On July 21, 2015, from the Republic of Turkey on the terms of CIF OCHAKOV (Incoterms 2010), the goods worth USD 231,184.35 were delivered to the Client – a large distributor of polymer raw materials and industrial chemistry (hereinafter – the declarant).
In order to perform customs clearance of goods, the declarant submitted a customs declaration, which indicated the customs value of the goods in accordance with Cl. 1 Part 1 of Art. 57 of the Customs Code of Ukraine (hereinafter – CCU) under the main method, that is, at the price of the foreign economic contract.
Disagreeing with the declared customs value of the goods declared by the declarant, the reserve method of determining the value of the goods was used by the customs inspector and, as a result, customs payments were adjusted to increase the amount by UAH 92,234.88 more than that determined by the declarant independently.
The decision on the adjustment was made on the basis of the conclusion of the supervisory authority that the documents submitted by the declarant did not contain all the data confirming the numerical components of the customs value (insurance and freight). Thus, the position of the supervisory authority is justified by the inability to determine the size of the interest rate and the cost of insurance, as well as the lack of a document confirming the costs of transporting the goods.
However, considering the decision to adjust the customs value illegally due to the lack of grounds for raising the customs value of the goods and the provision by the declarant of all the necessary documents, in accordance with the requirements of the Art. 53 of CCU (including insurance policy, bill of lading, costing, price list, etc.), the declarant decided to apply to the administrative court for the protection of his rights, arguing the legal position as follows.
Practice of the Supreme Administrative Court
According to the official rules for the interpretation of trade terms of the International Chamber of Commerce Incoterms 2010, the delivery of goods on CIF terms (‘cost, insurance, freight’) imposes on the seller the duty to pay the freight necessary to deliver the goods to the named port of destination, insurance costs and ensure customs clearance.
Thus, the declarant provided evidence to the supervisory authority that the costs of insurance and freight were incurred by the seller of the goods.
According to the legal position of the Supreme Administrative Court of Ukraine (hereinafter referred to as the SACU) in cases No. 826/3364/13-a (Intermediate Decision dated August 28, 2013), No. 826/528/14 (Intermediate Decision dated October 7, 2014), No. 826/8398/14 (Intermediate Decision dated 16.12.2014.), if certain costs are already included in the contract value of the goods, the customs cannot request additional documents to confirm their numerical values.
In accordance with Art. 58 of CCU, when determining the customs value, such expenses (components of the customs value) are added to the price actually paid or payable for the goods being valued, if they were not included in the price that was actually paid or payable, the costs incurred by the buyer for the cost of the package or the cost of packaging materials and work related to packaging; costs for loading, unloading and processing of the goods being valued, related to their transportation to the airport, port or other place of importation into the customs territory of Ukraine, costs of insurance of the goods.
It follows from the contents of the above norm that such components of the customs value of goods are added to it (customs value) only if they are not included in the price actually paid or payable.
The absence in the contract of provisions on the inclusion in the price of goods of the cost of cargo insurance does not mean that such costs were not taken into account by the seller of the goods when forming the price of the goods. Insuring by the seller of the goods at its own expense without covering such expenses upon sale would have been committed by the seller at a loss.
The declarant did not make any expenses for insurance of the imported goods; therefore, there are no grounds for including such expenses in the customs value of the goods being valued.
The above is also confirmed by the legal position of the SACU in the case No. 826/1396/13 (Intermediate Decision dated 11.06.15.).
Also, since the declarant did not pay insurance payments, the arguments of the supervisory authority that the interest rate and the cost of insurance influence the correctness of determining the customs value are groundless. In the controversial case, taking into account the position of the SACU in the case 804/9139/13-a (Intermediate Decision dated 14.05.15.), it is not important what insurance payments and at what interest rate are paid by the supplier of the goods, because, given the terms of the foreign economic contract, they cannot influence the correctness of the plaintiff’s determination of customs value.
Moreover, as a consequence, that the Goods submitted for customs clearance were delivered on CIF terms, the declarant is not obliged to submit documents containing information about the cost of insurance. Thus, according to the decision of the SACU in case 826/18439/13-a (Intermediate Decision dated 28.10.14 p.), the CIF delivery condition provides for the inclusion in the price of the contract not only of the price of the goods, but also the costs of freight and insurance, in connection with which the court of appellate instance came to the correct conclusion about the groundlessness of the Customs requirement to provide documents containing information about the cost of insurance, since the latter is already included in the cost of the imported goods.
According to the SACU’s legal position in the case of 826/2872/14 (Intermediate Decision dated 05.03.2015), the references of the customs authority on the impugned decision to the non-confirmation of the numerical values of freight are also formal and do not influence the definition of the customs value of the goods on the price of the contract, as the freight cost is included in the price of the Goods, the quantitative information of such expenses are not independent components of the customs value, do not belong to it, thus they are not subject to calculation and verification by the customs body.
Concluding the brief review of judicial practice, which confirms the Client’s legal position in the field of settlement of the specific customs dispute, it should be noted that existence of a precedent plays an important role in the resolution of customs disputes. In the field of customs legal relations, judicial practice is a key tool for the legal regulation of a number of disputable issues, taking into account the existing terms of delivery, according to which the confirmation of insurance and freight as the numerical components of the customs value of goods imported to the customs territory of Ukraine on CIF delivery terms is optional, and such requirements of customs authorities are illegal.