Court took into account position of the State Tax Service regarding the VAT refunding

The Grand Chamber of the Supreme Court considered in order of written proceedings cassation appeal of Main Directorate of the State Tax Service in Volyn region in case № 140/1770/19 on the claim of an individual-entrepreneur for recovery of budgetary arrears for the value added tax refunding.

Approving the lawsuit, the court of first instance assumed that the state’s long-term failure to fulfill its obligation to actually refund amounts of confirmed by the court decisions caused a violation of the taxpayer’s right to receive them from the budget and such methods of judicial protection as recognition of illegal inaction of the tax authority regarding failure to submit a conclusion indicating appropriate amount of budgetary refunding to the Treasury authority and obligation of the tax authority to take actions provided for by the law, aimed at preparing and providing the corresponding conclusion to the Treasury authorities, did not lead to effective renewal his rights (taking into account the fact that, as of the time the case is being considered in court, the Temporary register of applications for the return of amount of budgetary refunding is not working). Therefore, in view of the court-established right of an individual-entrepreneur for budgetary the VAT refunding and in the absence of mechanism for actual refunding to the taxpayer of agreed amount of budgetary refunding, the court recognized collection of amount of budgetary the VAT refunding from the State Budget of Ukraine as a proper way to protect the violated plaintiff’s right.

The Appellate court, agreeing with conclusions of the court of first instance, stated that the Temporary register of applications for the return of amount of budgetary refunding does not work and current legislation does not at all provide for a refunding mechanism of the VAT amounts included in the Temporary register of applications for the return of amount of budgetary refunding and structure of such register. In view of the plaintiff’s lack of opportunity to obtain his property (funds) in another way for a very long time, despite the recognition by both the controlling body and the court of both amount and legal grounds for receiving such refunding, the Appellate court found it permissible, proper and effective way of protecting the violated right to collect these sums from the budget, referring, among other things, to legal position of the Grand Chamber of the Supreme Court, expressed in Resolution as of 12.02.2019 in case № 826/7380/15.

The Grand Chamber of the Supreme Court, by its decision as of 12.02.2019 in case №826/7380/15, stating ineffectiveness of existing budgetary refunding mechanisms, pointed out that such methods of protecting the violated right as an obligation of the controlling body to provide a conclusion confirming amount declared by the taxpayer for budgetary refunding or to enter the company's application to the Temporary register of applications for the return of amount of budgetary refunding, will not lead to effective renewal of the taxpayer’s right and, as a result, recognized the only possible and appropriate way to protect the taxpayer’s rights in such disputes is recovery of budgetary VAT debt.  

At the same time, the Grand Chamber of the Supreme Court applied recovery of the VAT refunding precisely as "another (procedural) way of protecting the violated right in public-law relations from violations by subjects of authority, which does not contradict the law and ensures effective protection of such rights", which is allowed as a result of judicial review of dispute for more effective protection of the payer’s rights and directly follows from prescriptions of Paragraph 10 of Part 2 Article 245 of the Administrative Judicial Code of Ukraine.

However, this does not change the fact that reason for violation of the plaintiff's rights was precisely the continuing illegal inaction of the state in a person of its authorized bodies in terms of failure to fulfill the duty established by the law and confirmed by the court. This kind of inactivity should be analyzed and evaluated by the court during the case review.

The Grand Chamber of the Supreme Court considers conclusions of the courts of previous instances to be erroneous in view of such considerations.

Establishment of procedural terms is provided by the law for disciplining participants of administrative proceedings and their timely performance of certain procedural actions provided for by the Administrative Judicial Code of Ukraine of Ukraine.

Institution of time limits in the administrative process contributes to achievement of legal certainty in public-legal relations and also stimulates participants in the administrative process to be conscientious in performance of their duties. These terms limit the time during which such legal relationship can be considered disputed; after their completion, if no one went to the court to resolve the dispute – relationship becomes stable.

The Grand Chamber of the Supreme Court notes that Parts 2 and 3 of Article 122 of the Administrative Judicial Code of Ukraine of Ukraine clearly define moment with which start of the counting period for applying to the administrative court is connected, namely from the day when a person learned or should have learned about the violation of own rights and freedoms or interests.

A comparative analysis of the word forms "found out" and "should have found out" gives grounds for a conclusion about presumption of the possibility and obligation of a person to know about the state of his / her rights. Ignorance of violation due to the indifference to one’s rights or unwillingness to find out is not a valid reason for missing deadline for filing a lawsuit.

