Pursuant to Section 65A(1A) of the Customs Act 1967, licensees for licensed manufacturing warehouse (“LMW”) are deemed to include a license for warehousing goods (“LW”) under Section 65.
Both LMW and LW licensees enjoy exemption from customs duties. The question of whether such exemption from “custom duty” extends to anti-dumping duties was addressed by the Court of Appeal in Ketua Pengarah Kastam v Sunrise Home Goods (M) Sdn Bhd (Appeal No.: W-01(A)-567-10/2023).
The Court of Appeal upheld the High Court’s decision and ruled in favour of the taxpayer. Amongst others, the Court of Appeal set aside a Bill of Demand in relation to the anti-dumping duties imposed by Customs on a LMW.
Facts
The taxpayer is principally involved in the manufacturing of kitchen sinks (“products”) solely for export in the United States. To manufacture the products, the taxpayer used imported stainless-steel plates from China at all material times. At all material times, the taxpayer held both LMW and LW licences and was exempted from customs duties under Item 85, Schedule to the Customs Duties (Exemption) Order 2017 (“Exemption Order”).
The Customs then issued an internal circular dated 3.11.2016 clarifying that all LMW licensees were not exempted from anti-dumping duties. The said circular was issued to other departments in Customs and was subsequently forwarded to the President of the Federation of Malaysian Manufacturers (“FMM”) by way of a letter.
Following an audit, the Customs raised a Bill of Demand against the taxpayer for the purported underreported anti-dumping duties on the imported steel plates.
Being aggrieved, the taxpayer filed an appeal to the Customs Appeal Tribunal (“CAT”).
CAT’s Decision
The CAT disallowed the taxpayer’s appeal and held that the taxpayer as a LMW licensee, was not qualified for anti-dumping duties exemption on the following grounds, amongst others:
- a) Section 65(2) of the Customs Act 1967 stipulates that the Director-General of Customs may specify any conditions for the licence;
- b) Based on the licence, the imported stainless-steel plates were exempted from import duty and sales tax. However, the licence did not specify the anti-dumping exemption; and
- c) The clarification on the anti-dumping duties exemption was already communicated to the taxpayer through FMM. The internal circular was issued before the issuance of the licence to the taxpayer, which would not constitute an additional condition being imposed by the Customs.
Being dissatisfied, the taxpayer filed an appeal to the High Court.
Customs’ Contention
The crux of Customs’ contention is summarised as follows:
- a) There are no express provisions for anti-dumping duties exemption under Section 65 and Section 65A of the Customs Act 1967. According to Customs, the prevailing anti-dumping duty law is the Countervailing and Anti-Dumping Duties Act 1993;
- b) There is no exemption order under the Countervailing and Anti-Dumping Duties Act 1993 that exempts anti-dumping duties for LMW as the power of exemption rests with the Minister of International Trade and Industry (“MITI”) and the Minister of Finance;
- c) The definition of “customs duty” under Section 2(1) of the Customs Act 1967 should be read restrictively for the purposes of authorising Customs to collect anti-dumping duties;
- d) Paragraph 7 of the condition on the licence provided that the taxpayer was not exempted from “its obligations under other written law related to its business”. Thus, the imported stainless-steel plates were still subject to anti-dumping duties;
- e) Exemption Order was made solely to exempt the type of customs duties imposed through Customs Duties Order 2017, which are the import duty and export duty; and
- f) The said letter forwarded to FMM was sufficient, as the responsibility rests on FMM to circulate the said letter to its members on the purported additional condition.
