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Problems of proving in court the customs value of goods

For more than a year, when considering customs disputes, courts have been actively applying the legal positions that are reflected in Resolution No. 18 of the Plenum of the Russian Supreme Court “On certain issues of the application of customs legislation by courts” dated 12 May 2016. Most such disputes are connected with methods for determining the customs value of goods imported into the territory of the Customs Union. This is the reason why special attention is given to this category of disputes in Resolution No. 18 of the Plenum of the Russian Supreme Court.

New rules for the provision of evidence significantly restrict the right to judicial protection. An analysis of the outcome of disputes on adjusting the customs value shows that, in the overwhelming majority of judicial decisions when they consider disputes of this category, the courts proceed from a presumption that information provided is genuine and the burden of refuting this lies with the customs authority. At the same time, the outcome of such disputes heavily depends on the evidence base available to the court: whether the customs authority has the information it needs and whether the set of documents and information provided by the declarant is full and of the necessary quality.

Evidence and proof are the most important element of this kind of dispute. The quality of the declarant’s documented justification of the accurate determination of the customs value and the assessment method applied by the declarant directly determine in whose favour the court issues its decision.

In this regard, particular interest is caused by the provisions of Resolution No. 18 of the Plenum of the Russian Supreme Court, which clarifies the rules for evidence to be provided by the parties when a court considers a case. Clause 11 of the resolution introduced a restriction on a party involved in foreign trade providing new documents (evidence) to the court, when such documents were not provided to the customs authority within the framework of customs control.

The Russian Supreme Court noted that the customs authority resolves to adjust the customs value in accordance with the volume of documents and information which have been collected by it and disclosed by the declarant at this stage. Since court proceedings should not replace customs control in the corresponding administrative procedure, new evidence may be accepted (requested) by the court if the party applying for it has substantiated that objective obstacles to obtaining this evidence were in place before the customs authority issued the decision being challenged. In fact this rule means that the declarant has an opportunity to provide the court with new documents only when the declarant has justifiable and well-grounded reasons for which such documents could not have been provided to the customs office earlier.

Please be reminded that, before the Plenum of the Russian Supreme Court passed Resolution No. 18, the courts resolved in a different way the issue of whether parties involved in foreign trade could provide additional evidence directly to the court, bypassing the customs office. Courts were guided by the position of the Plenum of Russian Supreme State Commercial (‘Arbitration’) Court expressed by clause 9 of Resolution No. 96 “On certain issues of considering disputes connected with the determination of the customs value of goods imported into the customs territory of the Customs Union” dated 25 December 2013. The Russian Supreme State Commercial (‘Arbitration’) Court agreed that under the general rule evidence was to be collected and disclosed by the customs authority as well as by the declarant at the stage of customs control before the corresponding decision was passed. However this fact did not deprive the parties of the right to provide additional evidence directly to the court. The only negative consequence of such conduct was awarding court costs against a party which provided the court with evidence that had not been disclosed at the stage of the customs control when there were no objective obstacles preventing it from being provided promptly.

It is obvious that the new rules for the provision of evidence significantly restrict the right to judicial protection. Moreover, these rules contradict the legal position of the Russian Constitutional Court that was expressed in its Ruling No. 267-O dated 12 July 2006 and that is widely used in court practice. In the opinion of the Russian Constitutional Court, when they consider a case, the courts do not examine its actual circumstances in essence, but limit themselves only to establishing formal conditions of applying a legal provision, the right to judicial protection turns out to be significantly infringed. With respect to tax disputes the Russian Constitutional Court formulated a legal position according to which a taxpayer cannot be deprived of the right to provide documents regardless of whether these documents have already been requested and examined by the tax authority. The court is obliged to accept and assess such documents. There are no grounds preventing this legal position from being extended also to cover customs disputes. And courts in their practice apply it similarly to the customs relationships1.

