[1] Whether the zero-rate tax rate applies to the supply of goods under a defective purchase approval procedure (affirmative)

[2] Whether the goods specified in the purchase approval can be subject to zero tax rate only if they are actually exported (negative)

[3] The case holding that the current supply is subject to zero-rate tax rate on the ground that there is no negligence or gross negligence due to a supplier's failure to know the defect in the procedure for issuing a purchase approval

[1] Unless there are special circumstances such as whether the head of a foreign exchange bank that issued a defective purchase approval form can cancel the issuance of the purchase approval form, the supply of goods under the purchase approval form can not be immediately excluded from zero-rate tax rate under the Value-Added Tax Act, just on the ground of such defects in the process of issuance, unless there are special circumstances such as the supplier of the goods knew that the issuance of the purchase approval was defective.

[2] The Value-Added Tax Act does not require that the goods supplied for the purpose of being subject to zero tax rate under the Value-Added Tax Act should be actually exported, and even according to the General Rule 11-24-9 of the Value-Added Tax Act, the zero tax rate shall apply regardless of whether the goods supplied for the purpose of export after the supply are used for the purpose of export. Thus, whether the goods supplied for the purpose of export have actually been exported or not shall not affect the application of zero-rate tax rate.

[3] The case holding that the current supply is subject to zero-rate tax rate on the grounds that there is no provision that a gold supplier is aware of the defect in the procedure for issuing a purchase approval, and that there is no provision that a supplier who did not know of the defect in the purchase approval in the statutes related to value-added tax is exempt from the zero-rate tax rate

[1] Article 11(1)1 of the Value-Added Tax Act, Article 24 of the former Enforcement Decree of the Value-Added Tax Act (amended by the Presidential Decree No. 16661 of Dec. 31, 199), Article 9-2(1) of the former Enforcement Rule of the Value-Added Tax Act (amended by the Ordinance of the Ministry of Finance and Economy No. 133 of Mar. 31, 200), Article 11(1)1 of the former Enforcement Rule of the Value-Added Tax Act / [2] Article 24 of the former Enforcement Rule of the Value-Added Tax Act (amended by the Presidential Decree No. 16661 of Dec. 31, 199), Article 9-2(1) of the former Enforcement Rule of the Value-Added Tax Act (amended by the Presidential Decree No. 16661 of Mar. 31, 200), Article 11-24-9 of the former Enforcement Rule of the Value-Added Tax Act / [3]

ELB Co., Ltd. (Law Firm Square, Attorneys Yu-hee et al., Counsel for the plaintiff-appellant)

Head of Ulsan District Office

Ulsan District Court Decision 2002Guhap435 delivered on September 11, 2002

1. Revocation of the first instance judgment.

2. The Defendant’s imposition of value-added tax of KRW 92,825,490 against the Plaintiff on February 1, 2001 shall be revoked.

3. The total costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Details of the disposition;

The following facts are not disputed between the parties, or can be acknowledged in full view of the whole purport of the pleadings in each of the statements in Gap evidence 1 through 3, evidence 1 to 4-1, 2, Gap evidence 5 and 6-1 to 6, Eul evidence 1, 2, Eul evidence 3 and 4, respectively.

A. The ELM Co., Ltd. (the above company was incorporated into the Plaintiff on April 1, 199 and completed the registration on the 2th of the same month) is a corporation operating the sales business of metal and non-metallic minerals, and the non-party Samsung Heavy Co., Ltd. (hereinafter referred to as "the non-party to Samsung Heavy Co., Ltd") sells 60 kilograms total of 60 kilograms (hereinafter referred to as "the transaction in this case") over six occasions from February 1, 1999 to February 11 of the same month, and the purchase approval for raw materials (goods) for foreign exchange earnings issued by the President of the Korea Exchange Co., Ltd. (the president of foreign exchange) was presented, on the ground that the transaction in this case constitutes a transaction to which the zero-rate tax rate under the Value-Added Tax Act applies, and thus, it did not report and pay the value-added tax pursuant to the transaction in this case.

B.However, on February 1, 2001, the Defendant issued the instant disposition imposing a value-added tax of KRW 92,825,490 on the Plaintiff for the first term portion of the year 1999, calculated as shown in the separate sheet, on the ground that the Plaintiff’s purchase approval letter of credit or export contract necessary for the issuance was not issued and submitted, and that the purchase approval letter of credit or export contract was not a lawful and effective purchase approval was not issued, and that the Plaintiff’s purchase date was not actually exported.

2. Whether the disposition is lawful;

A. The plaintiff's assertion

The plaintiff asserts that although the purchase approval issued by the plaintiff is a legitimate purchase approval issued by the head of foreign exchange bank, and it is revealed that the documents are incomplete in the process of issuing the above purchase approval, as alleged by the defendant, the plaintiff's sales of the goods issued and submitted by the head of the foreign exchange bank who issued the above purchase approval cannot be excluded from zero tax rate under the Value-Added Tax Act. The plaintiff's sales of the goods for which the above purchase approval was issued and submitted cannot be viewed as being subject to zero tax rate under the Value-Added Tax Act, and the above purchase approval is still subject to zero tax rate under the Value-Added Tax Act even if the goods were converted for domestic purposes different from the purpose and purpose of initial purchase after the supply of the goods for which the above purchase approval was submitted.

B. Relevant statutes

Value-Added Tax Act

Article 11 (Application of Zero Tax Rate) (1) The zero tax rate shall apply to the supply of any of the following goods or services:

1. Exported goods;

Gu Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 16661 of December 31, 199)

Article 24 (Scope of Exports) (1) Export provided for in Article 11 (1) 1 of the Act shall be made out of the Republic of Korea, to a foreign country, domestic goods (including marine products caught by vessels of the Republic of Korea).

