under the first indent of Article 20 of [the Excise Directive], and/or the cooking cognac, subject to the present appeal, be treated as exempt from excise duty at the point of manufacture under article 27.1(f) [of the Excise Directive, or] alternatively article 27.1(e) [of the Excise Directive]? – “the Third Question”;

4. In the light of Articles 10 [EC] and 28 EC, what effect, if any, does it have on Member States’ obligations under [Articles 20 and 27(1)(f) or, alternatively, Article 27(1)(e) of the Excise Directive] if cooking wine, cooking port and cooking cognac have been released by the Member State of manufacture from the excise movement system under [Council] Directive [92/12/EC of 25 February 1992 on the general arrangements for products subject to excise duty and on the holding, movement and monitoring of such products (OJ 1992 L 76, p.1)] into free movement within the European Union? – “the Fourth Question”.’

1.     Were the cooking liquors exempted from excise duty under French law, so that it is incumbent on HMRC in principle to respect that treatment?

2.     If so, was the exemption provided a clear misapplication of the provisions of the Excise Directive?

3.     If no exemption were properly granted (for either reason), is an exemption from excise duty on the cooking liquors nonetheless mandated in domestic UK law as a result of the ruling of the Court of Justice?

(1)  that RCL was not approved or registered to import culinary wines and spirits under any duty suspended regime – this is not denied by RCL; and

(2)  that RCL was not engaged in or approved for the manufacture of foodstuffs where alcohol is used as an ingredient and where exemption from excise duty may apply – this reason reflects the provisions of Article 27(1)(f) of the Excise Duty Directive, whereby inter alia ethyl alcohol products (such as the cooking liquors in issue) are to be exempted from excise duty when used directly or as a constituent of semi-finished products for the production of foodstuffs, filled or otherwise, and the provisions of section 4(1) and (2) FA 1995 which envisage repayment of duty following use of dutiable liquor as an ingredient in the production or manufacture of foodstuffs.

The relevant EU and domestic (UK) legislation

‘(1) Member States shall  exempt the products covered by this Directive [which include ethyl alcohol] from the harmonized excise duty under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemption 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.”

“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)              any beverage of an alcoholic strength not exceeding 1.2 per cent,

(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 repayment under this section unless-

(a)              the claim relates to duty paid on liquor used as an ingredient or, as the case maybe, 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; and a statutory instrument containing an order under this subsection shall be subject to annulment in pursuance of a resolution of the House of Commons.

(7)   There may  be remitted by the Commissioners any duty charged either-

(a)              on any dutiable alcoholic liquor imported into the United Kingdom at a time when it is contained as an ingredient in any chocolates or food falling within subsection (2)(b) or (c) above; or

(b)              on any dutiable alcoholic liquor used as an ingredient in the manufacture or production in an excise warehouse of any such chocolates or food.

(8) This section shall be construed as one with the Alcoholic Liquor Duties Act 1979, and references in this section to chocolates or food do not include references to any beverages.”

RCL’s submissions on the issue of whether excise duty was properly payable on the cooking liquors

HMRC’s submissions on the issue of whether excise duty was properly payable on the cooking liquors

‘Consequently, although the Member States 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, 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.’

‘This requirement of a “déclaration préalable” is very important.  It demonstrates that opérateurs must comply with various requirements.  These requirements are imposed by the [Circular] precisely because the French regime is that of an exemption.  If there were total freedom, no “déclaration préalable” would be necessary.  Once this déclaration préalable has been accomplished, French law does not impose any sort of “document d’accompagnement” [Accompanying Administrative Document]: the goods are no longer excise goods and are in free circulation.’

‘Ce vin de cuisine, rendu impropre à la consummation à raison de 10g de Sel et 10g de Poivre par litre de vin. 

