Turkish Food Supplies Limited v The Commissioners for HMRC [2025] UKFTT 496 (TC)

[2025] UKFTT 00496 (TC)Case No TC09505
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 11 March 2025Date Judgment date: 1 May 2025
Taylor House, London
Appeal reference: TC/2022/00202
IMPORT VAT – imports of bottled water – appellant made advance payments to supplier to secure a better price – whether the payments were for imports of specific goods – no – not sufficient for payments to be made in anticipation of future imports of unspecified goods on unspecified dates – whether imported goods under-declared – no – appeal dismissed for one import as burden of proof not discharged – appeal otherwise allowed
Before
TRIBUNAL JUDGE RACHEL GAUKEJOHN WOODMAN
Between
TURKISH FOOD SUPPLIES LIMITEDAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentJoshua Carey of Counsel, instructed by Rogers & Norton, Solicitors for AppellantThomas Holt, litigator of HM Revenue and Customs’ Solicitor’s Office for RespondentsDECISION

Introduction

[1]The Appellant, Turkish Food Supplies Ltd (“TFS”), appeals against a demand made by HMRC on 26 May 2021 for import VAT, in an amount that was reduced on review on 1 November 2021 to £121,321.93.[2]TFS’s principal ground of appeal was that although it made payments to its supplier in excess of the declared import value of the goods, these were advance payments made to secure a better price and were not for imports of specific goods. As such, according to TFS, the additional import VAT sought by HMRC was not due.[3]Having considered the submissions and evidence of both parties, we have decided to allow the appeal against the demand for £121,321.93. TFS’s appeal against a separate demand for £972.22 is dismissed. Our reasons are set out below.

Hearing and evidence

[4]We had a 1105-page hearing bundle which included the notice of appeal and HMRC’s statement of case, Tribunal procedural documents, and other relevant documentation including copies of agreements, invoices, correspondence and company accounts. We had a separate 616-page authorities bundle of legislation and case law. Some additional authorities and print-outs of dictionary definitions were handed to us at the hearing.[5]Two witnesses attended the hearing in person: David Wythe, an officer of HMRC, and Mehmet Kemal, the sole director and shareholder of TFS. Both witnesses were cross-examined.[6]We found Officer Wythe to be a credible and reliable witness. We also found Mr Kemal’s evidence to be credible. Mr Kemal gave his oral evidence through an interpreter, meaning that some questions needed to be clarified to avoid misunderstanding. Overall however, the impression we formed of Mr Kemal was that he was eager to convey to the Tribunal an understanding of how his business works and of the transactions giving rise to the demand for import VAT.[7]We also had a witness statement from Mehmet Koc, who is a director of Vitan Organik, a company in Turkey which supplied goods to TFS. The Tribunal gave directions, on 1 August 2024, for HMRC to provide TFS with a list of questions for Mr Koc, and for TFS to provide HMRC with his responses. Those questions and answers were included in the hearing bundle. We deal below with the reliance we have placed on this witness statement, and on Mr Koc’s responses to the questions from HMRC.[8]The hearing bundle also included witness statements from two of TFS’s customers: one from Enfield Food Centre in Cheshunt, and the other from Enfield Food Centre in Edmonton. Both are signed although the witnesses’ names are not given in full. HMRC did not dispute anything in these witness statements, and we accept their contents to be correct.

