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CISG CASE PRESENTATION

Russia 29 May 2003 Arbitration Court [Appellate Court] for the Moscow Circuit [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/030529r1.html]

Primary source(s) of information for case presentation: Case text

Case Table of Contents


Case identification

DATE OF DECISION: 20030529 (29 May 2003)

JURISDICTION: Russian Federation

TRIBUNAL: Federal Arbitration Court for the Moscow Circuit

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: KA-A40/3406-03

CASE NAME: FlexiCo Ltd. v. Inspectorate 13 of the Russian Federation Ministry of Taxation

CASE HISTORY: 1st instance Arbitration Court for the City of Moscow (A40-46199/02-116-566) 27 December 2002; 2d instance Appellate Division of Court of Moscow City 4 March 2003

SELLER'S COUNTRY: [-]

BUYER'S COUNTRY: [-]

GOODS INVOLVED: [-]


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: [-]

Classification of issues using UNCITRAL classification code numbers:

Unavailable

Descriptors: Unavailable

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Russian): Unavailable

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Federal Arbitration Court for the Moscow Circuit of the Russian Federation

Case No. KA-A40/3406-03 of 29 May 2003

Translation by Yelena Kalika [*]

Resolution of the Cassation Board
on reviewing the lawfulness and reasonableness
of decisions of arbitration courts

The "FlexiCo" Limited Liability Company ("FlexiCo Ltd.") brought a claim at the Arbitration Court for the City of Moscow against the Inspectorate No. 13 of the Russian Federation Ministry of Taxation for the Northern Administrative District of Moscow ("the Tax Inspectorate"). The claim was brought to find invalid the decision of the Tax Inspectorate No. 236 of 3 July 2002 to refuse the recovery of the value added tax ("VAT") in the amount of Russian rubles [RuR] 588,267.00 from the federal budget.

By the decision of 27 December 2002 on case No. A40-46199/02-116-566, the Arbitration Court for the City of Moscow sustained the claim. That decision was upheld by the resolution of the Appellate Division on 4 March 2003. The Arbitration Court for the City of Moscow took into account that the decision of the tax authorities violated the provisions of Articles 164, 165 and 176 of the Russian Federation Tax Code.

The Tax Inspectorate brought a cassation claim in connection with the said decision and resolution. It asked to reverse the said judicial acts due to the incorrect application of the rules of substantive law. The proponent presents the following arguments in support of its claim:

-   The bank statements of 17 May 2001 and 19 October 2001 do not evidence the factual receipt of proceeds from the foreign entity, the buyer of the goods. However, while relying upon Article 313 of the Russian Federation Civil Code, the court stated that the seller could not refuse performance from a third party. Thus, the provisions of the CISG were violated. "FlexiCo Ltd." did not prove its contractual relationships with the party who made the payment on the buyer's behalf and, consequentially, the fact of receipt of the proceeds under the contract from the foreign buyer was not proven.
 
- The bank statement of 26 February 2002 does not evidence the factual receipt of the proceeds from the foreign buyer of the goods, since no person by the name of Silva Qvintero Luis Edvardo is stated as the payor in the contract.
 
- The air bill No. 555-8360 2341 contains no information about the weight of the goods exported. Consequentially, it is not possible to make a conclusion that the goods were exported directly under the contract between "FlexiCo Ltd." and the State Enterprise "Aviakon";
 
-   The additional pages GD2 No. 16506291 and 3 1650692 to the State customs declaration GTD contain no marking made by the border customs authorities which would evidence that the goods left the territory of the Russian Federation. [Such absence of the marking] constitutes a violation of Article 165(4) of the Russian Federation Tax Code and paragraph 6 of the Procedure of Confirmation by the Customs Authorities of the Factual Export of Goods from the Customs Territory of the Russian Federation affirmed by the Russian Federation State Customs Committee Order No. 598;
 
- The court did not evaluate the results of the mutual verifications made by "Sanders Resource Ltd." And "Soltervex Ltd.", i.e., the suppliers of the goods exported. [These two companies] do not file tax returns and do not carry any business activities;
 
- The court ignored the fact that the invoices No. 81 of 28 May 2001, No. 34 of 27 September 2001 and No. 53 of 29 October 2001 were issued with violations of the requirements set forth in Article 169 of the Russian Federation Tax Code. Thus, the line "to the payment document" was not filled out. The signatures of the suppliers' general directors Romanov and Filimonov differed from their signatures on other documents;
 
- The goods exported under the contract No. 2001-01/2 of 24 January 2002 were purchased from "TechnoMontageResource Ltd." That company was registered under a passport lost [by its owner]. It is not located at either its legal or factual address and carries no activities. [Such facts] place a doubt on the existence of the goods allegedly purchased under the contract themselves.

In the court proceeding, the representative of the Tax Inspectorate made the arguments stated in the Cassation Claim. The representative of "FlexiCo Ltd." disagreed with such arguments for the reasons stated in the contested judicial acts and his reply to the cassation complaint.