Putting aside the assessment of whether the clarification contained in clause 11 of Resolution No. 18 of the Plenum of the Russian Supreme Court is constitutional, let us address the practical consequences of the established restriction on providing additional evidence.

Starting from May 2016 the new rule has been widely used in court practice. Allowing motions that new evidence be added to the case files, the courts first of all examine the issue of whether there were justified reasons why this evidence was not provided to the customs authority.

At the same time, it is worth noting that in rare cases judges do not directly apply clause 11 of Resolution No. 18 of the Plenum of the Russian Supreme Court allowing the declarant to provide new evidence regardless of whether the declarant had an opportunity to provide the documents during the additional inspection. For instance, the Seventeenth State Commercial Court of Appeal considered lawful that the court of first instance added to the case files evidence which was not provided to the customs office during the inspection. The Court of Appeal cited as grounds for its position article 65 of the Russian Commercial Procedure Code. Pursuant to this article parties are entitled to provide the court with any evidence to justify their positions. Yet, the court stated that ‘under the general rule the lawfulness of the customs office’s decision should be assessed when the decision is passed. At the same time, not in all cases can the parties involved in foreign trade gather all necessary documents before the additional inspection finishes, and this fact should not deprive them of the right to prove in court that their position is justified’2.

However, the example given is an exception rather than the rule. In the majority of cases, courts thoroughly examine why the declarant provided the documents only during court proceedings.

As follows from clause 11 of Resolution No. 18 of the Russian Supreme Court, new evidence may be accepted (requested) by a court if the party applying for it has substantiated that there were objective obstacles to obtaining this evidence before the customs authority issued the decision being challenged.

What obstacles to obtaining documents could be treated as objective? An example of one such obstacle is given in the resolution. The Plenum of the Russian Supreme Court explains that new evidence may be accepted by the court if the customs authority failed to ensure that the declarant had the opportunity to remove doubts that the declared customs value was accurate.

The law directly provides that the customs authority has an obligation to ensure such opportunity. Article 69(1) of the Customs Code of the Customs Union establishes that if the customs authority during customs control of goods before they are released, identifies signs evidencing that the information on the customs value of goods may be inaccurate or the declared information is not duly confirmed, the customs office resolves to conduct an additional inspection.

At the same time the customs authority is entitled to request from the declarant additional documents and information confirming the declared customs value, and the declarant has a right to prove that it lawfully used the method chosen to determine the customs value of the goods and that the documents and information provided by the declarant is accurate (article 69(3) of the Customs Code of the Customs Union).

It should be acknowledged that the customs authority can ensure an opportunity for the declarant to remove doubts that the declared customs value is accurate, only if the declarant strictly complies with the additional inspection procedure. There are situations in court practice when a violation of the established procedure by the customs office has allowed the declarant to provide additional documents directly to the court.

Setting a deadline insufficient to provide the documents. Pursuant to articles 69(3) and 170(1) of the Customs Code of the Customs Union, for the purposes of conducting an additional inspection of the declared information on the customs value of goods, when requesting additional documents and information from the declarant, the customs authority sets a deadline for such documents and information to be provided. Such deadline should be sufficient, but must not exceed two months.

Two months term for the provision of documents is recognised by court practice as reasonable and sufficient. However in the course of additional inspections the customs authorities also determine shorter deadlines. Often in practice situations arise when the deadline set by the customs office is not enough for the party involved in foreign trade to provide the documents requested.

The issue of whether the established timeframe is sufficient will be resolved at the sole discretion of the court. If the court concludes that the period of time granted to the declarant was insufficient for objective reasons, the court will add the documents to the case files.

Therefore, cancelling a customs decision to adjust the customs value based on newly provided evidence, the State Commercial Court for the North-West Circuit stated that ‘in this case the violation of the deadline to provide documents <…> was due to objective factors, including the need to perform the customs request to provide documents which were not available to the Company (a price list of the Chinese manufacturer of the goods and the export declaration)’3.

