United Kingdom VAT & Duties Tribunals (Customs) Decisions

Fast Forward Resources PLC v Revenue & Customs [2002] UKVAT(Customs) C00223 (15 February 2002)

C00223

ANTI-DUMPING DUTY – imports of leather handbags originating in the People's Republic of China and sold in the UK – proper construction of relevant EC regulations – questions to be referred to European Court of Justice.

LONDON TRIBUNAL CENTRE

FAST FORWARD RESOURCES PLC Appellant

- and - THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents Tribunal: Peter H Lawson (Chairman) K S G Goddard MBE Mrs C J Debell

Sitting in public in London on 21 November 2001

K Wormald, Counsel, for the Appellant

Rupert Anderson, Counsel, for the Respondents

© CROWN COPYRIGHT 2002
INTERIM DECISION
1. The Appellant appeals against a decision of the Commissioners contained in a letter dated 2 February 2001 which we shall refer to as "the Assessment" , in which they required the Appellant to pay retrospectively anti-dumping duty on leather handbags imported from the People's Republic of China during the period 28 June 1999 to 17 January 2001. The amount of duty totalled £231,652.69 plus VAT of £40,539.22. A Post Clearance Demand note for the total of £272,191.91 was notified to the Appellant on 14 February 2001.
2. By letter dated 27 February 2001, the Appellant requested a review of this decision. The Commissioners did not give notice to the Appellant of their determination on review within the forty-five day period required by section 15(2) of the Finance Act 1994 thereby giving rise to a deemed confirmation of their decision of 2 February 2001.
3. The appeal to the Tribunal against this decision is made under section 16(1)(a) of the Finance Act 1994.
4. Factual and legislative background

(a) The Appellant, Fast Forward Resources Plc, is a supplier of accessories, principally handbags, to customers located mainly in the United Kingdom.

(b) In the period beginning May 1999 and ending in May 2000, the Appellant imported leather and non-leather goods, including handbags from the People's Republic of China. The goods were manufactured in China by Yen Sheng Factory Limited, a company incorporated in Hong Kong. The handbags were therefore of Chinese origin

(c) Between May 1999 and midnight on 23 October 1999 there were ten imports of handbags and these are the subject of this appeal. Between 23 October 1999 and 24 January 2000 there were five further imports. These were originally charged with anti-dumping duty and VAT but the charge was withdrawn by the Commissioners.

(d) In general, leather handbags manufactured in China are subject to anti-dumping duties at the rate of 38% of the net, free-at-frontier price, before duty, by virtue of Article 1(3) of Council Regulation (EC) 1567/97 of 1 August 1998. With effect from 24 January 1999, however, anti-dumping duties were repealed on imports of leather handbags manufactured by Yen Sheng Factory Limited on the basis of Article 2 of Council Regulation (EC) 152/1999, pending the carrying out of a "new exporter" review by the European Commission in accordance with Article 11(4) of Council Regulation (EC) 384/96 ("the Basic Regulation").

(e) Article 3 of Council Regulation (EC) 152/1999 also instructed the relevant EU Customs authorities, including the Commissioners of Customs and Excise in the United Kingdom, to take appropriate steps to register the imports, inter alia from Yen Sheng Factory Limited. The same provisions also stated that registration should expire nine months after the date of entry into force of the Regulation.

(f) Between 31 May 1999 and 28 January 2000, the Appellant purchased and imported a large quantity of leather handbags manufactured in China by Yen Sheng Factory Limited. These imports were cleared by HM Customs and Excise without the payment of anti-dumping duties, although both normal customs duties and VAT were paid on these imports.

(g) On 28 January 2000, anti-dumping duties were imposed at the rate of 38% on imports of leather handbags made by Yen Sheng by HM Customs & Excise. The re-introduction of the anti-dumping duties was imposed on the basis of Council Regulation (EC) 175/2000 of 24 January 2000, which entered into force on 28 January 2000.

(h) Since orders had already been placed for the manufacture of leather handbags by the Appellant with Yen Sheng Factory Limited, imports continued after 28 January until 18 May 2000. During this period, anti-dumping duties were paid in respect of these imports at the rate of 38%. An application for a refund of the anti-dumping duties paid between 28 January and 18 May 2000, was filed with the European Commission on 27 July 2000, in respect of the sum of £97,860 paid for anti-dumping duties between 28 January and 18 May 2000.

(i) On 6 February 2001 the Appellant received the Assessment.

