Flashback on ECJ Cases C-661/15 (X) – Customs valuation of defective goods

On October 12, 2017, the ECJ issued its decision in the case C-661/15 (X).

Context: Reference for a preliminary ruling — Customs union — Community Customs Code — Article 29 — Import of vehicles — Determination of the customs value — Article 78 — Revision of the declaration — Article 236(2) — Repayment of import duties — Period of three years — Regulation (EEC) No 2454/93 — Article 145(2) and (3) — Risk of defects — Period of 12 months — Validity

Article in the EU VAT Directive

Customs case

Indirectly, this case refers to Art. 85 of the EU VAT Directive 2006/112/EC.

Article 85 (Taxable amount – Importation of Goods)
In respect of the importation of goods, the taxable amount shall be the value for customs purposes, determined in accordance with the Community provisions in force.

Facts

X purchases passenger cars from a manufacturer established in Japan and releases them for free circulation on the EU customs territory. X sells those cars to dealers, who sell them on to final purchasers.
In August 2007 X declared the entry of type A passenger cars (‘type A cars’) and type D passenger cars (‘type D cars’) into free circulation. In March 2008, X declared the entry of type C passenger cars (‘type C cars’) into free circulation. In accordance with Article 29 of the Customs Code, the customs value of those three types of passenger cars was established on the basis of the purchase price paid by X to the manufacturer. Accordingly, X paid the import duties set by the Inspecteur van de Belastingdienst/Douane (Inspector of Taxes/Customs, Netherlands; ‘the Inspecteur’).
After the type A cars had been entered into free circulation, the manufacturer requested X to invite all owners of that type of car to make an appointment with a dealer in order to have the steering coupling replaced free of charge. X reimbursed the costs associated with that recall to the dealers. The manufacturer then reimbursed those costs to X pursuant to a warranty obligation included in the contract of sale concluded with X. That reimbursement took place within a period of 12 months following the date of acceptance of the declaration for entry of those cars to free circulation.
After types D and C cars had entered into service, they showed door hinge and rubber seal defects respectively. The dealers concerned repaired those defects in 2010 under the warranty which they give. Once again, X reimbursed the costs of those repairs to the dealers on the basis of the warranty obligation in the sale contract concluded with them. The manufacturer then reimbursed those costs to X pursuant to its warranty obligation under the sale contract concluded with it.
By letter of 10 May 2010, pursuant to Article 236 of the Customs Code, X applied for partial repayment of the customs duties which it had paid in respect of the type A, C and D cars. It based that application on the fact that, in retrospect, the customs value of each of the cars concerned had proven to be lower than the original customs value. The difference between the original customs value and the real customs value corresponds, according to X, to the amount reimbursed to it by the manufacturer in respect of each car.
The Inspecteur took the view that the application concerned an adjustment made by the manufacturer, in favour of X, of the price actually paid for those cars, within the meaning of Article 145(2) of the implementing regulation. However, he rejected it as regards the type A cars, on the ground that they were not ‘defective’ within the meaning of that provision. With regard to the type D and C cars, the Inspecteur also rejected the application for repayment of the customs duties on the ground that the period of 12 months from the date of acceptance of the declaration of import within which payment by the vendor to the purchaser must be made, which time limit is laid down in Article 145(3) of the implementing regulation, had expired.
The rechtbank Noord-Holland (District Court, Noord-Holland, Netherlands), seised at first instance, dismissed the action brought by X against the rejection decisions adopted by the Inspecteur. It held in particular that X had failed to prove that, at the date of acceptance of the import declaration, the type A cars were ‘defective’ within the meaning of Article 145(2) of the implementing regulation since, according to that court, it is not sufficient to establish the ‘risk or possibility that there is a defect’ to apply that provision.
Hearing the appeal, the referring court is doubtful, first, as regards the type A cars, as to the exact scope of Article 145(2) of the implementing regulation. It notes, in that regard, that the reimbursement by the manufacturer of the costs of replacing the steering coupling of those cars corresponds to a reduction in the purchase price, after their import, and that that reduction is the result of a finding that those cars had a manufacturing defect which meant that there was a risk that the coupling would become defective in use. In those circumstances, the manufacturer replaced them as a precaution in all vehicles affected.
The referring court states, in accordance with the opinion of the Inspecteur and referencing the collected texts concerning customs values, that Article 145(2) of the implementing regulation could cover only cases where it is established a posteriori that, at the date of acceptance of the declaration of entry to free circulation, the goods were actually defective. However, that court also takes the view that that provision could be interpreted more broadly to cover cases where it is established that, at the date of acceptance of that declaration, there was a manufacture-related risk that an imported product may actually become defective.
If the Court finds that Article 145(2) of the implementing regulation does not apply in the present case, the referring court then asks whether, having regard to the judgment of 19 March 2009, Mitsui & Co. Deutschland (C‑256/07, EU:C:2009:167), Article 29(1) and (3) of the Customs Code, read in conjunction with Article 78 of that code, does not require the reduction in the price initially agreed granted by the manufacturer to X to be regarded as a reduction in the customs value of the type A cars. In fact, if it is found, after the import of a product, that, at the date of that import, there was a risk of the product in question becoming defective before the expiry of the warranty period, so that it is not usable, that would have negative repercussions on its economic value and, accordingly, on its customs value.
Secondly, with regard to the type C and D vehicles, the referring court entertains doubts as to the validity of the time limit of 12 months laid down in Article 145(3) of the implementing regulation.
In the present case, it notes that the manufacturer reimbursed X for the costs of the repair of the defective parts of cars of those two types pursuant to a contractual warranty obligation, which must be regarded as an adjustment to the price paid for those cars. However, that adjustment could not be taken into account in the determination of the customs value, since it did not occur within the 12-month time limit laid down in that Article 145(3).
It points out that the reasons which led to the setting of that time limit are not clear from the recitals of the implementing regulation. In that regard, it refers to the judgment of 19 March 2009, Mitsui & Co. Deutschland (C‑256/07, EU:C:2009:167), in which the Court held that Article 29(1) and (3) of the Customs Code forms the basis of repayment or remittance of customs duties. Accordingly, the referring court is uncertain whether the 12-month time limit laid down in Article 145(3) of the implementing regulation complies with Article 29 of the Customs Code, read in conjunction with Article 78 of that code, since those provisions do not provide for a time limit on adjustments of the customs value following an adjustment to the price, and with Article 236 of that code, since it provides for a three-year time limit for the filing of applications for repayment of customs duties.

