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Shoe Importer Charged $290,000 Back Duty

Import News from the Importers Institute

13 May 2000 - Shoe Importer Charged $290,000 Back Duty

The Court of Appeal has confirmed that a shoe importer must pay $290,000 in back duty on buying commissions.

Elitunnel Merchanting Ltd distributed Caterpillar shoes in New Zealand. It bought the shoes through an Australian company, Custom Originals, which had a licence for both countries.

Custom Originals charged Elitunnel for the cost of the goods sourced from Asian manufacturers and, separately, for 31% of the cost, described as "styling and buying charges".

Elitunnel's Customs brokers produced only the goods invoice to Customs. Subsequent investigations by Customs revealed that Customs Originals remitted 15% to the world-wide marketing agents of Caterpillar, while keeping the remaining 16% as profit.

Under the Customs Act, royalties and fees paid to third parties must be included in the amount that importers (through their brokers) declare to Customs, unless they are in the nature of "fees paid by a buyer to an agent for the service of representing him overseas in respect of the purchase of the goods".

The issue for the court to decide was whether the fee Elitunnel paid to Custom Originals fell into this category. The importer claimed that Custom Originals was its buying agent.

In its judgment of 12 April the Court of Appeal upheld an earlier High Court ruling. It said, "The only involvement that the importer regularly had with the manufacturers was that some of the stock was shipped directly to it. But, at that Asian end of the transactions, the essential steps of ordering, approvals, manufacture and payments were handled only between Custom Originals and the manufacturer with Wolverine [agent of Caterpillar] providing the required approvals. The importer's only contractual relationship was with Custom Originals. To approach the matter from another angle, there is no basis in the evidence for an argument that the importer could sue the manufacturer if the goods were faulty or that the manufacturer could sue the importer for non payment."

A copy of this judgment (CA305/98) is available for download in tiff format from or by email from the Secretariat.

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