Central-Lod District Court
29 April 2025
Civil Case 57941-06-22
Before: Judge Yaakov Shepfer, Senior Judge
The plaintiffs:
1.Razma Marketing & Trade Ltd.
2. Yarin G.B. Holdings in Tax Appeal Company 516202058
3.Yarin Bass
4.A.L. Realizations Ltd.
5.B.H. Ophir Leasing Ltd.
6. Yitzhak Bens
7. Jackie Jacob Taub
8. Kobi Butrai
9. Ronen Yaron
10. Meirav Gur Ben Ruchi
11. Pinchas Nahum
12. Karistocrat Automobile in Tax Appeal 516331139
13. Boaz Alon Car Agencies Ltd.
14. Yitzhak Elbaz
15. Berman Auto Group in Tax Appeal 515927317
16.Erez Yakubov
17.V12 Luxury Vehicles Ltd.
18. Yoel Shaked
19.A.N.R.N. Trading Company Ltd.
20. Meir Ben Tzur Ltd.
21. Galit Zaga
22. Yaffa Ben Tzur
23.Shai Zaga
24.Aviv Zaga
25. Joseph Melech
26.Yedidya Industries & Properties Ltd.
By Adv. A. Abramovich, Adv. R. Arfi and Adv. A. Ganon
Against
The defendants:
1. The State of Israel Ministry of Transportation
2. The State of Israel, the Tax Authority, the Customs and VAT Department
By Attorney D. Yifrach-Drori and Attorney S. Wiesel-Glatzur
3. Magal – Afeka Automotive Laboratory Ltd.
By Adv. A. Feldman
Judgment
1. In this case, 26 small importers (as defined in Section 2 of the Licensing of Businesses and Professions in the Automotive Industry Law, 5776-2016) of vehicles to Israel (hereinafter: the "Plaintiffs" or "the Importers"), joined together and filed an action against Defendant 1 - the Tax Authority; Against Defendant 2 - The Ministry of Transport (hereinafter: "the Ministry"; The Tax Authority and the Ministry together will be referred to hereinafter: "the State"); and against defendant 3 - Magal Proper Engineering and Tax Appeal Laboratory (hereinafter: "Magal"), which is a legally certified vehicle laboratory.
2. In the action, the plaintiffs petition for the following remedies:
a. Determination that the green grade set for the vehicle by Magal on the relevant dates of the claim is correct and therefore, the tax billing notices issued by the Ministry to the plaintiffs at a later date are null and void;
Alternatively, if it is determined that the green grade was calculated incorrectly, to determine that the importers are entitled to an exemption from paying the billing notice;
C. Alternatively, if it is determined that the plaintiffs are not entitled to such an exemption, it should be determined that the Ministry or Magal were negligent and they should be obligated to pay the billing notices in full.
3. In accordance with the provisions of the "Procedure for Granting a Minor Importer License and Characterizing the Process of Handling Applications for an Import License" - Procedure 3/16 of the Ministry, a small importer wishing to issue a vehicle license for imported vehicles is required to establish a model code for the vehicles, through an online system controlled by the Ministry. It should be noted that the personal import process is different from that of commercial importers, in the sense that it does not establish a model code, and anyone who wishes to import a vehicle in person turns to the Ministry of Transport and presents the data in order to be calculated directly with the green grade and the vehicle will receive the appropriate level of pollution. Air pollution data is part of all the data required to establish a model code.
4. Since small importers do not have access to the system in order to establish the same model code, they must contract with a laboratory authorized by the Ministry, in order for it to do this for them and enter the vehicle's data into the system for the purpose of establishing that code.
5. In accordance with the procedure "Determining Air Pollution Levels for Vehicles" - the Ministry's Procedure 018/2014, which was enacted by virtue of Regulation 270B of the Traffic Regulations, 5721-1961 (hereinafter: the "Procedure"), a green grade will be set for each vehicle imported into Israel, which will be reflected in the model code and will include all the vehicle's pollutant emissions data. All this data is entered by a laboratory authorized by the Ministry, in accordance with the importer's declarations, and then the model code that was established is sent to the importer, in order for him to enter the code and other data into the Ministry's online system. There are 15 levels of pollution that are determined according to the green grade given to the vehicle.
6. The purchase tax for the import of vehicles into Israel is derived, inter alia, from the green grade given to vehicles. In order to incentivize car importers to import vehicles with a low level of pollution, a reduced tax payment rate was set for the import of vehicles with a lower green grade, as well as a gradual reduction from the tax amount. The rate of reduction decreases as the green score is higher. In accordance with the determination of the green mark, the customs agent classifies the vehicle and issues the importer an import declaration, in which the import taxes to be paid are determined. Vehicles with a green score of less than 100 are subject to a reduced purchase and import tax (at a rate of 40%), while vehicles with a green score of more than 100 are subject to a higher tax rate.
7. Plug-in hybrids are vehicles that include a hybrid engine (a combustion engine with an electric motor). Unlike "regular" hybrid vehicles, in which the combustion engine charges the electric motor's battery, plug-in hybrids have the option of charging the battery by connecting the vehicle directly to the electrical grid, and therefore this connection allows for a lower amount of emissions.
8. While in regular vehicles with American standards, the pollutant data is published by the car importer in relation to urban and intercity roads separately, in plug-in hybrid vehicles this is not the case, and the carbon dioxide emission figure is one combined figure.
9. In accordance with European standards, plug-in hybrid vehicles imported from Europe arrive in Israel with a COC certificate, which includes full technical specifications about pollutants. According to the procedure for determining pollution levels, the pollutant data must be placed in the general formula that appears in the procedure, and accordingly receive the green grade.
