Appeal Number:LON/2008/8133

[2010] UKFTT 201

TC00503

Appeal number:LON/2008/8133

EXCISE DUTY –section 55(2) and 62(2) Alcoholic Liquors Duties Act 1979 and Cider and Perry Regulations 1989 and Wine and Made Wine Regulations 1989 – whether a discontinuance within regulation 13(a) of each set of Regulations on a sale of a business holding stock of cider and made-wine as a going concern – held yes – whether liability to duty on the discontinuance arises in each case on the company whose business was discontinued – held yes – Appeal dismissed

FIRST-TIER TRIBUNAL

TAX

TIMOTHY JAMES BRAMSTON

(LIQUIDATOR OF DCC REALISATIONS LIMITED) Appellant

-and-

ANTHONY MURPHY AND ROBERT HORTON

(FORMER ADMINISTRATORS OF DCC REALISATIONS LIMITED)

Interested Parties

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (Excise Duty) Respondents

TRIBUNAL:JOHN WALTERS QC (TRIBUNAL JUDGE)

CHRISTINA HILL WILLIAMS

Sitting in public at 45 Bedford Square, London WC1 on 11 and 12 January 2010

Mario Angiolini, Counsel (who did not appear on 12 January 2010), instructed by Moon Beever, for the Appellant

Rupert Baldry, Counsel, instructed by Barlow Lyde & Gilbert LLP, for the Interest Parties

Rebecca Haynes, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

DECISION

1.This is an appeal against an assessment made on 12 August 2008 whereby the company DCC Realisations Limited (“DCCR”) now in liquidation (the Appellant, Mr. TJ Bramston, of Kingston Smith & Partners LLP, being the liquidator) was assessed to excise duty in the net amount of £1,625,395.40.

2.DCCR is a company which formerly had the name “The Devon Cider Company Limited”. The change of name was consequential on the sale of certain of the business and assets of the company (then called The Devon Cider Company Limited) to two companies, Hexshelf 7 Limited (“H7”) and Hexshelf 5 Limited (“H5”) under an agreement dated 23 July 2007 (“the Business Sale Agreement”). At the time of the Business Sale Agreement, DCCR (then called The Devon Cider Company Limited) was in administration. The then administrators were Messrs. Murphy and Horton, who are now, as Interested Parties, parties to this appeal.

3.The parties to the Business Sale Agreement were therefore DCCR (then called The Devon Cider Company Limited), Messrs. Murphy and Horton, H7 and H5.

4.Under the Business Sale Agreement, H5 bought the business intellectual property of DCCR (then called The Devon Cider Company Limited), while H7 bought certain other business assets, including the “Stock” and the “Work in Progress”, as defined, to the intent that H7 should from the completion date (5pm on 23 July 2007 – the date of the Business Sale Agreement) carry on the business as a going concern.

5.DCCR (then called The Devon Cider Company Limited) had carried on business (as the name implies) as cider bottlers from premises at Tiverton, Devon. That business included the making, bottling and selling of cider. The company wasboth registered under the Cider and Perry Regulations 1989 (“the CPRs”) and licensed the Wine and Made-Wine Regulations 1989 (“the WMWRs”).

6.The “Stock” was defined in the Business Sale Agreement to mean the stock in trade (other than any items of stock which had been invoiced but not delivered to customers and stock then in the possession of the company but in relation to which the supplier(s) had reserved title) used by the company in connection with its business and situated at its premises on the completion date. The “Work in Progress” was defined in the Business Sale Agreement to mean the benefit and the burden of contracts already entered into with customers which remained in whole or in part to be performed by the company on the completion date, and all partly completed goods or services allocated by the company to those contracts.

7.H7 changed its name to “The Devon Cider Company Limited” consequential on its acquisition of the business under the Business Sale Agreement. To avoid unnecessary confusion, H7 will be referred to as such, throughout this Decision.

