High Court refuses customs duty refund for mistake discovered out of time

The recent High Court decision of Thiess v Collector of Customs emphasises the importance for importers and their customs agents to take care when paying customs duty and associated GST.

The Customs Act 1901 contains restrictions on when refunds will be paid. In this case, the High Court concluded that refunds could not be paid other than in the circumstances described in the legislation.

The expensive mistake of fact

Mr Thiess owned a yacht. He imported the yacht into Australia in 2004. His customs agent mistakenly believed that the gross weight of the yacht was 108 tonnes. The agent consequently ascribed to the yacht the wrong tariff classification (yachts less than 150 tonnes), which attracted customs duty of $494,472, with an additional $49,447 in GST, totalling $543,919.

In fact, the gross weight of the yacht was 160 tonnes. For yachts of 150 tonnes or more, there was no duty, meaning that Mr Thiess’ duty liability should have been nil.

The agent paid the full amount of the duty on behalf of Mr Thiess and the goods were released. Mr Thiess did not become aware of the duty error until October 2006. On 15 December 2010, Mr Thiess commenced proceedings for recovery of the money from Customs.

The mechanism under section 167 excludes common law recovery rights

Before the High Court, Mr Thiess appealed on the basis that the section in the legislation denying an importer his usual common law rights (section 167(4)) did not apply because there was no dispute as to the proper duty payable.

The High Court held that the legislation is clear. There is no right at common law for the recovery of any sum paid to Customs, unless:

• the payment is made under protest in accordance with section 167 and the action is commenced within the mandatory six month period, or
• the importer has a right to a refund under section 163.

The High Court noted that section 167 creates an incentive for the importer to be vigilant when identifying the amount of duty payable and, in the event of a disagreement with Customs, to pay ‘under protest’ and commence a statutory action within six months.

The High Court considered the historical circumstances and concluded the purpose of section 167(4) was to ‘create fiscal certainty’. This was to ensure that there could be no action for the recovery of any duty paid to Customs, other than the statutory action for recovery under section 167(2) or an action for a refund under section 163. The High Court commented that the ‘payment under protest’ mechanism in section 167 would be undermined if an importer had six years to commence proceedings under the common law. This could not be Parliament’s intention.

Relief under the refund provisions in section 163

Section 163 provides for refunds, rebates or remissions of duty in certain circumstances. The Customs Regulations prescribe numerous circumstances for this purpose, including where ‘duty has been paid through manifest error of fact or patent misconception of the law’. Applications for refunds must be made within the specified time limit.

The time limit applicable where duty has been paid through ‘manifest error of fact’ was, at the relevant time, 12 months from the date on which the duty was paid. Again, Mr Thiess failed to apply for a refund within that limitation period. Unfortunately for Mr Thiess, the Regulations have since been amended to extend the limitation period to four years for ‘manifest errors of fact’.

Time to check your customs import history?

In a self-assessment environment, it is important to conduct reviews and audits. This is to protect against both the risk of:

• underpaying customs duty and import GST and attracting the interest of the Australian Customs and Border Protection Service and the Australian Taxation Office; and
• overpaying customs duty and import GST – and like Mr Thiess, being out of time to claim a refund.

Importers should obviously be mindful of the different tariff classifications and confirm the nature and details of the goods they are importing with their customs agent before paying any duty.

For further information, please contact Fletch Heinemann on +61 7 3231 2443.