United Kingdom VAT & Duties Tribunals (Customs) Decisions

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Cite as: [2003] UKVAT(Customs) C175, [2003] UKVAT(Customs) C00175

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Mendip Plywood Ltd v Customs and Excise [2003] UKVAT(Customs) C00175 (09 April 2003)

IMPORT DUTY – Tariff quota said by Commission to be exhausted on 8 June – In October Commission said quota not exhausted – Correct exhaustion date 9 July – Quota re-opened for goods brought into free circulation before 9 July – Appellant had tried to enter goods to quota in June but unable to do so – Some goods entered by Appellant to free circulation between 8 June and 9 July others entered to free zone but not to free circulation – Appellant not informed by Commissioners at relevant date of re-opening of quota – Subsequent late application allowed only in respect of goods entered to free circulation – Articles 8 and 889 of Regulation 1808 considered – Whether Appellant can rely on guarantee in Article 8 – Whether goods had to be entered for free circulation before 9 July for Appellant to rely on Article 889 – Appeal allowed

LONDON TRIBUNAL CENTRE

MENDIP PLYWOOD LTD Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: MISS J C GORT (Chairman)

MR A McLOUGHLIN

Sitting in public in London on 28 January and 17 March 2003

Mr Charles Norman, an employee of the Appellant company, for the Appellant

Miss R Haynes of counsel, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

The disputed decision is the Commissioners' rejection of claims to repayment of duty in respect of five importations of elliottis pine in 1999. The original decision was contained in a letter dated 3 October 2000, on review the Commissioners allowed the application for repayment of import duty in respect of two imports, those made on 11 June 1999 and 30 June 1999. The review is contained in a letter dated 18 December 2000.

The Appellant was originally said to be DJV Transport & Forwarding Ltd, ("DJV") who are agents for Mendip Plywood Ltd and effected the importation of goods on their behalf between 11 June and 30 November 1999, and were also the declarant for the importations. However, it became clear in the course of the hearing that the appeal was in fact lodged by DJV on behalf of Mendip Plywood Ltd. In the circumstances it was directed that the name of the Appellant should be changed to Mendip Plywood Ltd.

The background

Between 11 June and 30 November 1999 DJV, acting as agents for the Appellant, effected the importation of quantities of elliottis pine. Elliottis pine is subject to preferential tariff measures, but restricted to a certain volume of imports under tariff quota.

The goods in question were entered through the Port of Tilbury, which is linked to the Customs entry computer, CHIEF (Customs Handling Import Export Freight).

DJV Transport accessed the CHIEF system on 14 June 1999 and found that the quota had exhausted on 8 June. Thereafter DJV made no further claims to quota on behalf of the Appellant at that time.

In mid-October 1999 the Commission advised the Member State that 27,000 cubic metres had been returned from one or more of the Member States. Because the reported return was significant, and the UK is a major user of this quota taking 30% of the total in 1999, it was clear there would be a substantial amount of the quota remaining for allocation. The Commissioners issued a telex to Customs officers advising economic operators to make retrospective claims to the quota. It was estimated that the returned amount would only push the exhaustion date back about one month, so the Commissioners took the decision not to amend CHIEF to allow new (i.e. non-retrospective) claims. It was calculated that the exhaustion date of the quota should have been 9 July 1999. It was decided that any retrospective claim relating to an import into free circulation prior to 9 July 1999 would be given a full allocation.

Due to an administrative error on the part of the local Customs office in Tilbury, Tilbury failed adequately to publicise the telex issued by the Central Tariff Quota Unit (CTQU) advising traders of the returned amount. As a consequence of this the Appellant made a late application for inclusion in the quota.

The Commissioners initially rejected the Appellant's application in its entirety. Subsequently the review officer allowed relief of import duty on those entries lodged on behalf of the Appellant and brought into free circulation on or before 9 June 1999. He disallowed the appeal in respect of entries made into free zone, but not into free circulation or entries brought into free circulation after 9 July 1999.

