Vital Nut Co Limited v The Commissioners for HMRC [2017] UKUT 0192 (TCC)

“Having considered the application for permission to appeal I consider that as it is arguable that there is an error of law in the amended decision released on 5 November 2015 which will also provide the Upper Tribunal with an opportunity to clarify the scope of a review of a decision under rule 41 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 permission to appeal is GRANTED.”

“Vegetables, fruit, nuts, fruit peel and other parts of plants, preserved by sugar (drained, glacé or crystallised)”

“20.06 – Vegetables, fruit, nuts, fruit peel and other parts of plants, preserved by sugar (drained, glacé or crystallised). 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 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. … 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.” “20.08 – Fruit, nuts and other edible parts of plants, otherwise prepared or preserved, whether or not containing added sugar or other sweetening matter or spirit, not elsewhere specified or included. … (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.”

“[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.” (6). In the Revised Decision, the FTT concluded: “[55] However, there was insufficient 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. Although Ms. Uppatham did refer to this in her witness statement, made in August 2014, it is unclear whether the processes described were in operation in 2008. Clearly, as Mr. Mitchell acknowledged in his skeleton argument ‘there has been some uncertainty around the technical detail of the production process.’ The only evidence of the preservation process is contained in Ms. Uppatham’s witness statement does not, in our view, satisfactorily 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 factor manager, who Professor Niranjan said spoke good English and was aware of the preservation process, have 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 satisfactory 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.”

“The instant permission application is made on the basis that the FTT erred in law in concluding that it had before it no evidence of the 2008 production process. That submission is made, inter alia, on the basis that the FTT reached a conclusion on the facts which no reasonable Tribunal could have reached whilst properly having regard to the evidence before it, such as amounts to an error of law as provided for in Edwards (Inspector of Taxes) v. Bairstow[1956] AC 14. We have here referred to such alleged error as an alleged error of fact.”

“The primary basis on which permission to appeal is sought is that in paragraphs 55 and 56 of the decision the Tribunal referred to there being ‘no evidence’ and the ‘absence of any such evidence’ of the production process of the product concerned in 2008 despite there being evidence of this before the Tribunal. In the circumstances, and in accordance with rules 40 and 41 of the Tribunal Rules (First-tier Tribunal) (Tax Chamber) Rules 2009, the judge has undertaken a review of the decision and proposes to take action to amend paragraphs 55 and 56 of the decision as follows…”

“[57] This decision was originally released to the parties on 7 July 2015. On 27 August 2015 the Company made an application for permission to appeal to the Tax and Chancery Chamber of the Upper Tribunal. The primary basis for the application was that the Tribunal had made an error of law by referring, in paragraphs 55 and 56 of the original decision, to there being ‘no evidence’ and the ‘absence of any such evidence’ of the production process of the product concerned in 2008 despite there having been evidence of this before the Tribunal. [58] Under rule 40(1) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009: On receiving an application for permission to appeal the Tribunal must first consider, taking account of the overriding objective in rule 2, whether to review the decision in accordance with rule 41 (review of a decision). Rule 41 provides: (1) The Tribunal may only undertake a review of a decision – (a) pursuant to rule 40(1) (review on an application for permission to appeal); and (b) if it is satisfied that there was an error of law in the decision. (2) The Tribunal must notify the parties in writing of the outcome of any review, unless the Tribunal decides to take no action following the review. (3) The Tribunal must not take any action in relation to a decision following a review without giving every party an opportunity to make representations in relation to the proposed action. [59] In the circumstances, and in accordance with rules 40 and 41 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, a review of the decision was undertaken and it was proposed that the decision be amended with paragraphs 55 and 56 of the original decision (which is as set out in the appendix) replaced with new paragraphs 55 and 56 which are as stated above. [60] Therefore, on 21 September 2015 pursuant to rule 41(3), the Tribunal wrote to the parties to explain that a review had been undertaken. The letter from the Tribunal included the details of the proposed amendment and invited written representations within 28 days or confirmation that it was not intended to make any representations. [61] HMRC responded, by email, on 13 October 2015 stating that no representations were to be made. [62] In a letter dated 16 October 2015 the Company’s solicitors contended that rule 41(1)(b) of the Tribunal (First-tier Tribunal) (Tax Chamber) Rules 2009 did not empower the Tribunal to make the proposed amendments as it is only entitled to undertake a review of a decision in order to correct an error of law in that decision. The clear implication of this is that the Tribunal is not permitted to correct an error of fact such that with which the Tribunal’s proposal is concerned. [63] However, as recognised by the application for permission to appeal itself, it is an error of law for the Tribunal to find there was ‘no evidence’ before it on a particular issue when this was not the case. The amendment to paragraphs 55 and 56 correct this error. Therefore, having considered the representations it has been decided to amend and re-issue the decision accordingly.”

“[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] It is clear from the Opinion of Advocate General Kokott in Uroplasty[Case C-514/04Uroplasty BV v. Inspecteur van de Belastingdienst – Douana district Rotterdam[2006] ECR 1-67219] 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. [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 … [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 … [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 …’ [39] She observed at [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 [Joined Cases C-260/00 to C-263/00 Lohmann GmbH & Co KG and Others v. Oberfinanzdirektion Koblenz [2002] ECR I-10045] 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 Case 40/88, 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 … 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…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] to [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.’”

“…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.” (5). The FTT did not, however, end its analysis at this point. Rather, the FTT noted (at [54]) that the HSEN defined commodities “preserved by sugar (drained, glacé or crystallised)” by reference to the process by which they are produced. To quote again from the relevant part of the HSEN, but with emphasis supplied: “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 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.”

“[24] The appeal to the Upper Tribunal is on a point of law arising from the FTT’s decision (s 11 Tribunals, Courts and Enforcement Act 2007 (‘TCEA 2007’)). If the Upper Tribunal finds that the making of the FTT’s decision involved the making of an error on a point of law, it may set aside the FTT’s decision and, if it does so, must either remit the case to the FTT with directions for its reconsideration or remake the decision (s 12(2) TCEA 2007). In remaking the decision, the Upper Tribunal may make any decision that the FTT could make if the FTT were re-making the decision and may make such findings of fact as it considers appropriate (s 12(4) TCEA 2007). [25] The fact that an appeal against a decision of the FTT must be on a point of law means that, generally, findings of fact by the FTT cannot be the subject of an appeal. As Edwards v. Bairstow shows, findings of fact by the FTT, whether primary facts or factual inferences, can be challenged where the finding is one that the FTT was not entitled to make, e.g. where the FTT failed to take account of relevant evidence or took account of irrelevant material.”

“[27] … In that case, Viscount Simonds said ([1955] 3 All ER 48 at 53, [1956] AC 14 at 29) that a finding of fact should be set aside if it appeared that the finding had been made ‘without any evidence, or on a view of the facts which could not reasonably be entertained’. Lord Radcliffe said ([1955] 3 All ER 48 at 57, [1956] AC 14 at 36) that a finding of fact would be an error of law where the facts found were ‘such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal’ or, in a formulation which he said he preferred, ‘the true and only reasonable conclusion contradicts the determination’. It seems to us that … the proper approach in a case such as this one remains as described by Evans LJ, who gave the only judgment, in the Court of Appeal in Georgiou (t/a Marios Chippery) v. Customs and Excise Comrs [1996] STC 463 at 476: ‘… the nature of the factual inquiry which an appellate court can and does undertake in a proper case is essentially different from the decision-making process which is undertaken by the tribunal of fact. The question is not, has the party upon whom rests the burden of proof established on the balance of probabilities the facts upon which he relies, but, was there evidence before the tribunal which was sufficient to support the finding which it made? In other words, was the finding one which the tribunal was entitled to make? Clearly, if there was no evidence, or the evidence was to the contrary effect, the tribunal was not so entitled. It follows, in my judgment, that for a question of law to arise in the circumstances, the appellant must first identify the finding which is challenged; secondly, show that it is significant in relation to the conclusion; thirdly, identify the evidence, if any, which was relevant to that finding; and, fourthly, show that that finding, on the basis of that evidence, was one which the tribunal was not entitled to make. What is not permitted, in my view, is a roving selection of evidence coupled with a general assertion that the tribunal’s conclusion was against the weight of the evidence and was therefore wrong’.”

