The Commissioners for HMRC v International Plywood (Importers) Limited

Introduction

1. This appeal concerns the correct Customs classification of Plastform wooden panels (‘the panels’) imported by the Respondent, International Plywood (Importers) Limited (‘IPL’).

2. Following a review, HMRC had classified the panels under commodity code 4412 of the Combined Nomenclature (‘CN’) (‘ Plywood, veneered panels and similar laminated wood’ ) and the specific subcategory 4412 94 10 (‘ Other – Blockboard, Laminboard and battenboard with at least one outer ply of non-coniferous wood ’). HMRC raised a demand for £277,930.83 (comprised of £231,609.02 in Customs Duty and £46,321.81 in Import VAT), based on a customs duty rate of 10% and imposed a penalty of £1,250. See WS of Jonathan Miller, §43 – incorrectly recorded by the FTT as 7% at §2 of the Decision .

3. The First-tier Tribunal (‘FTT’), in a decision dated 15 July 2022, released as [2022] UKFTT 223 (TC) , decided that the correct customs classification is within tariff heading 4418 (‘ Builders’ joinery and carpentry of wood, including cellular wood panels, assembled flooring panels, shingles and shakes’ ). The FTT upheld IPL’s submissions that the panels were properly classified under subheading 4418 40 00 (‘ shuttering for concrete constructional work ’), which attracted a zero rate of duty. The FTT accordingly allowed IPL’s appeal against HMRC’s classification decision.

4. With the permission of the Upper Tribunal (‘UT’), HMRC, the Appellants, appeal against the FTT decision. They contend that the FTT erred in law in makings its decision and that it should be remade in their favour. HMRC submit that the appropriate classification is within 4412 94 10.

5. We have concluded that two of HMRC’s six grounds of appeal succeed. We therefore allow the appeal. Background

6. IPL is a specialist wood products importer, and its name specifically indicates that it imports plywood.

7. The appeal concerns the correct classification for customs duty purposes of the panels, manufactured in Brazil by Madeireira Thomasi SA, batches of which were imported into the United Kingdom by IPL between 8 December 2015 and 17 July 2017. This was at a time when the UK remained a member state of the European Union.

8. IPL declared the Panels under commodity code 4418 40 00 (“shuttering for concrete constructional work”). The rate of customs duty under that code is 0%. The panels consist of 3 layers of cross-laminated timber (with at least one layer exceeding 6mm thickness) with a cement resistant Medium Density Overlay (“MDO”) with a coating of Noxcrete (a chemically active release agent) . According to a diagram of the panels, the outer layers (1 & 3) were of Eucalyptus – long grain and the inner layer was Taeda pine – short grain. The diagram suggested that each layer had a thickness of 6 mm but inspection of a sample of panels revealed outer layers around 8mm in thickness. The panels were 8ft by 4ft in height and width.

9. On 16 March 2018, HMRC informed IPL that they were undertaking an “International Trade audit on the classification of imports of Formwork panels (for concrete construction) and Plywood panels”. Between March 2018 and January 2019, IPL and HMRC liaised in relation to the classification issue.

10. On 21 February 2019, HMRC wrote to the Appellant stating that the Panels were properly classified to commodity code 4412 94 10. The rate of customs duty under that code is 10%. On 26 March 2019, HMRC issued to the Appellant a C18 Post Clearance Demand (reference C18285851) in the sum of £303,649.39. HMRC issued a C18 Customs Demand and penalty on the imports because they had formed the view that IPL had used the wrong commodity code when declaring imports of the product. Having initially stated that the correct commodity code was 4412 33 00 00, Jane Martin (a member of HMRC’s classification team) determined that the correct commodity code was 4412 94 10 00 (for which the rate of duty is 10%). Jane Martin explained her reasoning thus: “…commodity code 44 12 33 00 00 only covers ply layers not exceeding 6mm thick. The Plastform sample featured ply layers which clearly exceeded 6mm thickness (each approximately 8mm). As the ply layers of the Plastform sample were clearly thicker than 6mm, commodity code 44 12 33 00 00 was excluded, and an alternative commodity code 44 12 94 10 00 for products ‘other’ than covered by the previous subheading is appropriate”.

11. HMRC excluded the Panels from subheading 4418 40 00 on the basis of the Harmonised System explanatory note to 4418 40, which we set out below.

