TC09627 - [2025] UKFTT 01068 (TC)

HMRC submit that CFL was entitled to challenge the legality of the seizure in the magistrates’ court by lodging a Notice of Claim within 30 days of the seizure. As there was no challenge, paragraph 5 of Schedule 3 CEMA provides that the goods in question shall be deemed to have been duly condemned as forfeited. In their submission, this effectively closes the door on CFL’s “innocent contamination” argument.

Mr Edwards says that CFL have not engaged in this process at all. They did not appeal the seizure to the magistrates’ court and have been very casual in advancing their case for restoration. The Decision was contained in a letter date 27 June 2022. Tiernans say that they wrote to HMRC on 12 July 2022 to indicate that disagreement with the Decision. HMRC have no record of receiving that letter and it was resent by Tiernans under cover of another letter on 20 November 2022. On any basis, therefore, it took more than four months after Tiernans wrote to HMRC in July for them to follow up the lack of reply.

Tiernans’ letter challenging the Decision is extremely brief. It indicates that CFL does not agree with the decision. It then contains three basic assertions, that the test results are demonstrative of innocent contamination, that CFL had lent the vehicle to another supplier in the days prior to the seizure, and that the fuel had been purchased duty paid within the UK. These assertions are not explained, nor is any evidence supplied or identified which might support them. The question of financial hardship was never flagged, and some of the issues now being raised, for example proportionality, are raising their head for the first time now.

As far as the Decision itself is concerned, Mr. Edwards says that the absence of criminal proceedings is irrelevant. There are lots of situations where HMRC would not prosecute someone in CFL‘s position, for a whole range of reasons.

Officer Gordon did not unthinkingly confirm the Decision. On her evidence, she regards the policy is firm but not rigid and she considered such material as she had. However, she had no evidence or explanation to back up the assertions Tiernans made. She had clear evidence of the fuel being contaminated, but nothing to support a case for restoring the fuel or vehicle to CFL. Given that absence of evidence, it would be hard for her to conclude that deprivation was disproportionate.  

On CFL’s submission recorded at [64](4), Mr Edwards says that using the phrase “laundered or contaminated” did not indicate a concession by HMRC; they have evidence that the fuel was laundered.

HMRC’s restoration policy is not to restore vehicles and other things seized as liable to forfeiture, albeit this policy is to be applied firmly but not rigidly. This allows for each case to be considered on its merits and the policy does not intend to penalise innocent third parties. The policy is intentionally robust to give a proportionate and graduated response to the risk posed by diversion and smuggling. The policy of non-restoration includes these objectives because the seizure of vehicles used to transport diverted or smuggled goods has a significant deterrent effect. People not directly involved with illicit goods but otherwise associated with them, such as financing or profiting from the enterprise also suffer from losing the goods/vehicle. This also helps to protect legitimate trade.

The policy has been applied in CFL’s case, considering the facts as they appear to HMRC. In this respect, there is no unlawfulness. There was no basis for HMRC not to apply its policy on non-restoration. Accordingly, HMRC have reasonably exercised their discretion in this matter.

At the end of the hearing we were unsure about the ground on which the fuel and vehicle had been forfeited and how this interacted with the deeming rule in paragraph 5, Schedule 3 CEMA. We asked the parties for their written submissions on this issue.

Mr Edwards says that HMRC’s case is that CFL breached, or is responsible for the breach of, regulation 14(2) of the Regulations by virtue of removing a marker or markers from the fuel. He accepts that, in the non-restoration decision of 27 June 2022, reference was made to section 24A HODA, which imposes penalties for the misuse of marked oil. He says that it is arguable that section 24A could apply here, but (as the Review Letter makes clear) the specific legal basis on which the fuel was forfeited was the breach of regulation 14(2).

The Notice of Seizure gave as the ground on which the fuel and the vehicle were forfeited to the Crown that the fuel was contaminated fuel. However, the notice pre-dates the Eurofins test results, which reported between 23 May 2022 and 15 June 2022. These results indicated that samples from two of the pots of seized fuel were consistent with laundered fuel. Mr Edwards says that, for the purposes of defending this appeal, the HMRC’s position is that the fuel was laundered fuel or that it was contaminated fuel.

Mr Edwards explained that the initial on-site testing of the fuel on the day the vehicle was intercepted provided an indication that the fuel had been contaminated. That the fuel was laundered fuel was only confirmed later, when the Eurofins test results were received confirming that the fuel was consistent with laundered fuel because markers had been removed. Accordingly, in the Decision Letter, the basis of the forfeiture is explained as being that the fuel had been laundered, because of markers having been removed. That letter also explained the basis of the forfeiture decision as being authorised by section 24A(7) HODA and sections 139 and 141 CEMA, but the more apt basis for the forfeiture of the fuel is section 24(4) of and paragraph 9 of Schedule 4 to HODA, taken with the Regulations, in particular regulation 14.

