Cooneen Watts & Stone Ltd v Revenue & Customs [2012] UKFTT 622 (TC) (03 October 2012)
DECISION
Introduction
1.
The appellant is the “Industrial Prime Vendor” to the Ministry of
Defence (“MoD”) for the supply of cut and sew products. It supplies over 150
different types of military clothing and clothing related products. It has held
this contract with the MoD since 2004 and most recently the contract was
renewed in 2010.
2.
There are three connected appeals before us. The issues between the
parties on these appeals relate to the classification for customs duty purposes
of certain ranges of specialised military clothing, in particular clothing
which is made of fabric having infra red reflectance (“IRR”) properties. We
will set out the issues and the circumstances in which they have arisen in more
detail below. For present purposes we simply note the issues in the following
broad terms:
(1)
Does a certificate issued by the MoD pursuant to Council Regulation
150/2003 determine the proper customs classification of the goods?
(2)
If not, what is the proper customs classification of IRR clothing
imported by the appellant?
(3)
Does the appellant have a valid claim to repayment and/or remission of
customs duty in respect of IRR clothing which it has imported?
3.
Council Regulation 150/2003 provides for suspension of import
duties on certain weapons and military equipment imported by or on behalf of Member
States. The weapons and equipment must be for military end use (“MEU”) to
qualify for relief and must also fall within the classification headings at
Annex I of the regulation. In this decision we refer to this as “the MEU regulation”.
4.
The issues arise in the context of a repayment claim by the appellant in
the sum of £827,437 covering imports in the period February 2008 to May 2009.
In addition HMRC have issued a post clearance demand in the sum of £743,059 covering
imports in the period May 2009 to February 2010 where duty was treated as
having been suspended pursuant to the MEU regulation. The appeals also have
implications for imports in the period after February 2010 where duty has been
accounted for and in relation to future imports.
5.
Before setting out the law and the competing classifications we shall
deal with the evidence as to the nature of the goods. There is no real dispute
as to that evidence. It will also be relevant for us to make findings of fact
as to the circumstances in which the appellant came to account for customs duty
in the various periods with which we are concerned.
6.
By way of background, the procedure to be followed when importing goods with
MEU relief requires:
(1)
a certificate from a competent authority, in this case the MoD, and
(2)
authorisation from HMRC to import goods using MEU relief.
7.
There was no issue as to the scope of our jurisdiction on this appeal.
In relation to each appeal we have a full appellate jurisdiction pursuant to section
16(5) Finance Act 1994. Hence we can substitute our own decision for that
of HMRC but only to the extent that HMRC could itself have reached that
decision.
Findings of Fact
8.
For the sake of clarity we deal with our findings of fact under the
following headings:
(1)
The nature of the goods.
(2)
The appellant’s dealings with the MoD.
(3)
The appellant’s dealings with HMRC.
(4)
Dealings within HMRC.
(5)
Dealings between HMRC and the MoD
9.
The reason we set out the various dealings of the appellant, the MoD and
HMRC separately is because the appellant relies on its dealings with the MoD
and/or indirectly with HMRC as the basis for a “special situation” giving rise
to a right to repayment and remission of customs duty. It also relies on those
dealings to rebut any suggestion that it did not act with due care. We find it
easier to consider the circumstances from the viewpoint of the appellant when
the facts are analysed on this basis.
10.
We heard evidence from Mr Kevin McMahon, the finance director of the
appellant. He joined the appellant as company secretary in February 2005 and
later became finance director.
11.
HMRC produced two witnesses and we understand that this was at the
request of the appellant. Mr James McChesney is a Higher Officer of HMRC who works
in a unit of expertise which amongst other matters has responsibility for MEU relief.
Ms Carmel Crawford is an assurance officer of HMRC who made two visits to the
appellant as such and issued the post clearance demand referred to above.
The Nature of the Goods
12.
As we have said, the appellant supplies over 150 different types of
military clothing and clothing related products to the MOD. This range of
products includes a small number of items of clothing which are made of IRR
fabric.
13.
Most of the relevant clothing is disruptively patterned for camouflage
purposes but importantly it all has specific IRR properties. It is these
properties which protect the wearer from detection by weapons fitted with infra
red assisted vision sights, commonly referred to as night vision goggles. The
effect of wearing IRR protective clothing is to significantly reduce the
visibility of the wearer to an enemy using night vision goggles. It does this
by suppressing the infra red radiation generated by the human body. IRR fabric
employs different intensities in the material to suppress the various colours
contained in the garment and mimics the radiation emitted by surrounding
vegetation.
14.
IRR properties are incorporated into the fabric during a manufacturing
process which is highly technical and specialised. We understand that the
manufacturing process involves secret technology. The IRR clothing in the
present appeals is manufactured in China and imported by the appellant into the
UK. Unlike ordinary military camouflage clothing, IRR clothing cannot be
purchased by members of the public.
15.
There are 8 items of IRR clothing which are relevant to the present
appeals. Each item also comes in a non-IRR version and no customs duty relief
is sought in relation to those items. We were shown the following examples of IRR
clothing:
(1)
A combat jacket and combat trousers which come in both woodland
camouflage and desert camouflage. The jacket and trousers must be worn together
otherwise the benefit of IRR properties in one will be defeated by the absence
of IRR properties in the other.
(2)
A coverall, which is an all-in-one item of clothing
(3)
A smock, which is similar to an anorak.
(4)
A shirt, which is designed to be worn under body armour.
(5)
A cap, which is designed to be worn over a helmet.
16.
There is no difference to the naked eye between IRR camouflage clothing
and ordinary camouflage clothing. HMRC accept that imports of the coveralls are
entitled to MEU relief but deny entitlement to relief in relation to all the
other items of clothing.
17.
The IRR clothing imported by the appellant is crucially important to
combat troops deployed by the MoD. It helps to protect them in the battlefield
and helps to save soldiers’ lives.
The Appellant’s Dealings with the MoD
18.
The appellant was first awarded a contract with the MoD for the
provision of clothing in or about June 2004. On 2 June 2005 Mr McMahon wrote to
the MoD Tax and Duty Team asking them to clarify whether a list of 12 products
fell within the classification headings in Annex I of the MEU regulation. The
list provided by Mr McMahon only included 3 items which were made using IRR
fabric. Mr McMahon was prompted to make this enquiry by the appellant’s sales
director.
19.
Ms Moira
McCollum of the MoD replied on 7 June 2005. She stated that she would need to
seek advice from HMRC. On 16 June 2005 a letter was sent on behalf of Ms McCollum
stating that the MoD had contacted HMRC and that a full description of the
goods and the commodity code would be required before they could ascertain
whether the goods qualified under the MEU regulation. The letter also stated as
follows:
“The importer is legally responsible for the
correct Tariff classification of the goods. If you are unclear what the
commodity codes for these goods are then the Tariff Classification Service at
the address and phone number below is able to help …”
20.
Finally the letter re-iterated that full details of the goods and the
commodity code would be required in order to progress the appellant’s request.
21.
On 27 June 2005 Mr McMahon replied enclosing a full description of the
goods and their commodity codes. The three items which had IRR properties were
given commodity code 6203. This had been on the advice of the appellant’s
customs agent, Puma Cargo Limited. Two coveralls which did not have IRR
properties were given commodity code 6211. As shown below, CN code 6203 does
not appear in annex I of the MEU regulation. Code 6211 does appear in annex I.
22.
Ms McCollum replied on 30 June 2005. Items which did not fall under code
6211 did not qualify for relief. She went on to say:
“Some items which fall
under the code 6211 do qualify for the waiver of import duty. It is the MoD’s
and HM Revenue and Customs understanding that only special purpose military clothing qualify and this is regarded
as clothing adapted for military combat purposes and/or specialist protective
items such
as body armour.”
23.
The letter also indicated that the appellant would need to check with
the relevant team within the MoD to confirm eligibility for a certificate under
the MEU regulation for the two items in code 6211. This was because it was they
who would need to be satisfied
that the relevant items qualified.
24.
The matter was not pursued further by the appellant because only a small
volume of coveralls were imported at that stage and Mr McMahon did not
understand the significance of IRR properties.
25.
In late 2008 the issue of relief under the MEU regulation arose again.
This was in anticipation of a re-tendering process for the MoD contract. The
chairman of the appellant, Mr John Trimble, wrote to Ms McCollum on 15 January
2009. He referred to the 2005 correspondence described above and stated that garments imported
fell into headings 6210 and 6211. He continued:
“Camouflage Clothing items
or Disruptively Patterned Material (DPM) items are manufactured from fabric
which has specific Infra Red Reflectance properties to protect the wearer from detection by
enemy weapons fitted with infra red assisted vision sights. The production of
this fabric is very technical and requires great expertise and knowledge. The
garment production is monitored through factory batch testing and then further
independent testing by ourselves in the UK to verify its continued
effectiveness. It is our contention therefore that such items are just as
important to protect the infantryman as a piece of Body Armour, which qualifies
unequivocally for Import Duty Relief …
We therefore hope that you will grant us a
“Certificate from a Competent Authority” for waiver of import duty …
Obviously you will need us to furnish you with
details of the specific products for which we seek duty relief and we will be
happy to do so at the appropriate time.”
26.
On 26 and 27
January 2009 there were telephone discussions between Mr Trimble and Ms
McCollum. Mr Trimble made a contemporaneous note of those conversations. On 26
January 2009 he recorded:
“She [Ms McCollum] is going to discuss it with
Customs focal point in light of our clothing being protective IRR etc and used
only for war … she will also contact IPT to see if they are willing to issue
the certificate”
27.
On 27 January
2009 Mr Trimble recorded:
“Customs agree that we qualify for military end
use. [Ms McCollum] will go to Gerry Harvey who hopefully will agree to issue a
waiver certificate”
28.
Mr Harvey was part of the MoD project team who would be responsible for
issuing the certificate from a competent authority.
29.
On 28 January 2009, Ms McCollum wrote to the Appellant stating:
“… I am writing in reply to
your letter … which enquired about the possibility of the MoD issuing an import
duty waiver certificate for camouflage clothing made from Infra Red reflective
material.
Agreement has been reached with our focal point
at HM Revenue & Customs that, as the clothing has specialised protective
properties, importing to Military End Use with an import waiver certificate is
allowable in this case…
I also informed Mr. Harvey that it is possible
to raise a retrospective certificate for this clothing. The certificate can be
backdated to cover imports up to one year from the date the certificate is
signed. This may enable the duty on some imports made during 2008 to be
reclaimed. The retrospective certificate can also cover the remaining life of
the existing contract if required.”
30.
