Gavin McFarlane reports on the Appeal Court judgment and asks: ‘Is it the last word?’ Gavin McFarlane, FTII, is a barrister in Temple Chambers, Cardiff. He writes widely on international trade, excise and customs matters.
This article appeared in the February 2003 issue of Tax Adviser.
Early in December the Court of Appeal handed down its decision in the appeal by Customs & Excise against parts of the decision which had been given by the Divisional Court in the summer. That decision was commented on in Tax Adviser, December 2002.
The issues arose over disputes about the powers of Customs in relation to citizens of the United Kingdom (UK) returning to this country from cross-border shopping expeditions to mainland Europe, and their entitlement to bring in alcohol and tobacco products without paying further excise duty in Britain. The issues arose because of the removal of frontiers and restrictions on the movement of goods when the European single market had been introduced at the start of 1993.
Contrary to comments made by the customs authorities, only a limited portion of the decision of the Divisional Court has been displaced by the Court of Appeal. Indeed the appeal by Customs was against only a limited part of the earlier decision. In particular, no challenge was made by Customs to two crucial decisions by the Divisional Court. The lower court had decided that the Excise Duty (Personal Reliefs) Order (SI 1992/3155), which had been introduced in the UK for the introduction of the single market, was incompatible with Council Directive 92/12EEC (‘the excise directive’),and with art. 28 of the EC treaty in two respects:
- because it made excise goods imported from another member state in which excise duty had been paid additionally chargeable to excise duty in the UK without it being established that the goods were imported into Britain for commercial purposes; and
- because the personal reliefs legislation placed a persuasive burden of proof on the individual to demonstrate that where such goods were held in quantities in excess of the minimum indicative levels laid down by the UK, they were not held for a commercial purpose.
Customs did not appeal against either of these findings and these two points are now settled law.
Customs did appeal against the Divisional Court’s decision to quash the Customs’ decisions on the day in question:
- to carry out checks on three passengers returning on the Hoverspeed ferry by stopping them and searching the goods they had with them, and the car they were travelling in;
- to seize the goods which those travellers had bought in France; and
- (iii) to seize the car.
The Court of Appeal examined the principles of the modern common market. In particular it considered the statement in art. 2 and 14 of the Principles set out in Part One of the EC Treaty. By that, the Community:
‘… shall adopt measures with the aim of progressively establishing the internal market over a period expiring on 31 December 1992 … ’ which ‘ … shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of this Treaty’.
The Court of Appeal said that enshrined an objective; it did not itself have a direct effect in creating an internal market and also referred to the provisions about free movement of persons in art.18 of Part Two of the EEC Treaty:
‘Every citizen of the Union … shall have the right to move and reside freely within the territory of the member states, subject to the limitations and conditions laid down in this treaty and the measures adopted to give effect to it.’
Article 46 of the Treaty contemplated specifically that member states may nevertheless take special measures for foreign nationals on the grounds of public policy, public health or public security. The case of Gough [2002] EWCA Civ. 351 demonstrated that art. 46 did not exclude the taking of measures on similar grounds with regard to a member state’s own nationals. That decision upheld the prevention of UK citizens travelling abroad to attend football matches.
In construing the excise directive, the Court of Appeal observed that in its view, while the crossing of an internal frontier was in principle no longer a chargeable event, the terms of the directive meant that chargeability in a particular member state can depend on the purpose for which and transport by which goods are moved between member states. Although not expressly provided for by the directive, the Court of Appeal concluded that some form of checking must be permissible if states are to operate the directive according to its scheme, ‘and their own legitimate interests in recovering excise duty according to its terms.’
Customs had submitted to the Court of Appeal that the fact that at least one of the individuals stopped at Dover – where the department had not given or recorded any reasons for stopping the travellers – had been found to be carrying excise goods in excess of the UK’s minimum indicative limits gave rise to the inference that Customs had reasonable grounds for seizure. The Court of Appeal did not agree, and that part of the appeal by Customs failed. But the department had also appealed on the basis that they were entitled to make use of trends and profiles in stopping travellers. The Court of Appeal agreed that Community law would sanction the use of spot checks at or near frontiers in appropriate cases. The existence of reasonable grounds for suspicion must be a fact for consideration in the light of the particular facts of a particular case. It would be self evidently objectionable if Customs set about targeting individual travellers on the basis of their colour, age, hairstyle or dress, or because of preconceived and irrationally based assumptions about particular social groups. Any question whether Customs had undertaken checking at Dover which amounted to a general interference with freedom of movement was fact specific. So was any question in the particular cases before the court of whether Customs exercise of its powers had been unjustified or disproportionate under Community law. Such questions could not be decided on this appeal. But the seizures which had been made by Customs could not be regarded as automatically invalid merely because they had taken place as a result of a check which had been invalid. And in the view of the Court of Appeal, the Divisional Court had been wrong to conclude that, if the check carried out by Customs had been invalid, then so was the ensuing seizure. The decisions by the Divisional Court to quash the decisions by Customs to seize the travellers’ goods and vehicle could not be upheld on the basis that they were disproportionate interferences with persons and property. The appropriate course was for anyone aggrieved to proceed with the remedies laid down by statute for such cases. The appeal by Customs on this basis was therefore allowed. But this was without prejudice to the rights which the individuals concerned might have under Community law or the Convention on Human Rights.
Where now?
The judgment of the Court of Appeal constitutes an extremely interesting survey of many points of the laws of excise and customs which have never before been considered in a court of the UK at this level. A detailed analysis of both domestic statutes and the appropriate Community legislation has been undertaken which will be invaluable to practitioners working in the field of indirect taxation. But on a number of key points, there remains a sense that what has been decided has been grounded on inferences which are not necessarily supported fully by the key Community legislative provisions. This is particularly true in the case of the concept of the European single market, and the basis of the right to carry out spot checks in instances of excise goods brought back by returning cross-border shoppers.
Certainly the decision will have taken a good deal of the heat out of a situation which was beginning to get out of hand, bringing the administration of justice into contempt. The over reaction of Customs to the ‘new get tough policy’ introduced by treasury ministers for excise goods in 2000 has now been shown by the courts to have been fatally flawed, as was that policy itself.
Media attention at the ports concentrating on actions by customs officers – which have now been shown to be illegal – was making a mockery of the machinery of law enforcement. It is true that if customs officers had no right to stop individuals, then anyone stopped appeared to be the object of illegality by those officers, and this situation has to some extent been patched up Test will come if and when the treasury and Customs decide to test the strength of the new position. Hoverspeed has indicated that it will not appeal further on the limited issue on which it lost on the Court of Appeal. But the matter may not be at an end.
The European Commission asked the UK Government last year how it was administering the excise provisions of the single market in its domestic legislation, and the reply by Westminster is still being considered. Early in January Frits Bolkestein, European commissioner for the internal market, expressed concern about the widespread failure of member states to apply fully the concepts of the single market. He has promised to pay more attention to enforcement of these issues, and may well press forward against remaining practices by Customs which he feels do not fully comply with single market principles.
Technical Department
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February 2003 by
