Press Release No: Individual Application 29/16


On 20/4/2016, the First Section of the Constitutional Court held with regard to the individual application lodged by Narsan Plastik San. Tic. Ltd. Şti.  (application no. 2013/6842) that there had been a breach of the right to property guaranteed in Articles 35 of the Constitution.   

The Facts

The applicant which is a limited liability company dealing in scrap plastics applied to the relevant administration concerning its sales value-added tax (“VAT”) of which was paid by the applicant by means of deduction. The applicant informed the administration that it was dealing with manufacturing of granule from scrap plastics and asked whether the granules manufactured from scrap was subject to VAT exemption like plastic scrap. In its letter drawn up by the administration for the applicant, it was stated that all kinds of raw, semi-manufactured and manufactured goods having characteristics of metal, glass, plastics and paper which are in the form of ingots or turned into ingots were exempted from VAT. In line with the above-cited reply given by the administration, the applicant made its sales exempted from VAT in 2004.

Having heard that the other taxpayers were provided with an opinion different than the one submitted to him, the applicant once again asked the administration whether the plastic granule and plastic pieces were within the scope of the exemption or not. In the letter of 30/3/2005 submitted by the administration, it was informed that as the plastic pieces still retained the characteristics of scrap and wastes, they were subject to exemption; however, as the plastic granule was went through the process, it lost the characteristics of scrap and wastes and was not within the scope of the exemption. As from this date, the applicant applied VAT in the sale of granule and continued benefitting from exemption in respect of the other plastic scrap sales in line with the letter submitted by the administration.

The administration referred the issue to the Revenue Administration upon the applicant’s request for receiving opinion. The Revenue Administration specified in its letter dated 23/1/2006 that as per the General Communiqué on VAT with serial no. 97, the plastic scraps and wastes were within the scope of exemption; however, as pet bottle pieces, plastic burrs, plastic granules and similar products obtained after plastic scraps and wastes had been processed did not retain the characteristic of scrap waste and turned into finished goods, such materials were not subject to exemption. Thereupon, the Revenue Administration made the applicant’s sales of plastic granule, burrs and similar products, which were made in 2004 and 2005 and exempted from VAT, subject to ex officio tax assessment without imposing any penalty in respect thereof.

The applicant thereupon filed a case before the Tax Court against these acts. In both cases concerning VAT of 2004 and 2005, the court accepted the cases on the grounds that “... it is obvious that value added tax could not be collected as the complainant has acted in line with the opinion submitted by the administration; and as it is not possible for the complainant, after this stage, to impose this tax on those who have purchased the products, the collection of this tax from the complainant would obviously cause an unjust decrease in its assets. Accordingly, the impugned value added tax is not found to be in compliance with the legislation”.  

At the appellate stage, one of these decisions concerning the year of 2004 was primarily quashed by the 9th Chamber of the Supreme Administrative Court. And subsequently at the stage of rectification of the judgment, it was upheld by the judgment dated 9/2/2010 as it was concluded that as no distinction was introduced in Article 17 of the Law no. 3065 concerning the delivery of plastics, delivery of plastics turned into granule upon being processed must be exempted from VAT. Accordingly, the judgment became final in favour of the applicant. The decision concerning the year of 2005 was quashed by the judgment of the 9th Chamber of the Supreme Administrative Court dated 20/1/2009 on the grounds that plastics turned into granule were not scrap for being turned into manufactured goods upon being processed; that it was possible for the administration to always depart from its erroneous opinion and to take a new action; and that the erroneous opinion submitted would not remove the complainant’s obligation (on the basis of the same reasoning of the first quashing judgment rendered by the Chamber in the case concerning the assessment of 2004). The applicant did not submit any document indicating that it made a request for rectification of the Supreme Administrative Court’s judgment. The decision rendered by the Tax Court in line with the quashing judgment was upheld at the appellate review stage and became final.

The applicant requested re-trial from the court for revocation of the impugned taxes; however, its request was also dismissed.

The Allegations

The applicant maintained that it had addressed a question concerning the VAT exemption status of plastic burrs and plastic scraps and wastes turned into granule, which were sold in 2004 and 2005 and had exempted these products from the VAT in accordance with the opinion received from the administration; that he had been subject to an ex officio tax assessment with the allegation that these sales were not exempted from VAT and VAT must be calculated on the basis of these sales. The applicant also alleged that these taxes became subject-matter of tax cases; that the Supreme Administrative Court had rendered different judgments in respect of the cases filed against the tax assessment of 2004 and against the tax assessment of 2005; that many firms had exempted their sales from VAT at the relevant time and such firms had not been subject to ex officio tax assessment; and that the relevant Law and the General Communiqué on VAT did not include any provision indicating that plastic burrs and plastic scraps and wastes turned into granule must be subject to VAT in 2004 and 2005. The applicant accordingly maintained that there had been a breach of the principles and rights set out in Articles 10 and 40 of the Constitution.

The Court’s Assessment

In brief, the Constitutional Court made the following assessments within the scope of these allegations.

The applicant applied to the administration and asked whether its sales were subject to VAT exemption or not as the relevant legislation was not sufficiently clear in this respect. The applicant then exempted from tax. When the applicant subsequently learned that the administration had submitted different opinions, it once again applied to the administration and requested a second opinion in this respect. Upon two replies received, the applicant exempted its sales from tax or partially made its sales subject to tax in line with the administration’s opinion.

The General Communiqué no. 97, which is the basis for the ex officio tax assessment in respect of the applicant’s sales of 2005, was promulgated in the Official Gazette dated 31/12/2005 and entered into force. There is no legal arrangement indicating that the applicant’s sales are out of the scope of the tax exemption other than the provision of this Communiqué.  The legal arrangements forming a basis for the actions of 2005 do not obviously set out that the applicant’s sales cannot be benefitted from VAT exemption and on the contrary, list all scraps and wastes, in general terms, within the scope of exemption without making any distinction. The applicant exempted its sales from VAT as indicated in the opinions requested from the administration or made its sales by means of partially imposing VAT.

Making the actions previously performed by the applicant in line with the administration’s opinion subject to ex officio tax assessment on the basis of the provisions of legal arrangement entering into force at a subsequent date and upon the completion of the taxation period is beyond a practice which could be foreseen by the applicant in advance under the existing circumstances. Therefore, it is revealed that it is not possible to expect from the applicant to foresee that these payments would be subject to taxation.  

For the above-mentioned reasons, it has been concluded that in the present incident, the principles of predictability and comprehensibility that must be ensured at the level required by law as per the principle of legality of taxes enshrined in Article 73 § 3 of the Constitution could not be attained in the tax assessments performed ex officio in subsequent yearsfor the taxation period of 2005 on the basis of the General Communiqué no. 97 promulgated in the Official Gazette dated 31/12/2005; and that the uncertainty in the provisions of law could not be eliminated by way of subsidiary arrangements and administrative practices or judicial case-laws. In the respect, it has been observed that there is no predictable legal basis for taxation of the acts performed in 2005.

Consequently, the Constitutional Court has held that there was a breach of the right to property guaranteed in Article 35 of the Constitution.

This press release prepared by the General Secretariat intends to inform the public and has no binding effect.

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