In a case where Gap corporation, etc. imported facilities from Eul corporation and paid royalties to Eul corporation for the use of patent and know-how for facilities, etc., and the head of the competent customs office calculated the amount to be added to the actual payment price of imported facilities by applying the proviso of Article 3-4 subparagraph 3 of the former Decision on the Dutiable Value of All Imported Goods, and imposed and notified customs duties, etc., the case affirming the judgment below which held that the above disposition is unlawful and its entire revocation is inevitable on the ground that the proviso of Article 3-4 subparagraph 3 of the above Notice cannot

In a case where Gap corporation, etc. imported facilities from Eul corporation and paid royalties to Eul corporation for the use of patent and know-how for facilities, etc., and the head of the competent customs office applied the proviso of Article 3-4 subparagraph 3 of the former Customs Service Notice No. 2010-88 of June 10, 2010) to determine the dutiable value of all imported goods (Notice No. 2010-88 of the Korea Customs Service Notice No. 2010) and imposed and notified customs duties, etc., the case affirming the judgment below that the above royalty includes the know-how's price for the fair management and the know-how's price for the entire equipment, as well as the patent and know-how's price for the entire equipment, since the above royalty for the use of the right includes the know-how's price for the fair management and the know-how's price for the entire equipment, it cannot be applied to the above royalty for the use of the right, and therefore, the above disposition calculated by adding the actual payment price

Article 30(1)4 of the former Customs Act (Amended by Act No. 10424, Dec. 30, 2010); Article 19(2) and (6) of the Enforcement Decree of the Customs Act; Article 3-4 subparag. 3 of the former Customs Act (Notice No. 2010-88, Jun. 10, 2010);

E. E.C. Roympio Co., Ltd. and one other (Attorneys Son Ji-yol et al., Counsel for the plaintiff-appellant)

Head of Seoul Customs Office and one other (Law Firm Aionion, Attorneys Gangnam-gu et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2015Nu36395, 36456 decided January 14, 2016

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

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

After finding facts as indicated in its reasoning, the lower court determined that the royalty of this case that the Plaintiffs paid to Agrosa Co., Ltd., a Japanese corporation (hereinafter “AGC”) includes the cost of know-how with respect to business operation in addition to the cost of know-how with respect to patent, know-how and process management. In light of the content of license agreement and the records of this case, the lower court did not err in its judgment by violating the rules of evidence or by misapprehending the legal doctrine on the allocation of burden of proof, contrary to what is alleged in the grounds of

Meanwhile, the Defendants asserted that “Although the royalty of this case includes the cost of know-how with respect to business operation, the royalty added by the Defendants does not include the portion thereof.” However, such allegation in the grounds of appeal is a new argument that only when it comes to the final appeal, and it does not constitute a legitimate ground of appeal. In short, the lower judgment did not err by failing to exhaust all necessary deliberations or omitting judgment.

2. Regarding ground of appeal No. 2

A. Relevant provisions

1) As to the determination of customs value of imported goods, Articles 30 through 35 of the former Customs Act (amended by Act No. 10424, Dec. 30, 2010; hereinafter the same) provides for the following methods: (a) in principle, Articles 30 through 35 of the same Act provide for the determination of customs value of imported goods; and (b) Articles 31 through 35 of the same Act provide for the determination of customs value based on the price actually paid or payable by a buyer pursuant to Article 30 and the determination of customs value cannot be made by the method under

2) The main text of Article 30(1) of the former Customs Act provides, “The dutiable value of imported goods shall be the transaction price adjusted by adding the amount under each subparagraph to the price actually paid or payable by a buyer for the goods sold to be exported to Korea (hereinafter “actual payment price”), and Article 30(1)4 of the same Act provides, “the amount calculated as prescribed by Presidential Decree, which is paid for the use of patent rights, etc. and other similar rights” as one of the aforementioned added amounts.

3) According to delegation of Article 30(1)4 of the former Customs Act, Article 19(2) of the Enforcement Decree of the Customs Act provides that “The amount to be added pursuant to Article 30(1) of the former Customs Act shall be the amount to be paid directly or indirectly by a buyer according to the terms and conditions of transaction for the pertinent goods” and Article 19(6) of the Enforcement Decree of the Customs Act delegates that “the particulars necessary for calculating royalties for use of rights, other than the provisions of paragraphs (1) through (4), shall be determined by the Commissioner of the Korea Customs Service.”

