Neutral Citation Number: [2018] EWCA Civ 1406
Case No: A3/2017/2063
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
(ASPLIN J and UPPER TRIBUNAL JUDGE BISHOPP)
[2017] UKUT 0245 (TCC)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 19/06/2018
Before:

LORD JUSTICE McFARLANE
LORD JUSTICE SALES
and
SIR COLIN RIMER
- - - - - - - - - - - - - - - - - - - - -
Between:

	Lithuanian Beer Limited	Appellant	
	- and -		
	The Commissioners for Her Majesty’s Revenue and Customs	Respondent	

- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -

Geraint Jones QC (instructed by Rainer Hughes) for the Appellant
James Eadie QC and Simon Pritchard (instructed by HMRC) for the Respondent

Hearing date: 7 June 2018
- - - - - - - - - - - - - - - - - - - - -
Judgment Approved
Lord Justice Sales: 
1.	This is an appeal from the decision of the Upper Tribunal (Tax and Chancery Chamber) (Asplin J and Judge Colin Bishopp) (“the UT”) in which it dismissed an appeal by the appellant, Lithuanian Beer Limited (“LBL”), against a decision of the First-tier Tribunal (Judge Jonathan Richards) (“the FTT”). The FTT dismissed LBL’s appeal against an assessment by the respondents (“HMRC”) for underpaid duty in respect of flavoured ciders imported by it. 
2.	At the material time LBL carried on a business which included the importation of what were described as flavoured ciders. In these proceedings it has been common ground that, because of their composition, the flavoured ciders attract excise duty at the rate applicable to “made wines”, rather than the lower rate charged on conventional cider. However, by a mistake on the part LBL, between December 2007 and January 2011 LBL imported the flavoured ciders and paid duty on them at the rate applicable to cider. 
3.	The mistake was discovered in circumstances described below, with the result that on 14 November 2011 HMRC assessed LBL for the underpaid duty, amounting (after some downward adjustment) to £189,661.57. HMRC issued the assessment pursuant to their power to do so under section 12(1) of the Finance Act 1994. LBL appealed to the FTT against the assessment, on the sole ground that it was made out of time. 
4.	The relevant limitation provision is section 12(4) of the 1994 Act, which states:
“An assessment of the amount of any duty of excise due from any person shall not be made under this section at any time after whichever is the earlier of the following times, that is to say—
(a) subject to subsection (5) below, the end of the period of 4 years beginning with the time when his liability to the duty arose; and
(b) the end of the period of one year beginning with the day on which evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge;
but this subsection shall be without prejudice, where further evidence comes to the knowledge of the Commissioners at any time after the making of an assessment under this section, to the making of a further assessment within the period applicable by virtue of this subsection in relation to that further assessment.”
(Prior to 1 April 2011, the time period in sub-paragraph (a) was three years, but nothing turns on this because the relevant sub-paragraph in this appeal is (b)). 
5.	On its appeal to the FTT, LBL submitted that on or prior to 14 November 2010 HMRC had knowledge of evidence of facts falling within the ambit of section 12(4)(b), so that its assessment issued on 14 November 2011 was out of time according to that provision. The FTT held that this was not the case. Its decision was upheld by the UT.

Factual background
6.	HMRC were aware that LBL carried on a drinks importation business, including importation of the flavoured ciders in issue. In February 2010, an HMRC officer called Miss Salami visited LBL’s premises to carry out an arithmetic exercise to check that the duty being paid in respect of the flavoured ciders (which LBL believed at that time constituted cider for excise duty purposes) was calculated in the right amount. She had not been asked to verify that the flavoured ciders were correctly classified as cider for excise duty purposes. LBL provided Miss Salami with all its paperwork in relation to the importation of the flavoured ciders in the period January 2009 to January 2010, including invoices, shipping documents and what were referred to as “certificates of conformity” in relation to each consignment. The certificates of conformity and other documents referred to the flavoured ciders as “blueberry, strawberry and cherry fizz”. The certificates of conformity contained detailed information about their ingredients. 
7.	A person who examined the certificates of conformity with care and attention and compared the information about ingredients with the relevant HMRC notice, Excise Notice 162, regarding classification for excise purposes would have realised that the flavoured ciders should have been classified as “made wines” for excise duty purposes, and charged duty at a higher rate than for ordinary cider. However, Miss Salami had not been asked to check on the classification of the imported goods and she did not undertake that exercise. Although the documentation was made available to her, she did not appreciate that LBL had made a mistake in classifying the goods as cider and in paying duty at the lower rate applicable to cider. 