10. In contrast, in the case of plug-in hybrid vehicles imported from the United States, their carbon emission data must be extracted from the vehicle's energy consumption label, along with the U.S. Department of Environmental Protection's pollutant emissions database. In accordance with the procedure for determining pollution levels, a distinction must be made between fuel consumption in urban and long-distance travel, but the same energy consumption label on the vehicle includes only a combined figure, with no separation between urban and long-distance travel. In this regard, it should be noted that the Green Grade Procedure and the computerized system in which the data is entered in the establishment of the model code, do not allow for the entry of combined data, and it is required to enter two data: urban and intercity (testimony of Ms. Hazan, p. 279 of the transcript S. 9, Appendix C to the procedure, paragraph 2).
11. I will preface the latter and note that according to the plaintiffs, contrary to the guidelines relating to hybrid vehicles from Europe, there is no directive in the same procedure with respect to vehicles imported from the United States. According to them, since these data in the relevant sampling sources for American vehicles are integrated, the Ministry left this issue in a vague and unresolved procedure.
12. Between 2020 and 2021, importers from the United States imported dozens of plug-in hybrid vehicles to Israel. Their data was transferred to Magal, in order to establish a model code and determine their green score. In accordance with Magal's determination, which was made after an inquiry with representatives of the Ministry regarding the manner in which the fuel consumption figure incorporated in the formula for vehicles imported from the United States is placed, the importers reported to Customs a low green score and accordingly paid the import taxes required by the Customs Tariff Order.
13. About a year later, after an examination, the Ministry demanded that Magal review all the hybrid models for which a model code was opened in accordance with the procedure, and recalculate the green grade. The revised data was forwarded to the Customs House, and in light of the change in the green grade above 100, new billing notices were issued to the importers in the amount of ILS 3,707,528.
14. On August 31, 2022, following the filing of the lawsuit, the Ministry distributed an updated procedure for calculating the emission data (Appendix 10 to Magal's statement of defense), which includes reference to plug-in hybrid vehicles and includes a material amendment to the calculation, as required by Magal. The procedure is effective as of January 1, 2023. As part of the update to the procedure, the green grade formula was also updated and a designated coefficient was set for plug-in vehicles.
15. In the statement of claim, the importers argued, inter alia, that the new billing notices should be canceled; According to them, the Ministry's procedure leads to an absurd situation, whereby vehicles imported from Europe receive a green grade and are entitled to a tax benefit, while identical vehicles imported from the United States receive a significantly higher green score and are obligated to pay higher taxes; The plaintiffs also claimed that the ministry was negligent in drafting the provision of the procedure used by Magal in calculating the green grade, and misled it when it asked for clarification on the matter; Until the lawsuit was filed, the Ministry did not bother to correct or clarify the matter; The new procedure includes a substantial amendment to the method of calculating the green grade of plug-in hybrid vehicles, in a way that would have led to a significantly lower tax calculation than the new billing notices; Alternatively, the importers claim that they are entitled to a tax exemption in the new billing notices, in light of the protection afforded to them by the Indirect Taxes Law (Overpaid or Underpaid) Law, 5728-1968 (hereinafter: the "Indirect Taxes Law"), along with the cancellation of the payment of the arrears penalty, which constitutes a punitive payment, since the non-payment of the tax did not stem from incorrect knowledge, since the green grade was calculated by an accredited laboratory on behalf of the Ministry. which constitutes the "long hand" of the Ministry and the Authority, and the sickle should not be seen as an extension of the importers, but of the Authority; Alternatively, the firm or Magal are liable for damages against the plaintiffs, since the firm was negligent in formulating the provisions of the procedure and misled Magal regarding the calculation of the green score. Magal made a mistake in understanding the instructions she received from the Ministry regarding the calculation of the green score.
16. In its statement of defense, the state claimed, inter alia, that there is no connection between the country of manufacture of the vehicle and the standardization according to which it is manufactured. It claims that there are technical, mechanical, formal, and substantial differences between vehicles manufactured in European or American standards, regardless of their country of import, with the European standard being considered stricter in the field of environmental quality, and therefore, the same model of vehicles manufactured to different standards may produce a different amount of emissions; The procedure for determining pollution levels includes explicit reference to a precharged hybrid vehicle manufactured according to American standards, and if there is a mistake in Magal's understanding of the manner in which the data is placed, the importers must sue it only; The green grade declared by the importers was incorrect, since it was based on erroneous pollution emission data provided by them, and accordingly the classification of the vehicle on which it was declared is also incorrect. Therefore, the importers enjoyed a tax benefit to which they were not entitled and must bear the payment of the difference. In accordance with the procedure, the responsibility for an accurate and correct import declaration, as well as the responsibility for providing data to the Ministry's information system for the purpose of calculating the green score, lies entirely with the importer and the provision of details that are incorrect, or not in accordance with the Ministry's procedures, which lead to an incorrect classification - is the importer's obligation. Magal is not authorized to determine the method of calculating the green grade according to the data entered into it by the importers, and this is calculated according to a formula set by the Ministry in cooperation with the Tax Authority and the Ministry of Environmental Protection. The appropriate venue for clarifying arguments against the formula (such as the claim that the distinction between American and European vehicles is unlikely to be distinguished) is by direct attack by filing an administrative petition; The importers, who relied on Magal, acted in contravention of the provisions of the procedure and entered incorrect air pollution emission data into the Ministry's computerized system, which led to an incorrect green marking and the classification of the vehicle, in particular, an incorrect tariff. Therefore, importers must be obligated to pay the balance of the tax. Magal is a private service provider that acted as an extension of the importers and cannot exempt them from the obligation to submit correct import declarations; The importers do not meet the conditions of Section 3 of the Indirect Taxes Law.
