CAAD Arbitration on ISP Tax: Colored Diesel Road Contribution Challenge (38/2017-T)

ARBITRAL DECISION

REPORT

On 10 January 2017, A…, taxpayer no.…, resident at Rua …, …-R/C …, Montijo, hereinafter referred to as the Applicant, requested the constitution of an arbitral tribunal and submitted a request for arbitral pronouncement, pursuant to paragraph a) of article 2(1) and paragraph a) of article 10(1) of Decree-Law no. 10/2011, of 20 January (Legal Framework of Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority (hereinafter referred to as AT) is the Respondent.

The Applicant is represented, in the context of these proceedings, by her proxy, Dr. B…, and the Respondent is currently represented by the legal experts, Dr. C… and Dr. D….

The request for constitution of the arbitral tribunal was accepted by the Honorable President of CAAD and notified to the Respondent on 20 January 2017.

By means of the request for constitution of the arbitral tribunal and arbitral pronouncement, the Applicant seeks the declaration of nullity of the inspection procedure to which it was subject with incidence between 01.01.2014 and 23.06.2016 and the declaration of illegality of the tax act, carried out by the Customs Authority of Jardim do Tabaco, dated 19.12.2016, of the retroactive assessment of Tax on Petroleum Products and Energy (ISP), in the amount of €8,707.25 (eight thousand, seven hundred and seven euros and twenty-five cents) and compensatory interest in the amount of €305.86 (three hundred and five euros and eighty-six cents), all totaling €9,013.11 (nine thousand, and thirteen euros and eleven cents).

Having verified the formal regularity of the request presented, pursuant to paragraph a) of article 6(2) of RJAT, and the Applicant not having proceeded to appoint an arbitrator, the undersigned was appointed by the President of the Deontological Council of CAAD.

The Arbitrator accepted the appointment made, and the arbitral tribunal was constituted on 21 March 2017, at the headquarters of CAAD, located at Avenida Duque de Loulé, no. 72-A, in Lisbon, as per the act of constitution of the arbitral tribunal that was executed and which is attached to these proceedings.

After being notified for this purpose, by order of 22 March 2017, the Respondent presented its response, which it did on 5 May 2017.

On 4 July 2017, the Tribunal, in order to assess the usefulness of producing witness testimony requested in the initial petition, notified the Applicant to indicate the facts subject to examination at the hearing, and on 7 July 2017, the Applicant complied with the Tribunal's order.

On 30 August 2017, the Tribunal, by means of an order, designated 28 September 2017 for the holding of the meeting of the arbitral tribunal, provided for in article 18 of RJAT, and examination of witnesses, as well as determined, pursuant to article 21(2) of RJAT, the extension of the period for delivering the decision by a further two months, designating 21 November 2017 for the delivery of the decision.

At the meeting of article 18 of RJAT, the Applicant waived the examination of two witnesses indicated in the initial petition, and altered the order of examination of the witnesses called by it, which the arbitral tribunal admitted. Upon conclusion of the production of evidence, the Tribunal notified the Applicant and the Respondent to, in this order and successively, submit written submissions within 10 days. Also at this meeting, the Tribunal, pursuant to article 18(2) of RJAT, confirmed 21 November 2017 for the purpose of delivering the arbitral decision, and finally warned the Applicant that it should proceed to pay the subsequent arbitral fee, pursuant to article 4(3) of the Regulation of Costs in Tax Arbitration Proceedings, and communicate such payment to CAAD.

The Applicant submitted its submissions on 30 October 2017, and the Respondent submitted its counter-submissions on 16 October 2017.

The Applicant supports its request, in summary, as follows:

The Applicant puts forward two requests, namely: a) nullity of the inspection procedure to which it was subject in the period between 01.01.2014 and 23.06.2016; b) declaration of illegality and respective annulment of the assessment of Tax on Petroleum Products and Energy (ISP) no. …/…, of 24.11.2016, carried out by the Customs Authority of Jardim do Tabaco, in the total amount of €9,013.11, because they are affected by illegality in the following manner:

The nullity of the inspection procedure

The Applicant considers that the inspection procedure is null, because "it was notified by a notice letter dated 21.06.2016, and pursuant to article 49 [RCPTIA] of an action of an inspectorial nature to be initiated on 23.06.201[6]. The notice letter was received by the tax subject in 23.06.2016, in hand by the inspecting entity, on the day of inspection. Whereas the inspectorial action began on the same day 23.06.2016, at 9.50 a.m. Now pursuant to article 49(1) [R]CPIT, notification of the initiation of the inspection procedure must be made with a minimum advance of 5 days. In the case sub judice this did not happen, so the procedure is null."

Furthermore, the Applicant states, in order to counter the argument of the Respondent regarding the alleged waiver of prior notification of the inspection procedure pursuant to article 50 of RCPITA, that "in truth, one cannot subsume the procedure in question in the inventory of goods, because AT well knew that the tax subject, now appellant, did not have a reservoir for G.C.M., so the inventory would never be possible. (…) Furthermore, what the procedure aimed at, as stated in the report (point 1, page 2), was the control of the commercialization of GCM in the period from 1.1.2015 to 23.06.2016, and not any inventory of goods, so not having had prior notification the procedure is null."

Furthermore, the Applicant, already at the stage of submissions, as regards this matter, states that the Respondent "(...) would have to be careful in examining the witnesses to ascertain the material truth of the facts. Which it failed to do. (...) As such, the administrative process in question in these proceedings is therefore tainted by a procedural defect, by violation of a formality that here has been shown to be essential for the defense of the challenger, being therefore null (…). There being therefore no place for reliance on the examination of the witnesses in these proceedings, as the defect is prior to the instigation of the present judicial process, and it is the administrative process itself that is inexorably tainted with nullity, and the court can neither should judge acts that are null ab initio, and therefore should declare them as such."

Act of assessment of ISP no. …/…, of 24.11.2016, carried out by the Customs Authority of Jardim do Tabaco, in the total amount of €9,013.11

The Applicant considers it pertinent to clarify the situation relating to company E…, S.A., that this "(...) as well as the company called F…, S.A. are both customers of the tax subject, [the] two companies are administered by common administrators. (...) By rental contract concluded [between these two companies] (…) the common administrator of the two companies ordered diesel from the tax subject for F…, and at its request, the invoice was issued in the name of the lessee, that is, E…, S.A. Upon the sale to the company E…, S.A. was the beneficiary card of F… S.A. no. … with the beneficiary no. …/..." passed.

Accordingly, in truth, there was no fraud on the part of the tax subject that invoiced and passed the electronic card. Being the non-conformity of the tax subjects completely extrinsic to the tax subject, which merely agreed to issue the invoice to the lessee of the company, it itself is also the holder of the electronic card. There was not, therefore, any tax evasion, there being no injury to the State, since there was billing equivalent to that previously done by TPA, and both entities were holders of the electronic card. Accordingly, the tax subject cannot be penalized for any amount, and therefore the amounts referring to ISP owed in the amount of €2,495.20, plus interest of €108.11 and €2,735.20, plus interest of €11.09 should be annulled."

