The act of the Tax Inspectorate was declared invalid
The Administrative Court of the RA on the administrative case No. VD / 11879/05/13 upheld the lawsuit filed by Karen Karapetyan, Arthur Mardyan's representative against the Arabkir Tax Inspectorate of the State Revenue Committee.
Summary of the case
On 11.10.2013, a control purchase was made in the trade pavilion belonging to the plaintiff Arthur Mardyan. The inspector conducting a ‘control purchase’ expressed a desire to buy 7 pants (one box). The inspector, taking the pants and paying 40,000 AMD for them, left the pavilion. The received money was entered by Arthur Mardyan in a cash register. Afterwards 2 people approached the seller and introduced themselves as tax inspectors. They took out a "Z" report from the cash register. Seeing that the money was entered at the cash register, they informed that "an order has been opened", the seller should be fined anyway.
After the ‘control purchase’, the plaintiff was given a copy of the control purchase order. Then, on October 14, 2013, a new instruction was drawn up, on the basis of which the accuracy of the use of cash registers was checked. The employees of the Tax Inspectorate did not come to the place to carry out an inspection, and the instruction given on 14.10.2013 was sent to us by mail.
On October 22, 2013, the RA State Revenue Committee drew up an act No. 2125449, by which Artur Mardyan was fined 150,000 drams.
The RA’s Administrative Court emphasized three main violations, which were allowed by the Tax Inspectorate.
- The Administrative Court noted that the instruction given to carry out control did not indicate the legal basis for such control.
The procedure for conducting a control purchase is defined by Annex 2 of the RA’s Law “on the Organization and Conduct of Inspections in the Republic of Armenia”.
Pursuant to Clause 1.4 of the above-mentioned procedure, the written instruction given for carrying out a ‘control purchase’ shall, among other information, indicate the grounds for such a purchase.
Pursuant to Clause 1.3 of the same procedure, the grounds for conducting a procurement are:
a) Violations of accounting rules by the economic entity;
b) Information received from a third party in the prescribed manner;
c) a substantiated motion of a tax authority official to obtain a permit to make a purchase.
In this case, instead of the above-mentioned grounds, the RA Law “on Organizing and Conducting Inspections in the Republic of Armenia” was mentioned as a basis in the assignment. No evidence of any of these grounds was presented during the investigation of the case. In view of the above, the court found that the order lacked a legal basis for conducting a control purchase.
- The procedure for obtaining financial sources for the control purchase was violated by the tax authority.
The above mentioned procedure was established by the RA Government Decision No. 1561-N adopted on 27.11.2003.
According to the protocol on the results of the control purchase, the control purchase was carried out on 11.10.2013, while the court noted that the amount of 150,000 AMD was allocated for the control purchase on 14.10.2013, 3 days after the control purchase. Moreover, that amount was received not by the person conducting the control, but the head of the No. 1 control department of the RA SRC Arabkir Tax Inspectorate, A. Khachatryan.
- The tax authority violated the requirement to hand over one copy of the inspection order to the economic entity.
According to the facts of the case, the tax body initially carried out a control purchase at the economic entity.
Following the control purchase, the tax authority conducted an inspection based on the results of the control purchase. Based on the results of the inspection, the business entity was subject to administrative liability.
At least three days before the inspection by the tax authority, the copies of the order were not submitted to the economic entity, which is a violation of Article 3, part 3 of the RA Law on Organization and Conduct of Inspections in the Republic of Armenia.
The conclusion of the court
As a result of revealing the mentioned violations, the court decided to recognize the actions aimed at checking the accuracy of the use of cash registers as illegal, at the same time it invalidated the decision of the Arabkir Tax Inspectorate of the State Revenue Committee imposing a penalty on the economic entity.
The appeal filed by the tax authority to the Court of Appeal of the RA was rejected.
Subsequently, an appeal was filed by the tax authority to the Court of Cassation of the RA, which was also rejected.