DECISION
Background
1.
The appellant acts as a dealer importing specialist machinery into the UK. The machinery in question in this appeal is known as a Galaxy 2R Two-Ram Baler (“the
Machines”) and they are imported from the United States. The issue between the
parties is as to the correct classification of the Machines for customs duty
purposes.
2.
On 9 February 2011 the appellant applied for a binding tariff
information (“BTI”) in order to establish the correct customs classification.
The classification envisaged by the appellant in that application was
nomenclature code 8474 20 00 00. A BTI was issued by HMRC on 4 March 2011 which
classified the Machine to code 8422 40 00 00.
3.
On 12 May 2011 the appellant asked for a reconsideration of the
decision. A reconsideration was carried out and sent to the appellant on 13 May
2011. The decision was confirmed. On 30 June 2011 the appellant sought a
further review of the decision. HMRC wrote on 12 July 2011 again confirming the
original decision. The appellant then lodged a notice of appeal dated 4 August
2011.
4.
Before setting out the law and the competing classifications we shall
deal with the evidence as to the nature of the Machines. There was no real
dispute as to the evidence and we find the following facts.
Findings of Fact
5.
The Machines are purchased from a company called Nexgen. Mr Marchi
provided a brochure from Nexgen Baling Systems which briefly describes the
Machines. Mr Marchi expanded upon this description in his evidence to the
tribunal and in his oral submissions.
6.
The Machines are very powerful and able to produce dense bales of what
were described as secondary commodities, that is certain types of recycled
material in which there is a commercial market. The Machines can deal with any
form of non-ferrous material, for example old corrugated containers, sorted
office paper, old news print, different grades of plastic, steel cans and
municipal solid waste. The particular market which the appellant is keen to
exploit is Refuse Derived Fuel (“RDF”). The Machines can be used to compress
and pack certain types of municipal waste which can then be sold as fuel. At
the present time Mr Marchi told us that in the UK it is only cement
manufacturers which are licensed to burn RDF although the market is wider
elsewhere in Europe.
7.
The Machines include a conveyor belt which carries the relevant material
to the top of a hopper. A ram then pushes the material against a solid wall in
the Machine and when sufficient material has been loaded a second ram ejects
it. The Machine can compress the material to one sixth of its original size.
When the bales are ejected they are then tied by the Machine either with a
number of steel or plastic straps depending on the material which has been
baled. Compressing the material into bales allows easier movement and transportation.
For example 6 lorry loads of material can be reduced to 1 lorry load where it
has first been baled by the Machine. Where RDF has been baled, the bales will
be ripped open at the furnaces and burned to produce energy.
8.
The marketing description of the Machines in the brochure provided by Mr
Marchi is as follows:
“... [the Machines] feature
a combination of the latest electronics technology and advanced structural
engineering to make the most powerful and efficient balers available.”
9.
The brochure goes on to describe a variety of applications including use
by scrap dealers, material recovery facilities, recycling centres, distribution
centres and large paper and plastic processors. Options are available which
include stampers and blades to clear jams in loading the hopper.
The Law
10.
The legal framework against which goods are classified for customs duty
purposes is well established. For the sake of convenience we take the
description of Henderson J in HMRC v FLIR Systems AB [2009] EWHC 82 (Ch) where
he summarised the legal framework in the following terms:
“6. A full account of the legal background to the EU customs tariffs,
and the principles to be followed in their interpretation, was given by
Lawrence Collins J (as he then was) in Vtech Electronics (UK) Plc v Customs
& Excise Commissioners [2003] EWHC 59 (Ch)
("Vtech"). What follows is intended to be a relatively brief
summary.
7. The EU is a contracting party to the International Convention on the
Harmonised Commodity Description and Coding System, generally known as "the
Harmonised System". The Convention requires that the tariffs and
nomenclatures of contracting states conform to the Harmonised System, and all
contracting states therefore use the headings and sub-headings of the
Harmonised System. The system is administered by the World Customs Organisation
in Brussels, which publishes explanatory notes to the Harmonised System
known as "HSENs".
8. At
Community level, the amount of customs duties on goods imported from outside
the EU is determined on the basis of the Combined Nomenclature ("CN")
established by Article 1 of Council Regulation 2658/87 and Article 20.3 of
Regulation 2913/92. The CN is re-issued annually. It comprises three elements:
(a) the
nomenclature of the Harmonised System;
(b)
Community sub-divisions to that nomenclature; and
(c) the
preliminary provisions, additional section or chapter notes and footnotes
relating to CN sub-headings.
9. The CN uses an eight-digit numerical system to identify a product,
the first six digits of which are those of the Harmonised System, while the two
following digits identify the CN sub-headings, of which there are about ten
thousand. Where there is no Community sub-heading, these two digits are
"00". There may also be ninth and tenth digits which identify further
Community (TARIC) sub-headings, of which there about eighteen thousand.
10. Apart from the HSENs to which I have already referred, the European
Commission also issues Explanatory Notes of its own to the CN which are known
as "CNENs".
11. The Court of Justice of the European Communities ("the
ECJ") has repeatedly stated that the decisive criterion for the tariff
classification of goods must be sought in their objective characteristics and
properties as defined in the wording of the relevant heading of the CN and of
the notes to the sections or chapters of the CN. The two categories of
Explanatory Notes, that is to say the HSENs and the CNENs, are an important aid
to the interpretation of the scope of the various tariff headings, but do not
themselves have legally binding force. The content of the Explanatory Notes
must therefore be compatible with the provisions of the CN, and cannot alter
the meaning of those provisions. See, for example, Case C-495/03 Intermodal Transports BV v Staatssecretaris van Financien, [2005] ECR I-8151, at
paragraphs 47 and 48.
12. Part 1 of the CN contains at Section 1A the General Rules for the
Interpretation of the CN. These General Rules are known as "GIRs".
Unlike the Explanatory Notes, they have the force of law (see Vtech at
paragraph 16).
13. So far as material, the GIRs provide as follows:
"Classification
of goods in the Combined Nomenclature shall be governed by the following
principles:
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 headings and any relative section or chapter
notes and, provided such headings or notes do not otherwise require, according
to the following provisions.
2 (a) …
(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
rule 3.
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:
(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 part only of the materials or substances contained in
mixed or composite goods or to part 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;
(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;
(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. …
6. For
legal purposes, the classification of goods in the sub-headings 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."
14. It can be seen that the General Rules quoted above provide
a hierarchical set of principles, and if the correct classification can be
ascertained at a given stage it is unnecessary to proceed any further.”
11.
Mr Winkley also drew our attention to the judgement of the ECJ in the
joined cases of British Sky Broadcasting Group plc v HMRC, Pace plc v HMRC
(C-288/09, C-289/09) which describes the same approach to classification.
12.
In addition, Article 12 Regulation 2913/92 provides as follows:
“1. The customs authorities shall issue binding tariff information…
on written request, acting in accordance with the committee procedure.
2. Binding tariff information …. shall be binding on other
customs authorities as against the holder of the information...”
Competing Classifications
13.
We set out below the competing classification codes which we must
consider in this appeal. In each case save one we are concerned only with the
first 6 digits of the code which, as set out above, derives from the Harmonised
System.
14.
The BTI issued by HMRC and against which the appellant appeals is 8422
40. The headings and sub-headings of the CN are as follows with relevant
parts in bold:
8422 Dishwashing
machines; machinery for cleaning or drying bottles or other containers;
machinery for filling, closing, sealing or labelling bottles, cans, boxes, bags
or other containers; machinery for capsuling bottles, jars, tubes and similar
containers; other packing or wrapping machinery (including heat-shrink
wrapping machinery); machinery for aerating beverages:
...
8422
40 - other packing or wrapping machinery
(including heat-shrink wrapping machinery)”
15.
During the course of the correspondence and at this hearing the
appellants have contended for a number of alternative classifications. Mr
Marchi very sensibly elected not to pursue one of those alternatives, namely 8430
61 which relates to tamping or compacting machinery but clearly in the
context of earthworks. He did pursue the following alternatives: 8422 20;
8433 40; 8474 20; and 8474 80 90. The relevant headings
and sub-headings are as follows with relevant parts in bold:
8422 20 -
Machinery for cleaning or drying bottles or other
containers
8433 Harvesting
or threshing machinery, including straw or fodder balers; grass or hay
mowers; machines for cleaning, sorting or grading eggs, fruit or other
agricultural produce, other than machinery of heading 8437:
...
8433
40 - Straw or fodder balers, including pick-up
balers
8474 Machinery
for sorting, screening, separating, washing, crushing, grinding, mixing
or kneading earth, stone, ores or other mineral substances, in solid (including
powder or paste) form; machinery for agglomerating, shaping or moulding solid
mineral fuels, ceramic paste, unhardened cements, plastering materials or other
mineral products in powder or paste form; machines for forming foundry moulds
of sand:
...
8474
20 - Crushing or grinding machines
...
8474 80 -
Other machinery:
8474 80
10 -- Machinery for agglomerating, shaping or moulding
ceramic paste
8474
80 90 -- Other
Respondents’ Submissions
16.
Mr Winkley relied in particular on GIRs 1 and 6, and acknowledged that
the Appellant might rely on GIR 4. The relevant heading he submitted was the
machines described in 8422 and the relevant sub-heading was 8422 40. He
submitted that it was not necessary for there to be any nexus between the other
packing or wrapping machines described in that sub-heading and the machines
described in the main heading. The Machine itself did have a nexus with a
packing or wrapping machine. It operated to pack materials into more manageable
shapes for ease of transport.
17.
Mr Winkley also relied on the HSEN to heading 8422 as an aid to
interpretation which supported this classification. In so far as relevant the
HSEN reads as follows:
“... The heading also
covers machines of different types designed … generally, for packing
(including heat-shrink wrapping) goods for resale, transport or storage. These
include:
...
(7) Baling or banding
machines, including hand-operated portable appliances, provided with plates or
similar devices enabling them to be rested, while in use, on the bales, cases
or other packages to be strapped.”
18.
