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	United Kingdom VAT & Duties Tribunals (Excise) Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> United Kingdom VAT & Duties Tribunals (Excise) Decisions >> TN Trawlers Ltd v Revenue & Customs [2008] UKVAT(Excise) E01135 (21 August 2008) URL: http://www.bailii.org/uk/cases/UKVAT/Excise/2008/E01135.html Cite as: [2008] UKVAT(Excise) E1135, [2008] UKVAT(Excise) E01135

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E001135

Hydrocarbon Oil Duties – use of rebated fuels by Appellant in articulated lorry used on public roads – vehicle seized, and tractor unit with attached crane not restored – whether non-restoration reasonable – proportionality – FA 1994, Sections 14 and 16 – Appeal refused.

EDINBURGH TRIBUNAL CENTRE

T N TRAWLERS LTD Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: (Chairman): Mr Kenneth Mure, QC

(Member): Mrs Charlotte Barbour, CA., ATII

Sitting in Edinburgh on Thursday 31 July 2008

for the Appellant Mr Richard Spence, Inside Track Consultancy

for the Respondents Mr James Puzey, of Counsel

© CROWN COPYRIGHT 2008.
 


DECISION

Introduction

This Appeal relates to the Respondents' decision on review not to restore the tractor unit and attached crane, being parts of an articulated lorry used by the Appellant on public roads in the UK over an extended period to service and maintain vessels in its fishing fleet. The vehicle has two fuel tanks. In each there is a dummy tank, not supplying the fuel system. The main tanks were found to contain rebated fuel. The Appellant's grounds of appeal (Doc 1-2) are that the non-restoration is "unjust … excessively severe and … entirely disproportionate" in relation to the revenue infringement.

The Law

The Hydrocarbon Oil Duties Act 1979 provides that rebated fuel should not be used in vehicles driven on public roads. This particular vehicle did not fall into any excepted category. A vehicle so used is liable to forfeiture but may be restored on payment of penalties and other charges. There is provision for review of a decision by the Respondents not to restore and then for appeal to this Tribunal: Sections 14 and 16 FA 1994.

The Evidence

We heard evidence from the Appellant's managing director, Mr Thomas Nicholson. The Appellant's accountant, Philip Jones, provided a statement. While the Respondents did not object to the Tribunal's referring to it, they did not agree its terms.

The Respondents produced 3 agreed witness statements, one from Ian Sked, their review officer (Docs 21/47), and 2 from Peter Shields, an officer with the Road Fuel Testing Unit (Doc 48 with photographs and Supplement dated 23 July 2008). While no objection was taken to these Mr Puzey led some limited evidence from Mr Sked.

Mr Nicholson gave certain matter of fact evidence about the nature and size of the Appellant company's business and pattern of its fishing operations. More controversially he gave evidence about the use of the lorry. He accepted in evidence to the Tribunal that the vehicle was used on public roads with rebated ("red") diesel. He agreed that it was used between the company's business base in Annan and various fishing ports from which its vessels sailed e.g. Whitehaven, Workington, Peterhead, Brixham and Shoreham. He claimed that the mileage over the Appellant's 3 years' use was about 50,000km. His estimates of the cost of a replacement tractor and crane varied substantially, from about £60,000 to over £100,000. (We note that the Balance Sheet value, albeit "written-down", in 2007 for all the company's vehicles was £58,834).

No documentation to support mileage and such costs was produced and given the circumstances of this investigation we were not inclined to rely on the unsupported testimony of Mr Nicholson. We note that in his interview under caution, at which his representative was present, he was less than candid initially.

In addition to the contents of the agreed witness statements we make the following:

FINDINGS-IN-FACT

1. The Appellant is a limited company, operating a fishing fleet of 5 or 6 vessels. It is based at Fishery House, Newbie, Annan. Its fleet operates from various UK ports including in particular Whitehaven, Workington, Brixham, Peterhead and Shoreham.
2. Periodically the fishing boats' nets and other equipment require to be repaired and serviced. The items requiring attention are heavy and cannot be man-handled, so requiring the use of a crane. The Appellant used for servicing purposes an articulated vehicle, registration no. N17 TNT, with a crane attached to the tractor unit. The vehicle for this purpose would be driven from Annan to the various fishing ports used by its vessels and between them as required.
3. The vehicle was purchased by the Appellant in about 2004. On 17 April 2007 it was examined by officers of the Respondents who found that its fuel tanks were adapted so that there was a false or dummy tank supplied via the main filler cap but not connected to the fuel system. This tank was separated from a main tank which was connected to the fuel system, and filled from a separate partly concealed cap. It was found that the main tanks contained rebated fuel. (Docs 102 et seq).
4. Mr Nicholson, as managing director of the Appellant, was interviewed under caution by the Respondents. There is a transcript at Doc 120 et seq. He accepted that the vehicle had been driven on the public roads using rebated fuel. He acknowledged that the vehicle had been acquired with its tanks so modified and driven on rebated fuel on the public roads for the 3 years preceding.
5. The Respondents restored to the Appellant the trailer of the vehicle but have refused to restore the tractor unit and crane. No assessment in respect of unpaid duty was levied nor was any penalty imposed. Neither the Appellant nor Mr Nicholson was prosecuted. On review the Respondents maintained their refusal to restore. Mr Sked's decision dated 31 January 2008 is Doc 61 and is the subject of this Appeal. Mr Sked considered it "reasonable and proportionate" not to restore (para 47) and that this would not cause undue hardship.
6. Doc 136 et seq are copy extracts from the relevant Respondents' policy documents.

