“ 65. … Article 78 of the Customs Code permits the revision of the export declaration of the goods in order to correct the customs code given to them by the declarant, and that the customs authorities are obliged, first, to assess whether the rules governing the customs procedure concerned have been applied on the basis of incorrect or incomplete information and whether the objectives of the inward processing regime have not been threatened, in particular in that the goods subject to that customs procedure have actually been re-exported, and, second, where appropriate, to take the measures necessary to regularise the situation, taking account of the new information available to them. ” 30. We now turn to our findings of fact. Findings of Fact 31. We have briefly referred above to the nature of the Appellant’s business. It has manufacturing premises in Sheffield. In mid-2010 the Appellant won a contract to supply a range of 8 components for Rolls-Royce’s programme to build a civil aircraft engine known as the V2500. The Appellant imports the materials used to manufacture these components. The materials have a very restricted supply base. All materials used and parts manufactured must be fully traceable because the end use is in civil aviation. 32. Mr Wilkinson worked for Rolls-Royce for many years prior to joining the Appellant He was the Appellant’s Commercial and Supply Chain Manager from 2001 until 2012 when he became Head of Operations within the business. In May 2014 he became Contracts and Export Compliance Manager. 33. Mr Wilkinson took us through the record keeping processes from an import entry through to transfer of finished components to Rolls-Royce. The records are maintained electronically but also include manual documentation. 34. Each item of material used in the manufacturing process has a unique serial number and generates a unique goods received number when it arrives in the Appellant’s stores. When the material is released for production a unique works order number is automatically allocated. Once a component is manufactured a delivery advice note, certificate of conformity and an internal invoice are produced by the Appellant 35. The Appellant sends a purchase order to a supplier, identifying the Rolls-Royce part number. We followed an example for the purchase of 243 complicated castings from a supplier in Oregon, United States. The order was supplied and an import entry under IPR was accepted on3 November 2011 . The goods were received at the Appellant’s premises on7 November 2011 and the Appellant generated a goods received note including a unique number and barcode. The supplier also provided a certificate that the castings supplied had been tested and conformed to the required specifications. 36. The materials were released to the Appellant’s shop floor on8 November 2011 and a works order was generated, again with a unique reference and barcode. The works order was an 8 page document. Each operation in the manufacturing process was separately identified and signed for in the works order. On15 November 2011 the component was completed and a Finished Parts Control Card (“the Control Card”) was produced. Various inspections and despatch processes are evidenced on the Control Card and confirmed by signatures dated15 November 2011 . By this stage the finished components are in store ready for collection by Rolls-Royce. A “Release Note” number has been allocated to the boxed component, in this case 105961. However there was no evidence that a separate Release Note document was produced. The only document produced with that reference is the Appellant’s invoice. 37. On17 November 2011 the Appellant produced a certificate confirming that the parts had been manufactured, inspected and tested in accordance with all drawings and specifications and the contract requirements. At this stage the goods are ready for collection by Rolls-Royce and the Appellant produces an invoice to Rolls-Royce, in this case for three specific parts. The invoice is given the same number as the “Release Note” referred to above and is in the form of a VAT invoice. It was dated18 November 2011 . On the same date Rolls-Royce produced a self-billed invoice. Neither invoice identified a date of collection or delivery, however the Control Card was signed to confirm that the goods with Release Note number 105961 were “issued from stores”, in other words released, on18 November 2011 . 38. The records show what part numbers and quantities are ready for collection by Rolls-Royce on a daily basis. The finished components are collected by a third party courier employed by Rolls-Royce. When the components are collected the courier uses a scanner to download a unique bar code which appears on each individually boxed component. 39. The Appellant also produces an advice note identifying by reference to release note numbers what parts are ready for collection. We were told by Mr Wilkinson that when the courier collects the goods a copy of the advice note goes with the goods. We accept that evidence. In the example we looked at we see that the advice note was dated25 November 2011 . The discrepancy between the date of collection and the date of the advice note was not dealt with in evidence and we therefore read nothing into it. 40. The Appellant had two relevant IP Authorisations contained in letters from HMRC dated4 May 2010 and18 April 2013 which covered periods1 May 2010 to30 April 2013 and1 May 2013 to30 April 2016 respectively. Paragraph 13 of each authorisation set out various conditions in relation to the transfer of goods, in particular: “ You are approved to use commercial documentation to send/receive IPR suspension goods to/from another IPR suspension C&E 810 Authorisation holder. See notice 221 for details