Laurence Supply Co (Leather Goods) Limited v The Commissioners for HMRC

There was no dispute as to the way in which the CN is to be approached.

The CN is to be considered in accordance with the General Rules for the Interpretation of the Combined Nomenclature (“the GRIs”), which provide as follows:

“Classification of goods in the 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, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions.

2.(a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled.

(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, insofar as this criterion is applicable.

(c)

When goods cannot be classified by reference to 3 (a) or 3 (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.

5.

In addition to the foregoing provisions, the following rules shall apply in respect of the goods referred to therein:

(a)

camera cases, musical instrument cases, gun cases, drawing-instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and presented with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This rule does not, however, apply to containers which give the whole its essential character;

(b)

subject to the provisions of rule 5(a), packing materials and packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use.

6.

For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related Subheading Notes and, mutatis mutandis, to the above Rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this Rule the relative Section and Chapter Notes also apply, unless the context otherwise requires.”

The GRIs are a hierarchical set of principles, and they must be applied in sequential order (see HMRC v Epson Telford Limited [2008] EWCA Civ 567 per Sir John Chadwick at [8]).

Classification is to be considered by way of objective characteristics and properties according to the relevant CN headings, the intended use might be an objective criterion for classification, and the explanatory notes are an important aid to construction but do not have legally binding force. These principles were set out as follows by the CJEU in BVBA Van Landeghem v Belgishe Staat, Case C-486/06, at [23] to [25]:

“[23] First, it is settled case-law 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 sought in their objective characteristics and properties as defined in the wording of the relevant heading of the CN and in the section or chapter notes (see Case C-15/05 Kawasaki Motors Europe [2006] ECR I-3657, paragraph 38, and Case C-310/06 FTS International [2007] ECR I-6749, paragraph 27).

[24] Second, the intended use of a product may constitute an objective criterion for classification if it is inherent to the product, and that inherent character must be capable of being assessed on the basis of the product's objective characteristics and properties (see 0400/05 BAS Trucks [2007] ECR I-311, paragraph 29; Case 0183/06 RUMA [2007] ECR I-1559, paragraph 36; and Case C-142/06 Olicom [2007] ECR I-6675, paragraph 18).

[25] Lastly, according to the Courts case-law, the Explanatory Notes drawn up, as regards the CN, by the Commission and, as regards the HS, by the WCO are an important aid to the interpretation of the scope of the various headings but do not have legally binding force (BAS Trucks, paragraph 28). Moreover, although the WCO opinions classifying goods in the HS do not have legally binding force, they amount, as regards the classification of those goods in the CN, to indications which are an important aid to the interpretation of the scope of the various tariff headings of the CN (see Kawasaki Motors Europe, paragraph 36).”

An undefined term is to be given its customary meaning. The ECJ stated as follows in Skatteministeriet v Imexpo Trading A/S, Case C-379-02 at [17]:

“[17] In the present case, plastic chairmats such as those at issue in the main proceedings can be regarded as floor coverings. They are, in fact, carpets of various shapes, one purpose of which is to protect floor coverings. First, the customary meaning of the word 'covering' is something that covers something else to protect or strengthen it and, second, a covering which covers a floor covering must itself be regarded as a floor covering. The wording of Chapter 57 of the Combined Nomenclature, entitled 'carpets and other textile floor coverings', as well as the analogous wording of several headings in that chapter confirms that a carpet must, in principle, be regarded as a floor covering.”

The “naked eye” test referred to in additional note 1 to the Chapter 42 (set out in paragraph 5 above) rests upon consideration of what is visible rather than the stiffness of the material. The ECJ stated as follows in Howe & Bainbridge BV v Oberfinanzdirektion Frankfurt am Main C-317/81 at [14]:

“[14] That part of Question 1 must therefore be answered to the effect that the expression “can be seen with the naked eye” in Note 2(A) (a) to Chapter 59 of the Common Customs Tariff is to be interpreted as meaning that the impregnation, coating or covering of the fabric must be directly visible on simple visual examination and that the wording of the note does not allow the conclusion to be drawn from the stiffness of a fabric that it has received such treatment.”

It follows that touch and feel are not relevant, as this goes beyond a visual inspection with the naked eye. Although not binding on us, we note that the First-tier Tribunal adopted this approach in the closely analogous case of Optoplast Manufacturing Company Ltd v The Commissioners of Customs and Excise [2003] UKVAT (Customs) C0017 (“Optoplast”) at [23] and also in Euro Packaging UK Limited v HMRC [2017] UKFTT 01060 (TC)(“Euro Packaging”) at [30] and [31].

The only expert evidence before us was from Professor Bush in the form of two witness statements and oral evidence. We were informed that Professor Bush was the expert who appeared in Optoplast. At the start of oral closing submissions. Mr Laurence Gordon made an application to adduce in evidence the glasses case which had been considered by Professor Bush in Optoplast. We refused this application for reasons that we gave in the hearing, which included the unfairness to HMRC in not having the opportunity to cross-examine Professor Bush on the point (the evidence having closed and Professor Bush not being present during oral submissions) and that the First-tier Tribunal’s reasoning is to be considered by reference to the decision in Optoplast rather than reopening the expert evidence that had been presented in the case.

Professor Bush explained that he had examined four items provided to him by Laurence Supply and three obtained by Professor Bush from elsewhere. One of these items was, we find as a fact, Item C. We make such a finding because Professor Bush included “C” in his identification of Exhibit 1 (although, curiously, this was removed from an amended version), the description of Exhibit 1 as being “Tan ‘River Island’ handbag with handle” matches Item C, the back is described as patterned leatherette and the front as soft tan suede, and Miss Vicary did not put to Professor Bush – understandably, given our previous points – that Item C was not considered by Professor Bush. The other items examined by Professor Bush had not been made available to either HMRC or the Tribunal.

In his first witness statement, Professor Bush described the back of Item C as, “fractal patterned leatherette, non-reflective,” and said that its likely construction of its outer surface was, “Mixed liquid PU reactants coated on to an embossing roller plus curing over, with a textile substrate moving under it.” In turn, Professor Bush described the front of Item C as, “soft tan suedette,” and said that the likely construction of its outer surface was, “PU impregnated cloth, probably kitted cotton, brushed with special tool?” In the course of oral evidence, Professor Bush explained that this type of material is “leatherette” or “leather cloth” and is an example of a “fabric-based polymer composite”. In his second witness statement, Professor Bush explained how a fabric-based polymer composite was made as follows:

“They are not applied as a polymer, but as two reacting fluid streams which are brought together on a woven textile substrate to give exceptional “wetting” – penetrating contact at the point of contact under a roller where the polymer is formed.”

In his first report, Professor Bush explained “fabric wetting” as follows:

“Moreover, it must be emphasised that when we are dealing with polyurethane injected or coated on to a textile substrate, the PU reactants must penetrate more or less right through the substrate as they are reacting with each other and must thoroughly “wet” the fabric fibres at the same time. A true fabric polymer composite (FPC) will thus be formed. Neither the original chemical reactants, nor the fabric substrate can be disengaged from each other: they no longer have an independent existence.

Professor Bush also explained that, when applied as a liquid coating to a fabric substrate, PU can subsequently be embossed to give almost any desired appearance.

We accept Professor Bush’s evidence (and find as a fact given the absence of contrary expert evidence, Professor Bush’s witness statements, and our assessment of the credibility of his evidence in the course of cross-examination) that Item C was an embossed fabric-based polymer composite and that this means that it was formed by polyurethane penetrating a fabric substrate. We take this to mean that the outer surface of Item C is made of a combination of polyurethane and textile fibres.

We find that the rest of Professor Bush’s evidence was of no assistance to us. As set out above, the other items examined by him were not before the Tribunal and so we could not consider what they looked like. We note that it was not Laurence Supply’s case that any of the items other than Item C considered by Professor Bush were within the C18. Professor Bush also gave evidence as to the use and nature of what he termed cellular plastic sheeting. However, as he accepted that this was simply one category or type of plastic sheeting, we find that this was of limited assistance to us when considering what plastic sheeting looks like. Further, Professor Bush gave evidence in respect of the items considered in Optoplast. However, our analysis of Optoplast is to come from the First-tier Tribunal’s decision itself rather than reopening the evidence that was heard in that case. Finally, Professor Bush gave evidence as to his views as to the application of the Combined Nomenclature. However, these are a matter for this Tribunal.

Mr Laurence Gordon submitted that the 3.7% CN Codes were correct. He said that Item C does not look like plastic sheeting and instead looks like leatherette. It was the appearance of faux leather that made Laurence Supply’s products attractive to consumers and so they are deliberately designed not to look like plastic sheeting. He also submitted that Optoplast was a very similar product and so the same result should apply. Further, Euro Packaging showed how the “naked eye” test was to be applied.

Miss Vicary submitted that the 9.7% CN Codes were correct. She submitted that the label on Item C states that the interior of Item C is 100% polyester whilst the exterior is 100% polyurethane. If an item is not plastic sheeting then it will be treated as such if it has the appearance of plastic sheeting. The back, base and corner panels make up the majority of Item C and have the appearance of an embossed plastic sheet. Manufacturing processes should be ignored as it is the visual inspection which is important. Further, Optoplast and Euro Packaging were not binding and were of limited use because they turned on their own facts and the specific goods in question. Miss Vicary also relied upon the basis of the tariff classification service report, which she reproduced in her skeleton argument. In particular, this included the following:

“A handbag. The back and base of the handbag and two lower corners of the front are all made from a polyurethane plastic, with embossed grain design. The remaining part of the front is made from a textile with pile surface (suede look). With adjustable shoulder strap made of the same plastic. The main compartment has a zip closure across the top. With pockets at sides and front fastened by zip. Measuring approximately 31cm wide 24cm high and 12 deep. Beige in colour.

...

GIR 1 has been used to classify this product by the terms of heading 4202 - trunks, suitcases, vanity cases, executive-cases, briefcases, school satchels, spectacle cases, binocular cases, camera cases, musical instrument cases, gun cases, holsters and similar containers; travelling-bags, insulated food or beverages bags, toilet bags, rucksacks, handbags, shopping-bags, wallets, purses, map-cases, cigarette-cases, tobacco pouches, tool bags, sports bags, bottle-cases, jewellery boxes, powder boxes, cutlery cases and similar containers, of leather or of composition leather, of sheeting of plastics, of textile materials, of vulcanised fibre or of paperboard, or wholly or mainly covered with such materials or with paper.

GIR 3(b) has been used as the plastic outer surface is considered to be the essential character.

GIR 6 has been used to classify this product to subheading level 420222 - handbags, with outer surface of plastic sheeting or of textile material.

CN code 42022210 - of plastic sheeting.

...

Beige handbag - river island label. Excluded from 4202229090 as the outer surface is not made predominantly from textile, but is made predominantly of plastic sheeting. Therefore, in accordance with additional note 1 to chapter 42 and the CNENS to 42021211-19, the bag is classified to the material forming the outer surface of the container and GIR 3(b) determines classification to the material giving the product its essential character. In this instance the predominant material of the outer surface and giving the essential character is considered to be the plastic sheeting.”

Miss Vicary placed these submissions in the context of the GIRs as follows: for the purpose of GIR1, the item is a handbag, it is an article with an outer surface of sheeting of plastics or of textile; for the purpose of GIR3(b), it is the back, base and corner panels of Item C which give it its essential character; and, for the purposes of GIR6, the outer material that is visible to the naked eye is a sheeting of plastics.

We find that Item C should not be classified as CN code 4202 22 10 00 (plastic sheeting) and instead is to be classified as CN code 4202 29 00 00 (other). This is for the following reasons.

First, for the purposes of GIR1, we agree that Item C is a handbag and so within Chapter 4202.

Secondly, for the purposes of GIR3(b), we agree that it is the leatherette (which term, as set out above, we use neutrally) that gives Item C its essential character rather than the suedette (which term we again use neutrally) as it is more than 50% of the outer surface of the handbag.

Thirdly, the leatherette is a fabric polymer composite. For the reasons set out by Professor Bush (which we accept as set out above), this means that the plastic is mixed with the textile substrate rather than being placed on top of it. We accept that this creates a sheet or sheeting using the ordinary meaning of the terms and when considering the objective characteristics of Item C. This is because Item C has the appearance of being made up of separate flat panels that are stitched together. The back panel of Item C is a single piece of leatherette which has been stitched to another piece of leatherette that forms the bottom panel. Two more pieces of leatherette are stitched at the bottom corners. The sides of the back panel are stitched to zips and to suedette. We also note that the ordinary and customary meaning of a “sheet” or “sheeting” does not require rigidity, as is obvious when referring to, for example, a sheet of paper or a fabric sheet used to cover a bed. However, it is not a “sheeting of plastics” or “plastic sheeting” because the sheet or sheeting is not just of plastic; as it is a fabric polymer composite, the sheet is a combination of plastic and textile.

In accordance with GIR6, the Explanatory Note is therefore engaged because the sheeting visible to the naked eye is the result of applying a coating or covering of plastics to the material. The question is whether, as set out in the Explanatory Note, “the resultant outer layer being visible to the naked eye has the same visual appearance as an applied layer of manufactured plastic sheeting.” The leatherette does not have the same visual appearance as an applied layer of manufactured plastic sheeting for the following reasons:

Fourthly, we do not treat Optoplast or Euro Packaging as being determinative of the present appeal. The items in question are different and do not bind us when considering Item C.

It follows that we find that HMRC have classified Item C wrongly within the C18.

There was a dispute as to whether HMRC must establish that the C18 was to best judgement.

Mr Laurence Gordon, on behalf of Laurence Supply, accepted that it was for Laurence Supply to establish the correct classification of the Goods. However, he submitted that it was for HMRC to establish that the C18 had been issued to best judgement. He did not cite any authorities for this. However, he noted that best judgement had been referred to in the present case by Judge Brown KC in a previous case management hearing.

Miss Vicary, on behalf of HMRC, submitted that assessments to customs duty cannot be made on a best judgement basis. Instead, where HMRC discover an error in the tariff classification of goods, they must recalculate the customs duty due in the light of the available information. Miss Vicary referred us to Skatteministeriet v Sportsgods A/S [1998] ECR I-5285 and Cooneen Watts & Stone v HMRC [2015] EWCA Civ 1261.

We agree with Miss Vicary that there is no requirement for HMRC to establish that the C18 was made to best judgement. The relevant articles of the Community Customs Code (particularly Articles 217 to 221) and the Union Customs Code (particularly Articles 101 to 107) make no reference to a requirement for best judgement and instead require HMRC to recalculate in the light of the new information at their disposal when they discover an error in the tariff classification of goods. This is to be contrasted with for, example, excise duty where best judgment is expressly provided for (see section 12(1) of the Finance Act 1994). Further, there is no wider duty upon HMRC when assessing for customs duty, as explained as follows by the Court of Appeal in and Cooneen Watts & Stone v HMRC, supra, per Laws LJat [38] and [39]:

“[38] I do not think it necessary to consider whether Nugee J was right to accept jurisdiction to entertain HMRC's contention as to Chapter 65, for in my judgment there is nothing in the substance of Mr Beal's points on unfairness or procedural irregularity. As to the first – that his clients were deprived of the opportunity to make a case for code 6506 in the proceedings – the issue in the appeal was whether the case they did make, for code 6211, was correct. HMRC owed them no duty to advance assertions of their own which might suggest an alternative case in the appellants' hands, or to do so soon enough to enable such a case to be made. From first to last the burden was on the appellants to choose what case if any they would put forward for MEU relief. I would emphasise and endorse these observations made by the FTT:

“116.

The importer has an obligation to ensure that it enters the correct customs classification on any customs declaration at the time of importing a consignment of goods (see Article 199 of the Implementing Regulation). From the time of publication in the Official Journal, no person is deemed to be unaware of the nature and extent of charges to customs duty (see Binder v. Hauptzollamt Bad Reichenhall [1989] ECR 2415, at [19]). The importer is responsible both for payment of the import duties and for the regularity of the documents presented by him to the customs authorities (See Case T-239/00 SCI UK Ltd v. Commission [2002] ECR II-2957 at [55]). It is the responsibility of traders to make the necessary arrangements in their contractual relationships to guard against the risks of an action for post-clearance payments.

We note that Mr Laurence Gordon told us that Judge Brown KC treated this as a best judgement decision. He has obtained and provided us with a transcript of the relevant hearing, which related to a strike out application made by Laurence Supply (at a time when it was represented) and a further application made by Laurence Supply for the classification issue to be heard as a preliminary issue prior to matters of quantum. Judge Brown KC dismissed both of these applications and also made various case management directions. Judge Brown KC was not presented with argument as to whether or not this was a best judgement decision. Indeed, the transcript reveals that Miss Vicary referred to the C18 as a best judgement assessment (which she presumably now says was wrong) and did so in the context of submissions relating to the relevance or otherwise to the application for a preliminary issue of the absence of documentation from Laurence Supply to challenge the quantum of the C18. The only other reference to best judgement within the transcript is in Judge Brown KC’s oral reasons for her decision to refuse the application for a preliminary issue, in which she stated as follows:

“In addition, I think it's irrelevant ... that the documentation is not available, and therefore would put the Appellant to considerable time, effort and money. That is a matter that arises as a consequence of having appealed. I expressed my shock immediately, when Mr Rowell said that the list of documents would need to be expanded.

With all due respect, Mr Rowell, you can only expand the list of documents with the permission of the Tribunal. The fact that your instructing solicitors and client don’t actually have the documents to put on their original list of documents is not a matter that is relevant for the Tribunal to take into account, when faced with a best judgement assessment. The appeal should have been made on the basis of the information having been gathered, or, the gathering should have been taking place over the last two years since the appeal was lodged.”

Judge Brown KC was not, therefore, deciding as a matter of law that this was a best judgement assessment. Instead, she was making a comment about the relevance or otherwise of the fact that Laurence Supply did not have any documentation available. As such, we are not bound to treat the C18 as a best judgement decision and, for the reasons set out above, we do not do so. We note that Judge Brown KC issued a full written decision on 13 July 2021 which made reference to the decision being made by HMRC on a best judgement basis but, again, unsurprisingly did not deal with whether this was technically the correct analysis given that it was not in issue between the parties at that stage.

It was not clear whether Mr Laurence Gordon accepted that the burden of proof as to quantum was upon Laurence Supply (although he clearly accepted that the burden of proof as to classification was upon Laurence Supply, his focus throughout was upon criticism of what he said were HMRC’s failings in respect of the C18 and said that Laurence Supply was under no obligation to provide the documents which HMRC had been asking for).

Miss Vicary submitted that the burden is on an appellant to show on the balance of probabilities that the assessment contained in the C18 is wrong. Miss Vicary referred us to Brady (HM Inspector of Taxes) v Group Lotus Car Companies plc [1987] STC 635, Grunwick Processing Laboratories v Comms of C & E [1987] STC 357 and Vital Nut Co Ltd v HMRC [2017] UKUT 192 (TCC). The task is not to balance two competing views and determine which is more likely to be correct as instead the burden is upon the appellant to establish its case. Miss Vicary referred us to Golamreza Qolaminejte (aka Anthony Cooper) v The Commissioners for Her Majesty’s Revenue and Customs [2021] UKUT 119 (TC). In addition, Miss Vicary submitted that the burden of proof could not be satisfied by calculating the amount of duty due on a pro-rata or estimated basis. Miss Vicary referred us to Build-a-Bear Workshop UK Holdings Limited v HMRC [2021] UKUT 67 (TCC).

