The First-tier Tribunal has dismissed an appeal brought by a Welsh aviation company against HMRC’s assessment that it owed some £331,000 in customs duty and VAT. Jim Duffy represented HMRC, instructed by its General Counsel. 

Caerdav Limited v The Commissioners for Her Majesty’s Revenue and Customs [2022] UKFTT 105 (TC) raises important issues as to the interpretation of the law applicable to EU special customs procedures, the relevance of legitimate expectation and other public law arguments in the Tax Tribunal, and the application of the ‘venerable principle’ of tax law.

Caerdav’s business involved importing aircraft for the purposes of maintenance and repair.  In order to avoid having to pay significant amounts of VAT and customs duty every time it did so, the company operated pursuant to a standing ‘End Use Authorisation’ (EUA) obtained from HMRC.  In November 2016, an aircraft arrived at Caerdav’s premises in St. Athan for some maintenance work. It was ultimately bound for the United States, having started its journey in Tanzania and undergone extensive work undertaken by Lufthansa at Sofia Airport.

Caerdav submitted the usual paperwork in order to show that the aircraft had been imported pursuant to its EUA.  Unknown to Caerdav and – initially – to HMRC, the EUA had expired.

HMRC issued an assessment to VAT and customs duty derived from the value of the goods imported, which ran into the millions.

Caerdav appealed against the assessment. In doing so, it argued that because documents obtained by HMRC from the Bulgarian National Customs Authority demonstrated that the plane had entered the EU’s ‘inward processing’ procedure in Sofia, it was already in ‘free circulation’ for the purposes of EU law at the point at which it landed in the UK which, at the time, remained a Member State.  In other words, the aircraft had already entered into the Union’s common customs framework by the time it flew into south Wales.

This argument raised complex issues as to the construction of the Union Customs Code, the Implementing Act and Delegating Regulations.

It also raised a geographical point that involved the parties poring over plane spotter websites and maps of Europe, with the Tribunal agreeing with Jim’s submission that the plane was likely to have exited the EU en route to Wales by flying into Serbian airspace. This meant that when it landed in the UK it re-entered the EU and became liable to customs duty and VAT.

Caerdav argued that it had a legitimate expectation that no liability would be imposed due to statements made in various letters between the company and the officer dealing with the case. Having considered the cases of KSM Henryk Zeman, Abdul Noor and Metropolitan International Schools, the Tribunal agreed with HMRC that it did not have jurisdiction to hear a legitimate expectation argument in this context. The Tribunal nonetheless went on to consider whether the necessary ingredients of a legitimate expectation would have been made out in this case, answering that question in the negative.

Caerdav further submitted that, based on the case of Terex Caterpillar, the customs debt and VAT ought to have been remitted.  Upon being taken through the relevant case law, Judge Marilyn McKeever considered that Terex did not assist the Appellant.

She rejected a similar argument that Article 120 of the Union Customs Code, and the principle of equity, meant that the assessment ought to be remitted. She dismissed Caerdav’s attempt to argue that the UK regime under which the customs duty was collected was ultra vires its powers under EU law.

The Judge also agreed that Caerdav should not be permitted to introduce a new point as to the correct value of the assessment. It had attempted to do so two days in to the three-day appeal hearing when there was no good reason as to why it had not been raised previously.

You can read the Tribunal’s judgment here: