Judgment summary
This appeal concerned the seizure of 6kg of Amber Leaf hand rolling tobacco (HRT) from Mr Gordon McKenzie at Edinburgh Airport on 4 December 2020, and the subsequent excise duty assessment of £1,628 and a penalty of £569.80 for deliberate wrongdoing (2, 3).
Mr McKenzie appealed both the Assessment and the Penalty, arguing that the HRT was for personal use and gifts, at a time when the UK had no restrictions on the quantity of tobacco that could be imported duty-free from the EU for personal use (17, 22).
The Tribunal dismissed the appeal against the Assessment, applying established deeming provisions under paragraph 5, Schedule 3 CEMA 1979, because Mr McKenzie had not challenged the legality of the seizure within the statutory period (50-52).
However, the Tribunal allowed the appeal against the Penalty, finding that Mr McKenzie's conduct was not deliberate, and varied the Penalty accordingly (61).
Background
On 4 December 2020, Mr McKenzie was stopped by Officer Groat of UK Border Force in the green 'nothing to declare' channel at Edinburgh Airport, returning from Spain (23). His bags contained 6kg of HRT. He initially denied carrying any tobacco, then said he was carrying 3kg for personal use, before the full 6kg was found (24).
Officer Groat seized the HRT at 11.50pm on 4 December 2020, partly because Mr McKenzie was vague about his financial position, which Mr McKenzie attributed to the airport Wi-Fi not working (25, 26).
Mr McKenzie's unchallenged evidence, accepted by the Tribunal, was that he intended to use the HRT within a couple of months through personal use and gifts, and had bought a large quantity because the UK's departure from the EU would soon restrict his ability to buy cheaper tobacco abroad (27).
HMRC issued the Assessment on 25 November 2021 under section 12(1A) Finance Act 1994, and the Penalty on 12 January 2022 under paragraph 4, Schedule 41 Finance Act 2008, categorised as deliberate but not concealed with prompted disclosure (3, 32, 33). Mr McKenzie appealed both on 17 May 2024, which was late, but the Tribunal granted permission for the late appeal having regard to Martland v HMRC (10, 35).
Core dispute
The issues were whether Mr McKenzie was liable to the Assessment and whether he was liable to the Penalty (12).
Mr McKenzie accepted there were no procedural defects in the issuing of the Assessment and Penalty, and did not argue reasonable excuse or special circumstances (13).
HMRC argued that, because Mr McKenzie did not challenge the legality of the seizure, the HRT was deemed to have been imported for commercial use, meaning the Tribunal had no jurisdiction to consider personal use, and that this deeming also meant Mr McKenzie should be treated as having deliberately imported the HRT for commercial use regardless of his actual state of mind (19, 20).
Mr McKenzie argued he had imported the HRT for personal use, believing at the time that there was no limit on duty-free personal imports of tobacco from the EU, and that he had not understood he needed to challenge the legality of the seizure to argue personal use (17, 18).
Court findings
The Tribunal found that, applying HMRC v Jones, HMRC v Race and HMRC v Jacobson, it could not go behind the deeming provision in paragraph 5, Schedule 3 CEMA 1979, since Mr McKenzie had not given notice of claim within the statutory period. The goods were therefore deemed condemned as forfeited and not held for personal use (50, 51).
On the Penalty, the Tribunal preferred and adopted the analysis in Puiu v HMRC, applying the Supreme Court's interpretation of "deliberate" in HMRC v Tooth, and held that the deeming provisions in CEMA 1979 do not deem a person's intention for the purposes of Schedule 41 (46, 56, 58).
The Tribunal found that Mr McKenzie did not intend to breach the relevant rules, his intention being to bring the HRT to the UK for his own use and as gifts, with no intention of selling it or putting it to commercial use (54).
The Tribunal accepted Mr McKenzie's explanation that his false statements to Officer Groat about the quantity of tobacco were made to avoid the hassle of dealing with UKBF late at night after travelling, rather than to evade duty, and that his vagueness about finances was due to inability to access airport Wi-Fi (55-57).
The Tribunal concluded that Mr McKenzie did not deliberately fail to comply with his customs obligations (58). It noted that neither party argued reasonable excuse or special circumstances, and found no reason to disturb that position (59, 60).
Outcome
The appeal against the Assessment of £1,628 was dismissed and the Assessment was upheld (61(1)).
The appeal against the Penalty was allowed in part: the Penalty was affirmed but varied to reflect the finding that Mr McKenzie's behaviour was not deliberate (61(2)).
The parties were given liberty to apply to the Tribunal for determination of the quantum of the varied Penalty if they could not agree it themselves (61).
Major issues / areas of contention
- Whether the Tribunal could go behind the deeming provision in paragraph 5, Schedule 3 CEMA 1979 to consider whether the HRT was imported for personal use.
- Whether Mr McKenzie was liable to the excise duty Assessment of £1,628 under section 12(1A) Finance Act 1994.
- Whether the deeming of the goods as commercially imported also meant Mr McKenzie's conduct must be treated as deliberate for the purposes of the Penalty under Schedule 41 Finance Act 2008.
- Whether, applying HMRC v Tooth, a person's actual intention must be assessed separately from the deeming provisions when determining if conduct was deliberate for penalty purposes.
- Whether Mr McKenzie's false statements to Officer Groat about the quantity of tobacco demonstrated an intention to evade duty.
- Whether Mr McKenzie had a reasonable excuse or special circumstances applied (neither party argued that they did).