HM Revenue & Customs v Epson Telford Ltd

Should the second and third generation ink-jet printer cartridges which are imported into the EU by Epson Telford Ltd (“Epson”) be classified under the EU Customs Tariffs as ink or as parts of printers? That is the basic question which arises on this appeal by the Commissioners for HM Revenue & Customs (“HMRC”) against a decision of the VAT and Duties Tribunal (“the Tribunal”) dated 9 June 2006 (“the Decision”) which classified the cartridges as parts of printers. If that classification is correct, the cartridges are imported free of duty. If, however, they are correctly classified as ink they are liable to duty of 6.5%.

There is no existing authority, apart from the Decision itself, on how this question should be answered in relation to second and third generation (“G2” and “G3”) cartridges. However, the classification of Epson’s first generation (“G1”) cartridges has been the subject of two decisions by the Court of Justice of the European Communities (“the ECJ”), Case C-276/00 Turbon International GmbH v Oberfinanzdirektion Koblenz [2002] ECR I-1389 (“Turbon I”)and Case C-250/05 Turbon International GmbH v Oberfinanzdirektion Koblenz (“Turbon II”), as well as a domestic decision of the Tribunal in 2000, Epson Telford Ltd v Customs & Excise Commissioners(MAN/99/7040) (“Epson 1”), in each of which it was concluded that the G1 cartridges should be classified as ink.

The decisions in Turbon I and Epson 1 pre-dated the hearing before the Tribunal in the present case, which took place on 20, 21 and 22 March 2006. It was known at the date of the hearing that a further reference to the ECJ had been made in Turbon II, on the basis that the referring court considered the reasoning of the ECJ in Turbon I to be factually inaccurate. However, the Advocate General (Kokott) had not yet delivered her Opinion, although she did so on 8 June 2006, the day before the Decision was released.

In her Opinion the Advocate General concluded that the G1 cartridges should be classified as parts of printers. This was of course the same conclusion that the Tribunal reached on the following day in relation to G2 and G3 cartridges. In those circumstances, HMRC realistically recognised that an appeal against the Decision would have no real prospect of success unless, unusually, the ECJ declined to follow the advice of the Advocate General when it came to deliver its judgment. An order was therefore made by consent by Pumfrey J on 31 July 2006 staying HMRC’s appeal pending the final decision in Turbon II.

The ECJ delivered judgment in Turbon II on 26 October 2006. The court disagreed in part with the reasoning of the Advocate General, and decided that the G1 cartridges should after all be classified as ink. In other words, the court reached the same conclusion as it had previously done in Turbon I, although it did so by a different route.

The present appeal by HMRC against the Decision lies only on points of law: see section 11 of the Tribunals and Inquiries Act 1990. No challenge is now made to any of the Tribunal’s detailed findings of primary fact about the G2 and G3 cartridges. What is said, in essence, is that the Tribunal misapplied the relevant General Rules for the interpretation of the Combined Nomenclature in which the classification of goods for customs tariff purposes is contained, and that in the light of the reasoning of the ECJ in Turbon II their conclusion cannot stand.

For its part, Epson submits that the Tribunal reached the correct conclusion, or at least one which was reasonably open to it, and that their conclusion is wholly unaffected by the reasoning in Turbon II.

HMRC were represented before me by Mr Owain Thomas of counsel, who also appeared before the Tribunal. Epson was represented by Mr Tom Hickman of counsel, who did not appear below.

A full account of the legal background to the EU Customs Tariffs, and the principles to be followed in their interpretation, was given by Lawrence Collins J (as he then was) in Vtech Electronics (UK) Plc v Customs & ExciseCommissioners [2003] EWHC 59 (Ch) (“Vtech”). See too paragraphs 7 to 14 of the Decision. What follows is intended to be a relatively brief summary.

The EU is a contracting party to the International Convention on the Harmonised Commodity Description and Coding System, generally known as “the Harmonised System”. The Convention requires that the tariffs and nomenclatures of contracting states conform to the Harmonised System, and all contracting states therefore use the headings and sub-headings of the Harmonised System. The system is administered by the World Customs Organisation in Brussels, which publishes explanatory notes to the Harmonised System known as “HSENs”.

At Community level, the amount of customs duties on goods imported from outside the EU is determined on the basis of the Combined Nomenclature (“CN”) established by Article 1 of Council Regulation 2658/87 and Article 20.3 of Regulation 2913/92. The CN is re-issued annually. It comprises three elements: (a) the nomenclature of the Harmonised System; (b) Community sub-divisions to that nomenclature; and (c) the preliminary provisions, additional section or chapter notes and footnotes relating to CN sub-headings.