Ce vin devient alors un ingredient pour sauces et sauces préparées; condiments et assaisonnements, composés, et deviant livre de circulation.’

that is, that the cooking wine with the addition of salt and pepper becomes an ingredient for sauces, etc. and goes into free circulation.  But Mr Beal objects that there is no indication that this document complies with the requirements described by Professor Fauvarque-Cosson, noting that the terminology used (‘le profession de fabricant’) is not the same as that described in her Report. We also have a copy of a document certifying that a French customs official had been present (presumably at Ravel’s premises) on 11 July 2002 (the day after the seizure of cooking liquors in issue in this appeal) to witness the dénaturation by the addition of 10 grams of salt and 10 grams of pepper to 4,290 litres of cognac, 3,150 litres of Vin Cuisine Blanc, and 3,000 litres of Vin Cuisine Rouge and confirming that the appropriate bordereaux de dénaturation had been archived. Mr Beal objects that this is not confirmation of the use of the product or of the product’s being passed to an identified user of it and so does not demonstrate compliance with the French exemption regime identified by Professor Fauvarque-Cosson.

Discussion and decisions

‘41. The uniform application of the provisions of [the Excise Directive] 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 [the Excise Directive] 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 [the Excise Directive] by another Member State not 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.

1)     whether the goods were liable to excise duty – which is an irrelevant consideration (see: Jones and Jones);

2)     the fact that the importation did not comply with the Excise Goods (Accompanying Documents) Regulations 2002 and were not accompanied by an AAD – which led Officer Murray to the conclusion that the goods were liable to forfeiture pursuant to regulation 24 of those Regulations – again, an irrelevant consideration;

3)     Officer Murray’s view that the fact that RCL were not themselves involved in the production or manufacture of ‘eligible articles’ qualifying for excise duty relief under the Excise Duty (Relief On Alcoholic Ingredients) Regulations 1978 disqualified RCL for such relief . Since HMRC have (in consequence of the Court of Justice’s decision (Judgment [56] – the answer to the Second Question)) disclaimed any reliance on this condition, this reason must now be viewed as irrational;

4)     Officer Murray’s view that the quantity of excise goods represents a significant quantity which may damage UK trade; 

5)     The fact that RCL had imported these type of excise goods on previous occasions without contacting Customs to establish the correct position;

6)     Officer Murray’s view that the claim made by Mr Chalopin (the Marketing Director of RCL) that RCL had had a previous visit from Customs and had been told that the goods were not subject to duty was inaccurate.

1)     that the goods were imported for culinary purposes and were therefore fit for human consumption and did not qualify under the exceptions to excise duty set out in the Statement of Case ‘and the goods were consequently liable to excise duty’ – this is, of course, an incomplete account of the impact of the Excise Duty Directive and does not mention the possibility of a refund of duty on proof of qualifying use;

2)     that RCL had failed to account for the duty and so the goods were liable to forfeiture – strictly, an irrelevant reason following Jones and Jones;

3)     that it was in line with HMRC’s policy not to restore the goods and that it was not a case of exceptional hardship;

Right to apply for permission to appeal

JOHN WALTERS QC

JUDGE OF THE FIRST-TIER TRIBUNAL

RELEASE DATE:

DECISION

Introduction and facts

1.     This is an appeal against a decision by Mr. G. A. Murray, a Review Officer of the Respondent Commissioners (“HMRC”) communicated to Dechert, then acting on behalf of Repertoire Culinaire Ltd (“the Appellant”) by a letter dated 17 October 2002 (“the Decision Letter”). Mr. Murray’s decision was to refuse restoration of certain goods namely, 2800 litres of white wine, 2800 litres of red wine, 160 litres of port and 80 litres of cognac. 

2.     The white wine and the red wine was 11% alcohol by volume (ABV), the port was 19% ABV and the cognac was 40% ABV. 

3.     The Decision Letter contained the statement that “It is evident that the wine, port and cognac had salt and pepper added to them, the goods were ‘undrinkable’ and intended for culinary purposes”.

4.     The CMR document (consignment note) accompanying the goods described them as ‘vin de cuisine’.  The invoice addressed to the Appellant from the supplier of the goods, Ravel S.A. of St-Galmier, France, gives the added description ‘salé-poivré’ against each of the goods and the customs code 2103909089.  In this Decision we adopt a description of the goods as “cooking wine”, “cooking port” and “cooking cognac”, and generally as “cooking liquors”.

5.     Restoration of the cooking liquors was refused on the grounds, principally, that HMRC considered that they “were subject to UK excise duty at the normal rates for alcohol”.

