A group accused of avoiding almost £50 million of excise duty was cleared after a judge questioned the reliability of prosecution witnesses and missing evidence.

The collapse of the six-year prosection has called into question a series of forthcoming trials. The case was seen as a key attempt by Revenue & Customs to prosecute organised alcohol smugglers after a critical report into its procedures three years ago.

Judge Diane Faber halted the prosecution of five men and two women at Wood Green Crown Court in North London on the ground of abuse of process.

The defendants were alleged to have imported 595 lorry loads of spirits into Britain on the understanding that no duty was payable because they would be taken to bonded warehouses. Customs investigators claimed that instead the lorries had delivered the drinks to cash-and-carries and corner shops across the country, avoiding £49 million of excise duty.

The defence claimed that Revenue & Customs had failed to reveal fully its links with the operators of the bonded warehouses. The defence also claimed that Customs prosecutors lied to the court over delays in bringing the case, which they had attempted to cover up.

Judge Faber told the court: “I have formed the view that there is likely to be missing evidence that undermines the Crown’s case and would be of significant assistance to the defendants.

“That missing evidence relates not just to a few witnesses and to some documentation but to the reliability of all the witnesses and the documentation from the foreign distilleries and from the domestic bonds.”

The case hinged on evidence from ten bonded warehouses in Britain that was said to have shown that they did not receive the shipments of spirits imported by the gang from the Continent.

But the court was told that evidence from witnesses, or records from the warehouses, was compromised because it may have been given on the understanding that they would be idemnified from prosecution.

The credibility of witnesses from foreign bonded warehouses was “subject to the same problems”, ruled Judge Faber.

The ruling was being interpreted by Customs lawyers last night to see whether they could now proceed with other prosecutions where such evidence was also seen as crucial. It comes after a damning report by Mr Justice Butterfied into prosecutions of gangs avoiding duty on alcohol. The 2003 report found that there had been major failings in 13 cases involving evasion of more than £600 million of duty.

As a result 52 convictions were quashed and no evidence was brought against a further 40 defendants. Customs officers lost the power to prosecute and the Government created the Revenue and Customs Prosecutions Office in 2005.

A spokesman for the Revenue and Customs prosecution office said: “We are going to look at this very carefully.”

Times Recommends

• City law firms prepare for painful year ahead
• Welcome to 2009: the year of the regulator
• Thacher Proffitt is latest US legal casualty