ON APPEAL FROM THE UPPER TRIBUNAL (TAX & CHANCERY CHAMBER)
MR JUSTICE NUGEE
Royal Courts of Justice
Strand, London, WC2A 2LL
Before:
LORD JUSTICE LAWS
LORD JUSTICE ELIAS
and
MS JUSTICE RUSSELL
Between:
Cooneen Watts & Stone Ltd | Appellant |
- and - | |
The Commissioners for Her Majesty’s Revenue and Customs | Respondents |
Mr Kieron Beal QC (instructed by Carson McDowell LLP) for the Appellant
Mr Owain Thomas (instructed by Solicitors Office) for the Respondent
Hearing dates: 24 & 25 November 2015
Judgment
LAWS LJ:
INTRODUCTION
This is an appeal, with permission granted by Gloster LJ on 9 October 2014, against the decision of Nugee J sitting in the Upper Tribunal (Tax and Chancery Chamber) on 24 January 2014 by which he allowed the appeal of the respondents (HMRC) against a determination of the First tier Tribunal (the FTT) made on 31 October 2012. The FTT had allowed the appellants’ appeal against three decisions of HMRC.
As Nugee J stated in paragraph 1 of his decision, the issues in the case concern the correct treatment and classification for customs purposes of certain specialised military clothing imported by the appellants (respondents before the Upper Tribunal) from the People’s Republic of China. The clothing was designed for the protection of troops in combat. The appellants claim to be entitled to relief from import duty in respect of it.
THE NATURE OF THE IMPORTED GOODS
I shall need to return to the factual history, but there is a useful summary of the nature of the appellants’ imports at paragraphs 12 – 17 of the FTT’s determination which it is convenient to set out here. I should say that the acronym “IRR” stands for “infra-red reflectance” and “MEU relief” means relief under Council Regulation (EC) No 150/2003 (“the MEU Regulation”), which as will appear figures large in the argument. “MEU” stands for “military end use”. The FTT described the imported goods as follows:
“12… [T]he appellant supplies over 150 different types of military clothing and clothing related products to the MOD. This range of products includes a small number of items of clothing which are made of IRR fabric.
13. Most of the relevant clothing is disruptively patterned for camouflage purposes but importantly it all has specific IRR properties. It is these properties which protect the wearer from detection by weapons fitted with infra red assisted vision sights, commonly referred to as night vision goggles. The effect of wearing IRR protective clothing is to significantly reduce the visibility of the wearer to an enemy using night vision goggles. It does this by suppressing the infra red radiation generated by the human body. IRR fabric employs different intensities in the material to suppress the various colours contained in the garment and mimics the radiation emitted by surrounding vegetation.
14. IRR properties are incorporated into the fabric during a manufacturing process which is highly technical and specialised. We understand that the manufacturing process involves secret technology. The IRR clothing in the present appeals is manufactured in China and imported by the appellant into the UK. Unlike ordinary military camouflage clothing, IRR clothing cannot be purchased by members of the public.
15. There are 8 items of IRR clothing which are relevant to the present appeals. Each item also comes in a non-IRR version and no customs duty relief is sought in relation to those items. We were shown the following examples of IRR clothing:
(1) A combat jacket and combat trousers which come in both woodland camouflage and desert camouflage. The jacket and trousers must be worn together otherwise the benefit of IRR properties in one will be defeated by the absence of IRR properties in the other.
(2) A coverall, which is an all-in-one item of clothing
(3) A smock, which is similar to an anorak.
(4) A shirt, which is designed to be worn under body armour.
(5) A cap, which is designed to be worn over a helmet.
16. There is no difference to the naked eye between IRR camouflage clothing and ordinary camouflage clothing. HMRC accept that imports of the coveralls are entitled to MEU relief but deny entitlement to relief in relation to all the other items of clothing.
17. The IRR clothing imported by the appellant is crucially important to combat troops deployed by the MoD. It helps to protect them in the battlefield and helps to save soldiers’ lives.”
The appellants are what is known as the “Industrial Prime Vendor” to the Ministry of Defence, a contract they have held since 2004 and which was most recently renewed in 2010.
LEGAL MATERIALS
A great deal of EU legislation has been referred to in the skeleton arguments and counsel’s submissions in court. I will only set out here some of the headline provisions; I will have to refer to other materials in addressing the parties’ rival contentions.
The MEU Regulation, as Article 1 makes clear, suspends import duties on certain weapons and military equipment imported from third countries by the military authorities of an EU Member State. Recital (5) is in these terms:
“In order to take account of the protection of the military confidentiality of the Member States it is necessary to lay down specific administrative procedures for the granting of the benefit of the suspension of duties. A declaration by the competent authority of the Member State for whose forces the weapons or military equipment are destined, which could also be used as customs declaration as required by the Customs Code, would constitute an appropriate guarantee that these conditions are fulfilled. The declaration should be given in the form of a certificate. It is appropriate to specify the form, which such certificates must take and to allow also the use of means of data processing techniques for the declaration.”
Article 1:
“This Regulation lays down the conditions for the autonomous suspension of import duties on certain weapons and military equipment imported by or on behalf of the authorities in charge of the military defence of the Member States from third countries.”
