Judgment summary
This is an appeal by LFS Enterprises Limited, a company approved under the Registered Dealers in Controlled Oils (RDCO) scheme, against a decision by HMRC in August 2024, upheld on departmental review in October 2024, to impose Additional Conditions on its RDCO approval (paras 1-5).
The Additional Conditions comprised a Record-keeping Requirement, an Information Requirement (weekly provision of information to HMRC), and a Suspicion Requirement (reporting suspicious transactions to the HMRC fraud hotline) (para 6).
The Tribunal examined the statutory and regulatory framework, including CEMA 1979 section 100G(5), FA 1994 section 16(4) and (6), the Hydrocarbon Oil (Registered Dealers in Controlled Oil) Regulations 2002, the Revenue Traders (Accounts and Records) Regulations 1992, and Excise Notice 192 (paras 11-27).
The Tribunal found systemic deficiencies in the Appellant's record-keeping, including the loss of stock records due to a failed laptop and the absence of any 'booklet' of sales notes, and found discrepancies between Mr Farrell's stated sales volumes and the HO5 returns in evidence (paras 38-66). The Tribunal also considered evidence of sales to customers from the Republic of Ireland, particularly at the Annaghgad Road site, and HMRC's position that certain cross-border, non-running-tank sales of rebated fuel were prima facie unlawful (paras 27-77).
The Tribunal rejected arguments based on alleged breach of the Trade and Cooperation Agreement and Article 41 of the EU Charter of Fundamental Rights (paras 81-88), and rejected the argument that different conditions should apply across the Appellant's three sites, finding a systemic compliance problem across all sites (paras 90-92).
The Tribunal conducted an item-by-item review of the Record-keeping Requirement, finding some elements reasonable and proportionate and others not (paras 99-126). It concluded that HMRC should conduct a further review of the Record-keeping Requirement under FA 1994 section 16(4)(b), but dismissed the appeal in relation to the Information Requirement and the Suspicion Requirement (paras 127-137).
Background
The Appellant is a limited company approved since August 2020 under the RDCO scheme to sell controlled oils, principally kerosene and Marked Gas Oil (MGO, 'red diesel'), from three sites in Northern Ireland: Ormeau Road (Belfast), Saintfield Road (Lisburn), and Annaghgad Road (near Crossmaglen, close to the border with the Republic of Ireland) (paras 2-4).
In August 2024, HMRC imposed Additional Conditions on the Appellant's RDCO approval, upheld at departmental review in October 2024. The Appellant appealed by Notice of Appeal filed on 22 October 2024, seeking an order that the Decision cease to have effect (paras 5, 10).
The Additional Conditions were to have come into effect in August 2024 but were stayed pending the appeal (para 7, 85).
Core dispute
The core dispute was whether HMRC's decision to impose the Additional Conditions, going beyond the existing force-of-law requirements in Excise Notice 192 (notably the 100-litre threshold in Paragraph 5.16), 'could not reasonably have arrived at' within the meaning of FA 1994 section 16(4) (paras 8-12).
The Appellant argued the Decision was unreasonable, disproportionate and unjustifiable, that adequate records existed but were lost through no fault of the Appellant, that its operational practices had previously been explained to and approved by HMRC, that no fuel was unlawfully supplied to Republic of Ireland customers, that farmers on cross-border farms were entitled to fuel on either side of the border under the Trade and Cooperation Agreement, and that the blanket imposition of conditions across all sites and removal of the 100-litre threshold was disproportionate and unlawful (para 8).
HMRC's position was that record-keeping was inadequate to allow monitoring of compliance, that sales of rebated fuel other than into a vehicle's running tank for cross-border use had always been unlawful under the Hydrocarbon Oil Duties Act 1979, and that the Additional Conditions were justified across all sites given systemic compliance concerns (paras 31-41).
