Mr Firth, appearing for the Appellant, submitted that the bags fell within Heading 3923 as:

The essential dispute between the parties, according to Mr Firth, arose from the fact that the notes applicable to Chapter 39 stated that the Chapter did not cover goods falling within Section XI (which included heading 6305 – HMRC’s preferred heading), whereas the notes to Section XI stated that the Section did not apply to articles of woven fabrics coated or laminated with plastic of Chapter 39.

The effect was that the classification had to be determined under GIR 1 because the notes applicable to Chapter 39 and to Section XI prevented the bags being classifiable under both headings. For that reason GIR 3 did not apply. Mr Firth noted that GIR 1 contained the words “provided the Notes do not otherwise require.” In this case, the relevant Notes did otherwise require and it was, therefore, not possible for the bags to be classified under GIR 3 because the relevant headings and the notes to those headings effectively determined which heading applied. GIR 3 was, therefore, excluded.

Mr Firth submitted that articles of woven fabrics laminated with plastics, such as the bags, fell outside of Chapter 63 and, therefore, within Chapter 39.

Mr Firth relied on a general principle of interpretation, applicable in EU law, that the general gave way to the specific – “lex specialis derogat legi generali.” (RCI Europe v HMRC C-37/08 at [49] and [74]). Thus, he submitted a general provision saying that Chapter 39 did not apply to anything within Section XI must give way to the specific provision stating that Section XI did not apply to articles of woven fabrics laminated with plastics within Chapter 39. Otherwise, Note 1(h) to Section 11 would be rendered redundant.

This interpretation was, Mr Firth contended, supported by the HSENs for Chapter 39 quoted at paragraph 12 above (“Otherwise the classification of plastics and textile combinations is essentially governed by Note 1(h) to Section XI, Note 3 to Chapter 56 and Note 2 to Chapter 59.”). It was, therefore, clear that these explanatory notes took the view that combinations of plastics and textiles were governed by Note 1(h) which said that those articles did not fall within Section XI. In this context, Mr Firth argued that the words in sub- paragraph (b) of the above HSENs did not assist HMRC. Subparagraph (b) provided:

The introductory wording, Mr Firth said, made it clear that this was not an exhaustive list of what was covered by Note 1(h). Paragraph (b) applied to “textiles” not to finished articles. Moreover, the HSENs were not indicating that goods not within points (a) to (d) must be excluded from Note 1(h). Thus, a fabric coated only on one side in plastic could fall within Note 1(h). The specific reference to being coated on both sides in sub- paragraph (b) derived from Note 2 to Chapter 59. In addition, Mr Firth noted that the HSENs were non-legally binding and were only an aid to interpretation (Build-a-Bear at [15 (7)]).

To the extent that it was necessary to look at the “essential character” of the bags (and Mr Firth submitted that this was the wrong test to apply in relation to GIR 1), their essential character was that they were plastic. The woven polypropylene layer had no structural integrity of its own, as Mr Dubey’s evidence demonstrated. It could not therefore properly be regarded as a textile. In any event, the essential character of the bags was that they were plastic bags – they had the look and feel of a plastic bag, they were made of woven polypropylene (a plastic) and they were coated in plastic layers on the outside.

Next, Mr Firth submitted that Note 1(g) (which, like Note 1(h), excluded items from Section XI), provided no support for HMRC’s case. If Note 1(h) was limited to strips of particular dimensions, it would have said so. Note 1(g) was concerned only with the classification of the monofilament (i.e. the strands of fibre themselves) whereas the present appeal concerned not the classification of the strands of fibre but of the finished article. In any event, the fact that Section XI did not cover strips of monofilament over 5 mm did not mean that strips of less than 5 mm were covered by Section XI.

Ms Van der Meer, appearing for HMRC, submitted that even on the Appellant’s own case the objective characteristics and properties of the bags were:

Therefore, Ms van der Meer submitted that the bags were of a kind used for packing and were made of woven polyethylene fabrics. They could best be described as a plastic-textile woven combination which retained the essential character of a textile.

