Not easy way of customs clearance: from declaration to court decision

Ukrainian importers are well aware that customs clearance is like a lottery of setting the customs value – you can never be sure in advance whether there will be a refusal in customs clearance, whether the customs value will be overstated, samples sent to the laboratory, or a lawsuit needs to be prepared immediately.

Moreover, the positive statistics of court decisions in such cases unequivocally confirm the numerous excesses by the customs officers of their powers or their own interpretation of the Customs Code of Ukraine.

We would like to draw your attention to the publication of the attorney of WinnerLex Victoria Chekhuta in “Yurist & Zakon” on these very topical issues.

Under the current legislation of Ukraine, the customs clearance of goods imported into Ukraine looks fairly easy and clear at first glance. However, how it happens in practice and what decisions the customs authorities take is shown by the number of refusal cards and increases in the customs value of goods, as well as by a study of case law.

A buyer who imports goods into Ukraine must submit a package of documents to the customs authority and state the contract price, on the basis of which the customs value of the goods is to be determined. And this is where the most interesting part begins.

The declarant submits the necessary documents to the customs authority, and the customs must examine all the documents and clear the goods. However, as very often happens, the declarant is refused customs clearance on grounds that the customs authority gives in the refusal cards, in particular, that “discrepancies” were found in the documents submitted by the declarant to confirm the declared customs value. Therefore, the customs value of the goods is determined by a secondary method, and most often by the sixth, fallback method. The main method for determining the customs value of goods imported into Ukraine under the import customs regime is the first method – the contract price (transaction value).

The Customs Code of Ukraine provides for 4 grounds on which the customs has the right to refuse the customs value declared by the declarant:

1) an incorrect calculation of the customs value by the declarant or a person authorised by the declarant;

2) failure of the declarant or a person authorised by the declarant to submit documents according to the list and under the conditions specified in parts two to four of Article 53 of this Code, or the absence in these documents of all the information confirming the numerical values of the components of the customs value of the goods, or of information on the price actually paid or payable for these goods;

3) inconsistency of the method for determining the customs value of the goods chosen by the declarant or a person authorised by the declarant with the conditions set out in Chapter 9 of this Code;

4) receipt by the revenue and duties authority of documented official information from the revenue and duties authorities of other countries on the unreliability of the declared customs value.

In practice, only 2 grounds are most often applied: failure to submit all documents in accordance with parts 2 and 4 of Article 53 of the Customs Code of Ukraine and a method incorrectly chosen by the declarant.

If an entity has declared under the first method, the customs has only one ground for refusal left – failure to submit all documents.

A review of the case law of the Supreme Court shows that, in customs disputes, discrepancies found in the documents submitted by declarants to customs authorities are not grounds for adjusting the customs value of goods, and therefore decisions of customs authorities to increase the customs value of goods are unlawful and unfounded.

Thus, in its rulings of 26.02.2018 in case No. 804/1405/15 and of 21.02.2018 in case No. 820/17417/14, the Supreme Court stated that “the customs authority is obliged to specify the particular circumstances that gave rise to the relevant doubts, the reasons why they could not be verified on the basis of the documents submitted by the declarant, and also to justify the need to verify the doubtful information and specify the documents whose submission may remove the doubts about its reliability. It is prohibited to demand from the declarant or a person authorised by the declarant any other documents not provided for by the Customs Code of Ukraine (Article 53)”.

In its ruling of 27 March 2018 in case No. 814/1213/16 (administrative proceedings No. K/9901/36850/18), the Supreme Court stated: “The mere fact that the declarant did not submit additional documents, without proper justification by the customs of why they could remove doubts about the disputed information, is not a ground for refusing customs clearance of the goods”.

Consequently, the discrepancies that customs authorities point to in refusal cards are purely formal and immaterial and in no way affect the level of the declared customs value of the goods, which shows that the customs has no grounds for requesting the additional documents specified in part 3 of Article 53 of the Customs Code of Ukraine.

When courts hear cases challenging adjustments of the customs value of goods, customs authorities insist that the discrepancies in the documents submitted by the declarant are material, yet provide no evidence for their claims.

