Sony Computer Entertainment Europe Ltd. v Customs and Excise [2005] EWHC 1644 (Ch)

[2005] EWHC 1644 (Ch)

Case No CH/2004/APP/0812

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

ON APPEAL FROM THE VAT AND DUTIES TRIBUNAL

Venue Royal Courts of Justice

Date Wednesday, July 27, 2005

Strand

London WC2A 2LL

Before

MR JUSTICE LAWRENCE COLLINS

Between

SONY COMPUTER ENTERTAINMENT EUROPE LIMITEDAppellant

THE COMMISSIONERS OF CUSTOMS AND EXCISERespondents

Mr Mark Clough QC and Mr Philippe de Baere (instructed by Ashurst) for Appellant

Mr Kieron Beal (instructed by the Solicitor for HM Revenue and Customs) for the Respondents

JUDGMENT

I Introduction

[1]This is an appeal by Sony Computer Entertainment Europe Ltd ("Sony") from a decision of the VAT and Duties Tribunal ("the Tribunal") in favour of the Commissioners of Customs and Excise ("the Commissioners") dated October 15, 2004.

[2]This appeal concerns the customs classification of the Sony Playstation2 ("the PS2"). It has been most elaborately argued, with more than 150 pages of written arguments and the citation of more than 60 decisions of the European Court or the Court of First Instance.

[3]The practical point is that until the end of 2003 the duty on goods imported into the EC under customs classification Heading 8471 (automatic data processing machines) was zero, whereas the duty on goods under subheading 9504 10 00 (video games of a kind used with a television receiver) was 1.7%. Sony is attempting to recover as overpaid duty some 50 million euros which it says it has paid as a result of the many PS2s imported and wrongly classified to Heading 9504. Since January 1, 2004, the duty under both headings has been zero.

[4]In October 2000 the Commissioners classified the PS2 under Heading 9504, because it was not freely programmable for the purposes of Heading 8471. This was challenged by Sony but the decision was upheld by the reviewing officer. Sony appealed to the Tribunal. The EC Nomenclature Committee in February 2001 resolved that the European Commission should draw up a Regulation classifying the PS2 under Heading 9504, and approved a draft Regulation to that effect in May 2001, notwithstanding that it was freely programmable. Because the original basis of the Commissioners' decision was that the PS2 was not freely programmable, Sony's appeal to the Tribunal was allowed by consent.

[5]Pending the publication of a Regulation classifying the PS2 to Heading 9504, the Commissioners issued a Binding Tariff Information classifying the PS2 to Heading 8471 as from October 2000, but making it clear that its classification would have to be revoked when the Regulation classifying it to Heading 9504 was published.

[6]The Regulation was published in July 2001. On July 25, 2001, the Commissioners wrote to Sony revoking the Binding Tariff Information. In September 2003, the Court of First Instance annulled the Regulation because of a defect in its reasoning, whilst recognising that the PS2 was intended to be used mainly for playing video games, and that it could have been classified under Heading 9504. Subsequently the European Commission expressed the view that the PS2 should be classified to Heading 9504, and in May 2004 the World Customs Organisation adopted a Classification Opinion which classified the PS2 under Heading 9504.

[7]In briefest summary, Sony's position is that the effect of the annulment of the Regulation by the Court of First Instance is to revive the Commissioners' classification to Heading 8471, notwithstanding that(a) the Commissioners' classification was expressly stated to be only valid until the adoption of the Regulation classifying the PS2 to Heading 9504; and

(b) at all material times the Community and the international bodies dealing with classification have acted on the view that the PS2 is to be classified to Heading 9504. II Legal background

[8]The Common Customs Tariff came into existence in 1968. By Article 26 of the revised EC Treaty Common Customs Tariff duties are fixed by the Council acting on a qualified majority on a proposal from the Commission.

[9]The level of customs duties on goods imported from outside the EC is determined at Community level on the basis of the Combined Nomenclature ("CN") established by Article 1 of Council Regulation 2658/1987. The CN is established on the basis of the World Customs Organisation's Harmonised System laid down in the International Convention on the Harmonised Commodity Description and Coding System 1983 to which the Community is a party.

[10]Article 3(1)(a)(ii) of the International Convention provides that, subject to certain exceptions, each contracting party undertakes "to apply the General Rules for the Interpretation of the Harmonised System and all the Section, Chapter and Subheading Notes and shall not modify the scope of the Section, Chapters, headings or subheadings of the Harmonised System". The International Convention is kept up to date by the Harmonized System Committee ("the HSC"), which is composed of representatives of the Contracting States.

[11]The CN, originally in Annex I to Regulation 2658/87, is re-issued annually. The CN comprises:(a) the nomenclature of the harmonized system provided for by the International Convention;

(b) Community subdivisions to that nomenclature ("CN subheadings"); and

[12]The CN uses an eight-digit numerical system to identify a product, the first six digits of which are those of the harmonised system, and the two extra digits identify the CN sub-headings of which there are about 10,000. Where there is no Community sub-heading these two digits are "00" and there are also ninth and tenth digits which identify the Community (TARIC) subheadings of which there are about 18,000.

[13]There are Explanatory Notes to the Nomenclature of the World Customs Organisation, otherwise known as Explanatory Notes to the Harmonised System ("HSENs"). The Community has also adopted Explanatory Notes to the CN (pursuant to Article 9(1)(a) of Council Regulation 2658/87), known as CNENs.

[14]The General Rules for the Interpretation of the CN ("GIRs") are contained in Section 1A of Part 1 of Annex 1 to Council Regulation 2658/87 (as amended by Commission Regulation 2204/99) and have the force of law. They include these provisions:(1) By rule 1, classification is to 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 succeeding provisions.

(2) By rule 2(b), the classification of goods consisting of more than one material or substance shall be according to the principles of rule 3.

(3) Rule 3 provides as follows:

"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 substance contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods; (b) mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character in so far as this criterion is applicable; (c) when goods cannot be classified by reference to 3(a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration." (4) By rule 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) By rule 6, rule 1 is applied mutatis mutandis to the classification of goods in the subheading of a heading.

[15]Binding Tariff Information is issued by the customs authorities of the Member States pursuant to Article 12 of Council Regulation 2913/92/EEC, the Community Customs Code ("CCC"), on request from a trader. They are called "BTIs", and such information is binding on the authorities in respect of the tariff classification of goods.

[16]The CCC contains the following relevant provisions:

“Article 6 1. Where a person requests that the customs authorities take a decision relating to the application of customs rules that person shall supply all the information and documents required by those authorities in order to take a decision. … 3. Decisions adopted by the customs authorities in writing which either reject requests or are detrimental to the persons to whom they are addressed shall set out the grounds on which they are based. They shall refer to the right of appeal provided for in Article 243. … Article 9 1. A decision favourable to the person concerned, shall be revoked or amended where … one or more of the conditions laid down for its issue were not or are no longer fulfilled. … 3. The person to whom the decision is addressed shall be notified of its revocation or amendment. 4. The revocation or amendment of the decision shall take effect from the date of notification. However, in exceptional cases where the legitimate interests of the person to whom the decision is addressed so require, the customs authorities may defer the date when revocation or amendment takes effect. … Article 11 1. Any person may request information concerning the application of customs legislation from the customs authorities. Such a request may be refused where it does not relate to an import or export operation actually envisaged. … Article 12 1. The customs authorities shall issue binding tariff information on written request, acting in accordance with the committee procedure. 2. Binding tariff information shall be binding on the customs authorities as against the holder of the information only in respect of the tariff classification of goods. … 4. Binding tariff information shall be valid for a period of six years in the case of tariffs … 5. Binding tariff information shall cease to be valid: (a) in the case of tariff information (i) where a regulation is adopted and the information no longer conforms to the law laid down thereby; (ii) where it is no longer compatible with the interpretation of one of the nomenclatures referred to in Article 20 (6): - at Community level, by reason of amendments to the explanatory notes to the combined nomenclature or by a judgment of the Court of Justice of the European Communities - at international level, by reason of a classification opinion or an amendment of the explanatory notes to the Nomenclature of the Harmonized Commodity Description and Coding System adopted by the World Customs Organization established in 1952 under the name ‘the Customs Cooperation Council’, (iii) where it is revoked or amended in accordance with Article 9, provided that the revocation or amendment is notified to the holder. The date on which binding tariff information ceases to be valid for the cases cited in (i) and (ii) shall be the date of publication of the said measures or, in the case of international measures, the date of the Commission communication, in the 'C' series of the Official Journal of the European Communities; … 6. The holder of binding tariff information which ceases to be valid pursuant to paragraph 5(a)(ii) or (iii) may still use that information for a period of six months from the date of publication or notification provided that he concluded binding contracts for the purchase or sale of the goods in question, on the basis of the binding information, before that tariff measure was adopted. However, in the case of products for which an import, export or advance- fixing certificate is submitted when customs formalities are carried out, the period of six months is replaced by the period of validity of the certificate. In the case of paragraph 5 (a)(i) and (b)(i), the Regulation or agreement may lay down a period within which the first subparagraph shall apply. 7. The classification in binding tariff information may be applied, on the conditions laid down in paragraph 6, only for the purpose of: - determining import or export duties, - calculating export refunds and any other amounts granted for imports or exports as part of the common agricultural policy, - using import, export or advance-fixing certificates which are submitted when formalities are carried out for acceptance of the customs declaration concerning the goods in question, provided that such certificates were issued on the basis of the information concerned. … Article 243 1. Any person shall have the right to appeal against decisions taken by the customs authorities which relate to the application of customs legislation, and which concern him directly and individually. Any person who has applied to the customs authorities for a decision relating to the application of customs legislation and has not obtained a ruling on that request within the period referred to in Article 6 (2) shall also be entitled to exercise the right of appeal. The appeal must be lodged in the Member State where the decision has been taken or applied for. 2. The right of appeal may be exercised: (a) initially, before the customs authorities designated for that purpose by the Member States; (b) subsequently, before an independent body, which may be a judicial authority or an equivalent specialized body, according to the provisions in force in the Member States.”

Article 9 Article 11 Article 12 (a) in the case of tariff information (i) where a regulation is adopted and the information no longer conforms to the law laid down thereby; (ii) where it is no longer compatible with the interpretation of one of the nomenclatures referred to in Article 20 (6): - at Community level, by reason of amendments to the explanatory notes to the combined nomenclature or by a judgment of the Court of Justice of the European Communities - at international level, by reason of a classification opinion or an amendment of the explanatory notes to the Nomenclature of the Harmonized Commodity Description and Coding System adopted by the World Customs Organization established in 1952 under the name ‘the Customs Cooperation Council’, (iii) where it is revoked or amended in accordance with Article 9, provided that the revocation or amendment is notified to the holder. The date on which binding tariff information ceases to be valid for the cases cited in (i) and (ii) shall be the date of publication of the said measures or, in the case of international measures, the date of the Commission communication, in the 'C' series of the Official Journal of the European Communities; - determining import or export duties, - calculating export refunds and any other amounts granted for imports or exports as part of the common agricultural policy, - using import, export or advance-fixing certificates which are submitted when formalities are carried out for acceptance of the customs declaration concerning the goods in question, provided that such certificates were issued on the basis of the information concerned. Article 243 (a) initially, before the customs authorities designated for that purpose by the Member States; (b) subsequently, before an independent body, which may be a judicial authority or an equivalent specialized body, according to the provisions in force in the Member States.”