(2) Goods exported as prescribed in Article 11 (1) 1 of the Act shall include the goods supplied by an entrepreneur through a local letter of credit and a purchase approval as prescribed in the Foreign Trade Act.

Enforcement Rule of the Value-Added Tax Act (amended by the Ordinance of the Ministry of Finance and Economy No. 133 of March 31, 2000)

(1) The term "local letter of credit, etc." in Articles 9-2 (2) and 26 (1) 2 (2) of the Decree means a letter of credit, the head of a foreign exchange bank establishes, at the request of the relevant enterpriser, within the taxable period to which the time of supply for goods or services belongs, where an entrepreneur wishes to be supplied with raw materials for export or goods for export or goods for export or goods for export

(2) A written approval for purchase as provided in Article 24 (2) of the Decree means an approval issued by the head of a foreign exchange bank within the taxable period whereto belongs the time of supply for goods in accordance with a local letter of credit under

(c) Markets:

(1) whether the supply of goods under a defective purchase authorization is subject to the zero-rate tax rate

(A)In full view of all the above evidence, Article 4-27 of the Foreign Trade Act provides that the head of a foreign exchange bank may issue a purchase approval according to a letter of credit, export contract, certificate of foreign currency purchase (deposit), local letter of credit, certificate of purchase approval, and documents proving that the goods provided for foreign exchange earnings under the Enforcement Decree of the Foreign Trade Act are being produced. A person who intends to obtain a purchase approval shall submit three copies of the above documents and one copy of the above contract for the supply of goods for foreign exchange earnings or one copy of the letter of contract for the supply of goods for foreign exchange earnings. However, Samsung Funds shall be issued with a purchase approval attached only to the letter of credit, export contract, certificate of foreign currency purchase (deposit), local letter of credit, and certificate of purchase approval, and the other person who intends to obtain a purchase approval shall submit three copies of the above documents and one copy of the letter of contract for the supply of goods for foreign exchange earnings or one copy of the letter of contract for the sale of goods to the head of the foreign exchange bank. Thus, although the plaintiff did not present submit the purchase approval.

(b)However, the issue of whether the head of the foreign exchange bank who issued the purchase approval may cancel the issuance of the purchase approval which is defective in the process of issuing the purchase approval is separate (the above purchase approval issued by the head of the foreign exchange bank cannot be deemed null and void a year only with the above defect in the process of issuing the purchase approval). Unless there are special circumstances such as the supplier's knowledge of the defect in the process of issuing the purchase approval, the supply of the goods under the purchase approval can not be immediately excluded from zero tax rate under the Value-Added Tax Act on the sole ground of the defect in the process of issuing the purchase approval, and it is found that the plaintiff could not be recognized that the above defect was known in issuing the purchase approval. Therefore, the plaintiff's argument in this regard is with merit.

(ii)whether or not the goods described in the purchase authorization are eligible for zero tax rate, provided that they are actually exported;

The Value-Added Tax Act does not require that the goods supplied for the purpose of being subject to zero tax rate under the Value-Added Tax Act should be actually exported, and even under the General Rule 11-24-9 of the Value-Added Tax Act, the zero tax rate shall apply regardless of whether the goods supplied for export purposes after the supply are used for the export purposes after the supply. Thus, the issue of whether the supply was actually exported to the plaintiff shall not affect the application of zero-rate tax rate to the plaintiff. Thus, even if the supply was not actually exported to the plaintiff, the plaintiff's act of supply in this case cannot be deemed to be excluded from zero-rate tax rate. Thus, this part of the plaintiff's assertion is justified.

D. Whether to act in good faith

(1) The defendant asserts that although the plaintiff was a large company that is currently selling in large volume and was able to know that in the case of a purchase approval, the non-party corporation, which is a material company, had been engaged in the present transaction, the purchase approval procedure may be issued in an irregular and irregular manner because of the fact that the purchase approval procedure is not an exporter at the time of the transaction in this case, and even though it was sufficiently known that the purchase approval was omitted in the documents and number column submitted from Samsung, it was not issued a genuinely due to the omission of the entry in the purchase approval document and number column, the plaintiff did not fulfill his duty of due care, such as checking the authenticity of the purchase approval in the main office of Seocho Bank, which is the issuing authority, and thus, it cannot apply the zero-rate provision because it is not a bona fide trading party who trades in good faith.

(2)In the first instance court's fact-finding with respect to the letter Nos. 5-1 to 6, Eul evidence Nos. 6-3, Eul evidence Nos. 7-1, 2, and Eul evidence Nos. 1, 13-1 and 2, it is not sufficient to acknowledge that the plaintiff knew that there was a defect in the procedure for issuing the purchase authorization of this case submitted from Samsung Fund, and there is no other evidence to acknowledge that there is no other evidence, and there is no provision that the supplier who was not aware of the defect in the purchase authorization in the laws and regulations related to value-added tax excludes the supplier who was negligent or gross negligence from zero tax base, the above argument by the defendant is not acceptable.

E. Sub-committee

Thus, the disposition of this case which did not apply zero tax rate to the transaction of this case is unlawful, unless it is found that the transaction of this case is otherwise excluded from zero tax rate application.

3. Conclusion

Therefore, the plaintiff's claim seeking the cancellation of the disposition of this case is justified, and the judgment of the court of first instance is unfair, and the plaintiff's appeal is reasonable, and it is so decided as per Disposition.

Judges Park Jong-hun (Presiding Judge)