Ms van der Meer disagreed with the way in which the Appellant framed the dispute (i.e. a conflict between Section XI Note 1(h) and Chapter 39 Note 2).

Instead, Ms van der Meer submitted that the dispute was about the objective properties and characteristics of the bags. The starting point was whether these were bags which were “woven fabrics coated or laminated with plastics” (as the Appellant contended) or whether they were polyethylene woven fabrics – a plastic and textile combinations whereby the essential character of textile used for packing remains (as HMRC contended). In other words, the question was whether the bags had the essential characteristic of a plastic rather textile.

Ms van der Meer also referred to Chapters 56 and 59 which, she argued supported her submission that woven textile fabrics did not fall within Note 1(h) – that note referred to fabrics where the essential character of the article was plastic.

The Appellant, in Ms van der Meer’s submission, had confused the situation where the bags could arguably be classified under two headings (and thus GIR 3 would apply) with the situation where there was a simultaneous application of two rules (one general and one specific) which leads to a conflict. Ms van der Meer submitted that the bags could be classified under GIR 1 and 6 immediately. Heading 6305 referred to “Sacks and bags” and provided a more precise description of the goods in question.

Moreover, Ms van der Meer submitted that Note 1(h) applied to articles made from larger filaments of woven polypropylene (i.e. more than 5 mm in width and more than 1mm thick) and therefore that Note 1(h), on HMRC’s case, was not redundant.

HMRC’s secondary position, was that the bags were a textile and plastic combination and under GIR 3 HMRC’s classification was the most appropriate.

Moreover, the Appellant’s framing of the dispute ran contrary to the principles of interpretation that apply to customs classification. The Appellant was relying on a Chapter explanatory note against a Section explanatory note. Build-a-Bear at [15 (6)], however, was authority for the proposition that classification:

Therefore, in there was no need to revert to lex specialis; it was only necessary to have regard to the GIRs and to the general approach to customs classification.

As regards Chapter 39, the Chapter Notes at 1 state that any reference to “plastics” does not “apply to materials regarded as textile materials of Section XI.”

The Chapter Notes to Chapter 39 also state at 2(p) that: “This chapter does not cover: goods of Section XI (textiles and textile articles).” This was, Ms van der Meer submitted, consistent with the principle that Chapter 39 was concerned with goods that retained the essential character of plastics.

In Ms van der Meer’s submission the bags were textiles. A textile was something that was woven. In layman’s terms the bags contained a woven fabric which would be regarded as a “textile”.

Ms van der Meer contended that this was reinforced by the HSENs to Chapter 39 set out at paragraph 12 above. The HSENs sought to ensure that plastic-textile combination products, where the essential character of that product has become that of plastic, were covered by Chapter 39 because it can be considered a plastic. Section XI envisaged a woven fabric made from plastic and its wording recognised that plastic materials could be classified as textiles.

In relation to Heading 6305, Ms van der Meer observed that the Section Notes at 1(h) state that Section XI:

Ms van der Meer submitted that this Note was compatible with the provisions of Chapter 39 Note 2(p) because it marked the dividing line for plastic-textile combinations. Those “woven… fabrics… coated… or laminated with plastics” to such a degree that their essential character has become plastic are covered by Chapter 39 as it relates to plastics. This interpretation, she argued, aligned with the HSENs and was supported by other Section Notes. In particular, Section Note 1(g) made it clear that section IX “does not cover monofilament of which any cross-sectional dimension exceeds 1 mm or strip or the like of an apparent width exceeding 5 mm, of plastics (Chapter 39)….” Those packages made up with monofilament (single strand man-made fibre) greater than 1 mm in cross-sectional dimension or exceeding 5 mm in apparent width fall within classification 3916. That was because, Ms van der Meer submitted, their essential character had become that of plastic, rather than textile.

