[2009] UKFTT 148 (TC)

TC00116

Appeal Number: Man/08/8111 

FIRST TIER TRIBUNAL TAX

EXCISE DUTY – BETTING AND GAMING – Appellant paid for two licences by mistake for one amusement machine – whether entitled to repayment of duty on the licence obtained by mistake – yes – Appeal allowed 

DECISION NOTICE  (FULL REASONS)
Rule 35(2) The Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009 

	JUNCTION 29 TRUCKSTOP LIMITED	Appellant

	- and -

         THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal: MICHAEL TILDESLEY OBE	 (Chairman)
				      PETER WHITEHEAD                (Member)	  

Sitting in public at Manchester on 22 May 2009

Charles Jesudason, company director appeared for the Appellant 

Kim Tilling of the Solicitor’s office of HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2009

DECISION
The Appeal
1.	The Appellant was appealing against HMRC’s decision on review dated 4 September 2008 refusing a refund of duty in the sum of £750.75 in respect of a licence for a category C Amusement Machine.
The Dispute
2.	On 11 May 2006 a category C Amusement Machine Licence was granted to the Appellant for a period of one year ending 10 May 2007. Unbeknown to the Appellant the supplier of the gaming machine also obtained a licence for the same gaming machine for effectively the same period. The supplier charged the Appellant for the licence fee.
3.	The Appellant had two licences for one machine and sought on 4 April 2008 to recover from HMRC the duty paid on one of the licences. HMRC refused the application on the ground that it was made after the expiry of the licence, in which case they had no authority under paragraph 11 schedule 4 of the Betting and Gaming Duties Act 1981 (hereinafter referred to 1981Act) to refund the duty. 
4.	The Appellant contended that HMRC had the power to repay the duty under section 137A of the Customs and Excise Management Act 1979 (hereinafter referred to 1979 Act). HMRC disagreed, submitting that in this case there was no overpayment of duty because the Appellant paid the correct amount for the two licences.
5.	The dispute concerned whether the Appellant had in fact and in law made an overpayment of duty. The respective positions of the parties can be best summed up by the question: did the Appellant pay twice over for the same licence or pay for two licences? 
Evidence
6.	The Tribunal heard evidence from Mr Jesudason for the Appellant. A bundle of documents was admitted in evidence.
The Facts
7.	The Appellant carried out its business near junction 29 of the M1 Motorway. The Appellant employed 23 members of staff and had been operating for 15 years. The Appellant supplied fuel services, overnight parking, newsagency, a small cafeteria and a bar to principally lorry drivers who were breaking their journey. The bar was open from 6pm to 11pm and catered for 20 people.
8.	Since opening for business the Appellant had always operated with three gaming machines. Two machines were located on the ground-floor of the business premises. They offered a maximum jackpot of £5, and did not require a licence. The third machine was situated in the bar upstairs, and awarded a jackpot of £25. This machine was a category C amusement machine which required a licence from HMRC.  Thus the Appellant throughout its operation of 15 years has only ever held one category C amusement machine.
9.	Around January 2006 the Appellant decided to change its supplier of gaming machines which took effect from 1 June 2006. Under the arrangements with its old supplier the Appellant would empty the gaming machine, take the registered meter reading, bank the cash, and give the supplier its share of the takings. Critically the Appellant applied for its own amusement machine licence. The arrangements with the new supplier, Leisure Link, were different. The supplier would empty the machines on a weekly basis and leave with the Appellant its share of the takings in accordance with the meter readings. Leisure Link, unbeknown to the Appellant, also applied for the licence of the amusement machine at the Appellant’s premises and deducted the licence fee from the Appellant’s share of the takings.
10.	In May 2006 the Appellant automatically renewed its amusement machine licence with effect from 11 May 2006 to 10 May 2007. The licence fee of £750.75 was paid by direct debit. The licence was for one medium-prize gaming machine. The licence bore the licence number 1693746 and gave the Appellant’s address as the address of  the licensed premises.  On 1 June 2006 Leisure Link, obtained a licence for one medium-prize gaming machine which gave the Appellant’s address as the address of the licensed premises and carried the licence number of 1699865.  The same sequence of events was repeated the following year with the Appellant and Leisure Link each renewing a licence for the one medium-prize gaming machine at the Appellant’s address.
11.	In April 2008 the Appellant discovered its error of paying for two licences for one amusement machine. The Appellant failed to identify the error earlier because the manager dealt with the contractual arrangements with the supplier, whilst a separate member of staff collected and accounted for the Appellant’s share of the takings from the machine. The manager was unaware that the Appellant was paying Leisure Link  for a licence from the takings. The contract did not stipulate that Leisure Link would obtain a licence for the machine. The error came to light when the Director took over the manager’s duties because she was seriously ill. The Director reviewed the Appellant’s contractual documents with all suppliers, and found the mistake. 
12.	On 4 April 2008 the Director contacted HMRC requesting a refund of the fees for the second licence for 2006/07 and 2007/08. HMRC decided without prejudice and as a gesture of goodwill to refund in full the fee for 2007/08. HMRC did this because the Appellant applied for a refund before the 2007/08 licence expired. HMRC were not obliged under paragraph 11 schedule 4 of the 1981 Act to refund in full the 2007/08 fee but did so under their care and management powers. The Act only permitted a refund to the value of the unexpired portion of the licence equating to complete months.  HMRC, however, were not prepared to give a concession in respect of the 2006/07 fee because the Appellant’s request occurred after the expiry of the licence.
