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CISG CASE PRESENTATION

Russia 3 June 2003 Arbitration Court [Appellate Court] for the Northwestern Circuit [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/030603r1.html]

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

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Case identification

DATE OF DECISION: 20030603 (3 June 2003)

JURISDICTION: Russian Federation

TRIBUNAL: Federal Arbitration Court for the Northwestern Circuit

JUDGE(S): Dmitriev V.V. (chairman), Zubareva N.A. and Kocherova L.I. (judges)

CASE NUMBER/DOCKET NUMBER: A56-37941/02

CASE NAME: Diamant Ltd v. Kirov District Tax Inspectorate of the City of St. Petersburg

CASE HISTORY: 1st instance Arbitration Court for the City of St. Petersburg and Leningrad Region 25 February 2003 [affirmed]

SELLER'S COUNTRY: Unavailable

BUYER'S COUNTRY: Russian Federation (claimant)

GOODS INVOLVED: Unavailable


Classification of issues present

APPLICATION OF CISG: [-]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 68

Classification of issues using UNCITRAL classification code numbers:

68A ; 68B [Goods sold in transit: passing of risk]

Descriptors: Passage of risk

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Editorial remarks

EDITOR Albert H. Kritzer

Article 68 is the key CISG provision discussed in this case. The authentic English text of this Article reads:

The risk in respect of goods sold in transit passes to the buyer from the time of the conclusion of the contract. However, if the circumstances so indicate, the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents embodying the contract of carriage. Nevertheless, if at the time of the conclusion of the contract of sale the seller knew or ought to have known that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller.

The authentic Russian text of Article 68 considered by the Tribunal in this case does not contain the sentence:

The risk in respect of goods sold in transit passes to the buyer from the time of the conclusion of the contract.

This discrepancy in authentic texts has been called to the attention of UNCITRAL. UNCITRAL is taking steps to correct the authentic Russian text.

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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 Northwestern Circuit
of the Russian Federation

Case No. A56-37941/02 of 3 June 2003

Translation [*] by Yelena Kalika [**]

The Federal Arbitration Court for the Northwestern Circuit consisting of Chairman Dmitriev V.V and Judges Zubareva N.A. and Kocherova L.I. adjudicated the Cassation Claim brought from the Kirov District Tax Inspectorate of the City of St. Petersburg. [The claim was adjudicated] in a public hearing. The claim was brought in connection with the decision of 25 February 2003 rendered by the Arbitration Court for the City of St. Petersburg and Leningrad Region on case No. A56-37941/02 (Judge Resovskaya T.M.)

The Federal Arbitration Court for the Northwestern Circuit

FOUND:

The Limited Liability Company "Diamant" ("Diamant Ltd.", "the [Buyer]") commenced an action at the Arbitration Court for the City of St. Petersburg and Leningrad Region to find invalid Decision No. 2410247 of 6 September 2002 of the Kirov District Tax Inspectorate ("the Tax Inspectorate") and to order the Tax Inspectorate to issue a refund of Russian Rubles [RUR] 2,410,247.00 of the Value Added Tax ("VAT") paid in January 2002 - May 2002. [The refund was to be made] to [Buyer]. The VAT was paid in connection with import operations.

The Court sustained the claim on 25 February 2003.

The Appellate Division did not review the case.

In its Cassation Complaint, the Tax Inspectorate asks to reverse the said judicial act. The Tax Inspectorate argues that the [Buyer] has no right to a refund of the because it does not have the original Bills of Lading evidencing that a right to property in the goods imported passed to the [Buyer].

The parties were duly notified of the time and place of the hearing.  Representatives of the parties failed to appear in court.  The claim was adjudicated in the absence of the representatives.

The lawfulness of the contested judicial act was reviewed in the Cassation Proceeding.

As follows from the materials of the case, the Tax Inspectorate audited the [Buyer]'s compliance with the VAT regulations from 29 October 2001 to 31 May 2002.  As a result of the audit, the Tax Inspectorate made an act dated 31 July 2002 and in its Decision No. 2410247 on 6 September 2002 imposed [tax] penalties on the [Buyer] pursuant to Article 122 of the Russian Federation Tax Code. The amount of penalties imposed was RUR 180,331.00. The additional VAT sought was RUR 901,657.00 and a fine was RUR 100,306.00. The Tax Inspectorate refused to refund the VAT in the amount of RUR 2,410,247.00 paid to the customs authorities in connection with the import of goods under the declarations issued in January 2002 - May 2002. In support of its refusal to issue a refund of the VAT paid, the Tax Inspectorate argued that the [Buyer] did not have the original Bills of Lading which, pursuant to Articles 147 and 158 of the Russian Federation Maritime Code, would evidence that a property right passed to the Buyer, i.e., to "Diamant Ltd." in the present case.

In accordance with Article 151(1)(1) of the Russian Federation Tax Code, when importing goods into the Russian Federation under the customs regime of unrestricted use [of the goods], the VAT must be paid in full.  Pursuant to Article 160(1) of the Russian Federation Tax Code, the basis for computation of the VAT is the sum of the price of the imported goods declared to the customs authorities, the customs duty and the levy tax (if levied goods are involved). Pursuant to Article 177 of the Russian Federation Tax Code, the dates when the VAT must be paid in connection with the import of goods into Russia and the payment procedure are set in the Russian Federation Customs Regulations.

