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On administrative violations of law and tax administration

Case No. 6/99-23/99-5/2000-8/2000

 

 

THE CONSTITUTIONAL COURT OF

THE REPUBLIC OF LITHUANIA

 

R U L I N G

 

On the compliance of Articles 1 and 2 of the Republic of Lithuania’s Law “On the Recognition of Article 40 as Null and Void and an Amendment to Article 251 of the Code of Administrative Violations of Law”, and Paragraph 5 of Article 27 and Paragraphs 3 and 9 of Article 50 of the Republic of Lithuania’s Law on Tax Administration with the Constitution of the Republic of Lithuania

 

Vilnius, 6 December 2000

 

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Egidijus Jarašiūnas, Egidijus Kūris, Zigmas Levickis, Augustinas Normantas, Vladas Pavilonis, Jonas Prapiestis, Vytautas Sinkevičius, Stasys Stačiokas, and Teodora Staugaitienė

The court reporter—Daiva Pitrėnaitė

Seimas members Petras Papovas and Gintaras Šileikis, acting as representatives of a group of members of the Seimas of the Republic of Lithuania, the petitioner, and Saulius Pečeliūnas, acting as a representative of a group of Seimas members, the petitioner

Pranas Petkevičius, a senior consultant to the Law Department of the Office of the Seimas, Snieguolė Kaplerienė, a senior consultant to the Law Department of the Office of the Seimas, Vitas Vasiliauskas, Director of the Revenues Department of the Ministry of Finance of the Republic of Lithuania, and Vidas Stankevičius, a senior consultant to the Law Department of the Office of the Seimas, acting as the representatives of the Seimas of the Republic of Lithuania, the party concerned

The Constitutional Court of the Republic of Lithuania, pursuant to Paragraph 1 of Article 102 of the Constitution of the Republic of Lithuania and Paragraph 1 of Article 1 of the Law on the Constitutional Court of the Republic of Lithuania, on 22 November 2000, in its public hearing, considered case No. 6/99-23/99-5/2000-8/2000 subsequent to the following petitions submitted to the Court by the petitioners:

The 15 March 1999 petition of a group of Seimas members requesting an investigation into whether Articles 1 and 2 of the Republic of Lithuania’s Law “On the Recognition of Article 40 as Null and Void and an Amendment to Article 251 of the Code of Administrative Violations of Law” and Article 21 of the Republic of Lithuania’s Law “On Supplementing and Amending Articles 2, 17, 26, 261, 27, 29, 30, 31, 32, 33, 37, 38, 39, 391, 49, 50, 52, 54, 55, 56, 57, 58 of the Law on Tax Administration, on Supplementing This Law with Articles 271, 272, 291, 521, 561, and on the Recognition of Articles 47 and 48 of This Law as Null and Void” are in compliance with the principle of a just state under the rule of law entrenched in the Preamble to the Constitution, Article 1, Paragraphs 1 and 3 of Article 23, Paragraphs 1, 2 and 3 of Article 46, and Article 67 of the Constitution;

The 14 September 1999 petition of the Higher Administrative Court requesting an investigation into whether the provision of Paragraph 5 of Article 27 of the Republic of Lithuania’s Law on Tax Administration commissioning the Minister of Finance to establish the procedure for supplementation of accounting documents with lacking requisites is in compliance with Articles 5 and 127 of the Constitution of the Republic of Lithuania;

The 17 January 2000 petition of the Higher Administrative Court requesting an investigation into whether the provision “legal acts by which the interest arising out of failure to notify in due time the tax administrator about the facts concerning paid amounts is abolished shall be applicable for the violations of law committed prior to the entry into effect of these legal acts, however, only in the event that this interest has not been exacted or paid” of Paragraph 9 of Article 50 of the Republic of Lithuania’s Law on Tax Administration is in compliance with Article 29 of the Constitution of the Republic of Lithuania;

The 29 January 2000 petition of the Higher Administrative Court requesting an investigation into whether Paragraph 3 of Article 50 of the Republic of Lithuania’s Law on Tax Administration to the extent that it regulates the issues of liability of individual (personal) enterprises is in compliance with Paragraph 1 of Article 29 of the Constitution of the Republic of Lithuania and the principle of justice entrenched in the Constitution.

The Constitutional Court has joined all these petitions into one case by its decision of 18 October 2000.

The Constitutional Court

has established:

I

1. On 2 June 1998, the Seimas adopted the Republic of Lithuania’s Law “On the Recognition of Article 40 as Null and Void and an Amendment to Article 251 of the Code of Administrative Violations of Law” (Official Gazette Valstybės žinios, 1998, No. 55-1518; hereinafter also referred to as the impugned law). By means of Article 1 of this law, Article 40 of the Code of Administrative Violations of Law (hereinafter also referred to as the CAVL) was abrogated wherein it had been established: “In cases of minor violations of administrative law, the body (official) empowered to decide the case may discharge the offender from administrative liability and confine himself to an oral reproof.” By Article 2 of the said law, Article 251 of the CAVL was amended and set down in a new manner by way of eliminating the provision by which the proceedings of a case of an administrative violation of law might also be dismissed in cases of minor violations of law and in the event that a written reproof had been issued.

2. On 2 July 1998, the Seimas passed the Republic of Lithuania’s Law “On Supplementing and Amending Articles 2, 17, 26, 261, 27, 29, 30, 31, 32, 33, 37, 38, 39, 391, 49, 50, 52, 54, 55, 56, 57, 58 of the Law on Tax Administration, on Supplementing This Law with Articles 271, 272, 291, 521, 561, and on the Recognition of Articles 47 and 48 of This Law as Null and Void” (Official Gazette Valstybės žinios, 1998, No. 68-1978). By Article 21 of the said law, Article 50 of the Republic of Lithuania’s Law on Tax Administration was amended and set down anew.

3. The petitioner—a group of Seimas members—requests an investigation into whether Articles 1 and 2 of the Republic of Lithuania’s Law “On the Recognition of Article 40 as Null and Void and an Amendment to Article 251 of the Code of Administrative Violations of Law” and Article 21 of the Republic of Lithuania’s Law “On Supplementing and Amending Articles 2, 17, 26, 261, 27, 29, 30, 31, 32, 33, 37, 38, 39, 391, 49, 50, 52, 54, 55, 56, 57, 58 of the Law on Tax Administration, on Supplementing This Law with Articles 271, 272, 291, 521, 561, and on the Recognition of Articles 47 and 48 of This Law as Null and Void” are in compliance with the principles of a just state under the rule of law entrenched in the Preamble to the Constitution, Article 1, Paragraphs 1 and 3 of Article 23, Paragraphs 1, 2 and 3 of Article 46, and Article 67 of the Constitution.

4. The petition of the petitioner is based on these arguments.

After Article 40 of the CAVL has been abrogated, the offender may not be discharged from administrative liability in cases when the violation is a minor one, committed for the first time and not dangerous to society. In some cases the administrative sanction for such a violation is disproportionally severe. The group of Seimas members point out Paragraph 1 of Article 1632 of the CAVL as an example. Under the said paragraph, in cases of the disclosure of at least one box of cigarettes without a tax stamp or with a tax stamp of the old standard at places of trade, a minimal fine of 5000 litas shall be imposed. In the opinion of the group of Seimas members, thereby the principle of a just state under the rule of law enshrined in the Preamble to the Constitution, which means that every measure applied by the state may not be too severe and impose restrictions on subjects of law more than is necessary to achieve legitimate objectives, is violated. In the opinion of the petitioner, according to the same reasoning, the sanctions provided for in Article 50 of the Law on Tax Administration are too severe and violate the principle of proportionality, the rights of ownership of persons and groundlessly limit freedom of economic activity and initiative.

5. In the course of the preparation of the case for the Constitutional Court hearing, a written explanation was received from the representative of the party concerned P. Petkevičius.