The legislation

Elliottis pine (Commodity code 44121900 10) is subject to an annual preferential tariff quota (afforded to third country imports by the Community within the framework of GATT). An annual tariff quota of 650,000 cubic metres was established by Council Regulation (EC) 1808/95. The quota opens in January of each year.

Article 1(a) of Regulation 1808/95 provides:

"The products listed in Annexes I, II, III, IV and V shall be eligible for reduced rates of duty under Community tariff quotas during the periods and according to the provisions set out in the said Regulations and Annexes."

Article 6 provides:

"(1) The tariff quotas referred to in Article 1 shall be administered by the Commission, which may take all appropriate measures to ensure their effective administration.

(2) Where an importer enters a product covered by this Regulation for release for free circulation in a Member State, applying to take advantage of the tariff quota, and the entry is accepted by the customs authorities, the Member State concerned shall, by notifying the Commission, draw an amount corresponding to its needs from the volume of that quota.

Requests for drawings, showing the date on which such entries were accepted, shall be sent to the Commission without delay.

Insofar as the available balance permits, drawings shall be granted by the Commission on the basis of the date of acceptance of entries for release for free circulation by the customs authorities of the Member State concerned.

(3) If a Member State does not use the quantities drawn, it shall return them to the relevant quota volume as soon as possible.

(4) If the quantities requested exceed the available balance of the quota volume, the balance shall be allocated among applicants in proportion to their requests. The Commission shall keep the Member States informed of the quantities drawn."

Article 8 provides:

"Each Member State shall guarantee importers of the products in question equal and continuous access to the quotas insofar as the balance of the quota volumes permits."

Tariff quota are also subject to the general provisions of Regulation (EC) 2913/92 establishing the Customs Code and Council Regulation 2454/93, its "Implementing Regulation".

Article 20 Customs Code provides:

"1. Duties legally owed where a customs debt is incurred shall be based on the Customs Tariff of the European Communities.

The other measures prescribed by Community provisions governing specific fields relating to trade in goods shall, where appropriate, be applied according to the tariff classification of those goods.

The Customs Tariff of the European Communities shall comprise:

(a) the combined nomenclature of goods;

(b) any other nomenclature which is wholly or partly based on the combined nomenclature or which adds any subdivisions to it, and which is established by Community provisions governing specific fields with a view to the application of tariff measures relating to trade in goods;

(c) the rates and other items of charge normally applicable to goods covered by the combined nomenclature as regards:

customs duties; and,

agricultural levies and other import charges laid down under the common agricultural policy or under the specific arrangements applicable to certain goods resulting from the processing of agricultural products

(d) the preferential tariff measures contained in agreements which the Community has concluded with certain countries or groups of countries and which provide for the granting of preferential tariff treatment;

(e) preferential tariff measures adopted unilaterally by the Community in respect of certain countries, groups of countries or territories;

(f) autonomous suspensive measures providing for a reduction in or relief from import duties chargeable on certain goods;

(g) other tariff measures provided for by other Community legislation.

Without prejudice to the rules on flat-rate charges, the measures referred to in paragraph 3(d), (e) and (f) shall apply at the declarant's request instead of those provided for in subparagraph ( c) where the goods concerned fulfil the conditions laid down by those first-mentioned measures. An application may be made after the event provided that the relevant conditions are fulfilled.

Where application of the measures referred to in paragraph 3(d), (e) and (f) is restricted to a certain volume of imports, it shall cease:

(a) in the case of tariff quotas, as soon as the stipulated limit on the volume of imports is reached;

(b) in the case of tariff ceilings, by ruling of the Commission …"

Articles 309a ("Management of tariff quotas designed to be used following the chronological order of dates of customs declarations") of the Implementing Regulation provides:

"1. Save as otherwise provided, where tariff quotas are opened by a Community provision, those tariff quotas shall be managed in accordance with the chronological order of dates of acceptance of declarations for release for free circulation.

