As manufacturers are looking at the possibility of import duties on products they source from the EU, they can be tempted to use reliefs or customs procedures that reduce or remove import duties. While these reliefs are invaluable to global traders, they come with strings attached in the form of obligations for compliance. When these obligations are not met, the import duty can be recovered by the customs authorities. Sometimes, several years after the import.
This May 2020 appeal, in front of a UK First-tier Tribunal, is another example of the importance for importers and exporters to understand their obligations when claiming duty relief.
Case
Pavly Limited and The Commissioners for Her Majesty’s Revenue and Customs [2020] UKFTT 00194 (TC)
The transaction
– Pavly Ltd (the Appellant) appealed against the decision of HMRC to issue a post-clearance demand (C18) for £6,929.54 related to the import of goods from Sudan between July 2015 and November 2016.
– The imported goods had been declared free to circulation using CPC 4000000, in box 37 of each customs declaration (‘C88’). The importer successfully claimed a preferential rate of duty (0%) under the Generalised System of Preferences (‘GSP’) scheme with a Form A certificate.
– In 2017, post-clearance checks were carried out. HMRC reached the conclusion that the GSP Form A submitted by the Appellant were not valid due to an invalid stamp in the certification box and the lack of the prerequisite handwritten signature of the certifying authority.
HMRC’s post-clearance decision
– To claim the GSP preferential duty rate available for imports from Sudan, the goods need to fulfil the particular Rules of Origin and the Appellant should possess a valid preferential proof of origin (GSP Form A, Invoice Declaration).
– The imports were cleared under Route 6. Under this clearance route there is no presentation of documents at clearance but an obligation to retain the original GSP Form A with all supporting commercial documents for 4 years.
– Forms A (Certificate of Origin) were incorrect due to the stamp in the certification box not being recognised and the missing handwritten signature of the certifying authority.
HMRC decided that the importer had incurred a debt under Article 201 of Regulation 2913/92 (“Community Customs Code”), for the imports before 1 May 2016, and under Article 77 of Regulation 952/2013 (“Union Customs Code”), for the import after 1 May 2016. The post-clearance demand was issued on 8 August 2017. The review decision confirming the post-clearance demand is dated 24 January 2018.
The importer’s Case
The importer case can be summarised as follows:
– The importer is not liable because the error on the documents was made by one of the overseas suppliers.
– The director does not have the expertise, technical skills or the training to check the authenticity of the documents.
– These issues should have been dealt with by customs at the time when the goods were allowed into the United Kingdom.
– It is unfair to levy a duty assessment of this size. The Appellant does not have the financial resources to settle this totally unexpected and unforeseen liability.
Tribunal decision
The tribunal summarise the Appellant case (at 65) as follows:
“Firstly, it is argued, in the request for review, that the Appellant is not liable because the error on the documents was made by one of the overseas suppliers. Secondly, it is argued that director of the company does not have the expertise, technical skills or the training to check the authenticity of the documents. Ultimately, the argument on the Appellant’s behalf is that there has been no obvious negligence on the Appellant’s part. Thirdly, it is further argued that it would be unfair to levy a duty assessment of this size as the company does not have the financial resources to settle this totally unexpected and unforeseen liability. Fourthly, it is argued on the Appellant’s behalf that these issues should have been dealt with by customs at the time when the goods were allowed into the United Kingdom. The Appellant’s representatives ultimately submit, in the request for review, that HMRC are therefore, in part, responsible for the state of affairs that has arisen as the goods were allowed into the United Kingdom.”
It finds (at 66)
“Having considered the arguments and the applicable law, we find that there is no merit in any of these arguments.”
And explains (at 67)
“In relation to whether the Appellant is liable to customs duty and the further argument that the director lacks the expertise, technical skills or training to check the validity of any documents, we find that it is trite law that it is the responsibility of the traders to make the necessary arrangements in their contractual relations to guard against the risks of an action for post- clearance payment. Article 15 of the Union Customs Code further provides that the lodging of a customs declaration shall render the person concerned responsible for the accuracy and completeness of the information given in the application and the authenticity, accuracy and validity of any document supporting the declaration.
The tribunal referred to In SCI UK Ltd v Commissioners [2002] ECT 11-2597 where the Court of First Instance held that a trader who has not consulted the relevant issues of the Official Journal to ascertain the provisions of Community law applicable to his transaction will be considered negligent and will not comply with the conditions.
In SCI UK Ltd, the court further held that:
“In that respect, it is clear that the importer is responsible both for the payment of the import duties and for the regularity of the documents presented by him to the customs authorities, and that the adverse consequences of the wrongful acts of his contracting parties cannot be borne by the Community………………..Moreover, the importer may seek damages against the trader involved in the fraudulent use of the documents in question. Finally, a prudent trader aware of the rules must assess the risks inherent in the market which he is considering and accept them as normal risks. (Case C-97/95 Pascoal & Filhos [1997] ECR 1–4209, paragraphs 57 to 61).”
Conclusion
The appeal was dismissed on the basis that the Form As submitted in relation to the consignments during the period July 2015 to November 2016 were invalid as a result of the inaccuracies and irregularities identified. The Appellant has therefore failed to show entitlement to a preferential rate of duty.
Alegrant comment
This case shows the unfortunate consequence of claiming relief of import duty without meeting the compliance obligations. This is a rather common problems for importers worldwide. We suggest importers take the following steps:
– Check the duty relief compliance requirements. For instance, the compliance obligations can arise under a customs authorisation for a customs procedure, Rules of Origin, Free Trade Agreement requirements.
– Estimate how much duty will be save and estimate the cost of meeting your compliance obligations. Will you need to recruit staff to maintain your compliance related activity? Will you need new systems? Does the saving, at least cover the cost of compliance. You might find that the most cost-effective solution is to pay the import duty!
– Budget for an adviser. Of course, as global trade compliance advisers we would say that! But if you regularly trade globally and used customs relief, it is likely that at some point you’ll want to check your compliance with an external adviser. On alegrant.com, advisers publish they rates for transparency so you can have control of your budget.
– Keep up to date with the changes in rules. Global Trade is a fast-changing activity with daily changes in rules and court decisions without mentioning trade wars, sanctions and embargoes.
Reference: Pavly Limited and The Commissioners for Her Majesty’s Revenue and Customs [2020] UKFTT 00194 (TC)
If you have any question about your obligations, are in doubt about your compliance level, contact us at info@alegrant.com.