Imported goods – Customs value
Asda Stores Ltd v Revenue and Customs Commissioners: Upper Tribunal (Tax and Chancery Chamber): 8 May 2013
Council Regulation 2913/92 (establishing the Community Customs Code) provides, so far as material: '29(1) The customs value of imported goods shall be the transaction value, that is, the price actually paid or payable for the goods when sold for export to the customs territory of the Community, adjusted, where necessary, in accordance with Articles 32 and 33, provided: ... 3(a) The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods and includes all payments made or to be made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller. The payment need not necessarily take the form of a transfer of money. Payment may be made by way of letters of credit or negotiable instrument and may be made directly or indirectly.
'... 32(1) In determining the customs value under Article 29, there shall be added to the price actually paid or payable for the imported goods: ... (b) the value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods, to the extent that such value has not been included in the price actually paid or payable: (i) materials, components, parts and similar items incorporated in the imported goods, (ii) tools, dies, moulds and similar items used in the production of the imported goods, (iii) materials consumed in the production of the imported goods, (iv) engineering, development, artwork, design work, and plans and sketches undertaken elsewhere than in the Community and necessary for the production of the imported goods …. 2. Additions to the price actually paid or payable shall be made under this Article only on the basis of objective and quantifiable data.'
Asda Stores Ltd (the taxpayer) was a major retailer which sold, amongst other things, footwear and clothing under its 'George' brand. Clothes for that range were bought from suppliers outside the Customs Union. The clothes came with hangers and other ancillary items such as labels, swing tickets and size indicators (the ancillary items), and the taxpayer required the clothing suppliers to source those from particular suppliers. The taxpayer not only told its clothing suppliers where hangers (and similar items) should come from, but how much was to be paid for them. The clothing suppliers simply recharged to the taxpayer, as part of the overall price which the taxpayer had paid for the finished clothing and without any mark-up, the price which they had paid to the hanger suppliers for the hangers. The net cost of the hangers (and other ancillary items) was, however, reduced by separate arrangements the taxpayer had with the suppliers of those goods.
Pursuant to those arrangements, which did not involve the clothing suppliers, the suppliers of the ancillary goods (the ancillary suppliers) would make payments direct to the taxpayer. That payment reflected the fact that the true value for the hangers was less than the price actually charged by the ancillary suppliers to the clothing suppliers at the taxpayer's direction (and subsequently included, without any mark-up, in the price charged by the clothing suppliers to the taxpayer). The taxpayer regarded that payment as a rebate of part of its purchase price for the goods, to bring the price it had actually paid into line with the proper value of those goods.
The taxpayer and the ancillary suppliers agreed in advance on both the ‘notional’ selling price for the hangers which was charged to the clothing suppliers. Consequently, in most cases, an artificially inflated price was initially charged by the ancillary suppliers to the clothing suppliers and was then passed through to the taxpayer by the clothing suppliers. The subsequent price correction (the rebate) was dealt with directly between the taxpayer and the ancillary suppliers. The clothing suppliers usually knew that that arrangement existed but did not know its details.
Between November 2005 and December 2007, the taxpayer paid duty on the imports by reference to the amounts it paid to the clothing suppliers, without regard to the rebates it had received from the ancillary suppliers. It subsequently submitted a claim for repayment of £313,243 on the basis that the rebates had fallen to be deducted from the sums paid to the clothing suppliers when calculating the customs value of the imported goods. The Revenue & Customs Commissioners (the Revenue), rejected the claim on the ground that a rebate had not represented a reduction in the price paid by the buyer (the taxpayer) to the seller (the clothing supplier) for the items imported. The taxpayer, on the other hand, maintained that the duty for which it was liable should reflect the net cost of the ancillary items. The taxpayer's appeal to the First-tier tribunal (Tax Chamber) (the FTT) was allowed on the basis that the customs value of the imported goods should take account of the rebates from the ancillary suppliers. The Revenue appealed.
