United Kingdom VAT & Duties Tribunals (Excise) Decisions

Travers (t/a DTA) v Revenue & Customs [2007] UKVAT(Excise) E01045 (22 May 2007)

E01045

EXCISE DUTIES — "alcopop" — alcoholic beverage 4% abv produced from fermented and distilled alcoholic bases with added flavourings and sweetening and diluted — duty determined by reference to customs duty tariff classification — whether product within heading 2206 as a fermented beverage or heading 2208 as a spirituous beverage — BTI within heading 2208 issued — product properly classified within that heading— appeal dismissed

MANCHESTER TRIBUNAL CENTRE

DAVID TRAVERS trading as DTA Appellant

- and -

HER MAJESTY'S COMMISSIONERS OF REVENUE AND CUSTOMS

Respondents

Tribunal: Colin Bishopp (Chairman)

Elizabeth Pollard

Sitting in public in North Shields on 12 and 13 March 2007

The Appellant in person

Owain Thomas, counsel, instructed by their solicitor's office, for the Respondents

© CROWN COPYRIGHT 2007


 


DECISION

1. The Appellant, David Travers, produces and sells a range of alcoholic and soft drinks, mainly to medium- to smaller-sized public houses and clubs in the north-east of England. The one product with we are concerned is typical of Mr Travers' range. It is an alcoholic beverage, of the kind commonly known as an "alcopop", packaged in a 275 ml bottle and labelled as "Blu Bambu". It was sold to a small chain of night clubs of the same name, so that it could in turn be sold by the night clubs as an "own brand" product. The dispute between the parties relates to the rate of excise duty to which the product is subject. Mr Travers contends that Blu Bambu is properly classed as a fermented beverage, more particularly a made-wine. The Respondents argue that the correct description of the product is a spirituous beverage. The duty on spirituous beverages is charged at a higher rate than that imposed on made-wines.
2. The excise duty levied on alcoholic products depends not only on the alcoholic content but also on the means of manufacture, and is determined by reference to the customs duty tariff in force throughout the European Community, namely the Combined Nomenclature, or CN, which forms Annex 1 to Council Regulation 2658/87/EEC. This approach (used whether or not the beverage in question has been imported or produced within the European Union) is a requirement of Council Directive 92/83/EEC ("the Directive"). The United Kingdom's corresponding domestic legislation, the Alcoholic Liquor Duties Act 1979, is not wholly consistent with the Directive, but the application of a number of extra-statutory concessions brings United Kingdom law, in practice, into line with its requirements. We shall need to return briefly to the extra-statutory concessions but otherwise do not need to deal with the detail of the law, since none of it was contentious, but merely with the terms of the relevant parts of the CN. Formally, this appeal is against a Binding Tariff Information ("BTI") for which Mr Travers applied, in order to ensure that he accounted for the correct amount of duty on his sales of the product, and by which the Commissioners classified Blu Bambu within heading 2208 rather than, as Mr Travers contends is appropriate, 2206. The BTI was upheld on the review which is obligatory if an appeal is to be brought. The only issue before us is whether the BTI is correct; there is no claim for the payment or remission of any duty.
3. Mr Travers represented himself at the hearing, while the Commissioners were represented by Owain Thomas of counsel. We heard evidence from Mr Travers, from Malcolm Slatcher, the managing director of a company which makes up and bottles drinks of the kind with which we are concerned, from Brian Carr, a specialist in alcoholic beverages, who was offered as an expert, and from Lucy Brown, Ann Sampson, Susan Burling, Susan Jeffries and Jody Alexander, all employees of CCFRA Technology Limited, a company which provides services for the food and drink industries. It was asked to carry out a taste test by the Commissioners, who relied on the findings of that test in issuing the BTI. We had a number of relevant documents, and saw bottles of Blu Bambu and of a number of other drinks with which it is in competition. We were not asked to, and did not, taste any of them.
4. Blu Bambu contains, in each 1000 litres, 108 litres of fortified wine at 37 per cent alcohol by volume ("abv"). The remainder of the 1000 litres is made up of various flavourings, colourings, sugar and other sweeteners, and water. The resulting beverage has an alcoholic strength of 4 per cent abv. The fortified wine is made up of 1000 litres of wine base at 16 per cent abv and 996 litres of vodka at 99 per cent abv, to which 1024 litres of water is added to yield a liquid at 37 per cent abv. The finished, bottled product is of a pale blue, translucent appearance. The labels applied to the bottles in which it was sold carry, in addition to the name of the product, details of its alcoholic strength and the volume of beverage within the bottle. It is described as a "sparkling alcoholic blueberry drink". Its ingredients are not listed, beyond a mention of the presence of sugar and sweeteners. There is no clue to the method of manufacture, and neither of the words "wine" or "spirit" appears.
5. Heading 2206 of the CN follows headings 2203 (beers), 2204 (wine) and 2205 (vermouth and other flavoured wines). The heading excludes commodities within headings 2203, 2204 and 2205, but includes "Other fermented beverages (for example, cider, perry, mead); mixtures of fermented beverages and mixtures of fermented beverages and non-alcoholic beverages, not elsewhere specified or included". The heading is supplemented by the Harmonised System Explanatory Notes ("HSENs"), which contain a non-exhaustive list of products within the heading, among which is raisin wine. It was agreed by the parties that the wine base used in the production of Blu Bambu answered to that description. The notes add that "All these beverages may be either naturally sparkling or artificially charged with carbon dioxide. They remain classified in the heading when fortified with added alcohol or when the alcohol content has been increased by further fermentation, provided that they retain the character of products falling within the heading." Blu Bambu is not naturally sparkling but has added carbon dioxide. The proviso to the second sentence of the note has some importance, as we shall explain.
6. The CN then proceeds through heading 2207, which includes spirits at more than 80 per cent abv, to heading 2208, favoured by the Commissioners: "Undenatured ethyl alcohol of an alcoholic strength by volume of less than 80 % vol; spirits, liqueurs and other spirituous beverages." The HSENs to heading 2208 provide that