In the opinion of P. Petkevičius, actions (failure to act) which are termed a minor violation of law must be assessed on the basis of principle, i.e. either one must hold them to be administrative violations of law or one must not hold them to be such. In case questions arise whether there are the grounds to consider, or not to consider, an action or failure to act an administrative violation of law, one might follow Item 1 of Article 250 of the CAVL which obligates not to institute, while in cases of institution, to dismiss the proceedings of a case of an administrative violation of law in the absence of the body of violation. By the 11 November 1999 Republic of Lithuania’s Law “On Supplementing the Code of Administrative Violations of Law with Article 301 and Amendment Article 298 Thereof”, the CAVL was supplemented with Article 301 wherein it is established that that the body (official) that considers a case of administrative violations of law, while taking account of various circumstances (including the extenuating circumstances established in Article 31) and following the criteria of justice and sense, may impose a milder penalty than provided for in the sanction, or may decide not to impose any administrative penalty. Taking account of this, the representative of the party concerned considers that there is not any sense to discuss the abrogation of formerly in force Article 40 of the CAVL. In the opinion of the representative of the party concerned, establishment of sanctions (administrative fines, economic sanctions etc.) is the right of the legislature, therefore, the sanctions provided for in Article 21 of the Republic of Lithuania’s Law “On Supplementing and Amending Articles 2, 17, 26, 261, 27, 29, 30, 31, 32, 33, 37, 38, 39, 391, 49, 50, 52, 54, 55, 56, 57, 58 of the Law on Tax Administration, on Supplementing This Law with Articles 271, 272, 291, 521, 561, and on the Recognition of Articles 47 and 48 of This Law as Null and Void” are in compliance with the Constitution.

II

1. The petitioner—the Higher Administrative Court—was investigating an administrative case wherein it was requested that a decision of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania be repealed. By means of its ruling of 29 February 2000, the said court suspended the consideration of the case and applied to the Constitutional Court requesting an investigation into whether Paragraph 3 of Article 50 of the Law on Tax Administration (Official Gazette Valstybės žinios, 1998, No. 68-1978) to the extent that liability issues of individual (personal) enterprises are regulated therein was in conformity with the principle of justice enshrined in the Constitution as well as Paragraph 1 of Article 29 of the Constitution.

2. The petition of the petitioner is based on the following arguments.

An individual (personal) enterprise shall not have the rights of a legal person, and its assets may not be separated from the owner’s private assets. The owner shall be liable for the obligations of the enterprise by way of all his property (Article 7 of the Republic of Lithuania’s Law on Enterprises). Thus, the types of liability with respect to an individual (personal) enterprise, enumerated in Paragraph 3 of Article 50 of the Law on Tax Administration, are applied to the same subject of private ownership law, i.e. the owner of an individual (personal) enterprise, while with respect to enterprises having the rights of a legal person (joint-stock companies) they are applied to different subjects of private ownership law, i.e. the enterprise and its individual employees.

3. In the course of the preparation of the case for the judicial consideration, an explanation of the representative of the party concerned V. Stankevičius was received.

The representative of the party concerned noted that the equality before the law of the economic entities—enterprises, establishments and organisations, i.e. legal persons, or persons without the rights of a legal person—and employees of economic entities or the owners of economic entities, that are specified in Paragraph 3 of Article 50 of the Law on Tax Administration, should be assessed individually, as the Law on Tax Administration names them as subjects of different legal relations, liable for violations of law pointed out in different laws. The same legal liability for violations of tax laws listed in Article 49 of the Law on Tax Administration is applied to all economic entities—legal persons or those without the rights of a legal person. Also, the same legal liability for law violations listed in the CAVL and the Criminal Code of the Republic of Lithuania (hereinafter also referred to as the CC) is applied to all the employees or owners of economic entities.

In the opinion of V. Stankevičius, Paragraph 3 of Article 50 of the Law on Tax Administration to the extent that the issues of liability of individual (personal) enterprises is regulated, is in conformity with the Constitution.

III

1. The petitioner—the Higher Administrative Court—was investigating an administrative case wherein it was requested that a decision of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania be repealed. By means of its ruling of 17 January 2000, the said court suspended the consideration of the case and applied to the Constitutional Court requesting an investigation into whether the provision “legal acts by which the interest arising out of failure to notify in due time the tax administrator about the facts concerning paid amounts is abolished shall be applicable for the violations of law committed prior to the entry into effect of these legal acts, however, only in the event that this interest has not been exacted or paid” of Paragraph 9 of Article 50 of the Law on Tax Administration (Official Gazette Valstybės žinios, 1999, No. 62-2034) was in conformity with Article 29 of the Constitution.

In the course of the preparation of the case for the judicial consideration, explanations by the representative of the Higher Administrative Court S. Šedbaras, chairman of a chamber of the said court, regarding the doubt expressed in the petition, were received.

2. The petition of the petitioner is based on the following reasoning.

Tax laws are categorised as belonging to public law, as it is pointed out in Article 1 of the Civil Code of the Republic of Lithuania that the rules of this code shall not be applicable to tax and budgetary relations.

Article 2 of the Law on Tax Administration provides that “tax” denotes monetary obligation owed by the taxpayer to the state, established within the tax law in order that funds may be obtained to fulfil state (municipal) functions. This obligation is fulfilled under the procedure established by law. Interest is calculated into the budget and fines are imposed on taxes paid or transferred in the budget overdue.

Interest and fines is a way of the securing of taxes for the state, which is applied equally to all. It is provided in Article 3 of the Law on Tax Administration that in applying tax laws, all taxpayers shall be held equal on the basis of the conditions established by means of these laws. However, doubts arise as for the legal regulation established in Article 50 of the said law whether by this way the taxpayers who do not fulfil their obligations to pay the imposed fines are not singled out, and whether more favourable conditions are not created for them if compared to the taxpayers who dutifully and honestly fulfil their obligations.

3. In the course of the preparation of the case for the judicial consideration, an explanation of the representative of the representative of the party concerned S. Kaplerienė was received.

The representative of the party concerned noted that in the norms of tax laws elements of subordination and command dominate. The imperative and obligatory method of the regulation secures the priority of common interests of society and the state in tax relations. In the course of the application of the administrative-legal method of regulation of tax relations, legal relations of a command character appear between taxpayers and institutions of the executive.

In the opinion of S. Kaplerienė, adoption of legal norms by the legislature, having retroactive validity, is an exception. A law is retroactively valid in cases when this is pointed out in the law itself, or the adopted laws abolish punishment or administrative liability for deeds, or mitigate the punishment or administrative penalty. As tax relations are regulated by administrative-legal method, then in the sphere of their regulation laws mitigating liability are retroactively valid as well. The state is entitled to abolish by law punishment for certain deeds or to mitigate sanctions for law violations. It is established in the CC and CAVL that a law mitigating or abolishing liability may be retroactively valid. However, it is only from the moment of their adoption that these laws are applied to the persons who have been brought to liability, while they are retroactively valid only with respect to the persons to whom this liability has not been applied.

The representative of the party concerned maintains that Paragraph 9 of Article 50 of the Law on Tax Administration does not single out any group of certain persons to whom the aforementioned provision is applied, therefore, Article 29 of the Constitution establishing the principle of equality of all persons before the law is not violated.

IV

1. The petitioner—the Higher Administrative Court—was investigating an administrative case wherein it was requested that a decision of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania be repealed. By means its ruling of 14 September 2000, the said court suspended the consideration of the case and applied to the Constitutional Court requesting an investigation into whether the provision of Paragraph 5 of Article 27 of the Law on Tax Administration (Official Gazette Valstybės žinios, 1998, No. 68-1978) commissioning the Minister of Finance to establish the procedure for supplementation of accounting documents with lacking requisites was in compliance with Articles 5 and 127 of the Constitution.

The arguments of the petitioner are based on these arguments.

Paragraph 5 of Article 27 of the Law on Tax Administration provides that in cases when in the course of inspection it is established that an accounting document presented by the taxpayer is not legally valid as it lacks one or several mandatory requisites established in normative acts, the official of the tax administrator shall permit supplementing the document under the procedure established by the Minister of Finance. The document supplemented with the lacking requisites during the established time period shall be held as having legal validity and economic sanctions shall not be applied. In the opinion of the petitioner, in this provision of the Law on Tax Administration the legislature did not indicate as to what accounting documents and with what mandatory requisites established in normative acts they may be supplemented: the legislature commissioned the Minister of Finance to do so. In the opinion of the petitioner, following Paragraph 3 of Article 127 of the Constitution one must establish by law not only taxes, but also provide sanctions for violations of tax laws, and situations when sanctions for respective violations must be applied and when not applied. Meanwhile, the fact whether the document will be held as having legal validity depends on whether in the procedure established by the Order (No. 6) “On the Procedure for Supplementation of Accounting Documents” of 13 January 1999 permits supplementing one or the other document with lacking requisites, and with what requisites it permits supplementing the document.

