E01130

EXCISE DUTY RED DIESEL - assessment re two vehicles - only one dipped  - issues whether undipped vehicle could be assessed and whether methodology for calculation of duty correct - High Court decision in Thomas Corneill followed - reduction in mileage for one vehicle accepted by Customs - subject thereto appeal dismissed

MANCHESTER TRIBUNAL CENTRE

T.C.KIRTON PLANT HIRE LTD. 		Appellant

                                                                       -and-

                                           THE COMMISSIONERS FOR
                          HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

                                                                
Tribunal:       Elsie Gilliland (Chairman)
Mohammed Farooq (Member)

Sitting in public in Birmingham on 20 May 2008

Tony Kirton, director, for the Appellant

Bernard Haley of the Solicitors Office of H M Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1. The appeal heard by the tribunal was that of T.C. Kirton Plant Hire Ltd. (the Appellant) against an assessment raised by Customs on 21 July 2006 and the decision subsequently taken by Customs on a departmental review on 20 August 2007 to confirm but reduce the assessment. The business of the Appellant was that of a hirer of plant and machinery and it was VAT- registered.  Its case was presented by its director Tony Kirton (Mr. Kirton) who also gave evidence.

2. The assessment had related originally to four vehicles and was in the sum of £4249. On the conclusion of the departmental review the assessment applied to two vehicles only and was in the sum of £2823. Those vehicles were a white Mazda 4x4 pick-up truck registration number W988 RRW (the Mazda) and a white Mitsubishi pick-up truck registration number 1HKB (the Mitsubishi). It was not in dispute that only the Mazda had been detected to be running on rebated fuel. In assessing the Mitsubishi Customs relied on the decision of the High Court in Thomas Corneill and Her Majesty’s Revenue and Customs [2007] EWHC 715(Ch). 

3. The grounds of appeal set out by the Appellant in its Notice of Appeal dated 9 September 2007 were:

                 “Claim is unfair and unfounded. Only 1 vehicle found to be running on red diesel, yet the amount demanded relates to 4 vehicles”.

As indicated above only two vehicles are now assessed subsequent to the departmental review. 

4. The relevant legislation is first in section 12(2) of the Hydrocarbon Oil Duties Act
1979 (HODA) where it is provided that:

                “(2) No heavy oil on whose delivery for home use rebate has been allowed (whether under section 11 above or 13AA(1) below shall-

(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”.

Accordingly HODA imposes a tax on hydrocarbon oil (section 6) but permits a rebate for home use (section 11) disallowing the rebate for use in road vehicles (section 12). Section 13 then deals with the misuse of rebated heavy oil in vehicles and states as follows:

                  “13(1A) Where oil is used, or is taken into a road vehicle, in contravention of Section 12(2) above, the Commissioners may-
	(a) assess an amount equal to the rebate on like oil at the rate in force at the time of the contravention as being excise duty due from any person who used the oil or was liable for the oil being taken into the road vehicle, and
	(b) notify him or his representative accordingly”.

5. There are two main issues before the tribunal, first, on the basis that there was a breach of the legislative provisions and thus a default on the part of the Appellant whether Customs has the power to make an assessment including in it a vehicle which when dipped showed no red diesel in its tank (the Mitsubishi) and secondly whether the calculation of the amount of rebated fuel which had been misused was properly quantified. Briefly the procedure followed was to estimate the total fuel consumption of the vehicles in question; to compare that estimated fuel consumption with the actual fuel purchases identified from the Appellant’s own records with the difference being the estimated amount of misused rebated fuel.

6. Mr. Kirton’s principal submission was that no assessment could be made in respect of either vehicle first because the Mazda had been fuelled by an employee who had fuelled it with red diesel without Mr. Kirton’s knowledge or consent and secondly in relation to the Mitsubishi because there was no evidence that red diesel had been used in this vehicle. 

7. The case for Customs was that in connection with the Mazda when the receipts for purchases of unrebated diesel (diesel) are looked at there is a significant discrepancy between the amount shown as purchased and the calculation of fuel based on mileage shown on the vehicle’s MOT certificates. Customs submitted that the difference is accounted for by the use of red diesel; that red diesel had been found in that vehicle and an assessment could properly be made.

8. For the Mitsubishi in respect of which no MOT certificates were produced Customs proceeded on the footing that it covered 14000 miles per annum using the Customs & Excise Oils Guidance tables for that kind of vehicle and accordingly assessed that 5160.431 litres of fuel had been used to drive it over the period from 1 October 2003 to 6 March 2006. In evidence Mr. Kirton said that that figure was incorrect and that the Mitsubishi would not have covered more that 6000 miles per annum as it was used only for local journeys. Bernard Haley (Mr. Haley) who represented Customs at the hearing accepted this figure of 6000 miles in lieu of 14000 miles but still submitted that the inference from all the evidence was that although no red diesel had been found in the Mitsubishi when examined red diesel had been used in it. The proper inference from the discrepancy between the mileage implied by the fuel receipts and the mileage said by Mr. Kirton to be 6000 miles per annum was that the probability was that red diesel had also been used in the Mitsubishi and that an assessment could be made following the judgment in Corneill.  