Classification under 8422 40 did no great violence to the language of
the CN or the HSEN. In contrast, Mr Winkley submitted that the classifications
put forward by the appellant involved a forced construction. He dealt with each
alternative as follows.
19.
Mr Winkley said that it was difficult to see how heading 8422 20 could
apply to the Machine – it was not machinery for cleaning or drying bottles. Similarly
8433 40 – it was not a straw or fodder baler.
20.
Mr Winkley submitted that 8474 20 and 8474 80 90 related to machines
used in mineral extraction from the earth and the construction industry. Again,
he relied upon the HSEN for this heading which states as follows:
“This heading covers:
(I)
Machinery of a kind used mainly in the extractive industries,
for the treatment ... of solid mineral products ...
(II) Machinery
for agglomerating, shaping or moulding solid mineral products in powder or
paste form...
(III) Machines
for forming foundry moulds of sand ”
21.
Mr Winkley suggested that there was no nexus between a baling machine
and a crushing or a grinding machine in this context, or indeed any of the other
machines referred to in the context of this heading. Whilst there may not be an
exact fit, it was a case of obtaining the best fit which he submitted was 8422
40.
22.
Finally Mr Winkley confirmed that there were no explanatory notes to the
CN which were relevant to the classification issue on this appeal.
Appellant’s Submissions
23.
Mr Marchi submitted that 8422 40 was not an appropriate description for
the Machine. In particular it appeared to him that this code was dealing with
machines used in the food and drink industry. He submitted that the most
appropriate heading was 8474. Either 8474 20 (crushing or grinding machines) or
8474 80 90 (other machines within the 8474 heading).
24.
Mr Marchi took issue with the relevance of the Note (7) in the HSEN for
8422 referred to above. He stated that in August 2010, when the issue had first
arisen with HMRC, Note (7) was not present in the HSEN. He suggested that it
had been added later and he inferred it had been added because of the argument
being raised by the appellant. Mr Marchi wanted to know from HMRC the
circumstances in which Note (7) had been added to the HSEN. We decided during
the course of the hearing that the circumstances in which it was added would
not assist us in determining the correct classification of the Machines. At the
time of the BTI decision, and indeed at the time of the BTI application, Note
(7) was a part of the HSEN for heading 8422 and was therefore a legitimate aid
to construction for classification purposes.
25.
To be fair, Mr Marchi did not really press us to classify the goods
under headings 8422 20 (Machinery for cleaning or drying bottles or other
containers) and 8433 40 (Straw or fodder balers, including pick-up balers).
Indeed Mr Marchi told us that the main reason he referred to the latter was
because it is the only reference to balers in the whole of the CN.
26.
Mr Marchi also told us, and we accept, that the Office for National
Statistics had questioned non-customs declarations made by the appellant which
classified the Machines under heading 8422 40. However he said that they did
not suggest any alternative classification.
Decision
27.
In our view the objective characteristics of the Machines are that they
operate and are designed to pack and wrap materials. They pack materials by
compressing them into bales which are the most suitable form for ease of
transport. The bales are then tied or wrapped with steel or plastic straps to
keep them together during storage and transportation. Otherwise the bales would
fall apart during transportation.
28.
We do not consider that heading 8422 is limited to the food and drink
industry. Rather it is concerned with machinery used to package products of any
description. We note and accept that the packaging specifically referred to in
the heading involves placing products into a form of container which is not the
case with the Machines in this appeal. However we consider that the overall
process of compressing the materials and then tying them with straps can fairly
be described as a process of packing and/or wrapping.
29.
We gain comfort in that construction from the HSEN for heading 8422
relied upon by Mr Winkley. The HSEN identifies the purpose for which goods are
generally packaged, that is for ease of resale, transport or storage. That is
plainly the objective purpose of the Machines in the present case. In Note (7)
the HSEN then goes on to give baling or banding machines as examples of
machines included in the heading. We have already indicated to the parties that
the circumstances in which Note (7) came to be introduced are not relevant to
the classification of the Machines.
30.
The headings suggested by the appellant do not in our view fairly
describe the objective characteristics of the Machines which we have
identified. We need say little more about headings 8422 20 (Machinery for
cleaning or drying bottles or other containers) and 8433 40 (Straw or fodder
balers, including pick-up balers). The Machines plainly do not have the
objective characteristics referred to in these headings, the latter being
clearly limited to agricultural uses.
31.
The sub-headings in heading 8474 again do not fairly describe the objective
characteristics of the Machines. In particular the Machines do not operate on
earth, stone, ores or other mineral substances. Mr Marchi emphasised the use of
the machine in compressing RDF. However that is merely one of its uses in
baling recyclable material and in any event the material used to produce RDF is
not a “solid mineral fuel” for the purposes of heading 8474.
32.
We are satisfied that heading 8422 40 defines the objective
characteristics and properties of the Machines. Even if it did not, we are
satisfied that GIR 4 would operate so as to classify the Machines under the
same heading on the basis that it is “appropriate to the [Machines] to which
they are most akin”.
33.
In all the circumstances the appeal is dismissed.
34.
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.
TRIBUNAL JUDGE
RELEASE DATE: 31 May 2012
