Isaac International (Case C-371/09)
The ECJ was recently called upon to make a judgement in a case where poor customs planning and a lack of understanding of the legislation resulted in a company mistakenly applying a relief from additional duties only to be hit with a post-clearance demand from Customs.
The Facts
Isaac is a UK incorporated company with a branch in Germany. It has an office and a warehouse in the UK and a distribution centre in Germany. Isaac imports bicycle parts from China into the UK and then sends them to Germany for distribution. All of the parts imported by Isaac were ‘essential bicycle parts' covered by an Exempting Regulation as the goods were liable to Anti Dumping Duty. Isaac imported the goods under End-Use control using CPC code 94.00.69 in order to gain exemption from ADD. Between November 2003 and April 2005, Isaac made 33 importations of less than 300 units per month (this will become relevant later on). At the time of import, Isaac had not read or considered the provisions of the European Customs Code, the Implementing Regulations or the Exemption Regulation but employed an import agent to deal with the formalities.
Although importing the goods to End-Use, Isaac did not actually hold an End-Use authorisation for the purposes of the Exempting Regulation but believed that it could use the simplified authorisation as provided for in the Implementing Regulation of the Customs Code (Article 292(3) "in particular circumstances the customs authorities may allow the declaration for free circulation...to constitute an application for authorisation.") 1] Isaac made no enquiries about using the simplified authorisation to HMRC.
Subsequently, HMRC issued a post-clearance demand for £161,120.76 of customs duty and £28,196.13 import VAT. Isaac applied for end-use authorisation and achieved it with a one year retrospection covered but the duty demand quoted relates to the ADD prior to the one year limit of retrospective authorisation.
Isaac appealed to the Tax Tribunal that held that although they were not authorised to import under End Use, they did not display "obvious negligence" under Article 212(a) of the Customs Code and thus should be exempt from the ADD. The Tribunal ruled in their favour but HMRC appealed against this decision.
The High Court then referred a number of questions to the ECJ, of which the two main ones were:
1. Where an importer is established and operates in two Member States and imports goods in one Member State and immediately transports them to a second Member State, does the end-use authorisation required for the purpose of obtaining exemption from anti dumping duty pursuant to Article 14(c) of [the Exempting Regulation] involve more than one customs authority for the purpose of Article 292(3) of [the Implementing Regulation]?
2. Where an importer failed to obtain the necessary authorisation for use of the end-use procedure envisaged by Article 14(c) of [the Exempting Regulation], can exemption from anti-dumping duty nevertheless apply pursuant to Article 212a of [the Customs Code]?'
The Judgement
First Question
The ECJ was unusually brief in its assessment of Isaac's case. The first question it answered concerned the technical issue of whether the end-use authorisation that was required to gain exemption from Anti Dumping Duty involved more than one customs authority or not? The Court argued that where an importer is established and operates in two Member States and imports goods in one Member State and then transports them directly to the second, the simplified procedure is not suitable to ensure effective control of the conditions of the Exempting Regulation (in this case a monthly quantitative limit on imports) as the simplified procedure pre-supposes that only one customs administration is involved.
The Court noted that the quantitative limit could not be controlled by the UK authorities alone as this could be avoided by imports into both the UK and Germany. It noted that control of the End-Use must be carried out under Article 82(1) of the Customs Code during the entire reference period (i.e. in this case, one month) but when goods are immediately exported to a second member state, the UK customs authority would not be in a position to ascertain by itself whether the monthly limit had been met or not.
The Second Question
With regard to the second question, namely, would the fact that Isaac had not been authorised to operate End Use be disregarded on the basis that Isaac had not acted with obvious negligence and had fulfilled other requirements set out in the application for exemption, the Court referred to the Exemption Regulation. It argued that the legislation clearly referred to the Customs Code Implementing Regulations and stated that exemption from the ADD at issue is subject to them. Among the conditions contained is the issue of a prior authorisation (as set out in Article 292 of the Implementing Provisions). Therefore, the Court stated that the legislation "expressly and specifically" made entitlement to the exemption subject to an authorisation and even though the quantitative limits may have been adhered to, this was not sufficient to gain exemption from ADD. The Court reiterated the importance of seeking authorisation inasmuch as it enabled the customs authorities to verify that all the requirements for exemption had been met.
ITS Conclusion
This case once again highlights the need for importers to understand customs regulations and in particular those governing any form of customs authorisation that may result in the relief or exemption from import duties or additional duties. From the facts of the case, Isaac employed an import agent but made no attempt itself to understand the customs regulations. This was a crucial error as the import agent was effectively acting without proper instruction it was taken for granted that he "knew what he was doing". This exposed Isaac to a high-level of risk and it was inevitable that HMRC would pick up on the fact that Isaac was importing goods under a procedure that it was not authorised to use. With regard to the arguments of the case, a proper reading of the legislation in question arguably would have answered the questions referred and it is a little surprising that the case actually made it to the ECJ for judgement.
Had Isaac invested £10,000 to build a robust End Use Relief process that would have ensured effective implementation, monitoring and reconciliatory procedures in place, then the chances are that it would not have had to face a post-clearance demand of £160,000 (plus import VAT) and legal fees. In this particular case, a £10,000 investment would have yielded an ROI of 1500%!
Next Steps
International Trade Solutions has worked with some of the biggest names in the UK to develop specifically-tailored customs planning and reconciliatory procedures that have not only saved them millions of pounds but have enabled early identification of risks and errors. As a specialist consultancy that works exclusively in the sphere of customs law, we are well-versed in the complexities of EU regulations and import procedures. For ways that we could mitigate your risks and potentially save you money contact us for a first free meeting on (01905) 619229 or email us at
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