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Legitimate Expectations and Holder’s Responsibility to verify the Validity of the Documentation: CJEU Case C-376/23, Baltic Container

Baltic Container was licensed to load, unload and store goods in the free zone of the port of Riga. The tax administration had approved the documents referred to in Article 214 of the Union Customs Code by which Baltic Container had registered the goods transferred to the free zone in question. However, the tax audit revealed that certain non-Union goods within the meaning of Article 5(24) of the Union Customs Code, in this case plastic rattan baskets, which had entered the free zone by sea in three containers on 2 October 2018, 18 December 2018 and 15 January 2019, had left the Riga free zone on 2 October 2018, 18 December 2018 and 17 January 2019 without a new customs procedure being applied. Therefore, no specific free zone procedure had been decided. The tax administration considered that the goods in question had been removed from customs supervision, which, according to that authority, gave rise to a customs debt for Baltic Container under Article 79 of the Union Customs Code. By its decision, the Tax Administration thus ordered Baltic Container to pay import duties, value added tax and late payment penalties in respect of those two payments.

The goods in question had left the free zone in question in accordance with the Convention on the Contract for the International Carriage of Goods by Road, signed in Geneva on 19 May 1956, as amended on 5 July 1996. 1978, on the basis of three consignment notes drawn up in accordance with the Convention of 19 May 1956 relating to the carriage of goods by road, in which the customs status of those goods was indicated by the sign ‘C’, used to describe ‘Union goods’ within the meaning of Article 5(23) of the Union Customs Code, and endorsed with a customs stamp and the signature of a customs official (hereinafter ‘the CMR consignment notes’). However, after the said goods had left this free zone, the customs officials found that they were not in possession of any documents proving that they had been transferred from the customs status of ‘non-Union goods’ to the customs status of ‘Union goods’. The CMR consignment note can only be used as proof of the customs status of Union goods for goods which already have that status, but not for goods which acquire it as a result of the change. Such a change of status may be evidenced by a customs declaration mentioning the Movement Reference Number (‘MRN’) or by a consignment note also mentioning the MRN assigned to such a customs declaration.

The Court of Justice found that once the free zone procedure had been terminated, the notifier should have had the MRN identifying that notification. However, the Court referred to the conditions set out in Article 178(1)(b) and (c) of Delegated Regulation 2015/2446, stating that those provisions require the holder’s records to contain information about the manner in which the procedure was concluded, as well as information about the identifiable documents in which the information is contained, but do not require that the records should contain an MRN. On this basis, the Court held that the provisions in question do not oblige the holder to indicate in his records the MRN identifying the customs declaration under which the specific free zone procedure was discharged by placing the goods in question under the customs procedure for release for free circulation.

The Court of Justice further found that although the CMR consignment notes, which bear the handwritten indication ‘status C’, endorsed with a customs stamp and signed by a customs officer, state that the customs status of the goods in question has changed from ‘non-Union goods’ to ‘Union goods’, these consignment notes do not contain sufficiently precise information on how the special free zone procedure was discharged. Therefore, the holder’s records do not meet the second requirement of Article 178(1)(b) of Delegated Regulation 2015/2446, which requires the records to contain information on how the procedure in question was discharged, nor do they meet the requirement of Article 178(1)(c) of Delegated Regulation 2015/2446, which requires the records to contain information enabling all documents relating to the corresponding discharge to be identified.

Article 178(3) of the Delegated Regulation allows customs authorities not to require some of the information provided for in Articles 178(1) and (2), provided that this does not adversely affect customs supervision and controls on the use of the special procedure. It is for the Latvian court to determine whether the local authorities have waived the requirement for such information in their records. If so, the holder of the goods has fulfilled all his obligations.

The Court also confirmed that the Union Customs Code does not mention a specific obligation for the holder to verify the accuracy of the information and other particulars contained in the documents submitted to it. As a trader, the holder must show a minimum degree of diligence. However, if a trader does not clearly notice when reading the consignment note that there is a manifest error, the holder cannot be criticised for not having checked the accuracy of this statement. The provisions do not require the holder to check the accuracy of the entries.

