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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> PSL Freight Ltd v. Commissioners of Customs and Excise [2001] EWHC Ch 6 (31st July, 2001) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2001/6.html Cite as: [2001] EWHC Ch 6

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PSL Freight Ltd v. Commissioners of Customs and Excise [2001] EWHC Ch 6 (31st July, 2001)

Case No: CH/2001/APP 0127

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: Tuesday, 31st July 2001

B e f o r e :

THE VICE-CHANCELLOR

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Mrs. Penny Hamilton and Mr. Jeremy White (instructed by Messrs Decherts for the Appellant)

Mr. Hugo Keith (instructed by the Solicitor for the Customs and Excise for the Respondents)

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Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

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The Vice-Chancellor :

Introduction

1. The customs union on which the European Community is based is established and regulated by the Community Customs Code ("CCC") contained in Council Regulation (EEC) No.2913/92 and the implementing regulations to be found in Commission Regulation (EEC) No.2454/93 ("IPC"). Both of them have direct effect within the Community. One of the procedures for which CCC and IPC provide is the external Community transit procedure ("ECTP"). This enables goods imported from outside the Community to be moved from one place in the Community to another without becoming subject to the payment of import duties so long as the conditions applicable to the procedure are duly observed.
2. PSL is a freight-forwarder. In January 1995 it despatched, in accordance with ECTP, two consignments of cigarettes originating in the United States of America from Ramsgate, Kent to Algeciras in Spain. The cigarettes never arrived, but neither PSL nor the Commissioners of Customs & Excise ("C&E") know how, when or where they disappeared. The non-arrival of the cigarettes, together with the relevant customs documents, gave rise to a customs debt for the import duty which would have been payable on importation had the cigarettes not been subject to ECTP. C&E claimed that the customs debt arose in the United Kingdom and was payable to them by PSL pursuant to CCC Art. 215.3. PSL disputed the claim on two principal grounds, first because Art.215.3 is inapplicable and second because, even if Art 215.3 is applicable, Customs & Excise are not entitled to recover because they failed to give to PSL the notices required by IPC Art. 379. PSL also claimed that, if any import duty was due, in all the circumstances of the case it should be remitted pursuant to CCC Art.239 and IPC Art.899 on the grounds that PSL had not been guilty of deception or obvious negligence and that the situation was special. C&E also claimed that PSL were liable to pay VAT on the cigarettes at the standard rate. This too was disputed by PSL.
3. PSL appealed from the relevant decisions of C&E to the VAT and Duties Tribunal ("the Tribunal"). With regard to the claims for import duty its appeal failed, but in respect of the claim for VAT its appeal succeeded. An appeal from decisions of the Tribunal lies to the High Court under s.11 Tribunals and Enquiries Act 1992 but on points of law only. Both PSL and C&E have appealed from such of the decisions of the Tribunal as are against them. The issues for my determination are, therefore,

(1) whether a customs debt arose under Art.215.3 whereby PSL owes C&E the import duty applicable to the two consignments of cigarettes, and if so

(2) whether the consequence of the failure of C&E to give to PSL the notifications required by IPC Art 379 is to preclude C&E from recovering such debt, and if not

(3) whether the liability for import duty should be remitted pursuant to CCC Art.239, and in any event

(4) whether VAT is payable on the cigarettes under s.1(1)(c) VAT Act 1994 because all the provisions of s.15(1) thereof are satisfied. I will deal with those issues in due course, but an explanation of the relevant provisions of CCC and IPC is an indispensable preliminary.

The relevant provisions of CCC and IPC

4. Goods brought into the customs territory of the Community become and remain subject to customs supervision until they are, inter alia, re-exported. (CCC Art 37) Provision is made for various procedures whereunder the potential liability to import duty is suspended, one of which is ECTP. (CCC Arts 84 and 91) ECTP commences with the appropriate declaration made by the principal (or holder of the procedure as defined in CCC Art 4(21)) concerned with the movement of the goods made on form TI, to which I shall refer in greater detail later. The procedure and the obligation of the principal ends when both the goods and the required documents are produced at the customs office of destination. (CCC Art 92) In order to avail himself of ECTP the principal must provide a guarantee, whether comprehensive or individual, sufficient to cover the potential liability for import duties. (CCC Art 94) The principal and any carrier or recipient of the goods who knows that they are subject to the ECTP are responsible for producing the goods intact at the customs office of destination within the prescribed time and with due observance of the customs requirements for identification. In addition the principal is responsible for observing the requirements of ECTP. (CCC Art 96)
5. CCC Title VII Chapter 2 deals with "Incurrence of a customs debt". Arts 201-205 deal with the incurrence of a customs debt on importation, whether lawful or unlawful, unlawful removal from customs supervision, breach of a condition imposed in relation to the procedure to which the goods are subject or consumption, which includes unexplained disappearance. Arts 209-211 deal with the incurrence of a customs debt on exportation. Art 213 provides that where several persons are liable for payment of one customs debt then they shall be jointly and severally liable for it.
6. Art 215, in the form it took at the material time and so far as relevant, provided that

"1. A customs debt shall be incurred at the place where the events from which it arises occur.

2. Where it is not possible to determine the place referred to in paragraph 1, the customs debt shall be deemed to have been incurred at the place where the customs authorities conclude that the goods are in a situation in which a customs debt is incurred.

