Court judgment in X BV adjustment of customs value following reimbursement of costs of a (preventive) recall and validity of time limit to request repayment of duties

On 12 October 2017, the CJEU delivered a judgment in Case C-661/15 (X BV v. Staatssecretaris van Financin) on the rules for claiming repayment of customs duties where the customs value is lowered as a result of a reduction in the price actually paid or payable in order to address a risk of defect. In the case at issue, a Dutch importer of Japanese cars was asked by the Japanese manufacturer to invite all car owners to return their vehicles to a dealer so that the steering coupling could be replaced free of charge as for some types defects had been found, and for other types it was considered wise to do so, as there was a risk of defects. The importer reimbursed the related costs to the dealers, and the Japanese manufacturer in turn reimbursed the importer as part of its contractual warranty obligation.

The importer applied for the partial repayment of customs duties as the customs value because of the reimbursements had turned out to be lower than at import. The company relied on the provisions in the previous EU customs rules which allowed for a downward adjustment of the customs value for defective goods if the sales contract provided for such adjustment and if such application were filed within 12 months following release for free circulation (Article 145(2)-(3) of Customs Code Implementing Regulation 2454/93). The customs authorities rejected this request: for the cars being recalled to replace the steering coupling as a preventive measure, they argued that these cars were not defective at the time of import, and for the defective cars the application had not been made within the 12-month deadline.

The district court in which X brought proceedings dismissed the action, holding that X had failed to prove that at the date of entry into free circulation the cars were defective, and that a risk or possibility of a defect was not sufficient to fall under Article 145(2). Upon further appeal, the Dutch Supreme Court wondered if this provision should not be given a wider interpretation to cover cases where it is established that at the date of entry into free circulation, there was a manufacture-related risk that an imported product may actually become defective. The referring court further questioned the 12-month time limit in Article 145(3), as this was for unclear reasons different to the general 3-year limit for filing applications for duty refunds based on other legal grounds (notably Article 236(2) of the Customs Code Regulation 2913/92).

The CJEU considered that the term "defective" should cover goods "which lack required qualities or are imperfect" and that a product (in line with EU legislation on liability for defective goods) is defective "when it does not provide the safety which a person is entitled to expect". The CJEU confirmed that it is legitimate and reasonable to require a high degree of safety for a key car component such as the steering coupling and that such "safety requirement is not met where there is a manufacture-related risk of failure of that component" and that accordingly, the car in which such component is present must be regarded as defective. Contrary to justifications put forward by the Commission (e.g. that a shorter deadline necessary to combat the risk of error or fraud in the application of the defective goods provision and that the 12-month deadline was needed to ensure legal certainty and uniformity), the CJEU held that the 12-month time limit was neither necessary nor useful in Article 145(3) and it annulled this part of Article 145.

The old Customs Code and its Implementing Regulation have since May 2016 been replaced by the new Union Customs Code (UCC), which contains the same 12-month time limit for the provision relating to requests for adjustment under the defective goods provision. It remains to be seen when/how the EU will amend this UCC provision in line with the CJEU's ruling.