Asda Stores Limited has failed to persuade the Upper Tribunal that customs duty it was charged on the importation of garment hangers and other ancillary items from outside the European Union took no account of commercial reality and were based upon a misinterpretation by the tax authorities of the Community Customs Code.
Clothing manufacturers who exported goods to the supermarket chain were required by the company to source hangers, labels and other ancillary items included with the goods from particular suppliers at artificially inflated prices which were passed on to Asda. The suppliers of those ancillary items would then pay a ‘rebate’ to Asda to reflect the difference between the ‘notional’ price that they had been paid and the true market value of the items.
In claiming repayment of more than £300,000 in customs duty, Asda argued that, on a proper construction of the code, the payment of such rebates should have been taken into account by Her Majesty’s Revenue and Customs (HMRC) in calculating the true value of the imported goods and the price that the company had actually paid for them. It was submitted that any other interpretation would result in customs values being calculated on an ‘arbitrary or fictitious’ basis.
Those arguments succeeded before the First-Tier Tribunal. However, HMRC lawyers successfully submitted on appeal that the rebates did not represent a reduction in the price paid by the company to the clothing suppliers in respect of the garments imported.
The tribunal acknowledged that Asda’s arguments had ‘an obvious appeal’ and that it ‘made a good deal of sense’ that the company should only have to pay duty on the net cost of the clothing and ancillary items, rather than the somewhat larger sums that it had paid to clothing manufacturers.
However, in allowing HMRC’s appeal, the tribunal ruled that Asda’s interpretation of the relevant articles of the code was unsustainable and that customs duty was rightly levied on the full sums paid by the company to the clothing suppliers, without any deduction for the rebates the company received from suppliers of hangers or other ancillary items.