Article 2(1):
“The duties of the Common Customs Tariff applicable to imports of the goods listed in Annex 1 shall be totally suspended when they are used by, or on behalf of the military forces of a Member State, individually or in cooperation with other States, for defending the territorial integrity of the Member State or in participating in international peace keeping or support operations or for other military purposes like the protection of nationals of the European Union from social or military unrest.”
Article 3(1):
“The request for entry for free circulation of goods for which the benefit of a duty suspension under the provisions of Article 2 is claimed shall be accompanied by a certificate issued by the competent authority of the Member State for whose military forces the goods are destined. The certificate as set out in Annex III shall be submitted to the customs authorities of the importing Member State together with the goods to which it refers. It may replace the customs declaration required by Articles 59 to 76 of Regulation (EEC) No 2913/92.”
Council Regulation (EEC) No 2913/92 establishes the Community Customs Code. The list of goods in Annex I to the MEU Regulation is in fact a list of numbers. The numbers are what are called CN headings. “CN” stands for “Combined Nomenclature”. By use of these numerical references the CN provides for the classification, for customs purposes, of goods entering the EU. The CN is set out in Annex I to Council Regulation (EEC) No 2658/87 (the Tariff Regulation). The Annex is amended each year with effect from 1 January.
Annex III to the MEU Regulation prescribes a standard form for the competent authority’s certificate given under Article 3(1). The form includes at Box 6 provision for the insertion of the CN code (in four digits) attributed or said to be attributed (I beg no questions as to the definitive author of the attribution – that is the issue upon the first ground of appeal to this court) to the goods being imported.
The list in Annex I includes CN heading 6211 which falls under Chapter 62 of the CN. As with other CN headings, 6211 includes sub-headings. Chapter 62 was stated to apply only to made-up articles of any textile fabric other than wadding, excluding knitted or crocheted articles (save those under heading 6212). The appellants’ case is (and was before the tribunals) that the items of clothing for which they claim relief are covered by heading 6211 33 10. So far as relevant this specifies:
“6211 Tracksuits, ski suits and swimwear; other garments:
…
6211 33 Of man-made fibres:
6211 33 10 Industrial and occupational clothing”.
General Rules for the Interpretation of the Combined Nomenclature (“GIRs”) are contained in Section 1 of the Annex to the Tariff Regulation, and are published every October. In light of part of the argument before us I should set out GIR Rules 1 and 3:
“1 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.
3 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 givens 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 EU has also adopted Explanatory Notes to the CN, pursuant to Article 9(1)(a) of the Tariff Regulation. They are known as “CNENs”. The CNENs for Chapter 62 contain this introductory note:
“4. This chapter includes items of industrial and occupational clothing which because of their general aspect … and the nature of their fabric… make it clear that they are designed to be worn solely or mainly in order to provide protection (physical or health) for other clothing and/or persons during industrial professional or domestic activities.
…Uniform and other similar official garments (judge’s gowns, church vestments, for example) are not considered to be industrial and occupational garments.”
In order to qualify for MEU relief the importer must not only have obtained a certificate under Article 3, he must also have been granted end use relief authorization by HMRC, and must show that the goods imported satisfy the description in the certificate and the authorization and that other conditions in the authorization must be met.
THE APPLICATION FOR MEU RELIEF; HMRC’s DECISIONS
The appellants did not at first claim MEU relief on the importation of IRR goods. However on 17 February 2009 the MoD issued a certificate in the form required by Annex III of the MEU Regulation showing CN code 6211 as being applicable to all IRR items. The appellants’ finance director Mr McMahon then applied to HMRC for authorization for MEU relief. The authorization was given on 5 May 2009. On 3 July 2009 the appellants submitted a claim to HMRC for repayment/remission of duty paid for shipments of military clothing from 28 February 2008 to 28 April 2009.
As I understand it the first intimation from HMRC that the allocation of the IRR items to code 6211 was or might be erroneous came in a letter of 12 August 2009 from Mr Wakeling, an HMRC officer. At length HMRC refused the repayment sought, save in respect of coveralls, on the basis that the IRR items were incorrectly classified to code 6211, and after a visit to the appellants on 27 April 2010 Ms Crawford of HMRC issued a C18 “post-clearance demand” for duty on the IRR items that had been imported with code 6211. Some of the detail of this history is relevant to the third issue in the case, and I will deal with it as necessary in that context, by reference to the FTT’s findings.
THE ISSUES OUTLINED
The appellants appealed the HMRC decisions to the FTT (whose jurisdiction arose by force of s.16 of the Finance Act 1994). There have throughout been three principal issues in the proceedings. The first is whether the end use certificate issued by the MoD pursuant to the MEU Regulation conclusively determines the proper customs classification of the goods. If not, the second issue arises: what is the proper customs classification of the goods? The third is whether, in the events which have happened, the appellants have a valid claim to repayment and/or remission of customs duty in respect of IRR clothing imported by them. The FTT found in the appellants’ favour on the second issue, holding that code 6211 applied to the goods. They found against the appellants on the other two issues.