The appellant was not at that time privy to the discussions between the
MoD and HMRC in relation to military end use of the appellant’s goods. The appellant,
including its finance director Mr McMahon, appears to have taken this letter as
confirmation that MEU relief would be available. The original enquiry from Mr
Trimble was seeking a certificate from the MoD. However the response does
appear to go further and at least suggests that not only will a certificate be
granted, but that MEU relief will be available. However we do not accept that
the appellant could reasonably take this letter as confirmation that it would be
entitled to MEU relief. Mr Trimble had not furnished either Ms McCollum or HMRC
with details of the specific products which he realised it would be necessary
to do at the time of his request for a certificate in January 2009. More
importantly, the appellant was also aware that both the MoD and HMRC (see
below) in 2005 had emphasised that it was for the importer to identify the
correct tariff classification of goods and in case of uncertainty the importer
should contact the HMRC tariff classification service.
31.
On 17 February 2009 the MoD as the competent authority issued a
certificate to the Appellant as importer (“the Certificate”), in the form required
by Annex III to the MEU regulation. The
certificate covered various specific items of military clothing which the
appellant supplied to the MoD pursuant to the procurement contract. Each of the
different items of clothing was described on the face of the Certificate. The Certificate
identified the CN code applying to each item as 6211. The operative words in the
Certificate as provided for by Annex III were as follows:
“This is to certify that the goods described above
are for the use of the military forces of the United Kingdom.”
32.
The Certificate was stated to be valid until 30 September 2009. On 24
September 2009 it was re-issued in the same form save that its validity was
extended to 30 March 2010. It appears to have been re-issued again on 23
December 2009 in the same form but so as to include further items of clothing.
33.
In January 2010 Mr McMahon had further contact with Ms McCollum in
relation to issues which had by that stage arisen between the appellant and
HMRC. Ms McCollum telephoned Mr McMahon to say that HMRC had been in touch with
the MoD and told her that classification to CN 6211 was incorrect. On 29
January 2010 the certificate was re-issued yet again by the MoD. On this
occasion it was limited to coveralls under CN heading 6211.
The Appellant’s Dealings with HMRC
34.
On 4 May 2005 Puma Cargo contacted the HMRC contact centre with an
enquiry on behalf of the appellant. Construing the notes of that enquiry, Puma
asked whether uniform imported for the MoD could benefit from MEU relief. They
stated that they normally use code 6203 but asked whether code 6211 could be
used instead as this gave the benefit of relief. The HMRC officer told Puma
that they were responsible for classifying the goods correctly. He advised them
to speak to the HMRC tariff classification service to establish the correct
code. Mr McMahon had no recollection of this enquiry but we find that the
appellant would have been aware of that enquiry at the time and would have
known the results of the enquiry.
35.
The enquiry by Puma Cargo was made shortly before Mr McMahon’s first
contact with the MoD in relation to MEU relief referred to above. There was no
further contact between the appellant or Puma Cargo and HMRC in connection with
MEU relief until 2009.
36.
In or about February 2009, once the appellant had received the MoD Certificate
dated 17 February 2009, Mr McMahon made an application to HMRC for authorisation
for MEU relief. The application was to cover the period 16 February 2008 to 17
February 2009. The application noted that the appellant had asked the MoD to
issue a back dated certificate which would also cover the remaining life of the
contract. The description of the goods was simply “military clothing” and the commodity
code was 6211.
37.
The application was received on 30 March 2009 and was dealt with by Ms
Crawford. She visited the appellant’s premises on 29 April 2009 in order to confirm the details of the application
and met with Mr McMahon and Mr Richard Condell, a management accountant with
the appellant. Amendments were made to the application form and signed by Mr
McMahon. During the course of that visit Ms Crawford discussed Public Notice
770 (Imported Goods: end use relief) with Mr McMahon. She also discussed the
request for retrospective authorisation and indicated that further details
justifying it would be required.
38.
Mr McMahon stated in evidence that
he and Ms Crawford had discussed the flowchart at section 7 of Notice 770 and
that she had confirmed that the appellant met the requirements of the
flowchart. We accept that a conversation in relation to the flowchart took
place, but we are not satisfied on the balance of probabilities that Ms
Crawford was confirming in terms that MEU was available for the specific goods
being imported by the appellant. Ms Crawford was not a classification officer
and having heard her evidence we do not think it likely that she would have
confirmed that the goods intended to be imported were properly classified under
code 6211. We accept Ms Crawford’s evidence that she discussed with Mr McMahon the
appellant’s responsibility to ensure the correct classification of the goods.
39.
Immediately following the visit Mr
McMahon sent a letter to Ms Crawford setting out the reasons the appellant was
seeking authorisation retrospectively from 16 February 2008. He indicated that
the amount involved in relation to retrospective authorisation could be in
excess of £650,000. He also spoke to Mr Stanners of the HMRC unit of expertise
generally about the circumstances. On 1 May 2009 Mr Stanners told Mr Condell of
the appellant that retrospective authorisation would be granted and also
indicated that a repayment claim could be submitted.
40.
By letter dated 5 May 2009 Ms Crawford informed Mr. McMahon that the
application for end-use relief had been approved.
Authorisation was granted from 7 February 2008 to 30 September 2009 (“the
Authorisation”). It extended to the goods referred to in box 5 of the
application, namely military clothing under CN heading 6211.
41.
On 6 May 2009 Mr McMahon had
discussions with Puma Cargo and as a result instructed them to import the IRR
garments under commodity code 6211 with end-use relief.
42.
On 3 July 2009 the appellant sent to HMRC a claim for repayment and/or
remission of customs duty on Form C285. The claim was in respect of duty paid for shipments of military clothing from 28
February 2008 to 28 April 2009. The total amount of the reclaim was £827,437.
The claim was made in respect of clothing with IRR protective properties.
43.
Mr Ian Wakeling, an officer of HMRC was tasked with processing the claim
for repayment or remission. By letter
dated 12 August 2009 Mr Wakeling expressed concerns about the tariff
classification of certain items of clothing. In particular he noted that most
of the imports for which relief had been claimed were not imported under
commodity code 6211. He expressed doubts as to the credibility of the claim and
invited the appellant to re-examine it.
44.
Mr McMahon replied by letter dated 18 August 2009. He stated that in
2005 the contact centre had advised them to use code 6203. Mr McMahon was
referring to the contact centre enquiry by Puma Cargo mentioned above. We find
that when Mr McMahon was writing this letter in 2009 he was incorrect in his
recollection. The contact centre had not advised use of code 6203. He went on
to say that the MoD and their focal point at HMRC had agreed that importing to
military end use with an import waiver certificate is allowed. Mr McMahon also noted
that repayment was only sought in respect of those items confirmed by MoD and HMRC
to fall within CN Code 6211.
45.
We do not accept that either HMRC
or the MoD had agreed that any of the items imported were proper to code 6211.
In fact, following the results of the enquiries in 2005 and Ms Crawford’s visit
in April 2009 we find that Mr McMahon at least ought to have been aware that it
was the appellant’s responsibility to import using a correct code and if the appellant
was in doubt then it should contact the tariff classification service. We can
accept that there may have been some confusion on his part as to the
relationship between the MoD Certificate, the Authorisation for military end
use and actual entitlement to obtain relief for specific items imported. Mr
McMahon appears to have assumed that the existence of the certificate and the
authorisation gave rise to an entitlement to relief irrespective of the true
classification of the goods. Whether in law it does so is one of the issues on
this appeal. Apart from that issue, which we consider below, as a matter of
fact neither HMRC nor the MoD had agreed to MEU relief for the specific imports
of the appellant.
46.
Mr Wakeling replied to Mr McMahon by
letter dated 21 August 2009. He stated that Ms Crawford had “no in depth
knowledge regarding your trade or your liaison with the MoD or any dialogue
with HMRC.” We find that this letter probably understated Ms Crawford’s
knowledge and the nature of her visit. We do not find that this was in any way
deliberate, and in any event it does not affect our findings above in relation
to the visit. Mr Wakeling expressed concerns in relation to the classification
of the goods but the claim itself was passed to HMRC “headquarters”. Mr
Wakeling again questioned the credibility of the claim. In so far as he was
suggesting anything dishonest or disingenuous about the claim we do not accept
that to be the case. Mr Thomas on behalf of HMRC also did not suggest any
improper conduct on the part of the appellant.
47.
Mr McMahon replied to Mr Wakeling on 26 August 2009 again stating that the
MoD had agreed with HMRC that the military products fell under CN code 6211. He
did not accept that the credibility of the claim was compromised.
48.
Processing the claim was then passed to Ms Lisa Cureton-Burgess. She
wrote on 14 October 2009 saying that she had been in contact with Ms McCollum
and asked Mr McMahon for further information including a swatch of the fabric
and a copy of any brochure detailing the garments being imported. On 4 November
2009 Mr McMahon replied this time stating that the 6211 classification “was
directed to us by the MOD”. For the reasons given above we do not accept
that was the case. He enclosed a copy of a brochure including the garments. The
same or a similar brochure was before us in evidence. Swatches of fabric were
subsequently provided.
49.
By letter dated 5 January 2010 Ms Cureton-Burgess wrote to the appellant
reducing the repayment claim to £8,390.25 which related to the duty paid on
coveralls. The claim for repayment of duty on all other items was refused on
the basis that classification to CN 6211 was incorrect.
50.
The appellant then requested a formal departmental review on the basis
that all the garments in question were correctly classified under heading CN 6211.
Repayment was requested pursuant to Article 236 and/or Article
220(2)(b). On 22 February 2010, following contact with the MoD described
below, the appellant instructed Puma Cargo to cease claiming MEU relief.
51.
The decision on review was given by letter dated 20 April 2010 from Ms
Sharon Barbouti. It was expressed to be in relation to the repayment claim, and
it was expressly not an opinion in relation to the correct classification of
the garments. However in upholding the original decision the review officer
must have decided that the garments were not properly classified under heading
6211. Having said that, she went on to suggest that the appellant should obtain
a definitive ruling as to the correct classification by obtaining a binding
tariff information (“BTI”). It is this review decision which is the subject of
the first appeal.
52.
Matters then progressed on two fronts.
53.
Firstly, on 26 April 2010 the appellant made two applications for BTIs.
The first was in relation to a camouflage anorak, described by the appellant as
a smock. The second was in relation to an under body armour combat shirt. Both
garments had IRR properties. BTIs were issued on 13 May 2010 classifying the
garments under CN headings 6201 (“anorak”) and 6206 (“shirt/blouse”)
respectively. These decisions are the subject matter of what became the third
appeal.
54.
The reason these requests were submitted was because the appellant was
at that time involved in tendering for the next cut and sew contract with the
MOD. It was concerned as to the possibility that a competitor may obtain a BTI to
CN 6211 giving entitlement to MEU relief and enabling it to put in a lower
tender offer.
55.
Secondly, on 27 April 2010 Ms Crawford made a second visit to the
appellant. She had been waiting until after the result of the review was known
before making this visit. The purpose of her visit was to consider the
potential misclassification of goods imported after the repayment claim had
been lodged covering the period May 2009 to February 2010. She uplifted records
and quantified the sums involved. She then issued a C18 post clearance demand
for the period in the sum of £743,059 comprising customs duty of £574,217 and
VAT of £168,842.
