ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Judge Timothy Herrington and Judge Ashley Greenbank
 UKUT 408 (TCC)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LEWISON
LORD JUSTICE NEWEY
| HASBRO EUROPEAN TRADING BV
|- and -
|THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS
Mr John Brinsmead-Stockham (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Respondents
Hearing date: 9 May 2018
Crown Copyright ©
Lord Justice Newey:
"7 The EU is a contracting party to the International Convention on the Harmonised Commodity Description and Coding System, generally known as 'the Harmonised System'. The Convention requires that the tariffs and nomenclatures of contracting states conform to the Harmonised System, and all contracting states therefore use the headings and sub-headings of the Harmonised System. The system is administered by the World Customs Organisation in Brussels, which publishes explanatory notes to the Harmonised System known as 'HSENs'.
8 At Community level, the amount of customs duties on goods imported from outside the EU is determined on the basis of the Combined Nomenclature ('CN') established by Article 1 of Council Regulation 2658/87 and Article 20.3 of Regulation 2913/92. The CN is re-issued annually. It comprises three elements:
(a) the nomenclature of the Harmonised System;
(b) Community sub-divisions to that nomenclature; and
(c) the preliminary provisions, additional section or chapter notes and footnotes relating to CN sub-headings.
9 The CN uses an eight-digit numerical system to identify a product, the first six digits of which are those of the Harmonised System, while the two following digits identify the CN sub-headings, of which there are about ten thousand. Where there is no Community sub-heading, these two digits are '00'. There may also be ninth and tenth digits which identify further Community (TARIC) sub-headings, of which there about eighteen thousand.
10 Apart from the HSENs to which I have already referred, the European Commission also issues Explanatory Notes of its own to the CN which are known as 'CNENs'.
11 The Court of Justice of the European Communities … has repeatedly stated that the decisive criterion for the tariff classification of goods must be sought in their objective characteristics and properties as defined in the wording of the relevant heading of the CN and of the notes to the sections or chapters of the CN. The two categories of Explanatory Notes, that is to say the HSENs and the CNENs, are an important aid to the interpretation of the scope of the various tariff headings, but do not themselves have legally binding force. The content of the Explanatory Notes must therefore be compatible with the provisions of the CN, and cannot alter the meaning of those provisions. See, for example, Case C-495/03 Intermodal Transports BV v Staatssecretaris van Financien,  ECR I-8151, at paragraphs 47 and 48.
12 Part 1 of the CN contains at Section 1A the General Rules for the Interpretation of the CN. These General Rules are known as 'GIRs'. Unlike the Explanatory Notes, they have the force of law (see Vtech at paragraph 16)."
"Classification of goods in the Combined Nomenclature shall be governed by the following principles:
|1.||The titles of sections, chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to the following provisions.|
|3.||When, by application of rule 2(b) or for any other reason, goods are prima facie classifiable under two or more headings, classification shall be effected as follows:
the heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods;
mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable;
when goods cannot be classified by reference to 3(a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration."
"(III) The first method of classification is provided in Rule 3 (a), under which the heading which provides the most specific description of the goods is to be preferred to a heading which provides a more general description.
(IV) It is not practicable to lay down hard and fast rules by which to determine whether one heading more specifically describes the goods than another, but in general it may be said that:
(a) A description by name is more specific than a description by class (e.g., shavers and hair clippers, with self-contained electric motor, are classified in heading 85.10 and not in heading 84.67 as tools for working in the hand with self-contained electric motor or in heading 85.09 as electro-mechanical domestic appliances with self-contained electric motor).
(b) If the goods answer to a description which more clearly identifies them, that description is more specific than one where identification is less complete.
Examples of the latter category of goods are:
(1) Tufted textile carpets, identifiable for use in motorcars, which are to be classified not as accessories of motor cars in heading 87.08 but in heading 57.03, where they are more specifically described as carpets.
(2) Unframed safety glass consisting of toughened or laminated glass, shaped and identifiable for use in aeroplanes, which is to be classified not in heading 88.03 as parts of goods of heading 88.01 or 88.02 but in heading 70.07, where it is more specifically described as safety glass…."
"Tricycles, scooters, pedal cars and similar wheeled toys; dolls' carriages; dolls; other toys; reduced-size ('scale') models and similar recreational models, working or not; puzzles of all kinds".
Heading 9504 is in these terms:
"Video game consoles and machines, articles for funfair, table or parlour games, including pintables, billiards, special tables for casino games and automatic bowling alley equipment".