HMRC appealed the FTT’s finding on the second issue to the Upper Tribunal; the appellants cross-appealed in relation to the first and third issues. Nugee J allowed HMRC’s appeal, and dismissed the cross-appeal. In this court the appellants submit that the FTT was right on the second issue, and both tribunals were wrong on the other two.
THE FIRST ISSUE
Mr Kieron Beal QC for the appellants made it plain that the “height of [his] ambition” on this part of the case was to persuade the court to make a reference to the Court of Justice of the European Union.
The FTT accepted that the MoD certificate “is conclusive as to the military end use of goods being imported into the EU [but did not] accept that it is also conclusive as to the proper classification of those goods” (FTT, paragraph 137). Nugee J agreed for reasons he gave at paragraphs 122 – 133. With respect to the FTT I need only cite paragraphs 122 – 125 of Nugee J’s judgment:
“122 I agree with the FTT. Article 2 only applies to imports of the goods listed in Annex I. If there is an import of such goods, it qualifies for suspension of customs duties if the conditions of Article 2 are fulfilled (namely that the goods are used for military end use). Article 2 by itself says nothing about how these two matters are to be demonstrated. Article 3.1 imposes a requirement for a certificate from the competent authority. Article 3.1 does not itself say what the certificate is certifying but it requires the certificate to be in the form set out in Annex III. The form set out in Annex III contains in Box 11 a statement that
‘This is to certify that the goods described above are for the use of the military forces of (Member State).’
On its face therefore the form of certificate required by Article 3.1 is only a certificate that the goods have a military end use. It does not contain any words certifying that the goods have been properly classified to the CN code listed in Box 6.
123 Recital (5) indicates that the purpose of the certificate is to constitute an appropriate guarantee that ‘these conditions are fulfilled’. The conditions referred to are those which lead to a suspension of duties. Reading this together with Articles 2 and 3, I consider that this is a reference to the conditions in Article 2 requiring that the goods concerned be used by or on behalf of the military forces for the purposes there set out. I do not read this as also guaranteeing that the goods imported are of the types listed in Annex I.
124 This I think is the natural meaning of the language of recital (5) and Articles 2 and 3 read together. It is also supported by other considerations. The ‘competent authority’ is the authority which is competent to certify the military end use of the goods. It will therefore no doubt be, as it is in the UK, a military authority. It would I think be somewhat surprising if military authorities were also intended to be responsible for the correct tariff classification of goods imported which, as the decided cases illustrate, is a technical matter which can be of some complexity. Had it been intended that military authorities were to take on this role one would have expected some clear statement to this effect.
125 Not only does the Regulation not say this, but it says twice (both in recital (5) and in Article 2.1) that the certificate can also be used as a customs declaration. The evidence before the FTT was that in the UK certificates are not in fact used as customs declarations (at paragraph 137 of the Decision), but what seems to me significant is that even if a certificate is used as a declaration, neither recital (5) nor Article 2.1 suggests that it has any special status over and above that of an ordinary customs declaration. An ordinary customs declaration is not conclusive as to the correct classification of goods: it is just a declaration by or on behalf of the importer, and is subject to post clearance verification by the customs authorities. In providing that certificates can be used as customs declarations, therefore, the Regulation, far from suggesting that certificates are conclusive as to classification, to my mind suggests the opposite, namely that imports of goods with the benefit of such certificates are subject to the normal operation of the Customs Code.”
It is important to recognise, as Mr Thomas for HMRC submitted, that the MEU procedure is by no means a free-standing regime but is recognised and allowed for in the Customs Code itself. Article 21(1) of Council Regulation (EEC) No 2913/92 provides:
“The favourable tariff treatment from which certain goods may benefit by reason of their nature or end-use shall be subject to conditions laid down in accordance with the Committee procedure…”
See also Article 82(1):
“Where goods are released for free circulation at a reduced or zero rate of duty on account of their end-use, they shall remain under customs supervision…”
The general legal regime in the EU relating to customs duty applies; the MEU Regulation does no more than provide for a special case of end use relief, tailored to recognise particular features associated with the importation of military equipment, notably the confidentiality of information relating to such equipment. From first to last there is nothing in the Regulation that can be construed as requiring the competent authority’s certificate given under Article 3 to be treated as the conclusive determinant of the CN classification of the relevant goods.
Mr Beal submitted that the recitals to the MEU Regulation (I have only set out recital (5)) give no indication that the customs authorities of the Member State retain any independent role in the determination of the goods’ correct CN classification, separate from the certification process provided by Article 3. But given the applicability of the general EU regime as to the administration of customs duty, there was I think no need for that to be done. Then at paragraph 34 of his skeleton argument Mr Beal submits:
“The MEU Regulation represents a policy choice by the EU legislature to suspend customs duties on imports of military equipment into the EU which are destined for use by the Member States’ armed forces.”
But as Nugee J observed at paragraph 120(1), the Regulation does not exempt all military equipment, but only “certain” weapons and equipment: see also paragraph 147 of the FTT’s determination. What is exempted and what is not depends on the selection of CN headings set out in Annex I: that is itself a “policy choice” distinct from the certification process under Article 3.
