Customs and excise quarterly - February 2021
In this update we report on (1) HMRC's proposed new powers to combat illicit tobacco trading; (2) a policy paper setting out how the temporary and pre-lodgement models will operate to control goods coming from the EU to Great Britain; and (3) HMRC Guidance that can be used to check whether a business holds Authorised Economic Operator status.
We also comment on three recent cases relating to (1) excise movement guarantees; (2) anti-dumping duty; and (3) liability of those "holding" excise goods at the excise duty point.
New measures being considered to tackle tobacco duty evasion
HMRC has published a Consultation document considering a range of measures to combat tobacco duty evasion.
HMRC estimate that 2.5 billion illicit cigarettes and 3,500 tonnes of illicit hand-rolling tobacco were consumed in the UK in 2018/19, which cost the government as much as £1.5 billion in lost revenue.
The proposals, set out in the Consultation, include tougher sanctions, with a particular focus on deterring small-scale regular offenders who play a critical role in street level distributions. HMRC believes that such a targeted approach will have the greatest effect in combating the illicit trade.
The new proposed sanctions would be linked to the Track and Trace system (TTS) for tobacco products, with enforcement by HMRC and Trading Standards (TS). Since May 2019, the TTS has required every packet of cigarettes and hand rolling tobacco manufactured in, or imported into the UK, to be marked with a unique identifier and anti-counterfeiting security markings.
Measures in the Consultation include:
- extending the ability to enforce selected track and trace sanctions to TS;
- powers to seize any track and trace compliant tobacco products where they are found alongside a product that does not comply with the track and trace requirements;
- a new penalty of up to £10,000 for holding or possessing products that do not comply with the track and trace requirement;
- the withdrawal of the track and trace operator ID from those retailers which are found with products that do not comply with the track and trace requirements; and
- the withdrawal of the track and trace operator ID from retailers that have had their ability to sell tobacco restricted or curtailed under any other legislation.
The Consultation document can be viewed here.
Reasonable steps for frontier operators using the pre-lodgement model to control goods from the EU into Great Britain
HMRC has published a policy paper detailing the pre-lodgement model to control goods from the European Union into Great Britain, which will come into operation from 1 July 2021. The paper sets out both how the pre-lodgement will work and the steps that operators of a frontier location will need to take to prepare for the coming changes.
From 1 July 2021, all goods imported from the EU into GB must be declared to the UK customs authorities in line with UK legislation. The two main customs models which will be used to control goods imported into GB are the temporary storage model and the pre-lodgement model.
The temporary storage model
This model allows for goods coming into GB to be temporarily stored in a facility at the frontier for up to a maximum of 90 days before being declared to customs.
The pre-lodgement model
This model requires traders to submit a customs declaration in advance of goods boarding on the EU side. This means that the carrier (eg ferry, train or plane operator) will have a duty to ensure that a declaration has been pre-lodged before the goods board at the point of departure from the EU.
Once the goods have departed and are on route to GB, HMRC will risk assess declarations. A message will be issued by the time goods arrive at the border to confirm to the person/persons in control of the goods (eg the haulier) whether the goods have been cleared.
The purpose of this system is to ensure that checks are only carried out if necessary and it should allow for the majority of goods to be cleared to continue onwards on their journey on arrival, without further delay or disruption.
Goods which have not been cleared must be held by the frontier location until HMRC has indicated the goods are customs cleared.
The paper can be viewed here.
How to check whether a business holds Authorised Economic Operator status with HMRC
HMRC has published Guidance, containing a list of 1057 businesses, that can be used to check whether a business holds Authorised Economics Operator Status with HMRC.
Authorised Economic Operator status is an internationally recognised quality mark that demonstrates that a business's role in the international supply chain is sure, and that it has customs control procedures that meet the standards and criteria set by the Authorised Economic Operator.
The list can be viewed here.
