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 >> Designer Nails UK Ltd v Revenue & Customs [2005] UKVAT(Customs) C00201 (12 August 2005)
URL: http://www.bailii.org/uk/cases/UKVAT/Customs/2005/C00201.html
Cite as: [2005] UKVAT(Customs) C201, [2005] UKVAT(Customs) C00201

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

Designer Nails UK Ltd v Revenue & Customs [2005] UKVAT(Customs) C00201 (12 August 2005)

C00201

CUSTOMS DUTY — classification — nail tips — whether plastic within heading 3926 or manicure preparations within heading 3304 — whether nail bonding solution within heading 3304 or glue within heading 3506 — nail tips manicure preparation — nail bonding solution manicure preparation — appeal allowed Council Regulation (EEC) 2454/93

MANCHESTER TRIBUNAL CENTRE

DESIGNER NAILS UK LIMITED Appellant

- and -

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: David Porter (Chairman)

Christine Owen

Sitting in public in Manchester on 4 and 5 May 2005

Richard Barlow, counsel, instructed by McCormicks Solicitors, for the Appellant

Ben Collins, of counsel, for the Respondents

DECISION

The Appellant, Designer Nails UK Limited, appeals against a review decision of the Respondents contained in a letter dated 21 November 2001. The decision was that nail tips imported from California were classified under commodity code 3926 9090 being an ABS copolymer as "other articles of plastic". The nail bonding solution, similarly imported, was classified under commodity code 3506 1000 being prepared glues or other prepared adhesives not otherwise specified.

The issue

The issue for determination in the appeal was whether the nail tips should be classified under commodity code 3926 9090 as "other articles of plastic and articles of other materials of heading Nos 3901 to 3914", which are liable to a customs duty of 6 per cent, or whether the nail tips should be classified under commodity code 3304 3000 as "beauty and make up preparations for the care of skin (other than medication) including sunscreen or suntan preparations; manicure or pedicure preparations", which are not subject to any customs duty. Similarly should the nail bonding solution be classified under commodity code 3506 1000 as "prepared glues and other prepared adhesives, not elsewhere specified or included; products suitable for use as glues or adhesives, put up for retail sale, as glues or adhesives, not exceeding a net weight of 1kg", which are liable to a customs duty of 6% or under commodity code 3304 (as above) which is not subject to any customs duty. If the decision of Customs is correct the total charge due on importation to date is in excess of £100,000.

Evidence

Two yellow bundles of documents were produced on behalf of the Appellant together with a sample box of the "Radical French Tips" nails and two packets of different kinds of glues used to attach them namely "Gelbond" and "Solarseale" respectively.

Oral Evidence was given on behalf of the Appellant by Charles Bernard Cawthray, chief executive of the Appellant, Dr Robin West, Technical Director, Winnats Scientific Services. An agreed witness statement was also produced from Douglas Dean Schoon, a Vice President of Science and Technology for Creative Nail Design of California.

Oral evidence was given on behalf of Customs by James Williams, a chemist from Campden & Chorleywood Food Research Association and Michael Burke, Consulting Toxicologist and Chemist.

Definitions

It will assist in understanding the arguments of the parties if the terms "manicure" and "preparations" can be defined first.

(a) "Manicure" . The parties agreed that manicure included the cosmetic treatment of hands and nails.

(b) "Preparations" . We have had some difficulty arriving at a definition as the word has not been judicially considered previously. Dr Williams, for Customs suggested that a preparation from a chemist's point of view is:

"a combination of individual chemical species, which are combined to control and influence various properties of the formulation".

He defined "Chemical species" as entities that have a specific chemical structure, which are more than mere additives such as the addition of colour.

The Shorter Oxford English Dictionary suggests;

"The action or special process of putting something into proper condition for use"

Our view is that the Shorter Oxford English Dictionary definition is to be preferred. We also consider that a preparation can relate to the mixture of fluids, or the construction of a solid, so long as the fluid or solid fundamentally change their constitution from their generic specification.

The facts

From the evidence before us we find the following facts.