Mr Beal relied on certain passages in the Regulation’s travaux preparatoires, but there is nothing there to show that certification of military end use under Article 3 was intended also to constitute certification of customs classification. In reply Mr Beal referred to a passage in HMRC’s Public Notice 770, incorporating a flow-chart whose terms, he submitted, show that the ascertainment of CN classification was directed by the Article 3 certificate. HMRC is not, of course, a source of law; but in any case the flow-chart shows nothing of the sort. It includes the question whether the trader is importing military equipment “covered by Regulation 150/2003”; thus its premise is that the goods fall within Annex I, and on that premise it explains the MEU Regulation scheme for the benefit of the user. It does not suggest that the certification process under the Regulation determines the classification.
In the result I consider that Nugee J’s reasoning (and that of the FTT: paragraphs 136 – 142) is plainly correct. I would emphasise the point made by Nugee J at paragraph 125: where, by force of the express provision to that effect in the last sentence of Article 3(1), the Article 3 certificate is used as a customs declaration, it cannot be conclusive as to the CN status of the goods, since a customs declaration by the importer never has that effect. As Nugee J said “it is just a declaration by or on behalf of the importer, and is subject to post clearance verification by the customs authorities”. The insertion of a CN code in Box 6 of the form specified at Annex III to the MEU Regulation – which is, of course, required to be used in all the Member States – amounts to no more than a claim or assertion by the trader.
I should add that some reference has been made in this part of the case to the doctrine of legitimate expectation. I need only say that I agree with Nugee J at paragraph 135:
“They [cases on legitimate expectation, legal certainty, the principle of non-retroactivity and the principle of good administration] do not… permit the MEU Regulation to be given any different interpretation from that which I consider to be its proper meaning; or require the MoD’s certificate to be treated as conclusive as to the classification of the goods if that is not its effect under the Regulation.”
I would dismiss the appellants’ appeal on the first issue. In my judgment the tribunals below were plainly right and I would decline to order a reference to the Court of Justice.
THE SECOND ISSUE
The FTT address this issue at paragraphs 146 – 171. At paragraph 152 they agreed with Mr Beal’s criticism of HMRC’s approach to classification to the effect that “HMRC had omitted to take into account the specialist protective properties of the clothing and its function”. They rejected (paragraph 156) Mr Thomas’ submission for HMRC that the specialist nature of the goods was “relevant only to the issue of the Certificate and not to the question of classification”. They held in terms (paragraph 163) that “the functionality of the garments must be taken into account in determining their classification”. I will cite the following paragraphs from the reasoning which follows:
“166. It seems to us that heading 6211 does refer to the function of the garments contained within it. Whether something is a tracksuit, ski suit or swimwear will depend on the function it is intended to perform.
167. In our view a camouflage jacket, intended for military use but which is available to the public generally, is still a jacket. Elements of style or fashion do not characterise it as anything other than a jacket. However when IRR properties are incorporated within the garment, which is not available to the public generally, the garment has a function which is not related to style or fashion. Such a garment fulfils two functions – firstly it is an item of clothing intended on one level in common with jackets generally, to protect the wearer from the elements. Equally important at least is the function it performs in protecting the wearer from detection by enemy forces.
168. The point that arises in the present case is that the garments fulfil their function as a jacket, whilst also fulfilling a specialist protective function by reference to their IRR properties. In other words, making the wearer less detectible to an enemy using night vision goggles. Put simply, the question is whether in those circumstances the garments fall to be classified as for example jackets/trousers or as other garments.
…
170. In our view GIR 3(a) does not operate to classify the goods in question as jackets. It would only apply if the function of a jacket as an item of apparel is considered more specific than its function in protecting the wearer from detection. Similarly in relation to the other items of clothing we are concerned with in this appeal.
171. In our view the objective characteristics of the IRR clothing imported by the appellants includes their function in helping to prevent detection by enemy forces. The IRR properties are such a specialist feature of the jackets that describing them simply as jackets does not adequately reflect the product. Given its specific and specialised function, we consider that all clothing with IRR properties is best described as an ‘other garment’ and properly classified to heading 6211 33 10. It is not necessary to resort to GIR 3(c), although if it had been necessary the classification would have been the same. Consequently the appellant succeeds on its second ground of appeal.”
The appellants’ primary submission on this part of the case is that this conclusion was open to the FTT on the evidence and is not flawed by any error of law; accordingly, with respect to Nugee J, the Upper Tribunal had no business interfering with it. If the premise – that there is no legal flaw – is correct, then I accept that the conclusion follows. There is an abundance of authority to the effect that if the tribunal of fact has correctly applied the law, the Upper Tribunal on appeal cannot substitute its own conclusions: Mr Beal cites Pendragon plc v HMRC [2013] EWCA Civ 868, paragraphs 73 – 77, 160 – 166 and HMRC v Proctor & Gamble UK [2009] EWCA Civ 407 paragraphs 8 – 9. Out of his duty to the court he referred us to some observations of Lord Carnwath in Pendragon in the Supreme Court ([2015] 1 WLR 2838, paragraph 51) which, he submitted, appeared to qualify the accepted approach. I will not with great respect set out the passage. None of their other Lordships endorsed it, and I think the orthodox view of the tribunals’ respective roles is in line with general principles relating to appeals on points of law and ought to be followed.