At the same time it is necessary to take into account that when courts are assessing whether the deadline set by the customs office was sufficient, they take into account the declarant’s conduct and other factors.

In particular, as follows from clause 9 of Resolution No. 18 of the Plenum of the Russian Supreme Court, it is reasonable to expect certain conduct from a party importing goods into the customs territory at a price which significantly differs from comparable prices for identical (similar) goods. The conduct should be aimed at promptly gathering evidence which confirms that the goods were actually purchased for this price and which can be obtained in the business conditions of foreign trade.

It is assumed that a party involved in foreign trade in such a case should already have a certain set of documents justifying the customs value, or, at least, should have a genuine opportunity to obtain them as soon as possible. Based on this, courts may refuse to accept documents provided to the court if the declarant failed to provide these documents to the customs office at its request4.

Assessing whether the deadline set for the declarant was sufficient, courts also may take into account the fact that the party involved in foreign trade has certain experience connected with declaring similar goods. Therefore, the Russian Supreme Court considered the deadline set by the customs office to be reasonable, referring to the fact that ‘the declarant has already imported similar goods for a long time, <…> accordingly, the Company had the grounds, opportunity and time to gather evidence confirming the price of this transaction in the period in question’5.

Courts may also take account of other circumstances evidencing that the declarant had an opportunity to provide the customs with the requested documents, but did not take necessary measures to do so. For example, the State Commercial Court for the North-West Circuit when considering a case took into account the fact the a party involved in foreign trade was in close contact with its foreign counterparty. The cassation court considered that to add new documents to the case files as evidence would not be legitimate, since the court of first instance had not identified the reasons that prevented the Company from obtaining and providing the documents to the customs office before the decision in dispute was issued. At the same time the State Commercial Court for the North-West Circuit noted that ‘the Company had a long term and trust-based relationship with its seller, and the latter had the same with the manufacturer of the goods, [and] this evidences that the Company had an opportunity to obtain from its counterparties the necessary copies of export declarations, price lists and other documents characterising the transaction for the supply of the goods’6.

What should the declarant do in the event that the customs authority has requested documents that are not available to the declarant and the deadline set to provide them is not sufficient?

Primarily, it is necessary to take measures to request documents from a foreign counterparty and be ready to provide the court with evidence that such measures have been taken. This evidence will be examined by the court in terms of whether there were objective obstacles to providing the documents to the customs office7.

In addition the declarant should file a petition with the customs office to extend the deadline to provide the additional documents and information, justifying why it is impossible to provide the documents within the deadline that has been set. Despite the fact that filing such a petition is not obligatory and the procedure for considering it is not regulated by a legal regime, a court takes into account the active conduct of the declarant which confirms the declarant’s intent to confirm the declared customs value of goods. For instance, the Fifth State Commercial Court of Appeal recognised as lawful new evidence provided to the court in the following circumstances. In the decision to conduct the additional inspection, the customs office set a one-month deadline for additional documents to be provided. The declarant filed an application with the customs office to extend the deadline because the declarant was waiting for a response from the seller. The customs authority refused to extend the deadline and issued a decision to adjust the customs value. After the customs office had passed a decision to adjust the customs value, the Company received the additional documents, but the Company had lost the opportunity to provide them to the customs authority. When the dispute was considered in the court, the customs authority failed to provide evidence that it had considered the Company’s petition to extend the deadline and failed to explain for what reason it took no account of this petition. In view of this, the court considered it possible to add additional documents provided by the Company to the case files8.

When a decision to adjust the customs value is issued before the expiration of the deadline set to provide the documents. The customs authority is obliged to provide the declarant with a genuine opportunity to remove doubts that the declared customs value is accurate. If it sets a deadline for the provision of additional documents, the customs authority as a general rule is not entitled to issue a decision to adjust the customs value before this deadline expires.

For instance, the State Commercial Court for the Far East Circuit established that according to the decision to conduct an additional inspection, the period for providing additional documents to confirm the customs value was set until 3 October 2016. However, a decision to adjust the customs value was issued by the customs authority on 23 September 2016, i.e. earlier than the timeframe set to provide the documents needed. Therefore, the State Commercial Court for the Far East Circuit agreed with the conclusion of the lower courts that the customs office had failed to duly provide the declarant with the opportunity and within the established deadline to remove the doubts of the customs authority with respect to the declared customs value and to prove that the first method chosen to determine the customs value was lawful9.

At the same time, it should be noted that nothing prevents the customs authority from not waiting until the expiration of the deadline to provide the documents if the declarant has explicitly refused to additionally confirm the customs value. For instance, the State Commercial Court for the Central Circuit dismissed a Company’s reference to the fact that the customs authority’s decision in a dispute was issued before the expiration of the deadline to provide additional documents, set by the decision to conduct an additional inspection. The State Commercial Court for the Central Circuit indicated as follows: ‘Customs legislation does not contain a prohibition on issuing a decision to adjust the declared customs value of goods before the date established to provide additional documents if the declarant directly refuses to provide them to the customs authority; <…> the Company had an opportunity to perform the customs office’s requirements and to provide the documents requested, but the Company voluntarily refused to perform this request, in doing so undertaking all the risks that have arisen from its bad faith conduct’10.

When a document (information) is not specified in a decision to conduct additional audit. In accordance with clause 14 of the Policy for Exercising Control over the Customs Value of Goods approved by resolution No. 376 of the Commission of the Customs Union dated 20 September 2010, when conducting an additional inspection the customs authority requests from the declarant additional documents, information and explanations, which shall be listed in decision to conduct the additional inspection.

If a document is not specified in the decision to conduct the additional inspection, this allows the declarant to provide the corresponding document (if needed) directly to the court.

For example, the State Commercial Court for the Far East Circuit resolved that, when conducting an additional inspection, the customs authority failed to provide the declarant with a genuine opportunity to remove doubts that the declared customs value was correct, since, according to the decision to conduct the additional inspection ‘the customs office had not requested the corresponding document or explanations concerning the supply of which particular goods under the contract in question had been agreed by the parties within the framework of a disputed supply’. In these circumstances the declarant is entitled to provide such document, the specification to the contract, directly to the court11.

A similar approach can also be seen in practice of other courts12.

However, this does not mean that the customs authority in any case is obliged to list in its decision specific details of the document which the declarant is asked to provide. As a rule, such details are not available to officials and they only state the name of the document or specific features according to which the declarant can identify the document. If the content of the request is not clear to the declarant, it is advisable to send a letter to the customs asking it to specify the request in more detail.

Violation of a declarant’s right to give explanations regarding additionally provided documents. Paragraphs 2 and 3 of clause 8 of Resolution No. 18 of the Russian Supreme Court provided that, for the declarant’s rights to be duly exercised, the customs authority must notify the declarant of the grounds on which the documents and data on the goods provided during the additional inspection do not eliminate the existing doubts that the stated customs value may be inaccurate.

Having received such a notice, the declarant is entitled to provide its objections (explanations) with regard to the signs the customs offices has identified that the customs value might be declared inaccurately (article 69(3) of the Customs Code of the Customs Union). These signs should be taken into account when the final decision is taken.

Often the customs authorities ignore the declarant’s right to put forward objections. Having critically assessed the documents, the customs authority resolves to adjust the customs value and, at the same time, does not provide the declarant with an opportunity to give additional explanations about the questions concerning the completeness, contents or quality of the documents it has provided.

The failure of the customs authority to perform this obligation is recognised in the court practice as a ground for the court to directly accept additional evidence13.

Taking account of the above, when documents are provided within the framework of an additional inspection of the customs value, it is advisable to express readiness to give explanations and to provide additional documents if the customs office has any remaining doubts concerning the accuracy of the declared customs value.

The declarant may also have other objective obstacles to providing documents (information) requested within the framework of an additional inspection. However, regardless of the specific reason, taking into account the possible negative consequences of a failure to provide documents at the customs office’s request, the declarant needs to take preventive measures against such consequences.

When there is an appropriate opportunity, it is advisable to gather a set of necessary documents beforehand (at the stage of negotiating and entering into a transaction). When the documents requested by the customs office are missing, you should take measures to obtain them, preserving evidence that these measures have been taken. If it is impossible to provide the requested documents within the established timeframe, you need to file a petition with the customs authority to extend the timeframe and describe the existing obstacles to providing the documents. If the declarant does not have even the slightest opportunity to obtain a document, then the declarant should provide the customs authority with a written justification of the reasons for this. Any explanations should be provided to the customs office beforehand, i.e. before the timeframe established for providing additional documents has expired. Therefore, when sending documents by post you need to take into account that documents and letters should be delivered to the customs office before the date stated in the decision to conduct an additional inspection.

In the majority of cases, courts take into account good faith conduct on the declarant’s part. This takes the form of prompt actions aimed at obtaining the necessary documents and at giving the corresponding explanations concerning objective obstacles to obtaining them. On the other hand, a passive position of the declarant marked by a refusal to provide additional documents and ignoring requests of the customs authority will subsequently, in any court dispute, ensure that the declarant cannot use the right to put forward evidence, which is the advantage of adversarial proceedings.

1 See, for example, the Resolution of the Twelfth State Commercial Court of Appeal dated 24 December 2009 in case No. А57-10236/09.

2 Resolution No. 17AP-5269/2016-AK of the Seventeenth State Commercial Court of Appeal dated 2 June 2016 in case No. А60-55005/2015.

3 Resolution No. F07-1817/2017 of the State Commercial Court for the North-West Circuit dated 17 March 2017 in case No. А56-95895/2015.

4 Resolution No. F03-5173/2016 of the State Commercial Court for the Far East Circuit dated 11 November 2016 in case No. А04-12129/2015.

5 Ruling No. 307-KG17-1522 of the Russian Supreme Court dated 16 March 2017 in case No. А56-89346/2015.

6 Resolution No. F07-12590/2016 and No. F07-12594/2016 of the State Commercial Court for the North-West Circuit dated 25 May 2017 in case No. А56-78622/2015. The State Commercial Court for the North-West Circuit came to a similar conclusion in its Resolution No. F07-12265/2016 of dated 25 April 2017 in case No. А56-77232/2015.

7 Ruling No. 303-KG17-216 of the Russian Supreme Court dated 16 May 2017 in case No. А04-9320/2015.

8 Resolution No. 05AP-5350/2016 of the Fifth State Commercial Court of Appeal dated 5 August 2016 in case No. А51-7189/2016.

9 Resolution No. F03-2565/2017 of the State Commercial Court for the Far East Circuit dated 18 July 2017 in case No. А04-11028/2016. A similar conclusion is contained in Resolution No. F03-5564/2016 of the State Commercial Court for the Far East Circuit dated 29 November 2016 in case No. А51-12281/2016.

10 Resolution No. F10-1232/2017 of the State Commercial Court for the Central Circuit dated 25 April 2017 in case No. А84-3384/2016.

11 Resolution No. F03-4478/2016 of the State Commercial Court for the Far East Circuit dated 3 October 2016 in case No. А51-27526/2015.

12 See, for example, Resolution No. F07-1817/2017 of the State Commercial Court for the North-West Circuit dated 17March 2017 in case No. A56-95895/2015; Resolution No. 13AP-2648/2017 of the Thirteenth State Commercial Court of Appeal dated 27 April 2017 in case No. A56-67618/2016.

13 See, for example, Resolution of the Third State Commercial Court of Appeal dated 21 July 2017 in case No. A33-27007/2016; Resolution No. 13AP-1593/2017 of the Thirteenth State Commercial Court of Appeal dated 22 March 2017 in case No. A56-57794/2016.