Article 243

[17]By Commission Regulation 2454/93, Article 12:

"1. Upon adoption of one of the acts or measures referred to in Article 12 (5) of the Code, the customs authorities shall take the necessary steps to ensure that binding tariff information shall thenceforth be issued only in conformity with the act or measure in question. 2. For the purposes of paragraph 1 above, the date to be taken into consideration shall be as follows: - for the regulations provided for in Article 12(5)(a) [now Article (12)(5)(a)(i)] of the Code concerning amendments to the customs nomenclature, the date of their applicability, - for the regulations provided for in (a) of the same article and paragraph and establishing or affecting the classification of goods in the customs nomenclature, the date of their publication in the 'L` series of the Official Journal of the European Communities, - for the measures provided for in (b) [now Article 12(5)(a)(ii)] of the same article and paragraph, concerning amendments to the explanatory notes to the combined nomenclature, the date of their publication in the ‘C' series of the Official Journal of the European Communities, - for judgments of the Court of Justice of the European Community provided for in (b) of the same article and paragraph, the date of the judgment, - for the measures provided for in (b) of the same article and paragraph concerning the adoption of a classification opinion or amendments to the explanatory notes to the Harmonized System Nomenclature by the Customs Cooperation Council, the date of the Commission communication in the ‘C' series of the Official Journal of the European Communities. 3. The Commission shall communicate the dates of adoption of the measures and acts referred to in this article to the customs authorities as soon as possible."

[18]Article 9 of Council Regulation 2658/87 makes provision for the adoption of regulations concerning, inter alia, the classification of goods in the CN. Such regulations are proposed by the European Commission but must be submitted to the Customs Code Committee, a committee composed of representatives of the Member States and chaired by representatives of the Commission (Council Regulation 2658/87, Article 7).

[19]The Customs Code Committee is a body constituted specifically for the purposes of classification, and its composition varies depending on the nature of the product at issue. Where the Committee approves the Commission's proposals, they may be adopted by the Commission; where it does not, they must be communicated to the Council which may take a different decision (Article 10).

[20]The consequence is that the Council has conferred upon the Commission, acting in co-operation with the customs experts of the Member States, a broad discretion to define the subject matter of tariff headings falling to be considered for the classification of particular goods. But the power of the Commission to adopt the measures does not authorise it to alter the subject-matter of the tariff headings which have been defined on the basis of the harmonised system established by the International Convention whose scope the Community had undertaken not to modify:

Case C-267/94

Commission v France

[1995] ECR I-4845

, paras 19-20;

Case C-309/98

Holz Geenen v Oberfinanzdirektion München

[2000] ECR I-1975

, para 13;

Case T-243/01

Sony Computer Entertainment Europe Ltd v Commission

[2003] ECR II-418

, para 126.

[21]In

Case C-119/99

Hewlett Packard BV v Directeur Générale des Douanes

[2001] ECR I-3981

, Advocate General Mischo said (in reasoning which was followed and approved by the Court) that classification regulations are adopted "when the classification in the CN of a particular product is such as to give rise to difficulty or to be a matter for dispute." (para 18). He went on:

"20. It should be borne in mind that a classification regulation is adopted … on the advice of the Customs Code Committee when the classification of a particular product is such as to give rise to difficulty or to be a matter for dispute. … The classification regulation constitutes the application of a general rule to a particular case, and thus contains guidance on the interpretation of the rule which can be applied by the authority responsible for the classification of an identical or similar product."

[22]The obligation to state reasons which is incumbent on the Commission when it adopts a classification regulation requires the Commission to state clearly the legal basis for the classification, in order to inform the persons concerned of the justification for the measure adopted and to enable the Community court to exercise its powers of review:

Case T-243/01

Sony Computer Entertainment Europe Ltd v Commission

[2003] ECR II-418

, para 131. III Principles of interpretation

[23]I set out the relevant principles of interpretation in my judgment in VTech Electronics (UK) plc v Commissioners of Customs and Excise

[2003] EWHC 59

, [2003] EuLR 118 which I supplement here by reference to the decision of the Court of First Instance in

Case T-243/01

Sony Computer Entertainment Europe v Commission

[2003] ECR II-418

, and other recent cases to which I was referred.

[24]There are many decisions of the European Court on the interpretation of the tariff headings. The application of substantive Community customs law falls within the exclusive competence of the national customs authorities, and decisions by those authorities may be challenged before national courts under Article 243 CCC:

Case T-205/99

Hyper srl v Commission

[2002] ECR II-3141

[25]The decisive criterion for the tariff classification of goods must be sought generally, regard being had to the requirements of legal certainty, in their objective characteristics and properties, as defined in the headings of the Common Customs Tariff: e.g.

Case C-177/91

BioforceGmbH v Oberfinanzdirektion München

[1993] ECR I-45

, where the function of the product (hawthorn drops) was decisive;

Case C-309/98

Holz Geenen GmbH v Oberfinanzdirektion München

[2000] ECR I-1975

, where the intended use of the product (wood blocks for window frames) was said to be such an objective criterion if it was inherent in the product;

Case C-395/93

Neckermann Versand v Hauptzollamt Frankfurt am Main-Ost

[1994] ECR I-4027

and

Case C-338/95

Wiener SI GmbH v Hauptzollamt Emmerich

[1997] ECR I-6495

, where the intended use of the product (pyjamas/nightdresses) was decisive, and the presentation of the goods was regarded as relevant;

Case C-467/03

Ikegami Electronics (Europe) GmbH v Oberfinanzdirektion Nürnberg, March 17, 2005, para17.

[26]The headings and the Explanatory Notes do not have legally binding force and cannot prevail over the provisions of the Common Customs Tariff:

Case C-35/93

Develop Dr. Eisbein GmbH & Co. v Hauptzollamt Stuttgart-West

[1994] ECR I-2655

, para 21;

Case C-338/95

Wiener SI GmbH v Hauptzollamt Emmerich

[1997] ECR I-6495

, per Advocate General Jacobs, para 32;

Case C-309/98

Holz Geenen Oberfinanzdirektion München

[2000] ECR I-1975

, para 14;

Case T-243/01

Sony Computer Entertainment Europe v Commission

[2003] ECR II-418

, para 116. But they are important means for ensuring the uniform application of the Common Customs Tariff and are therefore useful aids to interpretation: e.g.

Case C-338/95

Wiener SI GmbH v Hauptzollamt Emmerich

[2000] ECR I-1975

, para 11;

Case C-309/98

Holz Geneen Oberfinanzdirektion München

[2000] ECR I-1975

, para 14. They may show that a classification by Commission Regulation is invalid, if the error made by the Commission is manifest: e.g.

Case C-463/98

Cabletron Systems Ltd v Revenue Commissioners

[2001] ECR I-3495

, para 22.

[27]It is for the national court (even in a case which has been referred to the European Court for guidance on the applicable principles) to determine the objective characteristics of a given product, having regard to a number of factors including their physical appearance, composition and presentation:

Case C-338/95

Wiener SI GmbH v Hauptzollamt Emmerich

[1997] ECR I-6495

, para 21.

[28]There are several decisions in the European Court where products were capable of being classified under more than one heading, and which were decided without reference to GIR 3. Thus in

Case C-177/91

Bioforce

[1993] ECR I-45

the product (extract of hawthorn with added alcohol, taken as a heart tonic) was capable of being classified both as a medicament and as a spirituous beverage. Both Advocate General Gulmann and the European Court (who came to opposite conclusions) arrived at a classification without reference to rule 3. In

Case C-338/95

Wiener SI GmbH v Hauptzollamt Emmerich

[1997] ECR I-6495

the product was capable of being worn both as a "nightdress" and as a "dress", but the classification was resolved without recourse to rule 3, after consideration of the HSENs and on the basis of the objective characteristics of the product as reflected particularly in its intended use.

[29]It is clear that "the intended use of a product may constitute an objective criterion in relation to tariff classification if it is inherent in the product, and such inherent character must be capable of being assessed on the basis of the product's objective characteristics and properties":

Case C-467/03

Ikegami Electronics (Europe) GmbH v Oberfinanzdirektion Nürnberg, March 17, 2005, para 23.

[30]For the purposes of rule 3(b), in order to determine, from among the materials of which a product is composed, which is the one which gives it its essential character, it is necessary to determine whether the product would retain its characteristic properties if one or other of its constituents were removed from it:

Case C-288/99

VauDe Sport GmbH v Oberfinanzdirektion Koblenz

[2001] ECR I-3683

(child carrier: metal and fabric); and

Case C-276/00

Turbon International

[2002] ECR I-1389

(ink cartridge: ink and plastic);

Case T-243/01

Sony Computer Entertainment Europe v Commission

[2003] ECR II-418

, para 126.

[31]In Case 205/80 ELBA v Hauptzollamt Berlin-Packhof [1981] ECR 2097 the decisive factors in determining the essential character of the goods in question were their external appearance and function. It was held that the essential character was determined by the intended purpose, and not by the materials used. The European Courtrejected the submission of the Commission that there should be a narrow, "physical" interpretation of Rule 3(b), under which the plastic element of the product would have predominated. The Court held (at para 17):

"it cannot be argued that the ‘essential character' of the article within the meaning of Rule 3(b) of the General Rules for the Interpretation of the Nomenclature of the Common Customs Tariff is determined by the materials used. The essential character of the article is in this case determined by its intended purpose as a decorative lighting appliance regardless of the material used in its frame."

[32]But in

Case T-243/01

Sony Computer Entertainment Europe Ltd v Commission

[2003] ECR II-418

the Court of First Instance said, at para 124:

"Moreover, according to the clear terms of general rule 3(b), it provides for the classification of mixtures and composite goods according to the material or component which gives them their essential character. It does not provide for the possibility of classifying mixtures or composite goods according to the function which gives them their essential character."

[33]The application of these principles of interpretation are sufficient to permit national courts to decide most classification cases without reference to the European Court: "Occasionally, of course, a more general question of interpretation may surface, and it would be appropriate for a national court to refer a question to this Court. But where that is not the case, national courts should not refer, and if they do the Court should in my view simply restate the …. principles." (

Case C-338/95

Wiener SI GmbH v Hauptzollamt Emmerich

[1997] ECR I-6495

, per Advocate General Jacobs, para 38). IV Facts

[34]On August 28, 2000 Sony applied to the Commissioners for a BTI for the PS2 models SCPH-30003 and SCPH-30004. Sony requested a classification under Heading 8471 of the CN, on the basis that the fact that it met the criteria of Note 5(A) precluded a classification under Heading 9504 of a product which was classifiable under Heading 8471. All of its functions were data processing.

[35]Section XVI includes Chapter 84.

