Build-a-Bear Workshop UK Holdings Ltd v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lady Justice Whipple,Lady Justice Asplin,Lord Justice Newey |
| Judgment Date | 21 June 2022 |
| Neutral Citation | [2022] EWCA Civ 825 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2021-000669 |
[2022] EWCA Civ 825
Lord Justice Newey
Lady Justice Asplin
and
Lady Justice Whipple
Case No: CA-2021-000669
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
[2021] UKUT 0067 (TCC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Laurent Sykes QC (instructed by Addleshaw Goddard LLP) for the Appellant
Owain Thomas QC and Paul Reynolds (instructed by the Solicitor for HMRC) for the Respondents
Hearing date: 11 May 2022
Approved Judgment
This judgment will be handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand down is deemed to be 10.00 AM on Tuesday 21st June 2022.
Introduction
This appeal raises an issue about the classification for customs duty purposes of accessories imported for use with stuffed toys in both human and animal form that are sold by the Appellant, Build-A-Bear or “BAB”. Before the First Tier Tribunal (“FTT”) and Upper Tribunal (“UT”) a number of different types of accessories were in issue, but before us the dispute has narrowed to three sorts of accessories: clothes, wigs and shoes (the “items”). BAB argues that the items should be classified as accessories of dolls, in which event they would benefit from a nil rate of customs duty. HMRC say that these items are to be classified as accessories of stuffed toys, in which event they are subject to customs duty at 4.7%. The FTT and UT agreed with HMRC and dismissed the Appellant's appeal in relation to these items. The FTT neutral citation number is [2019] UKFTT 707 (TC). The UT neutral citation number is [2021] UKUT 0067 (TCC).
The Appellant originally advanced four grounds of appeal to this Court. Nugee LJ granted permission to appeal limited to the Appellant's third ground, which relates to the meaning and application of Note 3 to Chapter 95 of the Combined Nomenclature as it applied in the context of clothes and wigs. Note 3 provides so far as is relevant as follows:
“…parts and accessories which are suitable for use solely or principally with articles of this chapter are to be classified with those articles.”
Permission to appeal was refused on the first two grounds. It is important to be clear, therefore, about what is not within the scope of this appeal. By the first ground, the Appellant had wished to challenge the UT's conclusion that Note 3 is capable of identifying one article only as being the article with which it is solely or principally suitable for use and falls to be classified (this came to be known as the “one answer” ground); by the second ground, the Appellant had wished to challenge the UT's dismissal of the Appellant's appeal from the FTT's finding that the items were suitable principally for use with animal toys as opposed to dolls (this came to be known as the “suitability ground”). The refusal of permission for these two grounds means that it is settled that Note 3 is only capable of identifying one article as being the article with which the part or accessory is used; and that in meeting that Note 3 test, the items are suitable principally for use with animal toys, not dolls.
Nugee LJ adjourned the question of permission on ground 4 to this Court. Ground 4 related to the position for footwear, as distinct from clothes or wigs (and came to be known as the “footwear ground”).
The Respondents have lodged a Respondents' Notice in which they seek to uphold the UT's decision on further or alternative grounds.
BAB was represented in this Court as below by Laurent Sykes QC. HMRC were represented here as below by Owain Thomas QC and Paul Reynolds (Mr Reynolds became involved when the case was before the UT). I have been greatly assisted by their written and oral submissions.
Background Facts
The background facts are set out by the UT at paragraphs 5 to 8, where the UT in turn cited passages from the FTT. I reproduce those paragraphs, adopting the UT's definitions:
“5. The FTT described BAB's business in paragraph [8] of the FTT Decision as follows:
“BAB offers an experience whereby, at BAB's “workshops” or online, customers can choose a “skin” to create their own stuffed toy or doll in the form of an animal, including bears, or a human (“BAB stuffed animals” and “BAB stuffed dolls and together “BAB stuffed toys”). At the workshop children participate in stuffing the skin, with the assistance from a store associate, before it is stitched into the finished BAB stuffed toy by a store associate. As set out below, a textile heart is always inserted into the skin before it is finally stitched together to form the finished product. BAB also sell a range of other toys and dolls as set out below. The items are included within the extensive range of clothing and other “accessories” which BAB also sells which can be used with BAB stuffed toys and other toys BAB sells. Customers can purchase the items separately without the need to purchase a toy.”
