Court Practice On Customs Disputes

We would like to share an interesting case on claim to pay customs duties. The claimant was an insurance company, and the defendant was the State Revenue Department.

Merits of case

Under the insurance agreement between the Insurance company (the insurer) and LLP (the insured), the former insured property interests of the insured related to its obligation to pay customs duties and taxes in accordance with customs legislation of the Republic of Kazakhstan.

After expiration of the agreement, the Insurance company received a claim from the Department for payment of customs duties and taxes. In its claim the Department reported that the abovementioned LLP (the insured) had not fulfilled its obligations with respect to payment of customs duties.

Claimant’s position

The insurance company considered that the claim of the Department had not determined the fact of occurrence of an insured event under the Insurance agreement. The insured event happened after the expiration of the insurance agreement.

Defendant’s position

The Department considered that LLP had not fulfilled its obligations with respect to payment of customs duties. In this regard, it was necessary to make payment of customs duties, which were subject to unconditional and obligatory fulfillment within 2 working days after receiving the claim.

The Department further reported that the insurance amount had not covered all tax debts of a payer’s customs duties and taxes, and in this regard budget might not receive full amount of outstanding customs duties and taxes.

Findings of a court

Did the insurance contract expire at the moment of submission of the claim?

The argument that the insurance agreement expired at the moment of the claim were considered to be groundless by the court. In accordance with the insurance agreement, the insurer was obliged to discharge an accumulated debt of the payment of customs duties and taxes to the customs authorities that had arisen as a result of the foreign economic activity of the insured. Actions of the insured, which caused the debt to budget, had occurred when the agreement was valid. The court referred to the insurance agreement itself, according to which, fact of incurrence of liability would be set under a claim of customs authorities to pay outstanding customs duties, taxes and penalties. In accordance with customs legislation, such a claim shall be sent to the insurer in case of non-fulfillment of obligation to pay customs duties, taxes by the insured within five working days after expiration of terms for fulfillment of obligation.

Also the court referred to provision of customs legislation, according to which a claim of customs authorities to pay outstanding customs duties, taxes and penalties is subject to unconditional and obligatory fulfillment by an insurance company within two working days after receiving such a claim.

Besides that, the court referred to Art 386-4 of the Civil Code of the Republic of Kazakhstan, which states that expiration of an agreement shall not release parties from responsibility for its violation which took place prior to expiration.

When did the obligation for payment of customs duties and taxes occur?

The court held that LLP had the status of an authorized economic operator, which gave it special benefits set by the legislation. Thus, when goods were released prior to filing a customs declaration, a declarant would pay import duties and taxes on these products from the date of such release. The court held that the obligation to pay customs duties and taxes lasted from the date of release of goods till the tenth day of a month, following the month when goods were released and when a customs declaration was submitted. The debt arising in case of failure to file a customs declaration and/or non-payment of outstanding customs duties and taxes within the specified period.

The court held that the insurance agreement was a civil-law deal in which an insured is obliged to pay its debts to the budget within 2 working days, regardless of actions of a beneficiary (customs authorities) with respect to an insured.

Thus, the court held that the claim to pay outstanding customs duties, taxes to was legitimate and justified.

This case was further considered by the appellate and cassation courts. However, the court of first instance, the appellate and cassation courts refused to satisfy the court claim of the Insurance company. The Supreme Court of the Republic of Kazakhstan revoked the decision and rulings of the lower courts and sent the case for new consideration to the appellate court due to incomplete investigation and establishment of circumstances that were significant for correct resolution of the dispute. Thus, the Supreme Court found that the lower courts had not investigated and had not assessed the fact that a claim to LLP was made by the Department later than the claim to the Insurance company and that the lower courts had not taken into consideration arguments of the Insurance company concerning property of LLP.

Findings of the appellate court

In the new consideration of the case, the court found that the claim to the Insurance company had been sent earlier than that to LLP. Thus, the court held that customs authorities had not taken any actions for debt collection from LLP, violating provisions of customs legislation.

The court also found that the sole founder of LLP had been convicted with confiscation of all his property. Accordingly, the obligation to pay customs duties and taxes was terminated in case of transfer of goods to the state ownership. Consequently, the obligation of the Insurance company to pay taxes and customs duties was also terminated. Thus, the court held that claims to pay customs duties and taxes were illegal.

Information contained in this Client Update is of general nature and cannot be used as legal advice or recommendation. Please note that Kazakhstan is an emerging economy, and its legislation and legal system are in constant development. Should you have any questions or want to discuss matters addressed in this Client Update, please contact us