13.	The Tribunal makes the following findings of fact:
(1)	The Appellant has only ever had one category C amusement machine (a medium-prize gaming machine) on its premises.
(2)	The Appellant held an intention throughout to obtain a licence for one machine only.
(3)	The Appellant never held an intention to apply for two licences.
(4)	The licence obtained by Leisure Link on behalf of the Appellant for 2006/07 was a duplicate of the licence already granted to the Appellant on 11 May 2006. The Tribunal did consider whether the fact that the Leisure Link licence covered a different period 1 June 2006  to 31 May 2007 as compared with the 11 May 2006 to 10 May 2007 period for the Appellant’s licence meant that it could not be regarded as a duplicate. The Tribunal decided that the variation of three weeks in the respective periods was not material. The critical fact in determining whether it was a duplicate was that the licence was intended to authorise the use of the same amusement machine.
(5)	The Appellant made a genuine error  in applying for two licences for the same machine. The Appellant was unaware at the time that Leisure Link would apply for a licence on its behalf. The fact that the error could have been avoided by the Appellant exercising due diligence was not relevant to the disputed matter.
(6)	The Appellant applied for repayment after the licence expired but before the end of the three year time limit on recovering overpayments of excise duty
(7)	There was no onus upon HMRC to check with the Appellant that it had applied for the correct number of licences.
Consideration
14.	There are two legal routes by which the Appellant may recover duty paid on amusement machine licences. The first route is to apply for a refund of the duty under paragraph 11 schedule 4 of the 1981 Act. A claim under this route must be made before the licence has expired. It was common ground between the parties that the claim was made in April 2008 some ten months after the end of the licence. Thus the Appellant was not entitled to make a claim under paragraph 11 schedule 4 of the 1981 Act.
15.	 The second route is to make an application under section 137A of the Customs and Excise Management Act 1979. Section 137A, entitled Recovery of Overpaid Excise Duty, provides as follows:
“(1) Where a person pays to the Commissioners an amount by way of excise duty which is not due to them, the Commissioners are liable to repay that amount.
(2) The Commissioners shall not be required to make any such repayment unless a claim is made to them in such form, and supported by such documentary evidence, as may be prescribed by them by regulations; and regulations under this subsection may make different provision for different cases.
(3) It is a  defence to a claim for repayment that the repayment would unjustly enrich the claimant.
(4) The Commissioners shall not be liable, on a claim made under this section, to repay any amount paid to them more than three years before the making of the claim.
(5) Except as provided by this section the Commissioners are not liable to repay an amount paid to them by way of excise duty by reason of the fact that it was not due to them.
(6)This section does not apply in a case where the Commissioners are—
(a) entitled to pay an amount under Part 1 of Schedule 3 to the Finance Act 2001, or
(b) required to repay an amount under Part 3 of that Schedule”.
16.	HMRC contended that the Appellant did not meet the requirements of section 137A(1), and, therefore, not entitled to a repayment of the duty. HMRC accepted that if section 137A (1) was met, the Appellant satisfied the other statutory requirements set out in section 137A to qualify for a repayment. 
17.	HMRC’s position was encapsulated by the following extract taken from an e mail from Valerie Patterson (HQM, Gaming) numbered 84 in the bundle: 
“Amusement machine licence duty is due on a licence and not on the machines which are being used on a particular premises. A licence holder may choose to obtain a licence which authorises the number of machines without necessarily using that number of machines. The duty paid in this situation was therefore lawfully due to the Commissioners and it should not be refunded under section 137A   of the 1979 Act.
In summary the person requesting a licence has a responsibility to make sure he applies for the correct category and number of machines. HMRC bear no responsibility in checking if the trader’s request is correct. This would entail visiting each premises to check against every machine. Clearly this is impossible. Therefore HMRC issue what is asked for. If later, the trader finds he has asked for the wrong licence he can surrender any unused months, obtain a refund, then re-apply for the correct licence. However, this does not apply to licences that have already expired and in particular where the trader has been issued a default licence and assessment”.
18.	Thus HMRC’s position was that amusement machine licence duty was due on the licence and not on the number of machines used in the premises. In this case the Appellant applied for two licences and liable to pay for the duty on those licences. The fact that he mistakenly applied for one of the licences was irrelevant for the purposes of section 137A because the duty on the licence was due to HMRC by virtue of his mistaken application. In these circumstances HMRC was not liable to repay the duty because there had been no overpayment in the first place. 
19.	HMRC cited in support the VAT & Duties Tribunal decision in Magrette L Cooke Sandown Snooker Club (Decision Number E00160):
“The Commissioners first contention was that in the present circumstances this was not an Appeal before the Tribunal at all. There was no overpayment, the Appellant paid for the licences she asked for and paid the correct amount. It so happened that she applied and paid for more licences than she actually required. In such circumstances the licences could be surrendered and a refund of the unexpired portion made. There was no overpayment of duty because the correct sum was paid for the licence requested. The fact that the Appellant did not need a licence she requested or rather did not need all of them at all times, does not mean that there was an overpayment. No duty was payable unless and until the Appellant sought to purchase a licence.