6.     We attach to this Decision as Appendix 1 the text of an “agreed statement of undisputed facts” which the parties put before us.  From this statement it appears (see: paragraph 18 thereof) that the position as at 19 July 2007 was that there was no agreement within the Community as to how the cooking liquors subject to this appeal should be treated.  Some Member States took the view that cooking wine is not within the scope of excise duty under EC Directive 92/83/EEC (“the Directive”) and therefore entitled to move freely within the EU without any accompanying document. 

7.     There appear to be conflicting opinions given by the Excise Committee on the issue of whether cooking liquors are subject to excise duty under the Directive.  Mr. Mercer QC, for the Appellant, refers to CED No. 234 of 1997, which appears to be supportive of the interpretation for which he contends, whereas Mr. Singh, for HMRC, claims support for his (contrary) contention in CED No. 365 of 2001 and CED No. 372 Final of 2002.  The Tribunal notes, however, that the guidelines issued under reference CED No. 373 Final of 2002 were not unanimously approved.

8.     The Tribunal received a Witness Statement from M. Albert Allo, Chef du Bureau F/3, Contributions indirectes at the Direction Générale des Douanes et Droits indirects of the French Ministry of Economy, Finance and Industry, to which HMRC made no objection.  We accept the statements of fact made in that Witness Statement and in the other Witness Statements to which we make reference below.

9.     M. Allo states that at the meeting of the Excise Committee on 22 November 2004, the Commission tabled a proposal for new guidelines (CED No. 497 of 2004) which would cancel the guidelines in CED No. 372 Final of 2002 and propose to consider cooking wine and cooking cognac as aromas which benefit for the exemption from excise duty provided for under article 27.1(e) of the Directive, instead of article 27.1(f). 

10.  M. Allo further states that by then the position of Member States was confused, as recorded in the minutes of the Excise Committee held on 24 and 25 November 2005 (CED No. 505 of 2005). 

11.  From M. Allo’s evidence the Tribunal finds as follows.

12.  The position of France and Ireland is that cooking liquors are not products covered by the Excise Directive and may circulate freely within the European Union without the need for any accompanying document.

13.  Apparently France is the only producer of cooking wine and has a long well established practice of dealing with cooking wine.  French Customs are well aware of the nature of cooking liquors which have been tested in an independent laboratory.  From these tests it has been concluded that cooking liquors can only be used as food preparation.  French Customs are equipped with appropriate means of control of the movements of cooking liquors and have had no history of fraud or abuse in their use.

14.  It is not possible (at any rate as a matter of economic practicality) either to reverse the mixing process to separate the alcoholic beverage from the pepper and salt or to isolate the alcoholic content of the wine in its entirety.

15.  M. Allo further states that having regard to the extent of confusion among Member States on this issue, a decision of the Court of Justice would be welcome and the French Government would consider intervening in judicial proceedings before the Court of Justice.  (It should be noted that M. Allo’s Statement was made (on 3 April 2007) before the case of Gourmet Classic – see paragraph 21 below – and also that the French Government apparently took no part in the proceedings before the Court of Justice in that case.)

16.  M. Allo also states that the Excise Committee has given consideration to the classification of cooking liquors as aromas which benefit from the exemption from excise duty provided for under article 27.1(e) of the Directive, instead of article 27.1(f).

17.  The Tribunal also received a Witness Statement from M. Alain Imola, president of the Syndicat National des Producteurs d’Alcools et produits dérivés pour metiers de bouche and Managing Director of Bardinet Gastronomie, which was not objected to by HMRC.  M. Imola states that in both capacities he has acquired substantial knowledge of the operations of the exportation business of cooking liquors throughout the European Union.  He states with reasons his opinion that cooking liquors are not subject to excise duty.

18.  The Tribunal also received a Witness Statement from M. d’Espous, the Managing Director of the Appellant, again not objected to by HMRC. M. d’Espous states that the Appellant has sold cooking liquor to 59 restaurants, 3 outside caterers, 3 hotels and one wholesaler, whose customer base consists entirely of restaurants. He confirms that the Appellant’s customers use cooking liquor purchased from the Appellant as an ingredient incorporated into foodstuffs.  He confirms that even before incorporation into a sauce or dish, the alcohol content of cooking wine is never above 5%.  After incorporation, because of the process of simmering, the alcohol content is further diluted.

