United Kingdom VAT & Duties Tribunals (Customs) Decisions

 


Elements Specialties v Custome and Excise [2003] UKVAT(Customs) C00177 (19 May 2003)

C00177

CUSTOMS DUTY; Common customs Tariff; Binding Tariff Information; Combined Nomenclature; Classification of goods; interpretation hectorite clay; Heading 25.08 and 38.24; whether powder an article within Heading 68.15.

EDINBURGH TRIBUNAL CENTRE

ELEMENTIS SPECIALTIES INC Appellant

- and - THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents Tribunal: (Chairman) J Gordon Reid, QC., F.C.I.Arb., Sitting in Edinburgh on Monday 14 April 2003

for the Appellants James Ashe-Taylor

for the Respondents Daren Timson-Hunt

© CROWN COPYRIGHT 2003.

DECISION

Introduction

This is an appeal against the decision of the Respondents ("Customs") contained in a letter dated 9/10/02, in which it was confirmed, upon review, that the decision in Binding Tariff Information ("BTI") reference GB109536175, dated 12/8/02, classifying hectorite clay, product EA-3018, to commodity code 382490 99 90, which attracts duty at a rate of 6.5%, should be upheld. In their grounds of appeal, the Appellant ("Elementis") stated that the proper classification is either Tariff Heading 25.08 (Other Clays) or Heading 68.15 (Articles of Stone or other mineral substances); under either of these headings the goods would be free of duty. Hectorite clay is used inter alia as a paint thickener.

A Hearing took place on 14/4/03 at which Elementis were represented by Mr James Ash-Taylor, solicitor, Crowell Moring, Solicitors, London. Customs were represented by Mr Daren Timson-Hunt, a barrister in the full time employment of Customs. The parties helpfully produced a joint bundle of documents containing inter alia correspondence between the parties in which various arguments are set forth, Statements of Case, the relevant legislation and case law. Further documents were produced at the Hearing including a skeleton argument for Customs and additional authorities. A sample of the hectorite clay was also produced. Elementis led brief evidence from Mr Darren McKeen, the Appellant's European Distribution and Logistics manager, to describe the goods in issue, and its commercial use. This evidence was not seriously challenged.

Legal Framework

The Common Customs Tariff has applied since 1968. Customs are required, on written request, to issue binding tariff information in the member States of the Community pursuant to Article 12 of the Community Customs Code (Council Regulation (EEC) 2913/92 and its implementing Regulations (EEC) 2454/93. Under the EC Treaty (as revised) Article 28, duties are by fixed by the EC Council. The level of duties on goods imported from outside the EC is determined at a Community level on the basis of the Combined Nomenclature ("CN") established by Article 1 of Council Regulation (EEC) 2658/87. The CN is based upon the World Customs Organisation's Harmonised System set out in the International Convention on the Harmonised Commodity Description and Coding System (the "HS") to which the Community is a signatory. The CN is amended annually. The relevant version for present purposes is to be found in Council Regulation 2031/2001, (OJ L279 23/10/01). The CN comprises (i) the nomenclature of the HS (1^st to 6^th digit), the CN subheadings (7^th and 8^th digit) and (iii) the Community subheadings (9^th and 10^th digit) ie the integrated tariff of the European Communities known as TARIC.

Under article 3(1)(a)(ii) of the Convention each contracting party undertakes to apply the General Rules for the interpretation of the HS. There are also General Rules for interpretation of the CN. These are known as the GIRs and are to be found in Council Regulation 2658/87 Annex 1, Part 1, section 1A. GIRs have the force of law. GIR 1, 3 and 6 provide inter alia as follows:-

"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) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished… It shall also be taken to include a reference to that article complete or finished ……………

2(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 …… 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….

(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.

6 For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related 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."

Classification may in some cases be determined by reference to GIR 1 without considering GIR 3, which deals with the situation where goods are prima facie classifiable under two headings (see eg Vtech Electronics (UK) PLC High Court, Chancery Division, Mr Justice Collins, 29/1/03 para 105).

