Redmond, R. v

In confiscation proceedings arising from tobacco smuggling, a person who neither held the goods at the excise-duty point nor caused them to reach it was not personally liable for excise duty. That does not preclude liability for import VAT. Where the prosecution proves on the balance of probabilities that duty was unpaid within the EU, VAT evaded in connection with the offence is a benefit under the Proceeds of Crime Act 2002.

The import-VAT base includes excise duty legally due at importation, even if the smuggling prevented its actual collection. A valuation of the goods must rest on evidence rather than speculation. Excise duty on cigarettes is calculated by the statutory retail-price formula, not by the goods’ purchase or base value.

The appellant pleaded guilty at Preston Crown Court to being knowingly concerned in the fraudulent evasion of duty in relation to a consignment of cigarettes found at his warehouse. In confiscation proceedings, the Crown Court found a benefit of £365,075.35 and made an order for £131,089.10, representing his realisable assets.

After granting an extension of time and leave to appeal, the Court of Appeal considered whether the appellant was liable for excise duty and VAT, how the cigarettes should be valued for VAT, and whether import VAT was payable on excise duty that had been evaded by smuggling.

1. Appeal allowed. The court quashed the original finding of benefit and confiscation order. It substituted a finding of benefit of £54,140.76 and made a confiscation order in that amount.
2. Following R v Bell and others [2011] EWCA Crim 6, the appellant was not liable for excise duty. He had not held the cigarettes at the excise-duty point and had not caused them to reach it. The excise-duty element of the original order therefore had to be removed.
3. The prosecution had nevertheless proved, on the balance of probabilities, that duty had not been paid on the cigarettes within the EU. The evidence concerning their export history, their apparent re-entry without records, and the counterfeit goods supported that inference. The appellant was consequently liable for import VAT, and evading it was a benefit under section 76(5) of the Proceeds of Crime Act 2002.
4. The Crown had not proved a reliable market value based on retail prices less duty. Retail price contained costs and profit unrelated to the goods’ value, and the proposed intermediate valuation was speculative. The only safe valuation on the evidence was the ex-factory price of 5p per packet, producing VAT on the goods’ value of £939.49.
5. The word levied in section 21(2) of the Value Added Tax Act 1994 meant duties due. That purposive construction accorded with Article 11B(3) of the Sixth VAT Directive and avoided preferential VAT treatment for smugglers. Excise duty was therefore levied in law when the goods were imported, notwithstanding its non-payment. Under section 1(4), the appellant remained liable for VAT on that duty.
6. The statutory excise-duty calculation depended on the recommended retail price under section 2 and Schedule 1 to the Tobacco Products Duty Act 1979, not the cigarettes’ base value. Consistently with Varsani [2010] EWCA Crim 1938, counterfeit cigarettes did not attract a lower rate. VAT on the chargeable excise duty was £53,201.27. The appellant was allowed six months to pay; default would result in 18 months’ imprisonment.

• Court of Appeal (Criminal Division): In [2011] EWCA Crim 203, the appeal was allowed. The confiscation order was quashed and replaced with an order for £54,140.76.
• Crown Court at Preston: On 4 June 2008, His Honour Judge Slinger found benefit of £365,075.35 and made a confiscation order for £131,089.10.
• Crown Court at Preston: On 27 February 2006, the appellant pleaded guilty and was sentenced to 21 months’ imprisonment.