8.It is accepted by all parties (and we find) that on 23 July 2007 (the completion date of the Business Sale Agreement) DCCR (then called The Devon Cider Company Limited) permanently ceased trading and that under the Business Sale Agreement on that cessation of trading that company sold to H7 a quantity of cider and concentrated apple juice (“bulk fluid”). The bulk fluid was of an alcoholic strength greater than 8.5% abv. It had been made by another cider maker, Gaymer Cider Company, and transferred to DCCR (then called The Devon Cider Company) without triggering a duty point (see below, under regulation 12 of the WMWRs) because the transfer was to another winery or other cider premises for use as an ingredient in making cider.

9.The significance of the relative strengths of the liquors is that under the Alcoholic Liquors Duties Act 1979 (“ALDA”), “cider” is for relevant purposes defined to mean cider or perry of a strength exceeding 1.2% abv, but less than 8.5% abv and “made-wine” is for relevant purposes defined to mean any liquor which is of a strength exceeding 1.2% abv but not including cider (as defined). Applying these definitions, the cider sold to H7 under the Business Sale Agreement was “cider” within the ALDA definition and the bulk fluid so sold was “made-wine” within the ALDA definition. (See:ALDA sections 1(5) and 1(6))

10.As contemplated by the Business Sale Agreement, H7 succeeded to the trade formerly carried on by DCCR (when it was called The Devon Cider Company Limited) and it became (on 10 August 2007, after a brief hiatus) the registered maker of cider in respect of the premises at Tiverton.H7 was granted a licence under the WMWRs on 12 September 2007. DCCR’s registration was apparently cancelled on 4 September 2007.

11.On 9 August 2007 the administrators of DCCR submitted a duty return in respect of July 2007 – this was a monthly return covering all the duty points in July 2007. HMRC later concluded that duty was under-declared by that return in relation to the stock of cider and bulk fluid sold to H7 (with which this appeal is concerned) and also in relation to other stock (with which this appeal is not concerned). This led to the assessment and the appeal.

12.The issue to be decided in this appeal by the Tribunal is whether, as HMRC contends, a duty point in relation to the cider and bulk fluid sold to H7 arose on 23 July 2007 (the completion date of the Business Sale Agreement) when DCCR (then called The Devon Cider Company Limited) permanently ceased trading and sold the cider and bulk fluid to H7, or whether, as the Interested Parties contend, the sale did not give rise to a duty point. The Interested Parties argue that the product became dutiable when it was sold on, as cider, in the normal course of H7’s trade. The Appellant adopts what Mr. Angiolini describes as “a broadly neutral stance” – to the extent that the Appellant’s stance was not neutral, it was supportive of HMRC’s submissions.

13.It is relevant to note that the relevant rates of duty work out at 26.5 pence per litre if the dutiable liquor is cider, and £1.78 per litre, if the dutiable liquor is made-wine. Bulk fluid is, in the normal course of the trade, diluted and then sold as cider.

14.The following further provisions of the Business Sale Agreement were drawn to our attention by Mr. Baldry on behalf of the Interested Parties:

By clause 3.2, H7 was liable to pay consideration for the assets it acquired amounting to some £3.676m. plus further additional consideration;
By clause 4.4, the parties stated that they believed that assets including the assets acquired by H7 would be treated by HMRC as a transfer of a business or part of a business as a going concern for the purposes of section 49 VAT Act 1994 and article 5, VAT (Special Provisions) Order 1995, and that they would use their reasonable endeavours to procure that the sale was so treated;
By clause 7, H7 was to take over, adopt and accept responsibility for the completion of the contracts referred to in the definition of “Work in Progress” and H7 was to give an indemnity related thereto to both the company (DCCR) and the administrators;
By clause 10.1, H7 acknowledged that it was taking over the employment of the company’s employees;
By clause 11.1, H7 was to use its best endeavours to collect the debts of the company which had accrued prior to the completion date.