Ms van der Meer argued that HMRC’s analysis was reinforced by the fact that the headings throughout Chapter 63 allowed for materials made from “polyethylene or polypropylene strip” and “polypropylene or polyethylene woven fabrics”. This recognised that these plastic-textile combination products had retained the essential character of textiles. There was no single heading for plastic-textile combinations; what determined a plastic-textile combination’s classification were its objective characteristics and properties and the GIRs.

The bags were properly classified, in Ms van der Meer’s submission, to Chapter 6305 because:

The nature of the bags – woven polypropylene strips of a width of 3 mm and less than 1 mm thick, laminated on only one side – meant it fell squarely within Section XI and was expressly excluded from Chapter 39 by Note 1(g) of Section XI and Note 2 to Chapter 39.

Chapter 39 (and Heading 3923 in particular) were not appropriate for the bags because:

Taking account of the approach to classification set out in Build-A-Bear (at paragraph 17 above) we have found, first, that the objective characteristics of the bags are that they are made from woven polypropylene laminated in plastic on one side and that they are intended to be used for storing pet food.

The next step is to undertake a combined examination of the wording of the headings and the explanatory notes to the relevant sections and chapters in order to determine whether a definitive classification can be reached, in accordance with GIR 1 and GIR 6. Although we have already set out the relevant headings and notes, we repeat them here for ease of reference.

The relevant competing headings for the bags are:

It seems to us that, looking simply at the headings, the bags could be covered by both headings.

The Notes to Chapter 39, however, draw a boundary. The Notes to Chapter 39 relevantly provide:

It is clear from this that textile materials and textile articles within Section XI are excluded from Chapter 39.

On the other hand, Note 1 of Section XI also draws a boundary by excluding from Chapter 63 certain items falling within Chapter 39. The relevant part of the Note reads as follows:

We accept Mr Firth’s submission that the combined effect of the Notes to Chapter 39 and Chapter 63 is, for present purposes, effectively to exclude the operation of GIR 3. In other words, in respect of items falling within the Notes to Chapter 39 and woven fabrics falling within Note 1(h) to Section XI, the Notes set up a mutually exclusive regime. Either the bags fall within Chapter 39 or within Chapter 63, but they cannot, we think, fall within both.

In this context, we reject Ms van der Meer’s submission that Section Notes take precedence over Chapter Notes. It is true that classification must proceed on a strictly hierarchical basis, taking each level of headings in turn, however GIR 1 seems to us to provide that these headings must be read in conjunction with the “relative” Section and Heading Notes considered simultaneously.

Ms van der Meer also sought to draw a distinction between Chapter 39 and Chapter 63 on the basis that the former applied only to articles whose essential characteristic was that of plastic whereas the latter applied to textile materials. The bags, she argued, were made from woven polypropylene and this was a textile.

We disagree. That the articles in question must be “of plastic”, in order to fall Chapter 39, is clear enough. In this case, the bags are entirely made of plastic. They are coated in plastic and polypropylene is a plastic. Moreover, in applying GIR 1 there is no “essential characteristic” test. The correct test is to look at the objective characteristics and properties of the item in question. Note 1(h) to Chapter 63 is drafted in unambiguous terms and the bags fall within that Note and are therefore excluded from Chapter 63.

It seemed to us that HMRC ran into some difficulty in defining “textiles”, borrowing from and referring to other Chapters (e.g. Chapters 54 and 54) which were inapplicable in the present case. That is not, in our judgment, a legitimate approach to classification. A roving review of the language of different and inapplicable Chapters is not the methodology adopted by the Court of Appeal in Build-A-Bear at [15] or by Advocate General Kokott in Uroplasty at [43].

At one point, Ms van der Meer suggested that a textile was something that was woven. However, Note 1(h) clearly contemplates that woven fabrics coated in plastic fall within Chapter 39. On Ms van der Meer’s definition of a textile, articles within Note 1(h) (i.e. “woven…fabrics”) would also be textiles, which seems to make little sense.

