[2011] UKFTT 20 (TC)
TC00897
Appeal number:LON/2007/7030
ANTI-DUMPING DUTY - post clearance demand note – fraudulent declaration of country of origin – remission of duty - error by customs authorities – no - good faith of importer – no – appeal dismissed
FIRST-TIER TRIBUNAL
TAX
FMX FOOD MERCHANTS IMPORT EXPORT CO LTDAppellant
- and -
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMSRespondents
TRIBUNAL: NICHOLAS ALEKSANDER (TRIBUNAL JUDGE) CHARLES BAKER
Sitting in public at 45 Bedford Square, London WC1 on 29 March to 1 April and on 16 September 2010
Eamon McNicholas, counsel, for the Appellant
Kieron Beal, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2010
DECISION
1.FMX Food Merchants Import Export Co Ltd, (“FMX”) appeals against a Post Clearance Demand Note in the sum of £370,872.50, covering the periods February 2004 to October 2004.The appeal concerns the imposition of customs duty on a number of importations of garlic from Cambodia in 2004.FMX imported nine different consignments of garlic between 25 February 2004 and 6 October 2004.HMRC issued a post clearance demand ("the Demand") on 22 February 2007. The Demand was issued to give effect to the HMRC's decision that garlic imported by FMX and declared as being of Cambodian origin was in fact of Chinese origin and therefore subject to Anti-Dumping Duty.
2.Mr McNicholas represented FMX and Mr Beal represented HMRC.We heard oral evidence on behalf of FMX from its director Pierluigi Pignatelli and on behalf of HMRC from Guy Jennes, of the European Union's Anti Fraud Office ("OLAF").In addition we had before us bundles of documents.
3.FMX's case was in essence that it had acted throughout in good faith, relying on its longstanding relationship with contacts in the region, and certification from the Kingdom of Cambodia's customs administration which was at all material times in full possession of the facts.FMX says that the Anti Dumping Duty charged on the imports should have been waived, since the conditions under Article 220(2)(b) of the Community Customs Code ("the Code")were met.FMX also seek to have the Anti-Dumping Duty remitted under Article 239 of the Code.
Factual Background
4.We find the background facts to be as follows:
5.On 2 April 2002, EU Commission Regulation (EC) No 565/2002 imposed a quota on imports of garlic, with imports outside the quota liable to a payment of €1200 per net tonne in addition to customs duty of 9.6%.
6.The EU Commission subsequently found that large quantities of Chinese garlic were being brought into the EU in circumvention of the quota system by being imported via third countries and being given false certificates of origin.On 12 August 2005, the Commission issued a Notice to Importers warning them of Chinese garlic exceeding the annual quota of 13,200 tonnes.
7.In 2001, the General Affairs Council of the European Commission adopted its "Everything but Arms" amendment to the European Union's generalised scheme of preference ("GSP") eliminating duty on all goods (other than arms) exported by a list of least developed countries, including Cambodia.For the preferential customs tariff to apply, the goods must have the benefit of a GSP Certificate of Origin in Form A.As a consequence, garlic of Cambodian origin was not subject to the quota imposed by EU Commission Regulation (EC) No 565/2002.
8.FMX is an importer of exotic fruit and vegetables.The company was established over 30 years ago by Mr Pignatelli's father.The business originally focussed on the importation of garlic, but due to competition (particularly from supermarkets), the business now imports a range of high quality ethnic produce which is sold through the wholesale fruit and vegetable markets.
9.FMX is a substantial and long established importer of garlic.In evidence, Mr Pignatelli stated that in 2004 he supplied in excess of 1100 tonnes of imported garlic. We also note that in 2005 FMX reported to HMRC that Chinese garlic was being smuggled into Europe via India, with false certificates of origin being issued in India.Mr Pignatelli told us in the course of his evidence that he was anxious that FMX's report to HMRC should be kept confidential, as the garlic world was small ("we all know each other"), and he was worried that there might be repercussions if it became known that FMX had reported the smuggling.
