[2010] UKFTT 514 (TC)

TC00769

Appeal reference: TC/2009/14713

CUSTOMS DUTIES – importation of goods – at what point does customs debt arise – when customs declaration was accepted by the customs authority – appeal dismissed

FIRST-TIER TRIBUNAL
TAX

				         KUHNE & HEITZ HOLLAND BV	Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	Lady Mitting (Judge)
		John Lapthorne FCMA (Member)
			
Sitting in public in Birmingham on 2 September 2010

Paul De Pledge, solicitor for the Appellant

David Griffiths, counsel, instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010
DECISION

1.	The Appellant appeals against a decision of the Respondents to issue Post Clearance Demand Notes in the sum of £45,196.94 after it was ascertained that the corresponding licenses accompanying import entries were not valid at the time of import.
2.	We heard no oral evidence and the facts were not in dispute.  It was agreed by the parties that there was one single issue for the tribunal and that was to determine at what point a customs debt arises on the importation of goods.  Is it when the import declaration is accepted by the customs authority, as contended by the Respondents, or is it when the goods are released into free circulation, as contended by the Appellant?
The agreed facts
3.	The Appellant is a large Dutch import / export company with a UK subsidiary.  The imports into the UK under consideration in this case are two consignments of frozen chicken breast from Brazil.  If accompanied by valid import licenses these products would attract a reduced rate of import duty.  The Appellant had had two licenses issued to it in Holland, one for each of the consignments.  The licenses were valid from 1 April 2009.  The goods arrived in the UK shortly before 31 March.  On 31 March, the Appellant’s customs agent submitted to the customs authorities, in respect of each consignment, entry clearance requests and the requisite accompanying documents.  It was accepted that these amounted to customs declarations.  The declarations were accepted by Customs on 31 March, the Import Entry Acceptance Advices being timed at 17:32 and 19:00 respectively.  Customs raised two post-acceptance verification requests, one for a signed and stamped CVED and the other querying the unit of currency declared.  Both queries were dealt with and resolved enabling Customs to issue the Clearance Advice Reports at 12:39 on 1 April.  Only at this stage could the goods be removed from the docks and released into free circulation.  It was agreed by both parties that the post-acceptance verification checks were exactly that and did nothing to invalidate Customs’ acceptance of the declarations.
4.	On 6 May 2009, the Appellant’s agents wrote to the Respondents stating that the entries had been made incorrectly as the licenses had not been valid until 1 April and asking for cancellation of the entries and leave to resubmit or amend the dates of the originals.  The Respondents refused and issued Post Clearance Demand Notes on 21 May, the grounds for the issue being that in order to benefit from the reduced rate of duty, the imports in question had to be covered by a valid license but in this case the licenses were not in force or therefore valid at the time of import.
5.	Two reviews of the decision to issue the Demand Notes were carried out, the second replacing the first which had taken irrelevant information into account.  The review upheld the Commissioners’ decision.

