[2012] UKFTT 329 (TC)
TC02015
Appeal numbers MAN/07/809,
08/082 (08/0087), TC/2009/10142
FIRST-TIER TRIBUNAL
TAX CHAMBER
S73 VATA & S12 FA 1994 – assessed to best judgment
– appeal based on existence of a confiscation order under the Proceeds of Crime
Legislation – Appeal Dismissed
MICHAEL
NUGENT Appellant
(and
BRIAN GORMAN)
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
JUDGE IAN WILLIAM HUDDLESTON
Sitting in public in Belfast on 2 August 2011
Mr. D. McNamee of McNamee
Donnell Duffy for the Appellant
Mr. James Puzey BL for HMRC
© CROWN COPYRIGHT
2011
DECISION
The Appeals
1. The
appeals in this case relate to a number of assessments, to both excise duty and
VAT, arising out of the illegal smuggling of fuel across the border between
Northern Ireland and the Republic of Ireland.
2. In
summary, the relevant assessments are as follows:
(1)
the Appeal MAN/08/0087 relates to an assessment dated 20 August 2004 in
relation to the evasion of excise duty and was jointly raised against Michael
Nugent (the Appellant in this case) and a Mr. Brian Gorman. It was originally
raised in the amount of £531,797 which, on review, was reduced to a figure of
£522,923 (based on duty evaded (assessed to best judgment)) on approximately
201,766 litres of fuel;
(2)
the Appeal MAN/08/0082 relates to a best judgement assessment in respect
of VAT assessed on the joint trading of Messrs. Nugent and Gormley which,
again, was originally raised in the sum of £128,727 which was subsequently
reduced to £102,234 on review;
(3)
the Appeal MAN/07/8094 relates to a best judgment assessment raised
solely against Michael Nugent in the sum of £259,821 for evaded excise duty;
(4)
the Appeal TC/2009/10142 relates to a best judgment assessment to VAT
raised against Mr. Nugent in respect of the trading period 1 June 2003 to the
20 February 2004. It was originally raised in the sum of £55,300 but was
reduced on review to £48,830.
3. Each
assessment is raised to "best judgment" pursuant to (in the case of
excise duty) Section 12 of the Finance Act 1994 and (in respect of VAT)
pursuant to the powers vested in HMRC pursuant to Section 73(1) of the Value
Added Tax Act 1994 ("VATA").
4. Mr.
Gorman appears not to have taken any active interest in relation to any of the
appeals and the present appeal is brought solely by Mr. Michael Nugent (the
Appellant) although it is technically brought against all of the assessments
raised against him.
Facts
5. The
assessments arise out of the evasion of excise duty and VAT in relation to
deliveries of smuggled road fuel to two services stations. The first station
was known as Bridge Service Station, Main Street, Toomebridge, County Antrim. It is asserted by HMRC that the business operated there was jointly
conducted by both Messrs. Gorman and Nugent and on that basis the relevant
assessments have been raised jointly and severally against them.
6. The
second fuel service station was known as Molly Sweeney's Service Station at Gortin Road, Omagh, County Tyrone. HMRC asserted that this filling station was operated
solely by Mr. Michael Nugent who has been assessed on his own in relation to
the alleged operations conducted at that filling station.
7. The
allegations were the subject of criminal charges against both men (and others)
which led to criminal proceedings. The outcome of those criminal proceedings
resulted in Mr. Nugent pleading guilty on the 13 September 2006 to five specific
counts of evasion of duty contrary to Section 170(2) of the Customs and Excise
Management Act 1979 ("CEMA") relating to five specific instances
where smuggled fuel was delivered to Bridge Service Station on specific dates.
He was sentenced to a suspended term of imprisonment and was made the subject
of a Confiscation Order in the sum of £17,810.13, that order being made under
the provisions of the Proceeds of Crime Order (Northern Ireland) 1996. Mr.
Gorman likewise pleaded guilty to a number of charges, was found guilty and was
the subject of a separate Confiscation Order.
8. As
part of the criminal proceedings under the Proceeds of Crime (Northern Ireland)
Order 1996 a Prosecutors Statement was produced to the Crown Court asserting
that Mr. Nugent had led a criminal lifestyle as defined in Article 8(1) of that
Order, and therefore inviting the Court to make certain assumptions regarding
his property as the Court is entitled to under Article 9 of that Order in
calculating the benefit which the Defendant had received from his criminal
endeavours. As a result of that approach, the Prosecutor sought a Confiscation
Order in the sum of £120,250.00, although accepting that Mr. Nugent had only
"free" property to the value of £89,056.09. The bulk of that free
property arose from the value attributed to his matrimonial home at 66 Fair
Green Park, Keady, BT60 5UR – a property held in Mr. Nugent's sole name, but
occupied by both he, his wife and their family.
