Lt

On VAT payers

Case No. 53/01

 

THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA

RULING

ON THE COMPLIANCE OF ITEM 11 OF THE PROCEDURE OF REGISTRATION OF VALUE ADDED TAX PAYERS AS CONFIRMED BY ITEM 2.4 OF THE RESOLUTION OF THE GOVERNMENT OF THE REPUBLIC OF LITHUANIA (NO. 546) “ON VALUE ADDED TAX” OF 9 MAY 1996 WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA AND PARAGRAPH 3 (WORDINGS OF 7 APRIL 1994 AND 14 OCTOBER 1997) OF ARTICLE 6 AND ARTICLE 15 (WORDING OF 22 DECEMBER 1993) OF THE REPUBLIC OF LITHUANIA’S LAW ON VALUE ADDED TAX

 

2 September 2004

Vilnius

 

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Armanas Abramavičius, Egidijus Jarašiūnas, Egidijus Kūris, Kęstutis Lapinskas, Zenonas Namavičius, Augustinas Normantas, Jonas Prapiestis, Vytautas Sinkevičius, and Stasys Stačiokas

The court reporter—Daiva Pitrėnaitė

Paulius Majauskas, the Head of the Tax Administration Department of the Tax Department at the Ministry of Finance of the Republic of Lithuania, acting as the representative of the Government of the Republic of Lithuania, the petitioner

The Constitutional Court of the Republic of Lithuania, pursuant to Articles 102 and 105 of the Constitution of the Republic of Lithuania, and Article 1 of the Law on the Constitutional Court of the Republic of Lithuania, in its public hearing, on 19 August 2004, considered case No. 53/01 subsequent to the petition of the Supreme Administrative Court of Lithuania, the petitioner, requesting an investigation into whether Item 11 of the Procedure of Registration of Value Added Tax Payers, as confirmed by the Resolution of the Government of the Republic of Lithuania (No. 546) “On Value Added Tax” of 9 May 1996, was not in conflict with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution of the Republic of Lithuania and Paragraph 3 of Article 6 of the Republic of Lithuania’s Law on Value Added Tax (the wording which was effective till the adoption of law No. III-764 of 2 June 1998).

The Constitutional Court

has established:

I

The Supreme Administrative Court of Lithuania, the petitioner, considered an administrative case. The court suspended the consideration of the case by its ruling and applied to the Constitutional Court with the petition requesting an investigation into whether Item 11 of the Procedure of Registration of Value Added Tax Payers (hereinafter also referred to as the Procedure) as confirmed by the Government Resolution (No. 546) “On Value Added Tax” of 9 May 1996 (Official Gazette Valstybės žinios, 1996, No. 44-1081, hereinafter also referred to as the government resolution of 9 May 1996) was not in conflict with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution and Paragraph 3 of Article 6 of the Law on Valued Added Tax (hereinafter also referred to as the Law; the wording which was effective till the adoption of law No. VIII-764 of 2 June 1998).

II

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

1. According to Item 15 of Article 67 of the Constitution the Seimas establishes state taxes and other obligatory payments, and according to Paragraph 3 of Article 127 of the Constitution the Seimas performs this function by adopting laws. The basic elements of a tax, such as a taxable object, subjects of tax relations, their rights and obligations, sizes (tariffs) of a tax, payment periods, exceptions and preferences should be established by law.

The Law on Value Added Tax defines the object which is subject to value added tax (hereinafter also referred to as VAT), the persons who pay the tax, the tariffs of the tax, the procedure of calculation of the tax, etc. In Paragraph 3 (the wording which was effective till the adoption of law No. VIII-764 of 2 June 1998) of Article 6 of the Law a rule was established, pursuant to which the persons who had not registered themselves as VAT payers, and whose income for the sold goods or provided services exceeded LTL 50 thousand, had to calculate VAT starting at the month when such exceeding occurred and pay it to the budget under common procedure. In the opinion of the petitioner, this means that a subject that has not registered oneself as VAT payer should have been applied common rules established by the Law, which set down VAT tariffs and the procedure of tax calculation.

2. In Item 11 (the wording which was effective till 1 January 1999) of the Procedure of Registration of Value Added Tax Payers as confirmed by the Government Resolution (No. 546) “On Value Added Tax” of 9 May 1996 it was prescribed that the persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year must calculate VAT according to the tariff equal to 15.25 (8.26) percent of the value of the sold goods (provided services), starting at the month when the income from sales exceeded LTL 50 thousand, and have no right to indicate VAT in the invoices, as well the right to deduct VAT for the purchased goods (received services) from the sum of VAT calculated for the sold goods (provided services).

3. In the opinion of the petitioner, Item 11 of the Procedure established a special procedure of VAT calculation and payment in regard to a subject that has not registered oneself as VAT payer; according to it such a tax payer was applied exceptions to the general rules of VAT calculation and payment established by the Law. Therefore, the petitioner had doubts whether Item 11 of the Procedure was not in conflict with Paragraph 3 of Article 6 of the Law on Value Added Tax (the wording which was effective till the adoption of law No. VIII-764 of 2 June 1998), as well as Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution.

III

In the course of the preparation of the case for the Constitutional Court’s hearing, written explanations were received from the representatives of the Government, the party concerned, who were Paulius Majauskas, the Head of the Tax Administration Department of the Tax Department at the Ministry of Finance, and Leonora Žukienė, the Head of the Legal Division of the State Tax Inspectorate under the Ministry of Finance, in which it is stated that Item 11 of the Procedure was not in conflict with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution and Paragraph 3 of Article 6 of the Law.

1. P. Majauskas, the representative of the party concerned, submitted the following explanations.

1.1. According to Paragraph 3 of Article 127 of the Constitution, a new tax may be introduced only upon adoption of a respective law, and according to Item 15 of Article 67 of the Constitution, a new tax may only be established when the Seimas adopts a respective legal act. In Item 11 of the Procedure no new tax is established, but the procedure of calculation of the tax already established by the Seimas is confirmed. Introduction of new taxes and regulation of the procedure of calculation of already introduced taxes are two different issues, therefore, Item 11 of the Procedure was not in conflict with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution.

1.2. The Government enjoyed the powers to adopt the resolution of 9 May 1996 and to establish the procedure of VAT calculation, as in Article 40 of the Law, which was effective at that time, the following was set down: “Pursuant to this Law the Government of the Republic of Lithuania until 20 April 1994 issues an instruction on calculation and payment of value added tax.” It is specified in the Preamble to the government resolution of 9 May 1996 that this resolution has been adopted pursuant to the Law on Value Added Tax. Thus, the Government, when passing the aforementioned resolution, only performed the obligation imposed on it by the legislature to set down the procedure of payment of the tax already established by the Law. Therefore, in the opinion of the party concerned, the Government did not exceed its competence and did not violate Item 15 of Article 67 of the Constitution.

1.3. In the opinion of P. Majauskas, Item 11 of the Procedure as to its form was not in conflict with Paragraph 3 of Article 6 of the Law, since the impugned item of the Procedure was aimed not at the regulation of the VAT calculation process in general, but at the specific aspect of VAT calculation—the regulation of the procedure of registration of payers of this tax. The title of the legal act, “The Procedure of Registration of Value Added Tax Payers”, Item 11 whereof is impugned, confirms that the impugned Item 11 of the Procedure is contained in the chapter “Unregistered Persons” of the Procedure, too.