If no Appeal lies in the present circumstances under section 137A the application would require to be dismissed.
I am not in this case, however, required to take a narrow or strict view of section 137A because there is no obligation on the Commissioners to repay any licence unless it is surrendered, and that surrender has to be made during its currency. Although it is not necessary to decide in the matter in this case, I would regard it as an unduly narrow view of 137A, so to construe it as to exclude any genuine mistake. It will not do, however, to come along at a later stage and say “I did not in fact need the licence I asked for, kindly refund it” after its term has expired, which is what happened in this case. If a person for example applies for a vehicle licence and does not require to use it, it cannot be correct to wait until after the expiry of the licence to plead error or mistake.
The licence has been obtained and is available for use during its currency. That is similar to the present case. It might be different if a wrong sum was demanded and paid out that was later discovered.
In summary, in the present case, the Appellant applied for, paid for and obtained the licences she requested. There is no onus on HMRC to ascertain whether or not she required what she applied for or how she was to use her licence. The situation can and should have been rectified by her surrender of the unnecessary and unwanted licences. Since that was not done, the Appeal requires to be dismissed”.
20.	Before considering HMRC’s  construction of the legislative provisions the Tribunal makes the following observations on the Magrette L Cooke Sandown Snooker Club decision:
(1)	The Tribunal did not accept HMRC’s argument in its entirety. The Tribunal acknowledged the possibility that a genuine mistake might trigger the relief under section 137A of the 1979 Act.
(2)	The Tribunal placed emphasis on the fact that the licence was not surrendered before its expiry date. Licence surrender is a requirement of paragraph 11 schedule 4 of the 1981 Act, not of section 137A.  The time constraint under section 137A is that an application for repayment must be made within three years of the date when payment was made.
21.	The Tribunal considers HMRC’s position flawed in the following respects:
(1)	The obligation to apply for a licence and pay duty thereon  arises when the trader provides an amusement machine for play (section 21 of the 1981 Act). 
(2)	The duty payable is determined by the type and number of machines available for play (section 23 of the 1981 Act).
(3)	HMRC can only recover unpaid duty from a trader if he provides an amusement machine for play without a licence (section 24A and schedule 4A of the 1981 Act).
(4)	Thus the legal liability to pay and demand duty is determined by whether the trader provides an amusement machine for play. Although an application for an amusement machine licence may trigger the payment of duty, the application does not determine the legal liabilities between the parties. A trader may apply for a licence for three machines but only pay for two, HMRC has no legal recourse to recover the duty  for the third machine unless the trader is providing a third machine for play.
(5)	Section 137A is concerned with the legal liabilities between the parties. Amusement machine licence duty is only due to HMRC if the trader makes amusement machines available for play. As the Tribunal in Magrette L Cooke Sandown Snooker Club correctly identified the relief under section 137A may be open to a trader who makes a genuine mistake. This would cover situations, such as, where a trader applies and pays for a   licence for two machines when only a licence for one machine is required or where the trader applies and pays for two licences for one machine. 
(6)	Section 137A provides a different relief from the refund provisions under paragraph 11 of schedule 4 of the 1981 Act. The latter covers the situation where a trader correctly applies for a licence for two machines, and then half-way through the trader decides to dispense with one of the machines. The trader in this case is only entitled to a refund of the duty for the unexpired portion of the licence provided the trader surrenders the licence to HMRC.
(7)	The Tribunal’s construction of the legislative provisions dealing with repayments and refunds does not create an obligation on the part of HMRC to check the accuracy of licence applications. HMRC are entitled to assume that the trader has submitted an accurate application. It is for the trader to prove the circumstances upon which he relies to obtain relief  either under section 137A of the 1979 Act or paragraph 11, schedule 4 of the 1981 Act.
22.	In this Appeal the Tribunal found that the Appellant made a genuine error in applying for two licences and paying for two amounts of duty for the same amusement machine. The Appellant provided one amusement machine for play on its premises with no intention of increasing the number of machines. The Appellant was legally obliged to pay duty for one licence. The Appellant made the application for repayment within the requisite period of three years. The Tribunal holds that under section 137A(1) of the 1979 Act the Appellant is entitled to repayment of duty on the duplicate licence. The Tribunal allows the Appeal and makes no order for costs. 

                                

                                 MICHAEL TILDESLEY OBE
TRIBUNAL JUDGE
RELEASE DATE: 24 June 2009

MAN/

Notes
23.	The Tribunal directed that the costs regime which operated prior to 1 April 2009 applied to this Appeal. 
24.	A party wishing to Appeal this decision to the Upper Tribunal must seek permission by making   an application in writing to the Tribunal within 56 days of being provided with full written reasons for the decision. An application for permission must identify the alleged error(s) in the decision and state the result the party making the application is seeking.