Vital Nut Company Ltd v Revenue & Customs (CUSTOMS DUTY : Classification - nomenclature) [2015] UKFTT 338 (TC)

FTT-Tax
Vital Nut Company Ltd v Revenue & Customs (CUSTOMS DUTY : Classification - nomenclature)
[2015] UKFTT 338 (TC) · 2015-06-10
[36]As Henderson J noted in HMRC v Flir Systems AB [2009] EWHC 82 Ch :[7]“6. A full account of the legal background to the EU customs tariffs, and the principles to be followed in their interpretation, was given by Lawrence Collins J (as he then was) in Vtech Electronics (UK) Plc v Customs & Excise Commissioners [2003] EWHC 59 (Ch) (" Vtech "). What follows is intended to be a relatively brief summary. 7. The EU is a contracting party to the International Convention on the Harmonised Commodity Description and Coding System, generally known as "the Harmonised System". The Convention requires that the tariffs and nomenclatures of contracting states conform to the Harmonised System, and all contracting states therefore use the headings and sub-headings of the Harmonised System. The system is administered by the World Customs Organisation in Brussels, which publishes explanatory notes to the Harmonised System known as "HSENs".[8]At Community level, the amount of customs duties on goods imported from outside the EU is determined on the basis of the Combined Nomenclature ("CN") established by Article 1 of Council Regulation 2658/87 and Article 20.3 of Regulation 2913/92. The CN is re-issued annually. It comprises three elements:(a) the nomenclature of the Harmonised System;(b) Community sub-divisions to that nomenclature; and(c) the preliminary provisions, additional section or chapter notes and footnotes relating to CN sub-headings.[9]The CN uses an eight-digit numerical system to identify a product, the first six digits of which are those of the Harmonised System, while the two following digits identify the CN sub-headings, of which there are about ten thousand. Where there is no Community sub-heading, these two digits are "00". There may also be ninth and tenth digits which identify further Community (TARIC) sub-headings, of which there about eighteen thousand.[10]Apart from the HSENs to which I have already referred, the European Commission also issues Explanatory Notes of its own to the CN which are known as "CNENs".[11]The Court of Justice of the European Communities ("the ECJ") has repeatedly stated that the decisive criterion for the tariff classification of goods must be sought in their objective characteristics and properties as defined in the wording of the relevant heading of the CN and of the notes to the sections or chapters of the CN. The two categories of Explanatory Notes, that is to say the HSENs and the CNENs, are an important aid to the interpretation of the scope of the various tariff headings, but do not themselves have legally binding force. The content of the Explanatory Notes must therefore be compatible with the provisions of the CN, and cannot alter the meaning of those provisions. See, for example, Case C-495/03 Intermodal Transports BV v Staatssecretaris van Financien , [2005] ECR I-8151 , at paragraphs 47 and 48.[12]Part 1 of the CN contains at Section 1A the General Rules for the Interpretation of the CN. These General Rules are known as "GIRs". Unlike the Explanatory Notes, they have the force of law (see Vtech at paragraph 16). “[37]So far as material to the present appeal the GIRs provide as follows: 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. – 3. … 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. – 6. … 38. The approach to interpretation of a CN has recently been considered by the Court of Appeal in Amoena (UK) Limited v HMRC [2015] EWCA Civ 25 where Arden LJ said:[54]“54. It is clear from the Opinion of Advocate General Kokott in Uroplasty that the court must apply a structured approach. At the first stage it must determine the intended use and material composition of the article. Next the court must make a provisional classification by reference to section and chapter headings. Then the court must make a combined examination of the headings and Notes, applying GIRs 2 to 5 in case of conflict. The interpretation of the headings and EN should be consistent with the HS. Finally the article must be placed under the appropriate subheading . The relevant paragraphs in the Opinion are as follows: 42. First, the intended use and material composition of the article must be precisely determined. Next, in the light of the wording of the headings of the relevant sections and chapters a provisional classification must be undertaken according to the article's intended use and material composition. There must then be considered whether on a combined examination of the wording of the headings and the explanatory notes to the relevant sections and chapters a definitive classification may be reached. If not, then in order to resolve the conflict between the competing provisions recourse must be had to Rules 2 to 5 of the general rules. Lastly, classification must be made under the subheadings. 