United Kingdom VAT & Duties Tribunals (Customs) Decisions

---

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> United Kingdom VAT & Duties Tribunals (Customs) Decisions >> Koochi Trading Co v Customs And Excise [2005] UKVAT(Customs) C00191 (17 January 2005)
URL: http://www.bailii.org/uk/cases/UKVAT/Customs/2005/C00191.html
Cite as: [2005] UKVAT(Customs) C191, [2005] UKVAT(Customs) C00191

---

[New search] [Printable RTF version] [Help]

---

Koochi Trading Co v Customs And Excise [2005] UKVAT(Customs) C00191 (17 January 2005)

C00191

Export of UK manufactured goods to Czech Republic – Failure to obtain evidence as to origin of the raw materials – Jurisdiction of the Tribunal in the appeal

LONDON TRIBUNAL CENTRE

KOOCHI TRADING CO Appellant

and –

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: HOWARD NOWLAN (Chairman)

ALEX McLOUGHLIN

Sitting in public in London on 10 December 2004

Jamil Yasin, export manager of Koochi Trading Co, in person

Rupert Baldry for the Respondents

© CROWN COPYRIGHT 2005


 


DECISION

1. This was an appeal against a review decision by the Commissioners dated 14 May 2004 that "on the basis of the information available, it had not been demonstrated that [various export consignments of goods exported by the Appellant] to the Czech Republic satisfied the rules of origin necessary to allow a preferential rate of duty [to apply in the Czech Republic]".
2. That decision on review had itself confirmed the earlier decision of Officer Martyn Slevin, made on 25 July 2002, to the same effect. The review that led to that decision had been initiated at the request of the Customs authorities of the Czech Republic.
3. Prior to the accession of the Czech Republic to the European Community a lower rate of duty had applied on the importation of goods by an importer in the Czech Republic if the goods imported had their "origin" in the United Kingdom or elsewhere in the European Community (and vice versa).
4. The only duty or additional duty that might be payable in consequence of the present determination, as to whether it has been established that the goods exported were of United Kingdom origin, is duty in the Czech Republic, payable by the importer, rather than any duty payable in the United Kingdom by the Appellant.
5. Nevertheless the Protocol establishing the arrangements for preferential rates of duty enabled the Czech authorities to request the Commissioners in the United Kingdom to verify whether the exporter's documentation had been in the correct form and whether it had established that the goods in question were of United Kingdom origin. And it is this verification that is the subject of this Appeal.

THE FACTS

6. The Appellant had exported numerous consignments of clothing goods to the Czech Republic, having purchased those goods in the United Kingdom from the manufacturers, either Logo Knitwear Limited or Fashion-Maker Limited.
7. At the time of exportation, the Appellant completed the required Form EUR1, indicating that the origin of the goods was either in the "UK" or "EC" and in the accompanying invoices there was a declaration by the Appellant that the goods were of "EU preferential origin".
8. Although the Appellant believed at the time of export that all the goods had been manufactured in the United Kingdom (and this has never been disputed), the Appellant did not have in his possession confirmatory declarations by his own suppliers which clearly identified the goods sold by the suppliers with those subsequently exported by the Appellant, and confirmed that all the complex conditions for establishing UK origin for preferential duty purposes had been satisfied.
9. Following enquiries made with the Appellant by the Commissioners at the request of the Czech authorities, the Appellant obtained written confirmations from both of his suppliers. The material wording of these confirmations was in identical language, asserting that the relevant goods had been "manufactured by us in the United Kingdom, using materials purchased in the United Kingdom. Therefore all of the garments are of UK origin".
10. It was admitted before us that the Appellant had supplied the relevant wording to the two suppliers in question, the Appellant clearly believing that this wording was true (which was not disputed as regards the factual matters confirmed in the first sentence), and believing that the wording would retrospectively confirm that the conditions for UK origin status would thereby be satisfied.