(A) states that:

"For the purposes of heading No 8471, the expression ‘automatic data processing machines' means: (a) digital machines capable of (1) storing the processing program or programs and at least the data immediately necessary for the execution of the program; (2) being freely programmed in accordance with the requirements of the user; (3) performing arithmetical computations specified by the user; and (4) executing, without human intervention, a processing program which requires them to modify their execution, by logical decision during the processing run; (b) analogue machines capable of simulating mathematical models and comprising at least: analogue elements, control elements and programming elements; (c) hybrid machines consisting of either a digital machine with analogue elements or an analogue machine with digital elements."

[36]Chapter 95 is headed "Toys, games and sports requisites; parts and accessories thereof." Heading 9504 10 00 is "Video games of a kind used with a television receiver." HSEN (2) to Heading 9504 states that the heading includes "Video games (used with a television receiver or having a self-contained screen) and other games of skill or chance with an electronic display."The HSEN also stated in exclusion (b) that Heading 9504 excluded "Machines and apparatus fulfilling the conditions of Note 5(A) to Chapter 84, whether or not capable of being programmed for video games (heading 84.71)."

[37]On October 19, 2000 the Commissioners issued BTI number UK 105614503, which classified the PS2 under Heading 9504.

[38]The Commissioners said that the basis for the decision was that the product was not considered by them to be freely programmable and therefore did not meet the criteria of Note 5(A)(a)(2) to Chapter 84 of the CN. This classification was justified with reference to GIRs 1, 3(b) and 6; Commission Regulation (EC) No. 1508/2000 (for a set of electronic devices consisting of a video game console etc) and the HSEN Pages.

[39]On November 22, 2000 Sony requested a formal departmental review by the Commissioners of the BTI issued on October 19, 2000. It argued that the PS2 fulfilled all the criteria set out in Note 5(A)(a) to Chapter 84 of the CN for automatic data-processing machines and pointed to its capability of being programmed in BASIC, LINUX and other software programs.

[40]The Reviewing Officer, Mrs Linda Chandler, wrote to Sony on January 5, 2001 informing them that she was upholding the decision dated October 19, 2000. In paragraph 12 of the review letter she stated that:

"I consider that the essential character of the Playstation 2 is given by its function of playing video games. Therefore using GIRs 1 and 3(b) the Playstation 2 is correctly classified to heading 9504 … I should point out that even if it was considered that the essential character of the Playstation 2 could not be determined and that it functioned equally as a CD and DVD player and as a games console, then GIR 3(c) would come into play leading again to classification in Heading 9504."

[41]Following this departmental review, Sony filed a notice of appeal to the Tribunal on January 31, 2001.

[42]The 243rd meeting of the Customs Code Committee, Tariff and Nomenclature Section, Mechanical/Miscellaneous Sector (the "Nomenclature Committee") was held on February 26 and 27, 2001 and unanimously concluded that the PS2 should be classified under Heading 9504 after witnessing a demonstration of the product by Sony, and resolved that a draft regulation be drawn up by the European Commission to codify this decision.

[43]In a letter dated March 29, 2001 the Commissioners informed Sony that the Nomenclature Committee had unanimously agreed to place the PS2 under Heading 9504 and that a draft regulation was being prepared. This letter also stated the procedure to be followed if Sony wished to challenge the legality of a Community act under Article 230 of the EC Treaty.

[44]At the 247th meeting of the Nomenclature Committee from April 9to 11, 2001 a draft text of the regulation classifying the PS2 under Heading 9504 was discussed. It was noted that most Member States would classify the product on the basis of GIR 3(c) "as this apparatus had several functions, none of which could be considered more important than the others."

[45]The Nomenclature Committee further considered the draft regulation for the PS2 in its 252nd meeting on May 30, 2001. The Nomenclature Committee approved the Regulation by a qualified majority. Germany voted against and Sweden abstained because they could not agree with the use of GIR 3(b) as to function. They thought that it was important to make reference to GIR 3(c) as the legal basis for the classification, though they agreed with the classification itself. All the members agreed that HSEN exclusion (b) in Heading 9504 could not limit the scope of applicability of Heading 9504.

[46]The justification for classifying the PS2 under Heading 9504 in the draft regulation was given as:

"Classification is determined by the provisions of General Rules 1, 3(b) and 6 for the interpretation of the Combined Nomenclature, Note 6 to Chapter 85 and the wording of CN Codes 8524, 8524 39, 8524 39 90 as well as 9504 and 9504 10 00. Of the various functions (including playing video games, playback of CD audio, DVD video, automatic data processing etc.) playing video games gives the apparatus its essential character and determines classification under heading 9504 as a games console."

[47]The agreed text of the draft regulation also referred to the fact that the PS2 could be programmed in YABASIC.

[48]On May 30, 2001 Sony's appeal against the decision of the Commissioners' formal departmental review was heard by the Tribunal. The Commissioners asked the Tribunal to adjourn the appeal in view of the fact that the classification of the PS2 was being discussed on that day in the Nomenclature Committee, but later that day the Commissioners informed the Tribunal that the Nomenclature Committee had taken the view that the PS2 was capable of being freely programmed and of performing data processing operations.

[49]On June 5, 2001 the Tribunal directed by consent that the appeal be allowed. The Commissioners' review decision of October 2000 had upheld the BTI on the basis that the PS2 was not freely programmable and therefore did not meet the criteria for Heading 8471, and that decision could not stand in view of the draft Regulation.

[50]Following the Tribunal's decision, Sony requested the Commissioners to issue a new BTI under tariff Heading 8471 with an effective date of August 28, 2000.

[51]The Commissioners issued a revised BTI reference number GB 105614503 classifying the PS2 under Heading 8471 on June 12, 2001 with an effective date of October 19, 2000. The covering letter stated that:

"As you are aware, the European Commission will shortly be publishing a Regulation which classifies the Playstation 2 to a different commodity code from that on the BTI. Once this Regulation has been published, BTI GB 105614503 will have to be revoked (Council Regulation (EEC) No 2913/92, Article 12.5(a)(i)). You will receive notification of revocation in due course."

[52]Commission Regulation (EC) No 1400/2001 ("the Regulation") was adopted on July 10, 2001 and published in the Official Journal: OJ/L189, July 11, 2001. Article 1 (in conjunction with Annex 1) classified the PS2 under tariff Heading 9504. Article 2 allowed BTIs which did not conform to the provisions to continue to be invoked for three months. Article 3 specified that the Regulation would enter into force on the twentieth day following publication in the Official Journal.

[53]On July 25, 2001, the Commissioners wrote a letter to Sony headed "Revocation of BTI GB 105614503". The letter stated that:

"As you know, Commission Regulation (EC) No. 1400/2001 was published on 11 July. Article 3 states that the ‘Regulation shall enter into force on the 20th day following its publication in the Official Journal of the European Communities.' Accordingly, the Regulation enters into force on 31 July, and consequently BTI 105614503 will be revoked on that date. If you do not agree with the decision to revoke the BTI, you can ask for a formal Departmental review."

[54]On September 6, 2001 Sony (through its lawyers Van Bael & Bellis, Brussels) requested a formal departmental review because it regarded the revocation decision as "invalid considering that it was made in support of an illegal Community act, i.e. Commission Regulation 1400/2001."

[55]Sony argued that the PS2 met all the criteria of Note 5(A) to Chapter 84 and therefore "must be considered as an automatic data processing machine". The Commission had ignored HSEN exclusion (b) to Heading 9504 which excluded from that Heading machines fulfilling the conditions of Note 5(A) to Chapter 84.

[56]Sony's second ground was that the Commission had wrongly applied GIR 3(b) in classifying the PS2 under Heading 9504. GIR 3(b) applies to mixtures, composite goods of different materials or which are made up of different components, which are prima facie classifiable under 2 or more headings and cannot be classified under GIR 3(a). In that case, the goods should be classified as if they consisted of the material or component which gives them their essential character. Sony argued that the Regulation was wrong in law as it had used the PS2's main function, and not material or component as giving the console its essential character.

[57]The last ground on which Sony relied was that Note 5(E) to Chapter 84 was not applicable and therefore the PS2 could not be classified under Heading 9504. For Note 5(E) to apply, the product must be a machine incorporated or working in conjunction with an automatic data processing machine. In the PS2 there was no separate machine as the PS2 itself constituted the automatic data processing machine which performed all the functions.

[58]On October 3, 2001 Sony lodged an application with the European Court to annul the Regulation under Article 230 of the EC Treaty. The arguments in the application were that:(1) the PS2 was an automatic data processing machine under Heading 8471 because it fulfilled the criteria of Note 5(A), and Chapter 5(E) was not applicable;

(2) a classification under Heading 8471 precluded the PS2 from being classified under Heading 9504;

(3) the essential character of the PS2 could not be determined on the basis of GIR 3(b); and

(4) the Regulation violated Article 253 of the EC Treaty by not adequately stating the reasons on which it was based.

[59]On October 5, 2001 the Secretariat of the HSC reported to the Committee on the views of the European Commission and of industry on the classification of the PS2 and invited the Committee to rule on the classification of "Game-type DVD apparatus (or Sony PlayStation 2)."

[60]On October 18, 2001 the Commissioners informed Sony that the formal departmental review had upheld the decision to revoke BTI reference GB 105614503. The reviewing officer considered two important issues as part of the review:

"Firstly, the legality of the revocation decision and that of the Commission Regulation (EC) No. 1400/2001. Secondly whether a UK Tribunal or I have jurisdiction to annul either decision or Regulation should we consider the legality of these to be flawed."

[61]The reviewing officer said (paras 14-15):

"14. Commission Regulation (EC) No 1400/2001 dated 10 July 2001 classifies the Playstation 2 system under CN code 95041000. There is no doubt that the regulation refers directly to your client's product. The measure has been adopted and duly published by the EC Commission and at this time is legally extant and valid. This means that BTI reference GB105614503 which classified the Playstation 2 under commodity code 8471499000, no longer conforms to the published EC view. The BTI was revoked in accordance with Articles 9(1) and 12(5)(i) to Council Regulation (EEC) 2913/92. The holder was notified in accordance with Article 9(3). The date of revocation was effected in accordance with Article9(4) and Article 12(5). 15. In my opinion, the conditions set out in Council Regulation (EEC) No 2913/92 have been complied with. The revocation of BTI reference GB105614503 is legal and was correctly notified to the holder concerned. Therefore, I must uphold the decision to revoke your clients BTI as it clearly no longer conforms to the law laid down thereby. In my opinion, UK Customs have no margin of discretion in revoking of BTI reference GB1056145093 and were acting in accordance with directly applicable Community rules."

[62]She went on to consider whether it was possible for the Tribunal to invalidate the Regulation and concluded that:

"Legal advice in a previous case concerning the same question has been that the UK Tribunal has no jurisdiction to declare acts adopted by the institutions of the European Community to be invalid. Therefore, neither do I."