The FTT cannot in my judgment be said to have reached a conclusion of fact which was insupportable on the evidence. There was no dispute of primary fact, and there is no question of an unjustified factual inference. The true issue here is whether the FTT erred in law by misconstruing any of the material provisions.
After a discussion of the relevant legal principles, Nugee J addressed what he described as “the substantive question” on this part of the case at paragraphs 74 – 97. He held that the FTT had fallen into error in two respects, accepting submissions for HMRC which he had described at paragraph 70 as follows:
“Mr Thomas relies on two points in particular: first that ‘other garment’ means a garment other than the garments specified elsewhere in chapter 62, and ‘jacket’ means a jacket however specialised, so that if an item is a jacket, then it cannot be excluded as an ‘other garment’ however specialised it is; and second that it was impermissible for the FTT to rely on the function of the IRR items, as the heading ‘other garments’ says nothing about any of them.”
I think these two points run together. Unless the items in question fell to be distinguished as “other garments” by reference to their special protective function – no other distinguishing feature is contended for – there could surely be no answer to the contention that “other garments” simply meant garments other than those referred to elsewhere in Chapter 62. The only basis on which the jacket-type items could be classified as other than jackets must be by reference to their special protective function.
It is of course right that “jacket”, “trousers” and “other garments” are ordinary English words. Neither the CN nor the MEU Regulation contains any special definition of these terms. But Mr Beal says that their natural and ordinary meaning falls to be disapplied by reference to a particular function of the items in question. Whether that is right goes to the proper construction of the legislation, and is therefore a question of law.
Mr Beal made much of the fact that the Court of Justice has frequently treated a product’s inherent function, if it can be derived from its objective characteristics, as material to issues of the product’s classification. In his submissions at the hearing he cited five cases: Wiener C-338/95, Krings GmbH C-130-02, Sysmex Europe GmbH C-480/13, Sony Computer Entertainment Europe Ltd T-243/01 and HMRC v Epson Telford Ltd [[2008] EWCA Civ 567. All of them (and others) were referred to by Nugee J.
None of these, in my judgment, undermines the force for present purposes of the decision of the Court of Justice in Holz Geenen GmbH C-309-98 (paragraph 14 of the judgment):
“[I]n the interests of legal certainty and for ease of verification, the decisive criteria 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.”
As Nugee J stated (paragraph 79), this is the consistent jurisprudence of the Court. In at least three of Mr Beal’s cases it seems to me plain that the wording of the CN heading contained an express or implied reference to a function or use of goods: Wiener – nightdresses; Sony – video games; Epson Telford – printing ink. The same is true of Neckerman C-395/93 (pyjamas) to which Nugee J refers at paragraph 90, and whose core reasoning is cited in Wiener. Mr Thomas in his skeleton at paragraph 44 describes the Krings case as “the high point of the appellant’s analysis”. Nugee J dealt with that case as follows (paragraph 91(4)):
“Here the goods were two mixtures intended for the production of tea-based drinks and the relevant heading was ‘Extracts, essences and concentrates of tea… preparations with a basis of extracts, essences and concentrates of tea’. The Court of Justice took into account the intended use of the products, namely to be mixed with water to create beverages with a basis of tea. It seems to me that the Court must have regarded this use as a characteristic implicit in the wording of the heading.
I agree. Krings is as much in line with the principle stated in Holz Geenen as are the other cases where the wording of the CN heading refers to a function or use of the goods. Finally there is Sysmex, in which the product in question was capable of falling under either of two CN headings. In each there was express or implicit reference to a function or purpose of the goods which the heading covered. The Court of Justice allocated the product to the heading which matched its particular purpose (to test white blood cells for the existence of a possible pathology): its potential use for the purpose referred to in the other heading was “no more than a purely theoretical possibility” (paragraph 42). So this case, too, is entirely consistent with Holz Geenen.
Nugee J proceeded to apply Holz Geenen here:
“87… The basic principle, as shown by the citation from Hans Geenen above, is that the decisive criteria are to be sought in those ‘objective characteristics and properties as defined in the wording of the relevant heading of the CN’ (emphasis added). The wording of the relevant headings of the CN (‘Jackets’… ‘trousers’ etc) says nothing, or very little, about the function of the garments concerned. It certainly says nothing which excludes garments with protective functions… [T]he FTT in fact held that one of the characteristics of ‘jackets’ was that they protected from the elements. Moreover both jackets and trousers expressly include industrial and occupational garments (see for example headings 6203 39 11 and 6203 49 11)…
88 If there is nothing in the wording of the other relevant headings in chapter 62 (6203 etc), what about 6211? The FTT found (at paragraph 166) that heading 6211 did refer to the function of the garments contained within it. 6211 contains four items in the main heading (Tracksuits, ski suits, swimwear and other garments). Of these the first three are specialised garments which do refer to their function (to be used for ski-ing, swimming etc), but the final category of ‘other garments’ does not. It is… a residual or catch-all category, and as such it cannot sensibly be read as saying anything about the function of the goods that fall within it…”
I agree.