THE LEGAL REQUIREMENTS FOR ESTABLISHING PREFERENTIAL ORIGIN STATUS

11. The requirements for establishing that goods have their origin in a particular jurisdiction are complex, as are the procedural requirements for obtaining and retaining evidence from earlier suppliers that the goods eventually exported satisfied the origin requirements.
12. The salient and very clear point so far as this appeal is concerned is that to demonstrate United Kingdom origin for goods, it must be established either that the goods wholly originated in the United Kingdom (in the sense that they were produced or manufactured out of raw materials themselves physically extracted, grown or produced here) or it must be demonstrated that the non United Kingdom (and non EC) content of the eventual goods exported cost less than various percentages of the final value of the exported goods. A common percentage of non local content that would not undermine the status of goods manufactured in the United Kingdom as having their source in the United Kingdom was 10%, though different percentages applied to certain specified goods.
13. It is also clear that where exported product has been purchased in the United Kingdom from a separate supplier, then it is the obligation of the exporter to have and retain declarations from the suppliers that identify the goods supplied with those subsequently exported, and that establish that the goods qualified for preferential treatment. In certain cases, where the supplier manufactured goods from raw materials purchased from others, a chain of evidence may be required, following the various raw materials back to their original source.
14. One very clear point is that the mere fact that goods were manufactured from raw materials purchased in the United Kingdom, or indeed purchased elsewhere in the EC, is not determinative of the source issue. The relevant question requires further evidence of where the purchased goods actually originated.

THE JURISDICTIONAL ISSUE

15. Appeals from decisions of the Commissioners to this Tribunal fall into two different categories.
16. Very broadly where appeals relate to matters affecting the duty actually chargeable in the United Kingdom or penalties imposed, the jurisdiction of this Tribunal extends to a complete re-hearing of the original dispute, where the Tribunal can substitute its decision for that of the Commissioners.
17. Where the appeal relates, however, to what is referred to as an "ancillary matter", in other words one where no actual level of duty or penalty is at stake, the powers of the Tribunal to order various kinds of redress only apply where it is demonstrated by the Appellant that the "Commissioners or other person making [the decision appealed against] could not reasonably have arrived at [their decision]": see S16(4) Finance Act 1994.
18. Although the wording is fairly tortuous, the terms of the Customs Reviews and Appeals (Tariff and Origin) Regulations 1997 supplement these general rules as they apply in a case such as the present where the appeal relates either to:-

(a) any decision as to the determination of the origin of any goods; or

(b) any decision as to whether there is sufficient evidence to determine the origin of any goods.

19. The Regulations distinguish between those two different decisions and provide that when the appeal relates to the matter referred to in paragraph (b) above, that shall be treated as an ancillary matter where the Tribunal's powers are only of the more restricted variety.

OUR DECISION ON THE JURISDICTIONAL ISSUE

20. We agree with the contention on behalf of the Commissioners that the Tribunal's powers are confined in this case simply to the situation where it is demonstrated that "the Commissioners could not reasonably have arrived at their decision". The prime question for the Commissioners was to determine whether the Appellant did or did not have in his possession at the time the EUR1 form was completed the required evidence to support his declaration that the goods were of "UK preferential origin". Admittedly that judgment related indirectly to the origin of the goods but if that fact alone meant that the appeal would fall into both categories (a) and (b) above, such that the appeal would lie on wider grounds, then it would seem that no case would fall only within category (b) above.
21. Thus both because the appeal here did relate essentially to the responsibility of the Commissioners to address the point referred to in category (b) above, and because any other interpretation of regulations 5 and 6 of the Regulations would effectively render regulation 6 meaningless (in that no appeals would be confined just to the point specified in category (b)) we decide that our jurisdiction in the present case is of the more restricted variety.
22. We also observe that since the Appellant candidly admitted that he had no direct reliable evidence as to where the raw materials used by his suppliers had themselves been sourced and as to the cost of any non EC product incorporated into the goods exported, it would have seemed very difficult for the Appellant to satisfy the Tribunal on appeal that any implicit decision of the Commissioners in relation to the origin of the goods exported had been wrong.