The Applicant mentions, with respect to invoices B/140210, dated 1.9.2014 referring to 5,000 liters and invoice B/14300 dated 29.12.2014, referring to 500 liters, that: "were issued by the tax subject to K…, holder of the beneficiary card no.…, active in 2014. It was registered in the TPA, not of the tax subject but of the supplier I…, and the beneficiary card of H…, Lda was passed in the TPA of I…, with the card of H…, Lda on 2.9.2014 and 30.12.2014. Accordingly, in reality there were no sales of GCM without registration in the TPA, that TPA registration was made, not in the TPA of the tax subject but in that of its supplier I…, which was habitual practice until the tax subject himself became the holder of his own TPA, which only happened in February 2015 (…), [so] if there was any irregularity, the same must be attributed to the holder of the TPA I… and not to the tax subject who issued the respective invoices (…) so the amount of €1,605.45 and interest in the amount of €114.92 should be annulled."

As regards the invoices from 2015, namely Invoice no. B/150079, the Applicant states that: "was issued by the tax subject on 28.5.2016 invoice corresponding to 8,000 liters; was registered in the TPA on 28.5.2015, the supply of said 8,000 liters beneficiary no. …, NIPC …, F…, S.A. in light of the existing rental contract and at the request of the end client (…). There is no reference to invoice B/150079 any sale to a client without an electronic card since said invoice corresponds to an electronic card…, beneficiary …. On the other hand, the sale of 8,000 liters of diesel from 28.5.2015, registered in the TPA corresponds to invoice B/150079."

He mentions regarding the "invoice of 20.5.2016 issued in the name of E…, S.A., corresponding to the passage of the card on 16.5.2016 of the beneficiary…" that "there is no tax evasion whatsoever regarding the diesel."

As regards invoice B/150123, the Applicant alleges that "[w]ith respect to Company J… state that on 10.8.2015 only 3,000 liters of diesel were sold, and not as alleged 6,000 liters. Having issued invoice B/150123, and having on the same date passed the card…, of the taxpayer …, in line with the same 3,000 liters. By the closing statement of the TPA on 10.8.2015, it appears that only 3,000 liters were registered, so there is no TPA registration exceeding 3,000 liters and the corresponding sales document was issued. Moreover, [still with regard to this matter] by the SIBS extract of the TPA are mentioned 3 errors that occurred on 10/08/2015. (…) In truth, there is only one valid passage without error in the TPA and which corresponds to 3,000 liters of agricultural diesel."

Concluding his position in the sense that "in the case at hand there is no violation of the marketing rules resulting from article 109 of RGIT relating to 2014" because he was not "holder of a TPA, so there was no violation of the marketing rules on the part of the tax subject (…)." nor is there any, "[r]egarding the years 2015 and 2016 (…) so the assessment in the amount of €9,013.11 is null, because illegal, and if the tax subject has proceeded to pay it, should be reimbursed for the amount paid unduly plus interest."

III. In its Response the Respondent invoked, in summary, the following:

For its part, AT presents its defense, by way of objection, invoking, first and foremost, regarding the alleged nullity of the inspection procedure that, "(…) we are faced with a procedure generically designated by law as a tax inspection procedure or inspection procedure (article 1 of RCPITA), such procedure encompasses different types of action towards tax subjects and other tax obligors. Indeed, according to article 2 of the same regime, the inspection procedure, aimed at the observation of tax realities, the verification of compliance with tax obligations and the prevention of tax infractions (no. 1), comprises the actions described in no. 2 of the same article."

The Respondent also mentions that "(…) when what is at issue is, among other situations, a procedure aimed solely at consultation, collection or crossing of documents intended to confirm the tax situation of the tax subject or tax obligor, the inventory of goods, as well as when the procedure aims at the assessment of compliance with exemption prerequisites that depends on the purpose or use given to the goods, there is no requirement for the prior notification required by article 49 of RCPITA (article 50(1), paragraphs a), c), and g))."

"As for the Applicant's assertion that the procedure was not intended to inventory goods, it is clarified that, in the concrete case, a product (petroleum) was involved, which falls within the generic designation of goods. But, even if this were not so, as was alluded to, the provisions of paragraphs a) and g) are always verified in this situation, facts that determine the waiver of prior notification."

Regarding the Applicant's claim for a declaration of nullity of the inspection procedure, on the grounds that the witnesses called in the prior hearing were not examined, the Respondent considers it appropriate to note that: "[the] prior hearing in the external tax inspection procedure, provided for in article 60 of RCPITA, is aimed at the discovery of material truth. Now, (…) the inspectors responsible for the action took into account all the matters contained in the response presented by the tax subject in the prior hearing, and even accepted its justifications regarding one of the situations and deemed the examination of the witnesses then presented not to be necessary in light of the sufficiency of the existing documentary evidence."

Concluding in the sense of the lack of merit of the "(...) alleged nullity of the inspection procedure, due to futility in examining witnesses at the prior hearing stage."

As regards the "Sales of GCM without the corresponding registration in the TPA terminal," the Respondent states that "[a]ll situations of billed sales of GCM without the corresponding registration in the TPA Terminal violate the obligations arising from articles 3 and 6 of Order no. 361-A/2008 and no. 5 of article 93 of CIEC."

Specifying as regards these that "[i]t is the case of sales of GCM made by the Applicant to K… (…) through invoices no. B/14210, of 01.09.2014 and B/140300, of 29.12.2014, which could not and were not registered in the TPA Terminal of the Applicant, since the latter only became the holder of its own Terminal from February 2015 onwards." and that "[o]n this matter, the arguments presented by the Applicant have no validity whatsoever, since no. 5 of article 93 of CIEC, in the wording given by Law no. 82-B/2014, establishes the tax responsibility, objective responsibility of the owner or legal responsible for the operation of authorized posts for public sale, in relation to the quantities they sell and which are not duly registered in the electronic control system."

On the other hand, and as regards "the sales of GCM made by the Applicant to E…, S.A., without the latter being at the time the holder of an electronic card, concluding that these situations, not having valid registration in the TPA Terminal of the Applicant, constitutes a violation of the obligations contained in articles 5 and 6 of Order no. 361-A/2008 and no. 5 of article 93 of CIEC. Indeed, sales of GCM made through invoices no. B/150079, of 28.05.2015 and C/35, of 20.05.2016, to a customer who at the time was not the holder of a beneficiary card (the electronic card that was later assigned to the beneficiary E…, S.A. was only issued on 28.11.2016), cannot be considered validly registered in the TPA Terminal of the Applicant. (…) the holder of a GCM supply post cannot ignore that this is a product whose sale is conditional upon the holding of an electronic card, which pursuant to article 6 of Order no. 117-A/2008 is personal and non-transferable."

As regards "the sales of GCM without the issuance of invoices," the Respondent considers that "there was a sale, corresponding to 6,000 liters of product, and which was the subject of registration in the TPA terminal (…)" yet the respective invoices were not issued.

