Destruction (code 76) and abandonment in favour of the state (code 75): how to get rid of unusable or unneeded foreign goods without duty, and what is recorded in the accounts?

"Nur Oyna" LLC ordered 400 sheets of window glass from abroad. When the truck reached the customs post, it turned out that 60 sheets had broken on the way, and another 30 sheets had been cut to a different size by mistake and are of no use to the company at all. If the whole consignment is imported, customs payments will have to be paid on the broken and the unneeded glass as well. The Customs Code offers two special procedures for this situation: destruction (code 76 in the declaration) and abandonment in favour of the state (code 75) (Instruction on the procedure for filling in the cargo customs declaration, Annex 3).

What is the destruction procedure and which goods fall under it?

In short, Article 121 of the Customs Code says: foreign goods are destroyed or made unusable before the eyes of customs, that is, under customs control, and in return customs payments are not charged and economic policy measures are not applied.

The main condition (Article 122, part one): the goods must completely lose their consumer properties, and their original condition cannot be restored in an economically viable way. Broken glass meets this condition: it cannot be glued back together and sold as window glass.

The Code distinguishes two kinds of restriction. Goods whose destruction is not allowed at all (part two of Article 122):

• cultural property;
• endangered species of animals and plants, their parts and derivatives (except where destruction is required to prevent epidemics and epizootics).

Cases where destruction is not allowed whatever the goods (part three of Article 122):

• if destruction harms the environment or poses a direct danger to human life and health, or there is a likelihood of such danger;
• if destruction is carried out by consuming the goods for their usual purpose;
• if the customs authority cannot control the actual destruction of the goods;
• if the customs information system does not contain an opinion of the state body for ecology and environmental protection stating whether destruction is possible, the method and the place (this requirement does not apply to goods irretrievably lost as a result of an accident or force majeure).

The methods of destruction are also set out in the Code (part four of Article 122): thermal, chemical, mechanical or other action that completely destroys the goods (burning, breaking up or burying); or dismantling, taking apart, perforating, tearing and other damage, if this rules out later restoration of the goods and their use in their original form. Destruction is carried out in compliance with environmental protection requirements at the authorized person's own expense (part five of Article 122).

How is destruction formalised?

The sequence matters, because the declaration and the certificate are submitted at different times:

Clearance is carried out by the customs authority in whose zone the goods are located (Article 126). If the goods are in a customs warehouse, the registered CCD is the basis for taking them out of the warehouse.

Broken glass leaves cullet. Article 127 applies to it: waste resulting from destruction must be placed under another customs procedure as if it had been brought in in that state. Only waste processed to a state unfit for use is not declared. So if you intend to sell the cullet to a glass factory as raw material, plan its clearance in advance as well.

The procedure also applies when goods have been destroyed or damaged as a result of an accident or force majeure. In that case an opinion of the authorized body is submitted confirming the situation and that the goods were damaged for exactly that reason (Article 125).

How does abandonment in favour of the state differ from destruction?

The 30 sheets of wrongly sized glass are intact and usable; "Nur Oyna" simply does not need them. Breaking them would be a waste. Under Article 128, in the abandonment in favour of the state procedure the authorized person gives up the goods and transfers them free of charge into state ownership without customs payments and without economic policy measures.

Conditions (Article 129):

• the abandonment must not cause the state any costs;
• the authorized person bears all costs of delivering the goods to the place designated by customs;
• once the goods are placed under the procedure, it cannot be changed to another procedure;
• the authorized person is liable to third parties for the lawfulness of the placement.

The goods that may not be placed under this procedure are also listed in full (part two of Article 129): goods prohibited from importation; goods withdrawn from circulation or with restricted circulation; goods subject to control by authorized bodies but without the relevant permit in the customs information system.

The customs authority does not satisfy third parties' property claims relating to abandoned goods and does not reimburse the carrier, warehouse owner or other persons for transport, storage and cargo handling costs incurred before placement under the procedure (part six of Article 129). So settle accounts with the warehouse in advance.

The remaining 310 sheets of glass are cleared as usual under the release for free circulation procedure (import, code 40).

How are the broken and abandoned glass recorded in the accounts?

In the example we assume that ownership has passed from the supplier and the consignment was recorded at the contract price. The figures are hypothetical: 1 sheet costs 50 dollars, the exchange rate on the date of receipt is 12 000 soum.

Two important notes:

1. If goods are lost as a result of a natural disaster, they are written off not through 5910 but directly with the entry Dt 9720 – Ct 2910 (paragraph 431, line 6).
2. The 30 sheets abandoned in favour of the state (18 000 000 soum) are removed from the balance sheet, but the tables of NAS No. 21 have no separate line for the free transfer of goods for resale (there is only the line Dt 9430 – Ct 2810 for finished goods, paragraph 141, line 16). So set out this entry in your accounting policy. Also state clearly in the accounting policy the expense item for the destruction service and for the costs of delivering the abandoned goods.