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	England and Wales Court of Appeal (Criminal Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Criminal Division) Decisions >> Redmond, R. v [2011] EWCA Crim 203 (24 May 2011) URL: http://www.bailii.org/ew/cases/EWCA/Crim/2011/203.html Cite as: [2011] STC 1892, [2011] EWCA Crim 203, [2011] STI 1776

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IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CRIMINAL DIVISION)
HIS HONOUR JUDGE SLINGER
T20050307

		Royal Courts of Justice Strand, London, WC2A 2LL
		24/05/2011

The Hon. Mr. Justice OPENSHAW :

1. This appeal is one in a series of cases in which challenges have been made to confiscation orders made following convictions for smuggling tobacco products. Decisions of principle have been made by this court in Chambers [2008] EWCA Crim 2467 and in White, Dennard and others v R [2010] EWCA Crim 978. This particular constitution gave further guidance in Bell and others [2011] EWCA Crim 6, which we have applied in a number of other cases. At the hearing of this appeal, however, a number of other points have arisen.
2. We first set out the procedural history. On 27^th February 2006 in the Crown Court at Preston, the appellant pleaded guilty to being knowingly concerned in the fraudulent evasion of duty, contrary to section 170(2) of the Customs and Excise Management Act 1979. He was sentenced to 21 months imprisonment, which sentence he has long since served.
3. On 4^th June 2008 in confiscation proceedings under the Proceeds of Crime Act 2002 before His Hon. Judge Slinger, it was agreed that the appellant had benefited in the sum of £365,075.35 (being made up as to £304,007.26 in respect of the excise duty evaded, plus £64,968.09 in respect of the VAT evaded). The judge found that he had realisable assets of only £131,089.10 and accordingly made a confiscation order in that sum, payable within 12 months, with 2 years imprisonment in default of payment. The appellant has paid nothing pursuant to that order but enforcement proceedings have been stayed pending the determination of this appeal.
4. On 20^th January 2011, following our judgment in the case of Bell and others (above), we granted the appellant the necessary extension of time and leave to appeal against the confiscation order.
5. The facts are as follows. On 13^th December 2003, customs officers visited the appellant's Inland Clearance Depot warehouse in Liverpool. They found concealed within a consignment of rolls of plastic sheeting – the so-called 'cover load' – 2,147,400 cigarettes, which were being unpacked, obviously for onward distribution.
6. In a written basis of plea, which was accepted by the Crown, the appellant conceded that, prior to the Customs raid on the 13^th December 2003, he had agreed to take delivery of contraband cigarettes to his warehouse. He did not say with whom he had so agreed, or when this agreement was reached, or whether this agreement preceded the importation of the cigarettes.
7. There was no direct evidence as when the importation took place. The Customs concede that since he was not holding the cigarettes at the excise duty point nor had he caused them to reach it, he is therefore not liable to pay excise duty (following R v Bell and others, to which we have already referred). That part of the confiscation order relating to excise duty must therefore be quashed.
8. We should also make clear that there is no evidence that the appellant was, or had ever been, the owner of the cigarettes.
9. The next issue is whether the appellant is liable to pay VAT on the consignment. It is agreed by Mr Nolan, on behalf of the appellant, that if he was liable to pay the VAT on the consignment, then that was a liability which he evaded 'as a result of or in connection with' the criminal conduct of which he was convicted, which would amount to a 'benefit' within the meaning of section 76 (5) of the Proceeds of Crime Act 2002.
10. Counsel for both sides agree that, on the facts of this particular case, the issue whether a person in the appellant's position is liable to pay VAT comes down to whether the prosecution have established on the balance of probabilities that duty had not been paid on these cigarettes within the EU: if they have so proved, VAT would be payable (if it was due, which is a another question to which we must later turn); if they have not so proved, then VAT would not be payable (and we need consider the matter no further).
11. We are aware that although this is the critical issue before us, it was not identified as being relevant at the time of the original confiscation hearing before Judge Slinger. We consider it therefore unhelpful and indeed unfair for the Customs to have sought to rely on the fact that the appellant originally conceded that he was liable to pay the VAT, because neither the appellant, nor his advisers – nor we should add the Customs themselves - had then thought of these issues. For the same reason, there is not much evidence which bears upon the point; such evidence as there is we can summarise shortly.