Or, for example, if the declarant has submitted a full package of documents for the customs clearance of goods imported into Ukraine, the customs authority in its decisions adjusting the customs value of goods refers to the absence of documents on the insurance of the goods being valued. However, under some Incoterms delivery terms, for example FOB, insurance may not be taken out at all.

In addition, the customs authority very often refers to such shortcomings as the absence in the documents of confirmation of the costs of transporting the goods, since, under clause 5 of part 10 of Article 58 of the Customs Code of Ukraine, when determining the customs value, the costs of transporting the goods being valued to the airport, port or other place of entry into the customs territory of Ukraine are added to the price actually paid or payable for those goods, and it demands that the declarant confirm the transport costs incurred after crossing the border of Ukraine.

Courts do not take these “violations” into account and consider them groundless, and accordingly such decisions adjusting the customs value of goods are annulled (cases No. 803/49/16 and No. 803/1366/16 of 20.02.2018).

Also, when issuing decisions adjusting the customs value of goods, customs authorities do not take into account that when goods are delivered on Incoterms group C (CFR, CIF, CPT, CIP) and group D (DAT, DAP, DDP) terms, transportation is carried out by the seller, so the costs are part of the value (the price actually paid or payable for the goods being valued) and therefore are not components of the customs value of the goods.

In addition, when determining the customs value of goods, the customs authority very often uses price information from the central database of the Unified Automated Information System (UAIS), because the value of the declared goods is, in the customs' opinion, lower than the prices for similar goods already in the unified automated information system.

Courts have repeatedly drawn the attention of customs authorities to the fact that this is not and cannot be an independent ground for increasing the customs value of goods under the requirements of the Customs Code of Ukraine.

However, as case law shows, sometimes these grounds are still decisive for the customs when deciding to adjust the customs value of goods.

For example, customs representatives request additional documents on the basis of part 3 of Article 53 of the Customs Code of Ukraine and state that this is “due to the triggering of a risk profile regarding a probable understatement of the customs value of the goods”. What does this show? That the customs officer bases the request not on the documents submitted for customs clearance but on the price information available in the customs authority's “database”, which is completely groundless.

The unified automated information system that customs officers use in their work is closed to free access altogether, and accordingly declarants cannot prove the declared customs value of the goods.

Information in the Central Database of the UAIS on a higher price level for similar goods may serve as a ground for the customs authority to adjust the customs value declared by the declarant and to request additional documents to dispel this doubt. However, it cannot be the only ground for refusing customs clearance of goods at the customs value declared by the declarant and for taking an adjustment decision.

Thus, in its rulings of 14.08.2018 in case No. 820/9195/15 and of 28.08.2018 in case No. 810/3879/17, the Supreme Court stated: “the mere presence in the customs authority's information databases of information that in previous periods similar goods were cleared with a higher customs value in no way proves that the plaintiff determined it incorrectly, since the customs value depends on a number of circumstances and is determined in each specific case. During the customs clearance procedure, the plaintiff submitted documented data on the contract price to the revenue and duties authority. These data were contained in the documents submitted according to the list provided for by parts one, two and three of Article 53 of the Customs Code of Ukraine and had no discrepancies in the numerical values confirming the components of the customs value of the goods”.

Based on an analysis of the case law of the Supreme Court, customs authorities make numerous mistakes in their work and sometimes even abuse their rights when monitoring the correctness of determining the customs value of goods.

Customs authorities unreasonably request additional documents, arguing that they are supposedly needed to remove discrepancies in the documents submitted by the declarant, which are, however, immaterial and usually purely formal, or the lack of documentary confirmation of certain costs that the declarant never incurred or that are not components of the customs value of the goods or are not included in it.

The actions of customs authorities lead to unlawful refusals of customs clearance of goods at the customs value declared by the declarant and to adjustment decisions, most of which are later annulled by the court.

According to court decisions annulling decisions adjusting the customs value of goods and raising the import duty, 80% of all court cases are resolved in favour of the declarant; unlawful decisions of customs authorities are found to have been issued in breach of the current legislation and are annulled by the courts.