"(D) Other toys.
This group covers toys intended essentially for the amusement of persons (children or adults). However, toys which, on account of their design, shape or constituent material, are identifiable as intended exclusively for animals, e.g., pets, do not fall in this heading, but are classified in their own appropriate heading. This group includes:
All toys not included in (A) to (C). Many of the toys are mechanically or electrically operated.
(xix) Hoops, skipping ropes, diabolo spools and sticks, spinning and humming tops, balls (other than those of heading 95.04 or 95.06) …."
The Tribunal proceedings
"In our view, GIR 3(a) provides a solution. We agree with [counsel for HMRC's] submission that Heading 9503 provides a more specific description of a Beyblade than Heading 9504. Heading 9503 specifically refers to 'spinning…tops.' There is no doubt in our view that a Beyblade is a spinning top. We agree with the submission that, in contrast, Heading 9504 gives a more general description of a broad class of items defined by reference to their function or intended use. This seems to us to be inherently a more general and less specific description. It is not necessary, therefore, to consider the application of GIR 3 (c) since GIR 3(a) applies in priority."
The FTT accordingly held that Beyblades are correctly classified under heading 9503.
"I accept that the Tribunal was incorrect to state in the third sentence of  that Heading 9503 specifically refers to spinning tops. Instead the Tribunal should have stated that 'other toys' in Heading 9503 was interpreted by the relevant HSEN as including 'spinning tops.' It seems to me, however, that even if the Appellant is correct in its argument that GIR 3(a) can only be applied by reference to the words of the headings, rather than by reference to those words as interpreted by the relevant HSEN, it is not clear that … 'other toys' should not be regarded as a more specific description of a Beyblade than 'articles for funfair table to parlour games.' For example, Heading 9503 describes the class of articles falling within it by reference to the nature of the articles themselves rather than, as does Heading 9504, to their function. Moreover, it does not inevitably follow that if GIR 3(c) were to be applied that Headings 9503 and 9504 'equally merit consideration'."
Nonetheless, Judge Brannan considered that Hasbro had an arguable case and so granted permission to appeal.
"The FTT, having found that Beyblades were a 'form of spinning top' and that Heading 9503, interpreted in accordance with HSEN 9503 D (xix), specifically includes 'spinning tops' correctly found that Heading 9503 provided a more specific description of a Beyblade than Heading 9504 for the purposes of GIR 3 (a). This is because such description is clearly more specific than 'articles…… for table or parlour games'. As a consequence, the FTT, correctly in our view, concluded that Beyblades must be classified under Heading 9503."
A little earlier, the UT had said (in paragraph 73):
"In our view, there is nothing in the relevant authorities which precludes a tribunal considering the application of GIR 3 (a) from taking into account the content of the relevant HSENs when comparing the two Headings under consideration. Indeed, we would go further and, in agreement with [counsel for HMRC's] submissions, say that the tribunal is required to take that approach."
In the UT's view, "[t]he exercise to be carried out is one of comparison of what is covered by the two Headings, not a comparison of the wording of the two Headings" (paragraph 74). The UT went on (in paragraph 75):
"We are reinforced in our view by the wording of GIR 1 that requires classification to be determined according to the 'terms of the headings and any relative section or chapter notes'; that provision does not refer to the 'wording' of the headings. In our view the reference in GIR 3 (a) to 'the heading which provides the most specific description' must be read in a manner which is consistent with the requirements of GIR 1 and on that basis the reference must be as if it required an exercise involving an examination of what was covered by the heading rather than merely the words of the heading itself. In carrying out that exercise, the tribunal is required to use the HSENs as an aid to interpretation."
"We find that although many articles fall within the description of a 'toy' that term is more specific than something described as an 'article' performing a particular function, in this case something used in a table or parlour game. HSEN GIR 3 (a) (IV) (a) provides that a description by name is more specific than a description by class and we accept [counsel for HMRC's] submission that the word 'toy' is a description by name whereas 'articles for funfair, table or parlour games' is a description by class. We also accept his submission that Beyblades are 'toys' both in terms of their intended use and their other objective characteristics and properties whereas they can only be viewed as 'articles… for a parlour game' by reference to their intended use. Consequently, Heading 9503 provides a more complete description of Beyblades. Therefore, in accordance with HSEN GIR 3 (a) (IV) (b), a Beyblade is more clearly identified by answering to its description as a 'toy' which is a more complete identification than that afforded by its description as an 'article for… table or parlour games'."
i) Did the FTT and UT attach excessive importance to the HSEN in respect of heading 9503 when applying GIR 3(a) ("Issue 1")?
ii) If the answer to Issue 1 is "Yes", does heading 9503 nonetheless provide a more specific description of Beyblades than heading 9504 ("Issue 2")?
iii) What is the significance of the words "which equally merit consideration" in GIR 3(c) ("Issue 3")?
