Relying on the Customs Tariff as Published on the Israeli Tax Authority’s Website.
13 October 2020
Dear clients and colleagues,
On September 14, 2020, the Magistrate’s Court in Rishon Lezion published the ruling in the case of Jerusalem Wineries v. The Tax Authority (civil case no. 49524-01-13). The ruling discussed whether the importer may rely on the Customs Tariff Order as it appears on the website of the Tax Authority. The ruling was given on September 14, 2020 in the Magistrate’s Court in Rishon Lezion by the Honorable Justice Rafi Arnia.
The court, ruled that in the absence of concrete warning signalsregarding the correctness of the information, relating to any tariff rate appearing on the website, importers and customs agents may assume that the information published on the website does not require further examination in the Official Gazette. In addition, it is the responsibility of the State to ensure that the information as it appears on the website is accurate and “perfect” in the court’s wording. However, the court dismissed the plaintiff’s lawsuit on the grounds that the plaintiff did not prove that it relied on the incorrect information as it appeared on the website before entering into an import transaction of grape juice from Argentina.
At the same time, the court ruled that the customs agent’s liability to the importer is similar to that of a lawyer to his client. The customs agent must treat his customers with skill, professionalism and loyalty. The required standard of skill and caution is checked in the eyes of a careful customs agent on the basis of information that can be attributed to a knowledgeable and skilled customs agent.
Today, when the Customs Tariff and the Free Import Order are both accessible on government websites, this ruling is of great significance.
We will be happy to advise, regarding customs, purchase tax, classification, and the implications of the ruling on these issues.
Department of Indirect Taxes
Herzog Fox Neeman
Summary of the court’s ruling:
The lawsuit is based on the State’s alleged liability for damages caused to the plaintiff due to the fact that on the website of the Tax Authority (hereinafter: “Website“) appeared a wrong customs rate in relation to the import of grape juice from Argentina, (item 20.09.6100 of the 2012 Customs Tariff Order (hereinafter: “Customs Tariff Order”), and the alleged professional responsibility of the customs agent who gave his opinion to the plaintiff regarding the rate of customs duty that would apply to the transaction in question.
According to the plaintiff, before the purchase transaction, the plaintiff’s manager contacted the customs agent for the purpose of clarifying the import taxes applicable to the import of grape juice from Argentina. The customs agent informed the plaintiff, after checking the information on the Website, that according to the Customs Tariff Order, grape juice imported from Argentina is exempt from customs duties. Based on the advice given, which originated from the Website, the plaintiff purchased grape juice which arrived in two shipments to Israel. At the time of the arrival of the first shipment, the plaintiff was required to pay a 12% customs duty. About a month later the second shipment arrived.
According to the State, the incorrect information on the Website originates from human error and the plaintiff should have not relied on the information concerning customs rates applicable to imports of grape juice published on the Website. The plaintiff was obligated to review the customs rates as published in the Official Gazette before importing the juice. The State further contended that the plaintiff did not in fact rely on customs duties when engaging in the business transaction for the importation of grape juice to Israel. In addition the State denied any responsibility for the alleged damages, adding that even if they were proven, they are not compensable.
According to the customs agent, he conducted two checks before replying to the plaintiff that the grape juice was exempt from customs. One check was performed on the Website that is open and accessible to anyone on the internet, and the second on a special customs agents’ online system. The customs agents’ system is a tool that is not open to the general public but is limited to customs agents who have installed and purchased the appropriate software, and can, by using a username and password, obtain data directly from the customs authority online system. These two checks led to the conclusion that grape juice imported from Argentina under item 20.09.6100 is duty free.
Judge Rafi Arnia, dismissed the lawsuit. In the ruling, he examined a number of issues and expanded on certain issues more than what was required for the purpose of the specific case in question.
It should be noted that at all relevant dates of the case, there was no exemption or reduction of customs duty for item 20.09.6100. Therefore, at all relevant dates of the case, the customs duty applicable to the importation of grape juice was the general customs rate of 12%. Therefore the decision of the State to charge 12% customs duty was lawful.
In light of this, the court examined the negligent misrepresentation of the State that item 20.09.6100 is exempt from customs on its Website. Five conditions need to be fulfilled in order to hold the State liable for it negligent misrepresentation. The five conditions are:
- A factual representation was made;
- The representation is incorrect;
- The presenter could expect the other party to rely on the representation;
- The presenter could have expected damage to occur;
- The other party actually relied on the representation.
In this case, the court ruled that conditions 1, 2 and 4 do not raise any difficulty. The representation made by the State on the Website was incorrect and the State could have expected that damage would occur due to the negligent misrepresentation. The Court examined the conditions 3 and 5, whether the State could expect that the plaintiff would rely on the representation made on the Website regarding the rates of duty applicable on import of goods (condition number 3) and whether the plaintiff actually relied on the negligent misrepresentation (condition number 5).
According to the State, it could not have expected the plaintiff to rely on what was stated on the Website, for two reasons. The first reason, is that the plaintiff was required to have checked the customs rate by a professional. The court rejected this claim for the simple reason that even if the plaintiff was required to obtain a professional check before relying on the information on the Website, in our case – the plaintiff fulfilled this requirement.
The second reason the State should not have expected that the plaintiff, or anyone acting on his behalf, would rely on the customs rates listed on the Website, is because the plaintiff (or his agent, the customs agent) is required to check the customs rate in the Official Gazette.
The court rejected this claim and ruled unequivocally:
This is not a private website or of an external body or institution, where one can, and perhaps even must, suspect that the information presented is unreliable, since it is not “first-hand”. This is a website of the Tax Authority itself, a division of the Ministry of Finance, which is headed by the Minister of Finance. He himself installs the regulations that set the various tariff rates for imported goods.
In my opinion, in the absence of concrete warning signals regarding the correctness of the information, relating to any tariff rate appearing on the website, the taxpayers and customs agents may assume that the information appearing on the website does not require further examination in the Official Gazette.
I will add that, in my opinion, there is also nothing in the message that appears on the website to change this normative position. Indeed, the definitive customs rate applicable to the importation of a particular item is the rate published in the Official Gazette. This is what the law states (section 10 of the Rules of Procedure and Law Ordinance, 1948). This is undisputed, and the superiority of the publication in the Official Gazette is not doubted. However, this is not the question at stake. The question is whether the Tax Authority should expect taxpayers and customs agents to rely on the information published on the Website in relation to the customs rates set out in the Customs Tariff Order.
As stated above, my answer to this question is in the affirmative by virtue of the status of the Tax Authority and by virtue of the fact that the Website is maintained by the Tax Authority, and based on the information published on the Website customs agents work with the customs department. In fact, Customs Authority itself relies on the information entered. ” (Para. 31-32)
The court ruled that the plaintiff was entitled to rely on the Website for a number of reasons. One, the Website and the systems connected to it are everyday tools used by customs agents in Israel, and customs officials, in the countless international import transactions, made in Israel daily, for many years. The court held that setting a norm whereby customs agents must check the applicable law for each and every import declaration, in the Official Gazette, rather than relying on what is published on the Tax Authority’s Website, or rather than the information published on the customs agent’s software connected to the online system, is inconsistent with 21st century reality.
Second, the customs tariff order is not simple legislation. This is a complex and dynamic legislation that is updated dozens of times a year, with each amendment sometimes including many items. In order to get the full picture, the customs agent must go through all the tariff publication that have been published since the original customs tariff order was published, and check one by one whether there has been any change in relation to the customs item in question. Applying such a duty to customs agents, instead of relying on the website, means setting back the profession of customs agents, to the last century, pre-computer and internet era, and slowing down the pace of international trade.
The court further ruled that the State had represented that the information published on the Website is highly reliable, and the use of the Website is preferable than rummaging through the various publications of the Official Gazette.
The court ruled emphatically: “Therefore, I believe that reliance on the website for the purpose of obtaining the latest information regarding the customs rates applicable to the import of goods is appropriate, desirable and should be encouraged” (para. 35).
“In light of all the above my conclusion is, as a rule, the State should expect as a normative matter, that importers, customs agents and even ordinary citizens assume that the information relating to customs rates, published on the website, is accurate and does not require checking the Official Gazette, and they may rely on the information presented on the Website for future transactions and imports.
This is the rule, in the absence of concrete warning signals regarding the correctness of information that appears on the website (as opposed to a general risk)” (emphasis in the original) (para. 35).
As a result, the court imposes an obligation on the State to maintain the website with great precision. The court saw a need to,
“Emphasize to the State and Customs Authority the importance of perfect maintenance – nothing less – of the website and online system, ensuring the absolute accuracy of the details published, and the duty of the State and the Customs Authority to maintain a control system for updates made on the Website. This statement comes in light of the public and economic importance of the website, as explained above, and the reliance on it by the community of importers, the community of customs agents and the citizens of the country. ”
Notwithstanding the foregoing, when the court was required to examine the plaintiff’s concrete expectations (condition number 5 of the list of conditions above) the court held that the plaintiff did not prove that it actually relied on the negligent misrepresentation on the website regarding the tariff rate on item 20.09.6100. From the evidence brought to court the date of consultation with the customs agent took place in July 2011 while the information output from the website is dated January 2012. Therefore the court held that there is no evidence indicating what was the published customs rate on the Website at the time of the consultation with the customs agent in July 2011. In addition, the court questioned the date of the plaintiff’s engagement in the transaction for the purchase of the grape juice and held it liable for not presenting the court with alternative transactions it could have made instead of the purchase of the grape juice.
In light of the evidentiary deficiencies, the court dismissed the claim.
Notwithstanding this conclusion, the court also expanded on the issue of the customs agent’s liability towards the plaintiff. In this regard, the court ruled that “the customs agent is a professional who is proficient not only in the technical operations required for the import and release of goods, but also in the tariff rates applicable to the import of goods. Answering questions addressed to him on this subject is part of the professional service he provides to his clients. Therefore, he must act in accordance with a proper standard of professional conduct, and in accordance with the accepted standards in his profession, that is, to give the correct answer in accordance with the law.”(Para. 55).
The court compared the scope of the customs agent’s liability to the importer, to the liability of lawyers towards their clients. The court held that the analogy between the two professions – lawyers and customs agents – with regard to addressing customs rates, is self-evident and the norms applicable to lawyers should be applied, in this context, and with the required modifications, to customs agents.
The court clarified that a lawyer must treat his clients with skill, professionalism and loyalty. The required standard of skill and caution is tested in the eyes of a careful lawyer on the basis of information that can be attributed to a knowledgeable and skilled lawyer. However, the lawyer’s responsibility to act skillfully and carefully towards his client is not an absolute responsibility, nor is every mistake an act of negligence. The lawyer is not required to calculate in advance all the possibilities in any factual scenario and the lawyer fulfills his responsibility toward his client if he exercises reasonable discretion, even if in retrospect it turns out that he was wrong.
As stated, Judge Rafi Arnia, dismissed the lawsuit. However, in the judgment he examined the State’s responsibility for maintaining the Customs Tariff Order’s website, the Customs Agent’s liability to the importer and the conditions for imposing liability for negligent misrepresentation against the State in the event of incorrect publication in relation to the Customs Tariff Order.
We recommend in any case of doubt regarding the classification of goods to seek legal advice. We will be happy to be at your disposal for any questions or clarifications on the subject.
Herzog Fox Neeman