Customs and excise quarterly update - February 2024

Welcome to the February 2024 edition of RPC's Customs and Excise Quarterly Update.

News

• The government has released the outcome of a recent consultation seeking views on how to improve the Temporary Admission (TA) procedure in the UK, a procedure which allows goods to be brought into the UK on a temporary basis without paying import duties. The consultation, held from 29 June 2023 to 22 September 2023, sought views on how to simplify processes for traders and individuals in respect of bringing goods into the UK temporarily. As a result of the consultation, the government has identified three key areas for potential policy change: (1) eligibility criteria; (2) conditions of use; and (3) timing requirements. The government plans to consult further with the industry throughout the course of this year in order to better understand how policy changes could improve support to traders and how to facilitate wider economic activity. 

• The government has announced that it will simplify customs declarations for imports and exports by reducing the information traders may have to provide by up to 25%. This announcement follows the recent consultation that the government held in June 2023, which sought views on ways to simplify customs declarations and how businesses use technology to complete customs declarations and other customs processes. In addition to the plans to simplify customs declarations, HMRC intends to use the responses to the consultation to inform the design of border transformation programs. 

• On 31 January 2024, the first reporting period for importers for the EU Carbon Border Adjustment Mechanism (CBAM) came to an end. This forms part of the gradual phasing in of CBAM, a carbon border tax used by the EU to place a fair price on the carbon emitted during the production of carbon intensive goods which enter the EU. The CBAM is currently in a transitional phase and so will initially apply to the most carbon intensive importers such as those who import iron and fertilisers.

The government has announced that by 2027, the UK will introduce a CBAM which will place a carbon price on industrial goods imported to the UK which have high emissions such as aluminium, cement, glass and hydrogen. The CBAM liability will lie with the importer of the goods. It will depend on the greenhouse gas emissions of the imported goods and the gap between the carbon price applied in the country of origin and the carbon price that would have been applied had the goods been produced in the UK. The government intends to hold a consultation this year to determine further details relating to CBAM, including the design and delivery of the new regime. 

Case Reports

M&S Property Services (NW) Ltd v HMRC [2023] UKFTT 00969 (TC)

M&S Property Services (NW) Ltd (the Appellant) imported a series of goods. In early 2021, HMRC's Pre-Clearance team inspected one of the Appellant's imports and found that the goods had been imported under the incorrect commodity code. 

The Appellant used commodity code 8711609090, which applies to “motorcycles (including mopeds) and cycles fitted with an auxiliary motor, with or without side cars: with electric motor for propulsion”, and which carries customs duty of 6%.  However, HMRC found that the import contained two models of electronic bicycles which had electric motors and pedals. As such, HMRC considered the appropriate commodity code for these goods to be 8711609010, which applies to "motorcycles (including mopeds) and cycles fitted with an auxiliary motor, with or without side cars: with electric motor for propulsion – other cycles with pedal assistance with an auxiliary motor", and which carries a duty rate of 6%, plus anti-dumping duty (ADD) of 62.1% and countervailing duty (CVD) of 17.2%.

HMRC further investigated the Appellant's previous imports and on 4 October 2021 issued the Appellant with two C18 Post-Clearance Demand Notices (C18's). The aggregate amount of the C18s was £18,924.98. This was made up of £483.59 in customs duty, £11,628.22 in ADD, £2,904.40 in CVD and £3,908.77 in VAT.

The Appellant appealed the two C18s to the First-tier Tribunal (FTT).

The key issue the FTT had to determine was whether the Appellant was able to demonstrate, on the balance of probabilities, that the goods imported did not have pedal assistance. 

The Appellant relied on evidence in support of its contention that the imported goods did not have pedals, including a photograph of a pedal-less moped attached to the invoice from one of the imports. However, the copy invoice provided by the freight agent did not include any such photograph. The Appellant gave no explanation as to the source of the photograph. The FTT concluded that the photograph was added at a later date. 

The FTT also considered an email exchange between HMRC and the Appellant, in which HMRC asked the Appellant if the imported goods were more like mopeds or motorcycles, without pedal assistance. In response, the Appellant stated "just pedal bikes some pedal assist bikes". The Appellant argued before the FTT that this response was only intended as an example of the goods imported and that at the time of making that statement it had not understood that HMRC would take the statement to apply to all imports. The FTT rejected this explanation.  

As the Appellant could not demonstrate that the goods imported did not have pedal assistance, the FTT dismissed the appeal. As such, the Appellant was liable to pay the C18's in full. 

Why it matters: 

This case provides useful guidance as to the considerations that the FTT is likely to take into account in classification disputes.  The burden of proof falls on the importer to demonstrate that the commodity code used was correct.  It is therefore important that the importer gathers robust evidence to support their position and provides clear and accurate descriptions of their goods when corresponding with HMRC.     

The decision can be viewed here.

Hartleb T/A Hartleb Transport v HMRC [2024] UKUT 34 (TCC) 

Agnieszka Hartleb, trading as Hartleb Transport (the Appellant), runs a transport business based in Poland.  One of the Appellant's lorries was stopped at Dover by UK Border Force.  They discovered three pallets of cigarettes in the lorry for which there was no evidence that duty had ever been paid. The lorry and cigarettes were seized, and both the cigarettes and lorry were condemned as forfeit.

HMRC also issued the Appellant with an excise duty assessment of £130,913, together with a penalty of £26,689 on the basis that an employee was considered to be "holding" excise goods for the purpose of Regulation 13(2)(b) of the Excise Goods (Holding, Movement and Duty Point) Regulations 2010 (the 2010 Regulations).  The Appellant appealed to the FTT.  

The FTT dismissed the Appellant's appeal against the assessment and penalty.  The Appellant then  appealed to the Upper Tribunal (UT).

The Appellant relied on two grounds of appeal:

1. The Appellant was not a "holder" of the excise goods for the purpose of Regulation 13(2)(b) of the 2010 Regulations.
2. The Appellant was not "making delivery" of the excise goods for the purpose of Regulation 13(2)(a) of the 2010 Regulations.

The Appellant effectively argued that, whilst she was in de facto and legal control of the excise goods, they were not in her physical possession at the time of the seizure, rather, they were in the physical possession of her employee. She further argued that the employee was not acting in the course of his employment or pursuant to her instructions and was acting in bad faith. The UT rejected these arguments on the basis that the FTT had found as a fact that the employee was acting in the course of his employment and was not acting in bad faith.

The UT had to determine who the "holder" of the excise goods was, for the purpose of Regulation 13(2)(b) of the 2010 Regulations, in circumstances where physical possession and legal control were separated. The UT found the factors identified in Dawson's (Wales) Ltd v HMRC [2023] EWCA Civ 332  helpful, those factors being:

1. Who had physical possession at the time the alleged earlier excise duty point occurred?
2. Who is the person alleged to have de facto or legal control over the goods and how is that person said to have control?
3. The time at which the excise duty point arose.
4. Where the goods were being held at the relevant time.

The UT applied the above factors to the present case as follows:

1. Physical possession was with the Appellant's employee.
2. The Appellant was the person with de facto and/or legal control of the goods as she was able to determine where the goods were transported by directing her employee who was driving her lorry.
3. There was no difference in timing between the excise duty points, this is when the goods were first held in the UK as per Regulation 13(1) of the 2010 Regulations, which in practical terms was when they were brought into the UK on the Appellant's lorry.
4. The goods were being held in the lorry.

In the view of the UT, physical possession alone is not determinative. Rather, the tribunal must establish first who has physical possession of the goods and then consider whether the circumstances of that possession are such that it is inappropriate for that person to be considered to be "holding" the goods. The UT concluded that the Appellant should be considered to be "holding" the goods as the Appellant had entered into an arrangement with the manufacturer of the goods for the transportation and delivery by her business of the goods and was discharging her obligations under that arrangement by directing her employee who was driving her vehicle to deliver the goods accordingly. 