3. In the course of the preparation of the case for the Constitutional Court hearing, written explanations of the representatives of the party concerned S. Kaplerienė and V. Vasiliauskas were received.

S. Kaplerienė pointed out that Paragraph 3 of Article 127 of the Constitution provides that taxes, other budgetary payments, and dues shall be established by means of laws of the Republic of Lithuania. Paragraph 5 of Article 27 of the Law on Tax Administration establishes neither a tax nor a due but supplementation of accounting documents with lacking mandatory requisites established in normative acts. The procedure for such supplementation is established by the Minister of Finance.

V. Vasiliauskas noted that Article 127 of the Constitution provides for an exclusive right of legislature to establish taxes and dues by law only, while Paragraph 5 of Article 27 of the Law on Tax Administration regulates peculiarities of account-keeping.

V. Vasiliauskas also emphasised that the impugned provision of the Law on Tax Administration should be applied only in cases when it is possible, on the basis of the existing requisites in the accounting documents, to trace the economic operation which has taken place, and only due to certain reasons the document lacks one or several mandatory requisites. If the aforesaid provision of the Law on Tax Administration is construed so that the taxpayer is granted the right to supplement the accounting documents without any limitations, then the common principles of account-keeping would be denied and an opportunity might be created for dishonest taxpayers to abuse the rights granted to them, by concealing actual economic operations.

The representatives of the party concerned maintain that the impugned provision of Paragraph 5 of Article 27 of the Law on Tax Administration is in compliance with the Constitution.

V

In the course of the preparation of the case for the Constitutional Court hearing, a written explanation was received by the specialist—Assoc. Prof. B. Sudavičius who works at the Department of Public Law of the Faculty of Law, Vilnius University, as well as written explanations by M. Strumskis, Acting Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania, and V. Vadapalas, Director General of the European Law Department under the Government of the Republic of Lithuania, were received.

VI

At the court hearing, the representatives of the petitioner—a group of Seimas members—P. Papovas, G. Šileikis and S. Pečeliūnas virtually reiterated the arguments set forth in the petition of the group of Seimas members.

At the court hearing, the representatives of the party concerned P. Petkevičius, S. Kaplerienė, V. Vasiliauskas and V. Stankevičius virtually reiterated the arguments set forth in their written explanations.

The Constitutional Court

holds that:

I

On the compliance of Articles 1 and 2 of the Law “On the Recognition of Article 40 as Null and Void and an Amendment to Article 251 of the Code of Administrative Violations of Law” with the principles of justice and a state under the rule of law entrenched in the Constitution, as well as Article 1, Paragraphs 1, 2 and 3 of Article 46 and Item 2 of Article 67 of the Constitution.

By Article 1 of the Law “On the Recognition of Article 40 as Null and Void and an Amendment to Article 251 of the Code of Administrative Violations of Law”, formerly in effect Article 40 of the CAVL was abrogated wherein it had been established that “in cases of minor violations of administrative law, the body (official) empowered to decide the case may dismiss the offender from administrative liability and confine himself to an oral reproof.” By Article 2 of the said law, Article 251 of the CAVL was amended and set down in a new manner by eliminating the provision from Article 251 by which the proceedings of a case of an administrative violation of law might also be dismissed “in cases of minor violations of law and in the event that a written reproof had been issued”.

In the opinion of the petitioner—a group of Seimas members—Articles 1 and 2 of the impugned law conflict with the principles of a just state under the rule of law entrenched in the Preamble to the Constitution, Article 1, Paragraphs 1 and 3 of Article 23, Paragraphs 1, 2 and 3 of Article 46 and Article 67 of the Constitution.

2. It needs to be noted that although the petitioner requests an investigation into whether Articles 1 and 2 of the impugned law are in compliance with Article 67 of the Constitution, however, the reasoning presented in the petition concerns the non-conformity of Articles 1 and 2 of the impugned law with not whole Article 67 of the Constitution, but only with Item 2 thereof wherein it is established that the Seimas shall enact laws.

The petitioner requests an investigation into whether Articles 1 and 2 of the impugned law are in conformity with Paragraphs 1 and 3 of Article 23 of the Constitution. The petitioner has not presented any legal reasoning on which its doubts are based concerning the conformity of Articles 1 and 2 of the impugned law with Paragraphs 1 and 3 of Article 23 of the Constitution, therefore, the Constitutional Court will not investigate the compliance of the said articles of the law with Paragraphs 1 and 3 of Article 23 of the Constitution.

Subsequent to the petition of a group of Seimas members, the Constitutional Court will investigate whether Articles 1 and 2 of the Law “On the Recognition of Article 40 as Null and Void and an Amendment to Article 251 of the Code of Administrative Violations of Law” are in compliance with the principles of justice and a state under the rule of law entrenched in the Constitution, as well as Article 1, Paragraphs 1, 2 and 3 of Article 46 and Item 2 of Article 67 of the Constitution.

3. Deciding whether Articles 1 and 2 of the impugned law are in compliance with the principles of justice and a state under the rule of law, as well as Item 2 of Article 67 of the Constitution, one should take into consideration the fact that under Item 2 of Article 67 of the Constitution, the Seimas shall enact laws.

The Seimas, which has the constitutional powers to enact laws, is entitled not only to establish administrative liability by law, but also the bases of discharging from such liability and the situations when instituted proceedings concerning cases of administrative violations of law must be dismissed. The Constitution does not contain any legal norms obligating the legislature to establish certain bases of discharge from administrative liability and to provide for situations when the proceedings in cases of administrative violations of law must be dismissed. Under the Constitution, in this area the legislature enjoys discretionary powers, however, even in the presence of such discretion the legislature must in all cases follow the requirements of the Constitution, as well as the principles of justice and a state under the rule of law enshrined in the Constitution.

The principles of justice and a state under the rule of law entrenched in the Constitution are universal ones, they must be followed both in law-making and enforcement of law. Upon these constitutional principles the entire legal system of Lithuania is based. The constitutional principles of justice and a state under the rule of law mean that all state institutions must act only on the basis and in pursuance of law, that human rights and freedoms must be secured and natural justice must be paid heed to. In its ruling of 22 December 1995, the Constitutional Court held that one of the main objectives of law as a means to regulate social life is justice; justice is one of basic moral values and one of basic foundations of a state governed by law; it may be implemented by ensuring a certain equilibrium of interests, by escaping fortuity and arbitrariness, instability of social life and conflict of interests.

The content of the principle of justice and that of a state under the rule of law is expressed in various provisions of the Constitution: the rights and freedoms of individuals shall be innate (Article 18); all persons shall be equal before the law, the court, and other state institutions and officers (Paragraph 1 of Article 29); a human being may not have his rights restricted in any way, or be granted any privileges, on the basis of his or her sex, race, nationality, language, origin, social status, religion, convictions, or opinions (Paragraph 2 of Article 29); no person may be punished for the same offence twice (Paragraph 5 of Article 31); in the Republic of Lithuania, the courts shall have the exclusive right to administer justice (Paragraph 1 of Article 109) etc.

The constitutional principles of justice and a state under the rule of law also presuppose the fact that the measures established by the state for violations of law must be proportional (adequate) for the violation of law, must be in conformity with legitimate and commonly important objectives, and must not restrict the person more than is reasonably necessary to achieve these objectives.

4. As mentioned before, by Article 1 of the impugned law the legal norm was abrogated by which the body (official) empowered to decide the case may discharge the offender from administrative liability in cases of minor violations of administrative law. By Article 2 of this law the legal norm was abrogated by which the proceedings of a case of an administrative violation of law might also be dismissed in cases of minor violations of law.