19.  Between the time when the appeal was lodged (on 4 November 2002) and the substantive hearing (10 and 11 December 2008) the issues debated between the parties have been refined.  At the hearing the Tribunal was invited to adjudicate on two issues, as follows:

1)         Are cooking liquors products subject to excise duty under the Directive?; and

2)         If so, are cooking liquors exempt from excise duty by application of article 27 of the Directive?

20.  It was the Appellant’s submission that we ought to refer questions on these issues to the Court of Justice of the European Communities (“ECJ”).  HMRC opposed this.

21.  The first issue has already been considered by the ECJ in the reference in Skatteverket v Gourmet Classic Limited (Case C-459/06).  On 12 June 2008 the ECJ delivered a judgment in that case in which it ruled that “the alcohol contained in cooking wine is, if it has an alcoholic strength exceeding 1,2% by volume, to be classified as ethyl alcohol as referred to in the first indent of article 20 of [the Directive]”.

22.  In the light of the judgment of the ECJ in Gourmet Classic, HMRC submit that the first issue is now settled in their favour and that there is no sensible basis on which the same question can be put to the ECJ again. As to the second issue, HMRC submit that they have implemented the exemption under article 27.1(f) of the Directive in a rational and reasonable way, and in accordance with the wide discretion afforded to them by the Directive and that we are able to decide the second issue without making a reference to the ECJ.

23.  Mr. Mercer, submitting that we ought to make a reference to the ECJ on both issues, said that there are special features of the Gourmet Classic case which make it appropriate and proper for us to make a reference on the first issue, with which Gourmet Classic was concerned. He makes other submissions, based on alleged prejudice would be suffered by the Appellant if we do not make a reference on the first issue.  He submits that we should also refer a question on the second issue.

24.  At the conclusion of the hearing we indicated that we would make a reference to the ECJ on both issues and asked the parties to consult as to the text of an appropriate reference.  They have done so, prior to this Decision being released, and have jointly proposed a draft of the questions to be submitted to the ECJ for a preliminary ruling.  We gratefully adopt the draft, to which we have made minor amendments.  We attach to this Decision, as Appendix 2, the questions to be referred.

25.  In this Decision we deal, first, with the arguments on the two issues identified and then go on (under the heading Gourmet Classic) to record the parties’ submissions on the question of whether we should make a reference to the ECJ in this case. We conclude by giving our reasons for deciding to do so.

First issue: are cooking liquors subject to excise duty under the Directive?

26.  As to the first issue, the parties agree that if cooking liquors are products subject to excise duty, that result will follow from an application of article 20 of the Excise Directive (definition of ‘ethyl alcohol’).

27.   Article 19 of the Excise Directive provides that member States shall apply an excise duty to ethyl alcohol in accordance with the Directive, and article 20 defines the term ‘ethyl alcohol’ for the purposes of the Directive.

28.  The definition in article 20 is as follows:

“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 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 exceeding 22% vol.

Potable spirits containing products, whether in solution or not.”

29.  To understand this definition reference must be made to the CN codes mentioned therein (and in those CN codes themselves).  The codes are within Chapter 22 of the CN (beverages, spirits and vinegar).  Specifically, they are:

a.       CN code 2207 – Undenatured ethyl alcohol of an alcoholic strength by volume of 80% vol or higher; ethyl alcohol and other spirits, denatured, of any strength :

b.      CN code 2208 – Undenatured ethyl alcohol of an alcoholic strength by volume of less than 80% vol; spirits, liqueurs and other spirituous beverages; compound alcoholic preparations of a kind used for the manufacture of beverages :

c.      CN code 2204 – Wine of fresh grapes, including fortified wines; grape must other than that of heading 2009 :

d.      CN code 2205 – Vermouth and other wine of fresh grapes flavoured with plants or aromatic substances :

e.      CN code 2206 – Other fermented beverages (for example, cider, perry, mead); mixtures of fermented beverages and mixtures of fermented beverages and non-alcoholic beverages, not elsewhere specified or included :

f.       CN code 2009 – Vinegar and substitutes for vinegar obtained from acetic acid :

The first issue – the Appellant’s submission

30.  The Appellant’s submission on this issue is that when considering the applicability of article 20 of the Directive in this case, the “products” on the facts of this case, are (a) the cooking wine, (b) the cooking port and (c) the cooking cognac.

