Article 4 of the Trade Facilitation Agreement (TFA) creates an obligation that each WTO member shall provide a right of Appeal and Review to any person dissatisfied with an administrative action or decision issued by Customs. Vinuri Weerawardena, the former Communications Director of the International Trade Law Program of the Moot Court Bench interviews Mr Muthucumarasamy Ravindrakumar, an expert on Customs Valuation and Former Director-in-Charge of the Policy, Planning and Research Directorate at the Sri Lanka Customs, to discuss the Appeal and Review at the Sri Lanka’s Customs Procedure specifically in terms of Article 4 of the TFA.
Compiled by – Shahina Azeezdeen
Q – In customs Administration, there is no possibility to review decisions, actions or omissions by customs or individual Customs Officers. How can this discretionary power by the Customs Authorities impact Trade Facilitation?
A – One fundamental aspect we have to be mindful of is the fact that customs assignment matters are currently contained in the Customs Ordinance enacted in 1869. Since then, there have been up to 50 amendments added for the development of customs functions. However, it still lacks updated concepts.
To answer your question, I will address it from two points of view. First and foremost, we cannot write off the fact, no doubt, the customs related legislation should establish the competency of the customs authorities to administer, enforce customs, laws, development of customs regulations, adjudications and settle cases and make decisions on customs administrative matters.
However, when we look at the other side of the story, the absence of the modern phraseology and clarity of applications, make it difficult for anyone to work with, and it leads to interpretation and protected legal arguments as to meanings and definitions. When it is looked at from this point of view, that is, Appeal and Review, which protects individuals and Traders against the decisions or omissions of customs, it may not comply fully with the laws and regulation which customs is responsible for administrating and enforcing. In that sense, yes, you are right. In the absence of a well-functioning efficient appeal system, this could be regarded or construed as customs powers without checks and balances.
Q – About this Two-track Appeal and Review Process – which I understand is linked to certain Articles of the Trade Facilitation Agreement. How would this Appeal or Review Process benefit Petitioners?
A – When you look at the Trade Facilitation Agreement (TFA), especially Article 4, it provides for a Two-Track Appeal and Review process. Before I come to this, I would like to take you back to a character of decision-making process in the customs history or customs Inquiry. Previously, the character of decisions was limited to elections by the Director General of Customs between two alternatives. So, the decision-making process had a limitation. For example, sometimes, the law provides for further forfeiture of goods or a penalty of Rs.100,000. The Director General has to therefore elect either one of them. Hence the principles to guide the Director General in making his election did not arise at that time because he had only a limited choice. And as such, the legislation has not expressly contemplated any process of Quasi-Judicial decisions for obvious reasons.
However, with the introduction of S.166B in 1988, a guideline for imposing penalty or forfeiture was introduced. With the alteration of the character of the decision-making process, there is a need for appeal and review because there is a concessionary power that is given to the Director General of Customs due to the changing decision-making process from election to discretion. So definitely, the appeal and review process fell, and it must be strengthened to ensure a fair hearing from the Customs.
The TFA envisages the use of a two-track appeal process; one, within the custom department, other one is the mechanism outside the custom department, and the third is the Judicial Process. This review conducted by the administrative authority higher than or independent of the official or office that issued the decision, will be a means of ensuring uniform applications of the law and regulations.
Q – Article 4 of the TFA gives rights to traders to obtain this appeal and review process, and that is why we understand that Sri Lanka has notified this Article 4 as a category A commitment with regards to the TFA. But when notifying this Article as a category A commitment, what kind of deadlines does this impose to Sri Lanka to comply with the Article?
A – That’s a very pertinent question as far as the TFA implementation stages is concerned. From the Sri Lankan customs perspective, the Sri Lankan customs or Sri Lanka as a whole has notified the WTO plan of implementation of this measure particularly in relation to its category A commitment. In brief, Category A is the commitment that the member country has to make sure is put in place when the TFA comes into force. This means, upon entry into force of this agreement, on the 22nd of February 2017, Sri Lanka should have implemented its category A commitment because this is an integral part of the Agreement. Because of the implementation flexibility granted to developing countries, including Sri Lanka, these members cannot be taken to dispute settlement in an initial period of two years from the February 2017 deadline. However, even though two years has lapsed, Sri Lanka has not placed the Implementation Plan (Sri Lanka is still in the process of making this plan in practice) and must give priority to. However, in terms of category B and C, we have gone for a transitional period and according to this period, we have to deliver (the said commitments). This is where Sri Lanka stands today.
Q – Despite the deadline having been passed, I understand that Sri Lanka may have taken certain steps to amend legislature according to Article 4. Even though compliance is not complete, is there anything that we can show that we have done towards achieving to comply with Article 4?
A – Unfortunately there is none. Sri Lanka custom is trying to see if they can manage within their prescribed law (without making any amendments), but I don’t think there is a possibility of going for a full-fledged appeal system as envisaged by the TFA. Although there are no amendments or new legislation passed to be in compliance with the TFA, in 2013 an amendment was entered into S.10 of the Customs Ordinance enabling the aggrieved persons – with the decision of the customs – to have recourse to appeal to an independent body known as the Tax Appeal Commission (TAC) that was established in terms of Tax Appeal Commission Act No.23 of 2011. Previously the TAC managed direct tax appeals especially with the Inland Revenue department but in 2013 when the Customs Amendment Act was introduced, that scope of the TAC has been expanded to not only hear direct tax appeals but also indirect tax appeals stemming out of the custom’s action.
Q – According to the Customs Amendment in 2013, there are certain timelines that are imposed with the intention of speeding up the process and to make sure that these problems our resolved. What kind of timelines are given in this Customs Amendment Act No. 9 of 2013 and what do you think about the practicality and viability of these timelines?
A – There are few timelines the Amendment mentions. One such timeline is the 90-day timeline given to the Director General of Customs to determine the decisions of the appeal. If the Director fails to intimate his decision or if any person is aggrieved by such determination, they may within 30 days, appeal to the TAC. In my opinion this timeline is reasonable and well manageable given the nature of the customs transactions particularly because the Inquiry Officer is expected incorporate the reasoning when making his order or determination at the customs inquiry. This was emphasized by the Court of Appeal on 14.10.2020 in Writ application No. 373/2014 requiring the inquiring officer to give the reasons for his decisions. In the absence of such reasoning, the Officer’s decision would be a mere piece of paper, incapable of being implemented legally.
Q – In your opinion and/or statistically speaking how many cases have actually gone to the appeal segment of this whole process?
A – I am also very frustrated to see to my knowledge that only one application has been submitted and that too has not been further taken up for so many other reasons. Considering the amendment was in 2013, it is a sad thought that this legislation has not been capitalized on.
Q – In your opinion what do you think is the reason behind this? Does this imply that the procedure under the Customs Amendment Act No.9 of 2013 was efficient, or does it simply imply that the process was too long, too tedious and that the Petitioners did not wish to exercise their right to appeal to the TAC?
A – There are multiple reasons as far as my experience is concerned. Unlike a dispute with the direct taxation authorities like the Inland Revenue department, customs disputes are unique. This is because more than the cost effectiveness of the process you must have an informal speedy remedy and disposal (than the traditional court system). In its absence, importers are unwilling to take risks. As this system is yet to be tested, importers are unsure how the dispute would be resolved and the effect such disputes would have on the price of goods in light of their goods, cash-flow and future business being tied up. I believe the procedure set out by the TAC is tedious for any importers to accomplish. Additionally, when an importer appeals to the TAC (when they are the repeated imports), no one is sure what will happen to the next import. Another reason could be that although the TAC has been given a mandate to hear customs cases, there were no commissions who were appointed to sit in that committee.
Q – Indeed this is something that needs to be looked into. Sri Lanka has not exactly made any amendments to legislation, and we are completely relying on the 2013 provisions to try come in line with Article 4 of the TFA. What challenges do you think that Sri Lanka has faced so far in implementing this article?
A – The right of appeal is twofold. One is the appeal process within the customs, two is the appeal process outside the customs which is an independent custom and the third one is the normal judicial process. Here it is fundamental that the right of appeal and review must rest on an effective regulatory framework. In order to have a technical appeal process within the customs department, the TFA says that it must be carried out by an administrative authority, higher than the official that issued the contested decision. There should be a hierarchical order for the functions, but unfortunately, in the Customs, although the Deputy Director of customs may function as an Inquiring Officer, when he sits, he too is equal to the position held by the Director General of Customs. When he thus makes an order, technically (in the context of Sri Lanka) there is no higher authority within the custom department other than the person who has given the contested decision. This gives rise to the issue of lack of hierarchy.
Another issue is that, under S.163 there is a mitigation provision in the customs, that is only available for mitigation sections under S.163. The issue with S.163 is that (1) it cannot be applied if the inquiring office has already applied it and (2) even if somebody wants to restore the goods, it that cannot be done because S.163 only anticipates mitigating the forfeiture or a penalty. So, the power the Director General has in terms of S.163 is only to mitigate a forfeiture or a penalty should he deem such forfeiture or penalties as unduly severe. However, the power of order for the restoration of the seized goods has been given to the minister to be exercised in terms of S.164 and s.165 of the Customs Ordinance.
Q – In your opinion how exactly can Sri Lanka move forward and remedy these drawbacks so that we can comply with this mandatory commitment to implement Article 4 of the TFA, especially considering that we are way over this given deadline?
A – At the customs level, there is a Director of Appeal. He is not expected to hear the appeal of the aggrieved party, but his terms of reference are to look into the appeals within the customs such as HR matters. As a short-term measure, we can go for the Director of Appeal (that what the customs are currently trying to do now). There is an appeal committee by the Director General of Customs. When there is an appeal directed to the Director of Appeal, he puts it to the appeal committee and appeal committee’s recommendation is forwarded to the Director General of Customs. For the time being, as a short-term remedy, when imposing a penalty or forfeiture under specified 31 section by the inquiring officer, he may be guided with the provisions of S.166B with regard to three circumstances. The circumstances say when you want to be guided in terms of a forfeiture amount, you had to look into three factors including the gravity of the offence and the revenue lost. As a result, now there is a possibility for the inquiring officer to follow S.166B (instead of S.163) while leaving S.163 to the Director General of Customs to mitigate, if he deems the forfeiture and penalty to be unduly severe (unfortunately S.163 does not give him the power to restore the forfeiture goods). In a mid-term or long term, we have to ensure the Customs Ordinance is amended to suit the requirement.
My take is that the custom process interlocks in that they do not work in isolation or in silos. Silos are only for grains. If you want to address the process of review and appeal one needs to look into the holistic approach to see the effectiveness of the reforms that positively affect the various key elements of the customs process. While the appeal and review is an effective model for any customs administrations and helps improve fairness in dealing with the customs, it should be introduced with other measures such as publications, availability of information, consultations, and advanced ruling (few technical measures out 36 such measures provided by the TFA). Unless these measures are also put in practice parallelly, it is difficult to address one particularly issue in isolation or in silos. These concepts are known as informed compliance and shared responsibility. To avoid such issues, we have to reach out to importers and give them informed compliance through publications and make available information about what they should and should not do to help mitigate a lot of problem from the start. My point is that before we try to arrest the symptoms, we have to go to the cure of the issues. When you talk about addressing the issues of appeal and review these things also have to be looked into and parallelly implemented to have a very effective reforms of the whole customs process.
The views and opinions expressed by experts in the In-Discussion Series of the Comparative Advantage Blog are those of the experts and do not necessarily reflect the views of the Moot Court Bench.