United Kingdom VAT & Duties Tribunals (Customs) Decisions

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Cite as: [2007] UKVAT(Customs) C00247, [2007] UKVAT(Customs) C247

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Blue Max Group Ltd v Revenue & Customs [2007] UKSPC (07 December 2007)

C00247

Customs Duties – change in rate of applicable duty – increased rate applying at time goods put into free circulation by being taken out of Customs warehouse, not time of receipt of goods into UK – taxpayer believing that Customs officer had informed them otherwise and additional duty eligible as a result – whether an error on the part of Customs within Article 220 of Council Regulation 2913/92 (the 'Code') – held no

LONDON TRIBUNAL CENTRE

BLUE MAX GROUP LIMITED Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: CHARLES HELLIER (Chairman)

SHEILA WONG CHONG FRICS

Sitting in public in Bristol on 16 October 2007

David Fawcus, director of the Appellant, for the Appellant

Ben Collins, counsel, instructed by the solicitor and General Counsel to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The Appellant appeals from a decision of the Respondents that customs duty was chargeable at 12% on certain garments it imported from Pakistan. The rate of duty on such imports changed from nil to 12%, on 1 January 2005. Prior to 1 January 2005 the Appellant held the goods in their Customs Warehouse. Had they removed them from that warehouse before 1 January 2005 placing them in free circulation, no duty would have been payable since the nil rate would have applied.

During the course of 2004 three papers were published by the Joint Customs Consultative Committee (the JCCC) dealing with changes in the rate of duty. Each paper contained the advice "You should therefore consider releasing any warehoused products to free circulation before [1 January 2005] in order to benefit from [the old rate of duty]". The Appellant's officers did not see these papers during 2004. The Appellant says that it received advice from HMRC during 2004 which lead it to believe that since the garments had been brought into the UK before 1 January 2005 the rate of duty on releasing the goods into free circulation would be the nil rate applying at the time they were brought into the country.

It is convenient at this stage to refer to some of the relevant statutory provisions. There was no dispute as to their relevance. Article 201 of Council Regulation 2913/92/ (the `Code') provides that:

"1. A customs debt on importation shall be incurred through –

(a) the release for free circulation of goods liable to import duties, or

(b) the placing of such goods under the temporary importation procedure with partial relief from import duties.

2. A customs debt shall be incurred at the time of acceptance of the customs declaration in question."

Article 214 provides:

"1. Save as otherwise expressly provided by this Code [and there was no suggestion before us that there was any such provision] and without prejudice to paragraph 2 [which is irrelevant in this appeal], the amount of import duty or export duty applicable to these goods shall be determined on the basis of the rules of assessment appropriate to those goods at the time when the customs debt in respect of them is incurred."

It was accepted by the Appellant that the goods were not released into free circulation until after 31 December 2004, that the customs debt was incurred after that date, and that the rate of duty appropriate at the time that debt was incurred was 12%. Thus the amount of the exigible duty on the basis of these provisions was to be determined by reference to 12%.

As we have said the Appellant did not dispute that the duty calculated in accordance with these provisions is the amount claimed by HMRC, some £27,000. But it says that it should not be liable to the duty because it was misled by HMRC. We should make it clear that our decision in this appeal is confined to the question of whether, given the facts as we find them, the 12% duty is due under the provisions of the relevant statutes. We do not address the questions of whether the Appellant has any domestic civil law right of compensation against HMRC, whether the Appellant could argue in a judicial review application that HMRC's action were so unfair as to amount to the abuse of their powers, or whether the facts might support some form of less formal redress such as that through the Adjudicator. All of these are outside our jurisdiction.

The Evidence and the Facts

We heard oral evidence from Chris Whitby, the Commercial Director of the Appellant and at the relevant time responsible for Customs matters, and from Andy Clode who was at relevant times an officer of HMRC who had a number of dealings with the Appellant. Mr Clode had retired from HMRC and was called, not by HMRC, but by the Appellant pursuant to a witness summons. No witnesses were called by the Respondents. We also had a bundle of copy documents We also accepted certain statements made by Mr Fawcus in the course of his presentation of the Appellant's case as evidence.

We find the following facts about which there was no dispute:-

(i) the Appellant is a family company whose business in the relevant period encompassed the import and wholesale of garments;

(ii) during 2004 the Appellant received into its Customs Warehouse the garments imported from Pakistan to which the appeal relates;

(iii) the garments were not released from the warehouse until after 31 December 2004;

(iv) had the Appellant appreciated that the change in the rates of duty applied to the time at which the goods were released into free circulation rather than the time they arrived in the UK, it would have released them from the warehouse before 1 January 2005. This would have given rise to a VAT cash flow cost, but the Appellant had at that time sufficient funds available to finance that cost;

(v) the Appellant made an application to run a Customs Warehouse in 2002. Before making the formal application, Mr Whitby had an informal and helpful discussion with Mr Clode and a colleague of his. Mr Clode and his colleague assisted the Appellant to complete the rather long application forms for this application;

(vi) that application as put on hold for about 12 months while the Appellant moved premises. It was recommenced in 2003 when Mr Whitby submitted the application forms. The application was considered by Mr Clode who wrote HMRC's letter of authorisation in 2003.