1.4. In the opinion of the representative of the party concerned, Item 11 of the Procedure as to its content was also not in conflict with Paragraph 3 of Article 6 of the Law, as the “regulatory aspects were basically identical” in both legal acts. The common procedure of VAT calculation and payment thereof was laid down in the entire Law; the provisions aimed at the procedure of VAT calculation and payment thereof applied to the persons who have not registered themselves as VAT payers, were set down in the following articles of the Law:

1) in Paragraph 1 of Article 7 it was prescribed that the persons who are considered to be VAT payers in accordance with the provisions of Article 6 must register themselves as VAT payers at a state tax inspectorate; in Article 8 it was prescribed that the persons who are not VAT payers have no right to require this tax to be paid by the buyers of their goods (receivers of their services). Therefore, in the opinion of P. Majauskas, the provision of Item 11 of the Procedure that the persons who have not registered themselves as VAT payers have no right to indicate VAT in the invoices was in compliance with the provisions of the Law;

2) in Article 26 it was prescribed that the invoices for dispatched goods or provided services, which are of the form approved by the Government and are registered at territorial state tax inspectorates, should be issued to the buyers who have registered themselves as VAT payers and VAT in case of a purchase may be deducted only according to such invoices; in Article 28 it was prescribed that in case the issued VAT invoices do not meet the requirements of Article 26, the sums of VAT which should be paid to suppliers, when calculating the sum of VAT due to be paid to the budget, are not deducted. As a VAT invoice according to which VAT could have been deducted might not be issued to a company, which had not registered itself as a VAT payer, then, in the opinion of the representative of the party concerned, the provision of Item 11 of the Procedure that the persons who have not registered themselves as VAT payers have no right to deduct VAT for purchased goods (received services) from the sum of VAT for the sold goods (provided services), was in compliance with provisions of the Law;

3) in Article 14 it was prescribed that the 15.25 percent tariff is applicable when calculating VAT, if VAT for taxable goods (services) was not specified in the invoice; according to Article 26 of the Law, invoices for dispatched goods or provided services, which are of the form approved by the Government and are registered at territorial state tax inspectorates, should be issued to the buyers who have registered themselves under the established procedure as VAT payers. Since the company which did not register itself as a VAT payer could not receive and issue invoices, and indicate VAT therein, therefore, in the opinion of the representative of the party concerned, the provision of Item 11 of the Procedure that the persons who have not registered themselves as VAT payers and whose income from sales per year (during the last 12 months) exceeds LTL 50 thousand must calculate VAT according to the tariff equal to 15.25 (8.26) percent of the value of the sold goods (provided services), was in compliance with the provisions of the Law.

1.5. According to P. Majauskas, the Law differentiates the persons who have registered themselves as VAT payers from the other persons who have not registered themselves as VAT payers, but still are obliged to calculate VAT. The persons who have registered themselves as VAT payers gain certain other obligations established by the Law (obligation to calculate VAT, to submit VAT declarations, to separately account goods and services subject to VAT), however, they also acquire the right to include in deductible VAT the sums of VAT paid when purchasing goods supplied (services provided) by the sellers, if they are aimed for an activity subject to VAT, and the import VAT as well. Meanwhile, a person, who enjoys the right to calculate VAT, but has not registered himself as a VAT payer, gains no such right. The fact that the Law considers the ones who have registered themselves as VAT payers to be VAT payers is also reflected in Article 36 of the Law, which reads that if the inspection finds out that the persons listed in Paragraph 3 of Article 6 and Article 8 of the Law failed to pay VAT, and that the payers in their declarations reduced the calculated VAT or deducted too much of this tax and for this reason paid a sum thereof too small to the budget, the calculated additional sum of the tax, a penalty and late payment interest should be paid to the budget under procedure established by the Republic of Lithuania’s Law on Tax Administration.

1.6. According to the representative of the party concerned, in Item 11 of the Procedure neither the procedure of payment of the tax by the persons who have not registered themselves as VAT payers, nor any other procedure of VAT calculation, save the exception established by the Law, was set down. It only provided more details on VAT calculation. In the opinion of P. Majauskas, in both legal acts the “basic provisions linked with VAT payment” were treated in the same manner, therefore, Item 11 of the Procedure was not in conflict with Paragraph 3 of Article 6 of the Law.

2. L. Žukienė, the representative of the party concerned, submitted the following explanations.

2.1. Under Article 7 of the Law, a person, who was a VAT payer according to the provisions of Article 6 of the Law, had to register himself at a state tax inspectorate as a VAT payer. Only the person who has registered himself as a VAT payer was given a VAT payer code, only such a person would become under an obligation, upon expiry of each taxation period until the 15th day of the next month, to submit VAT declaration; only to such a person sanctions for failure to submit the declaration in due time, which were established in Article 33 of the Law, were applied.

In Paragraph 1 of Article 36 of the Law it was prescribed that if the inspection finds out that the persons named in Paragraph 3 of Article 6 and Article 8 of the Law failed to pay VAT, and that the payers in the declaration reduced the calculated VAT sum and, therefore, paid an amount thereof too small to the budget (an amount too big was repaid from the budget), an additional sum of the tax, a penalty and late payment interest are calculated. In the opinion of L. Žukienė, this provision of the Law means that in regard to the persons who have not registered themselves as VAT payers, and who are not specified as VAT payers (named in Paragraph 3 of Article 6 of the Law), the sanctions were established only for failure to pay VAT, while in regard to the persons who have registered themselves as VAT payers—for a misleading (too big) VAT report also.

According to the representative of the party concerned, the Law provided for different obligations linked with calculation of VAT size in regard to the persons who have registered themselves as VAT payers, and the persons who have to pay VAT, but have not registered themselves as VAT payers. Therefore, in the opinion of L. Žukienė, the same rules of VAT calculation could not be applied both to the persons who have not registered themselves as VAT payers and who have not fulfilled the specified in Article 7 of the Law requirement to become registered at a state tax inspectorate as VAT payers, and the persons who have fulfilled this requirement. Upon the expiry of each taxation period the persons who have not registered themselves as VAT payers and who were obliged only to pay VAT did not submit VAT declarations, the sum of VAT due to be paid to the budget was not increased for them for non-submission of the declarations. There was even no sanction established for an erroneous calculation of deduction for these persons, since they had no right to include VAT from purchase in the deductible sum.

In the opinion of L. Žukienė, if a person’s income from sales exceeded the established limit (LTL 50 thousand), and he was under an obligation to pay VAT, while he had not registered himself at a state tax inspectorate as a VAT payer, under the Law and Item 11 of the Procedure he:

1) paid VAT which was calculated according to the tariff amounting to 15.25 per cent of value of goods and services in which VAT was included;

2) calculated VAT for all the goods sold and services provided during the month, during which the limit had been exceeded;

3) had no right to indicate VAT in the invoices, nor to require it to be paid by the buyers;

4) had no right to deduct VAT from sales or import (similar to the persons who registered themselves as VAT payers).

In the opinion of the representative of the party concerned, these provisions of Item 11 of the Procedure were in line with the effective at that time Law on Value Added Tax and particularised it rather than established different conditions of VAT taxation.

2.2. By Article 40 of the Law the Seimas assigned the Government with adoption of an instruction on calculation and payment of the value added tax. According to Item 2 of Article 94 of the Constitution, the Government executes laws and resolutions of the Seimas concerning the implementation of laws, as well as the decrees of the President of the Republic. In following the Constitution and implementing Article 40 of the Law, on 9 May 1996, the Government adopted the Resolution (No. 546) “On Value Added Tax” whereby confirmed the Procedure of Registration of Value Added Tax Payers. In the opinion of L. Žukienė, when implementing the rights delegated by the Seimas, the Government performed the duties established to it by the Constitution.

IV

At the Constitutional Court’s hearing, P. Majauskas, the representative of the party concerned, virtually reiterated the arguments set down in his written explanation.