We agree with Miss Vicary that the burden of proof is upon Laurence Supply. In Vital Nut Co Ltd v HMRC, supra, the Upper Tribunal made the point that it is not for HMRC to justify the classification in the C18 but it is instead for the taxpayer to establish that the classification is wrong and what it should be instead. The Upper Tribunal stated as follows at [15](4)(c):

“(c)

Before the FTT, it was common ground between the parties that the burden of proving which was the applicable class fell on the taxpayer, here Vital Nut. This was also not a controversial point before us. In this case, the Commissioners issued a C18 Post Clearance Demand Note (C1802/163608) which was predicated on the classification of the papaya under commodity code heading 20.06. Vital Nut accepted that it was not for the Commissioners to justify this classification. Rather, the onus was on Vital Nut to show that the 20.06 classification was wrong and that commodity code heading 20.08 was the appropriate one: Brady (HM Inspector of Taxes) v. Group Lotus Car Companies plc [1987] 3 All ER 1050.”

However, we do not agree with Miss Vicary that Build-a-Bear Workshop UK Holdings Limited v HMRC, supra, establishes that the amount of duty cannot be calculated on a pro-rata or estimated basis. Although this had been the submission of leading counsel for HMRC (see [241]), the Upper Tribunal took care to say that they were going no further than to say that it is for the Tribunal to examine the evidence to consider if the burden of proof has been met. The Upper Tribunal stated as follows at [244] to [248]:

“[244] Pursuant to s16(6) Finance Act 1994, the burden of proof in customs and excise appeals is on the appellant other than in relation to the specific matters which are set out in subparagraphs (a) to (c) of that sub-section.

[245] The burden is therefore on BAB to show on the balance of probabilities that the assessments contained in the C18s were wrong, in whole or in part.

[246] We therefore agree with Mr Thomas that, to the extent that BAB has failed to provide any evidence of the nature of the goods that were imported under a particular EPU code, the assessment in the relative C18 must stand.

[247] As a matter of principle, however, we do not go any further than that. It is for the FTT in appropriate cases to examine the evidence that is put forward by an appellant to challenge an assessment and to determine if it meets the appropriate standard of proof.

[248] In this case, as a consequence of its decision not to address questions of the quantum of liability, the FTT made no relevant findings of fact. It might be assumed that the FTT accepted Mr Cook's evidence and regarded Mr Cook's evidence as meeting the burden of proof, but there is no clear finding to that effect. Mr Cook has not appeared before us and we are in no position to make any decision on the weight of his evidence in relation to the C18s.”

It follows that whether the burden of proof is met is fact specific. If, in the factual circumstances of a particular case, a pro-rata or estimated basis is sufficient to establish on the balance of probabilities that the assessment is wrong in whole or in part, then such a challenge may succeed. However, this depends upon how reliable and accurate the pro-rata or estimated basis is and as to the weight of the evidence supporting it.

We bear in mind the findings of fact that we have made above. We also make the following findings of fact with specific regard to matters of quantum.

In response to Miss Vicary’s questions in cross-examination, Mr Mark Gordon explained that he did not have any documents or samples which would evidence the specifications provided for either of the approaches to sourcing the Goods or which would evidence what the material used was. He said that his sister did all the designing but that she does not normally retain her emails for more than a year. He did not remember whether he had asked to her to search for these emails. He had the purchase orders and sales orders but these did not show what the material was like. We accept Mr Mark Gordon’s evidence in this regard.

We note at this stage that Laurence Supply relied upon photographs of 20 handbags, being the Images referred to above. No attempt was made to explain how many of these 20 handbags were within the C18. In any event, we were not in a position to conduct a naked eye test upon these handbags as the Images only showed the front of each handbag and were of only modest quality. Nevertheless, the quality of the photographs was sufficient to establish that they comprised a range of different styles, not only as to how the handbags themselves looked but also as to the appearance of the material used. Importantly, we find that the Images did not establish that the leatherette used for Item C was typical of the other items in the Images. Only one of the Images (which was of a zipped clutch bag) showed embossing that was the same as the leatherette on Item C, and even this was only one relatively small part of what appeared to be a patchwork of differently styled materials. We also find that Laurence Supply did not refer to the leatherette in a uniform manner, as the entries on the Schedule also referred to “Satin Polyester”, “Woven Nylon”, and “Cotton”.

We find that HMRC told Laurence Supply of the need to provide evidence of the Goods, in particular by way of Mrs Wilkes’ letters dated 20 February 2017, 30 March 2017 and 3 April 2017. Whilst Mr Laurence Gordon is correct that there was no obligation upon Laurence Supply to provide the documents requested by HMRC, the effect of Laurence Supply’s failure to do so then or since means that no such documents are before this Tribunal.

Indeed, the importance of the need to establish the classification of the other Goods, or at least the extent to which they correspond to Item C or Item D, has been apparent throughout this appeal. The Amended Grounds of Appeal, drafted by Counsel, state as an alternative case to the classification argument that, “the Appellant will adduce evidence as to the true proportions of PU leatherette and textile Goods imported during the assessed period.” Further, Laurence Supply made two applications for classification to be heard as a preliminary issue, each of which was refused (the first by Judge Fairpo on 19 September 2020 and the second by Judge Brown KC in her oral decision on 22 June 2021 and her written decision released on 16 August 2021). Even Mrs Wilkes’ witness statement invited evidence as to which Handbags or Purses were suedette upon the basis that, “there would still be scope to vary the C18 raised,” (albeit that this was only in the context of establishing similarity to Item D rather than Item C).

