Innovation Rehab Limited v The Commissioners for HMRC

Until the end of the Brexit transitional period on 31 January 2020 (references in this decision to "Brexit" are to the end of the transitional period), customs duty was governed by the Union Customs Code ("UCC") (EU Council Regulation 952/2013 as supplemented by Regulation 2446/2015). The applicable rate of customs duty is determined by reference to the Combined Nomenclature (“CN”): Art 20.3(a) of the UCC; the CN is produced at Annex 1 to Regulation 2658/87. Part 2 of the CN contains the commodity headings as a comprehensive goods nomenclature.

From 1 February 2021, the UK has adopted its own customs tariff under s8 Taxation (Cross-border Trade) Act 2018 and Regulation 2, Customs Tariff (Establishment) (EU Exit) Regulations 2020 (SI 2020/1430) – the Tariff of the United Kingdom ("the UK Tariff").

The Goods Classification Table in Annex I of Part Three of the UK Tariff is based on the CN of the European Union and, like the EU's tariff, the Harmonized Commodity Description and Coding System ("the Harmonized System") developed by the World Customs Organization which is used worldwide. Because the Goods Classification Table is identical to the CN, references in this decision to the CN are to be taken to include a reference to the corresponding provision in the Goods Classification Table of the UT Tariff.

Although not cited to me, a succinct summary of the legal framework relating to tariff classification by Lawrence Collins J in Vtech Electronics (UK) plc [2003] EWHC 59 (Ch), (as cited with approval by the Court of Appeal in Invamed Group Limited v HMRC [2020] EWCA Civ 243 per Patten LJ at [5]), is as follows:

Both the EU's tariff and the UK Tariff provide a systematic classification for all goods in international trade and are designed to ensure that, with the aid of interpretative rules, a product falls to be classified in only one place.

The CN is interpretated in accordance with the General Interpretative Rules which are contained as Section 1A of Part 1 of Annex 1 to Council Regulation 2658/87 and in Section 1 of Part Two of the UK Tariff (in both cases the "GIRs"), The GIRs have the force of law, and were incorporated into UK law by Regulation 3(1)(a), Customs Tariff (Establishment) (EU Exit) Regulations 2020. The relevant GIRs are as follows:

As an aid to the interpretation of the scope of the various headings, the World Customs Organisation publishes Explanatory Notes to the Harmonised System ("HSENs") and the EU publishes Explanatory Notes to the Combined Nomenclature ("CNENs").

Although not legally binding, the HSENs and CNENs have been consistently held by the CJEU to be highly persuasive and in a Develop Dr Eisbein GmbH & Co v Hauptzollamt Stuttgart - West (Case C-35/93)) the CJEU stated that these notes

The CJEU has consistently held that, in the interests of legal certainty and ease of verification, the decisive criterion for the classification of goods for customs purposes is, in general, to be found in their objective characteristics and properties, as defined in the wording of the relevant Headings or Subheadings, and of the notes to Sections and Chapters. It is then for the national court to determine the relevant "objective characteristics and properties".

The subjective wishes, beliefs or intentions of the importer or anyone else are not relevant to the classification process, nor is anything else that is not readily perceptible by the customs officer at the point of importation and based upon the objective characteristics of the goods being classified: Farfalla Flemming v Hauptzollamy Muchen-West (C-228/89) [1992] 1 CMLR 133.

The Tribunal has full appellate jurisdiction under section 16(4) and (5), Finance Act 1994. Regulation 3(1), Customs Reviews and Appeals (Tariff and Origins) Regulations 1997 (SA 1997/534) applies sections 13A to 16, Finance Act 1994 to any decision as to tariff classification of any goods.

Section 16(6), Finance Act 1994 provides that the burden of proof is on the appellant, Innovation Rehab.

The evidence of Mr Key is that the products in dispute ought to be classified under CN 3926 90 97 90

Mr Kay's evidence was that although Note 6 to CN Chapter 90 states that for the purposes of classification to heading 9021, “orthopaedic appliances” include appliances for:

For the purposes of subheading 9021 10 10, the expression “orthopaedic appliances” means appliances which are specially designed for a particular orthopaedic purpose, in distinction to products that might be used for various purposes (for example, products for overstrained joints, ligaments or tendons caused by sporting activities, type writing, and products which simply alleviate pain in the defective or disabled part of the body, for example, caused by inflammation).