3. Where a customs procedure is not discharged for goods, the customs debt shall be deemed to have been incurred at the place where the goods –

- were placed under that procedure, or

- enter the Community under that procedure."

 

7. It is appropriate at this stage to refer to IPC Chapter 4 which deals with ECTP. Art.341 provides that goods which are to move under ECTP are to be the subject of a TI declaration in accordance with that section of IPC. That form is in 9 parts of which part 1 is retained by the customs office of departure, part 3 is stamped by that office and retained by the principal, part 4 is kept by the customs office of destination, part 5 is stamped by the customs office of destination and returned to the customs office of departure and part 8 is stamped by the customs office of destination and sent to the consignee. Art.348 requires the customs office of departure to prescribe the period within which the goods are to be presented at the office of destination and take such measures for the identification of the goods as it considers to be necessary. Both the goods and the TI form must be produced at the customs office of destination which is required to give a receipt for them. (IPC Arts 356 and 357).
8. IPC Chapter 4 section 3 is headed "Irregularities; proof of regularity. It consists of Arts 378-380 which so far as material provide
"Article 378

1. Without prejudice to Article 215 of the Code, where the consignment has not been presented at the office of destination, and the place of the offence or irregularity cannot be established, such offence or irregularity shall be deemed to have been committed –

- in the Member State to which the office of departure belongs, or

- in the Member State to which the office of transit at the point of entry into the Community belongs, to which a transit advice has not been given,

unless within the period laid down in Article 379(2), to be determined, proof of the regularity of the transit operation or of the place where the offence or irregularity was actually committed is furnished to the satisfaction of the customs authorities.

2. Where no such proof is furnished and the said offence or irregularity is thus deemed to have been committed in the Member State of departure or in the Member State of entry as referred to in the first paragraph, second indent, the duties and other charges relating to the goods concerned shall be levied by that Member State in accordance with Community or national provisions.

3. If the Member State where the said offence or irregularity was actually committed is determined before expiry of a period of three years from the date of registration of the TI declaration, that Member State shall, in accordance with Community or national provisions, recover the duties and other charges (apart from those levied pursuant to the second subparagraph, as own resources of the Community) relating to the goods concerned. In this case, once proof of such recovery is provided, the duties and other charges initially levied (apart from those levied as own resources of the Community) shall be repaid." Article 379

1. Where a consignment has not been presented at the office of destination and the place where the offence or irregularity occurred cannot be established, the office of departure shall notify the principal of this fact as soon as possible and in any case before the end of the 11^th month following the date of registration of the Community transit declaration.

2. The notification referred to in paragraph 1 shall indicate, in particular, the time limit by which proof of the regularity of the transit operation or the place where the offence or irregularity was actually committed must be furnished to the office of departure to the satisfaction of the customs authorities. That time limit shall be three months from the date of the notification referred to in paragraph 1. If the said proof has not been produced by the end of that period, the competent Member State shall take steps to recover the duties and other charges involved. In cases where that Member State is not the one in which the office of departure is located, the later shall immediately inform the said Member State." Article 380

Proof of the regularity of a transit operation within the meaning of Article 378(1) shall be furnished to the satisfaction of the customs authorities –

(a) by the production of a document certified by the customs authorities establishing that the goods in question were presented at the office of destination ... That document shall contain enough information to enable the said goods to be identified; or

(b) by the production of a customs document issued in a third country showing release for home use or by a copy or photocopy thereof; such copy or photocopy must be certified as being a true copy by the organisation which certified the original document, by the authorities of the third country concerned or by the authorities of one of the Member States. The document shall contain enough information to enable the goods in question to be identified."

9. Reverting to CCC I should refer to Title VII Chapter 3 which deals with the recovery of the amount of the customs debt. This is to be calculated by the customs authority once they have the necessary particulars and entered within a prescribed period into the accounts it must maintain. (CCC Arts 217-220) On entry of the debt in the accounts it is to be notified to the debtor. (Art 221) Once the entry is so communicated the debt becomes payable within the various periods specified in Art 222.
10. Title VII Chapter 5 deals with the repayment or remission of duty. Art 239, so far as material, provides

"1. Import duties or export duties may be repaid or remitted in situations other than those referred to in Articles 236, 237 and 238 –

- to be determined in accordance with the procedure of the committee;

- resulting from circumstances in which no deception or obvious negligence may be attributed to the person concerned. The situations in which this provision may be applied and the procedures to be followed to that end shall be defined in accordance with the committee procedure. Repayment or remission may be made subject to special conditions. Duties shall be repaid or remitted for the reasons set out in paragraph 1 upon submission of an application to the appropriate customs office ..." 11. The power to remit duties is amplified in IPC Arts 899 and 905 in these terms Article 899

Without prejudice to other situations to be considered case by case in accordance with the procedure laid down in articles 905 to 909, where the decision-making customs authority establishes that an application for repayment or remission submitted to it under article 239(2) of the [CCC] –

is based on grounds corresponding to one of the circumstances referred to in Articles 900 to 903, and that these do not result from deception or obvious negligence on the part of the person concerned, it shall repay or remit the amount of import duties concerned." Article 905

Where the decision-making customs authority to which an application for repayment or remission under Article 239(2) of the [CCC] has been submitted cannot take a decision on the basis of Article 899, but the application is supported by evidence which might constitute a special situation resulting from circumstances in which no deception or obvious negligence may be attributed to the person concerned, the Member State to which this authority belongs shall transmit the case to the Commission to be settled under the procedure laid down in Articles 906 to 909.