It is common ground that the Epson printers to which the cartridges in the present case relate are classified under CN code 8471 as “automatic data- processing machines”.

The Tribunal found that the relevant tariff classification for G2 and G3 cartridges is CN code 8473, which applies to:

“Parts and accessories (other than covers, carrying cases and the like) suitable for use solely or principally with machines of headings 8469 to 8472.”

HMRC contend that the proper heading is CN code 3215, which applies to:

“Printing ink, writing or drawing ink and other inks, whether or not concentrated or solid.”

Each of the two headings set out above is further sub-divided, but for present purposes nothing turns on the further sub-divisions.

Apart from the HSENs to which I have already referred, the European Commission also issues Explanatory Notes of its own to the CN which are known as “CNENs”.

The ECJ has repeatedly stated that the decisive criterion for the tariff classification of goods must be sought in their objective characteristics and properties as defined in the wording of the relevant heading of the CN. The two categories of explanatory notes, that is to say the HSENs and the CNENs, may be an important aid to interpretation, but they do not have legally binding force. So, for example, in Case C-309/98, HolzGeenen GmbH v Oberfinanzdirektion Munchen, the court said at paragraph 14:

“It is settled case law that, in 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. The [two categories of explanatory notes] may be an important aid to the interpretation of the scope of the various tariff headings but do not have legally binding force.”

See too, to similar effect, Turbon II at paragraph 16.

Some illustrations of this general objective approach were given by Lawrence Collins J in paragraph 13 of his judgment in Vtech. For example, in Case C-338/95, Wiener SI GmbH v Hauptzollamt Emmerich [1997] ECR I-6495 (“Wiener”), the intended use of the product (pyjamas) for wearing in bed was decisive.

Part 1 of the CN contains at Section 1A the General Rules for the Interpretation of the CN. These General Rules are known as “GRIs”. Unlike the explanatory notes, they have the force of law (see Vtech at paragraph 16).

So far as material, the GRIs provide as follows:

“Classification of goods in the Combined Nomenclature shall be governed by the following principles:

1.

The titles of sections, chapters and sub-chapters are provided for ease of reference only; for legal purposes, classifications 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.

2.

(a) …

(b)

Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of rule 3.

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 gives a more complete or precise description of the goods;

(b)

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

(c)

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

4.

Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin.”

It will be observed that the General Rules quoted above provide a hierarchical set of principles, and if the correct classification can be ascertained at a given stage it is unnecessary to proceed any further.

Of the section notes to the CN, Note 2 to Section XVI provides, so far as material, that parts of machines

“if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading … are to be classified with the machines of that kind or in heading … 8473 … as appropriate.”

The HSEN to heading 3215 concludes by saying:

“This heading does not include:

(a)

Developers consisting of a toner …

(b)

Refills for ball point fountain pens comprising the ball point and ink reservoir (heading 96.08). On the other hand, mere ink-filled cartridges for ordinary fountain pens remain in this heading.

(c)

Inked ribbons for typewriters or ink-pads (heading 96.12).”

Before coming on to the facts of the present case, I will review the decisions of the ECJ in Turbon I and Turbon II.

Turbon I was a reference for a preliminary ruling under Article 234 EC by the Hessisches Finanzgericht. It concerned the tariff classification of ink cartridges without an integrated print head for use in Epson Stylus Colour ink jet printers (“ESC printers”). In terms of the terminology which I have adopted, these were G1 cartridges. The judgment of the ECJ was delivered on 7 February 2002.

The cartridges were described as follows in paragraph 14 of the judgment:

“It is apparent from the documents before the Court, first, that the goods in question consist of an ink cartridge (comprising a parallel-piped plastic casing of approximately 2.7 x 6.4 x 4.2 cm, foam, metal screen, seals, tape seals, and labels, with a total value of approximately DEM 4), ink (approximately 35 ml) valued at DEM 0.35 and packing materials consisting of a cardboard box inside which is a sealed grey plastic bag, and, second, that they can only used in ESC printers, the cartridge and the ink being specially designed for that type of printer.”

Paragraph 16 recorded the argument for Turbon International that the cartridges should be classified under CN sub-heading 8473:

“on the basis that, by reason of its specific characteristics, it performs an essential technical function in the printing process, so that it is comparable with an ink cartridge with an integrated print head and can be classified as part of a printer.”