17. In the statement of defense filed by Magal, she argued, inter alia, that she agrees that it will be determined that the plaintiffs are not liable for tax in addition to the one they have already paid, and does not object to the determination that the firm should compensate the plaintiffs, but she objects to the remedy directed against her; The manner in which vehicle emission data is provided is related only to the intended destination of the vehicles. Nevertheless, in accordance with the procedure, two vehicles manufactured in the same factory will receive a green grade and different degrees of pollution, only due to the manner in which the different data between European and American standards are presented; The previous procedure did not provide an answer regarding how to enter the combined data, and the Ministry's computer system did not allow the data of plug-in hybrid vehicles to be entered according to American standards by using the combined data. Therefore, the laboratory had to manipulate so that the data would match the fields fixed in the computer system; Therefore, Magal contacted the Ministry for clarification regarding the method of calculation, but the procedure was not clarified and Magal was informed in an oral conversation about the method of calculation, which was carried out in accordance with the Ministry's directive, from then until the updated procedure. In other words, Magal acted exactly as instructed by the Ministry and no blame should be placed on her; The results obtained as a result of the calculation are logical, since when two vehicles are manufactured in the same factory but sent to different markets, they pollute to the same extent, and the manner in which the data is entered as required retroactively in the updated procedure creates an absurd result, whereby two identical vehicles from the same production line will receive a different green grade and a different tax class; The second instruction given to Magal from the ministry is not intuitive at all and requires Magal to enter incorrect data into the system. From a review of other plug-in hybrid vehicles (which are not the subject of controversy), almost all the laboratories and the Ministry came to a different result; The updated procedure clarifies for the first time how emissions data are entered and corrects the absurd result created by the previous directive. Thus, the new billing notices do not reflect the air pollution emissions of the vehicles according to the new procedure; Alternatively, the main culprit should be placed on the Ministry, since procedures must be formulated clearly and its duty was to clarify the issue; Magal was not negligent, she acted in accordance with the instructions of the ministry's representatives and there is no causal connection between her actions and the excessive damages that were requested, and in any case, the importers are obligated to reduce their damage and provide Magal with the full data, but Magal received partial data from them.
18. Unfortunately, although it seemed that the gap between the parties' positions could be bridged in a relatively reasonable manner, the plaintiffs' attorney and the state's attorney did not succeed in reaching a level playing field between them, and not only that, but even with regard to the management of the case, they insisted on the interrogation of all the witnesses, while demonstrating rigidity and lack of any flexibility on their part to limit the waiver of some of the testimonies, in light of the similar questions common to all the plaintiffs. and while placing unnecessary burden on the management of the case and the judicial resources required for this purpose. The plaintiffs' argument in paragraph 4 of the summaries of their reply that this stemmed from the state's insistence is inaccurate, as appears from the state's notices of June 26, 2024 and July 9, 2024. The two parties - the plaintiffs and the state, are unfortunately partners in the aforesaid. It's a shame.
19. Therefore, each of the plaintiffs submitted an affidavit on his behalf, and of these, no less than twenty-three (!) plaintiffs testified and cross-examined their affidavits. On behalf of defendants 1-2, four witnesses testified, and on behalf of Magal, Mr. Itamar Magal himself testified.
Summary of the plaintiffs' evidence:
20. Each of the plaintiffs submitted an affidavit in which he described his manner of action vis-à-vis Magal and the customs agent. According to the plaintiffs' testimonies, all the vehicle data was transferred by them to Magal for the purpose of establishing the model code and determining the green score, with the latter being less than 100. After Magal Lab established the model code, each plaintiff entered the chassis number of the vehicle in the "vehicle" system and pulled out the model code in which the green sign is also embodied. Each of the plaintiffs attached the outputs of the "Vehicle" system to his affidavit. The outputs of the "Vehicle" system show that the green grade was less than 100, and therefore the vehicles were classified by the customs agents, in particular Customs 87.03-6071 for the Customs Tariff Order, which means a purchase tax of 40% of the value of the vehicle, according to the import records that were also attached to the affidavits. Each of the plaintiffs attached to his affidavit the data that he transferred in real time to the Magal laboratory. These data show, according to the plaintiffs, that, contrary to the defendants' claim, they did not provide incorrect data. The plaintiffs also attached to their affidavits the sales invoices of the vehicles to the end customers, and according to them, a perusal of these shows that the plaintiffs did not include the tax that was required of them retroactively in the sale price, and therefore they ostensibly meet the conditions of section 3(3) of the Indirect Taxes Law.
Summary of the defendants' evidence:
21. On behalf of the state, affidavits of testimony were submitted on behalf of Mr. Ravid Peer - Senior Engineer in the Standardization Department, Mr. Idan Abudi - Head of the Energy Department and responsible for writing and implementing the procedure, and Ms. Eti Hazan - Chief Editor and Senior Director of the Central Customs House. An expert opinion was also submitted - Mr. Sassi Idan, of the Central Customs House Auditor.
22. In his affidavit, Mr. Ravid describes the examination of the non-conformity of the data received by the Magal Laboratory, and his findings, according to which the CO2 figure entered by the laboratory in relation to an American vehicle was incorrect, and contradicted the provisions of the procedure for determining the degrees of vehicle pollution. In his affidavit, Mr. Ravid refers to and compares the score received in the laboratory with the current score for each plaintiff.
23. Mr. Idan Aboudi's affidavit details the process of importing and establishing the model code, and the process of the green marking and its calculation. The witness confirms that after the lawsuit was filed, the procedure was updated, including the green grade formula, in which it was clarified, for the avoidance of doubt, that the same CO2 figure must be entered, both in the municipal field and in the intercity field. According to him, this update stemmed from the fact that prior to that date, there were not enough statistics accumulated for the purpose of determining the coefficient. In his affidavit, the witness details Mr. Itamar Magal's appeals to him and his reference to Mr. Magal's appeals in a criminal appeal by telephone calls.
24. In her affidavit, Ms. Hazan emphasizes that the establishment of the model code in the office and the classification of the goods for import purposes are not the same matter, and that beyond the plaintiffs' obligation to contact the laboratory for the purpose of establishing the model code, they are not obligated to do so for the purpose of classifying the goods, and that the use they made of the information received from Magal for the purpose of classifying the vehicles was done by them voluntarily, with a large part of the plaintiffs, according to her, classifying the vehicle in the incorrect customs specification. Even before the model code was established by Magal. The witness notes in the affidavit that Magal's share in the erroneous classification is marginal, if at all. The main part of the continuation of Ms. Hazan's affidavit deals with the data of each plaintiff. The witness also notes the lack of reasonableness in her opinion regarding the actual sales of the vehicle, both in relation to the list price on which it was declared, and due to the failure to present the sales invoices.
