E01166

Excise Duty – Seizure of rebated fuel, various containers, equipment, trailer and a tanker alleged to have been involved in a laundering operation – restoration refused – whether two reviewed decisions not to restore reasonable – yes – appeals dismissed – Hydrocarbon Oil Duties Act 1979 s24(4) – Hydrocarbon Oil (Marking) Regs 2002 reg 14 – CEMA 1979 ss 139(1), 141(1) and 152 – FA 1994 ss 15(1) 16(1) and (4)

LONDON TRIBUNAL CENTRE

DERMOT McGUINNESS / Appellant
and
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND EXCISE / Respondents

Tribunal: Rodney P Huggins (chairman)

Ray Battersby

Sitting in public in London on 20, 21 August 2007 and 5,6 January 2009

The Appellant in person

Sarabjit Singh of Counsel instructed by the Solicitor for Her Majesty’s Revenue and Excise for the Respondents.

 CROWN COPYRIGHT 2009

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50 / DECISION
The appeals
1. There are two appeals by the Appellant Dermot McGuinness against the upholding on review of two decisions by the Commissioners. The first was dated 22 September 2006 in which the Commissioners notified the Appellant that they would uphold a decision not to restore a quantity of items seized on 11 January 2005. The Respondents maintained these items consisting of some 20,000 litres of rebated red diesel fuel, various containers, equipment and a trailer had been involved in a fuel laundering operation.
2. The second decision is contained in a letter dated 12 May 2006 when the Respondents informed Mr McGuinness that they would uphold a decision not to restore an oil tanker, registration number K375 CRD (tanker K375 CRD) which was also seized on 11 January 2005 because the Appellant had not proved to their satisfaction that he was the owner of the oil tanker. In addition, the Commissioners also asserted it had been involved in fuel laundering.
The legislation
3. Regulation 14 of the Hydrocarbon Oil (Marking) Regulations 2002 provides that :
“Prohibitions relating to prescribed markers
(1) No oil may be marked except in circumstances prescribed by these
Regulations.
(2) No marker may be removed from any oil.
(3) No substances calculated to impede the identification of any marker may
be added to any oil.”
4. Section 24(4) of the Hydrocarbon Oil Duties Act 1979 states that :
“Where any person contravenes or fails to comply with any regulation made
under this section his contravention or failure to comply shall attract a penalty
under section 9 of the Finance Act 1994 (civil penalties), and any goods in
respect of which any person contravenes or fails to comply with any such
regulation shall be liable to forfeiture.”
5. Section 139(1) of the Customs and Excise Management Act 1979 (“CEMA”) states that :
“Any thing liable to forfeiture under the customs and excise Acts may be
seized or detained by any officer or constable or any member of Her Majesty’s
armed forces or coastguard.”
6. Section 141(1) of CEMA provides that “where any thing has become liable to forfeiture under the customs and excise Acts” –
“ (a) any ship, aircraft, vehicle, animal, container (including any article of
passengers’ baggage) or other thing whatsoever which has been used for the
carriage, handling, deposit or concealment of the thing so liable to forfeiture,
either at a time when it was so liable or for the purposes of the commission of
the offence for which it later became so liable; and
(b) any other thing mixed, packed or found with the things so liable,
shall also be liable to forfeiture.”
7. Section 152 of CEMA establishes that :
“The Commissioners may, as they see fit –
…(b) restore, subject to such conditions (if any) as they think proper, any thing
forfeited or seized under those Acts.”
8. Section 15(1) of the Finance Act 1994 (the 1994 Act) provides that :
“Where the Commissioners are required in accordance with this Chapter to
review any decision, it shall be their duty to do so and they may, on that
review, either –
(a) confirm the decision: or
(b) withdraw or vary the decision and take such further steps (if any) in
consequence of the withdrawal or variation as they may consider
appropriate.”
9. The jurisdiction of the Tribunal is pursuant to the 1994 Act, section 16(1), 16(4) and Schedule 5. This matter falls to be an ancillary matter as defined in Schedule 5 to the Act and the Tribunal, if it finds that the Respondents have acted unreasonably in not restoring the thing seized, can make an order under section 16(4) :
“ …
(a) to direct that the decision, so far as it remains in force, is to cease to have
effect from such a time as the tribunal may direct;
(b) to require the Commissioners to conduct, in accordance with the directions
of the tribunal, a further review of the original decision, and
(c) in the case of a decision which has already been acted on or taken effect
and cannot be remedied by a further review, to declare the decision to have
been unreasonable and to give direction to the Commissioners as to the
steps to be taken for securing that repetitions of the unreasonableness do
not occur when comparable circumstances arise in future.”
The evidence
10. The Commissioners represented by Sarabjit Singh of Counsel (Mr Singh) produced a bundle of 184 documents and oral evidence was given on their behalf by the following officers of Her Majesty’s Revenue and Customs (HMRC).
Raymond Brenton (Officer Brenton)
Andrew John Gray (Officer Gray)
David Harris (Officer Harris)
Kirsty Herbert née Morrison (Officer Morrison)
and
Andrew John Snook (Officer Snook)
In addition, there were two written statements from two other HMRC officers, Roy Baron (Officer Baron) and David Peter Hill which were produced at the hearing and not objected to previously by the Appellant.
