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On the duties of the taxpayer in issuing the main compensatory products into free circulation

Case No. 11/04

 

THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA

 

RULING

ON THE COMPLIANCE OF ITEM 21.1 (WORDING OF 27 JUNE 2002) OF THE PROCEDURE OF THE TEMPORARY IMPORT OF GOODS TO THE REPUBLIC OF LITHUANIA FOR PROCESSING AS APPROVED BY THE RESOLUTION OF THE GOVERNMENT OF THE REPUBLIC OF LITHUANIA (NO. 898) “ON THE APPROVAL OF THE PROCEDURE OF THE TEMPORARY IMPORT OF GOODS TO THE REPUBLIC OF LITHUANIA FOR PROCESSING” OF 11 AUGUST 1997 WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA

 

24 January 2006

Vilnius

 

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Armanas Abramavičius, Toma Birmontienė, Egidijus Kūris, Kęstutis Lapinskas, Zenonas Namavičius, Ramutė Ruškytė, Vytautas Sinkevičius, Stasys Stačiokas, and Romualdas Kęstutis Urbaitis

The court reporter—Daiva Pitrėnaitė

Paulius Majauskas, the Head of the Tax Administration Division of Tax Department of the Ministry of Finance of the Republic of Lithuania, and Valentina Lemežienė, the Chief of the Legal Division of the Customs Department under the Ministry of Finance of the Republic of Lithuania, acting as the representatives of the Government of the Republic of Lithuania, the party concerned

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 17 January 2006, considered case No. 11/04 subsequent to the petition of the Klaipėda Regional Administrative Court, the petitioner, requesting an investigation into whether Item 21.1 of the Procedure of the Temporary Import of Goods to the Republic of Lithuania for Processing as approved by the Resolution of the Government of the Republic of Lithuania (No. 898) “On the Approval of the Procedure of the Temporary Import of Goods to the Republic of Lithuania for Processing” of 11 August 1997 with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution of the Republic of Lithuania.

The Constitutional Court

has established:

I

The Klaipėda Regional Administrative Court, the petitioner, considered an administrative case. By its ruling, the court suspended the consideration of the case and applied to the Constitutional Court with the petition requesting an investigation into whether Item 21.1 of the Procedure of the Temporary Import of Goods to the Republic of Lithuania for Processing (hereinafter also referred to as the Procedure) as approved by the Resolution of the Government of the Republic of Lithuania (No. 898) “On the Approval of the Procedure of the Temporary Import of Goods to the Republic of Lithuania for Processing” of 11 August 1997 with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution of the Republic of Lithuania.

II

The petitioner grounds its petition on the fact that, in its opinion, the duty of the taxpayer to pay not only the import taxes, but also the late payment interest while issuing the main compensatory products into free circulation is established in Item 21.1 of the Procedure of the Temporary Import of Goods to the Republic of Lithuania for Processing as approved by the Government Resolution (No. 898) “On the Approval of the Procedure of the Temporary Import of Goods to the Republic of Lithuania for Processing” of 11 August 1997. In the opinion of the petitioner, this late payment interest should be regarded as an element of the tax and has to be established not by government resolution, but by law. However, according to the petitioner, such late payment interest is not provided for in the Customs Code of the Republic of Lithuania, or the Republic of Lithuania’s Law on Value Added Tax, or the Republic of Lithuania’s Law on Tax Administration.

III

In the course of the preparation of the case for the Constitutional Court’s hearing, written explanations from the representatives of the Government, the party concerned, who were P. Majauskas and V. Lemežienė, were received in which it is stated that Item 21.1 of the Procedure is not in conflict with the Constitution. The position of the petitioner is grounded on the following arguments.

1. According to P. Majauskas, in the relations of tax administration, late payment interest is not only the measure for ensuring the implementation of tax obligation, but it also performs the compensatory function. It is entrenched in the laws adopted by the Seimas—the Customs Code, the Law on Tax Administration and the Republic of Lithuania’s Law on Customs Tariffs. In Item 21.1 of the Procedure not some new taxes are established, but the calculation procedure for already established taxes—the one which ensures that the legal interests of other business subjects, for whom the paying of taxes is not postponed (the goods are issued into free circulation immediately) after they import goods will be protected. It is in line with the constitutional principles of equal rights of persons and fair competition.

2. According to V. Lemežienė, under Article 18 of the Law on Customs Tariffs, the Customs has the right to calculate late payment interest for persons who have not paid the customs duties or have not paid them in time, and the size of such duties as well as the calculation and payment procedure are established by the Minister of Finance. In the Procedure not a new element of the tax or its size was established, but it just mentioned the right and duty of customs to calculate and exact late payment interest established in the Law on Customs Tariffs. Even in the case that there were no provisions on the calculation of late payment interest in the Procedure, under Article 18 of the Law on Customs Tariffs and Chapter XVII of the Customs Code, customs would have the right to calculate the debt (inter alia, late payment interest) for customs.

IV

In the course of the preparation of the case for the Constitutional Court’s hearing, written explanations from A. Butkevičius, Minister of Finance of the Republic of Lithuania, P. Čėsna, Minister of Economy of the Republic of Lithuania, G. Švedas, Vice-minister of Justice of the Republic of Lithuania, D. Kriaučiūnas, Acting Director General of the European Law Department under the Government of the Republic of Lithuania and R. Klevečka, Director of the Customs Department under the Ministry of Finance of the Republic of Lithuania were received.

V

At the hearing of the Constitutional Court, P. Majauskas and V. Lemežienė, the representatives of the Government, the party concerned, virtually repeated the arguments set forth in the written explanations.

P. Majauskas also noted that the late payment interest provided for in the Procedure is virtually a compensatory interest.

The Constitutional Court

holds that:

I

1. On 11 August 1997 Government adopted the Resolution (No. 898) “On the Approval of the Procedure of the Temporary Import of Goods to the Republic of Lithuania for Processing”, whose Item 1 approved the Procedure of the Temporary Import of Goods to the Republic of Lithuania for Processing. This government resolution came into force on 1 September 1997.

The Procedure was amended by the Government Resolution (No. 1077) “On the Procedure for Returning Abroad the Precious Metals and their Products Temporarily Imported to the Republic of Lithuania for Processing by the Subjects of Foreign Economy, and on the Tariffs of the Assay and Lettering of Precious Metals and Stones and Other Services” of 3 September 1998, the Government Resolution (No. 1093) “On a Partial Amendment of the Resolution of the Government of the Republic of Lithuania (No. 898) ‘On the Approval of the Procedure of the Temporary Import of Goods to the Republic of Lithuania for Processing’ of 11 August 1997” of 4 October 1999, the Government Resolution (No. 432) “On a Partial Amendment of the Resolution of the Government of the Republic of Lithuania (No. 898) ‘On the Approval of the Procedure of the Temporary Import of Goods to the Republic of Lithuania for Processing’ of 11 August 1997” of 18 April 2001, and the Government Resolution (No. 1003) “On Amending the Resolution of the Government of the Republic of Lithuania (No. 898) ‘On the Approval of the Procedure of the Temporary Import of Goods to the Republic of Lithuania for Processing’ of 11 August 1997 and the Government Resolution (No. 719) ‘On the Approval of the Procedure of the Temporary Import of Goods to the Republic of Lithuania’ of 14 June 2001”.

On 28 April 2004, the Government adopted the Resolution (No. 508) “On the Recognition of Certain Resolutions of the Republic of Lithuania That Have an Economic Impact on the Questions of Customs Procedures as no Longer Valid” whose Item 1 recognised, inter alia, the Government Resolution (No. 898) “On the Approval of the Procedure of the Temporary Import of Goods to the Republic of Lithuania for Processing” of 11 August 1997 and the government resolutions amending it as no longer valid. The Government Resolution (No. 508) “On the Recognition of Certain Resolutions of the Republic of Lithuania That Have an Economic Impact on the Questions of Customs Procedures as no Longer Valid” of 28 April 2004 came into force on 1 May 2004.

2. The petitioner requests an investigation into whether Item 21.1 of the Procedure is not in conflict with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution.

3. It is obvious from the arguments of the petition that the petitioner had doubts on the compliance of Item 21 (wording of 27 June 2002, Official Gazette Valstybės žinios, 2002, No. 66-2723) of the Procedure with the Constitution, in which it is, inter alia, established:

Import duties and/or taxes for compensatory products and goods, temporarily imported for processing but not processed, that are issued into free circulation, are calculated as follows:

21.1 When the main compensatory products are issued into free circulation, the import duties and/or taxes are calculated on the custom’s value of the part of the goods, temporarily imported for processing, used for producing the said products, and by deducting damages and adding the late payment interest that is calculated on the gross amount of the calculated customs duties and/or taxes for each day, starting from customs procedure formalisation of temporary import for processing till customs procedure formalisation of issuing them into free circulation. The tariff of the late payment interest is equal to the tariff of the late payment interest for import duties and/or taxes not paid in time, which is valid on the day of the acceptance of the customs declaration for temporary import of goods for processing for formalisation of customs procedure.”