We also agree with Mr Firth’s submission that Note 1(h) to Section XI is more specific in its terms than Notes 1 and 2 to Chapter 39. Accordingly, applying the principle “lex specialis derogat legi generali”, Note 1(h) should prevail.

HMRC also relied on Note 1(g) to Section XI, set out in paragraph 15 above, arguing that Note 1(h) only applied to articles made up of plastic strips greater in length than 5 mm. We reject that argument. Note 1(g) is concerned with the classification of the monofilament used for the making of the woven polypropylene (i.e. the strands of fibre which make up the woven polypropylene fabric). This appeal, however, involves the finished article, i.e. the bags. As Mr Firth observed, in contrast, Note 1(h) specifically refers both to the fabric and “articles thereof”. Furthermore there is nothing in the wording of Note 1(h) which suggests that it is limited to strips of particular dimensions. If had been any such limitation we would have expected it to be stated explicitly.

Furthermore, we are not persuaded that the HSENs relating to Chapter 39, quoted at paragraph 12 above, have the effect of limiting the scope of Heading 3923. The HSENs refer to the classification of “plastics and textile combinations being essentially governed” by Note 1(h) to Section XI. We consider that the bags are indeed a combination of plastic and a plastic textile or fabric. The HSEN then states: “The following products are also covered by this Chapter” (emphasis added) before giving a list of specific and disparate products that fall within Chapter 39. It seems to us that the use of the word “also” indicates that the list that follows is a non-exclusive list and the failure of an article to fall within that list does not, of itself, exclude it from Chapter 39. Indeed, the word “also” suggests that the subparagraphs (a)-(d) that follow are in addition to the plastics and textile combinations which are governed by Note 1(h). The HSENs are, of course, non-binding but are a guide to interpretation of the relevant Chapter headings.

Finally, we reject Ms van der Meer’s argument that the bags were “textiles” because they were made up in part from woven polypropylene strips. However, the evidence of Mr Dubey was that the woven polypropylene from which the bags were made had no structural integrity of its own and would disintegrate without the plastic coating. In those circumstances, it seems hard to see how the woven polypropylene from which the bags were made could be described as a “textile”.

For these reasons, we consider that the bags are to be classified under heading 3923.

As we have already mentioned, the Appellant had incorrectly classified imported goods under Chapter 49 of the tariff (classification code 4911109000) attracting a 0% duty. It was common ground that this was an incorrect classification. The error was identified in 2016 when HMRC carried out an assurance audit of the Appellant’s imports. The Appellant did not present goods for inspection but rather HMRC selected the Appellant’s goods for inspection.

The Generalised Scheme of Preferences (GSP) allows the UK to offer developing countries lower tariffs on their exports into the UK. Therefore goods imported into the UK from certain developing countries are entitled to reduced or nil rates of duty, known as preference rates. Once a trader establishes the correct Tariff Code for the products, then the place of origin for the product must be checked to see if the product qualifies for preference. When importing under GSP, a GSP Form A has to be completed in the country of origin.

A GSP Proof of Origin must be presented within 10 months of the date of issue:

The GSP certificates were not presented within the relevant time frame as at the time of importation the incorrect classification (under commodity code 4911109000) allowed the Appellant a 0% rate of duty (which we understood not to be a preferential rate), thus rendering the GSP Proof of Origin certificates unnecessary.

There is, however, an exception to the 10 month rule:

In the present case, the Appellant accepted that in order for the second sentence of Article 97n(2) to apply, the importer must make it known to HMRC within the 10 month period that the goods are being imported under preferential arrangements (Lane Fouracres Associates v HMRC [2014] UKUT 67 (TCC) at [42-43]).

Article 97n(1) provides:

Section 13A(2)(a) Finance Act 1994 provides:

Mr Firth submitted that appeals to this Tribunal against relevant decisions were made under section 16 Finance Act 1994 – “relevant decisions” being those falling within section 13A(2). In relation to appeals against “ancillary matters” the powers of this Tribunal are limited to a supervisory jurisdiction (section 16(4) Finance Act 1994). He submitted that HMRC’s decision relating to the late acceptance of preference rates went directly to the rate at which customs duty was charged and, therefore, fell within section 13A(2)(a). Therefore, the Tribunal had full appellate jurisdiction, including the power to substitute its own decision on appeal.