The Seimas, enjoying the constitutional powers to enact laws, is also empowered to establish by law the bases for discharge from administrative liability and situations of dismissal of proceedings in administrative cases. The Seimas is empowered to amend and supplement the aforementioned bases and situations. It is also empowered not to establish any discharge form administrative liability. The decision of these issues is within the discretion of the Seimas.

It needs to be noted that the abrogation of Article 40 and amendment of Article 251 of the CAVL in themselves do not mean that the constitutional principles of justice and a state under the rule of law are violated.

The fact is of essential importance whether the overall legal regulation established in the Code of Administrative Violations of Law is one creating legal preconditions not only for punishing the person but also for punishing him justly: whether the administrative penalties provided for in the CAVL are proportional (adequate) to the character of violations of law and to the objectives sought, whether the penalties are differentiated so that in the course of their application one might take account of the character of violation of law, whether the courts are granted the right, after they have taken into consideration extenuating and other circumstances, to impose a milder penalty than the minimal one established in the sanction etc.

The petitioner—a group of Seimas members—does not request an investigation into whether the respective articles of the CAVL establishing administrative penalties as well as the sizes of fines are in conformity with the Constitution, therefore, the Constitutional Court will not investigate the overall legal regulation of administrative liability established in the CAVL from the above-mentioned aspects.

5. It needs to be noted that, on 11 November 1999, i.e. after the petition under investigation in this case had been filed by the petitioner—a group of Seimas members—with the Constitutional Court, the Seimas passed the Republic of Lithuania’s Law “On Supplementing the Code of Administrative Violations of Law with Article 301 and Supplementing Article 298 of This Code”. By Article 301 of the said code it was established that a body (official) investigating cases of administrative violations of law, taking account of the circumstances pointed out in the law, conforming to the criteria of justice and reason, may impose a smaller penalty than the minimal one established in the sanction or milder penalty than one established in the sanction or not impose an administrative penalty at all.

6. Taking account of the arguments set forth, the conclusion should be drawn that Articles 1 and 2 of the Law “On the Recognition of Article 40 as Null and Void and an Amendment to Article 251 of the Code of Administrative Violations of Law” are in compliance with the principles of justice and a state under the rule of law established in the Constitution.

7. In the opinion of the petitioner, Articles 1 and 2 of the impugned law conflict with Item 2 of Article 67 of the Constitution wherein it is established that the Seimas shall enact laws.

It needs to be noted that legislation is one of the main functions of the Seimas. Having passed the impugned law, the Seimas implemented the competence to enact laws established for it by the Constitution. The possibility of a conflict of a law enacted by the Seimas with the Constitution in itself does not mean that enactment of such a law violates Item 2 of Article 67 of the Constitution wherein the competence of the Seimas to enact laws is established. Therefore, it should be concluded that Articles 1 and 2 of the Law “On the Recognition of Article 40 as Null and Void and an Amendment to Article 251 of the Code of Administrative Violations of Law” are in compliance with Item 2 of Article 67 of the Constitution.

8. In the opinion of the petitioner, Articles 1 and 2 of the impugned law are in conflict with Article 1 of the Constitution.

Article 1 of the Constitution provides that “the State of Lithuania shall be an independent and democratic republic”. In its ruling of 23 February 2000, the Constitutional Court noted that in this article of the Constitution the fundamental principles of the Lithuanian State are established: the Lithuanian State is free and independent; republic is the form of governance of the Lithuanian State; the state power must be organised in a democratic way, and there must be a democratic political regime in this country.

As held in the present case, the Seimas enjoys constitutional powers to enact laws, to amend them and supplement them, as well as to recognise them as null and void. By Articles 1 and 2 of the impugned law, by which the legal norms providing for an opportunity to discharge a person from administrative liability and permitting dismissing legal proceedings in cases of administrative violations of law, different legal relations are regulated from those regulated in Article 1 of the Constitution. Therefore, there are no grounds to conclude that Articles 1 and 2 of the Law “On the Recognition of Article 40 as Null and Void and an Amendment to Article 251 of the Code of Administrative Violations of Law” conflict with Article 1 of the Constitution.

9. The petitioner—a group of Seimas members—maintains that Articles 1 and 2 of the impugned law are in conflict with Paragraphs 1, 2 and 3 of Article 46 of the Constitution.

Paragraphs 1, 2 and 3 of Article 46 of the Constitution provide:

Lithuania’s economy shall be based on the right to private ownership, freedom of individual economic activity, and initiative.

The State shall support economic efforts and initiative which are useful to the community.

The State shall regulate economic activity so that it serves the general welfare of the Nation.”

In these as well as the other paragraphs of Article 46 of the Constitution the principles constituting the constitutional basis of the economy of this country are established.

As mentioned before, by the impugned law a certain law was repealed, regulating relations linked with discharge from administrative liability, i.e. different relations from those regulated in Paragraphs 1, 2 and 3 of Article 46 of the Constitution.

Taking account of the arguments set forth, it should be concluded that Articles 1 and 2 of the Law “On the Recognition of Article 40 as Null and Void and an Amendment to Article 251 of the Code of Administrative Violations of Law” are in compliance with Paragraphs 1, 2 and 3 of Article 46 of the Constitution.

II

On the compliance of the provisions of Items 1 and 2 of Paragraph 3 of Article 50 of the Law on Tax Administration establishing minimal sizes of fines with the principles of justice and a state under the rule of law entrenched in the Constitution, as well as Article 1, Paragraphs 1, 2 and 3 of Article 46 and Item 2 of Article 67 of the Constitution.

1. The petitioner—a group of Seimas members—requests an investigation into whether Article 21 of the Law “On Supplementing and Amending Articles 2, 17, 26, 261, 27, 29, 30, 31, 32, 33, 37, 38, 39, 391, 49, 50, 52, 54, 55, 56, 57, 58 of the Law on Tax Administration, on Supplementing This Law with Articles 271, 272, 291, 521, 561, and on the Recognition of Articles 47 and 48 of This Law as Null and Void” of 2 July 1998 is in compliance with the Constitution.

It needs to be noted that by Article 21 of the said law Article 50 of the Law on Tax Administration was amended and set down anew. Taking account of this, in this case the Constitutional Court will investigate the compliance of Article 50 of the Law on Tax Administration with the Constitution.

The doubts set forth in the petition of the petitioner regarding the constitutionality of Article 50 of the Law on Tax Administration are based on the fact that that the minimal fines established in the said article are too big. The petitioner requests an investigation into whether Article 50 of the aforesaid law is in conformity with the Constitution, however, the reasoning presented in the petition concern not whole Article 50 but only the provisions of this article which provide for minimal sizes of fines. It needs to be noted that the minimal sizes of fines are established in the provision “this fine must not be less than 20,000 litas” of Item 1 and the provision “but not less than 50,000 litas” of Item 2 of Paragraph 3 of Article 50 of the Law on Tax Administration.

In the opinion of the petitioner, Article 50 of the Law on Tax Administration providing for big minimal fines also conflicts with Paragraphs 1 and 3 of Article 23 of the Constitution. The petition of the petitioner does not contain any legal reasoning as for the conflict of the aforementioned article with Paragraphs 1 and 3 of Article 23 of the Constitution, therefore, the Constitutional Court will not investigate the compliance of Article 50 of the Law on Tax Administration with Paragraphs 1 and 3 of Article 23 of the Constitution.

The petitioner requests an investigation into whether Article 50 of the Law on Tax Administration is in compliance with whole Article 67 of the Constitution, however, the reasoning presented in the petition as for the conflict of Article 50 of the said law in fact concern not whole Article 67 but only with Item 2 thereof wherein it is established that the Seimas shall enact laws.

2. On the basis of the petition of the petitioner—a group of Seimas members—the Constitutional Court will investigate whether the provision “this fine must not be less than 20,000 litas” of Item 1 and the provision “but not less than 50,000 litas” of Item 2 of Paragraph 3 of Article 50 of the Law on Tax Administration are in compliance with the principles of justice and a state under the rule of law entrenched in the Constitution, as well as Article 1, Paragraphs 1, 2 and 3 of Article 46 and Item 2 of Article 67 of the Constitution.