The Constitutional Court

holds that:

I

1. The petitioner requests an investigation into the compliance of Item 11 of the Procedure of Registration of Value Added Tax Payers as confirmed by the Resolution of the Government of the Republic of Lithuania (No. 546) “On Value Added Tax” of 9 May 1996 with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution and Paragraph 3 (the wording which was effective till the adoption of law No. VIII-764 of 2 June 1998) of Article 6 of the Law on Value Added Tax.

2. On 22 December 1993, the Seimas adopted the Republic of Lithuania’s Law on Additional Value Tax, in Article 37 whereof it is prescribed that this law becomes effective as of 1 April 1994.

The Law on Additional Value Tax was amended and supplemented more than once; it was amended by, inter alia, the Republic of Lithuania’s Law “On Amending the Republic of Lithuania’s Law on Additional Value Tax” adopted by the Seimas on 24 March 1994, which established a different day when the Law on Additional Value Tax was to become effective, i.e. 1 May 1994.

On 20 July 1994, the Seimas adopted the Republic of Lithuania’s Law “On Adopting and Supplementing the Republic of Lithuania’s Law on Additional Value Tax”, in Article 1 whereof the notion “additional value” (Lith. pridėtoji vertė) was replaced with “value added” (Lith. pridėtinė vertė) both in the title and the text of the Law on Additional Value Tax, which became effective on 1 August 1994 (Article 12 of the Law “On Adopting and Supplementing the Republic of Lithuania’s Law on Additional Value Tax”). Thus, since 1 August 1994 the Law on Additional Value Tax is named the Republic of Lithuania’s Law on Value Added Tax.

The Law on Value Added Tax was amended and supplemented more than once.

On 5 March 2002, the Seimas adopted the new Republic of Lithuania’s Law on Value Added Tax, in Item 1 of Article 131 whereof it was prescribed that upon coming into effect of this law, the Law on Value Added Tax, which was adopted by the Seimas on 22 December 1993, shall become no longer effective. Paragraph 1 of Article 126 of the Law on Value Added Tax, which was adopted by the Seimas on 5 March 2002, provided that this law shall become effective as of 1 July 2002. Therefore, the Law on Value Added Tax, which was adopted by the Seimas on 22 December 1993, became no longer effective as of 1 July 2002.

3. On 9 May 1996, the Government adopted the Resolution (No. 546) “On Value Added Tax”, by Item 2.4 of which it confirmed the Procedure of Registration of Value Added Tax Payers. On 15 May 1996, this government resolution was published in the Official Gazette Valstybės žinios (No. 44-1081) and it became effective on 16 May 1996.

The government resolution of 9 May 1996 was amended and supplemented more than once.

On 12 June 2002, the Government adopted the Resolution (No. 861) “On the Implementation of the Republic of Lithuania’s Law on Value Added Tax”, in Item 4.2 whereof it recognised the Government Resolution (No. 546) “On Value Added Tax” of 9 May 1996 as no longer effective. Since, under Item 5 of the Government Resolution (No. 861) “On the Implementation of the Republic of Lithuania’s Law on Value Added Tax” of 12 June 2002, this government resolution (save one exception specified therein) became effective as of 1 July 2002, thus, the Government Resolution (No. 546) “On Value Added Tax” of 9 May 1996 became no longer effective as from 1 July 2002.

4. According to Paragraph 4 of Article 69 of the Law on the Constitutional Court, the annulment of the impugned legal act is the grounds to adopt a decision to dismiss the initiated legal proceedings. In its rulings the Constitutional Court has held more than once that the formula “is the grounds to <…> dismiss the initiated legal proceedings” of Paragraph 4 of Article 69 of the Law on the Constitutional Court should be construed as the formula providing for the right of the Constitutional Court, having considered the circumstances of the case at issue, to dismiss the initiated legal proceedings in case the Constitutional Court is applied not by the courts, but by the subjects specified in Article 106 of the Constitution, but not as one stipulating that the initiated legal proceedings must be dismissed in each case, when the impugned legal act is annulled; under the Constitution, in cases when the Constitutional Court is addressed by the court which is considering a case and to which doubts arise in regard to the compliance of a law applicable in the case with the Constitution, as well as in regard to the compliance of other legal act adopted by the Seimas, the President of the Republic or the Government with the Constitution or laws, the Constitutional Court is under the duty to examine the petition of the court irrespective of the fact whether the impugned law or other legal act is effective or not.

5. It was already mentioned that the petitioner requests an investigation into the compliance of Item 11 of the Procedure of Registration of Value Added Tax Payers as confirmed by the Government Resolution (No. 546) “On Value Added Tax” of 9 May 1996 with Paragraph 3 of Article 6 of the Law of Value Added Tax (the wording which was effective till the adoption of law No. VIII-764 of 2 June 1998).

5.1. The petitioner does not specify the title of law No. VIII-764 of 2 June 1998 indicated by it. This law is the Republic of Lithuania’s Law on Amending and Supplementing Articles 5, 6, and 8 of the Law on Value Added Tax adopted on 2 June 1998 by the Seimas which (by Article 2 of this law), inter alia, amended and supplemented Article 6 (wording of 7 April 1994) of the Law on Value Added Tax. It was established in Article 4 of the Law on Amending and Supplementing Articles 5, 6, and 8 of the Law on Value Added Tax that it shall become effective as of 1 July 1998.

Taking account of the fact that the government resolution of 9 May 1996 became effective on 16 May 1996, it should be held that the petitioner doubts whether Item 11 of the Procedure is in compliance with Paragraph 3 of Article 6 of wording (wordings) of the Law on Value Added Tax to the extent that this paragraph was set forth in the wording (wordings) of 16 May 1996 to 30 June 1998.

5.2. During the period of 16 May 1996 to 30 June 1998 Paragraph 3 of Article 6 of the Law on Value Added Tax was set down in wordings: the one of 7 April 1994 and the other of 14 October 1997.

5.2.1. When Paragraph 3 (wording of 22 December 1993) of Article 6 of the Law, the title of which at that time was the Law on Additional Value Tax, was amended by Article 1 of the Republic of Lithuania’s Law “On Amending and Supplementing the Republic of Lithuania’s Law on Additional Value Tax”, which was adopted by the Seimas on 7 April 1994, in Paragraph 3 (wording of 7 April 1994) of Article 6 it was established: “If the income of these persons for the sold goods and provided services exceeds LTL 50 thousand per year, VAT should be calculated and paid to the budget under the common procedure starting at the month when the exceeding occurred.”

5.2.2. When Paragraph 3 (wording of 7 April 1994) of Article 6 of the Law on Value Added Tax was amended by Article 3 of the Republic of Lithuania’s Law on Amending Articles 4, 5, 6, 16, 17, 19, 20, 23, 25, 29, 35, and 36 of the Law on Value Added Tax, which was adopted by the Seimas on 14 October 1997, in Paragraph 3 (wording of 14 October 1997) of Article 6 it was established: “If the income (earnings) per year (during the last 12 months) of these persons from the sold goods and provided services exceed LTL 50 thousand, VAT should be calculated and paid to the budget under the common procedure starting at the month when the exceeding occurred”.

5.2.3. Upon comparing the legal regulation established in Paragraph 3 (wording of 7 April 1994) of Article 6 of the Law with the one established in Paragraph 3 (wording of 14 October 1997) of Article 6 of the Law, it becomes obvious that in Paragraph 3 (wording of 14 October 1997) of Article 6 of the Law the notions “per year” and “income” were specified in more detail: instead of the word “per year” the word and numbers “per year (during the last 12 months)” were entered, and instead of the word “income” the words “income (earnings)” were entered. Thus, identical legal regulation was established in Paragraph 3 of Article 6 of both wordings of the Law.