12. There is some evidence, served in original case papers, of the origin of these cigarettes. Of the consignment seized, 1,757,000 cigarettes were branded 'Sovereign Classic', manufactured in Northern Ireland by Gallaghers. The export invoices, which were exhibited in the original case papers, demonstrate that these cigarettes were shipped from Rotterdam to Port Rashid in Dubai, to the order of a customer in Cyprus. It is difficult to see what legitimate commercial purpose could be served by shipping the cigarettes out to Dubai, if they were only to be legitimately shipped back again to the EU.
13. Furthermore, even if they had legitimately been shipped back into the EU – which we doubt - there would be a record of that shipment and of the duty being paid on entry into the EU. No such record exists; certainly none has been produced. The obvious inference is that the cigarettes were smuggled back into the EU with the express intention of avoiding the payment of duty and without duty having been paid.
14. The remainder of the consignment purported to be 430,000 'Superkings', which is a brand of cigarettes manufactured by the Imperial Tobacco Group. However, according to a witness statement from the company, the cigarettes seized were counterfeit. It is unknown by whom or where these counterfeits were made but the experience of the Customs strongly suggests that it is likely to have been taken place in China or elsewhere in the Far East; it is most unlikely to have taken place within the EU. Again, there is no record of the importation of these goods, duty paid, into the EU. Accordingly, it seems to us the likelihood must be that these cigarettes also were smuggled into the EU without duty being paid.
15. In preparation for the hearing, there was a good deal of focus on what the appellant himself had said in interview about the origins of the load, which evidence we now review. The appellant was asked questions about the lorry in which the load was brought to his warehouse; he said that no conversation had taken place between him and the driver. He was then asked if he had noticed the company for whom the driver was working; he replied: 'It was either Polish or Czech or somewhere like that …'. The 'it' here referred to must, we think, be the lorry. 'Somewhere like' that must, we think, meant some Eastern European country then outside the EU.
16. It is argued on the appellant's behalf that this reply was not a statement, still less an admission, that the lorry came from Poland or the Czech Republic; it is said that it was merely speculation that it did so. It is also argued that the appellant spoke of the origins of the lorry not of the load; it is pointed out that it is not uncommon in international freight traffic for the load to come from a different country than the lorry but the appellant did not so allege at the time.
17. We do not think that what the appellant said in interview carries the weight which counsel originally sought to attach to it. It is, at best, a further small fragment of evidence suggesting that the cigarettes did come from outside the EU, without duty being paid.
18. The appellant has now made a very recent further statement on the matter. He maintains that he did not know – and still does not know - where the cigarettes had come from, nor where the lorry came from. We note that he has never produced any records relating to the load: of course there are no such records because the load was contraband.
19. For all these reasons, in the absence of evidence to the contrary and, as we have just pointed out, there has been none, we think that the inference can properly be drawn that, on the balance of probabilities, it has been established by the prosecution that duty had not been paid on these cigarettes within the EU. It follows that the appellant was liable for such VAT as was due on these goods and by evading that liability, he obtained a 'benefit' within the meaning of the Proceeds of Crime Act.
20. We turn then to determine the amount of the VAT due. This has thrown up a number of troublesome points. It is agreed between the parties that the appellant is liable for the VAT due on the value of these goods. What then is the value of these goods?
21. Pursuant to section 21 of the Value Added Tax Act 1994 ('the VAT Act') (which we need to consider in greater detail later) the value of the goods imported from outside the EU is to be determined according to the rules applicable under the relevant Community Customs Code. This is to be found in the Council Regulation 2913/92/EEC, Chapter 3, entitled 'Value of Goods for Customs Purposes', at Articles 28 – 33; insofar as these are relevant, we have set them out in the Appendix to this judgement.
