First-tier Tribunal (Tax)

[2010] UKFTT 505 (TC)

TC00760

Appeal reference: MAN/2008/7031

POST CLEARANCE DEMAND NOTE – Anti-Dumping Duty – importation of cotton-type bed linen – incorrect declaration of country of origin – was it an error which could not reasonably have been detected by Appellant? – no – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

MANOR PARK TRADING COMPANY LTD Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY’S REVENUE AND CUSTOMS Respondents

Tribunal: Lady Mitting (Judge)

Beverley Tanner (Member)

Sitting in public in Birmingham on 24 August 2010

Nazir Shafi, director, for the Appellant

Richard Chapman, counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.           Manor Park Trading Company Ltd, (“the Appellant”) appeals against a Post Clearance Demand Note in the sum of £51,464.78, covering the periods January 2005 to January 2006.  The Demand was issued to give effect to the Respondents’ decision, notified to the Appellant on 30 November 2007, that cotton-type bed linen (“CBL”) imported by the Appellant and declared as being of United Arab Emirates origin was in fact of Pakistani origin and therefore subject to Anti-Dumping Duty “(ADD”).

2.           We heard oral evidence on behalf of the Appellant from William Thomas Walton and the Appellant’s case was presented by Mr. Nazir Shafi, a director of the company.  The Respondents placed before us unchallenged witness statements from Mrs. Linda Sylvia Witham and Nicholas Scott Clappen.

3.           The Appellant’s case was in essence that it had acted throughout in good faith, relying on certification from the Sharjah Chamber of Commerce which was at all material times in full possession of the facts.  It was agreed that the bed linen was of unembroidered cotton, manufactured from yarn into fabric in Pakistan and exported as fabric from Pakistan to the United Arab Emirates.  In the UAE, the fabric was cut, stitched, labelled and packaged and exported as CBL into the UK.

The legislation

4.           EEC Council Regulation 2913/92 establishes the Community Customs Code.  No preferential tariff agreements were in place and we are therefore dealing with goods of non-preferential origin (Article 20(3)(g)).  Article 24 provides in respect of goods of non-preferential origin:

“Goods whose production involved more than one country shall be deemed to originate in the country where they underwent their last, substantial, economically justified processing or working in an undertaking equipped for that purpose and resulting in the manufacture of a new product or representing an important stage of manufacture.”

Commission Regulation (EEC) 2454/93 lays down the provisions for the implementation of Council Regulation 2913/92.  Articles 35, 36 and 37 provide as follows:

“Working or processing conferring origin

Article 35

This chapter lays down, for textiles and textile articles falling within Section Xi of the combined nomenclature, and for certain products other than textiles and textile articles, the working or processing which shall be regarded as satisfying the criteria laid down in Article 24 of the Code and shall confer on the products concerned the origin of the country in which they were carried out.

‘Country’ means either a third country or the Community as appropriate.

Subsection 1

Textiles and textile articles falling within Section XI of the combined nomenclature

Article 36

For textiles and textile articles falling within section XI of the combined nomenclature, a complete process, as specific in Article 37, shall be regarded as a working or processing conferring origin in Terms of Article 24 of the Code.

Article 37

Working or processing as a result of which the products obtained receive a classification under a heading of the combined nomenclature other than those covering the various non-originating materials used shall be regarded as complete processes.

However, for products listed in Annex 10, only the specific processes referred to in column 3 of that Annex in connection with each product obtained shall be regarded as complete, whether or not they involve a change of heading.”

Annex 10 provides in column 3 that in respect of unembroidered CBL the specific process is “manufacture from yarn”.

5.           The effect of the Regulations is therefore that for unembroidered CBL to be treated as having UAE as its country of origin it would have had to have been manufactured there from yarn, whereas, as we have said, we are dealing with cloth which had already been processed into fabric before its import into the UAE.

6.           Relevant to the Appellant’s case is Article 220(2)(b) of Regulation 2913/92 which provides:

“2. Except in the cases referred to in the second and third subparagraphs of Article 217 (1) [not applicable here], subsequent entry in the accounts shall not occur where

(a) […]

(b) the amount of duty legally owed failed to be entered in the accounts as a result of an error on the part of the customs authorities which could not reasonably have been detected by the person liable for payment, the latter for his part having acted in good faith and complied with all the provisions laid down by the legislation in force as regards the customs declaration.

