The Supreme Court- the Custom’s Authority was not negligent in its classification of cellphone batteries

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by: gill@nadel-law.co.il
Word Count: 1084
Date: Mon, 5 Dec 2011 Time: 3:11 AM

These days a verdict in the Supreme Court was handed down on an appeal of an importer against the Customs Authority. In the importer's claim to the District Court of Haifa, he claimed that because Customs wrongfully classified his goods, he was prevented from entering the market of cellphone batteries. His claim was for no less than 18 million NIS and was debated at the district court for about seven years, and these days the Supreme Court handed down its verdict on the matter.

The facts of the case and claims of the parties:
The importer (Gil Import Ltd.) imports Energizer batteries. In the early 90’s, the importer tried to enter the import market of cellphone batteries. At the time, Customs classified such batteries as "batteries", which are subject to purchase tax rate of 45%. The importer confronted Customs and tried to convince it that they should be seen as parts for cellular phones and hence should be subjected to purchase tax of 12 %. His arguments were rejected.

After the importer released one shipment and sold it to Pelephone Company, the importer stopped importing the batteries since the taxes were too high and he did not make a profit. More so, Pelephone, according to the importer, started to importing sets of phones which included spare batteries, which were dismantled before selling, and than sold separately. This way Pelephone only paid the purchase tax for the phones.

In 2001 a verdict was handed down by the Supreme Court on the case of Eurocom, which determined that the batteries are exempted from purchase tax and should be classified as parts for cellular phones.

In his claim to the District Court of Haifa, the importer claimed that because Customs classified the batteries negligently, he was prevented from entering the cellular market and therefore sued 18 million NIS for loss of opportunity profits.

Among other things, the importer claimed that he was discriminated since the importers of the cellular phones sets paid the lesser rate of purchase tax and then dismantled them and sold the batteries separately, while he had to pay the higher rate of purchase taxes for importing the batteries separately.

The District Court rejected the claim in 2008 and these days a verdict on the appeal was handed down by the Supreme Court.

The verdict on the appeal:

The Supreme Court rejected the discrimination claim. The Supreme Court decided that the importer's claim, according to which some importers paid a lesser rate of taxes and some more, whether regarding the import of the batteries separately or as a part of a cellphone set – was not proven in the District Court and therefore it was not proven that the Customs Authority were the reason the importer failed to enter the market (since all the importers had to pay the same purchase tax rate). 

The court determined that if an importer claims negligence in the Custom’s classification, which eventually lead him to abandon the selling of a product in the market, he must present concrete evidence which show the casual link between the two, and in this case the importer failed to show that other importers who also imported the batteries for a long time paid less purchase taxes than himself.

Another claim of the importer was that since Customs agreed in the past to allow other importers to deposit a bank guarantee in the amount of the taxes on the batteries, until the Supreme Court’s verdict in the Eurocom case, Customs should have informed him of this past arrangement and allowed him to reach a similar arrangement instead of paying the tax while protesting.

The Supreme Court determined that the Customs Authority was not obligated to inform the importer and that the difference between paying while protesting and depositing a bank guarantee was not so fundamental, and it is that difference that eventually prevented the importer from entering the batteries market.
The Supreme Court noted that although Customs wrongly classified the batteries, not all administrative mistakes provide grounds for a negligence claim.
Eventually, the court rejected the appeal but did not charge the importer with court expenses.

(C.A. (civil appeal) 2648/09 y. Gill Import Ltd. Et al. Vs. The State of Israel- Customs and VAT Department, verdict from 16.5.11, Judges Rivlin, Rubinstein and Melzer. Representatives of the parties- the importer – adv. Bayn, Bayn Alon and Baruch. For the Customs Authority – adv. Livlin, from State Attorney).

About the Author

Gill Nadel - Born in Israel in 1969, graduated from Bar Ilan University`s Faculty of Law (cum laude) and from the Department of Musicology. He also has a master`s degree in law from the same institution. Member of the Israel Bar since 1999. Speaks Hebrew, English and Polish. Fields of expertise: Commercial and Business Law, International Trade Law, Import and Export Law, Intellectual Property Law, Maritime and International Forwarding Law, Litigation and Court Representation. Adv. Nadel provides lectures on international trade law and import and export law to in courses organized by the Bar Ilan University Center for Commercial Law, Israel Bar, Israel Chambers of Commerce, Manufacturers Association of Israel, Israel Export Institute, Customs Brokers Association, International Forwarders, and more.

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