[2009] UKFTT 294 (TC)

TC00238
EXCISE DUTY – hydrocarbon oil – civil penalties – taking in and use of red diesel on public roads – whether Appellant had reasonable excuse for conduct – yes – appeal allowed – Sections 9 & 10 Finance Act 1994

FIRST-TIER TRIBUNAL (TAX CHAMBER)

 
 	
					A. C. ROSBOTTOM	Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	Ian Vellins (Judge)
		Susan Stott (Member)
			
Sitting in public in Manchester on 1 October 2009

The Appellant appeared in person

Julian Winkley, counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2009
DECISION

The appeal
1.	The Appellant, Mr. A C Rosbottom, who lives in Bury, appeals against a decision of the Respondents, HMRC, on review dated 14 November 2008, confirming the imposition of two civil penalties, each of £250, imposed for the taking in and using of rebated heavy oil (red diesel) in a road vehicle.  Officers of HMRC from the Road Fuel Testing Unit had attended at the Appellant’s address to test the fuel in a Toyota road vehicle, and found that a fuel sample tested positive for red diesel.  The decision to impose the two £250 civil penalties had been issued by HMRC by letter dated 27 September 2008, and after the Appellant had requested a review, the decision had been upheld and confirmed to the Appellant by a letter dated 14 November 2008.
2.	At the hearing of this appeal the Appellant attended in person to represent himself, and gave evidence.  The Respondents did not call any witness on their behalf.  We had before us a bundle of documents produced by the Respondents.
The issue in dispute
3.	The Appellant is not liable to pay the civil penalties if he can satisfy the tribunal on the balance of probabilities that he had a reasonable excuse for the taking in and using of the red diesel oil in his road vehicle.
4.	The issue in dispute was whether the Appellant could satisfy the tribunal as to his explanation as to how the diesel oil came to be taken in and used in his vehicle and whether this amounted to a reasonable excuse having regard to all the circumstances.
The law
5.	Section 12(2) of the Hydrocarbon Oils Duties Act 1979 provides that no rebated heavy fuel shall;
		“ (a) Be used as fuel for a road vehicle;
		   (b) Be taken into a road vehicle as fuel.”
6.	Section 13(1) of the 1979 Act provides that where any person – 
		“ (a) Uses heavy oil in contravention of Section 12(2) of the 1979 Act; or
(b) Is liable for heavy oil being taken into a road vehicle in contravention of Section 12(2),”
Shall attract a penalty under Section 9 of the Finance Act 1994.
7.	Section 9 of the Finance Act 1994 stipulates a penalty of £250 for each contravention.  Section 10 of the same Act provides that a person can avoid liability to pay a penalty if he can satisfy the tribunal that there was a reasonable excuse for his conduct.
The background
8.	On 22 July 2008 Customs officers from the HMRC Road Fuel Testing Unit attended at the Appellant’s address to test the fuel in a Toyota Hi Lox road vehicle at the Appellant’s premises.  A formal test was carried out on the fuel, which tested positive for the Euro marker for Red Diesel with a possible trace of Quinizarin.  The Appellant was then interviewed under caution on the same day.
9.	In answer to questions from the officer the Appellant stated that he had owned the vehicle for 5 years and it was used for work purposes.  He said that he was a farmer and fitted tow bars.  As well as the Toyota, the Appellant stated that he had tractors that use red diesel for his farm.  He stated that he and no-one else was responsible for fuelling the vehicle.  The officer told him that the officer had tested the fuel in his Toyota and that this had tested positive for a Euro marker, the marker for red diesel.  The officer asked the Appellant if he could explain this and the Appellant replied, “no”.  He told the officer that he knew that it was an offense to use red diesel in a road vehicle.  He told the officer that he had never been involved with Customs before.  He told the officer that he had purchased the bio-fuel in his Toyota from premises in Walshaw Road, in a unit facing Woolpack Pub.  He stated that he had bought three, five gallon, drums and that it cost 90 pence per litre.  The officer asked the Appellant how much red diesel he used in his tractors.  The Appellant replied that he did not know, but that he had bought 1,000 litres the last time.
10.	The officers made further enquiries.  They were first unsuccessful in finding the bio-diesel outlet, but they subsequently did find it and tested the fuel stored there, which was found to be normal bio-diesel.
11.	The officers concluded that they believed that the fuel in the Appellant’s Toyota vehicle must have come from somewhere else other than the bio-diesel outlet.  On 10 September 2008 the Appellant was notified that two civil penalties of £250 were issued against him under Section 9 of the Finance Act 1994.
12.	The Appellant appealed against the decision to issue the civil penalties in a letter dated 27 September 2008.  In that letter he stated that he did not put any red diesel in the tank in his vehicle.  He explained that the contamination must have come from the bio-diesel that he had purchased previously.  He stated that the 10 gallons that he purchased on the second occasion that he went to the bio-diesel outlet was in two, five-gallon, drums and that he had been told that these were the last of the batch held there.  He concluded that the tests made on the diesel from the same supplier by the officers would have therefore been from a later batch.  He believed that the contamination may have been from the batch from which he had purchased the bio-diesel, or from one of the containers.  He stated that he could produce receipts for diesel purchased and calculations of his use of fuel based on his mileage, and the amounts purchased.  HMRC wrote to the Appellant on 8 October 2008 requesting the Appellant submit documentary evidence to support his case.