31.  The “products” so understood do not fall within any of the codes within Chapter 22 of the CN, but within Chapter 21 of the CN (miscellaneous edible preparations) and specifically within CN code 2103, which is as follows:

a.       CN code 2103 – Sauces and preparations therefor; mixed condiments and mixed seasonings; mustard flour and meal and prepared mustard :

32.  Mr. Mercer refers to Note 1(a) to Chapter 22 of the CN (an overall note) which states that the Chapter does not cover “products of this chapter (other than those of heading 2209 [vinegar etc.] prepared for culinary purposes and thereby rendered unsuitable for consumption as beverages (generally heading No. 2103)”.

33.  Mr. Mercer points to Mr. Murray’s agreement that the cooking liquors do not fall within Chapter 22 of the CN, stated in the text of the Decision Letter, where he (Mr. Murray) says: “The invoice from Ravel S.A., a copy of which I enclose, shows the Customs tariff code 2103909089.  The classification system is agreed internationally and I believe this is the correct code for the goods.”

34.  Mr. Mercer submits that the scheme of the Directive is to split alcoholic beverages into 5 categories, reflected in Sections I to V (article 20 falling within Section V: Ethyl Alcohol).  The categories are: beer, wine, fermented beverages other than wine and beer, intermediate products and ethyl alcohol.

35.  His submission is that the definition of “ethyl alcohol” in article 20 of the Directive excludes cooking wine and cooking port because these products do not fall in any of the three indents of the article.

36.  Specifically, the first indent of article 20 does not apply because cooking wine and cooking port are not products falling within CN codes 2207 or 2208 (which, he submits, cover spirits only, not wine).

37.  The second indent of article 20 does not apply because, although CN codes 2204, 2205 and 2206 cover respectively wine, fortified wine and other fermented beverages, products within the second indent must have an alcoholic strength by volume (ABV) exceeding 22%. As noted above, the cooking wine was 11% ABV and the cooking port was 19% ABV.

38.  The third indent of article 20 does not apply because neither the cooking wine nor the cooking port was “potable spirits”, and neither contained products, whether in solution or not.

39.  He prays in aid the opinion given by the Excise Committee of the European Commission (“the Excise Committee”) in relation to wine lees and grape marc in CED No. 234 of 1997. The Excise Committee was of the view that wine lees and grape marc would not, if standing alone, fall within CN codes 2207 or 2208, but would remain wine.

40.   Mr. Mercer recognises that cognac is classified under CN code 2208 (as a spirit) and that therefore cooking cognac could, at least prima facie, fall within the extended definition of ethyl alcohol in the first indent of article 20 of the Directive even though it forms part of a product, cooking cognac, which is within Chapter 21 of the CN (not Chapter 22).  He submits that it does not actually fall within that definition because it is excluded from classification under CN code 2208 by Note 1(a) to Chapter 22 of the CN (see: paragraph 14 above) on the basis that it has been prepared for culinary purposes and thereby rendered unsuitable for consumption as a beverage.  He maintains that, in any event, cooking cognac should be exempt from duty pursuant to article 27.1(f), considered below (the second issue).

The first issue ­- HMRC’s submission

41.  Mr. Sarabjit Singh submits that, for the purposes of the first indent of article 20 of the Directive, the alcohol content of the cooking wine, the cooking port and the cooking cognac should be regarded as the “product” whose nature is investigated to see whether it comes within the definition of ‘ethyl alcohol’ in the article.  The alcohol content is a product which forms “part of a product which falls within another chapter of the CN” for the purposes of the definition, namely CN code 2103.

42.  He referred to the opinion of the Excise Committee in relation to the tax treatment of cooking wine and cooking cognac in CED No. 365 of 2001. The Excise Committee was of the view that ethyl alcohol as referred to under headings 2207 and 2208 is not restricted solely to ethyl alcohol obtained by fermentation followed by distillation.  He also referred to the Guidelines issued by the Excise Committee on 11 November 2002 under reference CED No. 372 Final, which noted that the delegations “almost unanimously” had accepted that “since classification in CN codes 2207 and 2208 is not exclusively reserved for ethyl alcohol obtained by distilling, cooking wine and cooking cognac, which have an alcoholic strength by volume of more than 1,2%, are to be deemed “ethyl alcohol” within the meaning of article 20 of the Directive.  He submitted that the issue has been settled in the sense contended for by HMRC by the judgment of the ECJ in Gourmet Classic.

