Some freight forwarders and shippers have certainly already experienced first-hand the pitfalls of Czech legislation, and in particular the Excise Duty Act No. 353/2003 Coll. (hereinafter simply ZSpD), when they had to resolve a very unpleasant situation relating to the seizure of the goods being transported by a customs authority. In such cases, the seizure was usually confirmed by a decision of the customs authority regarding the forfeiture of the goods. Although an appeal could be lodged against this decision, a sober examination of the wording led the consignor or freight forwarder to easily conclude that an appeal would have little chance of success due to the disproportionate severity of the ZSpD.
Goods subject to excise duty
If the goods being transported fall within the scope of the ZSpD, i.e., mineral oils, alcohol, beer, wine, including their intermediate products, and tobacco products, and these goods are to be transported, for example, under the duty suspension procedure or another comparable procedure, an electronic accompanying document must be completed without error in accordance with Council Directive 2008/118/EC. This document must, among other things, specify the freight forwarder and the registration number of the vehicle combination with which the goods are to be transported. If the transport involves a chain of companies, i.e. the transport originally ordered from one company ultimately ends up with another transport company via several other freight forwarders and carriers, which is very common in practice, and if, particularly due to human error, the identity of the actual forwarding agent or the correct registration number of the vehicle combination is not communicated to the original consignor in good time, then the consignor will complete the electronic accompanying document incorrectly. A completely ordinary situation may also arise in which the declarant overlooks something and makes a trivial clerical error when completing the electronic accompanying document. Such an error, which can often be described as textbook, then generally persists throughout the entire transport and can essentially be regarded as the basis for an administrative offence.
As soon as the customs authority identifies the error, it is obliged under Section 42b (1) of the Customs Act to seize the goods. The customs authority then decides on their forfeiture (or non-forfeiture) in favour of the state. At the same time as the goods are seized, a decision is also made on the seizure of the means of transport – the vehicle combination to which the incorrect details in the electronic accompanying document may relate. However, this seizure is lifted if the owner of the means of transport proves their right of ownership and demonstrates that they played no part in the administrative offence. To make matters worse: the owner of the goods that are forfeited to the state in this way is also obliged to reimburse the customs authority for the costs of storing the forfeited goods.
The procedure described above stems from the amendment to the ZSpD, which was implemented back in 2011. Prior to this amendment, it was entirely at the discretion of the customs authorities whether or not to impose the sanction of forfeiture of the goods in the event of incorrectly completed documents listed in the ZSpD. The customs authority thus had the opportunity to assess whether the error in the electronic accompanying document was significant or not, and whether it was in fact a trivial clerical error or a deliberate act by the person completing the accompanying document with the aim of concealing facts that are crucial for the fulfilment of statutory (tax) obligations. Within the scope of this discretion, the customs authority was still able, as recently as early 2011, to take into account the circumstances of the individual case, the situation of the person liable, or the nature of the goods, so that manifestly disproportionate sanctions were not imposed. The consignor or carrier thus had the opportunity to provide the customs authority with a sufficient explanation and evidence of how the error had arisen and could submit all evidence proving their trivial fault. Since May 2011, however, this practice has ended and the customs authority is obliged to seize goods accompanied by an electronic accompanying document and to forfeit them to the state.
The turning point: 2011
How could such a rigorous approach by an administrative authority become part of current Czech law in the first place? The answer is simple, though somewhat surprising from the perspective of the Czech legislature. The ZSpD is based on EU legislation binding on the Czech Republic, in particular Directive 92/12/EEC, Directive 2008/118/EC and Commission Regulations (EC) No 3649/92 and No 684/2009. However, none of these legal acts directly provides for a penalty for failure to fulfil these obligations, which is customary in the relationship between EU law and national law. The Czech Republic has, however, decided to impose strict sanctions for failure to comply with the obligation to correctly complete the accompanying documents under the ZSpD, namely through the forfeiture of the goods on its own initiative. The Supreme Administrative Court has confirmed this – in my view, excessively strict – measure by ruling that the forfeiture of the goods constitutes a sanction for the breach of the ZSpD. In this case, the state penalises the owner of the excise goods in question primarily for failing to comply with the record-keeping obligations specified in the ZSpD (Sections 5, 6 and others). This is clearly an obligation, not a discretionary power of the customs authority to impose the sanction of forfeiture of the goods.
Since May 2011, the possibility of the customs authority exercising discretion to mitigate the penalty has existed only in the case of the forfeiture of the means of transport used to carry selected goods accompanied by an incorrectly completed electronic accompanying document. This forfeiture generally occurs simultaneously with the forfeiture of the goods. This view was also confirmed by the decision of the Supreme Administrative Court in Case No. 10 Afs 148/2014. The judgment has fundamental implications for the imposition of penalties for non-compliance with obligations under the ZSpD, in particular regarding the failure to comply with the obligation to correctly complete transport documents and the customs authority’s power to impose the penalty of forfeiture of the goods pursuant to Section 42d(1)(a) ZSpD. The aforementioned judgment is widely applied in practice; both courts and customs authorities specifically follow it and readily refer to this decision.
