Caerdav Ltd v Revenue And Customs (Appeal - CUSTOMS DUTY AND VAT - importation of aircraft-whether within EU customs special procedure when entered UK-impact of expired end use authorisation) -[2023] UKUT 179 (TCC)- (25 July 2023)

Key Facts

Tax Type

Issues

• The fourth issue focused on the proportionality of the £330,633.45 customs debt relative to the £1,500 maintenance work. The Upper Tribunal dismissed this argument, stating the FTT correctly applied EU law and that the customs regime's proportionality is a matter of legislative design, not individual case assessments. The tribunal emphasized that the duty was lawfully calculated based on the aircraft's value.
• The fifth issue addressed the FTT's jurisdiction to entertain the legitimate expectation argument under domestic and EU law. The tribunal concluded it lacked jurisdiction to review HMRC's discretionary decisions, as the appeal was limited to statutory interpretations of customs and VAT obligations. The Upper Tribunal affirmed this, noting the statutory framework did not permit public law challenges in this context.
• The primary issue was whether the aircraft's importation into the UK was part of a direct export from Bulgaria to the USA or an indirect export through the EU. The FTT concluded that the aircraft left the EU's customs territory when it entered Serbian airspace, discharging the Inward Processing procedure. The Upper Tribunal upheld this finding, determining that the aircraft was a new import subject to customs duty and VAT due to its expired EUA.
• The third issue involved the EU principle of legitimate expectation, with the Appellant arguing that HMRC's letters in October and November 2017 implied no duty would be imposed. The FTT and Upper Tribunal rejected this, finding the letters were ambiguous and did not constitute the 'clear, unambiguous' assurances required for a legitimate expectation. The FTT also ruled it lacked jurisdiction to consider this EU law argument.
• The final issue concerned the FTT's refusal to permit a late application to dispute the aircraft's customs value. The tribunal cited the extreme lateness of the application, the lack of prior challenge to the value despite five years of knowledge, and the need for procedural fairness. The Upper Tribunal upheld this decision, finding no error in the FTT's case management discretion.
• The second issue concerned the application of Article 120 of the Union Customs Code (UCC) for remission of customs debt on equity grounds. The FTT and Upper Tribunal both held that the Appellant failed to meet the conditions for remission, particularly due to its 'obvious negligence' in allowing the EUA to lapse and not addressing the issue promptly despite HMRC's warnings.

Holdings

• Ground 2 was dismissed as the FTT correctly determined that Article 120 of the UCC (equity remission) did not apply. The Appellant's failure to renew its expired EUA and its obvious negligence precluded remission, and no special circumstances were established.
• Ground 4 was dismissed as the FTT properly concluded that proportionality under EU law does not apply to this case. The customs and VAT regime was deemed proportionate, and the debt's size relative to the maintenance work did not justify remission.
• Ground 6 was dismissed as the FTT lawfully refused to consider the late application to challenge the aircraft's customs value. The Appellant failed to demonstrate justification for the late amendment, and the value discrepancy lacked sufficient evidentiary support.
• Ground 3 was dismissed because the FTT had no jurisdiction to consider the EU law principle of legitimate expectation in this statutory context. Even if jurisdiction existed, the FTT correctly found HMRC's statements did not create a legitimate expectation due to ambiguity and inconsistency.
• Ground 5 was dismissed, upholding the FTT's jurisdictional determination that legitimate expectation claims under domestic law were outside its authority. The FTT's factual findings supported its conclusion that no legitimate expectation arose from HMRC's correspondence.
• The Upper Tribunal dismissed Ground 1, affirming the FTT's finding that the aircraft was subject to a direct export from Bulgaria to the USA, discharging the Inward Processing procedure upon entering Serbian airspace. The FTT correctly concluded that no customs debt relief applied under this procedure.

Tax Issue Category

Monetary Damages

Legal Principles

• The court considered the EU principle of legitimate expectation under Article 120 of the Union Customs Code (UCC), concluding that the FTT did not have jurisdiction to apply it in this context. The FTT found HMRC's statements did not create a legitimate expectation due to their ambiguity and inconsistency with customs obligations.
• The court rejected claims that customs duty demands were disproportionate under EU law, emphasizing that proportionality applies to the overall legislative framework rather than individual cases. The FTT correctly applied the UCC's proportionality standards to the statutory scheme.

Disputed Tax Amount

Precedent Name

• Bancoult v Secretary of State for Foreign and Commonwealth Affairs
• FAGE UK Ltd v Chobani UK Ltd
• Exchequer Solutions v HMRC
• KSM Henryk Zeman PP Z.o.o. v HMRC
• R (on the application of Drax Power Ltd and another) v HM Treasury
• Edwards v Bairstow
• Metropolitan International Schools v HMRC
• Ingenious Games LLP & Others v HMRC
• Investec Asset Finance plc & anor v HMRC
• R v Inland Revenue Comrs, Ex p MFK Underwriting Agents Ltd
• BPP Holdings Ltd & Ors v HMRC

Cited Statute

• Commission Implementing Regulation (EU) 2015/2447 (IR)
• Value Added Tax Act 1994 (VATA)
• Union Customs Code (UCC)
• Finance Act 1994
• Treaty on the Functioning of the European Union (TFEU)

Penalty Amount

Judge Name

• Judge Rupert Jones
• Mr Justice Rajah

Passage Text

• 110. The documentary evidence, and in particular the EAD, is consistent with a direct export from Bulgaria to the US, rather than an indirect export via another EU member state. This is supported by the facts there were no ECS entries included in the Bulgarian Documents and that Caerdav did not receive an EAD or the information in it which would have indicated that the export from Sofia was an indirect export. I conclude that the aircraft was the subject of a direct export from Bulgaria and accordingly, under Article 267 of the Implementing Regulation it would have been discharged from the IP procedure when it left the customs territory of the EU. I have found, on the balance of probabilities that the aircraft flew over Serbia, so it left the customs territory of the Union when it flew into Serbian airspace.
• 157. These are mandatory provisions. As noted in Noor at para 194 'all Member States must apply the common external tariff to imports from third countries. HMRC does not have a discretion about whether or not to apply a customs duty'. On an appeal the FTT is concerned with whether the facts prescribed for a charge to arise are present and the amount of the charge. 158. We thus agree with the FTT's analysis set out at [200] above and reject Ms Choudhury's suggestion that the statutory provisions under consideration conveyed any right of appeal against the exercise of a discretionary power by HMRC. There was no error of law in the FTT concluding that, as a matter of statutory interpretation, it had no jurisdiction to consider public law grounds, such as legitimate expectation, in appeals brought under sections 83(1)(b) VATA and sections 13A(2) and 16(5) Finance Act 1994.
• 139. The more fundamental reason why I cannot accept the Appellant's submissions is that Articles 116 and 120 do not apply in the present situation. The provisions of the UCC regarding repayment and remission, beginning with Article 116 are about repaying duty which has been charged when a lower amount or no duty was actually due. All of the grounds in Article 116 have conditions attached to them. 140. Article 120 does envisage a situation where a customs debt which is actually due may be remitted. It sets out the conditions applicable to remission on the ground of 'equity'. First there must be 'special circumstances' but that is defined in paragraph 2 of Article 120. There must be something in the circumstances of the taxpayer which puts it in an 'exceptional situation' as compared with other operators engaged in the same business, and this has caused the taxpayer to be disadvantaged compared with such other operators because duty is being collected from it and not them. Secondly there must be no deception or obvious negligence which can be attributed to the debtor in connection with the special circumstances.