#6848 - British Steel Plc V. Customs And Excise Commissioners - Restitution of Unjust Enrichment BCL

British Steel plc v. Customs and Excise Commissioners

Facts

The essential facts are these. (i) British Steel has been a user of hydrocarbon oil in blast furnaces for steel making in the United Kingdom. This is admitted by the commissioners. (ii) The hydrocarbon oil used by British Steel in its blast furnaces is injected into the furnaces as a chemical reducing and extraction agent and is not used as fuel. This is denied by the commissioners and, if the action is allowed to continue, will be the principal, and perhaps the only, issue of fact to be resolved at trial. It is, as is common ground, a complex technical issue. (iii) Over the period January 1988 to December 1993 the commissioners demanded payment of hydrocarbon oil duty on the oil delivered to and used at four British Steel blast furnaces. The duties demanded were paid.

It is alleged, in the statement of claim, that, under s 9 of the Hydrocarbon Oil Duties Act 1979, British Steel was entitled to have deliveries of oil to its blast furnaces made free of excise duty and entitled, since deliveries were not made free of duty, to repayment of such duty. This allegation requires British Steel to succeed in establishing that the oil was not used as fuel.

Relevant Statutory Provisions: The section under which relief from duty is made available is s 9. Section 9(1) provides:

“The Commissioners may permit hydrocarbon oil to be delivered for home use to an approved person, without payment of excise duty on the oil, where—(a) it is to be put by him to a use qualifying for relief under this section; or (b) it is to be supplied by him in the course of a trade of supplying oil for any such use.”

Section 9(2) sets out 'the uses of hydrocarbon oil qualifying for relief under this section' and goes on expressly to state that those uses 'do not include the use of the oil as fuel …'

Section 9(4) provided that:

“Where the Commissioners are authorised to give permission under subsection (1) above in the case of any oil, but the permission is for any reason not given, they shall, if satisfied that the oil has been put by an approved person to a use qualifying for relief under this section, repay to him the amount of the excise duty paid on the oil, less any rebate allowed in respect of the duty.”

Approved person: I shall have to return to this issue and it suffices for the moment to notice that whereas sub-s (1) makes provision for prospective relief to be allowed in advance of the excise duty becoming payable on delivery of the oil, sub-s (4) provides for retrospective relief to be obtained in certain cases where the duty has already been paid. Under both subsections, the identification of an 'approved person' is required. Under sub-s (1) the delivery of the oil must be to an approved person; under sub-s (4), the oil must have been put to the qualifying use by an approved person.

British Steel’s application for relief to HMRC: A letter dated 11 January 1988 from the commissioners to British Steel makes clear that the dispute as to whether the use of the oil in the blast furnaces qualifies for relief from excise duty has been rumbling on since 1971 or earlier. The letter noted that 'following refusal of relief BSC revived the matter in 1973 and yet again in 1976' and said that following—

“Very exhaustive consideration … it was decided that the claim to relief (now governed by section 9 of the Hydrocarbon Oil Duties Act 1979) had not been established and was therefore unacceptable because the oil was in effect held to be used as fuel.”

Holding

Richard Scott VC

First, was British Steel's use of the oil a qualifying use for s 9(1) purposes? Second, was British Steel entitled to be treated as an 'approved person' for s 9(1) purposes?

Right to Restitution – Woolwich applies

It is convenient to deal first with the second of the two points. If the demands by the commissioners for excise duty to be paid on the hydrocarbon oil to be delivered to British Steel's blast furnaces were unlawful demands, it would follow, in my opinion, from the decision of the House of Lords in Woolwich Building Society v IRC (No 2) [1992] 3 All ER 737, [1993] AC 70, that whoever paid the duty would have a common law restitutionary right to repayment.

Citing Lord Goff in Woolwich:

“As at present advised, I incline to the opinion that this principle should extend to embrace cases in which the tax or other levy has been wrongly exacted by the public authority not because the demand was ultra vires but for other reasons, for example because the authority has misconstrued a relevant statute or regulation.”