It is obvious from the arguments of the petition that the petitioner had doubts not on the compliance of the whole quoted legal regulation with the Constitution but only on the compliance of the provision “while issuing the main compensatory products into free circulation, import duties and/or taxes are calculated <...> adding the late payment interest” of Item 21.1 (wording of 27 June 2002) of the Procedure with the Constitution and on whether this provision is not in conflict with the Constitution to the extent that, according to the petitioner, the above-mentioned late payment interest should be established not by government resolution, but by law.

4. Subsequent to the petition of the petitioner, the Constitutional Court will investigate whether the legal regulation established in Item 21.1 (wording of 27 June 2002) of the Procedure was not in conflict with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution only to the extent and in the aspect specified by the petitioner.

II

1. Taxes, other contributions to the budgets and levies shall be established by means of laws of the Republic of Lithuania (Paragraph 3 of Article 127 of the Constitution). State taxes and other obligatory payments shall be established by the Seimas (Item 15 of Article 67 of the Constitution).

2. Taxes and other obligatory payments are obligatory and gratuitous payments, established by law, of respective amount by legal and natural persons at the set time to the state (municipal) budget. In its acts the Constitutional Court has more than once held that such essential elements of the tax as the object of the tax, subjects of tax relations, their rights and duties, sizes (tariffs) of the tax, payment terms, exceptions and concessions, fines and late payment interest must be provided for by law and that this constitutional requirement is an important guarantee of the protection of the rights of the person.

In its decision of 20 September 2005 the Constitutional Court held that the constitutional imperative to establish state taxes and other payments by law must also be observed mutatis mutandis when one establishes other property obligations to persons, and the latter must also be grounded on the law.

3. The duty to pay taxes is a constitutional duty. It is not sufficient merely to establish a tax as an obligation to the state so that taxes would be properly paid and collected, but it is also necessary to establish the procedure for their payment (including, inter alia, the procedures of tax administration, calculation of taxes, etc.). The Constitutional Court has held that it is not required in the Constitution to establish 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, 17 November 2003, and 2 September 2004).

According to the Constitution, the legal regulation must be established which would ensure the proper tax paying and that the taxes are paid in time; for that reason, when paying heed to the Constitution (inter alia, the constitutional principles of justice, proportionality, legal certainty and clarity), various measures may be chosen such as fines, late payment interest, interest, etc.

It should also be noted that while deciding whether a government resolution (i.e. a substatutory legal act) establishing a certain measure ensuring the paying of taxes, is not in conflict with the Constitution (inter alia, Item 15 of Article 67 and Paragraph 3 of Article 127 thereof), it is necessary in every case to find out whether a corresponding measure established by the government resolution, ensuring the paying of taxes, is grounded on the law; if the above-mentioned measure ensuring the paying of taxes is grounded on the law, in itself, the mere fact that this measure is regulated in more detail in a substatutory legal act but not in a law is not the grounds to hold that such legal regulation established by the government resolution is not in line with the Constitution.

4. In the context of the constitutional justice case at issue, it should be noted that the official constitutional doctrine of taxes and other obligatory payments, to which it is referred in this ruling of the Constitutional Court, was formulated while investigating whether the legal acts (parts thereof), adopted till 14 August 2004, i.e. before the Constitutional Act of the Republic of Lithuania “On Membership of the Republic of Lithuania in the European Union”, adopted by the Seimas on 13 July 2004, came into effect, which under Article 150 of the Constitution is a constituent part of the Constitution, were not in conflict with the Constitution. In the context of the constitutional justice case at issue, it should also be noted that, in this constitutional justice case, the Constitutional Court investigates whether the legal regulation established by the government resolution that was no longer valid at the time when the said amendment to the Constitution came into effect, was not in conflict with the Constitution.

It should be emphasised that after the Constitutional Act of the Republic of Lithuania “On Membership of the Republic of Lithuania in the European Union”, adopted by the Seimas on 13 July 2004 came into force, the official constitutional doctrine of taxes and other obligatory payments, formulated in the former constitutional justice cases has to be elaborated by taking account of the said amendment to the Constitution. Since, under the Constitution only the Constitutional Court has the powers, in each case, after an amendment to the Constitution has gone into effect, to hold whether it is still possible (and to which extent) to refer to the official constitutional doctrine formulated by the Constitutional Court on the grounds of the former provisions of the Constitution (the Constitutional Court’s ruling of 13 May 2004).