"The heading covers, whatever their alcoholic strength:

(A) Spirits produced by distilling wine, cider or other fermented beverages or fermented grain or other vegetable products, without adding flavouring; they retain, wholly or partly, the secondary constituents (esters, aldehydes, acids, higher alcohols etc) which give the spirits their peculiar individual flavours and aromas.

(B) Liqueurs and cordials, being spirituous beverages to which sugar, honey or other natural sweeteners and extracts or essences have been added …

(C) All other spirituous beverages not falling in any preceding heading of this Chapter.

Provided that their alcoholic strength by volume is less than 80% vol, the heading also covers undenatured spirits (ethyl alcohol and neutral spirits) which, contrary to those at (A), (B) and (C) above, are characterised by the absence of secondary constituents giving a flavour or aroma …

… the heading includes, inter alia: …

(14) Alcoholic lemonade (unmedicated)."

7. The Alcoholic Liquor Duties Act 1979, by subsection 1(2), provides that what in article 20 of the Directive is referred to as ethyl alcohol and in the domestic legislation as spirits

"means … —

(a) spirits of any description which are of a strength exceeding 1.2 per cent

(b) any such mixture, compound or preparation made with spirits as is of a strength exceeding 1.2 per cent or

(c) liquors contained, with any spirits, in any mixture which is of a strength exceeding 1.2 per cent …"

8. The definition of made-wine is to be found at subsection 1(5):

"…any liquor which is of a strength exceeding 1.2 per cent and which is obtained from the alcoholic fermentation of any substance or by mixing a liquor so obtained or derived from a liquor so obtained with any other liquor or substance but does not include wine, beer, black beer, spirits or cider."

9. For historical reasons, section 57 of the 1979 Act prohibits the mixing of made-wine and spirits (that is, the fortification of the wine, resulting in a product referred to in article 16 of the Directive as an "intermediate product") where the resulting mixture has an alcohol content exceeding 22 per cent abv. It is this provision in particular which conflicts with the Directive, and which has led to the extra-statutory concessions to which we have referred. The concessions provide that such mixing (which includes the addition of the vodka to the raisin wine to produce the fortified wine used in the manufacture of Blu Bambu) is permitted, regardless of the alcoholic strength of the resulting liquid, and that the final product will be chargeable to duty as an intermediate product (that is, one within heading 2206) unless it is properly classified within the CN as a spirit, in which case it will be dutiable at the rate applicable to spirits. By this somewhat roundabout means the domestic law conforms with the Directive.
10. A beverage such as Blu Bambu does not fit easily within either heading 2206 or heading 2208, and there is no other heading designed to capture beverages which are, essentially, mixtures of two products, one in each heading. The golden rule in the interpretation and application of the CN, however, is that every commodity must be classified in one, and only one, heading, and it is necessary to apply the General Interpretative Rules, or GIRs, to resolve the difficulty. The GIRs form part of the CN and have statutory force. There are six rules, of which we need to consider two.
11. Rule 1 is as follows:

"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 relative section or chapter notes and, provided such headings or notes do not otherwise require, according to the following provisions."

