Vtech Electronics (UK) Plc v Customs & Excise
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lawrence Collins |
| Judgment Date | 29 January 2003 |
| Neutral Citation | [2003] EWHC 59 (Ch) |
| Court | Chancery Division |
| Docket Number | CH/2002/APP/0374 |
| Date | 29 January 2003 |
[2003] EWHC 59 (Ch)
Mr Justice Lawrence Collins
CH/2002/APP/0374
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL
Mr David Vaughan QC and Ms Marie Demetriou (instructed by Garretts) for the Appellant
Mr David Anderson QC and Mr Owain Thomas (instructed by the Solicitor, HM Customs & Excise) for the Respondents
I Introduction
VTech carries on business as an importer of electronic products. The products in issue are intended for children, modelled like a computer, and contain a number of in-built activities.
This is an appeal from the decision of the VAT and Duties Tribunal of March 12, 2002 ("the Decision"), classifying certain of VTech's products as "toys" under heading 9503 of the Combined Nomenclature ("CN"), rather than as "games" under heading 9504.
Classification as toys under CN 9503 currently attracts a 4.7% rate of duty, whilst classification as "games" under CN 9504 attracted a rate of duty of 1.1%, which was reduced to 0.6% on January 1, 2003 and will be reduced to zero on January 1, 2004. Success for VTech would mean that it and its associated companies would be able to claw back some 1.8 million euros of duty already paid and would be saved approximately 2.6 million euros over the next three years, making a total of 4.4 million euros (approximately £2.8 million).
The parties agree that the products fall to be classified under chapter 95 of the CN. 1 Chapter 95 forms part of Section XX " Miscellaneous Manufactured Articles." Chapter 95 is entitled "Toys, Games and Sports Requisites: Parts and Accessories thereof."
CN 9503 is entitled "Other toys; reduced-size ('scale') models and similar recreational models, working or not; puzzles of all kinds". Included within the heading are electric trains, model assembly kits, stuffed toys and toy weapons. CN 9504 is entitled "Articles for funfair, table or parlour games, including pintables, billiards, special tables for casino games and automatic bowling alley equipment." Included within the heading are electric car racing sets, having the character of competitive games, video games and playing cards.
II Legal background
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.
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 Article 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.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, headings or subheadings of the Harmonised System". The International Convention is kept up to date by the Harmonized System Committee, which is composed of representatives of the contracting states.
The CN, originally in Annex I to Regulation 2658/87, is re-issued annually: the version applicable to the present case is Annex I to Regulation 2204/99 (12.10.99 OJ L278). The CN comprises: (a) the nomenclature of the harmonized system provided for by the International Convention; (b) Community subdivisions to that nomenclature ("CN subheadings"); and (c) preliminary provisions, additional section or chapter notes and footnotes relating to CN subheadings.
The CN uses an eight-digit numerical system to identify a product, the first six digits of which are those of the harmonised system, and the two extra digits identify the CN sub-headings of which there are about 10,000. Where there is no Community sub-heading these two digits are "00" and there are also ninth and tenth digits which identify the Community (TARIC) subheadings of which there are about 18,000.
There are Explanatory Notes to the Nomenclature of the Customs Co-operation Council, otherwise known as Explanatory Notes to the Harmonised System ("HSENs"). The Community has also adopted Explanatory Notes to the CN (pursuant to Article 9(1)(a) of Council Regulation 2658/87), known as CNENs.
Binding Tariff Information is issued by the customs authorities of the Member States pursuant to Article 12 of the Common Customs Code (Council Regulation 2913/92/EEC) on request from a trader. They are called "BTIs", and such information is binding on the authorities in respect of the tariff classification of goods. The BTIs issued in this matter were the subject of the appeal to the Tribunal in the present case.
III Interpretation
There are many decisions of the European Court on the interpretation of the tariff headings. The decisive criterion for the tariff classification of goods must be sought generally, regard being had to the requirements of legal certainty, in their objective characteristics and properties, as defined in the headings of the Common Customs Tariff: e.g. Case C-177/91BioforceGmbH v. Oberfinananzdirektion Munchen [1993] ECR I-45, where the function of the product (hawthorn drops) was decisive; Case C-309/98Holz Geenen GmbH v. Oberfinananzdirektion Munchen [2000] ECR I-1975, where the intended use of the product (wood blocks for window frames) was said to be such an objective criterion if it was inherent in the product; Case C-338/95Wiener SI GmbH v. Hauptzollamt Emmerich [1997] ECR I-6495, where the intended use of the product (pyjamas) was decisive, and the presentation of the goods was regarded as relevant.
The headings and the Explanatory Notes do not have legally binding force and cannot prevail over the provisions of the Common Customs Tariff: Case C-35/93Develop Dr. Eisbein GmbH & Co. v Hauptzollamt Stuttgart-West [1994] ECR I-2655, para 21; Case C-338/95Wiener SI GmbH v. Hauptzollamt Emmerich [1997] ECR I-6495, per Advocate General Jacobs, para 32; Case C-309/98Holz GeenenOberfinananzdirektion Munchen [2000] ECR I-1975, para 14. But they are important means for ensuring the uniform application of the Common Customs Tariff and are therefore useful aids to interpretation: e.g. Case C-338/95Wiener SI GmbH v. Hauptzollamt Emmerich [2000] ECR I-1975, para 11; Case C-309/98Holz GeenenOberfinananzdirektion Munchen [2000] ECR I-1975, para 14. They may show that a classification by Commission Regulation is invalid, if the error made by the Commission is manifest: e.g. Case C-463/98Cabletron Systems Ltd v Revenue Commissioners [2001] ECR I-3495, para 22.
It is for the national court (even in a case which has been referred to the European Court for guidance on the applicable principles) to determine the objective characteristics of a given product, having regard to a number of factors including their physical appearance, composition and presentation: Case C-338/95Wiener SI GmbH v. Hauptzollamt Emmerich [1997] ECR I-6495, para 21.
The General Rules for the Interpretation of the CN ("GIRs") are contained in Section 1A of Part 1 of Annex 1 to Council Regulation 2658/87 and have the force of law. They include the following potentially relevant provisions:
(a) By rule 1, classification is to 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 succeeding provisions.
(b) By rule 2(b), the classification of goods consisting of more than one material or substance shall be according to the principles of rule 3.
(c) Rule 3 provides as follows:
"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 substance 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."
(d) By rule 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."
(e) By rule 6, rule 1 is applied mutatis mutandis to the classification of goods in the subheading of a heading.
The application of these principles of interpretation are sufficient to permit national courts to decide most classification cases without reference to the European Court: "Occasionally, of course, a more general question of interpretation may surface, and it would be appropriate for a national court to refer a question to this Court. But where that is not the case, national courts should not...
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