Where a declaration for release for free circulation incorporating a valid request by the declarant to benefit from a tariff quota is accepted, the Member State concerned shall draw from the tariff quota, through the Commission, a quantity corresponding to its needs.

Member States shall not present any request for drawing until the conditions laid down in Article 256(2) and (3) are satisfied.

Subject to paragraph 8, allocations shall be granted by the Commission on the basis of the date of acceptance of the relevant declaration for release for free circulation, and to the extent that the balance of the relevant tariff quota so permits. Priority shall be established in accordance with the chronological order of these dates.

The Member States shall communicate to the Commission all valid requests for drawing without delay. Those communications shall include the date referred to in paragraph 4, and the exact amount applied for on the relevant customs declaration.

For the purposes of paragraphs 4 and 5, the Commission shall fix order numbers where none are provided by the Community provision opening the tariff quota.

If the quantities requested for drawing from a tariff quota are greater than the balance available, allocation shall be made on a pro rata basis with respect to the requested quantities.

For the purposes of this Article, acceptance of a declaration by the customs authorities on 1, 2 or 3 January shall be regarded as acceptance on 3 January. However, if one of those days falls on a Saturday or a Sunday, such acceptance shall be regarded as having taken place on 4 January.

Where a new tariff quota is opened, drawings shall not be granted by the Commission before the 11^th working day following the date of publication of the provision which created that tariff quota.

Member States shall immediately return to the Commission the amount of drawings which they do not use. However, where an erroneous drawing representing a customs debt of ECU 10 or less is discovered after the first month following the end of the period of validity of the tariff quota concerned, Member States need not make a return.

If the customs authorities invalidate a declaration for release for free circulation in respect of goods which are the subject of a request for benefit of a tariff quota, the complete request shall be cancelled in respect of those goods. The Member States concerned shall immediately return to the Commission any quantity drawn, in respect of those goods, from the tariff quota.

Details of drawings requested by individual Member States shall be treated by the Commission and other Member States as confidential."

Articles 236 to 239 of the Customs Code provide for applications for repayment or remission of duties. The Implementing Regulation makes detailed provision for such applications.

Article 889 provides:

"1. Where the request for repayment or remission is based on the existence, at the time when the declaration of release for free circulation was accepted, of a reduced or zero rate of import duty on the goods under a tariff quota, a tariff ceiling or other preferential tariff arrangements, repayment or remission shall be granted only on condition that, at the time of lodging the application for repayment or remission accompanied by the necessary documents:

in the case of a tariff quota, its volume has not been exhausted,

in other cases, the rate of duty normally due has not been re-established

If the conditions laid down in the preceding paragraph are not fulfilled, repayment or remission shall nevertheless be granted where the failure to apply the reduced or zero rate of duty to the goods was the result of an error on the part of the customs authorities themselves and the declaration for free circulation contained all the particulars and was accompanied by al the documents necessary for application of the reduced or zero rate."

The Customs Code and free zones

The Customs Code provides that all goods from outside the Community must be assigned a customs-approved treatment or use: Article 48 Customs-approved treatment or use includes:

(a) the placing of goods under a customs procedure; and

(b) their entry into a free zone or free warehouse: see Article 4(15) Customs Code.

A customs procedure includes release for free circulation, or entry into a suspensive arrangement such as customs warehousing, transit or processing under customs control etc: see Article 4(16) Customs Code. Suspensive arrangements allow the goods to be, for example, transported or dealt with without them incurring import duties whilst under that procedure. Where goods are to be placed under a customs procedure, they must be covered by a declaration for that customs procedure: Article 59 Customs Code. Once goods from outside the Community are released for free circulation they have the status of Community goods: Article 79 Customs Code. Release for free circulation triggers the obligation to pay customs duties where such duties are payable: Article 201 Customs Code.

