The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Judgment on the Plaintiff’s grounds of appeal

A. As to the grounds of appeal on value-added tax, in cases where the defect repair is required due to the defects in the contract construction work of the beneficiary, and the contractor is the taxpayer under the Value-Added Tax Act, and the defect repair constitutes the supply of the service that was used or will be used for his/her own business, the value-added tax required for the defect repair constitutes the input tax amount under Article 17(1)1 of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter “former Value-Added Tax Act”). Thus, the above value-added tax may be deducted or refunded from his/her own output tax. Thus, the contractor cannot claim damages equivalent to the above value-added tax against the beneficiary unless there are other special circumstances.

(2) According to the records, the Defendant (Counterclaim Plaintiff; hereinafter “Defendant”) is registered as a real estate rental construction sales agent. Thus, the Defendant is deemed to be a business operator under Article 2(1) of the former Value-Added Tax Act, and the Defendant’s expenses for defect repair of the instant building that is to be received from the Plaintiff (Counterclaim Defendant; hereinafter “Plaintiff”) are used for the Defendant’s business. The Defendant appears to be entitled to deduct or refund the defect repair expenses from his output tax amount.

If so, the value-added tax is not substantially returned to the defendant's expense, so the defendant cannot seek compensation for the amount equivalent to the value-added tax from the plaintiff.

Nevertheless, the court below imposed value-added tax on the amount of damages in lieu of the defect repair that the plaintiff should pay to the defendant.