United Kingdom VAT & Duties Tribunals (Customs) Decisions

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Cite as: [2008] UKVAT(Customs) C248, [2008] UKVAT(Customs) C00248

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Brother International Europe Ltd v Revenue & Customs [2008] UKVAT(Customs) C00248 (24 January 2008)

C00248

CUSTOMS DUTIES — tariff classification of multi-purpose machines — revocation of BTIs and challenge to new BTIs — machines capable of printing, faxing, copying and scanning — whether automatic data processing machines within heading 8471, electrical apparatus for line telephony within heading 8517 or photocopying apparatus within heading 9009 — one machine found to be classified in heading 8517 and the remainder in 9009 — GIRs 1, 3, 6 applied — appeal allowed only in part

MANCHESTER TRIBUNAL CENTRE

BROTHER INTERNATIONAL EUROPE LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Colin Bishopp (Chairman)

Gilian Pratt

John Davison

Sitting in public in Manchester on 22, 23 and 24 October 2007

Hassan Khan, solicitor, for the Appellant

Owain Thomas, counsel, instructed by the Solicitor and General Counsel for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2008

DECISION

Introduction

These are three consolidated appeals by Brother International Europe Limited ("Brother"). By the first two, it challenges the revocation by the Commissioners of a large number of binding tariff informations ("BTIs") which Brother had obtained in respect of various "multi-function" machines manufactured by associated companies and imported by Brother into the European Union. The Commissioners considered that they should all be classified for customs tariff purposes as photocopiers. The third is against the issue by the Commissioners of further BTIs, in respect of products introduced since the revocations, all of which classified the machines as photocopiers. Despite Brother's representations to the Commissioners, and a demonstration to them of the functioning of the machines, the revocations and the new BTIs were upheld on review.

The Commissioners' position is that the machines fell properly within tariff heading 9009 (with full commodity code 9009 1200), which attracted customs duty of 6 per cent. Brother contends that the correct commodity code for some of the machines was 8517 2100 (facsimile machines) and for others 8471 6040 (printers), though some of the latter, it says, could also have been classified within code 8517 2100. All of those codes attracted customs duty at a nil rate. An amendment of the tariff with effect from 1 January 2007 has made it clear what, now, is the correct classification of such goods, but the amendment has no retrospective effect and cannot be taken as a guide to the correct interpretation of the tariff before it was made, and we therefore leave it out of account. The effect of the disputed decisions was that, for a period, the Commissioners required Brother to account for customs duty at 6 per cent on the relevant goods. Although, because of the amendment, the appeals are to some extent of historical interest, the amount of duty in issue is substantial.

We were not asked to consider each of the BTIs individually. Some related to products which, even at the date of revocation, were obsolete and no longer imported. Instead, the parties identified three broad categories of machine and eight representative machines within those categories. Our classifying those machines will enable them to agree on the correct classification of the remainder, and consequently to determine for themselves the duty, if any, which was properly payable. We saw each of the representative machines in operation at Brother's premises in a suburb of Manchester, where their design and function were described to us by one of the witnesses whose oral evidence we heard, Richard Thomas, who is employed by Brother as its product planning manager. We also had the oral evidence of Brother's United Kingdom managing director, Ichiro Sasaki, of Michael Galloway, a chartered electrical engineer who has acted as a consultant to Brother for several years and of Bevan Clues, also a chartered electrical engineer who had been instructed by the Commissioners as an expert. Brother was represented by its solicitor, Hassan Khan, and the Commissioners by Owain Thomas of counsel.

The products

The three categories identified by the parties were FAX, DCP and MFC machines. The first operate as facsimile machines and can also copy; those in the second category can print, copy and scan; those in the last can print, copy, scan and fax. Those in the second and third categories are designed to be connected to and controlled by a personal computer, although their copying and, in the case of the MFC machines, their fax functions may be used independently of the computer, that is, they may be used for those purposes even if they are not connected to a computer. The FAX machines are not designed to be connected to a computer. All of the machines are aimed at users in small offices or who work at home. They have the advantages, as Mr Richard Thomas explained, of combining more than one function in a single machine, and thus saving space, and of requiring only one supply of consumables (essentially printer toner, though other parts need occasional replacement).

All the representative machines are based, as Mr Thomas also explained, on one of two laser printer engines, one more sophisticated (and expensive) than the other. The printer engine can function as a printer alone, but all of the machines with we are concerned have one or more other functions added, hence their description as multi-function machines. The standard printer housing is modified, so that it can accommodate the additional function or functions, but the printer itself is not modified. Those machines which can send and receive faxes incorporate a modem (a contraction of modulator-demodulator, a device which, in order to send a fax, converts data into a form which can be transmitted over a telephone line, and which, in order to receive a fax, converts data so transmitted into a form which can be interpreted by a printer or computer). All of the machines operate by digital rather than analogue means.