Next, Mr Firth submitted that although Article 97n(2) provided that proofs of origin “may be accepted” outside the period of validity this did not give HMRC a discretion. Mr Firth referred to the decision of this Tribunal in Euro Packaging UK Ltd v HMRC [2017] UKFTT 160 (TC) at [99] where, in relation to remission of duty, the legislation was framed in terms that “duties may be repaid…” The Tribunal said:

In  Eyckeler & Malt v The European Commission  the CJEU said:

Mr Firth drew attention to the wording of Article 13 of Regulation 1430/79 which also included potentially discretionary wording:

Therefore, in Mr Firth’s submission, if “exceptional circumstances” within Article 97n(2) were present, the proofs of origin were required to be accepted and HMRC did not have a discretion to refuse them.

Mr Firth argued that there were “exceptional circumstances” for the failure to submit a GSP Proof of Origin within the 10 month period.

In this context, “exceptional circumstances” are found where a trader is put in an exceptional situation in relation to other traders carrying on the same activity. In support of this proposition, Mr Firth cited the decision of the CJEU in Sohl & Sohlke, C-48/98 at [73-74] where the court said:

In the present case, the Appellant, in good faith, had applied a classification (albeit an incorrect classification) which meant that 0% duty was due. Mr Firth argued that if the Appellant had known the correct classification at the time, the duty would still have been 0%, applying the preference rate.

In relation to the “exceptional circumstances” test, Mr Firth submitted that the Appellant was in a different situation from other traders carrying on the same activity because the fact that the classification it applied incorrectly, but in good faith, gave rise to 0% duty the Appellant therefore had no reason to submit a GSP Proof of Origin to take advantage of the preference.

In her written submissions, Ms van der Meer argued that the tribunal did not have jurisdiction over the GSP certificates issue because the Proofs of Origin for preferential rates did not qualify as a “relevant decision” for the purposes of section 13A Finance Act 1994. Section 13A Finance Act 1994 defined “relevant decisions” over which the Tribunal would have jurisdiction following a decision on review by HMRC. Decisions relating to granting preference rates did not fall within section 13A. Moreover it did not fall within section 13A (2)(iv) because preferential rates were not “relief, repayment, remission or drawback”.

Late acceptance of Proof of Origin was also not an “ancillary matter” in accordance with section 16(8) and 16(9) Finance Act 1994 because the decision was not a decision specified in Schedule 5.

Because HMRC submitted that the decision as to whether to accept late presentation of Proofs of Origin was a matter of discretion for HMRC (see below) the decision could only be challenged by judicial review proceedings.

Ms van der Meer noted that Article 97n(2), by using the word “may” twice, gave HMRC a discretion to determine whether to accept the GSP Proofs of Origin. The French language version used the expression “peuvent être accepteés” reinforcing the view that the use of the word “may” in the English version gave HMRC a discretion. The language was clear and precise and devoid of ambiguity. In accordance with the principles of interpreting EU law, a court should not ignore the clear and precise wording of an EU law provision: see Case C-582/08 Commission v United Kingdom [2010] ECR I-07195. Where a provision was clear and precise an interpretation of that provision should not call into question its literal meaning because this would run counter to the principle of legal certainty.

Article 97n(2) recognised, first, the possibility that an importer may submit its GSP Proof of Origin out of time if the failure to submit the document within the 10 month period was due to “exceptional circumstances”. Secondly, absent exceptional circumstances, Article 97n(2) allowed HMRC to accept Proofs of Origin out of time where the actual goods have been presented to them for inspection before the 10 month period expired.

Ms van der Meer referred to Article 97n(1) and Article 890 which provided that the belated submission of GSP Proofs of Origin must be preceded by putting the customs authority on notice at the time of importation that a claim for preferential origin status would be made.