5. The Assessment
   The Assessment itself records that the legal basis for requiring retrospective collection of anti-dumping duties and VAT is Council Regulation (EC) 175/2000.
6. Grounds of Appeal
   The grounds of appeal were that the Assessment was invalid for three reasons:

(a) The Commissioners had erroneously construed Council Regulation (EC) 175/2000 to mean that retrospective collection of anti-dumping duties and VAT could be carried out against the first ten transactions (originally fifteen transactions) identified in the Assessment in the nine-month period to midnight on 23 October 1999.

(b) The Assessment purports to collect retrospectively anti-dumping duties and VAT in relation to transactions which manifestly occurred after the process of registration expired – (this refers to the five transactions in relation to which the Commissioners subsequently withdrew the Assessment – see para 8(d) below).

(c) Insofar as Council Regulation (EC) 175/2000 of 24 January 2000 can be construed as purporting to collect retrospectively anti-dumping duties (and by implication VAT) in respect of a process of registration that has expired it is invalid and any assessment issued to implement such a process is void.

7. The Basic Regulation

(a) The Basic Regulation implements in community legislation the rules on anti-dumping set out in the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994.

(b) The Basic Regulation is wide ranging and contains provisions relating to both provisional and definitive duty and to the registration of reports and for the conduct of investigations relating to these matters.

(c) For convenience copies of the regulations with which this Decision is concerned are contained in a separate bundle. They are:
Council regulation 384/96
Council regulation 152/99
Council regulation 175/2000
Council regulation 1567/97

8. The Commissioners contended in their Statement of Case that:

(a) Commission Regulation (EC) No. 152/99 initiated a 'new exporter' review to ascertain the 'bona fides' of exporters and repealed the duty with regard to imports from five exporting producers (the Appellant being one of them) and made these imports subject to registration.

(b) In accordance with Article 11.4 of the Basic Regulation, Article 2 of Regulation (EC) No. 152/99 repealed the duty in respect of the handbags originating in the People's Republic of China and imported and sold by the Appellant. Article 3 then directs the Customs authorities to register such imports pursuant to Article 14.5 of the Basic Regulation, in order to ensure (recital D(8)) that, should the review result in a determination of dumping in respect of the applicants, anti-dumping duties could be levied retroactively from the date of the initiation of the review. Article 3 went on to provide that "Registration shall expire nine months after the date of entry into force of this Regulation."

Therefore, the Commissioners stated, the sole purpose of registration was to record the imports that would be liable to anti-dumping duty if the review should prove that anti-dumping duty was applicable.

(c) The term 'expire' in Article 3 of Regulation (EC) No. 152/99 refers to the registration period (nine months) not the whole registration process. Therefore anti-dumping duty was due on all imports imported by the Appellant and registered during the registration period.

(d) However, as it is clear from the Basic Regulation that the registration period cannot exceed a period of nine months, products imported by the Appellant after the expiry of the registration period and before the entry into force of Regulation 175/2000 would not be subject to anti-dumping duty. The amount of the duty and VAT demanded by the Commissioners was therefore reduced to exclude the last five entries referred to in the Commissioners' letter of 2 February 2001. This resulted in a reduction of £31,835.59 duty plus £5,571.23 VAT.

(e) The Commissioners accepted that national courts are not competent to declare that Community measures are invalid, so that where a national Court has substantial doubts about the validity of a Community measure and a decision on its validity is necessary for a resolution of the dispute, the Court must refer the issue to the Court of Justice - Case 314/85 Foto-Frost v Hauptzollamt Lubeck-Ost [1987] ECR 4199 @ paras 11-12.

9. At the hearing of the appeal before us Mr Wormald for the Appellant submitted that:

(a) There are two identical lacunae in the provisions of the Basic Regulation:-

(i) In respect of provisional duties the Regulation provides that these may only be imposed for a period of 6 months, extendable to 9; exceptionally for 9 months from the start (Art 7). The period allowed for investigation is 12 months, exceptionally 15.

(ii) In respect of new exporter reviews the regulation provides that imports be registered but not for a period longer than 9 months. The review must be accelerated and the period allowed for investigation is to be at its maximum 12 months (Art 11).

(b) What happens to the provisional duties and/or the registered imports where the investigation takes longer than the 9 month period?

(c) The natural meaning of the words used in regulation 152/99 plainly indicates that the registration expires, i.e. becomes null and void.

(d) Other words could and should have been used if a different meaning was intended, (e.g. 'the registration process will end...')

(e) The words used differ notably from those used at Art 14(5) of the Basic Regulation (384/96) which is either indicative of what is particularly intended in regulation 152/99 or is interpretative of Art 14(5).

(f) The purpose of registration is described in Art 14(5). It forms no part of the investigation itself.

(g) The investigation must, though, be expeditious and 'accelerated' so that it is consistent with the purpose of the Regulation that registration lapses where the investigation is tardy.