As to the deeming rule, Mr Edwards submits that the Tribunal does not have jurisdiction to consider whether too much fuel had been seized (if it had been contaminated). The reasonableness or proportionality of the forfeiture decision, given the particular facts, goes to the lawfulness of the forfeiture decision and does not arise in an appeal against a non-restoration decision. No appeal having been brought against the forfeiture decision to the magistrates’ court, no aspect of the forfeiture decision itself can now be challenged or revisited, in the non-restoration appeal to this Tribunal.

Finally, Mr Edwards says that, even in an appeal against forfeiture, the focus must be on the breach, not on the amount or extent of contraband giving rise to it. This is a fortiori the case where no evidence supporting an alternative explanation of what was found has been produced to give HMRC an opportunity to consider the reasons for and nature of the breach. Indeed, even before the Tribunal, there was no contemporaneous evidence supporting CFL’s contention about how the laundered fuel came to be in the vehicle.

Mr McIlroy says that CFL could claim that Tiernans’ letter of 22 April 2022 should have been considered as a Notice of Claim to challenge the forfeiture/ seizure of the fuel and vehicle, it has (pragmatically) waived its entitlement to challenge this aspect to expedite the determination of the relevant issues in this appeal. We should say that we are not with him on this point. It is quite clear from HMRC’s reply of 5 May and the Decision Letter itself that they considered that only restoration (which they referred to in bold type, almost as if they were surprised by and were trying to clarify the point) was being sought. If Tiernans thought they were challenging the legality of the seizure, they should have put HMRC right straight away and taken the necessary steps to challenge the seizure.

Mr McIlroy says that, whilst it is not open to CFL to challenge the legality of the seizure itself, the Tribunal is able to consider the factual matrix (which he says is “exceptional given [Mr Watters’] acceptance of his own failure to act leading to the forfeiture/seizure”) when determining the extent of ‘blame’ attributable to CFL and the proportionality of HMRC’s actions in deciding not to restore the fuel and the vehicle to CFL, where the following factors are important:

In his written submissions Mr McIlroy described HMRC’s case in relation to the fuel as a “moveable feast”. He says that in April 2022 the fuel was contaminated; in June 2022, it was “consistent with laundered fuel”; in oral submissions before the Tribunal Mr Edwards stated it was “conclusively” laundered fuel; in Mr Edwards’ written submissions it first “was laundered fuel or alternatively, that it was contaminated fuel” and later in the same submissions “contaminated or laundered” and then finally it was “laundered fuel”. He says that, in contrast, CFL has been clear and consistent all along in saying that the fuel was contaminated, albeit as a result of innocent contamination.

In relation to the percentage of contaminated fuel, CFL accepts that it cannot challenge the forfeiture decision. What it says is that the facts that the contamination was innocent and that the percentage of contaminated fuel was minimal are relevant factors when considering proportionality and, on this basis, the low percentage of contaminated fuel is a relevant factor when it comes to restoration.

It is not for us to decide whether the fuel or the vehicle should be restored to CFL. Nor is it for us to decide whether the fuel and the vehicle were properly forfeited. CFL did not challenge the seizure in the magistrates’ court, and so we must proceed on the basis that the forfeiture and the basis on which the forfeiture was made were correct.

Our task is to decide whether we consider that the Decision (as confirmed on Review) not to restore the fuel and vehicle to CFL is one which HMRC could not reasonably have arrived at in the light of the approach to be distilled from cases such as Paccar. It is for CFL to show that the decision is one which the reviewing officer could not reasonably have arrived at, not for HMRC to defend their decision.

If we conclude that the Decision one which HMRC could not reasonably have arrived at, we can direct that the Decision is to cease to have effect and require HMRC to conduct a further review of the Decision in accordance with such directions as we might make.

Although we are reviewing the Decision, we are entitled to carry out a fact-finding exercise and take into account such additional facts as we find.

The Review proceeded, entirely correctly, on the basis that the legality of the forfeiture was not in question. Officer Gordon went on to reject CFL’s challenge to Eurofins’ sampling and CFL’s assertion that the results were demonstrative of innocent contamination. One of the reasons the officer gave for that that was that no explanation or evidence had been provided to support the assertion of innocent contamination. She also said that the official tests were conclusive that laundered fuel was contained within the vehicle.

The presence of laundered fuel was not raised by HMRC at the time when the Notice of Seizure was given, nor had it been raised by the time the one-month period for challenging the Notice of Seizure expired.