The printer function is common to all the machines since it is necessary if they are to be used for copying and for receiving faxes and, of course, in the case of the DCP and MFC machines for printing. It is not necessary if the machine is used as a scanner, transferring the scanned image to a computer, or for sending a fax. A document to be copied or faxed is first scanned, converted to a digital file and transferred to the machine's memory from which it is sent, as the user requires, to the modem or the printer. The document may instead be scanned, converted to digital format and transferred to an attached computer which can interpret the digital file, for example by recreating the text, or manipulate it, by enlarging or cropping an image, and in other similar ways.

Factors of some importance in the parties' respective positions are the machines' resolution, measured in dots per inch ("dpi") and their maximum printing and copying speeds, measured in pages per minute ("ppm"). The higher the dpi figure, the greater is the detail captured by the scanner from an original document, and the greater is the detail transferred by the printer to the copy, or in the case of a printed document, the output print. The copying speed refers to the speed at which the device can produce multiple copies of a single original, the printing speed to the rate at which it produces the pages of a document sent to it by the computer to which it is attached; in each case the figure represents the speed at which pages are produced once the machine has warmed up and is working as fast as it is able. In practice the printing and copying speeds, so determined, are the same. All of the machines have a tray capable of holding a supply of blank sheets of paper ready for printing. Some are able to print on both sides of the paper—the suffix "D", for duplex, to the product code denotes this capability. Some also have an automatic document feeder, in which pages to be scanned, copied or faxed are placed and then fed automatically, one after the other, through the scanner. If the machine has no document feeder, the pages must be placed manually, one by one, on the scanner's glass surface. None of the machines is able to print, fax or reproduce copies in colour, though the scanners can in most cases send colour images to an attached computer.

The representative machines (identified by Brother's product code) and their essential features are:

FAX-2820

This product—the only example of a FAX machine and the only one of the representative machines not designed to be attached to a computer—is promoted primarily as a fax machine, and is able to send outgoing faxes and print incoming faxes. Its fax speed is 14400 bits per second ("bps"). It has a copier function with a resolution of 200 x 300 dpi and produces copies at up to 14 ppm. It has an automatic document feeder capable of holding 20 sheets. It cannot be used as a printer or a scanner, even though it contains both a printer engine and a scanning device. This model has recently been modified and now produces copies at only 11 ppm, but the modified model is not the subject of a BTI and we deal in this decision with only the unmodified model.

DCP-7010

This product is sold as a combined printer, copier and scanner. It contains a printer with a resolution of up to 2400 x 600 dpi and has a printing and copying speed of up to 20 ppm. Its copier function has a resolution of up to 300 x 600 dpi. It has a flatbed scanner with a resolution of up to 600 x 2400 dpi. It does not have an automatic document feeder, and cannot operate as a fax.

DCP-7025

This product is identical in specification to the DCP 7010, save that it also has an automatic document feeder capable of holding 35 sheets.

DCP-8045D

The specification of this product is similar to that of the DCP 7025, save that its copier resolution is up to 1200 x 600 dpi and its automatic document feeder is capable of holding 50 sheets. It is also capable of printing on both sides of the paper, but at a reduced speed of up to 9 ppm. If it prints on one side alone its speed is 20 ppm. The machine can accept more than one tray of paper for printing or copying (so that, for example, coloured or special paper may be used in addition to plain white paper).

MFC-7225N

This product's copier has a resolution of up to 300 x 200 dpi and a printing and copying speed of up to 20 ppm. Its printer has a resolution of up to 2400 x 600 dpi. Its scanner has a resolution of up to 200 x 400 dpi, and operates in monochrome only. It has an automatic document feeder capable of holding 20 sheets. Its fax speed is 33600 bps. The suffix N to the product code denotes that the machine may be connected to a network, though neither party suggested that this feature affected the correct tariff classification.

MFC-8220

This product has a copier resolution of up to 300 x 600 dpi and a copying and printing speed of up to 21 ppm. Its printer has a resolution of up to 2400 x 600 dpi. It has an automatic document feeder with a capacity of 30 sheets. Its scanner's resolution is 300 x 600 dpi, and it operates in monochrome only. It can fax at 33600 bps. This product too may accept more than one input paper tray.

