Forfeiture of goods transported … transported without compensation…. to the state.

Some forwarders and shippers have certainly experienced the pitfalls of Czech legislation, and in particular the Excise Tax Act No. 353/2003 Coll. (hereinafter ZSpD), when they were confronted with a very unpleasant situation related to the seizure of transported goods by customs authorities. In such cases, the seizure was usually sanctioned by a decision of the customs authority on the forfeiture of the goods, against which an appeal could be filed; however, after a cool consideration of the text of the ZSpD, the consignor or carrier easily concluded that he would not succeed in the appeal due to the unreasonable strictness of the ZSpD.

Goods subject to the Excise Tax Act

If the goods to be transported are subject to the VAT regime (mineral oils, alcohol, beer, wine including their intermediate products, and tobacco products) and if these goods are to be transported, for example, under a conditional excise duty exemption or other similar regime, the electronic accompanying document must be correctly completed in accordance with Council Directive 2008/118/EC, detailing, among other things, the carrier and the registration number of the vehicle transporting the goods. If a chain of carriers occurs in the course of the transport order, i.e. the transport originally ordered from one carrier passes through several other consignors and carriers to a completely different carrier (which is very common in practice), and the main consignor is not informed in time, in particular due to human error, about the identification of the carrier who will actually perform the transport or the correct registration number of the vehicle combination, the consignor fills in the electronic accompanying document incorrectly. Another very common situation is that the declarant makes a trivial spelling mistake when filling out the electronic accompanying document. Such an error, which can often be described as a pupil’s mistake, then usually runs through the entire transport process and can actually be described as the basis for an administrative offense.

As soon as the customs authority notices the error, it is obliged to seize the goods in accordance with Article 42b(1) of the Customs Code. Subsequently, the customs authority decides on the (non-)forfeiture of the goods to the state. Simultaneously with the seizure of the goods, a decision is made on the seizure of the means of transport – the vehicle combination – to which the incorrect data in the electronic accompanying document may refer, and this seizure is later lifted if the owner of the means of transport proves his ownership and non-participation in the offence. To make matters worse, the owner of the goods thus seized from the state must also pay to the customs authority the costs of storing the seized goods.

The procedure described above results from the amendment of the ZSpD back in 2011. Prior to this amendment, it was purely at the discretion of the customs authorities whether or not to impose the penalty of forfeiture in the case of defective documents listed in the ZSpD. Thus, it was at the discretion of the customs authorities to assess whether there was a serious error in the electronic accompanying document, whether it was in fact a simple clerical error, or whether the person completing the accompanying document deliberately intended to conceal a fact relevant to the fulfillment of legal (tax) obligations. Exercising its discretion, the customs authority could have reacted to the circumstances of the case, the circumstances of the obligor or the nature of the goods as late as the beginning of 2011 in such a way that no obviously disproportionate sanctions were imposed. Thus, the consignor or the carrier had the opportunity to sufficiently explain and prove to the customs authority how the misconduct occurred and could present any evidence proving his misconduct. However, since May 2011, this procedure was discontinued, and the customs authority was forced to seize the goods accompanied by an electronic document and transfer them to the state.

The year of the breakthrough 2011

How could such a brutal legal action by an administrative authority become part of Czech law in the first place? The answer is simple, but from the perspective of Czech lawmakers, it is partially puzzling. The ZSpD is based on EU legislation binding on the Czech Republic, in particular Directives 92/12/EEC and 2008/118/EC, and Commission Regulations (EC) No. 3649/92 and No. 684/2009. None of these laws, however, directly provides for a penalty for non-compliance, which is, however, common in the relationship between EU and national law. However, on its own initiative, the Czech Republic has decided to impose a severe sanction in the form of seizure of goods for non-compliance with the obligation to correctly complete the accompanying documents under the ITA. The Supreme Administrative Court approved this severity – disproportionate in my opinion – when it stated that confiscation of goods is a sanction for a violation of the ITA when the state penalizes the owner of the excisable goods in question primarily for non-compliance with the registration obligations set forth in Article 5, Article 6 and others of the ITA, and it is clearly the duty and not the discretion of the customs authority to impose the sanction of confiscation.

Since May 2011, the possibility of discretionary forfeiture by the customs authority exists only in the case of forfeiture of the means of transport by which the seized goods were transported with an improperly completed electronic accompanying document. This forfeiture usually occurs simultaneously with the forfeiture of the goods. This view was confirmed by the decision of the Supreme Administrative Court in Case No. No. 10 Afs 148/2014, as this decision has a fundamental impact on the sanctioning of non-compliance with the obligations set forth in the ITA, in particular on the failure to correctly complete the transport documents and on the authorization of the customs authority to impose the sanction of forfeiture of the goods within the meaning of Article 42d(1)(a) of the ITA. This ruling is of fundamental importance in practice, and both courts and customs authorities follow it with great attention and like to refer to it.

