Xerox Ltd v Revenue & Customs [2010] UKFTT 527 (TC)

FTT-Tax

Xerox Ltd v Revenue & Customs

[2010] UKFTT 527 (TC) · 2010-10-22

[1]Xerox Limited (“the Appellant”) appealed by a Notice of Appeal dated 19 December 2001 against a review decision dated 31 October 2001 sent to the Appellant by Mrs. Linda Chandler, Reviewing Officer at HM Customs and Excise Customs and International Trade Reviews and Appeals Team (“HMCE”). By that decision, HMCE decided that certain goods, being the Appellant’s products – black and white digital printing apparatus and colour digital products and parts and accessories thereof – were correctly classified in heading 9009 of the Combined Nomenclature (“CN”); and that certain other goods, also the Appellant’s products – Docutech and Docuprint products – were correctly classified in heading 8443 of the CN.

[2]There had been an earlier decision, communicated to the Appellant by HMCE (Chris James, Senior Officer of Customs and Excise) on 11 June 2001, that all the goods in issue were correctly classified in heading 9009.

[3]Since the decisions in this case (with effect from 1 January 2007) the CN has been amended to add a new heading to deal with multifunction digital printing machines of the kind involved in this appeal.

[4]Mr. Thomas, for the Commissioners for HM Revenue and Customs (“HMRC”), the Respondents to the appeal, who have, of course, taken over the functions of HMCE, points out that the review decision was in fact issued out of time and that the consequence of this is that the earlier decision must be deemed to have been confirmed and that the appeal should be regarded as an appeal against that deemed confirmation. As the Appellant contends that all the goods concerned are properly classified in heading 8471, the issue is clear and, as Mr. Thomas accepts, nothing substantial turns on this procedural point. For the sake of clarity, I direct that the appeal shall be treated as an appeal against the deemed confirmation of the earlier decision.

[5]The appeal was stayed pending the resolution of other proceedings involving similar merchandise, in particular Kip Europe SA and Others (C-362/07) and Hewlett Packard International SARL (C-363/07) v Administration des douanes – Direction générale des douanes et droits indirects – see: below.

[6]The classification for which the Appellant contends for the complete products, 8471, at the material time covered the following:

‘Automatic data processing machines and units thereof: magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not specified or included elsewhere’

. The Appellant also contends that the parts and accessories, imported as such, are properly to be classified under heading 8473 of the CN, which at the material time was in the following terms:

‘Parts and accessories (other than covers, carrying cases and the like) suitable for use solely or principally with machines of heading Nos. 8469 to 8472.’

[7]The classification for which HMRC contends, 9009, at the material time covered the following:

‘Photocopying apparatus incorporating an optical system or of the contact type and thermo-copying apparatus’

. HMRC’s submissions on the classification of parts is summarised at paragraphs 83 to 85 below.

[8]The resolution of this issue will be determinative of a claim for repayment of duty submitted by the Appellant on 7 March 2001. Various goods, which I generically describe for convenience as multifunction printer/copiers with parts and accessories thereof, were imported into the UK by the Appellant between 1997 and 2000 and assessed with duty under heading 9009. The duty so assessed was paid and the Appellant claims repayment of duty on the basis that heading 84.71 applies. I was told that approximately £3.4m. is in dispute.

[9]Originally a class of the Appellant’s products called printer system group (“PSG”) products was also in dispute, and some of the Appellant’s evidence related to these products. However, these products do not incorporate scanners and therefore are incapable of performing ‘scan-and-print’ operations of the kind referred to as ‘digital copying’ and Mr. Thomas told me that HMRC have accepted the correctness of the Appellant’s classification of these products to heading 8471.

[10]In this appeal it is agreed by the parties that I have a full appellate jurisdiction and therefore have power to quash or vary any decision of HMRC and power to substitute my own decision for any decision so quashed (see: section 16(5) Finance Act 1994). The facts

[11]Besides the documentary evidence submitted to me, I received witness statements and oral evidence from Thomas Maszerowski, an engineering specialist employed by Xerox Corporation of Rochester, NY, USA (the holding company of the Appellant), Paul A. Siddle, who is employed as programme manager for the Appellant in Welwyn Garden City, Hertfordshire, and Bevan J. Clues, of Clues & Co., who provide forensic and expert witness services. Mr. Clues was an expert on the functionality of office equipment with various combinations of printing, scanning and copying capabilities. He was called by HMRC.

[12]The principal functions of all the products were considered by Mr. Clues to be as a copier and printer, with the single exception of the Document Centre 420 CX model (one of the products referred to under the generic heading at (e) in paragraph 15 below) which he considered had the function of a copier only. No point was made about this distinction by Mr. Thomas in submissions, nor was I provided with any technical information referable to this particular model. I therefore propose to ignore this difference in my assessment of the evidence.

[13]Mr. Maszerowski’s opinion was that the products, which he termed ‘multifunction printers’ have principal functions as follows: printing digital output, scanning digital input and communicating with the central processing unit (CPU) of a computer network or device.

[14]From the evidence I find the following facts:

[15]The products in dispute are as follows:a. Document centre 212 (A297) – a black-and-white digital printer/copier

b. Document centre 214 (A297) – a black-and-white digital printer/copier

c. Document centre 220/30/40 F (Hodaka) black-and-white digital copier

d. Document centre 340 and 332 F (Silverstone) black-and-white

e. Document centre 420, 440 and 432 F (Silverstone II) black-and-white

f. Document centre system 20 (Concorde) black-and-white

g. Document centre system 35 (Pyramid) black-and-white

h. DocuColor 5750 (Empress) colour

i. MajestiK 5765 and 5760 colour

j. Regal 5790 colour

k. DocuColor 5799 (Regal II) colour

l. DocuColor 12 and ColorSeries 50 (Lynx) colour

m. DocuColor 40 Pro (Lynx) colour

[16]The products in dispute (in their complete state) incorporate three basic units within one housing [1] . The units are: the image output terminal (IOT), which is the laser printer device with additional hardware, the image input terminal (IIT), which incorporates the optical scanner and routes input from other (electronic) sources, and an electronic sub system (ESS), which contains a CPU and acts as a system controller, or printer controller, containing the electronic material necessary to administer or direct the operation of the product as a whole. Of these three basic units, the IOT costs the most to build, has the most parts, is the largest in terms of volume, requires the most maintenance and receives the most use.

[17]I have been provided with specification documents for all the products in dispute. At the hearing, I understood the parties to approach the issues for determination on the basis that there was no factor relative to any particular product that would render it properly classifiable under a different CN heading from the others. However, in his post-hearing written submission, Mr. Thomas, for HMRC, argued that those products (Document centre 220 and Document centre 230 were cited as examples) which required to be ‘upgraded’ to become a ‘fully networked device’, but which in the form in which they were imported were capable of digital copying, could not be properly described as units of an automatic data processing machine. This proposition was disputed by the Appellant. Mr. Peterson stressed that all the products in issue are capable of being connected to a network. This connection is through an ESS. Some of the products incorporate an ESS. The others are capable of being connected to a network through an external ESS.

