Greenalls Management Limited v Her Majesty's Commissioners of Customs and Excise

The House of Lords held that, for goods subject to excise duty suspension arrangements, regulation 4(2)(a) of the Excise Goods (Holding, Movement, Warehousing and REDS) Regulations 1992 covers situations in which goods are unlawfully diverted and thereby "made available for consumption". That interpretation gives effect to Article 6(1) of Council Directive 92/12/EEC, which fixes the excise duty point on irregular departures from suspension arrangements. Because regulation 5(4) prescribes that where the excise duty point arises under regulation 4(2)(a) the authorised warehouse keeper is the person liable, the authorised warehouse keeper (Greenalls) was liable for the duty. The court rejected alternative constructions which would imply limiting words into regulation 4(2)(a) or seek to rely primarily on CEMA sections 94 and 95 to determine the excise duty point.

Background and facts:

Greenalls Management Limited, an authorised excise warehouse keeper, delivered approximately 250,000 bottles of vodka from its warehouse on the basis of documentation asserting export. No excise duty was paid because the goods were moved in duty suspension for export under regulation 9. The documentation was fraudulent, the vodka was diverted and sold illicitly in the consumer market. The Commissioners assessed excise duty on Greenalls and the dispute proceeded through the courts.

Procedural posture:

• The case was considered at first instance by Jacob J, who read limiting words into regulation 4(2)(a) and remitted factual matters to the tribunal. Both parties appealed to the Court of Appeal. The Court of Appeal (reported at [2003] EWCA Civ 896) dismissed the Commissioners' appeal and allowed Greenalls' appeal. The Commissioners appealed to the House of Lords.

Nature of the claim and relief sought:

The Commissioners sought to recover excise duty assessed on the goods diverted from suspension; Greenalls contested liability on the construction of the domestic regulations.

Issues framed:

• Whether, for an unlawful diversion from suspension, the excise duty point under regulation 4(2) occurs under paragraph (a) as "made available for consumption" or otherwise;
• Whether, if paragraph (a) applies, regulation 5(4) validly and intra vires makes the authorised warehouse keeper liable at that point;
• Whether the domestic code (regulations 4 and 5) should be construed so as to give effect to Article 6(1) of Directive 92/12/EEC, or whether sections 94 and 95 of the Customs and Excise Management Act 1979 should be relied upon instead.

Court's reasoning:

• The House of Lords concluded that regulation 4(2)(a) plainly includes goods "otherwise made available for consumption" while any suspension arrangements apply, and that this ordinary meaning is consistent with and required by the obligation to interpret domestic law to give effect to Article 6(1) of the Directive (which fixes the excise duty point on irregular departures).
• Once regulation 4(2)(a) applies, regulation 5(4) straightforwardly prescribes the authorised warehouse keeper as the person liable; there was no ambiguity in regulation 5(4) and no permissible construction to avoid that consequence. Arguments that a bond or other security would negate liability were rejected as supporting liability rather than negativing it.
• Sections 94 and 95 CEMA were not an appropriate primary means of implementing Article 6(1) because the regulations were intended to form a complete code fixing the excise duty point; the 1992 Act and the regulations enacted under it were designed to implement the Directive.
• The House of Lords therefore allowed the appeal by the Commissioners and determined that Greenalls were liable to pay the excise duty.

Concurring and separate observations: Several Law Lords (notably Lord Walker) expressed respect for principles that taxation should be imposed by clear words and recorded reservations about the obscurity of the regulations, but joined the result.

Appeal allowed. The House of Lords held that regulation 4(2)(a) covers goods unlawfully diverted and thereby "made available for consumption" while suspension arrangements apply; accordingly, regulation 5(4) makes the authorised warehouse keeper liable at that excise duty point. The domestic regulations were interpreted so as to give effect to Article 6(1) of Directive 92/12/EEC and to fix the excise duty point at the time of irregular departure.

First instance: decision and remittal by Jacob J (details and tribunal remittal referred to in the judgment). Court of Appeal: Greenalls' appeal allowed and Commissioners' appeal dismissed, reported at [2003] EWCA Civ 896. Appeal to House of Lords: allowed by majority ([2005] UKHL 34).