Reduction of customs value of products with defects possible up to three years

A recent ECJ case extends the opportunity for importers to claim a reduction of the customs value of imports from one to three years for defective products.

The Case
In the Case C-661/15, the European Court of Justice (ECJ) has published its ruling dated 12 October 2017 on the customs valuation of defective products and the requests for refunds of customs duties for such products.

The ECJ has been requested to provide guidance with respect to the specific arrangements that apply for adjusting the customs value of defective products and the refunds that can be applied for when the customs value is adjusted for defects that occur after the importation. The case relates to cars that were imported and sold to dealers/distributors. After importation, for a particular model of cars the manufacturer did inform the importer that the cars may have a problem with the steering coupling and requested that all car owners made an appointment with the dealers to have the steering coupling of these cars replaced free of charged. Other models did have problems with the doors, also these have been repaired by the dealers free of charge. The costs for these operations were reimbursed to the dealers by the importer who in turn was reimbursed by the manufacturer under the warranty obligations.

The importer considered the reimbursements he received to be a reduction of the customs value of the imported cars and requested a refund of the customs duties paid over this reduction of the customs value. The refund was denied by the customs authorities. For the cars with the issue on the steering coupling, the reasoning was that the replacement related to a potential issue rather than an actual defect. Whereas the claims for the repaired doors were denied based upon the fact that these refund applications did not occur within the one year period specified in article 145, paragraph 3, of the Implementing Regulation of the Community Customs Code (ICCC).

The ECJ ruling
The ECJ ruled that the potential defective steering coupling is “a manufacture-related risk that the goods might become defective in use” that is eligible for the reduction of the customs value and thus for a refund of customs duties.

With respect to the 1 year period for claiming refund on defects, the ECJ determined that this a requirement that is in conflict with the general term of 3 years as laid down in the Community Customs Code. As there are no valid grounds or reasons to apply such term instead of the regular period, the Court did declare this provision invalid, i.e. decided that the general 3 years period must be obeyed.

The take away
Since the wording of article 145 ICC has basically been copied into the new customs legislation (article 132 Implementing Act UCC), this ruling of the ECJ now opens up the opportunity for importers to claim a reduction of the customs value of their imports for defective products within a three year time frame rather than the 1 year currently laid down in the specific articles.
Furthermore, in case of factory call back programs, which are nowadays happening rather frequently for multiple types of goods, where those goods were imported in the EU, the importers can now ask adjustment of the customs value and file associated refund requests for the repairs under warranty for potential malfunctioning (parts of) imported products.