[63]She also indicated the procedure for challenging the legality of a Community act under Article 230 of the EC Treaty. Not knowing that Sony had lodged such a challenge with the European Court on October 3, 2001 she stated that Sony was unable to challenge the measure directly as they were time barred. She concluded that the Tribunal and the Commissioners were "legally bound by Commission Regulation (EC) No.1400/2001" and that:

"Legal advice also indicates that the Tribunal may not be able to declare Commission Regulation (EC) No. 1400/2001 as invalid even if they believe it to be flawed. Accordingly, there would seem to be no legal basis upon which your client could challenge UK Customs decision to revoke BTI reference GB105614503."

[64]On November 15, 2001, Sony lodged an appeal with the Tribunal challenging the decision of the October 18, 2001 formal departmental review. Sony submitted that the Tribunal was not bound by the Regulation, and invited the Tribunal to make a reference to the European Court on its validity and the interpretation of the Common Customs Code, and asked the Tribunal to overrule the decision under review because it was based on an invalid Regulation. The appeal was stayed pending the outcome of Sony's application for annulment of the Regulation in the European Court.

[65]The HSC further discussed the correct classification of the PS2 on November 28, 2001. It was noted that there was a tendency among the delegates to classify the PS2 in Heading 9504, but the committee agreed to re-visit the matter at the next session on the basis of further information to be provided by the Japanese delegation.

[66]On September 30, 2003 the Court of First Instance (the "CFI") annulled the Regulation in so far as it classified the PS2 under tariff subheading 950410:

Case T-243/01

Sony Computer Entertainment Europe Ltd v Commission

[2003] ECR II-418

. It held that Sony's application was admissible because, at para 62 (among other reasons):

"The contested regulation directly affects its legal situation and leaves no discretion to the addressees of that measure who are entrusted with the task of implementing it, such implementation being purely automatic and resulting from Community rules without the application of other intermediate rules … In particular, the Court notes that the contested regulation in effect invalidates, after the lapse of the three months provided for in Article 2 therein, the BTI issued to the applicant by the United Kingdom customs authorities and subjects the import of the PlayStation2 into that country to an import duty of 1.7%, instead of the zero rate which was applicable under the BTI."

[67]As regards Sony's argument that the Regulation was in error because the PS2 could not be classified under Heading 9504, the CFI held:(1) the Commission, acting in co-operation with the customs experts of the Member States, had a broad discretion to define the subject matter of tariff headings for classification of particular goods, but the Commission's power to adopt measures did not authorise it to alter the subject-matter of the tariff headings (para 103);

(2) it was settled case-law that the decisive criterion for the customs classification of goods must be sought generally in their objective characteristics and qualities, as defined in the relevant heading of the Common Customs Tariff and in the notes (para 104);

(3) it was common ground that the PS2 satisfied the conditions laid down by Note 5(A) to Chapter 84 and thus could be classified under Heading 8471, but the parties disagreed on whether the PS2 could be classified under Heading 9504 (paras 106-7).

(4) Video games were not defined in either the subheading, chapter notes, HSENs or CNENs (paras 108-109);

(5) Where neither the CN nor the HSENs or the CNENs gave a definition of the goods in question, it was appropriate to look for the objective characteristic of those goods which tended to distinguish them from others in the use for which those goods were intended, citing

Case C-395/93

Neckermann Versand v Hauptzollamt Frankfurt am Main-Ost

[1994] ECR I-4027

;

Case C-338/95

Wiener SI GmbH v Hauptzollamt Emmerich

[1997] ECR I-6495

, in which it had been held that the pyjamas, according to their objective characteristic, were to be worn in bed and that, if that objective characteristic could be established at the time of customs clearance, the fact that it might also be possible to envisage another use for the garments did not preclude them from being classified for legal purposes as pyjamas (para 110);

(6) The CFI went on (paras 111-112): "Such reasoning can also be applied to a case such as this one. Thus, in the absence of a definition of ‘video games' for the purposes of subheading 9504 10, it is appropriate to consider as video games any products which are intended to be used, exclusively or mainly, for playing video games, even though they might be used for other purposes. It is, moreover, undeniable that, both by the manner in which the PlayStation2 is imported, sold and presented to the public and by the way it is configured, it is intended to be used mainly for playing video games, even though, as is apparent from the contested regulation, it may also be used for other purposes, such as playing video DVDs and audio CDs, in addition to automatic data processing."

(7) the PS2 was not precluded from being classified under subheading 9504 10 by HSEN exclusion (b) to Heading 9504. The Explanatory Notes were a valid aid to the interpretation of the Common Customs Tariff but the notes did not have legally binding force, so that it was necessary to consider whether their content was in accordance with the actual provisions of the Common Customs Tariff and whether they altered the meaning of the provisions. Further, if Sony's argument on this point was correct "that note would in effect modify and, more specifically, limit the scope of that heading and subheading 9504 10; this cannot be accepted." (para 117)

(8) the fact that an apparatus fulfilled the conditions of Note 5(A) to Chapter 84 and did not perform any specific function other than automatic data processing for the purposes of Note 5(E) did not preclude that apparatus from being classified under another heading (para 118);

(9) Since it had been established that, contrary to what Sony maintained, the PS2 could be classified under Heading 9504, it was appropriate to examine whether, as Sony submitted, the Commission committed an error of law by determining, on the basis of GIR 3(b), the classification of the PS2 having regard to the function which gave it its essential character (para 119);

(10) thus although the PS2 could be classified under Heading 9504, the Commission was wrong to use GIR 3(b) as the basis for the Regulation, because (para 124): "…according to the clear terms of general rule 3(b), it provides for the classification of mixtures and composite goods according to the material or component which gives them their essential character. It does not provide for the possibility of classifying mixtures or composite goods according to the function which gives them their essential character."

(11) the Regulation was therefore annulled without its being necessary to consider the complaint based on lack of adequate reasoning (para 134).

[68]Following the CFI's judgment, the Commissioners requested advice on how to proceed from the Directorate-General, Taxation and Customs Union of the European Commission on October 21, 2003. The letter stated that:

"The CFI has now annulled Regulation (EC) No.1400/01 by its decision of 30 September 2003. It follows that the UK administration should inform [the VAT and Duties] Tribunal that the revocation is withdrawn. This would mean that the BTI remains extant, effective from 19 October 2000 in classifying PS2 to tariff heading 8471. The UK administration remains convinced that PS2 is properly classified in tariff heading 9504 and is supported in this view by the Nomenclature Committee, the WCO Harmonised System Committee and the CFI in paragraph 119 of its judgement in the instant case. However we conclude that the foregoing views do not in themselves have legal force and we remain bound by the decision of the UK Tribunal that PS2 should be classified in tariff heading 8471."

[69]The Commissioners also stated in the letter that they had considered the possibility of a second amendment of the BTI to reclassify the tariff heading to Heading 9504 under the terms of Articles 12.5(a)(iii) and 9.1 CCC. The Commissioners were unwilling to take that action on legal advice following the Advocate-General's opinion in Joined Cases C133/02 and C134/02 Timmermans Transport & Logistic BV v Inspecteur der Belastingdienst and Hoogenboom, January 22, 2004, that customs authorities which had issued binding tariff information were "not entitled to revoke that information at their discretion, where they altered their own interpretation of the applicable customs nomenclature."

[70]The Directorate-General's response was written on January 8, 2004 in a letter which was circulated to all current and future Member States because it was considered to be a matter of general concern. The response stated that because of the findings of the CFI that the PS2 could not be classified in Heading 8471 and that it could be classified in Heading 9504, the view of the Commission was that the PS2 was still correctly classifiable under Heading 9504.

[71]The letter also stated that the BTI had a validity date before the date stamp and that the backdating of the amended BTI to October 19, 2000 was in contradiction to Article 9 and Article 12(5)(a)(iii) CCC, particularly Article 9(4). The Commission's view was that "…holders of BTIs issued retroactively cannot have any legitimate expectations as to the validity of such BTIs."

[72]At its 32nd meeting held from November 17 to 28, 2003, the HSC voted by 28 votes to 9 in favour of classifying the PS2 under Heading 9504 by application of GIRs 1 (Note 1(p) to Section XVI) and 6. The Committee instructed the Secretariat to prepare a Classification Opinion concerning the PS2 and undertake a study to determine whether there was a conflict between the legal texts and exclusion (b) of the Explanatory Note to Heading 9504.

[73]On February 25, 2004 the Commissioners wrote again to Sony and set out the basis for continuing to consider the PS2 as correctly classified under tariff Heading 9504, notwithstanding the annulment of the Regulation. They said that the CFI judgment clearly held that the PS2 was properly to be classified under Heading 9504; the Commissioners agreed with the CFI's conclusion that the essential objective characteristic of the PS2 was a video games console and that this had been the Commissioners' view throughout. The classification to Heading 9504 was also supported by Note 1(p) to Section XVI, and the CFI judgment indicated strongly that Note 1(p) could have been relied on to support a classification to Heading 9504. The European Commission in its letter of January 8, 2004 expressed its view that the PS2 was correctly classifiable under Heading 9504. The classification was judged to be correct by the HSC which had decided on November 28, 2003 that the proper classification was under Heading 9504 by virtue of headings 1 and 6 of the GIRs and Note 1(p) to section XVI of the Tariff. Commission Regulation (EC) No.1508/2000 classified one of PS2's competitors (the Sega "Dreamcast") under Heading 9504.

[74]The Commissioners concluded:

" … the contested Regulation was vitiated by a defect in its reasoning. Nonetheless, as a matter of Community law (and in order to protect the Community's own resources) UK Customs as a national customs authority are obliged to ensure that the PS2 is entered to the correct commodity code. It follows that I must continue to maintain that the revocation decision was correctly issued. It was correctly issued because the amended BTI dated 12 June 2001 wrongly classified the PS2 under Heading 8471. The amended BTI was incorrectly issued. Indeed, Customs were correct to issue the BTI under Heading 95.04 which was issued in October 2000."

[75]On or about May 1, 2004 the World Customs Organisation adopted a Classification Opinion which classified the PS2 under Heading 9504.

[76]In March 2005, the HSC deleted HSEN exclusion (b) from Heading 9504, following the study into whether it conflicted with the legal texts ordered by the HSC in its 32nd meeting held in November 2003. V The Tribunal's decision

[77]The appeal hearing before the Tribunal took place on September 29 and 30, 2004. The decision was released to the parties on October 15, 2004. The Tribunal held as follows:(1) When the Regulation was issued the BTI automatically ceased to be valid. When the Regulation was annulled, the effect was as if there had been no Regulation, and so the BTI remained in force. This was so whether or not the classification by the BTI was wrong and the Regulation was annulled because of a defect in the legal basis for the conclusion, rather than the conclusion itself being wrong (which the CFI did not address). The issue was whether the position was different because of the Commissioners' letter revoking the BTI (para 11).

(2) The revocation letter showed that although the revocation was in consequence of the Regulation, the revocation had some separate existence, since otherwise there would be no point in drawing attention to the right to a formal departmental review. The review letter of October 18, 2001 clearly separated the revocation decision from the Regulation (para 13).

