Court: Importers Not Aware Vape Liquid Was Classified as Tobacco, So Health Charge Was Improper

Even if an importer of electronic cigarette liquid failed to declare taxes when bringing the product into the country, it is improper to impose a National Health Promotion Charge if the importer did not know the product was classified as tobacco under domestic law, a court has ruled. The court acknowledged negligence but found no intent, and held that imposing the charge belatedly would effectively force the companies out of business, amounting to an excessive restriction on property rights.
According to the legal community on the 25th, the Seoul Administrative Court, Division 9, presided over by Presiding Judge Kim Guk-hyun of the Seoul Administrative Court’s 9th Administrative Division, ruled on November 17 last year in favor of six electronic cigarette importers, including a man identified as A, in their lawsuit seeking to overturn the Ministry of Health and Welfare’s decision to impose the charge.
The six importers brought in a total of 6,174,832 milliliters of electronic cigarette liquid from a Chinese company over 61 shipments between December 2018 and July 2020. The nicotine in the liquid was extracted not from tobacco leaves but from the roots or stems of the tobacco plant. Believing that the products did not constitute tobacco under domestic law, they did not factor the National Health Promotion Charge into the product price. They relied on a September 2016 interpretive ruling by the Ministry of Economy and Finance stating that nicotine extracted from tobacco stems and roots, rather than leaves, does not fall under tobacco for purposes of the Tobacco Business Act.
The Ministry of Health and Welfare, however, conducted component analyses and concluded that the products imported by A and the others were in fact tobacco manufactured using tobacco leaves as a raw material. On the grounds that they had violated the law, the ministry imposed National Health Promotion Charges on the six importers, ranging from about 278.6 million won to 1.0371 billion won each. A and the others challenged the decision in court.
The court noted that in a separate, similar case involving electronic cigarette liquid made with nicotine from the same Chinese manufacturer, a final judgment had already been issued holding that the liquid qualified as tobacco because the nicotine was extracted from tobacco leaves. Taking that into account, the panel also found that the products imported by A and the others should be regarded as tobacco. However, it still ruled for the six importers, finding that the ministry’s action violated the principle of proportionality and the principle of equality.
The court first pointed out that A and the others believed the Chinese manufacturer had extracted nicotine from the roots or stems of the tobacco plant, and therefore did not intend to deceive the authorities.
The panel stated, "It can be said that the plaintiffs were negligent in failing to recognize that the products in this case constituted tobacco extracted from tobacco leaves. However, there is insufficient evidence to conclude that they definitively knew the nicotine had been extracted from leaves and nonetheless concealed that fact."
The court went on to note that the six importers obtained the documents requested by customs from the Chinese manufacturer and submitted them, after which the goods were cleared through customs in the normal way. It also pointed out that, at this point in time, collecting the charge from the six importers is practically impossible and does not align with the purpose of the National Health Promotion Act.
The court explained, "A and the others did not include the National Health Promotion Charge in the product price, so the charge was not passed on to consumers, yet the charge imposed by the government amounts to roughly 3.5 times their sales revenue from the goods." It continued, "This is a crushing, confiscatory level that would make it impossible for them to continue operating their business, and it fundamentally restricts their freedom to conduct a business and their property rights."
The panel added, "The imposition of the charge in this case contributes little, if at all, to the stated purpose of the charge, which is to reduce health damage caused by direct and secondhand smoking or to secure funding for the National Health Promotion Fund."

kyu0705@fnnews.com Kim Dong-gyu Reporter