Kim & Chang Secures Important Tax Tribunal Ruling on Origin Verification for Indian Diamond Imports

Kim & Chang recently secured a decision from the Tax Tribunal, partially overturning the imposition of duties by the Korean Customs Service (the “KCS”) concerning the “Rules of Origin” under the Korea-India Comprehensive Economic Partnership Agreement (the “Korea-India CEPA”). By analyzing and presenting arguments based on the Korea-India CEPA, the World Trade Organization (the “WTO”) Customs Valuation Agreement and certain established industry practices, we were able to successfully demonstrate that the KCS’s rejection of preferential tariff rates was, in several key aspects, unlawful and unreasonable (Tax Tribunal Decision 2024Gwan80·112 (consolidated), December 22, 2025).

Background

In this case, our client (the “Taxpayer”) imported non-industrial processed diamonds from an Indian exporter (the “Exporter”). Based on the certificates of origin provided by the Exporter, the Taxpayer filed import declarations for the goods, applying the 0% preferential tariff rate under the Korea-India CEPA.

Subsequently, the KCS initiated an origin verification process, which included a documentation-based audit of the Taxpayer, an indirect investigation via Indian customs authorities and an on-site inspection of the Exporter in India. After completing the review, the KCS claimed it could not verify whether the diamonds satisfied the Regional Value Content (“RVC”) threshold of 35% or the Change in Tariff Subheading (tariff shift at the six-digit level) rule. Consequently, they denied the preferential tariff rate and issued a significant assessment for unpaid customs duties. The Taxpayer subsequently filed an appeal with the Tax Tribunal.

2.	Tax Tribunal’s Key Findings The Tax Tribunal ruled in favor of the Taxpayer on several key points, finding that the customs assessments that excluded the application of the preferential tariff rate under the Korea-India CEPA to the diamonds were erroneous.

A.	RVC Calculation Methods

The Tax Tribunal accepted our argument that calculating the RVC based on “batches” of similar size and quality is acceptable, as it aligns with standard diamond industry trade practices.
The Tax Tribunal also held that unit prices for the RVC can be derived from detailed specifications in official trade documents and that conversion into the exporting country’s local currency is not required.
Finally, the Tax Tribunal clarified that the “Fungible Materials” provision detailed in Articles 3.1 and 3.12 of the Korea-India CEPA did not apply in this context.

B.	Reliability of ERP Data

The Tax Tribunal rejected the KCS’s attempt to dismiss an entire Enterprise Resource Planning (“ERP”) system’s credibility due to simple data entry errors.
It held that, as long as the input/output and production yields are managed at a level where accuracy can be verified, the records are sufficient for RVC calculation.

C.	Record-Keeping Obligations

The Tribunal did, however, uphold the KCS’s claim that the Taxpayer failed to maintain production logs for the entire verification period, noting that keeping only recent logs is insufficient to satisfy record-keeping duties.

Implications for Importers and Exporters

Korean customs authorities are increasingly intensifying origin verifications to challenge applications of preferential tariff rates and impose additional customs duties. This decision is significant because it provides concrete standards for RVC calculation as a basis for applying preferential tariff rates and confirms the reliability of certain types of evidentiary data for verifying origin.

To avoid the risk of unexpected customs duty assessments and the denial of treaty benefits based on rules of origin, we encourage companies engaged in international trade to review their current documentation practices and valuation methods against the criteria established in this ruling.

[Korean Version]

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