[2010] UKFTT 157 (TC)

TC00462

Appeal number LON/2009/7071

Customs duty – classification of tobacco mix used in water pipes – whether smoking tobacco

FIRST-TIER TRIBUNAL

TAX

	EMRUL ISLAM	
Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS 	
Respondents

				TRIBUNAL: 	Mrs Mosedale
						Mr Goddard

Sitting in public in London on 26 July, 3 & 4 December 2009

The Appellant in person

Mr M Angiolini, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010
DECISION

1.	This was an appeal by Mr Islam against a deemed confirmation of a binding tariff information (“BTI”) issued by HMRC on 23 July 2008.  It was only a deemed confirmation as HMRC were unable to complete the review of the issue of the BTI within the statutory 45 days.
2.	In the event this hearing was heard over three days, one day in July and two in December.  At all the hearings Mr Islam very ably represented himself.  The appeal was originally listed for a single day in July 2009 but this proved to be inadequate as Mr Islam’s opening would take all day.   Mr Islam also produced a large number of reports on the day of the hearing which HMRC had not seen before and did not have time to consider.  HMRC applied that as Mr Islam was giving technical evidence on what was “smoking” that he demonstrate the water pipe and HMRC be given time to instruct an expert witness.   There was also an issue with undisclosed and redacted documents.  In particular Mr Islam wanted disclosure of the documents behind a WCO opinion as part of his case was the WCO opinion may have been formed on an incorrect understanding of how water pipes operate.  We made various directions which were to happen before the adjourned hearing reconvened.  
3.	When we reconvened on 3 & 4 December, the first issue was Mr Islam’s application for HMRC’s witness statement to be disallowed.  This was served one day late on 6 October but without its enclosures.  This made it difficult for Mr Islam to instruct his expert.  He informed the Tribunal of the mistake but the message was not passed on to HMRC.  He took the matter up directly with HMRC on 3 November and received the enclosures the next day by which time he said it was too late to instruct an expert himself.  HMRC offered to agree an adjournment.  Mr Islam refused.  
4.	We ruled that we would allow in HMRC’s witness evidence:  the statement itself was only one day late.  Mr Islam could have done more to notify HMRC of the missing enclosures.  Nevertheless, we indicated that we would be happy to hear an application for an adjournment from Mr Islam.  HMRC indicated they would make no objection to such an application.  Mr Islam decided he would prefer to proceed with the hearing.  So we did.
Overview
5.	Mr Islam wishes to import a product called mu’assel.  It is a tobacco mix used in water pipes.  It is also known as shisha tobacco.  Water pipes have numerous names including hookah.  We will refer to the product as water pipe tobacco.
6.	The product as described by Mr Islam in his application for the BTI, and as described by HMRC in the BTI is:
“Flavoured tobacco molasses called muassel (Arabic for honeyed) flavoured molasses with tobacco to be used in water pipes.  The product will be vaporised and inhaled for recreational purposes.  Packaging sizes:  250g ingredients include:  glycerine 42.9% molasses and added water 32.1%, tobacco 17.9% and flavouring 7.1%”
7.	Mr Islam informed us that there are different types of mu’assel, treacle types and honey types.  Treacle types are dryer.  They can be used as they come but most people would mix them with glycerine or honey before using them in a water pipe.  The type which Mr Islam wishes to import is the honey type which already contains glycerine.  It may contain up to 25% tobacco.  There is no dispute between the parties on the composition of the mu’assel.  
8.	The dispute is on what happens to the product in the water pipe and in particular whether it is smoked.
Law
9.	The UK is a member of the European Union.  Under the EC Treaty the UK is obliged to apply the customs rules of the European Community and this is enacted into our law by the European Communities Act 1972 s5.    The tariff of duties (in other words what is paid) is a matter of Community law (currently set out in the EC Council Regulation 2658/87 as amended each year).  The classification of goods for the tariff, however, is for the most part a matter of international treaty as the first six digits of the Community’s Combined Nomenclature of goods are taken from the Common Nomenclature of the International Convention on the Harmonised Commodity Description and Coding System.    
10.	The relevant chapter of the Combined Nomenclature is Chapter 24.  Cigarettes and cigars are classified under 2402.  “Other manufactured tobacco” comes under 2403 as follows:
“2403
Other manufactured tobacco and manufactured tobacco substitutes; ‘homogenised’ or ‘reconstituted’ tobacco; tobacco extracts and essences
2403 10  	Smoking tobacco, whether or not containing tobacco substitutes in any proportion
2403 10 10	In immediate packings of a net content not exceeding 500g
2403 10 90		other
2403 91	‘Homogenised’ or ‘reconstituted’ tobacco
2403 99 	Other:
2403 99 10	Chewing tobacco and snuff
2403 99 90	other.”
11.	The disputed BTI was that the product in issue should be classified as “smoking tobacco, whether or not containing tobacco substitutes in any proportion” under heading 2403101000 under the main heading “other manufactured tobacco”.  Mr Islam considered that the product should be classified under heading 2403 99 90 00:  “other” under the same main heading “other manufactured tobacco”.  
GIRs
12.	Council Regulation 2558/87 contains the General Interpretative Rules (GIRs) which are to be used in construing the headings in the Nomenclature:
1.	the titles of sections, chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the heading and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to the following provisions.
2(a)	Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article.  It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled.
2(b)	Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances.  Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance.  The classification of goods consisting of more than one material or substance shall be according to the principles of rule3.