56.
Ms Crawford did not give any consideration herself as to the correct
classification of the goods. She is not a classification officer. She based her
decision to issue the C18 on the result of the review decision on the repayment
claim, and also on certain “non-live liability rulings” referred to below.
57.
The post clearance demand was confirmed in a review decision dated 1
September 2010 from Mr Stuart Peacock. It is this review in relation to the
post clearance demand which is the subject matter of the second appeal.
Dealings within HMRC
58.
The appellant was not privy to
the internal dealings of HMRC, although he was to some extent aware that
officers liaised with other HMRC officers in relation to the appellant. Save
where otherwise appears the internal dealings of HMRC were not known to the
appellant.
59.
Following her first visit on 30 April 2009, Ms Crawford sent a fax to
Ian Stanners of the HMRC end use unit of expertise, together with a copy of the
MoD Certificate and the application form
for HMRC end use authorisation. In an email to Mr Stanners of the same date she
refers to her visit on 29 April 2009 and notes:
“Trader
advised that ‘they were advised by MoD initially that the import of military
clothing (Ch.6211?) was not covered by the End-Use regulations initially, but
produced correspondence per my visit from the MoD confirming that this scenario
was now covered by HMRC.”
60.
Ms Crawford was seeking Mr Stanners’
“thoughts” in relation to the retrospective date of the authorisation and the
date of expiry of the authorisation. It was put to Ms Crawford in cross-examination
that her reference to “Ch.6211?” was a query on her part to Mr Stanners as to
the correct classification of the goods. It is difficult to say 3 ½ years after
the event what the significance is of the reference to “Ch.6211?” in this
email. On balance we do not accept that this was intended to be taken as a
query as to the correct classification of the goods. We find that Ms Crawford
was simply signalling to Mr Stanners that the appellant was classifying the
clothing as CN 6211 but that she had not confirmed with the tariff classification
service that this was the appropriate code. She was not inviting Mr Stanners to
make any observation on the question of classification.
61.
By an email dated 1 May 2009 Mr
Stanners confirmed to Ms Crawford that she could grant retrospective
authorisation.
62.
In considering the appellant’s
repayment claim in August 2009, Mr Wakeling contacted Ms Crawford by telephone.
As we have found above, Mr Wakeling was left with an incorrect impression of Ms
Crawford’s knowledge and the nature of her visit to the appellant on 29 April
2009.
63.
In September 2009 the appellant’s
claim to repayment was passed from Mr Wakeling to Ms Cureton-Burgess. She was
part of the “Duty Liability” team at HMRC in Southend on Sea and worked within
the tariff classification area. On 13 October 2009 she contacted Mr McChesney
by email in connection with the repayment claim. Ms Cureton-Burgess expressed
the view that hats, trousers and jackets should not be classified under heading
6211 and that “only clothing like overalls and waistcoats would fall in this
heading”. She also said that if it was a coated fabric then it may fall
under heading 6210. She asked whether he had at any time visited the company,
seen a sample of the clothing or got a classification of the goods.
64.
Mr McChesney replied on 19 October
2009. He states (sic):
“The
U of E received an enquiry from Belfast asking whether the goods could be
covered by Military End Use (MEU) the Commodity code indicated suggested that
it should not we then received a call from the MoD giving us more detail about
the material being used in the products at that point we felt that if the goods
could be covered by a code from the approved list the goods could be allowed
under MEU Moira mentioned code 6211, which according to her list covered
uniform, and as this was covered by EC Reg 150/2003 I agreed to them being
approved. I did not check that the commodity code covered the goods being
imported it was the fact that the goods were being supplied with an infra red
dispersal coating to protect military staff rather than just a normal uniform
that I had agreed to the goods being included under an MEU authorisation.”
65.
On 3 December 2009, as part of
her enquiries in relation to the repayment claim, Ms Cureton-Burgess sent
certain “Liability Enquiries” to the Tariff Classification Service of HMRC also
based at Southend on Sea. She received back what are known as “Non-Live Liability
Rulings” which we infer were based on the enquiries she had submitted. We
understand that these are generally internal rulings which do not bind a trader
and may or may not be notified to a trader. They were briefly as follows:
(1)
Combat helmet to CN 6506.
(2)
A Lightweight jacket to CN 6203.
(3)
An All in One garment (we take this to be a coverall) designed to be worn
by the military to CN 6211.
(4)
Trousers to CN 6203.
(5)
A military style coat to code 6201 which also included a note “please
advise the trader of this decision”. In fact the appellant was not notified
of the ruling.
66.
There was no reference to IRR properties in any of the rulings. Further,
the appellant does not import combat helmets. The justification for the rulings
included a reference to “EC REG 317/81”. In fact that regulation deals
with refunds on milk and milk products. We find that the reference was intended
to be to a case before the ECJ called Howe & Bainbridge BV Case C-317/81
which concerns the test for determining whether coatings on material are
visible to the naked eye. That would be relevant to CN code 6210 but it has
never been suggested that the garments in question in the present case have any
coating whatsoever or that they fall within CN 6210.
67.
We have not heard evidence from Ms Cureton-Burgess. However it appears
to us that these rulings were based on a fundamental misunderstanding as to the
goods being imported and the arguments in support of the goods being classified
under heading 6211. It appears that Ms Cureton-Burgess relied at least in part
on these rulings in making her decision to restrict the repayment notified to
the appellant on 5 January 2010.
Dealings between HMRC and
the MoD
68.
The appellant was not privy to the dealings between the MoD and HMRC,
although as appears above it was aware that the MoD and HMRC were discussing
matters relevant to the appellant’s claim to MEU relief.
69.
In 2005 Mr McMahon was in discussion with the MoD as to whether some
goods being imported fell within the MEU regulation. He was aware that Ms
McCollum of the MoD was seeking advice from HMRC.
70.
Lynn Emery of the MoD contacted Colin Davis by email on 22 June 2005. It
appears likely that this contact at least in part was prompted by Mr McMahon’s
enquiries with the MoD in early June 2005. Mr Davis headed up the relevant HMRC
unit of expertise and was Mr McChesney’s predecessor. Ms Emery posed the
following question (emphasis added):
“The MoD is now getting
queries from contractors regarding clothing … I am finding it difficult to
interpret [the MEU regulation] regarding clothing. To date the MoD are
interpreting the commodity code 6211 to include any special purpose
military clothing. This does not include basic uniforms … what was the HMRC
understanding of the interpretation of the clothing commodity codes?”
71.
She gave as an example protective thermal cold weather underwear made
from specialist material such as polartec power dry used in Afghanistan and for which she identified a commodity code of 6001. Mr Davis replied as
follows:
“…we don’t have any
information about why certain CN codes were included in the Annex & others
weren’t. However I can confirm that your general approach accords with our
understanding of the scope of the [MEU regulation]…
As you say the subject of
clothing is a difficult one … If there is any special purpose military clothing
that is classified within CN code 6211 then in our view, they would fall within
the scope of the Regulation….
In the specific example,
you advise the goods are classified under CN code 6001… As 6001 is not included
in the CN codes listed in the Annex, I’m afraid the goods are not entitled to
relief under the Regulation even if they are being used for military purposes.”
72.
There is no evidence of any
general or specific discussions between HMRC and the MoD in relation to MEU
relief after this email exchange. Indeed there was no reason for there to be
any specific discussions concerning the appellant until January 2009. It was at
this stage that Ms McCollum indicated to the appellant that she would discuss
Mr Trimble’ enquiries with “Customs’ focal point”. On 27 January 2009
she sent an email to Mr McChesney referring to Mr Trimble’s letter and
continued:
“This
contractor [meaning the appellant] is importing camouflage … items from outside
the EU for operational requirements, at present in Iraq/Afghanistan. The
camouflage material used has specific Infra Red Reflectance properties … we do
feel that this particular form of camouflage clothing is of a
protective/specialist nature and contributes to the protection of service
personnel, in a similar way to body armour on which import duty is waived.
Would HMRC be content with our interpretation that this clothing
could be imported to Military End Use and the use of a waiver certificate is
allowable??”
73.
Mr McChesney replied on 27
January 2009 as follows:
“As
the garments
have specialised properties for protecting staff I would agree that they can be
covered by waiver certificates.”
74.
It was on the
strength of this exchange that Ms McCollum wrote to Mr Trimble on 28 January
2009. It appears to us that it was the way in which this exchange was relayed
to Mr Trimble that has been the source of confusion on the part of the
appellant. In particular neither Mr McChesney nor Ms McCollum made clear that
it was only items which were classified under CN 6211 which would have the
benefit of MEU relief. Having said that, Mr McChesney answered the question he
was asked and in our view cannot be criticised. He was not given any details of
the goods in question beyond their specialist properties. His response was
limited to the question of whether the items in question were sufficiently
specialist in nature. We are satisfied that if he had been asked about the
appropriate CN code for specific items he would have referred the request to
the tariff classification service.
75.
It appears to us
that Ms McCollum thought that the goods could be properly classified to CN 6211.
In making this finding we have also had regard to Ms McCollum’s exchange with
Ms Cureton-Burgess referred to below. Whilst the terms of Ms McCollum’s letter
to Mr Trimble dated 28 January 2009 may have contributed to some extent to the
appellant’s misunderstanding it is not fair to say that she caused that
misunderstanding. In the context of the appellant’s dealings with the MoD and,
through Puma Cargo with HMRC in 2005, it was a failure on the part of the
appellant to take up the issue with HMRC directly which was the real cause of
the appellant’s misunderstanding. The appellant and their customs agent ought
to have known that the importer was responsible for identifying the correct
commodity code and to contact the tariff classification service directly in
case of doubt.
76.
In May 2009 Ms
Crawford was considering the question of retrospective authorisation for MEU.
Before approving the application she had contacted the unit of expertise. Mr
Stanners of that unit records in his email dated 1 May 2009 that;
“Jim McChesney was speaking to Moira McCollum at
the MoD this morning & raised the subject with her. She confirmed the
details & stated that an amended retrospective military end-use Certificate
will be issued to [the appellant] to cover the infra-red disruptive fabric
only.”
77.
Mr McChesney had no recollection as to the detail of that conversation.
It seems unlikely in the light of Mr McChesney’s involvement generally that he
was asked to give any view on whether the goods were properly classified to CN
6211. We find as a fact that the extent of his involvement in his dealings with
other HMRC officers and with the MoD was to confirm whether or not the clothing
was sufficiently specialist to fall within the scope of the MEU regulation. It
was not his responsibility to say whether or not imports of particular goods
were entitled to relief because that would depend on whether they were
classified to a heading in Annex I of the MEU regulation.
78.