25. In the opinion of Mr. Sassi Idan, he argues that it has not been proven that the plaintiffs did not pass on the mandatory tax from the import of the vehicles on their customers, and that it is "reasonable" that they did indeed pass the tax on the shoulders of their customers - the purchasers of the vehicles, in the absence of the presentation of the pricing system and the specific calculation itself in relation to each vehicle, and as a conclusion that arises from minimal profitability, when they declared a price list of a vehicle significantly higher than its actual sale. Therefore, Mr. Idan argues that there is a suspicion that the invoices that were presented do not reflect the full transaction price for the customer. This witness, too, like his predecessors, details in the balance of his affidavit the matter of each plaintiff in accordance with his specific data.
26. On behalf of Magal, Mr. Itamar Magal of the Magal Afeka Laboratory testified.
27. In his affidavit, Mr. Magal emphasizes that the laboratory is accredited by the Ministry of Transportation, operates in accordance with its guidelines and procedures, is subject to audits conducted by the Ministry, and sees itself as the Ministry's long hand. (In this regard, I will note that despite Mr. Magal's view that the laboratory is an extension of the Ministry, it appears that it is not so, but rather it is authorized by the Ministry only and constitutes an agent of the plaintiffs). Mr. Magal notes that specifically, the service of opening a model code is a service that the firm itself provided in the past, and even today in some cases it provides directly to the importer, and in other cases, transfers the role of opening the model to the laboratory.
Mr. Magal also details the manner in which the data is entered into the Ministry's systems for the purpose of determining the green grade, and emphasizes that the standardization is not related to the place where the vehicle is manufactured or the factory in which it is manufactured, but is determined only according to the planned destination of the vehicles. Mr. Magal explains that since the procedure was built according to the European method, it is necessary to adapt all vehicles manufactured to the American standard (Appendix C to the procedure).
Later in his affidavit, Mr. Magal details his appeals to Mr. Idan Abudi of the firm, in order to clarify the implementation of the required calculation. According to Mr. Magal, he did not receive a response despite a number of requests from him. For this reason, he initiated a telephone conversation in which he received instructions from Mr. Aboudi to divide the report and enter the data in a division of 1/3 - 2/3. The witness further states that he sent an email to Mr. Abudi in which he detailed the method of implementation of the procedure by him, and did not receive any amendment or reservation to the aforesaid. Beyond that, Mr. Magal believes and even explains his position that beyond the logic underlying the original directive he received, which leads to similar vehicles receiving a similar grade, in his opinion - as someone who deals with vehicles and vehicle standardization - there is no logic in the Ministry's later position.
Mr. Magal details that eight months after he wrote to Mr. Abudi how he was acting in accordance with his instructions, he received a request from Mr. Ravid Peer from the firm who questioned how the procedure would be implemented, stating, "We are in trouble." As a result, he had another conversation about Mr. Aboudi, which did not lead to any conclusions, and the next day he received an instruction to change the placement of the data.
26. After reviewing the pleadings submitted by the parties and their appendices, and after hearing the parties' evidence before me and submitting their summaries, I found that the claim against Magal and the State should be dismissed, subject to a partial specific amendment of the demand for charge. My reasons will be detailed below.
27. There are three main questions facing discussion in this case: first, what is the correct green grade set for the vehicles and should the notices of additional tax that the Ministry issued to the plaintiffs be cancelled at a later date? Second, if indeed the green mark that was thought to be wrong, are the importers entitled to an exemption from paying the billing notice under section 3 of the Indirect Taxes Law? And third, was the Ministry or Magal negligent and what is the significance of this negligence to the extent that it determines?
Determining the correct green grade for the vehicles and the obvious conclusion regarding the cancellation of the notices of additional tax that the Ministry issued to the plaintiffs at a later date
28. Before I examine this question, I will mention a basic concept that seems to me to be indisputable, and that is the taxpayer's obligation to pay the correct tax - real tax. Even if there has been some mistake or mistake on the part of any of the parties (and I will already note that I do not share the insinuations stemming from the state's arguments for the alleged fraud that arises from the plaintiffs' conduct), the taxpayer is not exempt from paying real tax on the basis of correct true data, and to the extent that the plaintiffs have benefited from a tax benefit to which they are not entitled, they must return it to the state coffers.
29. I will further note that I do not intend to make any determinations on the question of the logic of the procedure or the alleged distortion that existed in it, beyond the significance that derives from this in the question of good faith and conduct, as expressed in the activities of the plaintiffs and Magal. An examination of the logic of the procedure, the correctness of the formula, its precedents, and the requirements for adjustments therein, are not subject to examination under the jurisdiction of this court in the framework of a civil lawsuit, and to the extent that the plaintiffs believe that there is some flaw in the procedure, action must be taken to attack the administrative decision in the appropriate manner and framework.
30. More than necessary, I would like to point out that the assumption regarding the alleged absurdity stemming from giving different grades to identical vehicles manufactured under different standards is not necessarily correct, in light of Aboudi's testimony, who explained that there are differences in technical, mechanical and formal requirements between the various standards, which are expressed, inter alia, in engine calibration, tire dimensions and equipment, which affect pollutant emission data (paragraph 18 of Aboudi's affidavit, p. 256 of Prot. S. 3-6). In any event, the matter has not been proven as it should be, and as stated, it is not within the jurisdiction of this court to determine.
31. A review of paragraph 1.2 of the procedure for determining air pollution levels for vehicles that was in effect at the relevant time (Appendix 3 to the amended statement of claim) shows that the purpose of the green score is to constitute "an integrated index that reflects the external costs created due to the emission of pollutants from the vehicle...", and accordingly "the tax group is determined out of 15 groups, with each group determining a fixed tax benefit that is less than the regular purchase tax imposed on the vehicle...". The green grade is determined according to a formula for placing the pollutant emission data detailed in the procedure, with the value of each pollutant reported according to the type of vehicle and the method of standardization.