3	When, by application of rule 2(b) or for any other reason, goods are prima facie classifiable under two or more headings, classification shall be effected as follows:
3(a)	The heading which provides the most specific description shall be preferred to headings providing a more general description.  However, when two or more headings each refer to party only of the material or substances contained in mixed or composite goods or to party only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods;
3(b)	Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable;
3(c)	When goods cannot be classified by reference to 3(a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.
4	Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin.
5	[omitted as irrelevant]
6	For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and mutatis mutandis, to the above rules, on the understanding that only subheadings at the same level are comparable.  For the purposes of this rule, the relative section and chapter notes also apply, unless the context requires otherwise.”
13.	HMRC considers that this Tribunal need look no further than GIR 1 & 6.  They say (and we agree) that it is always relevant to have regards to GIR 1 & 6 on any classification.  In paraphrase, GIR 1 says that the classification under a heading is determined by the words of the heading and GIR 6 says that classification under a sub-heading is determined by the words of the sub-heading.  In this case the heading (in so far as applicable) is “other manufactured tobacco”.  HMRC say the relevant sub-heading is “smoking tobacco”, Mr Islam says that it is “other” because the product is not smoking tobacco.  
14.	Mr Islam does not agree that only GIRs 1 & 6 are relevant.  He says it is a mixed product (of tobacco, molasses and glycerine) so that GIRs 3(b) and (c) are relevant and that we should look at the “essential character” of the product which he considers to be the flavour.  HMRC do not dispute that it is a mixed product but consider that application of GIRs 1 & 6 gives the classification so there is no need to consider any further GIRs.  Even if the Appellant is right and GIR 3 is relevant, HMRC consider that the Tribunal should come to the same answer as the Tribunal in Ibrahim Soltan LON/2000/7028 where an equivalent product was considered and the Tribunal ruled that “the tobacco content of the goods does give them their essential character, in much the way alcohol gives wines their essential character.”  
15.	As can be seen from the preamble to GIR 3, it only applies where goods are prima facie classifiable under two or more headings.  Our conclusion is that we only need to consider GIR 3 if we consider that more than one heading is appropriate.  In this case the question is whether it is classified under the subheading “smoking tobacco”  or “other”.  It is not possible for both sub-headings to be prima facie applicable:  either it is smoking tobacco or it is not (ie “other”).   So we agree with HMRC that GIR 3 is not relevant.  We do not need to consider its “essential character” under GIR 3(b).  
16.	Nevertheless, as we were addressed on the point, we have considered the essential character of the product at the end of our decision.
Case law
17.	The interpretation of the Nomenclature has also been the subject of a number of decisions by the European Court of Justice (“ECJ”) and HMRC referred us to the ECJ decision in BVBA Van Landeghem [2007] ECR I-10661 Case C-486/06, in particular:
“23   First, it is settled case-law that, in the interests of legal certainty and ease of verification, the decisive criterion for the classification of goods for customs purposes is in general to be sought in their objective characteristics and properties as defined in the wording of the relevant heading of the CN and in the section or chapter notes (see Case C-15/05 Kawasaki Motors Europe [2006] ECR I-3657, paragraph 38, and Case C-310/06 FTS International [2007] ECR I-0000, paragraph 27).
24      Second, the intended use of a product may constitute an objective criterion for classification if it is inherent to the product, and that inherent character must be capable of being assessed on the basis of the product’s objective characteristics and properties (see C-400/05 BAS Trucks [2007] ECR I-311, paragraph 29; Case C-183/06 RUMA [2007] ECR I-1559, paragraph 36; and Case C-142/06 Olicom [2007] ECR I-0000, paragraph 18).
25      Lastly, according to the Court’s case-law, the Explanatory Notes drawn up, as regards the CN, by the Commission and, as regards the HS, by the WCO are an important aid to the interpretation of the scope of the various headings but do not have legally binding force (BAS Trucks, paragraph 28). Moreover, although the WCO opinions classifying goods in the HS do not have legally binding force, they amount, as regards the classification of those goods in the CN, to indications which are an important aid to the interpretation of the scope of the various tariff headings of the CN (see Kawasaki Motors Europe, paragraph 36).”
18.	We consider that therefore we have to consider the objective characteristics and properties of mu’assel.  And although not bound by them, we should have regard to the Explanatory Notes to the Combined Nomenclature drawn up by the Commission (“CNEN”s) and those drawn up by the World Customs Organisation (Explanatory notes to the Harmonised System known as “HSEN”s) and opinions of the World Customs Organisation (“WCO”).  
19.	We were not referred to any HSENs.  The Explanatory Notes for Chapter 24 (CNENs) say at 240310 (in so far as relevant):
“Smoking tobacco is tobacco which has been cut or otherwise split, twisted or pressed into blocks which can be smoked without further industrial processing….
Products consisting in whole or in part of substances other than tobacco are also classified in these subheadings provided that they correspond to the definition given above the exception being products consisting wholly of substances other than tobacco and intended for medicinal use (Chapter 30)…”
20.	And although not mentioned in the above cited passage, the ECJ also requires national courts to consider BTIs issued by other member states.  HMRC refer to Intermodal Transports BV C-495/03 where the ECJ said at paragraph 34 that where other member states have already issued BTIs that fact “must cause [the] court to take particular care in its assessment of whether there is no reasonable doubt as to the correct application of the combined nomenclature”.  