[18]By way of example, the publicity material for Xerox Document Centre 420, with my papers, contains the following promotional wording, aimed at customers and potential customers:

“XEROX DOCUMENT CENTRE 420 ONLINE DOCUMENTS In order for people to share information, you have to connect them to their work and their documents. Xerox Document Centre 420 improves online access to documents. It simplifies document processes. It accelerates documents. Now every office can move faster, do more, and share knowledge without boundaries. Superior printing, copying, scanning and faxing services are just the beginning. The Document Centre 420 is a gateway to your online documents, combining superior core document services with integrated work process solutions. The Document Centre 420 breaks through productivity barriers. Everyone in the office can share information … collaborate … turn information into knowledge … work smarter and more efficiently. It’s a powerful solution that redefines the way offices work. A PRINTER THAT KEEPS PACE WITH YOUR NETWORK The new SMart [ sic ] controller, one of the industry’s fastest, features the kind of high-performance architecture that delivers improved results. You will appreciate the difference every time you print a complex job with graphics, photos, or charts. The SMart controller provides unsurpassed support for native print formats. Office users will appreciate true Adobe PostScript 3 which sets the standard for document quality and fidelity. This, combined with PCL6 emulation and direct support of TIFF and PDF document formats, creates a powerful and flexible printing system. The Xerox CentreWare software provides easy-to-use graphical interfaces so you can take advantage of innovative print features like Secure Print, Delayed Print or Sample Set. UNPARALLELED FUNCTIONALITY AND FLEXIBILITY IN YOUR NETWORKED ENVIRONMENT Document Centre device management software lets you manage your devices your way: seamlessly, simply and automatically. Seamless integration – Innovative features like automatic IP addressing, device naming and Ethernet and Token Ring speed sensing provide simple and automatic installation on your network. Remote Management Made Easy – Manage from anywhere on the Internet with CentreWare Internet Services. The Document Centre Internal Web technology gives you immediate information about the device from your favourite Web browser. A COPIER THAT KEEPS PACE WITH YOUR OFFICE The simple, integrated control panel provides a large, easy-to-use graphical interface that makes easy work out of even the most complex copier tasks. It supports a wide range of print and copy paper sizes, from postcard to ledger, and runs labels, envelopes and card stock effortlessly. The Document Centre 420 is the benchmark in office copiers. What did you expect from the company that made office copying convenient? A NETWORK SCANNER THAT PUTS YOU ONLINE The Xerox Document Centre is transforming office scanning in the same way that Xerox transformed office copying. Document Centre network scanning simplifies work processes to allow your office to work more efficiently. Scan directly to network repositories, e-mail addresses, workflow solutions and even the Web to eliminate steps, reduce errors and save time. A FAX MACHINE THAT GETS YOU CONNECTED The Document Centre provides a powerful fax device to make light work of your faxing needs. The ability to set up 30 password-protected mailboxes provides security and peace of mind. Other features, such as duplex, cover sheets and a choice of media make the Document Centre 420 the office fax machine of choice. THINK COST-EFFECTIVE PERFORMANCE AND TOTAL SATISFACTION The exclusive Xerox Total Satisfaction Guarantee, recognized as the best in the industry, covers every Xerox Document Centre solution to help make sure you’ll achieve the business results you need.”

[19]The printing system, which is employed for all the functions which these products can perform, is electronic. In this aspect, these products are different from photocopiers, strictly so-called, which use a photonic process.

[20]The photonic process for the copying or reproduction of an image by a photocopier (strictly so-called) required an original physical object, for instance a document. The optical image of the original physical document was reflected through a series of lenses and mirrors to place a charge on a photoreceptor. When charged, the photoreceptor was put into contact with toner, a latent image developed which was then transferred to paper (the photocopy). This was an analog “light-lens” process which required a stream of light from an original physical object at all times. If the original physical object (for instance, the document) was removed from the machine’s field of vision, the process could not take place. A photocopier (strictly so-called) did not perform data processing, did not use software for imaging and could not exchange information with any other devices.

[21]By contrast, the products in dispute all perform data processing, use software for imaging and can exchange information with other electronic equipment, by means of a connection to the central processing unit (CPU) of a computer network or device.

[22]The products in dispute incorporate a flatbed scanner, which converts hard copy analog documents into digital data files which can be processed by the laser printer which is also incorporated into the products.

[23]The flatbed scanner (also called a light-bar scanner) creates such a digital data file by illuminating the hard copy analog document and using a scanning charge coupled device (CCD) to measure the presence or absence of light in particular locations or points on the analog document. These points are known as ‘pixels’, and the scanner measures the light at so many pixels (or ‘dots’) per inch. The higher the count of dots per inch, the higher the resolution of the scanned file and the better the quality of the image in the digital data file created (which, in the simplest type of data processing operation, will be a document in a software format known as ‘tagged image file format’ or TIFF). Print resolution (600 dots per inch) is better than copy resolution (400 dots per inch). Thus the digital copying of an original physical document will produce a poorer quality of reproduction than the printing of such a document from a different original source. Many computer applications require (or are improved by) the use of different software programs and more sophisticated page definition formats.

[24]The digital data file (for instance, a TIFF file) can be transmitted to the laser printer incorporated into the products and the file directs (or drives) the laser, by an electronic process, to turn ‘on’ or ‘off’ and thus irradiate the photoreceptor. This is a step in creating a digital print (or reproduction).

[25]This process of ‘scan-and-print’ – scanning and printing a document in sequence – is, in effect ‘digital photocopying’. However, not only is it a digital electronic process and not a photonic process, but also, unlike the comparable operation using a light-lens photocopier, once the original hard copy analog document is scanned to produce a digital file, an unlimited number of uses can be made of the digital file, including, for example, the printing of multiple digital prints.

[26]The products in dispute can be operated in the ‘digital photocopying’ function autonomously, that is, in stand-alone mode. No other equipment is required when the products are operated in this function. The capacity of the products in dispute in terms of speed of production when used in the ‘digital photocopying’ function and when used in other printing functions is identical.

[27]While all the products in dispute incorporate a platen to receive an original hard copy analog document, under which a flatbed scanner operates, the input into the laser printer also includes files created on computers, for example, in word processing, graphics and other application programs. Such files need not ever have had any physical manifestation at all, before a physical document is created by the laser printer.