Issue 1: The significance of explanatory notes
"Likewise, the explanatory notes to the CN and those to the HS are an important aid to the interpretation of the scope of the various tariff headings but do not have legally binding force (see, in particular, Case C-396/02 DFDS  ECR I-8439, paragraph 28). The content of those notes must therefore be compatible with the provisions of the CN and may not alter the meaning of those provisions (see, in particular, Case C-280/97 ROSE Elektrotechnik  ECR I-689, paragraph 23; Case C-42/99 Eru Portuguesa  ECR I-7691, paragraph 20; and Case C-495/03 Intermodal Transports  ECR I-8151, paragraph 48)."
While, therefore, explanatory notes (unlike the section and chapter notes to be found in the CN itself) do not have "legally binding force" and cannot prevail over the CN, regard should be had to them when construing the headings. They are, as the CJEU said, "an important aid to the interpretation of the scope of the various tariff headings".
"First, however, it is necessary to look at the relevant HSENs which, in accordance with the Court's case-law, should be taken as providing authoritative guidance as to the correct classification of network cards. It is, in any event, appropriate that the Community should apply, whenever possible, the classification which flows from the HSENs, both pursuant to its commitments under the HS Convention and because those notes are drawn up by the committee which has the most detailed responsibility for determining the interpretation of the HS, on which the CN is based, the Community and its Member States being represented on that committee and taking part in its deliberations."
"(1) The unanimous jurisprudence of the European Court of Justice is that the HSENs are not of legal force, but only a guide to construction to the terms of the headings, the section and chapter notes, and the GIR, all of which are the legally binding structure for classification purposes.
(3) It cannot be right, as the Commissioners seek to do, to treat the exclusionary notes in HSENs as a separate self-standing code for the resolution of apparent ties between headings, independent of and to be used before any reference is made to GIR 3, so that GIR 3 is excluded in any case where an HSEN exclusion breaks the tie."
"25 It must be noted that, according to the explanations given by the referring court, the products concerned are, given their size and nature, exclusively designed for use by babies and young children. They have a number of the particular characteristics of garments. Thus, the cut of the upper part of those products fits the shape of the body. They have a neckline, sleeves, a zipped opening at the front and an elasticated waist. The lower part of those products is completely closed, like a sleeping bag.
26 As regards that last characteristic, it must be noted that heading 9404 falls within Chapter 94 of the CN, entitled 'Furniture; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings; lamps and lighting fittings, not elsewhere specified or included; illuminated signs, illuminated nameplates and the like; prefabricated buildings'. It covers 'mattress supports; articles of bedding and similar furnishing ... fitted with springs or stuffed or internally fitted with any material ...'. Subheading 9404 30 00 covers 'sleeping bags' generally, and does not, in relation to that category, identify other sub-products on the basis of their characteristics.
27 By contrast, Chapter 62 of the CN, relating to 'articles of apparel and clothing accessories, not knitted or crocheted', refers under heading 6209 to 'babies' garments and clothing accessories', and subheading 6209 20 00 relates more specifically to those of cotton. On the basis of the characteristics of the upper part of the products at issue in the main proceedings, those products must be regarded as articles of apparel falling within Section XI of the CN, and not as articles of bedding under Chapter 94 of Section XX of the CN.
28 It is apparent, moreover, from the CN explanatory note applicable to heading 6209 that, as is similarly stated in the explanatory note relating to the interpretation of heading 6209 of the HS, heading 6209 covers a certain number of articles intended for young children, including pixie suits and playsuits. Such products have characteristics which, while not identical to those of the products at issue in the main proceedings, are nevertheless similar to them. The products thus covered by the explanatory note relating to heading 6209 of the CN expressly include certain types of sleeping bags with sleeves and arm-holes, which in general are intended for infants of less than 18 months.
