Maplin Electronics Ltd v Revenue & Customs [2010] UKFTT 143 (TC)

FTT-Tax
Maplin Electronics Ltd v Revenue & Customs
[2010] UKFTT 143 (TC) · 2010-04-01
[1]This is an appeal by Maplin Electronics Ltd (“the Appellant”) against a Binding Tariff Information (“BTI”) determination by the Respondents on 24 April 2008. The BTI classifies a Dual Tuner Digital TV USB Stick (“the Stick”) to Combined Nomenclature heading 8528-71-1900. The Appellant accepts the first six digits of the classification but disputes the seven and eight digits of the classification on the basis that the Stick is an “electronic assembly for incorporation into automatic data processor” and should therefore be classified to 11 instead of 19 of the subheadings.[2]The difference in classification means that the Stick is classified as the Appellant’s wish it would attract import duty of nil. If classified as the Respondents have indicated, it will attract an import duty of 14%. The classification is therefore important for duty purposes.[3]The Appellant requested a Departmental Review by letter dated 5 June 2008. The matter was allocated for review. There is nothing indicating that the review was conducted within the 45 days from the date on which the letter requesting the review was received (10 June 2008). It is therefore assumed that the original decision is upheld. The Issue[4]The dispute is whether the Stick is an electronic assembly for incorporation into automatic data processing machine.” The Appellant contends that it is, and therefore properly classifiable to the subheading consisting of seven and eight digits “11” and not “19”. The Respondents contend that the proper classification is 8528 7119 since it is, inter alia, not an electronic assembly.[5]The parties do not dispute the first sixth digits of the classification contained in the BTI which is that the Stick is properly classified to heading 8528 and subheading 71. The Stick[6]The product in dispute is the Stick, which is a portable device which plugs directly into the USB portal of a personal computer to enable the reception of digital televisio n. It is supplied within an AV cable, remote control, aerial, software and a CD drive. The Tribunal was not given the benefit of a sample but a comparison was made with the well known computer memory stick. The product in question is not a memory stick but looked very similar to one. The Tribunal had a photocopy of the product packaging with diagram. The Law[7]Legislation and Guidance The Combined Nomenclature (CN) Regulation of 23 July 1987 (EEC) 2658/87 (1993) OJ L256/1 provides the legal basis for the Community’s Nomenclature and Tariff which, as amended, is the basis for the UK Integrated Tariff. The CN describes the goods to which a specified rate of duty is applied. In classifying goods, there are headings and sub-headings referring to categories of goods. The headings are given a four-digit numerical code. The first two digits identify the chapter and the latter two the number of headings in the chapter. Sub-headings are identified by a further two digits with 00 indicating no sub-headings exists. Further digits indicate the division of the sub-heading. In undertaking the classification of goods, certain defined rules must be applied to give a uniformity of classification. There are six General Rules for the Interpretation of the Harmonised System (“the Rules”). They have legal force, and are intended, to be applied, where goods cannot be classified solely by reference to the terms of headings and subheadings or section or chapter notes. Their scope can be summarised as follows.[8]Rule 1 provides the basic rule of classification i.e. classification of goods is to be determined according to the terms of headings, relevant section or chapter notes.[9]Rule 2(a) states that any reference in a heading to an article shall be taken to include a reference to that article complete or finished.[10]Rule 2(b) provides that any reference in the heading to a material or substance is to include reference to mixtures of them with other materials or substances and to goods consisting wholly or partly of such material or substance.[11]Rule 3(a) provides that where goods are classified under two or more headings, then the heading which provides the most specific description is to be preferred.[12]Rule 3(b) states that goods which cannot be classified under Rule 3(a) are to be classified as if they consisted of material or components which give them their essential character.[13]Rule 4 provides that goods which cannot be classified under the foregoing are to be classified under the heading appropriate to goods to which they are most akin.[14]Rule 5(a) states that articles which are specifically shaped or fitted to contain an article or set of articles which are presented with the articles for which they were intended are to be classified with such articles when normally sold with them.