In the court proceeding, the representative of the Tax Inspectorate moved to submit additional evidence proving that the signature of the general director of one of the suppliers [on the document] differs from the sample of his signature. The representative of "FlexiCo Ltd." argued that such evidence should not be admitted. Upon reviewing the Tax Inspectorate's motion, the court decided to deny it as not relevant to the subject of and ground for the claim brought in the present case.

Pursuant to Article 67(1) of the Russian Federation Arbitration Procedure Code, an arbitration court admits only relevant evidence.

Upon hearing the arguments made by the parties and upon reviewing the materials of the case and discussing both the arguments and counter arguments, the Cassation Board finds no grounds for sustaining the Cassation Claim brought by the Tax Inspectorate.

It follows from the materials of the case that during the period from September 2001 to April 2002 "FlexiCo Ltd." filed four tax returns regarding the computation of the VAT for August 2001, October 2001, January 2002 and March 2002 in connection with the export of goods. ["FlexiCo Ltd." also filed] documents required by Article 165 of the Russian Federation Tax Code to confirm one's right to a refund when the tax rate applied is 0%.

In accordance with the results of the audit in connection with the reasonableness of the application of the tax rate stated by "FlexiCo Ltd.", the Tax Inspectorate made the decision No. 236 of 3 July 2002 that the tax deductions in the amount of RuR 588,267.00 were unreasonable.

In the contested decision No. 236 of 3 July 2002 the Tax Inspectorate refused to confirm the reasonableness of application of the VAT tax rate equal 0% for the stated periods of time.

In its decision the Tax Inspectorate did not clearly state the grounds for refusal to refund the VAT. As follows from the text of the decision, the tax authority found the following flaws in the packet of documents submitted:

-   The supplier "Sanders Resource Ltd." dID not file tax returns within the time period set forth in the law;
- The latest tax return filed by the supplier "Soltervex Ltd." was for the first quarter of 2001;
- The suppliers "Bissad Ltd.", "Klassika 2001 Ltd.", "TechnoMontageResource Ltd." And "Linderopttorg Ltd." did not present the results of the counter verifications;
- The bank statements of 17 May 2001 and 19 October 2001 for the amount of US $23,462.00 state as the payor the company not mentioned in the contract in such capacity;
- The airway bill No. 555-8360 2341 contains no information on the weight [of the goods].

When holding invalid the said decision of the Tax Inspectorate, the lower courts took into consideration the unreasonableness of the grounds for refusal to refund the VAT.

The Cassation Board affirms the decisions of the [lower] courts.

Pursuant to Article 65(1) of the Russian Federation Arbitration Procedure Code, the burden of proving the grounds for a contested act, omission to act or decision made by a state authority is on such relevant state authority or state official.

Pursuant to Article 200(4) of the Russian Federation Arbitration Procedure Code, when deciding a case involving a contested decision made by a state authority, an arbitration court shall review the contested decisions in a court hearing and shall establish whether or not they are lawful. It shall also establish whether such state authority or official, who made the contested decision, were duly authorized to do so. It shall also establish whether or not the contested decision violates the rights and lawful interests of the Claimant in the area of business or other economic activities.

Pursuant to Article 200(5) of the Russian Federation Arbitration Procedure Code, the burden of proving that the contested decision is lawful and was made by a duly authorized state authority or official, as well as the burden of proving the grounds for issuing the contested decision is on the authority or official who made such a decision.

The court reasonably rejected the Tax Inspectorate's reference to the fact of transferring the proceeds for the goods exported to the Claimant's account from third parties.

Besides, the court reasonably took into account that the fact of receiving the export proceeds by "FlexiCo Ltd." as well as its reflection in the accounting documents was not denied in the contested decision of the Tax Inspectorate.

The cassation complaint stated that the bank statements of 17 May 2001 and 19 October 2001 did not evidence the factual receipt of the proceeds from the foreign buyer of the goods. However, pursuant to Article 313 of the Russian Federation Civil Code, the court found that the seller could not refuse to accept performance from third parties in violation of CISG. "FlexiCo Ltd." has not proven the contractual relationships with the parties making the payment on behalf of the buyer. Thus, the fact of receiving of the payment for the goods under the contract from the foreign buyer is unreasonable.

The court correctly stated that, pursuant to Article 313 of the Russian Federation Civil Code, "FlexiCo Ltd." could not reject the performance by a third party and the bank had no grounds not to allow the deposit of funds received from a third party. It does not follow from the text of Article 165(1)(2) of the Russian Federation Tax Code that only the buyer stated in a contract can be the payor. It is important that the bank statement confirm the factual receipt of the funds from such buyer. It can be verified by the relevance of the funds received to the payment for the goods exported under the said contract. Besides, as allowed by the rules of civil law and business, the buyer can make a payment indirectly and may assign [such obligation] to a third party. The seller does not have to prove the existence of contractual relationships between the buyer and the third party.

In such circumstances, the Cassation Board finds no grounds for reversal of the judicial acts for the reason stated and finds no violation of the provisions of the CISG.

