Communicated on 8 December 2020 Published on 11 January 2021

FIFTH SECTION

Application no. 39054/13 NOVOGRAD-VOLYNSKYY MYASOKOMBINAT, PAT against Ukraine lodged on 4 June 2013

STATEMENT OF FACTS

1 . The applicant, Novograd-Volynskyy Myasokombinat , PAT, is a private-law company registered in Ukraine in 1996.

2 . The facts of the case, as submitted by the applicant, may be summarised as follows.

3 . On 3 December 1999 the Parliament adopted the Law “On special regime of investment activities on territories of priority development in the Zhytomyr Region” (“the 1999 Law”). Article 9 of that law provided for various preferences, including a five-year exemption from import duty and value-added tax (“VAT”), for certain business activities carried out on those territories, including meat production (as further specified by the Cabinet of Ministers on 26 July 2000), from the date of the first import into Ukraine. Article 10 provided that the State guaranteed stability of the special regime of investment activity for 30 years and that in the event of change of the legislation concerning the regime provided for by Article 9, the taxation conditions applicable at the moment of conclusion of a relevant contract were, upon a taxpayer ’ s request, to be applied.

4 . On 25 January 2001 the applicant and the local authorities concluded an investment contract (“the 2001 contract”), under which the former undertook to invest money into modernisation of production of sausage and canned meat. In return, it was entitled to receive the preferences under the 1999 Law , in particular, to import a certain amount of raw meat material without import duty and VAT. The contract was subsequently amended several times, with the last amendments being made on 16 May 2002.

5 . Subsequently, the legislation was amended as follows. On 24 December 2002 the Parliament adopted the Law “On amendments to certain laws of Ukraine concerning taxation of excise and some other goods” (“the 2002 Law”) which, inter alia , provided that special economic regime was no longer applicable in respect of meat production. On 25 March 2005 the Parliament adopted the Law “On the State budget for 2005” (“the 2005 Law”), which repealed Articles 9 and 10 of the 1999 Law.

6 . On 8 and 23 November 2005, respectively, the local authorities decided to terminate the investment project due to the alleged breach by the applicant of the contract and informed the latter thereof.

7 . In October 2006 the applicant lodged an administrative claim against the local authorities, seeking invalidation of their decision of 8 November 2005, recognition of its right to implement the contract for the period of 475 days from the moment of the entry into force of the relevant court decision, and recognition of its entitlement to the preferences under the 1999 Law.

8 . On 19 February 2007 the Zhytomyr Regional Commercial Court allowed the claim, invalidated the decision of 8 November 2005, renewed the validity of the investment project and contract and recognized the applicant ’ s right to preferences under the 1999 Law. It held that the above decision had not specified any breaches the applicant had allegedly made. It further noted that under Article 19 of the 1991 Law “On Investment Activities” (“the 1991 Law”), State guarantees of protection of investments could not be repealed or narrowed down in respect of investments made when those guarantees were applicable. Accordingly, under Articles 9 and 10 of the 1999 Law the State guaranteed protection of the investments made by the applicant before the change of the legislation and the 2002 Law had thus breached the latter ’ s rights. The court next noted that the applicant had first imported raw meat material on 19 July 2001 and the five-year period of preferences to which it had been entitled by the 1999 Law would have expired on 19 July 2006. However, as the 2005 Law, effective from 31 March 2005, had repealed the preferences under the 1999 Law, the applicant had been deprived of them from 31 March 2005, that is, 475 days earlier than guaranteed by the State. The court also referred to Article 58 of the Constitution, which provided that laws did not have retroactive effect (except for those which mitigated liability or exonerated from it) and that none of the above laws had contained any indication that they had had such an effect. Indeed, neither the 1999 Law nor the 2005 Law had contained any provision that, following the amendments of the 1999 Law, the applicant had lost the preferences guaranteed to it by the State. Accordingly, it was entitled to implement the 2001 contract for 475 days from the moment when this judgment became enforceable and in accordance with the legislation which acted as of 16 May 2002 (when the last amendments to the 2001 contract were made).

9 . On 10 July 2007 the Kyiv Administrative Court of Appeal upheld the above judgment and it thus became enforceable. Accordingly, from 10 July 2007 the applicant continued its business activities and made use of the preferences as recognized by that judgment (see paragraph 14 below).

10 . On 5 February 2009, upon the local prosecutor ’ s appeal in cassation, the Higher Administrative Court (“the HAC”) quashed the judgments of 19 February and 10 July 2007 on the grounds that the case had to be examined in accordance with the rules of commercial procedure.

11 . The applicant then lodged an identical commercial claim. It asked the courts to recognize its entitlement to preferences for 475 days starting from 10 July 2007, given that after that date it had acted pursuant to the judgment of 19 February 2007, made use of the preferences as recognized in that judgment and could not envisage that it would be quashed on 5 February 2009.

12 . On 13 May 2009 the Zhytomyr Regional Commercial Court allowed the claim and adopted a judgment which was essentially the same as that of 19 February 2007. On 8 September 2009 it adopted an additional decision specifying that the applicant was entitled to implement the contract with the use of the tax preferences for 475 days starting from 10 July 2007.

13 . On 4 March 2010 the Higher Commercial Court (“the HCC”) upheld the judgment of 13 May 2009.