Free zones are designated physical parts of the customs territory of the Community but are treated as separate from it such that, in relation to imports, goods from outside the Community may be considered for the purposes of e.g. import duties to remain outside the Customs territory: Article 166 Customs Code. However it is possible for both Community and non-Community goods to enter a free zone: Article 169 Customs Code. And it is possible for non-Community goods placed in a free zone to be released for free circulation whilst in the zone: Article 173 Customs Code. Provisions relating to the operation of free zones and free warehouses and release therefrom are contained in Articles 171 to 181 Customs Code (as supplemented by Articles 799 to 840 of the Implementing Regulation). Additional domestic provisions are found in the Free Zone Regulations 1984.

Regulation 17 of the Regulations makes provision for goods to be entered for free circulation whilst remaining in the free zone. Regulation 17(2) provides that where the proprietor of the goods wishes to pay customs duty on the goods but wishes them to remain as free zone goods, the goods shall be entered for free circulation (which triggers the obligation to pay). However, Regulation 18(2) permits that the payment of VAT on import may be deferred until after the time that duty is paid (on entering the goods for home use).

Removal of goods from the free zone into the UK customs territory is removal for home use and a formal entry for such use is required to be made by the proprietor before the goods are removed: Regulation 11. Such entry may also be carried out via CHIEF (as to which see below).

Thus one important benefit of declaring goods for free circulation but holding them in a free zone as free zone goods is that the payment of import VAT may be deferred until the goods leave the free zone (i.e. entered for home use). This is particularly advantageous where the goods in question benefit from preferential tariff quota such as in this case and are therefore only subject to payment of VAT.

By way of illustration of the operation of the provisions referred to above, goods intended to be imported (and not re-exported) may be dealt with in a variety of ways upon their arrival in the UK. It is possible to do the following:

(i) immediately declare the goods for free circulation and dispatch as Community goods from the port;

(ii) enter the goods into a suspensive arrangement and/or a free zone and delay entry to free circulation (which may be done whilst the goods remain in the free zone or at the point the goods leave the free zone for home use);

(iii) enter the goods into free circulation and into a free zone (usually simultaneously) and later release them for home use.

The "CHIEF" system

Although there is nothing to preclude traders from making manual customs declarations and entries and claims to quota in type or manuscript on the prescribed forms, traders are able to make electronic declarations (including declarations of entry to free zone, entry to free circulation and entry for home use) and claims to quota via the Customs computerised system known as CHIEF (which is a real-time computer system). Through CHIEF, the trader can make entries and declarations using processing codes.

The administration of the quota

Traders are able to make electronic declarations (including declarations of entry to free zone, entry to free circulation and entry for home use) and claims to quota via CHIEF. A quota measure is established on the system and is given a status of Open, Critical or Exhausted. To register a claim against a quota the agent must insert the quota number (in this case 1693) into box 39 of the entry and lodge the security up to the full customs debt.

CHIEF will only accept the registration of claims when the status is either Open or Critical, CHIEF will reject any potential claim to an exhausted quota. Acceptance of registration of the claim does not guarantee that the claim will be met or that the claim is valid if the conditions for claiming are not in fact met.

When a quota claim is received CHIEF forwards an electronic schedule to CTQU in Southend. The CTQU in common with other Member States will send a daily request file to the Commission (DGTAXUD B5). The Commission collates all claims sent to them by the Member States and allocates a quota against claims received. The quota will continue to be operated until, in the case of the quota for Plywood, requests received by Taxud total 650,000 cubic metres. When the quota is reported by Taxud as being exhausted, CHIEF is amended to report that status.

In the present case the Commission report to CTQU on 11 June 1999 that the Plywood quota had been exhausted on 8 June 1999. CHIEF was therefore amended to reflex this status. This would not have prevented goods from being entered for free circulation either via CHIEF or manually by a written or typed declaration.

The facts

Each party produced a bundle of documents and in addition the Appellant provided two further documents in the course of the hearing. Mr Norman gave evidence on behalf of the Appellant and Mr Ronald Johnson, manager of CTQU, gave evidence on behalf of the Respondents.