Indeed, the Respondent understands that, notwithstanding the Applicant's assertion "(...) with reference to 10.08.2015 that only 3,000 liters of GCM were sold, and invoice N/ 150123 was issued to the taxpayer with tax ID … with card … . Further adding that, on the same day 10.08.2015, errors occurred in the TPA, and that by the closing statement, it appears that only 3,000 liters were registered with the issuance of the corresponding sales document," the truth is that in the inspection action, and from the confrontation/crossing of elements relating to the terminal records and the sales, it was concluded that "there is a difference pertaining to sales that were not invoiced, totaling 6,000 liters and not 3,000 liters as the Applicant contends," because, "(…) the consultation of the database of DGADR which contains the records of GCM sold to beneficiaries/holders of the tax benefit, with reference to their respective cards, made it possible to verify that, on the indicated date, three registrations of 3,000 liters each were made, which were sold to Company J… (…), yet only an invoice was issued for 3,000 liters of diesel (card 2427906). And, as can be extracted from the operator's account statement of DGADR (…), in the part relating to sales to Company J…, it is concluded that, indeed, on 10.08.2015 there are three registrations that were considered valid as they are quantities actually registered as supplies/sales in the same database of the Ministry of Agriculture."

Thus, it considers that, regarding the alleged error in the terminal regarding this sale, "in accordance with article 12 of Order no. 361-A/2008, of 12 May, the obligation falls on the operator to immediately communicate in writing to DGADR any cases of typing errors or other anomalies that occur in the POS (TPA) terminals for purposes of correction."

Concluding in the sense that, "in the case at hand, it is pertaining to 6,000 liters of GCM for which the corresponding invoices were not issued, and therefore the ISP borne on those quantities is due."

The Respondent concluding its position, defending that: "(…) finding itself in full conformity with the applicable legal norms to the facts underlying it, the disputed assessment, carried out by the Customs Authority of Jardim do Tabaco, should remain in the legal order."

IV. Dismissal of Defects

The Tribunal is competent and is regularly constituted, pursuant to paragraph a) of article 2(1) and articles 5 and 6, all of RJAT.

The parties have legal personality and capacity, show themselves to be legitimate, are regularly represented, and the proceedings do not suffer from any nullities.

V. Factual Matters

For the conviction of the Arbitral Tribunal, regarding the proven facts, the documents attached to the proceedings, as well as the administrative process, and the testimonial evidence produced were relevant, with two witnesses being presented by the Applicant, all analyzed and weighed in conjunction with the pleadings.

It should be noted that the testimonial evidence presented by the Applicant proved to be credible, suitable, and knowledgeable regarding the facts in question in these proceedings, for which reason it was duly considered and weighed.

Proven Facts

For the purposes of the decision, the following facts are deemed proven:

The Applicant is a natural person whose activity is the wholesale trade of petroleum products, CAE 46711. (cf. Agreement of the parties);

The Applicant is a reseller of colored and marked diesel (GCM) and does not have reservoirs for storing said product, which it acquires from supplier I…, Lda. (cf. Agreement of the parties);

The Applicant has, since February 2015, the TPA terminal no.…, registered in the General Directorate of Agriculture and Rural Development (DGADR). (cf. Agreement of the parties);

The Applicant issued Invoice no. B/140210, dated 01.09.2014, in the amount of €4,730.00, referring to 5,000 liters of GCM to K…, (cf. Doc. no. 4 attached with the request for exercise of the right to hearing attached to the initial petition, and page 36 of PAT), and the supply was registered in the TPA Terminal of supplier I…, with the card of H…, Lda (cf. Agreement of the parties);

The Applicant issued Invoice no. B/140300, dated 29.12.2014, in the amount of €402.00, referring to 500 liters of GCM to K…; (cf. Doc. no. 5 attached with the request for exercise of the right to hearing attached to the initial petition, and page 37 of PAT), and the supply was registered in the TPA Terminal of supplier I…, with the card of H…, Lda (cf. Agreement of the parties);

The Applicant issued Invoice no. B/150079, dated 28.05.2015, in the amount of €6,320.00, referring to 8,000 liters of GCM, of which "supply on 24.04.2015" appears to E…, S.A.; (cf. Docs. no. 6 and 7 attached with the request for exercise of the right to hearing attached to the initial petition and on pages 38 and 39 of PAT), and the supply was registered for the beneficiary with card no.…, of F…, S.A. (cf. Agreement of the parties);

The Applicant issued Invoice no. B/150123, dated 10.08.2015, in the amount of €2,232.00, referring to 3,000 liters of GCM to Company J…. (cf. Docs. no. 10, 11 and 12 attached with the request for exercise of the right to hearing attached to the initial petition and on pages 42, 43 and 44 of PAT);

The Applicant issued Invoice no. C/35, dated 20.05.2016, in the amount of €5,839.84, referring to 8,000 liters of GCM to E…, S.A.; (cf. Docs. no. 8 and 9 attached with the request for exercise of the right to hearing attached to the initial petition and on pages 40 and 41 of PAT), and the supply was registered for the beneficiary with card no.…, of F…, S.A. (cf. Agreement of the parties);

The Applicant sold 3,000 liters of GCM to Company J…, S.A., which sale is contained in invoice no. B/150123, dated 10.08.2015 (cf. testimony of witness L…);

The Applicant was notified, on 23.06.2016, by notice letter dated 21.06.2016, of the customs inspection action carried out by the Customs Authority of Jardim do Tabaco, which had as its scope the control of the commercialization of colored and marked diesel (GCM) in the period between 01.01.2014 and 23.06.2016, commencing on this latter date, concerning the POS (Point of Sales) terminal no.…. (cf. Agreement of the parties).

The Applicant, through office no. IEC-…, of 16.10.2016, of the Customs Authority of Jardim do Tabaco, was notified of the draft report of the inspection action and to exercise, if it wished, the right to prior hearing. (cf. Agreement of the parties, Doc. no. 1 attached with the initial petition and page 12 of PAT);

The Applicant exercised the right to hearing, on 14.11.2016, through a petition, in which it set forth the arguments it deemed appropriate to contest the tax assessment in question here. (cf. Doc. no. 1 attached with the initial petition and pages 12, 23 to 32 of PAT);

The Applicant was notified of the final report of the inspection action, through office no. … of the Customs Authority of Jardim do Tabaco, dated 24.11.2016. (cf. pages 4 onwards of PAT);

The Applicant proceeded to pay the sum of €9,013.11 (nine thousand and thirteen euros and eleven cents), through a check drawn on M…, with no.… . (cf. pages 1 and 3 of PAT);

VI. Motivation of Factual Matters

For the conviction of the Arbitral Tribunal, regarding the proven facts, the documents and the administrative process attached to the proceedings, as well as the testimonial evidence, all analyzed and weighed in conjunction with the pleadings were relevant.

VII. Facts Deemed Not Proven

There are no facts deemed not proven, because all facts relevant to the assessment of the request were deemed proven.

VIII. Legal Grounds

The following are the issues to be assessed and decided:

To ascertain whether the inspection procedure carried out by the Customs Authority of Jardim do Tabaco, concerning the period between 01.01.2014 and 23.06.2016 is null, in light of the defects invoked by the Applicant;

To ascertain whether the tax act, carried out by the Customs Authority of Jardim do Tabaco, dated 19.12.2016, of retroactive assessment of Tax on Petroleum Products and Energy (ISP), of Road Service Contribution (CSR) and compensatory interest is illegal, in light of the defects invoked by the Applicant;

To ascertain whether, in the event of acceptance of the latter, the Applicant is entitled to indemnificatory interest, pursuant to article 43 of the General Tax Law (LGT).

