The Federal Arbitration Court of the Moscow Circuit issued a resolution upholding the ruling of the Arbitration Court of the City of Moscow, acknowledging as invalid the decision of the Inspectorate of the Federal Service for Taxes and Collections № 28 fo

The Inspectorate of the Federal Service for Taxes and Collections of Russia № 28 for the City of Moscow conducted a cameral tax inspection of the tax declaration submitted by LLC “Gaztekhlizing” concerning value added tax for January 2004.

On 24 July 2006, the Inspectorate issued decision № 386 “On the refusal to bring to tax liability for a tax offence committed”, according to which the company was refused the right to apply tax deductions and the lowering of VAT for January 2004, and additional VAT was demanded for payment into the budget for that period; at the same time, the Inspectorate refused to bring the company to tax liability as the company had paid surplus tax.

LLC “Gaztekhlizing” applied to the Arbitration Court of the City of Moscow, calling for the acknowledgement of the decision of the Inspectorate as invalid.

In the course of consideration of the dispute, the advocates of the Law firm “YUST”, acting on behalf of LLC “Gaztekhlizing”, indicated that the refusal to permit the company to apply tax deductions concerning acquired lease equipment is contrary to the Tax Code of the RF, the legal position of the Constitutional Court of the RF and established legal practice.

The Arbitration Court of the City of Moscow upheld the arguments advanced by the advocates of the Law firm “YUST”, and in its ruling of 18.12.2006 acknowledged the Inspectorate’s decision as invalid.

In satisfying the demands of the claimant, the court of the first instance acted on the grounds that that the documents submitted by the company in accordance with art. 172 TC RF confirmed the right of the company to apply tax deductions regarding its declaration for January 2004; the court also concluded that there is no evidence of bad faith in the actions of the taxpayer.

The matter was not considered in the appeals order.

In its resolution of 05.04.2007, the Federal Arbitration Court of the Moscow Circuit upheld the ruling, and dismissed the cassational complaint of the Inspectorate of the Federal Tax Service of Russia № 28 for the City of Moscow.