It was further argued that the cartridge could in any event be regarded as an accessory of a printer, in the sense that it constituted an interchangeable part designed to adapt a machine for a particular operation.

The Court concluded that the cartridges were to be classified as ink under sub-heading 3215. The main reasoning of the Court is contained in paragraphs 23 to 34 of the judgment, and proceeded by the following stages.

First, the Court pointed out that the cartridges were not explicitly covered either by the wording of the CN headings or by the notes to the CN sections and chapters. In this respect, the cartridges were unlike refills for ball point fountain pens comprising the ball point and ink-reservoir and inked ribbons for typewriters or ink pads, which were all covered by specific tariff headings.

Next, the Court referred to GRI 3(b) and said it was settled case-law that in order to identify from among the materials of which a product is composed which is the one that gives it its essential character, it is necessary to determine whether the product would retain its characteristic properties if one or other of its constituents were removed from it: see Case C 288/99 VauDe Sport [2001] ECR I-3683 at paragraph 25. The Court then continued:

“27.

In this case the element which gives the cartridge its essential character is the ink which it contains. The essential function of the cartridge consists in containing the ink and supplying the printer so as to enable the printer to transcribe on to paper work done with the aid of a computer.

28.

That finding is not called into question by the national court’s observation that the cartridge can be refilled. The fact that this attribute gives the plastic casing a longer life does not alter the cartridge’s intrinsic function, which is to contain ink and supply the ESC printer.”

The Court then moved on to consider whether the cartridge should rather be regarded as a part or accessory of a printer and classified under heading 8473, in view of the fact that it was specifically designed for, and could only be used by, a particular type of printer, and the further fact that it included “a technically sophisticated mechanism ensuring a controlled flow of ink during the printing process” (paragraph 29).

The Court observed in paragraph 30 that the word “part” within the meaning of CN heading 8473 implies a whole for the operation of which the part is essential: see Case C-339/98 Peacock AG v Hauptzollamt Paderborn [2000] ECR I-8947 (“Peacock”) at paragraph 21. The Court then said that the cartridge did not satisfy this test, because although a printer could not carry out its intended functions without an ink cartridge, the mechanical and electronic functioning of the printer in itself was not in any way dependent on such a cartridge. Accordingly,

“The inability of the printer, in the absence of an ink-cartridge, to transcribe on to paper the work produced with the aid of a computer is caused by lack of ink rather than a malfunctioning of the printer.”

Having thus decided that the cartridge could not be regarded as part of a printer, the Court went on in paragraph 32 to reject the alternative argument that it could be classified as an accessory, and in paragraph 33 stated its conclusion in the following terms:

“It follows from the foregoing considerations that goods such as those at issue in the main proceedings should, pursuant to general rule 3(b), be classified under heading 3215 of the Combined Nomenclature.”

Finally, in paragraph 34 the Court found corroboration for this conclusion in the HSEN for heading 3215, which includes mere ink-filled cartridges for fountain pens:

“As the Advocate General rightly points out at point 59 of his Opinion, such cartridges are to fountain pens what the cartridges at issue in the main proceedings are to ESC printers, since their function is both to hold the ink and to release a regular flow of ink necessary for the use of an instrument designed to print on paper and they have a format, which varies according to brand, such as to allow them to fit inside the pen for which they are designed.”

It will be observed that there is a certain illogicality in the reasoning of the ECJ in Turbon I, because they begin by considering the position under GRI 3(b), which presupposes that it has not been possible to classify the cartridges under any of the previous principles. However, in paragraphs 30 to 32 they go on to conclude that the cartridges cannot be regarded as part of a printer. If that is right, GRI 3 does not come into play at all, because it applies only where goods are prima facie classifiable under two or more headings. Thus the logical consequence of saying that the cartridges cannot qualify as part of a printer is that they must be classified as ink pursuant to GRI 1 and 2(b), and not , as the Court expressly said in paragraph 33, that this result is reached pursuant to GRI 3(b).

Nevertheless, this illogicality does not in my judgment detract from the force of the point made by the ECJ in paragraphs 27 and 28 that the element which gives the cartridge its essential character is the ink which it contains. It is implicit in this finding that the ink element prevails, for the purposes of GRI 3(b), over any other material or component comprised in the cartridge, or any other rival classification heading which might apply.

