Pappadum recipe makes for tasty customs duty saving
24 March 2023
Food and drink wholesaler Natco Foods Limited (Natco), an importer of pappadums, may have thought they needed to curry favour with HMRC after receiving a customs duty demand of over £280,000. When importing its pappadums, like all importers, Natco needed to classify the goods and declare the appropriate commodity code that establishes the rate of customs’ duty applicable.
It is not always clear what commodity code goods fall under and in cases of uncertainty, it can therefore make sense for a business to apply for a binding tariff information (BTI) decision. This is a legally binding decision from a customs’ authority on the classification of imported goods and they are valid for a specific period of time.
In this case, Natco used a commodity code that attracted a free rate of duty based on a BTI obtained in 2008 (under EU law), which was due to expire in 2014. However, in 2011 this commodity code was withdrawn entirely by an update to the EU TARIC (the integrated tariff of the European Union) and was not replaced. Natco continued to import the product using the same code in error until 2019, at which point HMRC issued a duty demand of £280,047.41 for underpaid duty. This then prompted the debate around which commodity code should have been used for the imported pappadums.
On 8 March 2023, the first-tier tribunal (FTT) published its judgment in the Natco hearing and set out its opinion on the correct commodity code and rate of customs duty. Natco was successful in its arguments that the correct commodity code for importing pappadums into the UK was different to that suggested by HMRC.
The case rested on the argument that the pappadums were ultimately made from a preparation of shelled urid bean and were to be classified under the code suggested by Natco. In contrast, HMRC argued that as the pappadums were manufactured from urid flour, they lost their distinct characteristic of a shelled bean and could not be classified in this way. In the judgment, the FTT found that HMRC’s arguments were “somewhat difficult to discern”. It agreed that the goods were the result of the preparation of shelled urid bean and the commodity code classification contended by Natco was correct. This meant that a customs duty rate of 14.1% applied, rather than the duty rate of 15.7% contended by HMRC.
There are a number of important takeaways from this FTT case – notably the importance of customs compliance and being able to challenge HMRC’s decisions. We are seeing increasing instances where HMRC is making decisions that are poorly thought-out, with flawed arguments, as identified by the FTT in this case. Post Brexit, other jurisdictions’ rulings can only ever be persuasive, not binding. In this case, the court’s decision has left an unpalatable taste in the mouth for HMRC.
It is not always clear what commodity code goods fall under and in cases of uncertainty, it can therefore make sense for a business to apply for a binding tariff information (BTI) decision. This is a legally binding decision from a customs’ authority on the classification of imported goods and they are valid for a specific period of time.
In this case, Natco used a commodity code that attracted a free rate of duty based on a BTI obtained in 2008 (under EU law), which was due to expire in 2014. However, in 2011 this commodity code was withdrawn entirely by an update to the EU TARIC (the integrated tariff of the European Union) and was not replaced. Natco continued to import the product using the same code in error until 2019, at which point HMRC issued a duty demand of £280,047.41 for underpaid duty. This then prompted the debate around which commodity code should have been used for the imported pappadums.
On 8 March 2023, the first-tier tribunal (FTT) published its judgment in the Natco hearing and set out its opinion on the correct commodity code and rate of customs duty. Natco was successful in its arguments that the correct commodity code for importing pappadums into the UK was different to that suggested by HMRC.
The case rested on the argument that the pappadums were ultimately made from a preparation of shelled urid bean and were to be classified under the code suggested by Natco. In contrast, HMRC argued that as the pappadums were manufactured from urid flour, they lost their distinct characteristic of a shelled bean and could not be classified in this way. In the judgment, the FTT found that HMRC’s arguments were “somewhat difficult to discern”. It agreed that the goods were the result of the preparation of shelled urid bean and the commodity code classification contended by Natco was correct. This meant that a customs duty rate of 14.1% applied, rather than the duty rate of 15.7% contended by HMRC.
There are a number of important takeaways from this FTT case – notably the importance of customs compliance and being able to challenge HMRC’s decisions. We are seeing increasing instances where HMRC is making decisions that are poorly thought-out, with flawed arguments, as identified by the FTT in this case. Post Brexit, other jurisdictions’ rulings can only ever be persuasive, not binding. In this case, the court’s decision has left an unpalatable taste in the mouth for HMRC.
