Recognition as illegal and cancellation of the notification of the tax audit of additional charges for emissions into the environment

For the disposal of industrial waste without obtaining an appropriate permit, the business entity must be held accountable as a result of the production activities of which these wastes were obtained. JSC "S" (hereinafter referred to as the Company) applied to the court with an application to GU "N" (hereinafter referred to as the tax authority) and "D" (hereinafter referred to as the Department) for recognition as illegal and cancellation of the notification of the documentary tax audit No. 1 dated December 25, 2013 regarding additional charges for emissions into the environment. Wednesday in the amount of KZT 1,521,147,921 and penalties in the amount of KZT 930,371,886. The Company carries out exploration, development and operation of a hydrocarbon field, transportation, storage and loading of oil at the Arysskoye and Blinovskoye fields in the Kyzylorda region. A comprehensive tax audit conducted on the basis of the order No. 1 of January 17, 2011 by the tax authority established that the Company exceeded the limits of waste emissions. According to the inspection report, the Company did not have a permit for drilling sludge in the amount of 565.35 tons in the fourth quarter of 2008. In 2009 and 2010, the excess volume of drilling mud amounted to 6,720.63 and 5,954.42 tons, respectively. The excess volume of the contaminated soil in 2009 and 2010 amounted to 22.86 and 32.86 tons, respectively.

The failure of the Company to reflect environmental emissions charges in the declaration led to the issuance of a disputed notice by the tax authority. Having disagreed with the conclusions of the tax audit, the Company appealed to the court with the above-mentioned statement. By the decision of the specialized interdistrict Economic Court of the Kyzylorda region dated May 30, 2014, the Company's application was refused in full. By the decision of the Court of Appeal of July 21, 2014, the court's decision remained unchanged. By the decision of the cassation judicial board of the Kyzylorda Regional Court of September 30, 2014, the judicial acts issued in the case were canceled, and a new decision was made to satisfy the Company's application. It was decided to declare illegal and cancel the notification issued based on the results of the documentary tax audit dated December 25, 2013 No. 1 regarding the additional amounts charged for environmental emissions in the amount of 1,521,147,921 tenge and penalties in the amount of 930,371,886 tenge.

Bulletin of the Supreme Court of the Republic of Kazakhstan No. 3/2015 12 The prosecutor in the protest and the tax authority in the petition asked to cancel the decision of the cassation instance, upholding the court's decision and the decision of the appellate instance, arguing that the conclusions of the court of cassation do not correspond to the circumstances of the case and the available evidence, the decision of the cassation instance is illegal and unjustified, since it was issued in violation of the norms of substantive law. In accordance with environmental legislation, the responsibility for the disposal of industrial waste without obtaining an appropriate permit must be borne by the Company, as a result of whose production activities these wastes were obtained. Therefore, the accrued amount of the fee for emissions into the environment is legitimate. The Company has submitted a response to the protest and petition, which indicates the legality and validity of the decision of the cassation board. Having studied the case materials and discussed the arguments of the protest and petition, the Supervisory Judicial Board for Civil and Administrative Cases of the Supreme Court of the Republic of Kazakhstan canceled the contested judicial act by virtue of the following. The case materials established that, based on order No. 1 dated January 17, 2011, the tax authority conducted a comprehensive tax audit of the Company, which resulted in notification No. 1 dated December 25, 2013 on the charging of fees for emissions into the environment in the amount of 1,521,147,921 tenge, as well as penalties for this amount in the amount of 930 371,886 tenge. The Company, disagreeing with this notification, indicated that the fact of waste disposal and storage by the Company has not been proven.

In fact, the Company did not dispose of or store industrial waste. From the moment of its formation, these wastes were transferred to the ownership of E LLP (hereinafter referred to as the contractor, partnership) for processing and disposal. The courts of the first and appellate instances concluded that the claims were unfounded, and therefore refused to satisfy the application. The Court of Cassation, canceling the judicial acts that took place in the case and satisfying the Company's application, concluded that the Company had not allowed emissions into the environment, since the volumes of waste generated during the drilling process were immediately exported by the contractor, to whom ownership rights had passed. However, these conclusions of the Court of Cassation are erroneous due to the following. As follows from the act of the documentary tax audit, during the period under review, the Company, being the owner of waste, transferred waste for disposal on the basis of a contract without transfer of the right Bulletin of the Supreme Court of the Republic of Kazakhstan No. 3/2015 13 to the ownership of a contractor organization that also does not have a permit for the placement (storage, burial) of waste, and therefore the declaration does not reflect payment for emissions into the environment. Indeed, in subclauses 3.1.6 and 6.5 of the contract dated July 28, 2008, concluded between the Company and the partnership, it is stated that the contractor is recognized as the owner of drilling waste from the moment of its formation and assumes full responsibility for the safe handling of such waste, independently bears all costs of paying environmental payments, as well as all fines imposed to the customer as a result of the contractor's violation of the provisions of the law during the performance of work.

At the same time, the court of cassation misinterpreted the above-mentioned clauses of the contract, did not take into account the norms of substantive law applicable to these legal relations. Thus, in accordance with paragraph 2 of Article 283 of the Environmental Code of the Republic of Kazakhstan (hereinafter referred to as the Code), paragraph 2 of Article 235 of the Civil Code of the Republic of Kazakhstan, ownership of waste may be acquired by another person on the basis of a contract of sale, barter, donation or other waste disposal transaction. In this case, unlike a purchase and sale agreement, the subject of a service agreement is not a material object, but the result of an activity that requires, in addition to the contract, the drawing up of an act of delivery and acceptance of work. However, these acts have not been submitted to the court. Since, in clause 1.1 of the agreement, the partnership undertook to carry out work on the removal, special treatment and further disposal of drilling waste from the customer's facilities, that is, to provide services, the cassation board came to a premature conclusion about the transfer of ownership of the waste to the contractor. In addition, drilling waste and oil-containing waste are dangerous in composition, contain harmful substances with toxicity, explosion, radioactivity, fire hazard, high reactivity and may pose an immediate or potential danger to the environment and human health independently or when coming into contact with other substances.

By paragraph 1 of Article 283, articles 288 and 293 of the Code, responsibility for the safe management of industrial waste from the moment of its formation is directly assigned to the nature user. Individuals and legal entities, in the course of whose economic activities waste is generated, are required to provide measures for their safe handling, comply with environmental and sanitary-epidemiological requirements and carry out measures for their disposal, neutralization and safe disposal. When identifying individuals and legal entities engaged in the processing, disposal or disposal of waste, waste owners Bulletin of the Supreme Court of the Republic of Kazakhstan No. 3/2015 14 must ensure the minimum movement of waste from the source of its formation. These standards are mandatory, therefore, when concluding a waste transfer agreement, the customer must ensure that the contractor has permits and specialized storage facilities that comply with legal requirements. The non-compliance of the contractor's activities with the above requirements prohibits the nature user from using the services of this company. Contrary to the above, the Company has concluded an agreement with a contractor who does not have a permit for both emissions into the environment and a specially equipped place for subsequent disposal, recycling or final disposal of waste. The site where the contractor transported the waste has not been put into operation. According to article 302 of the Code, the disposal of solid and sludge-like industrial waste at landfills intended for municipal waste disposal is prohibited. There are no documents in the case confirming the partnership's right to receive and store not only industrial waste, but also household waste.

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