13 January 1997 GST/HST Interpretation 11650-1 - Requesting Confirmation of Our Policy Concerning Entitlements to Input Tax Credits (ITCs) for Amounts Paid on Commercial Goods at the Time of a Customs Seizure

Dear XXXXX:

I refer to the your letter of October 29, 1996 addressed to Mr L. Jones requesting confirmation of our policy concerning entitlements to input tax credits (ITCs) for amounts paid on commercial goods at the time of a customs seizure.

The departmental policy regarding the eligibility for ITCs on amounts assessed and paid as penalties in the customs seizure process at time of importation has not changed. When imported goods are seized by Customs for a customs infraction, the goods may be returned on payment of an amount of money. This amount is calculated based on the amount of duties, including GST, that would normally have been payable on the goods. Section 169 of the Excise Tax Act provides for a registrant to claim ITCs for tax that is paid or payable on imported goods. Since amounts paid in a customs seizure are not in fact, tax, the amounts are not eligible to be claimed as ITCs.

The Customs Act is quite specific that the amount paid to Customs to obtain the return of goods seized is a forfeiture amount and is not duties or tax. Customs seizure documents identify the "Amount Required for Return" of the goods and break this amount down into amounts representing duty, excise tax, GST, revenue short paid and other amounts calculated as part of the amount required to be paid to obtain the return of the goods. However, these amounts are not actually duty, excise tax or GST but only amounts which are calculated based on the duty, excise tax and GST that would have been paid on the goods. As a result, the amount paid by a person in a seizure action is considered to be an amount paid to obtain the return of the goods seized and no portion of the amount paid is considered to be GST. Thus, there can be no entitlement to ITCs for amounts paid in a seizure action since there was in fact no tax paid or payable.

You are correct in stating that Section 212 of the Excise Tax Act (the Act) imposes the tax on imported goods. However, when goods are seized they become the property of the Crown. In order to obtain the release of the goods from the Crown, the importer is required to pay a "forfeiture" or penalty and this is not the amount that would have been imposed by Section 212 of the Act.

The newly issued Customs seizure documents contain a statement to the effect that amounts assessed under a seizure action are not eligible for ITCs. This statement is intended to clarify for importers that there is no entitlement to ITCs for amounts paid in a customs seizure.

This interpretation is based upon our current understanding of the Excise Tax Act and regulations thereunder in their present form and does not take into account the effects of any future amendments thereto or future changes in interpretation.

Further, while we trust that our comments are of assistance to you, we would advise that they do not constitute a GST ruling and are, therefore, not binding upon the Department in respect of any particular fact situation.

If you have any further questions regarding this policy, please contact your local tax services office located at XXXXX[.]

Yours truly,

R. McKain
Senior Tax Policy Officer
Border Issues Unit
General Operations and Border Issues Division
GST Rulings and Interpretations Directorate
Policy and Legislation Branch

HQR # 0000400 (GEN)