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 >> Terex Equipment Ltd v Revenue & Customs [2008] UKVAT(Customs) C00250 (23 January 2008)
URL: http://www.bailii.org/uk/cases/UKVAT/Customs/2008/C00250.html
Cite as: [2008] UKVAT(Customs) C250, [2008] UKVAT(Customs) C00250

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

Terex Equipment Ltd v Revenue & Customs [2008] UKVAT(Customs) C00250 (23 January 2008)

C00250

CUSTOMS DUTIES – Inward processing relief – Customs debt – Unlawful removal of goods – Export declaration – Wrong Customs Procedure Code entered in Box 37 – Whether use of wrong CPC constitutes unlawful removal of goods for purposes of Article 203 of Code and/or Article 865 of Implementing Regulations – Questions referred to ECJ

CUSTOMS DUTIES – Goods under suspension – Inward processing relief – Re-export – Prior notification – Whether prior notification under Article 182(3) duly given to Customs authorities – No

CUSTOMS DUTIES – Customs declaration – Amendment – Box 37 erroneously uses export CPC where suspension goods were re-exported – Whether actual declaration should be amended and correct CPC substituted – Article 78(3) of Code

CUSTOMS DUTIES – Remission – Erroneous declaration – Obvious negligence - Should Customs' debts arising by operation of Article 203 of Code and/or Article 865 IR should be remitted under Article 239 of Code

CUSTOMS DUTIES – Customs debt – Goods under inward – Processing procedure – Non-fulfilment of obligation – Debt claimed under Article 204 – Whether time-barred – Whether excluded by reason of Article 859 IR – Issues referred to ECJ

THE EDINBURGH TRIBUNAL CENTRE

TEREX EQUIPMENT LIMITED Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: SIR STEPHEN OLIVER QC (Chairman)

Sitting in public in London on 19 June 2007 and 20-23 November 2007

Jeremy White, counsel, instructed by Ernst & Young LLP, accountants, for the Appellant

Sarah Moore, counsel, instructed by the general counsel and solicitor for HMRC, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

Terex Equipment Ltd ("Terex") appeals against two disputed decisions of HMRC. The first appeal challenges the legality of a post clearance demand dated 23 January 2003 in the sum of £8,770,089.24. The second appeal challenges the refusal by HMRC to remit the said sum under the provisions of Article 239 of Council Regulation 2913/92 ("the Code").

The appeal relates to import duties which, HMRC claim, have arisen as the result of the exportation of machines and parts between January 2000 and July 2002.

Background

Terex manufactures articulated and rigid haulers and scrapers. For use in its manufacturing business Terex imports numerous parts including engines, valves, bearings, transmission assemblies, axles, tyres and many other items required to manufacture haulers and scrapers. The imported goods and other parts of EC origins are subject to major manufacturing within Terex's premises at Motherwell. The finished products are sold in kit form to buyers located inside and outside the Customs territory of the Community. Terex also supplies individual parts to service existing machines.

Terex have been authorised for inland processing relief ("IPR") for many years and have submitted IPR returns, on C&E 812 forms, throughout the period to which this appeal relates.

The customs debt is the aggregate of the duties on imports of goods held in suspense under the IPR regime which, it is said by HMRC, became chargeable when, following processing, those goods were exported as compensating products to destinations outside the customs territory of the Community. The freight forwarders acting for Terex or for third party "ex-works purchases" from Terex used the wrong customs procedure code ("CPC") serial numbers on the export-declarations relating to those compensating products, i.e. the kits of haulers and scrapers. Instead of using a number in the 31 51 series, which would have correctly signified the "re-exportation" of goods entered to IPR suspension, they used the CPC serial number 10 00, which wrongly signifies "export". Customs recognise that Terex, through their freight forwarders, had mistakenly used the wrong CPC serial numbers in Box 37 of the C88 single administrative document ("SAD") (headed "PROCEDURE").