(3) The review letter relied on both Articles 9(1) and 12(5)(a)(i) CCC, which were different ways in which a BTI may cease to be valid (para 14).

(4) The review letter was odd in invoking both Articles 9 and 12(5)(a)(i) CCC. The former required notification, and the latter did not. The holder was notified in accordance with Article 9(3). The dates on which they took effect were potentially different. In the case of the former, it was the date of notification, and in the case of the latter, it was the date of publication. The date of revocation was stated to be effected in accordance with both Article 9(4) and Article 12(5). The reason for upholding the revocation decision, that the BTI no longer conformed to the law laid down by the Regulation, was a quotation from the latter. This suggested that at least at the time of review decision, which was what was the subject of the appeal, the Commissioners saw the automatic effect of the Regulation and the revocation of the BTI as two separate things (para 15).

(5) The hands of the Commissioners were tied by the Regulation but not entirely tied. They could have revoked the BTI by notice earlier than the Regulation entered into force, although in the circumstances in Article 12(6) CCC, the Regulation itself provided for the BTI to continue to be invoked for 3 months. They made a decision that both took effect on the same day. That meant that the revocation of the BTI under Article 9(1) was a separate act from its automatically ceasing to be valid under Article 12(5)(a)(i) by virtue of the Regulation. Once the Regulation had been annulled retrospectively, there was no reason why the revocation should not stand, unless this was prevented by the Commissioners not giving the correct reason for the revocation at the time (para 16).

(6) Sony had contended that, even if the revocation was on the ground that the correct classification was Heading 9504, new reasons could not be introduced with retrospective effects, and the only reason given at the time was the issue of the Regulation. The Commissioners were not entitled to introduce reasons with retrospective effect, because Sony had a right of appeal which required it to know the reasons for the contested decision before lodging an appeal. The Tribunal found that the Commissioners were consistent in their reason for revoking the BTI, namely that its classification was wrong in law. Any detailed reasons which the Commissioners had at the time had to take into account the validity of the Regulation. Once they knew the Regulation had been annulled, it was open to them to put forward new reasons supporting their conclusion in the light of the new circumstances. The only limit was that Sony must be in a position to challenge the reasons in an appeal, and that was completely satisfied. New reasons were given in a letter of February 25, 2004 and in their statement of case. The Tribunal had jurisdiction to decide the issue of law of whether the classification was correct. It was not a review jurisdiction where the stated reason for the decision was important to the determination of its reasonableness. Customs and Excise Commissioners v Alzitrans

[2003] EWHC 75 (Ch)

was different. The issue was whether the Commissioners were right or wrong in law in revoking the BTI. It was not unusual for the Commissioners to adopt new legal arguments in the course of an appeal to the Tribunal (paras 17, 19). Accordingly, the Tribunal said, "we do not consider that the revocation decision is invalid because the Commissioners put forward different reasons, in the light of the annulment of the Regulation for the classification being wrong, as they had always contended" (para 19).

(7) Article 9 CCC enabled the Commissioners to revoke the BTI where "one or more of the conditions laid down for its issue were not or are no longer fulfilled". That includes a changed interpretation: Joined Cases C-133/02 and C-134/02 Timmermans Transport & Logistic BV v Inspecteur der Belastingdienst and Hoogenboom, January 22, 2004. The decision was declaratory of the law, and the Commissioners could therefore have revoked the BTI on July 25, 2001 if they thought that it was wrong in law. Had they addressed their minds to it at the time they could have concluded that it was wrong in law because the Regulation said so. The question for the Tribunal was whether, once the Regulation had been annulled, the BTI was wrong in law (para20).

(8) The point had not been argued by Sony for tactical reasons (para 21). The CFI had merely concluded that the regulation was bad in law for having relied on GIR 3(b) without going any further. But the CFI did say that Note 1(p) to section XVI alone would have sufficed to classify the PS2 under Heading 9504. The Commission had not relied on Note 1(p) in issuing the Regulation and so could not rely on it to justify it later, but the Tribunal could. Even if for some reason Note 1(p) did not apply, the application of GIR 3(c) resulted in the higher number applying, which was again Heading 9504. Accordingly the Tribunal classified the product under Heading 9504 (para 28). That conclusion was fortified by the view of the Commission services on January 8, 2004 and the HSC decision (para 29).

(9) Accordingly the BTI classification under Heading 8471 was wrong in law and the Commissioners could use that ground as justification for having revoked the BTI. Although the Commissioners did not rely on this reason, that did not prevent the Tribunal from relying on it. It was not a case of Sony being deprived of the judgment of the CFI, which merely upset the Regulation's legal reasoning and left open that the result was unaltered (para 30).

(10) In allowing the previous appeal by consent it was the understanding of the parties (as shown by the letter of June 12, 2001) that the BTI's original classification under Heading 9504 was wrong and that the direction by consent meant that the classification was Heading 8471. Whether or not it was correct for the original BTI to be amended retrospectively the Tribunal had effectively declared its classification to be wrong on June 5, 2001 and so, at least in relation to Sony, Heading 8471 applied from that date, and the BTI was amended to confirm that classification on June 12, 2001. That classification applied until the BTI was revoked with effect from July 31, 2001 (para 31).

(11) No assurance was given by any Community authority that repayment would be made, with the result that Sony had no legitimate expectation of repayment even though the money was lawfully due (para 32).

(12) Accordingly, as a result of the direction by consent on June 5, 2001 the classification of the product was under Heading 8471 until the revocation of the BTI on July 31, 2001, when it became Heading 9504 (para 33). V The principal arguments

[78]As I have said, this appeal has been most elaborately argued. There were more than 150 pages of written arguments, and three files of decisions of the European Court. In this section I shall summarise the principal arguments. Sony

[79]The appeal is based on three main grounds:(1) the Tribunal erred in finding that the letter dated July 25, 2001 was an independent revocation of the BTI;

(2) the Tribunal erred in finding that the Commissioners could put forward retroactively new reasons to replace the reasons stated in the letter of July 25, 2001;

(3) the Tribunal erred in finding that the question before it was whether, once the Regulation has been annulled, the BTI was wrong in law.

[80]The letter of July 25, 2001 was not an independent act but a mere implementation of the Regulation. The fact that the review letter dated October 18, 2001 referred to Article 9(1) CCC together with Article 12(5)(a)(i) meant that the decision taken on the basis of Article 9(1) was not an independent revocation decision but merely implemented the Regulation.

[81]Recognition of the decision of July 25, 2001 (and the review decision of October 18, 2001) would infringe the direct applicability of Regulations laid down by Article 249 of the EC Treaty and confirmed by e.g. Case 34/73 Variola v Amministrazione Italiana delle Finanze dello Stato [1973] ECR 981. In

Case T-243/01

Sony Computer Entertainment Europe Ltd v Commission

[2003] ECR II-418

, para 62, the CFI emphasised the automatic effect in Community law of the Regulation, which left no discretion to the Commissioners.

[82]Revocation of a BTI is an alternative to its ceasing to be valid by reason of the adoption of a Regulation with which it is not in conformity: C-463/98 Cabletron Systems Ltd v Revenue Commissioners

[2001] ECR I-3495

, paras 34 to 36, per Advocate General Jacobs.

[83]The effect of the annulment of a Community act under Articles 230 and 231 EC Treaty is to render that act void ab initio, and Sony must be placed in the situation it would have been in, had the annulled Community act not been adopted. The Tribunal has looked in two directions at once. On the one hand, it found that the Commissioners may not adopt a decision to revoke the BTI which was independent of the Regulation by which, it said, the hands of the Commissioners were tied. On the other hand, it has brought into play the judgment in Joined Cases C-133/02 and C-134/02 Timmermans Transport & Logistic BV v Inspecteur der Belastingdienst and Hoogenboom, January 22, 2004, to support its finding that the Commissioners had the power to revoke the BTI. Although they did not use the power at the time, the fact that they had the power to do so meant that "they made a decision that both took effect on the same day" even though its legal grounds were, and only were permitted to be, the Regulation and its legal reasons (Decision, para 16).

[84]Sony is entitled to ask the national court to reinstate the BTI which was not lawfully invalidated by the Regulation, because the Regulation must be treated as having never taken effect as a matter of Community law. The Commissioners' revocation decision must be treated as having no legal effect. Sony is doing no more than relying on the invalidity of the Regulation in the national proceedings, which is recognised as the orthodox approach of Community law by Advocate General Jacobs in C-463/98 Cabletron Systems Ltd v Revenue Commissioners

[2001] ECR I-3495

, para 112.

[85]The Tribunal wrongly concluded that it was not necessary for the decision by the Commissioners under Article 9(1) to state reasons. The Tribunal also erred in finding that the decision was based on the abstract ground that the classification adopted in the BTI was wrong in law. The only grounds stated were that the BTI no longer conformed to the law laid down by the Regulation. General statements such as the classification "was wrong in law" do not add anything to the statement of reasons.

[86]The Tribunal erred in law in considering national case law was relevant to determine whether detailed legal grounds that the BTI was wrong in law could be provided after the annulment of the Regulation.

[87]The issue of the correct classification of the PS2 would only arise if, as a matter of Community law, it were first established that the BTI had been validly revoked. Accordingly, the Tribunal erred in finding that it needed to consider whether the classification of the PS2 contained in the BTI was wrong in law. The Tribunal confused the question of the validity of the BTI with the question of whether or not the classification adopted in the BTI was correct. The second question can only arise where it has previously been found that the BTI has ceased to be valid.

[88]The Tribunal further erred where it considered that it was entitled to review the correctness of the classification and determine the validity of the BTI depending on whether or not the classification under Heading 8471 is correct. Such an a posteriori analysis effectively amounts to a retroactive revocation of the BTI on the basis of Article 12(5)(a)(iii) by the Tribunal.

[89]In any event, Sony's position is that the PS2 is correctly classified under Heading 8471. The Tribunal erred in considering that the PS2 was wrongly classified under Heading 8471. In particular, the Tribunal relied mainly on the decision of the CFI case when the Tribunal had previously acknowledged that "[t]he Sony case does not decide the correct categorisation" (para 25).

[90]A classification of the PS2 according to its objective characteristics must be preferred over a classification according to the intended use of the product. On the basis of its objective characteristics, i.e. the fact that it clearly meets the criteria of Note 5(A) to Chapter 84, the product is correctly classified under Heading 8471.

[91]The CFI effectively ruled that at least two classification options had to be considered when deciding on the correct classification, depending on whether a classification was based on the product's physical characteristics or its intended use. A classification based on the product's physical characteristics leads to a classification under Heading 8471 (

Case T-243/01

Sony Computer Entertainment Europe Ltd v Commission

[2003] ECR II-4189

, para 106) while a classification based on the product's intended use leads to a classification under Heading 9504 (para 119). The CFI did not decide which of the two classifications should prevail taking into account the applicable Community rules. The CFI did not rule on the arguments set out in paragraph 89 of the judgment that, confronted with two possible classification options, preference must be given to the classification based on the product's objective characteristics and that classification based on the intended use of the product must be a method of last resort. The intended use of a product is relevant only if classification cannot take place on the sole basis of the objective characteristics and properties of the product:

Case C-338/9

Wiener SI GmbH v Hauptzollamt Emmerich,

[1997] ECR I-6495

, at para 34, per Advocate General Jacobs;

Case C-467/03

Ikegami Electronics (Europe) GmbH v Oberfinanzdirektion Nürnberg, March 17, 2005.