Standing back from all the learning, I am bound to say that in the circumstances of this case the debate about the goods’ function has a distinct air of unreality. A jacket does not cease to be a jacket because it has a special function. It is just a special jacket. As I have shown the FTT itself stated that “[t]he point that arises in the present case is that the garments fulfil their function as a jacket, whilst also fulfilling a specialist protective function…” (paragraph 168). I do not begin to see why the “specialist protective function” stops the object from being a jacket.
I would therefore reject Mr Beal’s primary submission on this part of the case. On this issue also Mr Beal suggested, I thought somewhat faintly, that we should consider making a reference to the Court of Justice if we were not satisfied that his case was good. With respect to him I think it plain that Nugee J was right. There is no cause for a reference.
Procedural Unfairness
This is an ancillary submission attached to the second issue in the case. It arises out of the second ground of appeal advanced before the Upper Tribunal by HMRC, to the effect that certain of the IRR items did not fall within CN Chapter 62 at all, but Chapter 65, as headgear. The items in question were caps and helmet covers and (as I understand Mr Beal to have pointed out to the tribunal) hats. There had been no decision by HMRC that these goods fell within Chapter 65. In the tribunal proceedings, the contention that Chapter 65 applied was apparently first asserted by Mr Thomas in his closing submissions for HMRC before the FTT. A sub-heading within Chapter 65 is 6506 (safety headgear). 6506 appears in Annex I to the MEU Regulation.
In the Upper Tribunal Nugee J dismissed an objection raised by Mr Beal to the effect that he lacked jurisdiction to entertain HMRC’s point on Chapter 65: paragraphs 105 – 110. Mr Beal submits that conclusion was wrong. He also submits that if an issue as to Chapter 65 had been raised in the proceedings by HMRC (or the MoD) at an earlier stage, his clients could have adduced evidence and argument to persuade the tribunal(s) that code 6506 was the correct classification for the headgear. In the alternative – and this was the principal burden of his argument at the hearing in this court – had HMRC (or the MoD) determined or suggested that Chapter 65 applied at the time the MoD issued the MEU certificate, his clients could have sought an amendment to the certificate showing code 6506 in relation to the headgear, and claimed relief accordingly. It is now too late to seek a retrospective authorization: Commission Regulation (EC) No 2454/93 (the Implementing Regulation) Article 294.
Nugee J held (paragraph 113) that the hats, caps and helmet covers fell to be classified under Chapter 65 (and so not Chapter 62). But (paragraph 114) he expressly did not decide which heading of Chapter 65 applied. That is of some importance, for it leaves it open to the appellants to contend, if they choose, for heading 6506 for the future; as to which I of course express no opinion.
I do not think it necessary to consider whether Nugee J was right to accept jurisdiction to entertain HMRC’s contention as to Chapter 65, for in my judgment there is nothing in the substance of Mr Beal’s points on unfairness or procedural irregularity. As to the first – that his clients were deprived of the opportunity to make a case for code 6506 in the proceedings – the issue in the appeal was whether the case they did make, for code 6211, was correct. HMRC owed them no duty to advance assertions of their own which might suggest an alternative case in the appellants’ hands, or to do so soon enough to enable such a case to be made. From first to last the burden was on the appellants to choose what case if any they would put forward for MEU relief. I would emphasise and endorse these observations made by the FTT:
“116. The importer has an obligation to ensure that it enters the correct customs classification on any customs declaration at the time of importing a consignment of goods (see Article 199 of the Implementing Regulation). From the time of publication in the Official Journal, no person is deemed to be unaware of the nature and extent of charges to customs duty (see Binder v. Hauptzollamt Bad Reichenhall [1989] ECR 2415, at [19]). The importer is responsible both for payment of the import duties and for the regularity of the documents presented by him to the customs authorities (See Case T-239/00 SCI UK Ltd v. Commission [2002] ECR II-2957 at [55]). It is the responsibility of traders to make the necessary arrangements in their contractual relationships to guard against the risks of an action for post-clearance payments.
117. By virtue of the provisions of the Code and the Implementing Regulation set out above, HMRC are obliged as a matter of EU law to enter the correct CN classification for goods imported into the United Kingdom (See Case C-413/96 Skatteministeriet v Sportsgoods A/S [1998] ECR I-5285 at [23-25] and [36-37]). In principle, when the customs authorities discover an error in the tariff classification of goods indicated in a declaration of release for free circulation, they must recalculate, in the light of the new information at their disposal, the amount of customs duties legally due at the date when that declaration was accepted.”
These considerations apply equally to Mr Beal’s alternative submission, that a prior decision by HMRC that Chapter 65 applied would have enabled his clients to seek an amended MEU certificate showing code 6506 in relation to the headgear, and to claim relief accordingly. But I think there is a further, related point. Even if (contrary to my firm opinion) HMRC could be said to owe a duty of some kind to canvas Chapter 65 in the decision-making process, a breach of such a duty would have nothing to do with these proceedings and could not be remedied within them. As I have said the only issue in the appeal was whether the claim for relief by reference to heading 6211 was right. If, as Nugee J held and I agree, it was not, such a supposed failure of duty would not make it so. It would afford no basis for allowing the appeal.