11. The Appellant was not represented and also gave evidence before us.
The facts
12. From the evidence, we find the following facts have been established.
Background
13. The Appellant who owned and had resided from time to time over eleven years at 19 Saladin Road, Purfleet, Essex, was formerly a shuttering carpenter but after breaking his leg in or about 2002 decided to become a Heavy Good Vehicle (HGV) Driver in the fuel distribution business. He had previously dealt as a side line in used and damaged cars. He obtained a large Goods Vehicle Driving Theory test certificate on 8 December 2003. He had, since 2002, the use of part of a yard complex known as B & P Scrapyard, New Road, Wennington, Essex owned by the Varley family. He told the tribunal the area allocated to him initially at a rent of £85 to £90 per week was at the rear and access was obtained through grey steel gates. There was an exit at the rear. The scrapyard had multiple users in various occupations mainly in the used car vehicle industry. It was a working environment and there were dilapidated buildings, various pieces of machinery and many vehicles ranging from cars to tankers and trailers. The ground underfoot was muddy and the site generally run down.
14. Mr McGuinnes told the tribunal that a Mr Colin Kinsella (Mr Kinsella) also used his part of the yard. He was apparently in the fuel distribution business and the Appellant worked for him after obtaining his HGV License in or about 2003. Mr McGuinnes said at the tribunal when giving evidence that at some time in the first four months of 2004, he fell out with Mr Kinsella who left the area and returned to Ireland. He stated that he had never been in contact with him since then. He left behind several large storage tanks in the yard area of which apparently Mr McGuiness was the tenant although there was an indication in the bundle of documents produced at the hearing that a Seamus O’Neill and a F.Olivieria were the direct tenants of this area of the yard from the three Varley family partners. Two of these tanks were full containing together approximately 20,000 litres of rebated red diesel. There were another two 20,000 litres capacity 1S0 tanks at the rear of the yard occupied by Mr McGuiness and one of these had also contained rebated red diesel but he informed the tribunal that in or about April 2004 an unauthorised person or persons had opened the valve at the side of one of the tanks and red diesel spilled out into a marsh area to the side of the yard thereby creating a hazard and environmental calamity. He had hired a mini excavator in May 2004 to remove as much of the area which had become contaminated as he could. The Varley family partners as owners also insisted on an expert cleansing firm to complete the mopping up exercise. Mr McGuiness estimated that it cost him some £10,000. The other ISO tank was full of 20,000 litres of red diesel.
15. Because of what had occurred, the Appellant decided that as he was owed monies by Mr Kinsella, he would take over the various tanks and other items belonging to Mr Kinsella in the yard including the tanks containing about 40,000 litres of red diesel in total.
16. He maintained that his intention was to trade in rebated red diesel as well as normal diesel. He instructed his accountants, Deigham Perkins of 87 Warstead Park Road, Ilford, Essex to form a new limited private company known as M.O.R. Oils Limited. This occurred on 10 December 2004. They also made an application for the new company to be registered for VAT on 10 January 2005. At the hearing Mr McGuinnes told the tribunal he was still trading with this company successfully.
Rebated fuel and laundering processes
17. Rebated gas oil for non-road use is subject to excise duty at a much lower rate than DERV (diesel engine road vehicle fuel). To mark gas oil (a fuel technically indistinguishable from DERV) as rebated fuel a chemical marker known as quinizarin and a euromarker are added. Quinizarin does not occur naturally in gas oil. A red marker is also added to rebated oil to change its appearance, hence the description ‘red diesel’. Once the red dye is removed from red diesel by a chemical laundering process, visually the fuel becomes indistinguishable from DERV.
18. Excise duty on rebated kerosene is levied at a nil rate (fully rebated). The chemical marker added to kerosene to mark it as rebated fuel is coumarin. This does not occur naturally in kerosene.
19. There are two principal methods used for the illegal laundering of red diesel and related kerosene to enable these oils to be used in lieu of DERV and ordinary kerosene for excessive profit making.
20. First, is the method of gravity filtration. It is a relatively simple process. Red diesel in one tank is emptied through substances such as Fuller’s earth and loft insulation material into another tank. A pump can be used to speed up the process.
21. Secondly, hydrochloride acid is mixed with red diesel in order to strip out the red colour. The mixture is left for up to twelve hours to enable the acid to settle at the bottom of a container. With the red dye it forms a sludge. The rebated diesel is then pumped out first and an alkaline added to remove any remaining acid. The sludge is left behind.
22. It is more difficult to remove the markers as well. Therefore, sometimes these remain in the laundered fuel. This is then either transferred to an Intermediate Bulk Container (IBC) or direct into a tanker for transportation. An IBC would usually contain up to 1,000 litres of fuel.
23. The chemical marker added to kerosene to mark it as rebated fuel is coumarin. This does not occur naturally in kerosene. Sulphuric Acid is generally used for stripping out the yellow colour from rebated kerosene.