Rarter – excise movement guarantee invalid
In Rarter Ltd v HMRC  UKFTT 464 (TC), the First-tier Tribunal (FTT) dismissed an excise warehouse's appeal of an assessment to excise duty on the basis that Rarter Ltd (the Appellant) did not have a valid movement guarantee in place when the goods left its warehouse. As Directive 2008/118 imposed strict liability for excise duty, the FTT considered HMRC's assessment was a proportionate response.
In 2016, the Appellant was storing goods owned by SJ Brands at its warehouse in Leeds. On 7 April 2016, SJ Brands informed the Appellant that it wanted to move the goods to an excise warehouse owned by a third party in France. The Appellant informed SJ Brands that it was not able to provide a movement guarantee for the movement of the goods as its guarantee was not large enough to cover the duty value. It therefore asked SJ Brands for details and proof of an appropriate guarantee from another provider to enable it to release the goods for export.
The movement was subsequently authorised in an email from a third company, Safe Cellars Ltd (SCL), which in turn had subcontracted transport of the goods to a company called ACP Freight Services Ltd (ACP). The email attached a document titled "HMRC Movement Guarantee Check" which was dated 15 February 2016 and confirmed that there was a valid guarantee and that it belonged to ACP. The Appellant did not ask SCL what ACP's involvement was.
On 8 April 2016, the Appellant completed the necessary electronic documentation on the Excise Movement and Control System (EMCS) and stated that SCL was the transporter of the goods and had provided a guarantee for both consignments. The carrier of the two shipments was shown on the consignment note to be another company. A report of receipt for both shipments was produced on 11 April 2016.
On 27 January 2017, HMRC asked the Appellant to provide evidence within 14 days that a valid movement guarantee had been in place when the consignments had been released from its warehouse. The Appellant did not respond within the deadline and on 17 February 2017, HMRC issued an assessment to the Appellant on the basis that no valid movement guarantee had been provided.
On 23 February 2017, the Appellant received a letter from ACP confirming that it could use ACP's movement guarantee for the consignments.
The Appellant appealed to the FTT.
The appeal was dismissed.
The FTT considered whether the Appellant had breached the requirement under Article 18, Council Directive 2008/118 (the Directive) and the Excise Goods (Holding, Movement and Duty Point Regulations 2010) (the 2010 Regulations) to have a valid movement guarantee in place when the goods were released from its warehouse.
The Appellant contented that HMRC was incorrect to raise the assessment as ACP had provided a movement guarantee (as the transporter of the goods) and had, albeit after the release, provided written permission for the Appellant to use it. Furthermore, SCL had provided written confirmation that ACP had a movement guarantee before the goods were released. In the alternative, the Appellant submitted HMRC's decision was disproportionate given the breach was merely technical.
The FTT concluded that although the movement guarantee check provided by SCL showed that the guarantee belonged to ACP, the Appellant was not aware that ACP was involved in the transport before the goods were released from its warehouse in April 2016 and that it did not become aware of ACP’s involvement until February 2017. Accordingly, the FTT held that there had been a breach of Excise Notice 197 and the relevant legislation as the Appellant, as dispatching warehousekeeper, had not obtained written permission from the guarantor to use the movement guarantee which had been provided and had not confirmed that the guarantor was in fact a transporter in connection with the movement of the goods, and that the guarantee would in fact cover the movements. Further, the fact that written confirmation of the valid guarantee from ACP was later provided, did not mean that the Appellant could comply retrospectively.
In relation to the proportionality issue, the FTT confirmed that the Directive was in place to minimise the risks involved in moving duty-suspended goods. Although the Appellant had not acted fraudulently or with any improper motive, it had still fallen short of the requirements of the Directive as the information it had at the time of the goods removal could not have enabled it to make an informed decision as to the validity of the movement guarantee. Breach of the Directive imposed strict liability so the fact that no fraud had taken place was irrelevant.
This decision emphasises how important it is for excise warehousekeepers to satisfy themselves that there is a valid movement guarantee in place before authorising the removal of goods stored in their premises. If an excise warehousekeeper fails to carry out appropriate checks, strict liability is imposed and they could face an unexpected and significant excise duty assessment.
