HC Deb 27 July 1961 vol 645 cc770-80

Motion made, and Question proposed. That this House do now adjourn.—[Sir H. Harrison.]

11.37 p.m.

Mr. James Allason (Hemel Hempstead)

The story I have to tell tonight is about a series of baffling confusions which the firm of G. H. Linton and Company, of Hemel Hempstead, had to suffer at the hands of Her Majesty's Customs and Excise for raising a claim against Purchase Tax on a product of the firm known as Dri-Wash. Dri-Wash cloth is impregnated with fluid, and it can be used to clean the hands of dirt, grease, inks, as well as leather goods, plastics, and other surfaces. Of the United Kingdom sales, 90 per cent. are to distributors concerned with the motoring industry and garages. This cloth gets dirty with use, but will continue to clean the hands of dirt and grease.

In 1952, the Customs were informed that the firm was to manufacture Dri-Wash cloths. It had a ruling in 1951 that Dri-Wash cloth would bear Purchase Tax at 66⅔per cent, under Group 5A, as if it were a textile article for domestic purposes. Under the Finance Act, 1952, a D scheme was introduced to exempt from tax cloth goods, amongst others, which did not exceed a certain tariff. In spite of this, the Customs confirmed in 1952 that Dri-Wash cloths would still be liable to tax at 66⅔ per cent. as textile cloths for domestic purposes under Group 5A.

After fruitless correspondence the firm appealed to the Chancellor of the Exchequer, who gave a ruling that In view of its value, the cloth does not bear Purchase Tax. In 1954, Purchase Tax on textile articles was abolished, and in 1955 the D scheme was consequentially abolished, and all went well with the question of Purchase Tax for same time.

Then, in 1959, the firm brought out a new line, Dri-Wash tissues, using expendable paper tissues similarly impregnated, as an alternative to the Dri-Wash cloth. The Customs promptly claimed 50 per cent. tax on the tissues, leaving Dri-Wash cloth tax-free. They said that they were uncertain which category to classify them in,—whether as Group 31 toilet requisites, excluding face cloths, towels, paper towels and handkerchiefs, which bear tax at 50 per cent., or Group 32, toilet preparations. They then said, in another letter: It is wrong to assume that the Dri-Wash liquid is tax free, because it is part of the tax free Dri-Wash colth. We see that Customs admit at this stage that the cloth is tax free, but believed the liquid to be taxable by itself.

In consequence, of this the formula for Dri-Wash liquid was submitted to Customs by the firm and in March, 1960, Customs wrote to the firm saying that … as a result of recent technical and legal advice". liquid Dri-Wash was a soap substitute taxable at 25 per cent. Hence impregnated cloths were equally toilet preparations taxable at 25 per cent. as substitutes for toilet soap. Here we see Customs making a complete reversal of their previous decision that even if the liquid was taxable the Dri-Wash cloth was not.

At this stage, I was approached and I asked the Chancellor of the Exchequer to look into the matter. He wrote to me in May, 1960, saying that Customs had made an oversight in that there was an alternative liability to tax on Dri-Wash cloths as toilet articles—as against the Customs assessment as a textile article for domestic purposes—which had been overlooked until attention was drawn to it by a rival firm. The Chancellor said that the Customs ruling in 1952 was correct, but that the law was subsequently changed. He also mentioned that the Dri-Wash liquid contained the detergent Daz. This was a little surprising, because Customs claimed to have made a chemical analysis of Dri-Wash liquid. The firm promptly pointed out to Customs that the element of Daz was one part in 24,000.

Customs then recanted and ruled that Dri-Wash liquid was not a toilet preparation and so was untaxed, but they said that Dri-Wash cloths were toilet preparations and soap substitutes made up for sale as substitutes for toilet soap and were taxable at 25 per cent. Once again, Customs reversed their ruling but found a new category under which to claim tax. So far, therefore, Dri-Wash cloths had been classified first in 1952 as textile articles for domestic purposes under Group 5, and, secondly, in March, 1960, as toilet preparations as substitutes for toilet soaps because they were impregnated with a taxable soap substitute. Thirdly, they were classified as toilet preparations as substitutes for toilet soap because they were impregnated with tax free liquid. That was in June, 1960.

At a later stage, my hon. Friend the Economic Secretary to the Treasury even suggested a fourth category. He suggested that if Dri-Wash cloth was not a toilet preparation as a substitute for toilet soap, it became just a toilet preparation taxable at 50 per cent. We therefore have four categories.

