Customs and excise quarterly update - May 2023

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

News

• The government has released details of the Windsor Framework, which seeks to address issues regarding trade friction with the application of the Northern Ireland Protocol. The rules on collection of export declarations remain in line with current practice, with no requirement to collect for the majority of trade from Northern Ireland to Britain. A new "Green Lane" for authorised traders of goods from Britain to Northern Ireland has been extended, allowing for the removal of most customs formalities.

• In order to strengthen UK borders against biosecurity threats and illegal imports, a new approach to border control was published in draft form. This proposes a data and technology driven approach to simplify import processes, with a reduction in physical checks of goods and a greater reliance on risk-based modelling. A final border target operating model is due to be published by June 2023.

• The government is set to implement a new alcohol duty system from 1 August 2023. The new system will apply progressively higher rates for alcohol between the strength of 3.5% abv and 8.4% abv. Two new reliefs are also set to be introduced. The Small Producer Relief will reduce the burden on smaller producers of alcohol below 8.5% abv, while the Draught Relief will cut duty rates on draft products below 8.5% abv.

Case Reports

Ocean Choice International Ltd v HMRC [2023] UKFTT 289 (TC)

The appellant appealed against two HMRC decisions, the first was a decision to issue a C18 Post Clearance Demand Note (the C18) in respect of 15 imports of prawn and shrimp with a total value of £2,237,613.74 and the second was a decision to refuse the appellant's application for remission of that duty.

The appellant had imported seafood into the EU since 2008 and made use of end-use relief. Issues arose in 2016 when the EU customs regime was overhauled, causing confusion for importers and HMRC alike. The appellant and its customs adviser repeatedly sought information from HMRC in relation to the new rules but the information they received was often unclear and ambiguous.

One key change which had been introduced was a requirement that importers have a financial guarantee in place for customs duty which was subject to relief. The C18 was issued in respect of imports which took place when no such financial guarantee was in place.

The appellant appealed to the First-tier Tribunal (FTT).

HMRC argued, and the FTT agreed, that the appellant was liable to import duties pursuant to Article 79(1) of the Union Customs Code (UCC), because it had not complied with a customs procedure.

The appellant argued that it should be entitled to remission under Article 120, UCC, which provides that a duty can be remitted in the interests of equity where a customs debt is incurred under special circumstances in which no deception or obvious negligence may be attributed to the debtor. The FTT found that there was no deception on the part of the appellant and that the complexity surrounding the procedure meant that its mistake could not be considered "obvious negligence".

The FTT applied Eyckeler & Malt v Commission (Case T-42/96) and concluded that it had to assess all the facts to determine whether they constitute a "special situation". The FTT considered that the following facts were important in this regard:

• this was the first time the appellant was at fault;

• this was the first time the appellant imported the goods following enactment of the new legislation;

• the appellant was diligent in chasing HMRC to determine the correct procedure;

• HMRC introduced a considerable element of confusion into the process, in particular, it invited the appellant to apply for end-use authorisation before a financial guarantee was in place, thereby leading the appellant to believe that it had taken all necessary steps; and

• HMRC amended the wording of future authorisations for other companies, thus acknowledging that the existing wording was unclear.

The FTT concluded that special circumstances did arise in the circumstances of this case and therefore the appellant was entitled to remission in the interests of equity.

Why it matters: This decision provides useful guidance on remission claims made under the UCC. The FTT breaks down the interplay between the black-letter law, its interpretation by HMRC, and the concept of equity for the purposes of remission under Article 120, UCC.

The decision can be viewed here.

Eveleigh v HMRC [2023] UKFTT 356 (TC)

The appellant appealed to the FTT against HMRC's decision to issue an excise duty assessment in the sum of £121,666, arising from an importation of 1,160 kg of tobacco from France into the UK.

The appellant was stopped at the UK Zone Coquelles in his vehicle by UK Border Force. He was found with 1,160kg of undeclared tobacco. The duty on the tobacco was £243,333. He was assessed to be liable for half of the duty, with a fellow passenger liable for the other half. The tobacco and vehicle were seized under section 139, Customs and Excise Management Act 1979, as the officer formed the view that the tobacco was held for a commercial purpose.

The appellant was also arrested and charged with being knowingly concerned in the fraudulent evasion of excise duty, to which he pleaded guilty on 24 April 2018. He was sentenced to 18 months imprisonment, suspended for two years.

At the heart of the appellant's argument was that to issue an assessment for excise duty in circumstances where criminal punishment had already been imposed was disproportionate.The appellant argued that chargeability to excise duty is mandated by Council Directive 2008/118/EC of 16 December 2008, but that the manner of levy and collection is left to the discretion of the Member State. Section 12, Finance Act 1994, gives power to HMRC to assess for duty, and the crucial wording is "the Commissioners may assess the amount of duty due from that person and notify that amount to that person". The appellant argued that Parliament's choice of the word "may", as opposed to "shall", meant that it was not mandatory for HMRC to assess where there was liability and enabled HMRC to waive collection where collection would create disproportionality.

