Customs and excise quarterly update - August 2023

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

News

• The government has introduced new powers enabling HMRC to issue tougher sanctions to those contravening the requirements outlined in The Tobacco Products (Traceability and Security Features) Regulations 2019. A Tobacco Track and Trace system was introduced in 2019 to give HMRC the ability to monitor the manufacture and supply of legitimate tobacco products. This helps identify when products are diverted to the illicit market. These new measures allow Trading Standards to carry out investigations and refer evidence of contraventions to HMRC, who will then be able to impose tougher sanctions.
  
  
• HMRC has issued a consultation requesting views from stakeholders on how to simplify customs declarations and use technology to facilitate declarations and other customs processes. As announced in the Spring Budget 2023, the government is reviewing what data businesses are asked to provide as part of the customs declaration process. This call for evidence asks for views on the benefits and burdens of certain data elements and proposals for simplification. The call for evidence will close on 8 September 2023.
  
  
• HMRC has issued a consultation requesting views from individuals, businesses and intermediaries on how the Temporary Admission (TA) procedure is working. The TA procedure allows goods to be imported into the UK temporarily without payment of import duties. The TA procedure can be accessed in three ways: (1) with prior authorisation from HMRC; (2) goods can be declared into TA without prior authorisation in some circumstances when financial security is provided; or (3) for individuals, goods can be declared into TA without prior authorisation or financial security if the goods are eligible. Many consider the system to be administratively burdensome and complain that there are barriers to access, in particular, in relation to time limits. The aim of the consultation is to simplify the procedure and make it more accessible. This call for evidence will close on 22 September 2023.

Case Reports

Panorama Cash and Carry Ltd (t/a Booze Direct) v Revenue and Customs Commissioners [2023] 6 WLUK 472

Panorama Cash and Carry Ltd (the applicant) traded in wholesale alcohol.  It had been registered as an owner of excised goods under the Warehousekeepers and Owners of Warehoused Goods Regulations 1999 (WOWGR). In July 2010, the applicant entered into transactions for the purchase and subsequent sale of 10 consignments of duty-suspended beer. The operator of the UK bonded warehouse in which the beer was held checked the status of Simply Vodka, the operator of the warehouse in Belgium for which the beer was destined, on the EU System for Exchange of Excise Data (SEED). This check revealed no irregularities and HMRC confirmed that Simply Vodka was authorised to receive the beer. However, it emerged that the information held on SEED had been incorrect and Simply Vodka had in fact ceased trading. By August 2010, HMRC had established that beer sold by the applicant had been fraudulently diverted by third parties for onward sale (without the applicant's involvement). HMRC cancelled the applicant's WOWGR registration, a decision upheld on review. The applicant appealed to the First-tier Tribunal (FTT).

In January 2014, the FTT directed HMRC to carry out a re-review, which eventually resulted in the applicant's WOWGR registration being reinstated in August 2017 (almost seven years after its original cancellation). 

In December 2019, the applicant instituted proceedings against HMRC alleging misfeasance in public office, as well as a common law claim in tort, and sought damages for an alleged breach of EU law. In July 2020, its particulars of claim were struck, but permission was granted for it to amend its claim to limit it to EU law matters only and to contain particulars of its position in relation to limitation. The amended claim and particulars were served on HMRC. The applicant argued that its cause of action had not accrued until 10 August 2017, when its WOWGR registration had been reinstated and, in the alternative, that there was no limitation period applicable to its EU law claim, as amended. 

The applicant also appealed the strike-out of its original claim to the Court of Appeal. Its appeal was dismissed in 2021, with Snowden LJ holding that the misfeasance claim was statute-barred and the original strike-out decision was upheld. 

In May 2022, the applicant was refused permission to rely on its amended EU law claim, principally on the ground that it was time-barred, and it sought permission to appeal from the High Court.

The High Court denied permission to appeal. It held, agreeing with Snowden LJ, that there was no realistic prospect of the applicant establishing that the analysis applicable to its amended EU law claim was different from that applicable to the misfeasance claim. The Court further noted that claims for Francovich damages were claims in tort and subject to section 2, Limitation Act 1980, and therefore time barred.

Why it matters: This decision illustrates the importance of considering all relevant time limits at an early stage in a dispute with HMRC, and of considering all available avenues of legal redress. 

The decision can be viewed here.

Innovation Rehab Ltd v HMRC [2023] UKFTT 00472 (TC)

Innovation Rehab Ltd (the appellant) appealed to the FTT against HMRC's decisions that its importation of various products used in the hospital and care sectors during the period 14 September 2018 to 21 December 2020, were liable to customs duty at 6.5% (pre-Brexit) and 6.0% (post-Brexit) rather than 0%.

The products are mainly designed for patients at risk of developing pressure injuries and ulcers either after they have undergone a medical procedure, or whilst they are waiting for a medical procedure and provide effective pressure redistribution by providing a cushion of static air (of about 2cm depth) around the part of the body resting on the product.

The FTT considered Chapters 39, 90 and 94 of the Combined Nomenclature (CN) adopted under Article 1 of EC Regulation 2658/1987, for the pre-Brexit imports and section 8, Taxation (Cross-border Trade) Act 2018 and Regulation 2, Customs Tariff (Establishment) (EU Exit) Regulations 2020 (SI 2020/1430), the Tariff of the United Kingdom (the UK Tariff), for the post-Brexit imports when deciding the appropriate classification of the appellant's products.