Relevance of intended use
21.	Mr Islam brought samples of the product for us to see, a moist brownish substance with a pleasant smell.  The product contains only about 17% tobacco.  But the heading makes it clear that it only needs to contain tobacco:  “Smoking tobacco, whether or not containing tobacco substitutes in any proportion”.  Mr Islam did not suggest the fact tobacco was only approximately 20% of the product made a difference to the classification for 2304 and we agree.  GIR 2(b) puts it beyond doubt. Mr Islam also accepted that it is manufactured tobacco.  
22.	The argument between the parties was about the product’s objective characteristics.  The parties were both agreed that its intended (and indeed only) use was in a water pipe.  HMRC considered this to be decisive of its classification:  it was intended to be smoked in a water pipe and should therefore be classified as smoking tobacco.
23.	Mr Islam did not agree that the intended use of the product should necessarily determine its classification.  He referred us to the decision of the Court of First Instance of the European Union in Sony Computer Entertainment Europe Ltd T-243/01.  In that case, the court had to consider how important the objective intended use of a product was.  The product was a play station.  This was a data processing unit and could be used for many more purposes than playing video games.  It was, however,  held out, advertised, and sold for use as a video game console.  The Appellant’s argument (paragraph 89), with which Mr Islam agreed, was that classification based on intended use should be a method of last resort and should not override the objective characteristics of the product (such as what it could be used for).  However, it is apparent that the court did not agree with Sony and (paragraphs 110-114) indicate that an intended use that can be ascertained at the time that the product is classified is a very relevant factor and certainly not subordinate to other objective characteristics.  This is consistent with paragraph 24 of the ECJ’s decision in BVBA Van Landeghem (above) a decision which is binding on us.  In any event it was not suggested in this case that the product had any other use than to be used in a water pipe.
24.	Mr Islam also referred to the case of Holz Geenen GmbH C-309/97 where the ECJ  said at paragraphs 14 and 15 “it is settled case-law that …the decisive criterion for the classification of goods for customs purposes is in general to be sought in their objective characteristics and properties as defined in the wording of the relevant heading of the CN. …. In addition, the intended use of a product may constitute an objective criterion for classification if it is inherent to the product, and that inherent character must be capable of being assessed on the basis of the product’s objective characteristics and properties.”  In that case the heading of the disputed classification was “builder’s” goods and the ECJ said that this heading therefore contained a criterion of intended use.  By this we presume they meant that to be classified under that heading objectively the product should be intended for use in construction of a building.  In conclusion we do not see that this case helps the Appellant:  it simply confirms the view that the intended use of a product objectively ascertained is relevant to classification and not subordinate to other objective characteristics.
25.	The Appellant then referred us to A C Smits-Koolhoven C-495/04 which was a decision of the ECJ on the excise duty applicable to herbal cigarettes.  They did not contain tobacco.  The question for the ECJ was whether they came within the exemption for products used exclusively for medical purposes because although intended as an aid to give up smoking, they contained nothing of medical effect.  The Court concluded that it was not enough that they were marketed, perceived as and intended to be for medicinal use.  However, that case was a question on an excise duty directive and is simply not applicable to customs duties.  And in any event there is no conflict here over the contents of the product:  it does contain tobacco.
26.	Our conclusion is that we must look at the objectively determined intended use when considering the product’s objective characteristics.  Indeed, when considering its objective characteristics we don’t really see what else could be considered other than its (objectively determined) intended use as the question is whether it is “smoking tobacco”.  So, objectively determined, is it tobacco for smoking?
Facts
27.	The evidence which the Tribunal heard was as follows:  
•	Mr Islam in person.  This included a demonstration of the product being used in a water pipe which one of the panel sampled.  The demonstration took place outside the building as we were not prejudging the issue of whether using the water pipe was smoking;
•	Product labels;
•	Various reports by experts in their fields proffered by Mr Islam;
•	The dictionary definition of smoke and smoking produced by HMRC;
•	Expert witness evidence from Miss Gearey instructed by HMRC. Miss Gearey has a BSc in Applied Biological Science and is employed at Campden BRI as a Senior Technical Officer in the Department of Chemistry & Biochemistry, and has worked in the Food Specification & Control Group for 15 years (& its manager for 13 years).  Campden BRI undertakes research and testing for the food and drink industries and for government departments including HMRC.  She has reported on 1000s of samples provided by HMRC where their classification has been in doubt.
The Demonstration
28.	The product is placed in a water pipe.  Above it, but not in direct contact with it, lit charcoal is placed.  The parties are in dispute about whether the product combusts but they both accept that it gets hot.  We could see the process as Mr Islam used glass water pipes for his demonstration.
29.	The user inhales air out of the pipe.  This forces air down over the hot charcoal, through the mu’assel, through the water,  into the mouthpiece and into the user’s lungs. The purpose of the water it seems is to cool the gas and remove water soluble impurities. The gas inhaled is misty:  it looks like smoke or vapour.  
Everyday language
30.	 HMRC said that the water pipe and therefore the product is used for smoking in the normal everyday meaning of the word and that therefore it is smoking tobacco.  As examples of this HMRC  noted that the articles written by experts to which Mr Islam refers and which we mention below which consider water pipe use show that colloquially the use of water pipes is referred to as “smoking”.  Further, the WHO documents mentioned below refer to water pipe use as “smoking”. 