8.	On 2 November 2010, another HMRC officer, Mr Ansah, made another visit to LBL’s premises to check on the duty it had been paying in the period up until then. LBL made available to him a range of documentation and records which he asked for, including invoices and shipping records. As before, some of these documents referred to the flavoured ciders as “blueberry, strawberry and cherry fizz”. As with Miss Salami, certificates of conformity were made available to him which included information about the ingredients of the flavoured ciders. If that information was compared with Excise Notice 162, it would have shown that the flavoured ciders should have been charged duty at the higher rate for “made wines”. However, Mr Ansah did not read the certificates of conformity in detail at this stage.
9.	At the end of his visit, Mr Ansah asked for copies of some of the documents which had been made available to be sent to him at his office. These were sent in batches on different dates, the last one being on 3 December 2010, i.e. after 14 November 2010, the critical date for the purposes of the limitation period in section 12(4)(b). The FTT was not satisfied on a balance of probabilities that any of the certificates of conformity on which LBL sought to rely for the purposes of the limitation defence under section 12(4)(b) had been sent to Mr Ansah on or before 14 November 2010. 
10.	It is unclear if Mr Ansah studied the documents immediately they came through, or later, or at any time. The FTT made no findings about that, because on its analysis it was unnecessary to do so and Mr Ansah had not been called to give evidence. 
11.	The FTT’s findings in relation to Mr Ansah can be summarised in this way. During his visit of 2 November 2010 Mr Ansah identified the evidence he needed to examine in detail on a later occasion, by satisfying himself that the documents he asked to be copied and sent on to him were relevant to his inquiry. But he went no further in his examination of them at that stage. On 2 November 2010 Mr Ansah only carried out a preliminary scoping exercise to pull out documents which appeared relevant, in that they might assist with his investigation to gain an understanding of the proper characterisation of the flavoured ciders for excise duty purposes and hence merited being extracted from the full set of available documentation so as to allow for detailed examination of them at a later stage. He would only have acquired knowledge sufficient to arrive at the view that the flavoured ciders should not have been charged to duty at the rate for ordinary cider, but at the higher rate for “made wines”, when he examined in detail the documents which LBL sent to him and compared the information about ingredients which they contained with Excise Notice 162. On the FTT’s findings, LBL was unable to show on the balance of probabilities that this occurred until after 14 November 2010, if, indeed, it happened at all. This was the factual basis on which the UT approached its analysis as well.  
12.	Meanwhile, another HMRC officer, Ms Gower, had seen copies of invoices issued by LBL to another trader for supply of flavoured ciders, and this led her to question how they should be classified for excise duty purposes. On 21 October 2010 she asked another officer, Mr Gowrea, to visit LBL’s premises to carry out checks about this. His attention was drawn to Excise Notice 162. 
13.	Mr Gowrea was busy with other matters and it was only on 19 April 2011 that he visited LBL. He raised the issue of whether the flavoured ciders should be classified as “made wines”. It was agreed that LBL would provide him with a spreadsheet giving details of relevant imports of flavoured cider. Further investigation and correspondence followed. On 12 July 2011, LBL sent Mr Gowrea the spreadsheet he had requested (“the spreadsheet”). Mr Gowrea cross-checked this with information from the shipping agent obtained on 5 August 2011. Some unintentional discrepancies in the spreadsheet were identified. However, the FTT found that the spreadsheet and the cross-checking exercise did nothing more than duplicate information which HMRC already had from the invoices which it had already obtained from LBL. Following this process, on 14 November 2011 Mr Gowrea issued the assessment in issue in these proceedings. In order to be in a position to do so, Mr Gowrea needed to have sufficient information regarding the extent of the imports of flavoured ciders made by LBL together with information about the ingredients of the flavoured ciders in respect of which duty was due, to enable him to ascertain that duty should have been paid in respect of them at the rate for “made wines”. 
14.	LBL appealed to the FTT. Its case was that HMRC had relevant knowledge of evidence of facts for the purposes of section 12(4)(b) either when Miss Salami visited LBL in February 2010 and had the certificates of conformity made available to her (even though it was not shown that she had examined or digested their contents at that time) or when Mr Ansah visited LBL on 2 November 2010 and examined the available documents sufficiently to extract those which he wished to look at in detail later on. The FTT dismissed both these limbs of LBL’s appeal. 