The main issue in the appeal was whether the relevant products should be declared under commodity code 9021 10 10 00, attracting a customs duty of 0%, as argued by the appellant or under commodity code 3926 90 97 90, attracting a customs duty of 6.5% (pre-Brexit) and 6.0% (post-Brexit), as argued by HMRC.

The FTT allowed the appellant's appeal in part.

The FTT concluded that all of the products imported by the appellant in the period up to and including 28 March 2019 (i.e. prior to the publication of Additional Note 2 in the EU Official Journal) were properly classified under CN 9021 10 10 00 and therefore attracted a customs duty of 0%. In doing so, the FTT rejected HMRC's argument that the relevant products were not "orthopaedic appliances" taking into account HMRC's previous assurance provided to the appellant in 2005 that the products fell within this definition and further commented that Note 6 to Chapter 90 to the CN, includes within this definition appliances for supporting or holding parts of the body following an illness, operation, or injury which the FTT commented is "apt to describe all of the imported products".

In the view of the FTT, the pre-inflated cushion, bariatric cushion, wheelchair cushion/multicare pad, riser Recliner Chair Cushion (Long), and riser Recliner Chair Cushion (Short) imported on

or after 29 March 2019, ought to have been classified under CN 3926 90 97 90 (or the corresponding code in the UK Tariff) attracting a customs duty of 6.5% (pre-Brexit) and 6.0% (post-Brexit). The FTT concluded that the appellant could no longer rely on the previous incorrect assurance as the error was reasonably capable of detection by the appellant following publication of Additional Note 2 in the EU Official Journal on 29 March 2019. The FTT therefore concluded that as the appellant had not provided any evidence that the products prevented specific movement of any part of the body, they did not satisfy the requirements of orthopaedic appliances within Additional Note 2.

The FTT found that the mattress overlay, the bariatric mattress overlay, and the trolly topper, imported on or after 29 March 2019, were correctly classified under CN 9021 10 10 00 (or the corresponding code in the UK Tariff) on the basis of the appellant's evidence that they wrap around the patient, holding them immobile, therefore attracting a customs duty of 0%.

HMRC accepted that the foot protector satisfied the requirements of Additional Note 2 and was properly classified under CN 9021 10 10 00, attracting a customs duty of 0%.

The FTT said that HMRC's Post Clearance Demand Note (C18) should be amended to reflect the FTT's decision in principle and that if the parties were unable to reach agreement on the amended amount of duty within one month of the FTT's decision the parties could apply to the FTT for it to determine the duty that was payable.

Why it matters: This decision provides useful guidance on how the FTT is likely to approach a customs classification case. 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 when importing products of a similar nature.

The decision can be viewed here.

Caerdav Ltd v HMRC [2023] UKUT 179 (TCC)

HMRC issued a C18 demand for customs duty and import VAT in the sum of £330,633.45, in respect of the importation by Caerdav Ltd (the appellant) of an aircraft in November 2016. The aircraft had flown from Bulgaria to Wales for a service check, repairs and maintenance. The aircraft then left the UK for the Republic of Ireland before going to its final destination in the USA. In two letters sent to the appellant in October and November 2017, HMRC initially expressed the view that no liability arose for the appellant.  However, HMRC then came to a different view and raised a C18 demand on 23 April 2018 on the basis that the appellant had entered the aircraft into the EU customs 'end-use' special procedure but it was not entitled to do so at the time because its end-use authorisation (EUA) had expired.

The appellant's appeal to the FTT was dismissed and it appealed to the Upper Tribunal (UT).

The main grounds of appeal were whether:

1. the FTT had erred in finding that the aircraft was directly exported from Bulgaria to the USA and no longer subject to the Inward Processing special procedure;
2. the FTT had erred in finding the duty could not be remitted under Article 120 of the Union Customs Code (UCC); and
3. HMRC's statements in their October and November 2017 letters that no liability arose, gave rise to a legitimate expectation that duty would not be imposed. 

The UT dismissed the appeal on all grounds, holding that the FTT's findings contained no material error of law.

In respect of the FTT's factual finding that there was a direct export, the UT considered there was ample material on which the FTT could properly make that finding and it could not overturn this finding of fact. 

The UT noted that the two limbs to the remission conditions, which must be satisfied in order for a taxpayer to bring themselves within Article 120 UCC (which are cumulative and not alternative), are special circumstances and no obvious negligence.  In the view of the UT, the FTT's finding that the appellant had not established that there was no obvious negligence, was one it was entitled to reach and it could not interfere with that finding. The appellant had failed to realise that its EUA had expired, failed to react quickly when it did realise and did not carry out the necessary procedural steps, as advised by HMRC, to try to rectify that position. On this basis, there was no need to  consider the special circumstances limb.  The UT also concluded that there could be no legitimate expectation created by HMRC, for the purposes of EU law, which would entitle the appellant to remission under Article 120, UCC. 

Why it matters: This decision serves as a warning to taxpayers when importing items to check the customs implications before proceeding with the import.  The errors in this case led to the taxpayer incurring a debt which was out of all proportion to the value of the repairs made to the aircraft. This case also provides useful commentary on remission under Article 120, UCC, and the extent of the FTT's jurisdiction on legitimate expectation. 

The decision can be viewed here.