Mr Kay's view is that with the exception of the Foot Protector, the products have not been specially designed for a particular orthopaedic purpose to aid with bodily deformities of bones or muscles. Further, the products in dispute do not completely prevent a specific movement of the defective or disabled part of the body. Mr Kay referred to the CNENs which included photographs of examples of products falling within 9021 10 10. These included rigid corsets and neck braces, and splints for thighs, knees and ankles. I note that the splits included hinges which allowed some degree of movement (although preventing other movements).

Mr Kay says that for these reasons, the products under appeal (other than the Foot Protector) cannot be classified under CN 9021.

Mr Kay also considers that the products cannot be classified under CN Chapter 94. This applies to:

As the products are inflated with air and are therefore pneumatic, Mr Kay's view was that they do not come under this classification.

Mr Kay briefly referred to CN heading 9018 (medical instruments and appliances), but none of the sub-headings are appropriate for the products.

Where goods made of plastic, such as the products under appeal, are specifically excluded from other chapters, or do not meet the criteria of other headings in the Tariff, Mr Kay's evidence was that HMRC consider classification on the basis of their constituent materials. The products meet the terms of heading 3926, as they are made from plastic, and do not fall within any other heading within Chapter 39. CN heading 3926 is for

The relevant classification code is:

For this reason, Mr Kay was of the view that the products (other than the Foot Protector) should be classified under CN 3926 90 97 90.

Mr Rogers submits that the mattress overlays and the wedge immobilise parts of the body. The overlays wrap around the body of the patient, effectively immobilising him or her – which was particularly important in the case of spinal injuries. The wedge immobilised the patient's foot, as it prevented the foot from slipping off the bed. Mr Rogers acknowledged that not all of the products completely immobilised the body (or part of the body), but that was not what was required by Additional Note 2. Note 6 makes specific reference to insoles as being included, and these do not completely immobilise the foot.

Mr Rogers also referred to his telephone conversation with HMRC in 2005, when HMRC agreed that the correct classification for the product was 9021 10 10.

Mr Rogers referred to competitors' products being classified under Chapter 94, and submitted that there was no reason why his company's products should be classified differently.

Following the hearing, I invited the parties to give their written submissions on two issues.

The first related to the timing of the publication of Additional Note 2 in the EU Official Journal. The copy of the tariff included in the Hearing Bundle was taken from the UK Integrated Online Tariff last updated on 22 June 2022. It was only when I reviewed the EU Official Journal after the hearing to verify the source of Additional Note 2 that I ascertained that it was published in the EU Official Journal C119 dated 29 March 2019 at C119/389. This was after the first imports subject to the duty demand. I therefore invited the parties for their submissions on the extent to which Additional Note 2 applied to imports made before 29 March 2019.

The second related to the decision of the General Court of the European Union in the case of Recombined Dairy System A/S v European Commission ((2013) Case T-65/11) relating to the application of Article 220(2)(b) of the Community Customs Code (Council Regulation (EEC) No 2913/92) to errors by competent authorities. In the light of the telephone guidance given to Innovation Rehab in 2005, I invited the written submissions of the parties on the relevance of the decision of the General Court to this appeal.

HMRC’s written response in relation to Additional Note 2 was that it does not apply retrospectively. As regards imports made prior to 29 March 2019, the term “orthopaedic” in commodity code 9021 10 10 would have to be given its ordinary and natural meaning. I was referred by HMRC to the "Oxford Dictionary" which defines orthopaedic as:

HMRC submit that in the light of the definition they cited, the products in dispute would fail to meet the terms of heading 9021 as they are not orthopaedic appliances, rather they are designed to prevent skin injuries (and I note that the same argument would also apply if the OED definition was used). HMRC would not, they submit, have interpreted the meaning of orthopaedic appliances to include any appliance that could correct any bodily deformity, as it is implicit in the definition that the appliance must relate only to orthopaedic appliances, and exclude appliances that can be utilised in other branches of medicine – for example, both seat belts and crash helmets both prevent bodily deformities, but are not orthopaedic in either design or use.

I reject this submission for two reasons. The first is that Note 6 provides a definition for the meaning of "orthopaedic appliances", and so the term is not to be given its ordinary or natural meaning. Whilst orthopaedic appliances are defined to include appliances for preventing or correcting bodily deformities (which would fall within both dictionary definitions), they are defined by Note 6 also to include appliances for supporting or holding parts of the body following an illness, operation, or injury. And I find that this latter part of the Note 6 definition is apt to describe all of the imported products.