(vii) at the end of 2004 the Appellant was operating the Customs Warehouse in which the garments were then kept.

Mr Whitby's evidence was that at the time of the Warehouse approval Mr Clode held himself out to the Appellant as willing and able to give advice on Customs matters in the future. Mr Whitby told us that his recollection was that Mr Clode had said as much in the letter of authorisation. A copy of that letter was not before us. Mr Clode's evidence was that he did not think that the authorisation letter would have indicated that he was available to answer queries or that queries should be directed to him. He said that his recollection of Custom's practice at that time was to direct queries to advice centres and helpdesks. Nevertheless Mr Clode recalled receiving occasional phone calls from the Appellant and giving advice in response to the questions he was asked. It would, he said, be normal to expect the occasional phone call from such a taxpayer. Although Mr Clode was not regarded by HMRC as the officer responsible for the Appellant's affairs he told us that any communication which came in from the Appellant would generally go to him.

We conclude that in accordance with the best of HMRC's traditions Mr Clode made himself available to help the Appellant with its compliance and that he was in the relevant period the Appellant's usual contact at HMRC in relation to Customs matters: the Appellant sought his advice and he gave it.

Mr Whitby told us, and we accept, that he had become aware of the proposal to increase the rate of duty applicable to the garments the Appellant imported from Pakistan in early January 2005 when he saw an article in the Financial Times. In March 2005 there was a management meeting of the Appellant. Mr Fawcus attended but Mr Whitby did not. The minutes record that:

"We needed to confirm that goods imported from a duty free source that were changed to being dutiable at a later date, would not become dutiable when sold ex a Customs Warehouse after the status of the supplying country changed."

Mr Whitby told us that following that meeting he was instructed to follow up with Customs how the change would affect the Appellant, and what would be the effect of the change on the goods in the warehouse. He told us that in August 2004 he had a telephone call with Mr Clode in which he asked these questions. He kept no note of the call but told us that his recollection was that the key thing he learned was that what determined the rate of duty was the time of "importation" - which he understood to mean the time the goods came into the country (being the date reported on the entry document declared to HMRC). He was not advised in that conversation to consider releasing the goods into free circulation before the end of the year. He told us that Mr Clode did not elaborate on the meaning of "importation".

In early 2005 the Appellant released some of the garments from its Warehouse and made the appropriate returns to HMRC. These returns effectively assumed a nil rate of duty. The Appellant was informed that the 12% rate applied. Very shortly after learning this Mr Whitby wrote to HMRC (on 21 January 2006) saying:

"… I took advice on what effect the change would have on stocks held in our Customs warehouse at the changeover date. The advice I received was that the date of export was immaterial but that the point on which the goods became dutiable was when they were imported.

"It appears that we may have misunderstood the implication of this statement in that we have always understood the date of importation to be the HMCE entry date …"

HMRC directed the Appellant to write to Mr Clode. The Appellant wrote in the same words to Mr Clode on 25 January 2005. No reply was received until 16 January 2006 (a year later) when Mr Clode wrote refusing a repayment of the duty.

Mr Clode's evidence was that he had no recollection of a telephone call with Mr Whitby on the subject of the change in the rates of duty. It "may have happened but I don't remember it" he said. He could not recall giving advice about whether to transfer stock into free circulation. He did however have a vague recollection of a telephone call in early January 2005 which preceded Mr Whitby's letter of 21 January 2005. Mr Clode also told us that during the course of 2004 he was not aware of the JCCC paper referred to earlier in this decision or the change in the rate of duty. He said that he became aware of these matters when he was preparing himself in January 2005 for his audit visit to the Appellant.

We conclude that it is more likely that Mr Whitby did have a telephone conversation with Mr Clode in which Mr Whitby raised the question of the date which applied to determine the rate of duty and that Mr Whitby was given to understand that it was the date of "importation"; but that there was no discussion between Mr Clode and Mr Whitby as to what `importation' meant for those purposes. In particular we do not believe that it was made clear to Mr Whitby that "importation" meant for these purposes the release into free circulation from the Customs Warehouse.

Further Provision of the Regulations

Article 220 of the Code provides:-

"1. Where the amount of duty resulting from a customs debt has not been entered in the accounts … or has been entered in the accounts at a lower level then the amount legally owed, the amount of duty to be recovered or which remains to be recovered shall be entered into the accounts within two days of the [customs authorities becoming aware of the amount of the deficiency].

"2. Except [in presently irrelevant cases] subsequent entry in the accounts shall not occur where –

… (b) the amount of duty legally owed was not entered in the accounts as the 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 in force as regards the customs declaration."