15.	HMRC’s primary case before the FTT was that HMRC only had knowledge sufficient to meet the test in section 12(4)(b) when Mr Gowrea received the spreadsheet and had been able to cross-check it with other information. The FTT did not accept HMRC’s case in this respect, in view of its finding that the spreadsheet and cross-checking carried out by Mr Gowrea did nothing more than duplicate information that HMRC already had in the form of the underlying invoices they had collated. In the view of the FTT as set out at [77], “the information in the spreadsheet, and the results of the ‘cross-checking’ exercise were not of ‘sufficient weight to justify the making of the assessment’”; that is to say, so far as the volume of the imported flavoured ciders was concerned in relation to any under-payment of duty, HMRC already had sufficient information about that for the purposes of any assessment from the information about volume already supplied by LBL when accounting for duty on the imports at the duty rate for ordinary cider, as verified by the copy invoices which HMRC had been able to obtain by 3 December 2010 through Miss Salami’s and Mr Ansah’s efforts.
16.	On its appeal to the UT, LBL sought to adduce further evidence, but its application to do so was dismissed. There is no appeal against that ruling of the UT. In the light of that ruling, on its substantive appeal LBL no longer sought to rely on the knowledge of Miss Salami for the purposes of satisfying the test in section 12(4)(b). It continued to rely on Mr Ansah and what he had learned on his visit to LBL on 2 November 2010.
17.	The UT held, in agreement with the FTT, that the knowledge of Mr Ansah as it stood at 2 November 2010 was not sufficient to satisfy the test in section 12(4)(b): [36]-[40]. The UT also went on at [41] to give a further reason for dismissing LBL’s appeal, namely that in fact the relevant date for the purposes of section 12(4)(b) was when Mr Gowrea had finished his cross-checking exercise in respect of the spreadsheet received by him in July 2011. According to the UT, Mr Gowrea’s view had been that the cross-checking exercise was necessary before an assessment could be issued and the FTT had found that this was a reasonable view, and this meant that the starting date for the purposes of section 12(4)(b) was postponed until that exercise had been carried out. The UT gave its alternative ground for dismissing the appeal without that having been raised by HMRC as an issue on the appeal and without the UT giving notice to the parties prior to giving judgment that it was considering dismissing the appeal for this additional reason. 
18.	LBL now appeals to this court on two grounds: (1) the FTT and the UT should have found that Mr Ansah’s knowledge as at the time of his visit to LBL on 2 November 2010 was sufficient to satisfy section 12(4)(b) (hence the assessment issued on 14 November 2011 was out of time by virtue of that provision); and, (2) as regards the UT’s alternative reasoning at [41] of its decision, the UT acted in a way which was procedurally unfair, by not giving LBL an opportunity to make submissions on the point, and had arrived at an incorrect conclusion on the point: it had disregarded the reasoning of the FTT at [77] of the FTT’s decision, which could not be faulted. Mr Jones QC, for LBL, accepts that we only need to deal with Ground (2) if he is successful on Ground (1).
Discussion
19.	Ground (1) turns on a short but important point of statutory interpretation in respect of section 12(4)(b) of the 1994 Act. The critical question is, what matters have to come to the knowledge of the commissioners in order to trigger the start of the one year limitation period in section 12(4)(b)? 
20.	Since the sub-paragraph refers to “knowledge” of the commissioners, it is necessary to identify some human agent acting for the commissioners who has actual knowledge of the relevant matters referred to in that sub-paragraph. The relevant agent relied upon here is Mr Ansah, and it is his state of knowledge as at 2 November 2010 which is material.
21.	On the footing that the appeal is to be approached on the basis of the facts as set out above, Mr Jones submits that on 2 November 2010 Mr Ansah acquired knowledge of evidence of facts relevant to the question whether an assessment for unpaid duty could be made, in that he knew from inspection of the files that the documents made available to him by LBL on that day contained information which was relevant to any conclusion to be reached in relation to the matter he was investigating, namely whether the flavoured ciders were properly classified as ciders or as “made wines” for excise duty purposes. He had sufficient information about the volume of the imports of flavoured ciders by LBL. He did not appreciate on that date that the information in the documents extracted by him for copying and onward transmission to him showed that the flavoured ciders should in fact be classified as “made wines”, but he knew that there was a body of evidence likely to bear upon that question which he had taken active steps to identify for himself. Looking objectively at the documents comprising that evidence, it can be seen that they did answer the question, by showing the ingredients of the flavoured ciders, which information could be compared with the guidance in Excise Notice 162. This is sufficient for the purposes of section 12(4)(b). 
22.	Mr Jones contends that the language of section 12(4)(b) focuses on knowledge of evidence of facts, which is distinct from knowledge of the facts which might appear from examination of that evidence. He also emphasises that in this case Mr Ansah was in a position to make targeted requests for relevant documents. Mr Jones says that this makes it very different from the sort of case paraded on the other side by Mr Eadie QC, for HMRC, of a customs official being put into a room with a large number of files available to him, with it later being said that by virtue simply of having the documents available to him the official had knowledge of “evidence of facts” to a degree sufficient to satisfy the test in section 12(4)(b). Mr Jones argued that this perhaps unattractive conclusion was not entailed by his analysis in this case; but if he was wrong about that, then the conclusion was simply required by the language of section 12(4)(b).
