E01062

HYDROCARBON OIL DUTY – subsections 6, 11 and 12 HODA – Whether rebated oil used in vehicle? – on the facts Yes – appeal dismissed

LONDON TRIBUNAL CENTRE

NIGEL WILLOUGHBY	Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS	Respondents

Tribunal:	ADRIAN SHIPWRIGHT (Chairman)
ANGELA WEST

Sitting in public in Bristol on 18 April 2007

The Appellant in person

Sarabjit Singh, Counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

Introduction
1.	This is an appeal against a decision of HMRC contained in a letter dated 4 April 2003.  HMRC notified the Respondent in that letter that on review the assessment of excise duty of £17,139 and the civil penalty of £4,284 issued on 23 September 2002 would be upheld.  The Appellant, Mr Willoughby, appeals against this review decision.  
The Issue
2.	The issue in essence is whether the kerosene in question had been used in the vehicles or was used solely to heat the garage?
The Law
3.	Section 6, Section 11 and Section 12 Hydrocarbons Oil Duty Act 1979 set out the relevant law. Section 6 imposes a charge to duty on hydrocarbon oils which includes kerosene. Section 11 allows a rebate of duty for such oils for home use such as heating oil. Section 12 is headed “Rebate not allowed on fuel for road vehicles”. 
4.	Section 12 provides in subsection (2):
“No heavy oil on whose delivery for home use rebate has been allowed…— 
(a) be used as fuel for a road vehicle; or
(b) be taken into a road vehicle as fuel,
unless an amount equal to the amount for the time being allowable in respect of rebate on like oil has been paid to the Commissioners in accordance with regulations made under section 24(1) below for the purposes of this section. 
(3) For the purposes of this section …— 
(a) heavy oil shall be deemed to be used as fuel for a road vehicle if, but only if, it is used as fuel for the engine provided for propelling the vehicle or for an engine which draws its fuel from the same supply as that engine; and
(b) heavy oil shall be deemed to be taken into a road vehicle as fuel if, but only if, it is taken into it as part of that supply.  Section 12 Finance Act 1994 allows the Commissioners to assess the amount of duty due from a person to the best of their judgment and notify that amount to that person or his representative.”
5.	Section 8 FA 1994 makes provision for a penalty for evasion of excise duty.  
Evidence
6.	A Bundle of documents was produced, all of which were admitted in evidence.
7.	We heard oral evidence from Luke Anthony, Suomi Gregory, Peter Birmingham, Gordon Allan Ashton and Stephen Tellwight.
Facts
8.	The parties agreed that subject to certain specific points the case stated the facts correctly.  We reproduce it below.  
Background Facts