Let us proceed:

A - Nullity of the Inspection Procedure

The Applicant initiates the request for arbitral pronouncement to the effect that a declaration of nullity be made of the tax inspection procedure to which it was subject, carried out by the Customs Authority of Jardim do Tabaco, relating to the period between 1 January 2014 and 23 June 2016, whose Final Inspection Report led to the tax assessments questioned in these proceedings, invoking for this purpose, on the one hand, that "(…) pursuant to article 49(1) [R]CPIT notification of the initiation of the inspection procedure must be made with a minimum advance of 5 days. In the case sub judice this did not happen, so the procedure is null." and, on the other, that "(…) it would have to be careful in examining the witnesses to ascertain the material truth of the facts. Which it failed to do. (…) As such, the administrative process in question in these proceedings is therefore tainted by a procedural defect, by violation of a formality that here has been shown to be essential for the defense of the challenger, being therefore null (…)."

The Respondent refuted this defect, alleging for this purpose, on the one hand, that "(…) when what is at issue is, among other situations, a procedure aimed solely at consultation, collection or crossing of documents intended to confirm the tax situation of the tax subject or tax obligor, the inventory of goods, as well as when the procedure aims at the assessment of compliance with exemption prerequisites that depends on the purpose or use given to the goods, there is no requirement for the prior notification required by article 49 of RCPITA (article 50(1), paragraphs a), c), and g))," and, on the other, that "(…) prior hearing in the external tax inspection procedure, provided for in article 60 of RCPITA, is aimed at the discovery of material truth. Now, (…) the inspectors responsible for the action took into account all the matters contained in the response presented by the tax subject in the prior hearing, and even accepted its justifications regarding one of the situations and deemed the examination of the witnesses then presented not to be necessary in light of the sufficiency of the existing documentary evidence." Concluding in the sense of the lack of merit of the "(...) alleged nullity of the inspection procedure, due to futility in examining witnesses at the prior hearing stage."

It occurs that the declaration of nullity of the inspection procedure is not a matter which the arbitral tribunal may know, as its knowledge is prohibited by RJAT.

Indeed, and notwithstanding this exception not having been raised by the Respondent, it is subject to ex officio knowledge, whereby the arbitral tribunal now knows of it, which it does as follows:

Article 16 of the Code of Tax Procedure and Process (CPPT), applicable by virtue of article 29(1), paragraphs a) and e) of RJAT, provides:

"1. Breach of the rules of jurisdiction in terms of hierarchy and subject matter determines the absolute incompetence of the court.

1. Absolute incompetence is subject to ex officio knowledge and may be raised by the interested parties or raised by the Public Prosecutor or the representative of the Public Treasury up to the time when the final decision becomes final."

Indeed, and according to the doctrine, "matters of absolute jurisdiction are subject to ex officio knowledge and their knowledge precedes that of any other matter (articles 16(2) of CPPT and 13 of CPTA). Thus, incompetencies in terms of subject matter and in terms of hierarchy, in judicial proceedings, should be known ex officio, preceding the knowledge of any other matters (…)."

However, and because we are in the context of a request for arbitral pronouncement, it becomes absolutely necessary to resort to RJAT, since we confine ourselves to this venue.

Thus by examining article 2(1) of this statute, we can verify that:

"The jurisdiction of arbitral tribunals comprises the assessment of the following claims:

a) The declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account;

b) The declaration of illegality of acts of fixation of taxable income when they do not give rise to the assessment of any tax, of acts of determination of taxable income and of acts of fixation of property values."

Now, from a careful reading of this legal provision we note that the requested declaration of illegality of the tax inspection procedure is not listed therein, and for this reason, it is a matter that falls outside the scope of assessment by the Arbitral Tribunal, thus confirming the verification of the exception of absolute incompetence, by way of the tribunal's incompetence in terms of subject matter, in light of paragraph a) of article 2(1) of RJAT, which is declared, as of now, pursuant to article 16(1) of CPPT, determining, as a consequence, the absolution of the Respondent from the instance, cf. article 99(1) and article 576(2) of the Civil Procedure Code, applicable by virtue of article 29(1), paragraph e) of RJAT.

Indeed, the (ex officio) recognition of the incompetence of this tribunal to declare the illegality of the tax inspection procedure carried out by the Customs Authority of Jardim do Tabaco, concerning the period between 1 January 2014 and 23 June 2016, prevents the assessment of the merits of the case, as regards this claim.

B. Declaration of Illegality of the Tax Act Carried Out by the Customs Authority of Jardim do Tabaco, Dated 19.12.2016, of Retroactive Assessment of Tax on Petroleum Products and Energy (ISP), Road Service Contribution (CSR) and Compensatory Interest

The regime of ISP applicable to the commercialization of colored and marked diesel

With respect to the assessment of the illegality of the disputed assessment which relates to the ISP regime applicable to the commercialization of colored and marked diesel, it is important to ascertain, in light of the applicable legal provisions – which we will analyze immediately – whether the non-performance of the registration/reading of the microchip card in the Applicant's TPA terminal, at the moment of the transaction/supply of GCM determines or not the tax responsibility of the owner or responsible person for the operation of the POS pursuant to the provisions resulting from article 93(5) of the Code of Special Consumption Taxes, as well as what the consequences are for the Applicant of the sales of GCM without the issuance of the respective invoice.

Now let us proceed:

The tax regime relating to colored and marked diesel (GCM), applicable to the case at hand, finds provision in the Code of Special Consumption Taxes (CIEC), approved by Decree-Law no. 73/2010, of 21 June, with its respective legislative amendments.[3]

Now, pursuant to paragraph h) of article 4(2) of CIEC, "the following are persons liable to special consumption taxes (IEC): 'Natural or legal persons who introduce into consumption, sell or use products subject to tax, in other situations of irregularity'."

Specifically, as regards GCM, article 93 of CIEC provides, under the heading "Reduced Rates", that:

"1 - The following are taxed at reduced rates: diesel, heating diesel and petroleum, colored and marked with the additives defined by order of the member of Government responsible for the financial area.

2 - Colored and marked petroleum can only be used for heating, lighting and uses provided for in no. 3.

3 - Colored and marked diesel can only be consumed by:

a) Stationary engines used in irrigation;

b) Vessels referred to in paragraphs c) and h) of article 89(1);

c) Agricultural tractors, combine harvesters, cultivators, motorized hoes, motorized reapers, self-propelled potato harvesters, pea harvesters, silage forage harvesters, tomato harvesters, swather-conditioners, wine harvesting machines, trunk shakers for olive and other fruit harvesting, as well as other equipment, including those used for aquaculture activities, approved by order of the members of Government responsible for the areas of finance, agriculture and the sea;

d) Vehicles for the transport of passengers and goods by rail; e) Fixed engines;

f) Autonomous refrigeration engines, installed in heavy goods vehicles for the transport of perishable goods, powered by separate fuel tanks, and which have ATP (Perishable Transport Agreement) certification, under the terms to be defined in order of the members of Government responsible for the areas of finance, agriculture and transport.

4 - Heating diesel can only be used as a fuel for industrial, commercial or domestic heating.

