Home Information Cases Cleanaco Ltd v Revenue & Customs Commissioners (EO1012) (2007)

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Cleanaco Ltd v Revenue & Customs Commissioners (EO1012) (2007)

Summary

A company was jointly and severally liable to pay excise duty under the Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001 reg.7 in respect of goods dispatched and fraudulently diverted from a bonded warehouse under administrative accompanying documents containing false information provided by the company's employees, where the connection between the wrongful acts and activities that the employees had been authorised to do was sufficiently close to allow their acts to be attributed to the company for the purposes of reg.7(2).

Facts

The appellant company (C) appealed against a review decision of the respondent commissioners that it was jointly and severally liable for excise duty under the Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001 reg.7(2). C also appealed against a VAT assessment made under the Value Added Tax Act 1994 s.73(7B) in respect of the excise duty. The liability found had arisen from the diversion of C's consignments of spirits that had been dispatched under duty suspension with false accompanying documents from an authorised bonded warehouse in the United Kingdom. The documents were prepared on the basis of false information provided by two of C's employees (E) who were authorised to buy and sell spirits, and none of the consignee warehouses shown on the documents was correct. None of the consignments arrived at its European destination and the accompanying documents were purportedly returned with false stamps. The commissioners issued a notice of joint and several liability under reg.7(2) of the 2001 Regulations for a sum assessed on a company as guarantor under reg.7(1) on the basis that C had caused the occurrence of an excise duty point, as prescribed by reg.3 or reg.4 of the 2001 Regulations, when the irregularities were detected or when the goods failed to arrive within four months. The commissioners also made a VAT assessment on the basis that the excise goods had been removed from the warehouse without payment of VAT under s.18(4) of the Act. The commissioners submitted that an employer was vicariously liable for the unlawful act of an employee in the course of employment if the act was sufficiently closely connected with the employer's business. They further submitted that C's directors ought reasonably to have known that E had been participating in diversion, and that their failure to supervise was a cause sufficient to come within reg.7(2) of the 2001 Regulations even if vicarious liability did not apply. C contended that no liability arose under reg.7(2) of the 2001 Regulations because a prior excise duty point had arisen under the Excise Goods (Holding, Movement, Warehousing and REDS) Regulations 1992 reg.4(2)(a) when the goods were diverted.

Held

1) Whether C had caused the occurrence of the excise duty points depended on whether the acts of E should be attributed to C, which in turn depended on the purpose and ambit of reg.7(2) of the 2001 Regulations. That provision extended the strict liability under reg.7(1) of the consignor, who was the warehouse keeper of dispatch, or the other person arranging the guarantee to any other person who caused the occurrence of the excise duty point under regs.3 or 4 of the 2001 Regulations, which necessarily involved an irregularity. Regulation 7(2) of the 2001 Regulations did not limit the liability of a company to situations where the directors were privy to the irregularity. In the instant case, E were clearly authorised to give instructions to the warehouse and the transporter and to provide information to those persons. In giving instructions purportedly on behalf of C, they clearly contributed substantially to the cause of the irregularities. E received cash and banked it on behalf of C whilst making a larger profit for themselves. Although C did not authorise the fraudulent diversions, there was a sufficiently close connection between the wrongful acts and the activities that E was authorised to do for their acts to be attributed to C for the purposes of reg.7(2) of the 2001 Regulations. (2) On the evidence, there was an irregular departure from suspension arrangements at the time of dispatch of each consignment from the UK warehouse with accompanying documents containing false details. On dispatch, excise duty points had occurred under reg.4(2)(a) of the 1992 Regulations, Greenalls Management Ltd v Customs and Excise Commissioners (2005) UKHL 34, (2005) 1 WLR 1754 considered. As it was possible to establish that the irregularity had occurred in the UK, reg.3(3) of the 2001 Regulations did not apply, but reg.4 of the 2001 Regulations did apply since there was a movement that had started in the UK, the duty suspended movement was not discharged by arrival within four months and there was an irregularity. Thus, under reg.4(2) of the 2001 Regulations the excise duty point was when the goods left the warehouse. (3) If C had caused an excise duty point under reg.4 of the 2001 Regulations, it was jointly and severally liable with the person specified in reg.7(1). The fact that the same event constituted the occurrence of an excise duty point under reg.4(2)(a) of the 1992 Regulations did not mean that reg.7(2) of the 2001 Regulations did not apply. (4) VAT was payable in respect of the excise goods as they had been removed from an authorised warehouse without payment of the VAT payable under s.18(4) of the 1994 Act.

Appeals dismissed

VAT & Duties Tribunal
(Theodore Wallace (Chairman), Lynneth Salisbury
Judgment date
11 January 2007
References

LTL 8/3/2007