[1] In a case where a principal tax liability to be reported and paid is not recognized, whether penalty tax for non-declaration, underreporting, and insincere payment may be imposed on the premise that the amount of principal tax becomes effective (negative), and whether the same applies to customs duties (affirmative)

[2] In a case where imported goods, the quality, standard, quantity, etc. of which are inconsistent with the original terms and conditions, are returned to the exporter in accordance with the procedures stipulated in the statutes, whether there is a duty and value-added tax liability for such goods (negative)

[3] Whether liability to pay additional duties is recognized in a case where there is no "insufficient amount of customs duties", which serves as the basis for imposing additional duties under Article 42 (1) of the Customs Act (negative)

[1] In order to ensure the faithful performance of obligations under tax-related Acts, additional taxes are independent taxes to be collected in addition to the principal tax calculated under tax-related Acts, and where there are justifiable grounds for reduction and exemption of the principal tax, additional taxes are not included in the principal tax. On the other hand, where there exist justifiable grounds for non-performance of such obligations, additional taxes are not imposed even if the principal tax liability exists (see, e.g., Article 2 subparag. 4, Articles 47,

According to the type of additional tax, there are penalty taxes imposed as sanctions for breach of separate cooperative obligation, regardless of the principal tax liability. However, under the statutory provision that serves as the basis for imposing additional tax, penalty taxes for non-declaration, underreporting, and non-payment, which require a taxpayer to report or pay within the statutory deadline on the premise that the amount of principal tax becomes effective, cannot be imposed separately where the principal tax liability to report or pay is not recognized. The same applies to customs duties.

[2] Article 106(1)1 of the Customs Act provides that where goods on which an import declaration is accepted are different from the terms of a contract and the nature or form as at the time of the import declaration are not changed, customs duties shall be refunded if they are re-exported after having been placed in a bonded area within one year from the day on which the import declaration was accepted. In such a case, value-added tax shall also be promptly refunded pursuant to Article 71(2) of the former Enforcement Decree of the Value-Added Tax Act (wholly amended by Presidential Decree No. 24683, Jun. 28, 2013). Accordingly, if the imported goods, the quality, size, and quantity of which are not in conformity with the original specification, are returned to the exporter in accordance with the procedures stipulated

[3] Article 42(1) of the Customs Act provides for an amount calculated by multiplying “10/100 of the relevant shortage of customs duties” and “the relevant shortage of customs duties” by a certain rate (Article 42(1) of the Customs Act) to “when collecting the shortage of customs duties” (Article 42(1) of the same Act. Additional duties under each of the above subparagraphs are premised on the final existence of a principal tax liability as in the penalty tax for non-declaration, underreporting, and payment in good faith under the Framework Act on National Taxes. In light of its nature, only the liability to pay additional duties may not be separately recognized unless “underpaid customs duties”

[1] Article 2 subparag. 4 of the Framework Act on National Taxes, Articles 47 and 48 of the same Act, Article 42(1) of the Customs Act / [2] Article 106(1)1 of the Customs Act, Article 71(2) (see current Article 105) of the former Enforcement Decree of the Value-Added Tax Act (wholly amended by Presidential Decree No. 24683, Jun. 28, 2013) / [3] Article 42(1)1 and 2 of the Customs Act, Articles 2 subparag. 4, 47, and 48 of the Framework Act on National Taxes

[1] [3] Supreme Court Decision 2015Du56120 Decided November 29, 2018 (Gong2019Sang, 198) Supreme Court Decision 2016Du53180 Decided November 29, 2018 (Gong2019Sang, 210) / [1] Supreme Court Decision 2013Du27128 Decided April 24, 2014 (Gong2014Sang, 1152)

VienN Health Management Co., Ltd. (Law Firm LLC, Attorneys Doh-do et al., Counsel for the defendant-appellant)

Head of Incheon Customs Office (former name: Head of Incheon Airport Customs Office)

Seoul High Court Decision 2014Nu71315 decided September 8, 2015

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. Case summary

A. On January 7, 2013 and January 30, 2013, the Plaintiff filed an import declaration applying 8% of the basic tariff rate to (product name omitted) a health functional beverage (hereinafter “instant product”) imported from a Chinese exporter, and paid customs duties and value-added taxes accordingly.

B. On May 1, 2013, the Defendant deemed that the tariff classification was erroneous because the essential characteristics of the instant goods were red ginseng products, and notified prior to imposing customs duties and value-added taxes on which 754.3% of the tariff concession rate was applied.

