Important legal notice
Opinion of Mr Advocate General Lenz delivered on 2 May 1990. - Brown Boveri & Cie AG v Hauptzollamt Mannheim. - Reference for a preliminary ruling: Bundesfinanzhof - Germany. - Customs value of goods - Value of softwarer and carrier media. - Case C-79/89.
European Court reports 1991 Page I-01853
Opinion of the Advocate-General
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Mr President,
Members of the Court,
A. Facts of the case
1. In this case the Court must consider questions concerning the valuation of goods for customs purposes under Regulation No 1224/80 (1) (hereinafter referred to as "the basic regulation"), arising from a reference by the Bundesfinanzhof (Federal Finance Court) of 13 February 1989. In the proceedings before that court, Brown Boveri & Cie. AG (hereinafter: "the plaintiff") and the Hauptzollamt (Principal Customs Office) Mannheim are in dispute over the deduction of assembly costs for a computer-assisted design system acquired by the plaintiff and of the cost of the accompanying software supplied.
2. Pursuant to the agreement concluded between the manufacturer in the United States of America and the plaintiff, which stipulated a total price for the computer itself and for the use of the applications software stored on magnetic tape which the manufacturer was also to supply, (2) hardware and software were delivered in an initial consignment and software alone in a further consignment. In the import declarations the first consignment was described, principally, as "computer parts" and the second as "software". The accompanying invoices set out the totals without breaking them down into their individual components, and included no reference to carrier media.
3. In its customs declarations the plaintiff deducted from the total price not only the post-importation transport costs but also the charges for the assembly and software. In the case of the second consignment, the plaintiff, in a later correction which the customs authorities apparently did not challenge, estimated the customs value at DM 0. In the contested decisions the Hauptzollamt did not allow deduction of the software and assembly costs, on the grounds that the invoices produced did not distinguish the amounts qualifying for deduction and that charges for client software formed part of the customs value of the carrier media.
4. In the administrative appeal proceedings, the plaintiff produced revised invoices for the first three consignments, in which the earlier totals were separated into prices for hardware and software. In addition, the plaintiff produced two telex messages from the manufacturer, dealing with the amount of the costs for the software and assembly.
5. The Hauptzollamt dismissed the objections. The actions brought before the Finanzgericht (Finance Court) having also been dismissed, the plaintiff appealed to the Bundesfinanzhof, which referred the following questions to the Court of Justice for a preliminary ruling:
1. Was Article 3 of Regulation (EEC) No 1224/80 to be interpreted in 1982 as meaning that the transaction value of imported carrier media with software recorded on them in respect of which the supplier had provided the declarant with an invoice containing only a total price was the entire invoice price, or was the transaction value only that part of the invoice price which corresponded to the carrier medium? Did it make any difference if the declarant distinguished between the price of the carrier medium and the price of the software at the material time or later?
2. Are charges for assembly to be regarded as having been "distinguished" within the meaning of Article 3(4) of Regulation (EEC) No 1224/80 only when the distinction has been brought to the customs authorities' attention at the material time?
6. I propose to mention further details of the case as and when they are necessary for the explanation of my views. For the rest, reference should be made to the Report for the Hearing.
B. Discussion
Question 1
7. I. Before undertaking a detailed examination of Question 1 (the inclusion of software in the customs value) I propose to describe briefly the context of the problem and review the legal developments which, in my view, form the background to it.
8. The generally accepted principle that only goods, as opposed to thoughts, ideas, rights or services as such, are subject to customs duty (3) creates uncertainty whenever, as here, goods are combined in any way with an incorporeal asset. Especially when the value of an incorporeal asset is greater than that of the goods themselves, the question arises whether the two components are to be treated as a single entity for customs valuation purposes or whether - and, if so, in what precise circumstances - the two must be considered separately.
9. As regards the problems of fact and law involved in such a separation, one source of uncertainty is in establishing how the risks are to be assigned as between the person making the customs declaration (hereinafter: the declarant) and the customs authorities.
10. In the context of applications software recorded on carrier media for computers there has been some hesitation in the development of the law.
11. Until 30 June 1980, Regulation No 803/68 (4) was the prevailing Community instrument on the valuation of goods for customs purposes. As the eighth and ninth recitals in its preamble show, that regulation was based on the Convention on the Valuation of Goods for Customs Purposes, which was signed at Brussels on 15 December 1950 (5) and to which all the Member States of the Community (as constituted at that time) adhered.
12. That system of customs valuation under the 1950 Convention and Regulation No 803/68 was still based on the principle of the "normal price". In accordance with Article I of Annex I to the Convention, Article 1(1) of the regulation provided as follows:
"For the purpose of applying the Common Customs Tariff, the value for customs purposes of the goods imported shall be taken to be the normal price, that is to say, the price which they would fetch ... on a sale in the open market between a buyer and a seller independent of each other."
13. As a guide to the meaning of "customs value" in relation to computers and to carrier media, the Customs Valuation Committee (6) issued in 1979 a revised study. (7) Paragraphs 21 to 23 of that study dealt with the customs value of "media bearing user application programmes". According to paragraph 22 the value is composed of (i) the price of the medium, (ii) an element in respect of the operations subsequent to the preparation of the job plan ("plan du travail") up to and including the completion of the programme for recording on the medium, (iii) the cost of recording the programme on the medium, and (iv) profit on all those elements.
14. Costs and profits, in particular those connected with the preparation of the job plan - which largely determine the price of the software - should not affect the value for customs purposes (paragraph 21). Since the authors of the study were aware of the difficulty in quantifying item (ii) above, they proposed at paragraph 22, for the sake of simplicity, using the aggregate of the cost of the medium and the cost of recording the programme, increased by 100% in the case of magnetic tapes and discs.
15. It seems that the practice adopted by customs authorities - including Community customs authorities - regularly followed those rules until the new customs valuation system was introduced. (8) This revision of the system was carried out under the aegis of GATT, with the entry into force on 1 January 1981 of the Agreement (9) on Implementation of Article VII of the General Agreement on Tariffs and Trade.
16. That Agreement (hereinafter: "the 1979 Agreement") was approved on behalf of the European Economic Community by a Council decision of 10 December 1979. (10) The Community adjusted its provisions on customs valuation in accordance with the Agreement, by adopting the basic regulation whose interpretation is now at issue.
17. Under the scheme of the 1979 Agreement and the basic regulation, the basis for the customs valuation of goods is primarily the transaction value of the goods - that is, the price actually paid or payable for the goods when sold for export to the country of exportation (in this context, the customs territory of the Community). (11)
18. As the customs valuation was oriented on the actual price of the goods, a number of customs authorities (12) clearly assumed that the 1979 study was now superseded, and based the customs value of computers and carrier media on the total price paid. (13) The situation was, however, viewed by several parties to the 1979 Agreement as undesirable because it inhibited exports, as was noted by the GATT Committee on Customs Valuation (14) in a decision of 24 September 1984: (15) the Committee ruled that the abovementioned method of customs valuation based on the total price was fully in accordance with the 1979 Convention, but also permitted the parties to the Convention to distinguish the cost or value of the carrier medium from the software, so that the cost or value of the software would not be included in the customs value if it were distinguished from the cost or value of the carrier medium concerned.
19. As a result of that decision the Council of the European Communities adopted Regulation No 1055/85, (16) which inserted a new provision, Article 8a, into the basic regulation.
20. Article 8a(1) is worded as follows:
"Notwithstanding Articles 2 to 8, in determining the customs value of imported carrier media for use in data processing equipment and bearing data or instructions, only the cost or value of the carrier medium itself shall be taken into account. The customs value of imported carrier media bearing data or instructions shall not, therefore, include the cost or value of the data or instructions, provided that such cost or value is distinguished from the cost or value of the carrier medium in question."
21. By adopting Article 8a the Community committed itself to the second method outlined in the decision of 24 September 1984, with the result that - at least since it entered into force - there has been no margin of discretion for the customs treatment of software contained in a carrier medium.
22. However, the import operations at issue here were carried out - as Question 1 has stressed - in 1982. They thus fall within a period when the 1979 Agreement prevailed within the GATT area and the basic regulation prevailed within the Community, without there being any express provisions on the problem.
23. II. Having established those points, I propose to begin by examining the first part of Question 1, on whether or not a deduction from the invoiced price equivalent to the cost of the software is precluded a priori. (17)
24. 1. I first wish to affirm that Article 3 of the basic regulation is applicable to the import operations at issue here, because the conditions thereunder are fulfilled (see Article 2(1) of the basic regulation). With regard to the (negative) provisos contained in Article 3(1)(b), it is my view that "condition" and "consideration" as used in that provision may be assumed to refer only to a condition or consideration demanded of the purchaser in addition to the payment of the quantifiable price, resulting in a necessarily lower price on account of the consideration to be given by the purchaser or the conditions to be fulfilled by him. In that event the question is whether the transaction value remains the point of reference when it is impossible to determine how far the additional consideration given by the purchaser forms part of the quid pro quo for the goods concerned and how far it relates to other items. Article 3(1)(b) of the basic regulation provides in that event that the transaction value is unusable as a basis if the value of that part of the quid pro quo cannot be assigned, with consequent uncertainty as to the figure which would have to be added to the quantifiable sum in order to give the transaction value. (18) In the present case, on the other hand, the issue is whether that part of the cost represented by the software may, or must, be deducted from the invoiced price.
25. In support of the above interpretation of Article 3(1)(b) I would cite the examples given in Annex I to the 1979 Convention - recognized as an integral part (19) thereof - and the almost identically worded examples in Annex I to Regulation No 1494/80, (20) illustrating the provision. (21) They are limited to linked transactions and set-off arrangements, requiring the invoiced amount to be raised for the purpose of establishing the transaction value. (22)
26. The view that cases such as the present one are not covered by Article 3(1)(b) of the basic regulation is also in keeping with the general scheme of that regulation. Whereas, when the purchaser gives valuable consideration to supplement the pecuniary price, Articles 4 to 7 and 2(3) of the regulation provide methods for establishing the customs value, the regulation allows a deduction in certain cases where the pecuniary consideration exceeds the value of the goods (see Articles 3(4) and 15, and now Article 8a, of the basic regulation; also Articles 3, 4 and 5 of Regulation No 1495/80 (23)).
27. Thus, Article 3(1)(b) of the basic regulation does not preclude the application of Article 3 in the present case.
28. 2. With regard to Article 3(1), the question must now be asked whether the total price for the magnetic tape and the software recorded on it is "the price actually paid or payable for the goods". If the answer is an unqualified affirmative then the deduction of that part of the price representing the software is automatically excluded. Otherwise, it will be necessary to examine whether that deduction should have been applied at the material time even though the basic regulation is silent on that point.
29. (a) In the proceedings before both the Bundesfinanzhof and the Court of Justice it was debated whether the intellectual component contained in the applications software was embodied in the magnetic tape in such a way that together they formed an inseparable whole - that is to say, a single item of "goods" covered by the total price. It is my opinion that this case, unlike the Bosch (24) case, provides the Court with enough facts to enable it to answer the question itself. In my view that answer must be negative. Three different arguments may be adduced.
30. In the first place, as the Bundesfinanzhof rightly states in the order for reference, the thesis of a single unit is unacceptable on the facts. The intellectual component in question (the software) differs from gramophone records and books in being separable from its carrier medium if the user so wishes. Without affecting the fabric of the medium, and in particular without damaging or destroying it, the user may:
- copy the software onto another carrier medium; or
- erase the software - even irretrievably - from the carrier medium; or
- modify the content of the software, since according to the order for reference it consists of alterable standard programmes specially assembled for the user.
31. As regards the analogy drawn by the Commission with musical cassettes and other audio tapes, I believe that the music recorded on them lacks at least the last of the above characteristics. Whereas software is so designed that the user will use it by adapting it to his needs, musical cassettes are intended to be played only in their unaltered form. Furthermore, the plaintiff in the proceedings before the Bundesfinanzhof pointed out - rightly, in my view - that the price of such tape is usually strongly influenced by the quality of the recording, whilst software is concerned only with the correct reproduction of the recorded instructions.
32. That being so, the thesis that the carrier medium and the software form de facto a single whole must be rejected.
33. Secondly, there is no such unity from the economic point of view either. In proposing the opposite view the Commission bases itself on the judgments of the Court regarding the inclusion of licence fees in the customs value of goods. (25) It maintains that the only rational use (of carrier media) consists in feeding the data and the programmed instructions contained in them into the appropriate data-processing equipment, which in turn can only be done by using the media carrying the data. The possibility of removing or altering the software subsequent to importation is, it argues, immaterial because the only determining factor is the time of importation.
34. Those conclusions drawn by the Commission from the case-law of the Court do not seem valid. In the judgment of 14 July 1977 which the Commission quotes, the Court began by confirming the principle that it is only goods which are subject to duty. The Court held:
"The Common Customs Tariff by its nature concerns only the importation of goods, that is, tangible property, and does not apply to the importation of incorporeal property such as processes, services or know-how, which are, owing to their nature, already difficult for the customs mechanisms to cover. Therefore, for the purpose of the determination of the value for customs purposes, it is in principle necessary to concentrate only on the intrinsic value of the article and to disregard the value of processes, which may be patented, in which it may be used." (26)
35. As to the circumstances in which the process may be considered to merge with the goods themselves, the Court ruled as follows:
"... the result of an interpretation of Article 3 in accordance with the objectives of the basic provision laid down by Article 1 of the regulation is that a patented process, the carrying out of which constitutes the only economically viable use of the goods and which is only put into effect by the use of those goods, is regarded as embodied in the imported goods". (27)
36. In those explanations, which in my view may still be cited in relation to the meaning of "goods" despite supervening amendments to the law, the Court of Justice concentrated on the possibilities inherent in the goods and the process at the time of importation. Those possibilities clearly coincide with the characteristics of the two components. Let us remain with that previous case: if the conditions under which the Court will consider a process to have been embodied are satisfied, then any alteration to that process will mean that the machine is thereafter unfit to carry it out. Conversely, the purchaser is obliged to use the machine if he wishes to avail himself of the process; he cannot transfer the process to another machine. The characteristics are already inherent in the machine and in the process at the time of importation. The potential inherent in the carrier medium and the software, on the other hand, is that the software can be altered and copied onto other media, and that the carrier medium can be used for the storage of other software programmes.
37. Thirdly, it should for the sake of completeness be pointed out that the carrier medium and the software do not form a single item of goods de jure either. There is some evidence in this case for the contrary view, inasmuch as a single price was agreed and invoiced. However, suffice it to say that this arrangement of the contract and the invoice has - at most - a bearing on the criterion of "price" contained in Article 3, not on the criterion of "goods". The same principle also appears to underlie Article 15(2)(b) of the basic regulation.
38. The conclusion to be drawn from the foregoing as a whole, namely that applications software and carrier media do not, either generally or in this particular case, form a single item of goods, (28) is endorsed by the insertion of the abovementioned Article 8a into the basic regulation. The fifth recital in the preamble to the amending regulation, (29) referring to the decision of the GATT Committee on Customs Valuation of 24 September 1984, states that:
"... the Parties meeting within the framework of the Committee have decided that it would be consistent with the Agreement for Parties who wish to do so to take account only of the cost or value of the carrier medium itself in determining the customs value of imported carrier media for use in data-processing equipment and bearing data or instructions, provided that the cost or value of the data or instructions is distinguished from the cost or value of the carrier medium."
39. If the carrier media and the software were to be regarded as a single item of goods, it would in my opinion be incompatible with the 1979 Agreement to treat the value of the carrier media as the sole constituent of the customs value. The requirement of separate documentary entries for a deduction does not affect the above conclusion, because the separate itemization of different price components has no bearing on the unity of the goods as such.
40. (b) Since, therefore, software and magnetic tape represent two different entities and do not constitute a single item of goods it remains to be considered whether the total price should relate to the goods imported - the magnetic tape - and whether it is thus the "price actually paid or payable for the goods".
41. From an economic viewpoint that is certainly not so. When software is recorded on magnetic tape it generally acquires preponderant economic importance. The value of the magnetic tape as a carrier medium accounts for only a small fraction of the whole. The order of the Bundesfinanzhof shows (30) that this is so, and the plaintiff further illustrated the point with figures at the hearing. (31)
42. From a legal point of view, on the other hand, matters may be different, because under Article 3(3)(a) of the basic regulation as amended by Regulation No 3193/80 (32) the price actually paid or payable "includes all payments made or to be made as a condition of sale of the imported goods by the buyer to the seller".
43. Accordingly, the point to be resolved is whether payment of the total price, which includes the price for the software, was a condition governing the transaction for the purchase of the magnetic tape. In my opinion that cannot be assumed - either generally or in the circumstances of the case as described by the Bundesfinanzhof. If a composite price is agreed for the sale of magnetic tape and the use of the applications software recorded on it, the economic crux of the transaction is the software. In such a transaction it is not the price of the carrier medium that is negotiated but the price of the software, which, as was observed above, represents the major part of the total. It cannot therefore legitimately be said that a condition for the purchase of the carrier medium is that the purchaser must accept and pay for the right to use the software, as if it were an ancillary item. As the crux of the transaction indicates, the situation is exactly the reverse: agreement over the software is reached in such cases on the understanding that, if the client wishes to acquire title to the carrier medium under the contract, (33) he buys the carrier medium as well. I think that these points are inherently valid, regardless of how such agreements may be classified under the relevant provisions of civil law.
44. Although the Bundesfinanzhof states that the right to use the software was obtained by paying the "purchase" price, (34) I would construe this not as a contrary view of the matter but as an allusion to the parties' having agreed to composite prices, especially as the national court placed the word "purchase" in inverted commas - no doubt in order to leave open the classification of the transaction in civil-law terms. (35) The legal view may thus be seen to follow the economic analysis.
45. (c) My provisional conclusion from the examination of the case before the Court is that, for the purposes of Article 3 of the basic regulation, carrier media and software do not form a single item of goods, and that the total price for both components may be viewed only to a minor extent as the price for the carrier media.
46. 3. The central issue is now whether a deduction equivalent to the cost of the software (36) should be refused on the grounds that at the material time there was no appropriate provision whereby the total price could be split into its two component parts, so that the amount excluded from the customs value could be deducted accordingly.
47. (a) As I have explained, in accordance with the criterion of the transaction value, introduced by Articles 2 and 3 of the basic regulation, the basis for the customs value is a priori the contract price, from which the deductions for items not subject to duty, set out in a series of provisions, must then be made. Those provisions, (37) which I have already mentioned, supplement that principle by specifying what amounts may be deducted, in the same way as Article 8 of the basic regulation supplements it by specifying what amount the Council, the author of Regulation No 1224/80, considered it necessary to add.
48. All that appears to bear out the Commission' s contention that a deduction from the agreed price - even one which contains non-dutiable components - is never admissible in the absence of a special provision to that effect.
49. (b) There is no need to settle the broader issue involved now. I merely maintain that the conclusion drawn by the Commission is - at least in the present case - mistaken.
50. In the first place, it should not be forgotten that the basic regulation does not impose any express restrictions on deductions - unlike the provisions of Article 8(3) thereof regarding amounts to be added. That is in keeping with the Repenning judgment, (38) in which the Court gave a broad interpretation of Article 4 of Regulation No 1495/80 (39) governing deductions on the importation of quantities of goods less than the agreed quantities. The Court held as follows: "... the price actually paid or payable, on which the transaction value is based according to Article 3(1) of Council Regulation No 1224/80, must be adjusted where that is necessary in order to avoid the setting of an arbitrary or fictitious customs value". (40)
51. Consequently, it may at least be inferred that the regulation applies less rigorous standards when excluding deductions than when excluding additions.
52. It should further be borne in mind that the scheme envisaged by the regulation is not autonomous in its objectives but is designed to serve the aims of the basic regulation, and must in turn be measured against those aims. It is the declared objective of the basic regulation "to foster world trade by introducing a fair, uniform and neutral system of customs valuation excluding the use of arbitrary or fictitious customs values". (41)
53. It hardly needs to be explained that a customs value bearing no relationship either to the real value or even - and this is quite self-evident without any specific information - to the price of the goods is an arbitrary value. We are dealing with a case in which the scheme of the regulation, which generally ensures the exclusion of such arbitrary customs values, achieves exactly the reverse.
54. The aforesaid decision of the GATT Committee on Customs Valuation of 24 September 1984 indicates that it is possible to depart from the formal scheme in such cases. According to that decision it is consistent with the 1979 Agreement, which created the system and which the basic regulation transposed (largely verbatim) into Community law, for the parties to it to allow a deduction of the kind in question here. The Committee did not propose to amend the Agreement accordingly. In those circumstances I regard that deduction as a permissible, and indeed necessary, interpretation of the system and not, as the Commission contends, as an unacceptable infringement of it.
55. (c) I shall now turn to the question of the legal basis for that deduction. At the hearing it was debated whether Article 2(3) of the basic regulation could be applied by analogy. The Commission, invoking the teleological arguments mentioned above, opposed the idea.
56. In this connection I should like to refer to a similar difficulty which is the subject of Case 17/89, (42) still pending. There, the point at issue is whether a deduction equivalent to the cost of transport within the Community should be made if the conditions under Article 15 are not met. There, too, an analogy with Article 2(3) of the basic regulation was discussed. The Report for the Hearing summarizes the Commission' s submissions on the matter as follows:
"The Commission concedes that Article VII strictly concerns only the determination of the transaction value, but considers that where there is a gap in the law it is also applicable to other elements of the customs value. The objective of both the Agreement and the regulation is to determine the customs value on the basis of real costs and not fictitious values."
57. I cannot give my views on Case 17/89, nor do I wish to do so, but I agree with that opinion of the Commission for the purposes of the present case. (43) I would add that, in the light of my examination so far, there is no question of the basic regulation' s revealing an omission overlooked by the Council (44) such as might justify the application of provisions having no direct relevance. Article 2(3) of the basic regulation is designed, in the absence of other pertinent provisions for determining customs value, to ensure that the customs value "(is) determined using reasonable means consistent with the principles and general provisions of the Agreement and of Article VII of the General Agreement on Tariffs and Trade and on the basis of data available in the Community". That provision may be applied mutatis mutandis to deductions of the kind under discussion if an arbitrary customs value would otherwise result; the avoidance of such values is, indeed, envisaged in Article 2(3) itself (see Article 2(4)(g) of the basic regulation).
58. It will be inferred from the foregoing that the exclusion of the value of the software from the total price of the goods delivered, in the sense in which the Bundesfinanzhof understands it, is consistent with the 1979 Agreement and the basic regulation arising from it, and that Article 2(3) of that basic regulation affords the basis for the deduction.
59. III. Although according to the terms of Question 1, the Bundesfinanzhof requested merely an interpretation of Article 3, it is appropriate to set out the conditions imposed by Article 2(3) of the basic regulation regarding the documentary evidence required for the grant of a deduction. This brings me to the second part of Question 1.
60. 1. In principle, the customs authorities must use "reasonable means" when applying Article 2(3) of the basic regulation. Clearly, they must base themselves primarily on the invoicing and contract documents produced by the importer which relate to the underlying transaction.
61. 2. Whenever the importer, relying on the right to a deduction which Article 2(3) confers on him by analogy, claims such a deduction, he must in principle furnish evidence that the invoiced amount includes charges for software, and must quantify them.
62. (a) The reason for that arrangement of the basic onus of proof is, in the first place, that the importer is relying on a provision which Article 3 of the basic regulation develops in his favour. Furthermore, Articles 3(4), 8a and 15 of the basic regulation provide that the importer must furnish proof (by way of separately stated ("distinguished" - figures or by the production of evidence) of the amounts to be deducted.
63. (b) A further question is whether separately stated figures are necessary or sufficient. The relationship between the production of evidence and separately stated figures was dealt with in Mainfrucht. (45) The Mainfrucht judgment discloses that "separately stated figures" are subject to less stringent requirements than is the "production of evidence". With regard to Article 15(1), the Court ruled that the only condition imposed was that the cost of transport within the Community should be distinguished from the price actually paid or payable. (46) The fact that Community law on the valuation of goods for customs purposes makes any deduction conditional on separately stated figures is more favourable to the customs debtor than the requirement of having to produce evidence, since it is sufficient that the cost elements in question can be distinguished from the purchase price - that is, that they can be identified as separate cost components. (47) The customs office, however, retains the right of verification. (48) The requirement of separately stated figures is thus an isolated instance, to be classified among the special cases envisaged by Community law on the valuation of goods for customs purposes. In other cases the operative principle is still that the importer must furnish evidence that he qualifies for the provisions in his favour. (49)
64. 3. As far as the requirements regarding such evidence are concerned, Community law does not contain a comprehensive set of provisions, with the result that a priori national legislation applies. (50) Article 2(3) of the basic regulation merely defines the outer limit by excluding unreasonable means.
65. (a) On that basis we should first investigate the problem formulated in the second part of Question 1, to which the Commission has drawn particular attention, namely whether, when composite prices have been agreed, Community law disallows evidence in the form of records kept by the seller, and in particular invoices showing separate figures for the costs qualifying for deduction.
66. The Commission is right in contending that the object of a customs valuation is to determine the customs value of goods as at the material time. (51)
67. It is, however, a separate question whether Community law rules out the importers' furnishing evidence as to the individual components of the total price agreed prior to that material time. I cannot find any such Community provision governing any part of the procedure for taking evidence, which is otherwise a matter for national law. On the other hand, I do not consider it necessarily out of the question that the importer should, after the event, supply documents or other evidence showing convincingly how the individual contractual items, not identifiable in the contract itself, were calculated. (52) In the present case the plaintiff before the Bundesfinanzhof submitted at the hearing that in the negotiations for the contract an itemized calculation was first prepared and then the total figure was negotiated as a lump sum. In my view this case affords a good example of how the importer should not, under Community law, be prevented from furnishing evidence as to the value of the individual items qualifying for deduction, by producing cogent documentary evidence setting out the supplier' s calculations. The same principle is, indeed, expressed in Article 15(2)(b) of the basic regulation.
68. On the other hand, the difficulties which the person concerned may encounter in adducing such evidence are the natural consequence of the manner in which the underlying transaction was arranged. (53)
The Court of Justice cannot determine whether the requisite evidence was furnished in this case, since the examination of evidence is a matter for the national courts.
69. (b) A separate question under consideration by the Bundesfinanzhof is whether all the documents providing the requisite evidence must have been presented by the material time.
70. In that respect, too, Community law contains no express provisions taking precedence over national provisions on taking evidence. However, it remains to be considered whether such a principle may be inferred from the case-law of the Court or the Community provisions on customs entry formalities.
71. (aa) The Commission concludes from the abovementioned Mainfrucht judgment (54) that the customs authority must have the right to inspect the evidence regarding the deductions sought before it fixes the customs value. (55) However, it is my opinion that the Court has established only that subsequent inspection by the competent customs authorities is not precluded if the importer applies for a deduction envisaged in the basic regulation and submits supporting invoice documents in which the relevant figure is shown separately. The time-limit for the importer' s submission of such documents needed no ruling in that case.
72. Furthermore, the Meyer-Uetze judgment, also cited above, makes it perfectly clear to me that there is no general principle of the kind suggested in the Community law on customs value, in the absence of Community provisions dealing specifically with those matters.
73. (bb) It is true that, as the Federal German Government and the Commission submitted, a limit ratione temporis of the kind suggested might be inferrable from the Community provisions adopted since the material time for the Meyer-Uetze judgment, regarding the formalities attaching to the entry form for the release of goods for free circulation (hereinafter referred to as "the entry"). (56) Those provisions are contained in Directives 79/695 (57) and 82/57. (58)
74. As a preliminary it should be noted that the period prescribed for the implementation of Directive 82/57 expired on 1 July 1982, so that it seems legitimate to ask whether that directive is relevant to the interpretation of Article 3 of the basic regulation, in the context of "Case 1" before the Bundesfinanzhof, where, according to the documents, the goods were entered in April 1982. Nevertheless, as will be shown below, that is not ultimately the point at issue.
75. Under the provisions of Directives 79/695 and 82/57 the entry must be complete, and accompanied by all the documents required for the correct application of the import duties (Article 3 of Directive 79/695). By virtue of Article 1(1) of Regulation No 1496/80, (59) those documents must include a declaration of particulars relating to customs value, set out in a pre-printed form shown in the Annex, together with the other supporting documents mentioned in the regulation. The possibility of correcting the particulars in the entry and producing further documents is the subject of detailed rules under Articles 6 to 8 of Directive 79/695 and Articles 5 to 9 of Directive 82/57.
76. In my opinion, the question raised by the Bundesfinanzhof concerns only the time up to which documents considered to furnish evidence of entitlement to a deduction may continue to be submitted. That is apparent from the disagreement in the national proceedings as to whether the revised invoices and the telex message from the manufacturer are admissible as evidence.
77. In that connection, Article 6 of Directive 79/695 and Articles 6 and 7 of Directive 82/57 show that the procedure for setting the time-limits for the submission of documents applies only when such documents (for example, the invoice to which Article 4 of Regulation No 1496/80 and Article 3(1)(a) of Directive 82/57 refer) are missing but when the customs authority has nonetheless accepted the entry. In the present case the plaintiff produced invoices (even before lodging the entry), although they gave no evidence on the deduction claimed. Nor can I construe Article 10(1) of Directive 79/695 as a restriction disallowing evidence submitted subsequently. Under Article 10(1) "the results of the examination of the entry and the documents attached to it ... shall be used for calculating the import duties". As is clear from the second sentence of Article 10(1) and from Article 10(2), the first sentence of Article 10(1) concerns only the right of customs authorities to examine the entry and the documents. The second sentence of Article 10(1) sets out the procedure when there is no such examination. As far as the ex post facto production of documents is concerned, the legal situation is the opposite of the arrangement under Article 8 of Directive 79/695, whereby corrections of particulars contained in previously accepted entries are permissible only subject to the restrictions and conditions mentioned therein.
78. From that legal situation I conclude that Community law, in a case such as the present one, does not disallow documents produced after acceptance of the entry which are intended to substantiate entitlement to a deduction sought. That does not affect the right of the customs authorities under Article 10(1) of the basic regulation to call for documents and to lay down time-limits for their production. Since the customs authority in this case has clearly not imposed any such rules, the point needs no further investigation.
79. Although this solution means that such documents may be produced after the event, until the relevant customs decision acquires the force of law, (60) and hence that a fairly long period of uncertainty may occur in cases such as the present one, it is authorized by the provisions of the Member States on legal protection against the measures of customs authorities. Community law does not at present cover the matter, with the result that it cannot be cited against the solution proposed above, either in relation to the length of that period of uncertainty or in respect of any disparities in that regard between the various Member States.
80. (c) It is, of course, another matter to define the time up to which it is possible to declare to the customs authority, as a deductible amount, the share of the price attributable to the software.
81. (aa) I infer from Article 1(1) of Regulation No 1496/80 that this must, in principle, be done in the declaration of particulars relating to customs value, (61) which must be lodged together with the entry form. The Bundesfinanzhof has not submitted any question on the matter, and therefore there are a priori no grounds for giving an opinion on it. I am inclined to believe that such a declaration should also be admitted after the event - until the customs decision acquires the force of law, where appropriate. Article 1(1) of Regulation No 1496/80 distinguishes between the entry form and the declaration of particulars relating to customs value. No provision equivalent to Article 8 of Directive 79/695, under which an entry form may be corrected only under certain conditions, is to be found in Regulation No 1496/80 in connection with the declaration of particulars relating to customs value.
82. The facts of the case as described by the Bundesfinanzhof are unclear as regards the time at which, and the rules under which, that declaration was given. Furthermore, in its written submissions and at the hearing the plaintiff claimed to have specified, in the declaration of particulars relating to customs value, the components of the invoiced price not forming part of that value. Should the Court not be prepared to endorse my opinion, therefore, it would be appropriate to include a reserve regarding compliance with period prescribed for the declaration; the declarant cannot be allowed to remedy a breach of the time-limits for claiming the reduction by producing documents subsequently.
83. (bb) If the Court should take the view that the declaration of particulars relating to customs value, as such, cannot subsequently be supplemented, I should like to make a further remark as to the legality of claiming the deduction. The Federal German Government maintains that a deduction invariably presupposes that the importer has applied for it in the appropriate box of the form for the declaration of particulars relating to customs value. Although that view is no doubt based on sound procedural grounds, I cannot accept it without reservations. In my view it should be sufficient if that declaration, and possibly the entry form as well, show clearly which amounts should be deducted and give the grounds for claiming such deductions. No doubt the form provided by Regulation No 1496/80 also serves to bring a degree of order into the declaration of particulars relating to customs value and thus to make such declarations readily intelligible. If, however, that end is achieved in some other way, I can see no reason for placing the importer at a disadvantage.
84. IV Question 1 of the national court should be answered accordingly.
Question 2
85. In view of the points made on the second part of Question 1, I can be brief in my answer to Question 2.
86. What I have said about the subsequent production of documents in connection with furnishing evidence of entitlement to the deduction sought applies equally, mutatis mutandis, to the separate statement ("distinguishing") of deductible items. I propose to enlarge on certain observations on the meaning of that "distinction". As was noted above, a separate statement is an attenuated form of evidence. If the cost components which are subject to customs duty and those which are not are both invoiced by the same person, then a figure is in my opinion usually "distinguished" if the invoice (or other suitable records of the transaction) to be submitted for customs valuation purposes shows it as a separate part of the costs. The Customs Valuation Committee (62) is correct in maintaining that deductible costs cannot be regarded as having been "distinguished" in the declaration if the entitlement to such a deduction is left totally unsubstantiated. (63) The criterion of "distinguished" costs would otherwise be largely meaningless.
87. The requisite documents may, in my opinion, be produced subsequently in just the same way as in cases where the person concerned is required to furnish evidence. It should not be forgotten that the customs authorities, by the terms of the Mainfrucht (64) judgment, are entitled to verify if need be the validity of the distinguished amounts whose deduction is claimed. Should the customs authority inform the person concerned in such a case that it considers the deduction excessive, the importer is quite at liberty under Community law, until such time as the customs decision acquires the force of law, to present documents or further evidence to substantiate entitlement to the deduction. It follows that the "distinguishing" of costs, being an attenuated form of evidence, must be subject to the same principle.
88. From those findings I propose to draw the answer to the further question as to how far the customs authorities are obliged to grant the deduction on the basis of the distinguished costs shown in the documents produced subsequently. As was noted above, the customs authorities are permitted under the Mainfrucht judgment, in principle, to check the particulars shown as separate items "if the circumstances warrant it" - that is, if there is reasonable doubt as to those particulars - in order to ensure that they are not fictitious. That of course applies also, and perhaps pre-eminently, in the case of documents produced subsequently. If their inspection shows that the deduction is wholly or partly unjustified, they will reject the deduction or reduce the amount claimed.
89. It is nonetheless appropriate, precisely on account of the facts in the proceedings before the national court, (65) to explain clearly what the legal implications are if the customs authority does not carry out its own investigations - because they offer no prospect of success - or if those investigations reveal nothing. On the one hand, nothing will have changed inasmuch as there will be continuing doubts as to the validity of the particulars given. On the other hand, it would then be incompatible with the presumption which Article 3(4) attaches to the separate itemization of assembly charges if the customs authority were to disallow the deduction out of hand, stating that the documents produced (subsequently) did not provide cogent evidence.
90. The solution which most readily excludes an excessively high or excessively low customs valuation, and thus serves best the aims of the basic regulation, must in my view be one whereby the customs authorities, prior to a decision to disallow the deduction claimed, give the declarant an opportunity to furnish further evidence to substantiate entitlement to the deduction.
C Conclusion
91. For the above reasons I propose that the Court give the following answers to the Bundesfinanzhof:
1. (a) In 1982 Article 3 of Regulation No 1224/80 was to be interpreted to the effect that the customs value of carrier media with applications software recorded on them, which the supplier had invoiced to the declarant, in accordance with the contract, as a comprehensive price was to be considered to be only that part of the invoiced price demonstrably attributable to the carrier media;
(b) A declarant who had produced that invoice showing the total price, prior to or together with the declaration of the particulars relating to the customs value, could furnish evidence to substantiate his claim until such time as the relevant customs decision was no longer open to legal challenge.
2. Assembly charges (Article 3(4) of Regulation No 1224/80) are, if the declarant had, prior to or together with the declaration of the particulars relating to the customs value, produced an invoice in which they were incorporated in a total price, to be regarded as "distinguished" if the declarant claimant produces the invoice or other transaction documents showing those charges separately before the time at which the relevant customs decision is no longer open to legal challenge;
However, customs authorities may, if the circumstances warrant it, inspect the documents produced subsequently regarding the assembly charges, in order to verify that the particulars given are not fictitious. Should they not conduct their own investigations, or if the investigations reveal nothing and there are reasonable doubts as to the validity of the amount shown as the assembly charge, then they must, prior to a decision to disallow the deduction claimed, give the declarant an opportunity to furnish further evidence to substantiate entitlement to the deduction.
(*) Original language: German.
(1) Council Regulation of 28 May 1980 on the valuation of goods for customs purposes; OJ L 134, p. 1.
(2) The Bundesfinanzhof, allowing that the magnetic tapes might not have formed part of the total price, bases its questions to the Court on the premise that the total price did include sums relating to the carrier media (magnetic tapes). Accordingly, the questions will be answered on that basis. The plaintiff' s submissions at the hearing that the magnetic tapes were not purchased but were transferred for a limited period of use cannot be taken into consideration in the proceedings before the Court of Justice.
(3) See judgment of the Court in Case 1/77, Bosch v Hauptzollamt Hildesheim [1977] ECR 1473.
(4) OJ English Special Edition 1968(I), p. 170.
(5) The Convention entered into force on 28 July 1953.
(6) See Articles 5 and 6 of the 1950 Convention.
(7) Study No 3, issued in French and English in the series Customs Valuation/Valeur en Douane, by the Customs Cooperation Council.
(8) See the Commission' s answer to questions on that subject from the Court of Auditors; Annual Report of the Court of Auditors concerning the financial year 1983, OJ 1984 C 348, p. 193.
(9) Agreement of 12 April 1979, reprinted in OJ 1980 L 71, p. 107.
(10) OJ No L 71, p. 1.
(11) See Article 3(1) of Regulation No 1224/80 and Article 1 of the 1979 Agreement.
(12) The Commission and the plaintiff before the Bundesfinanzhof disagree as to whether all the customs authorities in the Community changed their practice in that way.
(13) See the Commission' s submission, above (footnote 12).
(14) See Article 18(1) of the 1979 Agreement.
(15) Reprinted in "Customs Valuation", published by the Commission of the European Communities, 1989, p. 53.
(16) Council Regulation (EEC) No 1055/85 of 23 April 1985 amending Regulation (EEC) No 1224/80 on the valuation of goods for customs purposes; OJ 1985 L 112, p. 50; see also the fourth, fifth and sixth recitals in the preamble.
(17) The second part of Question 1 concerns the further conditions governing such deduction.
(18) If the value of the consideration or the conditions can be determined by reference to the goods to be valued, then it is an indirect payment as envisaged in the last sentence of Article 3(3) of the basic regulation.
(19) See Article 14 of the 1979 Agreement.
(20) Commission Regulation of 11 June 1980 on interpretative notes and generally accepted accounting principles for the purposes of customs value; OJ 1980 L 154, p. 3.
(21) The examples in Regulation No 1494/80 refer to Article 3(1)(b) of the basic regulation, whilst those in Annex I to the 1979 Agreement refer to the parallel Article 1(1)(b) of that Agreement.
(22) One example given is the case in which the seller establishes the price of the imported goods on condition that the buyer will also buy other goods in specified quantities.
(23) Commission Regulation of 11 June 1980 implementing certain provisions of Articles 1, 3 and 8 of Council Regulation (EEC) No 1224/80 on the valuation of goods for customs purposes; OJ 1980 L 154, p. 14.
(24) Case 1/77, cited above.
(25) Judgments of the Court in Case 1/77, cited above, and Case 135/77, Bosch v Hauptzollamt Hildesheim [1978] ECR 855.
(26) Paragraph 4 of the judgment.
(27) Paragraph 5, in fine; see also the operative part of the judgment in Case 135/77, cited above.
(28) Perhaps unlike the case of "operating software", without which the computer is quite unable to function as such, any incorporation of applications software in the computer seems altogether out of the question, since such apparatus is generally - and, clearly, in this instance too - built to be operated with a wide range of very diverse applications programmes.
(29) Regulation No 1055/85, cited above.
(30) According to page 9 of the order for reference (p. 6 of the translation), the inclusion of the value of the software in the customs value of the carrier media increases that value considerably.
(31) A ratio of US (8
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