Findings of fact

[9]Based on the evidence before us, we make the following findings of fact.(1) Mr Kemal is the sole director and shareholder of TFS. He moved to England from Turkey in December 2007, and set up TFS in January 2008.(2) At the times that are relevant to this appeal, TFS imported bottled water from a company in Turkey called Vitan Organik (“Vitan”). Vitan’s management included an individual called Adil Koc, although we were not told Mr Koc’s precise role in that company. Mr Koc was a friend of Mr Kemal’s family, and Mr Kemal had known him for a long time. Vitan arranged for bottled water to be purchased from a factory in Turkey and exported to TFS in the UK.(3) Mr Kemal is also the director and shareholder of another company, called Kaltun Madran Limited (“Kaltun”). He incorporated this company in September 2018 because HMRC were regularly X-raying containers imported by TFS, causing delay and expense. Mr Kemal was advised that if he set up a new company, he could stop this from happening.(4) Around 2016, the factory supplying bottled water started to request payment in advance, and the prices increased significantly. Mr Kemal was also concerned about inflation in Turkey. He therefore discussed with Adil Koc whether he could stop the price increases by making payments in advance. At the same time, he wanted to increase his presence in the market and have a guaranteed supply of bottled water.(5) As a result of these discussions, Mr Kemal agreed to enter into a long-term arrangement with Vitan under which he would make lump sum payments in advance of goods being supplied to TFS. This led to him entering into an agreement with Vitan dated 1 July 2017, headed “purchases agreement 2017 to 2018”, signed by Mr Kemal for TFS and by Mehmet Koc for Vitan.(6) This agreement was described to us as a “hedge agreement”. It is a very short document, on Vitan headed paper, and its terms include the following:
“Until the end of 2025. I promise to ship goods from the date we set a fixed price for the TURKISH FOODS SUPPLIES LTD company. I will supply goods to TURKISH FOODS SUPPLIES LTD for the amount shown below. Our agreement will be valid when the following payments are fulfilled. […] If payments are made as follows, a fixed price will be applied.”
If payments are made as follows, a fixed price will be applied.” (7) There then follows a list of dates and amounts. There is no reference in this agreement to water. The fixed price or prices are not specified, and there are no provisions about what might cause the price to fluctuate. (8) Similar agreements were entered into for 2018 to 2019, and 2019 to 2020. (9) From time to time during the periods covered by the hedge agreements, TFS placed orders with Vitan for bottled water. When these orders were placed, Vitan created invoices, showing TFS as the customer. (10) TFS bought different types of bottled water from Vitan. There were at least two different brands, and the bottles came in different sizes. There were also differences in the numbers of bottles packaged together. However, most of the invoices from Vitan only described the product as “water”. This makes it difficult to determine, from the documentary evidence, whether the prices paid by TFS were indeed fixed over the period in question, or whether they varied. (11) We were also not shown any written price list specifying the prices Vitan would charge TFS for different brands and bottle sizes. We accept Mr Kemal’s evidence that as TFS only imported water from Vitan, rather than large numbers of different products, Mr Kemal did not find it necessary to have a written price list. (12) We further find, from Mr Kemal’s witness statement and oral evidence, that the prices paid by TFS for like-for-like products over the periods covered by the hedge agreements did vary through time, to reflect changes in the cost of transport, plastic, and some additional factors such as a change of logo. (13) When conducting his business, with Vitan and in general, Mr Kemal often did not enter into detailed written agreements, but relied heavily on oral agreements and on the high degree of trust within the Turkish community. He has over 500 customers and makes deliveries in person, so would find it very difficult to find time to document all his business dealings. He was also not educated to a high level, having only attended middle school before leaving education. (14) Mr Kemal’s motivations in agreeing to make advance payments to Vitan included that this arrangement would enable him to obtain water at a lower price. He ascribed much of the success of his business to the fact that he was able to buy at a lower price than his competitors and so could pass a lower price on to his customers. Vitan was able to offer him a lower price because he was making large payments in advance. (15) The imports of bottled water that are relevant to this appeal took place between 3 July 2017 and 26 November 2019. Over this period, TFS imported bottled water from Turkey, through Vitan, with a total declared value for import VAT purposes of £250,937.24. Over the same period, TFS made payments to Vitan totalling £2,417,999. The difference between these amounts is £2,167,061.76. (16) TFS’s customers made advance payments to TFS, and these payments assisted TFS to make payments to Vitan. We had witness statements from two of TFS’s customers, attesting to the fact that they made advance payments to TFS to fix the price of bottled water: in one case, the customer paid £20,000 in August 2018, and in the other, the customer paid £25,000 in September 2019. TFS had many customers in the relevant period; these two were shown to us as a sample. (17) Following the incorporation of Kaltun, Vitan continued to deal with Kaltun on the same terms as it had previously dealt with TFS. We were not shown any novation agreements, but find that there was a long-established relationship of trust between Mr Kemal on the one hand, and Adil and Mehmet Koc of Vitan on the other. As such, Vitan was willing to transfer any arrangements it had with TFS to Kaltun, on the basis that both businesses were owned by Mr Kemal. (18) In reaching this finding we place some reliance on the witness statement, and the written questions and answers, from Mehmet Koc. Mr Holt asked