31.	HMRC contended that product is marketed to be smoked and referred to the boxes produced by Mr Islam in which the water pipe tobacco is sold for retail.  We were shown two product labels.   The Al Fakher “Grape flavour” label was produced.  In English it said “The incomparable special Taste of Al Fakher”  and listed the  ingredients as tobacco, molasses, glycerine and natural flavour.  It carried a health warning: “Smoking is a main cause of lung cancer, lung diseases and of heart and arteries diseases”  The rest of the writing was in Arabic.  We were also shown a label for Tangiers Melon Blend.  This was made in the US and the label was in English.  The health warning similarly referred to the user as a “smoker”.   There was a section which read:  “HELP!  I can’t get this tobacco to smoke right or I have questions about this or other products you make.  Customer Support [telephone number]”.  It also had a list of instructions on how to use it including “do not use too much charcoal, this product smokes far more easily than others.  A sulfury (sic) flavor,  like burning rubber might indicate too much charcoal”.
32.	Mr Islam’s view was that many countries require any tobacco product to carry a standard health warning irrespective of whether it is smoked and did not think that the health warning on the box should determine the product’s customs classification.  We agree that the health warnings should not be determinative of the issue.  But Mr Islam accepted that in normal everyday language people would talk of “smoking” a water pipe and the user of the water pipe being a “smoker” and we find that in everyday language using the product as intended in a water pipe is smoking.  
What is smoking?
33.	Does this determine the appeal?  Mr Islam’s case was that technically the users of water pipes are not smoking as no smoke is produced.  Mr Islam said that someone using an electronic cigarette would be talked off as “smoking” such a cigarette.  Yet, he said, it is impossible to smoke an electronic cigarette as no smoke is produced as there is no combustion.  Is HMRC right that the everyday use of the word “smoking” is decisive of the issue of classification?  We will return to this. If they are not, is the Appellant right that the product is not used in such a way that smoke is actually produced and inhaled by the user?
34.	HMRC referred to the Shorter Oxford English Dictionary which for the verb “smoking” the definitions  include “inhale and exhale the smoke of tobacco, or some other substance, from a pipe, cigar, or cigarette;…”  HMRC also referred to the Cambridge dictionary definition of the verb “smoke” as including “to breathe smoke into the mouth and usually the lungs from a cigarette, pipe etc”.  Mr Islam did not dispute these definitions:  his view was that the water pipe users do not smoke in a technical sense as the water pipe tobacco does not produce smoke but vapour.
The Expert Witness’ evidence
35.	Miss Gearey was sent 3 samples of water pipe tobacco by HMRC on 24 November 2008 with a request that they be tested for the presence of tobacco and confirmation of whether they could be smoked.  She was specifically asked to comment on Mr Islam’s view that the water pipe tobacco does not undergo combustion because it is too moist to be set alight and on his view that the resulting “smoke” is vapour because it does not contain particulate matter.
36.	She tested the three samples (each a different flavour) in a water pipe purchased for the purpose of the tests.    Her evidence was that she set up the water pipe in the same manner as Mr Islam set up his water pipe at the hearing.  Her water pipe was a smaller single pipe apparatus and did not have the metal plate to hold the charcoal. Instead she had to use pierced foil provided with the water pipe she purchased for the test.  Mr Islam did not suggest that this made any practical difference and we don’t think that it did.  
37.	Mr Islam did suggest that she might have set up equipment incorrectly in that she reported that she found the smoke more “harsh” than cigarette smoke.  Mr Islam said that if the tests were set up incorrectly so that the charcoal actually touched the water pipe tobacco this could cause burning of the mu’assel and smoke to be emitted and would, in his view, explain the bad taste.
38.	When cross examining Miss Gearey Mr Islam asked extensively about how the apparatus had been set up to be tested.  This left the tribunal with view that it had been done properly.  Miss Gearey said it was a complete set when it arrived (including foils and charcoal).  It was cleaned.  It had instructions but was then in addition set up by a colleague who uses a water pipe recreationally.  So we conclude that the test was carried out properly.
39.	Prior to the tests the raw material was sampled and was found to contain tobacco.  This was not in issue.  The product was also examined after the tests and Miss Gearey’s evidence is that charred tobacco tissue and charred particles were found.
40.	During the tests the gaseous substance inhaled was collected.  In order to collect this smoke or vapour Miss Gearey did this by mouth and blew the smoke or vapour into a Ziploc bag.  She did this because her pump did not have enough draw and she could not fit the water pipe into a fume cupboard.  She agreed that collecting the smoke or vapour by this method meant it was not possible to eliminate contamination.  But her evidence (which we accept) is she has herself not smoked for years and that any nicotine and black particles found in the bag would come from the water pipe and not her mouth.  In retrospect she says she should have used filter paper as this would have made it easier to collect the particles.
41.	Another concern Mr Islam expressed (Mr I page 346) in relation to Miss Gearey’s evidence came from a reference in an email from HMRC to a manager at Campden BRI (the unit where Miss Gearey worked) in which the HMRC officer Mr McKee says “I realise that the  amount of work that needed to be undertaken was great as the expertise in this field was not available in your facility but it doesn’t seem to deliver what we needed”
42.	HMRC’s view was that this was a criticism of what turned out to be only a part of the finished report and that the final report would address all the issues HMRC had raised.  Reading the email exchange, the tribunal finds that Mr McKee’s email was not a criticism that the report did not come to the conclusion that HMRC wanted, just that it did not cover all the points they wanted addressed, in particular HMRC wanted an opinion on whether the product could be smoked.  The full report which addressed this issue was delivered later.
