Importance of confirming HS Code with the CVCI

 

If importers are uncertain about the appropriate HS Code to use when filing an import declaration of a product, they can apply for an advance ruling on tariff classification under the Article 86 (1) of the CUSTOMS ACT (관세법).

CUSTOMS ACT Article 86 (Advance Rulings on Tariff Classification Applied to Specific Goods) (1) A person who intends to import or export goods, a manufacturer of goods to be exported, a licensed customs broker, a customs brokers' corporation, or a corporation for handling clearance under the Licensed Customs Broker Act (hereinafter referred to as "licensed customs broker, etc.") may file an application with the Commissioner of the Korea Customs Service for an advance ruling on the tariff classification on attached Schedules of Tariff Rates to be applied to the relevant goods prior to filing an export or import declaration pursuant to Article 241 (1), accompanied by documents prescribed by Presidential Decree.  <Amended on Jan. 1, 2013> (2) Upon receipt of an application for an advance ruling referred to in paragraph (1) (hereinafter referred to as "advance ruling"), the Commissioner of the Korea Customs Service shall issue an advance ruling on the tariff classification to be applied to the relevant goods and notify the applicant of the results thereof within a period prescribed by Presidential Decree: Provided, That where it is impractical to issue an advance ruling on such tariff classification due to the insufficiency, etc. of documents presented, a notice of such fact shall be given to the applicant.  <Amended on Dec. 23, 2014; Dec. 15, 2015> (3) A person who has received a notice under paragraph (2) may submit an application for a review of an advance ruling to the Commissioner of the Korea Customs Service along with the documents prescribed by Presidential Decree within 30 days from the receipt date of such notice. In such cases, the Commissioner of the Korea Customs Service shall issue a review of the advance ruling on the tariff classification to be applied to the relevant goods, and notify the applicant thereof within a period prescribed by the Presidential Decree; and where it is impractical to issue a review of the advance ruling on the tariff classification due to insufficiency, etc. of documents presented, a notice of such fact shall be given to the applicant.  <Newly Inserted on Dec. 23, 2014; Dec. 31, 2018> (4) The Commissioner of the Korea Customs Service shall publicly notify or publish the tariff classification, the name, use, standards of such goods, and other necessary matters to be applied to the goods of which an advance ruling on the tariff classification is issued under the main clause of paragraph (2) and to the goods of which the applicable tariff classification is modified as the result of a review of an advance ruling issued under paragraph (3): Provided, That the Commissioner of the Korea Customs Service may choose not to publicly notify or publish the tariff classification to be applicable to the relevant goods if he or she deems it inappropriate to publicly notify or publish the tariff classification for such reason that it contains trade secret of the applicant.  <Amended on Jan. 1, 2013; Dec. 23, 2014; Dec. 15, 2015> (5) When any goods on which an import or export declaration is filed under Article 241 (1) are identical to the goods in relation to which a notice referred to in the main clause of paragraph (2) or paragraph (3) is served, the head of a customs office shall apply tariff classification thereto as described in such notice. In such cases, where the tariff classification to apply is modified as the result of a review of an advance ruling issued under paragraph (3), the modified tariff classification shall apply from the date on which the applicant is notified of the details of modification or the date of the public notification or publication provided in paragraph (4), whichever is the earlier (hereinafter referred to as "modified date"), however, it may apply differently as provided for in the following standards:  <Amended on Dec. 23, 2014; Dec. 15, 2015> 1. Where the application of tariff classification applicable prior to the modification to goods loaded for export to Korea before 30 days pass from the date of modification, is advantageous to an import declarant: Tariff classification applicable prior to the modification shall be applied; 2. In any of the following cases: Modified tariff classification shall also be applied retroactively to the goods the export or import declaration on which is received prior to the date of modification: (a) Where the tariff classification is modified due to any ground attributable to the applicant, such as submission of false data; (b) Any of the following cases which is advantageous to an import or export declarant: (i) Where there is no ground attributable to an applicant who falls under paragraph (1) or (3), such as incompleteness of submission of data; (ii) Where a person, other than an applicant falling under paragraph (1) or (3), files an export or import declaration in accordance with the tariff classification determined and publicly announced or published by the Commissioner of the Korea Customs Service. (6) Where it is necessary to conduct physical and chemical analysis of the relevant goods to issue an advance ruling or a review of the advance ruling on tariff classification pursuant to the main clause of paragraph (2) or paragraph (3), the Commissioner of the Korea Customs Service may require a person who files an application for an advance ruling or a review of the advance ruling on the relevant tariff classification to pay fees prescribed by Ordinance of the Ministry of Economy and Finance.  <Amended on Dec. 23, 2014> (7) The result of an advance ruling notified pursuant to the main clause of paragraph (2) or result of a review notified pursuant to paragraph (3) shall be valid until the tariff classification is modified pursuant to Article 87 (1) or (3).  <Amended on Dec. 22, 2020> (8) Procedures and methods of an advance ruling and a review of the advance ruling on the tariff classification, and other necessary matters shall be prescribed by Presidential Decree.  <Newly Inserted on Dec. 23, 2014>

