Case: Excise duty: HMRC needs time to read and digest documents before it has sufficient evidence to make an assessment
Court of Appeal (Civil Division)
 EWCA Civ 1406
Lord Justice McFarlane, Lord Justice Sales and Sir Colin Rimer
Decision released 19 June 2018
Excise duty – Charged at incorrect rate – Assessment to recover underpaid duty – Whether assessment made out of time – Time when sufficient evidence to justify assessment became known to HMRC – FA 1994, s. 12(1), (4) – Assessment not out of time – Decisions of First-Tier Tribunal (‘FTT’) and Upper Tribunal (‘UT’) upheld and appeal dismissed.
Lithuanian Beer Ltd v R & C Commrs  BTC 28
The appellants imported flavoured ciders which, because of their strength, were chargeable at the rate applicable to made-wines but had for a number of years mistakenly paid duty on the ciders at the lower rate applicable to ‘conventional’ cider. They received three pertinent visits from HMRC officers. The first visit took place in February 2010 but was not concerned with the correct classification of the ciders for duty purposes. The second visit took place on 2 November 2010, for the purpose of checking the applicable duty, but the officer attending only carried out a scoping exercise and requested documents be sent to him for further examination. The last batch of these was sent to him on 3 December 2010. It was not clear, however, when or whether he in fact examined them. Sight of other, unconnected, documents from the appellants attracted HMRC’s attention and a third visit (by a third officer) took place on 19 April 2011. Once information requested at that visit had been cross-checked, HMRC took the view that the duty had been charged incorrectly and issued the assessment under appeal on 14 November 2011.
Under FA 1994, s. 12(4), as it stood at the time and to the extent relevant to this case, HMRC may make an assessment to excise duty at any time no later than one year from the day on which evidence of facts sufficient in HMRC’s opinion to justify making the assessment comes to HMRC’s knowledge.
Before the FTT, the appellants argued that that day was either the occasion of the first visit (February 2010) or the occasion of the second visit (2 November 2010) and that therefore the assessment was out of time. The FTT rejected both these limbs of the appeal but also rejected HMRC’s argument that sufficient evidence was obtained only in August 2011 when the third officer was able to cross-check the documents he had requested with other information. The FTT found, instead, that HMRC had already had sufficient information when it had received the last batch of documents requested by the second officer. As this did not occur before 3 December 2010, however, the assessment made on 14 November 2011 was in time.
Before the UT, the appellants contended only that HMRC had had sufficient knowledge available to it at the time of the second visit (2 November 2010). The UT (1) agreed with the FTT that the knowledge obtained by the second officer on 2 November 2010 was not sufficient, dismissing the appeal, but it also found (2) that the relevant date of the purposes of s. 12(4) fell only when the cross-checking exercise had been completed, viz. in August 2011. The latter point had not been raised by HMRC and the UT had not given prior notice to the parties that it had this in mind.
Before the Court of Appeal, the appellants advanced two grounds of appeal: they reiterated the argument that the FTT and UT should have found that 2 November 2010 was the correct date for the purposes of s. 12(4), and, further, that the UT had acted unfairly with regard to finding (2) on a procedural basis and incorrectly by disregarding the FTT’s finding with regard to the August 2011 date. The second argument, concerning the UT’s findings on the August 2011 date, was only relevant if the appellants succeeded in their first argument.
Dismissing the appellants’ first ground of appeal, the Court of Appeal held that, applying the judgment of Dyson J in Pegasus Birds Ltd v C & E Commrs  BVC 56, which both parties agreed was relevant, the Court had first to decide what were the facts which, in the opinion of the officer making the assessment on behalf of HMRC, justified its making and, second, when the last piece of evidence of these facts of sufficient weight was communicated to HMRC. ‘Communicated’ in this context meant communicated in such a way that the contents of the evidence were in fact known to HMRC; it was not sufficient that the evidence was made available to HMRC, it did not come to HMRC’s knowledge until it had been read and digested. In this case, this could not have taken place until after the ‘critical cut-off date’ of 14 November 2010. The assessment was therefore in time.
It was not necessary to consider the second grounds of appeal. Nevertheless, the appellants would have succeeded, since the UT had acted wrongly not to allow the parties to make submissions on the new point and the FTT had given good reasons for its finding that HMRC had had sufficient evidence before the cross-checking exercise completed in August 2011.
There is a fine dividing line between the situation where an officer of HMRC can only have knowledge of the ‘evidence of facts’ contained in one or more documents when he or she has had the opportunity to read and digest the contents of those documents and the situation where HMRC has all the material it needs but fails to act on it in time.
Note also the procedural point regarding the UT’s failure to allow the parties to make submissions on the new point raised in its decision.
For commentary on case law concerning time for assessment, see the Indirect Tax Reporter at ¶58-005.