(1)	[This gave the residential and business address of the Appellant in Cheltenham(“the Premises”)]
(2)	On 17 February 2001, two officers from the Customs Road Fuel Testing Unit (“the RFTU”), visited the premises. The Appellant was at the premises, and there were also two diesel vehicles present.  One vehicle was a Peugeot 306 car, registration number L39 YTT (“the Peugeot”), and the other was a Volkswagen van registration number R49 NDD (“the Volkswagen”).
(3)	Both vehicles had sign writing on them for “Cotswold Auto Windscreens”.  Keys were produced for the Peugeot and the fuel tank was found to be full.  There were no keys available for the Volkswagen and the quantity of fuel in the tank was not established.
(4)	The two vehicles were then tested and gave positive indications for the presence of rebated kerosene in the tanks.  The Officers also found a green fuel storage tank with filling nozzle behind a wall at the premises.  This tank was approximately ¼ full, and a sample of fuel was taken from it.  The Appellant claimed that the tank was used to run a space heater in an outhouse at the rear of the premises.  This heater was now allegedly in disrepair and had been removed from the premises.
(5)	Following tests by the Government Chemist, all samples taken from the premises were found to contain rebated kerosene.  The sample from the Peugeot was 89% kerosene, and the samples from the Volkswagen and the storage tank were both 100% kerosene.
(6)	The Appellant supplied a written statement to the Respondents on 16th March 2001, which included the following information:
a.	 The storage tank containing kerosene and clean waste oil.  This was used in a yellow “Space” heater that had been used to heat glass in one of his garages for around 2 years.  He had owned the heater for many years before that, and it was originally fuelled by paraffin from local garages.
b.	When he started dealing with fuel suppliers, he used kerosene from Butlers Fuels and Hobbs Brothers.  He had purchased kerosene from these 2 suppliers for around 2 years, and would usually order 1,500 to 2,600 litres. On average, he placed an order every 2–3 months.
c.	The heater was disposed of after the garages in which it was used was  damaged by a storm in October 2000.  The glass stock was then moved  to a new building , which had central heating, and the heater was sold on around [8th January 2001] to an unknown scrap dealer for £20.
d.	The heater’s capacity was around 30 metres.  It used 25 litres kerosene a day and was running for 6 or sometimes 7 days per week.
e.	When the heater was sold, approximately 20 litres of kerosene fuel was emptied into a 25–litre container marked “Garage Fuel.” He had several empty containers in stock, which had been used to store diesel during the fuel crisis in 2000, and the container used was one of these.
f.	When employees were called out, they were permitted to use “pool” vehicles, which they could also take home.  However, this was on the basis that the employees put their own fuel into the vehicles.
g.	Receipts for fuel were documented through the daily cash books, which he had produced to the RFTU during the visit on 17th February 2001.  Fuel was sometimes also purchased using a Texaco fuel card.
h.	When he was away from work on the weekend of 9-10 February 2001, an employee, Craig Kendrick, had used the last of the diesel saved for the fuel crisis to fuel the Volkswagen and Peugeot vehicles.  The fuel he used was the kerosene left over from heater, which was stored in the container.
(7)	Further statements from Mrs A M T Willoughby, Mr Kendrick, Mr B G Humphries and Mr J S Fisher was supplied to the Respondents.
(8)	The statement from Mrs Willoughby included the following information:
a.	She was the Appellant’s wife, and also prepared the accounts for the business. 
b.	She owned a BMW vehicle, but this was being repaired in January 2001 and so she used the Peugeot instead.  The Appellant normally put fuel in cars for her.
c.	On the weekend of 10 February 2001, the Appellant was away at the Motorcycle Show.  She understood from the Appellant that Mr Kendrick, believed that he was putting diesel into the Peugeot.  She had no idea that there was kerosene and the fuel tank of the Peugeot.
(9)	Mr Kendrick’s statement included the following information:
a.	The Appellant had employed him as a fitter for 2 years.
b.	He put some fuel from the container in the double garage into both the Volkswagen and the Peugeot.  The container had been left there from the fuel crisis, and at the time of the crisis had been used to store diesel for company vehicles.
c.	He had to move the Volkswagen, which had not been used much once a new  “W” registration had been purchased.  He realised that there was not much fuel in the Volkswagen, so he poured the majority of the contents of the container into the fuel tank the Volkswagen.  Because he believed the Volkswagen would probably be disposed with, he did not put all fuel from the container into its fuel tank.
d.	The container was around ⅓ full of fuel after he had used it.  He realised Mrs. Willoughby would drive the Peugeot and so he topped up its fuel tank with the remaining contents of the container.  He had no idea that the container contained anything other than diesel.
e.	A kerosene heater had been used to heat one of the garages for as long as he had been an employee.  Matters such as ordering fuel for the heater were left to the Appellant.
(10)	Mr Humphries’ statement included the following information:
a.	He was employed by the Appellant’s as a Technical Supervisor and was a senior fitter. He had been employed for more than three years.
b.	He had seen Butlers Fuels fill up the kerosene tank on the odd occasion in the past.  The kerosene was used to power the heater in the garage where the glass was stored, as in winter it was very difficult to cut laminated glass due to it being so brittle.  Trying to cut laminated glass when it was cold would lead to a lot of wastage.
c.	In around October 2000, the garages in which the glass had been stored had been damaged by falling trees.  The glass was now cut and stored in a new garage and a new building which was centrally heated, so there was no need to continue using a kerosene heater.
d.	Fuel was paid for by fuel card, cash from invoices, or from excess moneys paid by customers.  He only filled the van before he drove with diesel, and he generally drove the new “W” registration van.
(11)	The following information was included in Mr. Fisher’s statement:
a.	He has been employed by the business for the previous 5 months as mobile windscreen fitter.  He normally drove an “S” registration van, he had only driven one vehicle while working for the business, and the only have used diesel to fill that vehicle. 
(12)	On 19 February 2002, the Appellant voluntarily attended Gloucester Police Station for an interview.  He was not under arrest and was free to leave at any time.  He was given a criminal caution at the start of the interview, and supplied the following information in response questioning: 
a.	His company had been trading for around 6-7 years.
b.	He had disposed of the space heater on or around 8 February 2001, not 8 January 2001 as claimed in his statement.  
c.	He filled the space heater once a day and sometimes more than once.  The reference in his statement to the heater using 25 litres per day was referring to how long it would run on a full tank. On Sunday he might only use 25 litres but on a normal working day he filled up the tank of the heater at least twice.
d.	He traded from premises at home and had a mobile service.  The business operated 24 hours a day, 7 days a week.  It did not close on Sundays or over Christmas.  The business concerned the supply of glass for vehicles, and involved cutting of glass and the fitting of pre-shaped glass.
e.	His business premises included  4 garages, each of  30 square meters.  The space heater was used in the first of the top garages.
f.	The business operated 6 diesel vehicles, some of which were used predominantly for private use.