43 … 44. In this exercise the wording of the headings and the explanatory notes of the CN are to be interpreted so as to be consistent with the Harmonised System. The Court has consistently held that the explanatory notes drawn up, as regards the Harmonised System, by the World Customs Organisation, may be an important aid to the interpretation of the individual tariff headings, although they do not have legally binding force. (5)[55]The CJEU emphasised that the determination of the characteristics and properties of the article must be an objective one, and that the wording of the CN must prevail over the EN, which cannot alter the scope of the headings:40. According to settled case-law, in the interests of legal certainty and ease of verification, the decisive criterion for the classification of goods for customs tariff purposes is in general to be found in their objective characteristics and properties as defined in the wording of the relevant heading of the CN and of the notes to the sections or chapters (see, in particular, Case C-42/99 Eru Portuguesa [2000] ECR I-7691 , paragraph 13; Case C-495/03 Intermodal Transports [2005] ECR I-8151 , paragraph 47; Case C-445/04 Possehl Erzkontor [2005] ECR I-0000, paragraph 19; and Case C-500/04 Proxxon [2006] ECR I-0000, paragraph 21).41. The Explanatory Notes to the CN and those to the HS are an important aid for interpreting the scope of the various tariff headings but do not have legally binding force. The wording of those Notes must therefore be consistent with the provisions of the CN and cannot alter their scope (see, in particular, Case C-130/02 Krings [2004] ECR I-2121 , paragraph 28, Case C-467/03 Ikegami [2005] ECR I-2389 , paragraph 17, and Proxxon paragraph 22).42. For the purposes of classification under the appropriate heading, it is important, finally, to recall that the intended use of a product may constitute an objective criterion in relation to tariff classification if it is inherent in the product, and such inherent character must be capable of being assessed on the basis of the product's objective characteristics and properties (see Krings paragraph 30, Ikegami , paragraph 23, and Proxxon , paragraph 31).”[39]She observed at [ 64]:[64]“ While the HSENs are not binding on the CJEU, they are important as an aid to interpretation as a means of ensuring the uniform application of the EU Customs Code: see, for example, Lohmann where the CJEU held: 31. In addition, the Court has consistently held that the purposes of interpreting the Common Customs Tariff both the notes which head the chapters of the Common Customs Tariff and the HS Explanatory Notes are important means of ensuring the uniform application of the Tariff and as such may be regarded as useful aids to its interpretation.” 40. In Weber v Milchwerke Paderborn-Rimbeck [1989] ECR 1395 Case40/88 The European of Justice (“ECJ”) was asked for a preliminary ruling in relation to the interpretation of the Common Customs Tariff and whether the way in which a product was manufactured could have an effect on the tariff classification of the product. In its decision the Court stated:
“13. In order to reply to those questions it should be pointed out, first, that according to settled case-law ( see, for example, the judgments of 23 March 1972 in Case 36/71 Henck v Hauptzollamt Emden (( 1972 )) ECR 187, paragraph 4, and of 26 September 1985 in Case 166/84 Thomasduenger v Oberfinanzdirection Frankfurt am Main (( 1985 )) ECR 3001, paragraph 13 ), in the interests of legal certainty and ease of verification, the decisive criterion for the classification of goods for customs purposes is in general to be sought in their characteristics and objective properties as defined in the wording of the relevant heading of the Common Customs Tariff and of the notes to the sections or chapters. 14. With regard to the question whether the method of manufacture of the product has an effect on classification for customs purposes, the Court has already decided ( see the judgment of 16 December 1976 in Case 38/76 Industriemetall LUMA v Hauptzollamt Duisburg (( 1976 )) ECR 2027, paragraph 7 ) that whilst the Customs Tariff does indeed in certain cases contain references to manufacturing processes it is generally preferred to employ criteria for classification based on the objective characteristics and properties of products which can be ascertained when customs clearance is obtained .” 