The meaning of “when the provision of services is completed,” which is the time of supply for services under Article 9(2) and (4) of the former Value-Added Tax Act and Article 22 subparag. 1 of the former Enforcement Decree of the Value-Added Tax Act / Whether the supply of services is affected by the time of supply for the services where the amount of the construction, maintenance, repair, etc. ordinarily followed after the use of output of the services has already become available, and the amount of the construction, cost, etc. is smaller than that of the entire services (negative)

Article 9(2) (see current Article 16(1)1) and (4) (see current Article 16(2)) of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010); Article 22 subparag. 1 (see current deletion) of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22043, Feb. 18, 2010)

Supreme Court Decision 2013Du22291 Decided June 11, 2015 (Gong2015Ha, 1001)

E&T Co., Ltd (Law Firm Chang-help, Attorneys Kim Sung-ju et al., Counsel for the plaintiff-appellant)

The director of the tax office of distribution (Law Firm Han River, Attorneys Cho Yong-ju et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2013Nu46640 decided January 8, 2014

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

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

1. According to Article 9(2) and (4) of the former Value-Added Tax Act (Amended by Act No. 9915, Jan. 1, 2010; hereinafter the same) and Article 22 subparag. 1 of the former Enforcement Decree of the Value-Added Tax Act (Amended by Presidential Decree No. 22043, Feb. 18, 2010); in the case of ordinary supply, “when the provision of services is completed” refers to the time of supply for services.

Therefore, in a case of ordinary supply, the time when the fact of provision of the service can be verified sufficiently by taking into account the scope of provision of the service under the contract between the parties to the transaction, i.e., when a person provided with the service actually leads to the situation in which the person provided with the service could use the output of provision of the service, the time of supply for the service falls under “when the provision of the service is completed” (see Supreme Court Decision 2013Du2291, Jun. 11, 2015). However, even if there is an additional provision thereafter, it is ordinarily followed after the use of the output of the service, and the scale, amount, etc. of the service is smaller than that of the entire service, it does not affect the time of supply for the service.

2. Review of the reasoning of the first instance judgment cited by the lower court and the evidence duly admitted by the lower court reveals the following facts.

(1) On September 17, 2009, the Plaintiff entered into a construction contract with the Mine Energy Development Co., Ltd. (hereinafter “Mining Energy Development”) to supply the solar power generation facilities (hereinafter “instant power generation facilities”) to KRW 5.7 billion (value added tax) (hereinafter “instant contract”), and agreed to complete the instant power generation facilities within 90 days from the date of being selected as the support facilities for power generation price difference (general conditions Article 19, Articles 1 and 2 of the Special Conditions).

(2) The instant contract provides that the Plaintiff shall perform civil engineering works, site rearrangement works, drainage works, fences, tackers’ basic works, etc. (Article 17(2) of the General Conditions), and the Plaintiff subcontracted the construction period to the Pungdo Construction Co., Ltd. (hereinafter “Pungdo Construction”) on September 23, 2009, setting the construction period from September 24, 2009 to November 20, 2009.

(3) On August 28, 2009, the instant power generation facilities selected as the base price applicable equipment pursuant to the “Guidelines on the Standard Price for New and Renewable Energy Power Generation Power Generation” had been determined as passed by a pre-use inspection under the Electric Utility Act conducted by the Korea Electrical Safety Corporation on November 21, 2009, and the certificate of completion of the inspection contains the purport that “solar power generation facilities (the entire construction works of solar power generation facilities) have been completed.”

(4) On November 23, 2009, the luminous Energy Development reported the commencement of its business and thereafter started electric power generation business such as producing and supplying electricity to the Korea Power Exchange after operating the instant power generation facilities from around that time, and paying KRW 4,891,560 in 2009.

(5) The instant contract guaranteed the Plaintiff’s average power production time of the instant power generation plant, the performance of solar heat chains, etc. for five years from the date of commencing the commercial operation of the instant power generation facility (Article 18 of the General Conditions), and agreed to perform the maintenance and repair business from the date of pre-use inspection (Article 2 of the Maintenance and Repair Contract).

(6) Meanwhile, the instant contract states that mountainous district restoration works are one of the scope of services for mountainous district restoration works. From January 29, 2010 to March 15, 2010, the Plaintiff contracted services related to mountainous district restoration works to the Incheon Civil Engineering Technology Foundation, and to the friendly Engineering Co., Ltd., and paid KRW 12,000,000 in total. On May 24, 2010, the Plaintiff concluded a contract for services related to mountainous district restoration works and paid KRW 37,00,000 in total with its payment. The Plaintiff demanded that construction works, such as restoration of destroyed roads and restoration of irrigation road, etc., due to remaining works, such as the said civil works, be implemented until June 25, 2010.

(7) Since then, on July 7, 2010, the Plaintiff received a notice of the completion of mountainous district recovery from the Sung-gun Office, and confirmed the completion of the instant power generation facilities. On the same day, the Plaintiff issued a tax invoice of KRW 5.7 billion for the value of the development of light energy and filed a return and payment of value-added tax included in the value-added tax base for the second period of 2010.

3. Examining the scope of service under the instant contract (hereinafter “instant service”) and the terms and conditions of the instant contract, and the facts as to the installation, operation, maintenance, and repair of the instant power generation facilities in accordance with the aforementioned provisions and legal principles, there is room to deem that the development of optical energy remains in a situation where the instant power generation facilities can be used, which is the output of the supply of the instant service, by being practically provided for the development of optical energy around November 21, 2009, where the electric power generation was conducted by the pre-use inspection of the instant power generation facilities and the production and supply of electricity by operating the facilities, barring any special circumstance.

Meanwhile, in light of the content of the instant contract, it is unclear whether additional works related to mountainous district restoration works performed by the Plaintiff after the inspection was conducted prior to the use of the development facilities of this case, are included in the scope of the construction work originally contracted under the instant contract, and in relation thereto, the total amount of KRW 49 million, which is the amount paid by the Plaintiff, shall not exceed KRW 5.7 billion, which is the total construction amount received from the development of optical energy pursuant to the instant contract. Furthermore, even if the Plaintiff performed some remaining construction works, such as destruction roads and restoration of irrigation houses after the inspection conducted after the use of the electric power generation facilities of this case, it seems to be ordinarily completed after the completion of the construction of the instant development facilities of this case.

Therefore, the lower court should have sufficiently examined whether additional construction works related to mountainous district restoration works fall under the scope of Plaintiff’s service under the instant contract, the details and amount of the remaining construction works actually performed by the Plaintiff after the inspection prior to use, etc., and determined whether there were any circumstances to deem the time of supply of the instant services after November 21, 2009, which is the date of inspection prior to use for the instant development facilities.

Nevertheless, without such deliberation and determination, the lower court determined that the instant disposition was unlawful on the ground that the time of supply for the instant service was the second period of July 7, 2010, belonging to the date of confirmation of the completion of the mining-saving development, for the reasons indicated in its reasoning. In so doing, the lower court erred by misapprehending the legal doctrine on the time of supply for the service under the former Value-Added Tax Act, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment.

4. Therefore, without examining the remaining grounds of appeal, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Sang-hoon (Presiding Justice)