The term "the person concerned" shall be interpreted in the same way as in Article 899.

In all other cases, the decision-making customs authority shall refuse the application."

The facts

12. As I have already indicated PSL is a freight-forwarder. ECTP was a procedure with which it was familiar. It had provided to C&E a comprehensive guarantee, granted by Barclays Bank plc in October 1992, as required by CCC Art.94. In 1993 it entered into an arrangement whereby Orbit Shipping and Trading Co. Ltd might, for a fee, transport goods in accordance with ECTP in the name of PSL and subject to it's guarantee. Two of Orbit's employees were added to those who might operate PSL's guarantee. The understanding had been that Orbit would do so only in respect of low risk goods, which would not include spirits or cigarettes. In 1994 Mr Catt, the shipping manager of PSL, became concerned that Orbit was using PSL's facility for the movement of high risk goods. He was assured by Orbit that this only occurred on behalf of "prominent traders".
13. The first consignment was effected on 18th January 1995. The TI declaration was prepared by Orbit on behalf of the haulier in respect of 1108 cartons of cigarettes to be transported from Ramsgate to Algeciras as the office of destination. The TI declaration, dated 18th January 1995, was given the serial number 000367 and stamped the same day by C&E in Ramsgate. The lorry left Ramsgate on the Sally Star bound for Dunkirk whence it would be driven overland to Algeciras.
14. The second consignment was carried out on 25th January 1995. The TI declaration was prepared by Orbit in respect of 1100 cartons of cigarettes. The office of destination was Algeciras via Dunkirk and Adinkerke; the place of destination was Morocco. The consignment was given the serial number 000524 and the TI form was duly stamped by C&E in Ramsgate. Once again the lorry left Ramsgate aboard the Sally Star bound for Dunkirk.
15. On 2nd February 1995 C&E told Mr Catt that some whisky was being moved through the Channel Tunnel using PSL's comprehensive ECTP guarantee. Mr Catt forbade the movement, revoked the authority of Orbit to use PSL's guarantee and, checking through other notifications, saw the TIs for the two consignments of cigarettes. Some time thereafter Mr Catt received receipted copies of the TI declarations in respect of movements 367 and 524 apparently duly signed and sealed in the customs office in Algeciras. Thus, to all outward appearances, the two ECTPs had duly ended in accordance with CCC Art.92. In fact the seals and signature were forgeries, but Mr Catt was not to know that for many months.
16. It was Mr Catt's habit to ask C&E from time to time about any undischarged movements so as to know more precisely PSL's liability under the comprehensive guarantee. Movements 367 and 524 continued to appear on the list produced by C&E but no more was said about them until December 1995. On 15th December in respect of movement 524 and on 20th December in respect of movement 376 [sic] C&E sent to Barclays Bank plc, as the guarantor, with copies to PSL as the principal, a form C1341 notifying the bank that C&E had not yet received advice that the two ECTPs had been completed satisfactorily so as to discharge their liability under the guarantee. It is not suggested that those forms were the notifications required by IPC Art 379.1 to be served within 11 months of the respective consignments. This is correct because neither of them contained the information prescribed by IPC Art 379.2 and that not relating to 524 wrongly gave the movement number as 376 and, if treated as given in respect of 367, was out of time. By the end of December 1995 the time prescribed by IPC Art 379.1 in respect of both consignments had expired.
17. On 16th July 1996 PSL asked European Express Haulage to enquire whether the two movements had been discharged. On 17th October 1996 that firm sent to Mr Catt copies of the TI documents again apparently signed and sealed by Spanish Customs in Algeciras. Four days later Mr Catt sent the documents on to C&E and on 28th November 1996 they forwarded them to the Spanish Customs in Algeciras. On 26th December 1996 Spanish Customs confirmed that the TIs had never been presented and that the signature and seals had been forged.
18. C&E had been aware much earlier, on 26th October 1995 in respect of 524 and 26th January 1996 in respect of 367, that the TIs had not been registered in Algeciras and that the signatures and seals thereon had been forged. But even after confirmation had been received from Spanish Customs on 26th January 1996 it took C&E a further seven months to tell PSL. In July 1997 Mr Catt was informed by C&E on the telephone that C&E were investigating irregularities, including possible forgeries, in respect of both 367 and 524.
19. On 10th October 1997 C&E sent forms C1341 for the second time to Barclays Bank plc and PSL. On 14th November 1997 C&E wrote to PSL in respect of each consignment

"On 18.01.95 CT document No T1/[367][524] (copy enclosed) was authenticated by Ramsgate Customs for the movement of [1108][1100] ctns cigarettes to Algeciras in Spain. Under the provisions of regulation (EEC) No 2454/93 implementing Council Regulation (EEC) 2913/92, you undertook to act as principal to the movement and to ensure that the consignment was presented to the office of destination intact and within the prescribed time limit.

The Customs authorities at Algeciras have been unable to confirm the goods were presented and that no information about their whereabouts can be obtained.

You will be required to pay the charges due on the consignment unless you provide either,

a a copy entry or other document certified by the customs authorities establishing that the goods in question have been produced at the office of destination or at the premises of an authorised consignee, or

b a copy entry or other document issued in a third country showing that the goods have been released for consumption there. A photocopy of the entry or other document may be acceptable provided the relevant authorities have certified it as being a true copy.