6. The Build-A-Bear group's business was traditionally focussed on toys in the form of animals, including bears. In 2009, the Build-A-Bear group introduced a “Sweetheart” range of stuffed dolls in human form, branded as “Honey” and “Daisy”. These are rounded in size and shape and were originally sold in the United States, but sales in the United Kingdom began in 2012. From sometime in 2015 onwards, BAB has also sold (under license) a range of four “Lalaloopsy” dolls in a human form.
7. The Accessories in dispute are all sold and used with both stuffed bears (the “ BAB Bears”), and with the Sweetheart and Lalaloopsy dolls (the “ BAB Dolls”).
8. In order to accommodate the particular (non-human) features of the BAB Bears, clothes sold by BAB feature slits (relevant to this appeal are the slits which are formed in the unsealed sections of the seam of clothing items such as trousers and shorts) which allow the tail of the bear to be pulled through them, thus permitting the clothing to fit properly. Similarly, wigs sold by BAB for dressing up a BAB Bear as a special character feature two small loop-holes of around 10cms, which allow the protruding ears of a bear to be pulled through so that the wig sits better on the bear's head. Various different types of footwear are produced by BAB, including football boots, walking shoes, slippers and sandals. These all have a rounded appearance and generally feature BAB's paw print logo on the tread of the sole.”
In addition to clothes, wigs and shoes, the UT noted that the range of accessories also included textile and plastic hearts which are inserted into the BAB Bears and BAB Dolls (“hearts”). These are of some significance in the debate about the meaning and scope of Note 3 although they are not directly subject to this appeal.
The customs duty in issue was notified by HMRC to the Appellant in two C18 post-clearance demands dated 18 October 2012 and 22 July 2013 in relation to items imported prior to those dates. The imports in question were all subject to the EU wide system known as the Community Customs Code to which the UK was a party at that time. The amount at stake in the current appeal, as it has narrowed to the items still in issue, is approximately £660,000. The determination of the issues raised on this appeal will have consequences in relation to subsequent imports meaning that a greater amount of customs duty is in reality at issue.
Legal Framework
The Customs Community Code
The classification for customs duty purposes of goods imported from outside the European Union is based on the Combined Nomenclature adopted under Article 1 of Regulation 1658/1987 (the “Tariff Regulation”). The Combined Nomenclature (or “CN”) is derived from the World Customs Organisation's harmonised system of commodity nomenclature as laid down by the International Convention on the Harmonized Commodity Description and Coding System 1983 to which the EU is a party.
The legal framework was described by Lawrence Collins J in Vtech Electronics (UK) plc v Commissioners for Customs and Excise [2003] EWHC Ch 59 at [6]–[12], in a passage later cited with approval by this Court in Invamed Group Ltd v Revenue and Customs Commissioners [2020] EWCA Civ 243. I adopt the same abbreviations and definitions:
“6. The Common Customs Tariff came into existence in 1968. By Article 28 of the revised EC Treaty Common Customs Tariff duties are fixed by the Council acting on a qualified majority on a proposal from the Commission.
7. The level of customs duties on goods imported from outside the EC is determined at Community level on the basis of the Combined Nomenclature (“CN”) established by art 1 of Council Regulation 2658/1987. The CN is established on the basis of the World Customs Organisation's Harmonised System laid down in the International Convention on the Harmonised Commodity Description and Coding System 1983 to which the Community is a party.
8. Article 3(1)(a)(ii) of the International Convention provides that, subject to certain exceptions, each contracting party undertakes “to apply the General Rules for the interpretation of the Harmonised System and all the Section, Chapter and Subheading Notes and shall not modify the scope of the Section, Chapters or subheading of the Harmonised System”. The International Convention is kept up to date by the Harmonised System Committee, which is composed of representatives of the contracting states.
9. The CN, originally in Annex 1 to Regulation 2658/87, is re-issued annually… The CN comprises: (a) the nomenclature of the harmonized system provided for by the International Convention; (b) Community subdivisions to that nomenclature (“CN subheadings”); (c) preliminary provisions additional section or...
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