Knowing your Rights: The Appeals Process

          Now that we have discussed searches, the Customs demand and the pre-appeals process, we can go through the formal appeals process.

          You have received the Letter of Demand and you have decided to go with the internal appeals process with SARS Customs. Also, you have paid up all the amounts demanded which will include the outstanding duties, taxes, penalties and interest.

You will have 30 working days from the date of the Letter of Demand within which to lodge the first appeal.

          The first level of appeal is with the local Customs Branch Office which made the adverse decision. This is called the IAA (Internal Administrative Appeal) process.

If this fails, the second level of appeal will be with the Office of the Commissioner for the SARS. This is called the ADR (Alternate Dispute Resolution) appeals process. Your appeal may be mailed directly to the Commissioner’s Office or alternatively, it may be addressed via the local Customs Branch Office.

          You will have 30 working days after the IAA response letter (if unsuccessful) from SARS to appeal by ADR. In each instance, SARS is required to establish a separate and independent review committee known as the Appeals Committee. You may also (in addition to written representations) elect to make representations in person to the Appeals Committee.

          In some cases (prior to appealing) you might require SARS Customs to provide further explanations or reasons for a decision made. If so, you should, within the 30 working days in any instance, request reasons from SARS in writing. Going forward, extensions of the 30 working days within which to respond to an appeal may also be granted, upon request. A maximum of 15 calendar days may be provided.

          In the new legislation SARS will have 60 calendar days within which to respond to any appeal with a decision. The Commissioner may extend this by an additional 30 calendar days. If SARS does not respond with a decision within this timeframe, the case will automatically be won by the applicant.

          The period 16 December to 15 January (inclusive of both dates) are excluded in any periods of limitation.

          There is also provision for an Ombudsman in the new legislation.

          You are in any event advised to consult with a professional prior to attempting to appeal any matter by yourself.

          Anyone involved in the appeals process may at any time still decide to follow litigation. The period of time normally allowed for litigation following the last decision made by SARS (whether in or outside of the internal appeals process) is 12 months.

          However, there are additional time constraints involved in this process which relates to the PAJA (Promotion of Administrative Justice Act) number 3 of 2000. Traders are advised to consult with a Customs Attorney in advance. Litigation however is normally reserved as a last resort.

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Knowing your Rights: The Pre-Appeals Process

          Appeals with SARS Customs follow a logical process. The process was designed to comply with legislative requirements such as PAJA (Promotion of Administrative Justice Act) number 3 of 2000 and the Customs legislation.

          It is not frowned upon therefore to challenge the authority if you have a disagreement. You also do not need to concern yourself with any fear of reciprocity of additional audits. The days of old are long gone. On the contrary in fact, SARS Customs encourages their clients to follow the appeals process.

          The new Customs legislation makes provision for a lower order of appeals termed a “reconsideration of decision”. The process explained in the following paragraph will explain this to some degree.

          The first step after an assessment is that you will receive a notification from SARS containing an initial finding. For live shipments this will be an electronic notification received by the LSP (Logistics Service Provider).

          Disputing electronic notifications is more challenging.

          This was discussed in the former Blog (Knowing your Rights: The Customs Demand).

For post audits it will take the form of a Notice of Intent. A Notice of Intent is a notice of their (SARS) initial finding and their intention to issue a Letter of Demand. It provides the Trader with the ability to make representations to Customs. In a Notice of Intent you will generally be provided with a period of 7 or 14 days within which to respond. You do not need to pay any duties, VAT or penalties at this stage. You should assess the applicability of the Customs assessment and if in-applicable, you should write back to them with your own findings. It is extremely important to submit a well-motivated response during this early stage. It is also important to do so within the specified period of time. Failure to do so will result into a Letter of Demand being issued. You may request for an extension of the notice if you run out of time. Any win or termination of the process at this stage will result in the least intrusive consequence of the entire appeals process. If the result of the “reconsideration of decision” is not in your favour, you will then receive a Letter of Demand.

          In a Letter of Demand you will be expected to pay or alternatively to revert to litigation. In litigation you do not pay until such time as your case is formally lost in a court of law. However, it is generally advisable to engage in the SARS Customs appeals process prior to reverting to litigation.

          By choosing to appeal internally with SARS Customs you must first pay. In so doing, you are agreeing to abide by the Commissioners decision regardless of the outcome. However, there is a process of recourse for adverse decisions at every level of the appeals process. These will be discussed in the blog which follows.            