This information must be sent to the address above within three months of the date of this letter. If no reply is received or if the documents provided are not acceptable, for example because they do not clearly identify the goods, a request for payment will be sent to you."

20. That letter was sent over 10 months after the period prescribed by IPC Art 379.1 had expired. In any event it did not comply with the provisions of Art 379.2 because the information it sought was not the only way in which proof of regularity or of the place where the offence or irregularity was committed might be furnished. In fact it would appear that the author had in mind the provisions of IPC Art 380 as to proof of regularity not Art 379.2 with regard to proof of the place where the offence or irregularity occurred.
21. On 24th November 1997 Mr Catt replied pointing out that the request was made nearly three years after the shipment and that he had already presented to C&E copies of the stamped and signed discharge slip for both movements. He contended that they provided clear evidence that both movements had been discharged by Customs in Algeciras. Nevertheless he promised to try to get from Customs in Algeciras copies of the relevant customs entries or their equivalent.
22. On 9th January 1998 C&E wrote to PSL in respect of each movement

On [18.01.95][25.01.95] CT Document TI No [367][524] (copy enclosed) was authenticated by Ramsgate Customs for the movement of cigarettes to Algeciras in Spain. Under the provision of Commission Regulation EEC No 2454/93 you undertook to act as principal to the movement and so ensure that the consignment was presented at the office of destination intact and within the prescribed time limit.

The customs authorities in Algeciras have stated that the goods were not presented and no information about their whereabouts can be obtained. The irregularity is therefore deemed to have occurred in the United Kingdom in accordance with the provisions of Article 378 and you are therefore liable for payment of the charges that have arisen as a consequence.

We wrote to you on 14 November 1997 to advise you that this movement had not been discharged and giving you to opportunity to provide alternative evidence which could be considered to discharge the movement. I am now writing to advise you of the Customs debt (VAT assessed at UK rates) which would be payable should you be unable to produce acceptable alternative evidence or proof of where the irregularity took place.

The goods were of TI status and so VAT and Duty are payable, the charges calculated as follows:

[Value of Consignments = £414949.44

Total Duty = £351047.21

Total VAT = £134049.41

TOTAL CHARGES DUE = £485096.62]

Under EU regulations you are required to pay the charges owing within 10 working days from the date of this letter. Payment must be made to the cashier at the above address, quoting our reference.

Payment of the above charges does not finally discharge your liability in respect of this CT movement. Under the provisions of the above Commission regulation when charges are called for from the principal or guarantor the irregularity is not deemed to be resolved until three years after the registration of the CT document."

This letter too was sent much too late to comply with IPC Art 379.1. In any event it did not contain any of the information prescribed by IPC Art 379.2. It was a statement as to what C&E claimed to be the consequence not the invitation to provide proof of regularity or of the place of the offence or irregularity which Art 379.2 requires.

23. Thereafter PSL challenged the right of C&E to recover those or any sums in respect of the two movements concerned. PSL sought and obtained a departmental review of the C&E claim, but the decisions were confirmed. PSL appealed to the VAT and Duties Tribunal. As I have already indicated their appeal was dismissed in respect of import duties but allowed with regard to VAT. Evidence was given to the Tribunal on behalf of PSL by Mr Catt. The Tribunal noted that C&E did not doubt the integrity of Mr Catt. They found him to be an honest, open and frank witness.

Consequences of the breach of IPC Art 379

24. Though this was the second objection taken by PSL it is convenient to consider it first. It is not disputed that there was no single notification for each movement containing all the information Art 379.2 requires within the time allowed by Art 379.1 or at all. PSL claims that the consequence is that the customs debt is not recoverable from them.
25. The Tribunal considered this submission in two parts. The first part related to the failure to give any notification within the time limit prescribed by Art 379.1. The Tribunal considered the decisions of the European Court of Justice in Covita AVE v Elliniko Dimosio [1998] ECR 7711 and De Haan Beheer BV v Inspecteur der Invoerrechten en Accijnzen te Rotterdam [1999] ECR 5003. They referred to the decision of the European Court of Justice in Hauptzollamt Neubrandenburg v Lensing & Brockhausen GMBH [1999] ECR 7349 but dismissed it from further consideration in this context because in that case the breach was of Art 379.2 not Art 379.1.
26. The conclusion of the Tribunal on this part (para 117) was

"It follows from our consideration of the legislation that we are of the view that the purpose of the eleven month time limit in Article 379 IPC is to ensure that timely steps are taken to recover the customs duties bearing in mind the need to establish which member state is responsible for such recovery. After the eleven month period has passed, together with the further three months in which the principal has time to provide proof of regularity, the member state of departure has to recover the duty. We conclude that, although failure by the customs authorities to observe the eleven month time-limit might give rise to the payment of interest to the Commission in respect of delay, such failure does not nullify the right of the customs authorities to recover the duty."

27. The second part related to the failure to indicate the 3 month time limit prescribed by Art 379.2. In that context the Tribunal considered the decision of the European Court of Justice in Lensing at some length. They considered that

"127. Thus the decision in Lensing is limited to the right of the member state of departure to recover duties and it is clear that recovery cannot take place unless the principal has been given the opportunity to provide the proof mentioned in Article 379.2 and such proof has not been provided within the three months. In this appeal the second notification of 14 November 1997 did ask for proof of regularity within three months but they did not ask for proof in the place of irregularity. The letter of 9 January 1998 did ask for proof of irregularity but they did not mention the period of three months within which such proof should be furnished. However, the fact is that the Appellant has had much longer than three months since 8 January 1998 to provide proof either of regularity or the place of irregularity and has not done so.

