Extinction of customs debt - does it include VAT and excise?


Knowing how provisions of one or another customs and tax legislation are applied, protects business from financial and time losses intended for the resolution of disputes in courts. In this review of the judgement of the Court of Justice of the European Union, we draw attention to the aspects related to excise duty and VAT debt for goods illegally imported into the EU from the third countries - whether it is extinguished together with the import duty debt.

Article 124 of the Union Customs Code (further – UCC) 'Extinguishment of a customs debt' provides: ‘1. Without prejudice to the provisions in force relating to non-recovery of the amount of import or export duty corresponding to a customs debt in the event of the judicially established insolvency of the debtor, a customs debt on import or export shall be extinguished in any of the following ways: <...> (e) where goods liable to import or export duty are confiscated or seized and simultaneously or subsequently confiscated’.

When importing goods subject to import duty, they are also subject to import value added tax (further – VAT) and, when we import excise goods, also to excise duty. Do all import duties and taxes are extinguished after customs detain and confiscate the goods? The answer to this question is given in the judgement of the Court of Justice of the European Union (further - the Court of Justice) in case C-489/20 (UB vs Kaunas Territorial Customs Office), issued on 7 April, 2022. Although the decision is clear, I still would like to share some insights.

Is the judgement relevant for business?

Briefly about the case. A tax dispute arose between a natural person and the Kaunas Territorial Customs Office (hereinafter - KTC), which, in its decision ‘On the calculation of the tax liability at customs‘, for the illegal importation of cigarettes (importation determined on the territory of the country, i.e. not in the area of the first customs office), into Lithuania from Belarus, taxed the natural person (further - as the applicant) with the excise duty and import VAT as well as late interest related to these taxes. The KTC did not calculate the import duty debt. The cigarettes were confiscated and destroyed. The applicant, motivating that, since the customs debt was extinguished on the ground provided for in Article 124(1)(e) of the UCC, his obligation to pay excise duty and import VAT should also be regarded as extinguished, appealed the KTC decision to the Customs Department, and later to the Vilnius Regional Administrative Court, which rejected it as unfounded. The applicant then filed an appeal with the Supreme Administrative Court of Lithuania (hereinafter - SACL), which applied to the Court of Justice for a preliminary ruling on interpretation of the application of Article 124(1)(e) of the UCC, Article 2(b) and Article 7(1) of the Excise Directive 2008/118, and Article 2(1)(d) and Article 70 of the VAT Directive.

The interpretation and judgement of the Court of Justice in this case are relevant in two aspects: i) what affect has the moment of detention of the goods, when applying Article 124(1)(e) of the UCC and ii) whether the customs debt on import, referred to in Article 124(1)(e) of the UCC, includes excise duties and VAT.

The case is related to a natural person and concerns excise goods. Can the judgement of the Court of Justice be generally relevant to a business or a business that does not deal with excise goods? I believe, the answer in both cases is yes. And it is not that the business is not purposefully compliant. It just could be that not enough attention is paid to the security of the transportation of goods, the reliability of the supply chain, and etc. In any case, regardless of whether the event is related to excise goods or not, the issue of import VAT debt remains relevant in all cases. Therefore, knowing how the provisions of one or other customs and tax legal acts are applied, protects you at least from financial and time losses for the resolution of disputes.

Continue reading the article ‘Extinction of customs debt - does it include VAT and excise?’ by Jovita Dobrovalskienė, Customs law manager at UAB 'Muita'. The article was published in the Customs Compliance & Risk Management Journal. Would you like to get access to all the articles published since 2020? Check the pricing here and choose most suitable subscription plan.