A further aid to classification is to be found in two sets of explanatory notes. There are Explanatory Notes to the HS known as HSENs. There are also Explanatory Notes to the CN known as CNENs and are issued pursuant to Council Regulation 2658/87 article 9.1(a). These two sets of explanatory notes, while constituting an important means of ensuring the uniform application of the Common Customs Tariff by the customs authorities and being a valid aid to the interpretation of the tariff, do not have legally binding force and cannot prevail over the provisions of the Common Customs Tariff (see Develop Dr. Eisban GmbH & Co v Hauptzollamt Stuggart-West 1994 ECR 1-2655 para 21; Wiener SI GmbH v Hauptzollamt Emmerich 1994 ECR 1-6549 per Advocate General Jacobs para 32 and judgement para 11).

The proper approach to classification of a product is to have recourse to criteria for classification based on the objective characteristics of products, as defined in the wording of the headings and the notes to the sections or chapters of the Common Customs Tariff (Bioforce GmbH v Oberfinanzdirektion Munchen 1993 ECR 1-45 at para 8, Wiener at para 11 of the Court's Judgement). Various factors may therefore be considered including the appearance, composition, purpose, function or intended use and presentation of the product (see Wiener Opinion of Advocate General Jacobs at para 29 and 32,Vtech at para 13 para 13).

GIR Rule 1 provides inter alia that classification is to be determined according to the terms of the headings and any relative section or chapter note. The relevant headings in the CN for present purposes provide as follows:-

25.08 - Other clays (not including expanded clays of heading 68.06), andalusite, kyanite and sillimanite, whether or not calcined; mullite; chamotte or dinas earths.

Note 1 to Section V Chapter 25 provides as follows:-

"Except where their context or note 4 to this chapter otherwise requires, the headings of this chapter cover only products which are in the crude state or which have been washed (even with chemical substances eliminating the impurities without changing the structure of the product), crushed, ground, powdered, levigated, sifted, screened, concentrated by flotation, magnetic separation or other mechanical or physical processes (except crystallisation) but not products which have been roasted, calcined, obtained by mixing or subjected to processing beyond that mentioned in each heading. The products of this Chapter may contain an added anti-dusting agent, provided that such addition does not render the product particularly suitable for specific use rather than for general use."

38.24 - Prepared binders for foundry moulds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included:

68.15 - Articles of stone or of other mineral substance (including carbon fibres, articles of carbon fibre and articles of peat), not elsewhere specified or included.

The General HSEN to Chapter 68 provides inter alia as follows:-

"This Chapter covers:

(A) various products of Chapter 25 worked to a degree beyond that permitted by Note 1 to that Chapter.

(B) The products excluded from Chapter 25 by Note 2(e) to that Chapter.

(C) Certain goods made from mineral materials of Section V

(D) Goods made from certain of the materials of Chapter 28 (eg artificial abrasives) ……

Most of these products and finished articles are obtained by operations (e.g. shaping, moulding), which alter the form rather than the nature of the constituent material. Some are obtained by agglomeration (eg articles of asphalt, or certain goods such as grinding wheels which are agglomerated by vitrification of the binding material); others may have been hardened in autoclaves (sand-lime bricks). The Chapter also includes certain goods obtained by processes involving a more radical transformation of the original raw material (e.g., fusion to produce slag wool, fused basalt, etc)

The HSENs to 68.15 provides inter alia as follows:-

The heading covers, inter alia:

(2) Carbon fibres and articles of carbon fibres. Carbon fibres are commonly produced by carbonising organic polymers in filamentary forms. The products are used for example, for reinforcement.

(3) Articles made of peat (for example, sheets, cylinder shells, pots for raising plants). Textile articles of peat fibre are, however, excluded ………..

