Seabrook Warehousing Ltd operated bonded warehouses in which it received, stored and exported alcoholic goods under warehousing for export arrangements. Under those arrangements the company was entitled to drawback, which was the repayment of the excise duty that had been paid on those goods, where the goods were to be exported to other Member States of the EU.
The purpose of the system was to prevent double taxation. The alternative system, involving direct export arrangements, covered the situation where duty paid goods were exported and the duty reclaimed after export upon proof of receipt abroad and duty paid in the receiving country. The warehousing for export arrangement had a clear cash flow advantage over the direct export arrangements.
In June 2006 Her Majesty’s Revenue & Customs Commissioners (HMRC) carried out a consultation exercise on proposed changes to the drawback scheme because of the risk of fraud. Following that consultation the scheme was changed to allow HMRC’s officers a greater period within which to inspect goods stored in the bonded warehouses. There was an immediate reduction in claims for drawback, but thereafter claims increased considerably especially in relation to beer. HMRC officers suspected fraud similar to VAT fraud. In April 2009 an impact assessment (the IA) was drawn up for the Minister on a proposal to abolish the warehousing for export scheme. The costs of the change were estimated and based upon information gathered during the 2006 consultation. The Minister accepted the findings set out in the IA and the Excise Goods (Drawback) (Amendment) Regulations 2009 were made by the Commissioners. The Regulations had the effect of abolishing the warehousing for export arrangements from 1 July 2009.
The company, together with others and trade bodies sought to challenge the validity of the Regulations by judicial review. They argued that the change would have a devastating effect on their businesses and that the regulations were unlawful because the decision had been taken without consultation in circumstances where fairness demanded that consultation take place and that the Minister and the Commissioners had failed to take into account highly material considerations, namely the effect on the commercial impact on their businesses, the factors that had led to the increase of drawback claims and whether the new regime would serve to reduce fraud. Mr Kenneth Parker QC, sitting as a deputy High Court judge, refused their claim. The company appealed.
Dismissing the appeal, the Court of Appeal held:
(1) The IA will have been sufficient to sustain the validity of the decision to make the Regulations if the departmental staff carried out an evaluation, analysis and précis of the available material and drew to the attention of the Minister and the Commissioners the salient facts which gave shape and substance to the matter. The IA did recognise that the withdrawal of drawback under the warehousing for export scheme would, in some cases, have a significant impact on businesses.
(2) There did not need to be further consultations to clarify the precise impact before the Regulations were approved. The 2006 consultation had only recently been concluded and the consultees had been asked specifically about the effect of withdrawing the warehousing for export scheme.