The Appellant, in Ms van der Meer’s submission, was responsible for the accuracy of the information given in a customs declaration. In this case, the Appellant was an experienced importer who imported goods under the wrong classification and, incorrectly, benefited from a 0% rate of duty under Heading 4911. The Appellant would have continued to benefit from this 0% rate of duty if the goods had not been subject to an assurance audit. At no time did the Appellant present the bags for inspection. Accordingly, the Appellant clearly fell outside the scope of the second sentence of Article 97n(2).

In relation to “exceptional circumstances” the Appellant was attempting to fall within the first sentence of Article 97n(2). However, Ms van der Meer submitted that the Appellant could not rely on assurance audits and the imposition of retrospective change to the customs heading as “exceptional circumstances”. The circumstances were not exceptional and HMRC was simply doing its work. The Appellant’s submissions were based on the erroneous assumption that heading 3923 was the correct heading.

For these reasons, HMRC had chosen to exercise its discretion in not accepting the late presentation of a GSP Form A and Ms van der Meer submitted that HMRC was entitled to reach that decision and acted reasonably in so doing.

We accept Mr Firth’s submission that the Tribunal has full appellate jurisdiction in relation to this issue. It seems to us that the issue involves “the rate at which any such duty or levy is charged in any case, or the amount charged” for the purposes of section 13A(2)(a) (ii) Finance Act 1994. Accordingly, the issue involves a “relevant decision” and, accordingly, this Tribunal has full appellate jurisdiction.

As regards the question whether HMRC has a discretion whether to accept a late Proof of Origin, even if exceptional circumstances are present, we reject HMRC’s argument. Instead, we agree with Mr Firth’s submissions, based on the reasoning of the CJEU in Eyckeler & Malt , which we recognise was given in the context of remission of duty, that HMRC’s interpretation would effectively deny Article 97n(2) of its intended effectiveness. Accordingly, we have concluded that if the Appellant can demonstrate that there were exceptional circumstances, HMRC would be obliged to accept a late Proof of Origin.

In relation to the substantive issue concerning “exceptional circumstances”, Mr Firth’s essential argument is that where importer incorrectly claims a 0% rate, with the result that it does not (or does not see the need to) present a GSP Form A within the 10 month period provided for in Article 97K, that should constitute “exceptional circumstances” for the purposes of Article 97n(2). This was, he submitted, not an event which would normally confront any trader, carrying on the same activity, in the exercise of his/her occupation.

We reject that submission. It seems to us that the purpose of the “exceptional circumstances” exception in Article 97n (2) does not extend to absolving behaviour which would undermine the fundamental duty of an importer to declare imported goods under the correct heading.

Both parties referred to a decision of the First-tier Tribunal in Euro Packaging Ltd v HMRC [2017] UKFTT 160 (TC). However, in that decision (which involved the question of remission of duty) the facts were materially different from the present appeal. Consequently, we derived little assistance from that decision.

In Sohl & Sohlke at [68] and [76] the Court held that problems peculiar to an undertaking, such as the fact that employees have suddenly fallen ill or have been absent on leave, the induction of new employees, problems with the application of a data processing system developed for the purposes of carrying out customs formalities or, in cases involving outward processing, the excessive work involved in the preparation of attributions which ought normally to be prepared by the customs authorities, did not constitute exceptional circumstances. The Court held that circumstances which, although not unknown to the trader, are not events which would normally confront any trader in the exercise of his occupation may constitute exceptional circumstances.

In this case, the mistaken application of tariff heading 4911 resulted in the Appellant’s failure to submit GSP Form A within the 10 month period. The need correctly to classify goods on importation is a task that confronts every trader carrying on the same kind of business. It seems to us that such an error does not constitute exceptional circumstances.

Accordingly, we consider that there were no “exceptional circumstances” for the purposes of Article 97n(2).

We allow the appeal in respect of the classification issue but dismiss the appeal in respect of the GSP Certificates Issue.

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.