Do you have purchase contracts where the overseas seller has to supply the goods delivered duty paid? A recent decision of the Administrative Appeals Tribunal highlights the risks for Australian buyers – even in circumstances where the parties agree that the overseas seller is responsible for paying customs duty and import GST.
In Studio Fashion (Australia) Pty Ltd v The CEO of Customs  AATA366, the overseas seller, Sheng Fa, agreed to sell goods to an Australian buyer, Studio Fashion. The contracts were agreed on a delivered duty paid (DDP) basis. Under a DDP contract, the overseas seller is responsible for the transport and insurance costs of the goods, as well as clearing the goods for export in their country and import to Australia. As the name suggests, the overseas seller’s responsibility is to have the goods ‘delivered duty paid’. Consumer purchasers over the internet from overseas sellers are commonly on a DDP basis.
In Studio Fashion, Australian Customs conducted an investigation, which revealed that Sheng Fa had consistently under-declared the value of the imported goods to Australian Customs. This resulted in an underpayment of customs duty and import GST.
Even though the parties agreed that Sheng Fa was responsible for the importation of the goods, and payment of customs duty and import GST, Australian Customs issued a demand for the underpaid amounts to Studio Fashion.
Who is liable for customs duty and import GST?
Under the Customs Act 1901, the ‘owner’ is responsible for the payment of import duty. ‘Owner’ is broadly defined in the following terms:
Owner in respect of goods includes any person (other than an officer of Customs) being or holding himself or herself out to be the owner, importer, exporter, consignee, agent, or person possessed of, or beneficially interested in, or having any control of, or power of disposition over the goods.
The definition is very broad, and will frequently extend to buyers, either as the actual owner (if title to the goods has passed), importer or consignee.
In this case, the Tribunal concluded that Australian Customs was entitled to issue its demand to Studio Fashion, because it fell within the definition of ‘owner’ as it was the consignee. The Tribunal rejected the argument that Australian Customs should have issued the demand to the overseas seller. Studio Fashion is entitled to be dissatisfied with Australian Customs’ conduct, as an Australian Customs Notice (ACN) had incorrectly indicated that, for DDP contracts, the overseas supplier was regarded as the owner of the goods. That ACN was withdrawn on 31 July 2014, well after the audit activities identified an underpayment of duty.
That is a harsh result for the Australian buyer – how can it protect itself?
If an Australian buyer becomes aware that an overseas seller is under-declaring the value of goods, or incorrectly classifying goods, the Australian buyer must not close its eyes to that conduct. While the terms of the contract might make the overseas seller contractually liable for the payment of customs duty and import GST, the legislation is very clear that Australian Customs can demand that amount from any entity that falls within the definition of ‘owner’, such as the consignee.
In some cases, an under-declared amount of duty can be identified from the face of the shipping documents accompanying the delivered goods, so these should be checked against the actual invoices. For longer-term contracts, Australian buyers may want to consider requesting copies of the import declarations made to Australian Customs to ensure that the amounts declared are consistent with the amount being paid by the Australian buyer.
As Studio Fashions highlights, taking steps to protect yourself is necessary. If you don’t, and Australian Customs issues a demand to you, you may then need to sue the overseas seller for the customs duty and import GST. Depending on the circumstances, making a claim against any overseas seller could be a difficult and expensive exercise.
Please contact a member of our team if you would like assistance reviewing your agreements.