Sanction of forfeiture of the goods
When does the risk of goods being forfeited actually arise? The forfeiture of goods falling within the scope of the ZSpD constitutes a penalty for breaching record-keeping obligations, in particular under Sections 5 and 6 of the ZSpD, and occurs irrespective of when the obligation to declare and pay excise duty arises. For the recording obligation to arise, it is sufficient that the goods fall within the scope of the ZSpD, i.e. mineral oils, alcohol, beer, wine, including their intermediate products, and tobacco products. Furthermore, goods falling under the ZSpD may only be transported within the tax territory of the Czech Republic with the documents prescribed by law, correctly and truthfully completed. Otherwise, there is a breach of the ZSpD. The obligation to provide the carrier with the necessary documents prior to the commencement of carriage also arises from other legal provisions, in particular Article 11 of the Convention on the Contract for the International Carriage of Goods by Road (CMR), which is known to and respected by all carriers. However, a breach of the obligation under the CMR Convention does not affect the possibility of imposing the sanction provided for in the ZSpD, as the CMR Convention governs the private law relationship between the consignor and the freight forwarder or other persons involved in the carriage.
Consequently, if the documents used by the freight forwarder to carry out the transport of goods falling within the scope of the ZSpD do not comply with the documentation and formal requirements set out in Sections 5 and 6 of the ZSpD, the customs authority is entitled to seize the goods transported in this manner, as well as the means of transport used to carry them. This applies to cases where the goods are transported without the legally required document, the information in the document is incorrect or inaccurate (even the aforementioned clerical error is sufficient), or the document has been altered or forged. In the event of the document’s absence or forgery, the penalty of forfeiture of the goods may be regarded as appropriate. However, if a document is present that has merely been filled in incorrectly or inaccurately, and if this incorrect completion is in fact attributable solely to carelessness – that is, to human error – the penalty of forfeiture of the goods constitutes a wholly disproportionate encroachment on the property rights of the owner of the goods. In this case, the liability of the freight forwarder or consignor is out of proportion to the seriousness of the error. There is a fundamental disproportion here between the behaviour, which is essentially harmless to society (often a trivial clerical error, e.g. overlooking a minor detail), and the penalty prescribed for such behaviour.
In proceedings concerning the seizure or forfeiture of the goods, it is always necessary for the customs authority to establish beyond doubt whether the selected goods have been handled in breach of the ZSpD. However, the customs authority’s decision is very straightforward, as the ZSpD is clearly worded in this instance and expressly provides that the goods being transported are to be seized by the customs authority and a decision made on their forfeiture if they are not transported with the prescribed documents. If, therefore, the driver has not produced these documents or if the freight forwarder has produced such documents that have been incorrectly completed, the conditions for imposing the sanction in the form of seizure or forfeiture of the goods are met and the customs authority will make its decision accordingly. Subsequent submission of these documents cannot undo the fact that the freight forwarder did not have the relevant documents available during the inspection, i.e. during transport.
The customs authority is obliged to initiate administrative proceedings without delay regarding the seizure of the goods and their forfeiture, and to decide either on the release of the goods or on their forfeiture. The customs authority shall decide on the release of the seized goods if it is proven that there were no grounds for their seizure. If the customs authority does not decide on the release of the goods or the selected products, it shall decide on their forfeiture, provided the owner of these products is known. The parties to the customs proceedings conducted in connection with the forfeiture of the goods, and thus those who may submit requests for evidence, present new facts or lodge appeals, are generally the person with whom the goods were found, i.e. the carrier, and the person who has rights in rem to the goods, i.e. their owner or presumed owner. Once the decision on forfeiture becomes final, the state becomes the owner of the forfeited goods.
The fact that the goods subject to forfeiture are liable to excise duty but that, in this specific case, a zero rate of excise duty would be applied has no bearing on whether the customs authority will proceed in this manner. This fact does not entitle the customs authority to pay less attention to this consignment than to one where the excise duty is not zero.
Preventive measure
To prevent the customs authorities from taking the action described above and to avoid the imposition of the penalty of forfeiture of the goods, it is necessary for both consignors and freight forwarders to establish control mechanisms when transporting goods subject to the ZSpD, so that no errors occur when completing the ZSpD documents. In particular, the consignor who issued the document should check everything carefully before the start of the transport and not proceed mechanically. If the consignor does not verify the carrier and the vehicle that has arrived for the goods with the specified details, they could hand over the goods to any person who gains access to the consignment and presents it during loading. From the customs authorities’ perspective, the transport documents are to be regarded as the basis for tracking the transport and the whereabouts of the goods being transported. If, for example, the vehicle’s registration number is incorrectly stated, it is effectively impossible for the customs authority to carry out a check.
Although any decision regarding the forfeiture of the goods may be challenged by means of an appeal and subsequently through an administrative court action, given the existing case law of the Supreme Administrative Court, it is not to be expected that such actions will be upheld. Furthermore, it must not be overlooked that every administrative court proceeding generally takes around two years and entails unnecessary costs. It is therefore strongly recommended that all transport documents be completed with the utmost care and accuracy.