Turbon II was a further reference for a preliminary ruling by the same Court which had made the reference in Turbon I, and in the same proceedings. This unusual step was taken because Turbon International challenged the assumption made by the ECJ in paragraph 30 of its judgment in Turbon I that the mechanical and electronic functioning of the printer in itself was not dependent on the presence of an ink cartridge. On the basis of a demonstration of the product, and having received further evidence, the national court was able to satisfy itself that the printer did not in fact function in the absence of an ink cartridge. This in turn called into question the ECJ’s conclusion that the cartridge could not be regarded as part of a printer within heading 8473.

The detailed findings of fact made by the national court are set out in paragraphs 29 to 35 of the Opinion of the Advocate General. I would summarise those findings as follows:

Some further additional material upon which Turbon International placed reliance is referred to in paragraphs 47 to 49 of the Advocate General’s Opinion. I do not need to refer to it in detail. It is enough to say that it was intended to bolster the view that the cartridge was not merely an ink container but an integral part of the print management system, and to emphasise that the printer would only operate if cartridges were correctly inserted, with or without ink. If no cartridge were inserted, a protective mechanism would be engaged which would lock the printer in a parked position and indicate that it was not operational.

Having set out the facts, the Advocate General proceeded to analyse the relevant headings and notes of the CN. She held, first, that the cartridge could not be classified as ink under heading 3215 by reference only to GRI 1, because the cartridge element did not correspond to any of the descriptions under that heading. She then held, in the light of the new evidence, that the cartridge satisfied the test in Peacock, and could therefore be regarded as a part of the printer. Again, however, it was not possible to classify the cartridge under heading 8473 by sole reference to GRI 1, because the ink in the cartridge is not a part of the printer, and is not essential for the mechanical and electronic functioning of the printer (paragraph 72). Accordingly, as the cartridges consisted of two elements which, when looked at separately, might each be classified under only one heading, but which when looked at as a whole were not covered by any one heading, it was necessary to refer to GRI 2 to 5 in order to classify them.

The Advocate General then considered, and rejected, the possible application of GRI 5, which would apply if the cartridges were themselves to be regarded themselves as packing materials, packing containers or containers for the ink. Having done so, she turned to GRI 2 and pointed out that its effect was that “every heading which covers a part of any goods covers also the whole of those goods, even if the goods comprise other parts too” (paragraph 88). Accordingly, both CN headings 3215 and 8473 covered the whole of the cartridge, and as the cartridges were prima facie classifiable under two headings it was necessary to go on to consider GRI 3.

In paragraph 91 of her Opinion, the Advocate General referred to GRI 3(a) which provides that the heading which provides the most specific description shall be preferred to headings providing a more general description. However, the effect of the second sentence of rule 3(a) was that when two headings each referred to part only of the materials or substances contained in composite goods, “the provision deems them to be equally specific”. Thus GRI 3(a) did not assist in deciding between the rival headings.

Moving on to GRI 3(b), the Advocate General referred to what she called the “assumption” of the Court in Turbon I that the ink gave the cartridges their essential character, and said that in her view this assumption could no longer be maintained because the cartridges had a dual purpose, namely to contain the ink and to form a functional unit with the printer (paragraph 94). She amplified her reasoning on this point in paragraphs 95 to 98, and then concluded in paragraph 99 that neither of the two components of the cartridge alone gave it its essential character. It was therefore necessary to go on to GRI 3(c), which provides that where goods cannot be classified by reference to GRI 3(a) or (b) they shall be classified under whichever of the relevant headings occurs last in numerical order in the CN. Application of this rule meant that the cartridges were to be classified under CN heading 8473.

As I have already said, the ECJ reached the opposite conclusion to the Advocate General when it delivered its judgment on 26 October 2006. However, it is important to note that, so far as one can tell from the concise terms of the judgment, there was only one step in the analysis and reasoning of the Advocate General with which the Court disagreed. The Court agreed with her:

(a)

that in the light of the new evidence and the findings of the national court, the cartridges were capable of being regarded as a part within heading 8473 (paragraph 18 of the judgement);

(b)

that the ink could not, however, be regarded as part of a printer, and the cartridges were thus made up of two elements each of which, considered separately, could be classified under one heading, but neither of those headings covered them as a whole (paragraph 19); and

(c)

it was therefore necessary to have recourse to GRI 3(b) in order to classify the goods (paragraph 20).