12. There are no section or chapter notes which assist in this case. Rule 1 indicates that the HSENs do not have statutory effect but they are, nevertheless, of considerable persuasive value (see, for example, the comments of the European Court of Justice in Holz Geenen GmbH v Oberfinanzdirektion München (Case C-309/98) [2000] ECR I-1975 at paragraph 14 of the judgment) and, unless they conflict with the terms of the relevant heading or are for some other reason inappropriate, they are generally heeded. In this case, however, the HSENs do not answer the question we must consider, although it is apparent from the notes to heading 2206 that the addition of spirit does not, of itself, exclude Blu Bambu from that heading, while the inclusion of alcoholic lemonade—a beverage with some similarity to it, though the two are by no means directly comparable—within heading 2208 suggests that Blu Bambu, too, may properly be classified there. Rule 2 of the GIRs, which we do not need to set out for present purposes, and particularly Rule 2(b), provides that mixtures of products which, alone, would have different classifications are to be classified in accordance with Rule 3.
13. Rule 3 provides that:

"When by application of Rule 2(b) or for any other reason, 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, insofar as this criterion is applicable.

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

14. Of those paragraphs, superficially the most important is (b). We agree, however, with Mr Thomas that in reality it adds little or nothing to the HSEN to heading 2206. There is no difference of substance between the reference in the proviso in the HSEN to heading 2206 to "the character of products within the heading" and the emphasis in Rule 3(b) on the product's "essential character". The question we must ask is whether Blu Bambu has retained the character of products within heading 2206 (that is, it has the character of a fermented beverage); if not it is (by virtue of the proviso) excluded from that heading and must of necessity come within heading 2208, since no other is appropriate. That is, moreover, the effect of HSEN (C) to heading 2208.
15. It is settled law that the characteristics of a product must be determined objectively, in order to respect the requirement of legal certainty (Holz Geenen, and many other cases), although subjective factors, such as taste, may be taken into account in determining the objective character of the product: see Gijs van de Kolk – Douane Expéditeur BV v Inspecteur der Invoerrechten en Accijnzen (Case C-233/88) [1990] ECR I-265.
16. In May 2002, by means of a circular letter to the relevant trade associations, the Respondents proposed a somewhat rough-and-ready but pragmatic method of applying the "essential character" test to beverages similar to Blu Bambu. The test has three stages. It is ascertained first whether the fermented or the spirituous component contributes more to the volume of the product, and, second, whether the fermented or the spirituous component contributes more to its alcoholic content. If the answer to both questions is the same, the product is to be regarded as a fermented product within heading 2206 or, as the case may be, a spirit within heading 2208, and the third stage is not reached. If the answers differ, it is necessary to proceed to the third stage and examine other characteristics of the product, including its presentation, appearance and taste. Though the test may be rough-and-ready, it is in our view an effective way of applying Rule 3(b), provided it is not applied rigidly, in a manner which fails to respect the purpose of the Rule. Although it has not been formally agreed with the trade, we understand it is generally accepted as a fair approach.
17. It is apparent that in the case of Blu Bambu, the answer to the first question is the wine, the fermented component, and to the second it is the spirit. Mr Travers did not suggest otherwise, and he did not demur from the proposition that the addition of 996 litres of vodka to 1000 litres of wine was designed to ensure that the wine contributed more to the volume of the product. Mr Thomas suggested that the appearance and presentation of Blu Bambu, as we have described them above, were more akin to those of a spirit than of a wine. In our view these factors are neutral. It would be surprising to find a blue wine, but other fermented beverages could be of that colour, and the characteristics to consider are those of fermented beverages, rather than of wine in particular. The labelling of the product is similarly of little help. The Respondents do not, however, contend that the appearance and labelling of the product are any more than indicative, and they therefore commissioned the taste test we have mentioned. It was conducted by Mesdames Sampson, Burling, Jeffries and Alexander, and their results were compared and collated by Mrs Brown.
18. Each of the tasters was given a sample, half the contents of a bottle, in a glass and told no more than that the beverage contained alcohol (in particular, they were not told that the objective was to determine whether the product should be classed as a fermented beverage or a spirit). They were required to write down their impressions of the taste as they perceived it. They all recorded the sweetness of the product, and its bubblegum flavour, and all recorded a slight or moderate spirit flavour. None recorded that she had tasted wine.
19. Mr Travers criticised the test, on three grounds. The number of tasters, at four, was small, as indeed Mrs Brown agreed; she explained that as only two bottles of Blu Bambu were provided, there was too little of the product available to permit the use of a larger team, though ideally as many as twelve tasters would be used. Second, he argued that the close similarity, in the words used and in the order in which they were presented, of the tasters' notes, suggested discussion by them of their impressions before their results were written down. Third, he complained that the test was an inappropriate means of classifying the product. We will deal with the second criticism first.