15.We also had in evidence a Witness Statement sworn by Brendan Paul John Ricketts, an officer of HMRC. From it, it appeared that HMRC had needed to carry out a certain amount of investigation before it became aware of the relevant facts surrounding the case. In particular, H7 had begun to carry on the business while not yet appropriately registered under the CPRs or licensed under the WMWRs. The facts stated above are our findings relative to our decision.

The main issue

16.Ms. Haynes for HMRC accepted that the circumstances of HMRC’s investigation were essentially background and did not affect the main issue in the appeal, which turns on the proper construction of regulation 13 of the CPRsand the WMWRsrespectively.

17.Regulation 13 of the CPRs is in the following terms:

“13. Where either-

(a)the business of making cider is discontinued at cider premises having cider therein; or

(b)a certificate of registration held under regulation 6 above in respect of premises having cider therein is surrendered or cancelled; or

(c)any cider is found to be deficient or missing from cider premises for any reason (other than the reason that cider was consumed at those premises) and the maker is unable to account for the deficiency to the Commissioners’ satisfaction,

the excise duty point shall be the time of discontinuance or at the time of the surrender or cancellation of the certificate of registration or at the time the deficiency occurred, as the case may be,and the duty shall be paid in accordance with regulation 23(2) below.

Provided that where the time that any deficiency occurred cannot be established to the Commissioners’ satisfaction, the rate of duty shall be taken to be the highest rate in force between the time of the latest stocktaking before the discovery of the deficiency and the time of that discovery[1]”

18.Regulation 13 of the WMWRs is in the following terms:

“13. Where either-

(a)the business of producing wine or made-wine is discontinued at a winery having wine or made-wine therein; or

(b)a licence held under regulation 6 above in respect of a winery having wine or made-wine therein is surrendered or cancelled; or

(c)any wine or made-wine is found to be deficient or missing from a winery for any reason (other than the reason that the wine or made-wine[2] was consumed at those premises) and the producer is unable to account for the deficiency to the Commissioners’ satisfaction,

the excise duty point shall be the time of discontinuance or at the time of the surrender or cancellation of the licence or at the time the deficiency occurred, as the case may be, and the duty shall be paid in accordance with regulation 23(2) below.

19.It can be seen that regulation 13 of the CPRs and regulation 13 of the WMWRs are to very similar effect, with the place of production being “cider premises” in the CPRs and “a winery” in the WMWRs, and a “certificate of registration” of cider premises corresponding to a “licence” of a winery.

20.Excise duty is to be charged and paid on made-wine in accordance with the WMWRs pursuant to sections 55 and 56 ALDA. Excise duty is to be charged and paid on cider in accordance with the CPRs pursuant to section 62, ALDA.

21.Section 55(2) ALDA provides that-

“a person who, on any premises in the United Kingdom, produces made-wine for sale must hold an excise licence under this subsection in respect of those premises for that purpose.”

22.Section 62(2) ALDA provides that-

“a person who, on any premises in the United Kingdom, makes cider for sale must be registered with the Commissioners in respect of those premises.”

23.The other relevant provisions of the CPRs (apart from regulation 13, set out above) are-

In regulation 4, the definition of ‘cider premises’ as:

“the premises, rooms, places and vessels entered by a registered maker for use by him in his trade as a maker and any other premises on which cider is made by a maker for use by him in his trade as a maker”;

In regulation 5, the requirement for application for registration of premises, and the requirement for separate application to be made in respect of each of the premises on which the applicant intends to make cider.

In regulation 7(2) and (3), the following requirements:

“(2) A maker shall notify the Commissioners of his intention to stop making cider at any of his cider premises.

(3) A maker shall notify the Commissioners of the discontinuance of trade in cider at any of his cider premises.”

In regulation 8(1) and (2), the following provisions:

“(1) Where the Commissioners are satisfied that a maker has ceased to trade at his cider premises, or that cider is not being made on premises in respect of which he is registered for that purpose, they may cancel the relevant registration at any time.

(2) Without prejudice to paragraph (1) above the Commissioners may, for reasonable cause, cancel the registration in respect of the premises of any maker, provided that the Commissioners shall give three months’ notice in writing of such cancellation.”