32. Section 1.4 of the Procedure makes a distinction between a vehicle from a European manufacturer and a vehicle from an American installation. The procedure states that "the calculation formula for the green score has been adjusted to the emissions data as they are examined and reported according to the European test cycle. In light of the fact that there are differences in the testing cycles and the method of reporting between the European and American systems, for the purpose of determining the pollution of a vehicle from an American installation, adjustments must be made to the emission data reported according to the American standard, prior to placing them in the formula for calculating the green score in section 1.2 above. The adjustment is made by means of a coefficient determined based on a statistical analysis of the emission data of vehicles of the two types of standardization, as well as with reference to the conversion of units and types of tests in the American standard (urban-intercity)." With regard to the source of the data and the use of the vehicle suitability factors for an American manufacturer, the procedure refers to Appendices B and C.
33. As mentioned above, plug-in hybrid vehicles imported from Europe arrive in Israel with a COC (Certificate of Conformity), which includes full technical specifications about pollutants. According to the procedure for determining pollution levels, the pollutant data must be placed in the general formula that appears in the procedure, and accordingly receive the green grade. In this situation, the calculation is simple, and all that remains for vehicles from European standardization is to place the data from the COC certificate in the general formula that appears in section 1.2 of the procedure and receive the green grade.
34. On the other hand, in accordance with the procedure, in relation to plug-in hybrid vehicles imported from the United States, their carbon emission data must be extracted from the energy consumption label on the vehicle, together with the US Department of Environmental Protection's pollutant emissions database, and a distinction must be made between fuel consumption in urban and long-distance travel, since according to the American standard, the same energy consumption label on the vehicle includes only a combined figure. There is no separation between urban and long-distance travel. In the U.S. database as well, the figure appears only in a combined form (as illustrated in the link in Appendix B to the procedure in the EPA database table - U.S. Environmental Protection Agency).
35. Moreover, an examination of the original procedure shows that it did not contain a clear directive with respect to vehicles imported from the United States. The example in the procedure refers only to gasoline and diesel vehicles, without reference to the manner in which the emission data of plug-in hybrid vehicles is placed in federal standards.
36. In view of the aforesaid, and given the fact that in the case of plug-in hybrid vehicles imported from the United States (as opposed to European vehicles), this is an energy consumption label that includes only a combined figure, without separating between urban and long-distance travel, there is indeed a lack of clarity in the provisions of the original procedure regarding the manner in which the data is placed in the formula as required.
37. This conclusion is supported by the fact that on August 31, 2022, i.e., after the filing of the claim, the Ministry found to update the procedure for calculating the emission data, which includes reference to plug-in hybrid vehicles, while adding a material amendment to the calculation. As part of the update to the procedure, the green grade formula was also updated and a designated coefficient was set for plug-in vehicles. Admittedly, according to the Ministry, the procedure is updated every two years, and in our case, the Ministry argues that it was appropriate to update it in view of the fact that sufficient statistical data had accumulated that allowed the update (p. 243 of Prot. S. 6-11), however, both according to the position of the plaintiffs and Magal, and according to the position of the Ministry, the conclusion arises that at the relevant time of the lawsuit, whether due to lack of sufficient data or for some other reason, the procedure was not sufficiently clear. Otherwise - why update us?
38. It should be noted that from the evidence brought before me, it appears that the Ministry's personnel tried to calculate the green score themselves "in accordance with the procedure" and reached different conclusions between them (paragraph 46 and Appendix 3 to Magal's affidavit - correspondence with Mr. Anwar Bashir of the Ministry of Transport). It should be noted that Mr. Anwar Bashir was not brought to testify on behalf of the Ministry, in a manner that strengthens Magal's testimony on this matter.
39. Therefore, the State's argument that arises in paragraph 8 of its statement of defense that "there could not have been any ambiguity where the written procedure explicitly and clearly states what data must be entered in order to receive the green grade." It is possible that there is no dispute as to what data should be entered, but the ambiguity relates to the manner in which they were presented in the formula, a manner in which it was not clear and led to Magal's request for clarifications on this point.
40. It is also worth examining at this point the matter of the dispute that arose between the witness on behalf of Magal - Mr. Itamar Magal - and the witness of the Ministry - Mr. Idan Aboudi, who is responsible for the regulation and the entity that drafted the procedure, regarding Magal's request to Abudi for clarifications and instructions regarding the manner in which the data was placed and what instructions he received.
41. In accordance with the evidence brought before me, Magal contacted Abudi in email correspondence on 13 August 2020 and 10 September 2020 (Appendix 1 to Magal's affidavit). No answer was presented to me by Abudi and it seems that no such answer was received at all. Subsequently, on September 15, 2020, a telephone conversation took place between the two (paragraphs 23-28 of Magal's affidavit). The existence of the telephone conversation is not in dispute, but only its timing. I will address this matter later. According to Magal's testimony, Abudi told him that the green score should be divided into 66% urban and 34% interurban. According to Aboudi, he instructed Magal to enter the same figure twice (para. 25 of Magal's affidavit, vs. paras. 28-30 of Aboudi's testimony). Aboudi confirms that his instruction was by telephone and not in writing (para. 30 of Aboudi's affidavit, p. 219 of Prot. S. 14). Subsequently, Magal contacted Magal twice again in email requests on January 25, 2021 and June 7, 2021 (Appendix 1 to Magal's affidavit). In his letter of January 25, 2021, the fact that it was not possible to enter the combined figure was again documented and that he was acting in accordance with Aboudi's instruction in placing the relevant figure at 34-66%. On June 7, 2021, Magal's question arose again as to what was the expectation of fixing the system in such a way that it would be possible to enter a combined figure. Again, Abudi refrained from responding to both requests. In his testimony, Mr. Abudi did not find an explanation as to why he did not reply to Magal in writing (p. 223 of Prot. S. 18-20).