Questions

(1) (a) Should Article 145(2) of the implementing regulation, read in conjunction with Article 29(1) and (3) of the Customs Code, be interpreted as meaning that the rule laid down therein also applies in a case where it is established that, at the time of acceptance of the declaration for specific goods, there was a manufacture-related risk that a component of the goods might become defective in use, and in view of this the seller, pursuant to a contractual warranty towards the buyer, grants the latter a price reduction in the form of reimbursement of the costs incurred by the buyer in modifying the goods in order to exclude that risk?

(b) In the event that the rule laid down in Article 145(2) of the implementing regulation does not apply in the case referred to in (a) above, are the provisions of Article 29(1) and (3) of the Customs Code, read in conjunction with Article 78 of the Customs Code, sufficient, without more, to reduce the declared customs value after the abovementioned price reduction has been granted?

(2) Is the condition laid down in Article 145(3) of the implementing regulation for adjustment of the customs value referred to therein, namely that the adjustment of the price actually paid or payable for the goods must have been made within a period of twelve months following the date of acceptance of the declaration for entry to free circulation, contrary to the provisions of Articles 78 and 236 of the Customs Code, read in conjunction with Article 29 of [that code]?

AG Opinion

(1) Article 145(2) of Commission Regulation (EEC) No 2454/93 of 2 July 1993 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92, read in the light of Article 29 of Council Regulation (EEC) No 2913/92 of 12 October 1992 establishing the Community Customs Code must be interpreted as meaning that it applies, inter alia, when the seller of a vehicle grants the purchaser, under a contractual warranty obligation provided for in the sale contract, a price reduction in the form of reimbursement of the costs incurred by the purchaser in remedying a manufacture-related risk that that vehicle may become defective in use, such that it does not have the degree of safety which may reasonably be expected of it.

(2) Article 145(3) of Regulation No 2454/93 is invalid.

Decision

1. Article 145(2) of Commission Regulation (EEC) No 2454/93 of 2 July 1993 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code, as amended by Commission Regulation (EC) No 444/2002 of 11 March 2002, read in conjunction with Article 29(1) and (3) of Council Regulation (EEC) No 2913/92 of 12 October 1992 establishing the Community Customs Code, must be interpreted as meaning that it applies in a case, such as that at issue in the main proceedings, where it is established that, at the time of acceptance of the declaration for entry to free circulation for specific goods, there was a manufacture-related risk that the goods might become defective in use, and in view of this the seller, pursuant to a contractual warranty towards the buyer, grants the latter a price reduction in the form of reimbursement of the costs incurred by the buyer in modifying the goods in order to exclude that risk.

2. Article 145(3) of Regulation No 2454/93, as amended by Regulation No 444/2002, in so far as it provides for a time limit of 12 months from acceptance of the declaration for entry to free circulation of the goods, within which an adjustment of the price actually paid or payable must be made, is invalid.

Summary

The ruling concerns defects under Article 145(2) of Regulation (EEC) No 2454/93 (TVo.CDW).
The statement is as follows. The provision applies to a situation where it is established that, on the date of acceptance of the customs declaration for release for free circulation of goods, there is a manufacturing risk of the goods becoming defective during use and for that reason the seller performance of a contractual guarantee obligation towards the purchaser grants a price reduction. The latter in the form of compensation for the costs incurred by the buyer to adjust the goods in such a way that the risk is excluded. The judgment also states that the one-year period, as referred to in Article 145, paragraph 3, TVo.CDW

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