MFC-7420

The copier resolution of this machine is up to 300 x 600 dpi and its printing and copying speed is up to 20 ppm. It has an automatic document feeder with a capacity of 35 sheets. Its printer has a resolution of up to 2400 x 600 dpi. Its scanner's resolution is 600 x 2400 dpi. It can fax at only 14400 bps.

MFC 8840D

This machine prints and copies at up to 20 ppm (it can print but not copy on both sides of the paper). Its printing and scanning resolutions are both 2400 x 600 dpi and its copying resolution 1200 x 600 dpi. Its document feeder can hold 50 sheets. It also faxes at 33600 bps. An optional additional input paper tray may be fitted.

In most of the machines, the original document to be scanned, copied or faxed is placed, either by the sheet feeder or manually, on a sheet of glass slightly larger than an A4 sheet of paper and remains stationary while the scanner head, a light-sensitive device of about the same width as the glass, passes beneath. The scanner head simultaneously illuminates the original and reads it, by interpreting the image or text as a series of dots on a white background, converting the series of dots into a digital file which can be understood by the machine or by the computer to which it is attached. Three of the machines(FAX-2820, MFC-7225N and MFC-8220(have no scanner glass but instead draw the original across a fixed scanner head. Despite that difference the scanners work in substantially the same way.

At the beginning of the hearing there appeared to be a difference between the parties about a number of matters of fact, but as the evidence was heard it emerged that, in reality, there was very little indeed in contention. In particular, the manner in which the copying function worked, that is whether it should be regarded as an optical system or in some other way, was initially seen as an area of dispute, and Mr Sasaki's evidence about the inner workings of the machines was directed to that issue. However, it emerged during the course of his evidence that in fact both parties agree that the system—whether the scanner head moves or is stationary—works by optical means, that is, each machine has a light-sensitive device and at least one lens; and that in order to make a copy the machines first capture an image of the original, translate it into digital format, and then reproduce it via an intermediate, that is, by "writing" the image by laser to a sensitised drum which then transfers that image, by means of heat-fused toner powder, to the paper.

The only other matters of evidence we need to mention are, first, that Mr Richard Thomas told us that the printer always accounts for the major part of the cost of a machine, although the proportion its cost bears to the total cost varies depending on the number and sophistication of the remaining components; and, second, that he explained that all the machines represent a compromise: the scanners, in particular, are adequate (in their resolution and speed) for most purposes, but would not satisfy a demanding user, requiring high definition copies or files for manipulation by computer. Such a user would probably buy a stand-alone scanner of superior quality. We accept too that a dedicated photocopier (that is, a machine designed to operate only as a copier) would be likely to be more sophisticated, in its speed and ability to copy originals of different sizes and to copy onto different sizes and types of paper, than these machines. Mr Clues observed that some of Brother's products are of higher specification than others of their kind but, as a class, they fall between the highest and lowest resolution machines on the market, and are adequate for most office purposes. That evidence was not challenged and we accept it. The scanner resolution is, in our view, of limited importance in this appeal, though the speed at which the machines are able to copy was a factor of considerable significance in the Commissioners' reasoning leading to the revocation of the BTIs and their conclusion that the correct classification was in heading 9009.

The law

Products entering the European Union are classified for the purposes of the imposition of customs duties by reference to Council Regulation (EEC) 2658/87 and Annex 1 to that Regulation, commonly known as the Combined Nomenclature, or CN. The CN is amended and republished each year. It is divided into sections, each containing one or more chapters, and each chapter is divided into headings, in turn divided into subheadings. The European Union is a contracting member of the World Customs Organisation (WCO) and the chapters, headings and subheadings of the CN reproduce those of the WCO's Harmonised Commodity Description and Coding System (usually abbreviated to Harmonised System or HS). It is a requirement of membership of the WCO that member countries and customs unions (as the EU is) must adopt the HS without modification, and that they must interpret it in accordance with the General Rules for the Interpretation of the HS, or GIRs.

Each chapter, heading and subheading of the HS has a two-digit code. The codes are concatenated, so that a subheading is identified by six digits, the codes of the chapter and heading in which it is found, followed by its own code. The European Union also divides the subheadings, but will be necessary to make only brief reference to the sub-divisions for the purposes of this appeal. All the following tariff references are to the CN as it was before the amendment which took effect on 1 January 2007.

Brother's preferred classification of the first of the representative machines, FAX-8280, is within heading 8517, which included

"Electrical apparatus for line telephony or line telegraphy, including line telephone sets with cordless handsets and telecommunications apparatus for carrier-current line systems or for digital line systems; videophones."

