How to Respond to Customs Administrative Penalty Disputes? Shenzhen Administrative Litigation Lawyer Wins Case for Enterprise Rights Protection

Companies engaged in processing trade know well that every customs penalty notice represents real money. This is especially true for processing with supplied materials, where the chain of "contract filing—bonded import of materials—processing and production—re-export—verification and closure" is tightly interlinked. Any error at any stage could be deemed a violation or even smuggling.

Shenzhen Jinmoulong Company is exactly such an enterprise. In 2019, the company was placed under investigation by customs for issues with the management of bonded materials, and was ultimately found to have "unauthorized domestic sale of bonded goods," resulting in fines and recovery of taxes. The company's head felt wronged: "Our management was not up to standard, but we didn't intentionally smuggle!"

Case review

Jinmoulong Company is a Hong Kong-invested enterprise in Shenzhen engaged in processing with supplied materials, primarily undertaking the processing and assembly of electronic components. In 2018, affected by the external market environment, the company's orders shrank significantly, and some bonded imported raw materials accumulated in inventory. To alleviate financial pressure, the management decided to use some of the bonded materials in stock for the production of domestic-sale products and declared and paid the supplementary taxes to customs in accordance with the domestic-sale tax supplement procedure.

In early 2019, the customs audit department conducted a special audit on the company and determined that it had engaged in the act of "unauthorized use of bonded materials for domestic sales without customs permission," which constituted smuggling. Based on Articles 7 and 9 of the "Regulations on the Implementation of Customs Administrative Penalties," a penalty decision was issued: confiscation of illegal gains and a fine equivalent to the amount of evaded taxes, totaling over one million yuan.

The company believes that it has proactively declared and paid the back taxes in accordance with the domestic sales tax supplement procedure, and had no subjective intent to evade customs supervision. Therefore, it should not be deemed as smuggling, and subsequently engaged lawyers to seek legal remedies.

Case handling process

After accepting the engagement, Guangdong Zhiming Law Firm assigned the case to Attorney Li Zuolin's team. The legal team first conducted a item-by-item review of the penalty decision and identified two key issues:

First, the factual determination is unclear. The time period during which Customs determined the company engaged in "unauthorized domestic sales" overlaps with the time when the company actually applied for tax supplementation. Whether the company filed the application before the domestic sales or conducted the domestic sales before filing the application directly determines the characterization of the conduct. The lawyer obtained the "Application Form for Domestic Sales Tax Supplementation" submitted by the company to Customs, along with the receipt of acceptance from Customs, proving that the company had submitted the tax supplementation application before using certain materials for domestic sales, and that the actual tax payment was delayed only because the Customs review process took longer, resulting in the payment being made after the materials were used.

Second, the procedure was unlawful. After reviewing the inspection case files, the lawyer found that before making the penalty decision, the customs only served the company with a "Notice of Administrative Penalty," but failed to inform the company of its right to make statements, present defenses, and request a hearing in accordance with the law, nor did it organize a hearing. Under Article 63 of the Administrative Penalty Law, for penalty decisions involving a relatively large amount of fine, the administrative organ shall inform the party of the right to request a hearing; if the party requests a hearing, the administrative organ shall organize one. The fine imposed by the customs clearly fell within the scope of a "relatively large amount of fine," yet the penalty was issued without holding a hearing, rendering the procedure unlawful.

Based on the above two points, the legal team formulated a dual-track rights protection strategy of "administrative reconsideration plus administrative litigation": first applying to the General Administration of Customs for administrative reconsideration, while simultaneously preparing to initiate administrative litigation, thereby creating procedural pressure. During the reconsideration period, the lawyers submitted a detailed "Application for Administrative Reconsideration" along with a list of evidence, and applied for suspension of the enforcement of the penalty decision.

Legal Analysis

This case involves the core rules of customs administrative penalties.

First, regarding the composition of smuggling. According to Article 7 of the "Regulations on the Implementation of Customs Administrative Penalties," smuggling is characterized by the subjective element of "evading customs supervision." The "Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases of Smuggling" also clarifies that establishing smuggling requires proving that the actor had the subjective intent to evade customs supervision. In this case, the company's proactive declaration and payment of back taxes precisely demonstrates that it lacked the intent to evade supervision. Therefore, its conduct should be characterized as a violation of customs supervision regulations, not an act of smuggling.

