The European Commission threatened to refer Britain to the European Court of Justice unless it abandons the "disproportionate" methods used by Customs and Excise to stop what they claim is tax evasion.
The decision is an embarrassing blow to the Chancellor, who has been at odds with Brussels for years over the way he interprets European single market regulations that allow European Union citizens to move goods freely across borders.
Mr Brown hit back last night by accusing Brussels of being "misguided" and insisting that he would "not take lectures" from a commission that had tried to force Britain to impose VAT on children's clothes.
In an angry exchange of press statements, he accused the commissioner responsible of being obsessed with "spin" and an enemy of the British tourist.
"Fritz Bolkestein just wheels out this same spin twice a year - pretending to be the friend of the British tourist - once before the summer holidays and once before the Christmas booze cruises. It is a cynical worn-out ploy to obtain a good day's coverage in the British press, and everyone should see through it for what it is," a spokesman for the Chancellor said.
But the Treasury's insistence that "we fully support British shoppers rights to bring back as much tobacco and alcohol as they like from the Continent for their own consumption" will ring hollow with many travellers.
There have been numerous complaints from cross-Channel shoppers who claim that they were unfairly criminalised and their cars confiscated for bringing in quantities of alcohol or tobacco bought for personal use.
The Treasury says it is entitled to take draconian action against those who take advantage of lower prices across the Channel to bypass British excise duty. Last year Customs confiscated 8,000 vehicles. Tax revenues from drink and tobacco sales have slumped by £4 billion a year, in part as a result of cheap imports that are sold illegally through pubs and shops.
Mr Bolkestein, the EU commissioner in charge of tax policy, issued a stinging condemnation of the way Customs and Excise - which is run by the Treasury - treats British consumers. He called on the Treasury to find other ways of enforcing the rules that require that all alcohol and tobacco brought in be for personal use.
"The UK sanctions, which are based on the seizure of goods, and sometimes cars, quite often go too far and interfere with people exercising the rights given to them by the EU's internal market to go shopping in other member states. This is obviously not acceptable," he said.
The statement from the commission announcing the decision to issue a "reasoned opinion" - effectively a "change or else" ultimatum - made clear that Brussels has come down heavily in favour of the consumer and against the Government.
Under EU rules, up to 800 cigarettes, 90 litres of wine and 110 litres of beer should be considered for personal use.