More specifically, it contends that subheading 8517 21, "facsimile machines", is appropriate.

Its preferred classification for all the remaining machines is within heading 8471:

"Automatic data-processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included."

It contends that one subheading of that heading is relevant. That subheading, 8471 60, included "Input or output units, whether or not containing storage units in the same housing". The subheading was, again, divided in the CN and at the relevant time the full commodity code 8471 6040 included "printers". (That was the code in the 2005 tariff—in the 2006 tariff it became 8471 6020 but there was no amendment to the text.) We observe in passing that there was an additional commodity code, 8471 9000, which included "scanners". Brother maintains that the machines without a fax function came within the former code, that is 8471 6040 in the 2005 tariff. It contends that the machines which are capable of printing, copying, scanning and faxing (the MFC machines) should be classified either within that code or, alternatively, with the FAX machine in code 8517 21.

The Respondents argue that all the machines came within heading 9009, which read:

"Photocopying apparatus incorporating an optical system or of the contact type and thermo-copying apparatus."

More specifically, they maintain that the relevant subheading was 9009 12: "Electrostatic photocopying apparatus operating by reproducing the original image via an intermediate onto the copy (indirect process)."

None of the classifications contended for is obviously correct or obviously wrong. A fax machine can plainly come within heading 8517, as the presence within that heading of subheading 8517 21 indicates; and similarly heading 8471 may be appropriate for products which contain a printer, a scanner or both. But, whatever their other functions, all the products also operate as photocopiers incorporating an optical system and using an intermediate, and heading 9009—specifically subheading 9009 12—appears also to be a candidate for the correct classification, provided the system we described at paragraph 10 above is an "indirect process", a point to which we shall return.

Every commodity must be classified in one, and only one, subheading of the HS and CN. The classification process is entirely objective; as the Court of Justice said in Holz Geenen GmbH v Oberfinanzdirektion München (Case C-309/98) [2000] ECR I-1975, at paragraph 14:

"It is settled case law that, in the interests of legal certainty and for ease of verification, the decisive criterion for the classification of goods for customs purposes is in general to be sought in their objective characteristics and properties as defined in the wording of the relevant heading of the CN. The explanatory notes drawn up, as regards the CN, by the Commission and, as regards the HS, by the Customs Co-operation Council [now the WCO] (the HSENs) may be an important aid to the interpretation of the scope of the various tariff headings but do not have binding force."

The Court has made similar comments in many other cases. It has also indicated, on several occasions, that use or intended use may be a significant factor. In Ikegami Electronics (Europe) GmbH v Oberfinanzdirektion Nürnberg (Case C-467/03) [2005] ECR I-2389, at paragraph 23, it said that

"… the intended use of a product may constitute an objective criterion in relation to tariff classification if it is inherent in the product, and such inherent character must be capable of being assessed on the basis of the product's objective characteristics and properties."

Where, as here, the correct classification(after taking account of the products' objectively determined characteristics(is not obvious, it is necessary to apply the GIRs in order to resolve the difficulty. The Explanatory Notes to the HS (HSENs) and to the CN (CNENs) may be of assistance, as the Court said in Holz Geenen, and they are often resorted to in case of difficulty, but the GIRs are of binding effect. They form part of the HS and, correspondingly, of the CN. There are six GIRs, of which the most important is Rule 1, since it sets out how the GIRs as a whole are to be applied. It reads:

"The titles of sections, chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relevant section or chapter notes and provided such headings or notes do not otherwise require, according to the following provisions."

Rule 6 adopts the same approach at subheading level:

"For legal purposes, 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 and, mutatis mutandis, to the above rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this rule, the relative section and chapter notes also apply, unless the context otherwise requires."

Thus, before applying any other rule, it is necessary to examine the headings and subheadings which fall for consideration and any section and chapter notes of relevance. The terms of the headings, as we have indicated, do not, alone, provide an answer and it is therefore necessary to consider the notes. Chapters 84 and 85 (favoured by Brother) fall within section XVI of the CN. Two of the section notes are of importance. Note 1(m) provides that "This section does not cover … articles of chapter 90." The note suggests, though perhaps no more, that one must first consider whether a commodity falls within chapter 90 and that only if it does not may the chapters of section XVI be considered, but that approach was not urged on us. Section note 3 provides that:

"Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function."

Note 5 to chapter 84, so far as relevant, is as follows:

"(B) Automatic data processing machines may be in the form of systems consisting of a variable number of separate units. Subject to paragraph (E) below, a unit is to be regarded as being a part of a complete system if it meets all of the following conditions:

(a) It is of a kind solely or principally used in an automatic data processing system;

(b) It is connectable to the central processing unit either directly or through one or more other units; and

(c) It is able to accept or deliver data in a form (codes or signals) which can be used by the system.