24. In order to detect unlawful laundering in these circumstances. HMRC has created a number of Road Fuel Testing Units (RFTU) which operate vans with facilities to test immediately whether laundering of fuel has taken place. Samples are then forwarded to Her Majesty’s Government Chemist for analysis.
The events of 11, 12 and 13 January 2005
25. On Tuesday, 11 January 2005 four officers from the Maidstone RFTU were on duty in the Rainham, Essex area. Officers Turner and Morrison were in the RFTU van with the testing equipment and Officers Baron, Chris Evans and Gray were travelling in a RFTU Range Rover. Officer Evans was in charge of the team but had to report to Officer Snook (who was attached to HMRC’s London Intelligence oils criminality) when a fuel laundering plant was expected and/or discovered. They went into several fuel and other outlets investigating possible laundering activities and then at 11.40 a.m. entered the B & P Scrapyard in New Road, Wennington, Rainham, Essex.
26. The RFTU team were also accompanied by a Police Officer, Neil Nightingale, and identified themselves to one of the owners, David Varley. He was told they wanted to dip and test all his diesel vehicles and he granted them permission. All his vehicles were tested and no fuel offences detected. At the back of Mr Varley’s yard beyond large gray metal gates could be seen various large fuel tanks, vehicles and IBCs. Officer Gray asked Mr Varley who occupied this area of the yard and was told that it was rented to various tenants with whom he had little dealings. At 11.50 a.m. the team entered the rear part of the yard through the grey gates which were open.
27. This part of the yard contained a number of vehicles in various conditions, some roadworthy and others damaged or scrap. Also, there were large fuel tanks, at least one portakabin, tanker vehicles, heavy duty pipes, a generator, a compressor, a curtain sided container and IBCs of various sizes and other containers holding liquids of various colours. As there was a distinct possibility that fuel laundering had taken place in this part of the yard, it was decided to draw fuel samples and test them for illicit fuel using the testing equipment on the RFTU van. The yard was very muddy and had puddles with an appearance of fuel on the surface.
28. Before this occurred, on the right hand side of the area was a portakabin and inside was a man who when questioned said that the area where the tankers were situated was rented by a man called Seamus who had left the site about half an hour before the RFTU team had arrived. Otherwise he was unhelpful.
29. Since there was no one else available in authority at that time, the RFTU team began to inspect, draw fuel samples and test the various tanks, tanker and containers and equipment in the location. They carried out these activities over a period of some 4 hours on 11 January.
30. Then at about 16.00 hours, the Appellant arrived in the yard. He said he was the tenant of that part of the yard on the left hand side from the grey gates. After a lengthy discussion with Officer Evans about his business and purpose on site, and after he said that the tanker K375 CRD belonged to him, a second test was run by Officer Morrison. She took a sample of fuel from the vehicle’s running tank as it had not been possible to draw any fuel from the main tank. She ran the tests in the Appellant’s presence and Officer Grey. The fuel tested positive to euromarker and was 100% quinizarine. Mr McGuinness agreed the results of the tests and the sample was divided into three tins and labelled under test note number 144992. One tin was passed to the Appellant.
31. Mr McGuinness then opened the door of the portakabin and allowed the Officers to enter. He was arrested by Police Officer Nightingale using his powers under section 24(2) of the Police and Criminal Evidence Act 1984 (the 1984 Act) on suspicion of the evasion of excise duty. The team then sealed the portakabin under section 18 of the 1984 Act. Various documents, ledgers, books, files and a Dell computer and other items were seized and removed. Mr McGuinness was bailed at Romford Police Station to return at a later date for interview.
32. Mr McGuinness returned to the site the following day and was also present on 13 January when the HMRC appointed contractors removed the remaining fuel and other seized items.
33. The following steps were taken by the various team members over the three days at the site.
* Immediately to the left of the grey gates was a large green coloured tank
which was found to be full of red rebated diesel. It was discovered, the next
day when the diesel was removed by the contractors employed by HMRC,
that the green tank and a nearby blue tank contained approximately 20,000
litres of rebated red fuel.
* During 11 January 2005 Officer Morrison received a fuel sample from
Officer Baron taken from a silver Vauxhall Omega vehicle, registration
N841 EBP which was in for repair in the yard. Officer Morrison tested the
fuel which was positive to Euromarker and was 80% quinizarine. The
vehicle was in the yard behind the grey gates.
* A fuel sample was also taken from a VX Passat vehicle, registration number
V205 CBD. It tested positive to euromarker and was 80% quinizarine. The
owner of the VW vehicle was a man named Colin Carle, It was also in
the yard behind the grey gates.
* Officer Turner passed to Officer Morrison what seemed like brown sludge
drawn from a tanker trailer having the registration number A174 POO. This
tanker trailer had ‘Dussek Campbell’ written on the rear panel and was
situated towards the rear of the yard. The liquid was too thick to show any