In a decision handed down on 28 May 2015, the AAT has found that the purchaser of goods on a DDP basis is liable for the duty underpaid on those good even though the supplier was responsible for the payment of all border charges in its contract with the purchaser.
The decision enlivens, once again, the difficult position of a purchaser of goods under a DDP contract who could become liable to pay duty underpaid by the overseas supplier even though the correct duty was supposed to be paid under the DDP contract. It also raises the issue of the changing position of the Australian Customs and Border Protection Service ("Customs") following the revocation in July 2014 of a Customs Notice from 2000 dealing with liability for various obligations in DDP transactions (2000/30) and the publication of a replacement notice on DDP transactions in Customs Notice 2014/50 (which was actually published early in 2015).
The "change in position" represented in the two Notices has already been the subject of detailed commentary in an earlier Update and had also been discussed at length in CBFCA Member Forums we had conducted earlier this year.
The case before the AAT related to imports associated with goods purchased by an Australian entity. It had elected to purchase the goods on a DDP basis and left all arrangements regarding shipping and importation issues to the Chinese supplier. That Chinese supplier instructed the freight forwarders and licensed customs brokers for the shipments. Unfortunately, the instructions from the Chinese suppliers did not accurately represent the real value of the goods. This meant that SACs were used for some shipments (when they should not have been) and other import declarations undervalued the goods. The combined effect was a significant underpayment of duty and GST. Still further the licensed customs broker nominated the Australian purchaser as the "owner/importer" when under a DDP transaction that should have been the overseas supplier.
Following an audit, Customs issued a new valuation for the duty payable on the goods pursuant to section 161L of the Customs Act 1901 (Act) and issued demands against the Australian purchaser for the duty and GST it alleged to have been underpaid pursuant to section 165 of the Act. Customs also made adverse observations against the Australian purchaser for not holding all commercial documents for the transactions as contemplated by section 240 of the Act.
The Australian purchaser paid the duty demanded under protest pursuant to section 167 of the Act and then sought review of liability to pay the duty before the AAT pursuant to section 273GA (2) of the Act. The AAT review only addressed one of several Import Declarations but was taken as a representative transaction to apply to all in question.
The Australian purchaser raised a number of arguments against the demand itself, rather than the amount of duty claimed. The arguments pointed to the nature of DDP obligations for the parties to the transaction (the supplier is liable for the duty as between the parties), the total lack of involvement in all import transactions by the purchaser and Customs position in ACN 2000/30 to the combined effect that Customs should not have exercised its rights in section 165 of the Act to demand the underpaid duty as against the overseas supplier.
The AAT decision addresses in some detail issues such as the process for making Import Declarations, the payment of duty, the nature of the term "owner" and its impact in import transactions for liability for customs duty (including the liability of those who purchase the goods in Australia), the standing of the Customs Notice and the nature of the discretion in section 165 of the Act as to Customs should actually demand payment for duty. Ultimately the AAT came to the view that the Notice was not binding, that the Australian purchaser came within the category of the "owner" of the goods to be liable for underpaid duty and that Customs had properly exercised its discretion to demand the duty from the Australian purchaser (although not addressing its obligation to do so under the Financial Management arrangement). In the circumstances the AAT upheld the demand by Customs. Appeal is open to the Australian purchaser although grounds of appeal are largely limited to legal error.
The decision does largely affirm the position of Customs in its later Notice from 2014.