There was no dispute as to the facts in the case. The two consignments in respect of which the Appellant's claim for repayment of import duties were allowed had been entered for free circulation respectively on11 June 1999 and 30 June 1999. The consignments in respect of which no repayment of import duties was allowed were as follows:

Entry Date of entry to free circulation

015531P 31 July 1999

015042B 29 August 1999

015954E 29 September 1999

015374B 29 October 1999

016806V 30 November 1999

It was not disputed that the above five consignments had all been entered to the free zone prior to the date of 7 July 1999 when the quota had actually been exhausted.

We accept Mr Norman's evidence that, once the quota was exhausted, it was common practice for importers to delay introducing goods to the marketplace because at the time the quota was in place, and for some time after it was exhausted, goods were cheaper because they were plentiful, whereas later in the year, when the goods which were imported were subject to duty, there would be fewer goods around and therefore a better market for them. It was therefore usual to hold goods in the free zone, without declaring them to free circulation, in order to avoid paying the duty and the value added tax until it was deemed a suitable time to market the goods.

Having attempted to enter goods to quota in June, after the quota was wrongly said to be exhausted, the Appellants' agents were aware that the quota was exhausted. The letters written by DJV on behalf of the Appellants to Customs and Excise show that they had tried to enter goods against the quota on CHIEF but the status box showed "3" denoting exhaustion. DJV also had contacted the tariff quota division at Southend during the week of 14 June 1999 and were advised that the quota had been exhausted on 8 June 1999. The Appellants had themselves contacted Southend and received the same advice.

Prior to starting work for the Appellants, Mr Norman had been employed by the Timber Trade Federation from 1966 to 1999 and was director of its National Panel Products Association. In that time he dealt with Customs administration and quotas, amongst other things, and was also the statistician of the Timber Trade Federation. He had acted as consultant to the Appellants for some years and had set up the system which they operated.

It was Mr Norman's experience that there was a long record of errors in recording under the quota and there was no adequate system of checking and verifying claims. He had himself pressed HM Customs and Excise and the Department of Trade and Industry to require the Commission to introduce a system of credibility checking so that when claims were made Member States must provide not only the quantity, but also the value of the goods that were subject to the quota claim. The Commission did not at any time implement a credibility checking system.

Mr Norman was well aware of many occasions when errors in the quota recording had resulted in the premature implementation of both the critical procedure and exhaustion. He himself had raised with HM Customs and Excise and the Commission in Brussels and the Department of Trade and Industry the fact that as a consequence of such errors importers were being unfairly deprived of duty free quota.

The instructions given by the Appellant to DJV was that goods should be declared for duty only and allowed to remain in the free zone, which has the effect of deferring the payment of value added tax. Thus whether the closure was available or not, the goods were only liable for value added tax once they were removed from the free zone and released for home use. It was possible, and indeed happened, that goods could be entered into the free zone, be declared both for duty and for value added tax purposes, but not be removed from the free zone until such time as was convenient for the Appellant. In those circumstances he would only be liable to pay value added tax upon entering the goods into free circulation for home use. In the present case the Appellant chose not to enter the goods the subject of this appeal for free circulation at the time or shortly after entry into the free zone because it was known at that time that the quota was exhausted. A commercial decision was therefore taken to leave the goods in the free zone until such time as it was commercially viable to pay the value added tax and thereby be able to release the goods for home use.

In his witness statement Mr Johnson had set out that the Allocation File of 18 October 1999 advised Member States that 27,489 cubic metres had been returned from one or more Member States. The CTQU did not know which Member State was responsible, nor were they aware of the reasons for the return. In any case both the Member States and the Commission were prevented from divulging such information to economic operators under article 308a paragraph 12 of the implementing regulation.