At the same time, in accordance with Article 171(1) and (2) of the Russian Federation Tax Code, a taxpayer has a right to reduce the total sum of the VAT to be paid to the budget by the amount of the tax paid when the goods entered the customs territory of the Russian Federation under the regime of unrestricted use.  In accordance with Article 172(1) of the Russian Federation Tax Code, only the taxes paid in fact when the goods entered [Russia] and were listed as [the taxpayer's] assets can be deducted.  The existence of the relevant original documents is necessary. A contract, customs declaration and payment documents evidencing the factual payment of the VAT at the customs department are grounds for the approval of the sums by which the VAT paid to the customs authorities is to be reduced. The Code does not provide for the submission of other documents.

The Court correctly rejected the argument of the Tax Inspectorate that it was necessary to apply the provisions of Article 147 of the Russian Federation Maritime Code to determine whether a right to property in the goods had passed. [The argument was rejected] for the following reasons.

In accordance with Article 68 CISG, the risk in respect of goods sold in transit passes to the buyer from the time the goods were handed over to the carrier who issued the documents evidencing the contract of carriage.  Therefore, according to the established international practice, the time of the seller's fulfillment of his obligations to the buyer is the time of the transfer of a right to [property in] goods.  As a rule, this time is related to the passing of risks from the seller to the buyer. Thus, if a contract does not provide for the time of the transfer of a right to property in goods and other property, the time of the passing of risks of loss to the buyer may be considered to be the time of such transfer, i.e., the time when the goods are handed over either to the buyer himself or to a carrier.

It follows from the provisions of Clause 2 of "The terms of delivery" in Contract No. 2001-11 of 21 November 2001 between [Buyer] "Diamant Ltd." and [Seller] "Heliacon LLC" that the parties applied the provisions of INCOTERMS-2000 on the time of the transfer of property rights in the goods imported.

The Cassation Instance is of the opinion that already when the goods were in transit, they were the property of [Buyer]. In the present case, the goods were purchased on CFR and CPT St. Petersburg terms, i.e., the right to property in the goods passed at the port of loading because at that particular time the risks of loss or damage of the goods passed to the buyer under this term of delivery.

Therefore, the goods sold and purchased on such terms must be reflected by the [Buyer] in Column 41 "Goods" as goods purchased at the time of loading aboard a vessel taking into consideration the Bill of Lading date.  Besides, the existence of the original Bill of Lading is not a prerequisite to listing the goods as assets.

Information Letter No. 2 issued by the Russian Federation Central Bank in connection with interpretation of the Instruction of the Bank of Russia and the Russian Federation Customs Department "On the procedures for currency control of the reasonableness of payments for imported goods" (No. 91-I and No. 01-11/28644 of 4 October 2000 respectively) states that the data entered in Column 53 "The customs department and country of destination" of a State Customs Declaration can be used as the date of importing the goods into the customs territory of the Russian Federation.  However, this Column is not to be filled out when the goods were previously placed under a different customs regime or are being declared at the customs department located in the place of entry of the goods into the customs territory of the Russian Federation.

Only when Column 53 is not filled out can the transportation and other commercial documentation (waybills, bills of lading, specifications, proforma-invoices, etc.), the short form declaration evidencing that the goods were placed into a warehouse for temporary storage, and other documents bearing the stamp of the customs authorities serve as documents evidencing that the goods entered the customs territory of the Russian Federation.  In the present case, [Column 53] is filled out in all the customs declarations.

All the business operations in connection with the transportation of goods must be supported by the relevant documentation which is the primary accounting documentation based on which the accounting is done. The primary accounting documents in connection with the goods must be made in accordance with the templates contained among the unified forms of original accounting documents pertaining to sale transactions (see Resolution of the State Statistics Committee of Russia No. 132 of 25 December 1998). The accounting procedure for the receiving of goods is stated in Clause 2(2.1) of the Recommendations concerning accounting operations in connection with the acceptance, storage and sale of goods by trade organizations.  [The Recommendations] were approved by Letter No. 1-794/32-5 of 10 July 1996 issued by the Russian Federation Trade Committee. Based on the said acts regulating the accounting procedures, the absence of the original bill of lading does not give a taxpayer a right not to list the goods in Column 41 "Goods" in the accounting documents.

Therefore, the absence of the original bill of lading by itself does not preclude the [taxpayer's] listing the imported goods as assets and his filing a petition to deduct the VAT paid to the customs authorities in connection with such goods.

Taking the above into consideration and based on Article 286 and 287(1)(1) of the Russian Federation Arbitration Procedure Code, the Federal Arbitration Court for the Northwestern Circuit

HOLDS:

The decision of 25 February 2003 rendered by the Arbitration Court for the City of St. Petersburg and Leningrad Region on case No. A56-37941/02 is sustained. The Cassation Claim brought by the Kirov District Tax Inspectorate for the city of St. Petersburg is denied.

The Chairman
DMITRIEV V.V. 
           Judges
ZUBAREVA N.A.
KOCHEROVA L.I.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant the Limited Liability Company "Diamant" of the Russian Federation is referred to as [Buyer].

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

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Pace Law School Institute of International Commercial Law - Last updated October 19, 2004
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