Tyler v Customs & Excise [2003] UKVAT(Excise) E00445 (04 July 2003)

HYDROCARBON OIL DUTIES – appeal heard in the absence of the Appellant –rebated DERV found in fuel tank – penalties for using vehicle with rebated fuel and taking rebated fuel into vehicle imposed – whether the Appellant (in correspondence to the Tribunal) had shown a reasonable excuse within section 10(1) FA 1994 for his admitted conduct in contravention of section 12(2) HODA – yardstick of the Court of Appeal in Customs and Excise Commissioners v Steptoe [1992] STC 757 adapted and applied – held that on the facts the exercise of reasonable foresight, and of due diligence and of a proper regard for the illegality of conduct contrary to section 12(2) HODA would not have avoided the conduct – Appeal allowed

LONDON TRIBUNAL CENTRE

	DAVID JAMES TYLER	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	MR JOHN WALTERS, QC  (Chairman)
						MR ALEX McLOUGHLIN

Sitting in public in London on 21 March 2003

The Appellant did not appear and was not represented

Ms Shaheen Rahman, of Counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

1.	The Tribunal heard this appeal in the absence of the Appellant pursuant to rule 26(2) of the VAT Tribunals Rules 1986.
2.	The Appellant appeals against the imposition of penalties under section 9 of the Finance Act 1994 (“FA 1994”) in respect of (a) his use of heavy oil in contravention of section 12(2) Hydrocarbon Oil Duties Act 1979 (“HODA”), and (b) his becoming liable for heavy oil being taken into a road vehicle in contravention of section 12(2) HODA – see: section 13(1) HODA.  Two such penalties (of £250 each) have been imposed, one for using rebated fuel in a road vehicle, and one for fuelling a road vehicle with rebated fuel – see: section 9(2)(b) FA 1994.  The Appellant asked for a departmental review of the decision to impose the penalties.  The review (communicated to the Appellant in a letter dated 25th February 2002 from Mr. A.C. Baker, Review and Appeals Officer, Law Enforcement, Customs and Excise, Cardiff – the “review letter”) confirmed the penalties.  Mr. Baker gave evidence to the Tribunal.  
3.	The papers before the Tribunal make it clear that it is not disputed that on 21st January 2002 the Appellant’s vehicle, registration F519 MSN, was stopped by the police.  The police officers drew a sample of fuel, which indicated the presence of marked red gas oil.  The incident was reported to Customs and Excise Road Fuel Testing Unit at Swansea.  On 30th January 2002, samples of fuel were drawn from the vehicle.  These samples, when tested by officers of the Unit confirmed the presence of rebated fuel (marked red gas oil).  Mr. M.A. Rowlands, an officer of the Unit, who tested the sample,  also gave evidence to the Tribunal.
4.	The Appellant in a letter to the Tribunal dated 12th July 2002 said the following:
“I think the decision of the review and appeals officer is very unfair, and would like my case to go before an independent tribunal.  I can only give you the same explanation I gave them because it is the truth.  The red diesel came to be in my tank through a genuine mistake.  On the evening of the 20th January 2002 I ran out of fuel on the road home from work [the Appellant lives and works in Herefordshire].  I rang my colleague [name, address and telephone number given].  I knew he kept a five-gallon drum of DERV in his shed.  What I did not know was he also had a can of red DERV for his tractor.  In the rush to come out to me he must have picked up the wrong can.  When he arrived we poured it in in a hurry, because it was pouring with rain.  He towed me to start.  The first I knew about it was when the police stopped me and asked to check my DERV.  That was the next day 21st January 2002.  I was shocked to see it was red.  The police officer, which was P.C. Mitchell, told me when I started to say what must have happened, it was nothing to do with him.  Once he had found red DERV in a tank he handed it over to Customs [&] Excise.  The only red DERV that has been in my tank was approximately five gallons that night, and I drained out about two gallons of that.  I have receipts for the DERV I use, the only DERV I have no receipts for is I have an occasional fill up out of one of my customer’s white diesel tank. He runs lorries in a hay and straw business, this is part payment for work I do.  He will verify this if needed [name, address and telephone number given].” 
5.	In the review letter Mr. Baker dealt with the explanation offered by the Appellant as follows: 
“Although your explanation was not offered to the officers at the time of seizure, I have looked at the extenuating circumstances that prevailed on the day as you describe them and am satisfied that in the circumstances the department has decided not to take criminal action and not levy the maximum penalty allowed by the law.  The matter has been correctly dealt with under the civil penalty regime hence I am confirming the fixed penalties of £250 in each case.”
6.	We take the Appellant’s representations to be a submission that he is excepted from liability to penalties under section 9 FA 1994 because there is a reasonable excuse for his conduct (section 10(1) FA 1994).  The Tribunal’s function under section 10(1) is to examine afresh the question of whether there is a reasonable excuse – see also: section 16(5) FA 1994 (power of the Tribunal to quash or vary any decision and to substitute its own decision).  The burden is on the Appellant to prove the reasonable excuse.
7.	Section 10(3)(b) FA 1994 provides that:
“where reliance is placed by any person on another to perform any task, then neither the fact of that reliance nor the fact that any conduct to which section 9 above applies was attributable to the conduct of that other person shall be a reasonable excuse.”
8.	The Appellant’s reliance on his named colleague to bring white DERV rather than red DERV to fill his vehicle cannot therefore provide a reasonable excuse.  However, in a case like this, it seems to us that the Commissioners and the Tribunal are expected to look behind any reliance to ask whether the underlying cause of the conduct to which section 9 applies is attributable to the conduct of the person relied on, or whether it was attributable to some other factor altogether.  If it was, that other factor is not precluded from constituting a reasonable excuse by section 10(3)(b) – see: the decision of the Court of Appeal in Customs and Excise Commissioners v Steptoe [1992] STC 757, a case on the very similar statutory wording in the predecessor provisions to what is now section 71(1) Value Added Tax Act 1994 (relief from liability to a default surcharge for late payment of VAT on a reasonable excuse being shown). The Chairman mentioned the Steptoe case at the hearing but unfortunately Ms. Rahman had no submissions to make on it.
