TC09627 - [2025] UKFTT 01068 (TC)

By way of background, “red diesel” is the term used for gas oil that is intended for use other than as fuel in road vehicles. Its use is restricted to certain industries/activities, most notably agriculture, horticulture, fish farming and forestry. Red diesel is functionally the same as ordinary (white) diesel, but is subject to a lower level of excise duty than gas oil intended for use in diesel engine road vehicles (DERV), which is why it is often called rebated fuel or rebated diesel. Red diesel is so called because it has been a requirement since 1961 for it to be marked with a red dye, as well as chemical markers (other than in circumstances where a technical marking waiver is granted), to prevent its misuse in road vehicles. It is possible to remove the red dye (and to an extent other markers) from red diesel (an activity known as fuel laundering), but it is illegal to do this.

Section 24 of the Hydrocarbon Oil Duties Act 1979 (“HODA”) authorises HMRC to make regulations for the purposes of certain specified provisions in that Act “and in particular for the purposes specified in Schedule 4 to this Act”. One of the subjects listed in Schedule 4 HODA for regulations under section 24 of that Act is:

“9.

Prohibiting the removal from any oil of any prescribed marker or prescribed colouring substance.”

The Hydrocarbon Oil (Marking) Regulations 2002 (the “Regulations”) were made under section 24 of and Schedule 4 to HODA. These regulations deal with prescribed markers and colouring substances. They also provide prohibitions relating to prescribed markers (regulation 14). In particular, regulation 14(2) provides that “no marker may be removed from any oil”.

Section 24(4) HODA provides as follows:

“Where any person contravenes or fails to comply with any regulation made under this section his contravention or failure to comply shall attract a penalty under section 9 of the Finance Act 1994 (civil penalties), and any goods in respect of which any person contravenes or fails to comply with any such regulation shall be liable to forfeiture.”

Section 24A HODA provides as follows:

“(1)

Marked oil shall not be used as fuel other than for an excepted machine.”

The section goes on to provide penalties for using marked oil in contravention of this rule and for the forfeiture of marked oil in a vehicle other than an excepted machine.

Section 141 of the Customs and Excise Management Act 1979 (“CEMA”) provides as follows:

“ (1) Without prejudice to any other provision of the Customs and Excise Acts 1979, where any thing has become liable to forfeiture under the customs and excise Acts -

(a)

any ship, aircraft, vehicle, animal, container (including any article of passengers' baggage) or other thing whatsoever which has been used for the carriage, handling, deposit or concealment of the thing so liable to forfeiture, either at a time when it was so liable or for the purposes of the commission of the offence for which it later became so liable; and

(b)

any other thing mixed, packed or found with the thing so liable

shall also be liable to forfeiture”

Section 1 of CEMA defines “the customs and excise Acts” to include HODA.

Section 139 and Schedule 3 CEMA make provision for the detention, seizure and condemnation of goods. So far as relevant, section 139 provides:

“(1)

Any thing liable to forfeiture under the customs and excise Acts may be seized or detained by any officer or constable or any member of Her Majesty’s armed forces or coastguard.

…

(6)

Schedule 3 to this Act shall have effect for the purpose of forfeitures, and of proceedings for the condemnation of any thing as being forfeited, under the customs and excise Acts.”

Schedule 3 CEMA provides (in paragraph 1) for the giving in certain circumstances of notice of seizure of any thing as liable to forfeiture. It goes on to provide:

“3.

Any person claiming that any thing seized as liable to forfeiture is not so liable shall, within one month of the date of the notice of seizure or, where no such notice has been served on him, within one month of the date of the seizure, give notice of his claim in writing to the Commissioners at any office of customs and excise.

…

5.

If on the expiration of the relevant period under paragraph 3 above for the giving of notice of claim in respect of any thing no such notice has been given to the Commissioners, or if, in the case of any such notice given, any requirement of paragraph 4 above is not complied with, the thing in question shall be deemed to have been duly condemned as forfeited.

6.

Where notice of claim in respect of any thing is duly given in accordance with paragraphs 3 and 4 above, the Commissioners shall take proceedings for the condemnation of that thing by the court, and if the court finds that the thing was at the time of seizure liable to forfeiture the court shall condemn it as forfeited.”

