Gill Nadel, Goldfarb Seligman, Israel
These days, a second ruling regarding the imposing of customs on kosher expenses of imported foods was given.
The Tel Aviv Magistrates Court ruled that kosher expenses of imported lamb meat are considered to be an inseparable part of the lamb’s value for customs purposes.
This ruling re-enforces the first ruling given in this matter in the Rishon Lezion Magistrates Court [Civil Suit 3596/08 Neto Melinda Trade Ltd. et al. vs. the Israeli Customs Authority , given on 22.7.13]
The Facts:
The case referred to a dispute between importers of kosher lamb meat and the Israeli Customs Authority, regarding the question whether the importer’s kosher expenses should be added to the meat’s imported value, which include payment to the Chief Rabbinate of Israel or to third parties for dispatching kosher butchers and kashruth supervisors (supervisor of kosher food in accordance with Jewish law) to the meat factory overseas.
According to the law, the importation of non-kosher lamb meat to Israel is not permitted; therefore the importer is required to send a team of kashruth supervisors and kosher butchers overseas, in order to receive a kosher certificate.
The importer’s expenses included payment to the lamb meat supplier, for the meat itself, as well as separately paying the employees of the Chief Rabbinate of Israel for supervision and butchering procedures, and the question was whether it will be possible to impose a customs duty only on the product itself, separate from the kosher expenses.
The Ruling:
Should expenses related to having a product Kosher be included in the value for customs purposes.
First the court differentiated between clauses 132 and 133 of the Customs Ordinance.
The court ruled that clause 132 which refers to the transaction value, does not include all of the importer’s expenses for the performance of the transaction, otherwise – clause 133 which relates to the “assists” to the transaction’s cost (such as shipping, insurance, etc.) becomes redundant.
On this matter, the court ruled the following:
“It seems that the purpose to the phrase “payable” (for the goods) is not for all of the payments and expenses that should be paid for the importation of the products by the importer. These various expenses the importer is required to pay for the importation of the product and which are not included initially in the transaction value, and should be added to the price of the goods are the ones detailed in clause 133 to the Customs Ordinance[u/]. Another interpretation which views the phrase “payable ” as a phrase which is residuary clause for inserting other expenses, in fact invalidates the purpose of clause 133 of the Ordinance which explicitly states: “for determining the transaction value in clause 132, only the following expenses and sums[u/] will be added to the transaction value”.
Nevertheless, the court rejected the importer’s interpretation that the transaction value refers only to the price paid by the importer to the exporter (the acquisition transaction). The court decided that the import transaction should be examined with a wider viewpoint, and should include under clause 132 of the Ordinance, which refers to the transaction value, any expense spent overseas for obtaining the product as is at the time of the importation. And so stated the court:
“Before I will continue the deliberation I would emphasize that the “transaction examination” does not focus on the exporter, but on the transaction in general. Thus, this examination could include several factors to which the importer paid in order to obtain its desired product. Such for example is the case where the importation of a product requires two stages for producing the product, where in both stages the importer pays expenses for preparing the product for import, the entire expenses paid overseas are in fact ” the transaction value” for customs purposes”.
Further on, the court demonstrated its ruling by stating that if an importer sends employees to the manufacturer’s factory for the filling of bottles, the work of these employees should be viewed as an inseparable part of the transaction value for importation. And so it was stated:
“Overseas employees, to which the importer pays overseas[u/] for the filling of the bottles, should be viewed together with the main exporter (the main manufacturer), as a whole, a single exporter (seller). All together. In other words, the work of the overseas employees, which the importer pays for overseas, is an additional transaction that should be added while calculating the “transaction value”;
Therefore, eventually, the court accepted the customs’ stance and ruled that the kosher procedure is an inseparable part of a meat import transaction. And so it was stated:
“As part of the kosher procedure is the butchering of the animal, in order to turn it into meat, certainly that the butchering part, the killing of the animal is an integral part of the manufacturing process, thus it is not possible to import meat without the killing of the animal, and in our case, to turn the animal into a product, kosher butchering is preformed. Therefore, in my mind it is not possible to separate between the transaction for importing the meat, as one transaction, and between the kosher procedure preformed, when the main part of the procedure is the butchering according to kosher laws, thus turning it into meat”.
The court rejected the customs’ alternative claim that the kosher and butchering procedure is an “assist” to the transaction value according to clause 133(a)(2)(d) of the Customs Ordinance, and decided that the kosher procedure is not “engineering, development, works of art” as stated in the clause.
Did the importer withhold the condition of clause 3 of the Indirect Tax Law?
In addition, the court rejected the importer’s claim regarding his withholding of the condition of clause 3 of the Indirect Tax Law.
It was determined that since the importer did not provide a notice to customs that he is paying additional expenses for the kosher and butchering procedures beyond payment for the lamb, he does not withhold the condition of the law and is not exempt from his required deficits.
In light of the aforementioned above, the claim was denied.
[Civil Case (Tel Aviv Magistrates Court) Masterfood Ltd. and others vs. the State of Israel – the Customs and VAT Division, ruling given on 9.9.13, Justice Rachel Arkobi. The names of the representatives of the parties were not mentioned in the ruling]
How should the food importers act according to this ruling?
It is important to remember that this is a ruling of only one Magistrates Court, which its rulings do not necessarily obligate the other courts, and there is a chance that in other circumstances the courts will reach a different ruling. We hope that if an appeal on this ruling will be filed, the decision will be overturned in the District Court.
Our firm also handles a similar issue regarding Kosher costs on imported food products, and in this matter a ruling was yet to be given.
If the result of the ruling will be implemented overwhelmingly by customs on all kosher food importers, it might set a heavy monetary burden on them, which will probably be passed on eventually on the public.
In the intermediate stage, we have suggested food importers to wait until another ruling on this matter will be given, and to have appeal procedures with the customs in order to reach various settlements until a final decision in this matter. Another possibility is to turn to the Israel Tax Authority in an orderly manner in order to reach an agreed settlement on changing the situation through procedure or legislation.
It should be noted that this is a second judgment with a similar result. In July 2013 the first ruling on this matter was given in the Rishon Lezion Magistrates Court [Civil Suit 3596/08 Neto Melinda Trade Ltd. and others vs. the Israeli Customs Authority, given on 22.7.13], which reached a similar result.