5.3. Thus, the petitioner has doubts as to the compliance of Item 11 of the Procedure with Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law on Value Added Tax.

6. It was established in Item 11 of the Procedure:

The persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year (during the last 12 months) must calculate VAT according to this tariff—15.25 (8.26) percent of the value of the sold goods (provided services)—starting at the month, when the income from sales exceeded LTL 50 thousand, and have no right to indicate VAT in the invoices, as well as the right to deduct VAT for the purchased goods (received services) from the sum of VAT calculated for the sold goods (provided services).”

It is clear from the legal regulation established in Item 11 of the Procedure that in this item of the Procedure a rule was established according to which the sum of VAT to be paid to the budget was calculated in regard to the persons who have not registered themselves as VAT payers. It needs to be noted that the procedure of payment of this calculated sum of VAT to the budget was not established in Item 11 of the Procedure.

7. Item 11 of the Procedure, which is impugned by the petitioner, was not amended or supplemented within the period of 16 May 1996 to 30 June 1998.

8. It has been mentioned that the petitioner has doubts concerning the compliance of Item 11 of the Procedure with Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law.

It is stated in the petition of the petitioner that in Paragraph 3 of Article 6 of the Law a rule was established, according to which the persons who did not register themselves as VAT payers and whose income for the sold goods or provided services exceeded LTL 50 thousand, starting at the month when the exceeding occurred, had to calculate VAT and pay it to the budget under common procedure, and that this means that the general rules of the Law establishing VAT tariffs and procedure of calculation should have been applied to the subject that did not register oneself as a VAT payer. In the petition of the petitioner it is also stated that in Item 11 of the Procedure a special procedure of VAT calculation and payment thereof in regard to the subject that did not register oneself as a VAT payer was established; according to it, the exceptions to the general rules of VAT calculation and payment thereof were applied in regard to such a tax payer.

Taking account of the fact that, as mentioned before, the procedure of payment of calculated VAT to the budget was not established in Item 11 of the Procedure, from the formulas of the petition of the petitioner “the general rules on the Law on Value Added Tax establishing the procedure of VAT <…> calculation and payment thereof should have been applied to the subject that did not register oneself as a VAT payer”, and “exceptions to the general rules of VAT calculation and payment thereof, which are established in the Law on Value Added tax”, the conclusion should be drawn that the petitioner had doubts not as regards the compliance of all the provisions of Item 11 of the Procedure with entire Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law, but as regards the compliance of the provision “The persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year (during the last 12 months) <…> have no right to deduct VAT for the purchased goods (received services) from the sum of VAT calculated for the sold goods (provided services)” of Item 11 of the Procedure with the provision of Paragraph 3 (wording of 7 April 1994 and 14 October 1997) of Article 6 of the Law that the persons whose income for the sold goods and provided services exceeds LTL 50 thousand “must calculate VAT <…> under the common procedure”.

9. Subsequent to the petition of the petitioner, the Constitutional Court will investigate the compliance of the provision “The persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year (during the last 12 months) <…> have no right to deduct VAT for the purchased goods (received services) from the sum of VAT calculated for the sold goods (provided services)” of Item 11 of the Procedure of Registration of Value Added Tax Payers as confirmed by the Government Resolution (No. 546) “On Value Added Tax” of 9 May 1996 with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution, as well as the provision of Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law on Value Added Tax that the persons whose income for the sold goods and provided services exceeds LTL 50 thousand “must calculate VAT <…> under the common procedure”.

It needs to be noted that the provisions of the Law on Value Added Tax in this case will be considered only in the aspect and to the extent that subsequent to the petition of the petitioner one will investigate the compliance of the provision “The persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year (during the last 12 months) <…> have no right to deduct VAT for the purchased goods (received services) from the sum of VAT calculated for the sold goods (provided services)” of Item 11 of the Procedure with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution, as well as the provision of Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law on Value Added Tax that the persons whose income for the sold goods and provided services exceeds LTL 50 thousand “must calculate VAT <…> under the common procedure”.

II

1. Paragraph 3 of Article 127 of the Constitution provides that taxes, other contributions to the budgets, and levies shall be established by means of laws of the Republic of Lithuania.

Under Item 15 of Article 67 of the Constitution the Seimas establishes state taxes and other obligatory payments.

2. When construing Paragraph 3 of Article 127 of the Constitution, the Constitutional Court in its rulings has held more than once that it is consolidated therein in what form (type) of legal act taxes are established: taxes may be established only by law.

When construing Item 15 of Article 67 of the Constitution the Constitutional Court in its rulings held that state taxes are established only by the Seimas.

Thus, under the Constitution, it is only the Seimas who may establish taxes and it may be done only by law. When establishing state taxes the principles and norms of the Constitution must be paid heed to.

In its rulings the Constitutional Court has held more than once that the essential elements of a tax, such as the taxable object, subjects of tax relations, their rights and duties, sizes (tariffs) of the tax, payment periods, exceptions and preferences, fines and late payment interest should be established only by law.

3. In order to ensure proper payment and collection of taxes, it is not sufficient only to establish taxes as the duty to the state, it is essential also to regulate the procedure of their payment, which would, inter alia, comprise procedures of tax administration, methodology of calculation of taxes, etc. Legal regulation of tax relations is not only establishment of taxes by law, but also establishment of a procedure of implementation of tax laws. It is not required in the Constitution to establish the Procedure of Enforcement of Laws on Taxes only by law: under the Constitution the procedure of implementation of tax laws, as well as the procedure of calculation of particular payable tax established by law may be established not only by law, but also by substatutory act (the Constitutional Court’s rulings of 15 March 2000 and 17 November 2003).

The Constitutional Court has also held that the substatutory acts establishing the procedure of implementation of tax laws may not contain norms establishing the legal regulation other than the one established by law or competing with the norms of the law (the Constitutional Court’s ruling of 17 November 2003).

III

On the compliance of Item 11 of the Procedure of Registration of Value Added Tax Payers as confirmed by Item 2.4 of the Government Resolution (No. 546) “On Value Added Tax” of 9 May 1996 with Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law on Value Added Tax.

1. Item 11 of the Procedure prescribed:

The persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year (during the last 12 months) must calculate VAT according to this tariff—15.25 (8.26) percent of the value of the sold goods (provided services)—starting at the month, when the income from sales exceeded LTL 50 thousand, and have no right to indicate VAT in the invoices, as well as the right to deduct VAT for the purchased goods (received services) from the sum of VAT calculated for the sold goods (provided services).”

2. It has been mentioned that it is clear from the legal regulation established in Item 11 of the Procedure that in this item of the Procedure a rule was established according to which the sum of VAT to be paid to the budget is calculated in regard to the persons who have not registered themselves as VAT payers.

Thus, the following provisions expressing the above-mentioned rule, according to which the sum of VAT to be paid to the budget is calculated in regard to the persons who have not registered themselves as VAT payers, were consolidated in Item 11 of the Procedure:

1) the persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year (during the last 12 months) must calculate VAT according to this tariff—15.25 (8.26) percent of the value of the sold goods (provided services)—starting at the month, when the income from sales exceeded LTL 50 thousand;

2) the persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year (during the last 12 months) have no right to indicate VAT in invoices, as well as the right to deduct VAT for the purchased goods (received services) from the sum of VAT calculated for the sold goods (provided services).

The petitioner doubts as to the compliance of one of the provisions expressing the above-mentioned rule, according to which the sum of VAT to be paid to the budget is calculated in regard to the persons who have not registered themselves as VAT payers, namely the provision “The persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year (during the last 12 months) <…> have no right to deduct VAT for the purchased goods (received services) from the sum of VAT calculated for the sold goods (provided services)” with the provision of Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law that the persons whose income for the sold goods and provided services exceeds LTL 50 thousand “must calculate VAT <…> under the common procedure”.

It should be stressed that the provisions of Item 11 of the Procedure comprise a single whole, and are inseparable from one another. Therefore, if one held that any single provision of Item 11 of the Procedure is in conflict with a law (part thereof) and/or the Constitution, this would mean that it was entire Item 11 of the Procedure that was in conflict with this law (part thereof) and/or the Constitution.

3. When deciding whether the provision “The persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year (during the last 12 months) <…> have no right to deduct VAT for the purchased goods (received services) from the sum of VAT calculated for the sold goods (provided services)” of Item 11 of the Procedure was not in conflict with the provision of Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law that the persons whose income for the sold goods and provided services exceeds LTL 50 thousand “must calculate VAT <…> under the common procedure”, it is necessary to find out beforehand as to what common procedure of VAT calculation was established in the Law at the specified period (i.e. from 16 May 1996 till 30 June 1998), and to investigate the compliance of the provision “The persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year (during the last 12 months) <…> have no right to deduct VAT for the purchased goods (received services) from the sum of VAT calculated for the sold goods (provided services)” of Item 11 of the Procedure with the articles (parts thereof) of the Law, in which the common procedure of VAT calculation was established during the specified period (i.e. from 16 May 1996 till 30 June 1998).

4. It needs to be noted that the common procedure of VAT calculation was not established in the provision of Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law that the persons whose income for the sold goods and provided services exceeds LTL 50 thousand “must calculate VAT <…> under the common procedure”; this procedure in various aspects was established for the period from 16 May 1996 till 30 June 1998 in various articles (parts thereof) of the Law.

In the context of the case at issue it should be stressed that all the provisions of Paragraph 3 of Article 6 (wordings of 7 April 1994 and 14 October 1997) comprise a whole, and they are inseparable from one another. Thus, if it was held that entire Item 11 of the procedure or any single provision of Item 11 of the Procedure is in conflict with any provision of Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law, this would mean that Item 11 of the Procedure is in conflict with entire Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law. Consequently, if it was held that entire Item 11 of the Procedure or any single provision of Item 11 of the Procedure is in conflict with the provision of Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law that the persons whose income for the sold goods and provided services exceeds LTL 50 thousand “must calculate VAT <…> under the common procedure”, this would mean that Item 11 of the Procedure is in conflict with entire Paragraph 3 (wording of 7 April 1994 and 14 October 1997) of Article 6 of the Law.

5. The persons who have the duty to pay VAT to the budget were specified in Article 6 of the Law.

5.1. On 16 May 1996, the following wording of Article 6 of the Law was effective:

VAT for the sold goods and provided services shall not be calculated and paid to the budget by the persons whose income from sales, excluding sales of long-term assets, which were used for more than a year, does not exceed LTL 5 thousand per year. VAT for the purchased goods or received services, paid by such persons, shall not be compensated for.

The persons whose income specified in the first paragraph of this article comprises from LTL 5 to 50 thousand per year, shall be granted the right to register themselves, upon their wish, as tax payers. Such persons shall pay VAT to the budget (VAT shall be reimbursed to them from the budget) starting at the next month after the registration.

If the income of these persons for the sold goods and provided services exceeds LTL 50 thousand per year, VAT should be calculated and paid to the budget under the common procedure starting at the month when the exceeding occurred.

VAT shall not be calculated and paid to the budget by the companies of free economic zones acting in these zones.”

5.2. It has been mentioned that when Paragraph 3 (wording of 7 April 1994) of Article 6 of the Law on Value Added Tax was amended by Article 3 of the Law on Amending Articles 4, 5, 6, 16, 17, 19, 20, 23, 25, 29, 35, and 36 of the Law on Value Added Tax, which was adopted by the Seimas on 14 October 1997, the notions “per year” and “income” were specified in more detail in Paragraph 3 (wording of 14 October 1997) of Article 6 of the Law. It has also been mentioned that the same legal regulation was established in Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law.

Article 6 (wording of 14 October 1997) of the Law was set forth as follows:

VAT for the sold goods and provided services shall not be calculated and paid to the budget by the persons whose income (earnings) from sales, excluding sales of long-term assets, which were used for more than a year, does not exceed LTL 5 thousand per year (during the last 12 months). VAT for the purchased goods or received services, paid by such persons, shall not be compensated for.

The persons whose income (earnings) specified in the first paragraph of this article comprises from LTL 5 to 50 thousand per year (during the last 12 months), shall be granted the right to register themselves, upon their wish, as tax payers. Such persons shall pay VAT to the budget (VAT shall be reimbursed to them from the budget) starting at the next month after the registration.

If the income (earnings) of these persons for the sold goods and provided services exceeds LTL 50 thousand per year (during the last months), VAT should be calculated and paid to the budget under the common procedure starting at the month when the exceeding occurred.

VAT shall not be calculated and paid to the budget by the companies of free economic zones acting in these zones.”

5.3. Article 7 (wording of 26 January 1995) of the Law used to provide:

The persons who are considered to be VAT payers under the provisions of Article 6 must register themselves as VAT payers at a state tax inspectorate.

A state tax inspectorate shall also register newly established enterprises, which predict that their income from sales will exceed the sum established in Article 6.

The farmers who are subject to the compensational tariff of VAT must also register themselves at a state tax inspectorate.”

During the period from 16 May 1996 till 30 June 1998 Article 7 of the Law was neither amended, nor supplemented.

5.4. Thus, under Articles 6 and 7 of the Law, during the period of 16 May 1996 to 30 June 1998 the following persons were obliged to pay VAT:

1) the persons whose income for the sold goods and provided services exceeded LTL 50 thousand per year (Paragraph 3 of Article 6); such persons had to register themselves as VAT payers at a state tax inspectorate (Paragraph 1 of Article 7); the obligation to pay VAT used to arise in all the cases, when the income for the sold goods and provided services exceeded LTL 50 thousand per year, irrespective of the fact whether the person had registered himself as a VAT payer at a state tax inspectorate or not (Paragraph 3 of Article 6); VAT was started to be paid at the month when the income for the sold goods and provided services exceeded LTL 50 thousand per year;

2) the persons whose income for the sold goods and provided services amounted to LTL 5 to 50 thousand per year, if they voluntarily used to register themselves as VAT payers at a state tax inspectorate (Paragraph 2 of Article 6 and Paragraph 1 of Article 7); such persons had to pay VAT to the budget starting at the next month after their registration (Paragraph 2 of Article 6).

6. VAT tariffs were established in Article 14 (wording of 23 January 1996), Paragraph 1 of Article 38 (wordings of 31 October 1995 and 16 May 1996), and Paragraph 2 of Article 38 (wording of 14 November 1996) of the Law.

6.1. The following was established in Article 14 (wording of 23 January 1996) of the Law:

VAT shall be calculated on the basis of 18 percent tariff, calculated from taxable value of the sold or imported goods (provided services), or of 15.25 percent tariff, calculated from the value of goods and services, including VAT.

The 15.25 percent tariff is applied when calculating VAT:

1) if the goods are sold (services are provided) for cash, and no VAT invoice is issued;

2) if the size of the price of goods (tariff of services) is established by state governing institutions;

3) if VAT is not indicated in the invoice for the taxable goods (services). Those, who receive the goods and services have no right to calculate VAT of the purchase in this way and to include it in the deductibles;

4) in other cases established by the Government of the Republic of Lithuania.”