[28]The products in dispute are all usable as the output units of automatic data processing machines. They can be, and often are, used as ‘workgroup’ printers in offices, schools and other locations – printing material routed to them by a number of users. They are designed to be connected via network switches or routers to multiple computers (they incorporate ports and backplanes designed to allow such connection). The products incorporate software to manage the print jobs submitted by various users. Therefore, if multiple print jobs are received simultaneously, network management software incorporated into the products will organise the print jobs into a ‘queue’ and process them in order. Also, software similarly incorporated provides information to persons at computer stations concerning what print jobs are being processed and what print jobs remain in the ‘queue’. Users also have the ability, using incorporated software, to alter commands and reorganise the ‘queue’, changing the order of priority of print jobs, deleting or rescheduling print jobs.

[29]All the products in dispute incorporate internal web servers, allowing users to contact and access them over a network, including the internet, from a remote location.

[30]Digital data files created by the flatbed scanners incorporated into the products in dispute, besides being processed, as described above, into hard copy prints, can also be stored in the products’ RAM memory or on internal hard drives. Such data files can also be transmitted via a particular network, or e-mail, to one or more other CPUs. Such data files can also be re-formatted within the product.

[31]At the relevant time(s), the time(s) of the importation(s), light-lens photocopiers were available in the market for cheaper prices than the products in dispute. The products featured in the process of the evolution of office equipment from separate machines carrying out photocopying, printing and fax functions to multifunction machines. Increasingly over time, more and more documents are generated electronically and use of the products in issue in the ‘digital photocopying’ function is becoming proportionately less.

[32]The products in issue were suitable for use in autonomous or stand-alone mode and also for incorporation into a fully networked system. The scan-to-print copying function included both ‘digital copying’ by a ‘walk-up’ user, that is one who brought the original physically to the product for scanning and printing, and also ‘remote’ copying, where a user would scan in an original in a remote location and by use of the networking device arrange that the print is produced by the product at a different location.

[33]The promotional material, particularly of the products brought to the market relatively early, stressed their adaptability. An example is the brochure for the Xerox Document Centre 220, which included the following wording: “The Xerox Document Centre 220 Digital Copier combines digital technology with innovative design to make the 220DC one of the most productive copiers in its class. Its digital technology streamlines the document imaging process, providing greatly enhanced image quality and maximum reliability. Its modular design allows the 220DC to grow with your business and its needs. In the future you may choose to leverage its modular flexibility and upgradeability to become a fully networked device, controlled from your desktop. The 220DC’s unique standard and optional features let you do more with your documents in less time, with less frustration. It offers duplexing at rated speed, a full 20 sides per minute. You are more productive because your copier is more productive. With the 220DC, you’re investing in digital technology and a simple, versatile, and reliable document copying system. A system digital technology will keep that way, far into the future. And your satisfaction is guaranteed .” (original emphasis)

[34]Another example is the specifications brochure for the Xerox Document Centre 230 & 220ST, which included the following promotional language:

“ Change walk and wait to point and click The next generation of Document Centre products has arrived, and with it comes a whole new way of thinking, and working. Imagine … digital document solutions built from scratch to meet the growing productivity demands of your business, your people and your network. The 230 and 220ST deliver the most advanced set of document services in the world to the desktop of everyone on your network, changing walk and wait to point and click. And new performance standards enable you to copy, print, scan and fax your documents faster, easier and with far better reliability and image quality than is possible with traditional, single-function devices.”

[35]Many, if not all, of the products in issue were imported into the EU in parts and assembled at the Appellant’s premises in Hertfordshire in the UK. Some of the parts (the smaller parts) were such that it would not be possible to say which of the products in issue the part was intended for – or, indeed, if they were intended for incorporation in a stand-alone copier. This was not the case with larger parts, such as the ESS. The law

[36]In a reference in the case of Rank Xerox Manufacturing (Nederland) BV v Inspecteur der Invoerrechten en Accijnzen (

Case C-67/95

), the Court of Justice (ECJ) held that machines which create reproduction images by conversion of the original image into digital data (as opposed to the mechanism of traditional photocopying apparatus) must nevertheless for customs classification purposes be regarded as optical reproduction systems, and, by virtue of their function as photocopiers, be classifiable under heading 9009. The technical differences between image reproduction by the photonic “light-lens” process and image reproduction by a digital process cannot therefore be determinative in this appeal.

[37]I was referred to the joined cases of Kip Europe SA and Others (C-362/07) and Hewlett Packard International SARL (C-363/07) v Administration des douanes – Direction générale des douanes et droits indirects , which were references to the ECJ for a preliminary ruling from the Tribunal d’instance du VIIème arrondissement de Paris, where judgment was handed down on 11 December 2008.

[38]These cases concerned products similar in many respects (but not identical) to the products in issue in this appeal. The similarities with the products in the Hewlett Packard International reference were closer. The products in that reference were multi-function colour and monochrome printers comprising, in a single housing, a laser printer module and a scanner module, and having the functional capabilities of printing, digitalisation and copying. They were connectable to computers and received and processed signal code data used in the data-processing environment. They were intended for home use and for small and medium-sized enterprises and were basically intended to be connected either directly or via a network to one or a number of computers ( ibid. [18] and [19]).

[39]The ECJ decided that note 5(E) to Chapter 84 of the CN pursuant to which: “Machines performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings” is to be interpreted as applying to machines which incorporate an automatic data processing machine or work in conjunction with such a machine but whose function nevertheless has nothing to do with data processing ( ibid. [33]).

[40]The ECJ also commented in relation to note 5(B) to Chapter 84 of the CN, which is in the following terms:

“Automatic data-processing machines may be in the form of systems consisting of a variable number of separate units. Subject to paragraph (E) below [considered in the previous paragraph], a unit is to be regarded as being a part of a complete system if it meets all of the following conditions: (a) it is of a kind solely or principally used in an automatic data processing system; (b) it is connectable to the central processing unit either directly of through one or more other units; and (c) it is able to accept or deliver data in a form (codes or signals) which can be used by the system.”

[41]Noting that the machines in issue in Kip and Hewlett Packard are characterised by the fact, firstly, that they perform printing and electronic scanning functions in connection, directly or over a network, with automatic data-processing machines and, secondly, that the copying function which they have is used autonomously ( ibid. [40]), the ECJ commented that those machines were likely simultaneously to meet the three conditions (a) to (c) laid down in Note 5(B) to Chapter 84 of the CN (see: previous paragraph), and, in particular, that they were likely to be of the kind used principally (though not solely) in an automatic data processing system ( ibid. [43]).

[42]This would have suggested that the machines in issue in Kip and Hewlett Packard were ‘automatic data-processing machines’ within tariff heading 8471.

[43]However, the fact that the machines also performed a copying function, which was used autonomously, required a finding to be made (by the referring court) as to “whether the copying function [was] secondary in relation to the other two functions [printing and electronic scanning] or whether, on the contrary it [was] equivalent in importance” ( ibid. [46]).

[44]This finding must be made taking into account: “the objective characteristics of those machines such as the print and reproduction speeds, the existence of an automatic page feeder for originals to be photocopied or the number of paper feeder trays” ( ibid. [46]).