There was further contact between HMRC and the MoD when Ms Cureton-Burgess
was considering the repayment claim. Indeed the first step she took was to
contact Ms McCollum by letter dated 15 September 2009. She asked Ms McCollum to
identify the HMRC “focal point”, to explain why the goods qualified for duty
relief when they were not in Annex I and why the Certificate issued by the MoD
identified jackets and trousers with CN code 6211.
79.
Ms McCollum replied by letter dated 7 October 2009. She stated that Mr
McChesney had agreed that the clothing could be covered by waiver of import
duty. She enclosed the email correspondence she had had with Mr McChesney. She
continued:
The 4 digit CN Code list
held by the MoD, and agreed by HMRC, which comes from the list within the [MEU regulation],
contains very few codes relating to clothing. 6210 states ‘Protective Suits
such as Explosive Ordnance Disposal’ and 6211 ‘Suits(if woven) such as
Immersion suits, combat body armour jacket, [nuclear, biological and chemical]
suit. Note that the examples given are for guidance only. Given these
descriptions we felt this clothing fell within 6211. ”
80.
Ms McCollum also referred to the 2005 email exchange between Lynn Emery
and Colin Davis.
81.
None of the witnesses who gave evidence was aware of the existence of
any “list” as described by Ms McCollum. Ms McCollum herself did not give
evidence. We were told that she had refused to give evidence but we are not
aware of the circumstances in which she was asked to do so, nor does it appear
that any witness summons was issued by the appellant. We are left in the
position that we do not have all the evidence surrounding the basis upon which
Ms McCollum wrote her letter dated 28 January 2009. However it does appear to
us from her letter dated 7 October 2009 and we find as a fact that she was
under the impression that the items of clothing being imported by the appellant
could properly be classified to heading 6211.
82.
The MoD re-issued
the Certificate to the appellant on 27 January 2010, limiting MEU to coveralls.
Whilst we were not taken to any evidence in this regard it appears that there
was further contact between HMRC and the MoD leading to the re-issue of the
certificate.
The Law
Generally
83.
The legal framework against which goods are classified for customs duty
purposes is well established. For the sake of convenience we take the
description in HMRC v Flir Systems AB [2009] EWHC 82 (Ch) where Henderson
J summarised the legal framework in the following terms:
“6. A full account of the legal background to the EU customs tariffs,
and the principles to be followed in their interpretation, was given by
Lawrence Collins J (as he then was) in Vtech Electronics (UK) Plc v Customs
& Excise Commissioners [2003] EWHC 59 (Ch)
("Vtech"). What follows is intended to be a relatively brief
summary.
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 ("the
ECJ") 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, [2005] 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).
13. So far as material, the GIRs provide as follows:
"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.
2 (a) …
(b) Any
reference in a heading to a material or substance shall be taken to include a
reference to mixtures or combinations of that material or substance with other
materials or substances. Any reference to goods of a given material or
substance shall be taken to include a reference to goods consisting wholly or
partly of such material or substance. The classification of goods consisting of
more than one material or substance shall be according to the principles of
rule 3.
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:
(a) 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;
(b)
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;
(c) 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.
4. Goods
which cannot be classified in accordance with the above rules shall be
classified under the heading appropriate to the goods to which they are most
akin.
5. …
6. For
legal purposes, the classification of goods in the sub-headings of a heading
shall be determined according to the terms of those subheadings and any related
subheading notes and, mutatis mutandis, to the above rules, on the
understanding that only subheadings at the same level are comparable. For the
purposes of this rule, the relative section and chapter notes also apply,
unless the context requires otherwise."
14. It can be seen that the General Rules quoted above provide
a hierarchical set of principles, and if the correct classification can be
ascertained at a given stage it is unnecessary to proceed any further.”
84.
Also relevant for present purposes is Article 12 Regulation 2913/92
(“the Code”) which provides as follows:
“1. The customs authorities shall issue binding tariff
information… on written request, acting in accordance with the committee
procedure.
2. Binding tariff information …. shall be binding on other
customs authorities as against the holder of the information...”
Military End User Relief
85.
MEU relief is granted by reference to the procedure set out in the Code
for end use reliefs generally. Article 21 of the Code provides for favourable
treatment of certain goods by reason of the nature of their end-use. It states
as follows:
“1. The
favourable tariff treatment from which certain goods may benefit by reason of
their nature or end-use shall be subject to conditions laid down in accordance
with the Committee procedure. Where an authorization is required Articles 86
and 87 shall apply.
2. For the
purposes of paragraph 1, the expression 'favourable tariff treatment' means a reduction
in or suspension of an import duty as referred to in Article 4 (10), even
within the framework of a tariff quota”.
86.
The detailed provisions are set out in Regulation EEC No 2454/93
(“the Implementing Regulation”) at Articles 291-300. They provide that an
authorisation is required and hence Articles 86 and 87 of the Code are also
applicable. They state:
“Article
86
Without
prejudice to the additional special conditions governing the procedure in
question, the authorization referred to in Article 85 and that referred to in
Article 100 (1) shall be granted only:
- to persons who
offer every guarantee necessary for the proper conduct of the operations;
- where the
customs authorities can supervise and monitor the procedure without having to
introduce administrative arrangements disproportionate to the economic needs
involved.
Article
87
1. The
conditions under which the procedure in question is used shall be set out in
the authorization.
2. The holder of
the authorization shall notify the customs authorities of all factors arising
after the authorization was granted which may influence its continuation or
content”.
87.
Article 292 of the Implementing Regulation provides that:
“The
granting of favourable tariff treatment in accordance with Article 21 of the
Code shall, where it is provided that goods are subject to end-use customs
supervisions, be subject to written authorisation.
Where goods
are released for free circulation at a reduced or zero-rate of duty on account
of their end-use and the provisions in force require that the goods remain
under customs supervision in accordance with Article 82 of the Code, a written
authorisation for the purposes of end-use customs supervisions shall be
necessary”
88.
Article 237 of the Code referred to below deals with repayment of
customs duties where a customs declaration is invalidated. In this context
Article 66 of the Code provides as follows:
“The customs authorities
shall, at the request of the declarant, invalidate a declaration already
accepted where the declarant furnishes proof that goods were declared in error
for the customs procedure covered by that declaration or that, as a result of
special circumstances, the placing of the goods under the customs procedure for
which they were declared is no longer justified.”
89.
Article 294 of the Implementing Regulation provides that the customs
authorities may issue retroactive authorisations. It states that retroactive
authorisations shall take effect on the date the application is submitted but
that in exceptional circumstances the retroactive effect may be extended
further but not more than a year before the application was submitted provided
a proven economic need exists and:
“(a) the
application is not related to attempted deception or to obvious negligence;
(b) the
applicant’s accounts confirm that all requirements of the arrangements can be
regarded as having been met and, where appropriate, in order to avoid
substitution the goods can be identified for the period involved, and such
accounts allow the arrangements to be verified;
(c) all the
formalities necessary to regularise the situation of the goods can be carried
out, including where necessary, the invalidation of the declaration”
90.
Article 251 of the Implementing
Regulation provides that a customs declaration may be invalidated after the
release of the goods where certain conditions are satisfied. These include at
Article 251(1c):
“Where
a retroactive authorisation is granted in accordance with:
- Article 294 for release for free circulation with a
favourable tariff treatment or at a reduced or zero rate of duty on account of
the end-use of the goods … ”
91.
MEU relief is granted by the MEU regulation which suspends import duties
on certain weapons and military equipment. It states in recital (2) that it is
in the interests of the Community as a
whole that certain military weapons and equipment should be imported free of
duties. Recital (3) envisages the establishment of a common list of weapons and
equipment eligible for suspension of duty so as to ensure consistent application.
Recital (5) states as follows:
“ In order to take account of
the protection of the military confidentiality of the Member States it is
necessary to lay down specific administrative procedures for the granting of
the benefit of the suspension of duties. A declaration by the competent
authority of the Member State for whose forces the weapons or military
equipment are destined, which could also be used as customs declaration as
required by the Customs Code, would constitute an appropriate guarantee that
these conditions are fulfilled. The declaration should be given in the form of
a certificate. It is appropriate to specify the form, which such certificates
must take and to allow also the use of means of data processing techniques for
the declaration.”
92.
Article 1 of the MEU regulation states that it lays down the conditions
“for the autonomous suspension of import duties on certain weapons and military
equipment imported by or on behalf
of the military defence of the Member States from third countries.”
93.
Pursuant to Article 2 of the MEU regulation, duties on goods listed in
Annex 1 shall be totally suspended where they are used by, or on behalf of, the
military forces of a Member State. Annex I
sets out a list of CN headings which are used to identify the equipment in
question. This includes CN headings 6210 and 6211.
94.
Article 3 to the MEU regulation in conjunction with Annex III prescribes
a form of end use certificate to be issued by the competent authority of a Member State which entitles the goods in question to
be entered for free circulation with the benefit of duty suspension. The MEU regulation
permits the end use certificate to be presented to national customs authorities
in lieu of the customs declaration otherwise required by Articles 59 to 76 of the
Code. The certificates issued by the MoD in this case conformed to those
requirements.
95.
In addition, pursuant to Article 5, the Certificate of Competent
Authority may be presented to the customs authorities in another Member State other than that of issue and used as a basis
for the importation of goods in that Member State with customs duty being suspended.
96.
MEU relief is available for goods properly classified in one of the
headings contained in Annex I of the MEU regulation. It is apparent that the regulation
applies to provide relief from import duties only on “certain” weapons and
equipment for the armed forces of the Member States. Goods which do not fall
within any of the headings of Annex I to the regulation do not qualify for the
relief. The headings in Chapter 62 which are listed in Annex I are 6210, 6211
and 6217.
97.
Not all goods which fall within those CN headings will qualify for MEU relief.
Only those in respect of which a certificate has been granted by the
authorities in charge of military defence will qualify.
98.
The MEU regulation does not provide a complete suspension of import
duties for weapons and military equipment but only for certain weapons and
military equipment. It follows that some weapons and military equipment do not
qualify relief regardless of how specialised they are or how integral they may
be to the operation of the military. Those that do not fall within any of the
headings contained in Annex I do not qualify and neither do those goods which
do fall within those headings but which do not comply with the conditions in
Article 2.1. Mr Thomas submitted and we accept that it is not possible to
derive from the regulation any general policy to exempt all specialist military
equipment (including clothing).
99.
It was common ground between the parties that only technologically
specialised military equipment falling within the headings in Annex 1 will
qualify for relief. This is how both the MoD and HMRC have interpreted the MEU
regulation, and appears to be based on Recital (2) which refers to “technologically
advanced” weapons and equipment and the need to procure such items from
third countries outside the EU.
100. In order to
obtain MEU relief the parties before us agreed that the following procedure was
to be followed:
(1)
The MoD must provide the appellant with a Certificate of Competent
Authority in the form of Annex III to the MEU regulation.
(2)
HMRC must give the appellant an end use relief Authorisation.
(3)
The goods imported by the appellant must satisfy the description in the
Certificate and the Authorisation and the appellant must satisfy the other
conditions set out in the Authorisation.