to be included on the commercial documentation. · If you supply IPR goods you must notify the supervising office at (1) on a schedule with your suspension return. Retain details in your commercial records and send copy with the goods to the receiving authorisation holder. You must ensure the receiving IPR authorisation holder issues you a receipt for the consignment and keep this with your records. ” 41. The IP Authorisation required the Appellant to make quarterly suspension returns on form C&E 812. These are the Bills of Discharge. The Appellant made quarterly returns to its supervising office at HMRC in accordance with its IP Authorisation. The Appellant attached its own schedule of goods entered into IPR and goods disposed of. We were shown the form and schedule for the period October 2011 to December 2011. The throughput period was 6 months and the form was due for submission by31 July 2012 . It was submitted on10 July 2012 and included suspended duty of£8,687 entered into IPR which was the duty on importation of material used in the example described above. 42. The two C18 demands under appeal were issued by Ms Crook in February 2014 and June 2014. They covered importations in the periods April 2012 to March 2013 and September 2011 to June 2013 respectively. These followed a desk audit commenced by Ms Crook in January 2014 in which she identified differences or anomalies when comparing goods declared to IPR on importation and/or export to the Bills of Discharge submitted by the Appellant. She asked for further information from the Appellant including transfer paperwork for goods transferred to another IP Authorised trader, namely Rolls-Royce. 43. It appears from Ms Crook’s correspondence that at the time the C18 demands were issued she was not satisfied that the commercial documents retained by the Appellant on transfers to Rolls-Royce complied with Notice 221, or that the Appellant had obtained and retained commercial receipts in relation to those transfers. 44. On26 March 2014 the Appellant’s representative requested a formal review of the decision to issue the first demand. Then, in April 2014 the Appellant produced 4 documents from Rolls-Royce dated7 March 2014 ,28 March 2014 (two) and17 April 2014 which on the Appellant’s case are commercial receipts for the purposes of Notice 221. They were purportedly produced to regularise the absence of commercial receipts at the time the Bills of Discharge were submitted by the Appellant. 45. These documents are on Rolls-Royce notepaper and signed on behalf of Rolls-Royce. They are headed “Inward Processing Relief (Suspension)”, and purport to confirm transfers by the Appellant to Rolls-Royce for various periods covering4 July 2010 to28 December 2013 . Two refer to periods of a quarter and two refer to periods of a year, 2012 and 2013 respectively. They identify the IP Authorisation references of both Rolls-Royce and the Appellant. Each document includes confirmation that Rolls-Royce has received parts from the Appellant through IP transfer arrangements for the periods identified “as per [the Appellant’s] supplied spreadsheet”
“ We have verified the receipt of these parts into our system and confirm acceptance of such Duty and VAT liability. This constitutes discharge of C.W.Fletcher & Sons Limited Duty and VAT liability. ” 46. Ms Crook identified certain discrepancies in these documents, as follows: (1) All four quote the Appellant’s original IP Authorisation reference which was superseded for supplies after30 April 2013 . (2) There was an overlap in dates in two of the documents. One covers a quarter ended28 December 2013 and another covers the year ended28 December 2013 . (3) They were not in existence at the time the Bills of Discharge were submitted. 47. In June 2014 Ms Crook took issue with another Bill of Discharge, identifying a lack of commercial receipts. She did not consider the receipts issued by Rolls-Royce in 2014 as effective as such because of the discrepancies referred to above. Ms Crook therefore issued the second C18 demand. 48. On27 June 2014 Rolls-Royce produced another document in similar form to those just described covering the period4 July 2010 to28 September 2013 .attaching a quarterly breakdown of the duty on parts transferred by the Appellant to Rolls-Royce. It was not clear why this document had been produced. 49. In fact no formal review of the decision to issue the first demand was carried out by HMRC with the result that the demand was deemed to be upheld. There was no request for a review of the second demand. Both demands were then appealed to the tribunal. 50. We heard evidence from Mr Sowerby of Rolls-Royce. He was responsible for compliance by Rolls-Royce with all customs related matters with effect from23 July 2012 . He had previously been employed by HMRC. The nature and scale of Rolls-Royce’s business involves it receiving a large volume of IP goods from many UK based suppliers. Rolls-Royce is authorised to use commercial documentation for the purposes of IPR when receiving IP Goods from other IP Authorised traders. 51. The Appellant’s dealings with Rolls-Royce in relation to IPR transfers were governed by standard procedures and documentation insisted upon by Rolls-Royce’s Corporate Taxation Department. Those procedures were set out in a letter to the Appellant dated25 May 2010 and made provision for commercial transfer documentation which Rolls-Royce would produce on a quarterly basis and which they stated complied with Notice 221. Rolls-Royce would not accept any other transfer document for the purposes of IPR. 52. The system operated by Rolls-Royce involved them sending to the Appellant a commercial transfer document before the end of each quarter. The quarterly periods were those agreed between Rolls-Royce and HMRC. The document was to be returned to Rolls-Royce within one month of the quarter end. It was headed “Inward Processing Relief – Suspension, Transfer Document (in lieu of form C&E 811)”