Where the Court disagreed with the Advocate General was in relation to her analysis of the material or component which gave the cartridge its essential character. On this critical issue, the Court expressed itself as follows:

“21.

Under that general rule [i.e. GRI 3(b)], in carrying out the tariff classification of goods it is necessary to identify, from among the materials of which they are composed, the one which gives them their essential character. This may be done by determining whether the goods would retain their characteristic properties if one or other of their constituents were removed from them …

22.

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

23.

Even if an ink cartridge, such as that at issue in the main proceedings, is constructed in such a way that the printer does not function in the absence of that cartridge, the fact remains that the ink contained in the cartridge is the most important factor for the purpose of using the goods at issue. In fact, the ink cartridge is not inserted in the printer in order to make the printer itself function but specifically to supply it with ink. Therefore, the ink must be regarded as determining the essential character of an ink cartridge, such as that at issue in the main proceedings.

24.

That interpretation is not affected by the argument of the defendant in the main proceedings, according to which ink cartridges with an integrated print head are classified under heading 8473 of the CN. Since such ink cartridges are composed of materials other than those at issue in the main proceedings, the tariff classification of the former does not necessarily determine the tariff classification of the latter.”

It can thus be seen that the Court rejected the view of the Advocate General that the cartridge consisted of two components of equal importance, neither of which could be regarded as essential without the other. As in Turbon I, the Court fastened on the purpose for which the cartridge is inserted into the printer, namely to supply it with ink. As the Court said in paragraph 23, even if the cartridge is constructed in such a way that the printer does not function in its absence, the fact remains that the ink contained in the cartridge is the most important factor for the purpose of using the cartridge. I would add that this emphasis on the use of the cartridge is not a subjective matter, based on the motives or intentions of individual users, but rather an objective appraisal of the purpose for which a cartridge is inserted. At the simplest level, the purpose of a printer is to provide a printed hard copy of a document which would otherwise only exist electronically. In order to produce such a hard copy, two raw materials are necessary: paper and ink. The purpose of the cartridge is to provide the ink. This may sound like a statement of the blindingly obvious, but in my judgment it is important in an area as technical as this not to lose sight of the wood for the trees, and not to be distracted by technical features and refinements of the cartridges from concentration upon their basic function.

The hearing before the Tribunal (Elsie Gilliland and Gilian Pratt) took place at the Manchester Tribunal Centre over three days in March 2006. Expert evidence was called on each side, from Mr David Anthony Sykes (a chartered electrical engineer specialising in IT peripheral equipment) for Epson, and from Mr Bevan John Clues (also a chartered electrical engineer) for HMRC. In paragraph 3 of the Decision, the Tribunal identified the question for decision as being whether the G2 and G3 cartridges should be classified as parts of the printer as submitted by Epson, or whether notwithstanding any technological advances from the G1 cartridges they should be classified as ink.

The Tribunal’s detailed findings of primary fact are set out in paragraphs 22 to 39 of the Decision. None of these findings is now challenged by HMRC. They are too lengthy to reproduce in full, but I shall draw attention to some salient points:

In paragraphs 43 to 47 of the Decision the Tribunal stated their conclusions on the facts, as follows:

“43.

The first matter to consider is what are the objective characteristics and properties of the cartridges. The [G2 and G3] cartridges are more than mere containers or receptacles for holding or storing ink until the ink can be used by the printer. It is undoubtedly the case that the cartridges do perform the function of preserving and storing the ink until it is used by the printer but they also process the ink so that the cartridge delivers the ink at the right flow rate and at the right pressure to the delivery port and valve which interfaces with the mating device on the printer and through which ink is drawn by the printer to the print head.

…

44.

The cartridges however process the ink until it leaves the cartridge at the appropriate pressure and flow rate. It is not the case that the ink simply flows by gravity to the delivery port. If that were the case the pressure and rate of flow would diminish as the amount of ink remaining in the cartridge decreases. In the case of the [G2] cartridges the ink is drawn to the delivery port and the valve at the appropriate rate and pressure by capillary action through the sponge. In the case of the [G3] cartridges this function is performed by the smart valve which senses changes in pressure and opens or closes as appropriate. There is also a mixing function referred to agitation. In both types of cartridge the appropriate rates of flow and pressure are maintained until the amount of ink in the cartridge is too low to permit the safe operation of the print head.

45.

