United Kingdom VAT & Duties Tribunals (Customs) Decisions

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Cite as: [2005] UKVAT(Customs) C00196, [2005] UKVAT(Customs) C196

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Don Scott Commercials v Customs & Excise [2005] UKVAT(Customs) C00196 (01 June 2005)

C00196

Classification of goods for import purposes - Dual cab pick-up vehicles

LONDON TRIBUNAL CENTRE

DON SCOTT COMMERCIALS

Appellant

- and -

HER MAJESTY'S REVENUE AND CUSTOMS

Respondents

Tribunal: HOWARD M. NOWLAN (Chairman)

PRAFUL D. DAVDA F.C.A.

CATHARINE E. FARQUHARSON

Sitting in public in London on 10 May 2005

J.H. Marraner, of Treasure Island Money Enterprises, for the Appellant

Andrew O'Connor, for the Respondents

... CROWN COPYRIGHT 2005

DECISION

This was an appeal by Don Scott Commercials against a post clearance duty demand by Her Majesty's Revenue and Customs ("HMRC") for additional customs duty allegedly due in respect of the importation of 21 American manufactured single cab and dual cab pick up vehicles. The relevant demand for additional duty had arisen in the slightly unfortunate respect that it was the shipper for Don Scott Commercials that had categorised the vehicles as "vehicles principally designed for the transport of persons". On importation therefore duty was paid at the appropriate rate of 10%. It was then subsequently contended by HMRC that additional duty was payable because the vehicles should have been classified as "vehicles for the transport of goods", in respect of which the rate of duty is the higher rate of 22%. By this time all except one of the vehicles had been sold but nevertheless Don Scott Commercials faced a bill of approximately £50,000 in respect of the alleged under-payment of duty.

Whilst the claim for additional duty had thus arisen in slightly unfortunate circumstances, all the more so because it became quite clear in the hearing that there was some confusion in the European market place as to how vehicles of the relevant type should be classified for customs purposes, it was accepted that the only point of contention between Don Scott Commercials and HMRC was the appropriate classification of the 21 vehicles for import duty purposes.

THE FACTS

The common feature of all 21 vehicles was that they were all the fairly large pick up trucks of the type that are now very popular in the U.S.A. and Canada, that have two distinct sections to their body-work. The front section consists of the area for passengers. The configuration of the passenger section of the vehicles varied in the case of the 21 vehicles in that 2 (the Fords) had only a single row of seats for 2 to 3 persons, with 2 doors, while all the remainder were equipped with two rows of fixed seats in the passenger area, suitable for 5 to 6 persons. Coincidentally the remaining 19 vehicles were all produced by Dodge and badged as Dodge Rams. All but one of the 19 had 4 doors, the remaining one being a 5/6 seater with just two doors, usually called an "extended cab" vehicle.

We were not given details of the level of equipment specified in the passenger areas of the 21 vehicles (some of which were new and others second-hand) but we were shown manufacturers' pamphlets for the Dodge Ram and Dodge Dakota vehicles (the latter being a slightly smaller version of the Ram) and it was clear from these, and common ground between Don Scott Commercials and HMCR that the interiors of the passenger sections of all vehicles looked fairly similar to the interior of a large car. They do not look like utility vehicles. They all had windows, as a car. They were all equipped with full seat-belts, air-bags, CD players and air conditioning. The seating was generally designed in the shape of separate seats, and not one bench seat. According to the pamphlets seating could be finished in either fabric or leather, and all had full and car-like door trim.

The separate rear section of all 21 vehicles were cargo containers, consisting simply of an open area for cargo, and having a fold-down or removable tail gate. The length of the cargo section of the trucks varied, as did the stiffness of the suspension. Naturally a vehicle with a longer cargo section would be likely to have stiffer suspension to carry heavier loads, indicating that the particular user might be more interested in using the cargo facility of the vehicle. Whilst this may seem obvious, we should record (since it is a factor of some significance in relation to the Combined Nomenclature Explanatory Notes ("CNENs") to which we will refer below), that none of the cargo areas of the vehicles had any form of seating. It was presumably possible that workmen might sit occasionally on boxes or crates in the cargo sections, but these vehicles are not intended to carry passengers in the cargo area.

No point was taken by either Don Scott Commercials or HMRC in relation to whether the vehicles were petrol or diesel powered, or whether they were 2- or 4-wheel drive. All combinations were available but it appeared to be common ground, and we believe that this was correct, that neither of these variables had any significance in relation to the customs classification of the vehicles.