Health considerations
43.	Another concern expressed by Mr Islam was that there was some written evidence before the Tribunal about the safety of water pipe use.  Mr Islam suggests that health considerations have led to HMRC taking a biased view.  He notes that Miss Gearey used words such as “undesirable compounds” and that HMRC’s bundles had articles on the health implications of water pipe smoking eg suggesting it is even more dangerous than cigarette smoking.  
44.	HMRC’s view was that it carried similar heath risks to smoking cigarette and pipes and (if so far as relevant which they doubted) this would suggest that the same classification was appropriate.  Mr Islam says (and we agree) that the health implications (whatever they are – we make no judgment) are not relevant to the classification for customs purposes, and they have not formed part of our decision making.
Does it combust or burn?
45.	HMRC accept (and we find as a fact) that the product does not burn in a self-sustaining manner in the water pipe.  Lit cigarettes burn or at least smoulder.  Water pipe tobacco used as intended does not.  Nevertheless, HMRC’s contention is that it does undergo a process of combustion known as pyrolysis and this does produce smoke and the user inhales the smoke.  
46.	Miss Gearey said that there are three types of combustion that can produce smoke:  burning (or flaming), pyrolysis and smouldering.  Her view is that flaming and smouldering are self-sustaining forms of combustion but pyrolysis is not.  It will only occur where there is an external heat source (such as smouldering charcoal).  She says that pyrolysis is combustion because it causes charring.  It can occur at 320ºC upwards and does produce smoke. The Handbook of the Society of Fire Protection Engineers to which we were referred by both parties and to which we refer below agrees.  And we did not understand Mr Islam to suggest that this evidence was incorrect.  His contention was that the product did not undergo pyrolysis.
47.	 In the tests Miss Gearey left the pipe burning for much longer than in our demonstration which only took about 15 mintues.  Miss Gearey’s evidence was that the end product in her tests contained charred tobacco and other charred particles.  There was no ash (unlike a cigarette).  She also said that the volatiles which came across in the “smoke” indicated pyrolysis.  
48.	Mr Islam does not agree.  He considers that it does not undergo a process of combustion, not even pyrolysis,  but is merely heated.  It produces vapour and not smoke.  
What is smoke?
49.	Miss Gearey’s evidence is that vapour is a gas below its critical temperature which we understand to mean that the gas contains liquid particles.  Smoke, on the other hand, is gas containing carbon and other solid particles as well as droplets and is caused by combustion.
50.	HMRC referred to the Shorter Oxford English Dictionary which for the noun “smoke” gives “the visible suspension of carbon and other particles in air, given off by a burning or smouldering substance”.   It also notes the old use of the word to mean fume or vapour.  HMRC also made a reference to the Cambridge dictionary definition of “smoke” which is very similar:  “the grey, black or white mixture of gas and very small pieces of carbon that is produced when something burns”  
51.	Mr Islam accepted HMRC’s use of Cambridge dictionary definition of smoke that it was something which produced small particles of carbon and that the essential character of smoke is presence of solid particulate matter.
Does it produce smoke?
52.	  Miss Gearey observed solid particles in the “smoke” of all three samples but the quantities found in the last two were too small to be retrieved for analysis. Indeed from the photographs it was very hard to see any black particles in the “smoke” of the third sample.  There were more, but still too few, particles to analyse with the second sample.  With the first, they were collected and analysed under a microscope.  She considered that the particulate matter found was charred and carbonised material from tobacco and molasses.  
53.	Her explanation for the diminishing quantity of particulate matter was that by test 3 she was (to use her words) running out of steam.  She also said that collecting the smoke in a bag diluted it, making it harder to see and collect the particles.  Nevertheless she was able to obtain solid matter from the “smoke” of two out of three of the tests and she considered this conclusive evidence of combustion of the water pipe tobacco.
54.	Mr Islam did not agree.  He pointed to fact that only the first test showed solid particles at least in sufficient quantity to be collected.  Mr Islam also queried whether the black particles came from the combustion of the charcoal.  Miss Gearey’s response was that she did a “dry” run of the water pipe without any water pipe tobacco to see what happened.  In her view no smoke and no black particles were produced.  This was because, she says, it is smokeless charcoal.  The only by-product from the charcoal which they found in the “smoke” was benzene which was found on the dry run as well as on the 3 actual tests. 
55.	Mr Islam’s main point was that in his view mu’assel when used in a water pipe produced a smoke-like vapour not smoke.  He compared the “smoke” produced by a water pipe to the “smoke” of an electronic cigarette or the fog produced by a fog machine.
56.	Mr Islam says vapour can be mistaken for smoke.  The product he says is too wet for pyrolysis to occur.  He points to HMRC’s evidence in the form of an entry from Wikipedia on “pyrolysis” where it states that pyrolysis cannot occur with free water and substances subjected to heat would have to dry out first before pyrolysis could occur.    
57.	Miss Gearey’s view, on the contrary, was that damp things can burn or combust – as long as water is driven off first at least from the surface.  And that is what she thinks happens to the water pipe tobacco.
Evidence from expert reports
58.	Mr Islam referred to the handbook by the Society of Fire Protection Engineers which was also produced in HMRC’s bundle and referred to by Miss Gearey.  We were not asked specifically to consider the status of this evidence:  both sides referred to it and appeared to consider it authoritative.  Mr Islam’s point is that in places the text uses the word “vapor”.  HMRC’s point is that nevertheless it is clear that the section referred to is dealing with how much smoke is produced from flaming or pyrolysis of various woods and plastics.  We agree that the authors did not intend to suggest that pyrolysis did not produce smoke.
