[1] Whether the supply of goods, which are the grounds for the imposition of value-added tax, may be deemed as if the goods were supplied in appearance, but where only investment money was received without the transaction of the goods (negative), and the criteria for its determination

[2] Where a legitimate principal tax amount falls short of the principal tax amount reported and paid by the taxpayer, but the tax amount calculated by adding a legitimate principal tax amount and a penalty tax exceeds the principal tax amount reported and paid, whether the tax authority may refuse a taxpayer’s request for correction (negative)

[3] Whether a tax authority can assert a new ground other than the original ground for rejection in a lawsuit seeking revocation of a disposition rejecting correction (affirmative)

[4] The criteria for determining whether a rejection disposition is legitimate in a lawsuit seeking revocation of the revocation of the corrective disposition and the scope of revocation (=the portion of the tax amount subject to reduction minus the legitimate tax amount from the initially declared tax amount)

[1] Even if the goods appear as if they were supplied in appearance, it is merely merely the pretending or iceing the supply of goods, and it cannot be deemed that there was a supply of goods, which serves as the cause of imposing value-added tax, in the event that only an investment amount is received without a transaction of goods. Whether it falls under this case shall be determined individually and specifically by comprehensively taking into account all the circumstances, such as the objective value of the goods in question and the supply value thereof, whether the person who received the goods actually intended to use or consume the goods, whether there was an intention to recover the investment amount between the parties concerned.

[2] If the amount of the principal tax is below the amount of the principal tax declared and paid by the original taxpayer, even if the amount of the principal tax exceeds the amount of the principal tax declared and paid by the original taxpayer, the tax authority cannot reject a request for correction by the taxpayer solely on such grounds.

[3] The tax authority upon receipt of a request for correction is obligated to investigate and confirm whether the tax base and tax amount recorded in the tax base return exceed the objectively legitimate tax base and tax amount to be reported under the tax law. Therefore, as in a lawsuit seeking revocation of a tax disposition, the lawsuit seeking revocation of a disposition of refusal against the request for correction is also a ground for revocation of the substantive and procedural illegality of the tax base and tax amount recorded in the tax base return, and the subject of the trial is the objective existence of the tax base and tax amount stated in the tax base return, and the grounds for each disposition of refusal that the request for correction is groundless are merely an attack and defense that asserts that the tax base and tax amount recorded in the tax base return does not exceed the objectively legitimate tax base and tax amount to be reported under the tax law. Accordingly, the tax authority

[4] In a lawsuit seeking revocation of a disposition of refusal of correction, the determination of legitimacy of the disposition of refusal is based on whether the tax base and tax amount entered in the tax base return exceed the legitimate tax base and tax amount, and the parties concerned may submit arguments and materials supporting the objective tax liability until the closing of arguments at the trial court. In the event that legitimate tax amount is calculated based on such materials, only the amount calculated by deducting the legitimate tax amount from the initially reported tax amount, shall be revoked,

[1] Article 6 of the Value-Added Tax Act / [2] Articles 2 subparag. 4 and 45-2 of the Framework Act on National Taxes, Articles 21 and 22 of the Value-Added Tax Act / [3] Article 45-2 of the Framework Act on National Taxes / [4]

[3] Supreme Court Decision 2002Du9261 delivered on August 16, 2004 (Gong2004Ha, 1550)

Plaintiff Co., Ltd. (Law Firm Tael, Attorneys Lee Tae-tae et al., Counsel for the plaintiff-appellant)

head of Sung Dong Tax Office

Seoul High Court Decision 2005Nu15573 delivered on July 7, 2006

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

The grounds of appeal are examined.

1. As to the grounds of appeal Nos. 1 and 2

Even if an external supply of goods appears to exist, if it is merely merely the disguised or ice of the supply of goods, and it is deemed that only an investment in the transaction of the goods is received without the transaction of the goods, it cannot be deemed that there was the supply of the goods, which is the cause of the imposition of value-added tax. Whether it falls under this, shall be determined individually and specifically by comprehensively taking into account all the circumstances, such as the objective value of the goods in question and the supply value thereof, whether the person who received the goods actually intended to use or consume the goods, and whether the investment amount was scheduled to be recovered between the parties.

According to the reasoning of the judgment below, after compiling the adopted evidence, the court below acknowledged the facts, and found the plaintiff's purchase price of water manufacturing machine processed as sold by the plaintiff to investors is merely 210,000 won, and it is difficult to view the sale price for investors as ordinary transactions because it reaches 2,20,000 won, which is 10 times the total amount. In light of the type of transaction, investors only have the purpose of investing a certain amount by using credit cards, etc., collecting more than the principal within a short period, or receiving allowances by inviting other investors, and it is difficult to view that investors have the purpose of using and consuming water manufacturing machine. In addition, in light of the legal principles as to the purchase and sale of water manufacturing machine as stated in the ground of appeal, the judgment below is just and there is no error of law by misapprehending the legal principles as to the purchase and sale of water manufacturing machine under the name of the plaintiff's purchaser's purchase and sale contract, and it is not possible for investors to include the sale and purchase price of goods in the basis of appeal.

