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Samsung Electronics Loses Second Appeal in Customs Refund Lawsuit Against Incheon Customs Over Imported Soundbars

[비즈한국] Bizhankook has confirmed that Samsung Electronics005930 has lost its second appeal in a lawsuit against Incheon Customs, in which the company sought a refund of tariffs paid on imported Chinese soundbars, claiming they should be classified as "duty-free items." The court ruled in favor of Incheon Customs, determining that the soundbars fall under "composite loudspeakers," which carry a tariff rate of 4.8% to 6.4%, rather than "sound reproducing apparatus," which are duty-free at 0%.

According to the court ruling, Samsung Electronics imported several soundbar models from its Chinese subsidiary, Samsung Electronics Huizhou Co. Ltd., between June 2016 and April 2019. The soundbars in question are primarily home theater-style units used to provide three-dimensional sound when connected to TVs or projectors. Samsung Electronics originally declared these imports to Incheon Customs as loudspeakers or speakers subject to tariffs (HSK No. 8518).

In January 2020, however, Samsung Electronics requested that Incheon Customs reclassify these products as "sound reproducing apparatus" (duty-free, HSK No. 8519), arguing that they qualified for a 0% tariff rate under the South Korea-China Free Trade Agreement (FTA). Incheon Customs rejected the request twice, and the Tax Tribunal reached the same conclusion in 2022. Samsung Electronics' subsequent appeal to the tribunal was also dismissed.

In December 2023, Samsung Electronics filed a lawsuit against the head of Incheon Customs to cancel the rejection of its request for correction. The total amount the company sought in refunds, including customs duties and value-added tax, was 586,944,430 KRW.

The core of the dispute was whether the primary function of the soundbars is to reproduce sound or to act as speakers. Samsung Electronics argued that the products are sound reproducing devices and that the Customs Valuation and Classification Institute had previously classified an identical model as such in a 2013 preliminary ruling, which should have been applied consistently.

However, the Incheon District Court ruled that "the soundbars were developed to enhance the audio performance of video equipment like TVs, and they are used primarily for this purpose." The court further stated that "the USB port on the soundbars is for updates rather than just playing music," concluding that the devices cannot be classified as sound reproducing apparatus. Furthermore, the court dismissed the claim in October 2024, noting that "the items subject to the preliminary review by the Customs Valuation and Classification Institute are not identical to the current items under review."

Samsung Electronics appealed the decision, but the Seoul High Court dismissed it on March 19. The appellate court noted that Samsung had historically declared these items as speakers, not sound reproducing devices, stating, "It is difficult to view Samsung Electronics as having relied on the preliminary review by the Customs Valuation and Classification Institute, given that they only filed for a correction to seek a refund of previously paid tariffs after all import declarations had been completed. Samsung Electronics' arguments cannot be accepted in any respect." Consequently, Samsung Electronics filed an appeal to the Supreme Court on April 8.

An official from Incheon Customs stated, "Since the final appeal is still pending, it is difficult to comment on the potential impact of the ruling," but added, "It is a meaningful judgment in that it provides a standard for the classification of electronic products that possess both playback and speaker functions."

Bizhankook reached out to Samsung Electronics for comment regarding the lawsuit, but the company did not provide an official statement.