128. It is in the light of those facts that the decision in Lensing should be considered. There, if the principal had been asked to produce proof of the place of regularity within three months he would have done so. Also, that proof would have altered the place where the duties were recoverable as they should have been recovered in Belgium. It is against that background that the Court of Justice decided that the member state of departure could not recover the duties. The facts in the present appeal are different. Here the Appellant has not been able to provide proof at any time either of the regularity or of the place of irregularity and so there is no possibility of any other member state recovering the duty.

129. In order to apply the principles in Lensing to the different facts of this appeal we have considered the purpose of the relevant provisions. In his Opinion the Advocate General said that the provisions of Article 379 IPC were aimed at ensuring a rapid conclusion of the investigation procedure and of establishing the member state which was competent to collect the duties; it gave the principal an opportunity to prove either that the procedure had been concluded or to prove that the offence occurred in another member state, thus escaping the customs debt. Also, if proof was forthcoming then the duties would be recoverable by the member state which was actually responsible. The Court of Justice said that the three month notification made if possible to determine without delay the state with jurisdiction to recover duty. Although in Lensing the failure to give the three month notification meant that the wrong member state recovered the duty, the in present appeal the Appellant has had every opportunity to give proof and has not been able to do so and so there is no possibility that the duty will be recovered by the wrong member state. 130. We have not found a decision on this question to be without difficulty but, on balance, we have concluded that such failure as there was to indicate the three month time limit in Article 379.2 does not mean that the duty cannot be recoverable."

28. Counsel for PSL contends that the Tribunal were wrong. Her argument, in essence, is that there is no reason to differentiate between the 11 month time limit in Art 379.1 and the 3 month time limit in Art 379.2 or indeed between the time limits and the other requirements of that Article. She submits that the judgment of the European Court of Justice in Lensing shows that if any of those mandatory requirements is not satisfied then the duty is not recoverable from the principal.
29. Counsel for C&E contended that the Tribunal was right. He accepted that neither letter in form C1341 dated 15th and 20th December 1995 complied with Art 379.2 and that in respect of movement 367 there was no compliance with Art 379.1 either. He pointed out that the two letters of 14th November 1997 did seek proof of regularity, though not of the place of irregularity, within 3 months, and the letters of 9th January 1998 invited proof of both regularity and the place of irregularity but did not allow 3 months for that purpose.
30. He contended that the duty was recoverable notwithstanding those defects. He relied on the absence of any provision expressly releasing the liability and contrasted that with the provisions of IPC Art 374, providing for the release of the guarantor, and of CCC Art 233 which, whilst providing for the extinction of liability in certain circumstances, did not include a breach of IPC Art 379 among them. He endorsed the approach of the European Court of Justice in Covita and De Haan Beheer distinguishing the purpose from the effect of a breach of a time limit. In the light of that approach he suggested that as long as the principal was given notice at some stage it was not essential that it should be given in the prescribed time or form.

32. In De Haan Beheer BV v Inspecteur der Invoerrechten en Accijnzen te Rotterdam [1999] ECR 5003 the European Court of Justice was concerned again with Regulation 1854/89. De Haan Beheer was the principal in respect of 6 consignments of cigarettes moved under ECTP. None of them was completed in accordance with CCC Art 92 and the customs authority sought payment of the import duty. The principal contended that the customs authority had known of the preparations for the misappropriation of the first consignment and that had they informed him he would not have moved the remainder and therefore would not have become liable for the import duty in respect of them. The European Court of Justice concluded that a customs authority was under no duty to communicate its knowledge or suspicion to the principal. It added, in the application of its decision in Covita, that the time limits imposed on member states for entering the amount of the duty in the accounts in accordance with what are now CCC Arts 220 and 221 could not avail the principal.

33. In Hauptzollamt Neubrandenburg v Lensing & Brockhausen GMBH [1999] ECR 7349 Lensing consigned some steel sections originating in Poland from Neubrandenburg, Germany to Charleroi, Belgium by way of ECTP. The TI was registered in Neubrandenburg on 8th July 1992. The consignment and the relevant ECTP documents were to be produced in Charleroi not later than 16th July 1992. They were not. Within the 11 month period, namely by letter dated 22nd January 1993, the customs authority in Neubrandenburg notified Lensing that the procedure had not been completed and asked for help in clarifying the situation. The letter did not invite proof of the regularity of the movement nor of the place where the offence or irregularity had been committed within three months or at all. Thus it did not comply with Art 379.2. Lensing defended the claim for import duty made by the customs in Germany on the ground that it was clear that the steel was received in Belgium so that the import duty was recoverable there from some one other than Lensing under CCC Art 215.3. He claimed that he could have furnished the necessary information to that effect within three months if he had been warned that that is what he must do.

34. One of the questions referred to the European Court of Justice by the customs in Germany was whether IPC Art 379.2 must be interpreted as meaning that the Member State to which the office of departure belongs may recover duty on import only [emphasis added] if it has indicated to the principal that he has three months in which to prove where the offence or irregularity was actually committed and such proof has not been provided within that period.