[15]Rule 5(b) provides that packing materials and containers which are presented with goods are to be classified with them if they are of a kind normally used for packing such goods. Rule 6 provides that the classification of goods in the subheading is to be determined according to the terms of those subheadings or related subheadings.[16]In addition to the Rules, there are other non binding aids to the interpretation of the harmonised system.. The harmonised system is administered by the World Customs Organisation (“WCO”) (officially the Customs Corporation Council) (“CCC”) which, through its committees, issues explanatory notes and opinions to the CN, known as CNEN, which supplement the information found in the HSEN (explanatory notes to the harmonised system) and explain where necessary the scope of the headings and sub headings within the CN. In addition, it may be appropriate to draw reference to case law to assist with interpretation. The parties have drawn reference to the case of Spot Technologies Ltd v Commissioners of Her Majesty’s Revenue and Customs (Case No. TC 00300; [2009] UK FTT 362 ) (“Spot”). The Evidence[17]An agreed bundle of documents were presented to the Tribunal. There were no objections to any of the documents and which were admitted in evidence. There were no witnesses. Findings of Fact[18]The Stick plugs into a USB port of a personal computer. It is supplied with cabling, a remote control, aerial and CD drive (previously explained).[19]The Stick is portable and purchased separately from the personal computer. Users of such computers may purchase the product in order to have a connection to Automatic Data Processing (ADP) machine to obtain a television connection. Submissions of the Parties[20]The Appellant makes the following submissions. The Stick should not be excluded from the subheading 85287111. The product meets the criteria for being included as “Electronic Assemblies” as defined in the CNEN. This is an important aid for interpreting the scope of tariff headings and while not being legally binding is often referred to in the case law.[21]The fact that the Stick has an outer housing does not change its character or functionality and should not therefore be excluded from subheading 85287111. The product with the housing has not lost its character of being an electronic assembly.[22]Products have been classified as electronic assemblies which are in housing. The Appellant draws reference to products classified under 85299065 and 852990650 where products have been so classified.[23]The Appellant disputes whether a product which is not permanently fitted on to a data-processing machine, fails to conform to subheading 85287111. They submit that whether the product is permanently or temporarily fitted is irrelevant. What is relevant is that at the time of its use it is fitted to the machine. (Spot Case) Further the product cannot be plugged into any device other than an automatic data-processing machine. It is specifically made for that machine.[24]The Appellants do not dispute the classification of the first six level digits of the product. The disputes arises with regard to digit seven and eight.[25]The Appellant finds further support for their view in the Information Technology Agreement (“ITA”) to which the EC is committed. Under the ITA similar computer products are traded worldwide free of duty. The Stick being such a product, should be free from of duty and, if under 85087119 it would attract duty. This would appear to be not in keeping with the intention of the ITA.[26]The ITA includes the following: “Printed circuit assemblies for products falling within this agreement including such assemblies for external connections such as cards that conform to the PCMCIA standard”.[27]The Appellant submits that the reference in the above provision to “cards that conform to PCMICA standard” includes printed circuit assemblies even where there is a separate housing.[28]The Appellants draw reference to the case of Spot Case, which looks at a product at the time of its use and attachment in establishing its functionality. The Respondents’ submissions[29]The Stick does not fall within the meaning of “electronic assemblies for incorporation into automatic data-processing machines”. In applying the Rules (Rule 1 and Rule 6) the terms of subheading 11 precludes the Stick from being classified to 85287111 and should be classified instead to 85287119.[30]Given the separate housing, which is not an electrical or electro mechanical element or device, the Stick cannot be an electronic assembly. The particular housing used in the Stick precludes it from coming within the definition of electronic assembly.[31]Since the Stick plugs into the exterior of an automatic data-processor on a temporary basis it is not “for incorporation into” an automatic data-processor. This is a necessary precondition, to be satisfied in order to come within the meaning of 85287111.