A Korean pharmaceutical company (“Company”) agreed to receive a certain percentage of its annual purchase quantity as “free samples” when importing raw materials for pharmaceuticals from overseas suppliers. According to the above agreement, the customs authority issued a challenge that the goods, which were imported by the Company without making a separate payment relevant to the price of goods, fall under Article 31 (transaction value of goods of the same kind or quality) of the Korean Customs Duty Act (“KCDA”) as opposed to Article 30 (transaction value) of the KCDA. Based on such finding, the transaction value of the goods was rejected and customs duties assessed based on the transaction value of similar goods previously imported for a fee.
The Company filed an appeal seeking cancellation of the imposition of customs duties based on the argument that the goods at issue were not imported free of charge and that the customs value should be determined in accordance with Article 30 of the Customs Act. The District Court and High Court rejected the Company’s appeal.
However, the Supreme Court held that the customs imposition that determined the customs value in accordance with Article 31 of the KCDA was illegal based on the following: (i) according to the contract in this case, additional supplies corresponding to a certain percentage of the annual purchase quantity were expected to be additionally supplied; (ii) the contract in this case was an annual purchase contract and the additional supply quantity was determined according to the annual purchase quantity and then the final transaction price was determined on an annual basis in accordance with the total annual payment amount and the total annual purchase quantity; and (iii) the number of additional goods supplied to the Company is not an insignificant amount, resulting in more than 10% of the annual purchase quantity. Even if the goods at issue were supplied as 'free samples' and the Company did not pay a separate price at the time of importing such goods, it would not be appropriate to deem the goods as being imported “free of charge.”
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