[92]The CFI in paragraphs 126 and 127 clearly indicates that application of GIR 3(b) leads to a classification of the PS2 as an automatic data processing machine under Heading 8471. It was for that this reason that the Regulation was annulled since it classified the PS2 under Heading 9504 instead of under Heading 8471 on the basis of GIR 3(b).

[93]Note 1(p) only states that when analysing the possible classification of a product under Chapters 84 or 85, it should first be considered whether the correct application of the Community classification rules would lead to a classification under Chapter 95. As shown by

Case C-67/95

, Rank Xerox Manufacturing (Nederland) BV v Inspecteur der Invoerrechten en Accijnzen

[1997] ECR I-5401

, paras 29 to 31, the existence of a rule such as Note 1(p) does not exonerate the authorities from applying the normal classification rules first. In Rank Xerox, the relevant rule was Note 1(m) which excludes classification of "articles of Chapter 90" under Chapters 84 and 85. The Court, instead of simply classifying the product under Chapter 90 on the basis of Note 1(m), correctly first analysed whether it was possible to classify the product under Chapter 90 on the basis of GIR 3 before determining the applicable chapter. In the present case, classification under Chapter 95 would only be possible if reliance was put on the intended use of the PS2. Preference should, however, be given to a classification under Heading 8471 since such classification is based on the product's physical and objective characteristics at the time of its importation.

[94]The option of classifying the PS2 under Heading 9504 is excluded by a correct application of GIR 3(b). Since the correct application of the classification rules leads to a classification of the PS2 under Heading 8471, Note 1(p) is not a sufficient ground to classify the PS2 under Chapter 95.

[95]The refusal by the Tribunal to recognise the lawfulness of the BTI has the effect of preventing Sony from enforcing its rights under Community law in other Member States where much greater sums of import duty are involved. The court should seek the guidance of the European Court under Article 234 EC Treaty to resolve the doubts that the decision of the Tribunal and the submissions of the Commissioners may have created as to the orthodox application of Community law in the present circumstances. A reference is appropriate. There are no further facts to be found. It is accepted (as found by the Tribunal) that notification of the revocation was made under Article 9(3). The question whether the Tribunal was right to find that the automatic invalidation of the BTI by the Regulation and the revocation by the letter of July 25, 2001 were separate things is a question of law. The interpretation of the review decision in making that finding is a question of law. It is necessary to decide whether Community law precludes such a finding.

[96]The principal question which Sony seeks to have referred is whether or not a revocation decision under Article 9(1) which was precluded by a classification Regulation from having any legal effects on the validity of the BTI when adopted may be transformed retroactively into a revocation decision under Article 9(1) which invalidates the BTI when the obstacle to its invalidation of the BTI is removed by the annulment of the Regulation for error of law by the CFI. The Commissioners

[97]The Commissioners' case is that:(1) the Tribunal's conclusion that the proper classification for the PS2 was under Heading 9504 was right, alternatively discloses no error of law;

(2) the Tribunal's conclusion that the Commissioners' revocation decision dated July 25, 2001 exists as a decision independently of the Regulation was right, alternatively discloses no error of law;

(3) the Tribunal was right, alternatively not wrong in law, to conclude that the Commissioners were entitled to rely upon and uphold the revocation decision notwithstanding the subsequent annulment of the Regulation by the CFI. It follows from the correct tariff classification that Community law required and continues to require the revocation of the BTI;

(4) there is no need for a reference to the European Court.

[98]The PS2's principal characteristic is that of a video games console. It is a games console of a kind used with a television receiver. This is sufficient to lead to its proper classification under Heading 9504. Sony's contention that, because the PS2 could be classified under Heading 8471 it should be, ignores the conclusion of the CFI (para 119) that the PS2 qualified for classification under both 8471 and 9504. Of these headings, the Commissioners accept that the PS2 is capable of coming within Heading 8471, but say that Heading 9504 is the more specific and the more appropriate heading for the PS2.

[99]Article 9(1) expressly provides that a decision favourable to a person concerned shall be revoked or amended where "one or more of the conditions laid down for its issue were not or are no longer fulfilled." In the present case, those conditions were not fulfilled from the moment the BTI was issued. The classification was incorrect, as a unanimous Nomenclature Committee recognised at its meetings in April and May 2001. The Commissioners were therefore obliged to revoke the amended BTI. The conclusions of the Nomenclature Committee bore fruit in the form of the Regulation. But the Regulation was not the only legal measure in existence which revoked the BTI.

[100]The separate decision of the Commissioners dated July 25, 2001, which was upheld on appeal by a formal departmental review, also effected a revocation of the BTI. The only measure which can be taken in relation to a BTI by a national customs authority is amendment or revocation under Article 9. A separate revocation decision taken by a national customs authority is a measure taken in implementation of Article 9, and not one taken in implementation of the Regulation. The revocation decision gave details of a right of appeal as required by Article 6(3) CCC, which is entirely consistent with its legal basis under Article 9. The request by Sony for a formal departmental review under Finance Act 1994, section 14, only made sense if the revocation decision was a separate decision. If it was not then the only remedy would have been an application for annulment. The review letter treated the revocation decision as separate. The fact that an appeal has been brought at all must be taken to be an implicit acceptance that a separate decision exists.

[101]The Tribunal was right to conclude that the revocation decision was a separate act taken by the Commissioners. Alternatively, this conclusion cannot be said to be irrational. It accords with the terms of the review decision upholding the revocation decision (which is itself the decision under appeal). In the review letter dated October 18, 2001, the Commissioners acted on the basis that they were reviewing a separate decision taken by the Commissioners by which Sony's BTI had been revoked. Had the Commissioners formed the view that the Regulation automatically annulled the contested decision, they would not have been able to uphold or withdraw any decision as such under section 15(1) of the Finance Act 1994.

[102]It would only be in the event that the Regulation alone had automatically invalidated the BTI that the BTI would be revived by the annulment of the Regulation. An annulled Regulation which produces no effects in Community law cannot be used to strike down a separate national measure which does not depend on the Regulation for its legal validity.

[103]The revocation decision was taken on July 25, 2001. The Regulation did not enter into force until July 31, 2001. At the time that the decision was taken, there was therefore no effective Regulation in place which created an automatic invalidity. Secondly, as a matter of law, there is no reason in principle why a Regulation could not determine the classification of a product and a separate revocation notification be made on the basis that the previous BTI applied an incorrect classification. The notification would then take effect under Article 9(1) and Article 12(5)(a)(iii), the reasons for the revocation being that the conditions which led to the BTI being issued were not or are no longer fulfilled.

[104]The revocation decision was not rendered unlawful by the subsequent entry into force of the Regulation. The revocation decision was not at odds with the Regulation and nor was it an attempt to implement or transpose the Regulation by domestic measures.

[105]The Regulation has legal effects until such time as it is annulled:

Case C-235/92

P Montecatini SpA v Commission

[1999] ECR I-4539

. Once the Regulation is annulled, there is no specified tariff classification for the product. The trader must then enter the product under the correct code. A trader which considers that it has been required to enter goods under the incorrect code may claim repayment under Article 236 CCC. Where the customs authorities consider that the trader has entered goods under the wrong code, the customs authorities may seek post-clearance payment of outstanding duties.

[106]The revocation decision remains valid provided that the BTI was not legally correct when issued for the purposes of Article 9. In other words, unless the annulment means that the classification adopted by the amended BTI was correct, there is no reason why the annulment of the Regulation should lead without more to the annulment of the revocation decision.

[107]It is open to the Commissioners to set out additional reasons why the revocation decision should be maintained. The Tribunal concluded (in para 19), that the Commissioners were obliged to take account of the Regulation until such time as it was annulled by the Community courts. It follows that the Tribunal was right to consider that the reasons given in the revocation decision on July 25, 2001 and the review decision in October 2001 had to take into account the fact that the Regulation had been enacted. But now that the Regulation has been annulled, it produces no effect. No reliance can be placed on the annulled Regulation to justify a continued maintenance of the BTI. The Commissioners were obliged to consider whether the revocation decision should be withdrawn once the Regulation had been annulled. As the annulment by the CFI did not alter the fact that the classification to Heading 8471 was wrong, there is no prohibition in Community law on the Commissioners advancing different reasons as to why the BTI remained contrary to Article 9(1) and therefore had to be revoked.

[108]The obligation under Article 6(3) is to set out the grounds for the decision. It does not say that a detailed statement of the Commissioners' reasons must be provided, which is what Sony seeks to suggest should have been done.

[109]By virtue of the further letter dated February 25, 2004 and their Statement of Case, the Commissioners simply gave Sony advance notice of the case it would run at Tribunal. It was open to both parties to advance legal reasons as to why the revocation decision was either right or wrong in law, in the same way that parties to an appeal will frequently advance additional or different reasons for maintaining or contesting a first instance decision. The procedure has not been unfair to Sony. It was open to it at all material times to show that the proper classification of its product was under Heading 8471.

[110]The Tribunal is not restricted to directing that the Commissioners conduct a further review. It is a full appellate review. It is open to the Commissioners to raise points of law in the course of that appeal which have not been raised before. It is open to Sony to do the same. It is also open to the Commissioners to adjust the reasons for maintaining their decision in the light of changing circumstances:

Case C-249/88

Commission v Belgium

[1991] ECR I-1275

, para 24. A public authority is entitled to resile from a previous decision where it is wrong in law or where different circumstances become known to it:

Case C-280/93

Germany v Council (Bananas)

[1994] ECR I-4973

, para 80; and F&I Services Ltd v Commissioners of Customs and Excise

[2001] EWCA Civ 762

; [2001] S.T.C. 939, CA, para 66 and 71. This approach is also sanctioned by the judgment in Joined Cases C-133/02 and C-134/02 Timmermans Transport & Logistic BV v Inspecteur der Belastingdienst and Hoogenboom, January 22, 2004.

[111]The consequences of defective reasoning in any original review decision would simply necessitate a re-review by the reviewing officer in the light of the changed circumstances, under section 15 of the Finance Act 1994. The Tribunal would require the Commissioners to take a fresh decision on the merits, or would reach a view on the merits of its own volition. It is for this reason that the Commissioners advanced further reasons for continuing to maintain the revocation decision in February 2004.

[112]No reference to the European Court is necessary. The arguments thrown up by Sony are not without complexity. But the Commissioners say that they become easier to confront once it is appreciated that Sony cannot conceivably show that the BTI was at any material time correct in law. The issue of whether or not the Commissioners issued a revocation decision as a matter of fact will have to be determined by the national court prior to a preliminary reference, in any event.