42. In other words, between August 2020 and June 2021, Magal contacted Abdoudi several times, in order to receive clear instructions regarding how to place the data according to the procedure, in a situation where it is necessary to enter two data, but in practice there is only one combined data. Although Mr. Abudi received a number of written requests, with the exception of one telephone conversation (the content of which is disputed between the parties), he did not see fit to respond to any of them in writing. Mr. Abudi did not even see fit to amend the manner of placement that was reported to him by Magal, when he wrote to him explicitly how he was acting in accordance with his instructions.
43. I do not agree with the state's argument in its summaries (last section at p. 6) that: "When we contrast Magal's version with that of Aboudi - is it at all possible to assume that Magal will be told to divide the CO2 figure (and only that) into 1/3 and 2/3 as claimed in paragraph 4 of the plaintiffs' summaries, when this division is in direct and clear contradiction to what is stated in the procedure?! And why should my servant, who is in charge of the procedure, provide such an incorrect answer?". First, and as noted, beyond Magal's testimony, the documentation that appears in the email explicitly points to such a division. Second, Abudi himself also confirms in his testimony that the numbers 1/3 and 2/3 (0.34; 0.66) were mentioned in the conversation (p. 221 of the transcript of paras. 9-10 and para. 30 of his affidavit). Third, and as noted, the said division is not "directly and clearly contrary to what is stated in the procedure", since it did not have clarity regarding the manner in which the required data is placed, in a situation where there is a single combined data relating to plug-in hybrid vehicles from the US installation. I therefore reject the state's argument in this matter.
44. And in order not to leave a missing page regarding the telephone conversation that took place between Mr. Magal and Mr. Aboudi: according to Magal, this took place on September 15, 2020, whereas according to Aboudi, the conversation took place on July 12, 2020. I do not believe that significant importance should be given to the date of the conversation, but in this matter as well, preference should be given to the testimony of Magal, who submitted a call output, without objection and without being questioned about this fact, which shows that there was no conversation between the two in July 2020 (Magal's affidavit of December 15, 2020 + call output). I would like to emphasize in this matter that the aforesaid does not imply, G-d forbid, a testimony that is not true on the part of my servant, and my assumption is simply a delusion of memory, in the absence of written documentation on his part, and nothing more.
45. To all of the above, it is worth remembering and adding that Magal does not and did not apparently have any interest whatsoever in placing data in a manner that does not correspond to what is required.
46. In light of the above, I found the Magal version to be preferable to the Aboudi version. Magal's testimony was credible and corresponded to the written evidence that all supported it. Magal had no interest in acting in real time that was not in accordance with the procedure. His appeal to Aboudi includes and accurately documents his understanding of the procedure and the manner in which it operates, and on the other hand, he did not receive any reservation from Aboudi to this.
47. Therefore, I determine factually that Itamar Magal acted in accordance with his understanding of the procedure (which was not clear on the relevant point in our case) and in accordance with the instruction he received from Mr. Aboudi.
48. In these circumstances, I also found to reject the State's argument in its statement of defense that "the plaintiffs and/or Magal on their behalf, acted in contravention of the explicit provisions of the procedure and entered incorrect air emission data into the computerized system of the Ministry of Transport..." (paragraph 8 of the statement of defense). The plaintiffs acted in accordance with their understanding of the Ministry's procedure, which was not sufficiently clear on this point and in accordance with Mr. Aboudi's instructions, and presented true data, although they placed them in the formula, in good faith, in an incorrect manner.
49. This conclusion is also supported by the testimony of the witness on behalf of the State - the Senior Standardization Engineer, Mr. Ravid Peer (p. 187 of the Protem of November 19, 2024, paras. 20-25):
"Q: So why do you make another claim in your statement of defense that the importers gave Magal incorrect data? You're basically saying they put the right data incorrectly, but in the statement of defense you say they gave the wrong data. So which of the two versions is correct? Did they give the wrong data or did they put the correct data incorrectly?
A: It's that they put the data incorrectly."
50. Admittedly, later on, the witness has some reservations about his aforementioned statement, and the Ministry's counsel even clarifies that as far as it is concerned, the placement of data is in fact equivalent to the failure to present correct data (p. 190 of Prot. S. 12-17), however, as far as the clarity of the procedure is concerned, I have found it to be determined that indeed on the relevant point aforesaid, it was not sufficiently clear, and therefore, both the action of the plaintiffs - the importers, and the action of Magal, was carried out by them. This is what it seems, in good faith in the face of the ambiguity they faced.
51. On a side note, I will note that the State's claim that "it is a fact that other car importers were not caught for the same mistake and did not encounter any ambiguity, as it were, in their entry of air pollution emission data" (supra, paragraph 8), was not only not supported by actual evidence, but the witness, Mr. Ravid Peer, requested at the beginning of his cross-examination and during it to delete this section from his affidavit, in view of the fact that no examination was conducted in the matter at all (p. 181 of Prot. S. 5-8; p. 193, s. 1-11, p. 201, s. 23-27). The witness, Mr. Aboudi, also does not testify to an examination that was carried out and does not testify unequivocally that Magal is the only one who did not act correctly. In his testimony, the witness notes that others did not approach him with this question, nothing more. He also testified that he is not connected to the laboratories' vehicle system and does not see the models. He is above that, sets the procedure and does not see the reports afterwards. (p. 240 of Prot. S. 14-16 and p. 254 S. 26 to P. 255 S. 3).
52. Interim Summary:
I. Indeed, there was a lack of clarity in the provisions of the original procedure regarding the manner in which the data was placed in the formula as required. In accordance with the provisions of the original procedure and its appendices, it was not clear how the combined figure regarding the import of plug-in hybrid vehicles from the United States to Israel should be entered.
II. I accept Magal's position, according to which he acted in accordance with Aboudi's directive, which misled him regarding the implementation of the procedure and the placement of the relevant figure in a division of 66%-34%.
