The European Court of Justice (ECJ) issued a ruling on 14 January 2010 in two preliminary reference cases refered by the VAT and Duties Tribunals of Edinburgh and of Northern (United Kingdom): Terex Equipment Ltd (Terex) against the Commissioners for Her Majesty’s Revenue & Customs (HMRC); and FG Wilson (Engeneering) Ltd (Wilson) and Caterpillar EPG Ltd (Caterpillar) against the Commissioners for HMRC.

Both cases concerned the consequences of the use of an incorrect customs procedure code in the declaration to reexport goods, and the possibility of correcting such errors.

The Court considered that the use of the wrong custom code in the export declarations gave rise to a “customs debt” under the Customs Code.

However, the Court went on to find that Article 78 of the Custom Code permits the revision of the export declaration of the goods so that an erroneous customs procedure code can be corrected.

In this Trade Law Update, we summarise the findings of the Court.

FACTS OF CASES C-430/08 (Terex) and C-430/08 (Wilson and Caterpillar)

Terex is a manufacturer of earth-moving machinery, which imports various items that are incorporated into its machinery. Wilson and Caterpillar manufacture generating sets, import components which are put together with other items of Community origin and assembled into sets.

In both cases, customs duties on the imported goods are normally suspended under the inward-processing procedure. When those goods are re-exported as part of the final product, no duty becomes payable.

However, in both cases the customs agents acting on behalf of the companies inserted an erroneous code into the export declarations. The code used was 10 00, indicating the export of Community goods, instead of code 31 51 which ought to be used for the re-export of goods for which duties are suspended.

Terex Wilson and Caterpillar proactively sought a revision of these duties (under Article 78(3) of the Community Customs Code), which the customs authorities refused on the ground that this would amount to changing the applicable customs arrangement and would not merely be a correction; and that the situation could not be regularised because this would mean presenting a prior notification of re-exports of goods (Article 182(3) of the Code) after such re-export, something the customs considered to be impossible.

The customs authorities therefore considered that the declarations under an incorrect customs procedure code conferred the customs status of “Community goods” on the goods at issue, which resulted in a customs debt; and the customs authorities issued post-clearance demands for the amount of customs duties initially suspended under the inward processing procedure.

Remission of the duties under Article 239 of the Code was also denied on the ground that the companies had displayed obvious negligence, which precludes the application of this provision.

FINDINGS OF THE COURT

In relation to the use of the wrong code, the Court noted that the obligation to lodge a customs declaration with the correct customs code which indicates a re-export of goods that were under the inward processing procedure is of particular importance for customs supervision. The objective of the use of the customs code indicating the re-export of Community goods under the inward processing procedure is to permit the customs authorities to decide at the last minute to carry out a customs check. The Court therefore considered that ‘the use in the export declarations of customs code 10 00 indicating the export of Community goods instead of code 31 51 used for the re-export of goods under the inward processing procedure must be classified as ‘removal’ of those goods from customs supervision,’ which gives rise to a customs debt pursuant to Article 203(1) of the Customs Code and the first paragaph of Article 865 of the Implementing Regulation.

However, the Court rejected the customs’ argument that Article 78(3) of the Code cannot remedy the lack of the prior notification required by Article 182(3). The Court indeed considered that ‘An interpretation to that effect would run counter to the logic of that article, which is to bring the customs procedure into line with the actual situation.’ The Court added that ‘Article 78(3) does not make a distinction between errors or omissions which may be corrected and others which may not. The words ‘incorrect or incomplete information’ must be interpreted as covering both technical errors or omissions and errors of interpretation of the applicable law’.

The wording of Article 78(1) provides that the customs authorities ‘may’ amend the declaration. The Court ruled that, where a revision is in principle possible, the customs authorities must either reject the declarant’s application by reasoned decision or carry out the revision applied for. If the revision indicates that the objectives of the inward processing procedure are not threatened, in particular in that the goods covered by that customs procedure had actually been reexported, the customs authorities must take the measures necessary to regularise the situation, taking account of the new information available to them.

Although it is important to use the correct customs code into re-export declarations, companies realising that goods imported under a special customs procedure were mistakenly declared as Community goods upon re-export, can request the correction of this mistake under Article 78 of the Community Customs Code. If the goods were actually re-exported and treated in compliance with the rules applying to the special regime under which they were imported, the customs authorities will have to accept the regularisation.