The taxpayer argued that art 32 of Council Regulation 2913/92 (the Customs Code) provided a mechanism for bringing the customs value of the imports into line with their net cost to the taxpayer. Relying on Hauptzollant Itzehoe v H J Repenning GmbH (Case C-183/85)  ECR 1873 (Repenning), the FTT rejected that argument, but accepted that art 29 enabled account to be taken of the rebates the taxpayer had received from the ancillary suppliers. The FTT took the view that Repenning required it to construe art 29.3(a) of the Customs Code in such a way as to prevent the customs values from being 'arbitrary or fictitious', as would be the case if the rebates were not deducted.
The taxpayer's preferred argument had been based on art 32.1(b) of the Customs Code. In that respect, the taxpayer submitted that the hangers had represented 'materials, components, parts and similar items incorporated in the imported goods', that they had been supplied by the taxpayer 'free of charge' (since the taxpayer had funded the clothing suppliers’ payments to the hanger suppliers) and that, in the context, 'added' should be taken to allow adjustment upwards or downwards. The appeal would be allowed.
(1) Having regard to the terms of art 29.3(a) of the Customs Code, the 'price actually paid or payable' should include anything paid 'by the buyer to … the seller' for the relevant goods (see  of the judgment). The FTT's approach was not consistent with the terms of art 29 of the Customs Code. The 'price paid or payable' for the purposes of article 29 of the Customs Code had been the amount of the total payment made by the taxpayer to the clothing suppliers. The rebates the taxpayer had received from the ancillary suppliers could not be taken into account under article 29. A clothing supplier surely received the whole of the price of the imported goods for its own benefit, albeit that it had to pay the ancillary suppliers a sum equivalent to the ancillary element.
Further, the clothing supplier should in each case have been the 'seller' of the ancillary items: as the FTT had found, the ancillary items 'are supplied to the clothing suppliers' by the ancillary suppliers, and the clothing suppliers, in turn, sell them on to the taxpayer. With regard to Repenning, while it was not easy to reconcile that decision with the wording of what subsequently became article 29, it could not have entitled the FTT to interpret (or override) the article as it had: Repenning was probably best explained in the way suggested by the Revenue. The FTT's approach in effect ignored the words 'to or for the benefit of the seller', and that could not be right. The FTT, for understandable reasons, seemed to have stretched article 29 further than it would go (see ,  of the judgment). The tribunal's approach was not consistent with the terms of art 29 of the Customs Code (see 31 of the judgment). Hauptzollamt Itzehoe v HJ Repenning GmbH: 183/85  ECR 1873 considered.
(2) The opening lines of article 32.1 of the Customs Code referred to sums being 'added' to the price, and art 32.2 and art 32.3 likewise spoke of 'additions' to the price. Further, the various sub-paragraphs of article 32.1 were all concerned with situations in which it was appropriate to increase customs values. Article 32 was directed at capturing value that might otherwise not be taken into account. It did not provide for price reductions (see  of the judgment).
The taxpayer's construction of article 32 of the Customs Code was unsustainable. The ancillary items themselves had been imported goods, and the clothing suppliers had paid for them: the price of the ancillary items had been, as the FTT had found (and had been entitled to find), recharged to the taxpayer 'as part of the overall price which Asda [paid] for the finished clothing'. Consequently, the ancillary items could not be left out of account when assessing the 'price paid or payable for the imported goods'. The 'price paid or payable' would rather have encompassed everything that the taxpayer had paid to the clothing suppliers.
Further, article 32.1(b) of the Customs Code was in point where the price charged for imported goods was depressed because the importer had supplied elements at less than market value. In the instant case, the clothing suppliers had been charged for the ancillary items and the prices charged to the taxpayer had been increased correspondingly. Accordingly, even adopting a purposive approach to the construction of art 32.1(b), it could not be read as applying in the instant case(see -,  of the judgment).
Import duty had been payable on the full amounts that the taxpayer had paid to the clothing suppliers, payable on the full amounts the taxpayer had made clothing supplied, without any deduction for the rebates it had received from the ancillary suppliers (see  of the judgment). Decision of First-tier Tribunal  UKFTT 351 (TC) reversed.
David Bedenham (instructed by the General Counsel and Solicitor to the Revenue and Customs Commissioners) for the Revenue; Roderick Cordara QC (instructed by Bell Davies) for the taxpayer.