20. We were impressed by the tasters' evidence. They all have several years' experience, and have been (as we accept) thoroughly trained. They all told us that they wrote down only their own impressions, without prior discussion, and that, as a matter of course, they did not discuss their impressions with their fellow tasters before recording them since the purpose of the test would be undermined if they did. We accept that evidence without hesitation: all the tasters impressed us as honest people carrying out a routine test in the course of their employment. We can conceive of no reason why they should collude in standardising the result of the test, and we are sure they did not do so. It is in our view not surprising that the words used and the order of use showed similarities. That is only to be expected of people trained in a task and who, as the tasters explained, were asked to record sequentially the taste sensations they experienced as the beverage entered their mouths, passed across their tongues and palates and was swallowed.
21. A team of four tasters is indeed smaller than the ideal and, had there been any material difference between the tasters' recorded results, we might well have considered the test to be of limited value. As it is, the results were very similar, with no measure of dissent in any detail. In those circumstances we are satisfied that the test is reliable, and that the results are to be regarded as an accurate guide to the taste of the product.
22. The third criticism was made by Mr Carr and Mr Slatcher, who both contended that a beverage at 4 per cent abv could have no discernable spirit taste, and that the provenance of the alcohol within it was of no consequence, since ethyl alcohol has exactly the same chemical composition whatever its provenance. Without disregarding the results of the taste test, we can see the force of that argument; but in our view it misses the point. The question we must determine is not whether Blu Bambu has the characteristics of a spirit, but whether, after inclusion of spirit, it retains the characteristics of a fermented beverage within heading 2206. None of the evidence before us suggests that Blu Bambu retains any of the characteristics of wine, nor of a fermented beverage in a more general sense, and, as we have already indicated, a beverage containing spirit which does not come within heading 2206 must, necessarily, come within 2207 or 2208—in this case, because of the alcohol content of the finished product, 2208.
23. Mr Travers was, understandably, concerned that his product has been treated differently from some competing products even though they are materially similar, if not identical—indeed, that was the core of his argument. His complaint that he had obtained a BTI for a similar product (we were provided with the composition of the two products, and it is clear that there is very little difference indeed between them) in heading 2206, in 2003 and that he reasonably assumed that he would be granted a BTI in the same heading for Blu Bambu when he applied for it in 2005 has some force , as has his well-documented evidence that other competing products are also classified in heading 2206. He argued that, since the Commissioners had issued a BTI in heading 2206 in 2003, they should, in the interests of consistency, be required to classify Blu Bambu in the same heading. We accept that Mr Travers' complaint is not based on merely anecdotal evidence, but has substance, and that—as Mr Thomas conceded—there has been some inconsistency of approach. So much is, indeed, obvious from the different classifications in 2003 and 2005 of Mr Travers' two practically indistinguishable products. Unfortunately for him, however, one BTI does not set a precedent for another. While the decisions of customs authorities should, for obvious reasons, be consistent, it is even more important that their decisions should be correct, as the European Court of Justice made clear in Timmermans Transport & Logistics BV v Inspecteur der Belastingienst – Douanedistrict Rotterdam (Joined Cases C-133/02 and C134/02) [2004] ECR I-1125. If a BTI is found to be wrong, it should be revoked; the error should not be perpetuated in later BTIs.
24. It is unfortunate for him that Mr Travers expected to charge the duty appropriate to heading 2206 and priced Blu Bambu accordingly, but when the BTI was issued and he was required to account for a higher rate of duty he was forced to increase the price. We accept his evidence that the increase resulted in his losing his contract to supply Blu Bambu to a competitor which supplies what—he maintains—is a materially identical product but which is required, he believes, to account for duty at the lower rate. We have some sympathy with him.
25. Nevertheless, as we have already indicated, we in this tribunal can do no more than determine which of the competing classifications is appropriate for the one product before us. If one applies the test prescribed by the proviso to the HSEN to heading 2206, or that contained within GIR Rule 3(b), there is only one possible answer: that Blu Bambu does not retain the "essential character" of a product within heading 2206 and, as we have indicated, must necessarily be classified within heading 2208. The BTI is, therefore, correct.
26. There may well be good reasons for the Commissioners to re-examine the classification of some other beverages, but we are satisfied that this appeal must fail. We make no direction in respect of costs.

COLIN BISHOPP

CHAIRMAN

Release date: 22 May 2007

MAN/05/7043