Tribunal decides that diversion of excise goods is not a “fortuitous event”

13 Feb 2014

The First-tier Tribunal has dismissed an appeal by Trapps Cellars against assessments totalling about £1.5 million in relation to the diversion of a number of lorry loads of spirits at some point between Trapps’ warehouse in London and two destination warehouses in Italy.

The Tribunal rejected Trapps’ main argument that it was not liable to duty because the diversion was a “loss” occurring under suspension arrangements which was attributable to “fortuitous events”. It argued that those fortuitous events entitled it to relief from duty under Article 14(1) of Directive 92/12/EEC. The Tribunal dismissed that argument, holding that goods were only “lost” within the meaning of Article 14(1) if they were unusable or not consumable. Diverted goods were not “lost” simply because the tax authorities were unable to ascertain where they were and could not collect the excise duty owing. In such circumstances, the missing goods remained available for sale to consumers within the EU.

In any event, the Tribunal found that Trapps had failed to establish the pre-conditions for a fortuitous event. It needed to show that the loss resulted from abnormal and unforeseeable conditions, which could not have been avoided even with the exercise of all due care. The Tribunal held that it was not enough for an excise warehousekeeper to establish that it acted in good faith. It had to show that it had taken appropriate measures to limit risk. In this case, Trapps did not take due care to prevent the consignments from going missing by undertaking due diligence on the consignees and the transporters.

The Tribunal also rejected an argument by Trapps that HMRC had allowed the consignments to run and that it should therefore have remitted duty, by analogy with the ECJ’s decision in relation to customs duty in Case C-61/98 De Haan. In that case, the ECJ held that a custom agent was not liable where it was not informed that consignments were being allowed to run as part of a criminal investigation. The Tribunal held that, although there was evidence that the Italian authorities had suspicions regarding the two Italian destination warehouses, that did not entitle Trapps to remission of duty, since De Haan was limited to cases where the tax authorities deliberately allowed offences or irregularities to be committed. There was no requirement to remit duty just because the tax authorities had suspicions at the time of the diversions, since a tax authority is not obliged to warn any taxpayer of its suspicions.

Finally, the Tribunal held that HMRC had jurisdiction to assess Trapps to UK excise duty – Trapps could not suggest that it should have been assessed to Italian excise duty, which was now out of time for assessment. Under the jurisdiction provisions set out in Article 20 of Directive 92/12/EC, the excise duty point was in the UK where the goods did not arrive at their destination. The duty point would only have arisen in Italy if the irregularity had been detected in the course of the movements by the Italian authorities. In the present case, the irregularities were detected after the end of the movement – and in any event, they were first detected by HMRC and not by the Italian authorities.

Raymond Hill represented HMRC, instructed by Shepherd & Wedderburn.