Secondly, many (but not all) of the imported products relate to, or are involved in, the surgical treatment of the musculoskeletal system. Mr Roger's unchallenged evidence was that, for example, the Mattress Overlay immobilised a patient, which was particularly important in the case of spinal injuries – and although the Mattress Overlay would not be used in the course of the surgery itself, it would be "involved in" the treatment in order to prevent pressure ulcers whilst the patient was (for example) in bed either recovering from, or awaiting, surgery.

HMRC's written submission relating to Recombined Dairy System A/S was that although the EU principle of legitimate expectation exists, the FTT does not have the jurisdiction to deal with such claims as its jurisdiction is entirely statutory and that the correct remedy would be to seek judicial review. For this appeal, HMRC submit that the Tribunal’s power is limited to the liability of the person and the amount of the assessment. I was referred to a number of decisions in support of this submission, including HMRC v Hok Ltd [2012] UKUT 363 (TCC).

Further, HMRC submitted that, notwithstanding the decision of the Upper Tribunal in KSM Henryk Zeman PP Z.o.o. v HMRC [2021] UKUT 71 (TCC) as to the exercise of discretion, HMRC were obliged by virtue of Articles 101 to 114 of the UCC to recover any amounts of customs duty and VAT that are found to be legally due but were not collected at the time declarations were accepted and passed. Further, under Article 28 of the Treaty on the Functioning of the European Union, all Member States must apply the common external tariff to imports from third counties. HMRC submit that they therefore have no discretion as to whether or not to levy customs duty.

But these written submissions ignore the fact that the decision of the General Court of the European Union in the case of Recombined Dairy System A/S v European Commission ((2013) Case T-65/11) concerns the application of Article 220(2)(b) of the Community Customs Code to errors by competent authorities (such as HMRC prior to Brexit). This decision relates to the application of statutory provisions, and not to concepts of English administrative law.

As regards HMRC's submissions on the decision of the Upper Tribunal in KSM Henryk, they misunderstand that decision. The decision does not relate to the exercise of any discretion by HMRC, but rather whether public law defences (such as legitimate expectation) are available to the taxpayer. The Upper Tribunal held that held the starting point is that a taxpayer should be able to challenge the validity of a decision made by HMRC on public law grounds. It is only if the statutory scheme for the appeal expressly or by implication excludes this possibility that a public law defence will not be possible. As regards this appeal, I need only consider the availability of public law defences in relation to the post-Brexit importations, as Article 119 governs importations prior to Brexit.

Since the release of the General Court's decision in Recombined Dairy System A/S, the Community Customs Code was repealed and replaced by the UCC in October 2013. Article 220(2)(b) of the Community Customs Code was replaced by Article 119 of the UCC, which addresses error by the competent authorities. The relevant provisions of Article 119 are as follows:

Article 116(5) provides that no repayment or remission shall be granted in cases of deception by the debtor.

Article 121 provides that applications for remission in the case of error by the competent authority must be made within 3 years of the date of notification of the customs debt, and where an appeal has been lodged against the notification of the customs debt (which would include an appeal to the FTT), the time limit is suspended for the duration of the appeal proceedings.

Although not cited to me, I am also aware of the decision of the CJEU in the case of Covita [1998] ECR I-7711 which considered the conditions that needed to be fulfilled for recovery of duty to be permitted in the context of the predecessor to Article 220(2)(b). The tests were summarised by the court in the case of Ilumitronica [2002] ECR I-10433 as follows:

I draw out the following relevant points from these decisions and Article 119:

It is convenient to group the importations into three periods. The first period is from 14 September 2018 (the earliest date covered by the Post Clearance Demand Note) to 28 March 2019 (the day prior to the date on which Additional. Note 2 was published in the EU Official Journal). The second period is from 29 March 2019 to 31 January 2020 (Brexit). The final period is from 1 February 2020 to 21 December 2020 (the final date covered by the Post Clearance Demand Note).

Importations made in this period were made prior to the publication of Additional Note 2.

HMRC submit that Additional Note 2 does not have retrospective effect. But they submit that even so, none of the products in dispute fall within CN 9021 10 10 00 as they are not "orthopaedic appliances" within the ordinary and natural meaning of that term. For the reasons given above I have rejected this submission.

I find that all of the products fall within the definition of "orthopaedic appliances" within Note 6 to Chapter 94.

