The European Commission is taking legal action against Britain over cross-Channel shoppers, despite a last minute concession from the government.
Under EU rules Britons can buy drink abroad and bring it home tax-free
The EC says British Customs officers are too tough in their treatment of consumers bringing cheap alcohol and cigarettes into the country.
Goods are confiscated if the officers believe they have not been bought for personal consumption.
UK Economic Secretary John Healey said the EC's decision was "unacceptable".
Under EU rules, shoppers can buy beer, wine and cigarettes abroad, where taxes are lower, and bring them into Britain without paying British excise duties.
Customs officers have seized goods and impounded cars when shoppers come back with large amounts of goods to sell to friends and family.
The Treasury, which says it loses about £3bn every year in excise duty revenue, insists the government is only targeting smugglers.
Mr Healey said: "It is unacceptable that the Commission are misleading people with
their rhetoric and trying to blow this very small problem out of all
proportion," he said.
"We've been looking at how individuals should be treated in cases when
they've been buying goods on behalf of other people - in particular we've been looking at around two dozen cases each year where individuals have had vehicles seized.
In a statement announcing its decision to take the UK to court, the commission said: "The UK's practices jeopardise the right of all EU consumers to buy goods in other member states, excise duty paid, and bring these products home for their 'own use' without any formalities and without having to pay taxes a second time.
"In particular, the commission considers the UK's policy of seizing goods and sometimes cars even for minor offences is disproportionate.
"The latest action follows on earlier letters and a formal request to the UK to change its law."
EU commissioner for taxation and customs Frits Bolkestein said he "understood any member state's need to fight fraud" but the commission "simply cannot accept" such disproportionate penalties.
On Tuesday Chancellor Gordon Brown agreed Customs should let first-time offenders keep their cars and goods but pay evaded UK duty and a fine.
"It is accepted that we are talking about just 28 to 30 cases a year and we are very close to a deal with the commission," a government spokesman said.
"The chancellor has shown he is willing to make concessions and there is not a lot more to be done."
Mr Healey said the government would continue fighting its case with Mr Bolkestein's successor, Latvian Ingrida Udre, who takes over responsibility for customs and tax on 1 November.
And he hoped court action could be halted if the government re-submitted its case.
The case will go to the European Court of Justice.