Vital Nut Co Limited v The Commissioners for HMRC

For customs classification, the starting point is the goods’ objective characteristics and properties. However, where the wording of the relevant explanatory note makes classification depend on a specified manufacturing process, the tribunal must determine whether that process was followed. The taxpayer bears the burden of showing that the customs classification asserted by HMRC is wrong.

Under section 9 of the Tribunals, Courts and Enforcement Act 2007 and the relevant tribunal rules, a First-tier Tribunal may, after the statutory gateway conditions for review are met, clarify an obvious error in the formulation of its reasons. It may not use review to recast its decision or advance new grounds of defence. A challenge to findings of fact must identify a significant finding which the tribunal was not entitled to make; a general challenge to the weight of evidence is insufficient.

Vital Nut imported preserved diced papaya from Thailand. HMRC classified it under Combined Nomenclature heading 20.06, concerning fruit preserved by sugar, rather than heading 20.08, concerning fruit otherwise prepared or preserved. The higher classification attracted a greater customs duty.

The First-tier Tribunal dismissed Vital Nut’s appeal. Its original decision stated that there was no evidence of the 2008 manufacturing process. Following an application for permission to appeal, it reviewed and revised the decision to state that the evidence was insufficient. Vital Nut appealed on grounds concerning the classification approach, the FTT’s treatment of evidence, the validity of its review, and an alleged Edwards v Bairstow error of law.

1. Appeal dismissed. The FTT was entitled to uphold classification under heading 20.06. Vital Nut had not discharged its burden of proving that the papaya was produced without the boiling process specified by the explanatory material for that heading.

2. The correct starting point for tariff classification is the commodity’s objective characteristics and properties. The FTT had followed that approach. Yet the relevant Harmonised System Explanatory Note defined the material category by reference to its production process. It was therefore necessary to decide whether the papaya had been repeatedly heated to boiling point and stored in syrups of progressively increasing sugar concentration. The FTT asked that correct question and did not disregard the product’s objective characteristics.

3. The FTT’s review was valid. Section 9 of the Tribunals, Courts and Enforcement Act 2007, read with Rules 40 and 41 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, requires an application for permission to appeal and the FTT’s satisfaction that its decision contained an error of law. Once those gateway conditions are met, the legislation does not restrict review to a particular label of error. The review process may clarify what was already decided and provide adequate reasons, but it must not be used to rewrite the decision or defend it on new grounds.

4. The amendment merely corrected an obvious misstatement. Read as a whole, the original decision showed that the FTT had considered the evidence. The revised decision properly clarified that the evidence did not satisfactorily establish the manufacturing process in 2008.

5. The alleged factual error failed. The FTT was entitled to find the evidence insufficient, particularly because the relevant witness was not available for cross-examination and the other witnesses could not establish the 2008 process. Vital Nut’s general trawl through evidence was the impermissible form of factual challenge described in Georgiou (t/a Marios Chippery) v Customs and Excise Comrs, [1996] STC 463.

• Upper Tribunal (Tax and Chancery Chamber): dismissed Vital Nut’s appeal from the revised First-tier Tribunal decision.
• First-tier Tribunal (Tax Chamber): by an original decision dated 7 July 2015, subsequently revised following review on 5 November 2015, dismissed Vital Nut’s appeal and upheld classification under heading 20.06.