The decision can be viewed here.
C&J Clark International – no obligation on HMRC to repay anti-dumping duty
In C&J Clark International Ltd v HMRC  UKFTT 07954 (TC), the FTT confirmed that HMRC was not obliged to repay anti-dumping duty to a company following the Court of Justice of the European Union (CJEU) judgement in C&J Clark International and Puma (C-659/13 and C-34/14) (Clarks I) confirming that the original regulations imposing the definitive duty were invalid due to a procedural flaw.
In March 2006, the EU Commission adopted Regulation 553/2006 imposing provisional anti-dumping duty on various imports of footwear from China and Vietnam for two years (the Provisional Regulation). In October 2006, the European Council adopted Regulation 1472/2006 imposing definitive anti-dumping duty on various imports of footwear from China and Vietnam for two years (the Definitive Regulation). This duty was extended to March 2011 by Regulation 1294/2009 (the Prolonging Regulation). In August 2016 and September 2016, respectively, the Commission published regulations 2016/1395 and 2016/1647, confirming that anti-dumping duty should be re-imposed at the same rate set by the Definitive Regulation and the Prolonging Regulation (the Re-imposing Regulations).
Two references were previously made by C&J Clark International Ltd (Clarks) to the CJEU. These references resulted in an initial ruling in Clarks I that the original regulations imposing the definitive duty were invalid due to a procedural flaw. A second ruling in C&J Clark International (Case C- 612/16) (Clarks II) determined that subsequent regulations issued by the Commission addressing the procedural flaw and re-imposing the duty at the same rate were valid.
There was also a reference from another member state, the case of Deichmann SE (Case C-256/16) (Deichmann), which was determined after Clarks I, but before Clarks II, concerning the procedure set up by the Commission for addressing the procedural flaw and determining how much duty, if any, needed to be repaid pursuant to article 236 of Council Regulation (EEC) 2913/92 (the Community Customs Code).
Between 2007 and 2010, Clarks imported various items of leather footwear from Vietnam and China into the UK and paid the relevant anti-dumping duty which was deemed to be applicable during the relevant period.
Following the above references to the CJEU, Clarks sought to argue that HMRC was under an obligation to repay the duties it had paid because the original regulations imposing the duties were found to be invalid. HMRC disagreed because the procedural flaw giving rise to invalidity was addressed and the relevant duties were reimposed at the same rate in regulations which were found to be valid in Clarks II (under a procedure which had been found to be valid in Deichmann).
Clarks also argued, in the alternative that even if HMRC was right that there was no general obligation on HMRC to repay the duty given the Re-imposing Regulations, HMRC was obliged to communicate again to Clarks the amount of duty payable and it was now out of time to do so under article 221(3) of the Community Customs Code. HMRC denied that it was under an obligation to recommunicate the amount of the duty to Clarks, which remained the same pursuant to the Re-imposing Regulations, but even if it was obliged to do so, it was not out of time to do so, as the bringing of Clarks’ appeal within the meaning of article 243 of the Community Customs Code suspended the time limits pursuant to article 221(3) of the Community Customs Code.
The appeal was dismissed.
The FTT considered the following issues of law as preliminary issues:
1. Was there an obligation on HMRC to repay Clarks the duty, independent of the answers to questions (2)-(4) below?
The FTT concluded that HMRC was not obliged to repay the duty to Clarks.
2. If the answer to question (1) is in the negative, must the amount of duty resulting from the customs debt covered by the Re-imposing Regulations be communicated by HMRC to Clarks within the limitation period of article 221(3) of the Community Customs Code?
The FTT concluded that the amount of duty resulting from the customs debt covered by the re-imposing regulations did not have to be communicated by HMRC to Clarks. HMRC had already communicated the amount of the debt to Clarks and the amount of this debt was not changed by the Re-imposing Regulations.
3.If the answer to question (2) is in the affirmative, was the limitation period of article 221(3) of the Community Customs Code for HMRC to communicate the customs debt to Clarks suspended by the lodging of Clarks' appeal within the meaning of article 243 of the Community Customs Code for all, some, or none of the said customs debt?