OUR DECISION ON THE SUBSTANTIVE ISSUE

23. The substantive point for us to determine is accordingly whether it is established that the Commissioners could not reasonably have arrived at their decision that the Appellant did not have, at the point of exporting the goods and completing the Form EUR1, appropriate supporting documentation from his own suppliers, or indeed other evidence, to demonstrate that the goods were of preferential status.
24. On this issue, we decide with some regret (which we will explain in paragraphs. 29-35 below) that the Commissioners did not act unreasonably.
25. It was not disputed that the Appellant did not in fact have, at the time of exportation, documentation from his own suppliers clearly identifying the goods and tracing their origin and establishing either of the matters summarised in paragraph 12 above. Indeed the Appellant did not at the time have any reliable evidence as to where the raw materials used in the manufacture of the goods by the two suppliers came from. And no such reliable evidence on this matter has been obtained subsequently.
26. Accordingly we decide both that the Commissioners did not arrive at their judgment unreasonably, and that on the evidence then available to them (or indeed available to them since) it would not have been feasible for them to arrive at any different conclusion.
27. Whilst this further point may not be relevant to whether the Appellant possessed the required supporting documentation at the time of export, it does also seem to us that the Commissioners cannot be criticised for not having sought to draw to the Appellant's attention the information that he fundamentally needed to satisfy his obligations. We have seen letters and written decisions that the Commissioners sent to the Appellant and we understand that the Commissioners also sought on several occasions to telephone the Appellant or visit him at his premises. We understand that several of those attempts to make contact were unsuccessful, possibly because the Appellant was often travelling on business. But there has certainly been some level of contact and we do not think that the Commissioners can be blamed for failing to draw the Appellant's attention more clearly to his responsibilities.
28. Accordingly this appeal is dismissed.
29. The remarks in this paragraph and in paragraphs 30-35 below are not strictly relevant to our decision, but we agreed with the Commissioners that we would put on record the factors that meant that we reached our decision with considerable regret. We also understand from the Commissioners that a copy of this decision will be forwarded to the Czech authorities, and we understand that their attention may be drawn to these comments.
30. We can well imagine that there will be many cases where certificates relevant to preferential origin status have been completed wrongly and where the underlying facts will have been quite inconsistent with the satisfaction of the strict conditions required. And there will have been many cases where wrong declarations will have been made, knowing them to be wrong.
31. It was our very strong impression, however, that Mr. Yasin had not exported the goods in this case, knowing his original declarations on the invoices accompanying the forms EUR1 to be false. Indeed we think that Mr. Yasin believed that he was exporting "UK goods", in the sense in which Mr. Yasin understood that term, and it was quite plain at the hearing of the appeal that although Mr. Yasin accepted that it would now be very difficult to produce evidence as to the origin of the original raw materials, so as to establish "origin" after the event, Mr. Yasin still appeared honestly convinced that the great likelihood was that the synthetic raw materials used in the manufacture of the garments were also of UK origin.
32. In our judgment, this case has been occasioned to a considerable degree by misunderstanding and by language difficulties. English is not Mr. Yasin's native language and it seems to us that on a number of occasions Mr. Yasin failed to understand the points that Customs officers were trying to clarify for him. On one or two occasions Mr. Yasin appeared to misunderstand the points that we ourselves were making to him during the course of the hearing, so that particularly when official communications from Customs officers contained references to Regulations, and cross references to requirements for demonstrating origin, it is not entirely surprising if Mr. Yasin misunderstood what he was meant to demonstrate.
33. One factor that makes us believe that Mr. Yasin had innocently misunderstood the requirements for demonstrating preferential origin is that when, after the event, he produced a declaration for his two suppliers to make, the identical terms of those declarations were first true (in the sense that it was not disputed that the garments had been manufactured in the United Kingdom out of materials purchased here) and secondly wrong in that those facts did not, as asserted, demonstrate qualification for preferential status. But to our mind that demonstrates that Mr. Yasin had still not understood what evidence he should be obtaining, and it certainly did not demonstrate that Mr. Yasin knew that the goods were of the wrong status.
34. Towards the end of the hearing, suggestions were canvassed that it might be possible to obtain back from the Czech Republic samples of the goods and that it might thereby be possible to establish the origin of the raw materials. To an alternative suggestion, Mr. Yasin felt that as both suppliers were in liquidation he, without Customs' cooperation, would not be able to obtain more information from the original suppliers, and we do accept that it is not the responsibility of Customs to pursue enquiries of this nature. If however it was in any way possible to enable Mr. Yasin to obtain retrospectively the required evidence, it might be that this would solve problems occasioned in our view by misunderstandings, rather than deceit.
35. Finally, if it transpires that there is now no way to obtain the required evidence, we still think that it is appropriate that the Czech authorities be told that Mr. Yasin impressed us at the hearing. Whether the Czech authorities consider that there is any relevance to the fact that the case appears to have been occasioned by misunderstandings, and that Mr. Yasin still appears to believe honestly that the goods were produced from UK raw materials (whether he can demonstrate that in the required fashion or not) is obviously a matter for the Czech authorities. But we record that we still reached our inevitable decision with considerable regret.

COSTS

36. The Commissioners did not ask for any award of costs.

HOWARD NOWLAN

CHAIRMAN

RELEASED: 17 January 2005

LON/04/7026