5 - Colored and marked diesel can only be acquired by the holders of the electronic card established for the purposes of controlling its allocation to the destinations referred to in no. 3, and the owner or the legal responsible for the operation of the posts authorized for public sale is liable for payment of the amount of tax resulting from the difference between the level of taxation applicable to road diesel and the rate applicable to colored and marked diesel, in relation to the quantities they sell and which are not duly registered in the electronic control system.

6 - The sale, acquisition or consumption of the products referred to in no. 1 in violation of the provisions of nos. 2 to 5 are subject to the penalties provided for in the General Framework of Tax Infractions and in special legislation.

7 - For purposes of this article, fixed engines are understood to be engines intended for energy production and which, cumulatively, are installed on immovable platforms.

8 - Pending the existence of technical conditions for the implementation of heating diesel with the characteristics provided for in annex vi of Decree-Law no. 89/2008, of 30 May, colored and marked diesel, classified by NC codes 2710 19 41, 2710 19 45 and 2710 19 49, may be used in the Autonomous Region of Madeira.

9 - In the acquisition of colored and marked diesel in the Autonomous Region of Madeira, the use of the electronic card is waived, pending the existence of the technical conditions described in the previous number."

Now, article 5 of Decree-Law no. 73/2010, which approved CIEC, provides, under the heading "Transitional Provisions" that "The regulatory provisions of the Code of Special Consumption Taxes, approved by Decree-Law no. 566/99, of 22 December, contained in orders or ministerial decisions remain in force until the entry into force of the regulations provided for in CIEC."

Thus, it is imperative to bear in mind the regulations contained in Orders no. 117-A/2008, of 8 February, and no. 361-A/2008, of 12 May, approved during the validity of the previous Code of Special Consumption Taxes, under article 106 thereof.

Indeed, Order no. 117-A/2008, of 8 February (amended by Order no. 762/2010, of 20 August and Order no. 206/2014, of 8 October) regulates the formalities and procedures applicable to the recognition and control of exemptions and reduced rates of tax on petroleum products and energy, currently provided for in article 89(1) and article 93 of the Code of Special Consumption Taxes.

Being worthy of emphasis, for its importance, the regulatory provisions contained in nos. 2 to 13, 55 to 62:

"2. May benefit from exemption or the application of a reduced rate of tax, natural or legal persons that, provably, use petroleum and energy products subject to ISP in the activities or equipment provided for in the legal provisions referred to in the previous number, provided they comply with the following conditions:

a) This activity is duly declared, pursuant to the applicable tax legislation, except when waived by law or by the nature of the exemption;

b) Have their tax and contributory situation regularized;

c) Have complied with their declarative obligations in the context of income taxes and value added tax.

1. The jurisdiction for the act of recognition and subsequent control and re-evaluation of the prerequisites and conditions of the tax benefits is defined in nos. 17, 32, 36, 38, 39, 41, 46, 50, 56, 60, 61 and 64 of this order.

2. Requests for exemption or reduction of the tax rate must be accompanied by a photocopy of the following documents, without prejudice to any other documentation considered necessary:

a) Tax identification card;

b) Document licensing the activity carried out, when required.

1. Tax benefits achieved through the use of colored and marked diesel are carried out mandatorily through the use of a microchip card, provided for in article 74(5) of CIEC, which is issued by the General Directorate of Agriculture and Rural Development (DGADR) and sent to the applicants by the entity competent for the recognition of the tax benefit in question.

2. The cards referred to in the previous number are personal and non-transferable, with the respective holders being responsible for their proper use.

3. Beneficiaries are subject, under penalty of incurring a tax infraction, to the following obligations:

a) To communicate to the competent authorities any change in the prerequisites of the tax benefit;

b) To communicate other relevant changes, namely alteration of location of the facilities or authorized equipment, transfer of ownership of the equipment as well as the transfer or replacement thereof;

c) To cooperate with the competent authorities in the performance of the controls that may be determined, in order to prove the effective allocation of the products to the destinations or uses benefiting from the tax benefit and to provide all information elements requested.

1. Beneficiaries who are holders of a microchip card for supply of colored marked diesel are further obliged to:

a) Return the microchip card in the case of cessation of the prerequisites of the benefit, within a maximum period of five business days;

b) Communicate any situation of loss or anomaly in the microchip card assigned.

1. The communications referred to in this order must be made in writing, preferably by electronic mail, within a maximum period of five business days.

2. The tax benefits referred to in this order are subject to periodic re-evaluation by the competent authorities, in order to assess the maintenance of their respective prerequisites and compliance with the other conditions required under applicable legislation.

3. Constitute grounds for revocation of the authorization of the tax benefit, without prejudice to the instigation of proceedings for tax infraction under the terms provided for in the General Framework of Tax Infractions, the violation of the prerequisites of the benefit as well as the non-observance attributable to the beneficiary of the conditions required in no. 2.

4. In case of violation of the prerequisites of the tax benefit, the tax that proves to be due is also assessed.

5. For purposes of the provision in the previous number, there is considered to be a violation of the prerequisites of the tax benefit, namely, in case of:

a) Use of products, without prior recognition of the tax benefit;

b) Use of the authorized products in a purpose different from that declared;

c) Use of products in non-authorized equipment.

(…)

Title III

Reduced Rates of ISP

CHAPTER I

Reduced Rates of ISP for Use in Agricultural and Forestry Equipment

1. The application of a reduced rate of ISP to the equipment provided for in paragraphs a) and c) of article 93(3) of CIEC covers the uses that, for the purposes of this order, are designated as agricultural, aquacultural and forestry equipment.

2. Requests for tax benefit are, in the case of agricultural and forestry equipment, presented to the regional directorates of agriculture and fisheries, which proceed to the processing thereof, or, in the case of aquaculture equipment, presented to DGRM or ICNF, I. P., depending on the areas of their respective jurisdictions, which proceed to the processing thereof.

3. Without prejudice to the provision of paragraph a) of article 2, the exercise of a declared activity may be waived as to beneficiaries whose annual indicative or reference ceilings do not exceed 3,600 l.

57-A. The provision of the previous number does not apply to equipment used in aquaculture activities.

1. Requests for tax benefit must, in addition to the documents provided for in no. 4, be accompanied by a manifest, containing the identification of the equipment intended to be supplied with colored and marked diesel, as well as proof of their respective ownership or legitimate detention.

2. The proof of ownership or legitimate detention of the equipment manifested must take into account, in particular, the following criteria:

a) In the case of agricultural wheel tractors, their respective registration document and title of registration of ownership or single document must be presented;

b) For the remaining equipment the respective acquisition document or declaration issued by the parish council of the applicant's area, certifying its legitimate detention, must be presented;

c) In case the equipment is the property of third parties, a declaration of transfer in conformity must be presented;

d) For areas irrigated by diesel pumping, proof of their ownership must be presented, namely property register, rental agreement or declaration of transfer.

1. Once the processing of the request is complete, DGADR, DGRM and ICNF, I. P., in the areas of their respective jurisdictions, send weekly to AT a list in computer support, with a draft decision of the requests received, respectively, by the regional directorates of agriculture and fisheries, by DGRM or by ICNF, I. P., for purposes of recognition of the tax benefit.