9.	Mr. Baker gave evidence to the Tribunal, to the effect that he regarded section 12(2) HODA as creating an “absolute” offence.  He did not regard the Appellant’s explanation as giving rise to a reasonable excuse and (although he had been a reviewing officer for 18 months and had carried out about 100 road fuel-related reviews) he could give no examples of cases where he had accepted what could properly be regarded as a reasonable excuse giving rise to exception from liability to a penalty under section 9 FA 1994.  The Tribunal considers that Mr. Baker has not properly discharged his duty under section 10(1) of enquiring into whether the Appellant’s explanation gave rise to a reasonable excuse – this, in our judghment, involves applying the test formulated by the Court of Appeal in the Steptoe case (see: paragraph 17 below).
10.	Ms. Rahman for the Commissioners submitted that the fact (if the Tribunal accepted it to be such) that the Appellant did not know that the DERV introduced to his vehicle was rebated fuel would not establish a reasonable excuse, supporting that submission by saying that it was required for reasons of consistency with section 13 HODA.  She added that if that were not the position every appellant would say “I didn’t know”.   This answer to this submission is that given by the Court of Appeal in Steptoe, namely that as a general rule one can trust the commissioners and the tribunal to determine whether in any given case, and having regard to the scheme of the legislation including section 10(3)(b) FA 1994, a reasonable excuse for conduct within section 12(2) HODA exists.
11.	The Tribunal was referred to the decision of the Manchester VAT Tribunal (Chairman: Mr. M.S. Johnson) in G and S Transport v Commissioners of Customs and Excise (Release Date 15th August 2002).  Although the Tribunal in that case dismissed an appeal against penalties arising pursuant to section 13 of HODA, the decision did not assist us because the issue of the existence of a reasonable excuse did not arise.
12.	The Tribunal was at one stage concerned about the propriety of the imposition of two penalties, one pursuant to each of section 13(1)(a) and (b) of HODA.  After the hearing, the case of McConnachie v Commissioners of Customs & Excise [1999] V&DR 59 (a decision of the Court of Session, Inner House) came to the Chairman’s attention.  This authority appeared to be against the Commissioners’ case that two penalties could be imposed and the Chairman invited further submissions from Ms. Rahman on the point.
13.	In her further submission Ms. Rahman pointed out that section 13(1) of HODA had been amended since the McConnachie decision (by section 8, Finance Act 2000) to make clear that two penalties can be attracted – viz: section 13(1) now provides that where a person’s conduct includes both using rebated fuel in contravention of section 12(2) of HODA and liability for taking rebated fuel into a road vehicle in contravention of that subsection, his use of the fuel or his becoming so liable “(or, where his conduct includes both, each of them)” shall attract a penalty under section 9 FA 1994.
14.	The Tribunal must therefore decide two questions: first, will we accept as the truth the version of events given by the Appellant in his letter dated 12th July 2002 quoted above?  If so, does that version of events disclose anything which we can regard as a reasonable excuse for the Appellant’s conduct which is admittedly in contravention of section 12(2) HODA?
15.	As to the first of these questions, our conclusion is that we do accept the Appellant’s version of events as the truth.  It is not inconsistent with any other evidence we have heard.  We bear in mind that neither the Appellant nor the other individuals he mentions were present to give evidence and be cross-examined on their evidence by Ms. Rahman.  On the other hand the Commissioners have for some considerable time had the opportunity to take statements from the individuals and have not done so.  Also, the reasons the Appellant gives for not coming in person to the Tribunal (expense and need to take time off work) are understandable.
16.	As to the second question – does the Appellant’s version of events disclose a reasonable excuse? – the relevant facts are: (1) the conduct in contravention of section 12(2) HODA was unintentional; (2) which is different, the conduct in contravention of section 12(2) was done without the Appellant’s knowledge – he did not know that it was red DERV that was taken into his vehicle, because it was an evening in January (presumably dark) and it was pouring with rain; (3) the circumstances of the case do not suggest that the Appellant was or ought to have been especially on enquiry as to a possible contravention of section 12(2): it is reasonable not to expect him to have checked the position more closely than he did; and (4) the Appellant appears to have put an end to the conduct in contravention of section 12(2) as soon as he became aware of it – he says he drained out about two gallons of the five gallons of red DERV taken in.
17.	 Adopting (and adapting) the yardstick of the Court of Appeal in Steptoe, this Tribunal asks whether the exercise of reasonable foresight, and of due diligence and of a proper regard for the illegality of taking in and using red DERV would not have avoided the conduct contrary to section 12(2).  On the balance of probabilities we hold that the Appellant has discharged the burden of proving that it would not.  Accordingly we hold that the Appellant had a reasonable excuse which was exhausted when P.C. Mitchell checked the DERV on 21st January 2002.  However it appears that the Appellant did what he could to remedy the conduct as soon as possible after that.

18.	We therefore allow the appeal and quash the decision imposing the penalties.  We will make no order as to costs.

JOHN WALTERS QC
CHAIRMAN

RELEASED:

LON/02/8192