“The Tribunal may at any time correct any clerical mistake or other accidental slip or omission in a decision, direction or any document produced by it, by – (a) sending notification of the amended decision or direction, or a copy of the amended document, to all parties; and (b) making any necessary amendment to any information published in relation to the decision, direction or document.” (b). In the case of an application for permission to appeal. The FTT Rules provide, in Rule 40(1): “On receiving an application for permission to appeal the Tribunal must first consider, taking account of the overriding objective in rule 2, whether to review the decision in accordance with rule 41 (review of a decision).”

“(1) The Tribunal may only undertake a review of a decision – (a) pursuant to rule 40(1) (review on an application for permission to appeal); and (b) if it is satisfied that there was an error of law in the decision. (2) The Tribunal must notify the parties in writing of the outcome of any review, unless the Tribunal decides to take no action following the review. (3) The Tribunal must not take any action in relation to a decision following a review without giving every party an opportunity to make representations in relation to the proposed action.” (2). The statutory basis for these FTT Rules is s 9 of the 2007 Act. This provides that: (a). A First-tier Tribunal may review a decision made by it on a matter in a case: see s 9(1). (b). This power of review is exercisable by the First-tier Tribunal either of its own initiative or on the application by a person who has a right of appeal: see s 9(2). (c). Tribunal procedure rules may provide that the First-tier Tribunal may not review certain specified decisions or may only review them in certain cases: s 9(3). The power conferred by s 9(1) and s 9(2) can thus be restricted or limited by the tribunal procedure rules. (3). The FTT Rules do not limit the FTT’s power under s 9 to review clerical mistakes and accidental slips or omissions. Rule 37 of the FTT Rules is broadly framed. However, the power to review in all other cases other than clerical mistakes/accidental slips/omissions is confined by two pre-conditions: (a). There must be an application for permission to appeal; and (b). The FTT must be “satisfied” that there was an error of law in the decision. (4). Once these “gateway” requirements are met, there is nothing in either the 2007 Act or the FTT Rules to constrain the FTT in terms of the sort of review it undertakes. We stress that this does not mean that the FTT is entirely unfettered in the manner it may review its decision: the only point we make is that neither the 2007 Act nor the FTT Rules provide any support for the contention of Vital Nut that the power of review was in some way confined to certain types or kinds of correction. We reject altogether any suggestion, advanced by Vital Nut, that the FTT may only correct a “legal” error in the wording of the decision, and not a “factual” error. Even if these categories have a clear meaning – and given that under Edwards v. Bairstow, a sufficiently serious error of fact can amount to an error of law, we doubt it – there is no support for such an approach in the statutory wording. (5). Nor is any support to be derived from the case-law. Before us, Vital Nut cited various decisions considering the power to review: JS v. Secretary of State for Work and Pensions[2013] UKUT 100 (AAC); WS v. Information Commissioner [2013] UKUT 181 (AAC); Scriven v. Calthorpe Estates[2013] UKUT 469 (LC); and AA[2015] UKUT 00330 (IAC). None of these decisions supports the contention that once the “gateway” conditions for a review are met, statute imposes other fetters on the review that can be undertaken. (6). To the contrary: in JS v. Secretary of State for Work and Pensions[2013] UKUT 100 (AAC) at [22], the Upper Tribunal (Administrative Appeals Chamber) stated, in respect of the similar tribunal procedure rules that pertained in that case, as follows (emphasis supplied): “The legislation specifies conditions precedent for a review and the action that may be taken in the light of the review. The combined effect of section 9 and rules 39 and 40 is that the First-tier Tribunal may only review a decision on an application for permission to appeal and on the ground of error of law. These are the essential conditions that must be satisfied before a review can take place…”