2. The competent authorities for the re-evaluation of the prerequisites of the tax benefit, as well as for purposes of compliance with the provisions of nos. 7 and 8, are DGADR, DGRM and ICNF, I. P., in the areas of their respective jurisdictions, and to AT must be communicated all situations that imply:

a) Recognition of a new tax benefit;

b) Revocation of a tax benefit.

1. For purposes of the provision of the previous number, the beneficiaries must communicate, with the competent regional directorates of agriculture and fisheries, DGRM, ICNF, I. P., or the institutions duly accredited by these for this purpose, any change in the prerequisites of the tax benefit, namely the cessation of activity, or other relevant changes, such as the change of the authorized equipment, the transfer of the property of the equipment, the transfer or replacement thereof, or changes in the areas irrigated by diesel pumping."

For its part, Order no. 361-A/2008, of 12 May, "establishes the rules for commercialization of colored and marked diesel and the respective control mechanisms, in order to ensure the correct allocation of the product to the destinations that benefit from exemption or the application of reduced rates of tax on petroleum products and energy (ISP), pursuant to the provisions of the Code of Special Consumption Taxes, approved by Decree-Law no. 566/99, of 22 December, abbreviated as CIEC." (cf. its no. 1), and therefore, with relevance to the case under discussion in these proceedings, to mention the regulatory provisions contained in nos. 2 to 14:

"2. Colored and marked diesel is a product of restricted sale, whose availability in the national market can only be made by petroleum companies that have concluded with the State, represented by the General Directorate of Agriculture and Rural Development (DGADR), a contract for this purpose, in which they undertake to make available the public sale of colored and marked diesel, in the proportion of at least one supply post for every 600,000 l sold.

1. Colored and marked diesel can only be supplied or sold to holders of supply posts duly licensed who are holders of point of sale (POS) terminals.

2. The provision of the previous number applies to distributors, provided they also have POS terminals.

3. Colored and marked diesel can only be sold at supply posts to beneficiaries of an exemption or reduction of ISP rate who are holders of microchip cards issued for this purpose by DGADR, through which all colored and marked diesel transactions are registered in the computer system managed by Interbank Services Company (SIBS).

4. The sales referred to in the previous number are mandatorily registered in the POS terminals at the moment they occur.

5. The supplies to authorized equipment to consume colored and marked diesel which cannot be made at the location of the supply post, namely some agricultural and forestry equipment and fixed engines, may be registered in a mobile POS terminal, at the time and place of the respective supply.

6. The registration in the computer system, through the POS terminals, of each supply carried out, does not dispense with the issuance of the respective invoice or equivalent document, issued in the name of the holder of the respective microchip card.

7. The records of the transactions referred to in no. 5 are sent in computer support by SIBS to DGADR, which, in addition to the functions of national coordination incumbent upon it, manages the database relating to colored and marked diesel and is responsible for the issuance, suspension or cancellation of the cards.

8. The installation of POS terminals, as well as any change in their location, must be communicated by petroleum companies to DGADR and the General Directorate of Customs and Special Consumption Taxes (DGAIEC), mandatorily, within a maximum period of five business days.

9. Colored and marked diesel can only be supplied to the equipment provided for in no. 3 of article 74 of CIEC, after verification, by the competent entity, of the prerequisites and conditions required under applicable legislation and the assignment to the respective beneficiaries of the card referred to in no. 5.

10. In case of typing errors or other anomalies verified in the use of POS terminals, the same must be immediately communicated in writing, preferably by electronic mail, to DGADR, in order to make the respective corrections.

11. Petroleum companies must send to DGAIEC, by the last business day of each month, a list in computer file with the sales or supplies of colored and marked diesel to supply posts or distributors, made in the previous month, with indication of their respective tax identification numbers and the POS terminal.

12. In case the distributors proceed to supplies to supply posts, petroleum companies must obtain from the said distributors information on the supplies made by them to the said supply posts, with indication of their respective tax identification numbers and the POS terminal."

(Bold ours for the parts of the legislation most relevant to the case at hand in these proceedings)

Indeed, and as stated above, it is necessary to bear in mind the following conditions that relate to "rules for commercialization of colored and marked diesel and respective control mechanisms, in order to ensure the correct allocation of the product to the destinations that benefit from the application of reduced ISP rates" (no. 1 of Order no. 361-A/2008), "representing formalities and procedures applicable to the recognition and control of reduced ISP rates (no. 1 of Order no. 117-A/2008), so that the taxpayer can benefit from the exemption or reduction of ISP, under the terms provided for in the Law. They are:

GCM can only be supplied or sold to holders of supply posts duly licensed who are holders of automatic payment terminals-point of sale, TPA-POS (TPA Terminals); - cf. no. 5 of article 93 of CIEC and no. 3 of Order no. 361-A/2008, of 08.02;

GCM can only be sold at supply posts to beneficiaries of an exemption or reduction of ISP rate who are holders of microchip/electronic cards – which are, moreover, personal and non-transferable, and it is through these that all GCM transactions are registered in the computer system managed by Interbank Services Company (SIBS); - cf. nos. 5 and 6 of Order no. 117-A/2008, of 12.05;

Sales are mandatorily registered in the computer system, through the TPA Terminals, at the moment they occur; - cf. no. 6 of Order no. 117-A/2008, of 12.05;

Registration in the computer system, through the TPA Terminals, of each supply made, does not dispense with the issuance of the respective invoice or equivalent document, issued in the name of the holder of the respective microchip card; - cf. no. 8 of Order no. 117-A/2008, of 12.05;

The owner or the legal responsible for the operation of the authorized GCM supply posts is liable for payment of the amount of tax resulting from the difference between the level of taxation applicable to road diesel and the rate applicable to GCM, in relation to the quantities they sell and not duly registered in the electronic control system and for which the corresponding invoice(s) are not issued in the name of the card holder – cf. no. 5 of article 93 of CIEC.

Indeed, and as referred to in no. 12 of Order no. 117-A/2008, these conditions are nothing less than the "prerequisites of the tax benefit."

Indeed, the application of reduced rates of ISP – in question in these proceedings - provided for in article 93 of CIEC, constitutes a tax benefit, within the meaning of nos. 1 and 2 of article 2 of the Tax Benefits Statute (EBF), which depends on the verification of its prerequisites/conditions/requirements, as the Preamble of Order no. 117-A/2008, of 8 February alludes to, according to which "[the] exemptions and application of reduced rates of tax on petroleum products and energy (ISP) provided for (...) depend on the recognition of the prerequisites and conditions provided for in the law for the realization of the right to the tax benefit."

From a careful reading of the provisions in nos. 5 and 6 of Order no. 361-A/2008, the establishment of a duty of registration, at the moment of transaction, of sales of GCM is manifest. Indeed, from these legal norms it follows that sales of colored and marked diesel at supply posts to beneficiaries holding microchip cards, through which all colored and marked diesel transactions are registered in the computer system, are mandatorily registered in the POS terminals at the moment they occur.

Thus, if or when these sales are not registered in the POS terminals at the moment they occur, a condition/prerequisite is not verified on which the realization of the right to the reduced rate tax benefit provided for in article 93 of CIEC depends.