When the Chancellor wrote to me in 1960 he spoke of a complaint from a rival firm, but there can be no rival firm. This firm is absolutely unique. There are firms which sell tissues impregnated with spirits, which are taxable, and also travel packs, including a face cloth and soap. Here, the soap is taxable and the cloth is not. The Customs made a clear decision in 1952 that this was a taxable article for domestic purposes, Group 5. It has been claimed that the law has been changed. All that happened, in sequence, was that the D scheme was introduced to remove the tax on cheap textile articles. Then the tax on textile articles was removed altogether, and then the D scheme was abolished. But it was still subject to the Purchase Tax, if it was to be taxed at all, under Group 5.

It was only in 1960, on a complaint from a so-called rival firm producing an admittedly taxable article, that the Customs started seeking ways to change the tax liability. I claim that the liability cannot change without a legal decision and that the legal decision should come at the expense of the Customs and not the firm. If the firm is sued for tax under the new category in which the Customs has sought to put Dri-Wash cloths it would be put to a great expense to defend the case. Perhaps the trouble could be solved if my hon. Friend would produce the legal advice which the Customs claim that to have.

My complaint is that the firm is entitled to rely on the Customs ruling in 1952 unles there has been a change in the law, and from what I have said, it is clear that there has been no such change. Customs have acted in a most devious way in claiming to have made a chemical analysis when, clearly, they did not.

Customs have pursued this product with determination to and some way of making it taxable. When one way failed, they tried another. Will my hon. Friend consider one further point? Suppose a Dri-Wash cloth was marketed as a tax-free cloth together with a tax-free bottle of liquid, would that then become taxable?

11.47 p.m.

The Economic Secretary to the Treasury (Mr. Anthony Barber)

I admire the perseverance of my hon. Friend the Member for Hemel Hempstead (Mr. Allason) in pursuing this matter in the interests of his constituent, but I think it is clear from what he said that the account which has been given to him by his constituent of what has happened falls somewhat short of the full story.

As my hon. Friend has explained, this debate arises out of a difference of view between the company G. H. Linton and Company, Limited, and the Customs and Excise about the Purchase Tax classification of some of the articles which the company makes. I must start at the beginning. The relevant group of the Purchase Tax Schedule is Group 32 which imposes a tax at the rate of 50 per cent. of the wholesale value on the generality of toilet preparations.

Mr. Allason

I can produce a copy of the Customs letter saying that it is Group 5.

Mr. Barber

I am trying to explain, if my hon. Friend will allow me, how matters have developed in the case of this company and I am quite prepared to bear responsibility for certain errors which have occurred. I am rather saddened by the fact that apparently there is no suggestion so far that the company has been wrong or unhelpful in any sense.

My point is that in fact and in law the relevant group is Group 32 which imposes a tax of 50 per cent. on toilet preparations. As my hon. Friend knows, there are some headings in the group under which a toilet preparation may qualify for a lower rate of tax at 25 per cent. One of these headings and, so far as I can see, the only one relevant to this matter, relates to: soap substitutes made up for sale as substitutes for toilet soap. The situation in short is that if these articles are toilet preparations they are taxable at the rate of 50 per cent. unless they can be regarded as toilet soap substitutes, in which case the rate is 25 per cent. If they are not toilet preparations of course, as my hon. Friend indicated, they are not taxable at all.

There are three distinct classes of article. My hon. Friend has sent samples to me. The company markets them under several names, but I think it will be convenient if I refer to them all by the name my hon. Friend used, and call them Dri-Wash products, because that name accurately describes what they are for. The Dri-Wash tissues consist of small squares of paper tissue impregnated with a cleansing fluid. Dri-Wash cloths consist of pieces of cloth similarly impregnated and there is also a small bottle of Dri-Wash fluid, which can be obtained separately and used for re-impregnating the cloth. They are designed to enable travellers and other people to wash when no soap or water are available. I have examined a sample of the tissues and a bottle of the Dri-Wash fluid. As the statement on the packet which my hon. Friend sent me puts it, they are designed to give a wash in a wipe—anywhere, any time". The packet states that they are pleasant and refreshing to the face and hands and contain glycerine leaving the skin soft and smooth. It is the contention of Her Majesty's Customs and Excise that these articles prepared for this purpose by impregnating paper tissues with special cleansing fluid are toilet preparations taxable as such.

Mr. Allason

Except for the one occasion when I mentioned tissues, I have been dealing with Dri-Wash cloths all the time. They are definitely used by motorists wiping dirty hands, making the cloth even more dirty, and are certainly not suitable for using on the face. My hon. Friend said that the relevant tax group is 32. I interrupted to say that I had a letter from the Customs. It is dated 16th May, 1952, and says: I beg to inform you that Dri-Wash cleaning cloth is liable to Purchase Tax at 66⅔ pe cent. under Group 5a.