41. However, it is clear from the decision of the Court of Justice of the European Union (“CJEU”) in Delphi Deutschland GmbH v Hauptzollamt Düsseldorf [2011] EUECJ C-423/10 at [23-26] that while, as in Weber , the decisive criterion for the classification of goods for customs purposes is in general to be sought in their objective characteristics and properties as defined in the wording of the relevant heading of the CN and in the section or chapter notes it is “necessary to take into account also the explanatory notes.” 42. It is common ground in this case that the papaya is within chapter 20 of the CN, Preparation of Vegetables, Fruit, Nuts or Other Parts of Plants , and that and no other heading or chapter of the CN is applicable. It is also common ground that is the papaya does not fall within heading 2006 it should be classified under heading 2008. 43. The relevant additional notes to chapter 20 provide: 1. … 2. (a) The content of various sugars expressed as sucrose (sugar content) of the products classified in this chapter corresponds to the figure indication by a refractometer (used in accordance with the method prescribed in the Annex to Regulation (EEC) No 558/93) at a temperature of 20°C and multiplied by the factor: – 0.93 in respect of products of subheadings … 2008 99 or, – 0.95 in respect of the other headings. (b) … 3. The products of subheadings … 2008 99 shall be considered as containing added sugar when the sugar content thereof exceeds by weight the percentage given hereunder, according to the kind of fruit or edible part of the plant concerned: – pineapple and grapes: 13%. – other fruits, including mixture of fruits, and other edible parts of plants: 9%. 4. – 7. … 8. For the purposes of subheadings … 2006 00 35 … 2008 99 48, 2008 99 63 … “tropical fruit” means … pawpaws (papaya) 44. Although we have set out these headings at paragraph 2 above, as it is clear from Delphi that these should be read in conjunction with the HSENs, for ease of reference we do so again with each followed by the relevant HSEN. 45. Heading 2006 states: Vegetables, fruit, nuts, fruit-peel and other parts of plants preserved by sugar (drained, glacé or crystallised). 46. The HSEN to heading 2006 is as follows: The products of this heading are prepared first by treating the vegetables, fruit, nuts, fruit-peel or other parts of plants with boiling water (which softens the material and facilitates penetration of the sugar), and then by repeated heating to boiling point and storage in syrups of progressively increasing sugar concentration until they are sufficiently impregnated with sugar to ensure their preservation. The principal products preserved by sugar are whole fruit or nuts (cherries, apricots, pears, plums, chestnuts (marrons glacés), walnuts, etc.), sections or pieces of fruit (oranges, lemons, pineapples, etc.) fruit peel (citron, lemon, orange, melon etc.), other parts of plants (angelica, ginger, yams, sweet potatoes, etc.) and flowers (violets, mimosa, etc.). Drained products are prepared by using a syrup (eg a mixture of invert sugar or glucose with a proportion of sucrose) which does not crystallise on exposure to the air. After impregnation the excess syrup is drained off leaving the product sticky to the touch. Glacé products are obtained by dipping the drained product in a sucrose syrup which dries as a thin, shiny coating. Crystallised products are prepared by allowing the sucrose syrup to penetrate into the product so that, on drying it forms crystals on the surface or throughout the product. Those goods preserved by sugar and put up in syrup, whatever the packing, are excluded from this heading (heading 2002, 2003 or 2005, in the case of vegetables, or heading 2008, in the case of fruit, nuts, fruit-peel and other edible parts of plants, eg marrons glacés or ginger). Dried fruits (eg dates and prunes) remain classified in Chapter 8 even if small quantities of sugar have been added, or if the exterior is covered with a deposit of dried natural sugar which may give the fruit an appearance somewhat similar to that of crystallised fruit of this heading. 47. Heading 2008 states Fruit, nuts and other edible parts of plants, otherwise prepared or preserved, whether or not containing any added sugar or other sweetening matter or spirit, not otherwise specified or included. 