Challenging Notices to Remedy Violations Identified Following a Desk Customs Audit and Decisions Recognizing Such Notices as Unfulfilled

As follows from judicial practice, the category of customs disputes can be divided into several subcategories: challenging notices to remedy violations identified following a desk customs audit and decisions recognizing notices to remedy violations as unfulfilled; challenging notices concerning the results of the examination of customs and other documents; challenging decisions to amend (supplement) the information declared in goods declarations; and challenging notices to repay outstanding customs payments.

Challenges to notices to remedy violations identified following a desk customs audit and decisions recognizing such notices as unfulfilled mainly concern arguments regarding procedural violations.

A procedural violation committed by the defendant constitutes an independent legal ground for declaring an administrative act unlawful. At the same time, provided that the requirements of the law are complied with, the defendant is entitled to initiate the relevant administrative procedure again.

Paragraph 19 of the Regulation approved by Order No. 522 of the Chairman of the State Revenue Committee dated September 7, 2016, establishes the authority of the Head of the State Revenue Department (hereinafter referred to as the “SRD”) to determine the duties and powers of the Head’s deputies, heads of structural divisions, and employees of the SRD, as well as to sign SRD acts within the scope of the Head’s competence. The Regulation does not provide the Head of the SRD with the authority to issue any acts delegating the Head’s powers to employees of a higher-level state authority.

By a judgment of the Specialized Interdistrict Administrative Court of Astana dated March 15, 2023, the claim filed by a joint-stock company against the Republican State Institution “State Revenue Department for Astana” seeking to declare unlawful and annul the notice to remedy violations and the decision recognizing the notice to remedy violations as unfulfilled was granted.

By a ruling of the Judicial Collegium for Administrative Cases of the Astana City Court dated May 30, 2023, the judgment of the court of first instance was upheld without amendment.

By a ruling of the Judicial Collegium for Administrative Cases of the Supreme Court of the Republic of Kazakhstan dated February 15, 2024, the judicial acts of the lower courts in this case were upheld (6001-23-00-6ап/1736).

Applying subparagraph 5) of part one of Article 80 and Article 81 of the Administrative Procedural and Process-Related Code of the Republic of Kazakhstan (hereinafter referred to as the “APPC”), as well as subparagraphs 12) and 16) of Article 1 of the Law of the Republic of Kazakhstan “On Electronic Documents and Electronic Digital Signatures,” the courts concluded that the contested notice failed to comply with the requirements concerning the presence of the electronic digital signature (hereinafter referred to as the “EDS”) of the official authorized to sign it.

In particular, it was established that the Head of the State Revenue Department for Astana was indicated as the signatory of the notice, but the Head’s EDS was absent. In fact, the decision had been signed using the EDS of the Deputy Head of the Risk Management Division of the Department of Analysis, Statistics and Risk Management of the State Revenue Committee of the Ministry of Finance.

It was established that the signing of the contested administrative act contradicted the requirements of the legislation, as well as the defendant’s internal departmental acts governing the distribution of powers. In the case under consideration, the decision recognizing the notice to remedy violations as unfulfilled was declared unlawful and annulled as a consequence of the unlawfulness of the underlying notice.

Pursuant to subparagraph 2) of paragraph 3-2 of Article 417 of the Customs Code (hereinafter referred to as the “CC”), where the person being audited disagrees with the violations specified in the notice, the notice to remedy violations is deemed fulfilled if that person submits an explanation regarding the identified violations in the form of an electronic document or a paper document, accompanied by supporting documents, including the information declared in the customs declaration.

Pursuant to paragraph 3-3 of Article 417 of the CC, the customs authority may issue a decision recognizing the notice as unfulfilled no later than ten working days from the date on which the person being audited submits the explanation and documents.

In practice, despite the declarant’s explanation complying with the requirements of customs legislation in terms of form and content, customs authorities unjustifiably refuse to accept it and recognize the notice as unfulfilled. This serves as grounds for courts to grant the claim.

By a judgment of the Specialized Interdistrict Administrative Court of Shymkent dated October 5, 2022, the claim filed by a limited liability partnership against the Republican State Institution “State Revenue Department for Shymkent” seeking to declare unlawful the actions taken to issue a notice concerning identified violations and to declare unlawful and annul the decision recognizing the notice concerning identified violations as unfulfilled was partially granted. The grounds for the judgment were that the claimant had submitted an explanation satisfying all the requirements, together with supporting documents.

By a ruling of the Judicial Collegium for Administrative Cases of the Shymkent City Court dated March 15, 2023, the judgment of the court of first instance was amended. The claim was dismissed in the part that had previously been granted, on the grounds that the declarant had failed to comply with the requirements governing the structure of the customs value of the goods due to the absence of evidence of transportation and logistics expenses incurred.

However, by a ruling of the Judicial Collegium for Administrative Cases of the Supreme Court of the Republic of Kazakhstan dated December 1, 2023, the appellate court’s ruling was overturned, and the judgment of the court of first instance was upheld (6001-23-00-6ап/1330).

The circumstances of the case established that the claimant had imported spare parts for motor vehicles into the country under contracts concluded with foreign companies.

Upon importing the goods into the territory of the Eurasian Economic Union, the declarant completed customs clearance by submitting goods declarations.

The customs authority issued the claimant a notice to remedy violations in the amount of KZT 635,951. The notice was issued because the risk management system had been automatically triggered due to the low declared value of the goods in the declarations compared with the value of identical and similar goods imported under comparable conditions.

Disagreeing with the notice, the limited liability partnership submitted an explanation to the defendant concerning the identified violations.

The State Revenue Department for Shymkent issued a decision recognizing the notice to remedy violations as unfulfilled due to discrepancies in the declared value of the goods.

The cassation judicial panel generally disagreed with the lower courts’ examination of the merits of the dispute concerning the lawfulness of the determination of the customs value. This was because, when reviewing the legality of a decision recognizing a notice as unfulfilled, a court is not entitled to prejudge the results of an unscheduled on-site customs audit, the authority to conduct which is provided for in paragraph 10 of Article 418 of the CC.

When considering a dispute concerning the legality of a decision recognizing a notice as unfulfilled, it is sufficient for the courts to establish whether the explanation complies in form and content with the requirements of subparagraph 2) of paragraph 3-2 of Article 417 of the CC and whether the documents referred to by the declarant in support of the declarant’s arguments have been attached.

The judicial panel noted that, given the mandatory nature of the requirement set out in subparagraph 2) of paragraph 3-2 of Article 417 of the CC, the submission of an explanation constitutes fulfillment of the notice.

Legal Framework

1. The Constitution of the Republic of Kazakhstan dated August 30, 1995;
2. The Administrative Procedural and Process-Related Code of the Republic of Kazakhstan (hereinafter referred to as the “APPC”);
3. The Code of the Republic of Kazakhstan on Customs Regulation in the Republic of Kazakhstan (hereinafter referred to as the “CC”);
4. The Customs Code of the Eurasian Economic Union, ratified by Law No. 115-VI of the Republic of Kazakhstan dated December 13, 2017 (hereinafter referred to as the “EAEU CC”);
5. Regulatory Resolution No. 7 of the Supreme Court of the Republic of Kazakhstan dated November 29, 2019, “On Certain Issues Concerning the Application of Customs Legislation by Courts”;
6. The Code of the Republic of Kazakhstan “On Taxes and Other Mandatory Payments to the Budget” (Tax Code);
7. The Entrepreneurial Code of the Republic of Kazakhstan (hereinafter referred to as the “EC”);
8. The Code of the Republic of Kazakhstan on Administrative Offences (hereinafter referred to as the “CAO”);
9. The Civil Procedure Code of the Republic of Kazakhstan (hereinafter referred to as the “CPC”);
10. The Treaty on the Eurasian Economic Union dated May 29, 2014 (hereinafter referred to as the “EAEU Treaty”);
11. Acts constituting the law of the Eurasian Economic Union (hereinafter referred to as “international treaties and acts in the field of customs regulation”);
12. Decision No. 42 of the Board of the Eurasian Economic Commission dated March 27, 2018, “On the Specifics of Customs Control of the Customs Value of Goods Imported into the Customs Territory of the Eurasian Economic Union.”

Abbreviations Used

JCAA SC – Judicial Collegium for Administrative Cases of the Supreme Court of the Republic of Kazakhstan;

JCAA – Judicial Collegiums for Administrative Cases of regional courts and courts equated to them;

SIAC – Specialized Interdistrict Administrative Courts of the regions of the country;

SI – State Institution;

RSI – Republican State Institution;

SRC – State Revenue Committee;

SRD – State Revenue Department;

SRA – State Revenue Administration;

LLP – Limited Liability Partnership;

IE – Individual Entrepreneur.

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