12. Following a statutory review which recognised that part of the C18 demand was out of time, on 9 May 2019 the C18 Post Clearance Demand was reduced to £231,609.02 customs duty and £46,321.81 Import VAT, in total £277,930.83. A penalty of £1,250 was imposed by notice dated 17 April 2019. The review decision and penalty notice were the subject of the appeal to the FTT. The Law Customs Legislation, Union Customs Code,

13. The Union Customs Code (‘UCC’) was established by EU Regulation 952/2013 to increase consistency on customs. The CN, laid down in Regulation 2658/87, is the legal basis for the tariff. The CN is amended annually and reproduced in the UK Tariff. The CN, which is directly applicable in all Member States, sets out the tariff subheadings and subdivisions for the classification of goods.

14. The six General Rules of Interpretation (“GIRs”), contained in Part 1, Section 1 of the CN, set out the principles by which the CN must be interpreted. We return to the GIRs below.

15. The CN is based on the international Harmonised Commodity and Coding System (“Harmonised System” or “HS”) established by the World Customs Organisation (“WCO”).

16. The Explanatory Notes to the Harmonised System (“HSENs”) published by the WCO are not legally binding but are highly persuasive in determining the proper classification. There are also Explanatory Notes to the CN (“CNENs”) which refer to the HSENs. Principles of interpretation and GIRs

17. The FTT accurately summarised the principles to be applied in classification appeals in its decision at [8]: ‘At [2-17] of MSA Britain Ltd v HMRC [2019] UKFTT 0693 (TC) and [6-10] of Orlight Ltd v HMRC [2013] UKFTT 732 (TC) , the Tribunal helpfully summarised the law and approach to interpretation in classification appeals, as follows: (a) Annex 1 of Regulation 2658/87 contains a combined nomenclature (“the CN”) which classifies goods using an eight-digit identification system. The first two digits represent the chapter heading, the next two digits represent headings in the chapter, the fifth and sixth digits represent subheadings (which mirror those used in the WTO’s nomenclature) and the final two digits represent the EU’s further subdivisions. (b) Annex 1 also contains six general rules for the interpretation of the CN (“the GIRs”). The GIRs that are potentially relevant to the present appeal are: (i) GIR 1 which provides that the titles of sections, chapters and subchapters are for ease of reference only and that, for legal purposes, classification shall be determined according to the terms of the headings and any relevant section or chapter notes and, provided such headings or notes do not otherwise require, according to the other GIR. (ii) GIR 3 which provides that where 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; (b) Composite goods consisting of different materials 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; (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; (iii) GIR 4 which provides that 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; [GIR 5 was not considered and is not relevant to the present appeal.] (iv) GIR 6 which provides that the classification of goods under subheadings shall be determined according to the terms of those subheadings and any related subheading notes and mutatis mutandis to the above rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this rule the relative section and chapter notes also apply, unless the context requires otherwise; (c) “…the decisive criteria for the classification of goods…is in general to be found in their objective characteristics and properties as defined in the wording of the relevant CN and of the notes to the sections or chapters…the intended use of a product may constitute an objective criterion in relation to a tariff classification if it is inherent in the product, and such inherent character must be capable of being assessed on the basis of the product’s objective characteristics and properties…” ( Intermodal Transports BV Case C-495/03 ); (d) There are explanatory notes to the WTO’s nomenclature, Harmonised System Explanatory Notes (“HSENs”) and explanatory notes produced by the European Commission, Combined Nomenclature Explanatory Notes (“CNENs”). Neither have force of law but both may be important aids to interpretation; (e) Where the EU commission has promulgated a classification regulation in relation to particular goods: (i) the scope of that regulation must be determined by taking into account, inter alia, the reasons given in the regulation ( Hewlett-Packard Case C-199/00 ); (ii) A classification regulation can assist in classification of similar products by analogy.

18. The parties are agreed that the correct Chapter heading for the panels is Chapter 44: Wood and articles of wood; wood charcoal .

19. The following are the CN headings, subheadings and commodity codescontended for, followed by the relevant parts of the corresponding HSENs and CNENs where relevant. HMRC’s case: 4412

20. HMRC submit that the appropriate classification for the panels is within heading 4412: Plywood, veneered panels and similar laminated wood .

21. There are a number of subheadings under 4412. The first is: 4412 10 00 - Of Bamboo - Other plywood consisting solely of sheets of wood (other than bamboo), each ply not exceeding 6 mm thickness.