[45]The ECJ held that if the referring court found that the copying function was secondary in importance to the printing and electronic scanning functions, then the machines should be considered to be units of automatic data-processing machines within Note 5(B) to Chapter 84 of the CN.

[46]In relation to Section XVI of the CN (which contains Chapters 84 and 85), it also held that Note 3 which reads as follows: “Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines adapted for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being part of that machine which performs the principal function” would apply to identify the applicable subheading within heading 8471 if the copying function had been found to be secondary to the other two functions ( ibid. [47]).

[47]On the other hand, if the referring court found that the copying function was of an equivalent importance to that of the printing and electronic scanning functions, the machines could not be considered as units of automatic data processing machines, because Note 5(B)(a) to Chapter 84 of the CN would not be satisfied. In such a case the ECJ held that General Rule of Interpretation (GRI) 3(b) would apply ( ibid. [49]).

(b) is as follows:

“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 [GRI] 3(a) [the heading which provides the most specific description to be preferred to headings providing a more general description], 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”

[48]GRI 3(b) requires the referring court to identify which of two or more materials or components determines the essential character of the machine as a whole.

[49]If identification by application of GRI 3(b) is impossible, GRI 3(c) is to apply ( ibid. [49]).

(c) is as follows:

“when goods cannot be classified by reference to [GRI] 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.”

[50]The ECJ summarised its conclusions on these points in ibid. [50] as follows:

“It follows that each of the machines at issue in the main proceedings should be classified under heading 9009 only if it is apparent, on the basis of its objective characteristics, that it is not of a kind used principally in an automatic data-processing system, since the copying function is of an importance equivalent to that of the other two functions, and that it proves impossible to determine which, of the printing module or the scanner module or even, if applicable, the computer module, gives it its essential character .”

(emphasis added)

[51]In Hewlett Packard International SARL v Administration des douanes – Direction générale des douanes et droits indirects , the case returned to the Tribunal d’instance du VIIème arrondissement de Paris, where Hewlett Packard argued that the copy function of the machines at issue was secondary, compared to the printer and scanner functions and, alternatively, that the printing module gave the machines at issue their essential character. The customs administration contended that the machines at issue integrated the three main office functions and that none of them should be regarded as the principal use of the machines or as giving the machines their essential character. The Tribunal found that the copy function was secondary to the printer and scanner function, and that the printing module gave the machines their essential character. It decided that the machines were to be classified under tariff heading 8471.

[52]The Tribunal’s reasoning appears from the following paragraph (taken from an English translation of the original which was provided to me):

“Whereas it appears from the technical note of these devices that their essential character is given by the printing part that includes the majority of the machine components such as the development unit, the logic board communicating with the information processing machine and controlling the printer functions, the printing drum, that these elements represent more than 80% of that value of the machine; the device does not have a sorter, unlike many professional copiers and lacks an automatic document feeder to copy the originals and these characteristics lead to retain [ sic ] that the copy function is secondary compared to the functions of a peripheral of a computer, printer and scanner and multifunction printers that fall under the tariff position 8471.”

[53]I was referred to three Commission Regulations, said by Mr. Thomas for HMRC to be ‘of potential relevance’. They were Regulations 2184/97, 517/99 and 400/06. It was not, however, contended that any of the products concerned in these Regulations was identical to any of the products in issue in this appeal.

[54]Section XVI of the CN, which includes Chapter 84 but not Chapter 90 (which is in Section XVIII) has the title: “Machinery and Mechanical appliances; electrical equipment; parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles”.

[55]Section XVIII of the CN has the title:

“Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; clocks and watches; musical instruments; parts and accessories thereof”

. Chapter 90 has the title: “Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; parts and accessories thereof”.

[56]In relation specifically to the classification of parts, I was referred to Section Note 2 to Section XVI of the CN and Chapter Note 2 of Chapter 90 of the CN.

[57]Section Note 2 to Section XVI of the CN relevantly provides as follows: “Subject to note 1 to this section [which inter alia by paragraph (m) excludes articles of Chapter 90] …parts of machines … are to be classified according to the following rules: (a) Parts which are goods included in any of the headings of Chapter 84 or 85 (other than heading Nos. … 8473 …) are in all cases to be classified in their respective headings.

(c) …

[58]Chapter Note 2 of Chapter 90 of the CN relevantly provides as follows:

“… parts and accessories for machines … of this chapter are to be classified according to the following rules: (a) Parts and accessories which are goods included in any of the headings of this chapter or of Chapters 84, 85 … are in all cases to be classified in their respective headings. (b) Other parts and accessories, if suitable for use solely or principally with a particular kind of machine … or with a number of machines … of the same heading … are to be classified with the machines … of that kind.

(c) …”

The submissions of the parties

[59]Both parties made oral and handed up written submissions before and during the hearing of the appeal. Pursuant to my direction, the parties also made written submissions after the hearing in particular in relation to the classification of ‘parts’ of multifunction machines (in relation to those cases where such ‘parts’ were the subject of the relevant importations). The last of these submissions (the Appellant’s Reply) was dated 29 June 2010 and was received by me some time later. In the sections below I summarise all the submissions made so far as they appear to me to be relevant.

(a) the Appellant’s submissions

[60]The Appellant submits that the machines in issue are ‘of a kind solely or principally used in an automatic data processing system’ and are ‘automatic data-processing machines’ within the definition in note 5(b) to Chapter 84 of the CN. The Appellant says that this is demonstrable by reference to the functions which the machines can perform and the standard of performance which they achieve when performing those functions. Specifically, the Appellant contends that the ‘digital copying’ function of the machines is secondary in relation to the data processing functions of scanning, storage and printing and, indeed, is ‘nothing more than an adaptive use of those scanning and printing functions’. The Appellant further contends that accessories, such as paper feeders, serve the scanning function (for storage or remote transmission) as well as the ‘digital copying’ function, and only in a few cases would an accessory ‘significantly favour one function over another’.

[61]Mr. Peterson makes the point that Mr. Clues in his evidence, although assigning equal weight to the ‘printing’ and ‘digital copying’ functions of the machines, also assigned some, but less, weight to the scanning function, which is, in its own right, a significant data-processing function unconnected with the copying function. It follows, in Mr. Peterson’s submission, that Mr. Clues’s evidence should be taken to be that the copying function is less important than the other two functions taken together. Mr. Peterson submits that the evidence of Mr. Maszerowski and Mr. Siddle was to the same effect.

[62]Mr. Peterson emphasises the printing function of the machines at issue, which he submits is their principal function. He submits that the evidence shows that ‘the machines were designed primarily to place marks on paper’. They were designed to be connected to an automatic data processing machine ‘in order to capture automatic data processing printing jobs’. He submits that the IOT (printer module) is the machine which performs that principal function, which is, moreover, the most important commercially to the Appellant as it derives its post-sale revenue from per-print charges and from the sale of consumables used in the printing process. By contrast, the Appellant obtains no post-sale revenue from the operations performed by the IIT or the ESS.