Knowing your Rights: The Customs Demand

          Pay now, dispute later… really! Yes really. Your consignment was stopped, your production line is threatened, Customs has a finding and they want you to pay. Both sides have a material interest in the concept of “pay now, dispute later”.

          For live shipments this could present a real problem. Until such time as all outstanding issues are settled your shipment will not be released. This is where your supporting documents and literature (discussed in former blogs) become essential. There are occasions when Customs notifications for administrative action are illogical. But the illogicality thereof can only be proven upon the production of supporting documents and explanations. Your LSP (Logistics Service Provider) will want to upload supporting documents to the Customs electronic system speedily; in order to obviate the action demanded.

          But some traders whose production line is at risk can simply not wait, no matter how illogical. They would prefer to comply with any demand, especially when smaller penalty amounts are involved.

          This approach is going to present problems in terms of the new Customs legislation. Minimum first penalties will be R 2,500 (in the Control Act) and R 5,000 (in the Duty Act). Each subsequent penalty covering the same contravention will thereafter double-up. This rationale will be applied over a period of three years where after your records will be wiped clean to start afresh.

          Another consequence of accepting an illogical decision is the precedence it creates. Once accepted and paid, Customs may expect that subsequent shipments must be treated in the same illogical manner. Also, Customs Post Clearance Inspection Teams will want you to bring additional duties and VAT to account for all prior shipments going 2 years back (this will be 3 years in the new Customs legislation).

          Another big concern about simply paying now and disputing later is that winning disputes with SARS Customs is difficult. In many instances it requires real expertise to appeal a decision. Doing so may occasionally involve employing an expert and paying a consulting fee for such expertise.

          But, any win in the appeals process will help to improve your record of good standing. Therefore, if you have any inclination whatsoever that you may win a dispute with SARS, then you simply must appeal.

          If the Customs findings fall into a grey area of uncertainty, there is another course of action you can take. You can lodge a provisional payment as surety to cover the potential difference in duties and VAT and to cover any penalties, pending finalisation of the matter. These normally relate to Customs Determinations for tariff and valuations. You will still pay initially however, the amounts paid pending a firm decision vide a firm Ruling (i.e. Determination) by the Commissioner for SARS will serve as surety during which time you can appeal. Such sureties are refundable upon a favourable outcome of any Determination.

          Nowadays it is not uncommon for Traders (and even LSPs) to pay for legal and technical expertise to aid in the appeals process. The avoidance of unintended consequences is far more appealing.

          Finally, court action may be another alternative however; this is a whole new league of appeal and will not be covered here.

Knowing your Rights: Customs Searches

          It is a long known fact that Customs has being able to do just about anything when it comes to searches. The only requirements for them were that it had to be Customs related, legal and within reason.

          Customs was able to enter any building, request any document, conduct any search, and to open any records. They were and still are able to use force (including breaking and entering) within reason to gain access to products or information. All of this was allowed with no recourse by the property owner. In fact, till recently the Customs authorities were considered to be the one organ of state with the most powerful and far reaching powers of duties; more powerful than any police or public service no matter how special. Why, you may ask? Well, in the past, Customs did not need to provide written reasons for a search, nor were they required to produce a search warrant.

          While Customs is still able to do all of this, today they can no longer do so at free will. So what has changed?

Firstly, PAJA (Promotion of Administrative Justice Act) number 3 of 2000 was enacted. Without regurgitating the contents of the legislation, the basic premise according to the Act is… “To give effect to the right to administrative action that is lawful, reasonable and procedurally fair and the right to written reasons for administrative action as contemplated in section 33 of the Constitution”. It basically means that prior to any administrative action taken by any Governmental agency including SARS Customs (i.e. not limited only to searches) that you have the right to be given reasons thereof, in writing. It also means that you have the right to be heard and to provide representations prior adherence to any administrative action. The following blogs will delve into the procedures that are generally followed by Customs which enable them to be administratively fair.

Secondly, it has to do with a legislative change which took place recently. The reasons for the legislative change came about as a result of a court action issued in the Western Cape. The court held that for searches to be constitutionally fair, a search warrant must, within reason, be obtained by the Customs authorities prior to any search. The old and the new Customs legislation now contain extensive clauses relating to search warrants. This includes all activities outside of a CCA (Customs Controlled Area), and outside of a Customs registered or licenced premises or a person. Warrantless access may still be gained upon reasonable explanation by Customs to the property owner. Explanations for such warrantless access must entail any real suspicion of breach of the legislation but where waiting for a warrant may take too long.

          But searches are different from simple requests by Customs for you to produce documents. In so doing they may visit your premises. There is therefore no reason why one should not allow Customs access in the ordinary course of business, so long as it is reasonable.

Customs Post Audits and Re-alignment

          By “post audits” I am referring to audits conducted by either yourself (i.e. annual self-audits), an independent auditor or post-audits conducted by SARS Customs.

          Just like many organisations, SARS too has its resource ups and downs. One of my former (late) Customs colleagues occasionally put a failure of the division into perspective. He would say that just because we have not made a finding during an audit, does not mean that industry are compliant. It may simply be a reflection of our own abilities to make audit findings, he would say.

          Looking at this from the other side of the fence (i.e. a clearing agent or trader) reveals a similar perspective. The consequence of compliance issues not detected (regardless by who) poses a greater future risk to us all.

          Imagine something simple which could have being detected within the first few months of its occurrence only gets picked up two or three years later. The financial impact of a shortfall in duties and taxes in the longer term (of repetitive occurrences) would be more severe. Alternatively, imagine having paid too much duties and taxes. How would this have impacted on cash flow over a long period of time? This is why it is crucially important to make discoveries early in the game and to rectify these.

          Incidentally, SARS audits and schedules currently go two years back. Refund claims also go back two years. In the new legislation this will be three years for both schedules and refunds alike.

          So, what do you do when findings are made? Aside from bringing the duties and taxes to account (to be discussed in the following blog) or claiming refunds, the status quo needs to change. This might seem obvious but implementation is not always straight forward.

          Firstly, you should make 100% certain that the finding is valid. Often what might seem obvious at first glance becomes more complex as more information comes to light. One way to resolve uncertainties is to obtain a firm Ruling or Determination from SARS Customs. Once absolute certainty on the way forward is reached, one should update all operational requirements. This applies not only to your internal operations but especially also to your LSP (Logistics Service Provider).

          Don’t forget to update all systems settings. Some systems have what I refer to as “stop-block” facilities, a term used in the woodwork industry. In IT and in other industries this is referred to as “fail-safe”, “fail-secure” or “fool-proof” mechanisms. The Japanese call them “poke-yoke”. Use them judiciously.

Customs Licenses, Registrations and Rulings

          What a boring subject, right! Nobody I know dreams of the moment when they need to review their licencing and registration particulars with SARS. Well, neither does SARS, but guess what? Every now and again, someone at SARS Customs queries the status of your licence or registration particulars. When this happens, it will feel like a rude awakening. It usually happens when your company details have changed and nobody has notified SARS of the changes. This is why the subject deserves attention. Outdated information may result in shipments being held back and penalties being issued.

          While most licencing and registration types are open ended (i.e. valid indefinitely), some (licencing) are term based. Term based licencing currently relate to excise operations, searching for wrecks, depot operators, clearing agents, bonded removers, and Customs warehousing in an IDZ (Industrial Development Zone). Until now, importer and exporter registrations have being open-ended. In the future, most open ended licencing and registration types will terminate if not utilised for a period of three consecutive years.

          Going forward, the validity of company particulars will also affect the Clearance Instructions. For example, if personnel who are authorised to sign Clearance Instructions resign from your organisation or if role changes are made in the company division, you will need to update the authorised signatory with SARS (for Clearance Instruction purpose).

          Customs Rulings are also referred to as Determinations. Rulings or Determinations come in several forms namely TDN (Tariff Determinations), VDN (Value Determinations), and ROO (Rules of Original Determinations). Rulings are essentially decisions which were made by SARS Customs on your company or products. Such decisions are legally binding. You should review these (if you have any) on an annual basis.

For example, review for product changes on a TDN, a change in supplier or valuation details on a VDN, or a change in the level of manufacture of a product in the country of origin for a COO Determination. Advance Rulings are featured in the new legislation. These fall into the same category.

          In the future, all Customs Rulings or Determinations will expire every three years. For Determinations to remain valid, new applications will need to be made prior to expiry thereof.

          There are many different types of licencing, registration, determination and designation (another term used by Customs to define IDZ operations) types. Each of these will have their own specific adherence requirements. More information about these can be found in the current SARS SOP titled Licencing Registration and Designation number SC-CF-19 on the SARS website www.sars.gov.za, search under “Find a Publication”.