It is worth recording that although the two Ford vehicles happened to be the only 2/3 seater vehicles, with just one row of seats in the cab, so that they might appear to have more in common with conventional two seater pick up trucks, it was emphasised that the two Fords had other car-like features that set them apart from most of the Dodges. Although all these vehicles could well be purchased by owners aiming to create a somewhat macho image, thus almost being "style accessories", the Fords in particular had a sporty appeal. They had sports-style alloy wheels, and low profile tyres and in this respect were aimed more at the owner who might have sporting equipment, rather than commercial goods in the rear section.

In the course of the hearing a number of points were made in relation to the marketing of these vehicles, and of the way in which they were generally used, and to their great popularity in the U.S.A. and Canada. It was virtually common ground that although the vehicles are dual purpose vehicles, they are almost certainly used in the U.K. to a greater extent as passenger vehicles than goods vehicles. They are a form of style accessory as well as a very practical vehicle for any owner with a need both to carry several passengers and a need to carry goods. But most of the marketing thrust, whilst not ignoring the serious carrying capacity of the vehicles, emphasises the healthy life-style attributes, showing the cargo section carrying mountain bikes, jet skis etc., rather than commercial goods.

THE CLASSIFICATION OF GOODS FOR CUSTOMS PURPOSES

For Customs purposes, goods are classified under numerous headings and rates of duty are set for the goods comprised in each heading.

There are two headings under which the vehicles might be classified. The first is:

87.03 "Motor cars and other vehicles principally designed for the transport of persons",

and the second,

87.04 "Motor vehicles for the transport of goods".

It was common ground that the vehicles have to fall under one or other of these classifications, albeit that neither appears to provide a realistic description of a dual-purpose vehicle, designed to fulfil both of its intended functions with little compromise. It also appears slightly odd that there is a disparity in the language of the two headings, with the former concentrating on what the vehicle is principally designed for, and the latter just referring to the fact that the vehicle is "a vehicle for the transport of goods", regardless it seems of whether it might have other (possibly equally or more significant) attributes.

Classification of goods is aided by six General Rules of Interpretation, which are each to be applied in numerical order. Rules 1 and 3 are the only rules that appear to have any relevance in this case. Rule 1 provides that classification shall be determined according to the terms of the headings (i.e. the headings quoted in paragraph 10 above), albeit read in the light of the text in various European issued Combined Nomenclature Explanatory Notes ("CNENs"), and in the light of the Harmonised System Explanatory Notes ("HSENs") and the Classification Opinions produced by the World Customs Organisation. It is HMRC's contention that with the aid in particular of the assistance provided by the most recent CNENs and HSENs, all the vehicles in the present case fall into Category 87.04, with the resultant duty rate of 22%, and that this conclusion is based simply on the application of Rule 1.

Rule 3 of the General Rules of Interpretation provides that where goods prima facie fall to be classified under two or more headings, then the most specific description is to take precedence over one which provides only a general description. Although there was no argument on this point, we are somewhat of the view that if we disagreed with HMRC's argument that the case was resolved by Rule 1 with the benefit of the CSENs and HSENs (such that we then had to apply Rule 3), we might consider that heading 87.03 was a more specific description of the dual purpose vehicles in this case than heading 87.04. But we need not consider this issue because we agree that the CSENs and HSENs do provide guidance that enables the allocation to be made under Rule 1. This results from the fact that the CSENs and HSENs do address (albeit in a fairly obscure manner) the fundamental issue of whether dual-purpose pick-up vehicles should be classified under 87.03 or 87.04.

THE DECISION

The first line of argument that leads us towards the eventual conclusion that the vehicles in this case are to be classified under heading 87.04, as vehicles for the transport of goods is a technical one on the wording of the classification headings alone. We agree with the argument of HMRC that it is not correct, in accordance with the wording of 87.03 to say that the relevant dual-purpose vehicles are "primarily designed for the transportation of persons". Conventional cars and estate cars are primarily designed for the transport of persons. They each have a boot or a luggage area in the case of the estate car, but they are essentially designed for the carriage of persons, along with their incidental luggage or belongings. The essential design feature of all the vehicles that we are concerned with here is that they are "dual-purpose". They are sufficiently large that they enable the user to have the best of both worlds. When used for passenger transport there is room for 5 or 6 adults with little compromise. When used for the transport of goods, the cargo area provides all the advantages of a conventional "van pick up", with the provision of the seating space for the second row of passengers in the case of the dual-cab vehicles taking up a relatively immaterial proportion of the total length of the very sizeable vehicle. So we say that their essential design characteristic is to meet, as required, both the passenger carrying and goods carrying roles with little compromise. They are thus true "dual-purpose" vehicles, and not "vehicles designed principally for the transport of persons".

