Judgment summary
This is an appeal by HMRC against the decision of the FTT in O'Neill Wetsuits Ltd v HMRC [2024] UKFTT 001071 (TC), concerning the customs classification of wetsuits imported into the UK by O'Neill Wetsuits Limited (paragraph 1).
HMRC had issued an Advance Tariff Ruling on 27 October 2022 stating the wetsuits should be classified under Commodity Code 6113 0010 00 (Chapter 61, textiles), as garments made from 'rubberised textile fabric'. The FTT allowed O'Neill's appeal, deciding the wetsuits should instead be classified as apparel of vulcanised rubber under Commodity Code 4015 9000 00 (Chapter 40) (paragraphs 1 to 2).
The Upper Tribunal (Mr Justice Michael Green and Judge Jeanette Zaman) allowed HMRC's appeal on all three grounds, set aside the FTT Decision, and re-made it, classifying the wetsuits under Commodity Code 6113 0010 00 (paragraphs 3, 93 to 94).
Background
The wetsuits are all-in-one garments for surface water sports, covering the body from shoulders to ankles, with long sleeves, a turtle neckline, knee reinforcement, a small key pocket, and a front zip fastener (paragraph 17, quoting FTT[85]).
The wetsuits are made up of neoprene panels, the majority of which are covered on both sides with knitted textile ('Double-sided Panels'), and a smaller area (front chest and lower back) where the neoprene is covered by textile only on the inside ('Single-sided Panels') (paragraphs 17 to 18).
It was common ground that the wetsuits are 'articles of apparel', that the neoprene constitutes 'vulcanised rubber', that the textile layers constitute 'knitted fabric', and that wetsuits comprised only of Single-sided Panels fall under Heading 4015 (paragraph 19).
A European Commission Regulation (EC) No. 2345/2003 of 23 December 2003, no longer of legal effect in the UK, had classified similar wetsuits under 6113 0010, on the basis that textile covering both faces of the panels was regarded as having a function beyond mere reinforcement (paragraphs 15 to 16).
Core dispute
The dispute concerned whether the wetsuits should be classified under Heading 4015 in Chapter 40 (rubber and articles thereof), as the FTT had found, or under Heading 6113 in Chapter 61 (textiles), as HMRC's original ruling had determined (paragraphs 1 to 2).
HMRC appealed on three grounds: first, that the FTT failed to recognise that a sheet of rubber covered with textile on both sides is treated as 'textile' under the relevant provisions; second, that the FTT erred in finding that the textile layers were present merely for reinforcement, contrary to the undisputed evidence; and third, that the FTT erred in its application of GIR Rule 3(b) (the essential character tie-breaker) (paragraph 22).
A central issue was the relationship between the HSEN to Heading 4008, Note 5 to Chapter 59 (defining 'rubberised textile fabrics'), and the HSEN to Heading 4015, and whether textile covering both faces of a rubber panel is deemed to serve a purpose beyond mere reinforcement, regardless of the actual facts (paragraphs 24 to 34, 41 to 73).
Court findings
On Ground 2, the Upper Tribunal found that the FTT's conclusion that the textile layers were present merely for reinforcement was plainly wrong and unsupported by any evidence, being contrary to the common ground between the parties that the inner textile layer was for comfort. This was an error of law (paragraphs 44 to 46).
On Grounds 1 and 3, the Tribunal held that Chapters 40 and 59 (and Heading 6113, which cross-refers to Chapter 59) operate as mirror images, both concerned with materials rather than the finished product, and that the HSEN to Heading 4008 is to be applied when interpreting the HSEN to Heading 4015 and Note 5 to Chapter 59 (paragraph 63).
The Tribunal found that both the Double-sided Panels and Single-sided Panels are 'textile fabrics impregnated, coated, covered or laminated with rubber' within Note 5 to Chapter 59, but the Double-sided Panels are excluded from Heading 4008 (and thus not within the reinforcement exclusion in Note 5), such that they fall within Heading 5906 and hence Heading 6113. The textile on the Single-sided Panels is regarded as merely for reinforcement, so those panels remain within Heading 4015 (paragraph 64).
The Tribunal held that Items (2) and (3) of the HSEN to Heading 4015 are mutually exclusive, and concluded that both types of panels fall within Item (2) (not Item (3)), with the Double-sided Panels excluded from Heading 4015 because they fall in Section XI (paragraphs 68 to 73).
Applying GIR Rule 3(b), the Tribunal held that the FTT erred by treating the essential character question as an open-ended enquiry divorced from the prior analysis of the two types of panels. The Double-sided Panels, being the predominant component by quantity, weight and role in the use of the goods, give the wetsuits their essential character, requiring classification under Heading 6113 (paragraphs 79 to 84).
The Tribunal noted that its reasoning was broadly consistent with, though it placed no weight on, the reasoning in the European Regulation (paragraphs 85 to 88).
Outcome
The Upper Tribunal allowed HMRC's appeal, set aside the FTT Decision, and re-made it (paragraphs 3, 89 to 94).
In re-making the decision, the Tribunal left the FTT's findings of fact undisturbed save that it found the textile fabric on both the Double-sided Panels and Single-sided Panels had a function of making the wetsuits more comfortable and was, as a matter of fact, present for more than reinforcement purposes (paragraph 92).
The Tribunal concluded that the wetsuits should be classified under Commodity Code 6113 0010 00, and re-made the decision to dismiss O'Neill's appeal against HMRC's classification of the wetsuits (paragraphs 93 to 94).
Major issues / areas of contention
- Whether the FTT erred in failing to recognise that a sheet of rubber covered with textile on both sides falls to be treated as 'textile' under the relevant HSEN provisions (Ground 1, paragraph 22).
- Whether the FTT erred in finding, contrary to the evidence, that the textile layers on the wetsuit panels were present merely for reinforcement (Ground 2, paragraph 22).
- Whether the FTT erred in its application of GIR Rule 3(b) as the tie-breaker between competing commodity headings (Ground 3, paragraph 22).
- The relationship between the HSEN to Heading 4008, Note 5 to Chapter 59 (definition of 'rubberised textile fabrics'), and the HSEN to Heading 4015, and whether these provisions operate as mirror images concerned with materials rather than the finished product (paragraphs 53, 63).
- Whether Items (2) and (3) of the HSEN to Heading 4015 are mutually exclusive (paragraph 68).
- Which component of the composite wetsuits (Double-sided Panels or Single-sided Panels) gave the goods their 'essential character' for the purposes of GIR Rule 3(b) (paragraphs 79 to 84).