“ As agreed, we have settled the following goods and services and credited the amounts to your account in our company: ” 57. This was followed by a description of the goods including the Appellant’s reference number, the price payable and VAT. Terms of payment were described as “within 75 days” of the invoice date. At the bottom it stated “The VAT shown is your output tax due to Customs & Excise” (sic). For the transaction described above the Appellant’s Release Note/Invoice number was 105961. On the self-billed invoice this was described as “Deliv note/Ref./of”. 58. When the Appellant received the self-billed invoice it was checked to the invoice their own system had generated. Any inconsistencies would be investigated. In fact the evidence was that the Appellant would be paid within 7-10 days of delivery. As a result it was important to investigate discrepancies quite quickly. 59. Rolls-Royce has never been challenged by HMRC on the operation of their system for transfers of IP Goods between IP Authorised traders. Having said that there was no evidence to suggest that HMRC had ever considered their system. 60. The evidence before us included a critical examination of the commercial documents signed by the Appellant and Rolls-Royce. Not all were seen by Ms Crook prior to issuing the C18 demands. They covered the period of the C18 demands from October 2011 to June 2013 although the transfer document for January 2013 to March 2013 did not appear to be present. No point was taken on the absence of that transfer document. 61. It was apparent from the evidence given that these documents included some internal inconsistencies, for example in relation to the total duty suspended. Mr Sowerby explained that from an accounting view Rolls-Royce simply wanted to ensure that all parts sold to it under IPR were taken into stock by them. In 99.9% of cases that stock would be exported or would have the benefit of end-user relief meaning that the duty would be discharged. 62. Ms Crook was also concerned during the course of her audit that there was no clear audit trail from the transfer documents to the Appellant’s Bills of Discharge. 63. In the light of closing submissions the relevance of this evidence as to commercial documents is not apparent to us. The Respondents take no issue as to any deficiencies in the commercial documentation other than the absence of commercial receipts from Rolls-Royce. We shall not therefore make any findings in relation to the commercial documentation generally. The Issues 64. The C18 demands issued by Ms Crook were, according to her own evidence, based on a liability to customs duty which she considered arose under Article 204 Customs Code. That would imply she considered that there had been no removal from customs supervision, but that the Appellant had failed to fulfil its obligations under IPR or to comply with the conditions governing IPR. In parts of her evidence however Ms Crook stated that she considered there had been an unlawful removal from customs supervision. This confusion flowed through into the Respondents’ Statement of Case mentioned below. 65. The Appellant’s grounds of appeal were contained in amended grounds of appeal dated21 May 2015 . Broadly the grounds were as follows: (1) Liability did not arise under Article 204 because the failures relied on by HMRC had no significant effect on the correct operation of IPR. (2) Alternatively, even if the failures did have a significant effect the goods were never released to free circulation in the EU or removed from customs’ control. As such the charge to customs duty was contrary to the EU law principle of fiscal neutrality. 66. The Appellant withdrew the second ground based on fiscal neutrality shortly prior to the hearing. 67. The Respondents’ Statement of Case was, in our view, equivocal as to the basis on which HMRC sought to justify the liability to customs duty. In particular, it was confused as to whether HMRC were relying solely on Article 204 or whether, in the alternative they were also relying on Article 203. Further the witness statements in support of the Respondents’ case referred only to Article 204. In those circumstances Mr Brown on behalf of the Appellant objected to the Respondents raising arguments based on Article 203. 68. In the event we gave permission during the course of the hearing for HMRC to raise an argument that the demands for customs duty were supported by Article 203 or, in the alternative by Article 204. We were satisfied that both parties would be in a position to adduce all evidence relevant to the Article 203 argument. Indeed it did not seem that any additional evidence would be required over and above that which had been adduced in relation to the Article 204 argument. We were also satisfied that provision could be made for the Appellant to raise certain additional legal arguments arising out of HMRC’s reliance on Article 203. In the circumstances there was no prejudice to the Appellant and we considered it just and fair that HMRC should be entitled to raise all reasonable arguments in support of the demands. 69. Accordingly, we also permitted the Appellant to amend its grounds of appeal in order to contend that even if there was an unlawful removal from customs supervision within Article 203, Article 203 could not support a demand for customs duty which was actually made pursuant to Article 204. Further, that the Appellant did not fall within the category of debtors identified by Article 203. 