Court findings
The Tribunal found that HMRC had good reason for its concerns about the Appellant's record-keeping and that the company was not keeping adequate records to allow monitoring of compliance with the RDCO regime (paras 41, 64).
The Tribunal accepted Officer Napier's evidence, including that a staff member at Ormeau Road authorised sales to customers with drums without completing checks, and that Mr Farrell told HMRC that stock records kept on Excel on a laptop had been lost when the laptop failed and could not be repaired, and had since been disposed of (paras 42-46, 58-62).
The Tribunal found a discrepancy between Mr Farrell's stated kerosene sales volume of around 300,000 litres a month and the HO5 returns in evidence, which showed considerably lower figures (paras 53-57). The Tribunal was not satisfied that any 'booklet' of sales notes existed, and drew adverse inferences from the absence of supporting evidence (para 63).
The Tribunal found no evidence of any change in the company's business practices after the Decision or after being told its record-keeping was inadequate, describing Mr Farrell's assertion that staff had been trained as a 'bare assertion' unsupported by evidence (para 78).
On cross-border sales, the Tribunal proceeded on the basis that HMRC's description of the law was accurate, namely that sale in the UK of rebated fuels for use in the Republic, other than in a vehicle's running tank, is prima facie illegal (para 34). The Tribunal rejected the Appellant's arguments concerning the Trade and Cooperation Agreement and Article 41 of the EU Charter of Fundamental Rights (paras 81-88).
The Tribunal rejected the argument that different sites warranted different conditions, finding a systemic problem across all sites justifying record-keeping requirements on all sales, not just those over 100 litres (paras 90-92).
On an item-by-item review of the Record-keeping Requirement, the Tribunal found several elements unreasonable or unclear (such as requiring 'full name' rather than name, make and model of vehicle, details of due diligence checks as a separate item, VAT number, and payment method), while finding other elements reasonable and proportionate (such as volume purchased, date/time of sale, method of sale, daily sales records, opening and closing stock, purchase invoices, and current selling price) (paras 104-126).
The Tribunal found the Information Requirement not inherently objectionable, subject to the scope of the Record-keeping Requirement (paras 130-131), and found the Suspicion Requirement reasonable, suitable, appropriate and necessary (paras 133-135).
Outcome
The appeal was allowed in part. In relation to the Record-keeping Requirement, the Tribunal directed HMRC to conduct a further review under FA 1994 section 16(4)(b), considering whether the requirements should extend beyond a specified list of items (customer's name and contact details, vehicle registration number, volume of rebated fuel purchased, date/time of sale, method of sale, copy of daily sales records, details of opening and closing stock, copies of fuel purchase invoices, and current selling price) (paras 129, 136).
The appeal was dismissed in relation to the Information Requirement and the Suspicion Requirement, with no requirement for further review of those elements (para 137).
The Tribunal noted HMRC's position that the Additional Conditions may be amended or removed once compliance systems are shown to be adequate, but found that, on the evidence before it, the Appellant's compliance systems had still not been shown to be adequate (para 138).
Major issues / areas of contention
- Whether HMRC's decision to impose Additional Conditions on the Appellant's RDCO approval could reasonably have been arrived at under FA 1994 section 16(4).
- Whether the Record-keeping Requirement, removing the 100-litre threshold and adding categories of information beyond Excise Notice 192, was reasonable and proportionate.
- Whether the Appellant's record-keeping, including stock records allegedly lost with a failed laptop, was adequate to allow HMRC to monitor compliance.
- Whether sales of rebated fuel other than into a vehicle's running tank for cross-border use to Republic of Ireland customers were unlawful, and whether this had retroactive effect.
- Whether imposing blanket conditions across three sites with differing characteristics was disproportionate.
- Whether the Appellant's arguments based on the Trade and Cooperation Agreement and Article 41 of the EU Charter of Fundamental Rights had merit.
- Whether the Information Requirement and Suspicion Requirement were reasonable, suitable, appropriate and necessary.