CASE OF CHAP LTD v. ARMENIA
Violation of Article 6+6-3-d - Right to a fair trial (Article 6 - Administrative proceedings;Criminal proceedings) (Article 6 - Right to a fair trial;Administrative proceedings;Criminal proceedings;Article 6-3-d - Examination of witnesses;Obtain attendance of witnesses)
Aleš Pejchal;Armen Harutyunyan;Kristina Pardalos;Linos-Alexandre Sicilianos;Robert Spano
5. The applicant company, Chap Ltd, is a private Armenian company that was set up in 1999 and has its registered office in Gyumri. 6. In 2005 the applicant company established a regional television channel, Gala TV, with the intention of broadcasting in the local region. 7. On 23 February 2005 the applicant company was granted a licence by the National Television and Radio Commission (“the NTRC”) permitting it to broadcast in Gyumri, the second largest town in Armenia, and the surrounding area. The licence was granted for a period of seven years. Gala TV was one of four television stations operating in Gyumri and, according to the applicant company, it was widely recognised as one of the few independent voices in television broadcasting in Armenia. 8. From 29 October to 12 November 2007 the State Revenue Service (“the SRS”) conducted an inspection of the applicant company’s accounts. As a result, on 12 November 2007 it issued a report stating that the applicant company had a high tax liability for the years 2005 to 2007 and ordered it to pay 25,665,100 Armenian drams (AMD) (approximately 51,000 euros (EUR)), including surcharges and fines. The report stated that the indicated amounts were payable to the State budget within a period of ten days. 9. The SRS established in its report that the applicant company had underreported its tax liability by hiding income earned from advertising. The report also stated that the applicant company had failed to include the prices for its services in its invoices or keep records, as required by the Television and Radio Broadcasting Act. Furthermore, it was alleged that the applicant company had manufactured and sold fireworks without a government licence. 10. The SRS’s report was based, inter alia, on: a) documents requested from and subsequently submitted by Gr.A., the head of the NTRC; b) statements by the heads of companies and individual businessmen that they had placed advertisements on Gala TV but had not received any documents acknowledging payment to the applicant company for such services. 11. The applicant company objected to the allegations of tax evasion as fabricated and politically motivated as home-made advertisements that had a social function, which Gala TV had broadcast for free, had been taken into account by the authorities in calculating the tax arrears. 12. On an unspecified date the SRS instituted criminal proceedings against the applicant company’s chief executive, K.H., for tax evasion. The investigating authorities discontinued the proceedings after the required amount had been paid. 13. Having received no payment from the applicant company as regards the amounts stated in its report of 12 November 2007, on 26 November 2007 the SRS brought a claim with the Commercial Court to oblige the applicant company to pay AMD 25,212,800 (approximately EUR 50,000) in tax debt and to freeze its bank accounts and other assets in the amount of the alleged tax shortfall. 14. On 27 November 2007 the Commercial Court admitted the case to its proceedings and at the same time dismissed the application to freeze the applicant company’s bank accounts. 15. On 3 December 2007 the Commercial Court approved a freezing order on the applicant company’s assets as security for the claim. 16. On 17 December 2007 the applicant company brought a counterclaim against the SRS, challenging the results of the tax inspection. It argued, inter alia, that the relevant statements obtained from the heads of companies and individual businessmen, as well as the information obtained from Gr.A., could not be used as evidence to support the findings of the SRS in its report. 17. On 24 December 2007 the applicant company’s case was transferred to the Administrative Court, which had been set up as part of a reform of the court system that year. 18. On 29 January 2008 the Administrative Court admitted the case. 19. On 12 March 2008 the applicant company’s lawyer lodged an application to obtain and examine the tax records of the companies that had advertised on Gala TV and had been inspected by the SRS. He claimed that those tax records contained tax reports and other documents which could rebut the evidence submitted by the SRS. This application was rejected. 20. On the same day the applicant company’s lawyer also asked the Administrative Court to summon, inter alia, the heads of the relevant companies and the businessmen, namely A.J., S.A., S.M., H.P., G.S., G.A. and H.M. to whose statements the SRS had referred in its report. 21. By another application submitted on the same date the lawyer asked the Administrative Court to summon Gr.A. to testify about the information and documents he had provided to the SRS and confirm the veracity of those documents. 22. The applicant company’s applications were rejected by the Administrative Court, which considered the witness evidence in question as irrelevant. 23. On 19 March 2008 the Administrative Court granted the SRS’s claim against the applicant company in part. It annulled the SRS’s report in respect of a charge of AMD 96,000 (approximately EUR 190) imposed on the applicant company for the alleged illegal production and sale of fireworks. The Administrative Court decided to levy a total charge of AMD 25,116,700 (approximately EUR 50,000) on the company, including AMD 14,291,300 (approximately EUR 28,400) for Value Added Tax (VAT), comprising arrears, a 60% fine and surcharges for late payment; AMD 8,338,300 (approximately EUR 16,600) for profit tax, comprising arrears, a 60% fine and surcharges for late payment; and AMD 2,487,100 (approximately EUR 5,000) for the tax authority’s development fund. The Administrative Court referred to the relevant provisions of the Law on Value Added Tax and the Law on Taxes when imposing the surcharges and fines. In establishing the applicant company’s VAT and profit tax liability, it relied, inter alia, on the documents provided by Gr. A. and the statements of A.J., S.A., S.M., H.P., G.S., G.A. and H.M. which had been referred to in the SRS’s report. The amount of court fees to be paid by the applicant company was calculated at AMD 502,334 (approximately EUR 1,000). 24. On 18 June 2008 the applicant company lodged an appeal on points of law with the Administrative Court. 25. On 4 August 2008 the Court of Cassation returned the applicant company’s appeal on the grounds that it had failed to pay the correct amount of State fee and set a deadline for resubmission. 26. After paying the required State fee, the applicant company resubmitted its appeal on 3 September 2008. 27. On 18 September 2008 the Court of Cassation declared the applicant company’s appeal on points of law inadmissible for lack of merit.