22. We now seek to apply these Regulations to the facts of this case. Mr Bird suggests that in the case of the genuine Sovereign Classic cigarettes, we can determine their value by reference to the retail price of 'identical' Sovereign Classics on the open market (as he suggests is permitted by Article 30(2)(a)) and that we can determine the value of the counterfeit 'Superkings' cigarettes by reference to the retail price of 'similar' but real Superkings on the open market (as he suggests is permitted by Article 30(2)(b)). Mr Nolan does not disagree with the principle of this approach but he takes issue with the application of that principle to the facts of this case.
23. Mr Bird points out that in the original Statement of Information, the prosecution sought to calculate the value of all the cigarettes by taking the retail price of £3.99 per packet of 20 Sovereign Classics and then by subtracting the duty on each packet, leaving a remaining 'value' of 62 pence per packet. Mr Bird, accepting the same starting points, went by a slightly different route to reach the same conclusion. Hence his submission to us that the value of the cigarettes (on this basis of calculation) is £67,238.95; on which the VAT element chargeable at 17.5% is £11,766.82, which sum he claims is part of the appellant's 'benefit'.
24. The answer to that is that even in the hands of the eventual retailer, the price of every packet of 20 cigarettes reflects many elements, of which the value of the cigarettes is but one part: he must for example pay for transport and storage; he must pay various and numerous overheads and he must make provision for his own profit. So, argues Mr Nolan, the position is not at all as straightforward as Mr Bird suggests.
25. Mr Nolan argues that it is clear from the export invoices originally supplied by Gallaghers, to which we have already referred, that as they left the factory, a packet of 20 Sovereign Classic cigarettes was worth only 5 pence. He says that there is no other clear evidence as to the value.
26. Mr Bird's fall back position is that even if we do not accept that a packet of 20 cigarettes is worth 62 pence, the value must be somewhere between 5 pence (being the ex-factory value) and the 62 pence (as put forward by the prosecution); furthermore, he argues, having regard to all the middlemen through whom the consignment must have passed, each of whom will have taken his 'cut', it is common sense that the price must be closer to 62 pence than to 5 pence; he invites us to plump for something in between the two figures. He does not, of course, know through how many hands the goods passed, nor the amount of the 'cut' which each of them took. One only has to set this proposition out in these terms to see that he is inviting us to speculate.
27. The reality is that, in our judgment, we simply do not have any sufficient evidence on which we can properly value these cigarettes. In the absence of such evidence, we think that the only safe course is to value the cigarettes at the ex-factory price of 5 pence a packet. This would value the cigarettes at £5,368; the VAT element of this at 17.5% is £939.49. In our judgment, this is the only sum which the prosecution have proved, on the evidence before us, to represent the value of the appellant's benefit in evading the VAT on the value of the cigarettes.
28. We appreciate that even this figure contains some uncertainty, because these calculations are based on the value of the genuine Sovereign Classic cigarettes. There is evidence that the retail value of a genuine packet of 20 Superkings is £4.39 but there is no evidence at all as to the value of the counterfeit Superkings. However, we cannot believe that it is less than 5 pence a packet and so we have applied that figure to the counterfeit cigarettes as well.
29. No doubt in future cases the Customs will obtain proper evidence of the value of the cigarettes, either from a valuer in the trade or perhaps from a Customs officer experienced in such matters (in the same way as experienced police officers regularly give evidence of the street value of drugs). We do not have that evidence in this case because no one identified the point as being relevant at the time of the original hearing of the confiscation proceedings.
30. We turn then to the next point. Under section 21 of the VAT Act, VAT is due on the 'value of imported goods'. The question now arises whether the 'value' of tobacco goods smuggled into the UK from outside the EU (thereby fraudulently avoiding the duty payable on the goods) includes the duty which would have been levied if the goods had been legitimately imported and properly declared to HM Customs.
31. This point was first identified during the course of argument before us back in February. We adjourned the matter so that the parties could have the opportunity of making further representations in writing. These were submitted to us last month. We have read and considered these further submissions with care.
32. The starting point is section 21 of the VAT Act, headed 'Value of imported goods', the relevant part of which reads as follows:

'21 (1)     For the purposes of this Act, the value of goods imported from a place outside the member States shall (subject to subsections (2) … below) be determined according to the rules applicable in the case of Community customs duties, whether or not the goods in question are subject to any such duties.

(2)     For the purposes of this Act the value of any goods imported from a place outside the member States shall … be taken to include the following so far as they are not already included in that value in accordance with the rules mentioned in subsection (1) above, that is to say—

(a)     all taxes, duties and other charges levied either outside or, by reason of importation, within the United Kingdom (except VAT) …'

33. Mr Nolan on behalf of the appellant submits that the expression 'all … duties … levied' is ambiguous: he contends that it might be confined to duties which were in fact levied (or 'charged', as he puts it) or it might be extended to duties which were leviable (or 'chargeable' as he puts it). Since the goods were smuggled, he argues, no duty was in fact 'levied' or charged and therefore none was due. He submits that any ambiguity should be resolved in favour of the appellant.
34. This argument, if correct, would have had the unattractive result that smugglers of tobacco products, on which duty had not been levied or charged by reason of the fraudulent evasion of that duty, would avoid the VAT on the duty, whereas legitimate traders, who would have properly declared their importations to HM Customs and Excise, would be liable to pay the VAT on the duty.
35. We do not accept Mr Nolan's submission that any ambiguity in the interpretation of tax legislation should be resolved in favour of the taxpayer. We accept Mr Bird's submissions that in so far as the language permits, statutes should be construed in accordance with their overall legislative purpose, which here was for the UK to comply with its obligations under the Sixth VAT Directive 77/388/EEC, which was intended to set out a workable scheme for the collection of VAT.
36. Article 11 B (3) of that Directive (as it was in force at the time of the importation) provided that: 'The taxable amount shall include … (a) taxes, duties, levies and other charges due [our emphasis] outside the importing Member State and those due by reason of importation, excluding the value added tax to be levied'.
37. Section 21(2) of the VAT Act was intended to implement that Directive. It provided that the taxable amount shall include: '...a) all taxes, duties and other charges levied [again, our emphasis] either outside or, by reason of importation, within the United Kingdom (except VAT)'.
38. From this, we conclude that Parliament intended that the expression 'all … duties… levied' in section 21 of the VAT Act should mean all '… duties … due', this being the expression used in the Directive. Such a construction gives purposive effect to the Directive and avoids the absurdity of allowing smugglers to evade the VAT which would otherwise be due upon the excise duty.
39. Accordingly, excise duty is "levied" for the purposes of the VAT Act when the goods are "charged" by law with duty at importation by virtue of s.2 of the Tobacco Products Duty Act 1979, whether or not the duty was in fact charged or levied.
40. Applying this conclusion to the facts of this case: the excise duty and the VAT upon it were 'levied' when the goods were smuggled into the UK.
41. As we have already determined, the appellant was not liable for the excise duty but by reason of section 1(4) of the VAT Act, VAT arises on the importation of goods from places outside the EU and shall be charged and payable as if it were a duty of customs, which liability continues after the importation; hence the appellant was and remains liable for the VAT due on the excise duty.
42. This is, however, not the end of the problems for, argues Mr Nolan, since we have decided that the 'value' of the cigarettes is much less than originally claimed, 'it would seem to be logical' – as he puts it – that the VAT to be levied on the value should also be reduced. He gives no authority for this proposition but he suggests that the VAT payable should be 17.5% of £5,368 (being our assessment of the 'base' value of the tobacco products) rather than 17.5% of £304,007.26, (being the excise duty due) as the prosecution claim.
43. In our judgment, Mr Bird has demonstrated the flaw in this argument also.
44. Excise Duty rates are set annually in the Budget. Schedule 1 to the Tobacco Products Duty Act 1979 is amended accordingly each year. Excise duty is not simply a percentage of the 'value' of the tobacco product (and certainly not on the purchase cost of smuggled goods); it is based upon the recommended UK retail price for cigarettes of that description.
45. As at 13^th December 2003 (the date of the Customs raid upon the appellant's warehouse), section 2 and Schedule 1 to the Tobacco Products Duty Act 1979 provided for the duty to be charged upon importation (or manufacture) as "an amount equal to 22 per cent of the retail price plus £96.88 per thousand cigarettes". "Retail price" is defined in section 5 of the Act (which we need not set out).
46. After a detailed examination of the authorities, the argument that counterfeit cigarettes attract a lower duty than genuine cigarettes was rejected by this court in Varsani [2010] EWCA Crim 1938.
47. In the instant case, the Sovereign Classics, which formed by far the larger part of the importation, were genuine but the Superkings were counterfeit. The applicable duty rates (22% of the Recommended Retail Price for genuine Sovereign Classics and Superkings respectively) + (£96.88 per 1,000 cigarettes) was applied by the prosecution to the quantities of cigarettes imported (as appears from the witness statements and schedules of Kevin Morris dated 15^th March 2005, reproduced as Annex 2 to the Prosecutor's statement dated 15^th February 2006 in the original confiscation hearing) to calculate that the excise duty due on these cigarettes was £304,007.26.
48. Accordingly, our determination of the "base value" of the cigarettes at a mere £5,368 does not determine the level of duty chargeable upon the cigarettes by virtue of section 2 of the Tobacco Products Duty Act 1979. It follows that we accept the Crown's submission that the excise duty that was chargeable at importation was £304,007.26 and that the appellant was liable to pay VAT at the rate of 17.5% on that sum (being £53,201.27). The appellant was personally liable to pay that sum; he has obtained a pecuniary advantage in evading payment. That therefore is part of his benefit from his offending.
49. The upshot is that we will quash the original Confiscation Order in the sum of £131,089.10 (which was the extent of the appellant's realisable assets); we quash the original finding that his benefit was £365,075.35; we substitute an order that his benefit was £54,140.76, being the sum total of £939.49 (being the VAT on the value of the cigarettes, as calculated at paragraph 27 above) and £53,201.27 (being the VAT on the duty, as calculated at paragraph 48 above) and we make a confiscation order in that sum.
50. The appellant has made no payment at all under the original order; enforcement proceedings have been suspended pending this appeal. Since he has to sell assets in order to pay such a sum, we will allow him 6 months, from today, to pay. If he defaults in payment, he must serve 18 months imprisonment.
51. Annexe