III

On the compliance of the provision “while issuing the main compensatory products into free circulation, import duties and/or taxes are calculated <...> adding the late payment interest” of Item 21.1 (wording of 27 June 2002) of the Procedure with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution.

1. It has been mentioned that the provision “while issuing the main compensatory products into free circulation, import duties and/or taxes are calculated <...> adding the late payment interest” was entrenched in Item 21.1 (wording of 27 June 2002) of the Procedure.

2. It should be noted that the impugned provision of Item 21.1 (wording of 27 June 2002) of the Procedure was meant to regulate the relationships related to the temporary import of goods into the Republic of Lithuania for processing, i.e. with such procedure of customs that virtually differs from other procedures of customs, inter alia, from such import of goods into the Republic of Lithuania, when they are issued into free circulation in this country after the established formalities are completed.

In the context of the constitutional justice case at issue, it should be noted that the temporary import of goods to the Republic of Lithuania for processing inter alia, differs from such import of goods to the Republic of Lithuania when they are issued into free circulation in the country after the established formalities are completed in a way that a person, who temporary imports the goods to the Republic of Lithuania for processing, has no duty to pay import duties and/ or corresponding taxes at the time when the goods are being temporarily imported to the Republic of Lithuania.

3. The impugned provision of Item 21.1 (wording of 27 June 2002) of the Procedure, as well as other provisions of this item, regulated precisely such relations and was designated precisely for such legal situations when after the temporarily imported goods to the Republic of Lithuania for processing have been processed, the corresponding main compensatory products were for some reason not exported from the Republic of Lithuania, but issued into free circulation in this country. Thus, the impugned legal regulation was designated for such legal situations when a started customs procedure for temporary import of goods to the Republic of Lithuania for processing had to be finished as another procedure—as such import of goods to the Republic of Lithuania, when corresponding main compensatory products would be issued into free circulation in the country.

Thus, a person, who temporarily imported goods to the Republic of Lithuania for processing and without paying import duties and/or taxes at the time when the goods were temporarily imported to the Republic of Lithuania, for a certain period of time—until the corresponding main compensatory products are issued into free circulation in this country—used certain funds that he would have paid as the import duty and/or certain tax, if he had immediately declared that the goods were imported to the Republic of Lithuania not for processing but for free circulation in the country.

Consequently, the purpose of the “late payment interest” specified in Item 21.1 (wording of 27 June 2002) of the Procedure is to compensate for the State such funds which would not have been lost if one had immediately declared that the goods were imported to the Republic of Lithuania not for processing but for free circulation in the country, and after having performed the specified formalities, import duty and/or certain tax would have been paid, as well as not to allow the distortion of the competition between the economic subjects that import goods to the Republic of Lithuania.

4. In the impugned provision of Item 21.1 (wording of 27 June 2002) of the Procedure the notion “late payment interest” is used. The legal content of this notion should be disclosed by construing it not only in a formal or isolated way, but also in the context of the legal regulation specified in this item.

In tax law, late payment interest is treated as a sanction that can be applied to a person who has not fulfilled the duty to pay taxes in time or properly.

According to Item 21.1 (wording of 27 June 2002) of the Procedure, in such legal situation when after the temporarily imported goods to the Republic of Lithuania for processing have been processed, the corresponding main compensatory products were for some reason not exported from the Republic of Lithuania, but issued into free circulation in this country, the person is not imposed any sanction (or its equal measure) for the fact that he has not fulfilled the duty to pay the import duty and/or corresponding tax at the established time or fulfilled it inappropriately because the said person had no such duty at all before the said legal situation occurred; it has been mentioned that the purpose of the late payment interest specified in Item 21.1 (wording of 27 June 2002) of the Procedure is to compensate for the state such funds which would have not been lost if one had immediately declared that the goods were imported to the Republic of Lithuania not for processing but for free circulation in this country, and after having performed the specified formalities, import duty and/or certain tax would have been paid, as well as not to allow the distortion of the competition between subjects of economy who import goods to the Republic of Lithuania.