13.	On 15 October 2008 the Appellant replied enclosing diesel receipts and details of the mileage of his vehicle.  He stated that the vehicle mileage accounted totally for all the fuel that he bought, and that he could not therefore have been running on any additional fuel or the mileage would have been much more.  He reiterated that the contamination found by the officers must have come from the bio-diesel that he bought shortly before his fuel tank was tested.  He had been totally amazed when an officer had told him that there was red diesel in the tank.
14.	HMRC carried out a formal departmental review of the decision following the correspondence from the Appellant.  The review was communicated to the Appellant in a letter dated 14 November 2008, upholding the original decision to impose the two civil penalties.
15.	In an undated letter from the Appellant to HMRC, the Appellant stated that he could not accept the conclusions of the officer on review.  He reiterated that shortly before the officers’ visit he had purchased bio-diesel, but unfortunately did not obtain any receipts.  He believed that the review officer had concluded without grounds, on the basis that he could not produce receipts for the bio-diesel, that he had purchased red diesel and put this into his tank.  He said that that conjecture on the part of the review officer was pure fantasy.  The Appellant also added that he had had a dispute previously with a person, and that it was possible that that person had interfered with his vehicle by putting red diesel into his tank and then reporting him to HMRC.
16.	The Appellant appealed the review decision, setting out as the grounds of his appeal that the red diesel found in his tank was not put in by him.
The evidence at the hearing
17.	In the Respondents’ bundle of documents was a witness statement from the review officer.  The bundle contained the correspondence and documents, including the result of the analysis of the fuel in the tank of the Appellant’s vehicle.  Mr. Winkley, appearing for HMRC, accepted that the result of the analysis had showed that there was a very minor contamination of red fuel in the fuel tank of the Appellant’s vehicle, namely 70 parts to 1,000,000.  The review officer did not attend the hearing as she was unable to do so.
18.	We heard evidence on oath from the Appellant himself.  The Appellant gave evidence that he had been surprised when the officer found traces of red diesel in the fuel tank of his Toyota vehicle.  He confirmed that the officer had told him that the amount of red diesel found in the tank of his vehicle was a small amount, less than 2%.  The Appellant said that he could not explain its presence to the officer at the interview as he said that he did not put any red diesel into the vehicle.  The Appellant said that prior to this, about a fortnight before, as he had told the officer, he had purchased some bio-diesel fuel for the vehicle on two occasions.  On the first occasion he had put in 5 gallons and on the second occasion 10 gallons from 2 x 5 gallon drums.  He said that at that time this was the only place that he thought that the contaminated fuel might have come from.  The Appellant said that he told the officers where he had purchased the bio-fuel.  By the time that the officers checked the bio-fuel then held there, this was obviously much later than when the Appellant had purchased the bio-fuel, and he accepted that the officers were not able to find red diesel at the supplier’s premises then.  The Appellant explained that the last fuel he had purchased from the outlet had been put into his vehicle from the two 5-gallon drums, which no longer would have been at the premises of the supplier.
19.	The Appellant stated that sometime afterwards he had talked to the young man who had served him at the outlet, who had told the Appellant that the outlet had had problems with different suppliers.  The Appellant had understood the young man to mean that red diesel had come into the bio-diesel.  The Appellant had been told that the outlet had changed suppliers since then.  The Appellant added that this conversation was purely verbal and he had no documentary evidence to substantiate this conversation.
20.	The Appellant produced his calculations of the mileage of his vehicle, and the fuel that he had used, based upon the receipts that he had kept for the fuel that he had purchased, and the bio-fuel that he had purchased from the outlet for which he had not received any receipts.  He said that his calculations revealed that he had not purchased or received any red diesel fuel for his vehicle, in addition to the fuel shown on his receipts, and the bio-fuel purchased from the outlet.
21.	The Appellant said that he was the only user of the vehicle.  He was a farmer.  He had no employees, and his wife did not drive.
22.	The Appellant said that he has convinced that the traces of red diesel found in his vehicle had come from a contaminated batch of bio-fuel that he had purchased from the outlet, and that the contamination of the red diesel in such fuel had happened without his knowledge, and had happened beyond his control.  He also added that he could not possibly have seen any trace of red diesel in the fuel, because this was not visible to the naked eye, the fuel in his tank having been of a brown colour, the colour of the bio-diesel.