Mr. Barber

I hope that my hon. Friend will allow me to give the other side, and there is another side, to this account of the position. I should like to get on in the time available. I repeat that the present view of the Customs is that the relevant group is Group 32. I hope that my hon. Friend will agree that the paper tissues are toilet preparations and are taxable as such.

The Customs contend the same as regards the impregnated cloths whereas the company's contention is that neither the cloths nor the tissues are toilet preparations at all. That is the issue in this case. As my hon. Friend said, this issue has been the subject of long correspondence with him. I have written to him six times and the Financial Secretary has written once when I was away. The former Chancellor, Lord Amory, wrote to him in the early stages. In the correspondence I have tried to explain to my hon. Friend the reason for the Customs and Excise view that these cloths and tissues are taxable. In particular I did so in my letters of 10th March and 5th May this year. I do not think I have time left now to go over all the ground we have traversed in the correspondence which has passed between us, but there are some salient points I ought to pick out.

The company's impregnated cloths first came to the notice of Customs in 1952. The situation then was that, quite apart from their liability to tax as toilet preparations these articles were entitled to the relief from tax which applied generally to cloth under what was then known as the D Scheme. It may be surprising that the D Scheme had anything to do with the tax on toilet preparations but in fact that scheme provided relief from tax irrespective of the group of the tax schedule under which the chargeable article fell. So, rather fortuitously, these cloths were excused from payment of any tax at all. That was in accordance with the law as it was then.

Mr. Allason


Mr. Barber

I hope that my hon. Friend will let me get on.

Mr. Allason

I still return to the same point, that Customs and Excise made the categorisation of Group 5a. I do not see how a cloth can be in two categories at once, both in Group 5a and also in Group 32.

Mr. Barber

It is quite irrelevant whether the cloths come within Group 5a or Group 32 or within any other group for the purpose of the application of the D Scheme. It makes no difference whatsoever. If my hon. Friend will look at the provisions of the D Scheme to see how it applied to these cloths he will reach the conclusion that the Purchase Tax schedule into which they fell is quite irrelevant.

Unfortunately, when the D Scheme came to an end in the autumn of 1955 the changed position of Dri-Wash cloths was overlooked by Customs and Excise; and for the next four years the company was able to sell these cloths tax free under a Customs ruling for which there was no longer any legal justification at all. I readily admit that Customs and Excise were at fault here, but, of course, the benefit of the error went to the company and, of course, there is absolutely no question of the Customs and Excise now seeking to recover any of the tax that ought to have been paid in those years.

In the autumn of 1959 the matter came again to the notice of Customs and Excise. They told the company, on the information that was then available to them, that as toilet preparations, the impregnated tissues were taxable at the rate of 50 per cent. The company objected to this and raised some points that needed further consideration.

The points to which I am now coming are very important. The Customs invited Mr. G. H. Linton to discuss the matter with them at their head office in London, but, unfortunately, he declined this invitation. In matters arising between companies and Customs this is very unusual, as I know from my experience at the Treasury. I am sorry to say that he also declined to give the Customs complete information about the position of the Dri-Wash fluid, notwithstanding assurances in writing that this would be treated as confidential. Most companies do not, of course, behave in this way.

It was by now clear to the Customs that they could not give a final ruling on the Dri-Wash fluid and the tissues without dealing also with the impregnated cloths, even though that might mean reversing the long-standing ruling under which these had been regarded as tax free. Before taking such a step the Customs decided that they ought to consult their technical advisers in the Government Chemist's Laboratory as regards the composition of the Dri-Wash fluid and also their own legal advisers as regards the interpretation of the law in relation to all three products—fluid, tissues and cloths.

The advice Customs received was that all three products were properly to be regarded as toilet preparations, but that all three could be accepted at the lower rate of tax, namely, 25 per cent. as being substitutes for toilet soap. I must recall that at this stage the Customs and their advisers were working under the handicap that they had not been given a complete formulation of the impregnating fluid. I assume from the fact that this was not mentioned by my hon. Friend that he bad not been informed of these unusual circumstances.

Acting, however, on the information which they had been given and the advice which had been based upon it, the Customs and Excise wrote to the company on 14th March, 1960, and gave a formal ruling that all three types of product were taxable at 25 per cent. and that tax should, in future, be accounted for at that rate. The company, as it was entitled to, protested vigorously against these decisions, but it still remained unwilling to talk the matter over round the table with Customs and Excise.