us to take account of the fact that, contrary to the Tribunal’s directions, Mr Koc’s written answers to HMRC’s questions do not include a statement of truth. We confirm that we have taken this into account, but make this finding on the basis that it is consistent with the other evidence before us, including Mr Kemal’s oral evidence. We also did not understand HMRC to dispute the fact that there is a relationship of trust between Mr Kemal and the directors of Vitan. (19) As at the date of Mr Kemal’s witness statement (1 February 2024), his business was in credit to Vitan in the amount of £2,703,285.17. He has not sought a refund because the arrangement with Vitan is ongoing, albeit now through Kaltun rather than TFS. Mr Kemal was also concerned that receiving a large repayment of this nature would cause difficulties with his bank and accountants. (20) On 10 July 2020, Officer Wythe sent TFS a “right to be heard” letter. His view was that as TFS was not buying any additional products from Vitan, and Vitan did not appear to be supplying anyone else at TFS’s direction, the bottled water must have been undervalued when it was declared to HMRC upon importation. Bottled water does not attract customs duty, but it is standard rated for VAT purposes, so the officer’s view was that TFS owed import VAT calculated at 20% of £2,167,061.76, which is £433,412.35 (plus an additional amount of £972.22, which we address later in this decision). (21) The letter of 10 July 2020 gave TFS the opportunity to provide HMRC with more information within 30 days of the date of the letter. TFS’s advisers responded, stating that the payments were advance payments for products which had not been imported. The advisers also supplied HMRC with copies of the hedge agreements. (22) Officer Wythe did not regard the hedge agreements as sufficient evidence that no additional import VAT was due. His reasons included that the agreements did not specify how much water should be imported on which dates, and that there was considerable variation in the prices actually paid by TFS for the water per kilo. Officer Wythe reasoned that if advance payments were being made so that TFS would receive fixed prices for the water, it did not make sense that the prices actually paid would vary. (23) Subsequent correspondence with TFS’s advisers failed to convince Officer Wythe that import VAT was not due on the full amounts of the payments made to Vitan. He therefore issued a decision letter, dated 26 May 2021, stating that it remained HMRC’s intention to charge TFS additional import VAT of £434,384.57. (24) The letter drew attention to discrepancies in the invoices issued by Vitan to TFS, such as instances where an invoice number was duplicated but the same item appeared to be shown with different unit costs. The letter also highlighted the range of prices that appeared to be charged for the same product over a two-year period. For 0.5 litre bottles, Officer Wythe observed a variation in price of between 0.25p and 0.83p per unit; for 1.5 litres, a variation between 0.25p and 0.86p per unit; and for 5 litres, a variation between 0.32p and 0.90p per unit. (We infer that by “0.25p” Officer Wythe meant £0.25, or 25p; but we have followed the format he used in his letter and witness statement as his meaning is clear from the context.) (25) In Officer Wythe’s view, the invoice discrepancies, fluctuations in prices and inconsistencies in how the products were described called into question the veracity of the invoices. (26) HMRC issued a C18 post-clearance demand note on 23 July 2021 in the amount of £434,384.57. (27) HMRC subsequently conducted an internal review of Officer Wythe’s decision, and communicated their conclusions to TFS in a letter dated 1 November 2021. (28) The review conclusion letter included HMRC’s view on the relevant time limits. The reviewing officer stated that effect of Articles 103(1) and 103(3)(b) of the Union Customs Code was that there was a time limit of three years and 30 days for HMRC to notify the debt, starting on the date of import. As the letter notifying the debt was posted on 26 May 2021, HMRC’s view was that it should be deemed to have been received on 28 May 2021, and that 28 May 2021 was therefore the date on which the notification was given. Counting back three years and 30 days led the officer to find that the debt should only be imposed in respect of imports made on or after 29 April 2018. (29) This view led the reviewing officer to conclude that the decision of 26 May 2021 was out of time to impose a debt for import VAT to the extent that it related to imports made before 29 April 2018. HMRC therefore excluded from the demand any imports made before that date, and also excluded a single import made on 26 November 2019, on the grounds that it had been made under a different EORI number. (30) The remaining imports covered by the decision of 26 May 2021 had a total declared value for import VAT of £111,390.32. In the period covered by these imports, TFS made payments to Vitan totalling £718,000. The difference between these numbers is £606,609.68. 20% of this figure is £121,321.93. This is the amount of import VAT which HMRC say is due, and which is now under appeal. (31) The relevant imports can be broken down as follows. Import acceptance date Declared value for VAT 4 May 2018 £2,516.80 9 May 2018 £5,720.00 23 May 2018 £5,204.32 31 May 2018 £2,402.40 6 June 2018 £3,872.00 16 June 2018 £2,994.60 20 June 2018 £3,400.00 27 June 2018 £3,872.00 12 July 2018 £5,398.80 25 July 2018 £8,800.00 2 August 2018 £6,820.00 22 August 2018 £26,055.40 29 August 2018 £5,654.00 12 September 2018 £6,820.00 19 September 2018 £6,820.00 2 October 2018 £15,040.00 Total: £111,390.32 (32) The payments made by TFS to Vitan in this period were as follows. Date Amount 1 May 2018 £100,000 23 May 2018 £100,000 12 June 2018 £100,000 18 June 2018 £100,000 20 June 2018 £18,000 3 October 2018 £100,000 12 October 2018 £100,000 18 January 2019 £100,000 Total: £718,000 (33) There is no dispute between the parties as to the amounts and dates set out in these tables, in other words as to the amounts declared for import VAT, or the amounts and dates of the payments made by TFS to Vitan. (34) TFS notified its appeal to the Tribunal on 17 November 2021.