The second issue: if cooking liquors are products subject to excise duty within article 20 of the Directive, are they nevertheless exempt from excise duty by application of article 27.1 of the Directive?

43.  Article 27 of the Directive is contained in Section VII, headed ‘Exemptions’.

44.  Article 27 relevantly provides as follows:

a.       “1. Member States shall exempt the products covered by this Directive from 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-

b.      (e) when used for the production of flavours for the preparation of foodstuffs and non-alcoholic beverages with an alcohol strength not exceeding 1,2% vol.;

c.      (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.”

45.  The United Kingdom has purportedly implemented article 27.1(f) of the Directive by the enactment of section 4, Finance Act 1995 (“FA 1995”).

46.  Section 4, FA 1995 is in the following terms:

a.       “4 Alcoholic ingredients relief

b.          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-

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

2.      converted into vinegar,

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

c.          The products falling within this subsection are-

1.      any beverage of an alcoholic strength not exceeding 1.2 per cent,

2.      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

3.      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.

d.          A repayment of duty shall not be made under this section in respect of any liquor except to a person who-

1.      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;

2.      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;

3.      produced or manufactured the product or vinegar for the purposes of that business;

4.      makes a claim for the repayment in accordance with the following provisions of this section; and

5.      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.

e.          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.

f.           Except so far as the Commissioners otherwise allow, a person shall not make a claim for repayment under this section unless-

1.      the claim relates to duty paid on liquor used as an ingredient or, as the case maybe, 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

2.      the amount of the repayment which is claimed is not less than £250.

g.          The Commissioners may by order made by statutory instrument increase the amount for the time being specified in subsection 5(b) above; and a statutory instrument containing an order under this subsection shall be subject to annulment in pursuance of a resolution of the House of Commons.

h.          There may  be remitted by the Commissioners any duty charged either-

1.      on any dutiable alcoholic liquor imported into the United Kingdom at a time when it is contained as an ingredient in any chocolates or food falling within subsection (2)(b) or (c) above; or

2.      on any dutiable alcoholic liquor used as an ingredient in the manufacture or production in an excise warehouse of any such chocolates or food.

                                                   ii.     (8) This section shall be construed as one with the Alcoholic Liquor Duties Act 1979, and references in this section to chocolates or food do not include references to any beverages.”

47.  Section 4 FA 1995, as can be seen, provides inter alia a mechanism for repayment of excise duty on dutiable alcoholic liquor which has been used in the production or manufacture of food which has an alcoholic content of not more than 5 litres of alcohol per 100 kg of the food.  The repayment is made on a claim, which must be made by a wholesale supplier being the producer or manufacturer of the food.  Claims for repayment of amounts less than £250 (a limit which may be increased by the Commissioners) will not be met.

The second issue – the Appellant’s submission

48.  The Appellant submits that cooking wine, cooking port and cooking cognac come within the exemption in article 27.1(f) whether used directly for the production of foodstuffs, or indirectly for the production of foodstuffs as a constituent of a semi-finished product (a sauce), provided that the alcoholic content of the resultant foodstuff product (Mr. Mercer gives boeuf bourguignon as an example) does not exceed 5 litres of pure alcohol per 100 kg of the foodstuff product.

49.  Mr. Mercer supports his submission that the foodstuff to be considered for the purposes of the application of article 27.1(f) is the resultant dish by comparison with the regime laid down in the article for chocolates, where it is plain, he submits, that the relevant “foodstuff” is the chocolate (he gives chocolates filled with Cointreau liqueur as an example).

The second issue – HMRC’s submission

50.  Mr. Singh submits that a possible interpretation of article 27.1(f) is that the “product” referred to (on the facts of this case) is the cooking wine, cooking port and cooking cognac, and that exemption only applies if the alcoholic content of these products does not exceed 5%.  It does in all three cases.

51.  He points out that this interpretation was “almost unanimously” accepted by the delegations constituting the Excise Committee which laid down the Guidelines in CED No.372 Final of 11 November 2002.