In regulations 9 and 10, the following provisions:

“9 Entries

A maker shall not begin to make cider on any premises in respect of which he is registered until he has made entry of all rooms, places and vessels intended to be used by him thereon for that purpose.

10 Withdrawal of entry

Save as the Commissioners may otherwise allow, a maker shall not withdraw his entry in respect of cider premises while there remains in any place specified therein any cider on which duty has not been paid or remitted on any materials for making cider.”

In regulation 11, the following relevant provisions:

“11 Charge to duty

(1)Subject to regulations 12 and 13 below, cider in cider premises shall be charged with duty at the time it is made and the excise duty point shall be the earlier of the following times-

(i) the time it is consumed at those premises; or

(ii) the time it is sent out from those premises;

Provided that-

(a) where any cider is sent out to other cider premises in accordance with regulation 12(c)(i) below, those other cider premises shall be treated as being the cider premises in which the cider was made and the maker registered in respect of those other cider premises shall be treated accordingly;

…”

In regulation 12, the following relevant provisions:

“12 Removal without payment of duty

Subject to such conditions as the Commissioners may impose, including any condition that security shall be given to their satisfaction, a maker may send cider chargeable with duty out from cider premises without payment of the duty for any of the following purposes-

…

(i) to other cider premises;

(ii) to the premises of a vinegar maker for use in production of vinegar; or

(iii) to premises in respect of which any person is licensed in accordance with section 55(2) of [ALDA] as a producer of made-wine, for use as an ingredient in the production of made-wine on those premises;

…

Provided that if any cider which has been sent out of cider premises under the foregoing provisions of this regulation is applied to some purpose other than one therein mentioned, the time of that occurrence shall be the excise duty point; and the duty shall be paid in accordance with regulation 23(2) … below.”

Regulation 23(2) provides as follows:

“(2) Unless the payment of duty is deferred it must be paid at or before the excise duty point prescribed by regulation 11(1).”

24.As indicated above in relation to regulation 13, the relevant provisionsof the CPRs and the WMWRs are to similar effect. This is the position with respect to all the other provisions of the CPRs set out above, with the exception of regulation 12(c)(iii). This makes it unnecessary to set out the corresponding provisions of the WMWRs, with the exception of regulation 12 – see: the next paragraph. In this Decision we will refer to the CPRs and the expressions used therein and unless the contrary is indicated we mean also to be making references thereby mutatis mutandis to the WMWRs and the corresponding expressions used therein.

25.Regulation 12 of the WMWRs is (so far as relevant) as follows:

“12 Removal without payment of duty

Subject to such conditions as the Commissioners may impose, including any condition that security shall be given to their satisfaction, a producer may send wine or made-wine chargeable with duty out from a winery without payment of the duty for any of the following purposes-

…

(i) to another winery;

(ii) to the premises of a vinegar maker for use in production of vinegar; or

(iii) in the case of made-wine only, to premises in respect of which any person is registered in accordance with section 62(2) of [ALDA] as a maker of cider, for use as an ingredient in the making of cider on those premises;

…

Provided that if any wine or made-wine which has been sent out of a winery under the foregoing provisions of this regulation is applied to some purpose other than one therein mentioned, the time of that occurrence shall be the excise duty point; and the duty shall be paid in accordance with regulation 23(2) … below.”

26.Mr. Baldry, on behalf of the Interested Parties, submitted that a duty point does not arise for cider and bulk fluid (treated as made-wine) on a sale as part of the trading stock of a business which is sold as a going concern, because the business of cider making continues uninterrupted and the cider (including the cider made by the dilution and treatment of the bulk fluid) is charged to duty as it is sold on (by the purchaser of the business – H7) in the normal course of trade. He submitted specifically that regulation 13(a) of the CPRs did not apply to impose an excise duty point because the business of making cider is not discontinued in a case where it is transferred as a going concern.