Relevant law

[10]The facts of this case pre-date the UK’s departure from the EU, and the parties therefore agreed that we should consider the Union Customs Code at Regulation 952/2013 (the “UCC”).[11]Article 1 of the UCC is about the subject matter and scope of the Regulation, and begins as follows:
“1. This Regulation establishes the Union Customs Code (the Code), laying down the general rules and procedures applicable to goods brought into or taken out of the customs territory of the Union.”
[12]Article 5 of the UCC contains definitions, including the following:
“(18) “customs debt” means the obligation on a person to pay the amount of import or export duty which applies to specific goods under the customs legislation in force; […] (20) “import duty” means customs duty payable on the import of goods;”
[13]Article 22 of the UCC is entitled “Decisions taken upon application”, and includes the following:
“1. Where a person applies for a decision relating to the application of the customs legislation, that person shall supply all the information required by the competent customs authorities in order to enable them to take that decision. […] 4. Except where otherwise specified in the decision or in the customs legislation, the decision shall take effect from the date on which the applicant receives it, or is deemed to have received it. Except in the cases provided for in Article 45(2), decisions adopted shall be enforceable by the customs authorities from that date. 5. Except where otherwise provided in the customs legislation, the decision shall be valid without limitation of time. 6. Before taking a decision which would adversely affect the applicant, the customs authorities shall communicate the grounds on which they intend to base their decision to the applicant, who shall be given the opportunity to express his or her point of view within a period prescribed from the date on which he or she receives that communication or is deemed to have received it. Following the expiry of that period, the applicant shall be notified, in the appropriate form, of the decision.”
[14]Article 70 of the UCC is entitled “Method of customs valuation based on the transaction value”, and relevantly provides as follows:
“1. The primary basis for the customs value of goods shall be the transaction value, that is the price actually paid or payable for the goods when sold for export to the customs territory of the Union, adjusted, where necessary. 2. The price actually paid or payable shall be the total payment made or to be made by the buyer to the seller or by the buyer to a third party for the benefit of the seller for the imported goods and include all payments made or to be made as a condition of sale of the imported goods.”
[15]HMRC referred to a valuation carried out in accordance with Article 70 of the UCC as a “Method 1” valuation.[16]Article 71 of the UCC is entitled “Elements of the transaction value”, and provides so far as material: “1. In determining the customs value under Article 70, the price actually paid or payable for the imported goods shall be supplemented by: (a) the following, to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the goods: (i) commissions and brokerage, except buying commissions; (ii) the cost of containers which are treated as being one, for customs purposes, with the goods in question; and (iii) the cost of packing, whether for labour or materials; […] 2. Additions to the price actually paid or payable, pursuant to paragraph 1, shall be made only on the basis of objective and quantifiable data. 3. No additions shall be made to the price actually paid or payable in determining the customs value except as provided in this Article.” (a) the following, to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the goods: (i) commissions and brokerage, except buying commissions; (ii) the cost of containers which are treated as being one, for customs purposes, with the goods in question; and (iii) the cost of packing, whether for labour or materials;[17]Article 72 of the UCC is entitled “Elements not to be included in the customs value”, and provides as follows:
“In determining the customs value under Article 70, none of the following shall be included: (a) the cost of transport of the imported goods after their entry into the customs territory of the Union; (b) charges for construction, erection, assembly, maintenance or technical assistance, undertaken after the entry into the customs territory of the Union of the imported goods such as industrial plants, machinery or equipment; (c) charges for interest under a financing arrangement entered into by the buyer and relating to the purchase of the imported goods, irrespective of whether the finance is provided by the seller or another person, provided that the financing arrangement has been made in writing and, where required, the buyer can demonstrate that the following conditions are fulfilled: (i) such goods are actually sold at the price declared as the price actually paid or payable; (ii) the claimed rate of interest does not exceed the level for such transactions prevailing in the country where, and at the time when, the finance was provided; (d) charges for the right to reproduce the imported goods in the Union; (e) buying commissions; (f) import duties or other charges payable in the Union by reason of the import or sale of the goods; (g) notwithstanding point (c) of Article 71(1), payments made by the buyer for the right to distribute or resell the imported goods, if such payments are not a condition of the sale for export to the Union of the goods.” (a) the cost of transport of the imported goods after their entry into the customs territory of the Union; (b) charges for construction, erection, assembly, maintenance or technical assistance, undertaken after the entry into the customs territory of the Union of the imported goods such as industrial plants, machinery or equipment; (c) charges for interest under a financing arrangement entered into by the buyer and relating to the purchase of the imported goods, irrespective of whether the finance is provided by the seller or another person, provided that the financing arrangement has been made in writing and, where required, the buyer can demonstrate that the following conditions are fulfilled: (i) such goods are actually sold at the price declared as the price actually paid or payable; (ii) the claimed rate of interest does not exceed the level for such transactions prevailing in the country where, and at the time when, the finance was provided; (d) charges for the right to reproduce the imported goods in the Union; (e) buying commissions; (f) import duties or other charges payable in the Union by reason of the import or sale of the goods; (g) notwithstanding point (c) of Article 71(1), payments made by the buyer for the right to distribute or resell the imported goods, if such payments are not a condition of the sale for export to the Union of the goods.”
[18]Article 77 of the UCC is entitled “Release for free circulation and temporary admission”, and relevantly provides as follows:
“1. A customs debt on import shall be incurred through the placing of non-Union goods liable to import duty under either of the following customs procedures: (a) release for free circulation, including under the end-use provisions; (b) temporary admission with partial relief from import duty.” (a) release for free circulation, including under the end-use provisions; (b) temporary admission with partial relief from import duty.”
[19]Article 103 of the UCC deals with time limits, and relevantly provides as follows:
“1. No customs debt shall be notified to the debtor after the expiry of a period of three years from the date on which the customs debt was incurred. […] 3. The periods laid down in paragraphs 1 and 2 shall be suspended where: (a) an appeal is lodged in accordance with Article 44; such suspension shall apply from the date on which the appeal is lodged and shall last for the duration of the appeal proceedings; or (b) the customs authorities communicate to the debtor, in accordance with Article 22(6), the grounds on which they intend to notify the customs debt; such suspension shall apply from the date of that communication until the end of the period within which the debtor is given the opportunity to express his or her point of view.” (a) an appeal is lodged in accordance with Article 44; such suspension shall apply from the date on which the appeal is lodged and shall last for the duration of the appeal proceedings; or (b) the customs authorities communicate to the debtor, in accordance with Article 22(6), the grounds on which they intend to notify the customs debt; such suspension shall apply from the date of that communication until the end of the period within which the debtor is given the opportunity to express his or her point of view.”
[20]We were also referred to Commission Implementing Regulation (EU) 2015/2447 (UCC IA). This includes the following relevant provisions:
“Article 9 Specific procedure for the right to be heard (Article 22(6) of the Code) 1. The customs authorities may make the communication referred to in the first subparagraph of Article 22(6) of the Code as part of the process of verification or control where they intend to take a decision on the basis of any of the following: (a) the results of a verification following presentation of the goods; (b) the results of a verification of the customs declaration as referred to in Article 191 of the Code; […] Article 128 Transaction value (Article 70(1) of the Code) 1. The transaction value of the goods sold for export to the customs territory of the Union shall be determined at the time of acceptance of the customs declaration on the basis of the sale occurring immediately before the goods were brought into that customs territory. […] Article 129 Price actually paid or payable (Article 70(1) of the Code) “1.

