Customs and excise quarterly update - February 2023

Welcome to the February 2023 edition of RPC's Customs and Excise Quarterly Update.

News

• The deadline for exporters to move from using CHIEF to the new Customs Declaration Service has been extended to 30 November 2023.
• The government has announced the suspension of import duty in relation to in excess of 100 categories of goods.
• The freeze to UK alcohol duty rates has been extended for a further six months until 1 August 2023.

Case reports

Pavan Trading Ltd v HMRC [2023] UKFTT 79 (TC)

The appellant appealed against HMRC's decision to raise a VAT assessment for £70,652 under section 73, Value Added Tax Act 1994 (VATA 1994) in relation to wholesale supplies made to customers in the USA.

Section 30(6), VATA 1994, provided, at the material time, that a supply of goods is zero-rated if HMRC is satisfied that they have been exported to a place outside the EU and if other conditions imposed by HMRC have been satisfied. Regulation 129, VAT Regulations 1995, provided that in order to be zero-rated, the supplies of exported goods had to be to a person not resident in the UK or a trader who had no business establishment in the UK from which no taxable supplies were made, subject to such further conditions as HMRC imposed.

Paragraph 3.3 of VAT Notice 703 provided, materially, that a trader could zero-rate supplies sent to a destination outside the EU where the trader ensured that the goods were exported from the EU within a specified time-limit; where evidence of export was obtained within specified time-limits; where supplementary evidence of the export transaction was retained; and where the law and conditions of the notice were complied with. Paragraph 3.5 of VAT Notice 703 provided that the time limit for exporting goods and obtaining/retaining evidence was three months from the time of supply.

The appellant had obtained evidence of export within three months of the relevant exports but had not provided the evidence to HMRC within that period.

HMRC raised a VAT assessment for £70,652.00, under section 73, VATA 1994 which the appellant appealed to the First-tier Tribunal (FTT).

The initial assessment, the review carried out by HMRC and HMRC's statement of case and skeleton argument were all predicated on the view that this did not suffice to satisfy the requirements of VAT Notice 703.

The FTT, allowing the appeal, disagreed with HMRC, branding its view of the law as "erroneous" and the review officer's decision as "nonsense". It noted that there was no express requirement for the information to be provided to HMRC and that "[i]f there was ever a counsel of perfection for the provision of export documentation, then this appellant has achieved it".

Why it matters: This decision highlights the importance of obtaining the correct documentation to support a zero-rating of exported goods. The case also illustrates the expense and inconvenience taxpayers can be put to when HMRC becomes entrenched in an incorrect view of the law. 

The decision can be viewed here.

Push Energy Ltd v HMRC [2022] UKUT 312 (TCC)

The appellant imported photovoltaic modules from an exporting producer in China which was a signatory to a price undertaking (the undertaking) issued by the China Chamber of Commerce for Import and Export Machinery and Electrical Products to the European Commission (EC). The goods were imported on 5 December 2014 (when the export undertaking certificate containing the undertaking was still valid) but bonded into a long-term storage facility and released into free circulation on 29 January 2015 (by which time the certificate had expired).

The undertaking was relevant because the regulations imposing Anti-Dumping Duty (ADD) and Countervailing Duty (CVD) in respect of certain goods imported from China, including photovoltaic panels, contained an exemption for goods subject to price undertakings.

HMRC raised a C18 post-clearance demand for £1,115,540.04 and penalties. The appellant appealed and requested copies of the undertaking from the EC. The EC refused this request, but noted that a national judge could request access to the information sought 'to ensure the application and enforcement of Union law in the national legal order' in accordance with the decision in Zwartveld C-2/88. The appellant therefore sought, prior to the hearing of the substantive appeal, a direction from the FTT for third-party disclosure from the EC. The direction was not sought under rule 5(3)(d) Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the FTT Rules), but instead by way of mutual co-operation under the Zwartveld principle.

The FTT refused the request (despite HMRC adopting a neutral position) on the grounds that it was not clear that a copy of the undertaking would be decisive in making a substantive decision, that a Zwartveld request could be made only in the course of a challenge to the validity of an EU act, and recognising that enforcing a resisted Zwartveld request against the EC would, post-Brexit, be 'likely to be fraught with difficulty if permitted at all'. The appellant appealed to the Upper Tribunal (UT).

The UT allowed the appeal. It held that the FTT had been wrong to consider that a Zwartveld request could be made only in the context of a challenge to the validity of an EU act, and that a request could be made under Zwartveld even if the document in question was merely relevant (rather than decisive/essential) to the issues under appeal. It further noted that a request for disclosure could be made to the EC's representative in London, thereby resolving the jurisdictional problem that the FTT had identified. The UT therefore remitted the decision to the FTT to determine in what terms the request should be made of the EC.

Why it matters: This decision demonstrates the value of taxpayers considering the full range of disclosure options available to them in tax litigation, rather than simply relying on the FTT Rules. It also illustrates some of the difficulties in navigating the customs landscape after the UK's departure from the EU.

The decision can be viewed here.

Omar v HMRC [2023] UKFTT 101 (TCC)

The appellant was stopped at customs at Heathrow airport attempting to import 12kg of hand-rolling tobacco and 800 cigarettes. No appeal was lodged against the seizure within time, and, more than a year after the seizure, HMRC wrote to the appellant assessing civil evasion penalties of £1,704 (incorporating 25% mitigation less 5% for disclosure and 20% for co-operation). Following correspondence in which the appellant asserted that he had been unaware that the quantity of tobacco he attempted to import was in excess of the duty-free allowance, HMRC reduced the penalties further, to £1,363 (i.e. incorporating a 40% reduction).

The appellant sought a review, which upheld the assessment, and appealed the penalty assessment to the FTT on the basis that he had not been dishonest. He argued that he was an infrequent traveller with little experience of customs formalities, and had been tired when he arrived at Heathrow airport. He also argued that his English language skills were limited and this contributed to his confusion.

The FTT dismissed the appeal. It noted that the appellant was a regular international traveller, having travelled abroad at least once each year since his arrival in the UK, and that he was familiar with the concept of a duty-free allowance. Going through the 'green' channel at the airport with the amount of tobacco that he had with him was, the FTT held, dishonest, talking account of his intelligence and previous experience of international travel. In addition, when stopped by customs, he had confirmed that he had nothing to declare. When the seizure was taking place, no evidence of any difficulty in comprehension was noted by the customs officer.

Why it matters: The decision includes a useful discussion of dishonesty in a customs context and provides helpful commentary on what constitutes dishonesty in that context. 

The decision can be viewed here.