Nail tips: The nail extensions are composed of an acrylonitrile-butadiene-styrene (ABS) copolymer. The process involves the initiation of a polymerisation reaction, in which many butadiene monomer units bond together to form long chains of poly(butadiene). Subsequently, styrene and acrylonitrile monomers are added to the emulsion, and a polymerisation is initiated. Ideally all monomer reactants are consumed during the reaction. In reality some residual unreacted monomer is usually present in the finished material. The complete solution is then poured into moulds in the shape of the varying size of nail tips required for application to the finger nails. Butadiene contributes improved impact strength and resistance to corrosion. Acrylonitrile and styrene provide the material with rigidity, hardness, processing capacity, heat resistance and stability. It is possible to alter the physical properties of the polymer in accordance with the requirements of the application by changing the proportions of the three monomers. We are satisfied that the manufacture of the nail tips consists of a special process mixing controlled levels of butadiene, styrene and acrylonitrile specifically for their use as nail tips. The nail tips are subsequently distributed in quantities of 50 nails of the same size in a clear plastic bag inside a square cardboard box. The box bears the name "Radical French Tip" and has a design of two plastic nails on one side. The nails come in different sizes in separate boxes.

Nail Bonding Solution: This is undoubtedly a preparation. It consists of:

Ethyl cyanoacrylate, which is a core component of quick curing additives. The level of cyanoacrylate in the nail bonding solution is much lower than in conventional "super glue" and therefore allows slower curing and hardening times.

Silica. This is added as a flow modifier that provides body to the product. Silica increases water repellency and helps the nail tip to remain in place when it comes in contact with moisture from the nail itself.

Poly (methyl methacrylate). This is added as a gap filler, which also controls viscosity and improves the strength of the adhesive bond.

Calixarene. This is a wetting agent, which promotes adhesion to oily/dirty surfaces such as human fingernails.

Hydroquinone. This is a standard stabiliser and is added in very small proportions and prevents premature hardening.

Triglycerides. This is used in cosmetic products where they impart a conditioning to the material that provides an improved "skin feel"

The nail bonding solution is distributed in various sizes of tubes .We were supplied with three tubes. One tube is readily recognisable as being similar to a "super glue" tube. The tube is quite small and has a long nozzle thinning at the end to assist in applying the nail bonding solution to the fingernails. The "SolarSeale" tube is of similar size, round, with a pointed nozzle but the nozzle is much shorter in length than the first tube. The third container is quite different being oblong with curved edges with a nozzle identical to the "SolarSeale" container. It is about twice the width of the "SolarSeale" container and not unlike a container for contact lens cleaner. It is clear that the containers can be used for a variety of substances and are of standard manufacture. The nail bonding solution cannot be used satisfactorily as "super glue" or indeed as a domestic glue as it is extremely greasy when first applied and does not cure immediately as the hydroquinone prevents the premature hardening.

Mr Burke produced to the tribunal a nail pack he had bought at a chemists, which included nails, protective nail glue, acrylic powder, nail files and acrylic liquid. The protective nail glue container in the pack is identical to the "SolarSeale" container distributed by the Appellant.

Creative Nail Designs is one of the industry's leading manufacturers and distributors of nail products. The company is based in Vista California USA. The company does not sell its products to the general public but trains nail technicians to apply the nails to their customers nail tips.

The Appellant trains some 3,500 to 4,000 nail technicians a year. The nail technicians have to attend a five day beginners course costing some £600 and then a number of follow up courses of usually two days at a time over a course of one to two years. The nail technicians are self-employed working under a franchise licence and are supplied with acrylic powder and liquid (not the subject of this appeal), the nail tips, and nail bonding solution by the Appellant from supplies it obtains from Creative Nail Designs. None of the products, including the nail tips and bonding solution, are available on a retail basis to the general public.

The Appellant also supplies the acrylic powder and liquid not dissimilar to those contained in the pack provided by Mr Burke. Once the nail tip has been stuck to the nail there is a slight ridge between the artificial tip and the fingernail. This is filled and polished so that the nail tip appears as an extension of the original nail. The powder and liquid are an intrinsic part of the application of the nail tip and are not the subject of this appeal but we are told that they are classified as manicure preparations and are not subject to duty.

