Traders who come into possession of alcohol or other dutiable goods on which duty has not been paid are subject to stiff penalties, regardless of whether they have acted deliberately. The regime came under judicial scrutiny in an important test case after a company complained that its human rights had been violated.
The alcohol wholesaler received a £31,864 penalty under the Finance Act 2008 after alcohol on which duty had not been paid passed down a supply chain and into its hands. HM Revenue and Customs did not allege that the company had acted deliberately or made any attempt at concealment.
Section 154(2) of the Customs and Excise Management Act 1979 cast on the company a reverse burden of proof, by which it was required to establish that duty on the relevant goods had in fact been paid. It was argued that that provision amounted to a breach of Article 6 of the European Convention on Human Rights, which enshrines the right to a fair hearing and the fundamental principle that everyone is innocent until proved guilty.
The company pointed out that innocent traders face great difficulty in establishing whether duty has been paid on dutiable goods, not least because of suppliers’ reluctance to impart commercially sensitive information about their sources. The company’s challenge to the penalty was, however, rejected by the High Court.
In dismissing the company’s appeal against that ruling, the Court of Appeal noted that the penalty was essentially regulatory, not criminal, in nature and did not entail any moral or social stigma. The collection of duty was of the highest importance and traders who handled dutiable goods were well aware of the risk of penalties being imposed in specified circumstances.
Traders could be expected to employ due diligence in ensuring that duty had been paid on dutiable goods that came into their possession and, although such steps were not foolproof, a defence of reasonable excuse was available. It was reasonable and proportionate that some burden was cast on traders to take reasonable steps to satisfy themselves that duty has been paid on stock purchased by them. In those circumstances, the reverse burden of proof was compatible with Article 6.