Examples from judiciary practice:

The order of the Presidium of the Supreme Arbitration Court of the RF from September, 13, 2005 № 4287/05

The Presidium of the Supreme Arbitration Court of the Russian Federation including:

the chairman – the chairman of the Supreme Arbitration Court of the RF Ivanov A.A

the members of the presidium: Andreeva T.K., Vyshniak N.G., Kozlova O.A., Slesarev V.L., Strelov I.M., Ivannikova N.P., Vitriansky V.V., Isaichev V.N., Murina O.L., Pershutov A.G., Sukhova G.I., Uhnei M.F.   –

tried the application of the Inspection of the Federal tax service in the Central region of Cheliabinsk (the assignee of the Inspection of the Ministry of the RF in taxes and collections for Central region of Cheliabinsk) about the revision in the order of  supervision of the order of the Federal Arbitration court of the Urals region from 01/31/05 according to the case №A76-13014/04-51-509 of the Arbitration court of Cheliabinsk area.

 In the session took part  the representatives of

the applicant – the Inspection of the Federal tax service in the Central region of Cheliabinsk – Elina N.V., Zhuravlev V.V., Istomin C.U.

Having heard and discussed the report of the judge Murina O.L..and also the explanations of the representatives of the applicant, the Presidium ordered the following.

On April, 15,2004 the Joint-Stock company “Uralsibgidromehanizacia” (further – the company) presented into the Inspection of the Ministry of the RF in taxes and collections for Central region of Cheliabinsk (further – the inspection, the tax body) the declaration for the VAT for March, 2004 asked in it to return 17 353 rubles of the tax from the budget.

On May, 20, 2004 the tax checking of the validity and legislation of the presented sum of the tax to be returned was made. After the checking the act and the decision from 06/22/04 № 2835/09 in which the company was offered to return the presented sum of the tax as declared to be returned from the budget illegally was made.

The reason of the giving the presented decision is according to the following. On January, 1, 2004 the company began paying the uniform tax in the connection with the use of the simplified system of the taxability. Before using this system the taxpayer bought the goods the payment of which was made on March, 2004.

Thinking that the inspection decision is illegal the company addressed to the Arbitration court of Cheliabinsk area with the application about the acceptance of its validity.

The decision of the court of the first authority from 10/06/04 refused to satisfy the presented demand. Meanwhile the court pleaded the fact that according to clause 346.11, items 2 and 3 of the TC RF (further – the Code) the organizations used the simplified system of taxability are not the taxpayers of the VAT. Hence, as the organizations began to pay the uniform tax the goods bought but not realized before 01/01/04 will be used for the operations which are not subject to pay the VAT. As the payment of the VAT was made by the company after the transition for the simplified system of taxation the court decided that it did not have the right for the return of the sum of the tax.

The Federal Arbitration court of  the Urals area cancelled the decision of the first authority by means of its order from 01/31/05 and satisfied the presented by the company application. The court said that for the appearance of the right for the tax deduction it is necessary to observe the following conditions: the buying and the realization of the goods (works, services); their use for the operations, admitted as the objects of the taxability; their paying; the existence of the invoices given by the sellers during the buying of the presented goods (works, services) by the taxpayer. The company observed these conditions.

The tax body asks to cancel this court act in the application given to the Supreme Arbitration Court of the RF about the revision in the order of supervision of the order of the court of practice because the court used clause 171, item 2 and clause 346.11, item 2,3 of the Code wrongly.

In the recall to the application the company asks to stay the presented court act as it is pleading clause 3, item 7, clauses 145,146,149,170,171,172 of the Code, item 35 of the order of the Plenum of the Supreme Arbitration Court of the RF from 02/28/01 № 5 “About some questions of the use of part 1 of the TC RF” and the letter of the Ministry of Finance of the RF from 03/09/04 № 04-03-11/35.

Checking the validity of the arguments presented in the application, the recall to it and the reports of the presented in the session the representatives of the inspection, the Presidium thinks that the disputable court order of the appeal authority is subject to be cancelled but the court decision of the first authority – to be left unchanged according to the following reasons.

According to clause 346.11, item 2 of the Code the organizations used the simplified system of taxability are not recognized as the taxpayers of the VAT except the VAT charged to be paid during the import of the goods to the customs territory of the RF.

According to clause 166 of the Code the common sum of the VAT is charged only by its payer.

Clause 171 of the Code establishes that the taxpayer has the right to reduce the common sum of the VAT charged according to clause 166 of the Code for the established  by clause 171 tax deductions.

Hence, only the payers of the VAT have the right for the tax deductions and the return of it from the budget.

According to clause 170, item 2, subitem 3 of the Code the sums of the VAT presented to the buyer during the getting of the goods (works, services) including the basic sources and non-material assets, by the persons who are not the payers of the VAT according to chapter 21 of the Code or freed from the duty to charge and pay it are going to the payments for the production and realization of the goods (works, services).

Hence, presented  to be deducted by the company the VAT for the goods paid in 2004 can not be returned.

As the court used the norms of the material right wrongly and accepted the order broken the uniformity in the interpretation and use of the norms of the right, the presented court act is subject to be cancelled according to clause 304, item 1 of the Arbitration code of practice of the RF.

Taking into account the statement and acting in accordance with clause 303, item 5 of part 1 of the clause 305, clause 306 of the Arbitration code of practice of the RF the Presidium of the Supreme Arbitration Court of the RF ordered:

to cancel the order of the Federal arbitration court of the Urals region from 01/31/05 according to the case № A76-13014/04-51-509 of the Arbitration court of the Cheliabinsky area.

To leave unchanged the decision of the Arbitration court of the Cheliabinsky area from 10/06/04 according to the same case.

Chairman                                                                                                       A.A. Ivanov