Mr Laurence Gordon said in closing submissions that, during the period which the C18 covers, Laurence Supply only ever supplied leather look (which term he used interchangeably with leatherette) and suedette Handbags and Purses. However, we note that neither Mr Laurence Gordon or Mr Mark Gordon actually said this in either of their witness statements or in their oral evidence. Even if we were to treat this as their evidence, we cannot find as a fact that the Goods were exclusively the same as the leatherette in Item C or the suedette in Item D. This is for the following reasons: neither Mr Laurence Gordon nor Mr Mark Gordon’s evidence went that far; even if we could treat it as evidence, Mr Laurence Gordon’s submission does not actually go that far either (as he just referred to “leather look” rather than saying that all such items were the same as, or made from the same material as, Item C); Mr Mark Gordon said that there were 1,000 to 1,300 different styles; and, as set out above, the photographs do not show that the leatherette in Item C was typical of the leatherette goods.

Mr Laurence Gordon submitted that Laurence Supply only supplied leather look and suedette Handbags and Purses. He also relied upon the Images. He also relied upon the 2013 visit as evidence that HMRC had accepted that CN codes for textiles were appropriate. Further, he submitted that HMRC accepted that the six items which it did not take as samples (only taking two samples) were polyurethane leather.

Miss Vicary submitted that Laurence Supply has simply failed to satisfy the burden of proof as to the quantum of the C18. She further submitted that Laurence Supply had effectively refused to provide any further documentation. She noted that on 26 October 2020 HMRC highlighted the absence of documents such as purchase orders describing what the Goods were, to which Laurence Supply’s solicitor stated that, “we confirm that our client does not intend to rely upon any purchase orders ... Our client is satisfied that the documents it has listed sufficiently support its case.” However, there are no documents which provide any evidence about what the Goods were, what any leatherette or suedette looked like, or how many were similar either to Item C or Item D. Further, the Images are of no assistance as they cannot be correlated with the Goods and in any event do not enable a consideration of the “naked eye test”.

In closing submissions, Miss Vicary submitted that the removal of Item C from line 253 of the C18 reduces the sum assessed by £2,064.36 to £601,484.22. Laurence Supply have not provided any alternative figures or calculations.

We find that Laurence Supply has failed to satisfy the burden of proof in respect of any of the Goods within the C18 other than Item C. This is for the following reasons.

First, HMRC rightly accepted that if it could be established that all the Goods looked like either Item C or Item D then Laurence Supply would not need to establish which looked like which, as the rate would be 3.7% in either case. However, we find that Laurence Supply has not established that all the Goods looked like either Item C or Item D. Indeed, Laurence Supply (acting clearly honestly and fairly) did not go so far as to suggest that this was the case. The high point was the submission that Laurence Supply only supplied leather look and suedette Handbags and Purses. This is different to saying that they were the same as Item C or Item D, as particularly “leather look” could cover a range of appearances, as shown in the Images. We repeat our findings at paragraph 82 above in this regard. In any event, neither Mr Laurence Gordon nor Mr Mark Gordon elaborated in evidence or submissions upon what appearance they meant by the rest of the Goods being leather look, leatherette or suedette.

Secondly, in principle it would have been open to Laurence Supply to provide evidence as to how many of the Goods predominantly used a material which looked like either Item C or Item D. However, Laurence Supply did not do so, whether by identifying specific imports or by estimating (backed up by sufficient evidence for such an estimation) the proportion of the Goods which looked either like Item C or Item D, or by a suitable sampling exercise as envisaged by the Amended Grounds for Appeal. We are surprised that Laurence Supply does not seem to have attempted to do this. We would expect there to be some evidence available as to the designs or specifications of the Goods, whether in the context of Laurence Supply’s communications with their manufacturers or their customers. The closest to any analysis was the assertion in the email dated 27 April 2017 referred to above that 23% of the imports were non-textile. However, this was not expanded upon (or even adopted) in the witness evidence or submissions, its basis is unclear, and, if based upon the Images, does not explain why these were representative of the rest of the imports. Indeed, no real explanation was given as to why the other 77% were said to be “textile” or why (if at all) they are to be correlated with Item D.

Thirdly, the Images do not establish that any of the Goods are to be classified to the 3.7% CN Codes. We repeat paragraph 79 above in this regard.

Fourthly, although HMRC did not take issue with the use of 3.7% CN Codes at the time of the 2013 visit, this does not enable Laurence Supply to establish what the Goods were between 6 May 2014 and 4 May 2017.

Fifthly, as set out in paragraph 33 above, the reason for Mrs Wilkes only taking two samples was because it was common ground that Item C and Item D were the only items of the eight samples which contained suedette. In accordance with Mr Laurence Gordon’s own evidence (and, again, as we have found as a fact at paragraph 33 above) no agreement was reached as to the classification of the other six items.

Sixthly, it is important to note that the context of the burden of proof as to quantum is not simply as to the accuracy of the calculations. It is for Laurence Supply to establish, on the balance of probabilities, which of the imports within the C18 were wrongly classified. Laurence Supply has not sought to do this, and in any event has not done so.

