Customs Supporting Documents: THE AUDIT TRAIL

          In my early Customs days, assembling supporting documents was like a ritual. It was even like a science. We would dismantle and re-assemble hordes of documents. There was a method to it and a purpose behind each file type. It was important to collate and re-assemble documents into a specific sequence. It had to do with a concept known in the auditing profession (and numerous others) as the “Audit Trail”. An Audit Trail in this scene has to do with a set of documents which, if put into order of occurrence (whether in forward or reverse order) should resemble a chain of events. The chain tells you a story. Anything missing in the chain or that is out of sink in the story is cause for concern and hence, cause for an in-depth assessment.

          Today, much of this concept of sequence and feel has being lost to EDI (Electronic Data Interchange). However, it remains a very important concept to know for any type of assessment.

          Whenever Customs request for a standard set of supporting documents, the following should be supplied (these are listed in a somewhat traditional sequence for assessment purposes):

1)      Customs Release Notification, if applicable.

2)      Customs Declaration, if applicable.

3)      Commercial invoice.

4)      Packing list.

5)      Customs Worksheet.

6)      Transport document.

7)      Freight statement.

8)      Certificates and Permits.

9)      Customs Vouchers of Correction, if applicable.

10)  Literature.

11)  Any other supporting documents specifically requested. These may include indent orders, proof of payment and contracts of sale, supplier price lists, third party contracts, and so forth.

Whenever analysing a set of documents, sit back and review the chronological order of the pack and sequence of events. Ask what should come first, what follows and so forth? You will quickly see if something is missing.

Here are some examples of things you can look out for. Ask yourself: does the indent order number appear on the invoice; does the invoice number appear on the packing list; do the product codes on the invoices match the packing list; do the product codes which appear on the invoice reflect properly on the suppliers literature; are all the invoice pages present (i.e. the last page which contains valuable information is often left off); do the invoices reflect the full payment (i.e. not only the 50% advance payment); are all the invoice numbers which appears on the proof of payment present; do all the values, weights and quantities on the invoice and packing list tie up to the transport document; and so forth.

          Photocopies of supporting documents are generally acceptable today. The only real exceptions are permits, certificates, and in some cases invoice declarations. Invoice declarations pertain to trade agreements where the authorised signature on the invoice must be original. The rest may be photocopies unless the authorities request the originals to be produced.

Clearance Instructions: CONTENTS

          Much of the contents of the Clearance Instructions will become the contents of our discussions which follow this Blog.

          One departure from past requirements on the Clearance Instructions is the insertion of the tariff heading. In the past, traders were required to indicate the tariff heading on the Clearance Instructions. Today, SARS Customs is giving the option for traders to provide either the tariff heading, or a precise description of the goods. It is in any event a requirement in terms of the legislation that traders must provide a description of the goods on the commercial invoice. What is different here is the word “precise” description. Most commercial invoices today contain abbreviated descriptions, if at all. The description now required on the instructions (if provided in lieu of a tariff heading) should be enough to allow both the LSP (Logistics Service Provider) and Customs with the ability to tariff a product without further inputs or literature to be produced.

            The contents of the instructions proposed in the Rules to the new legislation are included below (abbreviated):

a) Name and customs code of the principal issuing the instruction.

b) Customs procedure or whether for home use.

c) Origin of the goods.

d) Origin determination, if applicable.

e) The tariff heading or a precise description of the goods.

f) Tariff determination, if applicable.

g) Price paid or payable.

h) Quantity of the goods.

i) Valuation method.

j) Value determination, if applicable.

k) Any advance ruling applicable to the goods.

l) Destination of the goods.

m) Trade agreement, if applicable,

n) GSP (General System of Preferences) if applicable.

o) Tax payment method.

p) Any other information which may be applicable.

The Customs procedure (point b) is similar to the old Purpose Codes (i.e. Duty Paid, Industrial Rebate, etc.).

The ROO (Rules of Origin) (point’s c – d) are becoming more important to Customs than before. It will eventually become a larger area of study than tariff and valuations. This is because of the increasing importance of regional trade agreements such as the TDCA (Trade, Development Cooperation Agreement) commonly referred to as the EU / SA Trade Agreement, and the SADC (Southern African Development Community).

Advance rulings (point k) is a new buzzword in the new legislation. All Customs Rulings (i.e. Customs Determinations) regardless of their nature will be valid for a period of three years only. Traders will need to re-apply for Customs Rulings every three years for them to remain in force.

Trade Agreements (point m) relates to preferential rates of duty. This is similar to ROO.

Tax Payment Method (point o) relates to whether SARS must be paid by cash, deferment or Vat only payments. This is normally managed by your LSP.