35. This question was considered at some length by the Advocate-General in paragraphs 21-51 of his opinion. He pointed out that the wording indicated that the three month time limit imposed by Art 379.2 was obligatory. He agreed with the Commission that such obligation was imposed to achieve the variety of objects described in paragraphs 35-40 as follows

"35 It should ensure a more rapid conclusion of the investigation procedure and determine which State has jurisdiction, thus recovering duty promptly, by encouraging the principal to cooperate actively in clarifying the situation in the knowledge that he will otherwise have to pay duty in the Member State of the office of departure.

36. By successfully showing that the procedure has been regularly completed the principal can be sure of avoiding the customs debt, which will become the responsibility of the consignee of the goods.

37. Likewise, by showing that an irregularity has been committed in another Member State it will be possible for the principal to avoid the customs debt, as the Member State concerned can seek out the persons involved (who are jointly and severally liable) and claim the duty from them.

38. If the VAT rate is lower in that Member State, a principal who is unable to avoid payment of customs duty will at least be able to benefit from the lower rate.

39 Moreover, determining the place where the offence was committed will make it possible to ensure that the duties and other taxes are collected by the Member State to which they are logically due, since the place of the offence will normally be in the Member State where the goods have been consumed.

40 The rule on fixing a time-limit of three months is therefore intended both the ensure as far as possible that the duties and other taxes are levied by the Member State which actually has jurisdiction and that they are paid by the consignee." In my view paragraphs 36-38 show that the purposes include the protection of the principal by giving him prompt warning of what he should do and when to avoid becoming personally liable for whatever has gone wrong.

41. The European Court of Justice dealt with the matter more shortly. It considered that the wording of what are now IPC Arts 378.1 and 379.2 indicated that the time limit of three months imposed by the latter is mandatory. The Court pointed out that the purpose of Art 36 of Regulation 222/77 (now IPC Art 398.1) was to determine which is the competent state for recovery of the duty. It considered that for that purpose it prescribed a series of presumptions to enable conflicts of jurisdiction to be avoided. It held (paragraphs 29 and 30) that the words used in Art 379.2 demonstrated a mandatory requirement so that the principal might be invited to produce any evidence he might have with a view to establishing without delay the member state with jurisdiction to recover the duty.

42. In my view the Tribunal did not appreciate the full width of the principle established by the Court in Lensing. First, they did not consider that principle at all in connection with the 11 month time limit imposed by Art 379.1. The fact that that limit was not under consideration by the Court in Lensing is not a sufficient reason to ignore the principle. Paragraph 1 is no less mandatory than paragraph 2; both are parts of a single process designed to achieve the same purpose or purposes. In my judgment paragraph 116 of the Tribunal's decision is wrong in law. I consider that paragraph 117 is wrong in law as well in that the advice of the Advocate-General demonstrated that one of the purposes of the notification procedure is the protection of the principal. Thus it is incorrect to say that the purpose of the 11 month time limit is only to ensure that timely steps are taken to recover the customs duties.

43. There is no indication in the judgment of the Court that its conclusion was dependent on (i) the principal being able to furnish proof of the place where the offence or irregularity occurred or (ii) there being another member state entitled to recover the import duty. It is apparent from paragraph 128 of the decision of the Tribunal that they considered that both these factors are material distinctions. I do not agree. The fact that a principal who has not been given the notice to which he is entitled is not able to provide proof of the regularity of the movement or of the place of the offence or irregularity has no bearing on the obligation. The obligation exists to give the principal timely warning of what he must do and when to protect himself. The fact that he is unable to do so later may well be the result of a breach of the obligation. Likewise though the notification process is designed in part to assist in the resolution of conflicts of jurisdiction it may also have the effect of exonerating the principal. There is no reason why the latter consequence should be dependent on the existence of another member state entitled to recover the duty whether from him or another. Accordingly in my judgment paragraph 129 of the decision of the Tribunal is also wrong in law.

44. It appears to me that the decision of the European Court of Justice in Lensing also disposes of the argument of counsel for C&E based on CCC Art 233 and IPC Art 374 to which the Tribunal referred in paragraph 108 of their decision. The argument is that neither Article provides for the release of the principal in the event of a breach of the mandatory requirements of IPC Art 379 notwithstanding that each of them provides for a release in other specified circumstances of the customs debt, in the case of CCC Art. 233, and of the guarantor, in the case of IPC Art 374. But the decision in Lensing shows that a breach of the time limit imposed by IPC Art 379.2 does avoid the right to recover against the principal. That is not an event covered by CCC Art 233 or IPC Art 374. If those articles do not cover one of the possible breaches of Art 379 that is no reason to deny the same effect to the other possible breaches.

45. The conclusion of the European Court of Justice in paragraph 31 of its decision in Lensing is unequivocal. So far as material the answer to question 1 was "The member state to which the office of departure belongs may recover duty on the import only if it has indicated to the principal that he has three months in which to prove where the offence or irregularity was actually committed and such proof has not been provided within that period." It is my duty to give effect to the principle clearly established in Lensing notwithstanding the fact that the European Court of Justice did not explain how this result was to be achieved. Before I offer an explanation myself I should consider the submissions made to me on the first issue.

The proper interpretation of CCC Art 215 41. It is common ground that this article and IPC Art 378, which supplements it, provide for what was described as "a cascade" in that each successive paragraph can apply only where it is shown that the earlier paragraph(s) does not. The first paragraph cannot apply because neither C&E nor PSL know where the events from which the customs debt arose occurred. It could have been in England, France or Spain or in the case of 524 in Belgium too.

