The State Revenue Committee Fails to Justify Fines Against Argam Abrahamyan's Company in Court

The tax authority has imposed a liability of approximately 1.236 billion AMD on Aram Abrahamyan, the son of former Prime Minister Hovik Abrahamyan, and his nephew Hovhannes Abrahamyan's company, 'Artashat Vinkon' LLC, for conducting activities without prior notification. However, it has failed to justify the legality of this demand in court. The Administrative Court has granted the company’s lawsuit, annulling the decision of the State Revenue Committee (SRC). The Court of Appeals has also ruled in favor of the company. The case is currently at the Cassational Court, as reported by 'Hetq'.

On June 26, 2020, a protocol was drawn up against 'Artashat Vinkon' LLC by employees of the SRC's Investigation and Operational Intelligence Department. According to the protocol, operational and investigative measures revealed that the company had not submitted notifications to the Ministry of Economy regarding the import of brandy alcohol and the production of alcoholic beverages resulting from the distillation of grape wine or grape must, along with sales of batches both below and above 100,000 liters. The law mandates prior notification for such activities, implying additional fees.

An administrative process was initiated based on the protocol. The company raised objections and provided positions, which, however, were not taken into account by the administrative authority. On August 7, 2020, a decision was made against 'Artashat Vinkon', reiterating the previously noted violations. Taking into account that the violation was committed for the first time in the last one-year period, a fine of 1,123,608,000 AMD and 112,361,000 AMD in compensation for damages were imposed on 'Artashat Vinkon' LLC.

The administrative act was appealed to the SRC’s Tax and Customs Appeal Commission. The Commission partially satisfied the appeal, reducing the imposed fine from a total of approximately 1.236 billion AMD to 974 million AMD.

Unhappy with this decision, 'Artashat Vinkon' LLC also appealed to the Administrative Court, arguing that the company could not notify for the specified products because the relevant state authorized body for notification was not known or legislatively defined. The company’s representative, Yeremia Asatryan, stated in court that the state duty for the production and sale of the contested products had been paid by the company. In other words, 'Artashat Vinkon' had fulfilled its obligations in substance. The company paid a sum of 102,361,000 AMD to the state budget on July 8, 2020, with copies of these payments submitted to both the SRC and the Appeals Commission before the contested act was established.

The SRC informed the court that a license for the production of distilled alcoholic beverages and industrial ethyl alcohol from fermentation materials was issued to 'Artashat Vinkon' LLC by the Ministry of Finance and Economy in 2003. The deadline for the regular annual state duty payment to obtain the right to engage in the specified activities expired in April 2019, thus the company was required to submit notifications for the production of alcoholic beverages resulting from the distillation of grape wine or grape must by that deadline. However, the company violated legal requirements and engaged in production and sales without submitting the necessary notifications from April 10, 2019, to September 15, 2019. According to the SRC, during that period, the company sold 149,522.4 liters of products, of which 5,199.7 liters were brandy and 144,326.9 liters were brandy mash.

The SRC's position is that the license was granted by the Ministry of Finance and Economy. Although no authorized state management body was defined, the company, bearing the obligation to submit a notification for the type of activity mentioned, could use the body that previously issued the license as the base for filing a notification and register it with the Ministry of Economy. 'Otherwise, it follows that it was clear for the claimant that there is an imperative requirement under the law to submit such notifications, which the claimant did not follow; hence, how could they have conducted activities without complying with this requirement,' posed a question before the court by SRC representative Rouzana Makaryan.

The Administrative Court did not find the SRC's position to be justified. It noted that the calculations for the liability of approximately 1.236 billion AMD were unclear. It was neither straightforward nor specific on how the amount of the fine and the compensation for damages were formed. The representative of the SRC later mentioned in the court session that there might have been an error and the phrase 'just a' should not have been included. Subsequent court sessions revealed that there was a discrepancy in the amounts calculated by both the company and the SRC.

The court stated that during the nearly two-hour court session, the SRC managed to explain and clarify the corresponding liabilities only after the facts were raised, which should not have been the case. The administrative act should have been grounded and clear from the beginning to allow for the determination of the factual and legal bases that the administrative authority founded its decision on.

In addition, the Administrative Court noted that it was unclear whether the liabilities were calculated while considering the payments made by 'Artashat Vinkon' LLC or not. Furthermore, it was ambiguous why compensation for damages was calculated when the company had made the payment. During the court session, the SRC's representative mentioned that the company made its payments to a different account; thus, these payments could not serve as the basis for stating that the state duty on the import of brandy alcohol had been paid. However, the Administrative Court found that the SRC was obliged to conduct comprehensive, complete, and objective proceedings to clarify all circumstances, specifically whether the state duty for the purpose of importing brandy alcohol had actually been paid.

The SRC could have discovered through comprehensive proceedings that the amounts paid under the indicated records served a different purpose, but as long as there was no other evidence in the administrative file, the court had no grounds to distrust the claimant’s provided information and the submitted records indicating that the state duty had been paid for the import of brandy alcohol.

The court concluded that the tax authority's goal should be to ensure that taxes and duties are paid on time, rather than to artificially burden entrepreneurs with additional obligations. Therefore, it's unreasonable to evaluate the SRC's approach that the company is not entitled to recover funds paid to a different account.

It appears that specific payment amounts “were frozen” and did not serve their intended purpose merely because a different budget account was cited, meaning that the individual must pay additional amounts in the form of fines and subsequently manage those funds that were paid on time to the state budget. Such an approach does not conform with the principles of the rule of law and the tax system established by the tax code of the Republic of Armenia.

Consequently, the court granted the company's lawsuit, annulling the SRC's administrative act and the decision of the Appeals Commission. The SRC filed an appeal, but the Administrative Court of Appeals rejected the SRC's appeal, upholding the lower court's decision. In December 2023, the SRC submitted a cassation appeal, on which a decision has yet to be made.

This is not the first instance of the SRC imposing fines on the company for failing to submit notifications. A similar administrative process was initiated in 2022, and on April 20 of that year, 'Artashat Vinkon' LLC was charged with the obligation to pay a fine of 20 million AMD. The company appealed the fine decision to the commission, but it was rejected, leading 'Artashat Vinkon' to appeal to the Administrative Court. The Administrative Court (Judge Mikael Melkumyan) also ruled in favor of the LLC in this case. The SRC has appealed this ruling, but the Administrative Court of Appeals has yet to make a decision.