Laurence Supply did not provide any alternative submissions or figures for the reduction of the C18 following the reclassification of Item C. In any event, we agree that only line 253 of the C18 appears to relate to Item C and so we also agree that the C18 is to be reduced by £2,064.36 to £601,484.22.

Mr Laurence Gordon did not make any submissions as to any authorities on the availability of public law principles. We make no criticism of him for this whatsoever, as this was an issue which was generated by the Tribunal wanting to make sure that Laurence Supply’s case could be considered at its highest. This arose from Mr Laurence Gordon’s submission that HMRC had acted unfairly or should otherwise be held to their findings in their 2013 visit or that HMRC had approached the calculation of the C18 wrongly by simply applying a flawed classification to all of the Goods.

We therefore invited Miss Vicary to address the question of whether it was in principle open to Laurence Supply to argue that the C18 (in particular the inclusion of all of the Goods in it) was irrational or if any legitimate expectation argument may arise from the 2013 visit. Of course, these would in any event depend upon our findings of fact if these arguments are within our jurisdiction. We are grateful for Miss Vicary’s research, which she presented in a fair and constructive manner. In short, she submitted that there is no supervisory jurisdiction to allow this to be taken into account in the present case and that the statutory scheme does not engage any public law principles. Miss Vicary referred us to HMRC v Abdul Noor [2013] UKUT 071 (TC), KSM Henryk Zeman SP Zoo v HMRC [2021] UKUT 182 (TCC), and Xerox Limited v HMRC [2022] UKFTT 00092 (TC).

We agree with Miss Vicary that the C18 cannot be challenged before this Tribunal upon public law principles. Whilst it is clear that this Tribunal does not have a general supervisory jurisdiction, public law principles can still be considered where the statutory language permits it, such as where the statutory language gives rise to a discretion to be exercised by HMRC. The position was summarised, albeit obiter, as follows by the Upper Tribunal in KSM Henryk Zeman SP Zoo v HMRC, supra, at [69] to [75] (in that case finding that the particular legislation and subject-matter in issue in that case did allow for public law principles):

“[69] It is clear from the detailed list of appeal subjects in section 83 that the FTT does not have a general supervisory jurisdiction (Corbitt). We agree with that proposition and nothing we say is intended to derogate from it.

[70] That is not, however, the same thing as saying that a taxpayer may not in at least certain of the cases described in section 83(1) defend himself by challenging the validity of a decision on public law grounds. The starting point is that he should be able to (see Beadle at [44]). The question which arises is whether the statutory scheme expressly or by implication excludes the ability to raise a public law defence (again, see Beadle at [44]).

[71] In the present case, the relevant statutory language provides that if certain conditions are fulfilled, the Commissioners “may assess the amount of VAT due … to the best of their judgment” (s.73(1)), and if they do then an appeal shall lie to the tribunal “with respect to” the assessment or its amount (s.83(1)(p)).

[72] The word “may” is permissive, not mandatory. It must follow that an assessment is made not by operation of the statute but by a discretion exercised by HMRC. We prefer a construction of section 73(1), and therefore of section 83(1)(p), which recognises and gives effect to that word. We therefore respectfully disagree with the approach adopted in Gore at [30] and [44] (see [65] and [67] above), which treats the word “may” as descriptive of a separate enforcement function and attributes no weight or meaning to it in the context of section 73(1) looked at on its own terms.

[73] A taxpayer has a right of appeal to the tribunal “with respect to … an assessment … under section 73(1).” Although made in a different context, and indeed in the context of statutory language which is narrower than that in section 83(1)(p) (see [39] above), we agree with the comments on Sales J in Oxfam at [63] as to the ordinary and natural meaning of the phrase “with respect to”. As a matter of language, it defines the scope of the tribunal’s appellate jurisdiction not by reference to any particular legal regime or type of law, but instead by reference to the subject-matter of the subsection.

[74] Here the subject matter of subsection 83(1)(p) is, straightforwardly, “an assessment … under section 73(1) … or the amount of such an assessment.” And for there to be “an assessment … under section 73(1)” the Commissioners need to have made a decision that there should be one (see [72] above).

[75] On its face, therefore, we find it difficult to see that this statutory language excludes the availability of a general public law defence based on legitimate expectation. Such a defence would seem to fall squarely within the subject-matter described.”

The point was considered in a customs duty context in Caerdav Ltd v HMRC [2023] UKUT 00179 (TCC) (“Caerdav”). The Upper Tribunal held that the customs duty and VAT chargeable as a result are mandatory and leave no room for domestic public law defences to be considered. The Upper Tribunal stated as follows at [152] to [158]:

“[152] The starting point is therefore that appeal grounds which concern public law arguments should be pursued in judicial review proceedings rather than before the FTT. However, we, like the FTT, accept that the FTT may have jurisdiction to consider appeal grounds based on public law arguments (such as legitimate expectation) depending on the statutory provisions under consideration.

[153] Thus, the statutory context is key, as the UT in Henryk explains.