The Notice of Seizure did not set out why the vehicle or the fuel had been seized, although it did refer to section 24(4) HODA. Section 24(4) imposes penalties for non-compliance with regulations made under that section, and provides that any goods in respect of which any person contravenes or fails to comply with any such regulation shall be liable to forfeiture. Section 24 allows HMRC to make regulations for the purposes of a number of provisions of HODA “and in particular for the purposes specified in Schedule 4 to this Act”. Schedule 4 HODA has 21 paragraphs which list subjects for regulations under section 24. So, without more, pointing to section 24(4) as the authority for a seizure is to assert that there has been a breach of at least one of quite a large number of provisions, but not to identify the particular breach relied on. All HMRC’s holding letter to Tiernans of 5 May 2022 referred to was unspecified “fuel irregularities”.

It is not possible to tell from the Notice of Seizure, or anything HMRC said before the time for appealing against the Notice of Seizure had expired, why the vehicle and the fuel had been seized.

The question of laundered fuel only seems to have raised its head after HMRC received the Eurofins sample results, well after the time for challenging the Notice of Seizure had expired.

In the Decision Letter HMRC said that the fuel was liable to forfeiture under section 24A HODA because the fuel was found to contain laundered rebated fuel. Section 24A HODA is, as we have seen, about the misuse of rebated fuel and is not the authority under which penalties are imposed for removing markers from fuels.

The deeming provision in paragraph 5, Schedule 3 CEMA provides that, if the seizure is not challenged within the period of a month after the date of seizure or the notice of seizure, the thing in question (here the fuel and the vehicle) shall be deemed to have been “duly condemned as forfeited”. This creates an important limitation on the Tribunal’s ability to find facts and the basis on which it must proceed.

As Jones makes clear, the Tribunal cannot make any finding of fact or proceed on any basis other than that the items in question (here the fuel and the vehicle) were properly seized and forfeited. Also, if the goods were seized for a particular reason, it is not open to the Tribunal to proceed on any basis other than that the stated reason is correct. So, for example, it could not find that goods which were seized on the basis that they had been imported for commercial use had in fact been imported for personal use.

The reason why we interrogated the reason HMRC gave for seizing the fuel and the vehicle and went so far to require written submissions on this point, was that we wanted to understand whether the fuel and the vehicle had been seized for a (deemed) reason which left room for CFL’s narrative that the fuel had been subject to innocent contamination. If such a narrative (if true) would not be inconsistent with the basis on which the fuel and the vehicle were forfeited, then any failure by the reviewing officer to accord proper weight to the possibility of innocent contamination could amount to an error of law, such as to make her decision unreasonable.

The problem we have is that in the Notice of Seizure HMRC only referred to section 24(4) HODA and they did not raise the presence of laundered fuel until well after the time for appealing against the Notice of Seizure had expired. If the question of laundered fuel was not raised until after the time for challenging the Notice of Seizure had expired, the fuel and vehicle cannot have been “duly condemned as forfeited” on the basis that some or all of the fuel was laundered. The seizure/forfeiture being lawful and the reason for the seizure/forfeiture being a breach which engages section 24(4) HODA are conclusively determined against CFL because of its failure to challenge the seizure in the magistrates’ court. But, as no further, more detailed allegation (most obviously here, the presence of laundered fuel) was articulated as part of the factual matrix underlying the seizure/forfeiture, that is all that is conclusively determined against CFL.

In addition, it was (and still remains) unclear to us whether HMRC are suggesting that all of the fuel was laundered (that the fuel in pots two and four comprises, is entirely made up of, laundered fuel) or whether its position is that within the totality of that fuel there is some laundered fuel (that the fuel in pots two and four contains some laundered fuel) and, if so, how much of the totality is laundered.

On that basis, it seems to us that it would be wrong to proceed on the basis that it is a conclusively determined, deemed fact that the fuel comprised or contained laundered fuel. It might very well do, and other evidence might show that it does, but this is not deemed to be the case.

The relevance of all this here is that, if, because of the deeming provision in paragraph 5, Schedule 3 CEMA, it was conclusively determined that all the fuel was laundered, then it seems to us that there would be no room for CFL’s argument that the fuel had been the subject of innocent contamination. If, on the other hand, all that is deemed is that there has been some (unspecified) breach that engages section 24(4) HODA, then that may leave the door open for CFL’s narrative of innocent contamination.

