United Kingdom VAT & Duties Tribunals (Customs) Decisions

Yarash Oriental Rugs v Revenue & Customs [2007] UKVAT(Customs) C00230 (08 January 2007)

C0230

CUSTOMS DUTY – Were formalities for preferential rate complied with? – No – Was the duty to be remitted under Articles 220 or 239 of the Code? – No in the particular circumstances as no error by the Customs Authority or 'special situation' – appeal dismissed

LONDON TRIBUNAL CENTRE LON/2005/7061

MASOUD YARASH/YARASH ORIENTAL RUGS Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: ADRIAN SHIPWRIGHT (Chairman)

PRAFUL DAVDA

Sitting in public in London on 13 December 2006

The Appellant did not appear

Andrew O'Connor, Counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006


 


DECISION

Introduction

1. This is an appeal against a decision on review upholding a C18 Post Clearance Demand Notice issued against the Appellant for £7,921.57. The decision appealed against was contained in a letter 22 June 2005.
2. The Appellant did not appear at the appointed time when the case was called on. Accordingly, we decided to hear the case in the Appellant's absence under Rule 26 of the Tribunal Rules.
3. We decided that in this case it would be helpful to produce a reasoned decision.
4. We record that this decision deals solely with the question whether the amount claimed is due as a matter of law on the basis of the facts found and is not concerned with HMRC's conduct or the perception of a reasonable trader. There is no jurisdiction for us to do anything else.

The Issue

5. The issue in this case is essentially whether the import of certain goods attracts full duty or a preferential nil rate of duty under the arrangements for the import of basmati rice from Pakistan.
6. This raises two questions in particular:

(1) Did the lack of the proper formalities mean that duty at the full rate was payable rather than at the nil rate under the Prefence arrangements?

(2) If duty were payable was it to be remitted under Article 220 or Article 239 of the Combined Customs Code?

The Legislation and procedure

7. Basmati rice from Pakistan of the type imported could have been eligible for a preferential rate of duty (a nil rate) of Customs Duty by virtue of Commission Regulation 1503/96 (for the first two entries) and Commission Regulation 1549/2004 (for the last).
8. The regulations provide the preference is subject to the relevant licence being obtained from the Rural Payments Agency. The regulations have a requirement for the licence application and licence to include an authenticated indication of the country of origin and the word "yes" marked with a cross in box 8 and in box 20 the prescribed description.
9. For the first two entries this would have been "aromatic rice of the basmati variety falling within CN code 1006 20 17 1006 20 98". Similar wording was required under the later regulation. In each case an authenticity certificate from the Trading Corporation of Pakistan Limited was also required to accompany the application.
10. A preference licence issued in accordance with the regulations explicitly rehearses these particulars and is stamped as approved by the Rural Payments Agency.
11. An open general licence on the other hand does not confer entitlement to any preferential rate of duty but merely gives permission to import. The procedure for obtaining an open general licence is quite different. The licence itself contains different particulars and there is no Rural Payments Agency stamp which is required for a preference licence.
12. Article 201 of Council Regulation 2913/92/EEC ("the Community Customs Code") provides that a Customs debt is incurred through the release for free circulation of goods liable to import duty and is incurred at the time of the acceptance of the relevant Customs declaration.
13. Article 221 of the Community Customs Code allows for communication of a Customs debt to be made up to three years after it was incurred. In other words HMRC have three years in which to collect the debt.
14. Article 220 of the Community Customs Code provides:

"Where the amount of duty resulting from a Customs debt has not been entered into the accounts in accordance with Articles 218 and 219 [which concern situations in which the correct amount duty appears in the declaration]... the amount of duty to be recovered shall be entered in the accounts within two days of the date on which the Customs authorities became aware of the situation".

15. Article 220 provides that subsequent entry in the account shall not take place

"if the amount of duty was not entered in the accounts as a result of an error on the part of the Customs authorities which could not reasonably have been detected by the person liable for payment, the latter for his part having acted in good faith and complied with all the provisions laid down by legislation force as regards the Customs declaration".

The Authorities

16. We were provided with copies of the following authorities which we have read and considered:

CCE v Invicta Poultry Limited [1998] EWCA Civ 775

Gunzler Aluminium GmbH v ECC Cas T-7595

James Halifax (Hampshire Christian Trust) v HMRC C00209

GM Impex Ltd v CCE LON/97/7088

The Evidence

17. A bundle of documents was produced headed "Joint Tribunal Bundle". No objection was taken to any of the documents and they were all admitted in evidence.
18. A witness statement was provided for Mrs Diane Evans, the reviewing officer. She did not give oral evidence and was not cross examined. The witness statement was admitted in evidence.