Principles of
Classification
101. The general
principles of classification are set out in the passage from HMRC v Flir
Systems AB quoted above.
102. The intended use
of a product may be determinative of the appropriate CN heading, if it is
ascertainable from the objective characteristics of the product itself and is
not dependent on subjective intention.
103. In Case
C-467/03 Ikegami Electronics (Europe) GmbH the Court of Justice was
concerned with the classification of a machine which could be used as a
personal computer but which incorporated special equipment for use as a video
recorder for up to 8 television cameras. The issue for the Court was whether it
was properly classified as an automatic data processing machine or as a video
recording or reproducing apparatus. The Court stated as follows:
“19. It is clear from Note 5(E) to Chapter 84 of the CN
that machines performing a specific function other than data processing and
incorporating or working in conjunction with an automatic data processing
machine are to be classified in the headings appropriate to their respective
functions or, failing that, in residual headings.
…
21. Whilst
it is equipped to process data, the machine is different, by virtue not only of
its specific function of storage of video signals, but also the manner in which
it is marketed and presented to the public (see, in that regard, Case T-'243/01
Sony Computer Entertainment Europe v Commission [2003] ECR II-'4189, paragraph
112) from an automatic machine which undertakes only data processing.
…
23. It is important also to make clear that, according to the Court’s
case-law, the intended use of a product may constitute an objective criterion
in relation to tariff classification if it is inherent in the product, and such
inherent character must be capable of being assessed on the basis of the
product’s objective characteristics and properties (Case C-201/99 Deutsche
Nichimen [2001] ECR I-2701, paragraph 20, and Krings, cited above,
paragraph 30).”
104. However, care is
need in relying upon one particular function as conferring the essential
character of a product. In Ikegami, Note 5(E) to Chapter 84 specifically
required machines performing a specific function other than data processing to
be classified to headings appropriate to that function. That is because Chapter
84 classifies machines and apparatus with electronic functions by reference to
their functions.
105. In Wiener SI
GmbH v Hauptzollamt Emmerich Case C-338/95 the Court of Justice was concerned
with garments declared as “nightdresses” which was a sub-heading of CN 6004
(“Under garments …”). The German customs authorities sought to classify them as
“dresses” which was a sub-heading of CN 6005 (“Outer garments …”). The cut and
presentation of the garment suggested that it could be worn either as a
nightdress or as a dress.
106. The Court
referred to its previous decision in Neckerman Versand v Hauptzollamt
Frankfurt am Main-Ost [1994] ECR I-4027 where in a similar context it held
that garments used mainly in bed were classified as pyjamas. Since the goods
were intended to be worn essentially in bed they must be regarded as
nightdresses even though they may be used for other purposes.
Correcting Errors – Repayment or Remission of
Import Duties
107. Article 236 of
the Code requires duties to be repaid or remitted in circumstances where:
(1)
when they were paid they were not legally due, or
(2)
where the amount has been entered in the accounts contrary to Article
220(2) of the Code.
108. Article 220(2)
provides as follows:
“2. Except in the cases referred to in the second and third
subparagraphs of Article 217(1), subsequent entry in the accounts shall not
occur where:
(a) . . . ;
(b) the amount of duty legally owed was not 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.
…”
109. Article 237 of
the Code provides that:
“Import duties or export
duties shall be repaid where a customs declaration is invalidated and the
duties have been paid. Repayment shall be granted upon submission of an
application by the person concerned within the periods laid down for submission
of the application for invalidation of the customs declaration.”
110. Article 239(1) of
the Code provides as follows:
“1. Import
duties . . . may be repaid or remitted in situations other than those referred
to in Articles 236, 237, and 238 –
-
to be determined in accordance with the procedure of the committee;
-
resulting from circumstances in which no deception or obvious
negligence may be attributed to the person concerned. The situations in which
this provision may be applied and the procedures to be followed to that end
shall be defined in accordance with the committee procedure. Repayment or
remission may be made subject to special conditions.”
111. The terms of the
Implementing Regulation governing repayment or remission of customs duties
lawfully due were amended by Commission Regulation (EC) No 1335/2003 of 25
July. Recital (2) to that Regulation provided as follows:
“Given that under Article 8
of Council Decision 2000/597/EC, Euratom of 29 September 2000 on the system of
the European Communities' own resources the Member States are primarily
responsible for collecting traditional own resources, it should therefore
primarily be up to the authorities of the Member States to decide whether or
not import duties or export duties should be entered subsequently in the
accounts under Article 220(2)(b) of Regulation (EEC) No 2913/92 or repaid or
remitted under Article 239 of that Regulation.”
112. Recital (3) also
identified circumstances in which the matter should continue to be transmitted
to the Commission:
“However, in order to
ensure uniform treatment of traders and protect the financial interests of the
Communities, the obligation to transmit dossiers to the Commission for a
decision should remain where Member States consider that the decision should be
favourable and either (a) an active error or failing on the part of the
Commission is cited, or (b) the circumstances of the case are connected to
Community investigations carried out under Council Regulation (EC) No 515/97 of
13 March 1997 on mutual assistance between the administrative authorities of
the Member States and cooperation between the latter and the Commission to
ensure the correct application of the law on customs and agricultural matters
(4), or (c) the amount of duties involved is EUR 500 000 or more.”
113. Article 871 of
the Implementing Regulation provides as follows:
“1. The customs authority shall transmit the case to the Commission to
be settled under the procedure laid down in Articles 872 to 876 where it
considers that the conditions laid down in Article 220(2)(b) of the Code are
fulfilled and:
…
the amount not collected from the operator concerned in respect of
one or more import or export operations but in consequence of a single error is
EUR 500 000 or more.”
114. Title IV of the
Implementing Regulation lays down specific provisions governing the repayment
or remission of import duties. Article 899 (as amended) governs the specific
case of applications under Article 239 of the Code and provides as follows:
“1. …
2. In other cases, except those in which the dossier must be submitted
to the Commission pursuant to Article 905, the decision-making customs
authority shall itself decide to grant repayment or remission of the import or
export duties where there is a special situation resulting from circumstances
in which no deception or obvious negligence may be attributed to the person
concerned.
Where Article 905(2), second indent, is applicable, the customs
authorities may not decide to authorise repayment or remission of the duties in
question until the end of a procedure initiated in accordance with Articles 906
to 909.”
115. In the present
case, it is for HMRC to rule on the applicability of Article 899(2) to the
facts, unless the terms of Article 905 are engaged. Article 905 effectively
provides for a reference procedure to the Commission of the European
Communities in certain defined circumstances. Article 905 now provides as
follows:
“1. Where the application for repayment or remission submitted
under Article 239(2) of the Code is supported by evidence which might
constitute a special situation resulting from circumstances in which no
deception or obvious negligence may be attributed to the person concerned, the
Member State to which the decision-making customs authority belongs shall
transmit the case to the Commission to be settled under the procedure laid down
in Articles 906 to 909 where:
…
- the amount for
which the person concerned may be liable in respect of one or more import or
export operations but in consequence of a single special situation is EUR 500
000 or more …”
116. The importer has
an obligation to ensure that it enters the correct customs classification on
any customs declaration at the time of importing a consignment of goods (see Article
199 of the Implementing Regulation). From the time of publication in the
Official Journal, no person is deemed to be unaware of the nature and extent of
charges to customs duty (see Binder v. Hauptzollamt Bad Reichenhall [1989] ECR 2415, at [19]). The importer is responsible both for payment of the
import duties and for the regularity of the documents presented by him to the
customs authorities (See Case T-239/00 SCI UK Ltd v. Commission
[2002] E.C.R. II-2957 at [55]). It is the responsibility of traders to make the
necessary arrangements in their contractual relationships to guard against the
risks of an action for post-clearance payments.
117. By virtue of
the provisions of the Code and the Implementing Regulation set out above, HMRC are
obliged as a matter of EU law to enter the correct CN classification for goods
imported into the United Kingdom (See Case C-413/96 Skatteministeriet
v Sportsgoods A/S [1998] ECR I-5285 at [23-25] and [36-37]). In
principle, when the customs authorities discover an error in the tariff
classification of goods indicated in a declaration of release for free
circulation, they must recalculate, in the light of the new information at
their disposal, the amount of customs duties legally due at the date when that
declaration was accepted.
118. The recovery of
post-clearance payment of import duties complies with the principle of
legitimate expectations recognised as a general principle of EU law by virtue
of the mechanism for waiver and/or remission of the duty if certain conditions
are met.
119. The ECJ in Case
C-250/00 Ilumitrónica v. Chefe da Dvisião de Procedimentos Aduaneiros e
Fiscais [2002] ECR I-10433, at paragraph 33, noted that:
“ The circumstance that the
declarant [on importation] acted in good faith and with care, unaware of an
irregularity which prevented the collection of duties which he should have paid
if that irregularity had not been committed, has no bearing on his capacity as
the person liable, which results exclusively from the legal effects associated
with the formality of declaration.”
120. The ECJ has identified
two exceptions to this principle:
(1)
Waiver of post-clearance recovery by the national authorities, subject
to three cumulative conditions under Article 220(2)(b) of the Code (formerly
Article 5(2) of Regulation No. 1697/97);
(2)
Repayment and remission of duties under Article 239 of the Code
(formerly Article 13(1) of Regulation No. 1430/79).
121. Waiver of
post-clearance recovery by the national authorities is permitted where the
three cumulative conditions under Article 220(2)(b) of the Code are met. Each
has to be met before waiver of a customs debt will be permitted. Many of the
cases which provide assistance as to the correct approach to this question are
concerned with the statutory predecessor of Article 220(2) found in Article
5(2) of Regulation 1697/79.
122. In Case
C-370/96 Covita [1998] ECR I-7711, at [24-28] the ECJ set out the
conditions to be fulfilled in relation to the statutory predecessor to Article
220(2)(b). In summary:
(1)
Non-collection of the duties must have been as a result of an error made
by the competent authorities themselves. The legitimate expectations of the
person liable do not attract the protection provided for in Article 220(2)(b)
unless it was the competent authorities themselves which created the basis for
the expectations of the person liable.
(2)
The error made by the competent authorities must be such that it could
not reasonably be detected by the person liable acting in good faith, despite
his professional experience and the diligence shown by him. It is mandatory for
Community provisions relating to customs duties to be published in the Official
Journal of the European Communities. Traders are deemed to know the law as
published in the OJ from the date of publication.
(3)
The person liable must have complied with all of the provisions laid
down by the rules in force as far as his customs declaration is concerned.
123. The ECJ in Covita
also gave guidance as to what is now Article 239 of the Code at [29 to 32]:
“29. So far as concerns the interpretation of Article 13 of
Regulation No 1430/79, it follows from the wording of that provision that
repayment or remission of import duties is subject to two cumulative
conditions, namely the existence of a special situation and the absence of
deception or obvious negligence on the part of the trader.