70. During the course of the hearing the Appellant also applied to amend its grounds of appeal in order to assert that in fact there was no breach of the conditions associated with its IP Authorisation. The Appellant alleged that the self-billed invoices issued by Rolls-Royce constituted a commercial receipt for the purposes of section 5.15 Notice 221. As such there was no unlawful removal from customs’ supervision within Article 203 and no failure within Article 204. We permitted the Appellant to raise this ground of appeal. We were satisfied that very little new evidence would be necessary, there was no prejudice to HMRC and it was just and reasonable that the Appellant should be entitled to raise all reasonable arguments in support of its appeal. 71. By the time of closing submissions the issues arising for determination may be broadly stated as follows: In relation to liability under Article 203 (1) Did the Appellant fail to comply with the requirements of IPR such that the goods were unlawfully removed from customs supervision within Article 203? (2) If there was an unlawful removal within Article 203, can HMRC rely on demands for duty issued by an officer on the basis of liability under Article 204? (3) If there was an unlawful removal within Article 203, does the Appellant fall within the category of debtors identified in Article 203? In the alternative to liability under Article 203 (4) Did the Appellant fail to comply with the requirements of IPR such that, even if there was no unlawful removal of goods from customs supervision, a customs debt arose under Article 204? (5) If so, has the Appellant established that any such failure had no significant effect on the correct operation of IPR within Article 859 of the Implementing Regulation? 72. We deal with these issues below, albeit in a slightly different order and by reference to the way in which the parties’ approached their closing submissions. Reasons 73. Having stated the issues arising for determination, it is first necessary to consider what amounts to a removal from customs supervision. The Respondents’ case was that the failure to obtain commercial receipts meant that the Appellant’s IP Goods were unlawfully removed from customs supervision. Mr Brown submitted that this was essentially a question of whether the customs authority was physically prevented from gaining access to the goods, even if only for a short time. 74. The position is summarised in the decision of the CJEU in Wandel GmbH v Hauptzollamt BremenCase C-66/99 at [47]: “ 47. … it is apparent that the scope of Article 203(1) extends well beyond the acts referred to in Article 865 of the implementing regulation and that removal must be understood as encompassing any act or omission the result of which is to prevent, if only for a short time, the competent customs authority from gaining access to goods under customs supervision and from monitoring them as provided for in Article 37(1) of the Customs Code. 48. It should also be noted that, for the purposes of Article 203(1) of the Customs Code, removal of goods from customs supervision does not require intent: it is sufficient if certain objective conditions are met, including, in particular, the absence of the goods from the approved place of storage at the time when the customs authorities intend to carry out an examination of them. ” 75. Mr Charles submitted that Mr Brown had mis-articulated the test in Wandel. He emphasised that Wandel referred to any act or omission, which could include doing nothing. He also emphasised that the test was concerned with both access to the goods and the ability to monitor the goods. In the present context he submitted that a “break in the chain of supervision” could amount to a removal from customs supervision even if the goods were subsequently returned to customs supervision. 76. We do not consider that there is much if anything between the parties in relation to the relevant test. The question is whether HMRC were able to access the goods and monitor the goods. The Customs Code includes various definitions which are relevant to customs supervision of goods: Article 4(13) defines “supervision by the customs authorities” as “action taken in general by those authorities with a view to ensuring that customs rules and, where appropriate, other provisions applicable to goods subject to customs supervision are observed”
“ 35. …even though the location of the goods at issue in the main proceedings remained unknown for more than two weeks, which may mean that the inability to give access to those goods is more than merely temporary, nonetheless, according to case-law, the application of Article 203 of the Customs Code is justified where the disappearance of the goods entailed a risk of entry into the economic networks of the European Union (see, to that effect, Liberexim EU:C:2002:433, paragraph 56, and Case C‑300/03 Honeywell Aerospace EU:C:2005:43, paragraph 20). 36 The presence, on the customs territory of the European Union, of non-Community goods carries the risk that those goods will end up forming part of the economic networks of the Member States without having been cleared through customs, a risk which Article 203 of the Customs Code contributes to preventing (see, by analogy, Case C‑234/09 DSV Road EU:C:2010:435, paragraph 31). 37 As is clear from the order for reference, the goods in question were indeed presented to the office of destination 17 days late. Therefore, it is undisputed that those goods have not entered the economic networks without having been cleared through customs. It follows that, subject to verification by the referring court, it seems inconceivable that Article 203 of the Customs Code could apply to the facts at issue in the main proceedings. ” 82. These were both case involving what Mr Charles described as a break in the chain of supervision, which is an apt description. Mr Brown relied on the decision in X BV whereas Mr Charles relied on the decision in Hamann. It is difficult to see how the two decisions can be reconciled in the sense that X BV appears to place considerable emphasis on the fact that the goods did not enter the economic networks without having been cleared through customs, notwithstanding that the location of the goods was unknown for more than two weeks. 