The ingress of air into the cartridges to enable the vacuum which would otherwise be created when ink passes from the cartridge into the print head to be avoided is also controlled by the design of the snake road and in the case of the [G3] cartridges also by the air push valve at the side of the cartridge. Thus it is not correct simply to describe the cartridges as ink. They also are a system whereby ink is delivered to the print head at the correct rate of flow and pressure. If the correct rate of flow and pressure is not maintained this will impact upon the piezo-electric droplet control.

46.

As well as regulating the rate of flow and pressure of the ink as it leaves the cartridge the [G2 and G3] cartridges are also in direct mechanical and electrical contact with [the] printer. [Adescription is then given of how the chip operates]. The cartridge is clearly in our view more than ink and it performs functions other than that of a receptacle for ink.

47.

The ink-filled cartridge is not itself properly described simply as ink in the ordinary sense of that term nor is the cartridge merely a container which holds ink. The control of the rate of flow and of the pressure of the ink and the ability for information as to ink amounts to be read by the printer are also important characteristics and properties of the cartridge and cannot be relegated to the status of minor or peripheral characteristics. The fact that if the printer detects that the ink levels are too low for the continued safe operation of the print head and the printer then ceases to print (or cannot begin to print) is also an important characteristic of the cartridge. ”

In the final section of the Decision (paragraphs 48 to 59) the Tribunal stated their conclusions on the question of classification. The main steps in their reasoning may be summarised as follows:

The Tribunal went on to say that they did not derive any assistance from the HSEN for heading 3215 (which it will be remembered states that “mere ink cartridges” remain classifiable under that heading, in contradistinction to ball point pen refills which include a new ball point). Although the ECJ had found that analogy of assistance in Turbon I, the G2 and G3 cartridges were different in important respects from the G1 cartridges considered in Turbon I. The Tribunal then referred again to some of the most important of those differences.

Finally, the Tribunal:

In the light of the decision of the ECJ in Turbon II, HMRC now accept that the G2 and G3 cartridges are capable of classification as parts of printers under heading 8473. No challenge is now made, therefore, to steps (1) and (2) in the Tribunal’s reasoning summarised in paragraph 50 above. However, HMRC do challenge the conclusions which the Tribunal reached in relation to the application of GRI 3(a), (b) and (c). I shall consider these three sub-paragraphs in turn.

GRI 3(a)

HMRC submit that the Tribunal misdirected themselves by quoting only the first sentence of rule 3(a), and not the crucial second sentence which led the ECJ in Turbon II to hold that GRI 3(a) was inapplicable because it deemed the two constituent parts of the cartridges (i.e. the ink and the casing) to be equally specific, with the result that GRI 3(b) had to be applied.

The partial quotation by the Tribunal of rule 3(a) would not matter if the Tribunal had in fact considered the second sentence and taken it into account in their reasoning. However, there is no indication in paragraphs 51 and 52 of the Decision that they paid any regard to the second sentence. They simply directed themselves by reference to the test laid down in the first sentence, that is to say which of the two rival headings provided the most specific description of the goods. Accordingly, their approach is clearly flawed unless the second sentence is inapplicable.

On behalf of Epson, Mr Hickman submitted that the second sentence was indeed inapplicable, and the Tribunal were right to disregard it. He submitted that heading 8473 refers to the cartridge as a whole, and not merely the casing. Nor does it refer to any particular material or substance but rather to the cartridge as an item. It is not, submits Mr Hickman, the material or substance that results in G2 and G3 cartridges being capable of classification as parts, but rather their objective characteristics and their functioning. Similarly, heading 3215 does not refer to part only of an item, but to a particular substance.

I am unable to accept these submissions. In my judgment it is clear that the second sentence of GRI 3(a) is engaged, for the same reasons that Advocate General Kokott gave in relation to G1 cartridges in paragraph 91 of her Opinion in Turbon II. To spell out the reasoning, the cartridges are composite goods, because they are composed of two separate elements (the ink and the casing) each of which, viewed in isolation, is capable of falling under a specific heading. Both the ink and the casing (including in the latter the circuit board and chip) fall under the description “materials or substances contained in … composite goods”. Heading 3215 refers to the ink, and heading 8473 refers to the casing. Heading 8473 cannot be regarded as treating the whole of the cartridge as a part of the printer, because the ink is not itself a part of the printer: see paragraphs 72 and 73 of the Advocate General’s Opinion, and paragraph 19 of the judgment of the Court. Similarly, heading 3215 cannot be regarded as treating the whole of the cartridge as ink. However, by virtue of GRI 2(b) each heading is treated as extending to the cartridge as a whole, as the Advocate General recognised in paragraph 88 of her Opinion. Accordingly, the conditions for the second sentence of GRI 3(a) to operate are satisfied, and the mandatory consequence follows that the two headings “are to be regarded as equally specific in relation to [the cartridges], even if one of them gives a more complete or precise description of the goods”.