9. In
terms of the particular criminal conduct, however, and based on the assessment
of benefit on the illegal trade of 30,000 litres of fuel, the prosecutor identified
a total benefit of £32,063.27, of which the Prosecutor attributed £17,810 as
the amount attributable to Mr. Nugent.
10. We were not
appraised of the full reasoning of the Judge in the High Court when the
Confiscation Order was made, but the net effect of the Order was that the
matrimonial home and the various bank accounts which Mr. Nugent and his wife
held were excluded and the Confiscation Order related only to the Prosecutor's
findings in relation to the specific criminal conduct which was the subject of
the case (ie. the five charges in respect of which he pleaded guilty).
11. In due course
Mr. Nugent satisfied the Confiscation Order.
12. At this stage,
it should also be noted that as part of the Prosecutor's Statement, there was
an averment that "to the best of [her] knowledge and belief, no persons
have commenced any civil proceedings against the Defendant (Mr. Nugent) in
connection with the criminal conduct to which this statement relates."
13. That statement
was required to comply with Article 84 of the Proceeds of Crime (Northern
Ireland) Order 1996 which restricts the Court's power to make a Confiscation Order
where civil proceedings have been commenced to cover any loss suffered by the
victim.
14. For the purposes
of that Order, where there are civil proceedings pending the obligation of the
Court to make a Confiscation Order (pursuant to Article 8(1)) is translated
into a power (Article 8(4)).
15. Appeals having
been lodged in relation to the assessments, the Appellant then made an
interlocutory application to this Tribunal for his appeals to be allowed on the
basis that for HMRC to pursue them subsequent to the criminal proceedings and
the issue of a Confiscation Order, was an abuse of process.
The Interlocutory Proceedings
16. The Appellant
made its interlocutory application to this Tribunal, the decision of which was
released on 23 April 2009.
17. As part of those
proceedings, the Appellant asserted that:
(1)
as HMRC did not declare that civil proceedings were in process at the
time of the criminal case, that Mr. Nugent was entitled to assume that the
assessments were not being pursued. That argument was rejected;
(2)
that the lifestyle order, having been made, covered all of Mr.
Nugent's criminal conduct from the 19 February 1999, and was included in the
assessment of benefit in the amount of £17,810.13. That too was rejected;
(3)
that for the Tribunal to adjudicate on the same subject matter as that
which was the subject of the criminal proceedings would be unfair to such an
extent that it would engage Mr. Nugent's rights under the European Convention
of Human Rights on the grounds that it was fundamentally unfair. That too was
rejected.
18. In relation to
those determinations the Tribunal, whilst rejecting the arguments advanced,
also made a number of other observations:
(1)
in the first place, the Tribunal found that the making of a Lifestyle
Confiscation Order did not preclude a Tribunal from hearing an appeal in
respect of the assessments to tax that had been raised;
(2)
that although the failure to notify the court of the pending assessments
was clearly an omission, that there were, technically, no civil proceedings
commenced for the purposes of Article 8(4) of the Order at the time when the
Confiscation Order was made; and finally
(3)
the Tribunal queried why the assessments had been raised only against
Messrs. Nugent and Gorman, and not by all of their co-defendants.
19. Subsequent to
the interlocutory proceedings, the Appellant wrote to the Tribunal (letters
dated 8 July 2010 and 29 October 2010) to make it clear that the Appeal was
proceeding solely on the ground that the Confiscation Order removed any
liability on the Appellant to pay either VAT or Excise Duty, and that the
Appellant would not otherwise adduce evidence or otherwise challenge the basis
of the assessments which had been made. That chain of correspondence resulted
in a direction to that effect issued on the 11 March 2011 and it is, indeed, on
that basis, that the appeals now come before this Tribunal.