9. In Corneill the facts were that Customs had discovered traces of red diesel in the tank of one of the lorries of the Appellant in that case. They had also tested the fuel in the tanks of others of the Appellant’s road vehicles but no trace of red diesel was found. Nevertheless an assessment was made in respect of all the vehicles. The assessment was made under s.13(1)(A) of HODA which we have set out in paragraph 4 above. The tribunal in that case had accepted the Appellant’s submission that any assessment under s. 13 (1)(A) of HODA had to relate to the vehicle in which traces of red diesel had been found but the High Court in its judgment in Corneill held that this was incorrect and that:

     “…An assessment can be made where it can be demonstrated that oil has been “used or taken into a road vehicle in contravention of Section 12(2)”. It is not possible to read into that part of the section any particular evidential requirements as to how closely one has to tie any particular fuel to any particular vehicle. All one can say about the quality of the evidence that underlies such an assessment is that there has to be enough. There is a contravention if it is taken into a road vehicle. That can be demonstrated in a number of ways. The clearest way is a vehicle which is caught with fuel in its tank”.  Paragraph 30 per Mann J. [2007] EWHC 715 (Ch).

10. Various receipts for fuel had been produced in Corneill and these the Appellant said related to white diesel and not red diesel but the tribunal on hearing the evidence had found that most of these receipts were fictitious. The discrepancy between the genuine receipts and the fictitious receipts was evidence that the oil referred to in these receipts was red diesel and that it had been used in the Appellant’s vehicles. The High Court accordingly upheld the assessment although the tribunal was in error in relation to the statutory powers under which the assessment could be made.

11. In the present case red diesel was found in the Mazda and it is clear that there was a contravention of s. 12 (2) of HODA and there was a power to make an assessment under s.13(1)(A) of HODA because the Mazda was used on the road. At the hearing Mr. Kirton produced a letter signed by L.Bradley relating to the Mazda saying that Mr. Bradley had filled the Mazda with red diesel on the day of the dip by Customs and that he had done so because Mr. Kirton had lent him the Mazda to get to and from work but as he could not afford to put diesel in himself he had filled it with red diesel from a tank used for filling the JCBs at the Appellant’s premises. This letter is undated the address of Mr. Bradley is incomplete and he did not attend the hearing. We can place no reliance on this letter and it does not account for any significant discrepancy in the mileage of the road vehicles as compared with purchase invoices for diesel.  

12. In relation to the Mitsubishi there is in our view power to make an assessment if there is sufficient evidence that red diesel has also been used by the Appellant. The mere fact that a test proved negative does not mean that red diesel has not been used. Thus the question is essentially one of fact.

13.Customs submission based on the discrepancy between the Appellant’s fuel receipts and the estimated mileage covered by the vehicle in question  (Customs having at the hearing accepted the figure of 6000 miles per annum) leads to the inference that red diesel had been used in the Mitsubishi.

14.Although Mr. Kirton said that red diesel had not been used in the Mitsubishi we find his evidence on this point to be unsatisfactory. In support of his case on the Mitsubishi he produced at the hearing an undated letter signed by J J Clerkin and headed with the address 69 Widdecombe Close Henley Green Coventry CV2 1AT. In this letter it was stated that on the day that Mr. Kirton had his “vehicles dipped by Customs” Mr. Clerkin had been driving a car belonging to Mr. Kirton and that he had never put red diesel into that car. The letter in its body refers to a different vehicle registration number R951 FN1. In his evidence Mr. Kirton said that it related to the Mitsubishi and he had printed at the top “Mitsubishi Pick Up 1HKB”. Mr. Clerkin was not called as a witness and no explanation has been given as to why the letter gives an incorrect registration number and refers to the Mitsubishi vehicle as a car. We can place no reliance on this evidence.

15. Diana Georgina Anderson (Miss Anderson) the assessing officer gave evidence to the tribunal. The review officer Angela Stewart did not attend though her witness statement dated 10 December 2007 was in the documents before us. In her witness statement dated 13 December 2007 confirmed in her evidence Miss Anderson she said that she had requested amongst other items fuel receipts for the Mazda and the Mitsubishi. The fuel receipts produced accounted for only a limited proportion of the fuel which would be used for the calculated mileage of the vehicles in the case of the Mazda using the MOT certificates and in the case of the Mitsubishi using the estimated figure of 14000 miles per annum. The details are set out in the revised schedules included in the bundle at pages 33 onwards and these also show the adjustments and allowances which after replies to questions we accept. On page 33 is the amended assessment schedule showing the rounded down amount due at £2823.

16. We accept Miss Anderson’s evidence and that there is a substantial discrepancy between the amount of fuel purchased as shown by the receipts and the mileage covered or estimated to have been covered by the vehicles. Mr. Kirton has not provided any explanation for the apparent absence of additional receipts.  In our view there has simply been no explanation for the discrepancy to which we have referred.  Mr. Kirton did at the hearing say that he had not been asked for the Mitsubishi MOT certificates but that is contradicted by the evidence of Miss Anderson in her witness statement which we accept. In any event Customs now accept that any assessment in relation to the Mitsubishi falls to be reduced and be based on the figure of 6000 miles per annum and not the figure of 14000 miles per annum used in the assessment. Accordingly the absence of the MOT certificates is no longer an issue.  

17. In Corneill it was made clear that Customs may use estimated figures in calculating any duty though the estimate must of course be based on the correct primary facts and proper inferences. In our view as we have already indicated there is a strong inference from the facts that red diesel was used in the two vehicles involved. We are satisfied that Customs made an honest assessment of the amount of red diesel likely to have been used in the two vehicles and the assessment on the review is upheld subject to a further recalculation to be undertaken by Customs in view of the agreed reduction in the annual mileage figure for the Mitsubishi. In all other respects the appeal is dismissed.
18. Neither party sought costs and we make no direction as to costs.

MAN/07/8064                  

Elsie Gilliland
CHAIRMAN

Release date: 30 July 2008