(a) the seller;…”

Article 128 Transaction value Article 129 Price actually paid or payable (a) the seller;…”

Article 129    Price actually paid or payable

[21]As regards case law, we were referred to a judgment of the Court of Justice of the European Union: Christodoulou and others v Dimosio, Case C-116/12. In this judgment the Court said:
“38 Thus, by virtue of Article 29, the customs value of imported goods is the transaction value, that is to say, the price actually paid or payable for the goods when they are sold for export to the customs territory of the European Union, adjusted, where necessary, in accordance with Articles 32 and 33 of that code. 39 In that regard the Court has held that, if as a general rule the price actually paid or payable for the goods forms the basis for calculating the customs value (see, to that effect, Sommer, paragraph 22), that price is a factor that potentially must be adjusted where necessary in order to avoid the setting of an arbitrary or fictitious customs value (Case C‑256/07 Mitsui & Co. Deutschland I‑1951, paragraph 24). 40 The transaction value must reflect the real economic value of imported goods and take into account all the elements of those goods that have economic value…”
[22]In terms of the UK’s domestic law, at the times of the imports to which this appeal relates the Value Added Tax Act 1994 (“VATA 1994”) included the following relevant provisions. “1. Value added tax […] (4) VAT on the importation of goods from places outside the member States shall be charged and payable as if it were a duty of customs.” “15. General provisions relating to imported goods(1) For the purpose of this Act goods are imported from a place outside the member States where– (a) having been removed from a place outside the member States, they enter the territory of the Community; (b) they enter that territory by being removed to the United Kingdom or are removed to the United Kingdom after entering that territory; and (c) the circumstances are such that it is on their removal to the United Kingdom or subsequently while they are in the United Kingdom that any Community customs debt in respect of duty on their entry into the territory of the Community would be incurred.(2) Accordingly– (a) goods shall not be treated for the purposes of this Act as imported at any time before a Community customs debt in respect of duty on their entry into the territory of the Community would be incurred …” “16. Application of customs enactments (1) Subject to such exceptions and adaptations as the Commissioners may by regulations prescribe and except where the contrary intention appears– (a) the provision made by or under the Customs and Excise Acts 1979 and the other enactments and subordinate legislation for the time being having effect generally in relation to duties of customs and excise charged on the importation of goods into the United Kingdom; and (b) the Community legislation for the time being having effect in relation to Community customs duties charged on goods entering the territory of the Community, shall apply (so far as relevant) in relation to any VAT chargeable on the importation of goods from places outside the member States as they apply in relation to any such duty of customs or excise or, as the case may be, Community customs duties.” “21. Value of imported goods (1) For the purposes of this Act, the value of goods imported from a place outside the member States shall (subject to subsections (2) to (4) below) be determined according to the rules applicable in the case of Community customs duties, whether or not the goods in question are subject to any such duties.” (a) having been removed from a place outside the member States, they enter the territory of the Community; (b) they enter that territory by being removed to the United Kingdom or are removed to the United Kingdom after entering that territory; and (c) the circumstances are such that it is on their removal to the United Kingdom or subsequently while they are in the United Kingdom that any Community customs debt in respect of duty on their entry into the territory of the Community would be incurred. (a) goods shall not be treated for the purposes of this Act as imported at any time before a Community customs debt in respect of duty on their entry into the territory of the Community would be incurred …” (a) the provision made by or under the Customs and Excise Acts 1979 and the other enactments and subordinate legislation for the time being having effect generally in relation to duties of customs and excise charged on the importation of goods into the United Kingdom; and (b) the Community legislation for the time being having effect in relation to Community customs duties charged on goods entering the territory of the Community,[23]At the relevant times, the Customs and Excise Management Act 1979 included the following provision. “5. Time of importation, exportation, etc(1) The provisions of this section shall have effect for the purposes of the customs and excise Acts.(2) Subject to subsections (3) and (6) below, the time of importation of any goods shall be deemed to be– (a) where the goods are brought by sea, the time when the ship carrying them comes within the limits of a port; (b) where the goods are brought by air, the time when the aircraft carrying them lands in the United Kingdom or the time when the goods are unloaded in the United Kingdom, whichever is the earlier; (c) where the goods are brought by land, the time when the goods are brought across the boundary into Northern Ireland.” (a) where the goods are brought by sea, the time when the ship carrying them comes within the limits of a port; (b) where the goods are brought by air, the time when the aircraft carrying them lands in the United Kingdom or the time when the goods are unloaded in the United Kingdom, whichever is the earlier; (c) where the goods are brought by land, the time when the goods are brought across the boundary into Northern Ireland.”[24]The Tribunal's jurisdiction in respect of this appeal is set out at sections 13A to 16 of the Finance Act 1994 (“FA 1994”). Pursuant to FA 1994, s 16(6), the burden is on TFS to satisfy us that it has established the grounds on which the appeal has been made. This means that to succeed in this appeal, TFS must satisfy us that the import VAT demanded by HMRC is not due. The standard of proof is the civil standard of the balance of probabilities.

