On the recognition of illegal and cancellation of the notification on the elimination of violations identified by the state revenue authorities based on the results of desk control

No. 6001-23-00-6ap/1629 dated 12/12/2023

Plaintiff: IP (hereinafter referred to as IP)

Respondent: Russian State Institution "State Revenue Administration" (hereinafter referred to as the Department)

The subject of the dispute: on the recognition of illegal and cancellation of the notification on the elimination of violations identified by the state revenue authorities based on the results of desk control

Review of the plaintiff's cassation appeal

PLOT: The defendant sent a notice to the plaintiff on the elimination of violations identified by the state revenue authorities based on the results of desk control, No. 6 dated August 16, 2022 (hereinafter referred to as the notification).

According to the notification: the period covered by the desk control is 01.01.2019 – 12/31/2021; the basis for its issuance is the unlawful deduction of expenses (for corporate income tax/individual income tax) for a taxpayer whose registration has been declared invalid. The registration (hereinafter referred to as the court decision) of the limited liability company (hereinafter referred to as LLP) "T", made on January 9, 2020, has been declared invalid by the IESEC decision of January 20, 2022. This circumstance served as the basis for issuing the disputed notice to the plaintiff on his mutual settlements with the specified legal entity. Thus, it follows from the court's decision that the sole founder and head of T LLP, D.S., is not related to the financial and economic activities of the legal entity and is not involved in its creation. The documents submitted by the plaintiff to confirm the settlements between T LLP are signed on behalf of D.S.

Judicial acts:

1st instance: the claim was denied. Appeal: the court's decision is upheld.

Cassation: the decision of the judicial board is canceled. The case has been sent for a new judicial review to the court of appeal in a different composition of the court.

Conclusions: the local courts, rejecting the claim, came to conclusions about the legality of the disputed notice issued by the defendant to the plaintiff, referring to the court decision that entered into force, which invalidated the state registration of T LLP, which is the plaintiff's counterparty. According to paragraph 5 of Article 96 of the Tax Code, in cases of filing a complaint to the court against the actions (inaction) of tax officials to notify them of the elimination of violations provided for in subparagraphs 2) and 3) of paragraph 3 of this Article, identified by the tax authorities based on the results of desk control, the taxpayer has the right to prove the actual receipt of goods, works, and services from a legal entity whose registration (re-registration) has been declared invalid on the basis of a court decision that has entered into legal force.

This means that in such cases, the legislator allowed taxpayers to prove in court the actual turnover of the transactions he had made. That is, a subject of public law relations within the framework of the APPC has the right to prove in court the actual receipt of goods, works and services from a legal entity, thereby refuting the position of the tax authority.

The second part of Article 5 of the CPC stipulates that the task of administrative proceedings is the fair, impartial and timely resolution of administrative cases in order to effectively protect and restore violated or disputed rights, freedoms and legitimate interests of individuals, rights and legitimate interests of legal entities in public relations.

This means that administrative justice is a special procedural procedure for the consideration and resolution of public law disputes arising from managerial relations, the legal institution of judicial protection, restoration of violated legitimate interests of legal entities and other organizations, and control over the observance of legality in the public administration system. At the same time, the taxpayer has not fully exercised this right due to the court's non-application of an active role (Article 16 of the APPC), which presupposes, taking into account the objectives and principles of the APPC, research, as well as giving an appropriate legal assessment at a court hearing to all evidence and circumstances in the case.

The courts have not examined the plaintiff's arguments and evidence about the actual delivery of goods and have not given them a proper legal assessment, which is a violation of substantive and procedural law and, in the context of the above norms, deprives the plaintiff of the right to judicial protection. Thus, the court did not investigate the actual delivery of goods, did not evaluate the primary accounting documents, including the facts of payment, and did not invite the head of T LLP to testify regarding the signing and provision of documents to the plaintiff as part of the completed transactions.

Consequently, the statements of the local courts that the head of T LLP could not sign all the necessary financial documents related to transactions with the plaintiff, since his non-involvement in the financial and economic activities of the legal entity had already been established by a court decision, are untenable. It follows from the above that the courts did not enter into the discussion and study of the available primary accounting documents, the issue of the actual delivery of goods under the plaintiff's supply contracts with his counterparty.

In such circumstances, the judicial board considers the conclusions of the courts on the rejection of the claim to be premature and unfounded, since the factual circumstances of the case, which are essential for its resolution, have not found their legal assessment by the courts of the first and appellate instances.

In the aggregate of the above, the judicial board considers that the local courts did not determine and clarify the range of circumstances relevant to the case, did not apply the norms of substantive law to be applied, violated the principles and requirements of administrative proceedings, which is the basis for sending the case for a new judicial review.

By virtue of Article 413 of the CPC, when considering a case on appeal, the court verifies the legality and validity of the decision of the court of first instance in full.

Therefore, the judicial board believes that the case should be referred for a new hearing to the court of appeal in a different composition of the court. In a new trial, the court must give a legal assessment of the circumstances of the case, the evidence presented and the financial and economic transactions of the plaintiff with his counterparty, that is, to investigate the actual turnover of the transactions. 

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