The FTT dismissed the appeal.

The FTT applied HMRC v Perfect [2019] EWCA Civ 465, in which the Court of Appeal confirmed that:

• HMRC must assess the person who it finds to be holding the goods in question, if that is the only excise duty point which can be established;

• the public interest in ensuring that excise duty is paid may require that anyone holding the goods is strictly liable for the duty;

• strict liability is an accepted feature of the regime; and

• fairness and proportionality are cornerstones of EU law, as they are of the common law, but they do not invariably exclude the imposition of strict liability.

The FTT also considered Kevan Denley v HMRC (2017) UKUT 340 (TCC), in which the Upper Tribunal said "while the cumulative effect on a person of forfeiture without restoration, assessment and penalty might be a relevant factor in an exceptional case, we do not see it as material consideration in an ordinary case". In the view of the FTT, this was not an exceptional case. The appellant smuggled the dutiable goods for financial gain and the law exists to deter such conduct.

The FTT confirmed that HMRC must assess the person holding the goods. The use of the word "may", in section 12, Finance Act 1994, is because HMRC can assess more than one individual for the total duty due. Regarding proportionality, the FTT relied on Lane v HMRC [2015] UKFTT 423 (TC), which confirmed that proportionality is relevant to penalties, but not to the duty itself. An assessment to excise duty is not a penalty.

Why it matters: This decision confirms that criminal sanctions, forfeiture and seizure of goods do not render an excise duty assessment disproportionate or invalid. The FTT also confirmed that an inability to pay does not mean that an assessment is invalid.

The decision can be viewed here.

Uflex Europe Ltd v HMRC [2023] UKFTT 409 (TC)

The appellant appealed to the FTT against HMRC’s decisions that imported plastic-coated polypropylene pet food bags were liable to customs duty at 7.2% rather than 0%. The customs duty was £937,025.61 and the import VAT was £194,564.06, together totalling £1,131,590.67.

The FTT considered Chapters 39 and 63 of the Combined Nomenclature (CN), adopted under Article 1, EC Regulation 2658/1987, and the appropriate classification of the appellant's pet food bags. The main issue in the appeal was whether the pet food bags should be classified under commodity code 3923 29 90 00, attracting 6.5% duty with the benefit of preference rates of 0% duty, as argued by the appellant, or under commodity code 6305 33 90 00, attracting the full rate of duty of 7.2% and a preference rate of 5.7%, as argued by HMRC. The appellant also claimed that it was entitled to retrospectively claim 0% duty by belated presentation of proof of the GSP certificates due to exceptional circumstances. HMRC claimed that the appellant was out of time.

Following the approach taken to classification set out in Build-A-Bear Workshop UK Holdings Ltd v HMRC [2022] EWCA Civ 825, the FTT found, first, that the objective characteristics of the bags were that they were made from woven polypropylene laminated in plastic on one side and were intended to be used for storing pet food. The FTT then undertook a combined examination of the wording of the headings and the explanatory notes to the relevant sections and chapters in order to determine whether a definitive classification could be reached, in accordance with the General Interpretation Rules (GIR) 1 and 6.

The FTT allowed the appellant's appeal in part. In doing so, the FTT rejected HMRC's argument that the bags were made from woven polypropylene which was a textile. The FTT concluded that the bags were entirely made of plastic. They were coated in plastic and polypropylene is a plastic. Moreover, in applying GIR 1, there was no “essential characteristic” test. The correct test was to look at the objective characteristics and properties of the item in question. Note 1(h) to Chapter 63 of the CN was drafted in unambiguous terms and the bags fell within that Note and were therefore excluded from Chapter 63. The bags therefore fell within Chapter 39 of the CN and should be classified under commodity code 3923 29 90 00.

The FTT rejected the appellant's claim that it was entitled to retrospectively claim 0% duty by belated presentation of proof of the GSP certificates due to exceptional circumstances. The FTT concluded that the need to correctly classify goods on importation is a task that confronts every trader and that the appellant's mistaken application of the relevant tariff heading which resulted in its failure to submit GSP Form A within the specified time period, did not constitute exceptional circumstances.

Why it matters: This decision provides a useful overview of how the tribunals and courts approach customs classification. The decision highlights the complexity and technical nature of the application of the rules to specific products. Importers would be well advised to obtain appropriate professional advice in relation to the classification of their products as an incorrect classification can have significant financial consequences.

The decision can be viewed here.