48. Insofar as it applies to the present case the HSEN to heading 2008 provides: This heading covers fruit, nuts, and other edible parts of plants, whether whole, in pieces or crushed, including mixtures thereof, prepared or preserved otherwise than by any of the processes specified in other Chapters or in the preceding headings of this Chapter. It includes, inter alia (1) – (9) … (10) Fruit preserved by osmotic dehydration. The expression “osmotic dehydration” refers to a process whereby pieces of fruit are subjected to prolonged soaking in a concentrated sugar syrup so that much of the water and the natural sugar of the fruit is replaced by sugar from the syrup. The fruit may subsequently be air-dried to further reduce the moisture content. Discussion and Conclusion 49. Taking the “structured approach” set out in Amoena and the authorities cited by Arden LJ (see paragraph 38, above) it is first necessary to determine the intended use of the product and then its objective characteristics and properties as defined in the wording of the relevant heading of the CN and of the notes to the sections or chapters. 50. We have no difficulty in finding that the intended use of the papaya is its inclusion in cereals or as a snack, either on its own or with other fruit. Turning to its objective characteristics and properties the papaya is clearly a “tropical fruit” as defined by the notes to chapter 20 and therefore a fruit within heading 2006 if “preserved by sugar (drained, glacé or crystallised)” or under heading 2008 if not. It is therefore necessary to consider whether the papaya is “preserved by sugar” and within heading 2006 and, in the absence of a definition of “preserved by sugar” in that heading and notes it is necessary to turn to the HSEN for that heading (which we have set out at paragraph 46, above) as an aid to its interpretation. 51. Ms Geary’s analysis of the samples selected by HMRC, which was not challenged by Professor Niranjan, revealed the sugar content of the papaya to be between 74.3%-77.4%. Indeed Professor Niranjan in his first report, based on information provide by Vanda refers to a “total sugar percentage of 81.19% (see paragraph 32, above). It was also not disputed that the papaya samples contained sugar crystals. Given the infusion of the sucrose syrup solution which occurs simultaneously with the dehydration of the papaya it would appear to fall within the definition of “crystallised” as set out in the HSEN. 52. However, as Mr Mitchell emphasised, the first paragraph of the HSEN refers to the preparation of the “products of this heading” first by treating with boiling water “and then by repeated heating to boiling point and storage in syrups of progressively increasing sugar concentration”
. As both experts agreed when the question was put to them by Mr Mitchell, it would be pointless to boil a product in water and immerse it in a syrup solution until sufficiently impregnated with syrup and then re-boil it in water as this would reverse the infusion process. Therefore the reference to “repeated heating” in the HSEN must refer to repeated heating in the syrup and not repeated boiling in water. 53. In the absence of evidence of repeated heating, Mr Mitchell submits that the papaya is not a product to which the HSEN refers and cannot therefore be within heading 2006. Mr McGurk counters this contending that the HSEN is an aid to interpretation and should not itself be read as though it were a statute. Not surprisingly he emphasises the definition of “crystallised” in the HSEN to which we have already referred. 54. It is clear to us that in order to determine whether heading 2006 or heading 2008 is applicable in the present case it is necessary to consider the process by which the papaya is preserved. As Mr McGurk reminds us, it is for the Company to establish that, because of the process by which it was preserved, the papaya should not be classified under heading 2006. 55. However, there was no evidence before us in relation to the way the papaya was preserved during 2008, the year in which the papaya samples were taken by HMRC. The only evidence of the preservation process is contained in Ms Uppatham’s witness statement made in August 2014 which did not address the issue of whether the processes described were in operation in 2008. It is also clear that neither Professor Niranjan nor Mr Brunton could assist with this issue. Had Ms Uppatham or Vanda’s factory manager, who Professor Niranjan said spoke good English and was aware of the preservation process, been called to give evidence it is quite possible that the Company would have been in a position to establish, on the evidence, that the process does not satisfy the scientific requirement of the HSEN to 2006 and therefore should not be classified under heading 2006 but under heading 2008. 56. Although we may have reached a different conclusion if evidence of the preservation process during 2008 had been adduced, in the absence of any such evidence we have no alternative but to dismiss the Company’s appeal. Right to Apply for Permission to Appeal 57. 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 BROOKS TRIBUNAL JUDGE RELEASE DATE: 7 July 2015