Indeed, and in this sequence, the present tribunal considers it appropriate to bring to bear, for the clarity of its exposition – which moreover accompanies in its entirety - what is sustained in the arbitral decision delivered in case no. 483/2014-T, with application to the case at hand, regarding the situation of sales not registered in POS terminals at the moment they occur, which manifests the following:

"This condition is explained in light of the need to verify immediately by the registrations made in the POS terminals with the microchip card at the time of the GCM sale that the purchaser then has a valid and effective card.

The POS system automatically identifies the number of the microchip card and its holder, as well as the date and quantity of the supply, data which make it possible to immediately verify whether colored and marked diesel was sold to persons who complied with the requirements required for the respective acquisition and that there was no deviation from the purposes pursued with GCM.

Thus, the condition established of the mandatory nature of sales being registered in POS terminals at the moment they occur is intended to ensure immediate control of the quantities sold of GCM to the respective beneficiaries by means of the data from the POS terminal, control of the destination of agricultural diesel which the legislator did not wish to leave for a later moment, but to ensure from the outset, because, precisely, as expressly stated in the Preamble of Order no. 361-A/2008, it intended to strengthen "the control mechanisms, aiming at greater effectiveness in the prevention of tax fraud."

Now, returning to the concrete case, two situations are identified for analysis:

"sales of GCM without the corresponding registration in the TPA" and

"sales of GCM without the issuance of an invoice"

Let us assess, then, the requests formulated within the scope of this arbitral action:

Declaration of Illegality of the Tax Assessment Act for ISP no. …/…, of 24.11.2016, Carried Out by the Customs Authority of Jardim do Tabaco, in the Total Amount of €9,013.11

• Sales of GCM without the Corresponding Registration in the TPA

From the factual matters contained in the proceedings, we can verify that the Applicant, on the one hand, issued in the name of K…, holder of the beneficiary card no.…, active from 2014:

invoice no. B/140210, dated 01.09.2014, referring to 5,000 liters, in the amount of €4,730.00; (cf. Doc. no. 4 attached with the request for exercise of the right to hearing attached to the initial petition, and page 36 of PAT);

invoice no. B/140300, dated 29.12.2014, referring to 500 liters, in the amount of €402.00; (cf. Doc. no. 5 attached with the request for exercise of the right to hearing attached to the initial petition, and page 37 of PAT);

and as the Applicant states, "It was registered in the TPA, not of the tax subject but of the supplier I…, and the beneficiary card of H…, Lda was passed in the TPA of I…, with the card of H…, Lda on 2.9.2014 and 30.12.2014. Accordingly, in reality there were no sales of GCM without registration in the TPA, that TPA registration was made, not in the TPA of the tax subject but in that of its supplier I…, which was habitual practice until the tax subject himself became the holder of his own TPA, which only happened in February 2015 (…)," that is, the Applicant confirms that these sales "corresponded to the TPA slips of I… [I…] of the beneficiary H…, Lda" (article 31 of the learned initial petition) and at the "date of issuance of the invoices, the tax subject [here Applicant] did not have a TPA;" (point XXII of the learned submissions presented).

…and, on the other, in the name of E…, S.A., the following invoices:

Invoice no. B/150079, dated 28.05.2015, in the amount of €6,320.00, referring to 8,000 liters of GCM, of which "supply on 24.04.2015" appears (cf. Docs. no. 6 and 7 attached with the request for exercise of the right to hearing attached to the initial petition and on pages 38 and 39 of PAT);

Invoice no. C/35, dated 20.05.2016, in the amount of €5,839.84, referring to 8,000 liters; (cf. Docs. no. 8 and 9 attached with the request for exercise of the right to hearing attached to the initial petition and on pages 40 and 41 of PAT), and the supply was registered for the beneficiary with card no.…, of F…, S.A. (cf. Agreement of the parties);

and as mentioned, on the one hand, by the Applicant, "was issued by the tax subject on 28.5.2016 invoice corresponding to 8,000 liters; was registered in the TPA on 28.5.2015, the supply of said 8,000 liters beneficiary no.…, NIPC…, F…, S.A. in light of the existing rental contract and at the request of the end client (…)[See initial petition], and on the other, explains that the taxpayer[read E…, S.A.] "had expired the card and had not proceeded to its renewal" (point XXXV).

Indeed, the present tribunal considers that these sales were not duly registered in the TPA terminal, and therefore, as article 93(5) of CIEC establishes special responsibilities for the owners or legal responsible for the operation of authorized fuel supply posts for public sale, they must respond for payment of the difference in ISP, in relation to the quantities of GCM they sell, without observance of the legal rules applicable to the commercialization of this product.

It is appropriate to note, by total agreement with its content and practical interest for the case at hand, the arbitral ruling referred to above, pursuant to which:

"17. Now, in light of the categorical provision of nos. 5 and 6 of Order no. 361-A/2008, the establishment of a duty of registration, at the moment of transaction, of sales of GCM is unquestionable – pursuant to the provision of this no. 6, as well as in no. 5, of this Order, sales of colored and marked diesel at supply posts to beneficiaries holding microchip cards, through which all colored and marked diesel transactions are registered in the computer system, are mandatorily registered in POS terminals at the moment they occur.

Thus, when sales are not registered in POS terminals at the moment they occur, a condition on which the realization of the right to the tax benefit is not verified, and a prerequisite for the reduced rate provided for in article 93 of CIEC is lacking."

Also noting, with interest, the cited arbitral decision, that:

"Let it be cited, in this respect, what was written in the ruling of the Supreme Administrative Court of 30.5.2007, case no. 0243/07[4] (regarding a previous provision with less demanding content than the norm now contained in no. 5 of article 93 of CIEC):

'to give the tax benefit as verified, [it is required] that the buyer be the holder of a microchip card and this condition cannot be waived nor, likewise, replaced by another.

Which is well understood, given the legislator's intention to prevent tax fraud.

That holding thus constitutes a substantial formality characterized by being "absolutely irreplaceable by any other type of evidence," and its lack "is altogether irremediable": if the buyer is not the holder of said card, the benefit enjoyed by colored and marked diesel expires and the general regime of diesel taxation is applicable. (…).

And, although on a secondary level compared to the requirement of the holding of the microchip card, the same is said, mutatis mutandis, regarding the obligation (in general) of the transactions being documented in the accounting of the post."

(…)

Let it be insisted, indeed, that without the immediate realization of the registration of the transactions in the POS terminal, the mechanism for controlling the sale of agricultural diesel based on the mandatory use of the card with microchip in all supplies is put in question, which therefore requires that the supplies be linked to the use of a valid and effective microchip card."

The operation of immediate registration of the supply carried out in the computer control system through the use of the electronic card thus constitutes an essential formality, whose non-observance affects the enjoyment of the benefit.