30. Furthermore, Article
13 of Regulation No 1430/79 and Article 5(2) of Regulation No 1697/79 pursue
the same aim, namely to limit the post-clearance payment of import and export
duties to cases where such payment is justified and is compatible with a
fundamental principle such as that of the protection of legitimate expectations
(Hewlett Packard France, cited above, paragraph 46).
31. From that point of
view, the fact that a trader places his trust in erroneous information provided
by the competent authorities could, in certain circumstances, be regarded as a
special situation within the meaning of Article 13 of Regulation No 1430/79,
despite the fact that that situation is not provided for in Regulation No
3799/86. The list of special situations within the meaning of Article 13 of
Regulation No 1430/79 which Article 4 of Regulation No 3799/86 provides is not
exhaustive (see to that effect Hewlett Packard France, cited above, paragraphs
39 and 43).
32. None the less, so
far as concerns the second condition laid down by Article 13 of Regulation No
1430/79, it should be borne in mind that the question whether the error was
detectable, within the meaning of Article 5(2) of Regulation No 1697/79, is
linked to the existence of obvious negligence or deception within the meaning
of Article 13 of Regulation No 1430/79 (Hewlett Packard France, cited above,
paragraph 46).”
124. The Court of
First Instance in Case T-330/99 Spedition Wilhelm Rotermund GmbH v
Commission of the European Communities [2001] ECR II-1619, GCEU held that
Article 905 is an equitable provision intended to deal with exceptional
situations faced by traders. It is intended to apply where the circumstances of
the relationship between a trader and administrator are such that it would be
inequitable to require the trader to bear a loss which, in normal
circumstances, it would not have incurred. Provided that the conditions for
applying the general equitable provision are satisfied, the person liable is
entitled to remission of the import duties. To hold otherwise would deprive
that provision of its effectiveness: see [53]. In deciding whether a ‘special
situation’ exists, the Commission must balance the Community interest against
the interests of a trader who has acted in good faith (See also Case
T-239/00 SCI UK Ltd v. Commission [2002] ECR II-2957, GCEU at [44 to 51]). In
order to assess whether a trader is in a “special situation”, it is necessary
to consider whether he is in an exceptional situation as compared with other
operators engaged in the same business (See Case C-61/98 De Haan Beheer BV
at [52] and [53]).
125. In Case
T-104/02 Société française de Transports Gondrand Frères v. Commission [2004] ECR II-3211, GCEU at [58], the Court of First Instance held that factors
which might constitute a special situation for the purposes of Article 905
exist where, in view of the objective underlying the fairness clause, factors
liable to place the applicant in an exceptional situation as compared with
other operators engaged in the same business are found to exist. Furthermore,
in Case T-385/05 Transnáutica – Transportes e Navegação, SA v. Commission
[2009] ECR II-163, GCEU at [58] to [60], the Court noted that a lack of diligence
on the part of the national customs authorities may place a trader in a special
situation going beyond the normal commercial risk inherent in its business and
which justifies remission of the customs duty.
Competing
Classifications
126. We set out below
the competing classification headings which we must consider in this appeal.
Chapter 62 of the CN is concerned with articles of apparel and clothing
accessories.
127. The BTIs issued
by HMRC and against which the appellant appeals are 6201 93 and 6206
30. The garments were described as a combat smock similar to an anorak and
an under body armour combat shirt without reference to their IRR properties. The
relevant headings and sub-headings of the CN are as follows:
6201 Men’s
or boys’ overcoats, car-coats, capes, cloaks, anoraks (including ski-jackets),
wind-cheaters, wind-jackets and similar articles, other than those for heading
6203:
-
Overcoats, raincoats, car coats, capes, cloaks and similar articles:
…
- Other:
6201 93 -- Of man-made fibres
6206 Women’s
or girls’ blouses, shirts and shirt-blouses:
…
6206 30 - Of cotton
128. In addition HMRC
have also issued various liability rulings classifying articles imported by the
appellants under the following headings – 6203, 6206 and 6506. The relevant
headings and sub-headings are as follows:
6203 Men’s
or boys’ suits, ensembles, jackets, blazers, trousers, bib and brace overalls,
breeches and shorts (other than swimwear):
-
Jackets and blazers:
…
6203 39 -- Of other
textile materials:
--- Of
artificial fibres:
6203 39 11 ---- Industrial and occupational
6506
Other headgear, whether or not lined or trimmed
129. The appellant
for its part seeks to classify the goods for which it claims relief under the
headings 6211 33 10. The relevant headings and sub-headings are as follows:
6211 Tracksuits,
ski suits and swimwear; other garments:
-
swimwear:
…
- ski
suits
…
-
Other garments, men’s or boys’:
…
6211 33 -- Of man-made fibres:
6211 33 10 --- Industrial and occupational
clothing
130. The CNENs for
Chapter 62 include the following general notes:
“4. This chapter
includes items of industrial and occupational clothing which because of their
general aspect … and the nature of their fabric … make it clear that they are
designed to be worn solely or mainly in order to provide protection (physical
or health) for other clothing and/or persons during industrial professional or
domestic activities.
…Uniform and other similar
official garments (judge’s gowns, church vestments, for example) are not
considered to be industrial and occupational garments.”
Summary of the Parties’ Submissions
131. Mr Beal QC relied
upon the following broad grounds of appeal which deal with the issues arising
under each appeal:
(1)
The Certificate issued by the MoD is conclusive as to the availability
of MEU relief and it is not necessary to go beyond the Certificate in order to
classify the goods being imported.
(2)
In any event, the goods being imported were properly classified to CN
6211 and were prima facie entitled to MEU relief.
(3)
The Appellant is entitled to remission and/or repayment of duties
pursuant to Article 220(2)(b) (via Article 236) and Article 239 of the Code. In
this regard he relied upon due care having been exercised by the appellant and submitted
that the circumstances gave rise to a legitimate expectation of MEU relief on
the part of the appellant. In particular he submitted that a “change of mind”
by HMRC had contributed to that legitimate expectation.
132. We deal with Mr
Beal’s detailed submissions in the course of our decision below.
133. Mr Thomas submitted
that the appellant’s case confused three separate elements of the customs duty
regime, namely:
(1)
Duty suspension under the MEU regulation and the MoD certification
process required by the regulation.
(2)
Classification of goods by traders on entry of those goods to the EU.
(3)
Authorisation by HMRC for a trader to enter those goods to end use
relief.
134. He submitted
that the appellant was reading documentation including correspondence relevant
to one of those regimes as if it applied to another regime. Against that background,
Mr Thomas’s broad submissions were as follows:
(1)
The MoD Certificate, given pursuant to the MEU regulation, does not
displace the fundamental requirement for a trader to classify the goods on
entry to the EU.
(2)
The goods are not properly classified to heading CN 6211
(3)
There has been no error by a “customs authority” for the purposes of
Article 220, nor any change of mind as to classification by HMRC. In any event
there was a lack of due care by the appellant.
(4)
Even on the appellant’s case, no special situation arises pursuant to
Article 239. The appellant is in no better or worse position than any other
trader. There has been no unfairness to the appellant.
Decision
135. We have reached
our decision considering each of the three grounds of appeal separately, and on
the basis of the findings of fact and legal principles set out above.
The First Ground of Appeal – The MoD
Certificate
136. Mr Beal argued
that under the terms of the MEU regulation the Certificate could be used as a
customs declaration. He relied upon this as supporting the conclusive nature of
the certificate as far as entitlement to relief is concerned. He submitted that
the whole purpose of the Certificate is to avoid the possibility of customs
supervision of import entries by other Member States. For example goods for MEU
by the UK could be imported to Rotterdam. The Dutch customs authorities would
not have power to question entitlement to MEU relief of goods satisfying the
description in the Certificate. He did not suggest that the Dutch customs
authorities in those circumstances could not inspect the goods to ensure that
they satisfied the description given in the Certificate.
137. We accept that
the Certificate is conclusive as to the military end use of goods being
imported into the EU and described in the certificate. However we do not accept
that it is also conclusive as to the proper classification of those goods. The
fact that the Certificate identifies the CN Code of goods referred to in the Certificate
does not support Mr Beal’s submission. It merely reflects the possibility of a
Certificate being used as a customs declaration. The evidence before us from Mr
McChesney was that the UK has not chosen to accept such certificates as customs
declarations.
138. The appellant’s
submissions on this ground of appeal reflect the confusion identified by Mr
Thomas in his submissions. It is important to bear in mind the three regimes
identified by Mr Thomas. The MoD Certificate is directed towards the end use of
goods imported. Unless it is used as an import declaration it has nothing to do
with the classification of the goods actually imported. It is clear from
Article 3 of the MEU regulation that the Certificate “may” replace the
customs declaration. In the present case, and in the UK generally, such
certificates are not used or accepted as customs declarations. It is therefore
necessary for traders such as the appellant importing goods to military end use
to make a customs declaration in the ordinary way, including a declaration as
to the classification of the goods.
139. Mr Beal
described the Certificate as the “lynch pin” document which guarantees
relief from duty. Clearly one of the conditions for MEU relief requires a
certificate to be in place. However it is not correct to describe this as a
lynch pin. It is an essential element to the relief, but so too is the
classification of the goods and authorisation from HMRC for a trader to enter
goods to end use relief.
140. The MEU regulation
itself gives relief for military end use by adopting the general provisions for
end use reliefs found in the Code. Hence the necessity for authorisation by
HMRC. The requirement for a MoD Certificate reflects the particular
requirements and sensitivities which would otherwise be involved in a trader
establishing military end use and in customs authorities verifying such end
use. If the MEU regulation was intended to displace the requirement for a
trader to classify goods separately on importation we consider that express
provision would have been made in the regulation itself.
141. Mr Thomas submitted
that the certificate could not be conclusive of entitlement to relief because
there is also a requirement to have an end use Authorisation from HMRC. The Authorisation
itself was in terms that the appellant was authorised to import goods of heading
CN 6211 and no other heading. The Authorisation makes no reference to the
Certificate. We agree. HMRC are entitled to grant an authorisation subject to
conditions and one of the conditions in the present case was that the goods
should be classified to heading CN 6211. We take that to mean properly
classified to heading 6211. The Certificate itself cannot be read in isolation
from the general scheme of end use relief, and in particular the terms of the Authorisation.
142. Mr Beal also
referred us to the purpose of the MEU regulation. He submitted that it was
intended to help Member States finance the war effort in Iraq and Afghanistan. Prior to 2003 there was no relief for weapons and equipment imported for
military end use (See Case C-239/06 Commission v Italy, and C-38/06 Commission
v Portugal). We accept that submission but it does not assist in relation
to the status of the Certificate.
143. If the
Certificate is conclusive as to the appellant’s entitlement to relief, Mr Beal
argued that to deprive the appellant of relief infringed principles of EU law.
In particular the principles of legal certainty (non-retrospection), legitimate
expectation and good or sound administration. We did not understand Mr Thomas
to argue against this proposition. However, given our decision as to the effect
of the Certificate these issues do not arise.
144. Mr Beal also
relied upon Section 7 of Notice 770 and argued that section 7.4 confirms that
the appellant could rely upon the CN Code in the Certificate and it would be
unfair to permit HMRC to depart from the Notice. Section 7.4 reads as follows:
“7.4 Application and
Authorisation
You should apply for
end-use authorisation using Form C1317 (see paragraph 2.4). If you are
importing military equipment under this scheme there is no need to enter the
full 10 digit commodity codes in Box 5 of the form. You may use the four digit
HS heading code(s) entered on the certificate.”
145. On any reading
the Notice does not confirm that the appellant or any other importer can rely
on the CN code in the certificate as being the correct classification. It
simply removes the need to quote the full 10 digit code in an application for
authorisation. We do not accept that HMRC have failed to apply their published
policy.
The Second Ground of Appeal – Classification
146. In support of
this ground of appeal Mr Beal argued that the IRR clothing must be categorised
under CN Code 6211. Otherwise, there would be a huge lacuna in the MEU regulation.
Relief would not be available for the vast majority of protective clothing worn
by servicemen. For example he suggested that there was no real difference
between the IRR clothing and body armour which did have the benefit of MEU
relief. It was illogical that coveralls with IRR fell within CN 6211 and
qualified for MEU Relief, but a jacket and trousers performing the same
function fell outside the relief.
147. It is only
certain weapons and equipment which can benefit from the relief. It is not
possible to identify, certainly on the basis of the evidence before us, any
policy behind the types of weapons and equipment which are entitled to relief.
The most that can be said by reference to Recital (2) is that relief is
intended to apply to certain specialised and technologically advanced goods.
Certainly that is the way it has been interpreted by the MoD and HMRC and by
the appellant in presenting this appeal.
148. We heard no
evidence in relation to body armour or other items of protective clothing worn
by servicemen. The only evidence we have before us relates to the particular
items which are the subject matter of this appeal. There was reference in the
correspondence to a “list” agreed between the MoD and HMRC referring to items
which qualify for relief. It was said to include body armour. None of the
witnesses was aware of any such list and we have not seen a copy. Further, HMRC
do not accept for the purposes of this appeal that body armour does qualify for
relief. In those circumstances we can draw no useful analogy between the two,
nor can we say that there is any lacuna in the provisions for MEU relief.
149. In any event, we
note in passing that it is not at all clear to us that one can use the terms of
a regulation providing for relief from customs duty as a tool for construing
the Combined Nomenclature. That issue, if indeed it is an issue, was not
canvassed before us.
150. Mr Beal argued
that the IRR clothing was exactly like other “industrial and occupational”
clothing that falls within CN 6211. We note the reference to industrial and
occupational clothing in sub-heading CN 6211 33. However the same reference
appears in several other sub-headings of Chapter 62, for example 6203 itself
for industrial and occupational jackets made of cotton. Whether or not the
clothing is industrial or occupational does not assist in the classification
issue in these appeals.
151. Similarly, the
reference to industrial and occupational clothing in paragraph 4 of the CNEN
for chapter 62 does not assist us in classifying the garments in the present
case. It simply states that the chapter includes industrial and occupational clothing
and then goes on to describe what should and should not be treated as falling
within that description. It excludes from the description “uniform and other
similar official garments”. Whilst we accept the garments in the present case
are not uniforms within the meaning of that term in the CNEN, describing the
garments as industrial or occupational does not assist in the classification
issue.
152. As part of his
submissions on this ground of appeal Mr Beal criticised the approach of HMRC to
classification, in particular the approach of Ms Cureton-Burgess who refused
the repayment claim. He submitted that HMRC had omitted to take into account
the specialist protective properties of the clothing and its function. We
accept that criticism. The analysis of Ms Cureton-Burgess, the non live
liability rulings and the BTIs do not appear to take those factors into
account.
153. The omission is
particularly important, Mr Beal submitted, because to describe a combat jacket
with IRR properties simply as a jacket does not capture the full functionality
of the garment. He submitted that functionality is best captured by the
description “industrial or occupational”. We do not accept the latter part of
that submission. Industrial or occupational is a sub-heading and consideration
of sub-headings only arises once the product has been classified to a
particular heading.
154. Flir v HMRC,
referred to above, was a classification case. Mr Beal submitted that it
illustrates the sort of case where one of two competing headings does not capture
the entire functionality of the goods resulting in the court applying GIR 3(c)
as a “tie-breaker”.
155. In Flir
the High Court was concerned with the classification of thermal imagers. HMRC
contended heading 9025 (electronic thermometers) was appropriate. The importer
argued for heading 9027 as instruments using optical radiations for measuring
or checking quantities of heat. The case was thus concerned with technical
equipment to be categorised by reference to its function. Henderson J held that
the items in question fell within both headings. At [33] he stated:
“Once the
conclusion has been reached that the products fall within both headings, the
rest in my judgment follows without difficulty. Neither heading can be regarded
as providing the more specific description, because the two functions
identified by the Tribunal are of equal importance, and it would in my view be
a travesty of the facts to say that the products operate mainly, or
predominantly, as thermometers. As the Tribunal say in paragraph 13 of the
Decision, "neither is the more specific description: they are in part
thermometers and in part instruments for checking quantities of heat, and
neither is more specific". It is common ground that, if GIR 3(a) does not
apply, rule 3(b) cannot be used to resolve differences in function.
Accordingly, recourse must be had to rule 3(c), which is admittedly arbitrary
in its operation, but does at least provide an answer to the question.”
156. Mr Thomas
accepted that the specialist nature of the goods was not in dispute. However he
submitted that factor is relevant only to the issue of the Certificate and not
to the question of classification. We do not accept that submission, in so far
as the specialist nature of the goods is reflected in their functionality. He
pointed out that until 2009 experienced Customs agents had been content to
declare the goods to headings other than 6211. We do not consider that this is
relevant, or should in any way colour our decision on classification.
157. Mr Thomas’
principal submission was that the headings themselves in Chapter 62 provide the
answer to the question of classification. According to GIR 1 it is not
necessary to look at the other GIRs. He also stressed that it is important to
consider the terms of the headings themselves in Chapter 62. He suggested that
the appellant’s case only arises at the level of sub-headings. However it is
not necessary to go beyond the headings themselves.
158. Mr Thomas argued
that if the goods were properly classified to CN 6211 then CN 6210 otiose. We
do not accept that argument. The CN, for whatever reason, has been drafted so
as to distinguish for example garments made of certain rubberised or coated
fabrics which fall within CN 6210 and those other garments which fall within CN
6211.
159. It appears to us
that heading 6211 is in the nature of a residual heading for garments which the
draftsmen did not wish to classify elsewhere in chapter 62. We say this for a
number of reasons:
(1)
Heading 6211 refers to ski suits. We note that heading 6201 expressly
includes ski jackets. By implication one piece ski suits are not classified
elsewhere.
(2)
Heading 6211 refers to swimwear. We note that heading 6203 expressly
excludes swimwear. Hence swimwear, which might otherwise look like a pair of
shorts but performs a different function, has no other heading;
(3)
Tracksuits, which in our experience are generally two piece garments
designed to be worn together, are not classified elsewhere.
(4)
The heading includes other garments and is clearly intended to be a
catch all for other types of garments which the draftsmen did not classify
separately.
160. There is no
suggestion that the term “other garments” in CN 6211 takes any meaning from the
reference to tracksuits, ski suits and swimwear in the same heading.
161. The HSEN
provides that waistcoats are covered by heading 6211. It is also common ground
that “coveralls”, that is all in one garments, are properly classified as other
garments in heading 6211.
162. Mr Thomas
submitted that even if the goods could prima facie be classified to headings
6203 and 6211 then GIR 3(a) would resolve the issue in favour of HMRC. The
heading with the most specific description is, for example CN 6203 which refers
to “jackets” and “trousers”. That heading is more specific than “other
garments” in CN 6211.
163. These submissions
of Mr Thomas are undoubtedly correct if one ignores the functionality of the
garments and their IRR properties. However in our view the functionality of the
garments must be taken into account in determining their classification..
164. Mr Thomas also
referred to the cases of Ikegami and Case C-142/06 Olicom. In
relation to function he sought to derive a general rule that if the function of
goods is relevant to the proposed heading, then the goods will be classified in
the heading which refers to that function. In the present case the relevant
headings did not refer to function. For example there was no reference in 6211
to any protective element or function in the clothing. He distinguished the
cases of Neckerman and Weiner on this basis. The competing
headings were dresses and nightdresses. There was a functional distinction
between the two and the characteristics relevant for the purpose of
classification were in part the function or intended use of the goods.
165. Mr Beal accepted
that there is no explicit reference to the function of garments at the heading
level. There is however what he described as a “free standing entitlement to
look at function”. We are not entirely sure what Mr Beal meant by that
description, but we do accept that in some headings, particularly in the
context of electronic items, there will be an express reference to function. In
other headings there may be an implicit reference to function. For example in Wiener,
nightdresses are recognised by their intended function, which is essentially to
be worn in bed. There is an implicit reference to function or intended use in
the competing headings.
166. It seems to us
that heading 6211 does refer to the function of the garments contained within
it. Whether something is a tracksuit, ski suit or swimwear will depend on the
function it is intended to perform.
167. In our view a camouflage
jacket, intended for military use but which is available to the public
generally, is still a jacket. Elements of style or fashion do not characterise
it as anything other than a jacket. However when IRR properties are incorporated
within the garment, which is not available to the public generally, the garment
has a function which is not related to style or fashion. Such a garment fulfils
two functions – firstly it is an item of clothing intended on one level in
common with jackets generally, to protect the wearer from the elements. Equally
important at least is the function it performs in protecting the wearer from
detection by enemy forces.
168. The point that
arises in the present case is that the garments fulfil their function as a
jacket, whilst also fulfilling a specialist protective function by reference to
their IRR properties. In other words, making the wearer less detectible to an enemy
using night vision goggles. Put simply, the question is whether in those
circumstances the garments fall to be classified as for example jackets/trousers
or as other garments.
169. Mr Thomas submitted
that the description “jacket” may be considered more specific than the
description “other garments”. It is in that context that the decision in Flir
is helpful. The Court held that neither heading was more specific than the
other because neither of the functions was more specific than the other. Hence
GIR 3(a) did not apply.
170. In our view GIR
3(a) does not operate to classify the goods in question as jackets. It would
only apply if the function of a jacket as an item of apparel is considered more
specific than its function in protecting the wearer from detection. Similarly
in relation to the other items of clothing we are concerned with in this
appeal.
171. In our view the
objective characteristics of the IRR clothing imported by the appellants
includes their function in helping to prevent detection by enemy forces. The
IRR properties are such a specialist feature of the jackets that describing
them simply as jackets does not adequately reflect the product. Given its
specific and specialised function, we consider that all clothing with IRR
properties is best described as an “other garment” and properly classified to
heading 6211 33 10. It is not necessary to resort to GIR 3(c), although if it
had been necessary the classification would have been the same. Consequently
the appellant succeeds on its second ground of appeal.
The Third Ground of Appeal – Repayment /
Remission
172. We must first
deal with an issue between the parties as to which provision of the Code for
repayment and/or remission is in point.
173. The application
for repayment covers the period February 2008 to May 2009. Imports during this
period were declared without the benefit of MEU relief and import duties were
paid. In relation to the period May 2009 to February 2010 duty was treated as
having been suspended but is the subject of a post clearance demand.
174. The appellant
claims to be entitled to repayment of duty paid and disputes liability for
goods imported without payment of duty on a number of grounds. These include:
(1)
A retrospective certificate came into force conclusively giving
entitlement to relief, alternatively
(2)
The goods should have been properly classified to CN 6211 which,
together with the retrospective certificate gives entitlement to relief.
175. Those grounds
are the first two grounds of appeal dealt with above. For the reasons given
above we do not consider that the retrospective certificate is conclusive as to
classification. As to the proper classification of the goods we have found that
they do fall within heading CN 6211 and the appellant succeeds on its second
ground of appeal.
176. In the event
that either of the first two grounds of appeal is made out Mr Thomas accepted
that there is no further dispute and the appellant would be entitled to
repayment pursuant to Article 237 of the Code. Mr Thomas also accepted in those
circumstances that the appellant would not be liable pursuant to the post clearance
demand. The customs debt does not arise in the first place.
177. If we are wrong
on the second ground of appeal we set out below what our decision would have
been on the third ground of appeal.
Repayment
178. The claim for
repayment is advanced on the basis of either Article 236 or Article 239.
179. Under Article
236 the appellant must show either:
(1)
When they were paid, the amount of the duties was not legally owed, or
(2)
The amount was entered in the accounts contrary to Article 220(2).
180. At the time
the duties were paid in the period February 2008 to May 2009 there was no
Certificate or end use Authorisation in place. The amounts were therefore
legally owed and the first limb of Article 236 is not satisfied.
181. In the same
period, the amounts of duties legally owed were entered in the accounts. There
is no suggestion of any error on the part of HMRC in failing to enter the duty
in the accounts and Mr Beal did not rely on the second limb of Article 236.
182. Article 239 is
engaged in situations other than those described in Articles 236 and 237.
Customs duties may be repaid in situations resulting from circumstances in
which there is no deception or obvious negligence on the part of the appellant.
However the situation must be a “special situation” (Articles 899(2) and 905 of
the Implementing Regulation). There will be a special situation where the
person liable is in an exceptional situation as compared with other operators
engaged in the same business.
183. Mr Beal did not
set out any basis upon which there could be a special situation in respect of
the duties paid for the period February 2008 to May 2009. They were paid
because the appellant had not sought to obtain military end use. Ultimately the
appellant raised the matter in early 2009 and obtained a retrospective
Certificate and Authorisation to import to MEU. We cannot see how Article 239
could be engaged in those circumstances.
184. Mr Thomas
submitted that any claim for repayment for this period should be pursuant to
Article 237. Article 237 requires a customs declaration to be invalidated after
the duties have been paid. Mr Beal argued that the customs duty declarations
made by the appellant from February 2008 to May 2009 have not been invalidated.
They were valid declarations at the time because there was no certificate or end
use authorisation in place.
185. Article 66 of
the Code deals with the invalidation of declarations already accepted where
goods are declared in error. It is clear from Article 294(3)(c) and Article
251(1c) of the Implementing Regulation that where a retroactive authorisation
is issued it can have the effect of invalidating the original declaration. We
accept Mr Thomas’ submission that Article 237 of the Code is the relevant
provision for the purposes of repayment in the present case. However, it is
only if the goods were classified to CN 6211 and properly entitled to MEU
Relief that the declaration will be invalidated.
186. We are not
satisfied therefore that there is any entitlement to repayment of duties paid
if the goods were not properly classified to CN 6211.
Remission
187. The claim for
remission of duties subject to the post clearance demand in period May 2009 to
February 2010 is again based on Article 236 and Article 239.
188. In these
circumstances Article 236 will apply where:
(1)
When they were entered in the accounts the amounts of duties were not
legally due, or
(2)
The amount was entered in the accounts contrary to Article 220(2).
189. If we are wrong
as to the correct classification of the goods, the duties were legally due at
the time they were entered into the accounts and the first limb does not apply.
190. In order to
engage Article 220(2)(b) and therefore Article 236, the appellant must
establish an “error on the part of the customs authorities” in failing
to enter the duty legally owed in the accounts. The appellant relies on the
following errors:
(1)
An error on the part of the MoD, endorsed by HMRC, in granting the
Certificate identifying that the goods to be imported were classified under CN
6211
(2)
An error on the part of HMRC in granting the Authorisation to import
goods pursuant to the certificate.
191. The first issue
which arises is whether the MoD is a “customs authority” for these purposes? Article
220 replaced Article 5(2) Regulation 1697/79 which used the term “competent
authority”. There was no definition of competent authority for these purposes.
However Article 4(3) of the Code does define customs authorities as “authorities
responsible inter alia for applying customs rules”. Mr Thomas submits, on
the basis of that definition, that the MoD is not a customs authority.
192. In Case
C-250/91 Hewlett Packard the error was by customs authorities in another Member State. As to whether they were a competent authority for the purposes of Article
5(2) the Court of Justice stated at [15]:
“As regards the error
committed by customs authorities other than those responsible for effecting
recovery, it follows from the judgment in Mecanarte-Metalúrgica de Lagoa, cited
above, paragraphs 22 and 23, that, in principle, notice may be taken of such an
error in proceedings concerning non-recovery initiated by the competent
authorities in another Member State, provided that the error is one which is
relevant to the recovery of the customs duties and may thus cause the person
liable to entertain legitimate expectations.”
193. Customs
authorities of a non-Member State were also held to be competent authorities
for these purposes in Case C-153/94 Faroe Seafood (see [89] and [90])
194. Mr Beal
submitted that the key to whether a body was a competent authority was whether
they were in a position such that they were capable of engendering a legitimate
expectation on the part of a trader.
195. We can see that
the customs authorities of another Member State could be a competent authority
and would also naturally fall within the definition of customs authorities in
the Code. As Mr Beal observed, the MoD was designated by HMRC as a competent
authority for the purpose of issuing the Certificate. In that sense it is an
authority responsible for applying customs rules and we find that it is a
customs authority for the purposes of Article 220(2)(b).
196. We accept that
there was an error by the MoD if Ms McCollum considered, wrongly, that the IRR
clothing could properly be the subject of MEU relief. However it was not this
error which resulted in customs duty legally owed not being entered in the
accounts. The real cause of the duty not being entered in the accounts was a
failure by the appellant to obtain advice from HMRC tariff classification
service as to the proper classification of the goods. They had been advised to
do so in 2005 by both the MoD and HMRC. Notwithstanding Ms McCollum wrongly
thought that the goods were entitled to MEU relief she did not cause the
appellant’s misunderstanding. Nor was she responsible for any legitimate
expectation on the part of the appellant that it would be entitled to relief.
197. Further, we find
that the error could have been reasonably detected by the appellant if it had
sought to confirm the correct tariff classification with HMRC. The appellant
failed to make the enquiries with HMRC that Puma Cargo had made on its behalf
in 2005. The appellant was an experienced importer employing an experienced
customs agent.
198. We do not accept
that HMRC made any error in granting the Authorisation. It was on terms that
the goods imported to MEU relief should be properly classified to CN 6211.
199. Mr McMahon’s
evidence was that the appellant had relied on the Certificate and the end use
Authorisation to justify classifying the goods to CN 6211. We accept that he
did so rely, and also that he acted in good faith. For the reasons we have
given we are not satisfied that it was reasonable for the appellant to rely on
those documents for the purposes of tariff classification. Even if there was an
error on the part of the customs authorities, it was reasonably detectable by
the appellant in the sense that the appellant could and should have referred
the question to the tariff classification service of HMRC.
200. In the
circumstances the second condition for the application of Article 220(2)(b) is
not satisfied. The appellant would not be entitled to remission pursuant to
Article 236.
201. Article 237 has
no application in relation to the post clearance demands which are in dispute.
The appellant’s alternative basis of claim is therefore pursuant to Article
239. The circumstances relied upon as giving rise to a special situation arise
from the appellant’s dealings with the MoD and/or indirectly with HMRC. Mr Beal
submitted as follows:
(1)
The imports from May 2009 to February 2010 were declared to MEU relief
on the strength of the MoD Certificate and the HMRC end use Authorisation.
(2)
HMRC had approved the use of CN 6211 for the appellant’s imports.
(3)
Even if HMRC had not approved the use of CN 6211, the appellant was led
to believe by the MoD that it had been approved by HMRC.
(4)
In the circumstances the appellant had a legitimate expectation that MEU
relief would be available on these imports.
202. As appears above
we have had some difficulty in getting to the bottom of the various dealings of
HMRC and the MoD because of the absence of evidence from the individuals
involved. We accept a point made by Mr Thomas that classification issues depend
on the CN and the objective characteristics of the goods in question. Hence
evidence as to the circumstances in which rulings have been made and
certificates and authorisations granted is not relevant to the classification
issue. However evidence from, for example Ms McCollum or Mr Stanners would have
helped us to understand the circumstances in which the alleged special
situation arose. Mr Beal invited us to take a pragmatic approach and to do the
best we can do with the evidence we have. That is the approach we have taken.
203. We have found
that HMRC did not approve the use of CN 6211 for the appellant’s imports. Nor
for the reasons given above did the MoD lead the appellant to believe that CN
6211 had been approved by HMRC. In the circumstances we do not accept that the
appellant had any legitimate expectation from its dealings with the MoD or HMRC
that MEU relief would be available.
204. In all the
circumstances we are not satisfied that there is any special situation for the
purposes of Article 239. We are also not satisfied that the appellant has been
placed in any exceptional situation compared with other operators engaged in
the same business. If it were necessary for us to do so we would find obvious
negligence on the part of the appellant in failing to follow the advice given
to it by the MoD in 2005, and to Puma Cargo by HMRC, also in 2005.
The Binding Tariff
Informations
205. The goods which
were the subject of BTIs were classified to headings 6201 93 and 6206 30. The
appellant argues that they ought to be classified to CN 6211. We have found
that such clothing with IRR properties is properly classified to CN 6211. More
specifically they should be classified to CN 6211 33 10. In the circumstances
the third appeal is allowed.
Conclusion
206. In all the
circumstances and for the reasons given above the three appeals are allowed.
207. 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.
JONATHAN
CANNAN
TRIBUNAL JUDGE
RELEASE DATE: 3 October 2012