Thus, the notion “late payment interest” used in the impugned provision of Item 21.1 (wording of 27 June 2002) of the Procedure has a different content than the one that is specific for it in the tax law: taking account to the context of the legal regulation, it should be held that the notion “late payment interest” used in Item 21.1 (wording of 27 June 2002) of the Procedure was granted the content of a different notion of the text law, i.e. “compensatory interest”.

It should be noted that in legal acts the notions have to be used without deviating from the meaning which is typical of them, and in case that they are granted a specific content, it must be especially discussed in the corresponding legal act.

It should be held that in the provision of Item 21.1 (wording of 27 June 2002) of the Procedure the notion “late payment interest” was used legally incorrectly, because it was granted the content of another notion, i.e. ”compensatory interest”. However, the said incorrectness as such is not the grounds to recognise that the said provision is in conflict with the Constitution.

5. While deciding whether the provision “while issuing the main compensatory products into free circulation, import duties and/or taxes are calculated <...> adding the late payment interest” of Item 21.1 (wording of 27 June 2002) of the Procedure was not in conflict with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution, it should be noted that:

in the then Customs Code also such a legal situation was provided where non-Lithuanian goods, temporarily imported to Lithuania for processing, were conditionally not imposed any import duties or taxes (Item 3 (wording of 18 April 1996) of Paragraph 1 of Article 82);

the notion of “compensatory products” was used in Item 4 (wording of 18 April 1996) of Paragraph 2 of Article 111 of the then Customs Code; according to the definition of the notion “compensatory products” provided in the said item, compensatory products shall mean the products that are received after the processing operations are performed;

according to Article 117 (wording of 18 April 1996) of the then Customs Code, the cases and conditions, under which the temporarily imported goods for processing or compensatory products could be issued into free circulation or considered as such, had to be established by the legal acts regulating the application of this code;

under Article 234 (wording of 18 April 1996) of the then Customs Code it was prescribed that the legal acts regulating the application of this code shall be approved by the Government or its authorised state institution;

under Item 1 (wording of 4 December 2001) of Paragraph 1 of Article 185 of the then Customs Code, the import debt for customs used to occur when the goods for which import duties and/or taxes were established were issued into free circulation;

in Paragraph 1 (wording of 4 December 2001) of Article 118 of the then Customs Code it was prescribed that in case that a debt for customs occurs, the size of this debt while importing goods is established by taking account, inter alia, of the norms of import duties and taxes and the calculation rules that were applied on the day when the customs declaration of import for the procedure of temporary import for processing was adopted.

It should be noted that the provision stating that payment of customs duties is regulated not only by the Customs Code, but also by other legal acts, was also entrenched in Paragraph 1 (wording of 19 February 1998) of Article 15 of the then Law on Customs Tariffs.

6. Thus, while assessing the provision “while issuing the main compensatory products into free circulation, import duties and/or taxes are calculated <...> adding the late payment interest” of Item 21.1 (wording of 27 June 2002) of the Procedure in the context of the then legal regulation established in laws, there are no grounds to hold that this provision was not grounded on the law.

7. In this ruling of the Constitutional Court, it has been held that, if, by the government resolution, a certain measure ensuring the paying of taxes is established, which is grounded on the law, in itself, the mere fact that this measure is regulated in more detail in a substatutory legal act but not in a law is not the grounds to hold that such legal regulation established by government resolution is not in line with the Constitution.

8. Taking account of the arguments set forth, the conclusion should be drawn that the provision “while issuing the main compensatory products into free circulation, import duties and/or taxes are calculated <...> adding the late payment interest” of Item 21.1 (wording of 27 June 2002) of the Procedure was not in conflict with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution.

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:

To recognise that the provision “while issuing the main compensatory products into free circulation, import duties and/or taxes are calculated <...> adding the late payment interest” of Item 21.1 (wording of 27 June 2002) of the Procedure of the Temporary Import of Goods to the Republic of Lithuania for Processing as approved by the Resolution of the Government of the Republic of Lithuania (No. 898) “On the Approval of the Procedure of the Temporary Import of Goods to the Republic of Lithuania for Processing” of 11 August 1997, was not in conflict with Item 15 of Article 67 and Paragraph 3 of Article 127 of 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:           Armanas Abramavičius

                                                                                Toma Birmontienė

                                                                                Egidijus Kūris

                                                                                Kęstutis Lapinskas

                                                                                Zenonas Namavičius

                                                                                Ramutė Ruškytė

                                                                                Vytautas Sinkevičius

                                                                                Stasys Stačiokas

                                                                                Romualdas Kęstutis Urbaitis