(h) The Explanatory Memorandum makes it clear that the registration and provisional duty regimes are intended to be virtually identical.

(i) In practice provisional duty is treated as irrecoverable after the 9 month period expires.

(j) By Art 7(3) provisional duties 'shall be secured by guarantee'. Since the guarantee must fall away at the end of the 9 month period it follows that the exporter's potential liability must fall away too.

(k) Regulation 152/99 can be read as a valid Regulation requesting retroactive collection of duties registered (which on the appellant's case is nil, registration having lapsed).

(l) Alternatively, the Regulation is invalid since it purports to collect an irrecoverable sum, and the Tribunal ought to refer the issue to the ECJ (to declare the Regulation invalid).

(m) Alternatively, the Regulation is at the least ambiguous and the Tribunal ought to refer the issue to the ECJ (for purposes of interpretation).

10. Before us, Mr Anderson for the Commissioners, submitted:

(a) First, that the Appellant's argument is based on the Oxford dictionary definition of what "expire" means. It was argued that since Art 3 of Regulation 152/1999 provides that "registration shall expire nine months following the date of entry into force of [the] Regulation", it follows that after that nine months the registration ceases to have any effect at all. That is simply a bad argument, the effect of which is to render Regulation 175/2000 of no effect in any circumstances. This is not confined to the goods imported by Fast Forward, but to all goods since Regulation 175/2000 is confined to the registration introduced by Regulation 152/1999, and thus the registration under that Regulation will have expired for all goods by the relevant time.

(b) As a matter of construction, Mr Anderson said, that must be wrong. Clearly Regulation 175/2000 was intended to introduce anti-dumping duty on some goods. Those goods are described as those which have been registered in accordance with Art 3 of Regulation 152/1999. The only goods which fit that description are those that have been registered, notwithstanding that the process of registration has expired. Any other interpretation means no goods could ever fit the description of those on which duty is imposed.

(c) It follows, Mr Anderson submitted, that the phrase "registration shall expire" cannot have the all-encompassing meaning for which the Appellant contends. Rather it simply means that the process of registration expires, and goods imported after that date are not subject to registration. Those goods which have been recorded and registered during the relevant period are the goods which have been registered and hence goods on which duty is imposed. That is what the wording says, and clearly what the legislation envisages.

(d) That is clearly how the legislation operates. The review which gives rise to the introduction of duty on goods which have been registered is expressed normally to take a period of not more than 12 months – i.e. in excess of nine months (the Basic Regulation envisages the review taking 12 months (Art 11(5)) but the registration not exceeding 9 months (Art 14(5)). Thus the Basic Regulation recognises as normal the review carrying on after the registration, yet the retrospective duty will not be introduced until after the review. The Basic Regulation expressly envisages the retrospective duty being imposed after the registration has expired. What is referred to by the Appellant as an inherent contradiction is no such thing. It is the result of a scheme which involves the subsequent imposition of retrospective duty to the goods registered during the registration process. That is common, although the Council will seek to avoid a time gap between imposing the duty and the termination of registration to avoid goods not being subject to any duty – as happened here.

This is confirmed by recital 30 of Regulation 175/2000 which says that anti-dumping duty of 38% should be levied retrospectively on the imports which have been the subject of registration and by the terms of Article 1(4) thereof which imposes the duty on imports of the product concerned which have been registered in accordance with Article 3 of Regulation EC No 152/1999.

11. Mr Anderson submitted, secondly, that:

(a) There is nothing in the Basic Regulation (384/96) which prohibits the imposition of retrospective duty after the expiry of the registration period. The Appellant can point to no provision in any of the Regulations which supports its arguments.

(b) On the contrary, the overall scheme and specific provisions clearly suggest that the legislators intended there to be no such limit of the kind argued for:

(i) The Basic Regulation envisages taking longer than the registration. That suggests the legislature envisaged instances where the retrospective duty (which can only be introduced at the conclusion of the review (Art 11(4)) would be introduced after the expiry of the nine month registration.

(ii) Article 11(4) itself is phrased in terms which unquestionably permit subsequent imposition of retrospective duty (i.e. subsequent to the expiry of the registration).

(iii) See also the terms of Art 14(5) which refers to the measures "subsequently" being applied to those products.

(iv) The preamble to the Basic Regulation clearly supports the Commissioners' interpretation (see recital 22 which expressly refers to applying duty "subsequently").

It cannot therefore be said that the Basic Regulation is silent on the matter.

(c) The Appellant argues that:

(i) its case is supported by analogy with the position in relation to provisional duty, resting on the observation in the Commission's explanatory memo that "the mechanisms would be identical".