52.  However his main submission is that article 27 leaves Member States with a discretion to impose conditions of the exemption and that the United Kingdom’s implementation of article 27.1(f) in section 4 FA 1995, while imposing conditions, is nevertheless potentially more generous than the interpretation favoured by the Excise Committee in CED No.372 Final.  He makes the point that article 27.6 expressly permits Member States to give effect to the article 27 exemptions by means of a refund of excise duty paid, and that section 4 FA 1995 was structured to give effect to the exemption in article 27.1(f) in that way.

53.  He points out that under the provisions laid down in section 4 FA 1995, repayment of duty on cooking wine, cooking port and cooking cognac is possible, even in a case where the alcoholic content of the cooking wine, cooking port or cooking cognac exceeds 5% (as it does on the facts of this case) so long as the cooking wine, cooking port or cooking cognac is used in the production or manufacture of a food which contains no more than 5 litres of alcohol per 100 kg.  He comments that, given the generosity of this interpretation, the United Kingdom is entitled to impose strict limits on its application.

54.  Mr. Singh submits that the Appellant is not entitled to duty relief under article 27.1(f) as implemented by section 4 FA 1995 because it did not use the cooking liquors as an ingredient in food products (section 4(3) FA 1995) but instead acted as wholesaler of the cooking liquors themselves.

55.  He submits that by restricting the exemption to, inter alios, those persons who used cooking liquors as an ingredient in a product or acted as wholesalers of the product in which the cooking liquors had been used as an ingredient, the United Kingdom promoted the correct and straightforward application of the exemption, because the product itself could be readily inspected to ensure that 100 kg of the product itself did not contain more than 5 litres of alcohol. He criticised the Appellant’s interpretation of the exemption because it relied on the cooking liquors being used in the production of foodstuffs to be produced after the exemption had been applied, thus rendering it impossible to check that the 5 litres per 100 kg condition was satisfied and thereby encouraging abuse of the exemption.

Gourmet Classic

56.  The circumstances giving rise to the reference in Gourmet Classic were unusual.  Gourmet Classic Ltd. was a British undertaking wishing to market cooking wine on the Swedish market.  Before marketing the cooking wine, Gourmet Classic Ltd. asked the Swedish Revenue Law Commission (Skatterättsnämnden) for an opinion confirming that its cooking wine was not subject to excise duty because, in its view, cooking wine was covered by the exemption laid down in article 27.1(f) of the Directive.

57.  The cooking wine featuring in Gourmet Classic consisted of a mixture of approximately 40% of ordinary wine, red or white, and approximately 60% of de-alcoholised wine to which a small amount of salt had been added.  The alcoholic strength of the cooking wine was 4.5 litres of pure alcohol per 100 kg of the cooking wine.

58.  HMRC through their Tariff and Statistical Office informed Gourmet Classic Ltd. that its cooking wine was covered by CN subheading 2103 9090 89.

59.  In the course of the proceedings before the Swedish Revenue Law Commission (which performs an essentially administrative function in giving a preliminary opinion on matters which concern, in particular, taxpayers in their relationships with the public authorities with respect to their tax liabilities), the Swedish tax administration (Skatteverket) maintained that Gourmet Classic Ltd.’s cooking wine was subject to excise duty under paragraph 6 of the Swedish law on excise duty on alcohol (lagen om alkoholskatt) – which provides that excise duty is payable on goods covered by CN headings 2207 and 2208, with an alcoholic strength exceeding 1.2% vol., even when those goods form part of a product which falls within another chapter of the Combined Nomenclature. 

60.  However the Swedish tax administration also submitted that Gourmet Classic Ltd.’s cooking wine was covered by the exemption laid down in point 5 of paragraph 7(1) of the Swedish law on excise duty on alcohol.  This exemption states that no excise duty is payable on goods used directly in foodstuffs or as ingredients of semi-finished products for the production of foodstuffs, filled or otherwise, provided that the alcohol content in each individual case does not exceed 8.5 litres of pure alcohol per 100 kg of product used to make chocolates and 5 litres of pure alcohol per 100 kg of product used to make other foodstuffs.

61.  There was therefore agreement between Gourmet Classic Ltd. and the Swedish tax administration that Gourmet Classic Ltd.’s cooking wine must be regarded as ethyl alcohol within the meaning of article 20 of the Directive and that it benefited from the exemption laid down in article 27.1(f) of the Directive.