The Appellant's Case
20. The Appellant's
representatives handed to the Tribunal on the day of the hearing comments upon
HMRC's skeleton argument. The Appellant's arguments can be shortly summarised
and, indeed, here we quote:
"[this] is an application to the Tribunal
to recognise that:
(i) the
Lifestyle Confiscation Order obtained by HMRC against Mr. Nugent satisfied to
that point in time all liability of Mr. Nugent to HMRC. It is not argued
by the Appellant that the existence of a Confiscation Order excludes civil
proceedings to recover tax and duty owing;
(ii) the
Appellant's application is premised upon the assertion that the satisfaction of
the Confiscation Order equates to the satisfaction of all liability including
tax and duty to the Respondent."
21. Mr. McNamee
seeks to distinguish the case of her Majesty's Revenue and Customs v Richard
Alan Crossman (Junior) [2007] EWHC 1585 (Ch) on which HMRC rely.
22. The facts of the
Crossman Case were that the Crown Court determined the criminal benefit to Mr.
Crossman of a course of conduct at £488,000 (the sum sought by HMRC) but,
having found his realisable assets to total £55,000, made a Confiscation Order
in that latter amount.
23. HMRC then made a
statutory demand for the difference between the two figures. As against that,
Mr. Crossman claimed that he had been given a legitimate expectation that,
subject to his making payment in the amount of the Confiscation Order, that
HMRC would not look to him for payment of the excess of the excise duty which
he owed.
24. Rimer J, in that
case, however, concluded that "[nothing] was to be construed such as to
deprive them [HMRC] of seeking to recover the excess of their debt over and
above the amount paid under the Confiscation Order."
25. Mr. McNamee
sought to distinguish the Crossman Case on the basis that Mr. Nugent had his
criminal benefit calculated by the Court in the sum of £17,810.13, ie. that
unlike Crossman, the "benefit" figure equates in full to the
"liability" of the Appellant. He argues that Mr. Nugent, having paid
that amount in full, has no further liability to HMRC "in law or in
fact".
26. In short, he
asserts that the benefit figure calculated by the Court in the criminal
proceedings equates to Mr. Nugent's full tax liability and relies on the
provisions of Section 158(2) of the Proceeds of Crime Act 2002 as justification
for that proposition.
27. That section
provides as follows:
"Section 158(2)
The Court must –
(a) take account of conduct
occurring up to the time it makes it decision;
(b) take account of property
obtained up to that time."
28. Mr. McNamee
asserts that that Section requires an assessment based on all criminal conduct,
and that where the resulting Confiscation Order is made, it in effect results
in a cap on any future liability.
HMRC's Case
29. HMRC's position
as advanced by Mr. Puzey is that the Tribunal has already considered the
Appellant's arguments and that they having been discounted at the interlocutory
stage, and not having been then appealed, are Res Judicata based on the
application of Eco Power Co UK Limited v Transport for London (2010) EWHC 1683 (Admin).
30. Setting that
point aside for the moment, the underlying and fundamental position of HMRC is
that the Appellant's benefit arising from criminal conduct is not the same
thing as the amount of duty evaded as a result of his actions.
31. It is HMRC's
case that the assessments to duty were stayed pending the outcome of the
criminal proceedings, and that the civil and criminal proceedings may co-exist,
although accepting clearly that pursuant to the provisions of Section 278 of
the Proceeds of Crime Act 2002, where property has been taken into account for
the purposes of a Confiscation Order, that it may not be "double
counted" for the purposes of the civil recovery action.
32. Consequently
HMRC asserts that the mere fact that HMRC sought a Lifestyle Confiscation Order
does not preclude the Tribunal from hearing an appeal against an assessment to
duty, and nor is it an abuse of process or a breach of the Appellant's human
rights to do so.
33. HMRC also make
the point that it is entirely open to them to raise assessments on a joint and
several basis against the Appellant and/or Mr. Gorman (Regulation 5(2) Excise
Goods (Holding, Movement, Warehousing and REDS) Regulations 1992 ("the
Regulations")), and that their primary goal in raising such assessments
are to recover in relation to both the excise duty and VAT the total tax which
they properly consider to be due on the facts of this (or indeed any) given
case.
34. HMRC also
indicate that they do not accept (as was suggested in the interlocutory
proceedings and elsewhere) that the defendant was merely a "scout".
They assert that both Messrs. Nugent and Gorman were principals in a fuel
smuggling operation which lasted over a period of 15 months and, which they
allege, involved over £1,000,000 in evaded tax and duty, and for which the
Appellants are jointly and severally liable.
35. HMRC say that
they are not attempting to establish what benefit the Appellant derived from
his criminal conduct (which is the prerogative of the courts of criminal
jurisdiction) but merely to calculate the proper amount of duty and tax which
is owing. They rely full square on Crossman in relation to this
distinction.