[113]The challenges brought by Sony amount to the question of whether or not established principles set out in the Community case law are applicable to the facts of this case. A more difficult issue involves the question of the interplay between the mechanisms for revocation set out in Articles 12(5)(a)(i) and 12(5)(a)(iii) coupled with Article 9(1). But this relatively complex legal issue is of limited relevance given that the Regulation has been annulled. As it has been annulled, it cannot sensibly be said that there is, as a matter of Community law, any conflict between an annulled Regulation which takes no effect and a separate revocation decision taken by the national customs authority.

[114]Sony is seeking to rely upon a Community measure which produces no legal effects to overturn a decision of a national Customs authority. The absurdity of this position can be seen in the fact that Sony is therefore obliged to say both:(i) that the Regulation is invalid from its inception; but

(ii) that it strikes down a national decision. That cannot be right. This Court does not need the assistance of the European Court to be able to conclude that such an argument is misconceived. VI Conclusions Sony's tactical position

[115]It does not follow from the fact that Sony's main point is a technical one that it is not right in law. But it is technical in the sense that what Sony seeks to do is to revive a BTI classifying the PS2 to Heading 8471 from October 2000, when(a) that BTI was intended, and understood to be intended, to be a short term measure pending the adoption of a Regulation which Sony was aware would "shortly" be published (letter of June 12, 2001);

(b) the Commissioners had informed Sony that the BTI would be revoked when the Regulation was published;

(c) at all material times from the issue of the BTI on June 12, 2001 all relevant national, European and international bodies considered that the PS2 could or should be classified to Heading 9504; and

(d) the CFI annulled the Regulation not on the ground that it had wrongly classified the PS2, but that it should not have based the classification on GIR 3(b).

[116]It was for that reason that Sony for tactical reasons was unwilling to confront before the Tribunal the essential commercial question, whether the PS2 is correctly classified to Heading 9504 as a video game of a kind used with a television receiver. Revocation decision

[117]I am satisfied that there could have been a separate revocation decision. Article 9(1) CCC provides that a decision favourable to the person concerned "shall be revoked … where … one or more of the conditions laid down for its issue were not or are no longer fulfilled." By Article 12(5)(a)(iii) a BTI ceases to be valid where it is revoked in accordance with Article 9.

[118]In Joined Cases C-133/02 and C-134/02 Timmermans Transport & Logistic BV v Inspecteur der Belastingdienst and Hoogenboom, January 22, 2004, the European Court ruled (paras 24-26):

"The issue of a BTI is made on the basis of an interpretation by the customs authorities of the legal provisions applicable to the tariff classification of the goods concerned and is subject to proper justification for that interpretation. Where, on more detailed examination, it appears to the customs authorities that that interpretation is wrong, following an error of assessment or evolution in the thinking in relation to tariff classification, they are entitled to consider that one of the conditions laid down for the issue of a BTI is no longer fulfilled and to revoke that BTI with a view to amending the tariff classification of the goods concerned. It is important to point out that, in order to protect legal certainty, the Community legislature laid down specific rules in Article 12(6) of the Customs Code, which also apply to revocations made under Article 12(5)(a)(iii) and according to which, under certain conditions, a BTI remains valid for a certain period after its revocation."

[119]I do not consider that revocation of a BTI is a mutually exclusive alternative to its ceasing to be valid by reason of the adoption of a Regulation with which it is not in conformity, or that anything in the opinion of Advocate General Jacobs in C-463/98 Cabletron Systems Ltd v Revenue Commissioners

[2001] ECR I-3495

, paras 34 to 36, says so. All he is doing is paraphrasing Article 12(1), (2), (4), (5), and (6). In my judgment, there is no reason in principle why a Regulation could not determine the classification of a product and a separate revocation notification be made on the basis that the previous BTI applied an incorrect classification. The notification would then take effect under Article 9(1) and Article 12(5)(a)(iii) on the basis that the conditions which led to the BTI being issued had not been, or were no longer, fulfilled.

[120]I am also satisfied that the Tribunal was justified in coming to the conclusion that there was a separate revocation decision.

[121]The Commissioners informed Sony on June 12, 2001 that the BTI would have to be revoked when the impending Regulation was published.

[122]The only measure which can be taken in relation to a BTI by a national customs authority is amendment or revocation under Article 9. The revocation decision was taken on July 25, 2001. Under Article 9(4) CCC revocation takes effect from the date of notification, although the customs authorities may defer the date when revocation takes place. By Article 6(3) decisions which are detrimental to persons addressed must refer to the right of appeal under Article 243, which gives a right of appeal initially to the customs authorities and then to the courts. By Article 12(5)(a)(iii) revocation under Article 9 must be notified. The July 25, 2001 decision letter is consistent with these provisions. The revocation decision was notified in accordance with Article 12(5)(a)(iii), and gave details of a right of appeal as required by Article 6(3) CCC, which is consistent with its legal basis under Article 9. The decision was expressed to take effect on July 31, 2001, when the Regulation was to enter into force. At the time that the decision was taken and notified, there was no automatic invalidity. The Regulation itself provided (Article 2) that BTIs which did not conform with the Regulation could be invoked under Article 12(6) CCC for a period of 3 months.

[123]The review letter of October 18, 2001 referred to revocation in accordance with both Article 9 and Article 12(5)(a)(i). The latter reference was in error, because Article 12(5)(a)(i) is not about revocation but about cessation of validity. But both the letter and the revocation decision used the expression "revoke", which is the language used in each of the paragraphs of Article 9 and in Article 12(5)(a)(iii) to refer to a decision under Article 9. The review letter, which distinguishes between the legality of the revocation decision and of the Regulation, states:

"13. There are two important issues to consider as part of my review. Firstly, the legality of the revocation decision and that of the Commission Regulation (EC) No. 1400/2001. Secondly whether a UK Tribunal or I have jurisdiction to annul either decision or Regulation should we consider the legality of these to be flawed. 14. Commission Regulation (EC) No 1400/2001 dated 10 July 2001 classifies the Playstation 2 system under CN code 95041000. There is no doubt that the regulation refers directly to your client's product. The measure has been adopted and duly published by the EC Commission and at this time is legally extant and valid. This means that BTI reference GB105614503 which classified the Playstation 2 under commodity code 8471499000, no longer conforms to the published EC view. The BTI was revoked in accordance with Articles 9(1) and 12(5)(i) to Council Regulation (EEC) 2913/92. The holder was notified in accordance with Article 9(3). The date of revocation was effected in accordance with Article9(4) and Article 12(5). 15. In my opinion, the conditions set out in Council Regulation (EEC) No 2913/92 have been complied with. The revocation of BTI reference GB105614503 is legal and was correctly notified to the holder concerned. Therefore, I must uphold the decision to revoke your clients BTI as it clearly no longer conforms to the law laid down thereby. In my opinion, UK Customs have no margin of discretion in revoking of BTI reference GB1056145093 and were acting in accordance with directly applicable Community rules."

[124]A separate revocation decision taken by a national customs authority is a measure taken in implementation of Article 9, and not one taken in implementation of the Regulation. It is true that the Regulation was directly applicable under Article 249 EC Treaty and left no discretion to Member States. There is also a general principle of European Community law that national measures may not interfere with the scope or effectiveness of Regulations: e.g. Case 34/73 Variola SpA v Amministrazione Italiana delle Finanze [1973] ECR 981; Case 94/77 Zerbone Snc v Amministrazione delle Finanze dello Stato [1978] ECR 99;

Case C-223/98

Adidas AG

[1999] ECR I-7081

; Collins, European Community Law in the United Kingdom, 4th ed 1990, pp 74-76.

[125]But I do not consider that it is arguable that treatment of the decision as a separate revocation interferes with the direct applicability of the Regulation.

[126]I do not think the conclusion that there could have been, and was, a separate revocation decision, is affected by the argument that there would have been no point in the CFI accepting the application for annulment as admissible if it would not affect the legal position of Sony, which would (if the Commissioners are right) remain governed by the revocation decision. The point was not before the CFI.

[127]I am satisfied that the reasoning was adequate. Article 6(3) CCC requires decisions which are detrimental to importers to set out the grounds on which they are based. The obligation under Article 6(3) is to set out the grounds for the decision, and not to set out a detailed statement. Sony was well aware of the grounds. The application for a formal departmental review of the decision of July 25, 2001 relied on the invalidity of the Regulation, but among the reasons for invalidity relied upon was the point that the Regulation had wrongly classified the PS2 to Heading 9504.

[128]The combined effect of the June 12, 2001, July 25, 2001, and October 18, 2001 letters is that the BTI was revoked on the ground that the Regulation had classified the PS2 under Heading 9504. But this reasoning is not dependent on the validity of the Regulation. The underlying reason, which was obvious to Sony, was that under the Common Customs Tariff system the PS2 was being classified as a video game of a kind used with a television receiver. I consider that the Tribunal was right to say that the Commissioners were at all times consistent in their reasoning, namely that classification to Heading 8471 was wrong, and that this is not a case of retrospective reasoning or a case where later reasons contradict earlier ones.

[129]What I have described as Sony's technical argument is this. The effect of the annulment of the Regulation under Articles 230 and 231 EC Treaty is to render it void ab initio, with the result that Sony must be placed in the situation it would have been in, had it not been adopted. Since the Regulation has meanwhile been implemented, the United Kingdom is obliged to take the necessary measures to restore Sony to its original situation. In the present case, the Tribunal rather than giving full effect to the CFI judgment, has adopted a decision limiting the retroactive effects of the CFI judgment, which is manifestly beyond its powers. On an orthodox approach to Community law, all Sony is permitted to do by Community law is to ask the court to reinstate the BTI which was not lawfully invalidated by the Regulation, because the Regulation must be treated as having never taken effect as a matter of Community law.

[130]Sony relies on what Advocate General Jacobs said in C-463/98 Cabletron Systems Ltd v Revenue Commissioners

[2001] ECR I-3495

, para 112 (in the context of preliminary rulings):

"Where … the Court finds that a Community measure is invalid, that ruling in principle takes effect erga omnes and ex tunc, so that any person may in any proceedings rely upon the invalidity of the measure."

[131]I consider that this argument fails for a number of separate reasons. First, the Regulation produced legal effects when it was made and published. Regulations "produce legal effects, even if they are tainted by irregularities, until such time as they are annulled… ", unless they are tainted by an irregularity whose gravity is so obvious that it cannot be tolerated by the Community legal order and must be treated as non-existent :

Case C-235/92

P Montecatini SpA v Commission

[1999] ECR I-4539

, paras 96-97. Where (as here) the trader has challenged the imposition of duty prior to the annulment, amounts due as a result of a Regulation declared to be invalid may be recovered:

Case C-228/92

Roquette Frères v Hauptzollamt Geldern

[1994] ECR I-1445

. Whether that is so also where the trader had not initiated proceedings or raised an equivalent claim prior to the annulment was raised, but not decided, in

Case C-463/98

Cabletron Systems Ltd v Revenue Commissioners

[2001] ECR I-3495

, where Advocate General Jacobs said he could not see any reason for limiting the retroactive effect of the finding of invalidity: paras 111-115.