Section 152 CEMA enables HMRC to mitigate penalties and restore forfeited or seized items. So far as relevant, it provides:

“The Commissioners may, as they see fit—

(a)

compound an offence (whether or not proceedings have been stituted in respect of it) and compound proceedings or for the condemnation of any thing as being forfeited under the customs and excise Acts; or

(b)

restore, subject to such conditions (if any) as they think proper, any thing forfeited or seized under those Acts; …”

HMRC’s policy on restoration is set out in a document entitled “Forfeiture of Excise Goods (Alcohol, Tobacco, and Oils) – Appendix F: Restoration Policy for Disclosure”. This document begins with the rubric “This redacted version of restoration policy for goods and vehicles may be disclosed for court or tribunal proceedings and used in correspondence” and Officer Gordon referred to it in her evidence as HMRC’s “disclosable policy”. All of this might suggest that there is more to HMRC’s policy in this area than is set out in this document. We asked Mr Edwards about this and, after taking instructions during the short adjournment, he confirmed that, despite the unsettling description, this is a complete and accurate summary of HMRC’s policy, and we have proceeded in reliance on that assurance. The key provisions of this policy are as follows:

“The policy for restoration of seized goods and vehicles

• is that alcohol, tobacco, vehicles and other things (such as cover loads) seized as liable to forfeiture must not generally be restored

• must be applied firmly but not rigidly

• allows for each case to be considered on its merits to determine whether restoration may be offered and under what terms

• offers restoration exceptionally but not as a matter of course

• does not allow for restoration where fiscal marking and/or duty stamp legal requirements would be breached

• recognises there will be occasions when overriding humanitarian or hardship issues warrant a departure from usual restoration criteria

• is aimed at those who are profiting from offences under customs and excise legislation

• does not intend to penalise innocent third-parties

• aims to address instances where innocent third-parties do not learn from mistakes and omissions that facilitate offences

• allows for goods that are found, mixed or packed with goods liable to forfeiture to be restored in certain circumstances. If the goods have been used to deliberately mislead officers or to conceal a fraud, they will only be restored in very exceptional circumstances

• allows for things to be restored shortly after they have been seized so it is not necessary to remove them to a Queen’s Warehouse.”

Sections 14 and 15 of the Finance Act 1994 (“FA 1994”) enable a person in CFL’s position to ask HMRC to review their decision, which is what was done here. Section 16 FA 1994 allows an appeal to be brought against a decision on a review under section 15. Section 16(4) FA 1994 sets out the jurisdiction of this tribunal in relation to an appeal against a decision as to an ancillary matter as follows:

“(4)

In relation to any decision as to an ancillary matter, or any decision on the review of such a decision, the powers of an appeal tribunal on an appeal under this section shall be confined to a power, where the tribunal are satisfied that the Commissioners or other person making that decision could not reasonably have arrived at it, to do one or more of the following, that is to say—

(a)

to direct that the decision, so far as it remains in force, is to cease to have effect from such time as the tribunal may direct;

(b)

to require the Commissioners to conduct, in accordance with the directions of the tribunal, a review or further review as appropriate of the original decision; and

(c)

in the case of a decision which has already been acted on or taken effect and cannot be remedied by a review or further review as appropriate , to declare the decision to have been unreasonable and to give directions to the Commissioners as to the steps to be taken for securing that repetitions of the unreasonableness do not occur when comparable circumstances arise in future.”

Section 16(8) FA 1994 provides that (subject to certain exceptions which do not apply here) “references in this section to a decision as to an ancillary matter are references to any decision of a description specified in Schedule 5 to this Act”. Among the decisions listed in Schedule 5 (at paragraph 2(1)(r)) is:

“any decision under section 152(b) as to whether or not anything forfeited or seized under the customs and excise Acts is to be restored to any person or as to the conditions subject to which any such thing is so restored;”

If we are satisfied that the "person making [the relevant] decision could not reasonably have arrived at it", we can direct that the decision should cease to have effect and may require HMRC to carry out a further review of the original decision. The approach to be taken here was helpfully discussed in Paccar Financial Polska SP. Z O.O v Director of Border Revenue (“Paccar”), [2024] UKFTT 642 (TC) at [50]-[52] and [101]-[102], and we distil the following points from that discussion :

Where HMRC have a published policy, it is open to an appellant to contend in the Tribunal that the decision on restoration was not reasonable (within the meaning of section 16(4) FA 1994) on the grounds that it was based upon an unreasonable or otherwise unlawful policy (Gora & Ors v HMRC, [2003] EWCA Civ 525 at [38]), but no such contention has been made in this case.