Second, the legality of the penalty procedure. Pursuant to Articles 63 and 64 of the Administrative Penalty Law, where an administrative organ intends to impose an administrative penalty such as a relatively large fine, it shall inform the party of the right to request a hearing; if the party requests a hearing, it shall do so within five days after being notified by the administrative organ. In this case, the fine exceeds one million yuan, which clearly falls within the scope of a "relatively large fine." The customs authority failed to fulfill the hearing notification procedure, constituting a major procedural violation, and the penalty decision should be revoked in accordance with the law.

Third, the connection between administrative reconsideration and litigation. According to Article 23 of the Administrative Reconsideration Law, if an applicant is dissatisfied with an administrative penalty decision made by Customs, they may apply for administrative reconsideration within sixty days from the date they become aware of the administrative act; if dissatisfied with the reconsideration decision, they may initiate administrative litigation in accordance with the law. Administrative reconsideration is free of charge and may suspend execution, making it an important path for enterprises to protect their rights.

Judgment Result

After administrative reconsideration and subsequent litigation proceedings, the reconsideration authority and the court adopted the attorney's representation opinions, determining that the customs' penalty decision was based on unclear facts and violated legal procedures, and revoked it in accordance with the law. The customs subsequently re-handled the matter, determining that the company's conduct constituted a violation of customs supervision regulations, and only issued a warning and ordered the completion of the necessary procedures, without imposing a fine.

After this legal battle, the company not only avoided fines amounting to over a million yuan but also preserved its customs credit rating through reclassification. Reflecting on the case, the company's head remarked, "From now on, we'd rather spend more on professional oversight than continue to feel our way forward on our own."

Case Notes

Attorney Li Zuolin's team noted in their review: "In customs-related administrative cases, the most common mistake businesses make is 'accepting their fate'—believing they can't win a lawsuit against customs. In reality, as long as you seize the two breakthrough points of factual determination and procedural violations, the success rate is not low."

Here are a few suggestions for import/export and processing trade enterprises: First, be sure to maintain ledgers for the use, domestic sale, and transfer of bonded materials, ensuring that "records match physical inventory and are traceable." Second, upon receiving a customs audit notice, do not destroy or alter documents on your own; consult a professional lawyer immediately. Third, if you disagree with a penalty decision, be sure to apply for administrative reconsideration within 60 days and do not miss the deadline. Fourth, an administrative penalty hearing is a statutory right of enterprises; be sure to exercise it when fines involve substantial amounts.

If you are facing customs audits, administrative penalties, or administrative litigation, a Shenzhen administrative litigation lawyer can help you review procedural legality, organize factual evidence, and develop rights-protection strategies, using legal means to safeguard your business's legitimate rights and interests.

One more background point worth noting for enterprises: in recent years, customs enforcement philosophy has been evolving. In 2021, the General Administration of Customs issued the "Announcement on Matters Concerning Voluntary Disclosure of Violations," which clarifies that if import/export enterprises or entities voluntarily report their violations of customs supervision regulations to customs and accept handling, customs may, in accordance with the law, impose a lighter or reduced administrative penalty; if the violation is minor, promptly corrected, and causes no harmful consequences, no administrative penalty will be imposed. This policy, known in the industry as the "voluntary disclosure" dividend, encourages enterprises to conduct self-inspection and self-correction.

During the inspection process, Jinmou Long Company had also considered applying the "voluntary disclosure" procedure. After evaluation, the legal team concluded that voluntary disclosure is more suitable for violations that "have not yet been discovered by customs." However, in this case, customs had already filed a case for investigation, and the initiative had shifted. At this point, it was more important to seize on factual and procedural flaws in the penalty decision and correct the erroneous determination through reconsideration and litigation. The choice between the two approaches reflects the principle that in administrative case rights protection, "strategy matters more than attitude."

Additionally, customs-related administrative litigation offers a unique procedural advantage: under the Administrative Litigation Law and relevant judicial interpretations, if the reconsideration authority modifies the original administrative act, the party may file a lawsuit against either the reconsideration authority or the original acting authority; if the reconsideration upholds the original act, the party may sue the original acting authority as the defendant. In this case, a re-determination was successfully obtained during the reconsideration stage, avoiding the lengthy litigation process and saving the enterprise significant time costs. For enterprises within the customs credit management (AEO) system, a single penalty may affect their credit rating and customs clearance facilitation; safeguarding rights is not merely a matter of money, but also a matter of corporate qualification.