Matters in dispute

HMRC's case is that the mistaken use of CPC serial number 10 00 resulted in the kits of haulers and scrapers being unlawfully removed from customs supervision, thereby triggering the customs debt incurred on importation by virtue of Article 203 of the Code. For this purpose customs rely on Article 865 of Regulation 2454/1993 of 2 July 1993 ("the Implementing Regulations", referred to shortly as "IR"). The presentation of the export declaration with the "export" CPC entered in Box 37 of the SAD was, say customs, to be considered as removal of the kits of haulers and scrapers from customs supervision because the act of presentation had had "the effect of wrongly conferring … the customs status of Community goods" on those kits of haulers and scrapers. Terex challenge the customs' interpretation of Article 865 IR.

Following receipt of the post clearance demand of 23 January 2003, Terex applied for relief under Article 78(3) of the Code which allows for revision of an export declaration "where the customs procedures concerned have been applied on the basis of incorrect or incomplete information", and enables the customs authorities to regularise the situation. Terex asked HMRC to correct their erroneous use of the export CPCs where the customs procedure concerned was and always had been IPR of which "re-exportation" was an authorised use. Customs refused the application saying that Terex had mistakenly opted for the export procedure. By doing so they had produced the effect of transforming the kits of haulers and scrapers from their legal status of non-Community goods under IPR suspense into Community goods because only Community goods qualified for the procedure of export. Moreover, said HMRC, by using a CPC serial number 10 00 Terex had failed to give prior notification of re-exportation of the goods; and while they accept that the use of the 31 51 series would have amounted to prior notification, it will be impossible to effect a regularisation of the situation in the absence of prior notification. Terex challenge those conclusions.

When Terex sought remission of the debt, HMRC's response was that Article 239(1) prevented this because the situation in which the debt arose "resulted from circumstances in which … obvious negligence" was attributable to Terex.

Following extensive evidence and full arguments I have reached the conclusion that HMRC are wrong on all those points.

HMRC's fall back position is that a customs debt arose under Article 204(1)(a) of the Code. One of the obligations arising from the use of the procedure (IPR) under which the imported goods were placed has not been fulfilled. Prior notification (under Article 182 of the Code) of the re-exportation of the goods, as compensating products in the form of kits of haulers and scrapers, was not properly given. While the goods were actually re-exported, the customs declaration (the SAD contained in Form C88) containing the wrong CPC numbers, did not amount to prior notification.

The IPR suspension authorisation given to Terex

The authorisation in effect at the start of the period to which the alleged debt relates was given by letter from the UK customs authorities of 24 June 1999. The letter identifies the goods covered by the authorisation and places a cap on the value of goods which at any time may be held under suspension. The authorised compensating products include haulers and scrapers and the approved processing operations cover "manufacture of vehicles" at Terex's premises at Motherwell. The approved method of identification is by "serial numbers". The "goods must be exported in the form of processed goods or in an unaltered state within a period of eight months …": (that obligation is taken from Article 118 of the Code and Article 559 IR). Terex is required to set up and maintain monitoring systems: these relate to the entry of goods to IPR. Management checks for controlling the IPR system are to be in operation. Paragraph 15 of the authorisation letter contains the following:

"(ii) Your records must indicate, at all time, the quantity of import goods as per Annex A entered to IPR (including proof of entry, entry numbers and date), all compensating products both main and secondary …, how the compensating products were disposed of and all particulars needed for the monitoring of the approved operations."

Paragraph 15(iv) requires Terex to make a monthly suspension return (C&E 812). Terex is authorised to release goods for free circulation by submitting a diversion entry on Form C88. The authorisation states in paragraph 19 that it is subject to the conditions set out in the Code and in the IRs.

The next IPR authorisation was given by letter of 8 June 2000. There were no significant changes from the 24 June 1999 authorisation. The June 2000 authorisation was followed by an authorisation of 10 September 2001 covering the period 1 July 2001 to 30 June 2002. A significant addition to this authorisation letter is the direction, among others, in paragraph 1:

"On your disposal documents you must use the appropriate CPC as per Annex E of Note 22".

The authorisation requires Terex' records to indicate at all times the quantity of the goods entered to IPR and the disposal of all compensating products: Terex, as before, is required to lodge periodic C&E 812 returns.