He continued that it was quite normal for Taxud to reopen a quota as a result of drawings returned after exhaustion, a process which was known as rectification. He then set out the system in place when rectification occurred. He continued that there was no obligation on behalf of Customs authorities to seek out particular importations that might qualify for relief and then approach the importer, but in any case, were such a system to be introduced, it would only be to identify produce brought to free circulation and not produce based in the free zone.

In the present case, the exhaustion date having been pushed back to 9 July 1999, any retrospective claim relating to an import into free circulation prior to 9 July 1999 had gained the full allocation.

Mr Johnson referred to their having been an administrative error on the part of the local Customs office in Tilbury in that it failed adequately to publicise the telex issued by CTQU advising traders of the returned amount. Because of that error there was a late application by the Appellant. Initially the Appellant's application was rejected in its entirety, but relief of import duty on all entries lodged on behalf of the Appellant and brought into free circulation on or before 9 July 1999 was subsequently allowed because, had the Tilbury office made public the CTQU telex seeking retrospective claims, such claims could have been made by the Appellant in respect of such entries.

In his conclusion Mr Johnson stated in respect of the premature exhaustion of the quota that the Commissioners had no knowledge of how the error occurred, or who was responsible, and no error could be attributed to either DGTAXUD or the Commissioners. He continued:

"The Appellant's contention that they would have entered the goods for free circulation rather than free zone if only we had told them the quota would reopen is flawed in its logic. Neither TAXUD nor we have access to a crystal ball; we cannot give advice in July based on something we did not know until October. It was a commercial decision by the Appellant to put the plywood into a suspensive regime rather than immediately enter it to free circulation. As a regular user of quota the Appellant should have been aware of the volatile nature of quota. They nevertheless chose to derive benefit from delaying the tax point. They gambled and lost and that was a commercial risk that they must be prepared to accept."

The Appellant's case

Simply put, it was the Appellant's case that the relevant goods had been brought into the United Kingdom prior to the 9 July 1999. The Appellant was aware that the quota was said to be exhausted at that time, therefore they took the commercial decision to leave the goods in the free zone until such time as it best suited their commercial purposes to release the goods for home use by paying the value added tax and the duty on them.

The Commissioners, who, it was submitted, in this instance represented the Commission, erroneously informed the Appellant, via CHIEF, that the quota was exhausted. Had this error not been made, and it mattered not whether the error was to be laid at the door of the Commissioners or the Commission, the Appellant would have entered the goods for free circulation thereby avoiding the necessity of paying import duty on them, because they would have come within the quota.

In particular the Appellant relied on the preamble to council regulation (EC) 1808/95 of 24 July 1995, and on article 8 thereof in particular.

It was submitted that on its plain wording article 8 meant that there should be no break in access, that access to the quota should be without interruption and that there should be a system in place which ensured an importer's continuous access to the quota. This was reinforced by the wording of the preamble.

The Commissioners were aware of the history of errors in the system and it was incumbent on them to ensure that a system was put in place which gave effect to this guarantee of continuous access.

It was not open to the Commissioners to say that the premature closing of the quota was unexpected.

The fact that each Member State individually covenanted that there should be equal access to its importers required all the Member States to put importers into the same position as they would have been if an error was not made on occasions when errors were made. It was not open to the Commissioners to say that they had no responsibility for the mistake, it not being their fault but being occasioned by one of the other Member States.

The preamble to regulation 1808/95 states:

"Whereas it is for the community, in performance of its international obligations, to open community quotas for the products listed in annex I-IV to this regulation; whereas all community importers should be guaranteed equal and continuous access to the said quotas, and the rates of duty laid down for the quotas should be applied without interruption to all imports of the products concerned into all Member States until the quotas are exhausted; whereas there is, however, no reason why the efficiency of the common administration of these quotas should not be insured by authorising the Member States to draw from the quota volumes the requisite quantities corresponding to actual imports; whereas this method does, however, require close cooperation between the Member States and the Commission, which must, in particular, be able to monitor the rate at which quotas are used up and inform Member States accordingly."