(ii) But that argument rests on a misconception as to how the provisional anti-dumping duty regime operates. It is true that the provisional duty (covered by a guarantee) can only be introduced for 6 months (extendable to 9 months – see Art 7(7), but the investigation leading to definitive duty may take up to 15 months – see Art 6(9). It is envisaged that the definitive duty may be introduced at that stage, i.e. after the provisional duty period has expired. But there is nothing in the Regulation that prohibits the definitive collection of provisional duty being imposed after the provisional duty period has ended.

(iii) If the definitive duty/collection is not introduced until after the provisional duty period there will be a gap, not covered by the provisional duty and in respect of which no duty can then be imposed. But it is not the case that the provisional duty cannot be definitively collected for the period in respect of which the provisional duty and guarantee were in place. Indeed that is common, although clearly, as with nine month registration, efforts will be made to avoid the gap.

(iv) Art 10(2) envisages definitive collection of provisional duty at the end of the investigation (facts finally established). We know the investigation can last up to 15 months, but provisional duty lasts only 9 months, therefore expressly recognising the situation may arise where definitive collection of provisional duty may arise after the provisional duty period has expired. There is no difference to the registration provisions at issue here. Thus the analogy fatally undermines the Appellant's case rather than supports it.

(v) Moreover, there is no provision of the Basic Regulation which supports the Appellant's submission that definitive duty cannot be collected in respect of the period for which provisional duty has been applied if the collecting regulation is not introduced within the period of the provisional duty. Indeed Arts 9(4) and 10(1) suggest the contrary. In other words definitive duty can be introduced and provisional duty collected after the provisional duty period, with no suggestion in the Basic Regulation that it cannot be applied in respect of the period for which provisional duty applied even after expiration of the period.

(vi) The examples cited by the Appellant do not assist. They are simply examples of extending the period for the provisional duty (under a regime predating the consolidating Basic Regulation).

(vii) The position is therefore exactly the same as here. If the Commission fail to complete the review within the registration period there will be a gap between the end of the registration and the introduction of the definitive duty and for that period no duty can be imposed – that is the five transactions for which here the Commissioners mistakenly imposed duty. But there is no preclusion from imposing duty in respect of the period of registration. Indeed that is what the Regulation expressly envisages.

(viii) There is no merit to the Appellant's arguments challenging the introduction of duty by Council Regulation 175/00. No useful purpose would be achieved by troubling the ECJ with a reference to which the answer is clear.

12. Our observations are limited to the following:

(a) The apparent lacunae in Regulation EC 175/2000 show that the issue on registration is not one of all tax or no tax. The disparity between the nine-month period of registration and the twelve-month period of review means that there is scope on either basis for some imports to escape duty. Therefore, the possibility of imports escaping anti-dumping duty during a period of suspension of definitive duty is integral to the mechanics of the regime.

(b) The fundamental issue comes back to the meaning of "Registration shall expire" in Article 3 of Regulation EC 152/1999. What is it that expires? Is it just the making of entries in the register of is it the whole process?

13. Our conclusion is that the questions which arise in this appeal are exclusively questions of EC law. Even if we were to attempt to answer them ourselves, the losing party would be likely to refer these questions to the European Court of Justice.
    
    Therefore we propose to refer to the ECJ for a preliminary ruling pursuant to Article 234 EC the following questions:

(i) In Commission Regulation (EC) 152/1999 what is the proper meaning and legal effect of the term "registration shall expire" used in Article 3?

(ii) If Article 3 of Commission Regulation (EC) 152/1999 means that the whole process of registration envisaged by the Regulation fails: (a) does this render Council Regulation (EC) 175/2000 ineffective in relation to the imports of leather handbags into the European Union before midnight on 23 October 1999; and (b) in relation to what products, if any, is Article 1.4 of Commission Regulation (EC) 175/2000 effective in imposing duty?

(iii) Is Article 1 of Council Regulation (EC) 175/2000 consistent with Article 11.4 and 14.5 of Council Regulation (EC) 384/96 and, if not, what is the effect of this inconsistency on the collection of anti-dumping duties registered under Commission Regulation (EC) 152/1999?

(iv) Is Article 1 of Council Regulation (EC) 175/2000 consistent with Council Regulation (EC) 384/96 in so far as the adoption of the measure occurred after the 12 month period indicated in Article 11.5 of Council Regulation (EC) 384/96?

14. Further steps in this appeal will be held over until the preliminary ruling of the European Court is received and in the meantime the question of costs will be reserved.
PETER H LAWSON CHAIRMAN RELEASED: 15 February 2002

LON/01/7049