g.	He purchased the space heater from Custom Automobile Glass, Eastbrook Road, Gloucester.  He was a director of the company, and the heater was sold to him as a paraffin heater.  He did not know the make, type or kilowatt rating for heat output.
h.	In around February 2001 the heater had started to fail, and so he disposed of it on around 8 February 2001.  The sale of the heater was not recorded in the books because it was a personal purchase from one of the other directors years ago.
i.	He used the heater 2-3 times the day during the week, when the bulk of the work to place.  By “use” he meant filling up the heater tank, which had a capacity of around 30 litres.  On Saturdays he would fill the heater only once or twice, and perhaps only once on Sundays.  When he filled up the heater tank, he used about 25 litres.  
j.	He used to take the heater up to the top garage at around 8am, get it going and then refill it at lunchtime when it ran out of fuel.
k.	The heater was used all year round, including the middle of summer it was used in summer because the garage where it was used was surrounded by trees, the air was humid, and during nights it was cold and condensation appeared in the garage. It was easier to cut glass when there was an even temperature.
l.	In his experience, it was not the case that glass only required heating when it reached 0° Celsius.  Glass had to be much warmer to break efficiently, and it also had to be warm to expel all the moisture.
m.	If moisture remained on laminated glass for too long, the glass would delaminate.  The moisture would get into the membrane/inner layer of the glass. Age also caused the glass to delaminate.
n.	His business stored both laminated and toughened glass.  The toughened glass could not be cut but it was necessary for it to be warm, as if it was exposed to change of temperature it would shatter.
o.	There was only one space heater used on the premises, which had always been run on kerosene since he purchased the bulk tank.
p.	He did not do any servicing on the heater, such as replacing spark plugs or fans, and he purchased no spare parts.  He sold the heater for £20 in February 2001, and as far as he was concerned it was scrap.  
q.	He purchased the storage tank on 3 September 1998, in order to store kerosene for the heater.  He purchased the tank because it was cheaper and more convenient.  On occasions he would put waste oil from vehicles into the storage tank which he believed would burn up with the kerosene.
r.	The first delivery of kerosene was on 18 September1998, and he purchased kerosene from 2 suppliers.  The kerosene was used for no purpose other than fuelling the space heater.
s.	He agreed that the purchases of kerosene were as shown on the schedules produced by the Respondents. From September 1998 to January 2001, he had purchased a total of 41,275 litres of kerosene, daily purely for use in the space heater.  The bulk tank had a capacity of 2,690 litres.
t.	When the space heater was sold, the fuel from it was put into one empty 25-30 litre container.  He estimated that he put 20-25 litres of fuel into the container.
u.	He could not comment on the quantity of 48 litres of kerosene calculated to be in the Peugeot at the time of the visit on 17 February 2001, as he was not aware of the fuel gauge reading.
v.	When it was put to him that the fuel sample for the Volkswagen showed 100% kerosene, he stated that a fitter had put fuel into the Volkswagen because it was empty.  Kerosene had not been put into the vehicle on a regular basis.
w.	He did not know that it was possible to use kerosene in vehicles.
(13)	The Respondents contacted a technical engineer, Barry Phillips, who specialized in the hire and sale of heating, ventilation and that conditioning equipment, and who had 17 years of experience in the industry. Mr. Phillips provided the statements in relation to the temperature rise in the building of similar size and construction to the garage used by the Appellant, using a direct fired type heater with a fuel consumption of 50 litres of kerosene the day.  On the basis that the installation of the building was very poor and similar to that of a marquee, he calculated that the temperature rise from the stated fuel consumption will be 119.6°Celsius
(14)	A statement was also taken from Stephen Tellwright, a Technical Manager employed by Autoglass Ltd., which is a national company trading in glass.  His statements included the following information:
a.	Laminated glass was cut by fitters away from heated workplaces, at all times of the year. The glass could be cut across all temperatures down to and below freezing.  Below freezing point heating could make the process easier and less time-consuming.
b.	If the correct tools were used and sufficient time was given to do the works, there was no reason why the glass would not break along the line of cut/score.  There was some wastage in this process but it was more to do with the shape and size of the glass being replaced, rather than a failure of the product or cutting process.
c.	His company had never seen glass de-laminate as a result of storage.  Any de-lamination was considered by the manufacturers as a production failure.
d.	His company did not have a problem with toughened glass breaking as any storage temperature, and they had never had any experience of toughened glass shattering due to even very large temperature swings.  Cars went from places such as heated show rooms into freezing temperatures with no effect on the toughened glass.
e.	His company did not find it necessary to heat the warehouse during the summer months, at night or to an excessive temperature during the winter.  The heating was provided for the benefit of the staff of working in the warehouse.
f.	Glass was bagged by his company in some form, with the exception of flat laminated glass.  There were correct lifting methods for glass that was not bagged, and glass could also be lifted using vacuum suckers which operated independently of moisture.
(15)	On 6 April 2001 and 1 May 2001, the RFTU collected the Appellant’s business records from the premises, consisting of purchase and sale invoices, bank statements, day accounting books from the final quarter of 1996 onwards, and records relating to vehicles operated by the business.  The Respondents also contacted the Appellant’s supplier of kerosene, obtaining statements and copy invoices from them.
(16)	After purchases were scheduled, the schedule showed that a total of 41,275 litres of kerosene was purchased during the period September 1998 and January 2001.  The amount of 41,275 litres was used as the basis for the assessment of excise duty.
(17)	The Appellant’s purchases of diesel or analyze, on the basis of the information in the cash book records.  The schedule produce showed that during the period 22 September 1998 the 14th February 2001, a total of 3,255.6 litres of diesel was purchased.
(18)	An assessment was raised against the Appellant for £16,582 on 18 October 2001.  This was later withdrawn in full and replaced with an assessment on 23 September 2002 for £21,423, made up of £17, 139 excise duty and a £4,284 penalty for civil evasion.  On 21 February 2003 the Appellant’s representatives sought a review of this decision.
(19)	On 4 April 2003, the Respondents wrote to the Appellant’s representatives and notified them that, on review, the assessment of excise duty of £17,139 and the civil penalty of £4,284 issued against the Appellant’s on 23 September 2002 would be upheld.”
9.	There were 5 points of dispute from Mr Willoughby concerning this.  These were:
a.	There was a dispute about private use (see (6)(g) above).  
b.	At paragraph 12 (f) the Appellant did not accept he had said the business operated 6 vehicles. 
c.	At paragraph (13) he wished to clarify that in his view Mr Phillips had not been given all the relevant background information and/or had not given all the facts.
d.	At paragraph (14) the Appellant disagreed with Stephen Tellwight.
e.	At paragraph (17) the Appellant disagreed with the result shown in the Schedule.