The regulations laid down that the system is to be administered in Brussels, not by the individual States who merely acted on behalf of the Commission. It was not for the Commissioners to determine their own procedure. Under the present system there was no possibility of continuous or equal access to importers since no proper checks were in place.

The Appellant further relied on the fact that the Commissioners knew the dates that the goods in question had been entered into the free zone, these dates all appeared on the documents which were in their possession. It was therefore perfectly open to them to have remedied the error. There would have been no element of unfairness to other traders in adopting such a system. As it was, it was unfair that the Appellant was deprived of its right to make duty free importations. Whilst the Appellant was well aware that the quota system was volatile, being exhausted some years earlier than others, that was their normal hazard of trade, but it should not be at risk of errors by the Commissioners. Other importers who had made entries in July had obtained duty free status for their consignments.

It was further submitted that the exclusion clauses on which the Respondents relied in relation to article 239 should be construed contra proferentum.

The Appellant relied on article 889 of the Customs Code on the basis that the failure to apply the zero rate of duty to the goods was a result of an error on the part of the Customs authorities themselves.

The Respondents' case

It was the Respondents' case that there was nothing to prevent the Appellant from declaring the goods to free circulation at the time they entered the free zone. Miss Haynes then drew the conclusion from that that the reason why the Appellant did not declare the relevant goods to free circulation could not be a valid one. Not only was it not valid but it was also irrelevant in that the consequence of the fact that the goods were not declared to free circulation was that they were not eligible to the quota.

The Commissioners' role in administering the quota was said to be essentially confined to that of collating claims to quota made on entrance to free circulation and forwarding those to the Commission. The Commissioners' role was therefore passive and secondary to that of the Commission. When the Commission declared a quota as exhausted therefore, there was no basis upon which the Commissioners could presume or assume that that position was anything other than correct. In the present case the Commissioners were not aware until October 1999 that there had been an error when the Commission had declared the quota exhausted on 11 June 1999. There was no basis on which it could be alleged that the Commissioners were obliged, or ought otherwise to have continued, to accept claims against quota after the Commission had declared the quota exhausted on 11 June 1999.

There was no error on the part of the Commissioners either following the Commission's communication on 11 June 1999 that the quota was exhausted, or following its communication on 18 October 1999 that a proportion of the quota was to be re-allocated. It was considered that the only possible error on the part of the Commissioners in this case was that the invitation to retrospective claims was not adequately publicised by the Tilbury office.

It was further submitted that there was no element of unfairness in the present case. The Appellant was aware that the tariff quota was finite and that it did not ensure that all of the Appellant's trade could be conducted free of duty. The Appellant had made an informed choice to delay entry to free circulation of the relevant consignments believing that duty was payable on them. It was acknowledged that its choice would have been different had it known what was going to happen on 18 October 1999, but it was not for the Commissioners to compensate traders for such choices, particularly where the Commissioners were in no better position to foresee future events.

Article 889 gave no relief to the Appellant in that it provided that where the request for repayment or remission was based on the existence, at the time when the declaration of relief for free circulation was accepted, of a reduced or zero-rate of import duty on the goods under a tariff quota, repayment or remission shall be granted only on condition that, at the time of lodging the application for repayment or remission, the volume of the tariff quota has not been exhausted. In the present case the tariff quota was exhausted at the time the application was received.

The only basis upon which repayment or remission can be granted under article 889 is if the failure to apply the reduced or zero-rated duty to the goods was a result of an error on the part of the Customs authorities themselves and the declaration for free circulation contained all the particulars and was accompanied by all the documents necessary for application of the reduced or zero-rate. Neither of those conditions was satisfied in the present case.

It was submitted that the Appellant could not identify any error on the part of the Commissioners which ought to result in repayment of duty in relation to the relevant consignments. The second part of article 889 was not capable of meaning that if another Member State made an error this Member State should have to suffer the consequences.