I would dismiss the appellants’ appeal on the second issue.
THE THIRD ISSUE
Notwithstanding Mr Beal’s careful and intricate submissions, I will deal with this part of the appeal quite shortly since in my judgment it is concluded against the appellants by unappealable findings of fact by the FTT.
The appellants claimed relief from payment of duty following the C18 post clearance demand by HMRC. The demand related to the period May 2009 to February 2010 and was for the sum of £743,059, comprising customs duty of £574,217 and VAT of £168,842. This issue only arises upon the premise that (as I have held, in agreement with Nugee J) the goods were not properly classified under heading 6211, so that duty was payable. The appellants say that the duty should have been remitted under Article 236 read with Article 220(2)(b) of the Community Customs Code (Council Regulation (EEC) No 2913/92), alternatively Article 239.
The material terms of those provisions are as follows:
“220(2) … [S]ubsequent entry in the accounts shall not occur where:
(b) the amount of duty legally owed failed to be entered in the accounts as a result of an error on the part of the customs authorities which could not reasonably have been detected by the person liable for payment, the latter for his part having acted in good faith and complied with all the provisions laid down by the legislation in force as regards the customs declaration…”
“236(1) … Import duties or export duties shall be remitted in so far as it is established that when they were entered in the accounts the amount of such duties was not legally owed or that the amount has been entered in the accounts contrary to Article 220(2)…”
“239(1) Import duties or export duties may be repaid or remitted in situations other than those referred to in Articles 236, 237, and 238…
resulting from circumstances in which no deception or obvious negligence may be attributed to the person concerned. The situations in which this provision may be applied and the procedures to be followed to that end shall be defined in accordance with the Committee procedure. Repayment or remission may be made subject to special conditions.”
For the purposes of their claim under Articles 220/236 and the requirement of “an error on the part of the customs authorities” the appellants relied (a) on a letter from the MoD dated 28 January 2009 and the certificate issued on 17 February 2009 by the MoD under Article 3 of the MEU Regulation and (b) on the authorization for MEU relief issued by HMRC on 5 May 2009.
I will deal first with the question whether there was an error on the part of HMRC. The FTT held that there was not: paragraph 198: “We do not accept that HMRC made any error in granting the Authorization. It was on terms that the goods imported to MEU relief should be properly classified to CN 6211.” Nugee J considered (paragraph 142) that this was a conclusion which the FTT was entitled to reach: the authorization “did not purport to tell [the appellants] that HMRC had agreed that [6211] was the correct classification”. He referred to the FTT’s finding at paragraph 38, concerning a meeting between Ms Crawford (of HMRC) and Mr McMahon (of the appellants) on 29 April 2009, that “Ms Crawford was not a classification officer and having heard her evidence we do not think it likely that she would have confirmed that the goods intended to be imported were properly classified under code 6211. We accept Ms Crawford’s evidence that she discussed with Mr McMahon the appellant’s responsibility to ensure the correct classification of the goods”. In light of this finding Nugee J considered that the authorization could not reasonably be read as confirming the classification. I agree.
The next important finding is the FTT’s conclusion at paragraph 196 concerning what they accepted was an error by the MoD:
“We accept that there was an error by the MoD if Ms McCollum [of the MoD: she notified the appellants of the grant of the certificate] considered, wrongly, that the IRR clothing could properly be the subject of MEU relief. However it was not this error which resulted in customs duty legally owed not being entered in the accounts. The real cause of the duty not being entered in the accounts was a failure by the appellant to obtain advice from HMRC tariff classification service as to the proper classification of the goods. They had been advised to do so in 2005 by both the MoD and HMRC. Notwithstanding Ms McCollum wrongly thought that the goods were entitled to MEU relief she did not cause the appellant’s misunderstanding. Nor was she responsible for any legitimate expectation on the part of the appellant that it would be entitled to relief.”
This, too, is entirely sustainable. Mr Beal says that the tariff classification service (the TCS) is not empowered to make binding legal rulings, and there was no legal obligation to consult it. So far as they go those propositions are true; but with respect to Mr Beal I think they miss the point. The FTT are simply holding as a matter of fact that had the appellants consulted the service, as they had been advised to do, they would not, or probably would not, have relied on the error. The FTT did not decide that the appellants owed a legal duty of some kind to consult the TCS. Paragraph 196 has to be read with what follows:
“197. Further, we find that the error could have been reasonably detected by the appellant if it had sought to confirm the correct tariff classification with HMRC. The appellant failed to make the enquiries with HMRC that Puma Cargo had made on its behalf in 2005. The appellant was an experienced importer employing an experienced customs agent.”
[I have already set out paragraph 198.]
“199. Mr McMahon’s evidence was that the appellant had relied on the Certificate and the end use Authorization to justify classifying the goods to CN 6211. We accept that he did so rely, and also that he acted in good faith. For the reasons we have given we are not satisfied that it was reasonable for the appellant to rely on those documents for the purposes of tariff classification. Even if there was an error on the part of the customs authorities, it was reasonably detectable by the appellant in the sense that the appellant could and should have referred the question to the tariff classification service of HMRC.”