10.Mr Pignatelli in his evidence stated that he had been dealing since 1998 with Mr Steve Wang of Arrow Quick Trading Limited ("Arrowquick") in Taiwan, who supplied pears, ginger and onions.During 2003 Mr Wang contacted FMX and offered Cambodian garlic through his contact there. Samples were sent by courier, and the quality was very good and the colour was very white ("super white").Although the cost of the garlic was a little more than the amount FMX was paying at the time for garlic of other origins, the quality was superb and Mr Pignatelli knew from experience that he could sell it for a much better price.According to Mr Pignatelli's witness statement "A former employee of our company was in charge of purchasing with me overseeing everything".Based on all of the above he started the importation from Cambodia in 2003.We note that FMX imported a number of consignments of garlic in 2003 which are not the subject of the Demand.
11.In his witness statement, Mr Pignatelli did not identify the "former employee", but during the course of cross examination, it emerged that the individual was Mr Antonio Tuccillo, who was a director of FMX until 15 September 2008, and was at all material times the holder of a majority of FMX's issued share capital.
12.In 2004, FMX imported the following consignments ("the Consignments") of fresh garlic, which are the subject of the Demand:
Date / Consignor / Entry No / Weight (kg) / Invoice value / Value per kg25/2/04 / Arrowquick / 71 032111T / 64,800 / 69,120 / 1.07
11/3/04 / Arrowquick / 71 015495J / 21,600 / 22,464 / 1.04
31/3/04 / Arrowquick / 71 041848L / 43,200 / 46,656 / 1.08
15/4/04 / Duong Chhiv / 71 021397E / 64,800 / 68,472 / 1.06
18/5/04 / Arrowquick / 71 023659E / 64,800 / 66,960 / 1.03
10/6/04 / Arrowquick / 71 017150A / 64,800 / 66,960 / 1.03
11/8/04 / Arrowquick / 71 017622X / 43,200 / 38,232 / 0.89
21/9/04 / Duong Chhiv / 71 932687R / 43,200 / 38,232 / 0.89
6/10/04 / Arrowquick / 71 009541A / 21,600 / 20,178 / 0.93
TOTALS / 432,000 / US$ 437,274
13.We note that some of the Consignments were erroneously declared on import by FMX's import agent to be frozen garlic, but in fact all of the Consignments represented fresh garlic.
14.Trade statistics available to OLAF showed a sharp increase in fresh garlic imports from Cambodia to Italy between May 2003 and November 2004.They also showed consignments of frozen garlic said to be originating in Cambodia being imported into the UK between August 2003 and October 2004.According to trade statistics available to the European Commission, there were no such imports prior to 2003.
15.In June 2006, OLAF contacted the Cambodian government for permission to conduct a visit to Cambodia to investigate the authenticity of certificates of origin produced in support of various importations into the European Union.The visit took place between 23 January 2007 and 1 February 2007 and the OLAF mission was led by Mr Jennes.
16.During the course of the visit, the OLAF mission visited the Ministry of Commerce in Phnom Penh, the Bureau of Customs in Phnom Penh, the Customs office in Sihanouk Ville, the Kampuchea Shipping Agency in Sihanouk Ville, Maersk (Cambodia) Ltd in Phnom Penh, National Shipping Lines of Cambodia Ltd in Phnom Penh, Cosco Cambodia Ltd in Phnom Penh, Zim Israel Navigation Company in Phnom Penh, APL Cambodia Co. Ltd in Phnom Penh, Duong Chhiv Import Export and Transport Co Ltd ("Duong Chhiv") in Phnom Penh, Ministry of Agriculture's Department of Agronomy in Phnom Penh.A summary report was drafted at the end of the visit which was signed by the Cambodian Minister of Commerce and by Mr Jennes.
17.The factual content of the OLAF mission report was not substantively challenged by FMX, and on the basis of that report we find as follows:
(1)Mr Duong Tech of Duong Chhiv had been approached by Mr Steve Wang of Arrowquick in 2003 to become involved in the sale of agricultural produce to Europe.In relation to garlic, his company's role was to apply for certificates of origin from the Cambodian Ministry of Commerce and to arrange for consignment of the garlic to Europe.Duong Chhiv had no direct contact with the European customer, only with Arrowquick.
(2)Commission fees were received by Duong Chhiv from Arrowquick.
(3)Garlic of Chinese origin had been imported into Cambodia from China, and thentranshipped to the UK and Italy, having been declared to be of Chinese origin to the Cambodian customs authorities at Sihanouk Ville on import.This included all of the Consignments.
(4)Certificates stating that the garlic was of Cambodian origin were then issued by the Ministry of Commerce in Phnom Penh but on the basis of forged documents provided to them by Duong Chhiv.
