Thyssenkrupp Materials (UK) Limited v The Commissioners for His Majesty’s Revenue and Customs

Both parties referred to the Court of Justice of the European Union (the ‘CJEU’) decision in Döhler Neuenkirchen GmbH v. Hauptzollamt Oldenburg (Case C-262/10) (‘Döhler’) regarding whether a single error within a BOD invalidates the entire BOD such that all the customs duty and import VAT suspended under the IPR system becomes due. TK contends that such a finding would extend the decision’s application well beyond the terms of the judgment and would mean that a single error within their 487,000 to 667,000 data points in question would invalidate the entire BOD. TK made reference to The Federal Finance Court referral of the following question to the CJEU for a preliminary ruling:

“Is [CCC] Article 204(1)(a) to be interpreted as meaning that it also applies to non-fulfilment of those obligations which are to be fulfilled only after discharge of the relevant customs procedure which has been used, so that where goods imported under an inward processing procedure in the form of a system of suspension have been partly re-exported within the time-limit the failure to fulfil the obligation to supply the BOD to the supervising office within 30 days of the expiry of the time-limit for discharging the procedure gives rise to a customs debt in respect of the entire quantity of the imported goods covered by the BOD if the requirements of Article 859(9) of [the Implementing Regulation] are not fulfilled?”

TK contends that Döhler is only directly applicable to the facts of the case referred i.e. where there was an absolute failure to supply a BOD (contrary to CCCIP Article 521(1)). TK further contends that failure to include a row for a discharge of import goods on a schedule BOD (missing rows) is probably a relevant non-fulfilment, because a schedule BOD is simply an aggregated form of BODs for various import goods, but there is no authority for the claim that an incorrect row of any kind is a relevant non-fulfilment.

We do not agree with TK’s contentions. The CJEU in Döhler, at [45] states:

“Therefore, it must be held that the non-fulfilment of an obligation, linked to the benefit of an inward processing procedure in the form of a system of suspension, which must be carried out after the discharge of that customs procedure – in the present case the obligation to submit the bill of discharge within the period of 30 days prescribed in the first indent of the first subparagraph of Article 521(1) of the Implementing Regulation – gives rise, in respect of the entire quantity of the goods covered by the bill of discharge, to a customs debt pursuant to Article 204(1)(a) of the Customs Code, where the conditions set out in Article 859(9) of the Implementing Regulation are not met.”

The CJEU’s conclusion clearly refers to the principle that the non-fulfilment of an obligation gives rise to a customs debt and separately sets out that in the present case the obligation was to submit the BOD within 30 days under Article 521(1). The Court also refers (at [39]) specifically to Article 204 of the Customs Code stating, in paragraph 1, that a customs debt is incurred through ‘non-fulfilment of one of the obligations arising … from the use of the customs procedure’, therefore applying to all obligations arising from the relevant customs procedure. We therefore do not accept TK’s contention that Döhler is only applicable where there was an absolute failure to supply a BOD.

We also do not accept that a schedule BOD is simply an aggregated form of BODs for various import goods as the CJEU’s decision again clearly refers to the non-fulfilment of an obligation giving rise, in respect of the entire quantity of the goods covered by the bill of discharge, to a customs debt. The referral question to the CJEU, set out above, is also framed in terms of “a customs debt in respect of the entire quantity of the imported goods covered by the BOD”.

With regard to TK’s submission that there is no authority for the claim that an incorrect row of any kind is a relevant non-fulfilment, we accept HMRC’s submission on the importance of adopting a strict approach and that, since that procedure involves obvious risks to the correct application of the customs legislation, the beneficiaries of that procedure are required to comply strictly with the obligations and the consequences of non-compliance with their obligations must be strictly interpreted (see Döhler at [41]).

We have considered TK’s interpretation of the legislation and their submissions that the disaggregation interpretation is consistent with Döhler and is the only interpretation that is consistent with suspension, drawback and simplified authorisation. We do not agree with that interpretation and find that the clear ruling in Döhler, that the non-fulfilment of an obligation gives rise, in respect of the entire quantity of the goods covered by the bill of discharge, to a customs debt, applies in this case.

TK made observations regarding HMRC’s previous treatment of a single error on a single row of a BOD and HMRC’s delay in considering evidence of supporting records offered by TK. We do not consider these matters to be relevant to the application of the legal principles in this case.

TK contends that, in assessment of an error or omission, there is a moderation stage for consideration of the purpose of the BOD, relevance, proportionality, the statutory de minimis and the Opinion of Advocate General (at [50]) in Döhler regarding the final fate of the goods:

“50.

