Whether the contractor can claim damages equivalent to the value-added tax when the contractor deducts the value-added tax required for the defect repair from the output tax amount or cannot be refunded as the contractor's contractor's contractor's defect in the contract construction work (affirmative)

Articles 64 and 667 of the Civil Act; Article 39(1)7 of the Value-Added Tax Act

Supreme Court Decision 2004Da39511 Delivered on April 28, 2006

Korea Land and Housing Corporation (Law Firm Inulul, Attorneys Park Young-man et al., Counsel for the plaintiff-appellant)

Gold Industry Co., Ltd. and one other (Law Firm Hangyn, Attorneys Kim Han-soo et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2014Na2049287 decided April 29, 2015

The part of the lower judgment against the Plaintiff regarding the claim for damages in lieu of defect repair among the ancillary claims against Defendant Geum Industrial Co., Ltd. and the part against the Plaintiff against Defendant Construction Financial Cooperative is reversed, and that part of the case is remanded to the Seoul High Court. The Plaintiff’s remaining appeal against Defendant Geum Industrial Co., Ltd. is dismissed.

The grounds of appeal are examined.

1. As to the ground of appeal as to the primary claim against Defendant Gold Industry Corporation

citing the reasoning of the judgment of the court of first instance, the court below determined that Article 9 (7) of the Special Conditions of the Contract of this case provides that "the plaintiff may direct demand the contractor to repair the defects, and the contractor shall faithfully comply with such demand, and the contractor shall repair the defects." However, the above provision provides that the plaintiff shall perform the liability for repairing defects borne by the plaintiff under Article 38 (14) of the former Housing Construction Promotion Act (wholly amended by the Housing Act No. 6916 of May 29, 2003), etc. (wholly amended by Act No. 6916 of May 29, 2003), and therefore, the buyer cannot be deemed as a contract for the third party acquiring the right to claim the repair of defects against the defendant gold Industry Co., Ltd.

In light of the relevant legal principles and records, the above determination by the court below is just and acceptable, and there is no error by misapprehending the legal principles on damages in lieu of defect repairs and contracts for a third party, etc.

2. As to the ground of appeal on the claim for damages due to incomplete performance among the conjunctive claim against Defendant Gold Industry Co., Ltd.

The plaintiff filed an appeal as to the claim for damages due to incomplete performance among the conjunctive claims against the defendant Geum Industrial Co., Ltd. of the judgment below. However, there is no indication of the grounds for appeal in the petition of appeal and there is no indication of the grounds for appeal.

3. As to the claim for damages in lieu of defect repair among the conjunctive claims against Defendant Gold Industry Co., Ltd. and the ground of appeal against Defendant Construction Mutual Aid Association

A. As to Article 25 of the Special Conditions of the instant contract

citing the reasoning of the judgment of the court of first instance, the court below rejected the Plaintiff’s assertion that the period of warranty liability should be 10 years pursuant to Article 25 of the Special Conditions of the Contract of this case, on the ground that there is insufficient evidence to support the fact that the users of the relevant facility suffered great inconvenience due to the defect in the construction of air exhausts of the M

In light of the relevant legal principles and records, the above determination by the court below is just and there is no error in the misapprehension of legal principles as to the burden of proof.

B. As to deduction of value-added tax part

(1) Where the contractor requires the repair of defects due to defects in the contractor's contract construction work, and the contractor is entitled to deduct or refund the value-added tax required for the repair of defects from his own output tax amount, the value-added tax shall not be returned to the contractor's actual costs. Thus, the contractor cannot claim damages equivalent to the value-added tax (see Supreme Court Decision 2004Da39511, Apr. 28, 2006). However, unless there are special circumstances, the contractor is entitled to claim damages equivalent to the value-added tax against the contractor (see Supreme Court Decision 2004Da39511, Apr. 28, 2006). If the value-added tax required for the repair of defects falls under the contractor's own output tax amount under Article 39 (1) 7 of the Value-Added Tax Act and the contractor cannot deduct or

(2) According to the reasoning of the first instance judgment as cited by the lower court and the record, since the exclusive residential area of all households of the instant apartment does not exceed 85 square meters, it is reasonable to view that the Plaintiff’s construction and sale of the instant apartment constitutes a “supply of housing with a residential area not exceeding 85 square meters per house or household” or a “supply of construction services for the relevant housing,” which is a tax-free business exempt from value-added tax pursuant to Article 106(1)4 of the Restriction of Special Taxation Act, Articles 106(4) and 51-2(3) of the Enforcement Decree of the same Act, and Article 2 subparag. 3 of the Housing Act.

Therefore, in light of the aforementioned legal principles, the value-added tax due to the supply of defect repair services for the apartment of this case, a national housing, constitutes the Plaintiff’s input tax amount related to the instant apartment supply business, and thus cannot be deducted or refundable from the Plaintiff’s output tax amount pursuant to Article 39(1)7 of the Value-Added Tax Act. Thus, the Plaintiff can seek damages equivalent to the value-added

Nevertheless, the lower court determined that, solely on the grounds stated in its reasoning, the Plaintiff could not claim damages equivalent to the value-added tax since the Plaintiff could either deduct or refund the amount equivalent to the value-added tax from the output tax amount out of the cost of repairing the defects of the apartment in this case. This is erroneous in the misapprehension

4. Conclusion

Therefore, the part of the judgment below against the plaintiff as to the claim for damages in lieu of defect repair among the conjunctive claim against the defendant Geum Industrial Co., Ltd. and the part against the plaintiff as to the defendant Construction Financial Cooperative is reversed, and that part of the case is remanded to the court below for a new trial and determination. The plaintiff's remaining appeal against the defendant Geum Industrial Co., Ltd. is dismissed. It is so decided as per Disposition by the assent of all participating Justices

Justices Ko Young-han (Presiding Justice)