14 . On 18 December 2007 the applicant imported a certain amount of raw meat material into Ukraine. On 19 and 20 December it submitted a customs declaration to the local customs office, along with a copy of the judgment of 19 February 2007 as upheld on 10 July 2007.

15 . On 28 December 2007 the Law “On the State budget for 2008” was adopted (“the 2007 Law”). It provided , in particular, that preferences on import duty and VAT as regards import of certain goods, including raw meat material, were to be suspended. The law also provided that if other laws, regardless of the date of their adoption, set forth the guarantees of invariability of the tax legislation and a different procedure and conditions for payment of taxes and duties, the 2007 Law had to be applied.

16 . On 8 January 2008 the customs office cleared the meat material imported by the applicant on 18 December 2007 without charging import duty and VAT. However, on 22 January 2008 it decided that the customs clearance of 8 January 2008 had been made with mistakes, referring in particular to the 2007 Law. Therefore, on 28 January 2008 it sent two tax notices to the applicant, requiring it to pay overall 2,551,209.52 Ukrainian hryvnias (around 336,000 euros) in import duty and VAT.

17 . On 7 February 2008 the applicant lodged a claim with the Zhytomyr Circuit Administrative Court against the customs office, seeking invalidation of the above tax notices.

18 . On 11 December 2008 the court allowed the claim. It found that under Article 9 of the 1999 Law the applicant as an investor had been exempted from payment of import duty and VAT during the implementation of the investment project. It further referred to the judgment of 19 February 2007 and the findings made in it. The court thus concluded that when the disputed legal relations had emerged, the applicant had been implementing the investment project, the validity of which had been renewed by the judgment of 19 February 2007, for 475 days from the date when that judgment had become enforceable. It had therefore been entitled to import raw meat material without payment of import duty and VAT. The court thus declared the above tax notices unlawful and invalidated them.

19 . On 28 January 2010 the Kyiv Administrative Court of Appeal upheld the above judgment. It added that the 2007 Law had been declared unconstitutional by the Constitutional Court on 22 May 2008 in part of the annulment of preferences, on the grounds that laws on State budget could not repeal or change the rights, preferences and guarantees provided for by other laws. Furthermore, it relied on Article 4.4.1 of the 2000 Law “ On procedure for payment of taxpayers ’ liabilities to budgets and state trust funds ”, which provided that i f provisions of different laws offered ambiguous or multiple interpretations of the rights and obligations of taxpayers and supervising authorities, the decision taken had to be in favour of the taxpayer. Lastly, it noted that the court decisions of 19 February and 10 July 2007 had been quashed on 5 February 2009 for the breach of procedural rules concerning court jurisdiction and not because the findings made in them had not corresponded to the circumstances of the case or because the substantive law had been wrongly applied.

20 . On 5 December 2012, upon the customs office ’ s appeal, the HAC quashed the judgments of 11 December 2008 and 28 January 2010 and rejected the applicant ’ s claim. It held that under the 2002 Law the special economic regime did not apply in respect of certain goods, including meat material. Furthermore, under the 2007 Law the relevant preferences had been suspended, and that law prevailed over other laws which had provided for a different procedure and conditions for payment of taxes and duties. The latter law had not been declared unconstitutional when the customs clearance had been made. Accordingly, in view of the 2002 and 2007 Laws, there had been no grounds for applying tax preferences for the material imported by the applicant in December 2007. The HAC concluded by holding that the recognition of the preferences with reference to the judgments of 19 February and 10 July 2007 and without taking into account the 2007 Law had been erroneous.

21 . The applicant subsequently sought extraordinary review by the Supreme Court of the judgment of 5 December 2012, arguing that the cassation courts had applied the substantive law in a non-uniform way and referring , in particular, to the HCC judgment of 4 March 2010. By a ruling of 21 March 2013 the HAC refused to refer the case to the Supreme Court.

22 . The applicant submitted a copy of a decision of 8 June 2011, in which the HAC had upheld lower courts ’ decisions allowing a claim lodged by company F. against the local customs office for invalidation of tax notices it had sent to company F., requiring the latter to pay import duty and VAT on raw material it had imported in 2006-2007 into the territory of priority development in the Donetsk Region in the exercise of its investment activities regulated by the Law of 24 December 1998. With reference to the Constitutional Court ’ s decision of 27 November 2008 (which in turn referred to the decision of 22 May 2008; see paragraph 19 above), the HAC found that the 2005 Law (see paragraph 5 above), on which the customs office relied, could not be applied in respect of company F., on the grounds that laws on State budget could not repeal or change other laws, because that would lead to conflicts of laws and, as a result, to annulment and limitation of rights and freedoms. The HAC also rejected the reference by the customs office to the 2002 Law (see paragraph 5 above), without providing specific reasoning in that law ’ s respect.

COMPLAINT

The applicant complains under Article 1 of Protocol No. 1 that in its decision of 5 December 2012 the HAC failed to recognise its entitlement to the tax preferences under the 1999 Law.

QUESTIONS TO THE PARTIES

Has there been an interference with the applicant ’ s peaceful enjoyment of possessions, within the meaning of Article 1 of Protocol No. 1? If so, was that interference lawful, was it necessary to secure the payment of taxes or other contributions or penalties, and d id it impose an excessive individual burden on the applicant?

The parties are requested to provide a copy of the applicant ’ s response (if any) to the prosecutor ’ s appeal in cassation lodged in the proceedings against the customs office.