The Customs authority's notification of requirement to use CPC

Notice 221 of August 1994 asked the question, in paragraph 62 – "How can I dispose of the processed goods without having to pay the suspended duty, import VAT and compensatory interest?" It goes on to give the following advice:

"When you import goods to IPR suspension or buy suspension goods from another trader, you accept responsibility for the unpaid duty and import VAT on them. You can clear this debt in a number of ways. The options are:

"(a) Exporting outside the Community.

…

You must complete Form C88 (SAD) and present it to Customs at the office of export before the goods are shipped.

Quote a Customs Procedure Code in the "31 51" series in Box 37. Volume 3, Part 2 of the Tariff tells you how to fill in the form."

Appendix E1 of Volume 3 of the Tariff contains the CPCs and states that 31 51 00 covers "Re-export of goods entered to IPR supervision".

Those extracts (in paragraph 13) indicate that the authorisation letter of 10 September 2001 was not wholly accurate in its direction (in paragraph 12) as to the use of the appropriate CPC. I infer that the writer of the authorisation letter took it for granted that the people at Terex knew the drill.

The C&E 812 notification

This was compiled and submitted on a monthly basis. It provided the means by which Terex declared its liability. David Cunningham, general accounts manager of Terex had responsibility for the return. Thomas Wilson, a Customs officer who gave evidence, conducted validation checks.

Thomas Wilson described the C&E 812 as "a bridge with four pillars. The first pillar is the declaration of imports. That pillar (Section 1 of the Form) sets out a full account of the entries to IPR for the period. During the relevant period Terex was, with limited success, using the "Riccardo" accounting system to provide it with information relating to entries. The second pillar (Section B in Form 812) records the production of manufactured goods; it contains an account of the materials for all finished units and it deducts those parts from the opening balance. The third pillar is "Disposals eligible for duty relief, showing individual entries under the heading "Method of Disposal" for "export from the EC." This enables the customs authority to audit the goods leaving suspension in circumstances in which the trader does not have to pay the suspended duty, e.g. re-exports. The final pillar covers goods diverted to free circulation; it is in respect of these that duty becomes payable. Thomas Wilson said of the goods entered in Section C that, although Form 812 directed that the exporter should produce export C88s with the CPC code in the 31 51 series, he had not required the production of these C88s. His evidence shows four explanations for this. First Terex were authorised to make simplified returns. Second, the Guidance Manual produced by the UK customs authorities for use of their own staff did not require that they be checked. Third, the other information in the IPR return provided enough information to establish Terex's overall liability to import duty. Fourth, there had been massive errors on "every avenue of import". As I understand the position, Terex' liability to import duty, whether immediate or suspended, could be determined from the information actually contained in the first three pillars, the fourth being in the nature of "a return". Thomas Wilson's responsibility, admittedly constrained by pressure of time and the demands of other clients, was to ensure that Terex' C&E 812 return of entries, processing and disposals balanced and showed their full monthly liability to import duties. The entries for re-exportations came into the calculation of records of disposals of non-Community goods.

So far as Mr Cunningham and Terex were concerned, therefore, the C&E 812 treated re-exports as disposals of non-Community goods with the result that Terex's suspended import duty liability was pro tanto discharged.

The Form C88 (the SAD)

Until about September 2002 when Thomas Wilson discovered that an export declaration relating to a re-exportation of compensating products exported to China, Terex's export declarations had wrongly contained the export CPC serial number 10 00 01. Alerted, I understand, by the ruling of the Directorate General earlier in the year to the effect that this created a customs debt under Article 865 IR, Mr Wilson had been making checks. A subsequent audit showed the erroneous entries in Boxes 37 throughout the relevant period producing an aggregate Customs debt due from Terex of nearly £9m.

Mr Wilson's discovery of September 2002 was the first occasion on which customs had drawn Terex's attention to the erroneous entries in Boxes 37 of the export declarations (the C88s).

