(a) Whether Article 17 (2) 4 of the Value-Added Tax Act shall apply where the value-added tax-free business is run as a supplementary business using machinery and equipment already installed prior to the commencement of the main business (affirmative);

(b) In the case of the preceding paragraph, the calculation method of input tax amount;

(a) A person who is engaged in the value-added tax-free business by using machinery and equipment already installed prior to the commencement of the main business falls under the entrepreneur who concurrently operates the tax-free business and the tax-free business under Article 61 of the Enforcement Decree of the Value-Added Tax Act, and in this case, the input tax amount related to investment in the tax-free business shall not be deducted or refunded from the output tax amount under Article 17

(b) In the case of the preceding paragraph, an input tax amount related to the tax-free business among the input tax amounts for the new construction of factory buildings and the purchase of machinery and facilities shall be calculated by adding the actual reversion of the factory buildings and machinery facilities to which they are used for the taxable business and the tax-free business, and the common input tax amount which cannot be divided into actual reversion due to the common use shall be calculated according to the method under Article 61(1) of the Enforcement Decree of the Tax Act, i.e., the input tax amount related to the tax-free business x common input tax amount x (the tax-free business supply price / the total supply price) x the scope of the relevant input tax amount deduction. If there is no supply price for the taxable business or the tax-free business during the pertinent taxable period or there is no supply price for any other business, the calculation of common input tax amount shall be based

Article 17 (2) 4 of the Value-Added Tax Act, Article 61 of the Enforcement Decree of the same Act

Korea ham Co., Ltd., Counsel for the plaintiff-appellant

The Director of the National Tax Service

Seoul High Court Decision 86Gu1321 delivered on May 27, 198

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

As to the grounds of appeal by Defendant Litigation Performers:

According to the reasoning of the judgment below, the court below determined that the disposition of this case was unlawful since the plaintiff's purpose of business was not changed from the taxable business to the tax exemption business or its original purpose was a concurrent business of tax exemption business, since the plaintiff's factory, building, machinery, equipment, etc. are mainly equipped with the manufacturing of processed meat products such as ham and small saba, etc., and the plaintiff's factory, construction, etc., was already temporarily equipped with the manufacturing of processed meat products such as ham and small saba, etc., and the plaintiff's business was operated for the manufacturing of exempted meat, which is a non-taxable business under the articles of incorporation prior to the commencement of its main business.

However, as acknowledged by the court below, if the plaintiff runs the value-added tax-free business by using machinery and equipment already installed prior to the commencement of the main business, the plaintiff shall be deemed to be an entrepreneur who concurrently runs the tax-free business and the tax-free business under Article 61 of the Enforcement Decree of the Value-Added Tax Act. Therefore, the input tax amount related to the investment in the value-added tax-free business shall not be deducted or refunded from the output tax amount under Article 17

In addition, in calculating the input tax amount related to the non-returnable tax-free business among the input tax amount due to the new construction of the factory building in this case and the purchase of machinery facilities, the actual reversion of the factory building and machinery facilities should be used for either taxable business or tax-free business, but with respect to the common purchase tax amount which is used for both taxable business and tax-free business and is not distinguishable from the actual reversion, the method provided for in Article 61(1) of the Enforcement Decree of the Act on the Tax Payment shall be calculated in proportion to the common purchase tax amount x (tax-free supply price / total supply price) x (tax-free supply price) x the scope of the input tax deduction should be determined accordingly. If there is no supply price for taxable business or tax-free business during the pertinent taxable period or there is no supply price for any other business, the common purchase tax amount shall be calculated in proportion to the purchase price related to the tax-free business (excluding the common purchase price).

Nevertheless, on the premise that the Plaintiff’s new construction of factory buildings and the purchase of machinery and facilities are used for the taxable business, the lower court revoked the entire taxation disposition of this case without entirely examining the parts used for the tax exemption business and the parts used for the taxable business. In so doing, the lower court did not err by misapprehending the legal doctrine on the input tax amount not deducted from the output tax amount under the added-value Tax Act, thereby failing to exhaust all necessary deliberations. It is reasonable to

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below. It is so decided as per Disposition by the assent of all participating Justices.

Justices Yoon Young-young (Presiding Justice)