There was an argument in the Cassation Complaint that the airway bill No. 555-8360 2341 contained no information on the weight of the goods exported and, thus, it cannot be concluded that the goods were exported directly under the contract between "FlexiCo Ltd." and the State Company "Aviakon". This argument was evaluated by the court.

The court correctly stated that the absence of information on the weight of the goods in that particular airway bill did not evidence that the goods were not indeed taken outside the Russian Federation.

The export of the goods is confirmed by the state customs declaration No. 08502/161101/0040889 (volume 1, case 83) which bears the stamp of the Sheremetievo Customs Department stating that the goods in fact left [the Russian Federation]. line 44 [of the state customs declaration] contains the number of the contested airway bill and of the contract No. 2001-08/1 of 28 August 2001.

Therefore, the relevance of the said airway bill and the contract between "FlexiCo Ltd." and the State Company "Aviakon" follows from the documents submitted. [Thus,] the claim stated in the Cassation Complaint is unreasonable.

The claim stated in the Cassation Complaint that the court did not evaluate the results of the mutual verification performed by the suppliers of the goods exported, who failed to file tax returns and carried no business activities, i.e., "Sanders Resource Ltd." And "Soltervex Ltd.", is unreasonable.

The court stated that the fact of the Claimant's paying the VAT to his suppliers was not contested by the Tax Inspectorate.

Besides, the tax legislation does not condition the right to a refund of the VAT from the federal budget either on the results of the mutual verification of the suppliers or on their activities or on their relationships with tax authorities.

The rest of the claims stated in the Cassation Complaint have no relevance with the subject of the claim, i.e., the unlawfulness of the Tax Inspectorate's decision No. 236 of 3 July 2002, since the circumstances, to which the Tax Inspectorate referred in the Cassation Complaint, were neither established in the contested decision nor served as a ground for the refusal to refund the VAT to "FlexiCo Ltd."

Thus, the claim that the bank statement of 26 February 2002 did not evidence the factual receipt of the payment from the foreign buyer of the goods, since the contract did not state a person by the name Silva Qvintero Luis Edvardo as the payor, is denied by the cassation board because such circumstance is not reflected in the decision of the Tax Inspectorate contested in this case.

The claim stated in the Cassation Complaint that on the additional pages to customs declaration No. 16506291 and 3 1650692 there is no stamp of the border customs department evidencing that the goods were exported outside of the Russian Federation -- which would be a violation of article 165(4) of the Russian Federation Tax Code and clause 6 of the State Customs Department Order No. 598 -- is also denied by the Cassation Board.

As follows from the text of the contested decision (volume 1, case 11), the Tax Inspectorate literally found the following:

-   The customs declaration No. 10005001/040302/0007061 - 531 kg - cost US $12,000.00
- The required stamps of the customs authorities are in place ("Export allowed" of March 5, 2002, "Goods exported in full" of March 5, 2002").

The claim stated in the Cassation Complaint that the court did not take into consideration that the proforma-invoices No. 81 of 28 May 2001, No. 34 of 27 September 2001 and No. 53 of 29 October 2001 were issued in violations of requirements set forth in Article 169 of the Russian Federation Tax Code is not relevant in this case. ([Article 169] requires that the line "to the payment document" be filled out and that the signatures of the suppliers' general directors Romanov and Filimonov be the same as their signatures on other documents). The said circumstances were not stated in the contested decision of the Tax Inspectorate. Therefore, the court could not have and should not have taken them into account.

The claim stated in the Cassation Complaint that the goods exported under the contract No. 2001-01/2 of 24 January 2002 were purchased from "TechnoMontageResource Ltd.", which was registered under a lost passport, was not located at either its legal or factual address, and carried no activities -- which placed doubt on the existence of the goods allegedly purchased under the contract itself -- is also not relevant to the decision of the Tax Inspectorate; contested in this case since such circumstances are not reflected [in the decision].

In such circumstances the Cassation Board concludes that the court

-   Correctly determined the subject to be proven in this case;
- Found the relevant circumstances and evaluated them as required by Article 71 of the Russian Federation Arbitration Procedure Code;
- Applied the rules of substantive law governing the relationships in controversy; and
- Complied with the requirements of procedural law.

For the above reasons, there are no grounds for the reversal of the contested judicial acts.

Pursuant to Articles 284-289 of the Russian Federation Arbitration Procedure Code, the court

HOLDS:

The decision of 27 December 2002 and resolution of the Appellate Division of the Arbitration Court for the City of Moscow of 4 March 2003 on case No. 40-46199/02-116-566 are sustained.

The Cassation Complaint of the Moscow Tax Inspectorate No. 13 at the Ministry of Taxation is denied.


FOOTNOTE

* Yelena Kalika, a law student at the Pace University School of Law, has studied at the Moscow State Law Academy, interned with a Moscow law firm, and is a Research Assistant at the Pace Institute of International Commercial Law.

All translations should be verified by cross-checking against the original text.

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Pace Law School Institute of International Commercial Law - Last updated April 28, 2004
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