23.	Mr Eadie, on the other hand, submits that the phrase in section 12(4)(b), “evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge”, has to be read as a whole, rather than by distinguishing between knowledge of evidence relating to relevant facts and knowledge of what that evidence actually shows about the facts in question. He contends that the phrase requires that the relevant HMRC official has actual knowledge of “evidence of facts”, in the sense that he knows what the evidence shows in relation to those facts and that it is capable of supporting an assessment requiring payment of unpaid duty. 
24.	The parties are agreed that relevant guidance is to be found in the judgment of Dyson J (as he then was) in Pegasus Birds Ltd v Customs & Excise Commissioners [1999] STC 95, construing section 73(6)(b) of the Value Added Tax Act 1994, which is in materially identical terms to section 12(4)(b) in our case. Dyson J’s decision and his reasoning were approved by this court on appeal: [2000] STC 91. The guidance given by Dyson J is set out in six propositions at [1999] STC 95, 101-102:
 “1. The commissioners’ opinion referred to in s 73(6)(b) is an opinion as to whether they have evidence of facts sufficient to justify making the assessment. Evidence is the means by which the facts are proved.
2. The evidence in question must be sufficient to justify the making of the assessment in question (see Customs and Excise Comrs v Post Office [1995] STC 749 at 754 per Potts J).
3. The knowledge referred to in s 73(6)(b) is actual, and not constructive knowledge (see Customs and Excise Comrs v Post Office [1995] STC 749 at 755). In this context, I understand constructive knowledge to mean knowledge of evidence which the commissioners do not in fact have, but which they could and would have if they had taken the necessary steps to acquire it.
4. The correct approach for a tribunal to adopt is (i) to decide what were the facts which, in the opinion of the officer making the assessment on behalf of the commissioners, justified the making of the assessment, and (ii) to determine when the last piece of evidence of these facts of sufficient weight to justify making the assessment was communicated to the commissioners. The period of one year runs from the date in (ii) (see Heyfordian Travel Ltd v Customs and Excise Comrs [1979] VATTR 139 at 151, and Classicmoor Ltd v Customs and Excise Comrs [1995] V&DR 1 at 10).
5. An officer’s decision that the evidence of which he has knowledge is insufficient to justify making an assessment, and accordingly, his failure to make an earlier assessment, can only be challenged on Wednesbury principles, or principles analogous to Wednesbury (see Associated Provincial Picture Houses Ltd v
Wednesbury Corp [1948] 1 KB 223) (see Classicmoor Ltd v Customs and Excise Comrs [1995] V&DR 1 at 10–11, and more generally John Dee Ltd v Customs and Excise Comrs [1995] STC 941 at 952 per Neill LJ).
6. The burden is on the taxpayer to show that the assessment was made outside the time limit specified in s 73(6)(b) of the 1994 Act.”
25.	In my view, this guidance supports the approach contended for by HMRC and adopted by the FTT and the UT below. Proposition 3 emphasises the importance of the word “knowledge” in the sub-paragraph. Constructive knowledge is not sufficient. Yet Mr Jones’s submission amounts in effect to a plea for constructive knowledge to be treated as sufficient. He says that it is enough for the relevant HMRC officer to know that relevant evidence exists, even though he does not know what its contents are. This is constructive knowledge of the facts said to be evidenced by the material in question. Proposition 1 makes the point that in this context there is no distinction to be spelled out of the phrase, “evidence of facts”, between knowing that evidence exists and knowing what that evidence reveals about the facts of the case. 
26.	Section 12(4)(a) sets out the ordinary limitation period which is applicable. Sub-paragraph (b) is clearly intended to operate on a narrow basis. But the interpretation proposed by Mr Jones would make its application very wide, creating the risk that it would subsume the ordinary limitation period in many cases, to an extent which Parliament did not intend. The object of sub-paragraph (b) is to give effect to a principle of fair treatment of taxpayers which is much narrower. If HMRC make a later assessment to claim underpaid tax, relying on a number of factual building blocks based on evidence they have seen, a shorter limitation period is appropriate if they knew about that evidence and what it revealed earlier on but sat on their hands and failed to take prompt action on the basis of it. 