3. Paragraph 3 of Article 50 of the Law on Tax Administration provides:

3. In cases when violations of tax laws pointed out in Article 49 were committed by an economic entity—legal person or a person without the rights of a legal person, the employees or the owners of such an economic entity who are responsible for correct computation of tax and its payment into the state (municipal) budget or funds shall be held administratively liable. The following fines shall be imposed on economic entities—enterprises, establishments and organisations—for violations pointed out in Items 2, 5, 6, 7 and 13 of Article 49:

1) a fine of 10 percent calculated on the income (receipts) of the previous 12 months or a ten-fold fine in cases of hidden income, false value of goods and not registered payments for the employees due to fraudulent book-keeping. This fine must not be less than 20,000 litas:

a) for the violations committed for the first time which are pointed out in Items 2, 5 and 7 of Article 49;

b) for the violation pointed out in Item 6 of Article 49 when the value of the person’s kept, sold or purchased goods without the mandatory documents established in the normative acts (save ethyl alcohol, alcohol, tobacco and petroleum products) exceeds the amount of three minimal subsistence levels (MSL);

c) for the violation pointed out in Item 13 of Article 49 (imposed on an enterprise shipping goods) when the value of the goods (save ethyl alcohol, alcohol, tobacco and petroleum products) exceeds the amount of 50 MSLs.

2) a fine of 10 percent calculated on the income (receipts) of the previous 12 months or a ten-fold fine in cases of hidden income, false value of goods and not registered payments for the employees due to fraudulent book-keeping. This fine must not be less than 50,000 litas:

a) for the violations committed repeatedly which are pointed out in Items 2, 5 and 7 of Article 49;

b) for the violation pointed out in Item 6 of Article 49 committed repeatedly without taking into consideration the value of goods (save ethyl alcohol, alcohol, tobacco and petroleum products);

c) for the violation pointed out in Item 6 of Article 49 when economic entities keep, sell or purchase ethyl alcohol, alcohol, tobacco and petroleum products without the mandatory documents, tax stamps or any other special marks established in normative acts;

d) for the violation pointed out in Item 13 of Article 49 committed repeatedly without taking into consideration the value of goods (save ethyl alcohol, alcohol, tobacco and petroleum products);

e) for the violation pointed out in Item 13 of Article 49 when an economic entity is shipping ethyl alcohol, alcohol, tobacco and petroleum products without the mandatory documents, tax stamps, other special marks or shipment documents established in normative acts.”

4. As mentioned before, Items 1 and 2 of Paragraph 3 Article 50 of the Law on Tax Administration provide that the fines are imposed on economic entities—enterprises, establishments and organisations—for the violations of tax laws listed in Items 2, 5, 6, 7 and 13 of Article 49.

The following violations of tax laws are listed in Items 2, 5, 6, 7 and 13 of Article 49 of the Law on Tax Administration:

2) the person keeps books of an enterprise, establishment or organisation in a fraudulent manner, conceals or destroys accounting documents, if this has made it totally or partly impossible to determine results of the enterprise, establishment or organisation’s activity and commercial, economic, and financial condition;”

5) the person uses a not recorded cash register which is duplicating the recorded cash register, or a cash register whose construction or program has been changed or the person forges or destroys the data of the cash register;”

6) the person keeps, sells or purchases goods without the mandatory documents, tax stamps or special marks established in normative acts;”

7) the person does not register payments to the employees, which are linked with employment relations, in the accounting documents;”

13) the person ships goods without the mandatory purchase or shipment documents established in normative acts”.

Under Article 49 of the Law on Tax Administration, the aforementioned violations of law are considered persistent violations of tax laws.

5. As mentioned before, under Item 1 of Paragraph 3 of Article 50 of the Law on Tax Administration, the following fine is imposed: a fine of 10 percent calculated on the income (receipts) of the previous 12 months or a ten-fold fine in cases of hidden income, false value of goods and not registered payments for the employees due to fraudulent book-keeping. This fine must not be less than 20,000 litas.

Under Item 2 of Paragraph 3 of Article 50 of the Law on Tax Administration the following fine is imposed: a fine of 10 percent calculated on the income (receipts) of the previous 12 months or a ten-fold fine in cases of hidden income, false value of goods and not registered payments for the employees due to fraudulent book-keeping. This fine must not be less than 50,000 litas.

While deciding whether Items 1 and 2 of Paragraph 3 of Article 50 of the Law on Tax Administration establishing the said sizes of fines are in conformity with the Constitution, one should take account of the fact that under Item 15 of Article 67 of the Constitution, the Seimas shall “establish State taxes and other obligatory payments”. The said norm of the Constitution also presupposes a constitutional duty of the taxpayer to pay the established taxes in due time. Taxes are a necessary condition of the functioning of the state, therefore, the constitutional duty to pay taxes established in laws is entrenched in laws as a requirement by the state meant for all taxpayers. The taxpayer must transfer part of his property which is expressed in a certain amount of money into the state (municipal) budget, as, otherwise, the public interest and the rights and interests of other persons protected by law would be infringed.

It needs to be noted that in an attempt to secure the fulfilment of the duty to pay taxes, the state is entitled to establish legal liability for violations of tax laws, as well as types of such liability, respective penalties, and fines which may be imposed on natural and legal persons who have violated tax laws.

6. Although under the Constitution the Seimas is granted competence to establish state taxes, as well as legal liability for violations of tax laws, however, it does not mean that the legislature may establish any type of legal liability or any type of penalties or fines of any size for violations of tax laws. By establishing sizes of fines for violations of tax laws, the legislature is bound by the constitutional principles of justice and a state under the rule of law, as well as other constitutional requirements.

As mentioned before, the constitutional principles of justice and a state under the rule of law also mean that that there must be a fair balance (proportion) between the objective sought and the means to attain this objective, between violations of law and penalties established for these violations. These principles do not permit establishing such penalties for violations of law, as well as such sizes of the fines, which would evidently be disproportional (inadequate) to the violation of law and the objective sought. Thus, conforming to the constitutional principles of justice and a state under the rule of law, the fines established in laws for violations of tax laws must be of such a size which is necessary to achieve the legitimate and commonly important objective, i.e. to secure the fulfilment of the constitutional duty to pay taxes.

7. When it is decided whether the provisions of Items 1 and 2 of Paragraph 3 of Article 50 of the Law on Tax Administration which establish minimal sizes of the fines are in compliance with the constitutional principles of justice and a state under the rule of law, the fact becomes of essential importance that under the said provisions the size of the fine is established as a certain portion (expressed in percentage, i.e. 10 percent, or a fine of ten-fold size), and as a certain strictly determined amount, i.e. regardless of the fact as to what amount is made by the said 10 percent or said fine of ten-fold size, in all cases the fine may not be less than 20,000 or 50,000 litas respectively.

It needs to be noted that the said two principles of establishment of the sizes of fines—as a relative size and as a strictly defined amount—provided for in Items 1 and 2 of Paragraph 3 of Article 50 of the Law on Tax Administration are not coordinated with each other, i.e. they deny each other.

After the said sizes of fines had been established, a legal situation occurred when for the same violations of laws a fine is imposed on certain economic entities, which may even be higher than 20,000 or 50,000 litas respectively, but it will not constitute more than 10 percent of the income (receipts) received during the previous 12 months, while the fine of 20,000 or 50,000 litas imposed respectively on the other economic entities would constitute much more than 10 percent of the income (receipts) received during the previous 12 months. Such a fine may even be much higher than the overall income (receipts) received during the previous 12 months.

A similar legal situation also occurs when under Items 1 and 2 of Paragraph 3 of Article 50 of the Law on Tax Administration a ten-fold fine in cases of hidden income, false value of goods and not registered payments for the employees due to fraudulent book-keeping imposed on certain economic entities, even though the fine might be higher than 20,000 or 50,000 litas respectively, would not constitute more than the said ten-fold amount, while the fine of 20,000 or 50,000 litas imposed on other economic entities may exceed the said ten-fold amount. Such a fine might be many times bigger than the said ten-fold amount.

Such legal regulation is incompatible with the principles of justice and a state under the rule of law established in the Constitution.