46. Paragraph 2 is applicable when the customs authorities reach the specified conclusion. For PSL counsel submitted that this required C&E to demonstrate that it had undertaken all appropriate enquiries. If that was not shown then, in counsel' submission, paragraph 3 did not apply because paragraph 2 had not been exhausted. Counsel relied on the failure of C&E (i) to follow its own investigatory procedures, and (ii) to implement the procedures prescribed by IPC Art 379.

47. I have no hesitation in rejecting the first of those submissions. As the European Court of Justice pointed out in De Haan Beheer customs authorities owe no duty to the principal to inform him of the outcome of any particular investigation. Still less can they owe the principal a duty to carry them out. The whole thrust of the CCC is that information is to be provided by the principal to the customs authority who can have no knowledge what happens to goods between the place of departure and the place of destination and whose knowledge at those points is largely confined to what they are told by others. This is reinforced by the provisions of CCC Arts 6 and 14 which place the obligation on others to supply the relevant information to the customs authority. Accordingly the fact, if it be one, that C&E did not observe their own internal procedures or did not carry out prompt and proper investigations to enable them to reach the conclusion required for the application of CCC Art 215.2 does not mean that Art 215.3 is inapplicable too. I agree with the conclusion of the Tribunal expressed in paragraph 84 of their decision that it was not the duty of C&E to establish the place where the offence or irregularity occurred.

48. The alternative submission is more problematical. There is nothing in CCC Art 215.3 which makes the liability for the customs debt conditional on the customs authority in the place of departure having properly implemented the requirements of IPC Arts 378-380. The position is that Art 215.1 cannot be applied, there is no conclusion to justify the application of Art 215.2 and the factual conditions prescribed by Art 215.3 are satisfied.

49. However the provisions of IPC Art 378 are expositive of CCC Art 215. Art 378.1 envisages that the procedure required by IPC Art 379(2) will have been carried out. It is open to the implication that if the procedure has not been carried out then the member state of the place of departure is not entitled to recover the duties and charges under Art 378.2. It was suggested by counsel for C&E that Art 378 prescribes an order of events such that proof within the period laid down by Art 379.2 comes last. I do not take that view. In my judgment it prescribes a series of conditions but not the order in which they must be satisfied. In the light of my conclusion in paragraph41 above the point is not, I think, material.

50. In my view it is plain that the implication to which I have referred was that which the European Court of Justice made in Lensing.wsHoHow It is not always easy to recognise the earlier obligations by reference to later regulations. In Lensing the court helpfully quoted the regulations. Thus Art 36(3) of Regulation 222/77 may be identified as IPC Art 378.1 and 378.2. Similarly Art.11a of Regulation 1062/87 may be recognised as IPC Art.379. The answer to the first question referred to the European Court of Justice was by reference to the interpretation of Article 36(3) in conjunction with Article 11a(2). Thus when the word "only" is interpolated into the answer it must be by reference to an implication into Art 378.2 to the effect that if the procedure prescribed by Art 379 has not been observed then the member state of departure is not entitled to levy the import charges. Similarly the obligation apparently imposed on the member state of departure by IPC Art 379.2 is conditional on the procedure prescribed by the previous provisions of Art 379 being observed.

51. It does not appear that this point was advanced before the Tribunal. This is no doubt due to the fact that in argument the proper interpretation of CCC Art 215 and IPC Art 378 was considered before the interpretation and effect of IPC Art 379. In the light of the Tribunal's conclusion on the interpretation and effect of IPC Art 379 there was no cause to revisit their earlier decision.

52. In my judgment C&E is not entitled to recover from PSL the import charges attributable to consignments subject to movements 367 or 524 and the appeal of PSL should be allowed on that ground. Was PSL guilty of obvious negligence

53. This issue arises under CCC Art.239 if there is a liability to pay the duty in the first place. As I have concluded that no such liability has arisen the point does not arise. In those circumstances it is unnecessary to deal with the point, but in deference to the arguments advanced before me I will briefly indicate my views.

54. The jurisdiction to repay or remit duties can only arise if the liability for the duty arose from circumstances in which no deception or obvious negligence may be attributed to the person concerned. The Tribunal considered that obvious negligence, but not deception, was to be attributed to PSL. This is prima facie a decision on the facts on which there is no appeal.

55. Counsel for PSL, recognising this difficulty, submitted that the facts as found by the Tribunal could not in law amount to obvious negligence. I accept that if this contention is made out then the Tribunal did commit an error of law. Cf Edwards v Bairstow [1956] AC 14.

56. The findings of the Tribunal on this question are set out in paragraphs 140 and 141 of their decision in the following terms"140 Applying those principles to the fact of the present appeal we first find that the relevant provisions relating to the liability of a principal for the completion of an external transit operation are not complex. As far as the professional experience of the trader is concerned, the Appellant is a trader whose business activities consist mainly in import and export transactions and it has considerable experience in the conduct of such transactions. In evidence Mr. Catt confirmed that he was experienced in shipping requirements and was aware of all the legal procedures. Turning to the care taken by the trader, Mr. Catt admitted that, at the time that the two movements commenced, his system was at fault in permitting Orbit to use the Appellant's guarantee. He did not think Orbit would use the guarantee to ship cigarettes and alcohol but was aware of the risk if a trans-shipment of high risk goods was made within the Community. He accepted that the TI declarations (of which he received copies from Orbit) mentioned cigarettes in Box 31 on both occasions. He also accepted that the Appellant's clerk would check the value of any consignment but would not check the forms in great depth; he said that his staff did not want to discourage work. He personally did not see the copy TI declarations but as soon as he looked at them after the event he realised what had happened. Because the system was deficient he had changed it. We have also found as a fact that at the end of 1994 (and before the two movements the subject of this appeal) the Appellant became aware that Orbit was using the Appellant's guarantee for high risk transit movements. although cigarettes were not mentioned at that time we think that a careful trader would thereafter have monitored the use of the guarantee.