(c) […]”

The Respondents’ evidence

7.           The background to the case was an investigation by the European Anti-Fraud Office (“OLAF”) in 2004 into a substantial and unexplained increase in CBL importations purporting to originate in the UAE, followed by a reduction in importations when the rate of ADD was reduced.  During the course of the investigation the Commission team visited the premises of CGI Limited (“CGI”) in Jafza (the Jebel Ali Free Zone Administration), the company who supplied the goods to the Appellant.  CGI is a subsidiary of the Chenab Group International (“Chenab”) based in Pakistan.  There they interviewed Mr. Latif, a director of CGI.  He confirmed to the officials that prior to the introduction of ADD on household textiles, CGI’s customers had imported directly from Pakistan.  However with introduction of the ADD, it became too expensive to produce the finished product in Pakistan and production was moved to the UAE.  CGI would import the fabric from Pakistan and the premises in the UAE would complete the manufacturing process by cutting, stitching, labelling and packaging.  The team visited CGI premises in Jafza and Sharjah and formed the view that neither facility would have the capability of producing the large volume of goods said to originate from them.   The team had identified that the fabric used by CGI had been imported directly from Pakistan and that whatever work was done to it within the UAE added very little value to the manufacturing process.  The official report of the OLAF inspection team concludes as follows:

“In the case of the consignments of cotton bed linen exported to the European Community by the companies CGI Limited and Dufill Limited during the period of March 2004 to June 2006, the product exported was manufactured from fabric imported from Pakistan and consequently, the bed linen do no qualified for non-preferential UAE origin as stipulate in the CCC origin rules and therefore retains the Pakistani origin.  The bed linen exported on the name of the two abovementioned companies is liable to the payment of anti-dumping duties rate of 13.1%.”

8.           On this basis, the Respondents raised the Post Clearance Demand note in relation to the Appellant’s importations between January 2005 and January 2006.

The Appellant’s evidence

9.           Mr. Shafi told us that the Appellant had been importing textiles from Chenab for some 25 years.  In 2000,. Mr. Shafi was approached by Chenab who told him they were setting up a manufacturing unit in Dubai, encouraged by generous incentives being given by the Dubai authorities.  Chenab wanted Mr. Shafi to accept goods which had been manufactured in the Dubai facility.  It was always Mr. Shafi’s understanding that the yarn would be converted into fabric in Pakistan and the fabric would then be exported to Dubai for the manufacturing process to be completed.  Mr. Shafi was aware of the provisions of Article 24 and before agreeing to any such importation he contacted the DTI who told him that if the value addition in Dubai was in excess of 30% then the goods could be correctly certified as originating in the UAE.  Additionally, to reassure himself, Mr. Shafi visited the Dubai premises and witnessed the production processes.  In 2001 he took a trial shipment to test the procedure followed by two further shipments in 2003.  Everything had gone smoothly and between January 2005 and January 2006, the Appellant took 15 consignments through Dubai.  Two factors should be noted.  First, when the Dubai facility was set up, it was well prior to the introduction of ADD and duty was not payable therefore on importations from Pakistan, but there was in fact a 12% duty on goods from Dubai.  Mr. Shafi was therefore to submit that the arrangement could not have been motivated by any form of avoidance.  Secondly, alongside the shipments through Dubai, the Appellant continued to import direct from Pakistan, paying all the ADD due in the usual way.

10.        Mr. Shafi took us through the paperwork that would be produced to accompany exports from Dubai into the EU.  CGI had been granted by the government of Sharjah, a “license certificate” dated 15 February 2000 which licensed them to manufacture bed linen and garments.  All exports had to be accompanied by a Certificate of Origin and the Sharjah Chamber of Commerce had produced a form which set out all the information which they needed to issue the Certificate.  The information to be produced to the Chamber of Commerce included the standard information which one would have expected them to need such as the detailed description of the type of goods, invoice details and shipment details.  It also specifically asked for “country of origin”.  Mr. Shafi told us that he had been told by Mr. Latif that when applying for their Certificate of Origin, CGI always put Pakistan as the country of origin because that was where the yarn had originated, additionally Mr. Shafi told us that everyone knew that fabric was never produced in Dubai – there were just no facilities for it.  The Chamber of Commerce would therefore have been aware at all times that the fabric was manufactured in Pakistan.  Despite this the Certificate of Origin which accompanied the goods from CGI to the Appellant stated in all cases that the UAE was the country of origin.

11.        Mr. Walton’s evidence concerned the setting up of CGI in Dubai.  He was a self-employed management consultant used by Chenab from 1999 to 2008 to set up and oversee the running of the facility.  Sharjah was actively attracting manufacturing into their new free zone, offering preferential trading and export terms.  The attraction of the idea to Chenab was to supply the Canadian market which they were unable to do from Pakistan because of quota restrictions.  The unit was set up with local labour, importing fabric from Pakistan, completing it in the manner described earlier in this decision and then exporting it.  The unit began to be run down in approximately 2005 by which  time labour costs had increased, transportation costs to Dubai had increased and the lead time for production was taking too long.  Mr. Walton considered that this would have been fully consistent with what the OLAF officials saw on their visit in 2007.  Mr. Walton had no direct involvement in the issue of the Certificates of Origin but he was able to confirm that as far as he was aware the Chamber of Commerce would have known at all times that the fabric came in from Pakistan and was not produced in the UAE.