Article 239, on which the Appellant relied was itself subject to article 889. Whilst there was an element of discretion to the Commissioners to decide if there were special circumstances, that was a matter for judicial review if they were wrong.

With regard to article 8, the guarantee provided by the Member States to the traders was not absolute, because it was only a guarantee so far as the quota volumes permitted. Article 308a paragraphs 10 and 11 recognised that errors could occur but it was not possible to say that article 8 provided a guarantee of continuous access.

It was not accepted by the Commissioners that the Appellant had been prejudiced by the events in the present case.

Reasons for decision

We were surprised by the tone of the last paragraph of Mr Johnson's witness statement. It is hardly to be expected that companies will do other than maximise the tax benefit to themselves of any particular situation. To call the Appellant's practice of retaining goods in free zone and not entering them for free circulation in order to defer payment of duty and value added tax as "gambling" is entirely inappropriate in circumstances where the law provides for such deferment.

We were further surprised by a remark by Miss Haynes that: "We are not sitting here as agents for the Commission." The Commissioners most certainly are agents for the Commission in respect of gathering import duties. In another context Miss Haynes had acknowledged that the system was laid down by the Commission and the Commissioners were merely acting on its behalf.

The whole issue before us is whether the Commissioners were right to exclude from relief from import duty goods imported to the free zone at the time when there was in fact quota available on the basis that the Appellant had chosen not to enter those goods for free circulation.

Whilst it is clear that, by virtue of article 6 of regulation 1808/95, a Member State may only draw from the quota where an importer has entered a product for release for free circulation, there is no provision in any of the articles which anticipates precisely the circumstance which prevails in the present case.

It is the case that article 889, which is the implementing regulation for articles 236-239, by its first part refers to repayment or remission being based on the existence at the time when the declaration of release for free circulation was accepted, of a reduced or zero-rate of import duty and this was the article by virtue of which the Commissioners allowed the Appellant's late application for relief in respect of some of his importations. The Appellant cannot rely on this part of article 889, there being no zero-rate of import duty at the time the goods in question were declared for release for free circulation, which, in all relevant cases was after 9 July.

However, the second part of article 889 states as follows:

"If the conditions laid down in the preceding paragraph are not fulfilled, repayment or remission shall nevertheless be granted where the failure to apply the reduced or zero-rate of duty to the goods was the result of an error on the part of the Customs authorities themselves and the declaration for free circulation contained all the particulars and was accompanied by all the documents necessary for application of the reduced or zero-rate."

We consider that by the "customs authorities" is meant not only the Commissioners but also the Commission.

There is nothing in the second part of article 889 which requires that the declaration for free circulation should be made at the same time as the request for quota relief. In the present case all the goods had been declared for free circulation prior to the, of necessity late, application for quota relief. The application for quota relief only came at the time that it did because the Appellant was wrongly informed by the Commissioners, owing to a mistake of the Commission, that the quota was exhausted, and also because of failure of the Commissioner to notify the relevant parties at Tilbury of the partial re-opening of the quota..

Article 8, and the preamble to regulation 1808/95, both refer to a guarantee of equal and continuous access. Article 8 qualifies this guarantee with the proviso `insofar as the balance of the quota volumes permits'. In the present case the quota volume did permit access to the quota at the time of the relevant importations. But for the mistake, however caused, by the Commission in declaring the quota exhausted in early June, the Appellant would have declared the goods for free circulation. We find that article 889, by its second part allows for a remedy in such a case. There is no reference in the second part of the article for the necessity for the declaration to free circulation to have been made at the time the qota was wrongly said to have been exhausted. It is only necessary, as is the case here, that a declaration to free circulation has been made which is accompanied by all the necessary documents.

In all the circumstances this appeal is allowed.

The Respondents to pay the Appellant's costs of and arising out of this appeal. Liberty to apply.

MISS J C GORT

CHAIRMAN

RELEASED:

LON/01/7013