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The Legal Analysis of the Resolution of Disputes Related to Determining the Customs Value of the Natural Gas
In this article the author examines the legal order of the natural gas as an object of export contracts, examines the issue of determination of the customs value of natural gas, conducts legal analysis of court practice of settlement of disputes in connection with determination of the customs value of natural gas.
energy law, energy legislation, legal order of natural gas, foreign economic contracts, court practice.
The export of hydrocarbons, including the natural gas, has lately been playing a major role in the economy of Russia. The export is conducted using various means of transporting gas: pipeline transportation of the natural gas, as well as tanker transportation in accordance with the agreements of time-charter for the liquefied natural gas.
When researching the legal regime of the natural gas as the object of the export trade, we would like to dwell in more detail on the issue of determining the customs value of the natural gas.
Despite the detailed regulation of the order and the methods of determining the customs value in the acting legislation, disputes on defining the customs value of natural gas have often been the subject of the hearings in the arbitration courts.
The most frequent subject of disputes is the correctness of the choice of the method of determining the customs value of the natural gas by the person conducting its export. The customs bodies, namely the Central Energy Customs, often disagree with the application of the main method of determining the customs value of the natural gas (based on the contract price) and conduct the correction of the value of the natural gas by using another method, that of the price of contract for the identical commodity. However, such an approach is not always lawful. Besides, the customs authorities do not always consider the specificity of such object of export as natural gas, as well as the technological peculiarities of its transportation.
The specificity of the natural gas lies in the fact that because of the various technical reasons its transportation requires certain amount of gas particularly for the technological needs (e.g. to maintain the required pressure, for the compression station). Such gas is supplied free of charge. The physical nature of gas does not allow identifying or separating one type of gas (technical) from the other type (commercial) in the pipeline. However, the customs authorities are trying to single-handedly correct the price of the technological gas and obligate the supplier to pay the customs duties also on the technological gas.
Let us review some examples of the legal practice of dispute resolution when determining the customs value of the exported gas, when the judicial bodies confirm the correctness of the price choice of the declaring body when exporting the natural gas based on the first method of its customs valuation, i.e. based on the contract price. It is the price of the supplied natural gas, which is stated in the particular contract that constitutes its customs value and should be used for the customs purposes.
LLC Gazprom Export has appealed to the Moscow City Arbitration Court with the claim to the Central Energy Customs on the invalidation of the correction of the customs value of 28 September 2012 conducted with respect to the contract with EAD Bulgatransgaz of 27 April 1998. The contract, as well the p. 2 of the Addendum to the contract No. 9 of 30 June 2005, foresaw the supply of gas for the private needs of the compression stations in the territory of the Republic of Bulgaria (gas for the needs of the compression stations) free of charge. In order to declare the volume of the natural gas (the volume of the gas for the needs of the compression stations and the calculated volume of gas for the technological needs of the transit pipeline), the claimant submitted customs declaration on 17 September 2012. The customs value of the natural gas was calculated based on the first method (the contract price of the exported commodity).
In accordance with the Intergovernmental agreement of 23 July 1986, the Russian side was obligated to secure the supply of the natural gas for the needs of the compression stations free of charge with the goal of securing the transportation of the natural gas.
Thus, the company executed the supply of gas in fulfillment of the adopted intergovernmental commitments and presented one of the elements of the price formation in the area of transit of the Russian natural gas through the territory of Bulgaria to the third countries. The value of the actually delivered gas for the technological needs of the transit gas pipeline equals zero. Based on the customs control after the release of the commodity, the decisions of the customs station on the release of the commodity was reversed and on 28 September 2012 the customs conducted the correction of the customs value using for the correction a comparable delivery within the contract of 23 December 2010, when the gas was delivered directly to the Bulgarian consumers on the commercial basis.
The position of the customs body was based on the fact that neither the Intergovernmental agreement of 23 July 1986, nor the contract serving as the basis for the transportation of the Russian natural gas through Bulgaria to the third countries in August 2012, contain a mechanism of determining the degree of influence on the gratuitous nature of the supply of the natural gas for the needs of the compression stations for the volume of the rate of the transit. According to the customs body, the compared natural gas is identical to the one in question, because it is produced in the same country, imported by the same legal person within one month of delivery, is identical based on the physical and chemical characteristics, is being transported in the general stream of gas imported into the Republic of Bulgaria in transit through this country and was sold at the same commercial level.
The decision of the Moscow City Arbitration Court of 8 April 2013 and the unchanged resolution of the Ninth Arbitration Court of Appeal of 9 July 2013 satisfied the declared demands.
In passing its decision, the court applied the Art. 64 of the Customs Code of the Customs Union, Art. 19 and 20 of the Law of the Russian Federation No. 5003-1 “On the Customs Tariff” of 21 May 1993, acting at the moment of the export of the given commodity, ps. 26-28 of the Rules of Determining the Customs Value of the Goods, which are exported from the customs territory of the Russian Federation (approved by the Resolution of the Government of the Russian Federation No. 500 of 13 August 2006), the legal stance of the Supreme Arbitration Court of the Russian Federation in the Resolution No. 29 “On Some Issues of the Practice of the Examination of Disputes Related to the Determining of the Customs Value of the Goods” of 25 July 2005. The arbitration courts concluded that the correction of the method of calculating the value based on the identical goods can be conducted only using the identical goods sold at the same commercial level in the analogous quantity.
The export contracts in question are significantly different based on their temporal terms and the volumes of delivery, as different volumes of the natural gas were imported based on the customs declarations (the gas volume supplied by the claimant was 478 times higher than that delivered as part of the customs declaration used by the customs authority for the comparison).
The given circumstances in their totality testify to the existence of discrepancies in the conditions of the compared contracts and the conducted deliveries, which makes it problematic to correct the customs value using the second method (method of the value of the contract with the identical commodity).
Not infrequent are the cases when the customs bodies refuse the application of the applicant (i.e. exporter of the natural gas) to decide on the correction of the customs value of the natural gas, especially its decrease, although p. 1 Art. 68 of the Customs Code of the Customs Union reads that such a decision is passed if the claimant has established that the customs value of the commodity was determined in a wrong way.
OOO Gazprom Export has applied to the arbitration court with the declaration to the Central Energy Customs on challenging the decision on refusing to conduct the correction of the customs value of the natural gas on a number of cargo customs declarations. The position of the company was based on the fact that within the period from January to March 2010, in compliance with the export contracts of N/N of 28 February 2007 conducted with the company “Shell Energy A.S.” and No. 2102-07-10 of 11 September 2007 concluded with the company “Enerko Energy Sanaji ve Tiydaret”, OOO Gazprom Export has conducted deliveries of natural gas. The supplied gas was declared. The customs value of the commodity was claimed by the Company in accordance with Art. 8 of the above-mentioned contracts.
On 18 March 2010 and 26 March 2010 the parties signed the Additions No. 2 and No. 1 to the export contracts, which alter the order of the calculation of the contract price of the natural gas in the period from 1 January 2010 to 1 July 2010, i.e. the main subject of the Additions to the Contracts was the setting of the new order of determining the price for the natural gas and determining the new formula for the calculation of the price.
The need for changing the natural gas formula used before was explained by the fact that starting on 1 January 2010 the data on the quotation rates for the gas-oil 0,2 were no longer published in the sub-chapter “Cargoes CIF Med Basis Gena/Lavera” in “Platts Oilgram Price Report”, which served as one of the elements of the price formula. The fact that the above-mentioned quotations would cease to be published became known from the periodical “PLATTS Review of the European Market” issued on 5 November 2008. Thus, at the moment of the customs clearance of the batches in question, i.e. in January-March 2010, this information, which directly impacts the formation of the natural gas price and its customs value, were known, but not declared.
The price of the natural gas and its customs value given in the disputed customs declarations is preliminary, because the final price should be defined only after the signing of the Additions to the Contracts. The Additions were signed before the customs clearance of the dispute deliveries. According to the conditions of the Additions, they take effect starting on 1 January 2010.
Thus, the documents and the information on the value of the goods as of its release was available but was not declared during the customs clearance for the objective reasons.
OOO Gazprom Export turned to the Central Energy Customs with the application on conducting the correction of the customs value of the exported natural gas for the above-mentioned contracts based on the faulty setting of the customs value of the natural gas made because the Additions to the export contracts were not taken into consideration at the moment of declaring the deliveries. In support of the discrepancy between the customs value liable for correction, the claimant presented the respective documents.
The defendant based his arguments on the fact that the acting legislation does not contain the concept of a “credit-note” and does not set its unified form, which means the correction and the return of money based on this norm are impossible. By refusing to conduct the correction of the customs value of the goods on the disputed customs declaration, the Central Energy Customs referred to the fact that there are no legal grounds for conducting the correction of the customs value after the commodity was released based on the Additions to the export contracts, which were not presented and not coming into force.
The Moscow City Arbitration Court satisfied the stated demands in its decision of 30 September 2011. The court justified its decision based on the fact that the claimant rightfully addressed the defendant, who had no practical or legal grounds to refuse to correct the customs value of the supplied natural gas.
The dispute between the company and the Central Energy Customs referred exclusively to the possibility of conducting the correction of the customs value of the commodity after the release based on the well-founded reference of the applicant. When addressing the defendant, the claimant provided in the customs declaration the information on the customs value of the natural gas based on the preliminary price, i.e. the price which already then did not correspond to the actual final contractual price. The price paid for the delivered gas was different.
In accordance with p. 1 Art. 64 of the Customs Code of the Customs Union, which came into force on 1 July 2010, the customs value of the goods exported from the customs territory of the Customs Union is determined in accordance with the legislation of the member state of the Customs Union.
According to p. 1 Art. 68 of the Customs Code of the Customs Union, the decision on the correction of the declared customs value of the commodities is passed by the customs authority during the control of the customs value both before and after the release of the commodities, if the customs authority or the applicant finds out that the declared information on the customs value of the commodities is false, including the false choice of a method of determining the customs value of the commodities and (or) determined the customs value of the commodities.
In accordance with p. 3 Art. 68 of the Customs Code of the Customs Union, during the adoption by the customs authority of the decision on correcting the customs value after the release of the commodities, the claimant conducts the correction of the false information and pays the customs duties and the taxes calculated with consideration to the corrected data.
At the moment of the application of the company to the customs authority with the application on conducting the correction of the customs value of the exported natural gas with respect to the declaration, the Customs Code of the Customs Union had already come into force, and being an international legal act, possessed a stronger legal force that the internal customs legislation of the Russian Federation. Moreover, the customs legislation of the Russian Federation acting at the moment of the coming into force of the Customs Code of the Customs Union retained its power only in the part where it did not contradict the Customs Code of the Customs Union. Considering the above-mentioned normative acts, the legal basis for calculating the customs value of the exported commodities was the contractual price. That means, the price, which was actually paid or liable for payment for the commodities as they were sold “for export”. The price, which was actually paid or liable for payment for the exported commodities, is the total price of all the payments conducted or liable to be conducted by the buyer for the imported commodities.
Federal Law No. 311-ФЗ “On the Customs Regulation in the Russian Federation”, which came into force on 21 January 2011, in p. 112 retains the existing order of defining the customs value of the exported commodities and transfers it to the competence of the Government of the Russian Federation. However, p. 6 Art. 112 of the current law introduces several specifications into the order of the correction of the customs value, which fully reflect the requirements fixed in Art. 68 of the Customs Code of the Customs Union. This norm fully corresponds to ps. 1 and 2 of the Order of Correction of the Customs Value of the Commodities approved by the Decision of the Commission of the Customs Union No. 376 of 20 September 2010.
The price, which was actually paid or liable for payment for the exported goods, constitutes the sum of all the payments conducted or liable to be conducted by the buyer for the imported goods (ps. 8, 10, 15 of the Rules on Determining the Customs Value of the Commodities Exported from the Customs Territory of the Russian Federation, approved by the Resolution of the Government of the Russian Federation No. 500 of 13 August 2006).
Thus, one can speak of the current unified court practice on the resolution of disputes created when disputes arise in relation to the customs value of the natural gas, which is formed based on the clauses of the Customs Code of the Customs Union, the Law of the Russian Federation “On the Customs Regulation in the Russian Federation”, the Rules on determining the customs value of the commodities exported from the Russian Federation approved by the Resolution of the Government of the Russian Federation No. 191 of 6 March 2012 as fully formed. One should also note that the current practice corresponds to the general principles and clauses on determining the customs value for the commodities set by Art. VII of the General Agreement on Tariffs and Trade of 1994 (GATT, 1994), the World Trade Organization (Marrakesh, 15 April 1994) and the Code of Customs Value of GATT. This is especially topical under the condition of the Russian Federation’s entry into the WTO.
 The following basic normative acts in the area regulating the relations on determining the customs value of the goods are currently in force: The Customs Codex of the Customs Union (The Treaty on the Customs Codex of the Customs Union was ratified by the RF Law No. 114-ФЗ of 2 June 2010); The Agreement “On Determining the Customs Value of the Goods Moved across the Customs Border of the Customs Union” signed by the Government of the RF, the Government of the Republic of Belarus and the Government of the Republic of Kazakhstan of 25 January 2008; the decision of the Commission of the Customs Union No. 376 of 20 September 2010 and the adoption by this decision of the Order of declaring the customs value of the goods, the Order of the control of the customs value of the goods; the RF Law No. 311-ФЗ “On the tax regulation in the RF” of 27 November 2010; Resolution of the Government of the RF No. 191 “On the adoption of the Rules of determining the customs value of the goods exported out of the RF” of 6 March 2012. Besides, in regulating the issues of determining and controlling of the customs value of the goods, the respective normative acts of the Federal Customs Bureau of the RF are in power.
 Available at: http://www.ras.arbitr.ru. The court acts on the case А 40-3162/13-154-27.
 Available at: http://www.ras.arbitr.ru. The legal acts on the case А 40-56169/11-94-467.
 The given norms have come into force for the RF on 22 August 2012 in accordance with the Protocol “On the Joining by the RF of the Marrakesh Agreement on the Establishment of the International Trade Organization 1994” ratified on 21 July 2012, No. 126.