Submissions

12.        It was Mr. Shafi’s general contention that he had at all times acted in good faith.  The Sharjah Chamber of Commerce had been given correct information throughout and it was not his responsibility if they had produced an incorrect Certificate of Origin.  It was in effect the fault of the Sharjah Chamber of Commerce that they had not applied the rules correctly and the Appellant had been inadvertently caught up in the process.

13.        It was Mr. Chapman’s submission first that on a straightforward application of the rules, the country of origin had to be Pakistan and not UAE as stated on the Certificate of Origin.  He submitted that there was no firsthand or any cogent evidence at all of any error on the part of the customs authorities and no evidence as to what they had been told when application for the Certificate of Origin was made.  Further, the Appellant should have known how the rules worked.  The regulations were clearly written and contained in the Official Journal.  We were referred by Mr. Chapman to the case of CCE v Invicta Poultry Limited 1998 EWCA Civ 775.

Conclusions

14.        It was not in dispute that the fabric was produced in Pakistan and exported as fabric to Dubai.  As such, on a straightforward interpretation of the rules, the country of origin of the Appellant’s shipments should have been certified to have been Pakistan and not UAE.  On the face of it therefor, given that the CBL originated in Pakistan, the importations were subject to ADD.  Mr. Shafi did not specifically refer to, or put the Appellant’s case as depending upon, Article 220.  However given the nature of Mr. Shafi’s submissions, we will look at the Appellant’s case in the light of the provisions of that article.  For Article 220(2)(b) to avail the Appellant there must first have been “an error on the part of the customs authorities”.  Mr. Chapman argued that there was no evidence of any such error because there was no evidence in front of us as to the basis upon which the Chamber of Commerce had made its declaration.  We approach the question somewhat differently.  If one interprets the word “error” as, to use a neutral phrase, a mis-statement that is in effect what there is here.  The correct country of origin was Pakistan.  The Certificates of Origin contained an incorrect statement in that they stated it to be the UAE.  We have no idea how the mis-statement came to be made.  Mr. Latif had told the OLAF team that the certificates had been signed by a Mr. Maqbool but that he had since returned to Pakistan.  The OLAF team concluded that the exporters had made false declarations to the issuing authority but there was no evidence of that before us.  Whatever the reason does not alter the fact that the certificate contained a mis-statement or otherwise an error.  It was accepted by Mr. Chapman on behalf of the Respondents that the Sharjah Chamber of Commerce was, for these purposes, a “customs authority”.  We therefore find that there was an error on the part of the customs authorities in their issue of an incorrect certificate of origin.

15.        However even though there was an error, this has to be one which “could not reasonably have been detected by” the Appellant.  Our approach to this question is that suggested by Mr. Chapman and is based on the judgment of the Court in Invicta Poultry Limited.  The lead judgment was given by Buxton LJ in which he stated:

“Where, as in the present case, the question cannot be shown to be one of complexity, and can therefore be answered simply from the Journal, it seems clear to me, as it seemed to the judge, that the issue of whether the error could reasonably have been detected is determined by that very fact: that the error is revealed by the Journal.  The trader therefore in every case ignores the Journal at his peril.”

16.        Following this, the contents of Annex 10 were clearly stated in the Official Journal.  The Appellant is a long-established importer of textiles.  Mr. Shafi was immensely experienced in this area and it is not therefore unreasonable to expect him to be fully aware of the rules applicable to his area of operation.  Buxton LJ referred to a case of Behn, Case C-80/89 [1990] ECR I-2659.  In Behn, at paragraph 13 the Court said:

“It follows that a trader whose business essentially comprises import and export transactions and who has accumulated some experience in that area must, by reading the relevant issues of the Official Journal, acquaint himself with the community law applicable to the transactions which he undertakes”.

Mr. Shafi, given his experience and expertise is such a trader.  It is fully reasonable to expect him to be aware of the rules which operate within his trade.  In short he should have known that the certificate accompanying his imports was incorrect.  It cannot be said that this was an error which could not reasonably have been detected by the Appellant.

17.        In summary therefore, although we find that there had been an error on the part of the Sharjah Chamber of Commerce in their completion of the Certificates of Origin, the error was not one which could not reasonably have been detected by the Appellant.  The company does not therefore fall within Article 220(2)(b) and the appeal must fail.  We should say, that Mr. Chapman expressly and repeatedly stated that there was no suggestion that Mr. Shafi and the Appellant company had acted in anything other than good faith.  Although the appeal is dismissed, we fully endorse Mr. Chapman’s comments.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

LADY MITTING

JUDGE
Release Date: 20 October 2010