Key Points
What is the issue?
Were HMRC reasonable to revoke a Binding Tariff Information and then reclassify the goods?
What does it mean to me?
A Binding Tariff Information may be revoked however HMRC must act reasonably, they must establish clearly that either a condition or any obligation placed on the importer is not met.
What can I take away?
If you have a client who would like to apply for a Binding Tariff Information then ensuring that the product is well tested to ensure that it meets the classification sought is of utmost importance.
Lord Justice Patten's decision in Invicta Foods Limited v HMRC is out he is upheld the First Tier Tribunal Judge Guy Brannan's decision. The question surrounds the import of chicken breasts from Brazil, a Binding Tariff Information ("BTI") issued in regards to their classification and then HMRC' revocation of the BTI.
Using the example of the chicken breasts I chart the law surrounding the BTIs.
A BTI is a legally binding written tariff classification decision, given on request. The BTI binds all customs administrations within the European Community for up to six years from the date of issue.
BTI is intended to give the importer assurance about the correct tariff classification of his imported goods. It is not a legal requirement. BTI decisions are made under the terms of Council Regulation (EEC) 2913/92 of 12 October 1992 establishing the Community Customs Code, and the Implementing Provisions contained in Commission Regulation (EEC) 2454/93 of July 1993 (as amended). This forms part of Community law and applies in all Member States of the EU.
The applicable law
The Combined Nomenclature Regulation (no 2568/87) provides the legal basis for the Community’s Tariff. The combined nomenclature (“CN”) which is reproduced in the UK Tariff sets out the duties and measures affecting the import, export and transit of goods to and from the UK. It consists of three Volumes:
(1) Volume 1 contains essential information including duty relief schemes, contact addresses and explanations of subjects such as excise duty and tariff quotas.
(2) Volume 2 contains the 16,000 or so commodity codes (set out on a chapter by chapter basis). It lists duty rates and other directions such as import licensing and preferential duty rates.
(3) Volume 3 contains a completion guide for import and export entries.
In order to classify goods, Volume 2 Part 1 Section 3 of the UK Tariff sets out the appropriate 4 digit heading that must first be established. There are six General Interpretative Rules (“GIRs”) which have legal force and are intended to be applied where goods cannot be classified solely by reference to the terms of headings and sub-headings or by taking into account section or chapter notes. The CN is designed to ensure, with the aid of the GIRs, that any product falls to be classified in one place. The GIRs provide, so far as material, as follows:
(1) Rule 1: classification shall be determined according to the terms of the headings and any relevant section or chapter notes.
(2) Rule 2 is divided into two parts:
(a) The first part extends the scope of the heading to cover incomplete or unfinished articles provided that they have the character of the complete or finished article.
(b) The second part covers mixtures or combinations of materials or substances.
(3) Rule 3 deals with goods that are potentially classifiable under two or more headings. The rule is in three parts, which apply sequentially:
(a) The first part directs that the heading which provides the most specific description is to take precedence over the one which provides only a general description;
(b) The second part relates to mixtures, composite goods consisting of different materials or components and goods put up for retail sale. It specifies that such goods are to be classified according to the material or component which gives them their essential character.
(c) The third part provides that where goods cannot be classified by applying Rule 3(a) or 3(b) they are to be classified in the heading which occurs last among those which equally merit consideration.
(4) Rule 4 provides that goods which cannot be classified in accordance with rules 1 to 3 shall be classified under the heading appropriate to the goods to which they are most akin.
(5) Rule 6 extends the scope of Rules 1 to 5 to subheading level.
Revoking a BTI
In relation to the revocation of the BTI, article 12(1) of Regulation 2913/92 establishing the Community Customs Code (the “Customs Code”) provides that:
“The customs authorities shall issue binding tariff information … on written request, acting in accordance with the committee procedure.”
Article 6 of the Community Customs Code (Council Regulation (EEC) No 2913/92) (“CCC”) provides that:
“1. Where a person requests that the customs authorities take a decision relating to the application of customs rules that person shall supply all the information and documents required by those authorities in order to take a decision.
...”
15. Article 9 of the CCC provides:
“1. A decision favourable to the person concerned, shall be revoked or amended where, in cases other than those referred to in Article 8, one or more of the conditions laid down for its issue were not or are no longer fulfilled.
2. A decision favourable to the person concerned may be revoked where the person to whom it is addressed fails to fulfil an obligation imposed on him under that decision.
...”
Article 12 of the CCC provides that:
“1. The customs authorities shall issue binding tariff information...on written request, acting in accordance with the committee procedure.
2. Binding tariff information...shall be binding on the customs authorities as against the holder of the information only in respect of the tariff classification...
...
4. Binding information shall be valid for a period of six years in the case of tariffs.... By way of derogation from Article 8, it shall be annulled where it is based on inaccurate or incomplete information from the applicant.
5. Binding information shall cease to be valid:
(a) in the case of tariff information:
...
(iii) where it is revoked or amended in accordance with Article 9, provided that the
revocation or amendment is notified to the holder.”