Facts

Elementis Specialities Inc ("Elementis"), an American corporation, also carries on business at Livingstone, West Lothian where it has a facility. It manufactures the goods in the USA and exports them to Livingstone. It is a wholly owned subsidiary of Elementis Plc. On 1^st August 2002, Elementis applied to Customs for a BTI for their goods, hectorite clay, product EA-3018. These goods are a mixture of 97% hectorite clay and 3% phosphonic tetrasodium salt. The hectorite clay is mined open cast in California, purified and dried and then mixed with tetrasodium salt. The clay and salt are mixed in a V mixer into which the hectorite is charged followed by the phosphonate salt. The mixer is sealed and run for sufficient time to ensure homogeneity. No reaction between the salt and the clay occurs. It is used as a thickening agent in products such as paint. The goods are used by customers of Elementis essentially as they would use hectorite. The goods are normally supplied in 25kg bags. The function of the phosphonic salt is to reduce the viscosity of the hectorite dispersions thereby facilitating their use and incorporation into water based formulations. Phosphonic tetrasodium salt is not an anti-dusting agent. A sample of the goods was produced at the Hearing. The goods are a greyish powder. They are not moulded or made into a shape. They are imported in their primary state. It would be difficult to distinguish the goods from hectorite clay. They are a product of the chemical industry.

On 12/8/02 Customs issued a BTI classifying the goods under commodity code 382490 99 00. On 23/8/02, Elementis requested a formal departmental review. The review upheld the original decision. This was confirmed by letter dated 9/10/02. In that letter Customs rejected the proposed classification by Elementis under Heading 68.15 essentially on the ground that the goods were imported in the form of a powder; they were therefore a raw or semi-raw material and not an article. The goods did not meet the terms of the Heading and therefore were excluded therefrom by virtue of GIR 1. Customs also declined to follow a Decision of US Customs in 1999).

Submissions

For Elementis, Mr Ash-Taylor submitted that the HSEN to Chapter 68 suggested that products excluded from Chapter 25 by virtue of Note 1 would fall naturally into Chapter 68. He accepted Chapter 25 was excluded because the goods were obtained by mixing. He accepted that Chapter 38.24 was also a possibility. This brought GIR 3 into play. Chapter 68 was more specific than Chapter 38, which was a catch all provision, and was later in numerical order. There was no BTI issued by a customs authority of a Member State concerning a clay product similar to the goods in question. However, he drew the Tribunal's attention to a decision in 1999 of the US Customs Authority in which a similar clay (bentonite) was classified under Heading 25.08 subheading 2508.10-0000 under the Harmonized Tariff Schedule of the US (HTSUS); whereas a preparation of the same bentonite clay with the addition of a small quantity of scent to produce scented cat litter was excluded from Chapter 25 and classified in Chapter 68 under subheading 6815.99-4000 (HTSUS ref CLA-2-25:RR:NC:2:237 E82501); see (B/58). It was further submitted that as the goods are a product made of mineral substances other than stone and not specified or included elsewhere in the tariff, they fell within the Heading 68.15. He submitted that where a product could prima facie fall within two Chapter Headings GIR 3(a) and (c) applied. He argued that the HSEN in relation to Chapter 68 did not limit the scope of 68.15 to Articles. There was no authority holding that the goods could not be an article. The reference to including carbon fibres in Heading 68.15 suggests that Customs' argument on this point is too narrow. Including means that the list of products that may fall within the Heading is not exhaustive. Chapter 68 included items that were not articles eg 68.02, 68.06 and 68.15. The 1994 Classification Dispute Decision was not a WCO Opinion and was not binding, and had not been followed in the 1999 Decision.

For Customs Mr Timson-Hunt submitted and this was accepted by Elementis that the goods were not in their crude state. Phosphonic tetrasodium salt is not an anti-dusting agent. The goods were obtained by mixing. Therefore the goods were excluded from Heading 25.08. The goods were not an article within the meaning of Heading 68.15. Most of the products in Chapter 68 were shaped and moulded as the General HSEN to this chapter provided. For a powder to fall within Chapter 68 it would have to be specifically mentioned. The US Customs ruling was not binding. GIR 3 does not apply as the goods have already been excluded from Heading 68.15 by GIR 1. The goods are a product of the chemical industry which is not specified or included in any other Heading.