Taking account of the arguments set forth, is should be concluded that the provision that the fine must not be “less than 20,000 litas” of Item 1 and the provision that the fine must not be “less than 50,000 litas” of Item 2 of Paragraph 3 of Article 50 of the Law on Tax Administration conflict with the principles of justice and a state under the rule of law entrenched in the Constitution.

8. It is maintained in the petition of the petitioner that Article 50 of the Law on Tax Administration conflicts with Article 1 of the Constitution.

Article 1 of the Constitution provides that the State of Lithuania shall be an independent and democratic republic. As mentioned before, in this article of the Constitution, the fundamental principles of the State of Lithuania are established. Items 1 and 2 of Paragraph 3 of Article 50 of the Law on Tax Administration regulate different relations, i.e. those of liability for violations of tax laws. Taking account of this, the conclusion should be drawn that the provision that “this fine must not be less than 20,000 litas” of Item 1 and the provision that the fine must not be “less than 50,000 litas” of Item 2 of Paragraph 3 of Article 50 of the Law on Tax Administration are in compliance with Article 1 of the Constitution.

9. According to the petitioner, Article 50 of the Law on Tax Administration conflicts with Article 67 of the Constitution.

As mentioned before, subsequent to the petition of the petitioner, the Constitutional Court will investigate whether the provisions of Items 1 and 2 of Paragraph 3 of Article 50 of the Law on Tax Administration wherein the minimal sizes of fines are established are in compliance not with whole Article 67 of the Constitution but with Item 2 of Article 67 of the Constitution wherein it is provided that the Seimas shall enact laws.

One of the most important functions of the Seimas is legislation. By passing a law amending and setting down Article 50 of the Law on Tax Administration anew, the Seimas implemented the competence to enact laws established for it by the Constitution. The possibility of a conflict of a law enacted by the Seimas with the Constitution in itself does not mean that the enactment of such a law violates Item 2 of Article 67 of the Constitution wherein the competence of the Seimas to enact laws is established.

10. It is maintained in the petition of the petitioner—a group of Seimas members—that Article 50 of the Law on Tax Administration conflicts with Paragraphs 1, 2 and 3 of Article 46 of the Constitution.

As mentioned before, in Paragraphs 1, 2 and 3 of Article 46 of the Constitution the principles establishing the constitutional basis of economy of this country are entrenched. Paragraph 1 of the same article provides that “Lithuania’s economy shall be based on the right to private ownership, freedom of individual economic activity, and initiative”, Paragraph 2 thereof provides that “the State shall support economic efforts and initiative which are useful to the community”, while Paragraph 3 thereof stipulates that “the State shall regulate economic activity so that it serves the general welfare of the Nation”.

By means of the impugned provisions of Items 1 and 2 of Paragraph 3 of Article 50 of the Law on Tax Administration different relations are regulated, i.e. those of liability for violations of laws. Taking account of this, the conclusion should be drawn that the provision that the fine must not be “less than 20,000 litas” of Item 1 and the provision that the fine must not be “less than 50,000 litas” of Item 2 of Paragraph 3 of Article 50 of the Law on Tax Administration are in compliance with Paragraphs 1, 2 and 3 of Article 46 of the Constitution.

III

On the compliance of the provision of Paragraph 3 of Article 50 of the Law on Tax Administration by which the employees or owners of the economic entity responsible for correct computation and payment of tax into the state (municipal) budget or funds shall be brought to administrative or criminal liability, while for violations specified in Items 2, 5, 6, 7 and 13 of Article 49 of this law fines shall also be imposed on economic entities—enterprises, establishments and organisations—in cases when the violations of tax laws specified in Article 49 of this law were committed by an economic entity—a person without the rights of a legal person, with Paragraph 1 of Article 29 of the Constitution and the principle of justice established in the Constitution.

1. Paragraph 3 of Article 50 of the Law on Tax Administration provides: “In cases when the violations specified in Article 49 are committed by an economic entity—a legal person or a person without the rights of a legal person, the employees or owners of the economic entity responsible for correct computation and payment of tax into the state (municipal) budget or funds shall be brought to administrative or criminal liability. For violations specified in Items 2, 5, 6, 7 and 13 of Article 49 of this law fines shall also be imposed on economic entities—enterprises, establishments and organisations: <…>”.

2. The petitioner—the Higher Administrative Court—doubts whether Paragraph 3 of Article 50 of the Law on Tax Administration to the extent that liability is established for individual (personal) enterprises (i.e. economic entities without the rights of a legal person) and their employees and owners is in conformity with the principle of justice enshrined in the Constitution and the principle of equality of persons established in Paragraph 1 of Article 29 of the Constitution. The doubt of the petitioner is based on the fact that when the said violations of tax laws are committed by an individual (personal) enterprise, then the types of liability established in Paragraph 3 of Article 50 of the Law on Tax Administration are applied to the same subject of law—the owner of an individual (personal) enterprise (as the assets of an individual (personal) enterprise may not be separated from its owner’s private assets), meanwhile, in cases when these violations are committed by an enterprise having the rights of a legal person, the types of this liability are applied to different subjects of private ownership law, i.e. to the enterprise and its employee (as enterprises having the rights of a legal person are of limited liability).

3. The laws of the Republic of Lithuania provide that certain economic entities do not have the rights of a legal person. Individual (personal) enterprises are not the only economic entities without the rights of a legal person. In addition, attention ought to be paid to the fact that in the impugned provision individual (personal) enterprises by no means are singled out from all economic entities (enterprises, establishments, organisations) which do not have the rights of a legal person. The wording used in the law “economic entity—<…> person without the rights of a legal person” also includes individual (personal) enterprises as well as other economic entities without the rights of a legal person.

The impugned provision of Paragraph 3 of Article 50 of the Law on Tax Administration is linked with the other norms of the same paragraph as well as the legal norms established in other articles of the same law, which also regulate relations of liability for violations of tax laws (norms establishing sizes of fines, the procedure of their imposition and exaction, the legal means of protection of economic entities brought to liability etc.). The petitioner—the Higher Administrative Court—does not impugn the compliance of the other norms of the Law on Tax Administration regulating relations of liability for violations of tax laws with the Constitution, therefore, in this case the Constitutional Court will not investigate the overall legal regulation of liability of economic entities without the rights of a legal person for violations of tax laws, which is established in the Law on Tax Administration.

Pursuant to the petition of the petitioner—the Higher Administrative Court—the Constitutional Court will investigate whether the provision of Paragraph 3 of Article 50 of the Law on Tax Administration, by which the employees or owners of the economic entity responsible for correct computation and payment of tax into the state (municipal) budget or funds shall be brought to administrative or criminal liability, while for violations specified in Items 2, 5, 6, 7 and 13 of Article 49 of this law fines shall also be imposed on economic entities—enterprises, establishments and organisations—in cases when the violations of tax laws specified in Article 49 of this law were committed by an economic entity—a person without the rights of a legal person, is in compliance with Paragraph 1 of Article 29 of the Constitution and the principle of justice established in the Constitution.

4. Article 29 of the Constitution provides:

All persons shall be equal before the law, the court, and other State institutions and officers.

A human being may not have his rights restricted in any way, or be granted any privileges, on the basis of his or her sex, race, nationality, language, origin, social status, religion, convictions, or opinions.”

By means of these constitutional norms the principle of the equality of all persons is established. This principle obligates one to apply a uniform legal assessment to homogeneous facts and prohibits against any arbitrary assessment of essentially homogeneous facts in a varied manner. Alongside, this constitutional principle does not deny the fact that different legal regulation may be established in respect to categories of certain persons that are in different situations (the Constitutional Court’s rulings of 24 January 1996 and 8 May 2000). However, this principle of the constitutional equality of persons is violated when a certain group of persons to which the legal norm is applied, if compared to other addressees of the same legal norm, is treated differently, even though there are not any differences in their character and the extent between these groups that such an uneven treatment could be objectively justified (the Constitutional Court’s ruling of 20 November 1996).

The Constitutional Court has also held that the principle of the equality of all persons established in Article 29 of the Constitution should be applied not only with respect to natural but legal persons as well (the Constitutional Court’s rulings of 28 February 1996, 18 April 1996, and 23 February 2000).