4) According to the delegation of Article 19(6) of the Enforcement Decree of the Customs Act, Article 3-4 subparag. 3 of the former Act on the Determination of Dutiable Value of Imported Goods (amended by Presidential Decree No. 2010-88, Jun. 10, 2010; Presidential Decree No. 2014-1, Jan. 3, 2014; hereinafter “the Notice”), which is published by the Korea Customs Service pursuant to the delegation of Article 19(6) of the Enforcement Decree of the Customs Act, provides that “the full amount of royalty paid for the use of a right is added to the entire method of producing a specific finished product or for manufacturing process, and where the imported product is a facility, etc. for conducting a certain process, the royalty paid for the use of a right multiplied by the ratio of the price of the relevant imported facility, etc. in total facilities, etc. to the price of the relevant imported facility, etc.” (hereinafter “the Notice”).

B. The lower court determined that the instant disposition that the Plaintiffs determined based on Article 30(1)4 of the former Customs Act on the dutiable value of the imported facilities of this case imported from AGC was unlawful and that the entire revocation of the disposition is inevitable. The reasons are as follows.

1) Article 19(2) of the Enforcement Decree of the Customs Act provides that the amount to be added to the actual payment price of imported goods upon delegation of Article 30(1)4 of the former Enforcement Decree of the Customs Act shall be limited to the portion in which the relation with imported goods and the nature of transaction conditions are recognized among royalty. Article 19(6) of the Enforcement Decree of the Customs Act delegates details other than those stipulated under Article 19(2) of the Enforcement Decree of the Customs Act. Therefore, upon delegation of Article 19(6) of the Enforcement Decree of the Customs Act, the matters stipulated in the proviso of Article 3-4(3) of the Notice by the Commissioner of the Korea Customs Service shall be construed as detailed matters necessary for calculating the amount recognized as the relation with imported goods

2) The proviso of Article 3-4 subparag. 3 of the Notice of this case provides for the case where the royalty is paid in return for the entire method of manufacturing specific finished products or for the manufacturing process and for the import of equipment, machinery and apparatus (hereinafter “facilities, etc.”) for the purpose of conducting some manufacturing process. However, regarding the method of calculating the amount to be added to the actual payment price, the royalty shall be divided in proportion to the price of the relevant imported equipment, etc.

The proviso of Article 3-4 subparag. 3 of the Notice of this case purports to add only the royalty to the ratio of the price of the relevant imported equipment, etc. to the price of the total equipment, etc. where the royalty was paid in relation to the entire equipment, etc. including the relevant imported equipment, etc.

3) The proviso of Article 3-4 subparag. 3 of the Notice of this case applies even in cases where the royalty includes “price for domestic activities after importation,” which is not related to the entire equipment, etc., as well as “price for domestic activities after importation,” which is not related to the import equipment, etc., is also added to the actual payment price and thereby exceeds the scope of statutory delegation. In such cases, the proviso of Article 3-4 subparag. 3 of the Notice of this case cannot be applied.

4) However, since the royalty of this case includes the cost of know-how with respect to the process management and the cost of know-how with respect to the business operation, as well as the cost of patent and know-how paid in relation to part of the import facility of this case, the proviso of Article 3-4 subparag. 3 of the Notice of this case cannot be applied to the royalty of this case. Therefore, the disposition of this case, which calculated the amount to be added to the actual payment price of the import facility of this case by applying the proviso of the whole royalty of this case, is unlawful.

Meanwhile, the evidence submitted by the Defendants alone is not sufficient to distinguish the price for patent and know-how paid in relation to part of the import facility of this case from the royalty of this case. Thus, the entire disposition of this case is to be revoked.

C. Examining the relevant legal principles in light of the records in the instant case, the lower court did not err in its judgment by misapprehending the legal doctrine on the validity and interpretation of the proviso of Article 3-4 subparag. 3 of the instant Notice, or by omitting judgment, contrary to what

3. Conclusion

Therefore, all appeals are 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 Jo Hee-de (Presiding Justice)