[2025] UKUT 00315 (TCC)

Actions required if goods carry fiscal marks or duty stamps

The Duty Stamp Regulations 2006 (“DSR”) as referred to in paragraph 4.5 of EN 207 make relevant provision as to the manner of obliteration in Regulation 2(3) and other requirements for notification and recording of the obliteration in Regulation 24.

Regulation 2(3) defines obliteration of a duty stamp as requiring that the words “for the UK market” be completely removed, obscured (by an indelible dye or ink) or covered by a label that cannot be removed without destroying the stamp. Regulation 2(3) states:

“(3)

For the purposes of these Regulations, a retail container of alcoholic liquor is to be treated as unstamped if it bears a duty stamp that has been obliterated.

A duty stamp has been obliterated if, but only if—

(a)

the words “For the UK market” have been completely removed from it,

(b)

it has been completely obscured by an indelible dye or ink, or

(c)

it has been completely covered by a label using an adhesive that prevents that label from being removed without also destroying the stamp.”

Part 4 DSR provides detailed rules for the affixing and obliteration of duty stamps. Regulation 24 is headed “Notification and attendance of officers” and Regulation 24(1) provides that a person must permit an HMRC officer to be present when duty stamps are affixed to retail containers.

Regulation 24(2)(a) requires that where stamps are to be obliterated two clear days’ notice is given to HMRC of the proposed obliteration. Regulation 24(2)(b) provides that, in addition, in the case of what is known as a Type A duty stamp (the type affixed to the goods in this appeal) the person authorised to obliterate the stamps is required to make a record of the unique reference number (“URNo”) of the duty stamp obliterated in his ordinary business records. Regulation 24(4) requires preservation of the records for a period of three years. Regulations 24(2)-(4) state:

“(2)

Except where regulation 22 applies, a person must not deliberately obliterate or remove a duty stamp or destroy a retail container of alcoholic liquor that bears a duty stamp unless—

(a)

by means of an electronic communication, he has given the Commissioners not less than two clear business days' notice of the date and time when, and the address of the place at which, he intends to obliterate or remove that stamp or destroy that container, and

(b)

in the case of a type A stamp, he makes a record of the unique reference number of that stamp in his ordinary business records.

(3)

A person must not export a retail container of alcoholic liquor from which a duty stamp has been removed, or that bears an obliterated duty stamp, unless by means of an electronic communication he has given the Commissioners not less than two clear business days' notice of his intention to export that container.

(4)

Any record made for the purposes of this regulation must be preserved for a period of three years, starting on the day the record was made.”

At [63]-[68] the FTT considered the parties’ arguments as to whether everything identified in EN207 as a condition, requirement or directions were conditions which had to be adhered to for a drawback claim to be successful. It concluded at [68] that conditions in EN207 must be met so long as they are clear and precise and not impossible or excessively difficult to meet:

“65.

The Appellant’s position is more nuanced but not entirely at odds with that adopted by HMRC. The Appellant accepts that any condition or requirement which is noted as having force of law in the 2021 version of EN 207 is a condition required to be met. The Appellant accepts that the equivalent (and largely identical) provisions in the 2019 version also have force of law despite no express wording to that effect.

66.

However, the Appellant does not accept that every direction given by HMRC in EN 207, in particular by reference to the use of “you must” or “you shall”, is a condition having force of law such that a failure to comply represents a basis on which a claim for drawback may be refused. The Appellant contends that the following principles can be discerned from the case law on how and when it is appropriate to interpret the provisions of a notice as having force of law:

(1)

Public notices generally do not have force of law and directions in terms of what taxpayers should and should not do are not sufficient to create a legal obligation to act in a certain way (HMRC v KE Entertainments Ltd [2018] CSIH 78);

(2)

Where HMRC are empowered to make conditions through a notice, any provision of the notice which states it has force of law must be taken to have force of law (ABC Ltd, X Ltd, Y Ltd v HMRC [2017] EWCA Civ 596);

(3)

In the context of a notice which states that it has force of law it may not be necessary for the individual provisions to expressly state that they have force of law provided that the language used makes the imposition of a condition by way of tertiary legislation clear and unambiguous (Corbelli Wines v HMRC [2017] UKFTT 615 (TC) and Safe Cellars Ltd v HMRC [2017] UKFTT 78 (TC)).