III. There was no fraudulent attempt on the part of the plaintiffs. The plaintiffs provided true data, the malfunction stemmed from the incorrect placement of the formula of the true data they provided, in good faith and in accordance with the ministry's instructions received by the laboratory on their behalf.
Should the notices of additional tax billing issued by the Ministry to the plaintiffs be canceled at a later date?
53. As stated, the basis of our discussion and its starting point is the obligation to pay the right tax - a true tax. The fact of the lack of clarity in the provisions of the procedure does not exempt the plaintiffs from paying the correct tax. Even if there is any mistake or mistake on the part of any of the parties - the plaintiffs, the firm or Magal, and to the extent that the plaintiffs have benefited from a tax benefit to which they are not entitled, they must supplement it to the state coffers.
54. In accordance with Section 6.4 of the Procedure for Determining Model Code for Vehicles (Appendix 3 to the amended statement of claim), the vehicle importer is solely responsible for entering the vehicle's data and registering a model code. In our case, in view of the fact that the plaintiffs are "small importers", they are obligated to do so through one of the laboratories approved by the Ministry of their choice according to their choice, with the laboratory serving as a service provider in this matter for them, but the responsibility remains on them.
55. The requirement of the procedure is to enter the data as it is in the relevant fields, with the calculation of the green score in the formula and the normalization of the data and its conversion, to the extent necessary, in the computerized system of the Ministry of Transport (paragraph 1.4 (c) of the procedure, as well as paragraph 3 of Appendix C, and paragraph B of Appendix D to the procedure).
56. In the Ministry's examination with Magal, it turned out that the CO2 data entered in relation to the vehicles in dispute in this case was incorrect in the sense that instead of entering the emission data as they are, and performing the calculation of the green score in the Ministry's computerized system, the plaintiffs' vehicles were self-adjusted and the data was entered after adjusting and weighting. The Ministry's computerized system performed the weighting once more, and thus an incorrect green score was obtained that was lower than the correct score that was supposed to be received on the basis of the emission data (paragraph 30 of Aboudi's affidavit). When an incorrect green score was received, even if in good faith as I determined above, this led to a tax benefit that was illegally granted to the plaintiffs, and of course action must be taken to correct the situation.
57. In accordance with Sections 1 and 2 of the Indirect Taxes Law (Overpaid or Underpaid) 5728-1968, there is the authority to demand payment of a missing debt of "indirect tax" (which by definition includes customs and purchase tax, as in our case) after its release from the Customs Authority, if it is required to do so within the determining period. "Deficiency" is defined in Section 1 of the Law as "indirect tax that has not been paid or has been returned in error, in whole or in part".
58. The "default" is therefore to correct an error and pay the correct tax difference that should have been paid in the first place.
59. The plaintiffs' alternative argument is that they are entitled to an exemption from paying the debit notices, in accordance with the provisions of section 3 of the Indirect Taxes Law.
60. The aforementioned section 3 establishes three cumulative conditions for receiving the exemption:
"Notwithstanding the provisions of section 2, the taxpayer shall not be liable for an underpayment if it is proven to the satisfaction of the Director that all of the following have been met:
(1) The deficiency did not stem from incorrect knowledge provided by the taxpayer or because he did not provide information that he was obligated to provide;
(2) The taxpayer did not know, and in the circumstances of the case should not have known, of the existence of the deficiency;
(3) The taxpayer sold the goods in good faith, before demanding payment of the deficiency at a price that did not include the deficiency."
59. As stated, the green score that was determined was incorrect due to the double weighting of the air pollution emission figure, and it was this that led to the incorrect classification of the vehicles. The importers, who relied on Magal, entered incorrect air pollution emission data into the ministry's computerized system, which led to an incorrect green marking and the classification of the vehicle in particular as incorrect customs; Therefore, even if we are dealing with a good faith report on the part of the plaintiffs, it is a deficiency that stems from the provision of incorrect data at the time of classifying the goods. Therefore, the first element required for granting an exemption was not met, and since these are cumulative conditions, in any case it is not possible to exempt the plaintiffs from paying the tax difference in accordance with section 3 of the Indirect Taxes Law.
60. The State expands in its summaries and argues that the second and third conditions were also not fulfilled (lack of knowledge of the deficiency and failure to roll over the tax to the end customer). In this regard, I will note that I accept the plaintiffs' position that since the demand for payment came retroactively, they did not know about the deficiency, and I do not accept the State's speculative argument, which has not been proven, that an importer is familiar with the market and knows, or should know, what is the correct tax to be paid.
Similarly, I do not accept the claim that "life experience" proves that importers roll over the expectation and the chance of retroactive payment of taxes on the customer. Admittedly, I find it puzzling to explain the plaintiffs' refusal to bring actual evidence regarding the cost of the vehicle (purchase agreement, confirmation of the transfer of funds, transportation, storage, insurance, marketing, etc.), as well as the lack of an answer on their part as to how they priced the vehicles in Israel, other than the claim that they priced the price of the vehicles on the basis of a "market survey" they conducted. Thus, it can be determined that the plaintiffs did not prove Positive Those who did not roll over the tax on the end customers have difficulty determining this without detailing the above calculations.
However, I do not accept the state's argument that the price appearing in the tax invoices does not reflect the true price and is intended for the purpose of tax evasion. A fraudulent claim of this kind requires a high level of proof and the presentation of real evidence on the part of the claimant, which the state has ceased to present, except for its claim of "life experience" and "unreasonableness" of the losing situation in which some of the plaintiffs found themselves. Claims of this type are not equivalent and cannot replace the evidentiary requirement to support the claim. For the avoidance of doubt, I therefore reject this claim that the State raised the alleged fraud on the part of the importers.
60. The conclusion that arises from the aforesaid is that there is no reason to cancel the tax difference billing notices issued by the Ministry to the plaintiffs at a later date, since the conditions of the law in this regard were not met.
Was the Ministry or Magal negligent, and if it determines one, what does it mean?