A second invitation was sent to the company to have a meeting at Customs headquarters in a letter dated 31st March, 1960, and this was ignored. It was about that time that my hon. Friend was brought into the case. He was certainly not responsible for any of the things which happened before that. In correspondence with him, my right hon. Friend Lord Amory, my hon. Friend the Financial Secretary and I have tried to explain to him, and through him to the company, the reasons for the Customs and Excise decision. I think that, although the correspondence has been protracted, only one new substantial point has emerged from This was on 9th June, 1960, when the company gave the Customs a complete formulation of the Dri-Wash fluid and stated that no perfume was used in its manufacture.

On these new facts, the Customs consulted the Government Laboratory again, which advised that the fluid could not be held, by reason of its composition alone, to be a toilet preparation. Its advice was that its composition resembled that of a household cleanser. This meant that the separate bottles of fluid, if sold by themselves, and without any clear implication in their get-up that they are intended for toilet use, could no longer be regarded as taxable. But the impregnated cloths and tissues, the get-up of which clearly implies that they are for toilet use, still remained taxable as toilet preparations, though the Customs continued to be willing to accept them at the lower rate as being substitutes for toilet soap. This minor modification of the Customs' position was notified to the firm on 6th July, 1960.

Since then the issues have been reduced to a straightforward difference of view between the two sides about the interpretation of the law. Are the cloths and tissues toilet preparations or are they not? When such a difference persists, there is ultimately only one way of resolving it—and that is by an action in the courts.

At one point in our correspondence my hon. Friend suggested that the Customs were conducting some kind of vendetta against the company. I think that perhaps there was a hint of that in some of his observations this evening. I assured him in a letter, and I repeat with great sincerity, that that is certainly not the case. I have looked into this matter with great care. I have made a frank admission that for a number of years Customs were wrong. They made a mistake. The company ought to have been taxed. I apologise for that mistake. On the other hand, it is to the advantage of the company and Customs will certainly not claim back tax. But certainly there is no vendetta against the company. The Customs have a duty to perform. They have to collect the taxes and duties which are due under the law, and it is only right that they should make proper inquiries, and if they believe that they can sustain their contention, that if necessary they should take it to the courts. I invited my hon. Friend to satisfy himself of the fact that there was no vendetta against the company by meeting the official at the Customs and Excise headquarters who has been responsible for the handling of the case, but this invitation, too, did not come to fruition. I have myself made a very careful examination of the case and I am sure that there has been nothing improper in the action of Customs and Excise, although there was a mistake a number of years ago.

Mr. Allason

My hon. Friend speaks of a mistake by Customs in 1952. Was it a mistake that Customs decided that the appropriate group was Group 5a, and that it was confirmed by the Commissioners and by the Chancellor of the Exchequer that it was Group 5a? Ought it to have been Group 32 all along? I understood that once it was in Group 5a it remained there. I do not see how it can suddenly be changed without a legal ruling.

Mr. Barber

Before the D scheme relief applied the cloth would have been taxable under the old Group 5, which deals with textile articles, as well as under Group 32. If my hon. Friend will look at the notes on the Customs and Excise schedule he will see that an article could well be included in more than one group. In that case the higher tax should be applied. But the old Group 5 no longer exists. The mistake which the Customs made, and which I was frankly painting out, was that after the old D scheme was abolished they continued not to charge tax on these products, although it is clear, at any rate from the point of view of the Customs, that tax should have been charged on them.

This matter has now dragged on for well over a year, during which time the company has not been paying a tax which the Customs consider is legally due from it. The Customs would be failing in their duty if they let that continue. As there is apparently no prospect whatever of reconciling the opposing views, there seems to be no alternative to putting the issue to the test in the courts. I am sorry that I should have to say this. I hope that there is still just a chance that the company will see the force of the Customs point of view, but if that is not so, I can see no alternative. I am sorry to have to put it to bluntly to my hon. Friend.

I should like to end on the note on which I started and say that I appreciate how much time and effort my hon. Friend has devoted to the affairs of this company. But I am bound to say, having given the matter, as I hope my hon. Friend will agree, fair and honest consideration, that I have reached the firm conclusion that in this case, the Customs are right in fact and in law in the contention which they are now maintaining, and have no alternative but to pursue their claim against the company.

Mr. Allason


Mr. Speaker

The hon. Gentleman has already spoken to this Question.

The Question having been proposed after Ten o'clock on Thursday evening and the debate having continued for half an hour, Mr. SPEAKER adjourned the House, without Question put, pursuant to the Standing Order.

Adjourned at seven minutes past Twelve o'clock.