67.

By reference to those principles it was submitted by the Appellant that careful consideration is required as to whether the contents of each and every section of EN 207 represents a condition as stated in EGDR or conveys with sufficient legal certainty that it is a condition imposed pursuant to the provisions of regulation 7(1)(b) EGDR and which must be met in order for there to be a valid drawback claim. Any lack of clarity or ambiguity as to whether the section represents a condition is, in the Appellant’s submission, to be resolved in its favour.

68.

We consider that the correct approach to interpreting EN 207 is broadly that advanced by the Appellant. Parliament saw fit to specify in EGDR certain conditions to be met in making a drawback claim but also bestowed on HMRC the power to impose additional conditions as they see fit in a notice. However, in order to represent a condition which must be met, thereby restricting the basis on which a claim may be made, the conditions must be clear and precise and not impossible or excessively difficult to meet. To conclude otherwise would unnecessarily limit what is a broad right to recover duty paid where excise goods are not then consumed in the UK. This conclusion is also consistent with the broad discretion granted to HMRC to waive all and any conditions as HMRC may allow. We do not go as far as to say that any lack of clarity or ambiguity must be resolved in the Appellant’s favour; rather, a sensible and pragmatic interpretation must be applied to the terms of the notice by reference to the purpose of ensuring that drawback is appropriately repaid, and excise revenue protected from fraud.”

At [112]-[129] of the Decision the FTT addressed HMRC’s contention that the Appellant was in breach of the condition (imposed by paragraph 4.5 EN207 and Reg 24(2)(b) DSR) requiring it to ensure that a record was made and maintained of each Unique Reference Number (“URNo”) of each duty stamp obliterated.

The FTT first decided that the obligation remained upon the Appellant personally to ensure that its agent, BWA, maintained the relevant record of the de-stamping. At [120] it found:

“120.

Paragraph 4.5 provides that before claiming drawback “you must first obliterate the duty stamps in accordance with the [DSR]” and reference is made to the provisions of DS5. The use of “you” is curious in the context of a duty drawback claimant which is not, and cannot be, authorised to obliterate duty stamps. The language of paragraph 4.5 would therefore appear to require that a person in the position of the Appellant ensures that the duty stamps were obliterated prior to dispatch/export and that such obliteration was carried out in accordance with the DSR and DS5.”

At [121]-[125] the FTT found that the Appellant had breached the condition in paragraph 4.5 of EN207 to obliterate the duty stamps in accordance with Reg. 24 of the DSR:

“121.

The question arises as to whether that represents a condition, breach of which permits HMRC to refuse the claim in whole, or in respect of the part of the claim that relates to stamped goods.

… 123. However, on balance, we consider that it is a condition of drawback that the goods are, as a matter of fact, obliterated in accordance with the DSR . There is a significant fiscal risk arising to the exchequer if drawback is claimed and paid but the obliteration is not carried out fully in accordance with the requirements of DSR , such that it is reasonable and proportionate to expect that the claimant satisfy itself that the provisions of the DSR have been complied with. In this case the Appellant was provided with a record of de-stamping but did not apparently verify that BWA had fully complied with the obligations on them regarding the records what needed to be maintained, including a record of URNo.

124.

In reaching that conclusion we have undertaken the evaluative exercise advanced by the Appellant in determining what is and what is not a condition. We note that there is no statutory requirement that the Appellant maintain a record of the URNo. The 2021 notice does not identify the provisions of paragraph 4.5 as having force of law. However, its terms are clear that prior to export the duty stamps must have been obliterated in accordance with the DSR. There is a rational basis for the requirement, and it is not a condition which is disproportionately onerous on a claimant who simply needs to obtain the necessary confirmation and supporting records of compliant obliteration and retain those in its own records thereby evidencing compliance.

125.

HMRC reference the failure to obliterate "in accordance with the DSR " in the original decision to refuse and the Review confirms that the Appellant had not produced evidence which demonstrated compliance with the condition in paragraph 4.5. We agree with HMRC that there has been a breach of a condition...”

The FTT went on find that the breach of the duty stamp records condition permitted HMRC to refuse the excise duty drawback claim as it was not a de minimis failure (see [129]):

“129.

Finally, and with regard to the Appellant’s contention that if we were to find there was a condition regarding de-stamping there was no failure justifying a rejection of or reduction in the claim as the failure was de minimis. We note that Lord Simon in CEC v JH Corbitt (Numismatists) Ltd [1980] STC 231 (Corbitt) indicated that a de minimis incidence of non-compliance with conditions imposed by HMRC represented a basis on which to challenge, in that case, a VAT assessment. However, we consider that a failure to ensure that URNos had been obliterated (and then provide the record) is not de minimis. We do so for the reasons identified in paragraph 124. The management of the unique duty stamp numbers is a key contributor to the prevention of excise fraud. It is reasonable for HMRC to need to know not only the product from which stamps have been obliterated but also which stamps have been so obliterated.”

At [159]-[164] the FTT considered the reasonableness of HMRC’s decision to refuse the drawback claim on the duty stamp ground (ie. not to waive the condition) and concluded that it was not unreasonable at [165]-[166]:

“165.

Having considered all the evidence available to us we consider that HMRC did not act unreasonably in rejecting that part of the claim affected by the failure to remove the duty stamps in accordance with the DSR. If we were wrong in that conclusion we would consider that HMRC’s decision to refuse the claim was inevitable. There is insufficient evidence that the Appellant did enough to ensure compliance with this critical requirement. It selected the cheapest provider and did not, it seems, seek confirmation that the obliteration had been carried out compliantly.

166.

We therefore refuse the Appellant’s appeal as regards that part of the claim which fails to meet the condition of ensuring that the duty stamps were obliterated in accordance with the DSR. By reference to Mr Thornton’s evidence this issue affected £272,980.74.”

Mr Thornton, for the Appellant, submitted that the first ground of appeal is formed of three sub-grounds which relate to: (i) limiting requirements to physical obliteration; (ii) a lack of clarity of the condition overall; and (iii) whether positive steps before or after the event are a relevant element of the condition.

In relation to (i), he submitted that the condition in paragraph 4.5 of EN207 of obliteration of duty stamps in accordance with the DSR is to be narrowly construed as relating to the act of obliteration itself. Whether a duty stamp has been “obliterated” is a defined term within the Duty Stamps Regulations 2006 (“DSR”) defined by Reg. 2(3) which addresses the physical steps. Accordingly, a stamp has been obliterated in accordance with the DSR, if and only if one of the three listed methods of obliteration has been applied. If it has, then the definition is met and the stamps in question were obliterated in accordance with the DSR.

Mr Thornton contended that in addition to defining the permitted methods of obliteration, the DSR also imposed record keeping requirements on BWA and all persons approved to obliterate stamps. Regulation 24(2) required two actions before obliterating the stamps: (a) notifying HMRC in advance; and (b) recording the stamp numbers if they were type A stamps. HMRC chose to mention only the Reg 24(2)(a) condition in para 4.5 of EN207 and in language that appeared to make it separate to the conditions of the act of obliteration.

He also argued that it is not disputed that the required notice was given to HMRC, and it is not disputed that the stamps in question were type A stamps. Accordingly, BWA did obliterate duty stamps in accordance with the method prescribed by the DSR, and the duty stamps in question were obliterated in accordance with that defined term. He also conceded that BWA, the Appellant’s agent, were under an obligation to record the unique reference numbers in their ordinary business records, but did not do so. Therefore, BWA breached their obligations in doing so because they did not meet their record keeping obligations.

Nevertheless, Mr Thornton submitted that para 4.5 EN207 does not require the record keeping requirements of the DSR to be met by the person who obliterated the stamps as a precondition for a valid drawback claim. He also did not dispute that there could have been consequences for BWA’s failure to record the duty stamp numbers by way of a penalty from HMRC, as legislation provides for penalties for non-compliance with the DSR, but ultimately none was issued. On its face, he submitted, this supports any condition at para 4.5 EN207 being limited to the specific requirements for obliteration of a duty stamp set out in paragraph 2(3) of the DSR.

In relation to (ii) and the lack of clarity of the condition in paragraph 4.5 of EN207, Mr Thornton contended that if the condition was wide, incorporated compliance with all DSR requirements and did include the record keeping of BWA, this would bring the validity of the condition into question. At [117] of the Decision the FTT acknowledged that DFUK as a taxpayer and revenue trader was reliant on others, in this case its agent BWA, to affix or obliterate the duty stamp, reflective of the wider industry practice as a whole. At [118] the FTT found that the provisions of the DSR and Notice DS5 collectively applied directly to BWA as the person conducting the obliteration, and not to DFUK directly. This is save for one proviso.

