The High Court judgment in QI Logistics (Pty) Ltd v CSARS provides a clear warning to clearing agents involved in removal in transit ("RIT") transactions. These structures are widely used in practice, but the consequences of non-compliance are significant where proof of export cannot be established.
At a commercial level, RIT transactions are straightforward. Goods are imported into South Africa under a customs procedure that allows them to move through the Republic for onward export, without immediate payment of import duties. The system facilitates cross-border trade on the basis that the goods will not enter the local economy.
The suspension of duty is, however, conditional. That condition is where the risk lies. From a customs perspective, disputes typically arise once SARS interrogates the movement of goods and the adequacy of acquittal documentation, often long after the transactions have been processed.
THE FACTUAL CONTEXT
The case concerned a clearing agent involved in the importation of diesel bound for export under RIT procedures. SARS issued demands resulting in a total exposure of approximately R35 million.
A significant portion of this exposure arose from forfeiture. In terms of section 88(2)(a) of the Customs and Excise Act No. 91 of 1964 ("CEA"), where goods liable to forfeiture cannot be readily located, SARS may demand payment equal to their value in addition to any unpaid duty. This substantially increases the financial consequences where the movement or destination of goods cannot be established.
The clearing agent maintained that its role was limited to submitting documentation and that it relied on export documents received in the ordinary course of business. SARS' position was that the agent could not prove that the goods had in fact been exported.
THE LEGAL POSITION
The CEA provides that importation triggers liability for customs duty. Where goods are entered for removal in transit, that liability is deferred and remains in place until the statutory requirements are satisfied.
Section 18(2) of the CEA is central. The person who enters goods for removal in transit, and who removes or causes those goods to be removed, is liable for the duty on those goods until proper proof of export is provided. In practice, this places the obligation on the clearing agent.
Where proof of export cannot be produced, the duty becomes payable as if the goods were imported for home consumption. From SARS' perspective, this prevents tax leakage by ensuring that goods which cannot be shown to have exited the Republic do not escape the customs duty net. The clearing agent may also be exposed to penalties and forfeiture.
PROOF OF EXPORT: WHY SARS SUCCEEDED
The dispute turned on whether the documentation relied upon by the clearing agent constituted sufficient proof of export. The Court found that QI Logistics failed to meet this threshold.
Documents bearing stamps or acknowledgments of receipt were insufficient, as they did not confirm that the goods had left the country. Internal SARS system entries indicating that goods had been "marked for exit" reflected processing at a border post, not completion of export.
The clearing agent was unable to demonstrate actual export for most consignments, which resulted in liability.
WHERE THE RISK LIES FOR CLEARING AGENTS
Once a clearing agent submits an entry for removal in transit, it assumes responsibility under section 18(2) of the CEA for the duty position linked to that entry. This responsibility extends beyond the mere submission of documents. A clearing agent must ensure that it holds documentation capable of proving export if required.
Reliance on third parties does not discharge a clearing agent's obligations. From SARS' perspective, the clearing agent is often the most accessible party, and the statutory framework reflects this by placing liability on the party who makes the entry. The Court confirmed that these obligations cannot be contracted out of.
SECTION 99: A LIMITED DEFENCE
Section 99(2) of the CEA provides a potential defence, but it is narrow. A clearing agent must demonstrate that it was not a party to the non-compliance, that it notified SARS as soon as it became aware of the issue, and that it took all reasonable steps to prevent the non-compliance.
In the context of forfeiture, section 99(2) of the CEA may allow a clearing agent to avoid liability where SARS invokes section 88(2)(a) of the CEA. In practice, however, this threshold is difficult to meet. The evidentiary burden is high and is often required to be discharged after the fact.
For this reason, proactive legal involvement at an early stage is essential.
PRACTICAL TAKEAWAYS FOR CLEARING AGENTS
RIT transactions require more than administrative compliance. Clearing agents should ensure that they obtain and retain acquittal documentation capable of demonstrating actual export.
Reliance on other parties in the supply chain does not eliminate exposure under the CEA. The party making the entry remains at risk.
Potential issues should be identified early. Once SARS issues a demand, the ability to address deficiencies is limited.
CONCLUSION
RIT transactions remain an important mechanism for facilitating cross-border trade, but they carry concentrated risk for clearing agents.
Where proof of export cannot be established, deferred duties become payable, often together with penalties and forfeiture. The financial exposure can be significant.
These risks are often avoidable. With proper structuring, clear allocation of responsibility and robust audit processes, clearing agents can materially reduce their exposure. Where disputes arise, early and strategic engagement with SARS is often decisive in managing both liability and overall exposure.
Intellectual property disclaimer: The contents of any article published by Pieterse Sellner Erasmus should not be construed as professional legal advice.
Intellectual property disclaimer:
The contents of any article published by TRM Tax Attorneys should not be construed as professional legal advice.