Legislation

We have considered Dr Brice's thorough analysis of the legislation contained in C00011:Brite Sparks Ltd and refer specifically to paragraphs 31 to 34 and 37 as follows.:-

(a) The common customs tariff

(paragraph 31) On 23 July 1987, by Council Regulation (EEC) No 2658/87, the European Community introduced the common customs tariff in its present form. Article 4 of the Regulation provides that the rates of duty and other charges and the tariff measures constitute the common customs tariff referred to in Article 9 of the Treaty of Rome.

(paragraph 32) As the European Community had already signed the Harmonised System Convention the commodity description and coding system for the new common customs tariff was based on the harmonised system nomenclature. The first six digits of the coding system were taken from the harmonised system and further digits were added the whole forming a new nomenclature (CN). The seventh and eighth digits provide a further sub-heading. The ninth digit is a national statistical code. The detailed nomenclature and the tariff which gives, in respect of each numerical code, the rate of customs duty, is in Annex 1 to the Regulations. There is also a generalised system of preference (GSO)

(paragraph 33) Articles 9 and 10 of Council Regulation 2658/87 adopt explanatory notes to the combined nomenclature (CNENs) and thus the CNENs are legally binding. Section 1 of Annex 1 contains six general rules for the interpretation of the combined nomenclature (the general interpretation rules or GIRs) which are used to ensure that only one code is right for each commodity. The following GIRs are relevant to this appeal:

Rule1 which directs that the titles of sections, chapters and sub-chapters are provided for ease of reference only; classification is to be determined according to the terms of the headings and any relevant section or chapter notes.

Rule 3(a) which provides that where goods are classifiable under two or more headings the heading providing the most specific description is to be preferred to a heading providing a more generalised description

Rule 6 which provides that the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes.

(paragraph 34) Each year, by regulation, the Commission updates the tariff contained in Annex 1 and the provisions applicable to this appeal are contained in Commission Regulation 2454/93.( The number for this appeal)

(b) The legal status of the HSENs

(paragraph 37) In 1993 the European Court of Justice , in Develop DR Eisbein GmbH & Co v Hauptzollamt Stuttgart-West [1994] ECR 1-2655 commented on the status of the Explanatory Notes to the Harmonised System in the following way:

"21…. The Explanatory Notes to the nomenclature of the Customs Cooperation Council constitute an important means of ensuring the uniform application of the Common Customs Tariff by the customs authorities of the Member States and as such are considered a valid aid to the interpretation of the tariff. However, those notes do not have legally binding force so that, where appropriate, it is necessary to consider whether their content is in accordance with the actual provisions of the Common Customs Tariff and whether they alter the meaning of such provisions.

Before leaving the legislation the European Court of Justice in the above case of Develop DR Eisbein GmbH & Co v Hauptzollamt Stuttgart-West said:

"8 … it should be borne in mind first of all that, as the Court has consistently held .. regard being had to the requirements of legal certainty, the decisive criterion for the tariff classification of goods must be sought generally in their objective characteristics and qualities, as defined in the headings of the Common Customs Tariff.

Only in that way can the unequivocal application of the provisions at issue be ensured for both the trader concerned and the authorities called upon to interpret it …"

Having summarised the legislation and the rules of interpretation we now turn to consider heading 3926. and 3304. There is no CNEN. The HSEN provides:

"3926 Other articles of plastics and articles of other materials of headings 3901 to 3914

….

… other

3926 9099 … other

3304 Beauty or make-up preparations and preparations for the care of the skin (other than medication), including sun screen or sun tan preparations; manicure or pedicure preparations;

….

3304 3000 - manicure or pedicure preparations

… other

….

3304 9900 … other"

Mr Collins submits that it is not disputed that the nail tips are plastic. For them to fall within either of the classifications 3304 3000 or 3304 9900 it will be necessary for the tribunal to find that the tips are preparations. That will depend on their objective characteristics and properties. He submits that it is stretching the meaning of the word "preparation" to include the construction of a plastic artificial nail tip.

