Minh Giang Private Enterprise sues Da Nang Customs Department: reviewing the handling of the case

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Why the enterprise is subject to tax arrears?

Minh Giang Private Enterprise registered import declaration No. 10139346690/A11 at Da Nang Seaport Customs Branch and declared commodities (from section 01 to section 42) as follows:

From section 01 to 07: Chain sling for lifting is declared code 7315.82.00; Section 08 to 42: the hook, connecting link, shortening hook and master link is declared code 7315.82.00.

According to risk management operation of the Customs authority, the declaration is classified into Green Channel.

However, during checking information on tax payment and other information of the enterprise, Customs officers discovered that the declaration of commodities from the section 08 to 42 is inconsistent with instruction in Official letter 3933/TCHQ-TXNK dated August 11 of the General Department of Vietnam Customs.

Sling hook, connecting hook, connecting link of iron which were imported by Minh Giang enterprise, was instructed to be classified according to the code 7326.90.90.

The suspicion for Da Nang Customs is that this enterprise declared code 7326.90.99 when importing hook item under the declaration No.10039277022/A11/03EE dated May 8 2015 at Dinh Vu Customs Branch (HaiPhong).

According to the enterprise’s declaration and the physical inspection of goods, these commodities are not linked together and are separate products. Therefore, Da Nang Customs Branch has reclassified these commodities as follows:

From section 01 to 07: Rolled Iron and steel chain, new 100%, including 7 types and packed in iron barrels, with length of 100m and 200 m which have not linked with other parts and accessories under code 7315.90.90 (the same as declaration by the enterprise).

From section 08 to 42: The hook, connecting link, shortening hook and master link of iron and steel (many sizes), new 100% that have not linked with other parts and devices and packed inwooden boxes is classified into code 7326.90.99 (different from the declared code by the enterprise).

However, Minh Giang Private Enterprise did not agree with the goods classification of the Customs Branch and applied the code in accordance with the C/O issued by its partner.

To clarify this classification, Da Nang Seaport Customs Branch reported the case to the Da Nang Customs Department and proposed the Customs Branch of Goods Verification No.4 to assist the classification.

Da Nang Customs Department issued Official Letter No. 880/HQDNg-TXNK responding to the application of the code which isconsistent with the classification, code application of Da Nang Customs Branch.

The Customs Branch of Goods Verification No.4 issued official letter on assisting in analyzing and classifying goods, accordingly, Chain sling for lifting in the order number of commodity line from 01 to 07 in the declaration 101393466900/A11 dated May 8, 2017 that is classified in accordance with the Import and Export Tariff is code 7315.82.00; the hook, connecting link, shortening hook and master link in the order number of commodity line from 08 to 42 of the declaration is classified in accordance with the Import and Export Tariff is code 7326.90.99.

On July 28 2017, Da Nang Seaport Customs Branch issued Official Letter No. 1096/HQCDN responding to Minh Giang Enterprise on goods classification for the hook, connecting link, shortening hook and master link in the order number of commodity line from 08 to 42 of the declaration under code 7326.90.99 for the enterprise to know and implement additional declaration.

However, after a 5-day time limit the enterprise did not implement an additional declaration. Da Nang Seaport Customs Branch issued a decision on tax assessment No. 59677 / QD-HQCDN on August 9, 2017 with revised tax amount of 35,733,888 VND due to the tax rate difference between the code of 7315.90.90 declared by the enterprise (3% tax rate) and the code 7326.90.99 assessed by the Customs (10% tax rate).

On October 11, 2017, the enterprise paid the imposed tax amount and on November 16, 2017, it paid the tax penalty for late payment of 675,370 VND according to notificationof the Branch.

Thus, the identification code for commodities in the enterprise’s declaration under code 7326.90.99 is consistent with regulations on goods classification and the issuance of the Decision on tax assessment by Da Nang Seaport Customs Branch is in line with regulations.

First instance court: Dismiss the petition

Due to disagreement with the decision of the Branch, Minh Giang enterprise sued the Manager of Da Nang Customs Branch.

On March 15, 2018, the Branch participated in the meeting of "Examination of the submission, access, publicity of evidence and dialogue" according to Notice No. 02/TB-TA of March 5, 2018 of the People's Court of Son Tra District, Da Nang City for lawsuits of Minh Giang private enterprise.

At the meeting, the parties presented their views.

The enterprise requested Da Nang Seaport Customs Branch to cancel the Decision on Tax assessment No. 59677/QD-HQCĐN dated August 9 2017 and reapply HS code according to C/O and implement compensation payment (estimated at 597,370,528 VND).

The Branch did not agree to cancel Decision No. 59677/QĐ-HQCDN because it complied with Customs regulations and pointed out inaccuracies and contradictions in the evidence that the enterprise provided to the court. Customs officers also pointed out that Minh Giang Enterprise made false documents and dossiers related to compensation contents.

After the debate, the two sides agreed to sign a meeting report with the following main contents:

The petitioner, Nguyen Huy Truong Giang - Director of Minh Giang Private Enterprise agreed to withdraw the requirement for compensation, proposed to the Court to send a written request to the General Department of Vietnam Customs, and send Diplomatic Note to the German Customs to clearly identify HS code in C/O No. L17599595 of products in the contract No. MG-THIELE 01-2016 on November 18, 2016 that whether it be consistent with regulations of international customs; suspend the handling of the case while waiting for the instruction of the General Department of Vietnam Customs.

Da Nang Seaport Customs Branch agreed with the withdrawal of the requirement for compensation of Minh Giang Private Enterprise and suspended the settlement of the case.

On May 7, 2018, the People's Court of Son Tra district issued Official Letter No.97/CV-TA to send to the General Department of Vietnam Customs to determine the goods code in the declaration. On August 14, 2018, the General Department of Vietnam Customs issued the Official Letter No. 4764/TCHQ-TXNK to answer the People's Court of Son Tra district. Accordingly, Chain sling for lifting of iron and welded link declared from section 01 to 42 is classified into Heading 73.15 , “Chain and parts thereof, of iron or steel”, sub-heading “other”, code 7315.82.00 “other, welded links”. Hook, connecting link, shortening hook and master link of iron and steel detailed in section from 08 to 42 is classified into Heading 73.26 “Other articles of iron or steel”, sub-heading 7326.90 “other”, sub-heading “other”, code 7326.90.99 “Other”.

On September 14, 2018, the People's Court of Son Tra district issued the first-instance administrative judgment No. 01/2018/ HC-ST regarding the appeal of administrative decisions with the following results: Dismiss request to sue of Nguyen Huy Truong Giang – Director of Minh Giang Private Enterprise (now Minh Giang International Import-Export Trading Co.Ltd) about canceling Decision No. 59677/QD-HQCDN dated August 9, 2017.

The Court also proposed the Director of Da Nang Customs Branch to revise Decision No. 59677/QD-HQCDN in line with form No.09 attached to the Circular No. 38/2015/TT-BTC dated March 25, 2015 of the Ministry of Finance providing for customs procedures; customs inspection and supervision; export tax, import tax and tax administration for export and import goods.

Specifically, the document format: Decision on Tax assessment No. 59677/ QD-HQCDN dated August 9, 2017 issued by the Director of Da Nang SeaPort Customs Branch is incorrect on the document format, the competency to issue the decision is the Manager of Da Nang Seaport Customs Branch, but the decision is recorded as the Director of Danang Customs Department.

On September 26, 2018, the manger of Da Nang SeaPort Customs Branch issued Decision No.2018/QD-HQCDN amending the Decision on Tax Assessment No. 59677/ QD-HQCĐN dated August 9, 2017.

The People's Court of Son Tra district dismissed the petition of the enterprise in accordance with the classification instruction as mentioned above.

Appeal trial: Continue to dismiss the petition

Not agreeing with the decision of the Court, Minh Giang International Import Export Trading Co., Ltd issued an appeal letter against the first administrative judgment No. 01/2018/HC-ST of the People's Court of Son TraDistrict, Da Nang City.

On October 18, 2018, Da Nang City People's Court issued Notice No. 02/2018 / TBPT-HC on the acceptance of the case for appeal trial.

On December 2018 Da Nang City People's Court temporarily suspended the trial forverification.

On November 30, 2018, the Da Nang People's Court issued Official Letter No. 55/CV-TA to the Ministry of Finance requesting the identification of commodity codes in section 08 to 42 in the declaration.

On April 9, 2019 Da Nang City People's Court issued Official Letter No. 32/2019/TB-TA to reopen the trial at 8 am on May 3, 2019.

On May 3, 2019, the Ministry of Finance issued the document No. 5048 / BTC-TCHQ to answer the Danang People's Court. Accordingly, hook, connecting link, shortening hook and master link of iron and steel detailed in section from 08 to 42 is accessories of chain and classified into Heading 73.26 “Other articles of iron or steel”, sub-heading 7326.90 “other”, sub-heading “other”, code 7326.90.99 “Other”.

At the trial on May 3, 2019, the Court found that the case could be reconciledbetween the parties, so the trialwas suspended for dialogue and reopened on May 14, 2019.

At the dialogue, the enterprise asked the Customs to cancel the Tax assessment Decision No. 59677/ QD-HQCDN and accept its true declaration of the code (heading 73.15) and it will withdraw the application and also did not require a tax refund.

However, Da Nang Seaport Customs Branch did not accept the Tax Assessment Decision cancellation and did not accept the code declared by the enterprise), the Customs will support the enterprise in pre-classification (the competence of the General Department of Vietnam Customs), if the enterprise imports, the customs will guide enterprises to make appropriate declaration.

Therefore, on May 14, 2019, the appellate trial was reopened.

On May 15, 2019, Da Nang City People's Court issued an Appellate administrative judgment No. 08/2019/HC-PT on requesting the cancellation of administrative decisions with the following results:

Dismissing the request of the Director of Minh Giang Private Enterprise to cancel Decision No. 59677/ QD-HQCDN issued by the manager of Da Nang Seaport Customs Branch.

(Welcome to read Part 2: What are basis for goods classification of Customs?)