 

Under Article 86 (4) of the CUSTOMS ACT, tariff classification rulings may be made public. The Customs Law Information Portal (https://unipass.customs.go.kr/clip/index.do) allows us to search for various rulings, which are very useful in determining the HS Code of a product. This is because, even if the product described in a ruling is not identical, we can refer to the customs authorities’ rationale for classifying similar goods.

However, it should be noted that referring to the published rulings doesn’t constitute following an established customs practice. If importers want to enjoy the right to apply the HS Code confirmed by customs authorities and to be notified when a change is made the confirmed HS Code, they must file the application for tariff classification themselves. Here is an actual example.

On September 11, 2015, the Customs Valuation and Classification Institute (CVCI) classified the ‘ALL-IN-ONE SOUND SYSTEM; AK T1’ as shown in the picture below under 8519.81-2900 [Other sound reproducing apparatus, not incorporating a sound recording device, using magnetic, optical or semiconductor media] (Ruling No.: 품목분류3과-2534).

AK T1 features a built-in player function, a hybrid amplifier (both analog and digital), six speaker units, WiFi, Bluetooth, etc., and a touch screen LCD at the top center. It is equipped with AUX and optical terminals, a USB memory terminal, and a microSD slot. It implements network/DLNA based on Wi-Fi to play sound sources such as NAS and supports MQS(Mastering Quality Sound) playback through Internet radio and streaming.

CVCI’s rationale for the tariff classification was that the AK T1 is a device that reads digital audio files from an external storage medium, reproduces audio, and utilizes semiconductor media with an attached sound device and amplifier.

On November 1, 2021, the CVCI classified the ‘SOUND BAR; HW-J6001R/KR, HW-N650/KR, HW-M360/KR’ through the Tariff Classification Committee meeting under 8518.22-0000 [Multiple loudspeakers, mounted in the same enclosure] (Ruling No.: 품목분류3과-6226).

This time, CVCI’s rationale for the tariff classification was that the SOUND BAR is a rod-shaped speaker installed straight at the bottom of a TV, etc. It receives electrical signals output from the TV, etc., amplifies the signal with a built-in amplifier, and converts it into sound audible to humans. It provides three-dimensional sound akin to a home theater. Since it is an item designed and primarily used for the purpose of producing a home theater effect, its main function is serving as a loudspeaker. The function of playing music files stored in USB media should be considered a secondary function.

This decision by the Tariff Classification Committee resulted in the issuance of a tariff classification change notice on October 28, 2021, officially changing the HS Code of AK T1 from 8519.81-2900 to 8518.22-0000.

 

There was an importer who had filed import declarations for sound bars using HS Code 8519.81-2900 from 9/28/2017 to 10/28/2021. After receiving guidance from a customs office, the importer changed the HS Code to 8518.22-0000 and paid deficient duties, as well as additional duties as a penalty. In an attempt to be exempt from the additional duties at least, the importer filed a tax appeal, arguing that they rightfully trusted the officially expressed opinion of the customs authorities, and that the deficiency is not attributable to them.

 

The tax judge did not recognize the HS Code ruling as an officially expressed opinion of the customs authorities and deemed that the deficiency was attributable to the importer because they did not apply for an advance ruling on tariff classification themselves (Case No. 조심 2022관0092).

 

Likewise, referring to others’ rulings has meaning for reference purpose only. If you want to secure protection from changes of the HS Code, you must apply for an advance ruling yourself.