5. Paragraph 3 of Article 50 of the Law on Tax Administration regulates different relations between different entities.

On the one hand, Paragraph 3 of Article 50 of the Law on Tax Administration provides that for the violations specified in Items 2, 5, 6, 7 and 13 of Article 49 of this law fines shall be imposed on economic entities—legal persons or persons without the rights of a legal person; the sizes of these fines are established in Items 1 and 2 of Paragraph 3 of Article 50 of the said law. Due to such violations taxes provided for in laws are not paid into the state (municipal) budget or funds. Thus, public and state interests are damaged or there appears a threat that such damage will be done. After liability for the aforementioned violations of tax laws has been established for economic entities, the relations between economic entities and the state (municipality) and its institutions are protected.

On the other hand, Paragraph 3 of Article 50 of the Law on Tax Administration provides for the possibility that the employees or owners of an economic entity responsible for correct computation and payment of tax into the state (municipal) budget or funds shall be brought to administrative or criminal liability. Administrative or criminal sanctions for the aforementioned employees or owners of economic entities are provided for not in this but other administrative or penal laws. By establishing administrative or criminal liability for the employees or owners of economic entities responsible for correct computation and payment of tax into the state (municipal) budget or funds, the legal relations between the aforesaid employees or owners of economic entities and the state (municipality) and its institutions but not between economic entities and the state (municipality) and its institutions are protected.

Economic entities on the one hand, and their employees or owners responsible for correct computation and payment of tax into the state (municipal) budget or funds on the other hand, take part in different legal relations with the state. The subjects of the said violations of law (as well as liability for such violations) are also different. Thus, Paragraph 3 of Article 50 of the Law on Tax Administration provides for different types of liability for different violations of law.

6. In cases when an economic entity is brought to liability for the violations of tax laws, specified in Paragraph 3 of Article 50 of the Law on Tax Administration, in fact negative legal effects appear which concern its owner (owners). In cases when the economic entity is without the rights of a legal person, its property is not separate from that of its owner (owners). According to the petitioner, it is this circumstance which determines that in case the economic entity is without the rights of a legal person, then the types of liability established in Paragraph 3 of Article 50 of the Law on Tax Administration are applied to the subject of private ownership law, i.e. the owner of the individual (personal) enterprise.

7. As mentioned before, under the laws of the Republic of Lithuania, individual (personal) enterprises are not the only economic entities without the rights of a legal person, while in the impugned provision of Paragraph 3 of Article 50 of the Law on Tax Administration individual (personal) enterprises are by no means singled out from all the other economic entities (enterprises, establishments, organisations) without the rights of a legal person.

In the course of the investigation into whether the impugned provision is in compliance with the principle of equality established in Paragraph 1 of Article 29 of the Constitution, the circumstance becomes important that in certain cases the owner of an economic entity may, at the same time, be the person responsible in the respective enterprise, establishment or organisation for correct computation of tax and its payment into the state (municipal) budget and funds. The fact, however, whether the owner of an economic entity himself or any other employee of this enterprise, establishment or organisation is responsible for correct computation of tax and its payment into the state (municipal) budget and funds, should not be linked with the fact whether a particular economic entity is a legal person or whether it is without the rights of a legal person. For example, it may also be possible that the owner (or one of the owners) of an economic entity which is a legal person either is or is not the person responsible for correct computation of tax and its payment into the state (municipal) budget and funds. Also, it may be possible that the owner of an economic entity without the rights of a legal person is responsible himself for correct computation of tax and its payment, but it may also be possible that another employee of this enterprise, establishment or organisation is responsible for this, who, as provided for in Paragraph 3 of Article 50 of the Law on Tax Administration, may be brought to administrative or criminal liability.

It needs also to be noted that economic entities (whether having the rights of a legal person or not) and their owners (employees) are not identical participants of tax relations. Therefore, there are no legal grounds to maintain that, as a participant of the legal relation, the subject of the administrative or criminal liability to which natural persons—employees or owners of enterprises, establishments or organisations responsible for correct computation of tax and its payment into the state (municipal) budget or funds—are brought for violations of tax laws, coincides with the subject of liability established for these enterprises, establishments and organisations. This is also true in cases when the economic entity is without the rights of a legal person.

8. As mentioned before, the legal regulation under which the employees or owners of an economic entity responsible for correct computation and payment of tax into the state (municipal) budget or funds are brought to liability regulates different relations between different entities. The principle is established in Article 29 of the Constitution that all persons are equal before the law, the court, and other state institutions and officers, as well as the fact that laws may provide for different legal treatment with respect to certain groups of persons which are in different situations in themselves do not presuppose that legal norms must provide for different liability for violations of tax laws with respect to economic entities which are legal persons and the economic entities without the rights of a legal person. Paragraph 3 of Article 50 of the Law on Tax Administration provides for the same liability for all economic entities (both legal persons and persons without the rights of a legal person) for the violations specified in Items 1 and 2 of the same paragraph. Alongside, the same administrative or criminal liability is provided for all the employees or owners of economic entities responsible for correct computation of tax and its payment into the state (municipal) budget and funds to which they are brought in cases when they commit deeds which correspond to administrative violations of law or to crimes specified in respective articles of the CAVL and CC. Thus, by the established legal regulation the principle of equality of all persons enshrined in Article 29 of the Constitution is not violated.

9. Taking account of the arguments set forth, it should be concluded that the provision of Paragraph 3 of Article 50 of the Law on Tax Administration that in cases when the employees or owners of an economic entity responsible for correct computation and payment of tax into the state (municipal) budget or funds committed violations of tax laws specified in Article 49 of the said law shall be brought to administrative or criminal liability, while for violations specified in Items 2, 5, 6, 7 and 13 of Article 49 of this law fines shall also be imposed on economic entities—enterprises, establishments and organisations—is in compliance with Paragraph 1 of Article 29 of the Constitution.

10. As mentioned before, the petitioner—the Higher Administrative Court—doubts whether Paragraph 3 of Article 50 of the Law on Tax Administration to the extent that it establishes liability for individual (personal) enterprises (i.e. economic entities—persons without the rights of a legal person) and their employees or owners is in conformity with the principle of justice entrenched in the Constitution.

11. It needs to be emphasised that the constitutional principle of justice in itself does not mean that persons who have committed violations of law should not be brought to legal liability, let alone that transgressors may be pardoned from such liability otherwise than provided in laws.

As held in this ruling, Paragraph 3 of Article 50 of the Law on Tax Administration provides for different types of liability as well as that the impugned provision does not violate the constitutional principle of equality of persons.

12. Taking account of the arguments set forth, it should be concluded that the provision of Paragraph 3 of Article 50 of the Law on Tax Administration by which the employees or owners of the economic entity responsible for correct computation and payment of tax into the state (municipal) budget or funds shall be brought to administrative or criminal liability, while for violations specified in Items 2, 5, 6, 7 and 13 of Article 49 of this law fines shall also be imposed on economic entities—enterprises, establishments and organisations—in cases when the violations of tax laws specified in Article 49 of this law were committed by an economic entity—a person without the rights of a legal person, is in compliance with the principle of justice established in the Constitution.

IV

On the compliance of the provision “legal acts by which the interest arising out of failure to notify in due time the tax administrator about the facts concerning paid amounts is abolished shall be applicable for the violations of law committed prior to the entry into effect of these legal acts, however, only in the event that this interest has not been exacted or paid” of Paragraph 9 of Article 50 of the Law on Tax Administration with Article 29 of the Constitution.

1. By Article 3 of the Republic of Lithuania’s Law “On Supplementing and Amending Articles 39 and 50 of the Law on Tax Administration” Article 50 of the Law on Tax Administration was supplemented with Paragraph 9 wherein it was provided:

9. The legal acts by which the interest arising out of failure to notify in due time the tax administrator about the facts concerning paid amounts is abolished shall be applicable for the violations of law committed prior to the entry into effect of these legal acts, however, only in the event that this interest has not been exacted or paid. The decision to reckon in the interest because of the facts not duly notified shall be adopted by decision of the tax administrator or the institution considering the tax dispute.”