61. The plaintiffs' third alternative argument is that the Ministry of Transport is obligated to pay the Customs the amounts of the billing notices in lieu of the plaintiffs, in light of its negligence in drafting the provision of the procedure and its misleading of Magal regarding the manner in which the data is placed in the formula. Alternatively, the plaintiffs argued that Magal should be held liable if it became clear that she acted negligently towards the plaintiffs.
62. First of all, with regard to Magal: A review of the plaintiffs' summaries (including their response summaries) shows that they have no real claim against Magal. Although in their statement of claim the plaintiffs petitioned to charge Magal for negligence against them, a review of paragraph 18 of their summaries shows that they abandoned their claim against Magal, and focused the remedies they claim against the firm only. The summaries of their response also focus on all their arguments against the state, without any argument against Magal. Therefore, their claim against Magal is no longer pending and must be dismissed.
63. This conclusion also corresponds with the state's position, according to which Magal's part in the erroneous classification is "marginal, if at all, and in any case has not been proven" (paragraph 9 of Ms. Hazan's affidavit).
64. More than necessary, I will mention what I mentioned earlier, because not only has it not been proven that Magal was negligent, but in my opinion she acted with proper professionalism and in accordance with what is required of her. As I stated above, the Ministry published a procedure that was not sufficiently clear, and did not contain an answer to the manner in which the data relating to the vehicles in dispute were placed. Magal contacted the regulator several times in writing and in a criminal appeal, and acted according to his instructions. Insofar as there is negligence, the responsibility for it lies on the part of the firm and not on the part of Magal.
65. In light of the aforesaid, in the absence of negligence on the part of Magal and since the plaintiffs have abandoned their claim against Magal in any case, the claim against her is dismissed.
66. The situation is somewhat different in the case of the state: as stated and detailed by me at length above, I preferred Magal's testimony to that of Aboudi. I determined that Aboudi, who is the competent authority in this matter, had indeed misled Magal in the instructions he gave him, and that Magal had acted in implementing the procedure in accordance with the instructions she had received from Aboudi. Added to this is the fact that from the outset, the Ministry formulated an unclear procedure that led to a mistake on Magal's part, and Itamar Magal's written inquiries to Aboudi, before and after their telephone conversation, remained orphaned. These facts show negligent conduct on the part of the Ministry towards Magal and the plaintiffs, which is inconsistent with what is expected of it in light of its status as the regulator responsible for the matter.
67. However, the plaintiffs did not prove a causal connection between their current situation, whereby they received a notice of underpayment of tax, and the situation in which they would have been if they had received a higher green score in the first place. (The plaintiffs did not claim, for example, neither in the statement of claim, nor in the affidavits, nor in the testimonies, nor in the summaries, that they would have collected the excess tax from the customers, even though they might have done so.)
68. Moreover, from the evidence brought before me, it appears that the application to Magal was made by the plaintiffs only after they purchased the vehicle and made the report, with the purpose of inspecting the vehicle and determining the green grade. It seems, therefore, that entering the import data for the purpose of establishing a model code did not create reliance on the importers regarding the tax rate at which they would be charged, as a derivative of the green grade they are expected to receive (see, for example, the cantor's affidavit).
69. Finally, the result of the rejection of the claim does indeed lead to the payment of a higher tax than the tax that they thought they should pay in the first place, but this is a real tax. In my opinion, this result cannot be considered as damage. Paying tax is not a "damage" but a lawful obligation.
70. In their response summaries, the plaintiffs argue against the state's claim that it has not been proven that the customs agents relied on Magal in classifying the goods. I see this argument with the plaintiffs eye to eye, and I cannot accept the state's argument in this matter. Apart from the fact that since the claim in the statement of defense was not raised, it constitutes an extension of the façade, I accept the plaintiffs' position that the customs agents relied on the green mark set by Magal. Not that this is the correct order of things, but as it appears from the testimony of Witness Hazan, it is not possible to classify a vehicle in particular as a customs that does not correspond to the green mark entered in the Ministry of Transportation system (testimony of Mrs. Hazan at p. 266 of Prot. S. 26-29 and at p. 267)
71. Therefore, in the absence of proof of "damage" and in any case a causal connection between the firm's failures and that damage, the elements of the tort of negligence have not been proven, and in any case the plaintiffs' claim against the state in this matter should be dismissed.
72. Notwithstanding the aforesaid, my opinion is that the plaintiffs are entitled to cancel the arrears penalty component in the billing notices they received. As I noted above, paying tax, with all the unpleasantness of paying it, cannot be considered "damage" and does not constitute a punitive payment imposed on the taxpayer. The same applies to linkage and interest differentials, which do not constitute a punitive matter, but are intended to preserve the monetary value of the unpaid amount. The situation is different when it comes to a penalty for arrears. The essence and clear purpose of a delinquency fine is punitive, and it is imposed on taxpayers who did not deliberately comply with the provisions of the law, thereby causing damage to the tax authorities. Its purpose is punitive and its purpose is deterrent, and it is intended to deter taxpayers from evading paying real tax.
73. In our case, as I determined earlier, the plaintiffs acted in good faith, while providing factual data and relying in their reports on an accredited laboratory that received its instructions from the competent authority in the Ministry. The plaintiffs did not know that there had been any error in the provision of the data. The mistake itself stemmed from the Ministry's deception of the laboratory regarding the placement of the data, all as detailed in detail above. Therefore, and in view of these circumstances, there is no justification for requiring the plaintiffs to pay a arrears penalty and it must be canceled.
Conclusion:
74. The lawsuit against Magal and the state is dismissed, subject to the cancellation of the penalty for arrears in the billing notices.
75. The plaintiffs will pay the costs of the proceeding in the total amount of ILS 120,000, of which the state's share will be ILS 50,000 (taking into account the conduct of the ministry and the outcome of the proceeding), while Magal's share will be ILS 70,000.
The right to appeal to the Supreme Court within 60 days of the judgment being served.
Granted today, April 29, 2025, in the absence of the parties.