[1] The meaning of "tariffs to port of entry" as an element of adjustment added to the customs value of imported goods, and whether the "tariffs to port of entry" includes goods having monetary value that the owner of goods actually pays to the carrier (affirmative)

[2] In a case where the tax authority recognizes a transportation contract as a transportation fee or intends to adjust a transportation fee in addition to the customs value of imported goods, the fact that the transportation fee occurred and the burden of proof on the amount (=tax authority)

[1] The Customs Act refers to one of the adjustment factors added to the dutiable value of imported goods. The term “transport fare” refers to remuneration agreed by a shipper to be paid in return for transport from a transport contract to a carrier in accordance with the principle of freedom of contract. This includes not only money actually paid by a shipper to a carrier, but also goods with pecuniary value. According to the delegation of the Customs Act, the Enforcement Decree of the Customs Act, based on the fare specification, etc., calculates the fare under the main sentence of Article 30(1)6 of the Customs Act, based on the freight specification, etc. As such, if the freight specification, etc. includes the freight rate, it shall be deemed the freight rate pursuant to the said provision. The determination of freight by the Commissioner of the Korea Customs Service in consideration of the distance of transport, the method of transport, etc.

[2] If the tax authority recognizes the freight as freight even if it is not specified in a transportation contract or indicated in a transportation specification, etc., and intends to adjust it in addition to the customs value of imported goods, it shall prove the occurrence and amount of the freight.

[1] Article 30(1) of the former Customs Act (Amended by Act No. 11602, Jan. 1, 2013); Article 30(1) of the Customs Act; Article 20(1) and (2) of the Enforcement Decree of the Customs Act / [2] Article 26 of the Administrative Litigation Act; Article 30(1) of the Customs Act; Article 20(1) and (2) of the Enforcement Decree of the Customs Act

Korea Gas Corporation (Law Firm LLC et al., Counsel for the plaintiff-appellant)

Head of Pyeongtaek-gu Customs Office (Law Firm Beneficiary, Attorney Choi Sung-soo, Counsel for the defendant-appellant)

Seoul High Court Decision 2015Nu50421 decided June 29, 2016

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. The criteria and method for calculating "tariffs" as an element to adjust the dutiable value of imported goods;

The main text of Article 30(1) of the Customs Act provides, “The dutiable value of imported goods shall be the transaction price adjusted by adding up the following amounts to the price actually paid or to be paid by a buyer for the goods sold to be exported to Korea.” The main text of subparagraph 6 stipulates, “The amount determined, as prescribed by Presidential Decree, as freight, insurance premium and other transportation costs to the port of entry (import)” (this Article was amended by Act No. 11602 on January 1, 2013, and the main text was only changed only to the expression of the proviso of paragraph (1) and the contents thereof are the same before and after the amendment). Furthermore, according to Article 20(1) and (2) of the Enforcement Decree of the Customs Act, freight rates prescribed by the provisions of the said Act shall be calculated by freight specifications or other documents substituting them, but if it is impossible to compute by freight specifications, etc., it may be calculated as prescribed by the Commissioner of the Korea Customs Service in consideration of distance

The Customs Act refers to one of the elements of adjustment added to the dutiable value of imported goods. Here, the term “tariffs” refers to remuneration agreed by the owner to be paid in return for carriage to the carrier in accordance with the principle of freedom of contract. This includes not only money that the owner actually pays to the carrier but also goods of monetary value. According to the delegation of the Customs Act, the Enforcement Decree of the Customs Act, upon the delegation of the Customs Act, calculates freight under the main sentence of Article 30(1)6 of the Customs Act by the specifications of freight, etc.; thus, if freight specifications, etc. include freight, etc., it shall be deemed as freight pursuant to the said provision. The determination of freight by the Commissioner of the Korea Customs Service in consideration of the distance of carriage, method of transportation, etc. is limited to exceptional cases where

On the other hand, in order to recognize the freight as freight even though the tax authority did not specify it in the contract of carriage or in the statement of freight, and to adjust it in addition to the customs value of imported goods, the tax authority must prove the occurrence of such freight

2. Whether the liquefied natural gas generated in the course of transporting liquefied natural gas falls under freight rates;

A. The key issue of the instant case is whether the value of BOG should be deemed to be the freight in the event that a chemical natural gas (BOG hereinafter “BOG”) generated in the course of transporting imported goods into a ship is used as fuel for a transport vessel, in the event that such gas is used as fuel for a transport vessel.