2. The petitioner—the Higher Administrative Court—has doubts whether the provision “legal acts by which the interest arising out of failure to notify in due time the tax administrator about the facts concerning paid amounts is abolished shall be applicable for the violations of law committed prior to the entry into effect of these legal acts, however, only in the event that this interest has not been exacted or paid” of Paragraph 9 of Article 50 of the Law on Tax Administration is in conformity with Article 29 of the Constitution. Under this provision, it happens that the taxpayer who has not fulfilled his duty to pay the interest is in a more advantageous situation if compared with the taxpayers who have fulfilled this duty. In the opinion of the petitioner, thereby the equality of taxpayers is violated.

3. The Seimas, in the course of the realisation of its constitutional competence to enact laws, is entitled to establish as to what deeds are considered violations of law and what sanctions must be applied to the legal and natural persons who have violated legal norms, and also to provide for situations when the persons who have violated legal norms are not brought to liability. It is also entitled to abolish liability for certain violations of law or to mitigate sanctions provided for these violations.

By means of the impugned provision, two types of relations are regulated. In case the interest arising out of failure to notify in due time the tax administrator about the facts concerning paid amounts is exacted or paid, the legal relations of the liability for the failure to fulfil of the said duty are terminated. In case the interest is not exacted or paid, the legal relations of the liability persist. Due to this, the legal situation of subjects of the said legal relations of different types is different.

As mentioned before, the principle of equality of all persons before the law established in Article 29 of the Constitution obligates one to apply a uniform legal assessment to homogeneous facts and prohibits against any arbitrary assessment of essentially homogeneous facts in a varied manner. This constitutional principle is not violated if the norms abolishing or establishing milder sanctions are designated for the legal relations that still persist but not for those that have ended.

4. Taking account of the arguments set forth, it should be concluded that the provision “legal acts by which the interest arising out of failure to notify in due time the tax administrator about the facts concerning paid amounts is abolished shall be applicable for the violations of law committed prior to the entry into effect of these legal acts, however, only in the event that this interest has not been exacted or paid” of Paragraph 9 of Article 50 of the Law on Tax Administration is in compliance with Article 29 of the Constitution.

V

On the compliance of the provision of Paragraph 5 of Article 27 of the Law on Tax Administration determining that the Minister of Finance establishes the procedure for supplementation of accounting documents with lacking requisites with Paragraph 3 of Article 127 and Article 5 of the Constitution.

1. Paragraph 5 of Article 27 of the Law on Tax Administration provides: “In cases when in the course of inspection it is established that an accounting document presented by the taxpayer is not legally valid as it lacks one or several mandatory requisites established in normative acts, the official of the tax administrator shall permit supplementing the document under the procedure established by the Minister of Finance. The document supplemented with the lacking requisites during the established time period shall be held as having legal validity and economic sanctions shall not be applied.”

2. Pursuant to the petition of the petitioner—the Higher Administrative Court—the Constitutional Court will investigate the conformity of the provision of Paragraph 5 of Article 27 of the Law on Tax Administration commissioning the Minister of Finance to establish the procedure for supplementation of accounting documents with lacking requisites with Paragraph 3 of Article 127 and Article 5 of the Constitution.

3. Paragraph 3 of Article 127 of the Constitution provides that “taxes, other budgetary payments, and dues shall be established by means of laws of the Republic of Lithuania”. It is established in this norm of the Constitution by what type of a legal act it is permitted to establish taxes, i.e. this may be done only by law. This constitutional norm also means (if one takes account of Items 2 and 15 of Article 67 of the Constitution) that establishment of taxes is within the competence of the Seimas. It is not enough to levy taxes as duties so that taxes will be paid and collected properly. It is also necessary to regulate the relations linked with the organisational questions of tax administration etc. Thus, legal regulation of taxes is not only their establishment by law but the procedure of their implementation as well, which may be regulated by means of substatutory acts (the Constitutional Court’s ruling of 15 March 2000).

Paragraph 5 of Article 27 of the Law on Tax Administration regulates different relations from those regulated in Paragraph 3 of Article 127 of the Constitution. Paragraph 5 of Article 27 of the Law on Tax Administration regulates relations connected with supplementation of accounting documents which are not legally valid because of the lack of one or several mandatory requisites established in normative acts.

Taking account of the arguments set forth, it should be concluded that the provision of Paragraph 5 of Article 27 of the Law on Tax Administration determining that the Minister of Finance establishes the procedure for supplementation of accounting documents with lacking requisites is in compliance with Paragraph 3 of Article 127 of the Constitution.

4. Article 5 of the Constitution provides:

In Lithuania, the powers of the State shall be exercised by the Seimas, the President of the Republic and the Government, and the Judiciary.

The scope of powers shall be defined by the Constitution.

State institutions shall serve the people.”

In this article of the Constitution the principle of the separation, interdependence and balance of branches of state power is established. The powers of concrete state institutions are directly established in the Constitution. The direct establishment of the powers in the Constitution means that no state institution is permitted to take over such powers from another institution, nor transfer or waive such powers. Such powers may not be changed or limited by law (the Constitutional Court’s ruling of 21 April 1998).

The Constitution does not provide that the establishment of the procedure for the supplementation of accounting documents with lacking requisites is categorised as belonging either only to the competence of the Seimas or any other state institution. Therefore, the Seimas, enjoying the constitutional powers to enact laws and establish taxes, also enjoys the powers to determine as to what state institution must regulate the relations of tax administration and establish the procedure for supplementation of accounting documents with lacking requisites. The impugned provision of Paragraph 5 of Article 27 of the Law on Tax Administration provides that the said procedure is established by the Minister of Finance.

Taking account of the arguments set forth, it should be concluded that the provision of Paragraph 5 of Article 27 of the Law on Tax Administration determining that the Minister of Finance establishes the procedure for supplementation of accounting documents with lacking requisites is in compliance with Article 5 of the Constitution.

Conforming to Article 102 of the Constitution of the Republic of Lithuania and Articles 53, 54, 55 and 56 of the Law on the Constitutional Court of the Republic of Lithuania, the Constitutional Court of the Republic of Lithuania gives the following

ruling:

1. To recognise that Articles 1 and 2 of the Republic of Lithuania’s Law “On the Recognition of Article 40 as Null and Void and an Amendment to Article 251 of the Code of Administrative Violations of Law” are in compliance with the Constitution of the Republic of Lithuania.

2. To recognise that provision that the fine must not be “less than 20,000 litas” of Item 1 and the provision that the fine must not be “less than 50,000 litas” of Item 2 of Paragraph 3 of Article 50 of the Republic of Lithuania’s Law on Tax Administration conflict with the principles of justice and a state under the rule of law entrenched in the Constitution of the Republic of Lithuania.

3. To recognise that the provision of Paragraph 3 of Article 50 of the Republic of Lithuania’s Law on Tax Administration, by which the employees or owners of the economic entity responsible for correct computation and payment of tax into the state (municipal) budget or funds shall be brought to administrative or criminal liability, while for violations specified in Items 2, 5, 6, 7 and 13 of Article 49 of this law fines shall also be imposed on economic entities—enterprises, establishments and organisations—in cases when the violations of tax laws specified in Article 49 of this law were committed by an economic entity—a person without the rights of a legal person, is in compliance with the Constitution of the Republic of Lithuania.

4. To recognise that the provision “legal acts by which the interest arising out of failure to notify in due time the tax administrator about the facts concerning paid amounts is abolished shall be applicable for the violations of law committed prior to the entry into effect of these legal acts, however, only in the event that this interest has not been exacted or paid” of Paragraph 9 of Article 50 of the Republic of Lithuania’s Law on Tax Administration is in compliance with the Constitution of the Republic of Lithuania.

5. To recognise that that the provision of Paragraph 5 of Article 27 of the Republic of Lithuania’s Law on Tax Administration determining that the Minister of Finance establishes the procedure for supplementation of accounting documents with lacking requisites is in compliance with the Constitution of the Republic of Lithuania.

This ruling of the Constitutional Court is final and not subject to appeal.

The ruling is pronounced in the name of the Republic of Lithuania.

Justices of the Constitutional Court:

 

Egidijus Kūris      Zigmas Levickis      Augustinas Normantas

 

Vladas Pavilonis      Jonas Prapiestis      Vytautas Sinkevičius

 

Stasys Stačiokas     Teodora Staugaitienė