Wheeze for importing cut-price cigarettes gets the Death sentence

Customs & Excise breathed a huge sigh of relief yesterday after a company threatening the government's pounds 9bn-a-year revenue from domestic cigarette sales lost a crucial round in its European legal battle to import cheap tobacco into Britain.

The Enlightened Tobacco Company (ETC), the maker of Death cigarettes, had bypassed excise duties by acting as an "agent" for British customers and importing cigarettes from European Union member states which have lower taxes. It was able to offer cigarettes for sale at up to 40 per cent less than competitors' prices.

After a High Court case went against the company in 1995 and prevented it from trading, ETC took its argument to the European Court of Justice. The case may have led the way to companies across Europe supplying cheap tobacco, alcohol and other luxury goods. Nine member states, including Germany and Italy, were so fearful of losing billions in tax revenue that they submitted evidence in support of United Kingdom Customs & Excise to the court.

Yesterday morning an interim decision from the Advocate General of the court ruled ETC's scheme illegal. Although this "opinion" is not final, and the Court could pass a different decision in the autumn, it is unlikely to do so and ETC admitted it has a "snowball's chance in hell" of starting its "mail-order" scheme again.

ETC introduced the scheme, which exploited a loophole in European law, in response to the lifting of trade barriers. By buying cigarettes in bulk in Luxembourg, ETC was able to offer Britons who ordered through their agent, called "the Man in Black", up to 800 cigarettes at massive savings.

They argued that an agent acting on behalf of a "private individual" was acting lawfully and under European law. Threatened with losing billions in revenue, Customs disagreed, and impounded a consignment of ordered cigarettes at Dover on the grounds that duty was payable in the UK because the cigarettes were not deemed to be a personal import.

The case hinged on the interpretation of the word "them" in an EC directive which states people can buy some goods free of excise when the goods are acquired by "private individuals for their own use and transported by them". The ETC agent, who takes a commission from each sale, was arranging transport and organising payment of the retailer and carrier.

The Commission said it interprets its own law as allowing an agent to act on behalf of an individual as long as the agent does not make a profit. ETC, however, was founded by a group of young entrepreneurs who saw that they could make a profit from saving British smokers money. BJ Cunningham, its snappily dressed chairman, admits he is extremely disappointed by the decision.

"It seems that the Advocate General does not believe in the first principal of European Union - 'The freedom of movement of goods and people'," he said.

"All Europe offers is straight bananas and Euro-babble. We are gutted."

Customs & Excise, in contrast, were delighted. An alternative ruling "would have been a major blow to all the retail trade - particularly people like newsagents and, also, some off-licences," said Mark Thomson from Customs, who put the possible loss of revenue at pounds 2bn a year.

Mr Cunningham, however, is "bloodied and unbowed" and has another business wheeze. He wants to offer Britons the two-in-one cigarettes he is already selling in Holland.

The cigarettes are subject to normal tax duties, are extra long with with a filter in the middle so that they can be split to make two cigarettes. If Mr Cunningham gets his way, he will soon be selling 40 of the cigarettes for the same price as a pack of 20.