Parties' Submissions

Before hearing submissions we offered Mr Spence the opportunity of an adjournment to enable Mr Philip Jones' evidence to be heard. It seemed to the Tribunal that he was best placed to speak to certain financial aspects of the Appellant company's affairs. However, Mr Spence was content to proceed.

On behalf of the Respondents Mr Puzey moved us to dismiss the appeal. He argued that we should consider the consequences of non-restoration and distinguish that from the possibly parlous financial state of the company for other reasons. This was a sophisticated and unusual attempt to avoid paying fuel duty. The Respondents' policy was not to restore in cases of adaptation although in appropriate circumstances some flexibility could be appropriate. In considering proportionality, he argued, the Tribunal should consider the purpose of non-restoration, whether that was a proportionate response to a genuine concern, and whether it was reasonable to apply this in the particular case. This was a case of calculated dishonesty extending over several years and likely to have involved a considerable loss of revenue. The vehicle had been bought adapted and that had been exploited throughout its use. The only purpose of the dummy tanks was to mislead the authorities. Mr Nicholson had surely been put on his guard. If, genuinely, he believed that it was an excepted vehicle, why had he not questioned the purpose of the concealed tanks. He claimed that the seller told him that the vehicle was excepted, but this had not been confirmed with, for example, his accountant. Mr Puzey referred to the transcript of Mr Nicholson's interview where, he submitted, he had been less than candid initially.

The scale of the deception was such, Mr Puzey argued, that the financial consequences relating to non-restoration of the vehicle were not sufficient to overturn the policy decision not to restore. Accounts had been produced but there was no supporting documentation in relation to increases in costs, the cost of independent contractors, and the likely cost of a replacement unit. The recent accounts showed significant loans but also indicated a consistent level of turnover, with an overall profit and with significant capital assets. Non-restoration of the unit in itself had not caused extreme hardship to the company, whatever financial difficulties it may face presently. This was a very serious offence and non-restoration was no more than a proportionate reaction.

In reply Mr Spence for the Appellant moved us to allow the appeal. He stressed that his argument crucially was that non-restoration was disproportionate and offended against ECHR Human Rights principles.

Mr Sked, Mr Spence argued, had not considered proportionality but rather placed emphasis on hardship. Mr Nicholson at interview had been under stress. He believed that the vehicle was "special" and could be run on the public road with rebated fuel. Even the restoration of the crane had been refused. Given his engineering skills Mr Nicholson could have fitted that to another tractor. The estimated cost of servicing by sub-contractors totalling about £24,000 over a year taken in addition to loss of the vehicle was a severe penalty. Mr Spence argued that the estimated mileage of 50,000km over 3 years seemed reasonable. There would be quiet periods and then briefly the vehicle would be in use.

Decision

We consider that the stance of the Respondents here is well-founded. We consider Mr Sked's decision on review not to restore the tractor and crane reasonable. Moreover, in our view non-restoration is not disproportionate having regard to the particular circumstances of this case. This was a deliberate scheme to defraud the authorities over an extended period by using a vehicle which had been modified to conceal the fraud. We note that according to the transcript of the interview Mr Nicholson did not initially give a candid admission of his improper use of rebated fuel. We were not prepared to accept Mr Nicholson's evidence that, having discussed the matter with the seller of the vehicle, a Mr Jamieson, he believed that he could use it fuelled with rebated diesel on the public roads. The extent of loss to the Respondents has not been calculated. Mr Nicholson claimed a mileage of 50,000km over the 3 years in question. The distances from the Annan base and certain of the ports, especially Brixham, are substantial. We agree with Mr Puzey's observation that the greater the dependence on the vehicle, then the greater the fraud. On the other hand if the vehicle was not used extensively, then the consequences have been exaggerated.

We note also that the trailer of the unit was restored, that there was no assessment to duty, that no penalties were imposed and that there was no prosecution.

There was no satisfactory evidence of the cost to obtain a substitute tractor unit and crane. In the transcript of the interview Mr Nicholson was unable to estimate a value (Doc 121). In evidence to the Tribunal he suggested costs of £60-70,000 or more. This was not supported by any objective evidence and the 2007 draft Balance Sheet value of all vehicles, as written-down, is £58,834. We appreciate that allowing for its individual adaptation, replacement costs for a suitable machine might exceed a realisable value of the unit seized. However, the evidence of the business accounts shows that the company has substantial assets (albeit represented significantly by the value of its fleet) and yields a healthy net profit. The alternative cost to replacement i.e. that of engaging a sub-contractor was claimed to average about £2000 per month but was not, of course, vouched by certification. Considering all these factors we cannot conclude that non-restoration of the tractor unit and crane causes any marked hardship. Some general reference was made to other liabilities of the Appellant but we think it appropriate to focus primarily on the effects of the non-restoration.

Copy documents setting out the Respondents' policy are lodged. We note particularly the provisions there anent false tanks (Doc 137) and proportionality and human rights (Doc 139-140). We do not consider that non-restoration flouts these criteria.

Accordingly we dismiss the Appeal.

Costs

Neither Party sought costs in the event of success. Accordingly we make no award.

Finally we would thank both Mr Spence and Mr Puzey for their detailed presentation of their respective arguments.

MR KENNETH MURE, QC CHAIRMAN
RELEASE: 21 AUGUST 2008

EDN/08/8006