          Also don’t forget to review the validity of your securities (i.e. bonds) lodged with SARS, if you have any.  Registrations will soon be done via e-filing. 

Customs Supporting Documents: AVAILABILITY

          “Immediate” is the only phrase left to describe the level of availability of supporting documents for Customs today.

          The logic behind this has to do with the fact that in order to have submitted a Customs declaration, one had to have had the relevant documentation to do so. In addition, with the speed of electronic communications today there is little reason why documents cannot be made available on demand, barring public holidays in the supplier’s country, and time zone variants.

          In the new Customs legislation it is stated that any documentary requests must be complied within 24 hours of request, unless otherwise specified in writing. When SARS Customs conduct large audits they will generally provide longer periods of time, such as 7 or 14 days. One may in some instances be able to negotiate for longer periods of time.

          Most supporting documents may be presented to Customs in photocopy format. They do not need to be original. However, there are some exceptions. When requested, permits, certificates and in some cases invoice declarations must be original. The invoice declaration (which has to do with trade agreements and preferential rates of duty) must in some instances, contain the supplier’s original signature. Traders who qualify for preferential rates of duty via 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) must supply original certificates on demand.

          Failure to provide documentation on time is an offence in terms of the new legislation. Furthermore, failure to provide full and accurate information which results in revenue prejudice is a disciplinary offence. Such offences are subject to a minimum penalty of R 2,500.

          Your LSP (Logistics Service Provider) will have most of the documentary requirements on hand. Most LSPs keep these records in electronic format, which makes it easy to access and to pass on. However, one challenge facing the industry and traders now is the length of time for which records must be stored. In the new legislation, records must be maintained for a period of 5 years including the year in which it was created. This may have the effect of having to keep records for nearly six years in some instances. Records (whether physical or electronic) must be kept on site for a period no less than 12 months.

          Literature (which was discussed in the former blog) will remain a challenge for some.

Customs Supporting Documents: LITERTURE

          Literature requirements for Customs purposes are somewhat misunderstood. Yet it is something that Customs require fairly often.

          The production of literature is primarily required for tariffing purposes, a process we also refer to as classification. The tariff code affects the rate of duty as well as the prohibition and restriction of goods. It is therefore important to be able to produce the correct literature at short notice.

          So, what is literature? Literature is exactly what you are reading now. It is a document containing literary work. The literary work for Customs purposes has to be descriptive. It must contain a 100% breakdown of the constituent material of the product. It must include product specifications, drawings, design works, functionality, features, or a chemical analysis. Although ‘what the product is going to be used for’ has no bearing on classification, it does help the reader to understand what the product is. Tariff classification is based purely on what you see in front of you, and not what it might become or be used for later on.

          Literature has to be merit based. The merits of literature hinges on three aspects.

Firstly, it must be generated or documented by the supplier, not the importer. The reason for this is that an importer has a material interest in how the rates of duty are affected. An importer may therefore provide false or misleading information. The importer was not party in the production of the product. According to the authorities they therefore have no authority to comment on the constituent material of the product; strictly speaking.

Secondly, literature must be formally documented. It cannot be a hand or type written letter or e-mail drawn up by an individual or company. Literature is normally documented by persons who hold some authority over the product, i.e. product development specialists, laboratory scientists, a manufacturer and so forth. Literature may also be given authority by virtue of it being printed on a formal company technical or specifications letterhead, pamphlet or catalogue. In some cases SARS may accept explanations on a supplier’s letterhead, but not in all cases.

          Thirdly, the identification marks and numbers on the literature must correspond to the marks and numbers embossed on the product. If these do not match, the literature is insufficient. Likewise, the marks and numbers on the literature must match that of a commercial invoice.

          There are cases where supplier’s literature is very hard to come by, normally owing to trade secrets. In such instances, the literature may be sent to the Customs authorities directly from the suppliers e-mail address (as an attachment), with prior arrangements. Customs Officials are legally bound to confidentiality clauses. Alternatively, a third party (i.e. independent), nationally accredited chemical laboratory may conduct a chemical analysis of the product. This can be done at the importer or exporters home country. Customs however do not take responsibility for the analysis fees even though they may, in the absence of literature, demand such analysis.

          Finally, a MSDS (Material Safety Data Sheet) is not normally an acceptable form of literature. A MSDS does not contain product material information other than what is required for safety purposes.

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.