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DECISION OF THE SUPREME COURT OF THE RUSSIAN FEDERATION

of April 22, 1997

Judicial board on civil cases of the Supreme Court of the Russian Federation in structure:

The chairman - the judge of the Supreme Court                                  of the Russian Federation Chernyaev A. F.

jurymen                                                           of Akifyev V. I., Sluyanova V. V.

in case of                                                                   Asiri L. A. secretary.

with participation                                                           of the prosecutor Fedotova A. V.

having considered in proceeding in open court civil case according to the statement of Magnitogorsk Iron and Steel Works open joint stock company and Kulikova Irina Petrovna for recognition illegal (invalid) the paragraph of the fourth item 9 of the Instruction of the State Tax Administration of the Russian Federation of N39 of 11.10.95. "About procedure for calculation and tax discharge on value added" (in edition of 22.08.96), established:

applicants appealed to the Supreme Court of the Russian Federation with the above-stated requirements, referred to the fact that the Instructions of the State Tax Administration of the Russian Federation containing in paragraph 4 of item 9 of the Provision are not based by N39 of 11.10.95 in edition of 22.08.96 (further Instructions) on the Law and violate their rights provided by the Law of the Russian Federation "About the Value Added Tax" (the Art. 5) privileges about exemption of this tax in case of self-produced commodity export.

Applicants referred also to the fact that application of the specified Instruction Provision on which the value added tax assesses the amounts of advance payments received by the joint-stock company from foreign firms on account of the forthcoming export of products of Joint-stock company violates the rights both the companies, and shareholders regarding receipt of salary and dividends.

Believing that having brought this Provision in the Instruction, the State Tax Service of the Russian Federation thereby made changes to the Law "About the Value Added Tax", than exceeded the authority.

In judicial session representative of JSC MMK Maslova L. A. and Kulikova I. P. representative - Shepilov S. V. the requirements supported. Kulikova I. P. in court was not, asked to consider case in its absence with participation of her representative Shepilov S. V.

Representatives of the State Tax Administration Cheremiskin V. I., Balashov L.V., Savelyev P. I., and also the representatives of the Ministry of Finance of the Russian Federation of M.B. Pancakes, Semkin T. I. recruited in case in quality of interested persons., Tsibizova O. F. did not agree with requirements of applicants and asked court to refuse allowance of the application, referring to the fact that the Instruction Provision challenged by applicants does not contradict the Law and that the right to tax benefit on the exported goods arises in case of the actual crossing of goods of border of the Russian Federation.

Having listened to explanations of representatives of applicants for Maslov L. A., Shepilov S. V., representatives of the State Tax Administration of Cheremiskin V. I., to Balashov L.V., Savelyev P. I., representatives of the Ministry of Finance of the Russian Federation Blinov M. V., Semkina T. I., to Tsibizov O. F. conclusion of the prosecutor of the Prosecutor General's Office Fedotova A. V. believing to refuse allowance of the application, and having researched case papers, the Supreme Court of the Russian Federation does not find the bases to allowance of the application.

In item 9 of the Instruction disputed by applicants it is specified that the value added tax assesses the amounts of advance payments received by the Russian organizations (companies) from foreign and Russian persons on account of the forthcoming commodity export, works and services. After confirmation of real commodity export, works and services in accordance with the established procedure the value added tax from the advance payments received by the Russian organizations is subject to offsetting.

According to items. "And" Item 1 of Art. 5 of the Law of the Russian Federation "About the Value Added Tax" the exported goods as self-produced, and acquired are exempted from the value added tax.

So, according to Art. 97 of the Customs code of the Russian Federation commodity export - customs regime in case of which goods are exported out of limits of customs area of the Russian Federation without obligation about their import to this territory.

Therefore, the commodity export sign granting the right to tax benefit is the actual crossing by load of border of the Russian Federation. That is, the goods are considered implemented for export if it is exported out of limits of the Russian Federation.

On it, according to court, the right of application of this privilege by the current legislation is decided in dependence on whether commodity export was actually performed and not connected with delivery conditions, actions and intentions of the supplier.

According to Art. 10 of the Law "About the Value Added Tax" the Instruction for application of this law is developed and published by the State Tax Administration in coordination with the Ministry of Finance of the Russian Federation, i.e. the State Tax Service of the Russian Federation was effective within provided to it by the Law of competence.

According to the paragraph the second item 1 of Art. 4 of the specified Law, leviable turnover joins any money which is also received by the companies if their obtaining is connected with calculations for payment of goods (works, services).

Taking into account the given provisions of the law, the requirements of the Instruction disputed by applicants for belief of court do not contradict the Law, do not supplement it. Also the rights of applicants to receipt of tax benefit are not violated.

As by the Provision of the Instruction it is determined that after confirmation of real commodity export, works and services in accordance with the established procedure, the value added tax from the advance payments received by the Russian organizations is subject to offsetting.

In case of the disputes connected with implementation of this requirement of the Instruction, JSC MMK is not deprived of opportunity to take a legal action with specific requirements.

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