27.	The structure of section 12(4)(b) itself and the guidance given by Dyson J supports this interpretation. The phrase, “sufficient in the opinion of the Commissioners to justify the making of the assessment”, is a reference to the opinion actually formed by the Commissioners at the time when they issue the assessment which is in dispute in the proceedings: see Dyson J’s proposition 4(i). Proposition 4(i) is modified by his proposition 5 if it appears that the officer acting for the Commissioners has behaved irrationally or in a Wednesbury unreasonable way in taking the view that an assessment could not be issued on the basis of some less complete set of evidence than he in fact required to be available before he thought that he could justify making the assessment in question. 
28.	Sub-paragraph (b) in section 12(4) requires that one identifies the evidence taken into account by the officer who issues the assessment as the justification for issuing it (or, under proposition 5, the evidence of which he was aware which ought rationally to have compelled him to reach the opinion that an assessment would be justified at some earlier stage), and compares that with the “evidence of facts” which it is said the Commissioners knew a year or more before the assessment came to be issued. Both elements in the comparison turn on the subjective state of mind of HMRC officers regarding what they understand the evidence available to them actually shows. If the “evidence of facts” known to the Commissioners previously was the same as the evidence of facts which led them to form the opinion later on that an assessment was justified (or, on a Wednesbury approach, should have led them to form that opinion), then it will be clear that the Commissioners have sat on their hands and the special, truncated limitation period in sub-paragraph (b) will apply. 
29.	It is this comparative exercise to which Dyson J refers in proposition 4(ii). In my view, it is clear that where he speaks of the last piece of evidence being “communicated” to the Commissioners, he means that it is communicated in such a way that the contents of the evidence are in fact known to them. He does not mean that it is sufficient that the evidence is made available to them, although it is not read and digested by them.
30.	Despite Mr Jones’s efforts to distinguish the present case from a situation in which documents are made available to an HMRC officer in a general sense, such as where he is simply presented with a room full of documents and told that he can look at anything he likes, there is no viable dividing line to be drawn. In that situation, the officer will not have knowledge of the “evidence of facts” contained in each and every document in the room. It is unrealistic to suppose that Parliament intended that the special limitation period in section 12(4)(b) is applicable in such a case. The officer will only have such knowledge where he reads and digests the contents of particular documents. Similarly, in our case, Mr Ansah did not have knowledge of the “evidence of facts” contained in the certificates of conformity until he read and digested their contents, if he ever did. On the findings of fact which were made, this did not happen before the critical cut-off date for limitation purposes of 14 November 2010.
31.	I agree with the way in which the UT explained the point at [39]-[40]:
“39. … Mr Ansah was not fixed with knowledge of the evidence until he had acquired it, and in this case he acquired it, not when it was identified to him in the course of his visit, and when (as we understand the judge’s findings) he went no further than to satisfy himself that it was relevant, but when the copies sent to him were received.
40. We can illustrate that conclusion by a simple example. Suppose an officer has attended a trader’s premises, as Mr Ansah did, with a specific enquiry in mind. He did not know, before he attended, what documents the trader might have which would assist him, but observed during his visit that the trader had various records which might or might not be relevant. As he did not have the time to examine them there and then he asked for copies to be sent. When the copies arrived the officer examined them, discovering that some were and some were not relevant to his enquiry. They reveal an underpayment of duty or tax which become the subject of an assessment. We do not see how it can reasonably be said that “evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment” came to their knowledge on the occasion of the visit; all the officer was able to do was determine that material which might contain evidence existed. That illustration is not quite parallel to the position here, as Mr Ansah identified material which was, rather than might have been, relevant, but the essential point remains the same: he identified the material, but was not in a position to identify the “evidence of facts” until the copies were supplied and he had the opportunity of examining them. That was, in substance, the conclusion of the FTT, and we see no flaw in the judge’s reasoning on that issue.”     
32.	For the reasons I have given, I consider that the FTT and the UT applied section 12(4)(b) correctly to the facts in this case. I would reject Ground (1), with the consequence that the appeal should be dismissed. 
33.	It is not necessary to deal with Ground (2). However, since we heard submissions about it, I should briefly indicate that I would have been disposed to accept both parts of this ground of appeal. I think that the UT erred in failing to give LBL an opportunity to make submissions on the new point raised in its decision at [41]. I also think that the FTT gave good reasons at [77] of its decision why the spreadsheet was not a critical piece of evidence for HMRC and why the view could and should have been formed earlier on that HMRC had sufficient information about the quantity of the imports to be able to conclude that this building block was in place to justify the issue of an assessment for underpaid duty in respect of those imports at a time before the spreadsheet was received.  
Conclusion
34.	For the reasons set out above, I would dismiss this appeal.
Sir Colin Rimer:
35.	I agree.
Lord Justice McFarlane:
36.	I also agree.