Mr Collins treated these provisions as potentially providing relief to the Appellant and we consider them on that basis. He says that the relief in paragraph (b) is available only where:-

(1) there was an error by customs;

(2) the taxpayer could not reasonably have detected the error; and

(3) the taxpayer acted in good faith and was properly compliant with the legislation.

He accepted that the condition in (3) was satisfied, but the Commissioner's case was that (1) and (2) were not satisfied.

We were referred to the judgment of the Court of Appeal in Commissioners of Customs and Excise v Invicta Poultry Ltd (1998) The Times 1 June. That appeal centred on the expression "could not reasonably have been detected by the person liable for payment" in Article 220(2)(b) of the Code. In that case there had been an error on the part of Customs and Excise which had been communicated to and accepted by the taxpayer. The High Court had allowed an appeal against a tribunal decision that paragraph (b) was satisfied, on the grounds that the tribunal had asked: did the person liable act reasonably? rather than the far stricter question: could the taxpayer reasonably have detected the error? In the High Court Lightman J had held that the error would have been apparent to the attentive reader of the Official Journal of the EU. The judge held that in determining what could reasonably be detected by a taxpayer:-

"… the trader is only expected to derive from the Journal such knowledge as would be derived by an attentive reader. Where the complexity of the law is such as to defeat the reasonable efforts of such a reader, a greater knowledge or understanding may not be attributed to him: whether it will depend upon all the circumstances. The position accordingly is that, if the error of the customs authorities is apparent to an attentive reader from a reading of the Code or associated Community law, then the error could reasonably have been detected by the trader."

This approach was approved by the Court of Appeal which held that, the element of complexity being absent from the facts of that appeal, the correct question was whether the error was reasonably detectable by traders by reference to the Official Journal.

Mr Collins submits that if there was an error by Customs – if Customs did convey the impression that duty was payable by reference to the rate applicable when the goods entered the UK rather than when they were released into free circulation, then that error would have been readily detected by a reader of the Code and the Journal and accordingly that the condition in Article 220(2)(b) was not satisfied.

Mr Fawcus drew to our attention the words "whether or not it will depend on all the circumstances" in Lightman J's judgment, when dealing with the question as to whether the complexity of the law was such as to defeat the reasonable efforts of the trader. He says that this was a rapidly changing area, that the question of when tax is computed is not easy: and that even Mr Clode the Customs officer had not read the Official Journal.

Discussion

It seems to us that the test approved and explained in Invicta is a harsh one. There can be few traders who have the time even to include the Official Journal in their pile of bedtime reading. But the law seems clear: if the error would have been apparent to an attentive reader of the Code and the Journal then the condition is failed.

The complexity of the particular provisions or lack of certainty in their interpretation may be grounds for saying that an attentive reader would not have detected the error. If Customs made an error of interpretation that may be evidence that the provisions are complex or uncertain. Unfortunately it does not seem to us in this case that any error made by Mr Clode is evidence that the provisions were complex. Mr Clode simply did not read all of them. In fact as Mr Collins says the provision appear to be relatively simple: the debt is to be calculated by reference to the rate of duty applying when the goods were released into circulation. If Mr Clode gave a different picture to the Appellant then by reading the Code and the Journal the Appellant would in our view quickly have realised that Mr Clode was wrong.

We raised with Mr Collins the argument that the lack of any transitional provisions in the change in rate (a lack alluded to, we later found, in the JCCC papers) indicated a degree of conceptual complexity. Many changes in law are subject to detailed transitional rules. When goods are warehoused one might expect the effect to be deferment of duty rather than the deferment of the date of calculation of duty. The absence of a clear statement in the Code or the Journal about the effect of a change in the rate of duty in these circumstances raised a question in the mind of an attentive reader which would not be answered simply by reference to Article 201, 214 and the Journal. Mr Collins says that the Code could not have been more straightforward: the absence of transitional provisions is not complexity but simplicity. Reluctantly, we conclude that he is right: even if an expectation of transitional provisions would suggest ploughing through the rest of the Code and the Journal records relating to the change in duty to find that there were none, that is not truly evidence of complexity to justify an investigation into the circumstances of the trader.

It is with reluctance that we therefore conclude that Article 220(2) does not prevent the duty at 12% on the warehoused goods being payable by the Appellant. We are reluctant because (i) it seems to us that the Appellant acted reasonably, (ii) we understand that whilst Customs send notices of changes in duty to agents they do not send them to traders, and (iii) had the Appellant been directed to the JCCC notices it would have avoided the cost.

We dismiss the appeal. Our decision was unanimous. We would like to pay tribute to Mr Fawcus' clear and measured exposition of the Appellant's case.

CHARLES HELLIER

CHAIRMAN

RELEASED: 7 December 2007

LON 2006/7027