Millennium Fresh Foods Limited v Her Majesty's Revenue & Customs [2009] UKFTT 43 (TC)

FTT-Tax
Millennium Fresh Foods Limited v Her Majesty's Revenue & Customs
[2009] UKFTT 43 (TC) · 2009-04-08
[1]TC00021 Customs Duty – Customs procedures – Procedure for Processing Under Customs Control – Appeal against refusal to authorise procedure – Whether Customs decision on review unreasonable – Whether change in economic factors require fresh examination of the 'economic condition' for authorisation – Whether HMRC wrongly treated themselves as bound to follow the conclusion of the Customs Committee FIRST-TIER TRIBUNAL TAX MILLENNIUM FRESH FOODS LIMITED Appellant and – THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents (CUSTOMS DUTY) Tribunal: CHARLES HELLIER KEITH DUGDALE Sitting in public in Norwich on 13 March 2009 Mr J Goodwin, Director, for the Appellant Mr J Puzey, counsel, instructed by the solicitor to HMRC, for the Respondents © CROWN COPYRIGHT 2009 DECISION This is an appeal against a decision of HMRC to refuse to authorise a customs duty procedure. This procedure was Processing Under Customs Control: where that procedure is authorised goods may be imported from outside the EU without payment of duty, be processed in the EU, and then released into the EU on payment of the duty applicable to the finished goods (rather than the duty which would have been applicable to the raw material). Unsurprisingly this procedure is generally sought only where the duty on the raw material exceeds that on finished goods.[2]If the Appellant imports raw frozen chicken for processing, the rate of duty, at 8%, means that duty of more than £1 per kg is paid. If Processing Under Customs Control were authorised then the rate of duty would be that attributable to processed meat and would amount to some £0.176 per kg. The selling price of cooked meat is between £4 and £6 per kg, thus the difference in the rate of duty per kg is highly significant. The Appellant says that without authorisation for Processing Under Customs Control an EU processor is at a significant disadvantage to a non-EU processor. He says that in recent years some eight UK chicken processing businesses have been put out of business as a result of competition with non-EU imports of processed chicken (bearing the lower duty) and almost 1500 jobs have been lost.[3]We were grateful for the helpful and co-operative way in which the Respondents approached this appeal. The decision we make and the directions in it are largely the result of agreement between the Appellant and the Respondents. But there was one aspect of the Respondents' decision making process which, although in some ways was perfectly proper, gave us cause for concern. For that reason we set out our reasoning in greater detail than is warranted by the broad measure of agreement which existed between the parties. The Law[4]With the exception of the rules relating to an appeal against HMRC's decisions, the relevant law is contained solely in EU Regulations and ECJ decisions[5]The Customs Code, Council Regulation 2913/92 sets the framework for customs duties within the EU. Section VI of that code deals with various "procedures" which derogate from or alter the principal rule that duty becomes payable at the rates set by the common tariff when goods are released into free circulation in the EU. Included therein in Articles 130 to 136 is Processing Under Customs control:- " Article 130 The procedure for processing under customs control shall allow non-Community goods to be used in the customs territory of the Community in operations which alter their nature or state, without their being subject to import duties or commercial policy measures, and shall allow the products resulting from such operations to be released for free consultation at the rate of import duty appropriate to them. Such products shall be termed processed products. Article 131 The list of cases in which the procedure for processing under customs control may be used shall be determined in accordance with the committee procedure. Article 132 Authorisation for processing under customs control shall be granted at the request of the person who carries out the processing or arranges for it to be carried out. Article 133 Authorisation shall be granted only:-(a) to persons established in the community;(b) where the import goods can be identified in the processed products;(c) when the goods cannot be economically restored after processing to their description or state as it was when they were placed under the procedure;(d) where the use of the procedure cannot result in the circumvention of the effect of the rules concerning origin and quantitative restrictions applicable to the imported goods;(e) where the necessary conditions for the procedure to help create or maintain a processing activity in the Community without adversely affecting the essential interests of Community producers of similar goods (economic conditions) are fulfilled. The cases in which the economic conditions are deemed to have been fulfilled may be determined in accordance with the committee procedure."[6]This appeal is concerned with the economic conditions in Article 133(e). In the decision under appeal HMRC asserted that those "economic conditions" were not fulfilled, and accordingly that authorisation for Processing Under Customs control could not be given.[7]Articles 247 to 249 provide for a Committee to assist the Commission and for the Committee to examine any question on the legislation raised by a Member State's representative. Such consideration is the "Committee Procedure".[8]The Council Regulation is supplemented by Commission Regulation 2454/93. Title III deals with 'procedures with economic impact' and authorisation for the use of those procedures by the customs authorities. These procedures include the Processing Under Customs Control Procedure. Section 3 of Chapter I of that Title deals with the "economic conditions":
" Article 502 1. Except where the economic conditions are deemed to be fulfilled pursuant to chapters 3, 4 or 6 [which is not the case in this appeal], the authorisation shall not be granted without examination of the economic conditions by the customs authorities … 3. For the processing under customs control arrangements (Chapter 4), the examination shall establish whether the use of non-Community sources enabling processing activities to be created or maintained in the Community."