6.2. The following was established in Paragraph 1 of Article 38 (wording of 31 October 1995) of the Law:

The compound feeding stuff, fish and agricultural production, with the exception of soft-coated carnivorous animals, nutrias and their fur, as well as foodstuff produced from this production, which was not subject to the general excise tax prior to VAT introduction, and which was produced by producers of the Republic of Lithuania, shall be subject to a provisional 9 percent (and in cases provided for in the second paragraph of Article 14 of this Law—8.25 percent) VAT tariff until 1 January 1997. The list of these goods shall be established by the Government of the Republic of Lithuania.”

6.3. Paragraph 1 of Article 38 (wording of 31 October 1995) of the Law was amended by Article 1 of the Law on Amending Article 38 of the Republic of Lithuania’s Law on Value Added Tax, which was adopted by the Seimas on 16 May 1996: in the amendments the taxable objects were specified in more detail.

6.4. Article 38 (wording of 16 May 1996) of the Law was supplemented by Article 2 of the Law on Supplementing Articles 25 and 38 of the Law on Value Added Tax, which was adopted by the Seimas on 14 November 1996, whereby Article 38 of the Law was supplemented with new Paragraph 1; the content of former Paragraph 1 of Article 38 (wording of 16 May 1996) remained unchanged, but it became Paragraph 2 of Article 38 (wording of 14 November 1996).

In Article 38 (wording of 14 November 1996) of the Law the same VAT tariffs were established as in Article 38 (wordings of 31 October 1995 and 16 May 1996) of the Law.

6.5. Thus, the following VAT tariffs were established in Article 14 and 38 of the Law from 16 May 1996 till 30 June 1998:

1) the 18 percent tariff calculated from the taxable value of sold or imported goods (provided services) (Paragraph 1 of Article 14);

2) the 15.25 percent tariff calculated from the value of goods and services, VAT included (Paragraph 1 of Article 14), is applied: (a) if the goods are sold (services are provided) for cash, and no VAT invoice is issued; (b) if the size of the price of goods (tariff of services) is established by state governing institutions; (c) if VAT is not indicated in the invoice for the taxable goods (services) (those who receive the goods and services have no right to calculate VAT of the purchase in this way and to include it in the deductibles); (d) in other cases established by the Government (Paragraph 2 of Article 14);

3) the provisional (until 1 January 1997) 8.26 percent tariff applicable in cases provided for in Paragraph 2 of Article 14 of the Law, when imposing the tax on the compound feeding stuff, fish and agricultural production, with the exception of soft-coated carnivorous animals, nutrias and their fur, as well as foodstuff produced from this production, which was not subject to the general excise tax prior to VAT introduction, and which were produced by producers of the Republic of Lithuania (Article 38).

7. The rule of calculation of the sum of VAT payable to the budget was established in Article 15 (wording of 22 December 1993) of the Law. It was established therein:

Upon expiry of the taxation period, VAT payers must pay to the budget the difference between the sum of VAT calculated for the sold goods and provided services and the deductible sum of VAT.”

Article 15 (wording of 22 December 1993) of the Law was not amended or supplemented.

8. The provisions according to which the sum of VAT payable to the budget was calculated were consolidated in other articles (parts thereof) of the Law, as well.

8.1. The sum which should be considered a “deductible sum of VAT” was established in Article 16 (wording of 23 January 1996) of the Law. It was established therein:

The deductible sum of VAT is a sum of VAT for the goods supplied, and services provided by a supplier, as well as the imported goods, which is included in the accounting and meant for production or sale of taxable goods, and provision of taxable services. If the goods or services which were received on credit, are paid for upon the expiry of the period of 30 calendar days, only the sum paid to suppliers for the goods supplied or services provided by them may be deducted.”

8.2. By Article 4 of the Law on Amending Articles 4, 5, 6, 16, 17, 19, 20, 23, 25, 29, 35, and 36 of the Law on Value Added Tax, which was adopted by the Seimas on 14 October 1997, the sentence: “If the goods or services which were received on credit, are paid for upon the expiry of the period of 30 calendar days, only the sum paid to suppliers for the goods supplied or services provided by them may be deducted” was excluded from Article 16 (wording of 23 January 1996). The rule established in Article 16 (wording of 23 January 1996) of the Law regarding the sum which is considered to be a “deductible sum of VAT” remained unchanged.

8.3. Paragraph 1 of Article 17 (wording of 23 January 1996) of the Law established, inter alia, that “if the deductible sum of VAT during the taxation period exceeds the sum of VAT for the sold goods and provided services, the payer may submit to a territorial state tax inspectorate an application of the established form to recover the difference. The difference shall be recovered not later than within 10 days of the date of submission of the written application by the payer, but not earlier than the beginning of the period of VAT payment to the budget, established in Article 35 of the Law.” The circumstances under which the said difference is recovered to the VAT payer were also specified in Paragraph 1 of Article 17 (wording of 23 January 1996) of the Law.

8.4. Article 17 (wording of 23 January 1996) of the Law was supplemented by Article 1 of the Republic of Lithuania’s Law on Amending Articles 17, 18, 26, 27, 28, and 41 of the Law on Value Added Tax which was adopted by the Seimas on 25 February 1997: in the amendment an additional circumstance was established under which the difference which occurred due to the fact that the deductible sum of VAT is bigger than the sum of VAT for the sold goods and provided services is recovered to the VAT payer.

8.5. Article 17 (wording of 25 February 1997) of the Law was supplemented by Article 5 of the Law on Amending Articles 4, 5, 6, 16, 17, 19, 20, 23, 25, 29, 35, and 36 of the Law on Value Added Tax, which was adopted by the Seimas on 14 October 1997: in the amendment one of the circumstances was specified in more detail, under which the difference which occurred due to the fact that the deductible sum of VAT is bigger than the sum of VAT for the sold goods and provided services is recovered to the VAT payer.

8.6. The cases in which the VAT sums due to be paid by other VAT payers may be deducted were established in Article 18 (wording of 23 January 1996) of the Law. It was established therein:

The sums of the tax which are due to be paid by other VAT payers may only be deducted if they are specified in VAT invoices. The sums of VAT for the imported goods may be deducted only when the import documents of the goods contain a respective customs mark, stating that the tax has been calculated and paid by the importer to the budget. VAT for the imported long-term assets for production may be set off under procedure established by the Government of the Republic of Lithuania.

Special shops may calculate the price of purchased goods and deduct VAT upon selling second-hand goods, which were purchased from the residents of the Republic of Lithuania, according to procedure established by the Government of the Republic of Lithuania.”

8.7. Article 18 (wording of 23 January 1996) of the Law was supplemented by Article 2 of the Law on Amending and Supplementing Articles 17, 18, 26, 27, 28, and 41 of the Law on Value Added Tax, which was adopted by the Seimas on 25 February 1997. In these amendments more details were provided about the cases when it is possible to deduct sums of VAT due to be paid by other VAT payers: “VAT sums due to be paid by other VAT payers may be deducted” also when “in cases provided for by the Government of the Republic of Lithuania they are specified <…> in other accounting documents”. In these amendments the notion “long-term assets for production” used in Article 18 (wording of 23 January 1996) of the Law was specified in more detail.

8.8. In Article 18 (wording of 23 January 1996) of the Law it was established what VAT for goods and services which was included in accounting is not deducted from the calculated sum of VAT for the sold goods and services.

8.9. Article 19 (wording of 23 January 1996) of the Law was amended by Article 6 of the Law on Amending Articles 4, 5, 6, 16, 17, 19, 20, 23, 25, 29, 35, and 36 of the Law on Value Added Tax, which was adopted by the Seimas on 14 October 1997: it was corrected as to what VAT for the sold goods and services, which was included in the accounting, is not deducted from the calculated sum of VAT for the sold goods and services.

