A refund for defective goods may reduce the purchase price, while the import duty and VAT - value added tax - paid on import remain calculated on the previous amount. Can the overpayment be refunded? This depends first of all on what exactly the seller compensated.
| Import | The defect already existed |
|---|---|
| Discovery | May occur later |
| Price change | Linked to that imported shipment |
For example, twenty out of one hundred imported pumps fail to maintain the specified pressure. If the supplier reduces the price of those pumps, the question arises whether customs value should be recalculated. If the supplier pays for repairs or compensates downtime, the purpose of the payment is different. A compensation agreement may combine several amounts, and for the customs calculation they have to be separated.
Under Method 1, the starting point is the transaction price of the imported goods with the additions provided for by the Code. This is established by Article 39 of the EAEU Customs Code. If the seller has genuinely reduced that price, the documents should show which goods the reduction relates to and how the value of the specific consignment changed.
A transfer from the supplier may confirm the settlements between the parties. The basis of the refund can be seen from the claim, the seller's response and the settlement agreement: a price reduction, compensation for losses or a credit towards a future purchase. That determines whether there is a basis for changing the value of goods already imported.
Suppose twenty pumps originally cost EUR 1,000 each, and after a manufacturing defect was acknowledged the parties set their price at EUR 500 each. This shows a specific price change: 20 × 500 = EUR 10,000. If the price of the pumps remained unchanged and the supplier separately compensated the cost of repairing them, that does not by itself mean that customs value should be reduced by the same amount.
The contract, invoice - the seller's bill - correspondence and the agreement settling the claim connect the payment to the goods. They should show which units are affected and how their price changed.
Suppliers often issue a credit note. This is generally a document by which the seller reduces the buyer's debt or records an amount in the buyer's favour. It is useful if the credit note identifies the original invoice, the product items, quantity and amount of the reduction. A statement such as 'compensation under a claim' by itself leaves too many questions. In that case, it is useful to ask the supplier for a breakdown showing which shipment the amount relates to and what exactly the parties changed in their settlements.
No separate payment may be made at all. For example, the supplier reduced the price of the old consignment by EUR 10,000 and allowed that amount to be set off against the next purchase. The new consignment costs EUR 80,000, but the buyer transfers only EUR 70,000. This does not mean that the price of the new consignment automatically became EUR 70,000. The difference may discharge the buyer's claim arising from the previous consignment. The documents should preserve that connection.
For a dispute with customs, the origin of the defect itself also matters. A latent manufacturing defect may be discovered only after release even though it existed at the time of importation. For example, a pump may look serviceable but fail during testing to produce the pressure required by the contract. The defect discovered later then needs to be linked to the condition of the goods at the time of importation: what requirement the goods failed to meet, how the test was performed and what information indicates a manufacturing cause.
If the damage occurred only after release during storage, transport within Russia or use, the situation is different. The mere fact that the supplier later transferred money does not show that the original price at declaration was overstated.
The contract terms also matter. Check the quality requirements, warranty, acceptance procedure and claims process. If the contract provides in advance for a price reduction where a defect is confirmed, it is easier to explain the connection between the later refund and the price. At the same time, Articles 39, 112 and 67 of the EAEU Customs Code do not establish a single mandatory contract term without which recalculation is impossible in every case. A later agreement between the parties may also matter if it and the other documents show what defect the goods had and how that defect affected the price.
If no separate defect report was drawn up when the defect was found, record the information that is still available now, using the current date. State which units were inspected, what defects were found and which materials support the description: warehouse records, photographs, test results, service department messages and correspondence with the supplier. Such a document helps bring the surviving information together in one place and show its source.
A defect report, photographs or an expert opinion do not form a universally mandatory set of evidence. In one situation, properly prepared supplier documents and test results may be sufficient; in another, a dispute about the cause of damage may require a technical opinion. The purpose of the evidence is the same: to show which goods were defective, when and how that was established, and why the refunded amount is connected specifically with a change in their price.
Consider a hypothetical calculation. One hundred pumps were purchased for EUR 100,000. Transport to the place of arrival, which is included in customs value, amounted to EUR 5,000. There are no other additions and the conditions of Method 1 are met. Assume also that twenty pumps already had a manufacturing defect at the time of importation, the parties confirmed a reduction in their price of EUR 500 per unit, and customs accepted the grounds for recalculation.
The original customs value is EUR 105,000. The price reduction is 20 × 500 = EUR 10,000. With the transport cost unchanged, the new amount is EUR 95,000. The quantity of imported goods does not change - there are still one hundred pumps.
The EUR 10,000 in this example is the reduction in customs value. It is not automatically the amount of duty and VAT to be refunded. Any overpayment of customs payments must be calculated separately using the data from the specific declaration and the applicable rates.
Once the new price has been substantiated, the information declared when the goods were released must be amended. For this purpose, the declarant, meaning the person on whose behalf the declaration was lodged, applies to the customs authority to amend the goods declaration. The purpose is to replace the previous information on customs value and calculated payments with information corresponding to the substantiated price of the goods after settlement of the claim.
After release, the Procedure approved by Decision No. 289 of the Board of the Eurasian Economic Commission dated 10 December 2013 applies. The application states the number of the goods declaration, what information is proposed to be changed and why. Under paragraphs 12 and 13 of the Procedure, the application is accompanied by an adjustment to the goods declaration, or KDT, its electronic form and documents substantiating the amendments. Where customs value changes, a customs value declaration, or DTS, is also submitted.
The application should show which pumps were defective and by how much the seller reduced their price. The original goods declaration, evidence of the defect, the agreement with the seller and the new calculation connect the claim with the value and payments that the company asks to have corrected.
For a refund or offset of an overpayment, paragraph 2 of Article 67 of the EAEU Customs Code provides for amendment of the information on calculated payments and compliance with the other conditions of national law. Amending the declaration, obtaining a refund and challenging a refusal are different actions; the applicable time limit must be checked under the procedure relevant at the particular stage.
If customs refuses, the specific reason for the refusal has to be analysed: the cause of the defect was not established, the connection between the credit note and the consignment is unclear, the amount of the price reduction is disputed, or the overpayment calculation was not accepted. Paragraphs 32 and 33 of Resolution No. 49 of the Plenum of the Supreme Court of the Russian Federation dated 26 November 2019 provide for assessment of evidence of overpayment and of the lawfulness of a refusal or failure to act. If the relevant decision, refusal or failure to act is found unlawful, the court may order the customs authority to refund amounts overpaid or collected in excess.
Andrey Bernev, customs lawyer.