Article 503 provides when an examination of the economic conditions involving the Commission may take place; that includes " where the customs authorities concerned wish to consult before or after issuing an authorisation". Article 504 deals with such an examination and its procedures. Article 504(4) provides:
"4. The Committee's conclusion shall be taken into account by the customs authorities concerned and by any other customs authorities dealing with similar authorisations or applications …"
Chapter 4 of Title III provides more detailed rules in relation to Processing Under Customs Control. Article 552 states:- "1. For the types of goods and operations mentioned in Annex 76, Part A, the economic conditions shall be deemed to be fulfilled. For other types of goods and operations examination of the economic conditions shall take place. 2. For the types of goods and operations mentioned in Annex 76, Part B and not covered by Part A, the examination of the economic conditions shall take place in the Committee …"[9]Annex 76 Part A applies inter alia to the processing of all "goods … not subject to a(n) agricultural or commercial measure or procedure or definitive anti-dumping or provisional or definitive counteracting duty." We understood that chicken meat products and chicken meat were subject to such measures or procedures, and thus did not fall in Part A. Part B includes goods subject to such procedures etc as mentioned, and thus applied to chicken and chicken products.[10]These regulations gave rise to three questions:-(i) whether the requirement imposed on the local customs authorities to take into account the Committee's conclusions in Article 504(4) required the customs authorities to treat themselves as bound by that conclusion;(ii) whether in considering the second limb of the economic conditions – the interest of procedures of "similar goods" – both the producers of the relevant raw materials (in this case chicken meat) and the producers of the processed products (the processed chicken) should be considered;(iii) whether, as a result of Article 552(2) every application for authorisation for processing Under Customs Control should be referred to the Committee or the extent to which there should be such referral having regard to Article 504(4).[11]The first two of those questions are answered by the judgment of the ECJ in May 2006 in the case of Friesland Caberco Dairy Foods BV Inspecteur van de Belastingdienst/Douane Nord/Kantaar Groningon (C-11/05). In relation to the first question the Court held:
"4. The Customs Code Committee's conclusion is not binding on national customs authorities when they are determining an application for authorisation for processing under customs control."
This clear conclusion was made against the background of the virtually compulsory referral to the Committee required by Article 552(2): the Court said:
"That interpretation of Article 504(4) … according to which the Committee's conclusion is not binding, cannot be called into question by the fact that in certain circumstances, particularly where, as in the main proceedings, goods subject to agricultural policy measures are concerned consultation with the Committee is compulsory by virtue of Article 552(2) … Even in such cases, the competent national authorities must only take account of the Committee's conclusion and are not bound by it. A duty to consult the Committee cannot be treated as a duty to adopt its conclusion."