At [119] the FTT decided that the only obligation on DFUK under the DSR appears to have been limited to notifying at the duty stamp team at HMRC of the intention to export goods that had duty stamps on them at least two clear days prior to export. However, he argued that the DSR imposed no such obligation on DFUK. The obligation is found in Regulation 24(2)(a) DSR and directly refers to “a person” who intends to carry out the obliteration, and that person was not DFUK. As highlighted, the point at para 4.5 Notice 207 to notify the duty stamp team was only a “note”. It did not contain any of the clear mandatory language that the FTT accepted was required for a condition in a public notice at [66]-[68] of the Decision. Further, neither the April 2019 nor the March 2021 versions of the public notice contained the statement that any or all of para 4.5 had the force of law.

In relation to (iii) Mr Thornton argued that steps taken before or after the obliteration could not be part of the condition. He noted that at [120] of the Decision the FTT noted that the language of para 4.5 was odd in that it referred to “you must first obliterate the duty stamp” referring to the drawback claimant, despite that referencing a person who was not ordinarily able to take that action. He developed this as follows:

He submitted that the fundamental flaw in this analysis is that it ties compliance with checks and the obtaining of records after the obliteration has already occurred. If the warehousekeeper’s record keeping obligation was not met, then no amount of after the event checks can change that and cause that to be recorded which had not been recorded prior to obliteration. Accordingly, the FTT’s analysis that the task for a drawback claimant is simple is wrong. The claimant is reliant on the correct actions of a separately approved and inspected individual to meet their obligations which are wholly outside of their experience or control.

In light of the above, Mr Thornton’s submission was that para 4.5 of EN207 did not impose a valid or effective condition at all:

It is unnecessary to record in any detail Ms McArdle’s arguments in response to Ground 1. She submitted that the FTT made no error of law in deciding that the record keeping obligation under the DSR was a condition of making a drawback claim under the EGDR by virtue of para 4.5 EN207. We have adopted many of her submissions, to the extent we agreed with them, in our reasoning below.

We do not accept Mr Thornton’s submissions on this ground. The FTT did not err in law in deciding that paragraph 4.5 EN207 contained a lawful condition forming part of the drawback claim procedure that the independent person removing duty stamps from bottles had to record the number of each stamp removed and/or that the claimant (in this case the Appellant) had to satisfy itself that such a record had been kept and/or that positive steps were ordinarily required by any claimant to ensure compliance (see Decision at [123]). The FTT did not err in finding that HMRC was entitled to take this non-compliance with a condition of the EGDR into account and acted reasonably in refusing the claim on this basis.

We consider that the FTT did not err in its Decision that the Appellant had failed to comply with paragraph 4.5 of the EN207 because it had failed to comply with Regulation 24(2)(b) of the DSR in ensuring that records were made of the URNos of the duty stamps that had been obliterated. Hence HMRC were entitled in law to refuse the claim to drawback on this ground pursuant to Reg. 7(1)(b) of the EGDR as there was a breach of a valid and effective condition imposed by EN207 which had the force of law.

We agree with all that the FTT stated at [65]-[68] as to how EN207 should be construed. The purpose behind the public notice is to set limits on when an excise duty drawback claim may be made. Those limits must be clear and precise and not impossible or excessively difficult to meet precisely in order for the EN207 to be valid and effective - to have the force of law by virtue of Reg. 7(1)(b) of the EGDR.

In relation to his first sub-ground, we do not accept that paragraph 4.5 of EN207 can reasonably be read as narrowly as Mr Thornton submits as only requiring compliance with the DSR in relation to the physical act of obliteration. The words ‘you must first obliterate the duty stamps in accordance with the DSR...’ should not be read in the narrow manner in which the Appellant contends. When read as a whole and in context it is clear that para 4.5 provides that a drawback claimant must ensure that when obliterating duty stamps they must comply with all the requirements of the DSR in relation to obliteration. This imports the requirements of Reg. 24(2) DSR as much as Reg. 2(3). If only part of the DSR were to comply then para 4.5 would have said so.