(C) Separately presented units of an automatic data processing machine are to be classified in heading 8471.

(D) Printers, keyboards, X-Y co-ordinate input devices and disk storage units which satisfy the conditions of paragraphs (B)(b) and (B)(c) above, are in all cases to be classified as units of heading 8471.

(E) Machines performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings."

The parties are agreed that all the DPC and MFC products satisfy paragraph (B). They disagree on the application of paragraph (E); Brother contends that paragraphs (C) and (D) point clearly to classification within heading 8471 and that paragraph (E) is of no application, while the Commissioners maintain that, because of the reference to it in paragraph (B), paragraph (E) overrides that which precedes it and, since the machines have the specific function of photocopying, which (as Brother accepts) is not data processing, they are to be classified in the heading appropriate for that function, namely 9009.

There are no relevant section or chapter notes affecting classification within heading 9009.

The parties also relied, though in differing ways, on GIR rule 3 (the remaining rules are of no assistance). Rule 3, so far as material, is:

"When … goods are prima facie classifiable under two or more headings, classification shall be effected as follows:

(a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods;

(b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable;

(c) When goods cannot be classified by reference to 3(a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration."

The revoked BTIs were in headings 8471 and 8517 (depending upon the machine) and, before the revocation, the Commissioners had been in agreement with Brother that those were the correct classifications. The revocations, and the allocation of heading 9009 to the more recent BTIs, were prompted by two Commission Regulations, 517/99 and 400/06. The Regulations were made in accordance with article 9 of Council Regulation 2658/87. That Regulation permits the Commission to make regulations in order, among other things, to effect "amendments to the combined nomenclature intended to adapt it to take account of technological or commercial developments or aimed at the alignment or clarification of texts".

It is necessary to begin the description of the effect of these regulations with an earlier Commission Regulation, 2184/97. It placed a "multi-function facsimile machine essentially consisting of a modem, a scanner [and] a printing device" within subheading 8517 21, after applying rules 1 and 6 of the GIRs, note 3 to section XVI and the wording of the heading and subheading, because "The telecommunication (facsimile) function is the principal function of this item of equipment". The machine in question was able to copy at 2 or 3 ppm. Regulation 517/99 dealt with a "multifunctional apparatus (so-called 'digital copier') capable of performing the following functions: scanning, printing, faxing, photocopying (indirect process)". In this case GIR rules 1, 3(c) and 6 were used, together with note 5(E) to chapter 84, and the reason given for concluding that subheading 9009 21 was appropriate was that "The apparatus has several functions none of which are considered to give the product its essential character". The machine could copy at 30 ppm. The last Regulation, 400/06, classified a "multifunctional apparatus capable of performing the following functions: scanning, laser printing, laser copying (indirect process)" also within subheading 9009 21, by applying the same provisions as Regulation 517/99 and for the same reasons. This machine could copy at 40 ppm. All three machines were capable of being connected to a computer, though this factor does not appear to have been regarded as a relevant consideration.

Submissions

Brother's case, in relation to the FAX machine, is that, by the operation of section note 3 and GIR rule 3(b), subheading 8517 21 is appropriate. The machine's "principal function" (the term used in note 3) and its "essential character" (GIR rule 3(b)) is as a fax machine. Because it incorporates a scanner, necessary for sending a fax, and a printer, necessary for receiving—or at least reproducing—a faxed document, it has the capability of copying; but that capability is no more than a by-product of the true purpose of the machine, to be used for sending and receiving faxes. Its primary purpose is plainly as a fax machine—no customer would buy it, or consider it, as a copier with a supplementary fax capability. The purpose to which a commodity would be put was a material factor (see Ikegami Electronics, mentioned above) and, in this case, it was determinative. Even if that were not so, GIR rule 3(c) pointed to the same answer: heading 9009 did not merit equal consideration with heading 8517 since copying was only a by-product.