(5)Arrowquick was owned by Mr Steve Wang.Mr Wang was a director of Marcolink International Company Ltd ("Marcolink"), and Marcolink had been previously involved in the misdescription of origin of fresh garlic imported into the Netherlands and Italy.
18.The documents uplifted by OLAF establish the following pattern (we use the first of the Consignments as an example – but all of the Consignments follow a similar pattern):
(1)On 11 January 2004 a commercial invoice (number MDC-1) purporting to show the sale of 7200 cartons of garlic (64.8 tonnes) from Jinxiang Dongyun Freezing Storage Co Ltd in China to New Land Trading Company in Cambodia is raised, with an invoice value of US$ 19,440.
(2)On the same date a packing list is issued by Jinxiang Dongyun Freezing Storage Co Ltd for the sale of 7200 cartons of garlic (64.8 tonnes) to New Land Trading Company.This packing list confirms that the origin is China.
(3)On the same date, a bill of lading for a consignment of 7200 cartons of garlic (cross referring to the invoice MDC-1) evidences shipment from China to Cambodia by Jinxiang Dongyun Freezing Storage Co Ltd.The named consignee is New Land Trading Company and the destination is Sihanouk Ville in Cambodia.
(4)On 16 January 2004, a commercial invoice (number GDC-FMX-1) is raised by Duong Chhiv to FMX in respect of 7200 cartons (64.8 tonnes) of garlic at a unit price of US$300 but with an invoice value of US$ 19,440.This invoice is never sent to FMX.
(5)On the same date a packing list is issued by Duong Chhiv for 64.8 tonnes of garlic in 7200 cartons to be discharged at Felixstowe for the benefit of FMX as consignee.The list is cross referenced to invoice GDC-FMX-1.
(6)A customs declaration is made on 28 January 2004 to the Cambodian customs showing the arrival in Sihanouk Ville of 7200 cartons (64.8 tonnes) of garlic from China to Cambodia with an invoice value of US$ 19,440.This declaration is in respect of an inbound consignment of garlic and is cross-referenced to invoice MSC-1.The country of origin is declared to be China.This document is not forwarded to the Ministry of Commerce in Phnom Penh.
(7)A phytosanitary (plant health) certificate is issued on 30 January 2004 in respect of a load of 64.8 tonnes of garlic in 7200 cartons, with FMX listed as consignee.
(8)On 31 January 2004 a bill of lading issued by Maersk Sealand for Duong Chhiv as consignor and FMX as consignee evidences shipment of 7200 cartons of garlic.The cargo is laden on board the Mekong Bright.
(9)On 31 January 2004 a customs declaration is made to the Cambodian authorities in respect of the outbound consignment of fresh garlic sold by Duong Chhiv to FMX.The copy held by the Customs office in Sihanouk Ville states that the country of origin is China.It cross refers to invoice GDC-FMX-1.
(10)The copy of the customs declaration which was presented to the Ministry of Commerce and is found in the Ministry's records is identical, save that it shows the origin of the garlic as being Cambodian.
(11)A shipping delivery order dated 31 January 2004 also confirms the transhipment of 7200 cartons of garlic previously arrived from China to the Mekong Bright.
(12)Duong Chhiv pays substantial sums of money to a transport company to carry out customs clearance of the garlic transhipped from China, pay the Camcontrol certificate fees, carry out a TC scan and then load the goods onto a different ship.
(13)The goods are shipped on 31 January 2004 from Sihanouk Ville to Felixstowe.
(14)The relevant GSP certificate of origin is not issued by the Ministry of Commerce until 13 February 2004.As the goods had left Cambodia two weeks previously, the application can only have been based on the documents produced by the exporter (Duong Chhiv), and any "control" undertaken by the Ministry of Commerce can only have been documentary.
19.At the conclusion of the OLAF visit, the Cambodian government confirmed by a letter dated 1 February 2007 that the certificates of origin issued in respect of the consignments listed above had been issued on the basis of incorrect information presented by the exporter.The certificates were therefore withdrawn.
20.The underlying documents uplifted by OLAF and the report of OLAF's interview with Duong Tech which were included in the annexes to their report (which were included in the hearing bundles) were not challenged by FMX.We therefore find that a fraudulent statement of origin had been made to the Ministry of Commerce in Cambodia in order to induce it to issue a GSP Certificate of Origin Form A giving the origin of the garlic as Cambodia.That was achieved through the mechanism of two different customs declarations being submitted by Duong Chhiv to two different Cambodian authorities.
