Hurley v Collector of Customs (AATA 2021)

Key Takeaways

The AATA (Tribunal) recently poured a stiff drink for a liquor import company’s director when the company did not properly account for customs duty. The decision in Hurley v Collector of Customs [2021] confirms that the obligation to keep dutiable goods safely includes paying the customs duty for such goods.

Brief Facts

The company held a customs warehouse licence under s79 of the Customs Act 1901 (Cth) (Customs Act). These licences permit the owner of imported dutiable goods (such as alcohol) to enter the goods into a bonded warehouse and defer liability to pay import duty (aka customs duty). That liability typically arises when the goods are entered for home consumption.

The sole director and secretary of the company (Director) had the sole control of and responsibility for the management of the company’s business. Managerial responsibilities included stock control and movement, compliance with importation and storage requirements, lodgement of declarations, and oversight of financial matters such as payments to creditors and cash flow.

The company also held a periodic settlement permission (PSP) under s69 of the Customs Act. The PSP granted the company permission to deliver the alcohol, albeit not enter alcohol into home consumption. However, in doing so, the PSP conditions required that the company pay the customs duty and lodge the requisite customs declarations in seven days.

The company’s general practices were usual. It purchased and imported the alcohol. Following import the alcohol was entered for warehousing and transported to a bonded warehouse. After that the alcohol was removed from the bonded warehouse and delivered to the company’s warehouse. On removal a form was completed recording the quantity and type of the alcohol removed. Those forms were collated into weekly settlement statements and forwarded to a customs broker. The broker then lodged customs declarations and Customs directly debited the customs duty from the company’s bank account.

During 2015 to 2017 customs declarations were lodged but customs duty was not paid. Along with issuing written demands and statutory demands on the company for the unpaid duty the ATO also issued written demands on the Director under s35A of the Customs Act.

Issue and contentions

The single issue was whether the Director failed to keep the alcohol safely. If so then the Director was personally liable for the customs duty under s35A of the Customs Act because the Director had been entrusted with possession, custody or control of dutiable goods subject to customs control.

The Collector of Customs contended that there was a failure to keep the alcohol safely on the basis that ‘a “fail[ure] to keep…goods safely” includes delivering goods into home consumption but failing to pay duty on those goods, irrespective of when the duty was payable’.

The Director argued that under the PSP duty was not payable at the time the alcohol was delivered into home consumption. Subsequent failure to pay the duty was not a failure to keep the alcohol safely. That is, under the ordinary meaning of ‘fails to keep those goods safely’ there is no failure where the PSP permitted removal without prior or contemporaneous payment of duty.

Judgment

The Tribunal found that the Director failed to keep the alcohol safely and held that the Director was personally liable under s35A of the Customs Act.

The Tribunal agreed that the PSP is not an exception to s35A(1). Rather liability under s35A(1) is collateral and not substitutional for liability to pay duty under other Customs Act provisions.

The Tribunal also determined that the alcohol found its way into home consumption irregularly. That is because the Customs Act only authorised delivery of the alcohol into home consumption if the company paid the customs duty. The delivery of the alcohol into home consumption without payment of the customs duty meant that the Director failed to keep the goods safely. Consequently the Director was liable for the customs duty under s35A.

In finding that the Director failed to keep the alcohol safely the Tribunal was persuaded by obiter dicta in FCA and HCA cases that considered s60 of the Excise Act 1901 (Cth), a provision which is in materially similar terms to s35A of the Customs Act.

Implications

The findings confirm that if the circumstances set out in s35A are met then that section is an alternative recovery mechanism to that which may be pursued against the owner of the imported dutiable goods. Further, the findings mean that s35A imposes an essentially absolute duty to keep goods safely and to ensure that they do not find their way into home consumption without the payment of duty. If that occurs, then s35A applies even if on an ordinary or lay understanding the person entrusted with the goods did ‘keep those goods safely’.

The Tribunal’s decision is welcome from a revenue policy perspective. In particular it upholds the statutory purpose of s35A with ensuring that customs duty is paid when goods are entered for home consumption. It is also a timely reminder for persons entrusted with dutiable goods to ensure that the customs duty is properly accounted when movements of the goods occur.