Thus it is quite clear that whilst the local customs authorities must take into account what the Committee says, they must come to their own conclusion as to whether the economic conditions are fulfilled and not simply treat themselves as bound by the Committee's conclusion.[12]The second question was answered in terms that "account must be taken not only of the market for the finished products but also of the economic situation of the market for the raw materials used to produce these products". Thus, in the present appeal, the EU market in raw chicken is a relevant consideration.[13]In relation to the third question Mr Puzey submitted that the effect of Article 504(4), which required the Committee's conclusion in relation to similar applications to be taken into account, was that no further reference of the economic conditions to the Committee was required if the application was 'similar' to one already considered. He told us that the Committee had opined that an application was similar if it dealt with the same customs classes of raw and processed materials and the factual circumstances were not otherwise different. He suggested that differences in economic circumstances could make an application different even if it dealt with the same goods or procedures on a prior application.[14]On reflection it seems to us that Regulations draw a distinction between the consideration of an application, and an examination of the economic conditions. An authorisation may not be made unless the economic conditions are satisfied. In the case of certain goods the effect of Article 552(2) is that examination of the economic conditions must be referred to the Committee. If the economic factors in relation to one application are the same as those in relation to another application and the relevant 'examination' of the economic conditions has been conducted on the earlier application then no further examination is required. That is because all that Article 133(e) requires is that those conditions are fulfilled: it does not require a fresh examination. It is only if a fresh examination is required that a fresh reference to the Committee is required by Article 552. We do not regard Article 502(1) as requiring a fresh examination in all circumstances: although it provides that "the authorisation shall not be granted without examination of the economic conditions by the customs authorities", it seems to us that that requires that the relevant examination must have taken place, not that it should always be made afresh on each application. When the economic circumstances are identical a prior examination is an examination. However, where there is any difference in the economic circumstances then a prior examination will not suffice – it will not be "an examination of the economic conditions" – and a fresh examination will have to be undertaken. The effect of the Court's judgment in Friesland must be that whilst that examination must in relevant circumstances be undertaken by the Committee, the local customs authorities must also determine for themselves whether the condition is satisfied. Agreement between Member States to abide by Committee Conclusions[15]Mr Puzey told us that, notwithstanding the provisions of the Regulation, member states had agreed to treat the conclusions of the Committee as binding and that HMRC regarded itself as bound by that agreement.[16]Mr Puzey did not suggest that that agreement took effect in Community law to alter the words of the Regulations. It is under those regulations that we must determine this appeal. The agreement between member states is not binding upon us. The jurisdiction of this Tribunal[17]Article 243 of the Council Regulations provides:- "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. … 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 specialised body, accounting to the provisions in form in the Member States. … Article 245 The provisions for the implementation of the appeals procedure shall be determined by the Member States."[18]The UK's domestic implementation legislation is in sections 14 to 16 FA 1994. Section 14 provides for the review of a direction by HMRC, thus complying with Article 243(2)(a). Section 14(1)(d) provides for the review of a decision of a description specified in schedule 5. Paragraph 1(f) of that schedule describes decisions in relation to the authorisation of any procedure. It was under section 14 that Mr Payne carried out his review.[19]Section 16(1) provides for an appeal to this Tribunal with respect to the Commissioners' conclusion on such a review. This is the implementation of Article 243(2)(b). Section 16(4) relates to the Tribunal's powers in relation to an "ancillary matter". An ancillary matter is defined in section 16(8) and (9) to include any decision on review of a matter within paragraph 1(f) of Schedule 5. This appeal in relation to Mr Payne's decision is an ancillary matter. Section 16(4) provides that in relation to such an appeal – "the powers of an appeal tribunal on an appeal under this section shall be confined to a power, when the tribunal are satisfied that the Commissioners or other person making that decision could not reasonably have arrived at it, to do one or more of the following, that is to say –(a) …(b) to require the Commissioners to conduct, in accordance with the direction of the tribunal, a further review of the original decision; and …"[20]The nature of this jurisdiction was considered by the Tribunal in Jason Thomas Bowd (1995). The Tribunal said this:
"On a literal application of those words it might be argued that they are only directed at the result of the review and that the Tribunal could only intervene if the decision were unsustainable in the light of the facts and the law. The Tribunal would only be concerned with the actual decision and section 16(4)would only apply if the only possible decision was contrary to that of the Commissioners on the review. "
On this view the Tribunal would not be concerned by a failure to consider all relevant material. It must be remembered that section 16(4) also applies to Customs appeals and such a restrictive interpretation might well be incompatible with the obligations of Member States under Article 243 of the Community customs Code. Furthermore it is difficult to see what purpose would be served by the provision of section 16(4)(b) for a further review if there was only one possible conclusion. "As noted above [HMRC] did not contend for a narrow construction of Section 16(4). "In our opinion the word "reasonably" is to be construed in the wider sense used by Lord Greene MR in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KG 223, … "The approach to be adopted by a Tribunal in reviewing the exercise of a discretion conferred on the Commissioners (albeit a different discretion) was put in this way by Lord Jane in Customs and Excise Commissioners vJH Corbitt (Numismatists) Ltd [1980] 2 WLR 753 at 663, "It could only, properly [review the discretion] if it were shown that the Commissioners had acted in a way in which no reasonable panel of Commissioners could have acted: if they had taken into account some irrelevant matter or had disregarded something to which they should have given weight". "That approach was adopted by the Court of Appeal in John Dee Ltd v Customs and Excise Commissioners . On this basis we ask ourselves the following questions: (1) Did Mr Payne reach a decision which no reasonable officer could have reached? (2) In particular does the decision betray an error of law material to the decision? (3) Did Mr Payne take into account all relevant considerations? (4) Did Mr Payne leave out of account all irrelevant considerations? In HMRC v Mills [2007] V&DR 404 Mann J at [42] did not dissent from this approach to the tribunal's jurisdiction under this section. In Golobiewska v Commissioners of Customs & Excise [2005] VAT DT 267 the Court of Appeal considered the nature of the jurisdiction of the tribunal under section 16(4). Lloyd LJ agreed that the tribunal cannot decide whether a decision qualified as reasonable in the relevant sense unless it examines the facts asserted by the parties and substantiates whether those facts exist. Although it appears that under section 16(4) the Tribunal would be limited to considering whether there was sufficient evidence to support an officer's finding, in practice, given the powers of the Tribunal to carry out a fact-finding exercise, the Tribunal should decide the primary facts and in the light of its findings then go on to consider whether the decision is reasonable. Millennium Foods' application[21]In February 2008 the Appellant, through Mr Goodwin, made an application for Processing Under Customs Control. The application related to the import of skinless boneless chicken meat and its processing (via marinating and steam cooking) into cooked chicken meat. Mr Goodwin provided information in support of the application explaining the loss of jobs as a result of competition between UK processors and non-EU processors. He explained that the situation was deteriorating because imported frozen cooked meat was now being defrosted and sold in gas flushed trays which undermined the remaining market for UK processors.[22]Mr Goodwin's application was refused on 26 February and Mr Godwin sought a review for which he supplied further information.[23]On 9 May 2008 Mr Payne of HMRC wrote setting out the results of his review of the earlier decision and indicating that he had decided to uphold that decision to refuse authorisation of the procedure.[24]The Appellant appeals against that decision. Mr Payne's review decision[25]In his decision letter Mr Payne summarised the points made in the Appellant's application. It was not suggested to us that this summary was unfair or unreasonable. Mr Payne notes in particular Mr Godwin's contention that the position had changed since 2004 when the Customs Committee had last received and considered a similar type of application.[26]Mr Payne then sets out the relevant provision of the Commission Regulation including Article 504(4). He then says that the Regulations mean that the application would have to be submitted to the Committee, but he continues:- "When a previous decision has been reached by the Committee, the decision shall be taken into account by the Customs authorities dealing with similar applications. "This means that when the Committee has examined a similar application, its decision in that case sets a binding precedent to be applied by customs to similar application ." [our italics] Mr Payne then explains that in 2003 and 2004 HMRC submitted applications to the Committee in relation to the same subject matter. He records the rejection by the Committee in each case and reasons given. He concludes:- "… Article 504(4) … means that customs must not be divergent from decisions reached by the Committee. Therefore HMRC must apply the outcomes of the Committee's decision to similar cases … Consequently … HMRC cannot grant [your application]".[27]Mr Puzey recognised on behalf of HMRC that it was accepted that Mr Payne's decision had failed to take into account the changes in the economic environment since the last decision of the Committee in 2004. It was accepted that as a result the decision was unreasonable within s.16. We were grateful for the sensible and co-operative approach taken by the Respondents in this regard.