If there were any ambiguity in the phrase ‘obliterate the stamps in accordance with the DSR’ it is resolved by the following sentence in the guidance – ‘Note that at least 2 clear business day notice is required before you obliterate the stamps’. Mr Thornton suggested that this further sentence supported his construction as it would be unnecessary to include it if all the requirements of the DSR had been imported by the prior sentence. Furthermore, he submitted that this additional sentence, in only making implied reference to the notice requirement of Reg. 24(2)(a), was specifically excluding the possibility of the record keeping requirements of Reg. 24(2)(b) applying.

We consider that this additional sentence in fact undermines the Appellant’s construction. Reference to the notice requirement in EN207 reinforces the requirement in the prior sentence to comply with the whole suite of measures concerning how obliteration is to be effected ‘in accordance with’, meaning ‘as required by’, the DSR. The phrase ‘in accordance with the DSR’ is naturally to be construed as meaning ‘in compliance with the DSR’. It incorporates all the circumstances of how the stamps are to be obliterated in accordance with the law: the requirements of Reg. 24(2) DSR as to notice and record keeping as well as the narrow definition of the physical manner of obliteration in Reg, 2(3). It would be an absurd interpretation if a person could fail to comply with the mandatory requirements of Reg. 24(2)(b) that ‘a person must not deliberately obliterate or remove a duty stamp…unless—(b) .. he makes a record of the unique reference number of that stamp in his ordinary business records’ but yet be found to have obliterated duty stamps in accordance with the DSR for the purposes of making a successful drawback claim for the purposes of the condition in para 4.5 EN207.

There is also some further support for the FTT’s construction of paragraph 4.5 because paragraph 7.4 EN 207 provides that the Appellant must provide the supporting documentation relating to obliteration in support of the claim: “if the claim includes alcoholic goods subject to duty stamps, a copy of the notification of obliteration sent to the Duty Stamps team plus an extract from your records showing the details of the stamps that were obliterated.”

We agree with the FTT’s reasoning at [123]-[125] that there was a rational basis for the condition imposed by paragraph 4.5 of EN207, the prevention and detection of excise duty fraud. The FTT’s construction of paragraph 4.5 was also the purposive one. Therefore, it would not be disproportionately onerous for the Appellant or its agent to carry out, monitor or ensure compliance.

In relation to Mr Thornton’s second sub-ground, we do not accept there is a lack of clarity as to the condition imposed by paragraph 4.5 EN207 by virtue of the fact that the obliteration was carried out by the Appellant’s agent, BWA. The FTT’s approach at [65]-[68] and [120]-[125] of the Decision discloses no error of law. The condition in Reg. 24(2)(b) DSR, as imported by para 4.5 of EN207, was correctly interpreted. Regulation 24 had not, as a matter of undisputed fact, been complied with as unique reference numbers were not recorded by BWA or any other person. The Appellant had the responsibility to ensure compliance if it was to make a successful drawback claim. Consequently, refusal of the drawback claim in relation to all affected goods was lawful.

Thus, the Appellant’s secondary argument on Ground 1 fails: clear words have been used to impose the condition in para 4.5, that “you must first obliterate the duty stamps in accordance with the Duty Stamps Regulations”. There is no error of law in the FTT finding that the words amounted to a condition and that the Appellant, as much as BWA, had failed to meet it.

The Appellant’s argument in relation to para 4.5, that “any condition requiring compliance with record keeping must be minimal barring exceptional circumstances” also fails. There is no source for such a limitation, which has no authority. It is not available to the Appellant to argue, as it did in its Grounds of Appeal that: “as recorded at [127] in this case it was not possible to obtain such documentation”; and “In the event that the FTT is correct at [123] that the condition is more abstract requiring the person appointed to operate the de-stamping to act in accordance with any and all de-stamping rules, that is impossible or excessively difficult for a drawback claimant to achieve. They are not in control of the actions of such a person.”

The FTT made material findings of fact to the contrary, in relation to how the Appellant arranged for duty stamp obliteration at [32]-36]:

“32.

Having undertaken this exercise Mr Thornton was satisfied that the Appellant could proceed to arrange for the de-stamping and movement of the goods to The Netherlands. The Appellant approached BWA to carry out these tasks. BWA were selected because they were the cheapest provider (3-4 times cheaper than LCB).