[132]If the revocation decision was a separate decision, not dependent on the Regulation for its validity, then an annulled Regulation which produces no effects in Community law cannot be used to strike it down. The revocation decision was made before the Regulation came into force. The Regulation was not a legal basis for the separate revocation decision, as such. It was a reason why the classification decision was considered to be wrong and why the revocation decision was taken. The Tribunal was right to consider that although the revocation decision was issued because of the Regulation, it was legally independent from it. It would only be in the event that the Regulation alone had automatically invalidated the BTI that the BTI would be revived by the annulment of the Regulation.

[133]Because the revocation decision is a separate measure taken by the Commissioners as a national customs authority, the fact that it was based on the classification confirmed by the Regulation does not mean it is pro tanto annulled by the annulment of the Regulation. The revocation decision remains valid provided that the BTI was not legally correct when issued for the purposes of Article 9. There is no basis in the judgment of the CFI for a contention that the annulment meant that the classification adopted by the BTI was correct. Classification

[134]The Tribunal's decision on the facts is only subject to review in very limited circumstances: Edwards v Bairstow

[1956] AC 14

[135]In Commissioners of Customs and Excise v General Instrument (UK) Ltd.

[2000] 1CMLR 34

, Dyson J accepted, as had Advocate General Jacobs in

Case C-338/95

Wiener SI GmbH v Hauptzollamt Emmerich

[1997] ECR I-6495

(para 30), that tariff classification was in essence a matter of factual evaluation in view of the features and properties of the products to be classified, and continued (p 12):

"The cases show that the European Court of Justice employs a limited number of principles and rules of interpretation. If the Tribunal applies the correct principles and rules of interpretation, the court will not normally interfere with the factual evaluation that it has carried out. In my view, this restraint on interference should be respected with particular vigour in cases where (as here) the factual assessment involves complex technical issues."

[136]Only if the Tribunal's conclusions can be shown to have depended upon the application of an incorrect legal test is the court entitled to intervene.

[137]In its reply skeleton argument before the Tribunal (September 14, 2004, para 1.6), Sony said:

"…. The correct tariff classification of the PlayStation2 is not within the scope of this appeal and therefore, the CFI judgment is only relevant in so far as it annulled Commission Regulation 1400/2001."

[138]In its opening written argument for the hearing in the Tribunal (para 31), Sony said:

"Whether heading 8471 or 9504 or another is the correct classification is of no direct relevance to this appeal."

[139]In its decision the Tribunal said in relation to the issue of the correct classification (para 21); "Because of the way in which Mr Clough [for Sony] argued the case, he did not address us on this issue. We assume that for tactical reasons he did not do so in reply either. Our decision is therefore made without the benefit of [Sony's] arguments but on the other hand, we now have a wealth of material from various bodies on the matter."

[140]The Tribunal classified the PS2 to Heading 9504 on the basis of the CFI's statement (para 132) that Note 1(p) to Section XVI would have sufficed to classify the PS2 under Heading 9504, or, alternatively that GIR 3(c) would lead to the same result.

[141]In its grounds of appeal to the High Court from the decision of the Tribunal, under the heading that the Tribunal erred in finding that the question was whether, once the Regulation had been annulled, the BTI was wrong in law, Sony said that the Tribunal had erred (inter alia) in considering that the PS2 was wrongly classified under Heading 8471. In its original skeleton on the appeal, Sony merely said that the Tribunal had wrongly relied on the judgment of the CFI, the World Customs Organisation opinion, and the European Commission letter. Its only positive argument was that the classification of the PS2 according to its objective characteristics (which would lead to classification under Heading 8471) should be preferred over a classification according to its intended use. The submission was supplemented in reply.

[142]The issue was indirectly raised in the Notice of Appeal to this court, and I am satisfied that even if it were open for Sony to appeal from this aspect of the decision, there are no grounds for interfering with it. In my judgment, Sony should not be allowed to reopen what is essentially a question of fact, and appreciation of fact, on this appeal when it did not argue the question in the Tribunal. I am satisfied that whether I were to approach this question on the Edwards v Bairstow approach or whether I were to look at the material afresh, the decision of the Tribunal on this question must be affirmed.

[143]The reasoning of the Tribunal was the CFI had merely concluded that the regulation was bad in law for having relied on GIR 3(b) without going any further. But the CFI had said that Note 1(p) to section XVI alone would have sufficed to classify the PS2 under Heading 9504. The Commission had not relied on Note 1(p) in issuing the Regulation and so could not rely on it to justify it later, but the Tribunal could. Even if for some reason Note 1(p) did not apply, the application of GIR 3(c) resulted in the higher number applying, which was again Heading 9504. Accordingly the Tribunal classified the product under Heading 9504. That conclusion was fortified by the view of the Commission services on January 8, 2004 and the HSC decision in November 2003.

[144]In my judgment those are reasons with which I should not interfere on the usual principles. But they are supported by other factors, including the unanimous conclusion of the Nomenclature Committee in February 2001 that the PS2 should be classified under Heading 9504 after witnessing a demonstration of the product by Sony, and the classification opinion of the World Customs Organisation in May 2004.

[145]The PS2's principal characteristic is that of a video games console. The CFI held (para 111):

"[I]n the absence of a definition of ‘video games' for the purposes of subheading 9504 10, it is appropriate to consider as video games any products which are intended to be used, exclusively or mainly, for playing video games, even though they might be used for other purposes."

[146]The CFI (para 114) stated that it was clear that the PS2 was to be used mainly for playing video games even though it could do other things, and concluded (para 119) that the PS2 qualified for classification under both Headings 8471 and 9504.

[147]I am therefore satisfied that there are no grounds for interfering with the Tribunal's decision on classification. Reference to the European Court

[148]As I have said, the principal question which Sony seeks to have referred is whether or not a revocation decision under Article 9(1) which was precluded by a classification Regulation from having any legal effects on the validity of the BTI when adopted may be transformed retroactively into a revocation decision under Article 9(1) which invalidates the BTI when the obstacle to its invalidation of the BTI is removed by the annulment of the Regulation for error of law by the CFI.

[149]An obligation to make a reference (save in cases where the issue is acte clair) applies, under Article 234 EC, third paragraph, only to "a court or tribunal of a Member State from whose decisions there is no judicial remedy under national law." For this purpose the Chancery Division on an appeal of this kind is not such a court, notwithstanding that permission is required from the Court of Appeal for permission to appeal: see Chiron v Murox (No. 2)

[1994] FSR 187

[150]All other national courts and tribunals have a discretion to refer under Article 234(2). The discretion to refer is broad and unfettered: Case 166/73 Rheinműhlen [1974] ECR 33. Recent guidance from the Court of Appeal (referring to the Opinion of Advocate General Jacobs in

Case C-338/95

Wiener SI GmbH v Hauptzollamt Emmerich

[1997] ECR I-6495

, who suggested "a greater measure of self-restraint" on the part of national courts: paras 18-21) warns against too great a readiness to refer, particularly in cases in which "the real difficulty is not in ascertaining the relevant principles of Community law but in applying them to the facts; and that is a task for the national court": R (Professional Contractors' Group) v Commissioners of Inland Revenue

[2002] EWCA Civ. 1945

[2002] STC 165

at para 91; cf. Trinity Mirror v Commissioners of Customs and Excise

[2001] EWCA 65

;

[2001] 2 CMLR 759

, paras 48-55.

[151]In detail, the questions suggested by Sony are as follows:(1) Whether the Regulation precludes the adoption by a national customs authority of a separate independent decision revoking the BTI under Article 9(1) CCC where (a) the Regulation was adopted to ensure a uniform application of the Common Customs Tariff; (b) the Regulation is directly applicable in national law; (c) the Regulation directly classified the product in question; (d) the decision revoking the BTI was adopted under Article 9(1) as a direct consequence of the Regulation and relied on it for its legal reasoning; (e) the Regulation automatically invalidated the BTI whose classification was inconsistent with the Regulation by virtue of Article 12(5)(a)(i); and (f) the Regulation and its classification were annulled by the CFI insofar as the Regulation classified the product under Heading 9504 on the ground that the Commission committed an error of law in determining the classification under GIR3(b).

(2) If the answer to question (1) is negative, on what grounds Article 9(1) allows a national customs authority to revoke a BTI in those circumstances set out above and the legal effect of any such revocation under Article 12(5)(a) and under which sub-paragraph of that Article.

(3) Whether Article 6(3) means that any revocation decision detrimental to the addressee adopted by a national customs authority under Article 9(1) must state the reasons for that decision at the time it is adopted and that such reasons must go beyond a general statement that the classification is wrong in law, and whether Article 6(3) implies that the annulment by the CFI of any reasons given necessarily leads to the annulment of that revocation and the BTI automatically being revived.

(4) Even if the replies to (3). are negative: whether Article 6(3) and/or Article 243 CCC preclude the introduction of new reasons, either by the national customs authority or by a national court hearing an appeal, in order to replace the original reasons given by the national customs authority at the time the revocation decision was adopted in order to revive the revocation decision as of the date such new reasons are introduced; and whether these Articles preclude the introduction of such new reasons when the Regulation and its classification, upon which the revocation decision relied for its reasons as a matter of Community law, has been annulled by the CFI; and whether Article 6(3) and/or Article 243 CCC allow a national customs authority or a national court to introduce such new reasons retroactively to sustain the original revocation decision which otherwise the national court should declare invalid in accordance with the CFI's judgement; and whether a national court hearing an appeal against a revocation decision adopted under Article 9(1) has the power to classify the product in question and/or consider the question of classification as relevant to its determination of the validity of the initial revocation decision, when the Regulation and its classification of the product which formed the reason for the initial revocation of the BTI, have been annulled by the CFI.

(5) Even if under questions (3) and (4) the requirements of Article 6(3) have not been met and therefore the revocation is annulled and the BTI revived; whether the legally binding effect of a BTI can be terminated by a national court if it considers that the classification of the BTI is incorrect on an appeal when that national court has found that the reasons for the revocation were unlawful because the CFI has annulled the Regulation upon which the revocation was dependent for its legal grounds and/or which the revocation was merely implementing; and, if so, whether Articles 12(4) and 12(5)(a) nevertheless be interpreted to preclude a BTI from being set aside retroactively by the national court; and whether it makes any difference to the interpretation of Article 12(4), Article 12(5)(a) or Article 243 that the appeal proceedings before the national court concern the decision to revoke the BTI and not the BTI itself.

[152]In my judgment the main issue raised by Sony is essentially one of fact, or appreciation of facts, namely whether there was a separate decision under Article 9(1). That question is not one susceptible of a reference. The main subsidiary issues are(a) whether that decision was based on the impending Regulation as such, on the view that the Regulation represented a correct classification; and

(b) whether that distinction makes a difference. I am satisfied that none of these questions raises a question of interpretation of Community law on which I ought to make a reference.

[153]I will therefore dismiss the appeal.

Sony Computer Entertainment Europe Ltd. v Customs and Excise [2005] EWHC 1644 (Ch)

I Introduction

Article 243

(A) states that:

Cited in 2 later judgments