30 In the light of general rule 3(a) for the interpretation of the CN, from which it is apparent that the heading which provides the most specific description is preferred to headings providing a more general description, the products at issue in the main proceedings do not fall under subheading 9404 30, but must be classified, in principle, under subheading 6209 20 00."
"Does classification under subheading 6211 33 10 00 0 'Industrial and occupational clothing' of the [CN] depend solely on external appearance or intended use, or does General Rule 3(b) require that consideration be given to those components of the goods which give them their essential character?"
"goods such as those at issue in the main proceedings, consisting of man-made fibres and designed to be worn solely or mainly in order to provide protection to persons exposed to radiation during their professional activities, must be classified as 'industrial and occupational clothing' for the purposes of subheading 6211 33 10 00 0, in the light of their characteristics and objective properties, and in particular their external appearance."
Turning then (in paragraph 28) to "the question whether it is necessary to also take into consideration, for the purposes of the classification of goods such as those at issue in the main proceedings, the components which give them their essential character", it observed that where "goods are prima facie classifiable under two or more headings":
"it is necessary to apply general rule 3(a) for the interpretation of the CN, according to which 'the heading which provides the most specific description shall be preferred to headings providing a more general description'. It is only where the application of that rule does not allow an appropriate classification of certain goods, … that it is necessary to apply general rule 3(b) for the interpretation of the CN and to classify such goods 'as if they consisted of the material or component which gives them their essential character'."
The Court went on:
"30 As is apparent from paragraph 26 of the present judgment, there is a specific heading for the classification of goods such as those at issue in the main proceedings, in this case heading 6211 of the CN, which includes subheading 6211 33 10 00 0 thereof.
31 Although the referring court raises the possibility of the goods at issue being classified in another heading of the CN, in particular heading 8110 thereof, it is nevertheless apparent from the wording of the latter that it concerns 'antimony' and 'antimony articles, including waste and scrap' and not clothing such as the goods at issue in the main proceedings.
32 The fact that those goods contain an internal layer consisting principally of antimony, which gives them their anti-radiation protection character, does not suffice for them to be classified as an antimony article, covered by heading 8110 of the CN.
33 As has already been noted, it appears that subheading 6211 33 10 00 0 of the CN is 'the heading which provides the most specific description', within the meaning of general rule 3(a) for the interpretation of the CN and must be preferred over others. It is therefore not necessary, in order to determine the tariff classification of the goods at issue in the main proceedings, to rely on general rule 3(b) for the interpretation of the CN, which refers to the 'material or component' giving goods their 'essential character'."
Issue 2: The more specific description
"shavers and hair clippers, with self-contained electric motor, are classified in heading 85.10 and not in heading 84.67 as tools for working in the hand with self-contained electric motor or in heading 85.09 as electro-mechanical domestic appliances with self-contained electric motor".
Something appropriately called a "shaver" was thus considered to be more specifically described in the heading referring to "shavers".
"GIR 3(a) requires an examination of the competing tariff provisions. This exercise does not call for any further comparison of the objective characteristics and properties of the goods. It is in essence a textual exercise requiring a comparison of the language of the competing headings, to see which, if any, more specifically describes the goods."
"According to the wording of point 3(a) of the general rules for the interpretation of the CN in Part One, Section I, A, of the CN, which specifically covers the situation where goods are prima facie classifiable under two or more headings, 'the heading which provides the most specific description shall be preferred to headings providing a more general description'. In the present case, it must be pointed out that, as regards the objective characteristics and properties of the keypad membrane at issue in the main proceedings, and in particular given the fact that it refers expressly to '[p]arts of apparatus of subheadings … 8525 20 91', namely to parts of mobile telephones, subheading 8529 90 40 provides a more specific description than subheading 8538 90 99 which covers a much wider and more varied range of goods, as shown by its title read in conjunction with that of heading 8537" (emphasis added).
The heading covering a "much wider and more varied range of goods" was thus rejected.
i) "although many articles fall within the description of a 'toy' that term is more specific than something described as an 'article' performing a particular function, in this case something used in a table or parlour game";
ii) "'toy' is a description by name whereas 'articles for funfair, table or parlour games' is a description by class";
iii) "'Beyblades' are 'toys' both in terms of their intended use and their objective characteristics and properties whereas they can only be viewed as 'articles … for a parlour game' by reference to their intended use. Consequently, Heading 9503 provides a more complete description of Beyblades".
Issue 3: GIR 3(c)
Lord Justice Lewison:
Lord Justice Patten: