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THE CONSEQUENCES OF INCORRECT TARIFF
CLASSIFICATION: DEALING WITH POST CLEARANCE AUDITS
SARS Customs are making use of post clearance audits to identify under
payments in customs duty and VAT.
The assessment of customs duty, excise duty (if applicable), VAT and other
tax or levies on imports is based upon the Customs clearance declaration
(bill of entry) that the importer or his appointed customs broker submits at
the time of importation. The contents on the declaration is verified and,
based upon selection criteria, Customs officers may examine the imported
goods prior to release. However, Customs administrations are now moving
away from this "gatekeeper" approach and for the purposes of trade
facilitation they are conducting audits after the importation of the goods
to verify the accuracy of the Customs import declaration. During these audit
visits various control techniques are used to determine the accuracy of the
Customs declarations.
The premises of importers are visited by customs auditors/inspectors during
such audits to verify the accuracy of the Customs clearance declarations
that have been submitted for the past two years. This is the requirement
under the current South African Customs and Excise Act, Act 91 of 1964.
Under the Customs Control Act (No. 31 of 2014) and Customs Duty Act (No. 30
of 2014) which are expected to enter into force early in 2017 the period
will increase to three years.
Importers must ensure that they comply with Customs and Excise legislation
to avoid any penalties. The importers liability relates to under-declaration
of duty by correctly declaring the Harmonized System tariff subheading and
the origin and customs value of the imported goods. Compliant importers
have nothing to fear.
Post clearance audit activities are directed to areas of the greatest
revenue or potential revenue risk. During the audit the focus will be on
tariff classification, customs valuation and the origin of the goods.
It is a customs requirement that records must be maintained for a period of
5 years. These records will be audited. The documents that will normally be
audited include the customs clearance declaration (bill of entry), the
commercial invoice (from the supplier to the importer), any supporting
descriptive literature to enable the auditor to classify the goods, the
transport document (bill of lading or airway bill) and the customs worksheet
for every shipment.
The legal grounds for the conduct by the Customs Authority of post-clearance
audits are the Customs and Excise Act, 91 of 1964 and the Value Added Tax
Act, 89 of 1991.
If the auditor finds and discrepancies, the importer will receive a letter
titled: "NOTICE OF INTENTION TO RAISE ASSESSMENT: RESULT OF __ _______ ____
(DATE OF AUDIT) AUDIT OF YOUR IMPORT RECORDS: TARIFF DISCREPANCIES" from the
local SARS Customs Branch Office. The letter will be on the letterhead of
the local office, will have a reference number, contact person for enquiries
and will be stamped with an official customs date stamp.
In the letter reference will be made to various sections of the Acts.
It will generally have the following headings:
Introductory paragraph, "Incorrect tariff subheading/s utilised, customs
contraventions, penal provisions, Customs duty and VAT shortfall, liability
for capital portion of Customs duty and VAT, duty payable on demand, and
interest on duty, compulsory VAT penalty of 10% and compulsory VAT interest,
immediate payment suspends/limits potential further interest (on customs
duty and VAT), invitation to motivate why not to be held liable for duty,
VAT and back-dated interest, Departmental fining processes: requirements for
section 91 guarantee against prosecution, Section 91 procedure after payment
of deposit, deposit amount, summary of liabilities and potential liabilities
and consequences of failure to deal with notices herein".
The letter will call for underpayments of Customs (and possibly Excise) Duty
and VAT to be brought to account resulting from the incorrect classification
of the goods in question.
Under the Customs and Excise Act, 91 of 1964, importers (or their agents
acting on their behalf) contravenes the following sections of the Customs
and Excise Act when they are declaring goods under the incorrect tariff
subheading:
|
Section |
Contravention |
|
38 (1) |
Failure to make proper clearance of goods |
|
39 (1) |
Failure to pay correct duties due |
|
40 (1) |
Invalid customs declaration (bill of entry) resulting from
contraventions above |
|
47 (1) |
Incorrect duty payable at time of entry for home consumption
(resulting from incorrect tariff subheading utilised) |
The offences above are punishable as follows (in terms of section 84 (1) of
the Customs and Excise Act, 1964, which provides for any person who makes a
false declaration to be guilty of an offence). A fine not exceeding R40 000
or treble the value of the goods, whichever is the greater, or imprisonment
for a period not exceeding ten years or both the fine and imprisonment. Any
goods in respect of which such false statement was made shall be liable to
forfeiture.
Attached to the letter you will normally find a schedule listing the
potential under payments in customs and excise duties, VAT capital,
penalties (10% on VAT and in terms of section 91 of the Customs and Excise
Act) and interest by customs clearance declaration.
Liability
for duty and VAT is regulated, inter alia, by section 39 (1) (b) of the
Customs and Excise Act, 1964. Liability for
Customs duty rests on the importer/owner. VAT on imports of any goods into
South Africa is payable in terms of section 7 (1) (b) of the VAT Act, 89 of
1991.
In terms of section 44 (10) of the Customs and Excise Act, 1964, duty is
payable upon demand. In terms of section 105 of the Customs and Excise Act,
1964, which provides for interest on outstanding amounts. Interest is
payable from "such date and such period as the Commissioner may determine"
at a current rate of 10,25% per annum.
A penalty on the Value Added Tax (VAT) at a rate of 10% is also payable.
Interest on VAT is also payable under section 39(4) of the VAT Act, 89 of
1991, from the 1st day of the month immediately succeeding the month of
entry for home consumption.
In terms of section 114 Customs duty constitutes a debt to the State.
Importers can avoid the accrual of further interest on customs duty by
making immediate and full settlement of the duty. Such payment does not
affect potential liability for interest on Customs duty to be back-dated to
the date when it should have originally been paid in terms of section 105 of
the Customs and Excise Act, 1964.
Importers can limit the further accrual of interest on VAT by making
immediate payment of the VAT, as provided for in section 40 of the VAT Act,
89 of 1991. Full settlement of the total VAT mounts due (VAT capital,
penalty and interest) will mean that further VAT interest cannot accrue.
In addition to the liabilities above, the Commissioner is entitled to
prosecute the business entity of the importer as well as the responsible
staff members for the transgressions. In this regard see section 91, and in
particular section 91 (3) of the Customs and Excise Act, 91 of 1964.
If the importer agrees with the decision of the Commissioner by signing the
DA 70 form/s, the Commissioner may make further enquiry as he deems fit, and
thereafter summarily determine the penalty/fine by ordering forfeiture of
the whole or part of the amount deposited or secured. In practice this
means that the Commissioner decides the amount of the penalty, deducts it
from the penalty levied in terms of the DA 70 and refunds the balance to the
importer. This will only be done after considering written arguments about
the merits, submissions in mitigation, evidence or the like that the
importer may wish to draw to his attention. Proper motivation is thus very
important.
On receipt of such a letter from SARS Customs the importer will be invited
to comment on the letter and provide reasons within seven (7) ordinary
calendar days, why SARS Customs should not, after such 7 days raise Customs
duties, VAT interest and penalties with immediate effect. Importers are
instructed to make submissions of any nature regarding any aspect in the
letter in writing. The submissions must be in writing and properly
motivated and substantiated with relevant evidence. Failure to do so will
prejudice their case. In the event of failure to submit proper arguments
with regard to the letter SARS Customs (the Customs Administration) shall be
entitled to impose the liability as per total under the schedule attached to
the letter without further notice. Importers are therefore advised to make
use of Customs specialists in assisting them with the motivations and
submissions.
In the event that it be found that an importer has indeed contravened the
sections above, the inspector dealing with the matter will consider a
penalty of 10% of the underpaid customs duty as deposit under section 91(1)(a)(iii)
in order to initiate proceedings under section 91 of the Customs and Excise
Act, 91 of 1964. Section 91 of the Customs and Excise Act only deals with
customs offences. VAT penalties are dealt with as a separate issue.
In my capacity as a customs tariff consultant I have been receiving numerous
requests for assistance with queries of this nature recently.
Importers
are advised to make sure that they do not have to deal with the hassles of
responding to this type of queries by making sure that they master the
classification of the goods they are importing prior to attempting to import
goods. |
