In a case where Party A reported food services to resident residents while leasing and operating a hospital funeral hall without value-added tax, and the tax authority imposed value-added tax thereon, the case affirming the judgment below holding that the supply of food services can be recognized as ordinarily incidental to the supply of funeral services subject to value-added tax exemption in light of the overall circumstances of transaction.

In a case where a school foundation Gap, while leasing and operating a funeral hall of hospital Gap, reported food free of value-added tax thereon to resident residents, etc., and the tax authority imposed value-added tax by deeming that such food constitutes subject to value-added tax, Article 12 (3) of the former Value-Added Tax Act (amended by Act No. 915, Jan. 1, 2010) shall apply the provisions of subparagraph 2 of Article 3 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043, Feb. 18, 2010; hereinafter the same shall apply) on the grounds that the provision of food free of value-added tax is not subject to the provision of food free of value-added tax in light of the fact that the provision of food free of value-added services does not constitute the provision of food free of value-added tax at a specific place where the provision of food free of value-added services is not subject to the provision of food free of value-added tax; however, it is justified to recognize that the provision of food free of value-added services is not subject to the provision of the main provision.

Articles 1(4) (see current Article 14(1)), 12(1)4 (see current Article 26(1)5), and 26(3) (see current Article 26(2)) of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010); Article 3 subparag. 2 and Article 29 subparag. 6 of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22043, Feb. 18, 2010);

School Foundation Eul Private Teaching Institutes (Law Firm Squa, Attorneys Go Won-seok et al., Counsel for the plaintiff-appellant)

Head of Nowon Tax Office (Law Firm Round, Attorneys Yellow-nam et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2011Nu24820 decided December 7, 2012

All appeals are dismissed. The costs of appeal are assessed against each appellant.

The grounds of appeal are examined.

1. Plaintiff’s ground of appeal

A. In a case where there are objective reasons to believe that a certain legal relation or factual basis that is not subject to taxation is subject to taxation, and where it is possible to establish the factual basis accurately, whether it is subject to taxation or not, the determination of whether it is subject to taxation cannot be deemed apparent even if the defect is serious, and thus, it cannot be deemed that the illegal taxation that misleads the fact that it is subject to taxation is unreasonable (see, e.g., Supreme Court Decision 2011Du2723, Feb. 23, 2012).

According to the reasoning of the judgment below, in full view of the adopted evidence, the court below acknowledged the following facts: (a) while leasing and operating the G Hospital funeral hall (hereinafter “the instant funeral hall”), the Plaintiff provided food services equivalent to KRW 5,771,061,920 (hereinafter “instant food services”) to the residents in the second period of 2009, and reported the supply price as non-value-added tax exemption; (b) the Defendant determined that the instant food services constitute value-added tax taxable; and (c) on January 6, 2010 and February 8, 2010, the Plaintiff rendered the instant disposition imposing value-added tax of KRW 354,58,30, and additional tax of KRW 172,208,540 from the first half of 204 to the second period of 2009; and (d) rejected the Plaintiff’s claim that the instant food services are supplied as non-value-added tax-free services based on its main practice after examining whether the instant food services are supplied as its main supply.

The judgment of the court below is just in accordance with the above legal principles, and there is no error in the misapprehension of legal principles as to the invalidation of a taxation disposition as alleged in the grounds of appeal.

B. Additional tax is a separate tax item for which separate tax liability is established separately from the principal tax, and the procedures for the previous trial of several taxation dispositions are subject to separate taxation dispositions in principle. As such, when a taxpayer requested revocation of additional tax without being dissatisfied with the principal tax when requesting an examination or a request for judgment regarding a taxation disposition, and the relevant claim was dismissed, and thereafter filed an appeal litigation and sought revocation of the entire principal tax and additional tax, the lawsuit regarding the principal tax is unlawful (see, e.g., Supreme Court Decision 82Nu315, Dec. 14, 1982).

In the same purport, the court below is just to determine that the part of the lawsuit in this case seeking revocation of the principal tax is unlawful upon the conjunctive claim, and there is no error of law such as misunderstanding of legal principles as to compliance with the procedure of the previous trial

2. As to the Defendant’s ground of appeal

A. Article 12(1)4 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter the same) provides that "medical and health services prescribed by Presidential Decree as one of the tax-free goods." Article 29 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22043, Feb. 18, 2010; hereinafter the same) provides that "medical and health services under Article 12(1)4 of the Act are as follows." Article 12(1)6 of the former Value-Added Tax Act provides that "the supply of goods or services essential to the supply of goods or services exempt under paragraph (1) is included in the supply of goods or services:

Meanwhile, Article 1(4) of the former Value-Added Tax Act provides that the supply of goods or services essential for the supply of services, which are the main transaction, is included in the supply of services, and Article 3 of the former Enforcement Decree of the Value-Added Tax Act provides that one of the goods or services deemed included in the supply of goods or services, which are the main transaction, refers to “goods or services that are ordinarily deemed to be incidental to the supply of goods or services, in light of transaction practices.”

In addition, in interpreting Article 12(3) of the former Value-Added Tax Act that provides for the supply of goods or services that are indispensablely annexed to the supply of goods or services subject to value-added tax exemption, it shall be interpreted in consideration of the provisions listed in Article 1(4) of the former Value-Added Tax Act and Article 3(1) of the former Enforcement Decree of the Value-Added Tax Act (see Supreme Court Decision 83Nu616, Oct. 22, 1985, etc.).

B. On the grounds indicated in its holding, the lower court determined that: (a) the provision of the instant food services does not constitute funeral hall services (such as storage, chloudation, burial, installation of a group, lease of funeral hall for the purpose of the provision, etc.) under Article 3 subparag. 2 of the former Enforcement Decree of the Value-Added Tax Act; (b) on the ground that the supply of certain goods or services does not fall under the original meaning of the goods or services subject to exemption from taxation under Article 12(3) of the former Value-Added Tax Act; (c) on the ground that the supply of food and drinks does not constitute the provision of food and clothing for the deceased; (d) the supply of food and clothing for the purpose of the provision of funeral hall at the same time does not constitute the supply of food and clothing for the purpose of funeral hall; (e) the lower court determined that the supply of food and clothing within the scope of each provision, such as the provision of food and clothing, should be sufficiently recognized in light of the purport of the value-added tax exemption system for the provision of funeral hall.

C. In light of the above provisions and relevant legal principles and records, the judgment of the court below is just and there is no error in the misapprehension of legal principles as to the scope of application under Article 3 of the former Enforcement Decree of the Value-Added Tax Act or the establishment of "transaction practice" under Article 3 subparagraph 2 of the

3. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against each losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Shin (Presiding Justice)