Its argument in respect of the remaining machines was that the printer engine was the determining component: the primary use of the machines was for printing, and all the other functions were added to the printer. The printer made it possible to use the machines for copying and, in the case of the MFC products, for receiving faxes, and it was the core of the machine, without which the other functions, save for scanning to a computer, would not be available. The cost of the printer exceeded the cost of the remaining functions, a fact of some importance. As the Court of Justice pointed out in Turbon International GmbH v Oberfinanzdirektion Koblenz (Case 250/05) (judgment 26 October 2006, hitherto unreported), a second reference in proceedings which had already resulted in a judgment reported under the same name at [2002] ECR I-1389,

"20 Since the product at issue [in that case an ink cartridge for use in a printer] is composed of different materials and neither of the two subheadings mentioned above is more specific than the other, the sole provision to which recourse may be had for the purpose of classifying the goods is general rule 3(b) (see, to that effect, Case 253/87 Sportex [1988] ECR 3351, paragraph 7).

21 Under that general rule, in carrying out the tariff classification of goods it is necessary to identify, from among the materials of which they are composed, the one which gives them their essential character. This may be done by determining whether the goods would retain their characteristic properties if one or other of their constituents were removed from them (Sportex, paragraph 8; se also, to that effect, C-288/99 VauDe Sport [2001] ECR I-3683, paragraph 25, and Turbon International, paragraph 26).

22 In the same way, as stated by paragraph VIII of the explanatory note to the HS on general rule 3(b), the factor which determines the essential character of the goods may, depending on the type of goods, be determined for example, by the nature of the material or component, its bulk, quantity, weight or value, or the role of a constituent material in relation to the use of the goods."

Mr Khan relied also on what he maintained was the relatively poor performance, in resolution and speed, of the scanner and copier functions (relatively poor, that is, in comparison with the printer). As we have indicated, we are not persuaded that the copying and scanning resolutions of the machines, when compared to others on the market, are inferior and we treat the machines' performance in that respect as a neutral factor.

Mr Khan complained that the Commissioners had concentrated, to the exclusion of other more valid criteria, on the copying speed of the machines, taking a speed of 12 ppm—of which all were capable—as an indication that the machines should in each case be regarded as copiers. The review letters indicate that the Commissioners did indeed focus on the copying speed, basing their doing so on Regulation 517/99, the later conclusion of the Customs Code Committee of the Commission (on 3 March 2005, TAXUD/555/2005-EN) that "an indicator for distinguishing between fax machines and digital copiers could be the number of pages per minute" and its subsequent statement in Annex VII to the same document that a monochrome copying speed of 12 ppm or more allowed classification in heading 9009. He argued that fixing on an arbitrary speed of 12 ppm took no account of advances in technology and the general increase in speed of all such machines, and that the Commissioners were in any event wrong to apply Regulations 517/99 and 400/06 to the relevant products as it was apparent from the Regulations that the machines which led to their being made had multiple input trays and were designed to be floor-standing, as conventional office photocopiers, and not placed on a desk or table like Brother's machines. He also pointed out that the validity of Regulation 400/06 was the subject of a reference currently before the Court of Justice, and one should therefore apply it with some caution. Moreover, the Customs Code Committee's pronouncements, though an aid to classification, have no legal force (see Firma Rolf H Dittmeyer v Hauptzollamt Hamburg-Waltershof (Joined Cases 69 & 70/76) [1977] ECR 231). In this case the Committee had sought to amend the CN (by adding a criterion to it), which it could not lawfully do: FTS International BV v Belastingdienst-Douane West (Case C-310/06), judgment 18 July 2007, hitherto unreported, paragraph 25.

He argued too that heading 9009 was not appropriate for digital copiers, but covered only analogue machines, because the system used by digital copiers was not an "indirect process" in the terms intended by the wording of heading 9009. He took us through a number of debates, at HS and Commission level, on this topic and it is apparent that there has indeed been a good deal of uncertainty on the subject. Courts in the Netherlands and Poland performing a role similar to that of this tribunal have decided that digital copiers are excluded from heading 9009 and, he urged upon us, they were right to do so. He maintained that, in Rank Xerox Manufacturing (Nederland) BV v Inspecteur der Inverroechten en Accijnzen (Case C-67/95) [1997] ECR I-05401, the European Court of Justice had wrongly concluded that a digital copier could be classified within heading 9009 because it had misunderstood the technical characteristics of the machine, and that we should distinguish the case. Regulations 517/99 and 400/06, too, proceeded on an incorrect technical basis.

Finally, Mr Khan disputed the Commissioners' assertion that chapter note 5(E) excluded the DCP and MFC machines from heading 8471. He relied on the comment by the Court of First Instance in Hewlett-Packard France and Hewlett-Packard Europe BV v Commission of the European Communities (Joined cases T-133/98 and T-134/98) [2001] ECR II-0613, at paragraph 39, that

"… it is clear from note 5(E) that the type of machine which is excluded from heading 8471 is an entity in its own right performing a specific task which could also be performed, albeit more laboriously, without an automatic data-processing machine …"

That description, he said, had no application to the machines with which we are concerned; the DCP and MFC machines do not incorporate an automatic data-processing machine, but are units of an automatic data-processing machine which, according to note 5(C), are to be classified in heading 8471.