10.	We accept and find: 
i)	The position as to private use set out in paragraph (6) (f).
ii)	Mr Philips had been properly instructed.
iii)	Mr Tellwight’s evidence as correct and that of the other witnesses on technical matters.
iv)	We accept the figures and result shown by the Schedule.
We express no view on the number of cars used in the business. 
The Submissions of the Parties
Appellant Submissions
11.	The Appellant contended that:
a.	There were discrepancies in the Respondent’s case.  
b.	Explanations had been provided as to how the kerosene was put into certain vehicle tanks by innocent third parties.
c.	The kerosene purchased by the business was used in an industrial heater.
d.	The mileage records for the vehicles do not support the Commissioners’ contentions.
e.	The default purchases had been omitted from the Commissioners calculations. 
f.	Accordingly the appeal should be allowed.

Respondents Submissions
12.	In essence Mr Singh, on behalf of the Respondents, submitted:
a.	Over 41,000 litres of kerosene had been bought.
b.	It was reasonable to infer that this had been used in vehicles when it had been found in the vehicles.
c.	HMRC accepted the explanation as to the use of the heater and so reduced the assessment.
d.	This was a best of judgment assessment on the basis of the information available to HMRC.  In fact, it could have been for more in the circumstances if some use for the heater had not been allowed.
e.	Accordingly, the appeal should be dismissed as the Appellant had not shown the assessment to be wrong.
f.	For Mr Willoughby to succeed he has to show following Rahman that the assessment was capricious, arbitrary or wholly unreasonable.  This was clearly not the case here.  A higher assessment and a hundred per-cent penalty could have been applied.
g.	The Appellant’s explanation was not credible.
h.	Accordingly, the appeal should be dismissed.

Discussion
13.	We find that:
a.	there was kerosene in the vehicles;
b.	41,275 litres of kerosene had been purchased;
c.	this was considerably more than was needed to heat the garage to a reasonable temperature;
d.	no explanation has been given as to the use of the rest of the kerosene as the Schedule showed in particular.  The Appellant’s attempts to discredit the figures did not change this.

14.	We ask ourselves in those circumstances was it reasonable for HMRC to make an assessment in the circumstances.  We answer that question yes it was reasonable.
15.	Has the Appellant shown that the assessment was capricious, arbitrary or wholly unreasonable?  He was not.  This is reinforced by the fact that the assessment could have been for more duty and a higher penalty.
16.	We consider that this was an assessment made to the best of judgment which has not been shown to be wrong?  The kerosene has not been shown to be used solely to heat the garage.
Conclusion 
17.	For the reasons given above HMRC’s decision on review is upheld and the appeal dismissed.

ADRIAN SHIPWRIGHT

CHAIRMAN
RELEASE DATE: 22 August 2007

LON/2003/8117