Why it matters: 

This case provides a helpful summary of what the tax tribunals will take into consideration when deciding who is "holding" excise goods for the purposes of the 2010 Regulations.  The case addresses a common situation where excise goods are physically held by a person who is not in legal or physical control of the goods. 

The decision can be viewed here.

Canadian Solar EMEA GmbH v HMRC [2024] UKFTT 85 (TC)

Canadian Solar EMEA GmbH (the Appellant) used solar cells in the construction of solar panels.  The Appellant sourced its solar cells from manufacturers in Taiwan.  The solar cells were shipped from Taiwan to Vietnam.  In Vietnam, the solar cells were incorporated into solar panels and then shipped to the UK.  HMRC contended that the solar panels should be classified under commodity code 8541 40 90 53, having been consigned from Taiwan, which would have attracted both ADD and CVD.  The Appellant contended the solar cells were consigned from Vietnam, not Taiwan.  

The issue between the parties was therefore whether the solar cells were consigned from Taiwan or Vietnam. This, and related issues, were relevant to the Appellant's liability under a C18 Post Duty Clearance Demand (C18) to ADD of £3,210,145, CVD of £691,323.36 and import VAT of £780,293.67, totalling £4,681,762.03. The Appellant appealed HMRC's decisions to the FTT. The Appellant also appealed against HMRC's refusal to remit the total sum of £4,681,762.03.

The FTT considered the following:

1. whether the issues in the appeal were effectively settled by the decision of the CJEU in Case T-152/16 Megasol Energie AG v European Commission;
2. whether the Appellant had been correctly "notified" by HMRC of a debt;
3. whether the phrase "consigned from" Taiwan in the Commission Implementing Regulation 2016/185 (2016 Implementing Regulations) meant directly shipped from or indirectly shipped from Taiwan;
4. whether there was a three-year limitation period for the Appellant to claim exemption from ADD and CVD, so that HMRC should have allowed an amendment to the entries submitted by the Appellant's representative on 1 February 2021; and
5. whether the Appellant should be allowed remission of ADD and CVD. 

The FTT concluded that:

1. the Megasol case did not determine the position in these appeals because it is unsafe to treat that decision as authority for any proposition other than that Megasol had simply failed to demonstrate how the 2016 Implementing Regulations were or might be applicable to it.
2. HMRC had not failed to notify the Appellant of a debt, as required by Article 102(3) Union Customs Code because HMRC's letter constituted an adequate notification of the alleged customs debt. It was therefore not necessary to consider whether the C18 also constituted a notification of a debt;
3. the words "consigned from Malaysia and Taiwan" in the 2016 Implementing Regulations, in circumstances in which the goods were originally consigned from Malaysia and Taiwan and where what occurs in the intermediate jurisdiction (Vietnam in the present case), means originally or indirectly consigned from Malaysia and Taiwan;
4. there was no legal basis on which HMRC could allow the Appellant to amend its customs declaration and the Appellant had not made valid amendments in any event; and
5. the Appellant was not obviously negligent having relied on legal advice regarding its liability to the duty, and the effect of the incorrect advice, together with other factors put the Appellant in a special situation and in an exceptional situation as compared with other operators engaged in the same business.

The FTT therefore allowed the appeal against HMRC's refusal to remit duty. However, the other appeals against the decisions relating to the ADD and CVD and import VAT, were dismissed.

Why it matters: 

Whilst this decision does not set a binding precedent, being a decision of the FTT only, the FTT considered various important areas of customs law and the decision therefore contains a useful discussion. In respect of remission, professional advice received at the outset was considered by the FTT as an indication that the Appellant had not been negligent, despite that advice being incorrect.  Importers would be well advised to take early professional advice on the customs treatment of goods.  

The decision can be viewed here.