            These issues will be discussed in the numerous Blogs and Sections which follow.

Clearance Instructions: METHODS

          The SARS legal division is currently reviewing some of the methods of instructions discussed below. These discussions are inclusive of all the methods and considerations that are still under review.

          SARS has become pretty serious about the requirement for traders to complete the Clearance Instructions. Going forward, all new trader registrants will need to indicate which personnel in their organisation have the authority to sign Clearance Instructions. The new application forms will contain provision for the name, designation and identification number of the individuals who are duly authorised to sign on their organisations behalf. When clearance documents become queried or audited by SARS, they will be in a position to verify the details and signatures on the instruction with their internal records.

          There are four methods which may be used for completing a Clearance Instruction:

1)      Clearance Instruction: this is a form which is completed by the Trader per shipment.

2)      Singular Clearance Instruction: this term recently coined by SARS is a blanket instruction used for repetitive clearances of goods of a similar or identical nature over a specified period of time.

3)      Draft Clearance Declaration: a ‘draft’ Customs clearance declaration may be completed by the LSP (Logistics Service Provider), printed, and signed by the Trader. The signed Draft Declaration may be used as a Clearance Instruction,

4)      Power of Attorney: a trader may sign a Power of Attorney over to the LSP who may in turn complete Clearance Instructions on behalf of the Trader.

A Singular or Blanket Clearance Instruction would normally be accompanied by an indemnity to the LSP. The indemnity will serve to indemnify the LSP of any risk should the information pertaining to the Singular Instruction change without prior notice. It is important therefore to ensure that the LSP is continually informed of any changes such as a change of personnel (who are authorised to sign instructions), company details, clearance requirements, and so forth.

          Signing a Power of Attorney over to a LSP grants the service provider with the authority to complete instructions on your behalf. This has the effect of handing your rights over to the LSP and by virtue of this, indemnifies the LSP against recourse. It will be equally important to keep your LSP abreast of changes in clearance requirements.

          It is advised that traders who make use of methods other than the standard Clearance Instructions should review these forms annually. This is in any event a requirement by SARS Customs for those Traders who are involved in the PT (Preferred Trader) accreditation system.

          Going forward, Clearance Instructions must be complete for all modes of transport, even for airfreight clearances.

Clearance Instructions: PURPOSE

          It is commonly referred to as the Clearing and Forwarding Instructions. Such instructions are made out on a shipment level. There are two components namely 1) Clearing, and 2) Forwarding. The completion of the form is a requirement by the LSP (Logistics Service Provider) for a Trader to ‘instruct’ or inform them of clearing and forwarding requirements.

          The ‘forwarding’ components of any instruction is not a legal requirement. It assists a LSP to understand all logistical requirements per shipment. Examples of forwarding instructions may include the mode of transport, packing, loading, delivery, unpacking requirements, temperature control during transport, and any special requirements.

The Customs Clearance information on the instructions is a legal requirement in both the old and the new Customs legislation. The Clearance Instruction is dealt with in section 176(1)(c) of the Customs Control Act number 31 of 2014, and in Rule 7.6 of the Rules to the Act. SARS has not provided a standard template of this form.

LSPs therefore improvise by setting up their own templates. While traders are generally requested to complete the “Agents” Clearing and Forwarding Instructions, some large traders use their own templates. There is nothing untoward about whoever’s template is used, so long as the minimum legal requirements are contained therein. Some large Traders supplement the Clearing and Forwarding Instructions with SOPs (Standard Operating Procedures). The SOPs are designed to apply to all shipments as a standard requirement of the Trader’s needs, i.e. for large quantities of highly repetitive clearances. This allows the instruction form to be simplified or even nullified. Such methods are normally accompanied by indemnities at contractual level.

            So, what are the consequences of incorrect instructions, or not using instructions at all? Any incorrect or false information supplied to SARS Customs is an offence in terms of the legislation. The instruction shows the real intention of the trader at time of clearance. For example, if the importer requires a shipment to be cleared under rebate of duty but who accidentally instructs the LSP to bring duties to account, SARS Customs may argue that the importer had no intention to make use of the rebate facilities in the first instance. The importer will have a tough time qualifying for a reimbursement of the duties in a subsequent refund application. One occasionally lands up seeking legal recourse which is a cumbersome affair.

In the new legislation, a consequence of the Clearance Instruction not being utilised at all is that all Customs liabilities may become transferred from a Trader to the LSP. While this may appear to set the Trader free from Customs liability, the Trader may in the same instance lose legal standing over his own shipment. This double dilemma (i.e. transfer of liability and losing legal standing) affects both parties negatively.

            In the new legislation, the Clearance Instructions will become more important for the clearance of goods than before.