The essence of the Respondents' case is that the machines perform several functions, none of which gives them their essential character, with the consequence that they are, prima facie, classifiable in more than one heading. GIR rule 3(c) necessarily requires that they be classified in heading 9009. It is not possible to say that any heading gives the "most specific" description; thus rule 3(a) does not apply. Similarly, it cannot be said that any one function gives the machines their essential character; hence rule 3(b), too, cannot determine the correct classification. Rule 3(c), however, is directly in point: heading 9009 merits consideration at least equally with headings 8471 and, in the case of the fax-only machine, 8517. It is last in numerical order and must therefore offer the correct classification.

Mr Thomas contended that there was no basis for a conclusion that the European Court of Justice had erred in Rank Xerox. He acknowledged that there had been debate and, in some quarters, doubt about whether digital copiers could be properly classified within heading 9009, but any doubts had been resolved by the Court in Rank Xerox and by the Regulations, which likewise did not distinguish between digital and analogue machines.

The Commissioners do not accept that there can be any doubt about the validity of Commission Regulations 517/99 and 400/06. The Commission has, they say, a clear power to make regulations of this kind, and frequently does so. Commodities similar to those dealt with by a Regulation should be treated in the same way: see V-Tech Electronics (UK) plc v Customs and Excise Commissioners [2003] EWHC 59 (Ch). They maintain that all the representative machines in this case are similar to the machines referred to in the Regulations, and that the reasoning given in the Regulations (which we have set out above) is of equal application here. Mr Thomas accepted that comparison of different commodities required care but, he said, it was clear that there was no difference of substance, and of a kind which might dictate different classification, in this case. We must, therefore, apply the Regulations and follow the decision in Rank Xerox and, having done so, conclude that heading 9009 is correct.

At one point it appeared that the Commissioners' position in relation to the speed at which a machine could copy was dogmatic: if it could produce copies at or in excess of a particular speed—at first the Commissioners took 16 ppm, later reduced to 12 ppm—it was, for that reason alone, to be classified in heading 9009 as a photocopier, provided only that it incorporated an optical system. Although Mr Thomas did not altogether disavow such an approach, it emerged that the Commissioners' position was not quite so stark. The view they take, as we understood it, was that a speed of 12 ppm amounts to a full copying functionality; thus heading 9009 is the appropriate classification, either because the machine is properly to be regarded as a photocopier rather than something else or, if it has several functions, copying deserves at least equal consideration with the other functions and, by operation of GIR rule 3(c) or chapter note 5(E), classification within heading 9009 is required.

Conclusions

We found much of the uncertainty about the inclusion of digital photocopying apparatus within heading 9009 puzzling. GIR rule 1 makes it clear that one must look first at the terms of the headings and any relevant section or chapter notes. Nowhere in the terms of heading 9009, in sub-heading 9009 12 or in the section and chapter notes is there to be found any indication that a distinction is to be drawn between analogue and digital machines, nor do we understand the basis on which it is asserted that such a distinction is to be inferred. Mr Sasaki agreed as he gave his evidence that, leaving the question of its application to digital machines to one side, the terms of heading 9009 aptly described the copying process of the relevant machines. The European Court of Justice seems to have found no difficulty in concluding, in Rank Xerox, that digital machines could come within the heading; indeed, it appears to have taken the view that the fact that the machines under consideration there operated by digital means was irrelevant. That is also our view. We likewise see no basis on which it might be said that Regulations 517/99 and 400/06 are invalid because they fail to recognise, as a factor relevant to tariff classification, the difference between analogue and digital machines.

We do not accept the Commissioners' position in relation to copying speed in its entirety. We can certainly agree that a given copying speed may be used as a yardstick and 12 ppm might be the right speed to use, arbitrary though it is. The argument that machines capable of copying at that or a higher speed may be classifiable in heading 9009 is in our view sound; but we cannot agree that any machine, regardless of its other characteristics, which has that capability can be classified only in that heading. The argument elevates a helpful criterion into a determinative factor, and is contrary to the terms of GIR rule 1.