In the present case, it is contended that the commissioners' demand for excise duties was unlawful because the commissioners had made an error in deciding that the use of the oil in the British Steel blast furnaces was not a 'qualifying use' and, consequently, had wrongly refused to grant relief from duty under s 9(1). I have yet to examine whether that premise justifies a conclusion that the demands were unlawful; but, if it does, I can see no reason why the principle expressed by Lord Goff should not apply.

An unlawful demand for duty must, in a sense, always be an ultra vires demand. Whether the demand is based on ultra vires regulations, or on a mistaken view of the legal effect of valid regulations, or on a mistaken view of the facts of the case, it will, as it seems to me, be bound to be a demand outside the taxing power conferred by the empowering legislation. If, for any of these reasons, a demand for tax is an unlawful demand, it seems to me to follow from the speeches of the majority in the Woolwich case that the taxpayer would, prima facie, become entitled, on making payment pursuant to the unlawful demand, to a common law restitutionary right to repayment.

Difference between this case and Woolwich – but irrelevant

I turn to the question, in my opinion the critical one, whether British Steel has an arguable case that the commissioners' demands were unlawful demands. On this question British Steel's case is nothing like the case that the Woolwich were able to put forward. The Revenue's tax demands were based on void taxing provisions. The commissioners' demands were based on s 6 of the 1979 Act. Section 6 was, and is, unquestionably a valid and mandatory taxing provision: '… there shall be charged on hydrocarbon oil … a duty of excise.' One of the events on which the excise duty became chargeable was the delivery of the oil 'for home use'. Use in the British Steel blast furnaces was 'home use'. So excise duty was, prima facie, exigible. It had to be paid in order to achieve the release of the oil from the bonded warehouse, or other premises, where it was stored and to enable the oil to be delivered to the blast furnaces. So this is not a Woolwich case.

Lord Goff regarded the Revenue's assertion that it was not under an obligation to repay the tax as being 'as a matter of common justice … unsustainable'. He inclined to the opinion that the common law restitutionary action would be available in any case in which 'tax or other levy has been wrongly extracted …' (see[1992] 3 All ER 737 at 759, 764.[1993] AC 70 at 172, 177). In the present case, if s 9(1) relief were wrongly refused, it is difficult, in common sense, to regard the duty as otherwise than 'wrongly extracted'.

The justice of the case does not, in my opinion, change if tax has been demanded not pursuant to an invalid regulation but as a consequence of an unlawful refusal to grant relief from the tax.

Approved person point – Conceded

British Steel never in fact made a formal application to be an 'approved person'. But it was throughout understood by both sides that the only outstanding issue was the factual issue relating to the nature of British Steel's use of the oil.

He went further, however, and, as I understood it, conceded that if s 9(1) relief had been refused on the erroneous footing that the proposed use of the oil was not a qualifying use, the decision to refuse relief would have been an unlawful one. I did not understand him to take the pleaded point that British Steel was never 'an approved person', and that the decision to refuse s 9(1) relief was for that reason, and whether or not the commissioners were in error on the qualifying use issue, a lawful one. He was, in my judgment, right to decline this point. The only reason British Steel were not 'within the frame which s 9 sets', as Laws J had put it, was that the commissioners took the view that the proposed use of the oil was not a qualifying use…. But for that point, the commissioners would have treated British Steel as an approved person and have allowed deliveries free of excise duty pursuant to s 9(1).

One answer might be that British Steel was never an 'approved person' and that s 9(1) relief could not have been granted.

I am reluctant to accept this answer. During the whole period over which correspondence between British Steel and the commissioners took place regarding British Steel's entitlement to s 9(1) relief, it was, it seems to me, tacitly accepted that relief would have been granted but for the view taken by the commissioners on the 'qualifying use' point. Indeed I understand this to have been conceded. British Steel has pleaded that it was entitled to be treated as an 'approved person'. It has prayed in aid the correspondence to which I have referred. It has, in my judgment, an arguable case that the commissioners had accepted its status as an approved person and would have granted s 9(1) relief but for the commissioners' view—assumed for present purposes...