59.	Mr Islam also cited an article called “Global Patterns of Nicotine and Tobacco Consumption” by a Professor S K Hammond Ph.D at the University of California, published in 2009 which divided tobacco useage into:
•	Products which she defines as tobacco rolled, combusted and smoked (such as cigarettes) the usage of which is described by her in a paragraph under the heading “combusted tobacco products”;
•	Other products described by her as “those in which tobacco is heated but not combusted” such as water pipes, followed by a paragraph describing the use of these produces under the heading “waterpipes” and clearly covering the tobacco product at issue in this case; and
•	Other kinds of tobacco usage described by her under the heading  “Noncombusted, or Smokeless tobacco products”.
60.	Mr Islam’s point is that going by the description she gives at the start of chapter 3, this expert does not consider mu’assel to be combusted.  
61.	HMRC’s point, with which we agree,  is that the author appears to be an expert on the health effects of smoking:  this was the subject of the article and from her resumé the subject of many other articles by her.  Her conclusion to the article was that “tobacco kills a third to a half of the people who use it.”  It is clear to the Tribunal that this was not a technical article about the physical processes of combustion and in particular whether water pipe tobacco is combusted.  Her use of the word “combustion” seems to be non-technical and imprecise.   Indeed, under the heading “water pipes”  she refers to “smoke” from a water pipe and states that the smoke contains tobacco.  She also calls using the water pipe “smoking”.  Further water pipe tobacco is not included in the third heading of “non-combusted or smokeless tobacco products”.
62.	It is clear to the Tribunal that however right she might well be on the health effects of using tobacco she is not and did not hold herself out as an expert on whether water pipe tobacco is combusted in a water pipe and whether or not it produces smoke.  And indeed her apparent view that such tobacco is not combusted but does produce smoke is contradictory but likely to reflect the common view that combustion requires something to flame or at least smoulder.  Because we do not accept that she was intending to make an authoritative statement that water pipe tobacco does not combust in the technical sense, we do not need to go on to consider what weight if any to put on her evidence in view of the fact she was not produced as a witness.
63.	Mr Islam also refered us to an article dated 2006 and published in the Journal of Negative Results in BioMedicine which was titled “A Critique of the WHO TobReg’s ‘Advisory Note’ report entitled:  ‘waterpipe tobacco smoking:  health effects, research needs and recommended actions by regulators”.  This was written by Mr K Chaouahi who was (according to the article) a researcher in socio-anthropology and tobaccology and a consultant in tobacco control.  He was not called as a witness and his area of expertise appeared to be sociological and anthropological.    His object in writing the report was stated to be to make corrections in the WHO report to improve it.  He considers it contained errors, including an error in the chemistry of smoke.
64.	Mr Islam pointed out that the author says at page 4 of water pipe tobacco that “it is definitely wrong to say that the mixture is burnt.  It is simply heated and this is a crucial point.  Evidence for this is provided by the actual working temperatures that can be measured during the process.  They are below or around 100ºC, a figure very different from that that can be measured at the tip of a cigarette (850-900ºC).  In these conditions, the heat range allows chemical reactions of the Maillard type…..”
65.	However, he too refers to the user as a “smoker” and using the pipe as “smoking” and considers that the user does inhale tar.  What is clear is that he is not and does not hold himself out to be an expert on the physical processes of combustion or smoke production:  his report centres on who smokes water pipes and why.  He does not consider whether pyrolysis rather than burning occurs.  What he does say on heating and temperatures does not appear to be consistent with Miss Gearey’s evidence.  As he was not called to give evidence and does not appear to be an expert on combustion, the Tribunal prefers Miss Gearey’s evidence.
66.	Mr Islam also referred to an article dated 2004 “An evaluation of actual and simulated smoke properties” and published in Wiley InterScience.  The article is about smoke detection systems.  They have to be tested.  Simulated smoke is used.  The article compares real smoke to simulated smoke.  Its thesis is that it can be appropriate to use simulated smoke to test smoke detection systems.  It states what neither party here is contesting – that true smoke results from a combustion process and consists of particulate matter (in both solid (ie soot) and liquid form) and gas.  On the other hand, simulated smoke is a vapour ie a liquid heated above its vapourisation temperature.  It condenses forming a “fog-like smoke”.  It does not contain solid matter but does contain liquid droplets.  Mr Islam’s point is that vapour can be mistaken for smoke.  The Tribunal does not disagree, but that does not answer the question of whether the water pipe tobacco produces smoke when used as intended.  
67.	Mr Islam then referred to an internal HMRC memorandum which was accidentally disclosed to him by HMRC, and in respect of which HMRC decided not to assert privilege.  In this memorandum, an HMRC solicitor, in the context of the excise treatment of the product, refers to it as being capable of being smoked if heated to a high temperature (500ºC), but implies it is in fact not smoked in a water pipe which only heats it to 180-350ºC.  The solicitor writing it was under the impression that it was only combustion products from the charcoal which were inhaled.    
68.	There is no suggestion that the solicitor writing the memorandum was an expert and the Tribunal does not consider this to be an authorative statement and much prefers to rely on the expert evidence of Miss Gearey who actually tested the product and gave direct evidence to the Tribunal.