In the Review Letter Officer Gordon said that “Official tests were conclusive that laundered fuel was contained within the tanker unit of vehicle HXZ 9215, owned by you.” After observing that the legality of the seizure could no longer be challenged, she observed that “The seizure of goods and other things following the detection of rebated or laundered fuel is an important and effective measure to tackle the misuse of fuel commented.” We completely agree with her observation so far as it goes, but we consider that she was wrong to assume (as she seems to have done) that CFL’s failure to challenge the seizure meant that the fuel was deemed to be or to contain laundered fuel. Later in the Review Letter Officer Gordon wrote that,

“The laundering of fuel [is] prohibited under paragraph 9 Schedule 4 HODA1979. This is a serious offence, it is an attack on the system, defaults against the payment of revenue and damages legitimate supply chains. I have considered the seriousness of the offence alongside the fact that you have failed to substantiate any of your arguments with evidence, it is apparent that there are no exceptional circumstances in this case.”

It is quite clear that she took the view, based on the Eurofins test results, that the fuel “contains laundered fuel”, although it is not clear to us whether she thought that all the fuel was laundered, or only some of it and, if the latter, how much. The tone of her letter (including that she gave the Eurofins results as a reason for rejecting CFL’s innocent contamination argument) suggests she thought that all or a significant proportion of the fuel was laundered.

Officer Gordon overstated the position. The Eurofins sample results merely say that, in the case of two of the pots, the samples were “consistent with laundered UK gas oil”. Before us, Officer Spratt said that, although some solvent had been detected in the samples, he was clear that he was not saying that the fuel could only be laundered fuel, only that the samples were consistent with that; he wasn’t ruling anything out and he was certainly not saying that there could not be another explanation. As we have explained, CFL’s failure to challenge the seizure did not mean that the fuel was deemed to be or to contain laundered or rebated fuel.

Officer Gordon gave a second reason for rejecting the “innocent contamination” argument, that CFL had “given no explanation of what you consider “innocent contamination” or how the laundered fuel came to be in the tank unit”. In saying that she was absolutely right. The review request was a very short, quite brusque letter. It asserted (without any explanation or evidence) that the Eurofins results were not accepted and were “demonstrative of innocent contamination; that is if they are demonstrative of anything.” The next bullet in the letter said that CFL had loaned the vehicle to another supplier in the days prior to the detection, but it gave no further details and provided no evidence. The writer of the letter did not link these points. CFL’s position has been explained in greater detail to us and we have the evidence of Mr Watters and Mr Mone, but no one seemed to think it worthwhile sharing any of that with Officer Gordon. Nevertheless, although this is not a letter either of us would be very proud to have written, it seems to us tolerably clear that CFL was suggesting that there had been some innocent contamination resulting from the loan of the vehicle, and, if Officer Gordon had realised that innocent contamination might provide an explanation, she should not have brushed that possibility aside.

We consider that the Decision (as confirmed on Review) was based on the important, but wrong, assumption that either the Eurofins test results or CFL’s failure to challenge the seizure in the magistrates’ court provided conclusive proof (or deeming) of the presence of laundered fuel. This (in fairness, exacerbated by the way CFL failed to present its case) led Officer Gordon to reject the innocent contamination argument out of hand.

She also failed to explain why the Decision referred to section 24A HODA, whereas the authority for seizure of fuel from which markers have been removed is section 24(4) HODA, which is the provision referred to in the Notice of Seizure, or to be clear about whether HMRC’s position was that the fuel was contaminated by the presence of rebated or laundered fuel or was laundered fuel in its entirety and, as a result, did not consider whether the innocent contamination argument might be consistent with HMRC’s position.

We now have the evidence of Mr Watters and Mr Mone (the latter unchallenged) about what happened in the few days up to the interception of the vehicle. This, of course, supports the innocent contamination narrative. As far as the Eurofins test results are concerned, they are consistent with the presence of laundered fuel, but not (in their own words and on Officer Spratt’s evidence) conclusive on the point. If the results showed traces of rebated fuel (red diesel) only, that would be consistent with the innocent contamination argument. However, Eurofins found traces of solvents and we find this troubling, as we understand such traces will generally only be found after fuel has been laundered. Against that we have Officer Spratt’s evidence that there could be explanations other than fuel laundering for these results, so even the presence of the solvent traces is not necessarily conclusive evidence of fuel laundering (which would clearly undermine the innocent contamination argument).

 All of this is relevant because HMRC’s policy on restoration expressly states that they do not set out to penalise innocent third parties unless they do not learn from mistakes and omissions that facilitate offences. Given that there is no suggestion that CFL has made a similar mistake in the past, the innocent contamination narrative, if true, would be a powerful factor suggesting that HMRC should restore the vehicle and the fuel to CFL.

For completeness, we should just say that we considered whether we are in a position to make a finding of fact on the question of innocent contamination and, if we are, whether we should do that, but concluded that it would not be appropriate for us to do so.

We have decided that:

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.