The fact that an HMRC officer told Mr Rogers in 2005 that the products are within the scope of CN 9021 10 10 00 reinforces my finding that, absent Additional Note 2, the products fall within the definition of "orthopaedic appliances" for the purposes of Note 6.

Additional Note 2 was published in the EU Official Journal on 29 March 2019.

Under the terms of Article 119, Innovation Rehab can only rely upon an error made by HMRC providing that error was not reasonably capable of detection by them. Because of its publication in the Official Journal, Innovation Rehab would be deemed to have had notice of Additional Note 2 with effect from its publication. It therefore follows that from 29 March 2019 they were reasonably capable of detecting that Additional Note 2 might apply to the classification of their products.

I therefore find that Innovation Rehab could no longer rely on HMRC's 2005 guidance in respect of products imported after 29 March 2019.

The question then arises as to which (if any) of the products could continue to be treated as orthopaedic appliances within CN 9021 10 10 00 after 29 March 2019.

Mr Rogers did not provide any evidence that any of the various cushions (Pre-inflated cushion, Bariatric cushion, Wheelchair cushion/multicare pad, Riser Recliner Chair Cushion (Long), and Riser Recliner Chair Cushion (Short)) prevented specific movement of any part of the body. I find that these do not satisfy the requirements for orthopaedic appliances within Additional Note 2. I agree with Officer Kay that these cannot be classified under Chapter 94. I agree that they are properly classified under CN classification code 3926 90 97 90. I

However, Mr Rogers evidence was that the mattresses – the Mattress Overlay, the Bariatric Mattress Overlay, and the Trolly Topper - wrap around the patient, holding him or her immobile. I find that these satisfy the requirements of Additional Note 2 and are properly classified under CN 9021 10 10 00.

HMRC accept that the Foot Protector satisfies the requirements of Additional Note 2 and is properly classified under CN 9021 10 10 00.

The only other product imported by Innovation Rehab is the Multipositional Wedge, which prevents a patient's leg from dropping off the side of the bed. As this does not completely prevent a specific movement, I find that it falls outside Additional Note 2, and I agree with Officer Kay that this product is properly classified under CN code 3926 90 97 90.

This period is after Brexit, and the provisions of EU law (and the UCC) no longer apply.

Customs duties for this period are governed by the UK Tariff and the Taxation (Cross-border Trade) Act 2018. The provisions of Article 119 of the UCC and general principles of EU law no longer apply.

Note 6 and Additional Note 2 have been published as part of the UK Tariff in the same terms as they applied to the Combined Nomenclature.

I find (for the same reasons given above in relation to the second period) that the Mattress Overlay, the Bariatric Mattress Overlay, the Trolly Topper, and the Foot Protector are properly classified under code 9021 1010 00. The other products, (Pre-inflated cushion, Bariatric cushion, Wheelchair cushion/multicare pad, Riser Recliner Chair Cushion (Long), the Riser Recliner Chair Cushion (Short), and the Multipositional Wedge) are properly classified under code 3926 9097 90.

Whilst a defence of legitimate expectation may apply to challenge the validity of a decision made by HMRC, I find that even if such a defence were available in relation to Advanced Tariff Rulings and Post Clearance Demand Notes, it is not available in the circumstances of this appeal. Additional Note 2 is clearly apparent on the face of the UK Tariff, and Mr Rogers is aware that only the mattresses, Trolly Topper and Foot Protector can completely prevent a specific movement. Innovation Rehab could therefore no longer have any legitimate expectation that the other products fell within the definition of "orthopaedic appliances".

I find that all of the products imported by Innovation Rehab in the period up to and including 28 March 2019 were properly classified under CN 9021 10 10 00.

I find that the Pre-inflated cushion, Bariatric cushion, Wheelchair cushion/multicare pad, Riser Recliner Chair Cushion (Long), and Riser Recliner Chair Cushion (Short) imported on or after 29 March 2019 ought to have been classified under CN 3926 90 97 90 (or the corresponding code in the UK Tariff).

I find that the Mattress Overlay, the Bariatric Mattress Overlay, and the Trolly Topper imported on or after 29 March 2019 were correctly classified under CN 9021 10 10 00 (or the corresponding code in the UK Tariff).

The Post Clearance Demand Note should be amended to reflect this "in principle" decision. If the parties are unable to reach agreement on the amended amount of duty within one month of the release of this decision, I give leave for them to apply for the Tribunal to determine the duty that is payable.

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.