Maillard reaction 
69.	Mr Islam maintained that the Maillard reaction occurred and not combustion.  He referred to an entry from Wikipedia for a description of the Maillard reaction.  The description given was consistent with Miss Gearey’s evidence on this.  The Maillard reaction is a chemical reaction caused by heat between an amino acid and a sugar.  It often occurs when food is cooked.  It is one of a number of processes which cause food to brown when cooked.  It is not a process of combustion (although like burning, it requires a low moisture level).  According to Miss Gearey the Maillard reaction looks similar to caramelisation but is not caramelisation which is on the contrary pyrolysis of sugars.  She says the Maillard reaction can occur both with or without pyrolysis.  It can start as low as 155ºC but also occurs at much higher temperatures.
70.	Mr Islam pointed out that even Miss Gearey had at one point thought this reaction took place referring to an email sent by her on 11 December 2008 before her analysis was complete in which she said “the heat from the charcoal filters through the molasses causing what I think is a Maillard reaction”. In her mail of 17 December 2008 to HMRC she said that the collected smoke was analysed and contained particles which included a Maillard reaction by-product. 
71.	In her evidence before the Tribunal she said that that the Maillard reaction might occur but she did not find the volatiles in the smoke that she would expect to find if it had  and in any event they were not testing for it.  It seems to the Tribunal that even if the Maillard reaction does occur this by no means precludes combustion, which from Miss Gearey’s evidence did occur.
Conclusion on issue of smoking
72.	Miss Gearey’s evidence is that water pipe tobacco when used as intended does combust and does produce smoke.  We accept this evidence.  Mr Islam tested Miss Gearey’s evidence at some length and if anything she reinforced her written evidence.  The articles referred to above, however authoritative they are in their authors’ expert fields, do not contain authoritative statements that water pipe tobacco used as intended does not produce smoke.  Our conclusion is that we find as a fact that water pipe tobacco when used as intended does produce smoke and that this is inhaled by the user.  The user is therefore smoking tobacco.
73.	Therefore (referring back to the question in paragraph 33) we do not need to decide whether everyday language use of the word “smoking” or the technical meaning of “smoking”  is decisive:  both give the same answer.  The product, which contains tobacco,  is intended for smoking and is therefore smoking tobacco.
Explanatory notes, WCO Opinion and BTIs
CNEN
74.	The CN Explanatory notes state that 24031010 (see paragraph 25 above) only applies to “tobacco which has been cut or otherwise split, twisted or pressed into blocks which can be smoked without further industrial processing”  HMRC thinks that the product is within this.  Mr Islam disagrees.  We are not bound by the CNEN but we find it is consistent with our conclusion that the product is smoking tobacco.  The product has clearly been processed (we don’t think Mr Islam disagrees with this) and will be used without further industrial processing (again we think Mr Islam agrees with this).  The disagreement is whether it can be smoked, and we have found that it can be.
WCO Opinion
75.	There is a unanimous Opinion issued by the World Customs Organisation Harmonised System Committee that it should be classified as “smoking tobacco” under 2403 10.  Mr Islam criticised the opinion on the grounds it was not based on a full understanding of how a water pipe works.  
76.	HMRC took us through the background behind the Opinion. Egypt prepared a proposal that water pipe tobacco should have its own classification.  It proposed a new subheading 2403 92 “molasses and fruit flavoured molasses”.  The Secretariat suggested instead that the more appropriate new category would be:  “2403 11 For use in water pipes”.  In its discussions the Secretariat said “…it is smoking tobacco consisting of tobacco, molasses, preservatives and flavour…”  Also “the Secretariat understands that the product in question would qualify as ‘smoking tobacco, whether or not containing tobacco substitutes in any proportion…”
77.	. The May 2006 sub-committee rejected Egypt’s proposal but reclassification within 2403 10 was considered further.    The Harmonised System Committee agreed unanimously in October 2006 that the product at issue was covered in subheading 2403.10 by application of GIR 1 & 6.    It was agreed water pipe tobacco does need a  separate sub-heading to reflect the volume of trade in the product and this will come  into force on 1 January 2012.
78.	There was also an amendment to the compendium of classification opinions as follows:
“2403.10	2.Water pipe tobacco consisting of a blend of tobacco leaves, fruit flavoured molasses or sugar, glycerine, aromatic extracts and oils.  The preparation is intended to be smoked in a water pipe [also known as ‘hookah’, ‘shisha’ ‘narjiela’,  ‘Hablee Bablee’ or ‘pipe bowl’].
Application of GIRs 1 and 6.”
79.	Mr Islam’s criticism of the basis of this opinion centres on the 33rd session of the Harmonised System Review Sub-committee which discussed on 12 April 2006 the possible amendment of 2403 and reported that “air is sucked through the glowing coal and is passed through the tobacco and the heated air is inducing a type of smouldering fire”  Mr Islam says that this is not right:  the mu’assel does not smoulder or have any kind of self-sustaining combustion.  We find that the sentence was taken from a statement made by a Dr Wiertz to the sub-committee on 15 January 2004 the purpose of which was to say there was no danger to health to  the “hookah smoker” from the glycerol as even if oxidised because as the tobacco “is smouldering” it would be dissolved into the water.
80.	We agree with Mr Islam that if the classification opinion depended on the smouldering fire of Dr Wiertz’ statement which was written to answer a different question (ie the health impacts and not whether or not it burns) then it would be less than convincing.  Nevertheless, looking at whole document in its entirety there is a description of how a water pipe works in annex F where it says it  “…works only by using the Meassel and in it’s (sic) smoking process there is no direct burning of Meassel, it is just heated by charcoal that is placed on aluminum (sic) foil that covers the Meassel…”  This does appear to describe process as we understand it to be.    