From mid-2002 onwards the CHIEF system operated by the customs authorities was able to read the Box 37 entries. The purpose was to enable the creation of "profiles" drawn from the data taken from the boxes of C88s, and to facilitate checks. What, if any, practical effect the wrong use of the CPC 10 00 01 series during the period covered by the present customs debt claim had had was not the subject of any evidence. I can only surmise that if customs had been seeking to verify particular types of re-exportations, the wrong entry of a number in the 10 00 series would have made the checking difficult if not impossible.

There is no evidence that any attempts were ever made to check Terex's export C88s (before September 2002). No message was ever conveyed by the customs authorities to Terex that their C88s were defective and (absent the Public Notice 221 information and the inaccurately worded direction in the authorisation letter of 10 September 2001) no more general information was given about the possible implications of errors in Box 37.

Published Guidance

From August 2002 onwards the Public Notice 221 was completely reformatted. The relevant previous terminology is set out in paragraph 13 above. Colin Davies said that only the Republic of Ireland published comparable guidance. Traders in other Member States, who used IPR and other procedures, were (he understood) expected to look at and to understand the law.

Article 182(3) of the Code: the Issue

Was "prior notification" made of Terex' re-exportation under Article 182? Article 182(1) permits re-exportation of non-Community goods. Re-exportation is a Community approved treatment or use of such goods: Article 4(15) of the Code. Prior notification is made a requirement of re-exportation by Article 182(3). The purpose of Article 182(3) is, I accept, to facilitate checks on movements of goods by the customs authorities.

Article 183(3) of the Code, in my view, clearly envisages that the C88 export declaration will designate the goods in question to their intended use (i.e. re-exportation); if the declaration designates something else, e.g. the procedure of export, they will not have been prior notification. The C88s relating to the re-exportations during the period to which the present debt claim relates were defective in that they failed to designate, by the proper use of a CPC in the 31 series, that the consignments of kits of haulers and scrapers contained non-~Community goods destined for re-export.

The Article 865 IR issue

Did the presentation of a C88 that designated the kits of haulers and scrapers in Box 37 by wrongly containing a number in the 10 series, have the effect of wrongly conferring on them the customs status of Community goods?

As already mentioned, a number in the 10 series connotes export of goods in free circulation. A number in the 31 series connotes the re-exportation of goods entered to IPR suspension.

It is common ground that the kits of haulers and scrapers presented for export by Terex contained non-Community goods. Nothing in the documentation, however erroneous, will have made those goods Community goods within the definition in Article 4(7) of the Code. And the kits of haulers and scrapers were entered by Terex as re-exportation non-Community goods and accepted as such by the Customs authorities on receipt of Terex' C&E 812 returns. So, has the effect of wrong use of the 10 series CPC number been to "wrongly confer" on those non-Community IPR procedure goods "the customs status of Community goods"?

HMRC say that the event creating the debt was Terex's action of purporting to confer the status of Community goods on the kits of haulers and scrapers by wrongly entering the export serial number 10 in Box 37. That CPC, as already indicated, wrongly showed the goods as being in free circulation within the Community and this (say HMRC) conferred on them the status of Community goods. HMRC's interpretation of Article 865 IR is given some support by the proviso to the same Article which directs that where, in air freight situations, errors in the designation of goods are made on export, the goods may be regarded as not having been removed from customs supervision (giving rise to the Article 203(1) customs debt) where the error is rectified when the goods arrive at their destination. This proviso suggests that in other circumstances an error in the designation of the status of goods will incur a customs debt under Article 203 of the Code. However I prefer the construction suggested by Terex.

The mistaken use of a CPC in the 10 series gave the appearance of the admittedly non-Community goods being designated for export. From that it follows by implication, if HMRC's argument is right, that the non-Community goods are given the status of goods in free circulation; it follows from that that the non-Community goods contained in the kits have become Community goods. That, in my view, is too contrived a construction. It gives to the expression "having the effect of" a meaning that has the sense of "giving the appearance of" or "conveying the message that". Here the contents of the kits contain non-Community goods. They are not actually transformed into Community goods nor do they fall to be treated as Community goods for the purposes of any customs approved use or customs procedure.

