Taesung Industrial Co., Ltd. (Attorney Yoon-ju, Counsel for the defendant-appellant)

Head of Seoul Customs Office

October 26, 2012

1. Of the instant lawsuit, the part seeking cancellation of the collection notice of KRW 17,29,431, total sum of the additional dues stated in the Additional Collection Tax Statement shall be dismissed.

2. The plaintiff's remaining claims are dismissed.

3. The costs of lawsuit shall be borne by the Plaintiff.

The collection disposition taken by the Defendant against the Plaintiff on October 10, 2011 on the total of KRW 181,783,560, and the total of the additional charges on KRW 17,29,431 shall be revoked.

1. Details of the disposition;

A. The Plaintiff invested 100% in the first stage model complex 5-4 of the Gesung Industrial Complex in the Gesung-si, North Korea, and established Taesung, Inc., Ltd. (hereinafter referred to as the “Teosung”), which is the processing business chain.

B. The Plaintiff concluded a consignment processing contract with the GIC in North Korea and supplied (hereinafter “instant raw materials”) raw materials, such as ABS, SN, etc. purchased from a domestic company, etc. (hereinafter “instant raw materials”), to the Taesung, and re-exported the containers of cosmetics, which are finished products produced in Taesung, to the Republic of Korea, and exported them to the Republic of Korea without additional processing in its original condition.

C. From May 26, 2010 to March 11, 2011, the Plaintiff filed an application for a simplified fixed amount refund of KRW 181,783,560 for the following 41 items from May 26, 201 to March 11, 201, pursuant to Article 13 of the Act on Special Cases Concerning the Refund of Customs Duties, etc. Levied on Raw Materials for Export (amended by Act No. 10817, Jul. 14, 201; hereinafter “Exchange Special Act”), and Article 16 of the Enforcement Decree of the same Act, and received a refund from the Defendant.

D. As a result of the Korea Customs Service Audit Office’s “specific audit on the operational status of the refund system”, the Plaintiff was excluded from the subject of the simplified fixed amount refund system on the grounds that the Plaintiff produced the key goods by entrusting a local company to process them and brought them into the original place, and that the status of the producer who manufactured the key goods within Korea cannot be recognized.

E. Accordingly, on October 10, 201, the Defendant issued a collection disposition on the total of KRW 181,783,560, the sum of additional dues, and KRW 17,29,431 (hereinafter “instant disposition”) in accordance with Article 21(1)4 and (2) of the Refund Special Act, following the notice prior to taxation on September 5, 201.

F. On November 15, 2011, the Plaintiff filed an appeal with the Tax Tribunal on the instant disposition, but the Tax Tribunal dismissed the Plaintiff’s claim on April 24, 2012.

[Reasons for Recognition] Unsatisfy, Gap's 1, 2 (including virtual numbers; hereinafter the same shall apply), 3, Eul's 1, and the purport of the whole pleadings

2. Whether the part of the additional dues upon the Plaintiff’s request is lawful

We examine this part ex officio. Article 21(2) of the Exchange Special Act provides that an amount calculated in accordance with the interest rate shall be additionally collected for the period from the day following the day when the excess refund amount, etc. is collected to the day when the decision on collection is made. The above additional dues are naturally generated pursuant to the provisions of law without the procedure of final determination by the tax authority, and the amount thereof is determined, and if the collection of a customs refund is revoked or reduced automatically, the above additional dues are automatically cancelled or reduced accordingly. Thus, the above additional dues notice cannot be deemed a disposition subject to appeal. Accordingly, it cannot be deemed that the collection notice of the additional dues amounting to KRW 17,29,431 among the dispositions in this case cannot be deemed a disposition subject to appeal litigation.

3. Whether the instant disposition is lawful

A. The plaintiff's assertion

According to Article 12 of the Inter-Korean Exchange and Cooperation Act (hereinafter “Inter-Korean Exchange Act”), a transaction between South and North Korea is not a transaction between nations, but an internal transaction between South and North Korea. The main text of Article 41(4) of the Enforcement Decree of the Inter-Korean Exchange and Cooperation Act considers the shipment of goods between South and North Korea as an export under Article 2 of the Exchange Special Act, but does not regard the shipment of goods between South and North Korea as an export if the goods are returned from North Korea through manufacturing and processing process. Article 11 of the Notice on the Confirmation of Origin of Inter-Korean Trade Goods (hereinafter “Notice of Origin”) considers the shipment of goods from the Gsung Industrial Complex as a domestic origin. In light of the fact that the goods brought from the Gsung Industrial Complex established by the Plaintiff were produced by processing the raw materials of this case, the Plaintiff’s disposal of the goods to be exported constitutes an unlawful application for refund of customs duties, etc. on raw materials for export as prescribed in the proviso to Article 2-13 of the Foreign Exchange and Cooperation Act.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

(i)the opening of refund systems such as customs duties;