An trader's right of appeal against the withdrawal of the BTI - the revocation issue - is based on paragraph 3(1)(c) of the Customs Review and Appeals (Tariff and Origin) Regulations 1997 (SI 1997/534) (the “CRA Regulations”). This is an ancillary matter (paragraph 4 CRA Regulations and section 16(8) and (9) Finance Act 1994). An aggrieved trader may appeal to the tribunal against the decision to revoke a BTI.
The tribunal’s jurisdiction in such a matter is a supervisory one. The relevant question, therefore for a tribunal is whether the decision to revoke the BTI was one which HMRC could not reasonably have arrived at (section 16(4) Finance Act 1994).
To succeed on the revocation issue, therefore, the importer must show that HMRC acted in a way in which no reasonable body of commissioners could have acted, took into account some irrelevant matter or disregarded a relevant matter, or otherwise erred in law (c.f. CCE v JH Corbitt Numismatists Ltd [1980] STC 231 (HL) 239 (perLord Lane)).
Classification of Chicken Breasts
In Invicta HMRC argued that the Product was correctly classified in Chapter 2 of the CN the relevant Code in Chapter 2 being 02071410:
“Meat and edible offal, of the poultry of heading 01.05, fresh chilled or frozen
- of fowls of the species Gallus domesticus
[…]
- cuts and offal, frozen:
- cuts:
- boneless.”
The importer, however, argued that the Product should be classified under Chapter 16 under Subheading 16023211 (which attracts a lower rate of duty). This Subheading relates to:
“Other prepared or preserved meat, meat offal or blood:
[…] Of fowls of the species Gallus domesticus:
- containing 57 % or more by weight of poultry meat or offal:
- uncooked”
Thus, the importer argued that the Product is “prepared … meat” (it was common ground that the Product was not “preserved”).
In regards to the interpretative aids to Chapter 2 and Chapter 16 are concerned, the following points are relevant:
(1) Explanatory Note 1 to Chapter 16 provides:
“This Chapter [i.e. Chapter 16] does not cover meat, meat offal, fish, crustaceans, molluscs or other aquatic invertebrates, prepared or preserved by the processes specified in Chapter 2 or 3 or heading 05.04.” (emphasis added)
(2) The distinction between meat classified in Chapter 2 (on the one hand) and Chapter 16 (on the other) is explained in the HSENs for Chapter 2 as follows:
“This Chapter [that is, Chapter 2] covers meat and meat offal in the following states only, whether or not they have been previously scalded or similarly treated but not cooked:
(1) Fresh (including meat and meat offal packed with salt as a temporary preservative during transport).
(2) Chilled, that is, reduced in temperature generally to around 0 C, without being frozen.
(3) Frozen, that is, cooled to below the product’s freezing point until it is frozen throughout.
(4) Salted, in brine, dried or smoked.
Meat and meat offal, slightly sprinkled with sugar or with an aqueous solution of sugar are also classified in this Chapter.
Meat and meat offal not falling in any heading of this Chapter are classified in Chapter 16 e.g.:
(a) sausages and similar products, whether or not cooked (heading 1601).
(b) Meat and meat offal cooked in any way (boiled, steamed, grilled fried or roasted) or otherwise prepared or preserved by any process not provided for in this Chapter including those merely covered with batter or bread crumbs, truffled or seasoned (e.g. with pepper and salt) as well as liver pastes and pates.” (emphasis added)
(3) Additional Note 6(a) to Chapter 2, which was much debated in the course of the hearing, provides that:
“Uncooked seasoned meats fall in Chapter 16. ‘Seasoned meat’ shall be uncooked meat that has been seasoned, either in depth of over the whole surface of the product, with seasoning either visible to the naked eye or clearly distinguishable by taste.” (emphasis added)
The CNENs to Additional Note 6(a) state that:
“Salt is not considered to be a seasoning within the meaning of this additional note.”
The HSENs to Chapter 16.02 state:
“This heading covers:
Meat… prepared… by other processes not provided for in Chapter 2…, including those merely covered with batter or breadcrumbs, truffled, seasoned (e.g. with both pepper and salt)…."
The trader's right of appeal to the Tribunal in respect of the classification issue is to be found in section 13A(2)(a)(i) and (ii) Finance Act 1994. This is not an ancillary matter with the result that section 16(5) Finance Act 1994 applies. Thus, the tribunal has the power to quash or vary any decision and the power to substitute its own decision for any decision quashed on appeal.
In Invicta the tribunal decided and the court of appeal upheld that:
(1) the revocation of the BTI was a decision which HMRC could not reasonably have reached and accordingly we direct that the decision shall cease to have effect from 12 May 2011.
(2) The Product was correctly classified under Chapter 16 (subheading 16023211) and was not classifiable under Chapter 2 of the CN.
Origin of imports and their Tariff classification often raise issues for importers pre-emptive customs planning and, in the case of a dispute, timely calculated advice can assist the trader in reducing his import costs.
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