[32]The terms “electronic assemblies” and the phrase “for incorporation into” are to be read together in order to come within 85287111. The Stick is not incorporated into the computer and therefore does not qualify. The CNENS for 85287111 refers to the CNENS for heading 84439910, which provides a definition of electronic assembly and on a proper construction of that definition, printed circuits would be included and the presence of separate housing, excludes a product from that definition.[33]The Respondents have also discussed the interpretation of 85287111 with their counterparts in Germany who agree that having separate housing is fatal to inclusion in 85287111, if that housing is not electrical or electro mechanical.[34]The Respondents submit that since the case is concerned with subheadings, Rule 6 is therefore applicable and the classification of the Stick is to be determined according to the terms of the relevant subheadings.[35]The Respondents refute the Appellant’s submission that the Stick’s housing does not prevent it being an electronic assembly and propose that the references by the Appellant to the ITA are misconceived. The same point is made regarding a reference to the CNEN and their reference to the TARIC (Tariff Integre Communautaire) a non binding document which is designed to show the rules which apply to a specific product on importation in the customs territory.[36]The Respondents submit that the appeal should be dismissed. Discussion[37]There is no dispute in the classification of this product at the 4-digit level i.e. 85280 and at the 6-digit level i.e. 852871. The issue for determination is the classification of the product at the 7 and 8-digit level. The Respondents say that the product should be classified under Commodity Code 85287119 and not under Commodity Code 85287111 as it does not meet the definition of the terms “electronic assemblies” as defined in the CNEN. The (CN) uses an 8-digit numerical code to identify a product, the first 6-digits of which are those of the harmonised system. The extra 2-digits identify the CN subheadings of which there are several.[38]One of the core issues is whether the housing of the Stick means that it cannot be an electronic assembly. The Appellant says that the housing does not change the character of the product nor its functionalities and therefore the housing is irrelevant. They say whether the Stick is permanently incorporated into the computer is not a relevant consideration since it is not clear whether incorporation refers to being permanently or temporarily fitted. The relevant consideration is that it is incorporated when in use.[39]The Respondents rely heavily on the expression “incorporated into” (85287111 – “electronic assemblies for incorporation into automatic data-processing machines”). They say that the fact that an item plugs into the exterior of an automatic data-processor on a temporary basis shows that it is a temporary addition. Further the product falls outside the definition where it is separately housed and where that housing is not an electrical or electro chemical element or device. The definition of electronic assemblies (using CNEN) requires that the product cannot consist of “one or more printed circuits fitted with electronic integrated circuits of heading 8542. They may also contain discreet active elements, discreet passive elements, articles of heading 8536 or other electrical or electro chemical devices, provided that they do not lose their character as electronic assemblies”. It does not therefore fall within the relevant definition.[40]The CNEN are not legally binding but provide important help in interpreting and ensuring the uniform application of the EC Customs Tariffs. The definition of electronic assembly which has been used under heading 84439910 supports the view that the presence of housing disqualifies a product from being an electronic assembly. The housing of the Stick which is plastic means that on a straight reading it cannot be held to be incorporated into the electrical make up for the purposes of being an electronic assembly.[41]An aid to the construction of these CN is the opinion of the CCC and TARIC. The Respondents draw reference to the interpretation by the CCC in their “statement on the classification of Assemblies for GPS systems”.[42]It provides:
“For the purposes of TARIC Code 8526912020 (“Assemblies for GPS system having a position determination function”), the expression “assembly” covers products consisting of various components. The “assembly” has the essential character of a complete or finished product and is intended to be incorporated into another product such as a motor vehicle. Radio navigational receivers in their own housing are not considered to be “assemblies” (TARIC Code 8526912010 or 8526912090).”