8.10. In Article 20 (wording of 22 December 1993) of the Law it was established in what way the sum of VAT for goods and services which is included in the accounting payable to the suppliers within the taxation period is deducted in case the producer produces goods (provides services), which are taxable and non-taxable with VAT:

If the payer produces goods (provides services), which are taxable and non-taxable with VAT, the sum of VAT for goods and services (with the exceptions specified in Article 19), which is included in the accounting, payable to the suppliers within the taxation period shall be deducted in proportion to the value of the taxable and non-taxable goods (services) dispatched (provided) to the buyers within this period.

In regard to the cases listed in this article the Government of the Republic of Lithuania may establish a different procedure of VAT deduction as well.”

8.11. Article 20 (wording of 22 December 1993) of the Law was amended by Article 7 of the Law on Amending Articles 4, 5, 6, 16, 17, 19, 20, 23, 25, 29, 35, and 36 of the Law on Value Added Tax, which was adopted by the Seimas on 14 October 1997: in the amendments the procedure of deduction of the sum of VAT for the goods and services, which should be paid to the suppliers, when the payer produces goods (provides services) taxable and non-taxable with VAT, was specified in more detail.

8.12. Other cases where the paid VAT is recovered were established in Article 21 (wording of 23 January 1996) of the Law. It was established in this article as follows:

The paid VAT shall be recovered:

1) on a parity basis to the diplomatic and consular missions of foreign states for the goods purchased and services received in the Republic of Lithuania, which are meant for the official activity of the mission, as well as to the officials of these missions and their family members for the goods purchased according to the list compiled by the Government of the Republic of Lithuania for their personal needs;

2) to the international organisations for the goods purchased and services received in the Republic of Lithuania, which are meant for the official activity of the mission, and to the officials of these organisations and their family members for the goods purchased, according to the list compiled by the Government of the Republic of Lithuania, for their personal use, if the agreements of these organisations with the Republic of Lithuania provide that no VAT or a tax identical to it shall be taken or that they will be recovered;

3) under the procedure established by the Government of the Republic of Lithuania for the imported goods and services, which are paid for according to the technical or humanitarian assistance programs by using funds of foreign states, international organisations and funds, and loans granted to the state, as well as state-secured funds granted to the establishments that are financed from the budget. If the term of VAT payment has not expired and the tax has not been paid, it may be annulled. Under the procedure established by the Government of the Republic of Lithuania this tax may also be recovered for goods and services, purchased in the Republic of Lithuania according to the technical assistance programs and for the funds of loans granted to the state and the state-secured funds of loans granted to the establishments that are financed from the budget. If the international treaties provide for other rules of taxation with VAT and these treaties are ratified by the Republic of Lithuania, the rules of the international treaties shall apply.”

8.13. By Article 8 of the Republic of Lithuania’s Law on Amending and Supplementing Articles 2, 4, 9, 10, 11, 12, 13, 21, 22, 23, 24, 25, 35, 36, and 38 of Law on Value Added Tax, adopted on 9 December 1997, Article 21 (wording of 23 January 1996) of the Law was supplemented with new Item 4, according to which the paid VAT is recovered “in cases established in the Customs Code”.

9. When summarising the above-mentioned legal regulation in the context of the case at issue, it should be held that within the period from 16 May 1996 till 30 June 1998 the following common procedure of calculation of the sum of VAT payable to the budget was established in the Law:

1) the persons whose income for the sold goods and provided services exceeded LTL 50 thousand per year had the obligation to pay VAT; such persons had to register themselves as VAT payers at a state tax inspectorate; the duty to pay VAT used to originate in all cases, when income for the sold goods and provided services exceeded LTL 50 thousand per year, irrespective of the fact whether the person had registered himself as a VAT payer at a state tax inspectorate or not; VAT used to be started to be paid at the month when the income for the sold goods and provided services exceeded LTL 50 thousand per year;

2) the persons whose income for the sold goods and provided services amounted to LTL 5 to 50 thousand per year had the obligation to pay VAT, if they had voluntarily registered themselves as VAT payers at a state tax inspectorate; such persons had to pay VAT to the budget starting at the next month after the registration;

3) all VAT payers had the duty to pay the difference between the calculated sum of VAT for the sold goods and provided services and the sum of deductible VAT;

4) the sum of deductible VAT is a sum of VAT, calculated upon the procedure established by law and included in the accounting, for the goods supplied and services provided by suppliers, as well as imported goods, which are meant for production and sale of taxable goods or provision of taxable services;

5) it was possible to deduct sums of VAT due to be paid by other VAT payers only in cases then they were specified in VAT invoices;

6) if the VAT payer produced (provided) goods (services) both taxable and non-taxable with VAT, the included in the accounting sum of VAT for goods and services (save the exceptions specified in the Law) payable to suppliers within the taxation period would be deducted in proportion to the value of both taxable and non-taxable goods dispatched (services provided) to buyers during the said period.

10. In Articles 7, 8, 15, 18 and others (the wordings of the period from 16 May 1996 till 30 June 1998) the notion “VAT payer” was used. This notion was not separately defined in the Law; it was established therein as to what persons must pay VAT (Paragraphs 2 and 3 of Article 6), and it was consolidated that the persons who are VAT payers under the provisions of Article 6 of the Law must register themselves as VAT payers at a state tax inspectorate (Paragraph 1 of Article 7).

According to Article 2 (wording of 28 June 1995) of the Law on Tax Administration, in which the notions used in the tax law are defined, the tax payer is “a person, to whom obligation to pay taxes is established under the tax law”. In Article 2 (wording of 28 June 1995) of the Law on Tax Administration it was also prescribed that the notions used therein have the content which is specified in this (i.e. tax administration) law, if it is not established in a different way in the tax law. Thus, if no other content of the notion “VAT payer” was established in the Law on Value Added Tax, the content of this notion could not be construed on the basis other than the content of the notion “tax payer” defined in Article 2 (wording of 28 June 1995) of the Law on Tax Administration: the tax payer is a person, to whom an obligation to pay VAT is established under the Law on Value Added Tax.

It was established in the Law on Value Added Tax as to what persons have the obligation to pay VAT: these are the persons whose income for the sold goods and provided services exceeded LTL 50 thousand per year, irrespective of the fact whether the person has registered himself as a VAT payer at a state tax inspectorate or not, as well as the persons whose income for the sold goods and provided services amounted to LTL 5 to 50 thousand per year, if they voluntarily used to register themselves as VAT payers at a state tax inspectorate. Thus, under Article 2 (wording of 28 June 1995) of the Law on Tax Administration and Article 6 (wordings of 7 April 1994 and 14 October 1997) of the Law on Value Added Tax, the notion “VAT payer” in the Law on Value Added Tax comprised all the persons to whom the obligation to pay VAT was established.

It needs to be stressed that the Law on Value Added Tax (the wordings which were effective in the period from 16 May 1996 till 30 June 1998) contained no provisions under which the notion “VAT payer” would comprise not all, but only some of the persons to whom the obligation to pay VAT was established, inter alia, that it would not comprise the persons who have the obligation to pay VAT, but have not registered themselves as VAT payers at a state tax inspectorate.

