The Hindu Business Line : Measured interpretation of obscure law can lead to linguistic inflation

BLACK Death refers to the black plague that ravaged Europe in the mid-14th century and killed a third of its population. Black Death is also a brand that originated in Iceland in 1906, informs www.gjgreenall.co.uk. One learns from the site that the Black Death range of spirits is marketed in over 70 countries worldwide with annual sales of over 120 million bottles and cans, and that the brand `brings humour back to the vodka market'.

From www.beerliquors.com, I glean that in 1992, Luxembourg's Bureau of Alcohol, Tobacco, and Firearms banned the product saying that the liquor's name and label — featuring a sinister image of a grinning skull in black top hat — created `the misleading impression of bubonic plague and poison.'

However, the government lost the case when the ban was challenged in a federal district court the same year. "Very sweet vodka and cloying on the palate with strong taste of burned sugars, but very smooth with hardly a trace of needle," extols the site, for the discerning.

Too enticing, you'd agree, which explains what happened in 1998 when Greenalls Management Ltd of the UK delivered approximately 2,50,000 bottles of Black Death vodka from its excise warehouse to carriers acting for a company allegedly engaged in exporting vodka to Belgium and Spain. "No duty was paid on the basis that the goods were being moved from the warehouse for export. In fact, the documentation supplied to Greenalls was fraudulent and the vodka never reached the destinations specified. It was diverted for illicit disposal," reads the text of a recent judgment of the House of Lords.

The question in the case was whether Greenalls is liable for excise duty.

Harmonised rules

In February 1992, a Council Directive was issued to harmonise excise duty rules in the Member States of the European Union, "as part of the creation of a single market without fiscal frontiers" and to avoid multiple taxation. Accordingly, excise duty is chargeable "at the time of release for consumption", that is, "any departure, including irregular departure, from a suspension arrangement." And `suspension arrangement' is defined as a "tax arrangement applied to the production, processing, holding and movement of products, excise duty being suspended". What is suspended is the liability to pay, as in the case of holding dutiable goods in an excise warehouse, moving goods from a port to a warehouse or vice versa, and from a warehouse to a warehouse.

Thus, in the Greenalls case, though duty became chargeable (under the country's Alcoholic Liquor Duties Act, 1979) when the vodka was made, payment was suspended because the bottles were said to be moving from warehouse for export. Only, the goods ended up as `release for consumption'. An `irregular departure' as the directive postulates, and therefore liable to duty; but the problem was that the directive said nothing about who should pay the duty, and left it to be decided by Member States themselves.

Therefore, the court had to look at the provisions of the UK's Customs and Excise Management Act or CEMA. The chronological hierarchy in regulation 4(2) of the Act insists that excise duty point is to be the earlier of a list of events, viz. "(a) the time when the excise goods are delivered for home use from a tax warehouse or are otherwise made available for consumption, including consumption in a warehouse; (b) the time when the excise goods are consumed; and (f) the time when the excise goods leave any tax warehouse." The last event, however, is subject to exceptions as discussed in the `suspension arrangement' above.

The taxman's argument was that in the current case, what is relevant is the first event, that is, `made available for consumption' (regulation 4(2)(a)); and the court conceded that point, though "the identity of the person who made them available is unknown". The language of regulation 4(2) of the excise law is simply that the goods must have been made available for consumption, and there is no requirement that the goods should have been made available by anyone in particular.

However, there is regulation 5 that specifies authorised warehouse keeper as the person liable to pay the duty for an event, as in the Greenalls case. In which case the liability falls on the company. Lord Hoffman, whose opinion dominates the text of the judgment, points out that regulation 5 is entirely domestic and untouched by the duty to interpret legislation to give effect to European law. At this point, he devotes attention to why the members of the Court of Appeal had taken a different stand.

Opposite views

Lord Hoffman noted the view of Justice Jacob that one had to read the words `from the warehouse' after `made available for consumption'. Interestingly, Justice Jacob had remitted the case to the tribunal and directed it to find whether the diversion occurred when the goods left the warehouse or at some later stage, but both sides appealed. It had been argued in vain before Justice Jacob that such an interpretation would be unreasonable and unfair, imposing upon the warehouse keeper a liability which "he had done nothing to deserve".

To Justice Jacob, regulation 4(2)(a) was "essentially" about goods leaving the warehouse. Lord Hoffman differed: "But in my opinion one cannot proceed by constructing a theory about the essence of a statutory provision and then change the language to make it fit the theory. One must read what the statute actually says. Paragraph (a) is not primarily about goods leaving a warehouse."

Lord Hoffman also interpreted Sections 94 and 95 of CEMA which are about goods that have been warehoused but found to be missing or deficient. These sections are not primarily concerned with the time at which liability attaches, he said. "They specify the circumstances in which liability will arise and the persons who will be liable. Only indirectly will they determine the time of liability."

Look at the hierarchy specified in 4(2), he said: "It is to be the earlier of the events mentioned in paragraphs (a) to (f). How are sections 94 to 95 to be incorporated into this hierarchy?"

Don't miss reading Lord Hoffman's response to the view of Schiemann LJ on the appropriateness of bond, and to the reasoning of Carnwath LJ that `irregular departure' could be implied. On the argument that the Act prescribes `a contemporaneous connection with the goods', Lord Hoffman had this to say: "In my opinion a warehouse keeper has a connection with goods which leave his warehouse under movement suspension arrangements. The fact that this connection lies in the past when the goods are diverted does not mean that it cannot be prescribed as a ground for liability." Thus, his ruling went in favour of the Revenue.

Concurred, with hesitation

Lord Nicholls of Birkenhead, Lord Steyn and Lord Hope of Craighead agreed with Lord Hoffman's reasoning. But Lord Walker of Gestingthorpe had something more to say than merely agreeing. There is no unfairness, he said, in requiring Greenalls to pay duty even where it was not at fault, as in the present case. "Nevertheless, it is still a principle of British law that if taxes and duties are to be imposed, they should be imposed by clear words," he added, and also cited a precedent:

"If Parliament is to impose fiscal liabilities which might be regarded as draconian it should do so in terms which, fairly construed, are reasonably clear."

To Lord Walker, therefore, language of regulations 4 and 5 was remarkably and exceptionally obscure. "All too often judges feel constrained to describe taxing provisions as obscure, using more or less measured language to do so, and there is some danger of a sort of linguistic inflation setting in," he remarked, before reluctantly agreeing to Lord Hoffman's view.

Good reading for the weekend, with you choicest drink at hand.

Tailpiece

"Dipping into reserves to pay interest is like... "

"Working overtime to pay tax?"

"No, it's like feeding with seed grain!"

Detaxification@TheHindu.co.in

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