[43]This lends support to the view that a GPS system is not an assembly. It is a product having its own housing and it is not incorporated into the motor car. The argument here is that the product in question, is similar to a GPS in that it is separately housed and is incorporated on a temporary basis as and when required. Consequently it is not an assembly given its separate housing .[44]The Appellants have countered this argument. They submit Attachment B of the ITA, which shows that the housing does not prevent it being an electronic assembly. The definition of “printed circuit assembly” precludes such an interpretation.[45]The Appellants in their skeleton argument say that the provisions of heading 8529906530 of the TARIC supports the view that the electronic assemblies include a housing. The relevant TARIC classification 8529906530 states: “Parts of TV – apparatus, having micro-processor and video-processor functions, comprising at least a micro-controller and a video-processor mounted on a lead frame and contained in a plastic Housing”.[46]However, this is a completely different provision and does not refer to the term “electronic assemblies. Further the provision does not contain the important term “for incorporation into” (85287111) and the Tribunal is not convinced by that argument. Further the TARIC is not a binding interpretation.[47]While the Tribunal takes its own view, it should be commented in passing that the German Customs and Excise authorities agree that items in a separate housing (which are not electrical or electro chemical) does not qualify as electronic assemblies and therefore falls outside the scope of 85287111.[48]The Rules for interpretation of the CN are binding. They are laid out in a hierarchical order where subsequent rules only apply where ones do not result in a classification. Rule 6 relates to subheadings in the CN and provides that the classification of goods in the subheadings of a heading is to be determined according to the terms of those unrelated subheadings.[49]We are here concerned with subheadings and therefore rule 6 applies. Rule 1 is also applicable. It states that titles of sections, chapters and subchapters are provided for ease of reference only. The basic rule is that goods are classified according to the terms of the headings and relative sections or chapter notes. Rule 1 relates only to headings and is applicable to the first 4-digits of the code number and Rule 6 to subheadings (and makes applicable Rules 1-5 apply to subheadings by analogy with the way they apply to headings). Taken together they provide for a process of classification. Classification is a step by step process starting with headings and then subheadings. Since the stick does not fall within the meaning of “electronic assemblies” when “electronic assemblies when incorporation into an automatic data-processing machines” (a main heading classification) it falls to have a subheading classification. The Stick is precluded from falling under 8528 7111 (not incorporated into) and should be classified under subheading 8528 7119. The Stick is portable and is an addition to an existing product. It is voluntarily added and not required for the operation of the computer. Once it is removed, it ceases to have functionality. It does not come with the computer but is purchased separately and it can be used with any machine. The intellectual property rights relating to the Stick arises outside of the machine. These are the arguments which the Tribunal finds most convincing. Conclusion 49. The Stick has been allocated to the subheading 85287119 of the CN. The housing gives the product a different character which means that it is not an electronic assembly. The Stick does not fit within the wording of the subheading 85287111 as it is not fitted or incorporated into an automatic data-processing machine but rather provides a temporary connection when required. It is therefore correctly classified.[50]Consequently this appeal would be dismissed.[51]The parties may apply on matters of costs. DR K KHAN TRIBUNAL JUDGE RELEASE DATE: 1 April 2010 APPENDIX GENERAL RULES A. General rules for the interpretation of the Combined Nomenclature Classification of goods in the Combined Nomenclature shall be governed by the following principles: 1. The titles of sections, chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to the following provisions. 2(a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled. 2(b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of rule 3. 3. When, by application of rule 2(b) or for ay other reason, goods are prima facie classifiable under two or more headings, classification shall be effected as follows:(a) the heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods;(b) mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, 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. Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin. 5. In addition to the foregoing provisions, the following rules shall apply in respect of the goods referred to therein: (a) camera cases, musical instrument cases, gun cases, draw-instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and presented with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This rule does not, however, apply to containers which give the whole its essential character; (b) subject to the provisions of rule 5(a), packing materials and packing containers (1) presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use. 6. For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and, mutatis mutandis , to the above rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this rule, the relative section and chapter notes also apply, unless the context requires otherwise.