2. As to the third ground for appeal

In order to apply the principle of trust and good faith to taxpayers, there is an objective contradictory behavior, the behavior was caused by the taxpayer's severe acts of worship, and the trust of the tax authority caused thereby should be protected. The application of the principle of trust and good faith to the substantial tax law which has a strong legal nature under the principle of trust and good faith is allowed only when it is recognized as necessary to protect specific trust, even if it has a legal nature, and the tax authority has the right to conduct a field investigation, as well as the tax authority has the duty to investigate and impose the substance, and accordingly bears the burden of proving the legality of the tax disposition. In light of the above, it cannot be deemed that the taxpayer committed a serious good faith to the extent that it violated the principle of trust and good faith merely because the tax authority reported and paid excessive value-added tax, and even if the tax authority has believed only the return of value-added tax in accordance with the facts, it cannot be deemed that it has trust worth protecting it (see, e.g., Supreme Court Decision 2005Du17075, Apr. 14, 2006).

In the same purport, the court below is justified in rejecting the defendant's assertion that the plaintiff's claim for correction of this case was in violation of the principle of good faith on the ground that it is difficult to deem that the plaintiff's claim for correction of this case was based on a serious act of worship to the extent that it violated the principle of good faith. There

3. As to the fourth ground for appeal

A. As to the additional tax portion

Since additional tax is a kind of administrative sanction imposed on a taxpayer who violates an obligation prescribed by the tax law without justifiable grounds in order to facilitate the exercise of the right to impose taxes and the realization of a tax claim, it is a kind of tax sanction imposed on the taxpayer who violated the obligation under the tax law without justifiable grounds. For the convenience of collection procedure, the imposition of additional tax is imposed in addition to the principal tax amount calculated under the relevant tax law. Since the nature of the national tax determined as prescribed by the tax law differs in nature from that of the principal tax, the imposition of additional tax is in essence different from that of the principal tax (see, e.g., Supreme Court Decision 2000Du7520, Oct. 26, 2001). Thus, if the legitimate principal tax amount falls short of the principal tax amount reported and paid by the original taxpayer, even if the amount of the principal tax exceeds the principal tax

In the same purport, the court below is just in holding that the plaintiff's request for correction of this case cannot be rejected solely on the ground that the tax amount calculated by adding additional tax to the legitimate principal tax amount exceeds the original tax amount initially declared and paid, and there is no violation of law as alleged in the grounds of appeal.

B. As to the scope of revocation

Since the tax authorities, upon receiving a request for correction, have the duty to investigate and confirm whether the tax base and tax amount recorded in the tax base return exceed the objectively legitimate tax base and tax amount to be reported under the tax laws, the grounds for revocation of the disposition of refusal as to the request for correction are the grounds for revocation of the substantive and procedural illegality of the disposition of refusal, and the object of the trial is the objective existence of the tax base and tax amount recorded in the tax base return (see Supreme Court Decision 2002Du9261, Aug. 16, 2004). The grounds for the refusal disposition that the request for correction is groundless are merely an attack and defense method that asserts that the tax base and tax amount recorded in the tax base return are not in excess of the objectively legitimate tax base and tax amount to be reported under the tax laws. Thus, the tax authorities may claim new grounds other than those for the rejection disposition that have already been filed can be asserted in the revocation lawsuit

On the other hand, in a lawsuit seeking revocation of a disposition of refusal of correction, the determination of legitimacy of the disposition of refusal is based on whether the tax base and tax amount entered in the return of tax base exceed the legitimate tax base and tax amount, and the parties concerned may submit arguments and materials supporting the objective tax liability until the closing of arguments at the trial court. In the event that legitimate tax amount is calculated based on such materials, only the portion obtained by deducting the legitimate tax amount from the initially reported tax

Nevertheless, the lower court, as follows, revoked the Plaintiff’s rejection disposition on the ground that even if the Plaintiff’s input tax amount of 8,800,916 based on the credit card sales amount of this case was deducted from the amount of the second quarter value-added tax for the year 2001, the Plaintiff’s input tax amount of 29,315,00, and the amount of 34,262,730, which was unfairly deducted from the amount of the tax amount should be added to the amount of the principal tax, without conducting a deliberation on the legitimacy of the assertion. However, in calculating the amount of the legitimate tax, even if the amount was added to the Defendant’s assertion and deducted from the amount of the output tax calculated based on the credit card sales amount of this case, the lower court erred by misapprehending the legal doctrine on the subject matter of adjudication in a tax lawsuit, and the Defendant’s ground of appeal pointing this out is with merit.

4. Conclusion

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Young-ran (Presiding Justice)