C. Meanwhile, the Plaintiff filed an export declaration pursuant to Article 106 of the Customs Act on May 8, 2013 on the ground that some of the instant pharmaceutical products (hereinafter “instant pharmaceutical product”) were different from the content of the relevant contract as a result of quality verification twice immediately after the import declaration, and returned the instant product to China via the inner port of May 14, 2013. Accordingly, on June 11, 2013, the Defendant refunded the full amount of customs duties and value-added taxes paid at the time of import declaration with respect to the instant pharmaceutical product.

D. After that, on September 17, 2013, the Defendant notified the Plaintiff of the correction of the total amount of KRW 296,443,010 (hereinafter “instant penalty tax”) of the respective additional tax on the duty and value-added tax related to the instant pharmaceutical product (hereinafter “instant disposition”).

2. Of the grounds of appeal No. 1, as to the base point for determining the illegality of the disposition

In a tax administrative litigation disputing the illegality of a taxation disposition, whether the disposition is lawful shall be determined depending on whether the amount of taxation exceeds a reasonable tax amount. The parties concerned may assert the individual grounds supporting or disputing the amount of tax liability and submit relevant evidence (see, e.g., Supreme Court Decisions 87Nu448, Jun. 27, 1989; 2016Du53180, Nov. 29, 2018). As to the existence of a liability for additional tax payment, the determination of the existence of a liability for additional tax payment should be made by taking into account all the materials submitted after the lapse of the import declaration and until the closing of argument, not by the time of closing of argument. In so determining, the lower court did not err by misapprehending the legal doctrine on the base point for determining the illegality of the disposition,

3. As to the remaining grounds of appeal

A. Additional tax is an independent tax to be collected in addition to the principal tax calculated under tax-related Acts in order to ensure the faithful fulfillment of obligations under tax-related Acts, and where there are justifiable grounds for reduction and exemption of the principal tax, it is not included in the penalty tax. On the other hand, where there exist justifiable grounds for non-performance of obligations, no additional tax is imposed even if the principal tax liability exists (see, e.g., Articles 2 subparag. 4, 47, and 48

According to the type of additional tax, there are penalty taxes imposed as sanctions for breach of separate cooperative obligation, regardless of the principal tax liability. However, under the statutory provision that serves as the basis for imposing additional tax, penalty taxes for non-declaration, underreporting, and payment failure, which require a taxpayer to report or pay within the statutory deadline on the premise that the amount of principal tax becomes effective, cannot be imposed separately where the principal tax liability to report or pay is not recognized. This also applies to customs duties (see, e.g., Supreme Court Decision 2015Du56120, Nov. 29, 2018).

B. (1) Article 106(1)1 of the Customs Act provides that where goods on which an import declaration is accepted are different from the terms of a contract and the nature or form thereof at the time of the import declaration are not changed, customs duties shall be refunded if they are re-exported after having been placed in a bonded area within one year from the date on which the import declaration was accepted. In such a case, value-added tax shall also be promptly refunded pursuant to Article 71(2) of the former Enforcement Decree of the Value-Added Tax Act (wholly amended by Presidential Decree No. 24683, Jun. 28, 2013). Accordingly, in cases where the imported goods, the quality, size, and quantity of which are not in conformity with the original specification, are returned to the exporter in accordance with the procedures

(2) As to the portion of the instant penalty tax, it is premised on the premise that both the underreported penalty tax under Article 47-3 of the Framework Act on National Taxes and the underpaid penalty tax under Article 47-4 are liable to pay the principal tax of the value-added tax. Therefore, in light of the aforementioned legal doctrine, the said liability to pay the penalty tax cannot be recognized.

(3) Next, the portion of penalty tax is deemed to be with respect to the penalty tax. Article 42(1) of the Customs Act provides that “When collecting underpaid customs duties, the amount of penalty tax shall be calculated by multiplying “10/100 of the relevant shortage of customs duties” and “the relevant shortage of customs duties” by a specific rate (Article 2 subparag. 2). The penalty tax under each of the above subparagraphs is premised on the final existence of the principal tax liability, as in the penalty tax for non-declaration, underreporting, and insincere payment under the Framework Act on National Taxes. In light of its nature, only the liability to pay penalty tax may not be separately recognized unless “insufficient customs duties”, which serves as the basis for

C. In the same purport, the lower court determined that the imposition of the instant penalty was unlawful as long as there is no room for a shortage of principal tax. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the relationship between the penalty and principal

4. Conclusion

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.

Justices Jo Hee-de (Presiding Justice)