Customs and excise quarterly update - May 2022

Welcome to the May 2022 edition of RPC's Customs and Excise Quarterly Update. In order to enhance your reading experience, we have adapted the format. We hope you like it

News

HMRC has published guidance note: Biofuels and other fuel substitutes (Excise Notice 179e) from 1 April 2022. The guidance has been updated as a result of changes to the legislation on the use and control of rebated fuels. In particular, heating has been added as a chargeable use for biodiesel from 1 April 2022. The guidance gives details of the various biofuels and their excise duty rates. It also explains the roles and responsibilities of producers, and in some cases, users, of these products.

HMRC has updated its policy paper: Non-Statutory Instrument secondary legislation: Commissioners Directions under section 35(1) and section 64(2)(b) of the Customs and Excise Management Act 1979. HMRC has issued new Directions, which came into force on 6 April 2022, on what passenger information is needed for ships, aircraft and railway vehicles arriving in or departing from Great Britain and Northern Ireland.

HMRC is in the process of writing to businesses to inform them of a change to the UK's customs IT systems. HMRC is providing information about the work being undertaken in order to move to a single UK customs platform, the Customs Declaration Service, and outlining what businesses need to do to prepare for the change, and what help and guidance is available to support them through the process. The Customs Declaration Service will become the UK single customs platform after 31 March 2023, replacing the Customs Handling Import and Export Freight system. Ahead of the complete closure, the import declaration function will be withdrawn on 30 September 2022.

Case reports

British Sugar – High Court dismisses judicial review claim challenging decision to introduce a zero-duty autonomous tariff quota for raw cane sugar 

In R (on the application of British Sugar Plc) v Secretary of State for International Trade [2022] EWHC 393 (Admin), the High Court dismissed British Sugar Plc's (BS) claim for judicial review.

BS challenged the government's decision to introduce a zero-duty autonomous tariff quota (ATQ) of 260,000 metric tonnes of raw cane sugar for refining.

In November 2020, the Secretary of State for International Trade recommended to the Treasury that a decision be taken to provide for an ATQ for raw cane sugar, such that no import duty was payable on the first 260,000 metric tonnes imported for refining purposes. Shortly afterwards, in early 2021, British Sugar Plc brought a claim for judicial review alleging that the Secretary of State’s decision to recommend the ATQ had been unlawful on the following two grounds:

1. the ATQ constituted unlawful State aid to T&L Sugars Ltd (T&L), contrary to Article 10(1) of the Protocol on Ireland/Northern Ireland (the Northern Ireland Protocol); and

2. the ATQ constituted an unlawful subsidy to T&L, contrary to the UK-EU Trade and Cooperation Agreement (TCA). 

T&L was an interested party to the proceedings, being the only refiner of raw cane sugar in the UK on any appreciable scale (it was common ground that it has imported over 99% of the raw cane sugar which has benefited from the ATQ).

The High Court dismissed the claim.

With regard to the first ground, Mr Justice Foxton concluded that the ATQ did not breach the EU State aid provisions, as it had not been selective applying stages one and two of the three-stage test referred to by the Court of Justice of the European Union (CJEU) in European Commission v World Duty Free Group SA and others [2017] 2 CMLR 22 (joined cases C-20/15 P and C-21/15 P).

As to the second ground, he was of the view that the ATQ had not been a subsidy, for the purposes of the TCA, because it had not been specific and had not had, and would not have, an effect on trade between the EU and the UK.

Why it matters: This is the first case in which the EU state aid provisions in the Northern Island Protocol and the subsidy control provisions of the TCA have been considered by the UK courts and Mr Justice Foxton's detailed judgment should be carefully considered by anyone considering bringing a similar challenge.

The judgment can be viewed here

Perfect – Court of Appeal confirms that a person can be liable for unpaid excise duty on goods even if they had no legal interest in the goods and they were unaware that they were subject to excise duty

In HMRC v Perfect [2022] EWCA Civ 330, HMRC appealed to the Court of Appeal against a decision of the Upper Tribunal (UT) that a lorry driver was not liable for excise duty and a penalty in respect of a consignment of beer brought to the UK from Germany on which excise duty had not been paid.