At first sight the judgment of the Court of Justice in Rank Xerox suggests that a fax machine which is capable of copying is to be classified in heading 9009, at least if its copying ability is comparable to the fax function. However, while we hesitate to distinguish a Court of Justice decision, we are satisfied in this case that we may do so. Although heading 8517 was mentioned, even set out, in the judgment, the true competition in the case was between headings 8472 and 9009. Heading 8472, as the Court indicated, includes office machinery of a mechanical rather than electronic nature. It is clear, even from the limited description of the machines given in the judgment, that they must inevitably be classified in heading 9009 in preference to 8471 (assuming heading 9009 includes digital equipment) and that, in order to have any prospect of avoiding classification in heading 9009, Rank Xerox was obliged to resort to heading 8472. Thus the issue in that case was not identical to the issue in this.

It is a matter of general knowledge that any fax machine, apart perhaps from primitive early models, is capable also of copying. Mr Richard Thomas's evidence to that effect was, moreover, unchallenged. If the Commissioners are right in contending that, because it can copy at more than 12 ppm, a fax machine must be included in heading 9009, it is difficult to understand why subheading 8517 21, which read simply "facsimile machines", remained as it was in the CN. There was no indication that the subheading was restricted to machines of limited speed, and there were no section or chapter notes, and no HSEN or CNEN, which might point to the same conclusion. Brother's product functions as a copier because it is a fax machine; it cannot be said to function as a fax machine because it is a copier. Whether one considers the product's objective characteristics or applies GIR rules 1, 6 and 3(a), the conclusion is in our view inescapably the same, that the correct subheading, the one providing the most specific description, is 8517 21. There is no need to apply rule 3(c), but even if one did, it is in our view clear that heading 9009 does not merit equal consideration with 8517. We do not consider that Regulations 517/99 and 400/06 apply to the FAX product since the reasoning given in those Regulations—that none of the functions gives the product its essential character—is not apposite; it is the fax capability which gives this product its character. We do not, therefore, consider the FAX-2820 machine to be similar to the products dealt with by the Regulations. We should add that Mr Clues agreed, as he gave his evidence, that the product had the characteristics of a fax machine. We are accordingly satisfied that the Commissioners were wrong to revoke the BTI relating to this machine. This is, in our view, an example of a case in which copying speed cannot dictate classification within heading 9009.

However, we are satisfied in relation to the DPC and MFC machines that the Commissioners are right and that, by operation of GIR rules 1, 6 and 3(c), the correct classification is in that heading. It is perfectly true that all the products contain a printer, that if the printer were removed the machines would be capable only of scanning and, in the case of the MFC machines, sending a fax, and that at first sight the judgment in Turbon International suggests that the products are properly classified as printers. However, the Court was merely considering means of arriving at the correct classification, and its use of the word "may" in the second sentence of paragraph 21 indicates that the method described was no more than one possible means of determining the essential, objective characteristics of a product. Here, the products are designed, sold, and intended to be used for multiple purposes: printing, scanning, faxing and copying. One has only to peruse the promotional material produced by Brother to see that no feature is emphasised over the others. The products are not printers which happen to copy, for example, but machines which are expressly designed for multiple purposes. The fact that the machines are manufactured by adding components to a printer is not necessarily a guide to the essential character of the end product, and in this case we are satisfied that it is not. Section note 3 therefore does not help.

Even leaving aside the Commissioners' contention that chapter note 5(E) excludes the products from heading 8471, it is in our view clear that neither rule 1 nor rule 6 of the GIRs is sufficient to determine the correct classification and it is necessary to proceed to rule 3. No one description is "most specific", and no one component gives these products their "essential character"; thus rules 3(a) and (b) are excluded and one passes to rule 3(c). Heading 9009 is, obviously, the last in numerical order of those which merit equal consideration and the products other than the FAX machine must correspondingly be classified in that heading. The Commission Regulations support that conclusion, but in our view it can be reached without resort to them. For completeness we add that we reject Mr Khan's contention that chapter notes 5(B) and (C) apply—they seem to us to be of no application at all—and accept the Commissioners' contention that the machines "perform a specific function other than data processing", namely copying and, in the case of the MFC machines, faxing, and that, by operation of note 5(E) and GIR rule 3(c) they must be classified in heading 9009. That conclusion is, moreover, consistent with the decision of the Court of Justice in Rank Xerox which, in this context, is indistinguishable and binding on us. We observe too that Regulations 517/99 and 400/06, which, so far as they are in point, are also binding on us, refer to and rely on note 5(E).

The appeal is allowed in relation to the FAX machine, and all others of which it is representative, but dismissed in relation to the DCP and MPC machines. We give the parties liberty to apply for a direction in respect of costs.

COLIN BISHOPP

CHAIRMAN
Release Date: 24 January 2008

MAN/05/7047