81.	HMRC invites the tribunal to infer that the Egyptian delegation who were making the proposal for a separate subheading had a detailed working knowledge of water pipes and that therefore Mr Islam was wrong to suggest that view of sub-committees was formed on an incorrect understanding of how water pipes work.  
82.	We have not been convinced that the WCO did not understand how the product was used.  And it seems to us that even if there was an error, had the WCO been properly informed, they would still have come to the same conclusion, which is the conclusion that we have reached.  
83.	Mr Islam also pointed out that the products produced to the sub-committee and committee of WCO were all a single brand, and that it was not a brand that he was planning to import.  This brand has some variations from the product which he does intend to import, in particular a different percentage of tobacco.  However, we don’t think that a different percentage of tobacco in different kinds of water pipe tobacco will make a difference to classification.  The percentage of tobacco was not a significant factor in the WCO opinion (nor in ours).
Other BTIs
84.	Some 39 BTIs have been issued by Member States including the UK classifying similar or identical products as “smoking tobacco”. Where the product does not contain tobacco it has been classified to 2403 99 in some cases but to 2403 10 in at least one case.  So for the tobacco-free version there are inconsistent BTIs. There are other BTIs which have not been translated and of which we were unable to take note. HMRC accept that the BTIs are not binding on this Tribunal but contend that were we to chose to diverge from this body of BTIs then we should not decide in favour of the Appellant but refer the mater to the ECJ for an Opinion (citing Intermodal Transports BV (above) as authority). To paraphrase the ECJ in that case, the court said that where the court considering a reference is firstly one from which there is no appeal and secondly where there is in existence a BTI with which the court does not agree, it should think twice before concluding that the correct application of EC law is so obvious as to leave no scope for reasonable doubt. Since we are not proposing to issue a decision divergent to existing BTIs (nor are we a court from which there is no appeal) this is not relevant.
Classification of other products
85.	Mr Islam compared water pipe tobacco with electronic cigarettes.  In his view although the electronic cigarettes produce vapour they do not produce smoke and they do get around the smoking ban.  They look like a cigarette (he produced one and we agree).  His evidence was that it is a white plastic tube containing a battery and a gel which may or may not contain tobacco or nicotine.  The battery heats the gel and vapourises it:  smoke like vapour is produced.  About 80% of the gel is glycerine.  HMRC did not accept this as a fact:  their view was that it did not involve combustion and is properly not classified under 240310.
86.	 We do not have to decide exactly what an electronic cigarette comprises.  Both sides agreed that an electronic cigarette did not produce smoke.  It is therefore not comparable to water pipe tobacco which we find does produce smoke when used as intended in a water pipe.  Therefore we do not need to consider to what extent if any the classification of another product would be relevant, but do doubt that it is of any relevance.
Essential character
87.	As stated above in paragraph 16, we do not consider that we must decide what is the essential character of the product.  We agree with HMRC that only GIRs 1 & 6 are relevant.  In Ibrahim Soltan the Tribunal did make reference to GIR 3 (having said though that recourse to the GIRs was “hardly needed”).  They decided in relation to what appears to be a nearly identical product that it is the tobacco which gives it its essential characteristic.
88.	Mr Islam does not agree.  He said it was not essential to mu’assel that it contained tobacco:  some do not although the varieties he wishes to import all do.  Corn husks or sugar cane leaf can be used instead of tobacco. In his view the tobacco improved the product, and enabled it to deliver the flavours better to the user.  The tobacco based products are the most popular. He also agreed that some tobacco products do get delivered to the user via the vapour/smoke.
89.	Mr Islam’s view is that essential character of the product is its flavour and not the fact it contains tobacco.  He points out that there are 99 different flavours for the product for one brand.  The water pipe gives off a pleasant aroma and the taste is unlike that of a cigarette.  The product, he says is marketed on its flavours and experience offered.
90.	We cannot agree that the essential characteristic of the product is its flavours.  The flavours are no doubt what differentiates between different varieties and brands of the product:  but what they all have in common is that they are intended to be smoked in a water pipe.  To us that is its essential characteristic.  So even if we considered GIR 3 to apply (which we do  not) the conclusion would still be that the correct classification is as “smoking tobacco”.
Conclusion
91.	Mr Islam put his case most succinctly perhaps when he said that he had demonstrated that his product was distinct from tobacco and did not have self-sustaining combustion and it deserved its own classification.  We don’t disagree.  But the law as it stands is that it does not yet have its own classification and will not until 2012.  In the meantime it must therefore fit into one of the existing classifications.
92.	Mr Islam says that there is unfairness in the existing position.  The duty is charged on weight of the product and as the content of tobacco in his product is low compared to ordinary smoking products, such as cigarettes, the law results in liability on the mu’assel of a very high rate excise duty relative to the tobacco content.  We sympathise.  Nevertheless, we have found colloquially using the product is called “smoking”; we have found technically that when used as intended it does produce smoke, and the user inhales this and is therefore properly to be said to be smoking.  Our view is consistent with a WCO Opinion, the CNEN and the many BTIs issued on very similar or identical products containing tobacco.  We classify the mu’assel to 240310 and dismiss the appeal.
93.	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.

Barbara Mosedale

TRIBUNAL JUDGE
RELEASE DATE: 9 April 2010