Discussion

[25]We have carefully considered the submissions and evidence of both parties, but have not found it necessary to refer to every argument and authority that was put to us, nor to describe every part of the evidence.[26]As we have stated above, there is no disagreement between the parties as to the amounts paid by TFS to Vitan. The dispute is about what these payments were for, and specifically, whether they were payments for imports of bottled water, or for something else. HMRC contends that TFS underdeclared the value of the goods that were imported between 4 May 2018 and 2 October 2018.[27]We accept the evidence from TFS that the payments made to Vitan totalling £718,000, set out in paragraph [9(32)] above, were advance payments made to secure a supply of bottled water at a better price than would otherwise have been available. We make this finding based on the witness statement and oral evidence of Mr Kemal, the hedge agreements and invoices, and the witness statement of Mr Koc.[28]HMRC submitted that we should not accept this evidence because the documentation is insufficient to support the alleged commercial arrangements. Mr Holt submitted that the “hedge agreements” are manifestly unclear, in that they do not set out the amount of water that is being bought, or when the imports should be made. They also do not state under what circumstances the price may vary. In HMRC’s view, TFS were paying Vitan a lot of money (some £2.4 million over the whole period Officer Wythe had examined) and for that amount, one would expect these matters to be set out in written agreements.[29]Mr Holt also drew attention to the variations in the prices that were actually paid for the imported water, contending that these undermined TFS’s case that part of the reason for entering into the hedge agreements was to obtain a fixed price. He said that there was no other evidence, for instance in the form of emails, to demonstrate the nature of the agreement between the parties regarding the fluctuations in price.[30]We accept that the hedge agreements do not include many of the details that we would expect to have been agreed between Vitan and TFS regarding the supply of imported bottled water. We find, however, that many of the terms of the arrangement were agreed orally, reflecting the longstanding relationship of trust between Mr Kemal and the directors of Vitan. This also fits with Mr Kemal’s evidence that many aspects of his business relationships are not documented, as he works for much of the time outside the office, trusts in promises from his customers and suppliers, does not have a high level of education, and is very busy.[31]Mr Kemal demonstrated, during his oral evidence, the extent to which he keeps details about his business in his head rather than on paper. He was taken, as an example, to an invoice from Vitan to TFS, which listed two separate items, both described simply as “water”. He explained that the item price told him which brand of water had been ordered, and that the quantities for each item meant that the invoice was for a specific number of containers, each holding bottles of a particular size.[32]We also accept that the prices actually paid by TFS to Vitan varied over time. Mr Kemal suggested, in his witness statement, that what was fixed was not the overall price, but the price for the water itself, as distinct from the plastic from which the bottles were made and other costs such as transportation. TFS also had to pay extra amounts for a change of logo.[33]We consider that Mr Kemal’s primary concern would have been the total price TFS paid to import water, as opposed to the price of the water inside the bottles considered on its own. However, we find that by entering into the hedge agreements Mr Kemal paid a lower total price to import water than he could otherwise have obtained, even though that price might vary to some extent.[34]We agree with HMRC that given the size of the sums in question, one would normally expect to see written terms specifying the matters which HMRC submit are missing in this instance. However, the fact that all or many of the terms of an agreement have not been reduced to writing does not mean that no agreement exists, and we accept the evidence that there was an unwritten understanding between TFS and Vitan that went beyond the terms of the hedge agreements. The businesses concerned were Turkish-run and we accept that cultural factors may have played a part in the lack of documentation, but as we had relatively little evidence concerning these cultural factors, we place more weight on the long-standing personal relationship of trust between Mr Kemal on the one hand, and Adil and Mehmet Koc on the other.[35]Officer Wythe, in his witness statement, drew attention to the fact that there are some discrepancies in the invoices, in that, for instance, some invoice numbers are duplicated with different unit costs shown on each copy. In the officer’s view, this brought into question the validity of the invoices. However, the invoices were produced by Vitan, not by TFS, and so TFS is not responsible for their contents. We do not, therefore, accept that there is anything in this point, and we note that HMRC did not rely on it in their skeleton argument or at the hearing.[36]HMRC submitted that even if we were to find that the hedge agreements reflected the economic reality between TFS and Vitan, we should nonetheless find that the payments made under those agreements formed part of the price actually paid for the imported water.[37]We found HMRC’s submissions regarding the alleged under-declarations somewhat unclear. If HMRC are correct, logically this would suggest either that TFS imported around six times more water than was declared, or that the water was worth six times more than the declared value, or that TFS paid six times more for it than it was worth.[38]HMRC have not alleged that TFS imported more water than was declared. Officer Wythe confirmed that HMRC made no site visits in connection with this case. The only evidence they have provided of the value of the imported water is the amounts that TFS paid to Vitan. They say that under a “Method 1” valuation, this is all that is required, because under this valuation method, the customs value is the price actually paid for the goods. We accept that this is the case, but without any other evidence about the value of the goods (what Mr Carey referred to as a ballpark figure) we are unable to take a view on whether the goods were worth significantly more than the value declared by TFS on importation. HMRC also did not put to us any reason why TFS might be paying far more for the water than it was worth.