Findings of Fact

19. From the evidence we make the following findings of facts:

a. Three consignments of basmati rice were imported on 11 February 2004, 25 May 2004 and 6 September 2004. These were declared by the Appellant's agent, FFG Hildebrand. The Appellant was identified as the consignee.

b. On each occasion the goods were declared as benefiting from a nil rate of duty under the preference arrangements for the importation of rice from Pakistan. An open general licence issued by the Rural Payments Agency was attached to each entry.

c. The Respondents accepted the entries and cleared the goods on the basis declared.

d. In September 2000 the Respondents engaged in an exercise to verify CAP import licences. In the course of this it was established the licences that had been provided with the declarations were open general licences and not preference licences. Accordingly the respondents issued the disputed demand on 12 May 2005.

e. On 19 May 2005 the Appellant wrote to the Respondents saying that he was surprised and disappointed to receive the demand. He represented that it had always been his understanding that clearance by the respondents amounted to an undertaking by them that all duties had been assessed and that the goods were clear of any encumbrance. He had been given no indication that the clearance was in any sense conditional.

f. This was treated as a request for a review.

g. The review was undertaken by Mrs. Evans. She upheld the demand. The decision was communicated in her letter of 22 June 2005 to the Appellant.

h. She said that it was a requirement for importers declaring a preferential rate of duty to be in possession of a preferential licence issued by the Rural Payments Agency and in these circumstances, to have a certificate of authenticity issued by the Trading Corporation of Pakistan and certification by the Rural Payments Agency. The licences obtained by the Appellant were not preferential licences nor did they bear the relevant endorsements. Accordingly, they gave no entitlement to preferential treatment. Clearance was not to be understood as amounting to an undertaking by HMRC that all duty been assessed and encumbrances lifted.

i. The Appellant appealed on the 3 August 2005.

20. We find as a primary fact that the documents produced by the Appellant were not preferential licences and they and the applications for them did not contain the relevant entries in boxes 8 and 20.
21. We also find that the trader could have discovered what was required from reading the Official Journal. We find further that in this was not so complex matter or a special situation within the meaning given by the European Court of Justice in the cases on my Articles 220 or 239 of the Community Customs Code.

The Submissions of the Parties

The Appellant Submissions in outline

22. In essence, the Appellant submitted that as the goods had been cleared without payment of duty being required it was unfair for HMRC subsequently to demand duty and they should not be allowed to do so.
23. The Appellant's grounds of appeal read as follows:

"We were extremely surprised and disappointed to receive the demand. The demand refers to three consignments to which were cleared by Customs well over a year ago in and a third which was cleared nearly a year ago in September of 2004.

We had always understood that clearance by Customs amounted to an undertaking by Customs and Excise that all duties had been assessed and that they goods were now clear of any encumbrance. Like any normal business acting reasonably, we took this statement t its face value. We proceeded to trade in our normal manner. The goods have all been sold and the monies have been used in the further course of our business. In some cases, the goods were even sold as a reduced price to reflect the saving which had been made. Furthermore, we are shocked that you are now making a demand for payment accompanied by a threat that if the money is not paid during a very short time – 10 days that we may also face a bill for interests. We were not aware that the Customs and excise stores up its accounts in this way.

Customs and Excise have never at anytime raised any question that the goods were being released conditionally – and indeed we understand that there is no such thing as a conditional release. Even our experienced professional agents who have been dealing with these consignments on our behalf accepted at face value of and that the consignments were zero rated. They also were surprised when the C& E claim was made. They also feel that we are being treated unfairly.

Furthermore, as far as we can tell, we have always dealt openly and honestly with the Customs and Excise and we do not understand why we are being treated in this way.

We believe that in the circumstances C&E should be estopped from going back on their initial decision which amounted to a promise that the goods were free of duty.

The formal review which we requested found against us but did not consider any of the issues which we raised with it at the time and which we raise again now.

We would be grateful if you would arrange a review of the decision to demand these payments from us which would cause us great prejudice. Furthermore we believe that in the circumstances we are entitled to a full explanation of what has transpired here. We have at all times acted correctly and with integrity so we feel very strongly that a mistake has been made by Customs and Excise – either in the Post Clearance Demand – or in releasing the goods in the first place. However, we feel that it would be extraordinary if Customs had made an error in releasing the goods in the first place because as you know, we are dealing here with three separate consignments, all imported and cleared at different times. For an error to have been made at this stage would mean that the Customs and Excise had made three separate identical but independent errors. Could this really happened? We feel very strongly that a full disclosure by Customs and Excise should be made. If Customs and Excise have acted correctly and with diligence, there can be no objection to being open with us".

