Caerdav Ltd v The Commissioners for HMRC

Customs duty and import VAT remain payable where goods entered the United Kingdom after a special customs procedure had been discharged by a direct export from the European Union. An appellate tribunal should not interfere with factual findings or evaluative judgments unless an Edwards v Bairstow error is shown.

Remission under Article 120 of the Union Customs Code requires cumulative proof of special circumstances and absence of obvious negligence. Legitimate expectation and proportionality may inform the assessment of special circumstances, but they do not enlarge the statutory conditions for remission. Public-law legitimate expectation arguments generally fall outside the First-tier Tribunal’s jurisdiction where the statutory appeal concerns mandatory liability rather than an exercise of discretion.

Caerdav imported an aircraft into Wales for maintenance after the aircraft had been placed under Inward Processing in Bulgaria. The aircraft then left Bulgarian airspace through Serbia before arriving in the United Kingdom and later travelling to Ireland and the United States.

The First-tier Tribunal dismissed Caerdav’s appeal against HMRC’s demand for customs duty and import VAT, finding that the aircraft was subject to a direct export from Bulgaria to the United States, that Inward Processing had been discharged before arrival in Wales, and that Caerdav’s end-use authorisation had expired. It also rejected remission, legitimate expectation, proportionality and a late challenge to the valuation.

The Upper Tribunal considered whether the FTT had made errors of law in reaching those conclusions.

1. Appeal dismissed. The FTT’s decision was confirmed. None of the six grounds disclosed a material error of law.
2. The FTT was entitled to find, on the documentary and witness evidence, that the aircraft was subject to a direct export from Bulgaria to the United States. The export accompanying document identified Sofia as the customs office of exit and the United States as the destination. The absence of Export Control System entries and the absence of relevant documentation supplied to Caerdav supported that conclusion. Those findings were within the reasonable range open to the FTT.
3. Where the export was direct, Article 136 of the Union Customs Code did not apply. Under Article 267 of Commission Implementing Regulation (EU) 2015/2447 and Article 215 of the Code, Inward Processing was discharged when the aircraft left the customs territory of the Union by entering Serbian airspace. Its arrival in Wales was therefore a new import attracting duty and VAT.
4. Article 120 remission requires two cumulative conditions: special circumstances and no deception or obvious negligence. The burden lay on the taxpayer seeking remission. The FTT was entitled to find obvious negligence from the expiry of the end-use authorisation, Caerdav’s failure to renew it despite HMRC’s warnings, and its continued use of the procedure.
5. The free-standing EU-law concept of legitimate expectation could, in principle, be relevant to Article 120, but it added nothing to the statutory inquiry into special circumstances. In any event, the letters relied on were not precise, unconditional and consistent assurances, and could not have caused a legitimate expectation. The same conclusion followed from the domestic-law principles.
6. The proportionality principle concerns the proportionality of the customs and VAT regime as a whole. It did not require the statutory debt to be recalculated by reference to the value of Caerdav’s maintenance work. Any case-specific proportionality argument would still not overcome the finding of obvious negligence.
7. The FTT had no jurisdiction to determine a public-law legitimate expectation claim in appeals under section 83(1)(b) of the Value Added Tax Act 1994 and sections 13A(2) and 16(5) of the Finance Act 1994, because those provisions concerned mandatory liability rather than a discretionary assessment.
8. The refusal to admit a new valuation ground raised on the third day of the FTT hearing was a case-management decision. The FTT applied a multifactorial assessment, including extreme lateness, lack of good reason, evidential uncertainty, prejudice and the overriding objective. It was not plainly wrong.

• Upper Tribunal (Tax and Chancery Chamber) — Appeal dismissed and the FTT’s decision confirmed: [2023] UKUT 179 (TCC).
• First-tier Tribunal (Tax Chamber) — Appeal against HMRC’s C18 demand dismissed: [2022] UKFTT 00105 (TC).