In my view, there is no doubt whatsoever that the failure to submit the bill of discharge within the time-limit leads to the application of Article 204 of the Customs Code. It is through the discharge of the inward processing procedure based on the corresponding bill of discharge that the final fate of the imported goods is established, by way of derogation from the general arrangement. By means of the bill of discharge, the importer declares to the customs authorities the destination of the goods imported subject to conditions. The bill of discharge is therefore a central document, as shown also by the detailed wording which must appear on it in accordance with Article 521(2) of the implementing regulation.”

We do not agree that this explanation, that it is through the discharge of the inward processing procedure based on the corresponding bill of discharge that the final fate of the imported goods is established, provides a moderation stage to the strict application and interpretation required.

TK refers to the CJEU remarks that “the Court has laid down the principle that Member States are empowered to adopt appropriate measures to ensure respect for the Community customs legislation and that, in this situation, the measures to be adopted must comply with the principle of proportionality” (Döhler at [55]). We do not find this reference to proportionality to amount to a moderation stage to the strict application and interpretation required, as suggested by TK. These remarks are made in connection with the CJEU’s finding that the incurrence of a customs debt is not a penalty. The Court goes on to say:

“58.

The suspensive inward processing procedure implies the granting of a conditional advantage. The lawful imposition of customs duties is suspended for the duration of the processing operation, on condition that the operation is completed lawfully. If, and only if, the operation is completed in due and proper form, no customs duty is payable.

59.

On the other hand, if the conditions are not fulfilled, that conditional advantage cannot be granted. The obligation to pay customs duties in such circumstances is not a penalty, therefore, but is simply the consequence of finding that the conditions required to obtain the advantage derived from the application of the inward processing procedure have not been fulfilled, thereby making the suspension inapplicable and consequently justifying the imposition of customs duties.”

TK contends that only errors or omissions on a BOD that are material errors or omissions incur a customs debt and that there is no strict liability. TK further contends that a customs debt is not incurred for all errors and omissions on a BOD and that errors must be considered in context and consideration should be given to whether supervision has been prevented, referring to the decision in Terex Equipment Ltd and others v HMRC (Joined Cases C-430/08 and C-431/08) at [44 to 47]:

“44.

The objective of the use of the customs code indicating the re-export of goods under the inward processing procedure is to ensure effective monitoring by the customs authorities and to give them the power to identify, solely on the basis of the customs declaration, the status of the goods concerned without the need for subsequent assessments and findings. That objective is particularly important since the goods which are introduced into the customs territory of the Community remain under customs supervision, pursuant to art 37(2) of the Customs Code, only until such time as they are re-exported.

45.

Therefore, the objective of the use of the customs code indicating the re-export of Community goods under the inward processing procedure is to permit the customs authorities to decide at the last minute to carry out a customs check pursuant to art 37(1) of the Customs Code, namely to check whether the re-exported goods in fact correspond to the goods placed under the inward processing procedure.

46.

Consequently, the use of customs code 10 00 in the export declarations at issue in the main proceedings erroneously conferred the status of Community goods on the goods concerned and therefore directly affected the ability of the customs authorities to carry out controls pursuant to art 37(1) of the Customs Code.

47.

In these circumstances, the use in the export declarations of customs code 10 00 indicating the export of Community goods instead of code 31 51 used for the re-export of goods under the inward processing procedure must be classified as ‘removal’ of those goods from customs supervision…”

We do not consider these remarks to amount to a moderation stage to the strict application and interpretation required, as suggested by TK. They quite clearly concern the objective of the use of the customs code and, in our view, highlight the need for the strict approach “to ensure effective monitoring by the customs authorities and to give them the power to identify, solely on the basis of the customs declaration, the status of the goods concerned without the need for subsequent assessments and findings”. We consider this finding to be in accordance with Article 86 CCC which states that authorisation shall be granted only where the customs authorities can supervise and monitor the procedure without having to introduce administrative arrangements disproportionate to the economic needs involved.

Whilst we accept that supervision is relevant, with regard to the objective to ensure effective monitoring by the customs authorities, we do not agree that only errors or omissions that prevent supervision incur a customs debt.

We also disagree with TK’s contention that only errors or omissions on a BOD that are material incur a customs debt. We take a similar view to that taken in Rolls Royce Plc v. HMRC [2019] UKFTT 420 (TC) (‘Rolls Royce”) as set out at [48] below, that even a minor error, such as the use of an incorrect code number, that might sound like a rather trivial offence, can still incur a customs debt.