83. Mr Charles submitted that the decision in X BV could only properly be understood by reference to the fact that it concerned the breach of a time limit rather than any more general failure to fulfil obligations. He noted that it was concerned with a failure falling within Article 859 Item [1] which we have quoted above and which expressly provides that exceeding a time limit in certain circumstances is not treated as having a significant effect on the correct operation of a customs procedure. The CJEU referred to the significance of that provision as follows: “ 42. In addition, as the Advocate General observed at point 46 of his Opinion, since exceeding the time-limit is expressly provided for in Article 859 of the Implementing Regulation, which does not apply to the cases referred to in Article 204 of the Customs Code, that provision would be ineffective if exceeding that time-limit had to be caught by the concept of ‘removal’, referred to in Article 203 of Customs Code. ” 84. However, what was said at [42] based on construing Article 203 and 204 in the context of the Implementing Regulation appears to us to be more by way of confirmation of a conclusion reached by reference to the more general statements of principle at [35] to [37]. Given the decision we reach below in relation to the status of the self-billed invoices it is not necessary for us to reconcile these two cases, at least at this stage. 85. We turn now to consider the obligations and conditions attaching to IPR, and whether and to what extent the Appellant failed to comply with those obligations and conditions. In particular we must consider whether on the facts of the present appeal there was a removal from customs supervision. 86. There was no documentation in the present case which wrongly described the goods so as to prejudice the ability of HMRC to access or monitor the goods. We are concerned with whether the self-billed invoices issued by Rolls-Royce were “commercial receipts” for the purposes of Notice 221. 87. Mr Charles submitted that there must be an audit trail establishing where the goods were at any particular time and the commercial receipt would be part of that audit trail. It was not sufficient that if an officer turned up at the Appellant’s premises he could be told where the goods were. We agree that is the case. There must be a document trail and that is the reason the Appellant’s IP Authorisation incorporates the requirement of Notice 221 for a commercial receipt. We must construe the reference to a “commercial receipt” accordingly. 88. Mr Charles did not rely on any other failure to fulfil obligations in support of his argument that there was an unlawful removal from customs supervision. In particular he accepted that if a self-billed invoice was a commercial receipt then there was no failure to fulfil any obligation in connection with the period of time the goods were with the third party courier. It is not relevant therefore whether the self-billed invoices were issued just before or just after the courier arrived at the Rolls-Royce logistics hub. 89. At this stage we note that Mr Charles did not initially accept on the basis of the evidence that the IP Goods in question had been received by Rolls-Royce. In the course of closing submissions Mr Charles did accept that it was highly likely that they had. For the avoidance of doubt we find that the goods in the specific transaction described above were received by Rolls-Royce. In making that finding we take into account our findings as to the system for issuing self-billed invoices and the existence of a self-billed invoice for the specific transaction. To the extent that self-billed invoices exist in relation to the other IP Goods then we would accept that those goods were also received by Rolls-Royce. 90. Mr Charles criticised the Appellant for not having put the self-billed invoices before the tribunal. We were only referred to one self-billed invoice during the course of the hearing, although we note that there were several others included in the bundles. Given the way in which the issue in relation to self-billed invoices was raised it does not appear that HMRC have had an opportunity to verify the existence of self-billed invoices in relation to all the transfers of IP Goods. We take that into account below in the way in which the appeal should be dealt with following this decision. 91. Mr Charles relied on various arguments that the self-billed invoices were not commercial receipts. A goods receipt and an invoice have different purposes. An invoice is a demand for money. A self-billed invoice is an acknowledgment that money is due. Neither provides any information as to the whereabouts of the goods. Mr Charles submitted that this was not simply a matter of semantics, or form over substance. The existence of a commercial receipt enabled the location of the goods to be identified which in turn enabled supervision by HMRC to take place. He gave an example of goods being sold several times over whilst remaining in the same warehouse. Similarly, where a buyer requires goods to be delivered to a third party. In those circumstances the issuing of a self-billed invoice would not inform HMRC about the location of the goods. 92. Mr Brown submitted that Notice 221 gave no definition of the term “commercial receipt”