In its rulings, the Grand Chamber of the Supreme Court has repeatedly drawn attention to the fact that valid reasons are recognized only those circumstances that were objectively insurmountable, that is, did not depend on the will of a person who filed the administrative lawsuit, are related to really significant circumstances, obstacles or difficulties that made it impossible to go to the court in a timely manner. Such circumstances must be confirmed by appropriate and proper evidence.

Tax Code of Ukraine does not contain direct rule that would determine terms of applying to the court with requirements aimed at protecting and renewing the violated rights of taxpayers in relations that arise in connection with untimely the VAT refunding by the state.

Statute of limitations of 1095 days, established by Article 102 of the Tax Code of Ukraine, applies, in particular, to right of the controlling body to conduct audit and independently determine amount of monetary obligations (Paragraph 102.1); collection of tax debt (Paragraph 102.4); right of the taxpayer to submit application for the return of overpaid monetary obligations or their refunding (Paragraph 102.5); right of the taxpayer to appeal tax notification-decision in the court or other decision of the controlling body (Paragraph 56.18 Article 56).

Herewith, provisions of Paragraph 102.5 Article 102 of the Tax Code of Ukraine do not regulate issues of time limits for appeals to the administrative court, but only establish time limit for taxpayer to submit application to the controlling body for the return of overpaid monetary obligations or for their refunding in cases provided for by this Code.

In case under consideration, there are no grounds for taking into account provisions of Paragraph 56.18 Article 56 of the Tax Code of Ukraine, since the latter, establishing special time limits for applying to the court, overrides Article 102 of this Code and exclusively regulates legal relations regarding appeal of tax notification-decision or other decision controlling body.

In case of untimely refunding of the VAT debt and/or interest charged on such debt, payer, appealing to the court, actually asks to protect his/her right to receive the specified funds, which remain unpaid due to the subject’s failure to fulfill authority of a complex of its entrusted duties. Therefore, the subject of appeal in such case is relevant inactivity of the subject of authority, and therefore, provisions of Article 102 of the Tax Code of Ukraine, to which Paragraph 56.18 Article 56 of this Code refers, cannot be applied.

Taking into account the above specified, Article 102 of the Tax Code of Ukraine, including Paragraph 102.5 of this Article, is not the "other law" that establishes special deadlines for applying to the court with requirements aimed at protecting and renewing the violated rights of taxpayers in relations arising in connection with untimely refunding of the VAT budgetary debt and/or interest charged on such debt, and therefore provisions of Part 2 Article 122 of the Administrative Judicial Code of Ukraine, which provides for  general six-month period of appeal to the administrative court, are applicable to disputed legal relations.

The Grand Chamber of the Supreme Court summarizes that the VAT payer can apply to the administrative court with demands for recognition of illegal inaction of the subject of authority to repay the VAT debt and/or the penalty charged on such debt, within six months from the day when a person became aware of or should have learned about the violation of their rights, freedoms or interests.

Taking into account completely different nature of legal regulation, one cannot agree with conclusion that when deciding issue of calculating deadline for applying to the administrative court with claims for refunding of penalty charged on the amount of budgetary the VAT debt, provisions of Paragraph 102.4 Article 102 of the Tax Code of Ukraine should be taken into account, since the above specified is not consistent with subject of legal regulation of this norm, which includes exclusively issue of the controlling body exercising its powers in relation to the tax debt collection that arose in connection with refusal to independently repay monetary obligation assessed by the controlling body and not person's exercise of right to judicial protection against violations by the subject of authority.

Courts of previous instances correctly took into account legal opinion of the Grand Chamber of the Supreme Court regarding application of effective method of protecting the violated right, set out in Resolution as of 12.02.2019 in case № 826/7380/15, but mistakenly referred to it as a reason for not applying the six-month period of appeal to the court.

The cited court decision did not contain conclusions about the non-extension of deadline for applying to the administrative court for legal relations for refunding of budgetary debt from the State Budget of Ukraine for the VAT refunding and interest charged on the amount of such debt.

Upon the conviction of the Grand Chamber of the Supreme Court, change in legal regulation, change by the Supreme Court in method of protecting the violated right and actual circumstances confirmed in the prescribed manner regarding the impossibility of exercising right by a person, list of measures aimed at achieving this goal are subject to evaluation by the court based on the claimant's application for renewal of missed application deadline to the administrative court in each specific case clarifying validity of reasons for missing this term.

Therefore, by decision of the Grand Chamber of the Supreme Court as of 19.01.2023 in case № 140/1770/19, cassation appeal of Main Directorate of the State Tax Service in Volyn region was partially satisfied, decision of the Volyn District Administrative Court as of 25.07.2019 and decision of the Eighth Administrative Court of Appeal as of 18.12.2019 were annulled. Case was referred to the court of first instance for a new trial.