Further, we are not persuaded by TK’s argument that the expression “in respect of goods liable to import duties” in Article 204(1), indicates only incidents of non-fulfilment material to liability to import duties can incur a customs debt, when seen in the context of the provision: “A customs debt on importation shall be incurred through (a) the non-fulfilment of one of the obligations arising, in respect of goods liable to import duties, from their temporary storage or from the use of the customs procedure under which they are placed”.

We also do not consider the statutory de minimis limit to indicate a moderation stage. It simply sets out, in Article 868 CCCIP that “Member States need not enter in the accounts amounts of duty of less than ECU 10. There shall be no post-clearance recovery of import duties or export duties where the amount per recovery action is less than ECU 10”.

TK contends that only errors in required particulars can incur a customs debt by virtue of CCCIP 521(2), which states that: “The bill or the claim shall contain the following particulars, unless otherwise determined by the supervising office…”. TK argues that this means that the supervising office can simplify the BOD and require a reduced set of particulars but it does not give the power to ask for something not listed within the provision. Therefore, errors or omissions in the conduct of the Inward Processing procedure that are not on a BOD cannot be demanded as errors or omissions on a BOD. Other errors not on a BOD are therefore not material.

We are not persuaded by TK’s argument on this point. We consider the wording “unless otherwise determined by the supervising office” to confer a wide authority to determine what the bill or claim shall contain to ensure effective monitoring.

We accept TK’s contentions that failure to make a post clearance amendment (‘PCA’) for all corrections is not an omission on a BOD and that making a PCA is not a requirement in law, in the authorisation or in the agreed BOD format.

However, the point made by HMRC regarding corrections is that where an entry on the CHIEF system (which determined the information on MSS) was incorrect, and that entry on the BOD is correct, TK should have made a PCA to correct the incorrect entry on the CHIEF system, and should have referred to the PCA in the relevant 2014 BOD, so that the MSS data (which would not have been updated by the PCA) could be reconciled to the BOD. Although we accept that PCAs are not a requirement, we agree with HMRC that, without these steps having been taken, the MSS and BOD data could not be reconciled, and therefore falls to be regarded as inaccurate and/or incomplete.

We consider this view to be consistent with the decision in Rolls Royce which made clear the requirement for BODs to be accurate and complete. The decision also makes reference, at [96], to the importance of the customs authorities being able to track goods under the IPR regime:

“96.

In the case of generators 604 and 687 they had both been exported under the CPC Code 1000, which is the code for a normal export from free circulation. This might sound like a rather trivial offence but it was clearly not an error and was done deliberately by the freight forwarding agent. Importantly, the use of this code means that the customs authorities are unable to track goods which have been imported under the IPR regime. They are simply unable to reconcile what has been imported under IPR with what has been exported following an IPR procedure.

97.

In the case of Generator 510 HMRC records did not show that it had left the UK in the first place, even though when it had been exported from France it had done so under the correct CPC Code. Again therefore HMRC were unable to track its movements.

98.

I therefore find that the BODs were indeed inaccurate and incomplete in respect of all three generators.”

We therefore find that, in the absence of a PCA, the mismatch MSS and BOD data amounts to a submission that is inaccurate and incomplete, which fails to meet the tracking and audit trail requirements of the process and fails to give customs authorities the power to identify, solely on the basis of the customs declaration, the status of the goods concerned without the need for subsequent assessments and findings (see Terex at [44]).

We considered the following Scott Schedule (‘SS’) entries - 1.3, 1.4, 1.8, 1.9, 1.11, 1.12, 1.13, 1.14, 2.6, 2.7, 2.8, 2.9, 3.3, 3.5, 3.6, 4.3, 5.3, 5.4, 5.8, 5.9, 5.10, 5.12, 5.13, 6.2, 8.1, 8.2, 9.1, 10.1, 11.2 11.3, where the parties set out the various categories in dispute. On the basis of the conclusions we have reached above, we find as follows in respect of each category:

Where a commodity code entered on the CHIEF system (which determined the information on MSS) was incorrect, and the commodity code on the BOD is correct, in the absence of a PCA, the MSS and BOD data could not be reconciled, we find the BOD falls to be regarded as inaccurate and/or incomplete. [SS/1.3, 3.3, 3.5, and 3.6].

Where TK did make a PCA by which it informed HMRC that the incorrect commodity code had been entered on CHIEF but the PCA did not itself update the MSS data, in the absence of a reference on the BOD to the PCA, so that reconciliation with the MSS data was possible, we find that the BOD falls to be regarded as inaccurate and/or incomplete. [SS/1.4].

