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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 >> Allett Mowers Ltd v Revenue & Customs [2006] UKVAT(Customs) C00219 (11 July 2006)
URL: http://www.bailii.org/uk/cases/UKVAT/Customs/2006/C00219.html
Cite as: [2006] UKVAT(Customs) C00219, [2006] UKVAT(Customs) C219
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C0219
Customs Duty – Export of manufactured goods to Romania – Preference – No documentary evidence provided of origin of raw materials – necessity and method of proving origin: Europe Agreement, Protocol 4 Council Regulation EC 1207/2001 Public Notices 827 and 828.
EDINBURGH TRIBUNAL CENTRE
ALLETT MOWERS LIMITED Appellant
- and -
THE COMMISSIONERS FOR
HER MAJESTY'S REVENUE & CUSTOMS Respondents
Tribunal: (Chairman): T Gordon Coutts, QC
(Member): Mr K Pritchard, OBE., BL., WS
for the Appellant Mr Simon Reekie
for the Respondents Miss Julie Strachan, Shepherd & Wedderburn, WS
© CROWN COPYRIGHT 2006.
Background
The Appellant manufactures various lawnmowers and spare parts therefore. In about August 2005 a consignment was sent to Romania. On 3 August 2005 the Appellant completed a movement certificate EUR1 retrospectively. It was endorsed by the Respondent. In August 2005 the Romanian authorities sought verification of the movement certificate in accordance with the stipulations of Article 32 of Protocol No. 4 specifically in relation originating products. The Respondent decided in a letter dated 1 November 2005 that the export did not qualify for preference for customs duty purposes. That decision was subjected to review and the appeal was against the review decision of the Respondents dated 5 January 2006.
The Preference
Under the terms of the Europe Agreement (the "Agreement"), importations of certain goods into Romania from the European Community and originating in the Community are eligible for a preferential rate of duty. By virtue of article 20(3)(d) of Council Regulation 2913/92/EEC, ("the Code") the Agreement forms part of the Customs Tariff of the European Communities and under article 27(a) of the Code the rules governing the conditions of origin fall to be determined in the Agreement.
The relevant provisions governing the determination of origin are contained in Protocol No. 4 to the Agreement. Article 2, paragraph 1, of the said Protocol provides as follows:
For the purpose of implementing the [Europe} Agreement, the following products shall be considered as originating in the Community:
(a) products wholly obtained in the Community within the meaning of Article 5 of this Protocol:
(b) products obtained in the Community incorporating materials which have not been wholly obtained there, provided that such materials have undergone sufficient working or processing in the Community within the meaning of Article 6 of this Protocol.
Article 6 of the Protocol provides, at paragraph 1 that 'For the purposes of Article 2, products which are not wholly obtained are considered to be sufficiently worked or processed when the conditions set out in the list in Annex II are fulfilled'.
Annex II provides that machinery of Chapter 84 will be treated as sufficiently worked or processed where (1) in cases where the materials used are all classified within a heading other than that of the product, their total value does not exceed 40% of the ex-works price of the product and (2) in all other cases, the total value of the materials does not exceed 30% of the ex-works price of the product. These are known as 'Rule 1' and 'Rule 2' respectively.
Articles 31 and 32 of the Protocol provide that the authorities of the importing country may require verification of the originating status of the goods from the authorities of the exporting country. Article 17 provides that the exporter must be prepared to submit at any time all appropriate documents proving originating status. Article 27 provides a non-exhaustive list of the documents that may constitute such proof.
The relevant requirements are set out in Public Notices 827 (European Community Preference: Export Procedures) and 828 ('Tariff Preference: Rules of Origin').
The Appeal
The appeal is brought under the provisions of the Customs Reviews and Appeals (Tariff and Origin) Regulations 1997 ("CRATOR") which provide, by Regulation 6, that 'Section 16(4) of the [Finance Act 1994] (review jurisdiction) shall have effect as if decision (b) mentioned in regulation 5(1) above was of a description specified in paragraph 1 of schedule 5 to the Act'. Regulation 5(1)(b) refers to 'any decision as to whether there is sufficient evidence to determine the origin of any goods'. Section 16(4) of the Finance Act 1994 provides that 'the powers of an appeal tribunal on an appeal under this section shall be confined to a power, where the tribunal are satisfied that the Commissioners or other person making that decision could not reasonably have arrived at it', to undertake one of the three courses of action detailed at sub-paragraph (a) to (c).
The Decision Letter
Although certain matters were left unclear in the decision letter under appeal of 5 January 2006 in particular the suggested requirements to establish origin, while upholding the original decision and stating that all the requirements detailed in the letter of 1 November 2005 had to be complied with the author had before writing that conclusion made it clear in paragraph 15 that her view was:
"If you wish to export goods under preference then the origin rule must be met. It is not necessary to obtain supporting evidence for every component part. There are two basic types of percentage rule. They both set a percentage limit on the value of non-originating materials which may be used in relation to the:
ex-works price of the finished product; and/or
value of all the materials used to make the finished product.
To work out a percentage rule, first add up the values of all the non-originating material costs such as labour, overheads and profit etc. For example, the percentage rule may limit the value of non-originating materials of 40% of the ex-works price. If you find the total non-material costs (which always count as originating) make up at least 60% of the ex-works price then the percentage rule has been met, as the total material cost is less than 40%.
You may find it easier to work out the percentage rule in "reverse", by first adding up the value of all the materials used. If this exceeds the percentage allowed, you must prove that the excess value of materials is originating.
"Sufficient transformation" is dependent on meeting the Origin Rules for the tariff heading in question in this case 84.33 as you have not supplied documentary evidence to prove the Origin Rule applicable therefore the EUR1 certificate could not be validated."
Mr Morgan had left the impression, which we thought was able to be created by the terms of his letter of 1 November that each and every component part did have to be subject to "audit trail" (to use the jargon phrase) in our view it is plain that this is not so.
However there can be no doubt in terms of the Regulations and the Protocol that evidence sufficient to establish the Origin of any goods exceeding the specified percentage of value had to be provided in documentary form, the Appellant conceded and admitted that it had not done so. Indeed no documentary evidence whatsoever was provided, not even before the Tribunal.
For that reason alone the appeal must fail.
However in deference to the contention put forward by the Appellant that "sufficient transformation" took place by the creation of the machinery we record that it is our view of the law that the transformation has to take place with regard to the materials themselves and cannot occur by their being incorporated unmodified in a piece of machinery which is the item under consideration for preference.
It appears to the Tribunal that there is no particular difficulty in making sufficient enquiry to establish the percentage of materials incorporated above the prescribed limit. These can readily be identified and classified in relation to their originating status.
Indeed we were informed that in relation to a subsequent export it has been possible to do just that in relation to a similar matter.
Accordingly, although in relation to a small order like the lawnmowers in question, the Customs Duty Tariff Regulations may seem complex and onerous if preference is to be sought, they do nonetheless require to be complied with, and it would appear, can be complied with.
Decision
Our decision therefore is that the appeal requires to be dismissed.
EDN/06/7002