Decision
36. Whilst Mr.
McNamee did try to convince the Tribunal that his approach was somewhat
different from that which had been the subject of the interlocutory proceedings,
I must say that I am not convinced as to his rationale.
37. In essence, both
in the interlocutory proceedings and this Tribunal, Mr. McNamee's position is
that the Confiscation Order "mopped up" all of the liability arising
from Mr. Nugent's criminal conduct.
38. That was
rejected as part of the interlocutory application and, to the extent that it was
rejected, the principles of Res Judicata apply and it is not open to Mr.
McNamee to have that issue re-tried before this Tribunal.
39. To the extent,
however, that there is any doubt on the point, this Tribunal finds that the
concept of "benefit" as it is used in the Order or the POCA does not
and cannot equate with the same concept as a "liability" for tax
under the taxing legislation (in this case the Finance Act 1994, the Regulations
and/or VATA).
40. Mr. McNamee,
when asked, cited Section 158(2) as authority for his proposition that the
Confiscation Order effectively operated as a cap on liability. I do not read
that Section in the same way as Mr. McNamee. All that Section says is that the
Court must:
(1)
take account of conduct occurring up to the time it makes its decision;
(2)
take account of property obtained up to that time.
41. At that stage,
all the court is doing is trying to establish what benefit has arisen.
42. That is a retrospective
analysis of what a person has enjoyed from his criminal endeavours.
43. It is clearly
something completely distinct from what this Tribunal, in the exercise of its
statutory jurisdiction, is engaged with, namely where there are assessments,
and appeals against those assessments, the attribution of the correct amount of
tax and/or duty which is payable on any given factual matrix.
44. There is no
doubt that in some cases (as indeed in this one) there may be a degree of
overlap based on a single factual matrix but, where such overlap exists, there
is (by virtue of Section 278) a limit on recovery so that the same property is
not accounted for twice. Indeed, that point was made (and accepted by Mr.
McNamee) in the interlocutory proceedings themselves. It logically follows
that where there has been recovery on foot of the Confiscation Order which, to
some extent, encompasses a confirmed tax liability, then the amounts recovered
ought to be brought into account when the collection of tax is undertaken.
That principle is clearly reflected in the case of Crossman, upon which
Revenue sought to rely as acceptance of the principle that the civil and
criminal liability can co exist.
45. Mr. McNamee
sought to rely upon Crossman for entirely different reasons, namely that
the assessment for benefit defined the maximum liability to tax which, when
discharged, removed all future liability.
46. Having
considered Crossman I see no basis for such an argument.
47. HMRC have a statutory
prerogative pursuant to (in the case of VAT) Section 73 VAT Act and (in the
case of excise duty) Section 12 of the Finance Act 1994 to assess tax that they
do not feel has been returned. In the absence of detail those assessments can
be made to best judgment. Once the assessments are made, they can be challenged
and, if appealed, that will bring them before this Tribunal.
48. This Tribunal is
solely tasked with attempting to find the "correct" amount of tax.
Once it is established, it may then on collection need to be adjusted to
reflect the extent to which the Crown may have already recovered the tax on
foot of a Confiscation Order, but that is a question of enforcement.
49. Equally, as
provided for in both the Regulations and VATA, the assessments can be made on a
joint and several basis.
50. In this case Appeals
were duly made against those assessments, but the Appellant has chosen not to
advance evidence to disprove or, indeed, in any way challenge those assessments
or, indeed, to engage this Tribunal in an analysis of how a proper assessment
to the tax and duty evaded can be arrived at.
51. Rather, the
Appellant has sought to rely solely upon the ground that the Confiscation Order
(as made and satisfied) obviated the need to engage any further in attempting
to challenge the nature of the assessments themselves. As I have indicated
above, that view was rejected in the Interlocutory Proceedings. I too reject
it.
52. As to the
assessments themselves, no contrary evidence or challenge to the assessments
was provided to the Tribunal and indeed the Appellant, before the appeal,
confirmed in writing that no factual challenge would be made. In those
circumstances, I can do nothing other than conclude that the assessments must
stand.
53. No order as to
costs.
54. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to "Guidance to accompany a Decision from the First-tier
Tribunal (Tax Chamber)" which accompanies and forms part of this decision
notice.
IAN WILLIAM HUDDLESTON
TRIBUNAL JUDGE
RELEASE DATE: 4 May 2012