Although the Tribunal has a fact-finding role, there is one very important limitation on that role and the Tribunal’s freedom to review HMRC’s decision more generally, which flows from paragraph 5, Schedule CEMA. In HMRC v Jones, [2011] EWCA Civ 824, Mummery LJ, giving the only judgment in the Court of Appeal, commented (at [71]) on the effect of this provision as follows:

“For the future guidance of tribunals and their users I will summarise the conclusions that I have reached in this case in the light of the provisions of the 1979 Act, the relevant authorities, the articles of the Convention and the detailed points made by HMRC.

(1)

The respondents' goods seized by the customs officers could only be condemned as forfeit pursuant to an order of a court. The FTT and the UTT are statutory appellate bodies that have not been given any such original jurisdiction.

(2)

The respondents had the right to invoke the notice of claim procedure to oppose condemnation by the court on the ground that they were importing the goods for their personal use, not for commercial use.

(3)

The respondents in fact exercised that right by giving to HMRC a notice of claim to the goods, but, on legal advice, they later decided to withdraw the notice and not to contest condemnation in the court proceedings that would otherwise have been brought by HMRC.

(4)

The stipulated statutory effect of the respondents' withdrawal of their notice of claim under paragraph 3 of Schedule 3 was that the goods were deemed by the express language of paragraph 5 to have been condemned and to have been “duly” condemned as forfeited as illegally imported goods. The tribunal must give effect to the clear deeming provisions in the 1979 Act: it is impossible to read them in any other way than as requiring the goods to be taken as “duly condemned” if the owner does not challenge the legality of the seizure in the allocated court by invoking and pursuing the appropriate procedure.

(5)

The deeming process limited the scope of the issues that the respondents were entitled to ventilate in the FTT on their restoration appeal. The FTT had to take it that the goods had been “duly” condemned as illegal imports. It was not open to it to conclude that the goods were legal imports illegally seized by HMRC by finding as a fact that they were being imported for own use. The role of the tribunal, as defined in the 1979 Act, does not extend to deciding as a fact that the goods were, as the respondents argued in the tribunal, being imported legally for personal use. That issue could only be decided by the court. The FTT's jurisdiction is limited to hearing an appeal against a discretionary decision by HMRC not to restore the seized goods to the respondents. In brief, the deemed effect of the respondents' failure to contest condemnation of the goods by the court was that the goods were being illegally imported by the respondents for commercial use.

(6)

The deeming provisions in paragraph 5 and the restoration procedure are compatible with Article 1 of the First Protocol to the Convention and with Article 6 , because the respondents were entitled under the 1979 Act to challenge in court, in accordance with Convention compliant legal procedures, the legality of the seizure of their goods. The notice of claim procedure was initiated but not pursued by the respondents. That was the choice they had made. Their Convention rights were not infringed by the limited nature of the issues that they could raise on a subsequent appeal in the different jurisdiction of the tribunal against a refusal to restore the goods.

(7)

… . The key to the understanding of the scheme of deeming is that in the legal world created by legislation the deeming of a fact or of a state of affairs is not contrary to “reality”; it is a commonly used and legitimate legislative device for spelling out a legal state of affairs consequent on the occurrence of a specified act or omission. Deeming something to be the case carries with it any fact that forms part of the conclusion.”

So, the important limitation on the Tribunal’s role, where the seizure of goods is not challenged under the Schedule 3 CEMA process, is that a person in CFL’s position cannot argue that the goods were not “duly” condemned, nor can they challenge any fact that forms part of that conclusion. Similarly, the Tribunal must proceed on the basis that the goods were “duly” condemned and accept the factual matrix that led to that conclusion.

CFL’s submission is that HMRC were wrong to have failed to consider their arguments that the fuel was subject to “innocent contamination” and purchased duty-paid. They cannot, therefore, run (and therefore cannot expect HMRC to consider) that argument if it is inconsistent with the fuel and vehicle being “duly” condemned or the factual matrix on which that conclusion rests.

We heard from four individuals, whom we found to be straightforward witnesses, and we have no reason to doubt anything they said to us.