On Declaring the Notice to Remedy Violations Illegal and Annulment Thereof
The objectives of administrative procedures are: the full realization of the public rights, freedoms, and interests of individuals and legal entities; achieving a balance between private and public interests in public-law relations; ensuring effective and transparent public administration, including through the participation of individuals in the adoption of administrative decisions; the digital transformation of public administration; strengthening the rule of law in the public-law sphere and establishing uniform administrative practice.
However, in practice, administrative procedures are not always based on the relevant principles, which, depending on the nature and materiality of the violation, may result in administrative acts and administrative actions (inaction) being declared unlawful.
By a judgment dated January 25, 2023, the Specialized Interdistrict Administrative Court of Pavlodar Region upheld the claim filed by the head of a peasant farm against the Republican State Institution “Department of State Revenue for Pavlodar Region” seeking to declare the notice to remedy violations unlawful and annul it.
According to the case materials, the peasant farm purchased agricultural machinery in Germany under a contract dated May 17, 2022, namely a Stara Imperador 4000 self-propelled sprayer.
According to the goods declaration No. 55204/240522/000499, the machinery was imported under HS code 8424499900, and the claimant paid VAT in the amount of KZT 14,277,024 using the offset method.
On November 25, 2022, the defendant issued Notice No. 4501FC000001 to the peasant farm to remedy violations for the period from January 1, 2019, through September 30, 2022.
In granting the claimant’s requests, the court of first instance concluded that imposing an obligation to pay VAT and late-payment interest on the basis of the established circumstances worsened the position of the peasant farm, whereas laws do not have retroactive effect. The legislation in force at the time of the machinery’s importation and declaration provided for the payment of VAT using the offset method. The machinery had been purchased from another country because it was not manufactured in Kazakhstan, and no evidence to the contrary had been submitted to the court.
By a ruling of the Judicial Collegium for Administrative Cases of Pavlodar Region dated May 16, 2023, the judgment of the Specialized Interdistrict Administrative Court was overturned, and a new judgment was issued dismissing the claim.
In overturning the judgment of the court of first instance and dismissing the claim, the appellate court concluded that the court had incorrectly interpreted the applicable legislation, specifically Order No. 74 of the Ministry of National Economy of the Republic of Kazakhstan, which applies to legal relations arising from April 1, 2022. The offset method does not apply to the agricultural machinery purchased by the claimant as of April 1, 2022. The court’s conclusions regarding the absence of the goods in Kazakhstan were incorrect because, under Order No. 74, the goods classified as “other devices for agriculture or horticulture” under HS code 8424499900 fell within the list of exceptions. Consequently, equivalent goods were manufactured in the territory of the Republic of Kazakhstan. The court’s conclusions concerning the disproportionate and unlawful nature of the actions taken to assess late-payment interest were also deemed unlawful.
By a ruling dated March 4, 2024, the Judicial Collegium for Administrative Cases of the Supreme Court of the Republic of Kazakhstan overturned the ruling of the appellate court and upheld the judgment of the court of first instance, on the grounds that the defendant had adopted the administrative act in violation of mandatory procedural requirements, with the findings concerning the payment of VAT using the offset method excluded from the reasoning section of the judgment of the court of first instance.
The conclusions of the appellate court contradicted the actual circumstances of the case and the provisions of tax legislation. The Judicial Collegium established that the administrative act had been signed by a person who was not authorized to sign documents of that type.
In the case under consideration, the Judicial Collegium established that there was, in fact, no duly signed notice meeting the requirements imposed on administrative acts by Article 79 of the Administrative Procedural and Process-Related Code of the Republic of Kazakhstan (APPC), since the notice did not contain the signature of an official, in violation of Subparagraph 5) of Part One of Article 80 of the APPC.
When considering the case, the appellate court unjustifiably failed to take into account the claimant’s argument that these grounds had not been examined by the court of first instance. The Judicial Collegium was limited by the scope of appellate review.
In light of the foregoing, the cassation court agreed with the conclusion of the court of first instance to uphold the claim, since the defendant had committed gross violations of the administrative procedure (Case No. 6001-23-00-6ап/2298).
Regulatory Framework
- The Constitution of the Republic of Kazakhstan dated August 30, 1995;
- The Administrative Procedural and Process-Related Code of the Republic of Kazakhstan (hereinafter referred to as the “APPC”);
- The Code of the Republic of Kazakhstan “On Customs Regulation in the Republic of Kazakhstan” (hereinafter referred to as the “Customs Code”);
- The Customs Code of the Eurasian Economic Union, ratified by the Law of the Republic of Kazakhstan dated December 13, 2017, No. 115-VI (hereinafter referred to as the “EAEU Customs Code”);
- Regulatory Resolution No. 7 of the Supreme Court of the Republic of Kazakhstan dated November 29, 2019, “On Certain Issues Concerning the Application of Customs Legislation by Courts”;
- The Code of the Republic of Kazakhstan “On Taxes and Other Obligatory Payments to the Budget” (the Tax Code);
- The Entrepreneurial Code of the Republic of Kazakhstan (hereinafter referred to as the “Entrepreneurial Code”);
- The Code of the Republic of Kazakhstan on Administrative Offenses (hereinafter referred to as the “Code of Administrative Offenses”);
- The Civil Procedure Code of the Republic of Kazakhstan (hereinafter referred to as the “Civil Procedure Code”);
- The Treaty on the Eurasian Economic Union dated May 29, 2014 (hereinafter referred to as the “EAEU Treaty”);
- Acts constituting the law of the Eurasian Economic Union (hereinafter referred to as “international treaties and acts in the field of customs regulation”);
- Decision No. 42 of the Board of the Eurasian Economic Commission dated March 27, 2018, “On the Specifics of Conducting Customs Control of the Customs Value of Goods Imported into the Customs Territory of the Eurasian Economic Union.”
Abbreviations Used
JCAC SC — Judicial Collegium for Administrative Cases of the Supreme Court of the Republic of Kazakhstan;
JCAC — Judicial Collegia for Administrative Cases of regional courts and courts equated thereto;
SIAC — Specialized Interdistrict Administrative Courts of the country’s regions;
SI — State Institution;
RSI — Republican State Institution;
SCR — State Revenue Committee;
DSR — Department of State Revenue;
USR — Управление государственных доходов (State Revenue Administration);
LLP — Limited Liability Partnership;
IE — Individual Entrepreneur.
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