I would add that in my judgment the reasoning of the Advocate General on this point must be taken to have been endorsed by the Court, which said in paragraph 20 of its judgment that since the cartridges were composed of different materials, and neither of the two headings was more specific than the other, recourse had to be had to GRI 3(b) for the purpose of classifying them.

If the two headings are to be regarded as equally specific, it must then follow as a further consequence that neither heading can be preferred to the other pursuant to the test in the first sentence of rule 3(a), and it is therefore necessary to move on to rule 3(b).

For these reasons, the Tribunal in my judgment erred in law in considering that it was open to them to classify the cartridges by applying the test in the first sentence of GRI 3(a), and their conclusion that the cartridges should be classified as parts under that rule cannot stand.

GRI 3(b)

It will be recalled that rule 3(b) provides that composite goods which cannot be classified by reference to rule 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”. I have already set out in paragraph 50(5) above the Tribunal’s reasoning in paragraph 53 of the Decision which led them to conclude that rule 3(b) did not settle the matter, with the consequence that it was necessary to move on to rule 3(c).

For HMRC, Mr Thomas submitted that this conclusion must be wrong in the light of Turbon II. In Turbon II the ECJ held that the ink must be regarded as determining the essential character of the G1 cartridges. The reasons given for this conclusion were that “the ink contained in the cartridge is the most important factor for the purpose of using the goods”, and that when a cartridge is inserted into the printer this is done “not … in order to make the printer itself function but specifically to supply it with ink”: see paragraph 23 of the judgment. Both of these reasons, submits Mr Thomas, apply with equal force to the G2 and G3 cartridges. The Tribunal cannot be criticised for having failed to analyse the matter in that way, because they did not have the judgment in Turbon II available to them; but now that the correct approach has been clarified by the ECJ, it can be seen that this is the only possible conclusion to reach in the present case.

Mr Thomas supported his submission by pointing out that most of the observations made by the Tribunal in paragraph 53 of the Decision could equally have been made about the G1 cartridges. The role of the chip in receiving and transmitting information about the level of ink in the cartridges, and in preventing dry firing, was of course new; but that did not detract from the basic analysis of the function of the cartridges as being to supply the printer with ink. Furthermore, he submitted that the Tribunal at times lost sight of the fact that under rule 3(b) they were seeking to classify goods which, ex hypothesi, consisted of more than one material or component, and the question was which of those components gave the cartridges as a whole their essential character. The question was not one about the essential character of the printer.

For Epson, Mr Hickman submitted that the Tribunal’s approach in paragraph 53 of the Decision could not be faulted. The reason why G1 cartridges were classified as ink in Turbon I was that they did not affect the mechanical and electronic functioning of the printer: they were no more than a vessel for the ink. In the present case, by contrast, the electronic functioning of the printer is itself dependent on the cartridges, which must give the printer the green light to print. G2 and G3 cartridges are not merely a vessel, and may prevent printing from taking place even if they have ink in them.

Mr Hickman went on to submit that this conclusion is not affected in any way by Turbon II. True, Turbon II reveals that a factual assumption underlying the Decision in Turbon I was wrong, but the important distinction remains that in G1 cartridges there was no transfer of data from the cartridges to the printer. The main part of the printer simply recognised that a cartridge was not present, and therefore refused to follow a print command. The ECJ in Turbon II did not consider G2 or G3 cartridges, and the case is only authority for the proposition that G1 cartridges are properly classifiable as ink. The Tribunal expressly distinguished G1 cartridges from G2 and G3 cartridges, principally on the basis that the latter were sophisticated electronic components essential to the functioning of the printers. In the light of these special features, it is not true to say of G2 and G3 cartridges, as the ECJ said of G1 cartridges in paragraph 23 of the judgment in Turbon II, that the cartridge “is not inserted in the printer to make the printer itself function”.