[39]HMRC’s case appeared to be that TFS paid Vitan £718,000 for the imports, and they were not required to provide any explanation for the discrepancy between this amount and the declared values. However, given that we have accepted TFS’s evidence regarding the hedge agreements, HMRC have failed to convince us that this is, in fact, what the £718,000 was for.[40]It is not sufficient to say that because Vitan supplied goods to TFS, and TFS made payments to Vitan, that import VAT was due on all of the payments. Article 70 of the UCC states that the customs value of goods is the price actually paid or payable for the goods when sold for export. Article 5(18) is clear that a customs debt applies to import or export duty applying to “specific goods”. We find that TFS’s payments to Vitan were not for the import of specific goods. It is not sufficient that the payments were made in anticipation of future imports of unspecified goods on unspecified dates.[41]It is clear from the provisions of the VATA 1994 quoted above that, under the law then in force, import VAT was payable on an import of goods to the UK from a place outside the EU. Mr Carey directed us to various dictionary definitions as authorities for the meaning of an “import”. We did not understand Mr Holt to dispute the meaning of an import, but we confirm that we do not consider that term to be wide enough to encompass a payment made in anticipation of an import of goods that were not identified until TFS subsequently placed an order. Once an order had been placed, an import took place of the goods specified in that order, and import VAT was due on those goods when they arrived in the UK. Import VAT was not due on any goods that remained in the factory in Turkey.[42]One possible interpretation of HMRC’s position (though not a submission they made expressly) was that TFS imported precisely £100,000 worth of water on seven separate occasions over the period in question (plus one import worth £18,000). We consider this to be inherently unlikely. TFS supplied water to hundreds of customers whose requirements would have been expected to change over time, suggesting that TFS’s own requirements would also have varied. It is also not clear why the orders would always come to the same round number.[43]TFS included, in the hearing bundle, many “booking confirmation” documents from the shipping agent, Seago. Neither party drew our attention to any specific aspect of these documents, but HMRC did not suggest they were not genuine, and we observe that they indicate there were more than eight shipments over the period in question.[44]In Mr Holt’s cross-examination of Mr Kemal, he drew attention to the list of imports and payments which are reproduced at paragraphs [9(31)] and [9(32)] above. He put to Mr Kemal HMRC’s case that the payments relate to the imports, and that the dates of each line up closely; for instance, there was a payment on 1 May 2018, which was followed by an import on 4 May 2018.[45]We do not accept that the dates line up closely enough to make a compelling case that the payments relate to the imports, in the sense that each payment should be treated as the price paid for the importation of specific goods. Some of the payments are followed by one or more imports in the following days or weeks; some are not. After the payment on 20 June 2018, there is gap of over three months until the next payment (on 3 October 2018), but in the intervening period there was one import in June, two in July, three in August, two in September and one in October. And there are no imports around the time of the last payment on 18 January 2019.[46]Mr Holt directed us to Article 129 of the UCC IA, which provides that the price actually paid or payable within the meaning of Article 70 of the UCC includes all payments made or to be made as a condition of sale of the imported goods by the buyer to (inter alia) the seller. He suggested that this means that the amounts paid under the hedge agreements should be included in the value of the goods for import VAT purposes. However, we consider that the reference to “the imported goods” still requires the price to have been paid for specific goods, and moreover, those goods must have been imported. We therefore do not consider that Article 129 takes HMRC’s case any further forward.[47]Officer Wythe in his evidence, and Mr Holt in his submissions, made repeated references to the amounts paid by TFS to Vitan being very large. It is of course entirely appropriate for HMRC to pay more attention to a transaction when the sums involved are large, but the size of a payment does not, on its own, establish that more tax is owed.[48]HMRC referred to Article 72 of the UCC, which lists amounts that can be deducted from the customs value under Article 70. These amounts include, for instance, transport costs incurred after the goods have entered the EU, certain interest charges, buying commissions, and import duties. HMRC submitted that these amounts do not include a reference to an increased “hedge” amount to secure a future fixed price, and so the Tribunal cannot deduct that amount to determine the price actually paid.[49]We do not accept this submission, because it is based on an incorrect characterisation of TFS’s case. TFS did not contend that although it paid £718,000 for the imported goods, it should be allowed to subtract a £606,609.68 hedge payment from this amount. Rather, TFS’s case is simply that £111,390.32 is the price it paid for the imported goods. Article 72 is about amounts that should be excluded from the value determined under Article 70. TFS is not seeking any such exclusion, and therefore, we do not consider that Article 72 assists HMRC’s case.[50]For the reasons set out above, we accept that import VAT was due on the values declared for VAT set out in paragraph [9(31)] above, ie on the £111,390.32 and not on the £718,000 of advance payments made by TFS to Vitan. We therefore allow the appeal against the demand for £121,321.93 of import VAT.[51]We mention for completeness that during the hearing, the Tribunal panel raised a question as to whether the advance payments to Vitan had been treated correctly in TFS’s accounts. Neither party had any submissions or oral evidence to put to us on this point, as they had not been notified of it before the hearing, although Mr Holt suggested that it would be consistent with the Tribunal’s overriding objective for the Tribunal panel to make use of any specialist knowledge we may have. We concluded that the lack of advance notice and the absence of submissions meant that we should not take this point into consideration in reaching our decision, and we have not done so.