[63]The Appellant further submits that, even if I were to decide that the copying function was of equal importance to the other functions, application of GRI 3(b) by reference to the ‘essential character’ of each machine would result in classification of the machines, by reference to the printer module (IOT), as automatic data processing units within heading 8471 of the CN.

[64]Mr. Peterson submits that even if I were to determine that the products at issue are truly multifunctional, I must still determine what is their ‘essential character’ for the purposes of GRI 3(b). The ‘essential character’ test requires an assessment of such factors as relative weight, bulk, cost and complexity of the modules comprising the machines. He submits that if I were to find that any single module imparts the ‘essential character’ to the products, the Appellant must succeed because each of the modules, (printer, scanner and computer), presented independently, is an automatic data processing unit within heading 8471 of the CN.

[65]The Appellant contends that the parts and accessories involved are properly classifiable as ‘parts’ or ‘accessories’ of the machines (scanner, printer or ESS) in which they are incorporated, leading to a classification under heading 8473, as parts of units of automatic data processing machines classifiable under 8471. This is to be preferred to the alternative of classifying parts as parts of the composite goods which such machines are ultimately combined to form. Specifically, the Appellant submits that the imported ‘EFI digital front end controllers’ (which were the external version of the – stand-alone – ESS) should be classified as units of automatic data processing machines under heading 8471.80 of the CNN as ‘control and adapter units’ or, alternatively heading 8473.30 as ‘parts or accessories of the machines of heading 8471’. The Appellant cites Peacock AG v Hauptzollamt Paderborn (

Case C-339/98

) and Turbon International GmbH v Oberfinanzdirektion Koblenz (

Case C-276/00

) – the first ‘ Turbon ’ reference. The Appellant submits that parts imported for use in the manufacture (in the EU) of multifunction printers should be recognised as ‘parts or accessories’, whose classification is dependent on the classification of the printers themselves. The Appellant relies on the evidence that the production process at its UK factory used imported parts to produce individual data processing units (scanner, printer, ESS) and then combined those units according to customer requirements to create multifunction printers.

[66]While accepting the proposition that digital copiers with no capability of being connected to a computer (such as the devices considered in Rank Xerox Manufacturing (Nederland) BV ) are properly classified within heading 9009 of the CN, Mr. Petersen submitted that the position was otherwise in relation to digital copiers which are capable of being connected to a computer, but which can function as digital copiers without such connection.

[67]The Appellant submits that the proper classification of digital multifunction printers of the kind involved in the appeal, and, incidentally, the application of Commission regulations 517/99 and 400/06, was addressed conclusively by the ECJ in the Kip and Hewlett Packard reference and that the Tribunal should follow the analysis set out in the ECJ’s judgment in that case, specifically at ibid. [46] to [50].

[68]In this connection, the Appellant submits that the ‘digital copying’ functions of the machines at issue (which is the consecutive performance of two data processing functions, scanning and printing) is of lesser importance than the data processing functions of scanning, printing and communication with the CPU of an automatic data processing machine. Particular reference was made to the evidence that the scanning function of the IIT is used not only in connection with ‘digital copying’ but also in connection with the scanning of documents into memory storage, scanning to email and scanning into an automatic data-processing system where they may be manipulated and processed by the user. The Appellant also stressed that the evidence showed that the printer or IOT is not limited to use in ‘digital copying’ but is designed to print output from many sources apart from the scanner, including files created on the computer to which the IOT is connected, files created on other computer systems, and documents taken from the internet.

[69]The Appellant submits that the objective characteristics of the machines at issue demonstrate them to be units of data processing machines. Each major component, the IIT, the IOT and the ESS, is a ‘unit’ of an automatic data processing machine and, if presented separately, would be classified as such a unit under Note 5(b) to Chapter 84 of the CN.

[70]In connection with its alternative submission that application of GRI 3(b), by reference to the ‘essential character’ of each machine, would result in classification of the machines, by reference to the printer module (IOT), as automatic data processing units within heading 8471 of the CN, the Appellant refers to Explanatory Note VII to the CN to the effect that the factor which determines essential character will vary between different types of goods – ‘it may, for example, be determined by the nature of the material, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods’. The Appellant relies on the evidence that the IOT (printer module) is in all cases the component which ‘imparts’ the essential character to the machines at issue. The Appellant submits that this is because the main reason purchasers buy the machines is to acquire the printing capacity of the IOT. Also, the IOT is generally the largest, bulkiest, most complex and most expensive component of the machines. HMRC’s submissions

[71]HMRC submits that the copying function of the machines cannot be regarded as secondary to the other (printing and scanning) functions on any objective basis. HMRC submits that the machines are genuinely multi-functional and therefore it is not possible to conclude that one function is subsidiary or secondary to the others. Mr. Thomas made reference to Mr. Maserowski’s evidence that the principal function of the machines was as a ‘copier and printer’, and that their distinguishing characteristic is their multi-functionality, being designed as replacements for machines having separate functions, viz: fax machines, scanners, printers and photocopiers. Mr. Thomas also noted that the capacity of the machines to produce copies and (original) prints was identical, submitting that that was a factor showing that the copying function was equivalent in importance to the other functions of the machines. He referred to the ECJ’s judgment in Kip at [46] and to the specifications of the different machines in issue which state that the print and reproduction speeds are the same, and that they are equipped with automatic page feeders and a number of paper feed trays. He disagreed with the Appellant’s submission that the issue of paper feed trays and print and reproduction speeds is likely to be of limited assistance in determining whether the copying function is of equivalent importance to the other functions (because of their use in carrying out such other functions) on the basis that it was clear that the ECJ in Kip had those factors in mind as being useful factors (even if not exhaustive) in determining the issue.

[72]HMRC’s submission on the application of GRI 3(b) in this case is that GRI 3(b) is intended to be applicable in a case where there are more than one component in a product, one is classifiable under one heading, the other or others are classifiable under another heading or other headings and one of the components confers on the product its essential character. Mr. Thomas cited Turbon International GmbH v Oberfinanzdirektion Koblenz (

Case C-250/05

[73]Mr. Thomas emphasised that in the application of GRI 3(b) it was not correct to ascertain the function which gave a machine its ‘essential character’, but the material or component which does so should instead be identified. He cited Sony Entertainment Europe Ltd. v Commission of the European Communities (

Case C-243/01

). He submitted that the Appellant’s case on GRI 3(b) relied on functional units in composite machines, rather than components or materials and that the Appellant’s approach, relying on the function performed by the IOT as a printer to provide the ‘essential character’ to the machine as a whole was not legitimate. He urged that the decision of the VAT and Duties Tribunal (Chairman: Colin Bishopp) in Brother International Europe Limited v HMRC (ref: C00248 – release date: 24 January 2008), although issued before the ECJ’s judgment in Kip , was consistent with it and was of persuasive authority. In Brother , substantially similar machines to those in issue in this appeal were under consideration, and, in relation to them (the DPC and MFC machines), the Tribunal decided that the correct classification, pursuant to GRI 3(c) was heading 9009 of the CN.