Article 28

The provisions of this Chapter shall determine the customs value for the purposes of applying the Customs Tariff of the European Communities and non-tariff measure laid down by Community provisions governing specific fields relating to trade in goods.

Article 29

1. The Customs value of imported goods shall be the transaction value, that is, the actually paid or payable for the goods when sold for export to the customs territory of the Community, adjusted, where necessary, in accordance with Articles 32 and 33, provided:

3.(a)The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods and includes all payments made or to be made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller.

(b)Activities, including marketing activities, undertaken by the buyer on his own account, other than those for which an adjustment is provided in Article 32, are not considered to be an indirect payment to the seller, even though they might be regarded as of benefit to the seller or have been undertaken by agreement with seller, and their cost shall not be added t the price actually paid or payable in determining the customs value of imported goods.

Article 30

1. Where the customs value cannot be determined under Article 29, it is to be determined by proceeding sequentially through subparagraphs (a), (b), (c) and (d) of paragraph 2 to the first subparagraph under which it can be determined, subject to the provision that the order of application of subparagraphs (c) and (d) shall be reversed if the declarant so requests; it is only when such value cannot be determined under a particular subparagraph that the provision of the next subparagraph in a sequence established by virtue of the paragraph can be applied.

2. The customs value as determined under this Article shall be:

(a) the transaction value of identical goods sold for export to the Community and exported at or about the same time as the goods being valued;

(b) the transaction value of similar goods sold for export to the Community and exported at or about the same time as the goods being valued;

Article 33

1. Provided that they are shown separately from the price actually paid or payable, the following shall not be included in the customs value:

(f) import duties or other charges payable in the Community by reason of the importation or sale of the goods.

.