These submissions were vigorously advanced by Mr Hickman, but I am again unable to accept them. In my judgment the decision of the ECJ in Turbon II establishes the following propositions in relation to G1 cartridges:

In my view the approach and reasoning of the court in Turbon II apply with equal force to the G2 and G3 cartridges. I can see no reason why the advances in design and technology incorporated into the G2 and G3 cartridges should make it any less appropriate to focus on the purpose for which the cartridges are used as providing the key to their essential character. That purpose is still to supply the printer with ink. Accordingly the ink should still be regarded as the most important constituent material or factor. If that is the correct approach, it is nothing to the point to argue, as Epson does, that the cartridges are essential to the functioning of the printer, or that they transmit and receive electronic data for various purposes. From one point of view, all that is true; but it does not impinge on the basic point that when a user places a G2 or G3 cartridge in a printer he does so in order to supply it with ink, that being one of the two key raw materials that the printer needs in order to fulfil its basic function of printing documents.

In any event, as Mr Thomas points out, it can only be true in a rather narrow sense to say that the cartridges are essential to the functioning of the printer. A printer is a highly complex piece of machinery, and in many, perhaps most, respects its mechanical operation has nothing to do with the supply of ink. If one narrows the focus to those aspects of its operation which are dependent on the insertion of ink cartridges (such as the printing of documents in response to a print command, and the prevention of dry firing when ink levels are low) the effect is to reinforce, rather than detract from, the central importance of the ink as the key component of the cartridges. In the absence of ink no printing can take place; and again it is the absence of ink which causes dry firing.

Another way of making the same point is to say that the two components of the cartridges are not of equal significance when forming a judgment as to which one gives the cartridges their essential character, although they are both in their different ways indispensable. The ink is of primary and overriding importance, because it is an essential raw material in the process of printing, and the purpose of inserting a cartridge is to supply the printer with ink. The functional unit is of secondary importance because its purpose is to ensure the efficient delivery of the primary ingredient to the printer, to prevent the printer from operating if ink levels are low, and to protect the printer from the risk of dry firing. All these functions relate to the presence, or absence, of the primary ingredient, ink.

I can readily understand how the Tribunal reached the conclusion they did, and if the ECJ had upheld the approach of the Advocate General in Turbon II they would have been handsomely vindicated. It is no criticism of their very full and careful decision to say that, through no fault of their own, they were unable to take account of the reasoning of the Court in Turbon II; and for the reasons which I have given I consider that it leads compellingly to the contrary conclusion. I am wholly unpersuaded that the differences between the G2 and G3 cartridges and their G1 predecessors, whether singly or cumulatively, make it possible to reach a different conclusion, given the concentration of the ECJ on the purpose for which the cartridges are used.

GRI 3(c)

GRI 3(c) only comes into play when goods cannot be classified by reference to rules 3(a) or (b). Since I have concluded that the cartridges must be classified as ink by reference to GRI 3(b), it is unnecessary to consider rule 3(c) any further. I would merely observe that it is clearly a residual rule of an apparently arbitrary nature, which provides a classification where all the foregoing criteria in rule 3 have failed to yield one. In view of the arbitrary nature of the rule, Mr Thomas submitted that the Court should be slow to have recourse to it. As a matter of general principle, and indeed common sense, I have a good deal of sympathy with that view. However, as the question does not arise directly for decision, and as there seems to be no authority on the point, I prefer to leave it open.

I must finally deal with two further submissions advanced by Mr Hickman.

The first submission was that the Tribunal would in fact have been justified in classifying the cartridges as parts of printers under heading 8473 by reference to GRI 1 alone, and there was no need for them to have recourse to GRI 3 at all. In my judgment the short and conclusive answer to this submission is that according to the ECJ in Turbon II the ink in the cartridges cannot be regarded as part of the printer. Accordingly, for the reasons given by the Advocate General and endorsed by the Court, the cartridges must be regarded as composed of two elements and GRI 3 is engaged.

The second submission was that I should consider referring the question of classification of G2 and G3 cartridges to the ECJ. This submission was something of an afterthought, as it was not foreshadowed in the Respondent’s Notice or in Mr Hickman’s skeleton argument. I have no hesitation in rejecting it. In my judgment the present case is clearly covered by the principles laid down by the ECJ in Turbon II, and in view of the need for restraint in the making of references by lower courts identified by Advocate General Jacobs in Wiener (see in particular his Opinion at paragraphs 20 and 38) I consider that it would be wholly inappropriate for me to direct a reference at this stage. If, in due course, the Court of Appeal disagrees with my conclusions, the question can of course be revisited.

For these reasons HMRC’s appeal will be allowed.