Having answered no to question (2), the FTT did not need to answer this question but did so in case it was wrong in its answer to question (2). The FTT concluded that the limitation period in article 221(3) was suspended in respect of the whole of the debt when Clarks lodged its appeal with the FTT pursuant to section 16, Finance Act 1994. Given that Clarks' appeal had not yet been settled, HMRC was still within time to communicate the debt to Clarks relating to the re-imposed duties should that prove to be necessary.
4. If the answer to question (2) is in the affirmative and taking into account the answer to question (3), has the limitation period of article 221(3) of the Community Customs Code for HMRC to communicate the customs debt to Clarks expired for all, some or none of the customs debt?
Again, having answered no to question (2), the FTT did not need to answer this question but did so in case it was wrong in its answer to question (2). The FTT concluded that the limitation period in article 221(3) had not expired in respect of any of the debt.
5.In view of the answers to questions (1) to (4), must HMRC repay all, some or none of the duty?
In view of its answers in relation to questions (1)-(4), the FTT concluded that HMRC did not have to repay any of the duty paid by Clarks and dismissed the appeal.
This decision provides confirmation that there is no obligation on HMRC to repay anti-dumping duty due to the invalidity of the underlying regulations and provides useful guidance and commentary on how the courts are likely to approach this issue.
The decision can be viewed here.
In HMRC v WR (Case C-279-19), Advocate General Tanchev opined that a person who at the excise duty point was found to be in physical possession of the goods in respect of which duty had not been paid, is strictly liable to pay duty under Directive 2008/118/EC (the Directive).
The Court of Appeal requested a reference for a preliminary ruling from the CJEU in respect of the interpretation of article 33(3) of the Directive.
The reference to the CJEU arose in the context of an appeal by a lorry driver (WR) against an assessment to excise duty which had been issued to WR in respect of goods which he transported into the UK illegally (the Assessment). WR arrived in the UK with documents that were incorrect in that the load was declared with an ARC number that had already been used.
WR appealed the Assessment to the FTT which allowed his appeal. In the view of the FTT, as WR was an ‘innocent agent’ he could not be liable for the excise duty. HMRC appealed to the Upper Tribunal which upheld the FTT's decision. HMRC then appealed to the Court of Appeal.
The Court of Appeal requested a ruling from the CJEU on whether a person who has no legal or beneficial interest in goods, who was transporting the goods on behalf of others for a fee and knew that the goods were excise goods, but was not aware and had no reason to be aware that the goods had become chargeable to excise duty, could be held liable for the duty under the terms of the Directive.
Advocate General's Opinion
In the opinion of Advocate General Tanchev, the answer to the question referred must be in the affirmative. A lorry driver, such as WR, is strictly liable for the excise duty. The word "holding" in article 33(1) and (3) of the Directive is to be interpreted so as to include simple physical possession. The same conclusion applies in relation to article 38 of the Directive, under which excise duty is due from "any person who participated in the irregularity". A person such as WR, who transports goods and is in possession of them at the time when the irregularity takes place may be considered to ‘participate’ in the irregularity, even if only in a passive and inadvertent manner. The Advocate General noted that if the tax authorities were required to demonstrate that the person liable for the excise duty also knows that the excise duty on the goods in question is payable, it would make the collection of tax more difficult for the tax authorities.
If the Opinion of Advocate General Tanchev is followed by the CJEU (which is likely), the Court of Appeal will allow HMRC's appeal. It is important that those involved in "holding" excise goods conduct thorough due diligence to ensure that all the necessary rules are being complied with and ensure that sufficient indemnities and insurance coverage is in place to cover any unexpected duty assessment. If the CJEU follows the Advocate General's Opinion and Court of Appeal subsequently allows HMRC's appeal, self-employed lorry drivers may find themselves liable for excise duty notwithstanding that they had no knowledge of the irregularity.
The Opinion can be viewed here.