33.

Mr Roy's unchallenged evidence sets out that BWA were experienced in the obliteration of duty stamps having been approved by HMRC and subject to a number of inspections over a period of time. He states that he was contacted by Mr Thornton in June 2020. Following some delays in setting up an account for the Appellant, he arranged for the transfer of four containers of goods from LCB to the BWA warehouse. On receipt the goods were logged using the same stock information as provided by LCB, new rotation numbers were recorded.

34.

Using the rotation numbers HMRC were notified of the proposal to de-stamp the goods on 12 November 2020. Mr Roy was aware that de-stamping could not begin until at least 2 clear days after the notification was given. The notification indicated that the goods would not be removed by way of dispatch prior to 19 November 2020, i.e. after the two clear days' notice had expired.

35.

The duty stamps were removed using a Dremel hand drill to obliterate the words "for the UK market" with a sticker then placed over the site of the drilling. BWA's business record of the stock information was noted to show that the relevant stock had been de-stamped. No record was made of the URNo of the stamp as Mr Roy did not understand there to be such a requirement in light of the other records maintained and which had been subject to HMRC inspection previously.

36.

There is no evidence, and we find that the Appellant did not, at any time, seek to verify for themselves that the provisions of the DSR regarding obliteration were complied with by BWA until after HMRC had refused the claim.”

There was no factual dispute, and the FTT accordingly correctly found as a fact, that the duty stamps were obliterated on direction of the Appellant by a third party, BWA. Far from the Appellant having no control of BWA, the FTT found that BWA acted on the direction of the Appellant and would not have obliterated the duty stamps had it not been so directed. It is not open to the Appellant to argue that it had no control of that process, having arranged with BWA for it to act on the Appellant’s behalf. Thus the reference to [127] of the Decision is not an accurate description of what was found: what the FTT actually noted there was that, by the time of the appeal, which came after the duty stamps had been obliterated, it was then impossible to produce a record of their unique reference numbers, not that it had been impossible to produce such records before de-stamping:

“127.

The breaches of paragraphs 4.5 and 7.4 are clearly connected. In the case of a claimant who is not authorised to obliterate duty stamps we would interpret paragraph 7.4 as requiring the provision of the records they obtained from the party which obliterated the stamps in order to satisfy themselves that obliteration had been carried out in accordance with the DSR. In this case such evidence does not exist as it is admitted that obliteration was not carried out fully in accordance with the DSR as the URNos were not recorded by BWA. There can therefore be no evidence which the Appellant was capable of producing.”

The Appellant’s third sub-ground likewise has no merit. The timing as to the requirements of lawful obliteration – whether the notice and record keeping requirements could effectively be complied with before or after obliteration, has no bearing on the lawfulness of the condition in para 4.5 EN207. There is nothing impossible or impractical in imposing these requirements as a condition that would render the condition, uncertain, void or ineffective such as it would be invalid.

The Appellant confirmed before the UT that it withdrew its reliance, first set out in the Grounds of Appeal, on compliance with this condition breaching Article 1 of the First Protocol (“A1P1”) of the European Convention on Human Rights. Furthermore, the argument had not been raised before the FTT.

In any event, the argument would be likely to have no substance because the necessity and proportionality of the condition could be established. HMRC considered it necessary at the time to impose conditions on drawback claims, including para 4.5 of EN 207, which served to reduce the risk of fraud in a field where it considered such risk to be high, by requiring recording of unique duty stamp reference numbers. That condition served to assist HMRC in: a) identifying if, for instance, obliteration had been fraudulently stated to have occurred where a unique reference number appeared on non-obliterated goods; or b) indicating that duty stamps were counterfeit, where a stamp bears a unique reference number of goods which have been obliterated. Such a condition would be likely to be proportionate in all the circumstances of this case, being in pursuit of the legitimate and sufficiently important aim of reducing the risk of fraud, being rationally linked to that aim, with no less intrusive measure applicable and striking a fair balance.

In conclusion, in answer to the Appellant’s sub-grounds, para 4.5 of EN207 did impose a valid and effective condition with which it failed to comply. Therefore, the FTT made no error of law in deciding HMRC were entitled to take this into account in refusing a claim for excise duty drawback:

This ground of appeal discloses no error of law in the Decision and is dismissed.