[74]Mr. Thomas expanded his submission saying that as products of both headings 8471 and 9009 of the CN may incorporate a printer module as a component, the identification of that component as conferring the ‘essential character’ of the machines in issue would not identify the machines as having the ‘essential character’ of a product within heading 8471 and not a product within heading 9009 and vice versa .

[75]He said that the two headings refer respectively to machines with different functions and the printer module (IOT) and the ESS, which are present in the machines at issue, perform functions which are common to products of both headings 8471 and 9009 of the CN. It followed, in his submission, that the identification of the IOT module, or the ESS, as providing the essential character of the machines at issue does not serve to classify them to heading 8471 ‘without recourse to the function that that component fulfils’. This is because the process performed by both the IOT module and the ESS in producing a copy and carrying out a different print job is identical (as confirmed by Mr. Siddle’s evidence).

[76]Mr. Thomas submitted that the evidence established that the roles respectively played by the constituent materials and components of the machines at issue were the same whether the machines were used for printing, copying, faxing or scanning.

[77]It followed in his submission that the machines cannot be classified by reference to GRI 3(a) or 3(b), which brings GRI 3(c) into effect, requiring classification of them under the heading which occurs last in numerical order among those which equally merit consideration, namely 9009.

[78]In relation to ‘parts’ imported as such, HMRC’s submission was that for classification purposes the goods at importation must be assessed by reference to their objective characteristics. The general rule in Section XVI of the CN is that ‘parts’ are classified under the same heading as the complete article if they are “suitable for use solely or principally with a particular kind of machine” (Note 2 to Section XVI of the CN). However, he referred the Tribunal also to headings of the CN which apply specifically to ‘parts’, for example heading 8743, which applies to parts and accessories “suitable for use solely or principally with machines of heading … [8471 – automatic data processing machines and units thereof]”.

[79]Mr. Thomas submitted that parts which (on the evidence) were equally capable of being incorporated in an automatic data processing system or a stand-alone copier failed to meet the criterion in Note 5B(a) to Chapter 84 of the CN, namely that they must be of a kind solely or principally used in an automatic data processing system.

[80]Similarly, he submitted that such parts failed to meet the description of heading 8473 of the CN in that they were not objectively ‘suitable for use solely or principally with machines of heading … 8471’. On this basis all parts of machine ranges where there is a digital copier (stand-alone copier) model, with no ability to connect to a computer system, cannot be classified within Chapter 84 of the CN and must be classified under heading 9009 pursuant to GRI 3(c). In particular, GRI 3(b) can have no application to parts because if a part cannot be determined, on the basis of its objective characteristics to be an automatic data processing machine part as opposed to a digital copier part, then it can have no ‘essential character’ which would indicate that it was one rather than the other.

[81]His submission was that only those parts which are identifiable as being for use within a range of machines which contains only units of automatic data processing machines could be classified within Chapter 84 of the CN.

[82]He summarised his submissions on the classification of parts as follows:

[83]In relation to colour multifunction machines, where the product imported would be a complete product were it not for the fact that it does not contain an ESS, its objective characteristics at import are those of a digital copier. Its objective characteristics at import are not those of a unit of an automatic data processing system, because use as such would require the addition of a further product (an ESS).

[84]Again, in relation to colour multifunction machines, where the product imported is an external ESS, HMRC accept that the product is properly classified under heading 8473.

[85]Otherwise, parts will be classified in accordance with the classification of the complete product (either within heading 8471 or 9009 as I decide) save that where such parts are suitable for use in machine families which have digital copier models only, they must be classified within heading 9009 for the reasons given in paragraph 79 above. Discussion and Decision

[86]My starting point is the decision of the ECJ in Kip and Hewlett Packard International . Like the Tribunal d’instance du VIIème arrondissement de Paris in the Hewlett Packard International case, I must apply the interpretation of the CN laid down by the ECJ to the classification issues posed in this appeal. I note, however, that the machines in issue in this appeal are not identical to that in issue in the Hewlett Packard International case and, in particular, the fact found by the Tribunal d’instance that the machine in issue in the Hewlett Packard International case did not have an automatic document feeder does not apply to the machines in issue in this appeal, at any rate where they were imported complete but without accessories.

[87]I must find whether the copying function of the machines in issue is secondary to their printing and scanning functions or whether, on the contrary, the copying function is equivalent in importance to the other two functions. In this task I must take into account the objective characteristics of the machines, such as print and reproduction speeds, the existence of an automatic page feeder for originals to be photocopied or the number of paper feeder trays ( Kip [46]). It is not sufficient, as the Appellant suggests in one submission, simply to recognise that each major component, the IIT, the IOT and the ESS is a ‘unit’ of an automatic data processing machine and, if presented separately, would (or might) be classified as such a unit. The question of whether the machines are ‘of a kind solely or principally used in an automatic data processing system’ (Note 5(B)(a) to Chapter 84 of the CN) must be addressed, given that the machines undoubtedly have a copying function.

[88]The first objective characteristic of the machines which I regard as important is their capability of being connected to a network of computers. This is most obvious in the case of those products which incorporate an ESS within one housing. However, even in the case of those products which do not incorporate an ESS in this way, they are objectively designed to be capable of immediate connection with a stand-alone server unit containing an ESS, or they are objectively designed to be capable of being ‘upgraded’ to become a ‘fully networked device’, which would involve connection to an ESS. To this end they incorporate ports and backplanes to allow such connection.

[89]I recall that the products in the Hewlett Packard International reference comprised, within a single housing, a printer module and a scanner module, but no ESS. They were, however, connectable to computers either directly or via a network ( ibid. [18] and [19]). The ECJ regarded them as ‘characterised by the fact, firstly, that they perform printing and electronic scanning functions in connection, directly or over a network, with automatic data-processing machines and, secondly, that the copying function which they have is used autonomously’ ( ibid. [40]). The ECJ concluded that they were ‘likely to be considered of the kind used ‘principally’ in [an automatic data-processing system]’ ( ibid. [44]).

[90]I conclude that the absence of an ESS from the housing of any of the products in issue in this appeal does not affect that product’s capability to be a unit in an automatic data-processing machine system within note 5(B) to Chapter 84 of the CN.