The driver had been stopped on his arrival into the UK. The paperwork for the beer was false and no excise duty had been paid. The driver was then assessed by HMRC for excise duty due under the Excise Goods (Holding, Movement and Duty Point) Regulations 2010 (the Regulations) and issued with a penalty under Schedule 14, Finance Act 2008.

The First-tier Tribunal (FTT) found that the driver had no interest in the beer, and was an innocent agent who had no knowledge, actual or constructive, that he was carrying goods on which duty had not been paid. The FTT discharged the assessment and penalty. HMRC's appeal to the UT was unsuccessful. HMRC then appealed to the Court of Appeal.

The Court of Appeal dismissed the appeal relating to the penalty but decided that the appeal relating to the excise duty raised a question of EU law and so a referral was made to the CJEU.

The primary question before the CJEU was whether strict liability applied to the lorry driver, or was it necessary for him to have actual or constructive knowledge that excise duty was being evaded, in order for him to fall within the definitions of 'holding' or 'making delivery' of goods for the purposes of Regulation 13 of the Regulations. The CJEU decided that a person who was in possession of excise goods at the time the excise duty became payable was liable for that duty, irrespective of whether they had knowledge of the duty becoming due or whether they had an interest in the goods.

Why it matters: This is an important decision and confirms that a person can be liable for unpaid excise duty even in circumstances where they have no legal  interest in the goods concerned and no knowledge that the goods were subject to excise duty.

The judgment can be viewed here.

Arabian Oud Company – FTT decides that  Border Force's decision to refuse to restore goods was not unreasonable

In Arabian Oud Company Ltd v The Director of Border Revenue [2022] UKFTT 00127 (TC), Arabian Oud Company Ltd (AOC) imported goods including agarwood products (the goods) from Saudi Arabia to the UK. The goods are protected under the Convention on International Trade in Endangered Species 1973 (CITES), which is given effect by the EU through Council Regulation EC/338/97 on the protection of species of wild fauna and flora by regulating trade therein (the Regulation).

When the goods were imported, Border Force concluded that they had been imported contrary to the Regulation and seized the goods as liable to forfeiture. AOC requested restoration of the goods, which was refused. Following a review, Border Force upheld its decision (the Review Decision).

AOC appealed to the FTT. AOC did not seek to challenge the legality of the seizure. The issue before the FTT was whether the Review Decision, refusing to restore the goods was reasonable. AOC argued that the Review Decision was unreasonable and that Border Force should be directed to review its original decision. AOC relied on the following four broad grounds: 

1. the Review Decision failed to take into account relevant factors; 

2. it took into account irrelevant factors; 

3. the policy on which the Review Decision was based was unreasonable (in particular, it failed to take into account whether lesser sanctions would still meet the aims of the policy); and 

4. the Review Decision gave rise to a result which was disproportionate on the facts.

The FTT concluded as follows:

1. The Review Decision had not failed to take into account any relevant factors.

2. It was satisfied, from the evidence given by the relevant Border Force officer, that irrelevant factors were not taken into account.

3. It was not unreasonable for the relevant officer not to consider applying a lesser sanction. The FTT acknowledged that, without restoration of the goods, AOC was being treated in the same way as someone who deliberately seeks to avoid the CITES regime. However, the FTT noted that there are other criminal sanctions which might apply to such persons engaged in such deliberate conduct, including criminal prosecution.

4. On the facts of this case, the refusal to restore the goods was not disproportionate to the nature of the default.

The FTT therefore dismissed the appeal.

Why it matters: Sections 14 to 16, Finance Act 1994, provide a system of formal reviews and appeals in relation to decisions concerning the restoration of seized goods. The powers of the FTT on an appeal against a review decision refusing to restore goods are set out in section 16(4). This decision helpfully elucidates the test which the FTT will consider when deciding whether a decision to refuse to restore goods is unreasonable, for the purposes of section 16(4).

The decision can be viewed here.