However, obtaining a court decision annulling the unlawful adjustment decisions issued by customs authorities is only the first step. Once the decision has been issued and has taken effect, the declarant must get back the money that was groundlessly paid to the state budget as a result of the increase in the customs value of the goods.

Since the court issues a decision annulling the decision to increase the customs value of the goods and declaring it unlawful, what about the money paid by the declarant?

The procedure and conditions for refunding erroneously and/or excessively paid payments are established by the current legislation and governed by the Customs Code of Ukraine, the Tax Code of Ukraine and the regulations of the Ministry of Finance of Ukraine.

Under parts 1–4 of Article 301 of the Customs Code of Ukraine, erroneously and/or excessively paid amounts of customs payments are refunded in accordance with the Budget Code of Ukraine and the Tax Code of Ukraine.

Erroneously and/or excessively paid amounts of a monetary obligation are to be refunded to the payer under Article 43 of the Tax Code of Ukraine and Article 301 of the Customs Code of Ukraine.

The procedure for refunding customs and other payments and/or overpayments to the budget is established by the Procedure for Refunding Advance Payments (Prepayments) and Erroneously and/or Excessively Paid Customs Payments, approved by Order of the Ministry of Finance of Ukraine No. 643 of 18.07.2017.

Once the decision has taken effect, it must be obtained and an application drawn up in free form.

The application must be accompanied by a duly certified copy of the court decision declaring unlawful and annulling the decision of the State Fiscal Service of Ukraine on the adjustment of the customs value of goods and a certified copy of the customs declaration under which the goods were cleared. It should be borne in mind that a tax debt may cause the customs authority to refuse the refund, which will only be possible if the declarant has no tax debt.

Within twenty days, the customs authority prepares a conclusion and decides to refund the money to the declarant; it is transferred to the current account that the declarant specifies in the application for the refund of overpaid customs payments.

So what is behind customs authorities “losing” court cases?

Firstly, the lack of admissible evidence, since the main grounds for adjusting the customs value of goods cited by the customs authority are that “the customs value of the goods declared by the declarant is lower than the information on identical or similar goods in the database of the specialised UAIS complex “price information” and “the triggering of the risk management system”. As the courts note in their decisions, this information is of an auxiliary nature and therefore cannot serve as a ground for adjusting the customs value of goods.

Secondly, in most decisions the courts note that customs authorities do not specify the reasons for which additional documents were requested and the decision to adjust the customs value of goods was taken.

Summing up the issue of challenging decisions adjusting the customs value of goods in court, I would like to note that this problem exists and, unfortunately, is not resolved even by the courts of Ukraine that rule in favour of declarants.

Instead, customs authorities continue the “policy” of bringing money into the budget by increasing the customs value of goods imported into Ukraine. I have studied cases decided both in favour of the declarant and in favour of the customs authority. However, not all decisions adjusting the customs value of goods are challenged in court, and accordingly not all the money overpaid to the state budget is returned to the declarant. Court proceedings in such cases are largely lengthy, and some declarants do not want to spend their time proving they are right in court or to spend money on protecting their violated rights.

As a result of such unlawful decisions, the state budget of Ukraine is replenished every year at the expense of such decisions of customs authorities, and customs officers continue to fill the budget in this way and issue unlawful decisions adjusting the customs value of goods.

Summing up the practice of the courts of Ukraine and the current situation with the customs clearance of goods, I would like to note the following.

This problem can only be solved if customs authorities approach these issues not formally and not with the aim of filling the state budget of Ukraine, but first of all by acting within the current legislation in strict compliance with its requirements and rules.

Therefore, there is an urgent need to improve customs legislation in this area, as well as to develop and put into practice new mechanisms aimed at simplifying customs control and customs clearance procedures and minimising the human factor, which can reduce the number of unlawful decisions on adjusting the customs value of goods and the courts' workload in this category of customs cases.

http://uz.ligazakon.ua/ua/magazine_article/EA013332