Sanctions for the forfeiture of goods

When is there a real risk of forfeiture? Forfeiture of goods covered by the VAT Law regime is a sanction for violation of registration obligations, in particular under Articles 5 and 6 of the VAT Law, regardless of the obligations to declare and pay excise tax. For the registration obligation to arise, it is sufficient that the goods fall under the ZSpD regime, i.e. mineral oils, alcohol, beer, wine, including their intermediate products, and tobacco products. Moreover, goods falling under the ZSpD regime may be transported within the tax territory of the Czech Republic only with the legally required documents filled in correctly and truthfully, otherwise it is a violation of the ZSpD. The obligation to provide the carrier with the required documents before the start of the journey also arises from other legal regulations, in particular from Article 11 of the Convention on the Contract for the International Carriage of Goods by Road (CMR), which is known to and observed by all carriers. However, a breach of an obligation arising from the CMR Convention does not affect the possibility of imposing the penalty provided for in the public service obligations, since the CMR Convention regulates the private law relations between the consignor and the carrier or other persons involved in the carriage.

Thus, if the documents with which the carrier is equipped to carry out the transportation of goods covered by the FTZ do not comply with the documents and formal requirements set forth in Sections 5 and 6 of the FTZ, the customs authority is entitled to seize the goods so transported, as well as the means of transport by which they were transported. These are cases when the goods are transported without the document required by law or when the information on the document is incorrect or incorrectly filled in (even the above-mentioned spelling mistake is sufficient) or the document is altered or forged. If there is no document or if it is a forgery, the penalty of forfeiture may be considered sufficient. However, if the document is filled out incorrectly or falsely, and the incorrect filling out may well be due to carelessness, i.e., human error, the penalty of forfeiture is a completely disproportionate interference with the owner’s right to ownership of the goods, and the liability of the carrier or consignor is disproportionate to the nature of the error. There is a fundamental disproportion between what is essentially a socially innocuous act (often a simple mistake of overlooking a clerical error) and the penalty provided for that act.

In a seizure or forfeiture proceeding, Customs must always determine whether the seized goods were transported in violation of the CPSA. However, the decision-making process of the customs authority is very simple, as the CPSA is quite clear in this case and explicitly states that the transported goods will be seized by the customs authority and the customs authority will decide to forfeit them if they are not accompanied by the required documents. Thus, if the driver has not presented these documents or if the carrier has not presented these documents correctly, the conditions for imposing a sanction in the form of seizure or forfeiture of the goods are met and the customs authority will decide accordingly. The fact that the carrier did not have the relevant documents at the time of the inspection, i.e. at the time of carriage, cannot be undone by the subsequent presentation of these documents.

The customs authority is obliged to immediately initiate administrative proceedings for the seizure and forfeiture of the goods and to decide whether the goods shall be released or forfeited. The customs authority shall decide to release the seized goods if it is proved that there were no reasons for the seizure. If the customs authority decides not to release the goods or seized products, it shall decide on their forfeiture if the owner of the products is known. Thus, the parties to the customs proceedings in connection with the forfeiture of goods, who may file applications for evidence, assert new facts and appeal, are the person in whose possession the goods were, i.e., as a rule, the carrier, and the person who has a right in rem to the goods, i.e., their owner or presumed owner. The state becomes the owner of the forfeited goods as soon as the forfeiture decision becomes final.

The fact that the goods subject to forfeiture are subject to excise tax does not affect whether the customs authority proceeds in this manner, even though no excise tax would have been levied in the present case. This circumstance does not justify the customs authority not giving sufficient consideration to such a consignment in the same manner as to a consignment that is not subject to excise duty.

Preventive measures

In order to prevent the actions of the customs authorities described above and to avoid the imposition of the penalty of forfeiture of the goods, it is necessary for both the consignor and the carrier to establish control mechanisms in the transportation of goods subject to the ZSpD in such a way as to avoid accidental errors in the completion of the documents regulated by the ZSpD. The shipper who issued the document should properly check everything before the start of transportation and not proceed mechanically. If the shipper does not match the carrier and the vehicle picking up the goods with the reported information, he can release the goods to anyone who gets hold of the order and presents it at the time of loading. Thus, from the point of view of the customs authorities, the transport documents are to be considered as the basis for monitoring the transport and the whereabouts of the transported goods. If, for example, the registration number is incorrectly indicated, the control by the customs authority is de facto prevented.

Although it is possible to challenge any decision on the forfeiture of goods with an appeal and subsequently with an administrative action, it is not to be expected that such actions will be upheld in view of the existing case law of the Supreme Administrative Court. The fact that administrative court proceedings usually take about two years and involve unnecessary costs should not be overlooked. We can only recommend that you fill out the transportation documents with the utmost care.

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