Decision

With all respect to the ingenuity of the arguments, which were presented in detail with great skill and care, the Tribunal considers that the answer to the classification dispute is relatively straightforward. The goods are excluded from Heading 25.8 because they are not in their crude state, and because they have been obtained by mixing (see Note 1 to Section V Chapter 25 above). I find it difficult as a matter of language to construe a (mixed) powder as an article. To fall within Heading 68.15 the goods must be an article of stone or an article of some other mineral substance, or be expressly included within the Heading e.g. carbon fibres. The word "of" appears twice in the first line and demonstrates that both "stone" and "other mineral substance" are governed by the word "articles". In heading 6815 HTSUS, the second "of" is omitted. The distinction between articles and materials or substances is emphasised in GIR 2. In the 1999 American decision, the unscented kitty litter, being 100% sodium bentonite clay was classified under Heading 2508.10.0000. As the scented bentonite resulted from processing, namely the addition of the scent, beyond that allowed, the product was excluded under Heading 2508.10.0000. It therefore fell, it was said, to be classified under subheading 6815.99-4000(EN) HTSUS as it provided for other articles of other mineral substances, not elsewhere specified or included. The scented kitty litter was therefore classified under that subheading. This decision is not binding on the Tribunal (Deutsche Nichimen GmbH v Hauptzollamt Deusseldorf 2001 ECR 1-02701, per Advocate General's Opinion at para 21; Clive Allen McDonald T/A Brupaks v CC&E MAN/98/7019 para 66; see also Smithkline Beecham PLC v CC&E LON 10/4/00, Chairman Dr J F Avery Jones which is currently the subject of a reference to the European Court of Justice). The product is not identical to the goods in issue in this appeal. The reasoning is not entirely clear. In any event it is not consistent with the Appellant's arguments as the decision classified the scented kitty litter as an article, whereas the Appellant has argued that Chapter 68.15 is not restricted to articles. An earlier majority decision in 1994 by the Harmonized System Committee of the WCO declared that scented cat litter (unrefined natural clay, ground screened and sprayed with a colourant and deodorant prior to packaging for retail sale) being in a primary form was not an article and could not be classified in heading 68.15, as articles did not normally include products in powder or primary form. It was noted that the product was excluded from Chapter 25 by virtue of Note 1 and was not further worked in a way so as to assume the shape of an article within heading 68.15. The conclusion was that it was more like some of the products listed in the Explanatory Notes to heading 38.23 (such as hydrated silica, gel coloured with cobalt salts, used as a desiccating agent). The product was classified as a preparation of the chemical or allied industries, not elsewhere specified or included, in Heading 38.23. The Committee's declaration, which seems logical and sensible, does not appear to have been considered in the 1999 decision.

The reference in Heading 68.15 in parenthesis to including carbon fibres etc does not assist Elementis. The Tribunal does not accept that the use of the word including shows that the list is not exhaustive. It is interesting to note that the Heading distinguishes between carbon fibres and articles of carbon fibres. Likewise, the reference is to articles of peat rather than peat. Peat itself falls under Chapter 2703 00 00. The HSENs to Heading 68.15 illustrates what is meant by articles of peat which excludes peat in its loose form. The HSENs refer to what are articles moulded or formed from peat. Loose peat itself is classified elsewhere under Heading 27.03 of the CN. Elsewhere too, a distinction is drawn between articles of certain items and the items themselves. Thus in Heading 68.06 reference is made to expanded clays and elsewhere within the Heading to articles of various items; there is no reference to articles of expanded clays. Subheading 68.06.20 also makes no reference to articles of. The list of goods set forth in HSEN under Heading 68.15 fall within what one would normally regard as articles. Specific reference to powder can be found elsewhere eg in Heading 68.02.

Headings 25.08 and 68.15 thus fall to be excluded. The goods are a chemical product or preparation of the chemical or allied industries. GIR 3 cannot therefore apply. No one has suggested that the product is specified elsewhere. In these circumstances, the goods fall to be classified under Heading 38.24.

Summary

1 The goods are excluded from Heading 25.08 because they are not in their crude state and because they have been obtained by mixing.

2 The goods are excluded from Heading 68.15 because they are not articles and do not otherwise fall within that Heading.

3 The goods fall within Heading 38.24 because they are a chemical product or preparation of the chemical or allied industries and are not specified elsewhere.

4 The appeal must therefore be dismissed.

J GORDON REID, QC., F.C.I.Arb., CHAIRMAN
RELEASE DATE: 19 May 2003

EDN/02/7002