[91]Turning to other objective characteristics of the machines in issue in this appeal, the print and reproduction speeds of the machines are the same whether they are being used in the exercise of the digital copying function or of the printing function where the input is not a scanned original physical document. Automatic page feeders are present as accessories, rather than as standard features of the machines, but, as the Appellant submits, they are equally useful for the scanning function on its own as for the digital copying (‘scan-and-print’) function. Likewise, output paper feeder trays are present (sometimes as accessories rather than as standard features) and these, again as the Appellant submits, are equally useful in the operation of the machines in the printing function on its own (as when a number of copies of computer-generated documents are printed out) as in the operation of the machines in the digital copying (‘scan-and-print’) function.

[92]I observe that the ECJ in Kip gave the features of print and reproduction speeds, the existence of an automatic page feeder for originals to be photocopied and the number of paper feed trays as examples of objective characteristics which might help the referring court to assess whether the copying function is secondary in relation to the scanning and printing functions, or not. Neither side suggested that they provided a determinative test. I do not regard the evidence of these characteristics as indicative of the relative importance of any function.

[93]It is an objective characteristic of the machines that the quality of printing is better when the machine is used in a data processing function than when it is used in digital copying function. This might suggest that the data processing function is the machine’s principal function, but I do not regard this evidence as being of great weight.

[94]I regard the fact that certain of the products in issue were marketed as a ‘digital printer/copier’ as indicative of the fact that the machines in question would meet a market need for both a printer and a copier. In the case of the Document centre 220 Digital Copier and the Document Centre 230 Digital Copier, the marketing name indicates that the machines in question would primarily meet a need for a copier. However, while noting that these are the names under which these models were marketed, I do not attach much importance to this fact in ascertaining whether the copying function is of greater importance than the other functions, because the marketing name is not an objective characteristic of the machine.

[95]I note also that Mr. Clues, though assigning equal weight to the printing and copying functions, also assigned some, but less, weight to the scanning function (used independently of the ‘scan-and-print’ process which is digital copying). I am, however, not attracted by the Appellant’s submission that by a quasi-mathematical process I should regard this as evidence that, taking account of the objective characteristics of the machines, the copying function was less important than the other two functions. This seems to me, with respect to Mr. Peterson, to be an unduly facile approach.

[96]I also note that, so far as concerns the market into which the machines at issue were introduced, it was one where office practices were expected to change, were changing, or had already changed, from the use of single-function machines to multi-function machines with network capability and, specifically, from the use of light-lens photocopiers to digital photocopiers. The publicity material for Xerox Document Centre 420 makes this clear (see: paragraph 18 above), as does the brochure for the Xerox Document Centre 220 (see: paragraph 33 above) and the promotional language “Change walk and wait to point and click” in the specifications brochure for the Xerox Document Centre 230 & 220ST (see: paragraph 34 above).

[97]This indicates to me that the objective characteristics of the machines demonstrate that they offer a route to a purchaser, by which that purchaser can develop its office practices from (probably predominant) copying usage to predominant automatic data-processing system usage. It is a very important objective characteristic of all the machines that they do provide the facility to photocopy documents in the traditional way (‘walk and wait’). But likewise it is a very important objective characteristic of all the machines that they make available (in some cases with the addition of an ESS or other ‘upgrade’) the possibility of moving office practice to more and more automatic data-processing system usage (‘point and click’).

[98]The machines at issue seem to me to represent different points on this evolutionary path, in response to the state of the market when they were respectively introduced. Although actual usage of some of the products may have been predominantly copying rather than data-processing, equally, actual usage of others of the products may have been predominantly data-processing rather than copying. I consider that the evidence that at the material time light-lens photocopiers were available at a much lower price than the machines in issue indicates that the possibility, if not the actuality, of using the machines in their data-processing function was an important consideration to purchasers.

[99]The objective characteristic of all machines that they were capable of being connected to a network of computers is therefore in my judgment of high importance for present purposes, and it is balanced in importance by the objective characteristic of all machines that they included a ‘scan-to-print’, or digital copying function.

[100]The Appellant’s argument that ‘the machines were designed primarily to place marks on paper’ and that therefore printing is the machines’ principal function seems to me to be misconceived, because, of course, printing is essential to physical output from both the data-processing and the digital copying functions.

[101]For the reasons given above, I agree with HMRC’s submission that the machines are, by reference to their objective characteristics, genuinely multifunctional and that it is not possible to conclude that the copying function is subsidiary to the data processing function or vice versa .

[102]I move on, then, in accordance with Kip at [49], to consider whether the machines should be classified by application of GRI 3(b) ‘as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable’.

[103]I accept Mr. Thomas’s submission that, in attempting to apply GRI 3(b), I must look at what material or component – not what function – gives the machines their ‘essential character’. This is clear from the wording of GRI 3(b) and is confirmed in Sony Entertainment Europe Ltd. v Commission of the European Communities at [124]. However the role of a constituent material (and maybe a constituent component) in relation to the use of the goods may in some cases determine the ‘essential character’ of composite goods (see: Sony at [125] in which the HSEN to GRI 3(b) is cited).

[104]It is clear from Kip that the printer module (IOT), the scanner module (IIT) and, if present, the ESS or computer module are to be regarded as ‘components’ of the machines at issue for the purposes of GRI 3(b). I have to consider ‘which of those two or three modules is identified as determining [the machines’] essential character, provided such identification is possible’ – see: ibid. at [49]. These modules are all functional units in a composite machine and I reject Mr. Thomas’s submission that it is not legitimate to rely on functional units to demonstrate the essential character of the machine as a whole. I also reject his submission that identification of the printer module as conferring the essential character of the product would not lead to classification within heading 8471 of the CN, rather than 9009, because products of both headings may incorporate a printer module as a component. There is no doubt that a printer, as such, which is (as the printer modules in issue in this appeal are) connectable to a CPU, is a unit of an automatic data processing machine within heading 8471 of the CN.

[105]Although in Turbon International GmbH v Oberfinanzdirektion Koblenz (

Case C-250/05

) (‘ Turbon 2’) GRI 3(b) was applied in a case (an ink cartridge containing ink) where the two components of the product (a composite good) were individually classifiable under different headings of the CN, the application of GRI 3(b) is not confined to such cases – this is clear from the wording of GRI 3(b) and nothing in Turbon 2 qualifies the proposition.

[106]The guidance in the application of GRI 3(b) which I have from the authorities is that identification of the essential character of composite goods may be done by determining whether the goods would retain their characteristic properties if one or other of their constituents were removed from them ( Turbon 2 at [21], Sony at [126]) or it ‘may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or [as stated above] by the role of a constituent material in relation to the use of the goods’ ( Turbon 2 at [22], Sony at [125]).

