[1] Requirements for establishing a non-taxable practice under Article 5 (2) of the former Customs Act and the time of extinction of the established non-taxable practice

[2] The case affirming the judgment below holding that in a case where the importer imported a master master racker who performs the power supply and control function of electronic equipment, and the tax authorities have made an import declaration as the item number under the tariff schedule to which the concession rate of 0% applies, and the customs authorities have received such import declaration without any objection, some of the customs collector presented a review that the above goods should be classified as the item number to which the basic tariff rate of 8% applies, and subsequently requested the importer to submit data, and the customs duties are imposed upon the customs authorities applying 8% of the basic tariff rate on the above goods after the Korea Customs Service made a decision to the same purport, the customs duties imposed upon the importer at the rate of 8% on the above goods, not on the request of some customs collector for submission of data, but on the date when the Korea Customs Service Tariff Classification Committee decided to classify the above goods as the item number to which the basic tariff rate of 8% applies

[1] In order for a non-taxable practice to be established under Article 5(2) of the former Customs Act (amended by Act No. 10424, Dec. 30, 2010) to be established, there must be an expression of intent not to impose tax on the object of taxation because of an objective fact for which taxes have not been imposed over a considerable period of time, and any special circumstance even though the tax authority knew that it may impose tax, such expression of intent shall be sufficient to the extent that it can be seen as an implied expression of intent if the fact of non-taxation continues for a long period of time. In addition, in order for the established non-taxable practice to be no longer effective, it must correct the previous non-taxable practice and then indicate the final intention of the tax authority to impose tax on the object of taxation. Although such expression of intention is not necessarily necessary to be done through specific administrative actions such as disposition or decision by the entire tax authority, it should be considered as a public expression of opinion that at least it would be unreasonable for a taxpayer to trust the previous non-taxable practice.

[2] The case affirming the judgment below that on March 26, 2004, the customs duty rate of 8541 or 8542 was 85% of the tariff schedule to which the importer performed the function of supplying and controlling electric and electronic equipment, and the customs authorities received the import declaration without any objection; on the basis that on the other hand, the head of the former US customs office requested the importer to submit the necessary materials in writing, the issue must be 8504 items under the tariff schedule to which the basic tariff rate of 8% applies; on July 28, 2005, the Customs Classification Committee of the Korea Customs Service classified the product number of 8504 items under the tariff schedule as 8504 items; on the other hand, the customs duty rate of 200 days prior to the expiration of the customs duty-free practice, the customs duty-free practice of 206 days prior to the expiration of the import declaration.

[1] Article 5 (2) of the former Customs Act (Amended by Act No. 10424, Dec. 30, 2010) / [2] Article 18 (3) of the Framework Act on National Taxes; Article 5 (2) of the former Customs Act (Amended by Act No. 10424, Dec. 30, 2010)

[1] Supreme Court Decision 81Nu21 decided Nov. 23, 1982 (Gong1983, 216) Supreme Court Decision 2008Du15350 decided Dec. 24, 2009 (Gong2010Sang, 275)

1. As to the Plaintiff (Law Firm Lee & Lee, Attorneys Lee Im-soo et al., Counsel for the plaintiff-appellant)

Head of Incheon Customs Office and one other

Seoul High Court Decision 2008Nu7726 decided September 26, 2008

All appeals are dismissed. The costs of appeal are assessed against the Defendants.

The grounds of appeal are examined.

1. In order for a non-taxable practice to be established under Article 5(2) of the former Customs Act (amended by Act No. 10424, Dec. 30, 2010; hereinafter the same) to be established, there must be an expression of intent not to impose taxes on the object of taxation because of special circumstances even though the tax authority knew that it is possible to impose taxes for a considerable period of time. However, such expression of intent is sufficient if the state of non-taxation on the object of taxation continues for a long period of time, it can be seen as an implied expression of intent (see, e.g., Supreme Court Decisions 81Nu21, Nov. 23, 1982; 2008Du15350, Dec. 24, 2009). In order to ensure that non-taxable practice established is no longer effective, it should be determined by the tax authority’s previous practice to correct the non-taxable practice in the future and indicate it as a taxpayer’s trust or a final expression of intent.

2. A. The lower court acknowledged the following facts in full view of the evidence duly admitted.

(1) From around 1998, the Plaintiffs imported franchise masterss (hereinafter “instant key goods”) that perform power supply and control functions of electronic equipment, and filed an import declaration by classifying them as item number 8541 (Daod, transpers and similar semiconductor devices, etc.; hereinafter “8541”) or 8542 (hereinafter “8542”) according to the tariff schedule to which the concession rate of 0% applies. The tax authorities, including the Defendants, accepted such import declaration without any objection, and issued import licenses by classifying the instant key goods as 8542 under the import license system prior to June 30, 1996.

(2) Around February 2004, the head of the Incheon Customs Office raised questions about the tariff classification of the instant goods at issue, and on April 12, 2004, he asked the Commissioner of the Korea Customs Service about the adequacy of the tariff classification. In addition, on March 26, 2004, the head of the Gu-U.S. requested the importer of the instant goods including some plaintiffs to submit data on the instant goods. The head of the Gu-U.S. customs office notified the importer of the instant goods of the reasons for the demand that "the instant goods cannot be classified as 8542, but must be classified as item number 8504 [the 8504, hereinafter referred to as "8504") under the Tariff Schedules to which the basic tariff rate of 8% applies," among the reasons for the demand, the head of the Gu-U.S. customs office notified the importer of the instant goods of the need to submit data on the tariff classification of the goods at issue."

(3) After that, on June 10, 2005, the Secretariat of the World Customs Organization (UNFCCC) presented its opinion that “The issue of this case ought to be considered not to be classified as No. 8541 or 8542, but to be classified as No. 8504,” and the Korea Customs Service accepted this and decided on July 28, 2005 to classify the issue of this case as No. 8504.

(4) From December 1, 2003 to July 28, 2005, the Defendants imposed customs duties, etc. on the instant goods for which the Plaintiffs filed an import declaration from December 1, 2003 to July 28, 2005, and the Commissioner of the Korea Customs Service: (a) deemed that the non-taxable practice established with respect to the instant goods has ceased to exist on March 26, 2004, which was the date on which the former head of the U.S. customs office’s request for the submission of the said materials; and (b) revoked the determination on the imposition of customs duties, etc. on the instant goods for which the import declaration was filed prior to that date on the grounds that the said non-taxable practice contradicts the said non

B. Based on such factual basis, the lower court held that, on March 26, 2004, since the tax authorities including the Defendants explicitly expressed their intent not to impose tax on the instant goods, and the Plaintiffs were deemed to have established a non-taxation practice on the instant goods, the request for the submission of the materials on March 26, 2004 by the former head of the U.S. customs office was merely to examine whether the tariff classification of the import declaration on the instant goods was appropriate, and it is difficult to deem that the submission of the materials was made, and that there was a request for submission of the materials was withdrawn, and that there was a review on the instant goods classification at the Korea Customs Service around that time, the extinguishment of the non-taxation practice established as above was against the former head of the U.S. customs office’s request for the submission of the materials on March 26, 2004, and thus, the Korea Customs Service’s duty imposition of the non-taxation practice on the instant goods was unlawful prior to that date.

3. In light of the above provisions, legal principles, and records, the judgment of the court below is just, and there is no error in the misapprehension of legal principles as to the establishment and extinguishment of non-taxable practice, as otherwise alleged in the ground of appeal.

4. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Ji-hyung (Presiding Justice)