B. Since risks may arise to the safety of a ship which is a means of transport due to the inherent characteristics of the imported goods in the course of transporting such imported goods, there exist cases where the owner of the goods suffers economic loss resulting from the design of the engine structure of the ship to remove such risks. In such cases, even if the carrier gains economic profit by using the goods to be lost for other purposes with the consent of the owner of the goods, such profit is merely the incidental benefit to the carrier to carry out the original purpose of the transportation of the goods in question, and it cannot be deemed that the carrier received the goods in lieu of money in return for the transportation, barring any special circumstance. As such, in a case where the goods to be lost are provided to the carrier free of charge while transporting the imported goods, the amount equivalent to the goods cannot be deemed a part of the freight, and thus, Article 3-5 of the Enforcement Decree of the Customs Act does not apply only to the case where freight cannot be calculated according to the freight specifications, etc. (Article 20(2) of the Enforcement Decree of the Customs Act).

C. Review of the reasoning of the lower judgment and the record reveals the following facts.

(1) The Plaintiff imported liquid natural gas from exporters in Cartar, Malaysia, etc. on the condition of on-board (FOB; FOB) and entered into the instant transport contract with domestic operators, such as KS Shipping Co., Ltd.. In terms of capital, vessel expenses, flight expenses, and profits. Of the navigation expenses, the fuel expenses are composed of capital, vessel expenses, operating expenses, and profits, to the extent of average fuel consumption per day guaranteed, and the profits were determined to be linked to the total amount of vessel expenses and navigation expenses. The Plaintiff paid to the operator the amount of money on the fare specifications prepared and claimed as prescribed in the said contract.

(2) Natural gas is imported in the state of liquefied, i.e., air condition cooling approximately 162·C when transporting at sea. In the course of transporting at home, some of liquefied natural gas is converted into BOG due to temperature and pressure differences, etc., and BOG is likely to pose a risk of explosion at the time of pressure increase, and thus, the domestic shipping company's shipping vessel was designed and built by adopting a method of using or burning such BOG as fuel for shipping vessels through double fuel engine structure.

(3) In entering into the instant transport contract, the Plaintiff, even if a domestic operator uses BOG generated in the course of transport as fuel for a transport vessel, did not include the equivalent liquefied natural gas price in the fare but allowed to use it free of charge within the limit of the permissible volume of BOG per day.

(4) Meanwhile, the Defendant rendered each of the instant dispositions imposing additional customs duties, etc. on the Plaintiff on the ground that the Plaintiff omitted the fare equivalent to the value of BOG at the time of filing a declaration, even though the Plaintiff paid part of the fare in kind by allowing the Plaintiff to use BOG as fuel to the domestic shipping company.

D. While the Plaintiff’s liquefied natural gas, which is the Plaintiff’s imported goods, used BOG as fuel for a transportation line, resulting in a low cost of transportation, it cannot be deemed that the Plaintiff paid in kind on behalf of the part of the freight in lieu of the money. Therefore, the price of BOG does not constitute freight under the instant transportation contract. The reasons are as follows.

First, in the instant transport contract, the parties agreed to pay the fare in consideration of the capital cost, vessel cost, navigation cost, profit, etc., and the BOG did not constitute a freight element. Nevertheless, the addition of the fare to the dutiable value without proof of the special circumstances to be considered as a freight goes against the criteria for calculating the freight under the Customs Act.

Second, the Plaintiff paid the price in full in accordance with the method stipulated in the contract of carriage in this case, and the freight specifications were also prepared and issued accordingly. Since the agreed freight is linked to the actual fuel consumption, the domestic shipping company does not gain monetary profits on the ground that the domestic shipping company used BOG.

Third, it is necessary to safely dispose of BOG generated in the course of transporting liquid natural gas according to the transportation contract of this case. According to the transportation structure of the domestic shipping company, it was inevitably scheduled to reduce the quantity of liquefied natural gas and use of BOG fuel as a natural premise for transportation. Thus, the Plaintiff, without any room for other choice, has to reduce the loss of liquefied natural gas.

E. Nevertheless, the lower court determined that each of the instant dispositions by the Defendant, which added the value of BOG in addition to the costs paid by the Plaintiff in accordance with the fare specifications, was lawful, without specifically examining and determining the methods of disposal of BOG or the inevitable use of fuel in the course of transporting liquefied natural gas by sea transportation. In so determining, the lower court erred by misapprehending the legal doctrine on the fare, which is an element for adjusting the addition of dutiable value, and the calculation thereof, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment

3. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices

Justices Park Poe-young (Presiding Justice)