[28]Mr Puzey was however less willing to accept that Mr Payne's decision betrayed an error of law. In response to the Tribunal's suggestion that, in the passages quoted above, Mr Payne had regarded the Committee's conclusion as binding on HMRC, Mr Puzey suggested that Mr Payne merely meant that the Committee's decision was administratively binding. We do not think that there is any sensible way of reading these passages other than to conclude that Mr Payne was saying that as a matter of law (Article 504(4)) HMRC could not take a view which diverged from that of the Committee. Our conclusions on the reasonableness of Mr Payne's review[29]Mr Puzey fairly and frankly accepted that as the result of the Commissioners' failure to consider whether changes since 2004 affected whether or not the economic conditions were fulfilled, the review decision was unreasonable and should be revisited. The parties put to us a timetable for the provision of information by the Appellant, reference to DEFRA, the making of a new decision and reference to the Committee. The Commissioners agreed to help the Appellant in relation to the format and nature of additional information to support its application.[30]We were grateful for the parties' agreement and adopt their suggestion in the directions we make below under section 16(4)(b).[31]But we should also record our decision that the Commissioners' decision betrayed an error of law because it treated the Committee's conclusion as binding upon it. That was in our view an error of law which was material to the decision. The decision was therefore not reasonable.[32]It was an error of law because in Friesland the ECJ sonorously and unambiguously said that the Committee's decision is not binding. We note in particular at paragraph 27 of the ECJ's judgment:- "The national customs authorities may disregard the conclusions adopted by the Committee provided they give reasons for their decision in that respect."[33]The duty of the customs authority to give reasons for their decision follows in our judgment also from the right of appeal to be given under Article 243 of the Council Regulation (see para 17 above). Unless the customs authority gives its reasons, the making of an appeal could be almost impossibly difficult: there would be no effective right of appeal.[34]The requirement that the customs authority gives its own reasons in relation to question of the fulfilment or otherwise of the economic conditions is particularly relevant where those conditions have been examined by the Committee. In the summaries of the proceedings of the Committee which were shown to us it appeared that the decision of the Committee was taken by a vote of its members. Some reasons were identified in the summaries but there was no record of an evaluation of all the relevant factors or whether each reason was agreed by each member voting with the majority. The ECJ in Friesland makes it clear that the conclusions of the Committee cannot be examined on appeal. The activity of the Committee was frankly described to us as political rather than legal.[35]In these circumstances unless the national customs authorities, having taken account of the Committee's conclusions, conduct their own evaluation of whether or not the economic conditions have been satisfied and set out their reasons for this conclusions, there can be no effective right of appeal against their decision. Our Direction[36]Having found that HMRC's decision was one which could not reasonably have been arrived at, we direct that a further review be undertaken and that:-(i) in making that review the Commissioners, whilst taking into account any decision of the Committee on this or any similar application, if any, shall not treat any conclusion of the Committee as binding upon it;(ii) the Commissioners shall set out in their decision their reasons for treating the economic conditions as fulfilled or otherwise in a manner which will permit the proper consideration of those reasons by this Tribunal under section 16 FA 1994;(iii) the Commissioners shall take into account in their decision the evidence provided by the Appellant in connection with its application and any further evidence provided within 10 days of the hearing of this appeal or such longer time as shall be permitted by them;(iv) if the Commissioners consider that the economic conditions have been examined by the Committee in a similar application (having regard to the information provided by the Appellant and any further information available to them) they shall give their decision without further reference to the Committee;(v) if the Commissioners consider that the economic conditions have not been examined by the Committee in any such similar application, they shall refer the application to the Committee;(vi) the Commissioners shall on or before Friday 1 May 2009: (a) if (iv) applies give their decision in relation to the application; (b) if (v) applies refer the application to the Committee and write to the Appellant setting out their decision and their reasons and including the terms of their reference; and(vii) in the case of (vi)(b), once the Committee has given its conclusions, the Commissioners shall reach their own conclusion on the application and, bearing in mind (i) and (ii) above, communicate that decision to the Appellant within 21 days of the Committee's decision. CHARLES HELLIER TRIBUNAL JUDGE RELEASED: 8 April 2009 LON 2008/7088