“Refund of customs duties, etc.” means the system to support the export by returning customs duties, etc. paid when importing raw materials required for the production of export goods to exporters or producers of the export goods (see Article 3 of the Exchange Special Act). The customs refund system provides: ① “individual refund system” in which the customs duties, etc. paid in relation to the raw materials used for the manufacture of the export goods are verified according to the evidentiary documents based on the required amount system; ② without confirming the amount of customs duties paid in relation to the raw materials used for the manufacture of the export goods by raw materials; ② without confirming the amount of customs duties paid in relation to the raw materials used for the manufacture of the export goods by raw materials; ② without confirming the amount of customs duties paid in relation to the raw materials used for the export goods by the government as the amount of customs duties paid at the time of the import of the raw materials used for the export goods, regardless of whether the raw materials actually imported from the foreign countries are included in the certificate of export declaration.”

2) Requirements for a simplified fixed amount refund under the special refund law

Article 4 Subparag. 1 of the Exchange Special Act provides that the subject matter of refund of customs duties, etc. shall be the export for which an export declaration is accepted pursuant to the Customs Act. Article 3(1) of the Enforcement Decree of the Exchange Special Act provides that the refund may be made, and Article 14(1) of the same Act provides that “The Commissioner of the Korea Customs Service may, if deemed necessary to simplify the procedures for refund of customs duties, etc. on small and medium enterprises, determine and publicly notify a fixed amount of refund by item on the basis of the average amount of customs duties, etc. on raw materials for export as prescribed by the Presidential Decree,” and Article 4(2) provides that “The amount specified in the above fixed amount of refund shall be deemed as customs duties, etc. paid when the raw materials for the production of the relevant goods are imported.” Article 16(2) of the Enforcement Decree of the Exchange Special Act provides that the fixed amount of refund rate shall be applied only to the goods produced by the person entrusted with the production of the goods, but it shall be applied only to the case where the exporter and the producer directly entrusted of the goods for the refund application by the manufacturer.

3) In full view of the aforementioned legal principles and the following reasons, it is difficult to see that the Plaintiff is a person who consigned the processing in Korea and manufactures the pertinent goods. Therefore, the Plaintiff’s assertion is not reasonable.

① According to Article 26(3)10 of the Inter-Korean Exchange and Cooperation Act, Article 41(3)1 of the Enforcement Decree of the Inter-Korean Exchange and Cooperation Act and Article 41(3)1 of the Enforcement Decree of the Inter-Korean Exchange and Cooperation Act, the Customs Act shall apply mutatis mutandis to the release or bringing-in of goods between South and North Korea (the proviso to subparagraph 1 of the attached Table does not apply to the imposition, collection, etc. of customs duties, but the Customs Act shall be applied mutatis mutandis to the procedures for customs clearance), and Article 26(5) of the same Act provides that a vessel or aircraft traveling between South and North Korea shall be regarded as a “foreign trade vessel” and “foreign trade aircraft” and the two Korea shall be treated as a separate customs area. In addition, in Article 16(1) of the Enforcement Decree of the Act on the Support of the GIC, the same position is applied to the entry and bringing-in of goods related to the GIC. Accordingly, since the instant disposition related to customs duties ought to be a customs area separate from South and North Korea, it is difficult to entrust the Plaintiff to the GIC.

(2) Article 41(4) of the Enforcement Decree of the Inter-Korean Exchange and Cooperation Act provides that the shipment of goods between South and North Korea shall be deemed export pursuant to Article 2 of the Foreign Exchange Special Act. Article 9(1) of the Public Notice on the Management of Goods for Trade between South and North Korea (Notice on Customs Service No. 2010-46, Jun. 10, 2010; hereinafter “Public Notice on the Management of Customs Clearance”) provides that an export declaration shall be filed with the head of the relevant customs office when the shipment of goods to North Korea; and Article 41(2) of the Enforcement Decree of the Inter-Korean Exchange and Cooperation Act provides that customs duties, etc. shall be refunded to the goods shipped into North Korea pursuant to Article 41(4) of the Enforcement Decree of the Inter-Korean Exchange and Cooperation Act on the grounds that the export of goods from South Korea constitutes an export to North Korea in a separate customs territory; the proviso to Article 41(4) of the Enforcement Decree of the Inter-Korean Exchange and Cooperation Act provides that the aforementioned provision shall not apply to the refund of goods within three separate Korea’s.

4. Conclusion

Therefore, the part of the additional dues of the plaintiff's claim is unlawful, and it is dismissed as the remaining claims are without merit. It is so decided as per Disposition.

[Attachment]

Judges Lee Jae-hee (Presiding Judge)

Note 1) The Harmonized Tariff Consolidated Schedules (K; the Republic of Korea) classifys the 6-unit code of the HS, which is an international standard under the HS Convention, into 10 units under our needs. For example, the HS Classification Code 071412 (six-unit code) refers to the 100s if the 100s are attached, and the 10-unit code of the HSK is built if it is attached. As of 2007, the 10-unit code of the HSK is 11,703.