HMRC's Submissions

24. In essence, HMRC submitted that:

a. the failure to comply with the requirements as to formalities meant that the Preference arrangements did not apply and so full duty was payable;

b. there was no mistake on the part of the Customs Authority and even if there was (which is not admitted) there was no obligation to remit the duty under Articles 220 or 239 of the Community Customs Code. There was no complexity or special situation in the Community Law sense in the circumstances under consideration. The Appellants have not complied with the required formalities and so as far there was any mistake it was the Appellant's and not HMRC's.

c. Accordingly, there was liability for duty at the full rate and not the preferential nil rate.

Discussion

Introduction

25. The approach we adopt is to consider the following questions:

a. What were the requisite formalities for preference?

b. Were they complied with?

c. If duty is due at the full rate ought it to be remitted?

26. Each of these questions will be considered in turn.

a. What were the requisite formalities for preference?

27. The formalities required to obtain the preferential rate included that:

a. there be a Preferential Licence and not a General Licence;

b. box 8 be filled out in a particular way;

c. the required endorsements be put in box 20.For the first two entries this would have been "aromatic rice of the basmati variety falling within CN code 1006 20 17 1006 20 98". Similar wording was required for the third.

b. Were the formalities complied with?

28. We have found that:

a. There was a general not a preferential licence;

b. the entries in box 8 were not those required;

c. Box 20 was left empty so that the required endorsements were not present.

29. Accordingly we find that the formalities required for the preferential nil rate were not complied with. Full duty is therefore due.

c. If duty is due at the full rate ought it to be remitted?

i. Introduction

30. Remission of duty requires the conditions in Article 220 CCC to be fulfilled. There might also be a possibility that Article 239 could apply.

ii. Article 220

General

31. For Article 220 to apply there must be "an error on the part of the Customs authorities which could not reasonably have been detected by the person liable for payment".
32. This raises two questions:

a. Was there an error on the part of HMRC?

b. Was this something which could not reasonably have been detected by the person liable for payment?

Was there an error on the part of HMRC?

33. We find that there was no error on the part of HMRC. The Appellant applied for and obtained a non preferential licence. This was what was presented. It was not what was required to obtain the preference.
34. The fact that entry is allowed by Customs without requiring payment of duty does not as a matter of law amount to an undertaking by Customs and Excise that all duties had been assessed and that the goods were now clear of any encumbrance. The CCC allows the Customs Authority to seek duty for a specified period (three years here). What took place here was within the specified period. We find this as a matter of fact.

Was the error (assuming there was one) something which could not reasonably have been detected by the person liable for payment?

35. In broad terms, a trader is deemed to know the contents of the Official Journal (see Buxton LJ quoting Lightman J in Invicta "?????'everyone was deemed to know the law': see Behn" and Gunzler). As Buxton LJ said in Invicta "The trader therefore in every case ignores the Journal at his peril".
36. Where there has been an error (assuming contrary to our findings that there was one) on the part of the Customs Authority the question arises as to the effect of the trader's presumed knowledge of the Official Journal. This depends on whether the error could have been detected by an attentive trader by reading the Official Journal. This in turn is said to depend on the complexity or otherwise of the situation. As Buxton LJ (with whom Mantell and Thorpe LJJ agreed) said in Invicta

"The first question was whether the error could have been detected by a simple reading of the Journal?"

37. He had also said "Where, as in the present case, the question cannot be shown to be one of complexity, and can therefore be answered simply from the Journal, it seems clear to me … that the issue whether the error could reasonably have been detected is determined by that very fact: that the error is revealed by the Journal". He then gave the warning quoted above about ignoring the Official Journal at one's peril.
38. We therefore ask ourselves could the error have been detected by a simple reading of the Journal? On reading the Official Journal it is clear that certain matters have to be included in boxes 8 and 20 to obtain preference. We consider that this should be obvious to a reader and certainly to an attentive trader reading the Official Journal. We find this as a fact.
39. We do not consider that there was an error on the part of the Customs Authority here and have so found. Even if there were we find that it was readily detectable by an attentive reading of the Official Journal. Accordingly, it is unnecessary for us to consider the issues of the trader's experience and degree of care as it would be in a case of complexity.

iii. Article 239

40. No representation as to the treatment of the goods has been shown by evidence to have been made by HMRC. In our view Article 239 is not engaged. We find that there was no "special situation" here and that our findings as to the Official Journal even if there were meant that there could be no remission of the duty.

Conclusion

41. We have found that the requisite formalities for the preferential nil rate of duty were not complied with. Consequently, the full rate of duty is due and in the circumstances this is not required to be remitted under Articles 220 or 239.
42. Accordingly, the appeal is dismissed. We make no order as to costs.

ADRIAN SHIPWRIGHT

CHAIRMAN

RELEASE DATE: 8 January 2007

LON/2005/7061