As in the Case of Lamb Meat: Customs Taxes Will Be Imposed on the Kashrut of Imported Oil
Adv. Gill Nadel, Adv. Omer Wagner
On 21.8.14 the Jerusalem Magistrates Court gave a ruling in Civil Suit 5909/09 Maya The Jerusalem Spices Of Life Company Ltd. vs. The State of Israel-Tax Authority-Department of Customs and VAT, and ruled that the kashrut supervision expenses of oil imported to Israel would be included in the value of the oil for customs purposes.
It should be noted that the importer, represented by our firm, is currently studying the ruling and examining the option of submitting an appeal.
The Jerusalem Magistrates Court has in fact adopted the basic ruling of the Central District Court, in a ruling given in another case in June 2014, where it was decided that the expenses of kosher butchering and kashrut supervision of another product – imported lamb meat, would be included in the value for customs purposes [Civil Appeal (Central District Court) 2107-11-13 25410-10-13 Neto Melinda Trade Ltd. et al vs. The State of Israel-Customs Authority, given on 23.6.14].
In the current ruling, the Jerusalem Magistrates Court rejected the proposed distinction between kashrut supervision for lamb meat and kashrut supervision for oil, and ruled that for the purposes of customs they are the same.
The Case Facts and the Arguments of the Parties:
Maya The Jerusalem Spices Of Life Company Ltd. (“the importer”) imported two kinds of oil to Israel: inedible olive oil – used as fuel for lamps, and edible virgin olive oil.
Prior to importing the oil, the importer sent a kashrut supervisor to the suppliers’ factory from the Badatz of the Edah HaChareidit rabbinical court, whose job was to supervise the processes in the factories in order to give the imported oil a kashrut certificate.
The importer paid the factory for the oil, and paid the Badatz for the supervision.
The Customs Authority required the importer to pay a retroactive customs deficit for the cost of the kashrut supervision and stated that it is an inseparable part of the value of the imported product, in accordance with Section 132 of the Customs Ordinance.
The importer argued that these are voluntary expenses borne by choice, for the purpose of marketing and advancing sales in Israel. The importer claimed that these expenses which are not paid to the seller but to a third party cannot be included in the value for customs purposes in accordance with Section 132 of the Customs Ordinance.
Since the Central District Court had already ruled that the expenses of kosher butchering and kashrut supervision for lamb meat be included in the value for customs purposes, the importer claimed that Israeli law forbids the import of non-kosher meat, whereas there is no similar law with regard to oil. In addition, the importer claimed that the involvement of the kashrut supervisor in the oil manufacturing process is smaller than the role a meat kashrut supervisor. In this way, the importer claimed that in the case of kashrut supervision for oil, the rabbi goes “in and out”, that is, does not have to be present for the entire process, and that in the case of oil for lamp lighting the kashrut supervisor only observes the bottling process and not the process of manufacturing the oil from the olives.
Alternatively, the importer claimed exemption from the deficit due to his compliance with Section 3 of the Indirect Taxes Law.
The court rejected the distinction proposed by the importer between the process of kashrut supervision for oil and the process of kashrut supervision for lamb meat. The court ruled that it doesn’t matter whether the kashrut supervision expenses are imposed on the importer by law – as in the import of lamb meat, or are voluntary – as in the import of oil.
In addition, the court rejected the claim that the kashrut supervisor is less involved in oil than in lamb meat, and decided that this distinction is irrelevant to the resulting ruling.
The court ruled that kashrut supervision is an action that gives the goods their very essence and turns them into kosher products – and therefore this action is considered an inseparable part of their manufacturing process, whatever the process may entail, and whatever the reasons for carrying it out may be. Therefore, it was ruled that the action of kashrut supervision is part of the value paid or that should be paid for the goods upon import.
The court rejected the importer’s alternative claim of compliance with Section 3 of the Indirect Taxes Law.
[Civil Suit (Jerusalem Magistrates Court) 5909/09 Maya The Jerusalem Spices Of Life Company Ltd. vs. The State of Israel-Tax Authority-Department of Customs and VAT, Justice Tamar Bar Asher Zaban, given on 21.8.14. Parties’ representatives: for the importer – Adv. Gill Nadel and Adv. Omer Wagner from our firm. For the Customs Authority – Adv. Havi Toker from the Jerusalem District Attorney (Civil)].
A while ago a private bill was filed with the purpose of amending the Customs Ordinance with regard to kashrut, and to decide that kashrut expenses will not be taken into account when calculating the customs tax on an imported product.
The private bill was submitted to the Knesset on 19.3.14 by MKs Moshe Gafni, Uri Makleb and Yaakov Asher (Yahadut HaTorah party), and it proposes to add a section to the new Customs Ordinance, in the following words:
“In determining the value of a transaction, expenses borne abroad for kashrut supervision by a kashrut supervisor who is a resident of Israel will not be taken into account”.
The explanatory notes to the bill stated that it came into existence following the rulings on the subject of kashrut, and that its purpose is to prevent damage to kashrut supervisors’ occupation and an increase in the cost of kosher products. This is how it was worded in the explanatory notes:
“The result of the ruling is likely to cause an increase in the cost of products that are imported with kashrut certification – as a result of the aforementioned rise of the customs tax, and also to cause a reduction in kashrut and hurt the kashrut supervisors who are Israeli residents, who provide kashrut certifications abroad and that is the source of their livelihood”.
[Bill to Amend the Customs Ordinance (Exclusion of Kashrut Supervision Expenses From Transaction Value), 2014]
* * *
This document provides a general summary and is for information purposes only. It is not intended to be comprehensive nor does it constitute legal advice. If you are interested in obtaining further information or wish to follow the legal developments on this matter, please contact Adv. Gill Nadel – Chair of the firm’s Import, Export and International Trade Law Practice, Tax and Executive Compensation Department. Email: Gill.Nadel@goldfarb.com, phone: 03-6089848.