These and other conclusions of the FTT are underpinned by earlier findings in the determination. I will cite paragraph 30:
“However we do not accept that the appellant could reasonably take this letter [from Ms McCollum notifying the appellants that a certificate would be “allowable”] as confirmation that it would be entitled to MEU relief. Mr Trimble [the appellants’ chairman] had not furnished either Ms McCollum or HMRC with details of the specific products which he realised it would be necessary to do at the time of his request for a certificate in January 2009. More importantly, the appellant was also aware that both the MoD and HMRC… in 2005 had emphasized that it was for the importer to identify the correct tariff classification of goods and in case of uncertainty the importer should contact the HMRC tariff classification service.”
See also paragraphs 45 and 75, cited by Nugee J at paragraph 147.
In light of their findings the FTT held at paragraph 200:
“In the circumstances the second condition for the application of Article 220(2)(b) [‘error on the part of the customs authorities which could not reasonably have been detected by the person liable for payment’] is not satisfied. The appellant would not be entitled to remission pursuant to Article 236.”
The FTT heard oral evidence from all the principal participants. Their findings are no in my judgment open to challenge on Edwards v Bairstow ([1956] AC 14) grounds. At paragraph 158 Nugee J concluded:
“In my judgment the FTT made no error of law in concluding that the real cause of the duty not being entered in the accounts was that [the appellants] decided to change the codes for the importation of the IRR items from codes that did not qualify for MEU exemption to code 6211 which did, without taking advice from TCS as to the correct classification of the goods. This seems to me a finding which it was open to them to make and hence one which it is not possible for the Upper Tribunal to disturb.
I agree. I should add in this context that I do not consider that Mr Beal can extract a point of law that helps him from the decision of the Court of Justice in Hewlett Packard France C-250/91, for the reasons given by Nugee J at paragraphs 152 – 154.
I turn to Mr Beal’s case on Article 239. As Nugee J observed (paragraph 162), the FTT set out at paragraphs 111 – 125 the relevant provisions of the Implementing Regulation and the decided cases which bear on Article 239. I am not going to rehearse this material, since again the case is in my judgment concluded by unappealable findings of fact by the FTT. Nugee J proceeded to summarise the “salient points” of the relevant law, noting (paragraph 162(3)) that in Covita C-370/96 the Court of Justice, giving guidance on Article 239, stated at paragraph 29 “that repayment or remission under that article was subject to two cumulative conditions, namely the ‘existence of a special situation’ and the ‘absence of deception or obvious negligence on the part of the trader’.” As Mr Beal submitted, Article 239 is intended to protect the trader’s legitimate expectations. It is I think common ground that “obvious” negligence in the European cases bears no affinity to “gross negligence” as that expression is used in some contexts in the common law. In order to assess whether a trader is in a “special situation” the court or tribunal must consider whether he is in an exceptional situation compared with other traders in the same business.
The FTT’s conclusions on Article 239 are, as Mr Thomas submitted, essentially based on the same findings as for Articles 220/236. The following passage effectively cross-refers to paragraphs 196 – 199 which I have set out:
“203. We have found that HMRC did not approve the use of CN 6211 for the appellant’s imports. Nor for the reasons given above did the MoD lead the appellant to believe that CN 6211 had been approved by HMRC. In the circumstances we do not accept that the appellant had any legitimate expectation from its dealings with the MoD or HMRC that MEU relief would be available.
204. In all the circumstances we are not satisfied that there is any special situation for the purposes of Article 239. We are also not satisfied that the appellant has been placed in any exceptional situation compared with other operators engaged in the same business. If it were necessary for us to do so we would find obvious negligence on the part of the appellant in failing to follow the advice given to it by the MoD in 2005, and to Puma Cargo by HMRC, also in 2005.”
Mr Beal’s submission that his clients were the only trader trading in these goods is correctly answered by Nugee J at paragraph 166. There is no discrepancy between the FTT’s finding of “good faith” on Mr McMahon’s part at paragraph 199 and their contingent finding of “obvious negligence” at paragraph 204: the reference to good faith appears to reflect the FTT’s view that there was no dishonesty (paragraph 46).
Nugee J concluded as follows at paragraph 165:
“On the basis of these findings of fact, which I consider cannot be overturned, the FTT found that HMRC and the MoD had not created a legitimate expectation and hence that there was no special situation. The assessment whether there is a ‘special situation’ is an example of the kind of multi-factorial assessment, based on a number of primary facts, that was referred to by Jacob LJ in HMRC v Procter & Gamble ([2009] EWCA Civ 407); and given the findings of primary fact that the FTT had reached, I do not think it is open to me to reverse that assessment.”
Mr Beal tacked in many directions, making much of communications between HMRC and the MoD. I pay tribute to his tenacity, but from first to last there is in my judgment nothing in the case to undermine the conclusions of the tribunals below.
In the circumstances, like Nugee J (paragraph 159(1)) I find it unnecessary to deal with HMRC’s cross-appeal, by which they assert that the FTT was wrong to find that the MoD was a customs authority for the purposes of Article 220(2)(b).
CONCLUSION
I would dismiss the appeal.
ELIAS LJ:
I agree.
RUSSELL J:
I also agree.