Turning then to the wording of 87.04, we accept that it is correct to say, in terms of 87.04, that the vehicles are "for the transport of goods". We do not say that this is a full and fair description of the vehicles but nevertheless indisputably these vehicles are for the transport of goods. It could hardly be disputed that the vehicles can and do carry goods, albeit that in addition they fulfil other functions.

HMRC refrained from relying entirely on the technical point of interpretation summarised in paragraphs 13 and 14 above, but we agree with HMRC that this initial point is a significant one.

The real thrust of the argument of HMCR to the effect that the vehicles are to be categorised under 87.04 is that recent Explanatory Notes produced by the World Customs Organisation (referred to as HSENS) and by the European Community (CSENS) specifically address the appropriate designation of the very dual-purpose vehicles in dispute here, and as this material is to be treated by us as highly influential in forming our conclusion, we should be governed by these Notes. And it is suggested that the Notes clearly direct that the vehicles in question here are to be classified under 87.04. With some regret we agree with this contention and we will explain why.

It would be more usual to commence by relying on the CSENs first, as they are produced by the European Community but we find the relevant text in the CSEN so obscure that we will first address the text in the World Customs' HSENs. We will do this by first quoting in full certain paragraphs of the Explanatory Notes on heading 87.03 and then 87.04. It will be noted that each quoted section commences with some general text and then has a list of five points, (a) to (e), designed to indicate the characteristics of the borderline dual-purpose vehicles that tip the vehicles into either 87.03 or 87.04. After quoting the relevant texts we will give our own comments on both the general wording and the specific points.

The relevant commentary in the HSEN on 87.03 is as follows.

"The classification of certain motor vehicles in this heading is determined by certain features which indicate that the vehicles are principally designed for the transport of persons rather than for the transport of goods (heading 87.04). These features are especially helpful in determining the classification of motor vehicles which generally have a gross vehicle weight rating of less than 5 tonnes and which have a single enclosed interior space comprising an area for the driver and passengers and another area that may be used for the transport of both persons and goods. Included in this category of motor vehicles are those commonly knows as "multipurpose" vehicles (e.g. van-type vehicles, sports utility vehicles, certain pick-up type vehicles). The following features are indicative of the design characteristics generally applicable to the vehicles which fall in this heading:

(a) Presence of permanent seats with safety equipment (e.g. safety seat belts or anchor points and fittings for installing safety seat belts) for each person or the presence of permanent anchor points and fittings for installing seats and safety equipment in the rear area behind the area for the driver and front passengers; such seats may be fixed, fold-away, removable from anchor points or collapsible;

(b) Presence of rear windows along the two side panels;

(c) Presence of sliding, swing-out or lift-up door or doors, with windows, on the side panels or in the rear;

(d) Absence of a permanent panel or barrier between the area for the driver and front passengers and the rear area that may be used for the transport of both persons and goods;

(e) Presence of comfort features and interior finish and fittings throughout the vehicle interior that are associated with the passenger areas of vehicles (e.g. floor carpeting, ventilation, interior lighting, ashtrays)."

The matching and related commentary on heading 87.04 is as follows:

"The classification of certain motor vehicles in this heading is determined by certain features which indicate that the vehicles are designed for the transport of goods rather than the transport of persons (heading 87.03). These features are especially helpful in determining the classification of motor vehicles, generally vehicles having a gross vehicle weight rating of less that 5 tonnes, which have either a separate closed rear area or an open rear platform normally used for the transport of goods, but may have rear bench-type seats that are without safety seat belts, anchor points or passenger amenities and that fold flat against the sides to permit full use of the rear platform for the transport of goods. Included in this category of motor vehicles are those commonly known as "multipurpose" vehicles (e.g. van-type vehicles, pick-up type vehicles and certain sports utility vehicles). The following features are indicative of the design characteristics generally applicable to the vehicles which fall in this heading;

(a) Presence of bench-type seats without safety equipment (e.g. safety seat belts or anchor points and fittings for installing safety seat belts) or passenger amenities in the rear area behind the area for the driver and front passengers. Such seats are normally fold-away or collapsible to allow full use of the rear floor (van-type vehicles) or a separate platform (pick-up vehicles) for the transport of goods;

(b) Presence of a separate cabin for the driver and passengers and a separate open platform with side panels and a drop-down tailgate (pick-up vehicles);

(c) Absence of rear windows along the two side panels; presence of sliding, swing-out or lift-up door or doors, without windows, on the side panels or in the rear for loading and unloading goods (van-type vehicles);

(d) Presence of a permanent panel or barrier between the area for the driver and front passengers and the rear area;

(e) Absence of comfort features and interior finish and fittings in the cargo bed area which are associated with the passenger of vehicles (e.g. floor carpeting, ventilation, interior lighting, ashtrays)".