It is true that had the customs authorities been given the correct information about the "non-Community" status of the contents of the kits, and had they had the CHIEF technology up and running in the relevant period, they could have created profiles and carried out checks. They were prevented from doing so by the mis-designation conveyed by the wrong use of a number in the CPC 10 series. But that was a consequence of the mis-designation; it did not amount to "the effect" of wrongly giving the contents of the kits "the status of Community goods".

On any reading the Article 865 IR is obscure and imprecise. The construction adopted by HMRC as the foundation of their debt claim goes so far beyond the concept of "unlawful removal" required by Article 203 of the Code as to lead to the conclusion that whatever Article 865 IR was intended to convey, it does not have the meaning now ascribed to it by HMRC. Moreover, the consequence of HMRC's reading produces a result which is so disproportionate as to go beyond what the framers of the Code and the Implementing Regulations could have had in mind.

I have given fuller reasons for my conclusion in the FG Wilson/Caterpillar EPG decision. These reasons (including my decision to refer) are equally applicable here. I need only add that here, as in the FG Wilson/Caterpillar case, both parties have been content to treat all the goods in question as non-Community goods in determining Terex' proper liability to import duty as presented in its C&E 812 returns.

The issue arising under Article 78(3) of the Code

For the reasons given in the FG Wilson/Caterpillar EPG decision, I am satisfied that Article 78(3) of the Code, properly construed, enables the errors in the C88 entries, made in the course of Terex' IPR "procedures" and re-exportation "uses", can be amended and the import duty position regularised.

Remission of the Customs debt: can "obvious negligence be attributed to" Terex?

The position of Terex is not, in my opinion, so different from that of FG Wilson/Caterpillar EPG as to require a different decision from that reached in their appeal.

The nature of the mistake in both cases (i.e. Terex and F G Wilson/Caterpillar EPG) was the same. Terex through its freight forwarders (and through the freight forwarders acting for "ex works" purchases from Terex) failed to enter the correct CPC serial numbers in Box 37 of Form C88. The suspended liability was (one has to assume, contrary to my earlier conclusion) transformed into an immediate customs debt.

All the causes for the mistake were essentially the same in both cases.

The prime cause was Terex's failure to communicate to the freight forwarders that the kits being exported were of goods held under a CPEI. This is clear from the evidence of Mr J G Mlonek, the sales order administrator of Terex. He was unaware that the wrong CPC had been used by the freight forwarders. His assumption, and that of Mr David Cunningham, Terex's general accounts manager, was that all was well as regards export declaration. Mr Mlonek had not read Public Notice 221. The grounds for Terex's confidence that all was well was that HMRC, with whom they evidently had had a close relationship over many years, had never specifically raised the matter with them. Thomas Wilson explained that he had spent an undue amount of time on Terex's affairs. He was concerned to ensure that Terex were making their correct entries for goods placed under IPR procedure. He found many errors over the years from 1990 onwards. But, by careful examination of the contents of Terex's C&E 812 returns he appears to have ensured that Terex were accounting for the correct amounts of import duty. The fact that the freight forwarders were entering the wrong CPCs did not cause any concern to him; this was because Terex's IPR summary from its "Riccardo" printout did indeed record the correct CPCs when recording re-exports. So far as he was concerned, therefore, Terex had not been wrongly conferring on the kits of haulers and scrapers the status of Community goods. He had not had the time to call for the C88s whether relating to re-exports or at all. Nor, apparently, did HMRC have any system, resources or even need, to check Terex's C88s. In this connection, it will be recalled that CHIEF did not start operating until 2002 and, even then, it was not capable of synthesising data relating to the exports and re-exports of particular traders.

Moving to the less immediate causes for the continuing errors of the freight forwarders, it is notable that the construction of Article 865 IR as advanced by HMRC in this case was not deployed by HMRC until well into 2002. It was in February 2002 that the Directorate General expressed the opinion that this was the correct construction. This, as I have already observed, caused Mr Wilson to make the enquiries of Terex that led to his discovery of an incorrect CPC entry relating to ten kits exported to China later in the year.

