HM Revenue & Customs v Epson Telford Ltd

For composite goods consisting of ink and a cartridge casing, the competing tariff headings may be equally specific under GRI 3(a) where each heading describes only one constituent. Classification must then proceed to GRI 3(b). The essential character is determined objectively, including by the purpose for which the goods are used. An ink cartridge is inserted into a printer to supply ink, even if its casing and electronic features are also necessary for safe and controlled operation. Those additional features do not displace ink as the most important constituent where they serve the delivery and protection of that primary ingredient.

HMRC appealed against a decision of the VAT and Duties Tribunal dated 9 June 2006. The Tribunal had classified Epson’s second- and third-generation ink-jet printer cartridges under CN heading 8473 as parts of printers, rather than under heading 3215 as ink.

The appeal was confined to points of law. The Tribunal’s primary factual findings were not challenged. The central issues were whether GRI 3(a), 3(b) or 3(c) governed classification, and whether the reasoning of the Court of Justice in Turbon International GmbH v Oberfinanzdirektion Koblenz applied to the later-generation cartridges.

1. Appeal allowed. The Tribunal had erred in law, and the cartridges were to be classified as ink under CN heading 3215.

2. The cartridges were composite goods consisting of ink and a casing, including its circuit board and chip. Under GRI 2(b), each of headings 3215 and 8473 extended to the cartridge as a whole. Heading 3215 described the ink, while heading 8473 described the casing as a potential printer part. Since neither heading described the whole cartridge as such, the second sentence of GRI 3(a) applied. The headings were therefore deemed equally specific, and the first sentence of GRI 3(a) could not determine the classification.

3. Under GRI 3(b), the essential character had to be identified objectively. The reasoning in Turbon International GmbH v Oberfinanzdirektion Koblenz established that the relevant purpose was the purpose for which the cartridge was used. That purpose remained supplying the printer with ink. Ink was consequently the most important constituent material or factor.

4. The later-generation cartridges’ flow-control mechanisms, electronic chips and safety functions did not alter that conclusion. Those features ensured efficient delivery of ink, prevented printing when ink levels were too low and protected the print head from dry firing. They were secondary to the ink, which was the essential raw material for printing.

5. GRI 3(c) was not reached. The court left open the wider question whether, because of its apparently arbitrary nature, recourse to that residual rule should generally be approached with caution. A reference to the ECJ was refused because the case was clearly covered by Turbon International GmbH v Oberfinanzdirektion Koblenz.

1. High Court (Chancery Division): allowed HMRC’s appeal against the VAT and Duties Tribunal’s decision dated 9 June 2006.