Customs and excise quarterly update - February 2022

In this update we report on (1) a new customs consultation launched by the government; (2) HMRC's updated guidance on pre-clearance checks; and (3) stage three of Brexit customs changes.

We also comment on three recent cases relating to (1) HMRC's failure to issue assessment notices within the statutory timeframe for excise duty; (2) the customs classification of the Rough Terrain Vehicle X900; and (3) the customs classification of certain TV stands.

News

Consultation launched in bid to improve the UK's customs system

HMRC and HM Treasury have opened a consultation seeking views on how the UK's customs system can be improved by simplifying processes for traders and embracing innovation. The consultation seeks the views, in particular, of traders, intermediaries, freight forwarders, fast parcels operators and hauliers.

The primary areas of focus are: 

1. the customs intermediary sector;
2. the Simplified Customs Declarations Process; and
3. the Transit facilitation.

This evidence gathered will support future changes to policy or processes to make it easier for traders to navigate the UK’s customs system.

The call for evidence opened on 7 February 2022 and will run for 12 weeks, closing on 2 May 2022. 

More information on the consultation can be viewed here. 

HMRC issue updated guidance on inland pre-clearance checks 

HMRC has issued updated guidance on how inland pre-clearance checks may affect imports, what can be expected, and how long importers can expect the checks to take.  

The checks may include an examination of the declaration and supporting documents, an examination of the goods and/or sampling of the goods.  
HMRC estimates that checks will usually be completed within 5 weeks although this is not a guarantee.  Following the checks, goods will either be released or seized, and the outcome and next steps will be explained to the importer once the checks have been completed.

The updated guidance can be viewed here. 

Stage 3 of Brexit customs changes are on track to commence on 1 July 2022

From 1 July 2022, Safety and Security Declarations will be required in addition to the 'Core model'  requirements currently in place. 

This requirement will only apply to those imports:

• covered by International Conventions; 
• subject to Sanitary and Phytosanitary Controls; 
• subject to Specific Customs Requirements; and 
• a specified list of 'other' goods. 

A full list of affected goods and further guidance on the stage 3 requirements can be viewed here. 

Case Reports

Cantina Levorato Srl - HMRC failed to issue excise duty assessment notices in time 

In Cantina Levorato Srl v HMRC [2021] UKFTT 0461 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal, concluding that HMRC's assessments to excise duty were not notified to the taxpayer within the statutory time limits contained in section 12(1A), Finance Act 1994 (FA 1994). The decisions were therefore quashed, and HMRC's assessments discharged.

Background 

Cantina Levorato Srl (the Appellant) is a producer and exporter of wine based in Dolo, Italy. HMRC assessed the Appellant to excise duty by way of two assessments dated 26 April 2013, in the total sum of £1,294,028. The assessments related to 40 duty suspended consignments of wine sold by the Appellant to a UK company, 13 Ten Ltd (13 Ten) between September 2009 and September 2010, which should have arrived at an approved warehouse in Liverpool, operated by Plutus (UK) Ltd (Plutus).

The Appellant appealed the assessments to the FTT on a number of grounds, including:

• no excise duty was due as there was no irregularity, as evidenced by the fact that the Appellant received receipted copies of part 3 of the accompanying administrative document (AAD);
• any liability to excise duty in the UK was a liability of the guarantor shown in Box 10 of the AAD, Assicurazioni Generali SpA (Generali), an Italian insurance company and not of the Appellant; 
• the assessments were out of time as they were not notified to the Appellant within the relevant time limit and assessing the Appellant to excise duty was a breach of the EU principles of proportionality and / or legal certainty; and
• if there was an irregularity in the movement of the goods, it was deemed to have taken place in Italy and not the UK, so that no excise duty was payable in the UK.

FTT decision 

The appeal was allowed. 

The FTT concluded that, on the facts, neither HMRC's pre-assessment letters nor the notices of assessment themselves were received by the Appellant in 2013 and that the first time they were seen by the Appellant was when they were sent under cover of a letter from HMRC dated 15 March 2017. As a result, the FTT concluded that the assessments were out of time as they were not notified to the Appellant within the relevant time limit pursuant to section 12(1A) FA 1994. As the statutory requirements were not satisfied, the FTT quashed the assessments.

Comment

Taxpayers who receive assessments should always check to make sure they have been issued within the relevant statutory time limits.  This case provides useful guidance and commentary on this important area of the law. 

The decision can be viewed here. 

Kubota (UK) Ltd – classification of the Rough Terrain Vehicle X900

In Kubota (UK) Ltd v HMRC [2021] UKUT 0276 (TCC), the Upper Tribunal (UT) dismissed Kubota (UK) Ltd's (Kubota) appeal against a decision of the FTT that the classification of a utility vehicle called the Rough Terrain Vehicle X900 (the RTV X900), falls under subheading 8704 21 91 of the Combined Nomenclature contained in Annex 1 of EU Council Regulation 2658/87 (the CN).

Background 

The issue to be determined in this case was whether the RTV X900 should be classified under CN subheading 8704 21 91 (Motor vehicles for the transportation of goods. Other, with compression-ignition internal combustion piston engine (diesel or semi-diesel)) or under CN subheading 8704 10 10 (Motor vehicles for the transportation of goods, Dumpers designed for off-highway use). The importation of a vehicle classified under subheading 8704 21 91 carries duty at the rate of 10%, whereas classification under subheading 8704 10 10 attracts duty at the rate of 0%.

HMRC’s classification decision was contained in a binding tariff information issued on 27 July 2018. 

Kubota unsuccessfully appealed to the FTT. The FTT based its decision on the application of EU Classification Regulation 2015/221 (the Regulation). The validity of the Regulation was upheld by the Court of Justice of the European Union (CJEU) in Kubota Case C-545/16 (Kubota CJEU) following a reference by the FTT. The Regulation describes a particular type of vehicle and classified it under subheading 8704 21 91 rather than as a “dumper”. The FTT applied the Regulation by analogy and found that the RTV X900 was similar to the vehicle described in the Regulation. The FTT therefore held that subheading 8704 10 10 was applicable to the RTV X900. 

Kubota appealed the FTT's decision to the UT. 

UT decision 

The appeal was dismissed. 

The UT upheld the FTT's decision that the classification of RTV X900 falls under subheading 8704 21 91 of the CN which carries a 10% customs duty charge. The UT saw no error in the FTT’s findings of fact (set out in paragraphs 5-11 of the FTT's decision) or approach. In the UT's view, there was ample evidence before the FTT to justify its findings. In particular, it noted that the RTV X900:

• can transport the following (but has no special adaptations in respect of transporting any of these): (a) boxes; (b) equipment; (c) ammunitions; (d) animal feed; (e) excavated material such as sand, gravel and stone, as well as other material; and (f) bags, bales, barrels;
• can tow a small trailer or towable equipment;
• is not suitable for the transportation of live animals (it would be dangerous to do so over rough terrain), unless the animals were small enough to be held in cages or in an animal trailer; 
• has no storage facilities for the transportation of water or other liquids (unless in containers);
• can be, and is, used on construction sites; and
• prior to going into production, its hydraulic tipper was subjected to a test whereby the cargo bed containing 85% of its maximum load was raised and lowered through 10,000 cycles.

Comment 

Importers of RTV X900 vehicles will be disappointed by the UT's decision, although it does provide  some clarity on the applicable CN heading and import duty rate of 10%. It will be interesting to see whether Kubota seeks permission to appeal the UT's decision to the Court of Appeal.

The decision can be viewed here.   

AVF Group Ltd – classification of television stands 

In AVF Group Ltd v HMRC [2022] UKFTT 00014 (TC), the FTT upheld an appeal in part against HMRC's C18 Post Clearance Demand Notices that the classification of certain television stands fell under the subheading “other furniture” (9403 89 00 90) of the CN.

Background 

ANF Group Ltd (the Appellant) manufactures, amongst other things, television stands, made from a variety of materials. The issue to be determined in this case was whether certain television stands manufactured by the Appellant fell under the subheading “other furniture” (9403 89 00 90) or “other metal furniture” (9403 20 80 00) of the CN. The importation of furniture classified under subheading 9403 89 00 90, attracts duty at the rate of 5.6%, whereas classification under subheading 9403 20 80 00 attracts duty at the rate of 0%.

HMRC’s classification decision was contained in a C18 Post Clearance Demand Notice issued to the Appellant on 3 September 2019, in the sum of £56,558.51, being £47,132.09 for customs duty and £9,426.42 for import VAT (the Notice). 

The Appellant appealed the Notice to the FTT.

FTT decision

The appeal was allowed in part.

The FTT made the following decision, in principle, in relation to the television stands made of glass and metal:

1. for products where the value of the glass component was less than the value of the metal components, Regulation 313/2011 applied such that the relevant tariff was 9403 2080 and therefore, to the extent that the Appellant's products which were subject to the Notice fell within this category, the appeal was upheld;

2. for products which did not fall into paragraph (1) above and where the glass was not specified (whether by a retailer or otherwise) to be of a greater thickness than that used in the Appellant's generic television stands and where the top was painted black so the it was not visually distinct from metal, the FTT concluded that the glass did not give the essential character of the product and was classified by the metal support to 9403 20 80 following the guidance in the explanatory note in Chapter 94 of the CN, which the FTT saw no reason to depart from and therefore, to the extent that he Appellant's products, which were subject to the Notice, fell within this category, the appeal was upheld;

3. for products which did not fall into either paragraphs (1) or (2) above, the FTT concluded that the glass used in the products was intended to have a specific decorative function as well as a support function and therefore provided the essential character of the product. As such, these products were classified by the material of the top to 9403 89 00. To the extent that the Appellant's products fell into this category, the appeal was dismissed.

Comment 

Although fact specific, this decision does provide some clarity to taxpayers in relation to the applicable CN heading and import duty rate for certain TV stands. 

The decision can be viewed here.