Until Mr Wilson picked up that incorrect CPC entry, it appears from the evidence that HMRC ignored the possibility that the use of the wrong CPC by traders such as Terex could produce windfall gains to the customs authorities. To be fair it appears never to have occurred to HMRC (until the point was canvassed in 2001 by a legal adviser) that Article 865 IR could be construed to produce that effect. As a matter of course Terex were sent Public Notices 221. Mr Mlonek neither read nor even saw them. But had he looked at paragraph 7.2 (in the part relating to IPR) he would have read, under the heading "Exporting goods outside the Community", the direction:

"You will need to complete Form C88 (SAD) and present it to Customs at the office of export before the goods are shipped.

…

Box 37 – enter an IPR export CPC in the 31 61 series for suspension goods …"

Nothing in the Public Notice explains that failure will result in the attraction of a customs debt of the entire amount of import duty held in suspense. The trader, Mr Mlonek, was left to work that out for himself. Nothing alerts the trader to the possibility of penalties from failure to enter the correct CPC, because there was no penalty regime to encourage compliance.

There was no training, either private or HMRC-sponsored, that covered the need for traders to ensure that their freight forwarders were informed that the consignments included compensating products and to insist that the freight forwarders made the correct CPC entries.

In the events Terex failed to comply with Article 182(3), as the UK customs authorities applied it, for many years until Thomas Wilson's intervention in mid-2002. The UK customs authorities had apparently ignored the failures for the pragmatic reason that they needed to devote their resources to ensuring that Terex accounted for this correct amount of import duty and because the possibility of picking up windfalls where traders had used the wrong CPCs had not crossed the authorities' minds.

I accept that Terex neglected to comply with Article 182(3) of the Code by its failure to use the correct CPC. But the action, or rather the excusable inaction, of the UK customs authorities contributed in large measure and was a substantial underlying cause of the error. The Court (in paragraph 38 of the judgment in Söhl & Söhlke) emphasised that in evaluating "the care taken by the trader … the onus is on the trader to make enquiries and seek all possible clarification to ensure that he does not infringe [the] provisions". While that would have been a possible course open to Terex, I observe that Terex had no reason to suspect that it was infringing the requirements of Article 182(3). Terex had no reason to doubt that it was accounting for the correct amount of import duty, particularly having regard to the fact that month after month it was submitting C&E 812s with correct CPCs without any resistance from HMRC.

For those reasons I have concluded that Terex' admitted failures to ensure the correct Box 37 entries were not attributable to obvious negligence on Terex' part. If anything, they are in a stronger position than FG Wilson/Caterpillar EPG. For the reasons given in that decision, I have concluded that the matter should be referred to the European Court of Justice.

The issues under Article 204(1)(a) of the Code

Article 204(1) provides that:

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

(a) non-fulfilment of one of the obligations arising, in respect of goods liable to import duties … from the use of the customs procedure under which they are placed …

in cases other than those referred to in Article 203 unless it is established that those failures have no significant effect on the correct operation of the … customs procedure in question."

HMRC contend that Terex's failure "to give prior notification of the customs authorities" of the re-exportation of the kits of haulers and scrapers, as required by Article 182(3) of the Code, was a non-fulfilment of an obligation arising from the use of the CPEI under which those goods had been placed. That, I think, is right. I did not understand Terex to have argued otherwise.

Is the debt time-barred?

Terex's first response is that the debt is time-barred. Terex say they first heard that the debt under Article 204 had been claimed when they received HMRC's Statement of Case lodged on 31 March 2006. This was more than three years after the end of the relevant period (January 2000 to July 2002). This follows from Article 221(3) of the Code. So far as is relevant Article 221 reads:

"(1) As soon as it has been entered in the accounts, the amount of duty shall be communicated to the debtor in accordance with the appropriate procedures

(2) Communication to the debtor shall not take place after the expiry of a period of three years from the date on which the customs debt was incurred."

The customs debt was communicated to Terex as a debt arising under Article 203 which, by Article 203(2), is incurred "at the moment when the goods are removed from customs supervision". That moment, as regards each kit of haulers and scrapers, must, on HMRC's interpretation of Article 865 IR, have been when the C88 with the wrong CPC in Box 37 was presented to the customs authorities. The same "moment" was the moment when the Article 204 debt was incurred. This follows from Article 204(2) which provides that the "customs debt shall be incurred … at the moment when the obligation whose non-fulfilment gives rise to the customs debt ceases to be met."