[154] In this appeal, the taxpayer appeals under s.83(1)(b) VATA, which permits appeals to the FTT with respect to “the VAT chargeable… on the importation of goods from a place outside the member States.” Like the right of appeal under s.83(1)(c) VATA, the VAT chargeable on the importation of goods is not a matter of discretion but is mandatory and in an appeal the FTT is concerned with whether the conditions prescribed for a charge to arise under the legislation are present and the amount of the charge.

[155] This is in contrast to the manner in which s.83(1)(p) VATA provides a right of appeal against the discretion of HMRC whether to make an assessment under section 73(1). Hence there is a distinction drawn between subsections 83(1)(c) and (p) VATA set in the authority on which the Appellant relies – Henryk:

“We note one point immediately, which is that on the face of it, the scope of section 83(1)(p) is broader than the scope of section 83(1)(c) (the provision in issue both in Oxfam and Noor), because an appeal lies only with respect to the amount of an assessment but instead with respect to “an assessment… under section 73(1).” And the wording of section 73(1), on the face of it, is permissive not mandatory – ‘the Commissioners may assess the amount of VAT due to the best of their judgment and notify it.”

There is a discretion inherent in s.83(1)(p) VATA read together with section 73, which were the statutory provisions considered in Henryk which led it to decide public law arguments could be pursued in the FTT appeal. However, there is no discretion conveyed by subsections 83(1)(b) or (c) VATA which are the mandatory provisions concerning the appeals applicable in this case and in Noor respectively.

[156] The same point applies to the appeal against the Customs duty. Section 13A(2) of the Finance Act 1994 defines a relevant decision for customs duty:

“(a)

any decision by HMRC, in relation to any customs duty or to any agricultural levy of the [European Union], as to

(i)

whether or not, and at what time, anything is charged in any case with any such duty or levy;

(ii)

the rate at which any such duty or levy is charged in any case, or the amount charged;

(iii)

the person liable in any case to pay any amount charged, or the amount of his liability; or

(iv)

whether or not any person is entitled in any case to relief or to any repayment, remission or drawback of any such duty or levy, or the amount of the relief, repayment, remission or drawback to which any person is entitled.”

[157] These are mandatory provisions. As noted in Noor at para 194 “all Member States must apply the common external tariff to imports from third count[r]ies. HMRC does not have a discretion about whether or not to apply a customs duty”. On an appeal, the FTT is concerned with whether the facts prescribed for a charge to arise are present and the amount of the charge.

[158] We thus agree with the FTT’s analysis set out at [200] above and reject Ms Choudhury’s suggestion that the statutory provisions under consideration conveyed any right of appeal against the exercise of a discretionary power by HMRC. There was no error of law in the FTT concluding that, as a matter of statutory interpretation, it had no jurisdiction to consider public law grounds, such as legitimate expectation, in appeals brought under sections 83(1)(b) VATA and sections 13A(2) and 16(5) Finance Act 1994.”

We therefore adopt the approach taken by the Upper Tribunal in Caerdav, as it is equally applicable to classification appeals such as the present case given that the same appeal provisions are engaged, and also given that HMRC’s underlying obligations are mandatory. It follows that the reasonableness of the C18 is not within our jurisdiction as HMRC was not exercising any discretion in that regard.

Similarly, it follows that we cannot consider any domestic law legitimate expectation arising from the 2013 visit as our jurisdiction is as to whether the facts prescribed for a charge to arise are present and the amount of the charge. In any event, we find as a fact that no legitimate expectation arose from the 2013 visit that the Goods in the C18 could be classified using 3.7% CN Codes. First, HMRC did not inform Laurence Supply that all future goods could be classified using 3.7% CN Codes; at its highest, HMRC’s conduct in not taking issue with the use of the 3.7% CN Codes can be treated as meaning that the goods considered at that time by HMRC were correctly classified. Secondly, there is no evidence as to the appearance of, or material used in, the goods considered by HMRC at the time of the 2013 visit. Thirdly, for the reasons set out above, there is no evidence as to the appearance of, and material used in, the Goods comprising the C18 and so it is not possible to assess their similarity (or otherwise) to the goods considered during the 2013 visit.

There were no submissions by either party as to whether or not there is jurisdiction to consider a freestanding EU law concept of legitimate expectation (see the discussions, albeit in the context of remission, in Caerdav at [118] and Fatima Jewellers Ltd v HMRC [2023] UKFTT 00889 (TC) at [52] to [59]). However, even if legitimate expectation in this context could be considered, we find that no legitimate expectation could arise or have any effect for the reasons set out in paragraph 99 above.

It follows that we allow the appeal in part to take into account the reclassification of Item C. The C18 is therefore reduced by £2,064.36 to £601,484.22. We sympathise with the frustration that Laurence Supply may well feel about being successful on the classification issue and yet only achieving a very modest reduction of the C18. This is particularly stark given that HMRC themselves appear to have anticipated the possibility that some of the Goods would be similar at least to Item D. However, in the absence of sufficient evidence being provided by Laurence Supply, there are no grounds to reduce the C18 any further.

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.