In these terms, and in light of all that has been expounded, it is the understanding of the present tribunal that both situations constitute irregular sales of GCM, having verified:

a) as to the invoices issued in the name of K…, the violation of the obligations arising from points 3, 5, 6 and 11 of Order no. 361-A/2008, paragraph h) of article 4(2) and no. 5 of article 93, both of CIEC, which determine that the supplier of GCM must be duly licensed, be the holder and possessor of a TPA for registration of sales, at the moment they occur, and that the sale is conditional upon the holding of an electronic card, which is personal and non-transferable (point 6 of Order no. 117-A/2008, 08.02), and;

b) as regards the invoices issued in the name of E…, S.A., the violation of the obligations arising from points 5 and 11 of Order no. 361/2008, 12.05, paragraph h) of article 4(2) and no. 5 of article 93, both of CIEC, because GCM is a product whose sale is conditional upon the holding of an electronic card, and therefore the disputed assessment as to these situations should be maintained.

• Sale of GCM without the Issuance of Invoices

As regards this matter, and where the issuance by the Applicant of invoice no. B/150123, dated 10.08.2015, to Company J…, is concerned, referring to 3,000 liters of GCM, it states that "[r]egarding Company J… state that on 10.8.2015 only 3,000 liters of diesel were sold, and not as alleged 6,000 liters. Having issued invoice B/150123, and having on the same date passed the card …, of the taxpayer …, in line with the same 3,000 liters. By the closing statement of the TPA on 10.8.2015, it appears that only 3,000 liters were registered, so there is no TPA registration exceeding 3,000 liters and the corresponding sales document was issued. Moreover, [still with regard to this matter] by the SIBS extract of the TPA are mentioned 3 errors that occurred on 10/08/2015. (…) In truth, there is only one valid passage without error in the TPA and which corresponds to 3,000 liters of agricultural diesel."

From the production of evidence – examination of witnesses carried out simultaneously with the meeting of article 18 of RJAT - it resulted that the Applicant sold only 3,000 liters of GCM, and not 6,000 liters.

Indeed, it was possible to verify that the TPA no.…, on 10.08.2015, had 4 passages, (operation 14) with 3 giving errors (at 12.15.42 operation 14, at 12.23.49 operation 14 and at 12.32.13 operation 14), with movement at zeros, with the closure of the TPA, by SIBS, occurring at 12.33.37.

Indeed, from the closing statement of the TPA on 10.08.2015, attached to the proceedings as Doc. no. 12 of the prior hearing petition attached to the initial petition (page 44 of PAT) shows that one valid movement registers only 3,000 liters of agricultural diesel, and not 9,000 liters as alleged by the Respondent.

Indeed, the failure to communicate immediately, in writing, to DGADR, of cases of typing error or other anomalies that occur in POS (TPA) terminals for purposes of correction, does not result in the non-observance of a requirement of the privileged taxation regime, and its consequent inapplicability, due to unverified movements (9,000 vs 3,000), but only the possible administrative infraction responsibility, in conformity with paragraph p) of article 109(2) of the General Framework of Tax Infractions, namely as to "Introduce into consumption, dispatch, detain or commercialize products in violation of the sealing, packaging, detention or commercialization rules, namely the quantitative limits, established by the Code of Special Consumption Taxes and in complementary legislation," so the assessment of ISP in the amount of €1,871.40 and €65.84 of compensatory interest is annulled, as illegal.

Indemnificatory Interest

The Applicant further petitions that the right to indemnificatory interest be recognized, on the grounds of error attributable to the authorities.

Article 43(1) of the LGT and article 61 of the Code of Tax Procedure and Process provide that indemnificatory interest is due when it is determined in a gracious reclamation or judicial objection, that there was error attributable to the authorities from which results the payment of a tax debt in an amount greater than that legally due.

An error attributable to the administration is considered to occur when the error is not attributable to the taxpayer and is based on erroneous factual premises which are not the responsibility of the taxpayer.

Now, as it results from the disputed tax acts, the obligation to pay tax in excess of what would be due, indemnificatory interest is due under the legally provided terms, the legislator presuming, in these cases, in which the annulment of the assessment is verified, that a detriment occurred in the sphere of the taxpayer, by virtue of having been deprived of the patrimonial sum which he had to deliver to the State by virtue of an illegal assessment. Consequently, the taxpayer is entitled to this indemnification, independent of any allegation or proof of the prejudice suffered.

In the present case, it will be unquestionable that, following the establishment of the partial illegality of the tax assessment acts, there will be reimbursement of the tax by force of the provision of article 43(1) of the LGT, and article 100 of the LGT passing necessarily through the reestablishment of the "situation that would exist if the tax act subject of the arbitral decision had not been carried out."

Similarly, it is understood that it will be free of doubt that the illegality of the act is attributable to the Tax Authority, which autonomously carried it out in an illegal manner.

As for the concept of "error," it has been understood that only in cases of annulments founded on defects respecting the tax legal relationship will there be ground for payment of indemnificatory interest, such right not being recognized in the case of annulments for procedural or formal defects.

Thus, being faced with a defect of violation of substantive law, which is embodied in error in the legal prerequisites, attributable to the Tax Authority, the Applicants are entitled to indemnificatory interest, in accordance with articles 43(1) of the LGT and 61 of the CPPT, calculated from the payment of the tax until the full reimbursement of said amount.

DECISION

In accordance with the foregoing, it is decided:

To maintain in the legal order the tax assessment acts for ISP disputed by the Applicant, in the amount of €6,835.85 and €234.02 of compensatory interest, in the total of €7,069.87, relating to irregular sales of GCM contained in invoices no. B/140210, dated 01.09.2014, no. B/140300, dated 29.12.2014, no. B/150079, dated 28.05.2015 and C/35, dated 20.05.2016;

To annul the tax assessment act for ISP relating to 6,000 liters of GCM sold to Company J…, Lda, in the amount of €1,871.40 of tax and €65.84 of compensatory interest, in the total of €1,937.24, as illegal.

To condemn the Tax and Customs Authority to reimburse the Applicant for the amount paid regarding the invoice identified in 2.above, plus indemnificatory interest, calculated at the legal rate, from the payment of the tax until the full reimbursement.

Process Value

The process value is fixed at €9,013.11 (nine thousand and thirteen euros and eleven cents) pursuant to article 97-A(1), a), of CPPT, applicable by force of paragraphs a) and b) of article 29(1) of RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

Costs

Costs to be borne by the Applicant and Respondent, in proportion to their lack of success (78.5% for the Applicant, 21.5% for the Respondent), in accordance with article 12(2) of RJAT, article 4 of RCPAT, and Table I attached to the latter, fixed in the amount of €918.00.

Let notice be given.

Lisbon, 20 November 2017

The Arbitrator

(Jorge Carita)

[1] Content also contained in articles 577, paragraph a) and 578, both of the Civil Procedure Code (CPC), also applicable here by force of paragraphs a) and e) of article 29(1) of RJAT.

[2] In Code of Tax Procedure and Process, Annotated and Commented, vol. I, 6th Edition, 2011, Jorge Lopes de Sousa, page 218

[3] Indeed, as the taxation relates to the years 2014 to 2016, the CIEC applies in the wording given by Law no. 75-A/2014, of 30 September, with entry into force on 1 October 2014 and producing effects from 1 January 2014; - Law no. 82-B/2014, of 31 December - entering into force on 1 January 2015; - Law no. 82-D/2014, of 31 December - entering into force on 5 January 2015; - Law no. 7-A/2016, of 30 March - entering into force on 31 March 2016.