Demand & Supply Cash & Carry Ltd & Anor v HM Revenue and Customs

For the purposes of Customs and Excise Management Act 1979, read with the Finance Act 2008, a computer or hard drive containing business information may constitute a document capable of production and removal. Removal is lawful where reasonably necessary to preserve the integrity of information and to conduct an efficient examination, provided that a fair balance is struck with the trader’s property rights.

Goods may be detained under section 139 to determine whether excise duty is chargeable and has been paid. Where detention is more than transitory, HMRC should have some cause for suspecting a real possibility that duty is payable and unpaid. The duration of detention must remain reasonable and proportionate, assessed against the scale and complexity of the investigation.

The claimants, two closely connected alcohol wholesalers, sought judicial review of HMRC’s removal and detention of computers, personal papers and substantial quantities of alcoholic drinks from their business premises.

The challenge concerned the scope of HMRC’s powers under section 118B of the Customs and Excise Management Act 1979, the meaning of “document”, the need for a demand for production, proportionality, and the statutory power to detain excise goods under section 139. The claimants also challenged the duration of the detention and the removal of papers later found to be personal.

1. Computers and documents. Section 114(2) of the Finance Act 2008 expanded “document” in section 118B of the Customs and Excise Management Act 1979 to include anything recording information, including a computer hard drive. The officers had communicated the purpose and legal basis of the visit and required production of relevant business documents. The requirement for a formal demand was therefore satisfied in substance.
2. Removal and proportionality. Removal of the computers was reasonably necessary. Leaving them on the premises risked alteration or deletion of data, and imaging the numerous hard drives on site would have taken many days and seriously disrupted the businesses. The removal struck a fair balance between the claimants’ property rights and the public interest. Although a protocol allowing individual computers to be returned sooner might be desirable, detention for seven days was not unreasonable.
3. Personal papers. HMRC acted proportionately in examining papers kept on business premises where there was good reason to believe that they might contain relevant business information, returning them promptly once their personal character had been established.
4. Detention of alcohol. Section 139 empowered HMRC to detain goods while determining whether they were subject to excise duty and whether duty had been paid. The formulation advanced by the claimants was too demanding. In a case involving detention likely to exceed a transitory spot check, proportionality required some cause for suspecting a real possibility that the goods were dutiable and that duty had not been paid. The circumstances, including purchases from suspected tainted sources, inadequate stock records and the scale of the stock, justified detention.
5. Duration of detention. HMRC had acted with reasonable dispatch. The absence of reliable stock systems and invoices created a substantial reconstruction and tracing exercise. The detention period was consequently reasonable and lawful. The claim for judicial review was dismissed.