The law
6.	Commission Regulation 2913/92 which established the Community Customs Code (“CCC”) is of direct effect in UK law:
Article 4(9) provides that a “customs debt” means the obligation on a person to pay the amount of the import duties… which apply to specific goods under the Community provisions in force.
Article 4(16) provides that a “customs procedure” includes the release of goods for free circulation.
Article 59(1) provides that all goods intended to be placed under a customs procedure shall be covered by a declaration for that procedure.
Article 61 and 62 set out how the customs declaration should be made and the requisite documents to be lodged with it.
Article 63 provides that declarations which comply with the conditions laid down in Article 62 shall be accepted immediately by the customs authorities provided that the goods to which they refer are presented to Customs.
Article 68 gives the customs authorities the power to carry out post-acceptance verification checks, both of the documents and of the goods.
Article 79 allows that release for free circulation shall confer on non-Community goods the customs status of Community goods.
7.	Article 201 of Council Regulation 2913/92 provides as follows:
		“Council Regulation 2913/91 – Article 201 – states
1.	A customs debt on importation shall be incurred through:
a)	the release for free circulation of goods liable to import duties, or
b)	the placing of such goods under the temporary importation procedures with partial relief from import duties.
2.	A customs debt shall be incurred at the time of acceptance of the customs declaration in question.”
8.	Article 23(1)(a) of Commissioner Regulation 376/2008 provides as follows:
“1. Copy of No.  1 of the license or certificate shall be submitted to the customs office which accepted:
(a) in the case of an import license, the declaration of release for free circulation;”
9.	Article 30(a) of the same Regulation provides, as regards the period of validity of licenses and certificates:
“(a) the obligation to import shall be considered to have been fulfilled and the right to import under the license or certificates shall be considered to have been exercised on the day the declaration referred to in Article 23(1)(a) is accepted, subject always to the product concerned being actually put into free circulation;”
The Respondents’ submissions
10.	In putting his case, Mr. Griffiths drew upon a skeleton argument prepared by James Puzey supplemented by his own oral submissions.  It was Mr. Griffiths’ case that on a strict interpretation of the legislation, the customs debt is incurred at the time of acceptance of the customs declaration although it would not become payable until the release of the goods into free circulation.  In this case, the customs debt was incurred on 31 March and at that stage the goods were not covered by a valid license.
The customs debt had, in Mr. Griffiths’ words, crystallised the day before the goods were released into free circulation.
The Appellant’s submissions
11.	Mr. De Pledge’s contention was that the debt was not incurred until the goods were released into free circulation, which took place on 1 April by which time the goods were covered by a valid license.  Referring to Article 201 of Regulation 2913/92, Mr. De Pledge did not see a distinction between paragraphs 1 and 2 and submitted that they were in fact in contradiction with each other.  He further submitted that as paragraph 1 came first that should take priority over paragraph 2, and his reading of paragraph 1(a) was to the effect that a customs debt was not incurred until the goods were released for free circulation, in this case on 1 April.  Up until that point, Customs could for example have rejected the goods.
12.	Mr. De Pledge referred us to two separate Customs publications in support of his case.  First drawing on a Customs manual which he had downloaded from the HMRC website, entitled ECPIT 2020, which was headed “Goods entitled to preferential treatment: what goods are considered to be in free circulation?”.  This question was answered at (a) in respect of imports from outside the Community or Turkey as “imports… on which all important formalities have been completed and any customs duties or equivalent charges have been paid and not repaid in whole or part”.
13.	The second publication referred to by Mr. De Pledge was an extract at 5.7 of Commissioners’ Notice 780.  This entry referred to the import of poultry and eggs from overseas territories and African, Caribbean and Pacific countries.  It provided that in respect of poultry from those countries, they were entitled to a reduced rate of duty on production of an EUR1 movement certificate and an RPA import license at the time of declaration for free circulation.  We were told that the RPA import license was the UK equivalent of the import license which the Appellants had obtained from Holland and which was, in our case, dated 1 April.  No-one appeared to know what the EUR1 movement certificate was, but we were told it would be unique to these products from these countries and no such documents applied to imports from Brazil.  Mr. De Pledge argued that the fact that certain poultry from these named territories could enjoy a preferential rate under the circumstances set out, was in effect a precedent that could apply to the imports from Brazil.  It was not unknown for preferential rates to be given in such circumstances.
Conclusions
14.	We do not accept that Article 201 paragraphs 1 and 2 are contradictory.  They quite clearly set out different determining events.  Paragraph 2, in our view, provides the only answer which we can give to the issue before us today, and that it that the customs debt is incurred at the time of the acceptance of the Customs Declaration – ie 31 March.  Paragraph 1 sets out, what Mr. Puzey referred to as the “triggering event” ie the time when the goods were released into free circulation.  There are two quite clear and distinct defining events.  One is the acceptance by Customs of the Customs Declaration.  The second is the release of the goods into free circulation.  This distinction is reinforced in Article 30(1).  All that the extract from ECPIT 2010 does is to define when the goods are considered to be in free circulation.  It does not raise or answer the question as to when the customs debt was incurred.  We accept the Commissioners’ submission that the right to import under a license is considered to have been exercised when the declaration to have the goods placed under the procedure of release for free circulation is accepted.  In this case the declaration was made and accepted on 31 March.  On that event, the customs debt was incurred.  The goods then have to go on to be released into free circulation, and it is that release which causes the debt to become payable.  When the goods were released into free circulation on 1 April, payment became due but the debt had already been incurred the previous day on acceptance of the Customs Declaration and at that time there was no valid license in force and the goods were not entitled to the preferential rate of duty.
15.	Mr. De Pledge drew our attention to various errors which the Commissioners had made in their review documents and indeed in the Statement of Case.  There are quite clear flaws in both.  On page 5 of the review letter, it is stated that “in your case the goods were imported and released into free circulation… prior to the relevant licenses coming into effect on 1 April 2009”.  This is quite clearly incorrect.  The goods were imported on 31 March but they were released into free circulation on 1 April.  The same error is repeated almost word for word in the statement of case.  Although these flaws are regrettable, they do not alter our view which is based upon a strict interpretation of the law relating to the agreed facts.  In summary, the customs debt was incurred on 31 March when the Customs Declaration was accepted and became payable on 1 April when the goods were released into free circulation.  As there was no valid license in force on 31 March, the Commissioners were correct to issue their Post Clearance Demand Notes which we uphold and the appeal fails.
16.	We make no order for costs.
This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

LADY MITTING
JUDGE
Release Date: 22 October 2010