62.  The Swedish Revenue Law Commission gave its opinion based on the recommendation of the Swedish tax administration, although the President of the Swedish Revenue Law Commission issued a dissenting opinion, according to which cooking wine does not fall within the scope of the Swedish law on excise duty on alcohol.

63.  A special feature of the Swedish appellate system is that the Swedish tax administration may bring an appeal before the Swedish court (Regeringsrätten) about an opinion adopted by the Swedish Revenue Law Commission, even if the appeal seeks confirmation of that opinion. In this case, the Swedish tax administration brought an appeal before the Swedish court seeking to have the opinion given by the Swedish Revenue Law Commission upheld.  Gourmet Classic Ltd. also contended that the Swedish Revenue Law Commission’s opinion should be followed.

64.  The Swedish court however took the view that in order to give a ruling it was necessary to obtain the ECJ’s answer to the question: “Is the alcohol contained in cooking wine to be classified as ethyl alcohol as referred to in the last indent of article 20 of the [Directive]?”.

65.  When the reference came before the ECJ, the opinion of the Advocate General (Bot), which was delivered on 3 April 2008, was entirely concerned with the question of whether the ECJ had jurisdiction to give a ruling on the question referred by the Swedish court.  The Advocate General’s opinion was that the ECJ lacked such jurisdiction, on the ground, essentially, that what the Swedish court sought was an advisory opinion, and not a preliminary ruling justified by the need to resolve a genuine controversy.

66.  The ECJ (Fourth Chamber) dealt with the matter without an oral hearing, having heard the opinion of the Advocate General and having considered written observations submitted on behalf of the Commission and the Belgian and Portuguese Governments.

67.  In its judgment, dated 12 June 2008, the ECJ disagreed with the Advocate General’s opinion and held that it was not being asked to give an advisory opinion on a hypothetical question and accordingly had jurisdiction to reply to the question posed by the Swedish court.  (Its ground for this decision was that the procedure before the Swedish court was not simply to obtain confirmation of the opinion of the Swedish Revenue Law Commission, but to provide in the exercise of the court’s judicial function a definitive legal judgment which would bind the tax authorities.)

68.  The ECJ therefore went on to consider and rule on the question referred, whether the alcohol contained in cooking wine is to be classified as ethyl alcohol as referred to in the first indent of article 20 of the Directive. 

69.  The ECJ’s ruling was that the alcohol contained in cooking wine is, if it has an alcoholic strength exceeding 1.2% by volume, to be classified as ethyl alcohol as referred to in the first indent of article 20 of the Directive.

70.  This ruling was, however, expressly given without prejudice to the exemption provided for by article 27.1(f) of the Directive – see: [39] of the judgment.

Gourmet Classic – the Appellant’s submission

71.  Mr. Mercer submits that, in Gourmet Classic, the ECJ has not addressed or answered the Appellant’s submissions on the first (article 20) issue.  He also submits that this Tribunal is entitled to make a reference in order to seek further clarification from the ECJ on the article 20 issue.

72.  He contends that the ECJ has, in Gourmet Classic, simply stated its conclusion on the article 20 issue (“the fact remains that that edible preparation contains ethyl alcohol falling within headings 2207 and 2208 of [the CN]” – at [35] of the Judgment) without giving any reason for that conclusion, and certainly without considering the Appellant’s arguments, summarised above, that cooking liquors do not fall within the definition of ‘ethyl alcohol’ in article 20 of the Directive. Neither has the ECJ considered his submission that cooking liquors do not fall within any of the definitions of the products covered by the Directive and are not subject to excise duty and are open to free circulation within the EU, as the cooking liquors, which are the subject of the appeal, were in free circulation in France before their importation into the United Kingdom.

73.  He submits that second (article 27.1) issue ought also to be considered by the ECJ and states (correctly) that that issue was not before the ECJ in Gourmet Classic. He contends that section 4 FA 1995 is not a permissible implementation of article 27.1(f) of the Directive, for the reasons summarised above.  The departure displayed by section 4 FA 1995 from what he submits is the correct interpretation of article 27.1(f) would require to be justified by the United Kingdom, and such justification could only be afforded by concrete evidence of a serious risk of evasion, avoidance or abuse. He points to M. Allo’s evidence that there is no such risk.  Mr. Mercer cites Italy v Commission (Case C-482/98).