Taxpayer’s Position
The taxpayer took the position that the CAT erred in failing to consider the following reasons:
- a) As a LW and LMW licensee under Sections 65 and 65A of the Customs Act 1967, the taxpayer was entitled to enjoy all exemptions on customs duties. The meaning of customs duties under Section 2(1) includes anti-dumping duties, which states that:
“customs duty” means any import duty, export duty, surtax, surcharge or cess imposed by or under this Act, any countervailing duty or anti-dumping duty imposed by or under the Countervailing and Anti-Dumping Duties Act 1993 [Act 504], any safeguard duty imposed by or under the Safeguards Act 2006 [Act 657] and includes any royalty payable in lieu of an export duty under any written law, or a contract, lease or agreement to which the Federal Government or the Government of any State is a party or to which such Government has consented”
- b) Customs was not empowered under the Customs Act 1967 or the Countervailing and Anti-Dumping Duties Act 1993 to restrict the definition of “customs duties” by excluding anti-dumping duties;
- c) The Court of Appeal in Seruntum Maju Sdn Bhd v Pengarah Kastam Negeri Perak Jabatan Kastam Diraja Malaysia & Anor [2020] 6 MLJ 401 ruled that the phrase “specify in the licence” means “to mention explicitly, definitely and certainly in the licence”. The conditions of the licence must be stated clearly in the licence when the licence is issued. No conditions should be imposed after the issuance of the licence;
In this case, the purported additional condition was never listed in the relevant licences issued to the taxpayer pursuant to Section 65 and Section 65A of the Customs Act 1967;
- d) It was conceded that the internal circular was based on the Customs’ own interpretation of the law. Thus, the internal circular had no force of law; and
- e) The purported additional condition on the internal circular was never sent to the taxpayer but was instead imposed through a letter which was sent to FMM.
High Court’s Decision
The High Court in Sunrise Home Goods (M) Sdn Bhd v Ketua Pengarah Kastam & Anor [2024] 9 MLJ 249 allowed the taxpayer’s appeal on the following grounds:
- a) Section 34(1) of the Countervailing and Anti-Dumping Duties Act 1993 stipulates that:
“This Act shall be construed as one with the Customs Act 1967.”
On a plain reading, the phrase “customs duties” under Section 2(1) includes anti-dumping duties;
- b) Parliament intended to facilitate an LMW licensee to carry out manufacturing activities on imported raw material that are not subject to customs duties in LW. Had Parliament intended to exclude anti-dumping duties from the exemption, amendments would have been made to the definition of “customs duty” under Section 2(1);
- c) Customs’ attempt to disallow the taxpayer’s anti-dumping duties exemption is in breach of the Parliament’s intention. Parliament does not legislate in vain;
- d) As a LMW licensee, the taxpayer qualified for the customs duties exemption under the Exemption Order, which also includes anti-dumping duties exemption;
- e) It is the Minister, and not Customs, who is empowered to exempt LW and LMW licensees from customs duties. As such, the Exemption Order was enacted by the Minister in exercise of its power under Section 14(1) of the Customs Act 1976. Furthermore, the Minister’s power has not been delegated to Custom;
- f) The internal circular contained merely the Customs’ own interpretation of the law and had no force of law; and
- g) Applying the principles enunciated by the Court of Appeal’s decision in Seruntum Maju, such purported additional condition must be stated explicitly, definitely and certainly in the licence and not through the internal circular. The relevant excerpt is reproduced as follows:
“I find that the present appeal is even worse than Seruntum Maju as the purported condition was not sent to the appellant but was addressed and circulated to a long list of Customs departments within Customs. In fact, the appellant only became aware of the Customs circular for the first time when it received Customs’ notice of assessment dated 27 January 2021 which attached the Customs circular.”
The Customs subsequently filed an appeal to the Court of Appeal.
Conclusion
The Court of Appeal upheld the taxpayer’s argument and set aside the Bill of Demand on the imposition of anti-dumping duties.
This decision provides welcome clarity on the interpretation of the phrase “customs duty” by reading the Customs Act 1967 and the Countervailing and Anti-Dumping Duties Act 1993 harmoniously. It also serves as a timely reminder to the authorities that statutory powers must be exercised within the parameters of the law.
About the authors
Yap Wen Hui
Senior Associate
Tax, Customs and Incentives Practice Group
Halim Hong & Quek
wh.yap@hhq.com.my
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