No refunds for mistaken payment of import duty – Thiess v Collector of Customs High Court decision

The High Court has held that the purchaser of a boat was not entitled to a refund of import duty mistakenly paid, because the original payment was not made under protest, nor was the refund request made within 4 years of the original payment.

Facts

Mr Thiess imported a yacht into Australia in 2004. He engaged a licensed customs broker (Broker) to act for him in arranging the clearance of his yacht. In summary, the Broker’s tasks included; classifying the yacht to the correct tariff classification at Schedule 3 of the Customs Tariff Act 1995; calculating the correct customs duty and GST; entering the yacht with the Australian Customs and Border Protection Service (Customs), arranging Customs and quarantine clearance, and obtaining delivery of the yacht.

LPPYachts not exceeding 150 gross construction tonnes attract customs duty of 5% plus GST liabilities (tariff classification 8903.92.10). Yachts exceeding a weight of 150 gross constructions tonnes are duty free (tariff classification 8903.92.90), and subsequently have no GST liability. Mr Thiess’ yacht weighed 160 tonnes.

The Broker mistakenly believed, for whatever reason, that the yacht weighted 108 tonnes, and he entered the yacht to tariff classification 8903.92.10 paying 5% duty. The duty was calculated at $494,472 and GST $49,447. The total amount payable was incorrectly calculated at $543,919.

The yacht should have been entered to tariff classification 8903.92.90 paying NIL duty and GST. The Broker collected this amount from Mr Thiess and paid it to Customs. It is apparent that the Broker and Mr Thiess were unaware of the grave error at that time.

Statutory Regime

Section 167 of the Customs Act 1901 (the Act) is relevant.

Subsection (1) provides;

“(1) If any dispute arises as to the amount or rate of duty payable in respect of any goods, or as to the liability of any goods to duty, under any Customs Tariff, … the owner of the goods may pay under protest the sum demanded by the Collector as the duty payable in respect of the goods, and thereupon the sum so paid shall, as against the owner of the goods, be deemed to be the proper duty payable in respect of the goods, unless the contrary is determined in an action brought in pursuance of this section.”

Subsection (4) states;

“(4) No action shall lie for the recovery of any sum paid to the Customs as the duty payable in respect of any goods, unless the payment is made under protest in pursuance of this section and the action is commenced within the following times:

(a)        In case the sum is paid as the duty payable under any Customs Tariff, within 6 months after the date of the payment; or

(b) …”

Subsection (5) states;

“(5) Nothing in this section shall affect any rights or powers under section 163”.

Section 163 of the Act provides the circumstances under which refunds of duty may be made. The Customs Regulations 1926 (Regulations) prescribe, inter alia, the time limits under which refunds must be applied for. In particular Regulation 128A(4) prescribes a time limit of 4 years after the date on which the duty was paid.

Mr Thiess discovered the over payment error only after the 4 year period prescribed at s 163 had expired. In addition, the duty was not paid under protest under s 167 of the Act.

Dispute

Mr Thiess commenced proceeding in the Supreme Court of Queensland seeking recovery of the amount paid in error. His claim was framed as one for money had and received as the funds were paid under a mistake of fact. In the alternative his claim was founded as one for restitution in equity.

Mr Thiess argued that s 167(4) was not relevant and did not apply because no such ‘demand’ had been made by Customs and therefore no ‘dispute’ had arisen within the meaning of s 167(1) at the time duty was paid. In the previous Court of Appeal judgment the Court dealt with this argument by holding that the automatic calculation of customs duty by the Customs computer system (at that time it was the COMPILE system) was in fact a demand by Customs for payment of that amount. The High Court also dismissed Mr Thiess’ arguments on this issue.

Judgment

In finding for Customs the High Court consisting of French CJ, Hayne, Kiefel, Gageler and Keane JJ, dismissed the appeal with costs.

The High Court found that the statutory regime in the Act and Regulations is comprehensive and that the “scheme of the Act is inconsistent with the implication of any further qualification.” If an owner of goods failed to pay the duty under protest under s 167, and failed to apply for a refund under s 163, Regulation 126, and within the prescribed time limits as stipulated by Regulation 128A, then no recovery would lie.8808432-law

Of importance are the comments of the High Court in relation to s 167;

“By barring any other recovery action, s 167(4) enhances the operation of that scheme. It creates an incentive for the owner to be vigilant in the process of entering goods for home consumption to identify what the owner considers to be the duty payable. If creates an incentive for the owner then to abide by the statutory mechanism of payment under protect and subsequent statutory action in the event of a difference emerging in that process between what the owner considers to be the correct duty payable and what Customs considers to be the duty payable.”

Ramifications for Brokers?

It is extremely important for Brokers to correctly identify the goods to which they are classifying. Written instructions should be obtained from the importer (client) and also evidence to substantiate those instructions should be requested, for example in this case illustrative descriptive material (IDM) that confirms the weight of the yacht. Contemporaneous and comprehensive file notes should be maintained by the Broker to record the client’s instructions.

Brokers are not just conveyors of paper transactions or computer data transmissions. They are highly skilled and qualified professionals. Brokers should endeavour to always use critical thinking and original thought in applying their skills to the art of customs classification. This is particularly important in the backdrop of the new Infringement Notice Scheme (INS) which commenced on 1 February 2014.

Brokers should also ensure that as part of their risk management processes that they have adequate professional indemnity insurance that would respond to claims of alleged negligence in the performance of professional duties as a Broker.

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