Improper commodity classification in customs declaration may cause different legal liabilities. This article will begin the analysis with two cases.
Case 1: A large-scale foreign-investment enterprise ("Enterprise A") imported 72.6 tons of ethylene powder from Germany, and made a customs declaration in the name of ethylene powder with a commodity code ("HS code") of 29,012,100. Later, the customs office extracted samples from the declared goods for inspection. The laboratory identification report issued by the customs laboratory center revealed that the materials were actually a type of polymer with the main ingredient being vinyl acetate, and the proper corresponding HS code was 39052900. Through further investigation, the customs office found that Enterprise A had imported the same materials as "ethylene powder" three times. The customs office finally determined that Enterprise A’s acts constituted false declarations, and imposed administrative penalties on Enterprise A in accordance with relevant laws.
Case 2: According to a news report, the merchandiser of a well-known foreign-funded enterprise ("Enterprise B"), when scrutinizing Enterprise B’s former declaration materials for imported raw materials, found that the beginning of the HS code on the commercial invoice was 3302 rather than 1302, the correct beginning of HS code for the imported raw materials. Imported materials with HS codes 1302 and 3302 were levied different customs duties of 20% and 15%, respectively. HS code 1302 was the correct coding for imported materials by Enterprise B and the merchandiser was aware of the fact. However, Enterprise B continued to use the original commodity code when filing customs declaration for the imported materials, and carried out this misconduct for the next 30 months. Finally, the customs anti-smuggling department discovered Enterprise B’s acts and determined Enterprise B had evaded customs duties amounted to over RMB 1 million. Finally, a lawsuit was instituted by the competent procuratorate before the courts.
In the above cases, Enterprise A was imposed administrative penalties, while Enterprise B criminal penalties. The following parts of this article will explore the reason why similar misconduct in HS coding caused by improper commodity classification may lead to different legal liabilities.
I. Misconduct in Violation of Customs Laws and Regulations
Under the current customs supervision system in China, misconducts that are not in compliance with customs laws and regulations can be divided into three categories: acts in violation of customs supervision provisions, acts of smuggling and smuggling crimes.
A. Determination of "Acts in Violation of Customs Supervision Provisions"
According to Article 12 of the Regulation on the Implementation of Customs Administrative Punishment of the People’s Republic of China ("Implementing Regulations")(1), an act that violates the Customs Law of the People’s Republic of China ("Customs Law")(2) or other relevant laws, administrative regulations and rules, but does not constitute an act of smuggling, is an "act in violation of customs supervision provisions".
Technically speaking, an act in violation of customs supervision provisions is an act that does not constitute "an act of smuggling" or a "smuggling crime". In essence, the intention to avoid customs supervision or customs duties is the main factor that distinguishes "acts in violation of customs supervision provisions" from "acts of smuggling" and "smuggling crimes". For "acts in violation of customs supervision provisions", the customs office will impose administrative penalties according to the Implementing Regulations.
As in Case 1, Company A misclassified the imported goods due to its misunderstanding of the ingredients of their shipment. Though Company A declared the goods with erroneous HS coding, Company A lacked both the intent to smuggle and the intent to avoid customs duties. Thus, the customs office found that Company A’s acts did not constitute a "smuggling act" or "smuggling crime", but rather an "act in violation of customs supervision provisions", and ordered only administrative penalties against Company A.
B. Determination of "Smuggling Acts" and "Smuggling Crimes"
Paragraph 1, Article 82 of the Customs Law contains provisions regarding "smuggling acts", which can be understood as follows: first, from the perspective of criminal illegality, a smuggling act is an act in violation of the Customs Law and relevant laws and administrative regulations; second, an act of smuggling will jeopardize the collection of customs duties or the supervision of international trade by a nation, or jeopardize both; third, an act of smuggling requires the subjective intent to breach the law, an act of negligence cannot constitute an "act of smuggling"; and fourth, a person who commits an act of smuggling intends to avoid customs supervision, and that is the action that satisfied the subjective intent of an "act of smuggling".
"Smuggling crimes" can be defined as "acts of smuggling" that bear criminal liabilities according to the Criminal Law of the People’s Republic of China ("Criminal Law")(3). Acts of smuggling that constitute "smuggling crimes" must be provided in the Criminal Law and meet the constitutive elements of a smuggling crime. For example, an act by a natural person smuggling ordinary goods with tax evasion of up to RMB 50,000(4), or a unit with tax evasion of up to RMB 250,000(5), constitutes "smuggling of ordinary goods" as provided in Article 153 of the Criminal Law. Otherwise, it only constitutes an "act of smuggling" if the tax evasion does not amount to the above prosecuting threshold.
As an "act of smuggling" and a "smuggling crime" have different impacts on social safety. Administrative punishment is usually imposed for acts of smuggling, while smuggling crimes will be given criminal punishment.
II. Defining the Nature of the Misconduct in Customs Declaration
Misconduct in customs declaration with the improper HS coding can be classified as "inaccurate declaration", "wrong declaration" or "false declaration for smuggling purposes". In practice, they can be divided into four categories.
A. Common Misconduct of Inaccurate Declaration
If an enterprise submits a customs declaration with inaccurate HS coding, but does not intend to conduct an act of smuggling and also has justifications as provided by the law(6) , such an act may be defined as common misconduct in customs declaration. The most common misconduct happens due to the customs declarant’s operating mistakes or typographical errors in the declaration documents. Under this circumstance, the party declaring imported/exported goods can apply for modification or revocation of import/export goods declaration form with the customs authority.
B. Acts of Wrong Customs Declaration
Article 15 of the Implementing Regulations provides that if the declared data submitted are inconsistent with actual nature of the import/export goods, including goods specifications, HS coding, quantity, price and other important information, such misconduct will affect the customs supervision order, state tax collection and foreign trade statistics. However if there is a lack of intent to commit smuggling, the act may be considered to be "an act in violation of customs supervision provisions", and administrative punishment will be imposed according to the relevant provisions as indicated in Case 1.
C. False Declaration Constituting an Act of Smuggling
If the customs declarant provides information that does not match the actual contents, possesses the intent to commit smuggling, and has obstructed the administration of customs, but the extent of the violation does not meet the prosecuting or conviction thresholds, this act may nonetheless constitute an "act of smuggling", and the customs will only impose administrative penalties on the relevant parties.
D. False Declaration Constituting a Smuggling Crime
If the violations described in the preceding paragraph have instead met prosecuting standards or conviction standards for a "smuggling crime", the parties involved may be convicted of smuggling crime. Furthermore, the parties involved shall bear criminal liabilities for the alleged smuggling crime, and may be sentenced to criminal punishment by the People’s Court.
Enterprise B as indicated in Case 2, in order to apply for a lower customs tariff rate and pay less customs duties in customs declaration, continued to use the false HS coding with full awareness that it was a false customs declaration. Enterprise B’s acts have met the elements of a smuggling crime, and the amount of tax evasion has far exceeded the prosecuting threshold of RMB 250,000. Thus the competent procuratorate initiated a criminal court action against Enterprise B for the alleged smuggling crime in Case 2.
1、The Regulation on the Implementation of Customs Administrative Punishment was promulgated on September 19, 2004, and became effective as of November 1, 2004.
2、The Customs Law of the People’s Republic of China ("Customs Law")was promulgated on January 22, 1987, and became effective as of July 1, 1987. The Customs Law was amended on July 8, 2000, and came into effect on July 8, 2000.
3、The Criminal Law of the People’s Republic of China was promulgated on March 14, 1997, and became effective on October 1, 1997.
4、Item 3, Paragraph 1, Article 153 of the Criminal Law.
5、Paragraph 2, Article 10 of the Interpretation of the Supreme People’s Court on the Concrete Application of Law in the Trial of Criminal Cases of Smuggling (promulgated on September 26, 2000, and became effective on October 8, 2000).
6、Article 5 of the Administrative Measures for Modifying and Revoking of the Import/Export Goods Declaration Forms of Customs of the People’s Republic of China (promulgated on December 30, 2005, and became effective as of February 1, 2006)