The debt was communicated to Terex in a post clearance demand notice dated 23 January 2003. HMRC had informed Terex, by letter of 9 December 2002, that the events giving rise to the debts had been the unlawful removal of the goods from customs supervision. The debt arose under Article 203 of the Code. HMRC, in the same letter stated that the debt did not arise under Article 204 and that that conclusion was in line "with advice received from the EC". The formal decision on a review was given on 8 April 2003; it confirmed that the debt arose under Article 203 and not under Article 204.

Reverting to Article 221 with those features in mind, I accept that "the amount of duty", i.e. £8,077,089.24, was duly communicated to Terex on 23 January 2003. Ruling 4 of the ECJ in Molenbergnatie NV (Case C-201/04), a case concerned with the meaning of "appropriate procedures in Article 221(1) and whether they had been notified within three years from the date when it was incurred, provides:

"Member States are not required to adopt specific procedural rules on the manner in which communication of the amount of import … duties is to be made to the debtor where national procedural rules of general application can be applied to that communication, which ensure that the debtor receives adequate information and which enable him, with full knowledge of the facts, to defend his rights."

The Advocate General (Jacobs) had advised (in paragraph 86 of his Opinion) that the contents of the communication should "enable the debtor to ascertain clearly its nature, grounds and effects". In the light of the Court's Ruling and the Advocate General's advice, I regard as the "national procedural rules" the post-clearance demand accompanied by the officer's decision and the review decision. Those comprise the relevant "communication".

Here the communication by HMRC has, without qualification, rejected Article 204 as the statutory basis for the debt. However, the circumstances giving rise to the customs debt are the same, whether the debt pursued under Article 203 or under Article 204. These are the procedural failures to give prior notification under Article 182(3). The same goes for the effects of incurring the customs debt. Overall, it seems to me, that Terex have been given adequate information (in 2003) to enable it to defend its rights. Were I wrong on that point, I would regard the purported communication showing Article 204 as the grounds for the debt as having been made in March 2006 (see HMRC's Statement of Case). The debts were actually incurred between January 2000 and July 2002. On that basis, I would have concluded that HMRC were time-barred and cannot rely on Article 204 of the Code because it was not communicated to Terex "in accordance with the appropriate procedure".

Does Article 859 IR eliminate liability under Article 204?

The concluding words of Article 204(1) of the Code exclude from its application cases where the relevant "failures have no significant effect on the correct operation of the … customs procedure in question". Article 859 IR contains a list of failures in which no customs debt under Article 204 of the Code is to be incurred. Article 859 lays down three cumulative conditions for the application of that derogation. The failures must neither constitute an attempt to remove the goods unlawfully from customs supervision: there must be "no obvious negligence" on the part of the person concerned: and all formalities to regularise the situation must subsequently have been carried out.

"Derogation" 5 in Article 859 IR refers to the case of goods placed under a customs procedure, "provided the goods can be presented to the customs authorities at their request". Here, all the goods have long since left the customs territory of the Community. I cannot therefore see that Terex can rely on this. "Derogation" 6 refers to goods entered for a customs procedure which have been removed from the customs territory "without completion of the necessary formalities". The necessary formality in the present case is the failure to give prior notification under Article 182(3) of the Code. The problem for Terex lies in the last of the three conditions; this is because the formality of pre-notification necessary to regularise the situation has not (and cannot) be subsequently carried out.

For those reasons I do not consider that Article 859 IR can be invoked to exclude liability under Article 204.

Reference

Whether Article 204 of the Code can be regarded as giving rise to the customs debt is a matter that should be referred to the ECJ. The meaning and effect of both Articles 221 of the Code and Article 859 IR in the present context are at present insufficiently clear to enable me to decide the issues.

This appeal should in due course be listed for Directions as to how to progress the reference.

SIR STEPHEN OLIVER QC

CHAIRMAN

RELEASED: 23 January 2008

EDN