Hammonds of Knutsford Plc, R (on the application of) v HM Revenue and Customs

For excise-duty drawback, a Member State may require compliance with an inspection condition and may refuse reimbursement when it is not met. Under the 2008 Directive, the absence of the earlier wording about “correctness criteria” did not remove that power: reimbursement remained governed by the procedure laid down by the Member State. An inspection window may be a lawful anti-fraud safeguard even if it is described as formal or procedural. It is proportionate where it addresses a plausible risk of fraud, enables inspection of the specific goods, and does not systematically undermine the right to reimbursement. Where non-compliance prevents conclusive evidence that the claim is valid, paperwork may be insufficient. A discretion to excuse breaches does not make the condition disproportionate.

Hammonds, an alcohol wholesaler, challenged HMRC’s refusal of drawback claims concerning beer exported to another EU Member State. The goods left storage before the expiry of the two-clear-business-day inspection period required by regulation 8(2)(d) of the Excise Goods (Drawback) Regulations 1995.

Permission for judicial review was granted in 2015 and the matter was transferred to the Upper Tribunal under section 31A of the Senior Courts Act 1981. The Upper Tribunal dismissed the application in [2016] UKUT 195 (TCC). Hammonds appealed, arguing that the 2008 Directive removed any power to refuse reimbursement for breach of an additional condition and that proportionality and fiscal neutrality required reimbursement once the substantive conditions were met.

The appeal was dismissed.

1. Directive interpretation. Article 9 of the 2008 Directive, providing for excise duty to be reimbursed according to the procedure laid down by each Member State, permitted refusal where an imposed procedure or condition was not complied with. The omission of the 1992 Directive’s express references to “correctness criteria” and monitoring procedures reflected a different legislative structure and did not remove the existing power to refuse reimbursement.
2. Inspection facility rule. The rule was designed to reduce fraud in a field where fraud was a recognised risk. It enabled HMRC to verify that the specific goods existed, matched the declaration and were duty-paid. The rule was therefore properly treated as a correctness condition. Its breach could justify refusal where it prevented conclusive evidence that the substantive requirements for drawback had been met. The label attached to the rule was unimportant.
3. EU principles. The VAT authorities relied on by Hammonds were not directly determinative because the present case concerned excise duty and different legislative schemes. Their general principles remained relevant, but the inspection condition was proportionate. It had a rational connection with fraud prevention, paperwork was not an adequate substitute for inspecting the particular goods, and the rule did not systematically undermine or render ineffective the right to drawback. Fiscal neutrality was not infringed because a claim failing basic conditions establishing entitlement had not been made out.
4. Application. Regulation 7(1)(a) gave HMRC a discretion to excuse non-compliance. Hammonds’ repeated recent breaches justified the refusal of the claims. HMRC were not required to determine separately whether duty had been paid, since non-compliance with the inspection rule was itself sufficient. The issue was sufficiently clear to make a reference to the CJEU unnecessary.

Lady Justice Arden agreed. She emphasised that a fixed inspection window could remain proportionate even though HMRC would not inspect every consignment, because the right to inspect and mark goods had to remain available for risk-based enforcement.

1. Court of Appeal (Civil Division) — The appeal from the Upper Tribunal was dismissed.
2. Upper Tribunal (Tax and Chancery Chamber) — The judicial review application was dismissed in [2016] UKUT 195 (TCC) after transfer under section 31A of the Senior Courts Act 1981.