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Seize & Forfeiture: Case Raises The Issue of Customs and Excise compliance

Thursday, 27 March 2008   (0 Comments)
Posted by: Author: Johan van Dyk
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Seize & Forfeiture: Case Raises The Issue of Customs and Excise compliance

The importance of having documentary proof readily available for import transactions was highlighted in a recent Supreme Court of Appeal case (CSARS v Saleem (21/2007) [2008] ZASCA 19 (27 March 2008)) that dealt with the powers of an officer to seize goods under the Customs and Excise Act 91 of 1964.

In this case SARS acted on complaints that certain retailers in the Brakpan area were trading in illegally imported goods.The taxpayer’s shop was visited and after an examination of the goods on the floor it was established that the majority of the items were labelled "Made in China” and, furthermore, had Chinese inscriptions on them.The taxpayer was unable to provide any import documentation for the goods but did provide the officers with two or three invoices and indicated that all goods were paid for in cash.Furthermore, he offered to take the officers to his suppliers.That offer was declined and after examining the invoices the officers discovered that the invoices did not contain sufficient information to prove that they were for the goods in the taxpayer’s shop. In particular, the invoices did not specify the goods, the supplier name or the address.

Detained and Sealed

The goods were then detained and sealed by the officers in terms of section 88(1)(a) read with sections 4(4)(a) and 4(12) of the Act. Section 88(1)(a) empowers an officer to detain goods at any place for the purpose of establishing whether those goods are liable for forfeiture under the Act.Section 4(12) furthermore provides for the seal of goods where an officer has reason to believe that any contravention under the Act has been or is likely to be committed in respect of or in connection with the goods.The taxpayer was then afforded three days to produce the supporting documentation for the goods.The taxpayer was able to provide further invoices but these had the same shortcomings as the first three invoices.Upon a request to provide proof of ownership of the business, an income tax number, as well as a VAT number was provided but were subsequently found to be false.Following these events the officers seized the goods in terms of section 88(1)(c) of the Act and removed them from the premises

Initial Success

The taxpayer then applied to the High Court and enjoyed initial success when that court held that the seizure was unlawful and that the goods had to be returned.The court held that the officer did not have a reasonable suspicion that the goods, after further examination, might be liable to forfeiture as required by section 88(1)(a).The court was of the opinion that the mere fact that the goods bore labels indicating that they were made in China was insufficient to justify the inference that the goods were imported.Further investigation should have been made to support that suspicion.It was reasoned that the officers’ refusal to accompany the taxpayer to his supplier made it practically impossible for him to produce proof as to the persons from whom he obtained the goods.

Case On Appeal

Dissatisfied with that decision, the Commissioner appealed to the Supreme Court of Appeal, where the sole issue before the court was whether the officer’s suspicion that the goods were imported goods and that further investigation would establish that they were subject to forfeiture, was reasonable.The Commissioner’s appeal was upheld and the court, on the facts of that case, indicated numerous material factors that supported the officers’ suspicion.It was held that the taxpayer’s inability to produce supporting documents together with his suspicious conduct, were sufficient grounds for the officers to reasonably conclude that the goods were liable to forfeiture.

Although this case was mainly concerned with the administrative action taken by the officers in seizing the goods,it furthermore highlighted the importance of having documentary proof for import transactions.The court took issue with the court a quo’s view that the officers had to do more than just wait for documentary proof from the taxpayer and held that there was no duty upon the officers to accompany the taxpayer to his supplier in order to establish whether the goods had been imported legally.Above all, it was the taxpayer’s failure to produce proper supporting documentation that proved fatal to his case as there was a statutory obligation upon him to do so.

Importance of keeping Records

The importance of this case, from a tax risk management perspective, cannot be over emphasised. The taxpayer has a duty to keep such records as may be prescribed by the Commissioner and to have them available for inspection upon demand in terms of section 101 of the Act. Section 102 of the Act, furthermore, puts an obligation on sellers of goods to produce proof of payment of duty (together with other relevant information) when so requested by an officer.These are powerful provisions when considered together with section 88 of the Act, which empowers officers to detain and seize goods where such goods are liable for forfeiture.In terms of section 87 of the Act goods are liable for forfeiture if they have been dealt with contrary to the provisions of the Act or in respect of which an offence under the Act has been committed.

This case sends out a strong warning to take Customs & Excise compliance seriously and to avoid the habitual mistake of not having enough facts to support a transaction.

Source: By Johan van Dyk (TaxTALK)



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