The legally acting Resolution of the Arbitration Court of the City of Moscow of 11.08.2004 concerning the Decision of the Inter-Regional Inspection of the Russian Federation on Taxes and Collections from Major Taxpayers (MIMNS) № 2 of 28.1.2003 № 9/48-03

The Inter-Regional Inspection of the Russian Federation on Taxes and Collections from Major Taxpayers № 2 (MIMNS from MT) №2 conducted an assizes session to verify the correct calculation, fullness and timeliness of VAT payment into the state budget by LLC “Gazkomplektimpex” for the period from 01.01.2000 to 31.12.2002.

Pursuant to the verification by MIMNS from MT № 2 Act № 7/48-03 of 02.10.2003 was compiled, on the basis of which the taxation body issued Resolution № 9/48-03 of 28.10.2003 on the subjection of the Company to liability for breach of tax legislation.

Pursuant to the Decision, LLC “Gazkomplektimpex” was liable to pay additional VAT to the amount of 34 070 342 rubles, and a penalty for untimely payment to the amount of 12 045 869 rubles; the Company was also subjected to liability under art. 122 of the Tax Code of the RF for failure to pay VAT in the form of a fine to the amount of 20% totaling 5 961 518 rubles.

In view of the circumstance that the taxpayer failed to pay the taxation body’s fine voluntarily, MIMNS from MT № 2 filed a claim against LLC “Gazkomplektimpex” with the Arbitration Court of the City of Moscow regarding the adoption of penalty sanctions to the amount of 5 961 518 rubles in accordance with Decision № 9/48-03 of 28.10.2003.

The attorneys of the law form “YUST”, acting on instructions received from LLC “Gazkomplektimpex” indicated in their response to the claim that the taxation body, in the Decision that the taxpayer did not calculate and make VAT payment into the budget for January 2001 – December 2002, runs counter to the provisions of taxation legislation and, consequently, the demand of a penalty to the amount of 5 954 832,6 rubles by the Company is not legally valid.

Pursuant to the Decision of the Arbitration Court of the City of Moscow 0f 01.03.2004, the claims filed by MIMNS № 2 from MT were satisfied in the part concerning the levying of a fine to the amount of 6 685 rubles from LLC “Gazkomplektimopex” (the Company did not dispute the fine in this part). However, the court refused to satisfy the other demands of the claim.

A Resolution of the Arbitration Court of the appeals instance of 18.06.2004 upheld the decision of 01.03.2004, and left the complaint of the MIMNS № 2 from MT unsatisfied.

Moreover, the Decision and the Resolution both indicated that the additional VAT regarding the Company’s debt as calculated by the taxation body, formed in the period 1994-1999, i.e. in periods not covered by the assizes verification , is a breach of the deadline period established by art. 87 of the Taxation Code of the RF.

Furthermore, the Decision and Resolution of the court instances reached the conclusion that the application of art. 167 TC RF by the taxation body regarding the debt that arose and partially expired before the coming of art. 167 TC RF into force, resulted in the illegal subjection of the Company to liability in accordance with art. 122 TC RF.

Additionally, the courts of the first and appeals instances indicated that the taxation body, in accordance with the provisions of p.6 art. 108 TC RF failed to prove the factual sum of the taxpayer’s debt and, consequently, did not prove the fact and circumstances of a breach of tax legislation; the inadequacies of the verification cannot be rectified by the court.

The Resolution of 27.09.2004 of the Federal Arbitration Court of the Moscow District upheld the Decision of the court of the first instance of 01.03.2004 as well as the resolution of the Arbitration Court of the appeals instance of 19.06.2004, and refused to satisfy the cassational complaint filed by the MIMNS from MT № 2.

Simultaneously with the consideration of the above-mentioned claim filed by MIMNS from MT № 2 regarding the exaction of penaMTy sanctions in accordance with the Decision № 9/48-03 of 28.10.2003, the attorneys of the law firm “YUST”, acting on the instructions of LLC “Gazkomplektimpex”, filed a claim with the Arbitration Court of the City of Moscow calling for acknowledgement of the partial invalidity of the Decision of MIMNS from MT № 2 of 28.10.2003 № 9/48-03 concerning the subjection of the taxpayer to liability for breach of taxation legislation.

In its decision of 11.08.2004, the Arbitration Court of the City of Moscow acknowledged the Decision of MIMNS from MT № 2 of 28.10.2003 № 9.48-03 invalid in the part concerning additional VAT to the amount of 34 036 915 rubles and the corresponding penalty and fine to the amount of 5 954 832,6 rubles.

The decision of the Arbitration Court of the City of Moscow of 11.08.2004 was not appealed by the MIMNS from MT №2 in the order of appeals procedure, therefore the indicated Decision came into legal force.