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Out-Law News | 10 Jul 2019 | 1:33 pm | 4 min. read
The judges also cast doubt on whether the High Court had power to grant interim relief to enable a trader to be registered on a temporary basis to stop them going out of business pending an appeal to the First-tier Tax Tribunal (FTT) against a refusal to register a trader under AWRS.
"Whilst HMRC must be free to take reasonable steps to protect the Exchequer from losses attributable to excise duty fraud, the practical effect of this decision is that many affected businesses now face the prospect of going out of business before the tax tribunal can consider their appeals, essentially removing oversight of the exercise of HMRC's powers in this area," said Stuart Walsh a tax disputes expert at Pinsent Masons, the law firm behind Out-Law.
"Many other cases have been stayed, awaiting the outcome of this decision. The tribunal system will not be able to cope if all these cases and future cases have to be heard on an expedited basis," Walsh said.
Whilst HMRC must be free to take reasonable steps to protect the Exchequer from losses attributable to excise duty fraud, the practical effect of this decision is that many affected businesses now face the prospect of going out of business before the tax tribunal can consider their appeals.
Wholesalers of alcohol need to be approved by HMRC under AWRS, which was introduced in 2015, in order to combat excise duty fraud. Approval will only be granted if HMRC are satisfied that the wholesaler is 'fit and proper.' HMRC can issue approval subject to conditions and/or for a time limited period. A wholesaler may appeal a refusal of registration by HMRC to the FTT.
The AWRS register is publically available and not only is it a criminal offence to trade without an approval, anyone who purchases from a wholesaler who is not registered also commits a criminal offence if they know, or ought to have known, of the absence of an approval.
The case considered by the Supreme Court concerned a number of wholesalers who were already involved in the wholesale supply of duty-paid alcohol when AWRS was introduced and needed HMRC approval to continue to trade. HMRC decided that they were not 'fit and proper' for AWRS purposes and that no conditions or limitations would enable HMRC to be satisfied that the traders were fit and proper.
The traders appealed to the FTT but asked HMRC to grant them temporary approval so they could continue to trade whilst the appeals were pending. HMRC refused and so the traders brought judicial review proceedings challenging HMRC's refusal. The High Court refused their application but the Court of Appeal decided that HMRC did have power to grant temporary approval pending an appeal, but that the issue of hardship was not relevant to the decision of whether to grant temporary approval.
The Supreme Court decided that HMRC could not grant temporary approval if it had decided that a trader was not 'fit and proper' and that conditions or limits on the approval could not address HMRC's concerns about the trader's suitability.
"If the person is not fit and proper for even a limited period of time, that holds good whatever purpose the time limited approval would be designed to achieve," Lady Black said.
The traders argued that section 9(1) of the Commissioners of Revenue and Customs Act 2005 gave HMRC the power to give temporary approval under AWRS. This provision gives ancillary powers to the HMRC Commissioners enabling them to do anything they think is "necessary or expedient in connection with the exercise of their functions" or "incidental or conducive to the exercise of their functions".
Lady Black did not accept this argument. "I do not accept that recourse can be had to it to provide an alternative route to time limited approval, supplementing section 88C in the way that the wholesalers suggest.… Rather than assisting the Commissioners’ exercise of their functions under the scheme, such a use would, in my view, undermine the scheme," she said.
"It can hardly be said to be necessary or expedient to the exercise of the functions under that tightly drafted scheme, which has at its heart that the Commissioners will only approve people to sell controlled liquor wholesale if satisfied that they are fit and proper to do so, for the Commissioners to be able to draw upon the ancillary powers in section 9 to grant approval to someone in relation to whom they are not satisfied, nor yet can that be said to be incidental or conducive to the exercise of their functions under the scheme," Lady Black said.
For procedural reasons, the Supreme Court was not asked to consider whether the High Court had power to grant interim relief to prevent a trader from going out of business before their appeal to the FTT could be decided. The parties agreed it had that power, but the judges cast doubt on that although they said they were not making a definitive pronouncement as they had not heard argument from the parties on the point.
Lady Black said that generally the High Court’s power to order a person to do something by mandatory injunction is exercisable for the purpose of making that person do something that he has it within his powers to do and should have done, but has failed to do.
She said that where, as here, the Supreme Court had decided HMRC did not have the power, "a conclusion that the High Court could nonetheless solve the problem by granting an injunction looks worryingly like endorsing the exercise of some sort of inherent authority to override an Act of Parliament, on the basis that the end justifies the means".
"It would take a lot of persuading for me to conclude that this would be a proper exercise of the High Court’s undoubtedly wide power to grant injunctive relief," she said.
Lord Hughes said that the legislation may be incompatible with the European Convention on Human Rights, if traders who had an existing business when the registration scheme was introduced and were refused approval but had good grounds for appeal, might be forced out of business before their appeal could be determined.
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