22. The “other plywood” category is further subdivided, but it is unnecessary to go into this as this subheading does not apply to the panels: they are not of bamboo and do not have plies that are all of 6mm or less in thickness. There is then a further category of ‘Other’ at the first level subheading (ie. not bamboo and not other plywood with each ply of 6mm in thickness or less), which includes the second level subheading: 4412 94 -- Blockboard, laminboard and battenboard

23. Within that subheading, there is a third level subheading: 4412 94 10 ---With at least one outer ply of non-coniferous wood.

24. It is here that HMRC submit that the panels belong.

25. The CNENs to heading 4412 ‘Plywood, veneered panels and similar laminated wood’ cross-refer to the relevant HSENs. The HSENs provide: This heading covers: (1) Plywood consisting of three or more sheets of wood glued and pressed one on the other and generally disposed so that the grains of successive layers are at an angle; this gives the panels greater strength and, by compensating shrinkage, reduces warping. Each component sheet is known as a “ply” and plywood is usually formed of an odd number of plies, the middle ply being called the “core”. (2) Veneered panels …… (3) Similar laminated wood . This group can be divided into two categories: - Blockboard, laminboard and battenboard, in which the core is thick and composed of blocks, laths or battens of wood glued together and surfaced with the outer plies. Panels of this kind are very rigid and strong and can be used without framing or backing… … The products of this heading remain classified herein… whether or not they have been worked at the surface, the edge or the end, or coated or covered (e.g. with textile fabric, plastics, paint, paper or metal) or submitted to any other operation, provided these operations do not thereby give such products the essential character of articles of other headings.

26. There is a further potential sub-classification that HMRC accepted during the hearing may be relevant within heading 4412 and the first-level subheading of ‘Other’ which may apply to products which are not blockboard, laminboard and battenboard, not bamboo and not other plywood with plies of 6mm in thickness or less.

27. This is 4412 99 50 (- Other; 44 12 99 -- Other; 44 12 99 50 ---- Other). It could conceivably apply to the panels (if they are Plywood rather than laminboard, and Plywood can include plies of greater than 6mm thickness). This classification would also attract a duty of 10%. IPL’s case: 44 18

28. IPL contends that the appropriate classification for the panels is within heading 44 18: ‘ Builders’ joinery and carpentry of wood, including cellular wood panels, assembled flooring panels, shingles and shakes ’. At this level of classification, IPL submits that the panels are ‘carpentry of wood’.

29. Within this heading there are various subheadings including 44 18 40 00: ‘– Shuttering for concrete constructional work .’ This classification is free of Customs Duty.

30. It is to this subheading that IPL submits that the product belongs.

31. The HSEN to 4418: ‘Builders’ joinery and carpentry of wood, including cellular wood panels, assembled flooring panels, shingles and shakes’ provide: This heading applies to woodwork, including that of wood marquetry or inlaid wood, used in the construction of any kind of building etc, in the form of assembled goods or as recognisable unassembled pieces (eg . prepared with tenons, mortises, dovetails or other similar joints for assembly), whether or not with their metal fittings such as hinges, locks etc. … The term “joinery” applies more particularly to builders’ fittings (such as doors, windows, shutters, stairs, door or window frames), whereas the term “carpentry” refers to woodwork (such as beams, rafters and roof struts) used for structural purposes or in scaffoldings, arch supports, etc., and includes assembled shuttering for concrete constructional work. However, plywood panels, even if surface treated for the purposes of concrete shuttering, are classified in heading 44.12 . … [Emphasis Added]

32. The CNEN for 4418 40 00: ‘Shuttering for concrete constructional work’, provides: Shuttering of this subheading is an assembly used for all types of concrete constructional work (for example, for foundations, walls, floors, columns, pillars, props, tunnel sections, etc.). Generally, shuttering is manufactured from resinous wood (planks, beams, etc.). However, plywood panels used as shuttering (to obtain smooth surfaces) are excluded from this subheading even if coated on one or both sides and their use as concrete shuttering is unmistakable (heading 4412). [Emphasis Added]

33. The Annex to EC Classification Regulation 309/2010 provides for the classification of the following specified fir wood panel product to 4412 94 90: --Blockboard, laminboard and battenboard---other (not having at least one outer ply of non-coniferous wood).