11. It has been mentioned that in Article 15 (wording if 22 December 1993) of the Law the rule of calculation of the sum of VAT payable to the budget was established: upon expiry of the taxation period VAT payers had to pay to the budget the difference between the calculated sum of VAT for the sold goods and provided services and the deductible sum of VAT. As, under Article 2 (wording of 28 June 1995) of the Law on Tax Administration and Article 6 (wordings of 7 April 1994 and 14 October 1997) of the Law on Value Added Tax, the notion “VAT payer” in the Law on Value Added Tax comprised all the persons to whom the obligation to pay VAT was established, then the rule of calculation of the sum of VAT payable to the budget, established in Article 15 (wording of 22 December 1993) of the Law, was aimed at all the persons specified in the Law on Value Added Tax, to whom the obligation to pay VAT was established under the Law on Value Added Tax: all of them had to pay to the budget the difference between the calculated sum of VAT for the sold goods and provided services and the deductible sum of VAT.

It needs to be stressed that the Law on Value Added Tax (the wordings which were effective from 16 May 1996 till 30 June 1998) contained no provisions according to which any persons, under the notion “VAT payer” used in the Law, would have no right to deduct the included in the accounting the sum of VAT for the goods supplied and services provided by a supplier, as well as the imported goods meant for production or sale of taxable goods, and provision of taxable services, inter alia, according to which this right would not be granted to the persons who have the established by the Law duty to pay VAT, but have not registered themselves as VAT payers at a state tax inspectorate.

12. The rule of calculation of the sum of VAT payable to the budget, established in Article 15 (wording of 22 December 1993) of the Law, determines the size of the sum of VAT payable to the budget.

The rule of calculation of the payable to the budget sum of the tax, which determines the size of the payable to the budget sum of the tax, is the essential element of the tax.

In this Constitution Court Ruling it was held that substatutory acts establishing the procedure of implementation of tax laws may not contain norms establishing the legal regulation other than the one established by law and competing with the norms of the law.

13. It has been mentioned that under Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 and Article 15 (wording of 22 December 1993) of the Law, all the persons to whom the obligation to pay VAT was established in the Law, thus, including the persons who, according to the Law, had the obligation to pay VAT but had not registered themselves as VAT payers at a state tax inspectorate, upon expiry of taxation period had the duty to pay to the budget the difference between the calculated sum of VAT for the sold goods and provided services and the deductible sum of VAT; all of them, thus, including the persons who, according to the Law, had the obligation to pay VAT, but had not registered themselves as VAT payers at a state tax inspectorate, had the right to deduct the included in the accounting sum of VAT for the goods supplied and services provided by a supplier, as well as the imported goods, which were meant for production or sale of taxable goods, and provision of taxable services (had the right to deduct VAT for the purchase).

Meanwhile, according to Item 11 of the Procedure the persons who had not registered themselves as VAT payers, but who had the duty to pay VAT, had no right to deduct the sum of VAT for the purchased goods (received services) from the sum of VAT calculated for the sold goods (provided services).

Having compared the provision “The persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year (during the last 12 months), <…> have no right to indicate VAT in invoices, as well as the right to deduct VAT for the purchased goods (received services) from VAT calculated for the sold goods (provided services)” of Item 11 of the Procedure with the provision of Paragraph 3 (wording of 7 April 1994 and 14 October 1997) of Article 6 that the persons whose income for the sold goods and provided services exceeds LTL 50 thousand “must calculate VAT <…> under the common procedure”, and Article 15 (wording of 22 December 1993) of the Law, it should be held that by the provision “The persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year (during the last 12 months), <…> have no right to indicate VAT in invoices, as well as the right to deduct VAT for the purchased goods (received services) from VAT calculated for the sold goods (provided services)” of Item 11 of the Procedure the range of the persons who, under the Law, had the right to deduct the included in the accounting sum of VAT for the goods supplied and services provided by a supplier, as well as the imported goods, which were meant for production or sale of taxable goods, and provision of taxable services, was narrowed. Alongside, it should be held that Item 11 of the Procedure established the rule of calculation of the sum of VAT payable to the budget, designed to the persons who had not registered themselves as VAT payers and determining the size of the sum of VAT payable to the budget, which competed with the one established in the Law.

14. Having held this, it should also be held that the provision “The persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year (during the last 12 months), <…> have no right to indicate VAT in invoices, as well as the right to deduct VAT for the purchased goods (received services) from VAT calculated for the sold goods (provided services)” of Item 11 of the Procedure was in conflict with the provision of Paragraph 3 (wording of 7 April 1994 and 14 October 1997) of Article 6 that the persons whose income for the sold goods and provided services exceeds LTL 50 thousand “must calculate VAT <…> under the common procedure”, and Article 15 (wording of 22 December 1993) of the Law.

15. In this ruling of the Constitutional Court it has been held that the provisions of Item 11 of the Procedure comprise a single whole and are inseparable from one another, and if it was held that any single provision of Item 11 of the Procedure is in conflict with a law (part thereof) and (or) the Constitution, this would mean that it was entire Item 11 of the Procedure that was in conflict with this law (part thereof) and/or the Constitution.

It has also been held that all provisions of Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law comprise a single whole and are inseparable from one another, and if it was held that entire Item 11 of the Procedure or any single provision of Item 11 of the Procedure is in conflict with any provision of Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law, this would mean that Item 11 of the Procedure is in conflict with whole Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6 of the Law.

16. Having taken account of the arguments set forth, the conclusion should be drawn that Item 11 of the Procedure was in conflict with Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6, and Article 15 (wording of 22 December 1993) of the Law.

IV

On the compliance of Item 11 of the Procedure of Registration of Value Added Tax Payers as confirmed by Item 2.4 of the Government Resolution (No. 546) “On Value Added Tax” of 9 May 1996 with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution.

1. It has been mentioned that according to Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution it is only the Seimas who may establish taxes and it may be done only by law; the essential elements of the tax, such as the size of the tax, may be established only by law.

2. It has been held in this ruling of the Constitutional Court that by the provision “The persons who have not registered themselves as VAT payers and whose income from sales exceeds LTL 50 thousand per year (during the last 12 months), <…> have no right to indicate VAT in invoices, as well as the right to deduct VAT for the purchased goods (received services) from VAT calculated for the sold goods (provided services)” of Item 11 of the Procedure the range of the persons who, under the Law, had the right to deduct the included in the accounting sum of VAT for the goods supplied and services provided by a supplier, as well as the imported goods, which were meant for production or sale of taxable goods and provision of taxable services, was narrowed, that in Item 11 of the Procedure established the rule of calculation of the sum of VAT payable to the budget, designed to the persons who had not registered themselves as VAT payers and determining the size of the sum of VAT payable to the budget, which competed with the one established in the Law, and that Item 11 of the Procedure was in conflict with Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6, and Article 15 (wording of 22 December 1993) of the Law.

3. Having held this, it should be held that Item 11 of the Procedure was in conflict with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution, as well.

Conforming to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Articles 1, 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 Item 11 of the Procedure of Registration of Value Added Tax Payers as confirmed by Item 2.4 of the Resolution of the Government of the Republic of Lithuania (No. 546) “On Value Added Tax” of 9 May 1996 was in conflict with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution of the Republic of Lithuania.

2. To recognise that Item 11 of the Procedure of Registration of Value Added Tax Payers as confirmed by Item 2.4 of the Resolution of the Government of the Republic of Lithuania (No. 546) “On Value Added Tax” of 9 May 1996 was in conflict with Paragraph 3 (wordings of 7 April 1994 and 14 October 1997) of Article 6, and Article 15 (wording of 22 December 1993) of the Republic of Lithuania’s Law on Value Added Tax

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:                                                  Armanas Abramavičius

Egidijus Jarašiūnas

Egidijus Kūris

Kęstutis Lapinskas

Zenonas Namavičius

Augustinas Normantas

Jonas Prapiestis

Vytautas Sinkevičius

Stasys Stačiokas