In a case where Gap farming association reported and paid value-added tax on the first floor of the building; Gap farming association operated a restaurant equipped with facilities for food by cooking beef purchased by customers on the second floor; and the tax authority imposed value-added tax on Gap's sales of beef sold at the second floor of the 1st floor of the 1st floor of the 2nd floor of the 2nd floor of the 2nd floor of the 2nd floor of the 2nd floor of the 2nd floor of the 2nd floor of the 2nd floor of the 1st floor of the 2nd floor of the 2nd floor of the 2nd floor of the 1st floor of the 1st floor of the 1st floor of the 2nd floor of the 2nd floor of the 2nd floor of the 2nd floor of the 1st floor of the 1st floor of the 1st floor of the 2nd floor of the 2nd floor of the 1st floor of the 1st floor of the 1st floor of the 1st floor of the 2nd floor of the 2nd floor of the 2nd floor of the 2 floor of the 2.

Articles 1(1)1, 1(3) (see current Article 4), 11(1), and (5) (see current Article 9(2), 11(2), and 12(1)1 (see current Article 26(1)) of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010); Article 2(1)2 (see current Article 3(1)2), and (3) (see current Article 3(2)), 28(1) (see current Article 34(1), 11(2), and 12(1)1 (see current Article 26(1) of the former Enforcement Decree of the Value-Added Tax Act; Article 2(1)2 of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22578, Dec. 30, 201); Article 28(1) (4) (see current Article 34(1)); Article 28(1) of the former Enforcement Rule of the Framework Act on National Taxes

Young-gu Agricultural Partnership (Law Firm LLC et al., Counsel for the plaintiff-appellant-appellee)

Yeongdeungpo Tax Office (Law Firm Ulul, Attorneys Ansan-young et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2012Nu541 decided November 28, 2012

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. A. Article 1(1)1, (3), and (5) of the former Value-Added Tax Act (amended by Act No. 9915, Jan. 1, 2010; hereinafter the “Value-Added Tax Act”) and Article 2(1) of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 22578, Dec. 30, 2010; hereinafter the “Enforcement Decree of the Value-Added Tax Act”) stipulate services subject to value-added tax as “all services and other activities falling under any of the following subparagraphs” and subparagraph 2 of Article 2(3) of the Enforcement Decree of the Value-Added Tax Act provides that “The business classification under paragraph (1) shall be based on the Korean Standard Industrial Classification as of the first day of the taxable period publicly notified by the Commissioner of the National Statistical Office, and any business similar to the business under paragraph (1) shall be deemed included in the business under the same paragraph, notwithstanding the Korean Standard Industrial Classification.”

Meanwhile, Article 12 (1) 1 of the Value-Added Tax Act provides that "unprocessed foodstuffs (including agricultural, livestock, fishery, and forest products for food) and agricultural, livestock, fishery, and forest products not used for food produced in Korea, as prescribed by Presidential Decree" as one of the goods exempt from the value-added tax; Article 28 (1) of the Enforcement Decree of the Value-Added Tax Act provides that "unprocessed foodstuffs provided for in Article 12 (1) 1 of the Act (hereafter referred to as "unprocessed foodstuffs" in this Article) are as follows, and are not processed or processed or are used for food through the primary processing to the extent that the inherent nature of the original products does not change." Article 28 (4) 1 of the Enforcement Decree of the Value-Added Tax Act provides that "in accordance with the delegation of the former Enforcement Rule of the Value-Added Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 1010, Feb. 18, 202).

B. Article 14(2) of the Framework Act on National Taxes provides that “The provisions pertaining to the calculation of tax base in the tax-related Acts shall apply according to its substance, irrespective of the name or form of income, profit, property, act or transaction.” However, in conducting economic activities, a taxpayer may choose one of the several legal relations while achieving the same economic purpose. Thus, barring special circumstances, even if it is an act to avoid the excessive burden of tax, it shall be deemed valid (see, e.g., Supreme Court Decision 2010Du3916, May 13, 201).

2. Comprehensively taking account of the adopted evidence, the lower court acknowledged that the Plaintiff’s disposal of the first floor of the building located in Gangseo-gu Seoul Special Metropolitan City (hereinafter “instant building”) from April 2009 to June 201, on the first floor of the building (hereinafter “the building of this case”), on which beef and by-products were sold, and on the second floor, a restaurant equipped with guest facilities capable of eating after cooking beef purchased by customers, on the second floor; the first floor and the second floor of the apartment floor operated by the Plaintiff are divided into separate entrance and separate entrances; the second floor of the restaurant of this case was installed and calculated on each floor; the second floor of the restaurant of this case was based on a separate calculation unit; the body of the 2nd floor restaurant of this case consisted of raw tea, spiced, boomed, air bed, air conditioning, alcoholic beverages, beverages, etc. excluding beef, and the Defendant imposed the disposition of this case on the Plaintiff on the sales of the part 2nd floor of this case from the sale of beef at the Plaintiff’s first floor store of this case.

Furthermore, the court below held that the disposition of this case is unlawful on the ground that, in this case where there is no proof as to the business form or method, weight of sales, size, and market price of the first floor and the second floor restaurant based on the above facts, the customer purchased and calculated beef at the first floor and did not provide beef itself to the customer at the second floor restaurant, as well as at the end of the Plaintiff’s act of supplying and calculating beef at the second floor restaurant, and thus, the customer did not prepare and provide beef itself to the customer at the second floor restaurant. Thus, even if the customer purchased beef from the first floor to the second floor restaurant, he prepared it along with the second floor restaurant separately, or the Plaintiff operated the second floor and the second floor restaurant as a single business operator, it cannot be deemed that the Plaintiff provided the service to the customer.

Examining the record in light of the relevant provisions and legal principles as seen earlier, such determination by the lower court is justifiable, and contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the principle of substantial taxation as stipulated in Article 14(2)

3. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Park Poe-young (Presiding Justice)