We have decided that whatever the sections of text quoted in 18 and 19 above actually mean, and whatever the type of vehicle that the draftsman had principally in mind (this aspect altogether escapes us), the two quoted sections are endeavouring to give clear guidance as to whether multi-purpose pick up vehicles should be classified within 87.03 or 87.04. That seems manifest because both sections of text refer to the reconciliation of this difficult issue, and to "multi-purpose" vehicles and pick-ups.

Having said that, we still find it difficult to understand this text. In passing we find this a matter for some criticism because the headings themselves are muddled, and if the aim of the Explanatory Notes is to provide clear guidance so that a uniform approach is adopted by virtually all Customs authorities it is very regrettable that the guidance notes are muddling. Aside from being muddling, very telling reference was made at the hearing to the feature that the German Customs authorities are still classifying the type of vehicle with which we are presently concerned as a passenger vehicle, and adopting a "relative weight" test that we will refer to below which appears to be completely inconsistent with the conclusion that HMRC argues that we should reach.

Leaving aside that criticism, and doing our best to understand the two quoted passages of text, we think that the vehicles that fall on the 87.03 side of the dividing line are multi-purpose vehicles that are suitable for both the carriage of passengers and goods, but nevertheless they consist of one single body (without fixed division), the comfortable and safety-equipped seats for passengers in the rear section are removable, so that goods can be carried, but nevertheless when the seats are in place they have side windows and the comfort features associated with the carriage of persons. The sort of vehicle that falls on the 87.04 side of the dividing line appears to have a fixed division between the passenger section and the goods section. Confusion is created by the fact that all dual-cab vehicles have no division between the front passengers and those in the second row of seats (as in the Rams and the Dakotas) but we believe that the right reading of the "fixed division" is a reference to the division between the front passenger area (whether for 2 or 5 passengers) and the goods area. And in the case of every vehicle with which we are presently concerned, there is not only a "fixed division", but the division is even more fundamental. The front passenger section is one body, and the cargo area is a completely separate structure, with a very small gap between it and the front passenger cab.

Further doubt is cast on the interpretation that we have put on the two relevant passages of text in 22 above by the attention given in the Explanatory Note on 87.04 to the feature that the rear area, albeit "normally used for the transport of goods", might have some form of removable seating (without normal passenger comfort and safety features) that would enable passengers to be carried in that quite separate rear area. It is not a feature of any of the dual-cab type vehicles with which we are concerned that there is ever any such provision of seating. And we find it difficult to imagine the type of vehicle to which these comments about removable casual seating in a separate rear area are relevant. Insofar as the Notes to headings 87.03 and 87.04 are being cited to us (as they are) as the key to deciding how multi-purpose dual cab pick-up vehicles should be classified (something which the paragraphs in the Notes purport to clarify), it does seem unfortunate that this clarification of the proper classification of a type of vehicle that is extremely common in the U.S.A. and hardly a rarity in the U.K. is rendered obscure by references to vehicles with removable seating in the separate rear area, the nature of which we find it difficult to visualise. Having said this however, we nevertheless feel compelled to accept two decisive factors. These two matching paragraphs are endeavouring to deal with the classification of the vehicles with which we are presently concerned. And if the only distinguishing feature between the vehicle with removable seating in the quite separate, permanently divided, rear area, and the pick-up trucks with which we are presently concerned is that there is no provision for seating at all in the separate divided rear area of the vehicles with which we are concerned, then the vehicles with which we are concerned must fall all the more clearly on the "goods" side of the dividing line between 87.03 and 87.04.

We must now turn to the guidance to be obtained from the European CSENs which ought to be of even more influence than the guidance in the World Customs HSENs. In our view the guidance given in relation to heading 87.03 in the CSENs is consistent with the guidance given in the HSENs (as it should be) but read in isolation, before reading the HSENs the meaning of the relevant short paragraph would have been so obscure that we would have been unable to understand it.

The relevant paragraph in the CSEN dealing with passenger vehicles (87.03) reads as follows:

"Provided that they are principally designed for the transport of persons, these subheadings also include dual-purpose motor cars, i.e. motor cars which can transport persons or goods equally well. Vehicles of this type can be distinguished from motor vehicles for the transport of goods, which are often the same size, by: