Law: "Fuel used for ship sea trials is also 'raw material'... Tax refund possible"

"Export Raw Materials Eligible for Refund under the Transportation Tax Act and Individual Consumption Tax Act"

[Image source=Yonhap News]

[Asia Economy Reporter Kim Daehyun] Is the fuel used during the 'sea trial' process in shipbuilding considered a raw material of the ship, or merely an indirectly input fuel? Since the sea trial is an essential process in the manufacturing procedure, the court ruled that the fuel used in this process is also subject to tax refund claims as a 'raw material.'

According to the court on the 19th, the Administrative Division 2 of the Daejeon High Court (Presiding Judge Jeong Jae-o) recently ruled in favor of the plaintiff, Hyundai Oilbank, in the appeal trial of the lawsuit against the Seosan Tax Office's rejection of the correction claim for transportation tax and others, upholding the first trial's decision.

Previously, Hyundai Oilbank supplied diesel and heavy oil to a shipyard, which were used during the sea trial process in ship manufacturing. Hyundai Oilbank claimed that from 2013 to 2014, "the fuel was directly input and consumed in the exported ship itself, thus qualifying as 'export raw materials' as stipulated by the Transportation Tax Act and Individual Consumption Tax Act," and filed a correction claim requesting a refund of transportation tax and others.

However, the tax authorities rejected this, stating that "the fuel used in the sea trial does not qualify as 'goods or raw materials' eligible for refunds under the relevant laws." Hyundai Oilbank filed an administrative lawsuit in objection to this decision.

During the trial, the tax authorities argued, "The relevant laws require submitting necessary documents to the competent tax office within six months from the date the refund or deduction reason arises to apply for a refund. (Hyundai Oilbank) failed to apply for a refund within the deadline, thus not meeting procedural requirements." They also claimed, "Fuel used as fuel, not as raw materials for exported goods, is not subject to refund," and "The fuel in this case was used as fuel during the sea trial process and was indirectly input in the manufacturing process."

The first trial ruled in favor of Hyundai Oilbank. It stated, "The relevant legal provisions are merely for the convenience of tax administration to promptly finalize tax amounts and should not be regarded as essential procedural requirements for refunds," "even after the deadline, submitting necessary documents to claim a tax refund is possible," it clarified.

In particular, the court judged that the fuel used during the sea trial also qualifies as a raw material. The first trial court stated, "The fuel was used in an essential process that must be completed to finish the ship," and "It was used in a manner directly input into the ship without intermediaries, which aligns with the meaning of 'direct use.'" "The defendant argues that fuel used as 'fuel' cannot be considered raw materials, but there is no clear basis for this. It is unfair to interpret the ordinary meaning of the text narrowly without reasonable grounds," it added.

The second trial also agreed with this judgment. The appellate court stated, "The fuel in question qualifies as 'raw materials' among 'goods or raw materials' under the relevant laws," and "It is reasonable to recognize that the fuel used for sea trial is ship fuel, different in type from fuel used in land processes such as cranes, and they are not used interchangeably, and that the entire amount was consumed during the sea trial process," it explained.

This content was produced with the assistance of AI translation services.