United Kingdom VAT & Duties Tribunals (Customs) Decisions

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Cite as: [2004] UKVAT(Customs) C188, [2004] UKVAT(Customs) C00188

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Keyprizes Ltd v Customs and Excise [2004] UKVAT(Customs) C00188 (10 May 2004)

CUSTOMS DUTY — whether bicycles of basic standard construction but having tiny wheels within Customs commodity code 87.12 or exercise bicycles within code 95.06 — held bicycles within code 87.12

MANCHESTER TRIBUNAL CENTRE

KEYPRIZES LIMITED Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Mr J D Demack (Chairman)

Mr A E Brown

Sitting in public in Manchester on 12 March 2004

Miss S Elliott (Director) appeared for the Appellant

Mr Owain Thomas of counsel instructed by the solicitor for the Customs and Excise

DECISION

In this appeal by Keyprizes Ltd (Keyprizes), we are required to decide whether certain bicycles it imported from China are to be classified within the commodity code 87.12 – "Bicycles and other cycles (including delivery tricycles), not motorised", as Customs maintain, or are to be classified within code 95.06 – "Articles and equipment for general physical exercise, gymnastics, athletics, other sports…. or outdoor games, not specified or included elsewhere in this chapter;….", as Keyprizes maintains. Keyprizes imported the cycles under code 95.06.

We were not provided with a sample of the bicycles concerned, nor even with a photograph of one. But the parties did agree that they were not dissimilar to monkey-bikes or mini-bikes, a photograph of one of which was produced to us. From that photograph, and informal evidence given to us by Miss S Elliott, a director of Keyprizes who appeared to represent the company, we are able to find as fact the nature of the bicycles with which we are dealing.

But first, we observe that the Oxford Compact English Dictionary defines bicycle as a vehicle of two wheels held in a frame one behind the other, propelled by pedals and steered with handlebars attached to the front wheel.

It is common ground that the bicycles the subject of the appeal had all the attributes mentioned in the last preceding paragraph and were designed for use by adults. The only unusual feature about them was that the two wheels, of identical size, were extremely small, making the bicycles unsuitable for general road use.

Due to that unsuitability, Keyprizes maintained that the bicycles concerned were not true bicycles but were properly defined as exercise bicycles. In contrast, Mr Owain Thomas, counsel for the Commissioners, maintained that notwithstanding their unsuitability for general road use, which the Commissioners were prepared to accept as fact, they were bicycles falling within Classification 87.12.

Mr Thomas drew our attention to the Harmonised System Explanatory Notes (HSENs) to heading 87.12 as reading:

"This heading covers non motorised cycles, i.e. pedal operated vehicles equipped with one or more wheel, (e.g. bicycles including those for children) tricycles and quadricycles"

There follows a list of cycles "of conventional design" included in that heading.

Mr Thomas submitted that it was plain on the face of the HSENs that heading 87.12 was designed to be of the widest application, and included all kinds of conventionally designed bicycles, whether for children or adults. He observed that there was no room for any contention by Keyprizes that the cycles in question should be classified as children's bicycles and fall under heading 95.01 as toys, since that was specifically excluded by note 4 to chapter 87.

He observed that the HSENs to chapter 95.06 gave as an example of products falling within that heading "cycling and other exercising apparatus", and contended that there was no support for classifying mini-bikes as exercise equipment by virtue of that note, or indeed by virtue of any other explanatory note in the tariff. Mr Thomas maintained that the plain interpretation of heading 95.06 was that it applied to exercise equipment. He submitted that Keyprizes' cycles were not exercise bicycles at all, but were bicycles (albeit small models) of conventional design having pedals, a chain and were capable of going from point A to point B: they were not what was conventionally understood to be exercise bicycles.

Mr Thomas submitted that on no ordinary construction of the applicable tariff provision could Keyprizes succeed in its contention that bicycles, which by their objective characteristics were pedal operated vehicles equipped with two wheels and were capable of transporting a rider from A to B, could fall within the appropriate heading for exercise bicycles. He observed that it was no answer to that submission that the rider could use the bicycles predominantly for exercise, saying that the same observation could equally well be made of any bicycles which could fall within heading 87.12. Indeed, he added, one could not use a bicycle in any meaningful sense without exercising. In other words, he submitted that to classify those products as exercise bicycles because they were bicycles which were predominantly used for exercise would drive a coach and horses through the obviously wide ambit of heading 87.12

Mr Thomas invited us to note the observations of the Customs officer whose visit to Keyprizes resulted in the issue of a post-clearance demand note giving rise to the appeal. The officer reported:

"Sharon Elliott was up front with the nature of the bikes and therefore I am satisfied that Sharon was genuinely unaware of the duty avoidance due to duty misclassification".

He observed that whilst Keyprizes imported the mini-bicycles in order to capitalise on the Christmas market, and they might have uses beyond that of exercise, they were similar to products of which the Commissioners had obtained details on the internet; and they showed that mini-bicycles could be used for recreational purposes, indoors or out.

Mr Thomas further submitted that in order for the use of a product to constitute an objective characteristic it was for the use to be inherent in the product, and for that inherent character to be assessed on the basis of the product's objective characteristics (in Thyssen Haniel Legistic [1995] ECR 1 – 1381 paragraph 13).

Furthermore, he added that the case of Westergold GmbH v Oberfinanzdirektion Munchen Case C –1777/91 was properly to be understood as illustrating the proposition that "the intended use of a product is relevant only if classification cannot take place on the mere basis of the objective characteristics and properties of the product". As Advocate – General Jacobs observed at paras 22 and 24 of his opinion in Wiener S1 GmbH v Hauptzollamt Emmerich (case C-338/95) one criterion which might, or might not, be relevant for classification purposes was the intended use of the product: the intended use of a product was relevant only if classification could not take place on the mere basis of the objective characteristics and properties of the product.

On the basis of Advocate – General Jacob's opinion in the Wiener case, Mr Thomas further submitted:

that the exclusive use of the mini-bicycles as exercise equipment could not be assessed on the basis of their objective characteristics since they were clearly capable of uses wider than merely that of exercise: the same could not be observed in relation to a static exercise bicycle;

that the issue of classification could be determined on the basis of the objective characteristics of the product Keyprizes imported without any assessment of the intended use to which those products would be put: that could be achieved by an application of the ordinary meaning of the terms of the tariff headings; on the one hand the tariff headings for bicycles (87.12) was designed to encompass all conventionally designed bicycles with two wheels, on the other heading 95.06 was designed to cover specifically exercise equipment and exercise bicycles which were not conventionally designed exercise bicycles falling within that heading.

Mr Thomas submitted that that was enough to resolve the issue in the instant appeal without further ado.

Miss Ellott made little contribution to the proceedings, simply maintaining that the bicycles had properly been classified by Keyprizes under code 95.06.

We entirely agree with all Mr Thomas's observations, and are most grateful to him for having presented the Commissioners' case so objectively and helpfully. He dealt with every aspect of the case that could possibly have been of help to Keyprizes, and illustrated beyond doubt in our judgment that the bicycles imported by the company fell to be classified under commodity code 87.12. We so hold.

The result is that we confirm that Keyprizes is liable to the Commissioners in the sum of £29,240.31, that sum being included in a post-clearance demand of 2 December 2002.

DAVID DEMACK

CHAIRMAN

Release Date:

MAN/03/7014