57. We have already said that we found Mr. Catt to be an open, honest and frank witness and that the difficulties in which the Appellant finds itself were caused by Orbit. However, Mr. Catt knew of the implications of the comprehensive Community transit guarantee and of the risks involved in the transit of high risk goods, and yet he allowed Orbit to use the guarantee for their own movements without adequate supervision. Accordingly, we have reluctantly had to conclude, on the evidence before us, that there was obvious negligence (but no deception) on the part of the Appellant."

58. In my view the facts recounted in those paragraphs are more than enough to constitute in law the obvious negligence found by the Tribunal. The fact that some of them depended on admissions of Mr Catt is immaterial. Likewise the fact that some of the admissions did not relate to existing facts but to future possibilities is irrelevant. In my judgment the conclusion at which the Tribunal arrived on this issue was one which was open to them on the facts. Had it arisen I would have rejected this submission.    

VAT 54. It was not suggested that this issue was dependent on the outcome of the others in the sense that it is a question which arises under the wholly domestic legislation contained in the VAT Act 1994. The issue depends of the proper construction and application of ss.1 and 15. They are, so far as material, in the following terms:

"1(1) Value added tax shall be charged, in accordance with the provisions of this Act - ...

(c) on the importation of goods from places outside the member States."

"15(1) For the purposes of this Act goods are imported from a place outside the member States where:-

(a) having been removed from a place outside the member states, they enter the territory of the Community;

(b) they enter that territory by being removed to the United Kingdom or are removed to the United Kingdom after entering that territory; and

(c) the circumstances are such that it is on their removal to the United Kingdom or subsequently while they are in the United Kingdom that any Community customs debt in respect of duty on their entry into the territory of the Community would be incurred.

(2) Accordingly -

(a) goods shall not be treated for the purposes of this Act as imported at any time before a Community customs debt in respect of duty on their entry into the territory of the Community would be incurred, and

(b) the person who is to be treated for the purposes of this Act as importing any goods from a place outside the member States is the person who would be liable to discharge any such Community customs debt."

59. The Tribunal concluded that neither condition in s.15(1)(c) was satisfied. The first is not in issue. The Tribunal found that the second was not satisfied because of what they understood to be agreed between the parties. They understood that the parties had agreed that it was only if the goods had been diverted in the UK that sub-paragraph (c) of s.15(1) could apply.

60. Counsel for C&E contends that the Tribunal misunderstood the agreement between counsel. He submits that the issue is where the customs debt was incurred. In that respect he relied on the earlier conclusion that the customs debt had been incurred at the place of departure in the UK because of the application of CCC Art 215.3. In his submission what mattered is where the customs debt arose not where the goods were at that time.

61. In my judgment the Tribunal arrived at the correct conclusion for substantially the reasons they gave. The removal of the goods to the UK did not give rise to a customs debt at that stage and no one suggested that it did. Thus the issue was whether "the circumstances are such that...subsequently while they are in the United Kingdom [that] any Community customs debt in respect of duty on their entry into the territory of the Community would be incurred". The short point is that the sub-section requires the presence of the goods in the UK at the time the customs debt is incurred. C&E have not proved that. The fact that a customs debt is deemed to have been incurred because of the subsequent diversion, the details of which are unknown, does not satisfy the condition.

62. I dismiss the appeal of C&E accordingly.

Conclusion

63. I was not invited by either party to refer any question on the interpretation of CCC or IPC to the European Court of Justice pursuant to Art 234 of the EC Treaty. Each of them contended that the answer was clear, but to the opposite effect of that contended for by the other. I have nevertheless considered whether I should, of my own motion, make any reference. It is clear that I am entitled to do so. Fazenda Publica v Camara Municipal do Porto [2001] STC 560 para.50. Moreover as this is an appeal from the decision of the Tribunal the restriction on any further appeal is stringent. CPR Rule 52.13. In those circumstances, although there is a further judicial remedy, so that a reference is not obligatory, it seems to me that I should be more rather than less prepared to make a reference of disputed points of interpretation.

64. The considerations to be borne in mind are those described by Sir Thomas Bingham MR in R v International Stock Exchange of the United Kingdom and the Republic of Ireland ex p. Else (1982) Ltd [1993] QB 534, 545. Were it not for the decision of the European Court of Justice in Lensing I should have felt sufficient doubt about the effect of a failure to observe the procedure prescribed by IPC Arts 378-380 as to warrant a reference. But that is not the position. In Lensing the European Court of Justice has recently considered Regulations in substantially the same terms and evidently to the same effect. The only residual doubts are the width of the principle thereby established and way in which the word "only" is to be given legal effect. I do not feel any sufficient doubt with regard to those matters to justify referring either of them to the European Court of Justice.

65. For all these reasons I allow the appeal of PSL and dismiss the appeal of C&E.