The separate demand for £972.22

[52]The outcome of the review conclusion letter, dated 1 November 2021, was that the C18 post clearance demand note should be varied to a reduced figure of £121,321.93.[53]The reviewing officer also dealt, in this letter, with a single import made by TFS on 26 November 2019. The letter stated that all TFS’s imports were declared standard rated, except for this one. The letter continued that the declared value for VAT for this import was £4,861.12, meaning that £972.22 of VAT was due.[54]This single import was made using a different EORI number from the number TFS used for its other imports. The reviewing officer stated that for this reason, different considerations applied to the import made on 26 November 2019. The reviewing officer therefore removed this final entry from the calculation, but stated that TFS might expect further action to cover this debt.[55]On 3 November 2021, Officer Wythe wrote to TFS stating that an additional amount of £972.22 of import VAT was due.[56]TFS’s notice of appeal to the Tribunal stated that the amount in dispute was £121,321.93. The notice appended many accompanying documents, extending to around 200 pages. These documents included the letters of 1 November 2021, and 3 November 2021.[57]The introduction to TFS’s skeleton argument states that the assessment for £972.22 is also under appeal, but contains no specific submissions about the import made on 26 November 2019. HMRC’s skeleton argument states that TFS owes £121,321.93 in import VAT, but does not refer either to the £972.22, or the import on 26 November 2019.[58]At the start of the hearing we sought to clarify which amounts were under appeal, and whether we would be hearing separate submissions about the £972.22. Mr Carey said that this amount was “all tied in” with the larger amount (of £121,321.93) which HMRC were seeking. Mr Holt did not disagree with this assertion.[59]Neither party made further reference to the £972.22 in the remainder of the hearing.[60]It was not clear to us that Mr Carey was correct to say that the £972.22 was under appeal, given that the notice of appeal gives the amount in dispute as £121,321.93, and that the review conclusion letter is clear that the £972.22 is not included in the figure of £121,321.93. Nonetheless, the letter of 3 November 2021 was included as one of documents accompanying the notice of appeal, and Mr Holt did not submit that the separate demand for £972.22 had not been appealed. We therefore accept that the £972.22 was under appeal.[61]Based on the review conclusion letter we find that the £972.22 is not included in the figure of £121,321.93. We did not have the benefit of any written or oral submissions that were specific to the import made on 26 November 2019, to which the £972.22 relates. From the review conclusion letter we infer that HMRC’s position is that (unlike the other imports) TFS did not pay import VAT even on the declared value for this particular importation. TFS has accepted that import VAT is due at the standard rate on the declared value of its imports of bottled water. If no import VAT was paid on this occasion, we heard no submissions from TFS that would indicate that this amount is not due.[62]The burden of proof in this case means that it is not necessary for us to decide whether VAT was paid on this particular import. It is for TFS to satisfy us that the £972.22 is not due. It has not done so, and therefore we must dismiss the appeal in respect of the £972.22.

The time limit issue

[63]As we have set out above, HMRC’s review conclusion letter significantly reduced the amount they were seeking to recover, on the grounds that they were out of time to impose a debt for import VAT to the extent that the charge related to imports made before 29 April 2018. The reviewing officer therefore excluded from the demand any imports made before that date.[64]TFS submitted that HMRC were, in fact, out of time to impose VAT on any imports made before 28 May 2018. As can be seen from the list of payments by TFS to Vitan in paragraph [9(32)] above, there were two payments made between 29 April 2018 and 28 May 2018 (one on 1 May 2018, and another on 23 May 2018). TFS therefore submitted that even if we were not to accept the basis of the appeal, the demand for VAT relating to these two payments was out of time.[65]We heard submissions from both parties about the combined effect of Articles 103(1), 103(3)(b) and 22(6) of the UCC. We understood it to be common ground that for the purposes of Article 103(1), the debt was notified to TFS by the letter dated 26 May 2021. HMRC’s position, as set out in the review conclusion letter dated 1 November 2021, was that there was a time limit of three years and 30 days for HMRC to notify the debt, starting on the date of import. TFS submitted that the correct time limit under Article 103(1) was three years, and that there was no basis for the addition of the extra 30 days.[66]We did not find it straightforward to interpret the relevant provisions of the UCC as they apply to the facts of this case, and as we have decided the appeal in TFS’s favour (as regards the main demand for £121,321.93), we are not required to decide this point. The provisions in question are relevant in a range of circumstances outside this case, and we therefore consider that it would not be right for us to express our view where this is not determinative of the appeal. We consider that we have made sufficient findings of fact above to enable the issue to be considered on any further appeal, should this be relevant.

Disposition

[67]For the reasons set out above, TFS’s appeal in relation to the demand for £121,321.93 is allowed.[68]The appeal in relation to the demand for £972.22 is dismissed.

Right to apply for permission to appeal

[69]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. Release date: 01st MAY 2025