21.On the evidence before us, it appears that Duong Chhiv and Arrowquick were also engaged in the export of garlic to an Italian company Agrimpex.We address the relationship between Agrimpex and FMX below.
22.Duong Tech of Duong Chhiv had told the members of the OLAF mission that he had applied for certificates of origin in Cambodia, even though Duong Chhiv was not directly involved in the purchase and sale of garlic to FMX or Agrimpex. We find that New Land Trading Company exported the garlic from China to Cambodia, and then Duong Chhiv exported the same produce to FMX in the UK and to Agrimpex in Italy.Duong Chhiv was paid by Arrowquick to apply for and obtain an GSP Form A Certificate of Origin describing the garlic as being of Cambodian origin.We accordingly also find that the fraud was undertaken on the instructions of Steve Wang of Arrowquick.
The legislation
23.Article 236 of the Code requires duties to be repaid of they were not legally due or where the amount has been entered in the accounts contrary to Article 220(2).Article 220(2) provides as follows:
"2.Except in the cases referred to in the second and third subparagraphs of Article 217(1), subsequent entry in the accounts shall not occur where—
(a)[…]
(b)the amount of duty legally owed was not entered in the accounts as a result of an error on the part of the customs authorities which could not reasonably have been detected by the person liable for payment, the latter for his part having acted in good faith and complied with all the provisions laid down by the legislation in force as regards the customs declaration.
Where the preferential status of the goods is established on the basis of a system of administrative cooperation involving the authorities of a third country, the issue of a certificate by those authorities, should it prove to be incorrect, shall constitute an error which could not reasonably have been detected within the meaning of the first subparagraph.
The issue of an incorrect certificate shall not, however, constitute an error where the certificate is based on an incorrect account of the facts provided by the exporter, except where, in particular, it is evident that the issuing authorities were aware or should have been aware that the goods did not satisfy the conditions laid down for entitlement to the preferential treatment.
The person liable may plead good faith when he can demonstrate that, during the period of the trading operations concerned, he has taken due care to ensure that all the conditions for the preferential treatment have been fulfilled.
The person liable may not, however, plead good faith if the European Commission has published a notice in the Official Journal of the European Communities, stating that there are grounds for doubt concerning the proper application of the preferential arrangements by the beneficiary country;
(c)[…]."
24.Article 239 of the Code provides as follows:
"1.Import duties or export duties may be repaid or remitted in situations other than those referred to in Articles 236, 237, and 238—
—to be determined in accordance with the procedure of the committee;
—resulting from circumstances in which no deception or obvious negligence may be attributed to the person concerned. The situations in which this provision may be applied and the procedures to be followed to that end shall be defined in accordance with the committee procedure. Repayment or remission may be made subject to special conditions.
2.Duties shall be repaid or remitted for the reasons set out in paragraph 1 upon submission of an application to the appropriate customs office within 12 months from the date on which the amount of the duties was communicated to the debtor.
However, the customs authorities may permit this period to be exceeded in duly justified exceptional cases."
25.Article 869 of the Community Customs Code Implementing Regulations ("the Implementing Regulations") provides that the customs authorities shall themselves decide not to collect uncollected duties in the accounts in cases where they consider that the provisions of Article 220(2)(b) of the Code are fulfilled.However this is subject to the exception that they shall not do so where the dossier must be transmitted to the Commission under Article 871 of the Implementing Regulations.
26.Article 871 provides as follows:
"1.The customs authority shall transmit the case to the Commission to be settled under the procedure laid down in Articles 872 to 876 where it considers that the conditions laid down in Article 220(2)(b) of the Code are fulfilled and:
—it considers that the Commission has committed an error within the meaning of Article 220(2)(b) of the Code,
—the circumstances of the case are related to the findings of a Community investigation carried out under Council Regulation (EC) No 515/97 of 13 March 1997 on mutual assistance between the administrative authorities of the Member States and co-operation between the latter and the Commission to ensure the correct application of the law on customs and agricultural matters or under any other Community legislation or any agreement concluded by the Community with countries or groups of countries in which provision is made for carrying out such Community investigations, or
—the amount not collected from the operator concerned in respect of one or more import or export operations but in consequence of a single error is EUR 500 000 or more.