A client approached us for defense in an administrative case under paragraph 3 of Part 5 of Article 281 of the Code of Administrative Offences. The client is in the petroleum products supply business - they purchase fuel from refineries in rail tank cars and sell it to buyers. According to Article 16 of the Law "On State Regulation of Production and Circulation of Certain Types of Petroleum Products," such suppliers can only sell petroleum products from petroleum product base tanks, gas stations, and producer tanks. This is done for fire safety reasons - you can't load and unload petroleum products in unauthorized locations.
In our case, petroleum products travel from the refinery in rail tank cars to petroleum product bases, then should continue to end buyers. To save time, our client rerouted the tank cars directly from the refinery to buyers without stopping at the petroleum base. Importantly, all tank car seals remained intact.
The tax authority where the petroleum bases are located saw that the tank cars hadn't stopped there and charged our client under paragraph 3 of Part 5 of Article 281 of the Code of Administrative Offences, demanding a fine of 100 MCI (our client is a medium business entity) plus income confiscation.
What did we do? First, we demanded the case be heard in court and began building our defense.
Reading the Code of Administrative Offences carefully, paragraph 5) of Part 3 of Article 281 contains additional penalties including confiscation of petroleum products or income from their sale, which in our view should only apply to large business entities.
For example, Part 1 of Article 463 of the Code allows property confiscation regardless of business size, because this provision includes a comma after the monetary penalty amount. For clarity, here's the wording: "...for large business entities - one hundred fifty MCI, with confiscation..." The comma separates the fine procedure from the additional confiscation sanction, meaning confiscation applies to all entities.
However, subparagraph 5) of Part 3 of Article 281 lacks this comma after the monetary penalty amount, directly indicating confiscation only applies to large business entities: "entails a fine... for medium business entities - one hundred, for large business entities - three hundred MCI with confiscation of petroleum products..."
Additionally, paragraph 7 of Supreme Court Regulatory Resolution No. 7 dated October 6, 2017 states: "The sanction of Part 5 of Article 281 provides for additional administrative penalties including confiscation of petroleum products, tobacco products that are direct objects of the administrative offense, and/or income obtained from the offense, or without such confiscation. When deciding to apply this additional penalty and when petroleum products or tobacco cannot be confiscated, confiscation should target income from their sale as determined by the authorized body during pre-trial proceedings."
So according to the Regulatory Resolution, confiscation can only apply to income established during pre-trial proceedings. But the tax authority didn't do this.
During court proceedings, the tax authority kept changing positions. First they demanded confiscation of "income" defined as revenue minus expenses. We calculated all expenses and proved these transactions were loss-making.
Then the tax officials, after consulting among themselves, decided they wanted to confiscate all revenue minus VAT and excise tax. This came to 517 million tenge. Can you imagine - after such a fine, the company could safely be declared bankrupt.
Honestly, I understand why civil servants behave this way. All civil servants fear attracting anti-corruption service attention, even when there's no basis for it.
The judge accepted our second argument and imposed only the fine without income confiscation. We and our client were very pleased. The client saved their company, we earned a good fee.
Everything seemed settled, but then we learned the prosecutor filed an appellate petition to modify the court ruling, seeking the fine plus 517 million tenge income confiscation. As you know, prosecutors always support state agencies for the above reason. Strange to observe, really.
Our client started worrying again. No problem - we prepared and successfully defended the original decision on appeal.
