Classifications of customs items

A court ruling handed down last month examined a fundamental practical issue: Can a material change be made in an imported product in order to change its classification for customs purposes?

In this case, the petitioner imported a camper trailer from the United States, which required approval from the Ministry of Transportation. The petitioner was refused a permit, since the trailer met US standards that are not recognized in Israel. The petitioner’s creative solution was to remove the wheels and dismantle the chassis and the tow hitch in order to turn the camper trailer into an immovable “B&B” and thereby change its classification to a structure which is exempt from the permits required for imports of automobiles.

The legal dispute

The petitioner sought to rely on section 87 of the Customs Ordinance, which prescribes that: “The customs collector may allow the owner of stored goods or the party that has control over them, to sort them, separate them, pack them and re-pack them and make all legal modifications, arrangements and sorting necessary to preserve them or to prepare them for sale, shipment or any legal action with them…”

The petitioner argued that this is an appropriate instance to obligate the customs agent to allow him to make the requested changes.

The customs agent countered by arguing that section 87 relates only to minor changes in a product, and not to changes that cause a change in the customs classification, and that, in any case, allowing such a change is in the custom agent’s discretion.

The ruling

The court ruled that section 87 cannot be used to compel the customs authorities to allow the petitioner to make material changes in the product. The ruling stated that “with all our understanding and willingness to help the petitioner – willingness that seems to have been demonstrated by the administrative personnel who met with him – it is neither possible nor  warranted to compel the authority to create a bypass track in order to devise a one-off solution to the problem, which was created because the caravan was imported “as is” with its wheels, especially since importing the caravan in this manner is prohibited; and all while circumventing the provisions of the relevant tax provision” (clause 38 of the ruling).

Analysis of the ruling

Prima facie, it appears that the court issued a formalistic ruling, because the petitioner was willing to promise that he wouldn’t use the caravan as a means of transportation, and that he would make all required changes for this purpose.

It seems that the court’s position was influenced by a reluctance to allow importers (and especially personal importers) to “successfully” exploit section 87 (i.e. importers will only make changes if claims are raised against the import).

We can however extrapolate from this ruling that the formalistic approach also works in favor of importers, in the sense that the ruling essentially tells importers how to circumvent this type of problem. If the petitioner had ensured that the caravan was manufactured without wheels, chassis, tow hitches, etcetera while still in the factory abroad, then the customs authorities could not have argued that since wheels can also be mounted on the caravan, it should be classified as a means of transportation. The customs authorities therefore were required to classify the product as imported and not according to potential use thereof.