The Constitutional Court has obliged public authorities to pay interest on a efund of the recycling charge which has been collected in excess

Pepeliaev Group advises that the Russian Constitutional Court (the ‘Constitutional Court’) has held[1] that if the recycling charge has been collected in excess the relevant amount should be refunded with interest. The same rule which applies to the refund of taxes should apply in this case.

The state commercial courts of three levels dismissed the applicant’s claims to recover interest fr om the customs office on the amount of the recycling charge which was collected in excess.[2] The courts cited the legal provision of the Russian Government’s Resolution which stipulates that no interest should be paid in that case. [3]

However, the Constitutional Court held that the legal provision of the Government’s Resolution in dispute was unconstitutional. It further stated that it was not permissible to apply different approaches to taxpayers and payers of the recycling charge, when taxpayers are entitled to claim for interest to be paid in a similar case.

The dispute between the applicant and the customs authority

In 2018, the applicant imported woodworking machinery into Russia. The customs authority considered that the imported machines fell within the class of forestry machines and equipment on which the recycling charge is paid.

Based on the notifications forwarded by the customs authority requesting that the recycling charge should be paid, the applicant transferred monetary funds exceeding RUB 10 million in total.

Subsequently, further to the applicant’s claims, the court held that the customs authority’s decision was invalid.[4] The courts concluded that no recycling charge was to be paid on the imported machinery, and the customs authority refunded to the applicant the amount paid in excess.

Referring to the fact that the customs authority received the monetary funds in 2018 but refunded them in 2019, the applicant went to court with a claim to recover interest from the customs authority for using the monetary funds which were collected in excess (in the amount of over RUB 700,000).

The courts dismissed the claim, citing clause 37 of the Rules which stipulates that no interest should be paid when the recycling charge is refunded that has been collected in excess.

In the case initiated by the applicant, the courts refused to apply by analogy article 79 of the Russian Tax Code (the “Tax Code”) which stipulates that an amount of tax collected in excess is subject to a refund together with interest accrued on it. In the opinion of the courts, the recycling charge is not regulated by the legislation on taxes and levies, and there is an explicit indication that no interest should be paid. [7]

Believing that clause 37 of the Rules runs counter to the Russian Constitution (as it deprives a payer of the right to obtain interest on the recycling charge which was unlawfully collected), the applicant filed a complaint with the Constitutional Court.

Position of the Constitutional Court

The Constitutional Court noted that default interest is applied to a payer for a violation of the rules for paying the recycling charge. The default interest compensates the damage the state incurs in connection with a non-payment to the state budget of monetary funds that are due to it by the deadline.

Meanwhile, no interest is paid when the recycling charge which was paid in excess is refunded, meaning that the payer is deprived of the right to have compensated its financial losses that have emerged (owing to inflation or inability to use the monetary funds which were withheld for a long period of time, or other).

Therefore, as concluded the Constitutional Court, a simplified procedure is stipulated for a public institution to have its property-related rights restored, while payers of the charge are, on the contrary, deprived of such mechanism by the Government Resolution, which evidently leads to a mismatch between private and public interests within the scope of relationships that involve the collection of the charge.

The Constitutional Court further stated that payers of the recycling charge should not be in a manifestly worse position as compared with taxpayers and payers of customs duties, including with respect to the payment of interest on amounts collected in excess.

In view of the above the Constitutional Court concluded that clause 37 of the Rules runs counter to the Russian Constitution to the extent that it does not provide for a simplified procedure for a payer of the recycling charge to have its property-related rights (in the form of interest) restored which were violated by the charge being collected in an excessive amount.

In the operative part of its Resolution the Constitutional Court obliged the Russian Government to amend current legal regulation based on its position on the matter. Until such amendments are introduced, article 79 of the Tax Code must be applied to legal relationships involving a refund of the recycling charge that was collected in excess. The article provides for interest to be paid when tax collected in excess is refunded.

What to think about and what to do

Payers of the recycling charge should take into account the legal position set out in the Constitutional Court’s Resolution No. 47-P and insist that a customs authority pays interest if the recycling charge has been collected unlawfully (citing the above legal position).

If customs authorities unlawfully request that the recycling charge must be paid, an importer may comply with the request to receive the goods at its disposal together with necessary documents, and subsequently have the amount it has paid refunded to it together with interest. The applicant’s case demonstrates that such option is possible.

It should also be noted that the Constitutional Court’s logic can be applied to the fullest extent to cases when the environmental charge and the recycling charge paid with respect to wheeled vehicles are refunded when they have been collected unlawfully. Nevertheless, neither clause 24 of the Rules for levying an environmental charge or clause 35 of the Rules for levying a recycling charge for wheeled vehicles were the subject matter of the hearing by the Constitutional Court, and it cannot be ruled out that in a specific dispute courts will refuse to apply the legal position of the Constitutional Court to a refund of either the environmental or recycling charge which was paid in excess with respect to wheeled vehicles.

In that case we would recommend that a motion should be filed with the court asking that a request be transmitted for the Constitutional Court to verify whether the relevant legal provision complies with the Russian Constitution. [8]

Help from your adviser

Pepeliaev Group’s lawyers are ready to provide any required legal assistance to companies on any matters relating to the payment and refunding of the environmental and recycling charges, as well as in collecting interest on the amounts of such charges.

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[1] Resolution No. 47-P of the Constitutional Court “On a case regarding an examination of whether clause 37 is constitutional of the Rules for levying, assessing, paying and collecting of the recycling charge with respect to self-propelled vehicles and/or trailers for them, as well as the refunding and offsetting the amounts of the charge which have been paid or collected in excess, further to a complaint by Limited Liability Company Traktorodetal Group” dated 8 November 2022.

[2] Case No. A56-69059/2020.

[3] Clause 37 of the Russian Government’s Resolution No. 81 “On the recycling charge with respect to self-propelled vehicles and/or trailers for them and amending individual regulations of the Government of the Russian Federation” dated 6 February 2016 (together with the “Rules for levying, assessing, paying and collecting the recycling charge with respect to self-propelled vehicles and/or trailers for them, as well as the refunding and offsetting the amounts of the charge which have been paid or collected in excess”) (the “Rules”).

[4] Case No. A56-114436/2018.

[5] Clause 35 of the Rules for levying, assessing, paying and collecting the recycling charge with respect to self-propelled vehicles and/or trailers for them, as well as the refunding and offsetting the amounts of the charge which were paid or collected in excess as approved by the Russian Government’s Resolution No. 1291 “On the recycling charge with respect to self-propelled vehicles and/or trailers for them and amending individual regulations of the Government of the Russian Federation” dated 26 December 2013 (the “Rules for levying a recycling charge for wheeled vehicles”).

[6] Clause 24 of the Rules for levying an environmental charge as approved by the Russian Government’s Resolution No. 1073 “On the procedure for levying an environmental charge” dated 8 October 2015 (the “Rules for levying an environmental charge”).

[7] The Resolution of the Thirteenth Commercial Court of Appeal dated 13 March 2021 in case No. A56-69059/2020.

[8] That a court may forward such a request is provided for in article 101 of Federal Constitutional Law No. 1-FKZ “On the Constitutional Court of the Russian Federation” dated 21 July 1994.