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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.