Where there is a mismatch between the weight or customs values recorded on MSS and the weight shown on the BOD, and the data which appears on the BOD is correct but an error was made when the relevant information was entered on CHIEF, and no PCA was made so that reconciliation with the MSS data was possible, we find that the BOD falls to be regarded as inaccurate and/or incomplete, except for any amounts that fall below the de minimis limit. [SS/1.8, 3.3, 3.5, 3.6, 5.3, 5.8, 5.9, 5.10, 5.12, 5.13, 7.7, 7.8, 7.10, 7.11 and 7.12].

Where an entry on MSS was cancelled and a PCA made but the cancellation was not made clear on the BOD so that reconciliation with the MSS data was possible, we find that the BOD falls to be regarded as inaccurate and/or incomplete. [SS/1.9].

Where there are mismatches between the commodity codes on MSS and in the BOD and the data which appears on the BOD is correct but no PCAs were made so that reconciliation with the MSS data was possible, we find that the BOD falls to be regarded as inaccurate and/or incomplete. [SS/1.11, 1.12,1.14, 2.6, 2.8, and 2.9].

Where there is a mismatch between the commodity code on MSS and in the BOD and the data which appears on the BOD is correct, and a PCA was made but no reference to it was included with the BOD so that reconciliation with the MSS data was possible, we find that the BOD falls to be regarded as inaccurate and/or incomplete. [SS/1.13, 2.7].

Where there are mismatches between the EPU number (being a number identifying the relevant port of entry) recorded on MSS for particular consignments and the corresponding EPU information on the BOD, and the EPU information on the BOD was incorrect, and in the absence of a PCA the MSS and BOD data could not be reconciled, we find the BOD falls to be regarded as inaccurate and/or incomplete. We do not accept TK’s argument that the EPU was not expressly stated to be a required particular in the law based on our finding at [27] above that reconciliation of MSS and BOD data, without further investigation, was a BOD requirement. We also do not accept, on the basis of our findings on the requirement for a strict interpretation of the law, that the inaccuracy should be disregarded because an incorrect EPU is not material to liability to duty, that without an EPU number there are sufficient links to the supporting import records, that entry numbers unique within TK’s BODs, that EPU numbers are only necessary for uniqueness of entry number across all traders over all time, that supervision was not prevented, that the error does not relate to any relevant amount of suspended duty, that the error did not prevent the final destination of any quantity of import goods being reported, that the error did not prevent the supervision of any relevant quantity of import goods, that the error was simply identified by IDEA software, that the error was not a material error or that there was no incurrence of a customs debt. [SS/1.15-1.17, 4.3].

Where an incorrect additional import weight was entered onto SAP through to BOD because of inadvertent manual override, we find that the BOD falls to be regarded as inaccurate and/or incomplete. We do not accept, on the basis of our findings on the requirement for a strict interpretation of the law, that the inaccuracy should be disregarded because overstating the quantity of import goods that need to be disposed of has no effect on reporting on the destination of the actual quantity of import goods, that reporting the destination of the actual quantity of import goods was not affected, that no suspended duty was involved, that there is no duty charged on a fictitious quantity, that the error does not relate to any relevant amount of suspended duty, that the error did not prevent the final destination of any quantity of import goods being reported, that the error did not prevent the supervision of any relevant quantity of import goods, that the error was simply identified by IDEA software, that the error was not a material error or that there was no incurrence of a customs debt. [SS/5.4].

Where there are discrepancies relating to stock imported in a previous quarter having contributed to the export quantities recorded, and the BOD does not clearly indicate that earlier imports contributed to the relevant disposals, we find that the BOD falls to be regarded as inaccurate and/or incomplete. [SS/6.2].

Where there is an incorrect statutory reference, labels or export entry dates within the BOD, or the BOD does not make clear which specific entries an extension is claimed against, we find that the BOD falls to be regarded as inaccurate and/or incomplete. [SS/8.1, 8.2, 9.1, 10.1, 11.2 11.3].

Referred to as Scott Schedule entry 5.8, described by TK as an inadvertent but material error that incurs a customs duty of £578.63. On the basis of our finding at [37] above, we consider this gives rise to a customs debt in respect of the entire quantity of the goods covered by the BOD.

We are not satisfied that TK has discharged its burden to show that the grounds on which their appeal is brought have been established.

It is our finding on the basis of the evidence before us that TK’s BODs were required, as determined by the supervising office, to contain accurate particulars that reconciled MSS and BOD data without the need for further investigation and it is our conclusion, on the basis of the strict approach required as clearly set out in Döhler, that an error in the import or disposal lines of one import entry gives rise, in respect of the entire quantity of the goods covered by the BOD, to a customs debt.

For the reasons set out above, we dismiss the appeal.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.