How do Your Tariff Classifications Measure Up?

From the Auditor General’s Audit Report on Customs Duties Management by the CBSA, Global Affairs & Finance Canada-March 3, 2017:

• Non-compliance is occurring due to CBSA controls not working.  Descriptions of goods are incorrect or of poor quality. As a result it is difficult to determine exactly what is imported.

The video of the Auditor General’s report to the Standing committee on Public Accounts is available via the link below:

PACP Meeting No. 78

In light of the above finding and the reduction in duties collected by CBSA as a result of Free Trade Agreements and/or reduction in duties, it is expected that CBSA will rely more heavily on Verification Audits to determine if Importers are using correct Tariff Classifications.  Should an audit determine that the Tariff Classification being used is incorrect; the Importer may be subject to AMPs Penalties.

CBSA updated their Verification Priorities in January 2018.  These can be found at the following website:

https://www.cbsa-asfc.gc.ca/import/verification/menu-eng.html

 

What does this mean for the Importer?

Should an Importer be identified for a classification audit, the goods being reviewed will be subject to scrutiny to determine the correct Tariff Classification.

Are the tariff classifications that you are using being correctly applied? Have they been determined in accordance with the General Interpretive Rules and Canadian Rules as set out in the Tariff Schedule and for legal purposes has the classification been determined according to the terms of the Heading and any relative Section or Chapter Notes? These are the questions that must be answered in order to establish that you have correctly applied the correct classification number and the corresponding duty rate.

There are many situations where the tariff classification of a product due to its composition and features and overall complexity may appear to fall under more than one tariff classification with varying duty rates. These should be carefully evaluated to ensure that you are not paying more than you should be and equally important that there is not the possibility that another classification with a higher duty rate exists which may be discovered during a subsequent customs verification audit.

Wherever there are questionable classifications these should be thoroughly reviewed to ensure that the classification applied is correct, consistent and legally defensible to maintain your compliance responsibilities and to avoid unnecessary customs reviews. If the classification of the product being considered cannot be clearly determined by reference to the relative Headings, Section and Chapter Notes, or the Explanatory Notes, then you should consider obtaining an Advance Ruling from the Canada Border Services Agency (CBSA). This will afford you the protection against a potential audit and avoid the possibility of future reassessments for duty.

Even when an Advance Ruling is obtained there may still be differing opinions as to the correct classification of the article due to different interpretations of the relevant authorities. Advance Rulings may be appealed but generally such appeals are affirmed in favour of the original CBSA determination unless compelling reasons are presented that would overturn that decision. This leaves only one further avenue of appeal open to you which is an appeal to the Canadian Import Trade Tribunal (CITT).

 

CITT Decision Demonstrates the Complexities of Tariff Classification

A 2011 decision by the CITT illustrates the decision process in determining the correct tariff classification for a particular good where the CBSA had taken one position and the importer another position based on their respective interpretation of the regulatory provisions. It also shows that even among the professionals the tariff classification of goods is not always straight-forward or obvious and that a full comprehension of all the terms and conditions of a tariff classification are required in order to come to a successful conclusion.

The Canadian Tire Corporation (CTC) in an appeal (CITT Appeal No. AP-2011-024) contested the classification of “ratchet tie-downs” which the CBSA had determined as being classified under tariff item 6307.90.99 as other made-up articles of other textile materials (with an MFN duty rate of 18%) and for which CTC claimed under tariff item 8205.70.90 as other vices, clamps and the like (with an MFN duty rate of 6.5%). The ratchet tie-downs consisted of a textile strap, plastic-coated steel hooks and a ratchet handle. The goods operated by attaching the steel hooks to an anchor point and wrapping the textile strap around the load or articles to be held or transported. The strap is then drawn tightly by the ratchet handle creating tension to constrict or press the load or article to the anchor points to hold them firmly in place.

 

CBSA Position

• 82.05 restricted to hand tools for working in the hand
• Goods are similar to webbing carrier straps that are expressly provided for in 63.07
• Goods don’t meet the definition of the word clamp
• Goods don’t have a working edge/surface/other working part of base metal
• Goods can’t be used independently in the hand
• Textile straps give the good its essential character and the ratchet buckle is of secondary importance and the working part is the strap
• Precedent CITT decision cited for similar goods under 63.07

CTC Position

• 82.05 not restricted to hand tools but also includes clamps and goods “like” clamps
• 63.07 restricted to goods not more specifically described elsewhere in the Tariff
• Metal ratchet is the essential component and also its working part of base metal
• Goods do meet the definition of clamp under its ordinary and common usage
• Goods are more specifically covered by the terms of 82.05 rather than under 63.07
• Precedent cited although for similar goods did not refer to application of heading 82.05 and therefore not of relevance to this issue

CITT Position

• 82.05 is not restricted to hand tools and does include clamps and goods “like” clamps
• Ratchet is the essential character of the good, without which the goods would not work and also constitutes the working part of base metal
• Goods are more specifically described as vices, clamps and the like under 82.05 rather than as other made-up articles of other textile materials under 63.07
• As terms of heading 82.05 more specific, the goods are not properly classified in heading 63.07
• Precedent cited by CBSA did not address the issue of 82.05 making it different from present case (CITT also stated it was not bound by its own precedents)
• The goods are classifiable under tariff item 8205.70.90

The above information presents only the salient points that were made by each party to support the tariff classification determination that was ultimately made in favour of CTC in this instance.

However, to fully appreciate and understand the arguments as presented, direct reference should also be made to the CITT website under Appeal No. AP-2011-024, to view the various authorities cited in this case that determined the correct tariff classification in this appeal.

This case should provide you with some idea of the complexities that may be encountered when contemplating the tariff classification for a good and the factors that must be considered in order to arrive at the correct classification determination.

 

What We Can Do To Help

We offer support to review your database to advise on classification that may cause an issue should you receive an audit.

If you receive an Audit Notification, please contact the Consulting Department before submitting anything to CBSA.  We can review the documentation to identify possible errors or verify correct Tariff Classifications.

If you have goods being imported under questionable classifications, or you receive an audit notification or would like a review of your Tariff Classifications; contact our Consulting Department at Thompson Ahern International.

As the Broker, we need you- the Importer- to understand and classify your products correctly. We need to know your goods almost as well as you do.  We can meet via video conference to discuss your database with the goal of verifying tariff classification. Contact us to set up a meeting.

 

Martha Kirby

Manager,
Consulting and Compliance
T-905 678-5490
E-mkirby@taco.ca

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