23.	The Appellant also mentioned that after the event he had considered a possible different explanation. He said that he had not told anyone that his tank had been tested by HMRC, but some three or four months after the event he had been told by a friend in a local conservative club that a friend had heard that he was being prosecuted for having red diesel in his tank.  The Appellant had found out that the information given to his friend had come from a person with whom the Appellant had had a difference of opinion, who normally used red diesel for his business, and he said that it was possible that that person had “tried to stitch me up”.  The Appellant did not wish to name either that person or his friend from the conservative club.  The Appellant said that he was not relying on that possible explanation in his appeal, as he said that he could no prove it, but was stating it as a possibility because the Appellant knew himself that the Appellant himself had not put the red diesel into his vehicle.  He said that he had driven the vehicle on the road and had filled up with the bio-fuel himself, but had had no knowledge that the fuel in the vehicle had been contaminated with red diesel.  He said that if a person was putting red diesel in a vehicle, to cheat HMRC, then such a person would not put in fuel with such a small amount of red diesel, as had been found by the officer.
24.	The Appellant agreed that he had signed the notebook of the officer.  He said that he had found the officer testing his fuel when he had gone outside to get into his car.  He agreed that he had bought red diesel for his tractors, about 1,000 litres a year previously, which he had only used for the tractors.  He said that he would never use red diesel in his Toyota.  He said that he regularly came across officers of HMRC at cattle sales.  He would not do anything so foolish as to put red diesel into his Toyota.  He said that he had purchased the bio-fuel for the Toyota on the previous occasions from the outlet on an industrial site near the pub, which he had believed had been called Bury Bio Diesel.  The employees there had poured the fuel into his car.  He had not driven away with any drums.  He said that the outlet had since closed down, since his appeal.  The Appellant agreed that he had not obtained any receipts for the bio-diesel.  He said, “it was not that sort of place”.
Our findings of fact and our decision
25.	We found the Appellant to be a credible witness.  We believed his evidence, and find that we are satisfied that he was telling the truth in his evidence at the hearing.  He gave his evidence in a straightforward, truthful manner.  We accept his explanation that he did not deliberately take in and use red diesel in his road vehicle.  We find that he has satisfied us that his explanation for the presence of minor traces of red diesel in his vehicle is correct, namely the traces of red diesel came from a batch which he obtained from a bio-diesel outlet that had been contaminated with red diesel.  This explanation is consistent the very minor presence of contamination in the fuel in the Appellant’s vehicle, namely 70 parts to 1,000,000.  It is also consistent with the evidence of the Appellant, which we found truthful, that he did not knowingly fuel his vehicle with red diesel.  We are satisfied that the Appellant, in his calculations, has satisfied us that his purchases of regular fuel shown in his receipts, and in the further purchase of the bio-fuel for which he did not receive receipts, did not in addition purchase red diesel from any other source, for this vehicle, as the mileage on the vehicle would then have been much more.  We would add that the Appellant’s second possible explanation - that someone with a grudge against him may have put some red diesel into his vehicle – is not an explanation that can be substantiated.  We make no finding as to that.
26.	Accordingly, we find that on 22 July 2008 Customs officers had found traces of red diesel in the tank of the Appellant’s Toyota vehicle, which the Appellant accepted that he had used on the public highway, and which he had filled up himself with fuel.  We are satisfied that the sample tested showed a minor presence of red diesel.  The Appellant had told the officers that he had not put red diesel into his vehicle.  He had indicated to HMRC that a possible explanation for the presence of the red diesel was that it had come from a contaminated batch supplied to him by a bio-diesel outlet.  He could not produce receipts for the bio-fuel, and when the officers visited the outlet some weeks later the officers found that the fuel there did not contain traces of red diesel.  This was the basis upon which the officers made the original decision and the review decision.  However, having heard the evidence of the Appellant, who we found to be a truthful witness, we find that the Appellant had not been aware that the fuel in the tank of his vehicle had been contaminated with red diesel.  We find that we are satisfied with the truthfulness and credibility of the Appellant’s explanation, that the bio-fuel outlet had sold him bio-fuel which had become contaminated with traces of red diesel.  We find that the Appellant has a reasonable excuse for having taken into his road vehicle red diesel as fuel and having used this as fuel for his road vehicle, without his knowledge or control.  We accept that the presence of the red diesel was in fact outside the control of the Appellant.  We find that he had not been careless, as he had no means of knowing that the supply had been contaminated.  He did not know that the bio-fuel contained the traces of red diesel, and he could not reasonably tell this from the colour of the fuel that the employee put into his petrol tank, this being of the same brown colour as normal bio-fuel.
27.	Section 10 of the Finance Act 1994 gives jurisdiction to the tribunal to eliminate the civil penalties if the Appellant satisfies the tribunal that he had a reasonable excuse for the unlawful use and taking in of the red diesel.  We find that the Appellant does have a reasonable excuse.
28.	We therefore allow the appeal, and make an order for costs in favour of the Appellant.
MAN/2008/8129

IAN VELLINS
JUDGE
Release Date: 4 November 2009