[107]The VAT and Duties Tribunal in Brother International Europe Limited v HMRC considered the classification of DPC and MFC machines in issue in that case (which combined printing, copying and scanning functions and, in the case of MFC machines, also a faxing function, and were designed to be connected to and controlled by a personal computer – see: ibid . at [4]). The Tribunal rejected classification of these machines by application of GRI 3(b). The relevant passage containing its reasoning is as follows: “It is perfectly true that all the products contain a printer, that if the printer were removed the machines would be capable only of scanning and, in the case of the MFC machines, sending a fax, and that at first sight the judgment in [ Turbon 2] suggests that the products are properly classified as printers. However, the Court was merely considering means of arriving at the correct classification, and its use of the word “may” in the second sentence of paragraph 21[‘This may be done by determining whether the goods would retain their characteristic properties if one or other of their constituents were removed from them’] indicates that the method described was no more than one possible means of determining the essential, objective characteristics of a product. Here, the products are designed, sold, and intended to be used for multiple purposes: printing, scanning, faxing and copying. One has only to peruse the promotional material produced by Brother to see that no feature is emphasised over the others. The products are not printers which happen to copy, for example, but machines which are expressly designed for multiple purposes. The fact that the machines are manufactured by adding components to a printer is not necessarily a guide to the essential character of the end product, and in this case we are satisfied that it is not. Section note 3 [to Section XVI of the CN – see: paragraph 46 above] therefore does not help. … no one component gives these products their ‘essential character’ ( ibid. [46] and [47)

[108]As stated above, Mr. Thomas, for HMRC, submitted that I should find this reasoning, although the decision pre-dates Kip , persuasive.

[109]The ECJ in Kip was expressly open to the possibility that the machines in issue in that case could be classified by application of GRI 3(b) by reference to which of the printing module, the scanner module or the computer module gave them their essential character (see: ibid. [49] and [50]).

[110]If I were to adopt, as the method of identification of the essential character of the machines in issue, determining whether they would retain their characteristic properties if one or other of their constituents were removed from them, I would consider whether the machines, deprived of the printing module, or alternatively the scanner module, or alternatively (where the ESS is incorporated) of the ESS or computer module, would still retain their characteristic properties.

[111]Alternatively, this may be a case where it is suitable and possible to determine the essential character of the composite machines in issue by the nature of an individual component (printer, scanner or computer module), its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods. I note that the VAT and Duties Tribunal in Brother International did not (at any rate expressly) consider this aspect.

[112]I am faced with a choice of approach. On the one hand, I could adopt the reasoning of the VAT and Duties Tribunal in Brother International and conclude that the characteristic properties of the machines in this appeal (like the machines considered in Brother International ) were printing, scanning and copying, that is, they are multifunctional or ‘expressly designed for multiple purposes’. On the other, I could adopt the reasoning of the Tribunal d’instance du VIIème arrondissement de Paris in Hewlett Packard International and conclude that the essential character of the machines is given by the printing module which has the most parts, is largest in terms of volume, requires the most maintenance and receives the most use.

[113]I conclude that the printing module does give the machines their essential character. I accept that (to quote the VAT and Duties Tribunal in Brother International ) ‘the products are not printers which happen to copy, for example, but machines which are expressly designed for multiple purposes’, but I consider that this reasoning ignores the fact that the printing process is essential to copying, which is a ‘scan-and-print’ process. I accept that not all the uses of the machines involve printing – information can be scanned in the IIT and transmitted to a remote computer – but it seems to me that objectively a sufficient proportion of the processes performed by the machines involve printing to enable me to conclude that the essential character of the machines is that they ‘place marks on paper’ to quote Mr. Peterson’s submission recorded at paragraph 62 above.

[114]Therefore, by application of GRI 3(b) I hold that the machines are properly to be classified as if they consisted of the printing module, which I find gives them their essential character. This leads to a classification of the machines under heading 8471 of the CN.

[115]Finally, I consider the proper classification of the parts imported as such. Having decided that all the machines presented complete are classifiable under heading 8471 of the CN, my task is to determine whether or not parts are properly classifiable under heading 8473 as ‘Parts and accessories (other than covers, carrying cases and the like) suitable for use solely or principally with machines of heading Nos. 8469 to 8472.’

[116]HMRC accept, in my view correctly, than an external ESS imported as such is properly classified under heading 8473.

[117]‘Machines of heading Nos. 8469 to 8472’ in heading 8473 clearly includes automatic data processing machines and units thereof (within heading 8471).

[118]The evidence is that some of the smaller parts were such that it would not be possible to say which of the Appellant’s products in issue the part was intended for – or, indeed, if it was intended for incorporation in a stand-alone copier (see: paragraph 35 above). A stand-alone copier would (if it was not capable of network connection) be classifiable under heading 9009.

[119]A ‘part’ within the meaning of heading 8473 of the CN implies a ‘whole’ for whose operation the ‘part’ is essential – see: Turbon 2 at [17], citing Peacock AG v Hauptzollamt Paderborn (

Case C-339/98

). The ‘whole’ therefore is that object for whose operation the ‘part’ is essential. In the present context, where automatic data-processing machines may be in the form of systems consisting of separate units, the ‘whole’ for whose operation a ‘part’ maybe essential would be a unit of an automatic data-processing machine system, rather than the system itself.

[120]I accept the Appellant’s submission that imported parts which are suitable for use solely or principally to produce a data processing unit (scanner, printer of ESS), all of which are units within heading 8471 of the CN, are properly classified under heading 8473.

[121]I reject HMRC’s submission that all parts which could be used to produce a digital copier (stand-alone copier) cannot be classified within Chapter 84. The fact that such parts could be used in that way does not contradict the proposition that they are ‘suitable for use solely or principally with machines of heading [8471]’. The relevant factual test is whether or not they are suitable for such use.

[122]I also reject HMRC’s submission in relation to colour multifunction machines imported without an ESS (see: paragraph 83 above). I do not accept that the objective characteristics of such machines at import are those of a digital copier and not of a unit of an automatic data processing system. This is because all the colour multifunction machines in issue in this appeal have the capability of network connection and, as I have held, are properly classified within heading 8471 of the CN.

[123]I accept that if there are any parts or accessories in issue which are only suitable for use in machine families which have digital copier models only, then they cannot be classified within heading 8473, and must be classified within heading 9009.

[124]In the result, I hold that the machines in issue are properly classified under heading 8471 of the CN. I also hold that the parts and accessories in issue are properly classified under heading 8473 of the CN. This is qualified as follows: classification under heading 8473 is not correct in any case where, generally, such a part or accessory is not suitable for use solely or principally with machines of heading 8471 (including the machines in issue) and, specifically, in any case where such a part or accessory is only suitable for use in machine families which have digital copier models only.

[125]With this minor qualification (which may have no practical effect whatever), the appeal is allowed. I grant liberty to apply to the Tribunal for the resolution of any issue arising out of the application of this Decision. Costs

[126]Neither party made an application for costs and I make no direction. Right to apply for permission to appeal

[127]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. JOHN WALTERS QC TRIBUNAL JUDGE RELEASE DATE: 22 October 2010 [1] In some instances, the ESS was not installed within the same housing as the IIT and IOT, but was contained in a stand-alone server unit connected to the multifunction printer by means of a data cable.