Mr Barlow submits that the nail tips are prima facie classifiable as beauty or manicure preparations. The evidence from the experts identify that the nail tips are specifically manufactured as nail tips and are therefore a preparation. It has been agreed that their cosmetic quality brings them within the beauty and manicure classification.

We are satisfied that the nail tips are undoubtedly plastic but are they preparations? Whilst preparations commonly relate to liquid substances, we are satisfied from the evidence and the make up of the nail tips that the monomers (being a series of solid or semi solid compounds) have been prepared using a special process to put them into proper condition for use as nail tips. It has been agreed between the parties that the nail tips are cosmetic and can therefore fall within the term manicure.

General Interpretation Rule 3(a) states that where goods are classifiable under two or more headings the heading providing the most specific description is to be preferred to a heading providing a more generalised description. Further the case of Develop DR Eibein GmbH & Co v Hauptzollamt Stuttgart-West requires that the decisive criterion for a tariff classification of the goods must be sought in their objective characteristics and qualities as defined by the headings. As we have decided that the nails tips are a manicure preparation they are to be classified under heading 3304 3000 as "a manicure and or pedicure preparations" and are therefore not subject to duty.

We now turn to considering heading 3506 which reads:

"3506 Prepared glues and other prepared adhesives, not elsewhere specified or included; products suitable for use as glues or adhesive, put up for retail sale as glues or adhesives, not exceeding a net weight of 1kg.

3506 1000 – Products suitable for use as glues or adhesives, put up for retail sale as glues or adhesive, not exceeding 1kg.

Mr Collins submits that it is not disputed that the nail bonding solution is suitable for use as an adhesive. The Appellant's case is that it does not fall within 3506 because it is an adhesive designed for a specific purpose- namely attaching nail tips to nails. The intention of the manufacturer or the importer is irrelevant. Adhesives may be created and advertised with any number of uses in mind. That does not alter their objective characteristics and properties. He agreed that the nail bonding solution is a preparation but it is not "a manicure preparation" because it does not treat or care for hands in anyway. The solution in itself has no cosmetic value and accordingly cannot properly be described as beauty preparation. Accordingly the nail bonding solution falls within commodity code 3506.

Mr Barlow submits that the nail bonding solution is not put up for retail sale. It is undoubtedly glue but commodity code 3506 refers to "prepared glues and other prepared adhesives, not elsewhere specified or included". The Appellant's case is that commodity code 3304 is clearly a more specific heading than those which simply describe the materials of which the products are made. For example, if Customs are correct in their argument motor cars would be classified as steel and lipsticks (which clearly fall under 3304) would be classified under some heading reflecting their relevant components.

We are satisfied that the nail bonding solution is a glue but that it does not necessarily have to be classified under 3506. The nail bonding solution is supplied with the three other products (all three of which are manicure or pedicure preparations) to the nail technicians and is not available for retail sale. The parties have accepted that the nail bonding solution is a preparation.

The nail bonding solution is presented in standard containers often associated with glues but it is not suitable for use as a general adhesive, as it has been specifically prepared to attach the nail tips. Each of the containers are used in the beauty industry. Although it is undoubtedly a glue, we are satisfied that its objective characteristic is as an adhesive for the application of the nail tips, a use for which it has been specially processed. Commodity code 3506 anticipates that "glues and adhesives" may be "elsewhere specified and included" (the italics are ours). Many glues can be used to stick items, other than those for which they were specifically prepared. If, however, they have particular use, which can be classified more specifically then they should be so classified. The nail bonding solution would be very unsatisfactory if it were to be used as a general purpose glue. It has been specifically prepared to have the appropriate qualities and characteristics and they make it suitable for the application of the nail tips. This is its objective characteristic and quality. We have therefore decided that the nail bonding solution ought properly to be classified under 3304 3000 as a "manicure and pedicure preparation".

The parties agreed that in the event of the tribunal classifying the products as required by the Appellant the costs of the appeal are to be agreed between the parties and failing agreement to be brought back to the tribunal for further consideration and we so order.

DAVID PORTER

CHAIRMAN
Release Date: 12 August 2005

MAN/02/7002