At the request of the Latvian court, the Court of Justice also ruled on the right of legitimate expectation for the holder on the basis that the CRM document had been accepted and signed by the customs authority. As regards the principle of legitimate expectation, the Court referred to its obligation for all national authorities responsible for applying Union law (Sense Visuele Communicatie en Handel vof, C-36/21, para. 26 and case law references). Any person is entitled to rely on the principle of legitimate expectations. This also applies to customs legislation. Such expectations may be created by precise, unconditional and consistent information, whatever its form, obtained from competent and reliable sources. By contrast, no person may rely on a breach of the principle of the protection of legitimate expectation unless he has been given precise assurances by the administration (see, by contrast, Case C-541/20 to C-555/20 Lithuania and Others v Parliament and Council (Mobility Package), para. 616). Moreover, the conduct of a national authority responsible for the application of European Union law which is incompatible with European Union law or with national law adopted pursuant to it cannot create a legitimate expectation on the part of an economic operator (see, by analogy, Case C-36/21 Sense Visuele Communicatie en Handel vof, paras. 27 and 28 and the case law cited).

The Court referred to Article 178(3) of Delegated Regulation 2015/2446, stating that that provision does not lay down the precise modalities under which customs authorities may waive some of the information provided for in paragraphs 1 and 2 of that article. Accordingly, the established administrative practice that the inclusion in the holder’s records of the information contained in the CMR consignment note accompanying the goods in question on their exit from the free zone, accompanied by an indication of their customs status, endorsed by a customs stamp and signed by a customs official, is sufficient to discharge the special customs procedure, does not infringe Articles 178(1)(b) and (c) and (3) of Delegated Regulation 2015/2446. Thus, in the context of such a practice, the holder may rely on a legitimate expectation that its records comply with Article 178 of Delegated Regulation 2015/2446.

The outcome of the case is understandable and very reasonable for the holder of the goods, as it gives the impression that the case may not have been due to the negligence of the holder, but possibly to the customs authorities’ own actions and negligence, at least in part, since the CMR consignment note was signed and stamped when the goods left the free zone, indicating that the goods had acquired the customs status of Union goods. This is protected by the Court of Justice based on the principle of legitimate expectations.

The case is reminiscent of aspects of the case law of the Court of Justice that have recently emerged more widely. In its case law, the Court has shown flexibility with regard to various formal conditions, holding that if the substantive conditions are fulfilled, the formal elements may be relaxed if it can otherwise be shown that the conditions are fulfilled. This has been the case, for example, in VAT with regard to invoice claims and the right to deduct. On the other hand, the increasing number of abuses has led the Court of Justice to tighten its grip and to regard what it previously considered to be formal elements as substantive elements which cannot be compromised.

In this case, too, the Court has, in my view, taken a very understanding and also comprehensible approach in response. The problem with an interpretation that is too understanding is that it tends to create a whole new set of questions and problems, so that the benefit that was being given becomes a real problem. Thus, a clear and precise application of the law is often the best option. If the law is unreasonable, it is better to change it than to interpret it flexibly. I say this even though I know how difficult it is to change EU law. However, if a public authority has itself made a mistake, it must take responsibility for its mistake and rectify it on the authority’s own initiative, rather than blaming the trader for its mistake. As the Court states, ‘EU law does not preclude the application of a national provision concerning the authority of res judicata which obliges a Member State court to annul a customs debt owed by the holder pursuant to Article 79 of the Union Customs Code on the ground that the court of that Member State with jurisdiction to review the lawfulness of an administrative penalty imposed on that holder, for the same customs operations and for the same reasons as those which led to that debt, has found, in a judicial ruling that has become final, that the holder did not fail to fulfil the obligations falling on it under Union customs law.’

Please note, that the text has been first published at LawLive 6.2.2025: Op-Ed: “Legitimate Expectations and Holder’s Responsibility to verify the Validity of the Documentation: Case C-376/23, Baltic Container” – EU Law Live