Significance of Transportation Documents: Clarifications Issued by the Supreme Court of Russia

As specified in the decision of the Supreme Court of Russia, a consignment note (form No. 1-T) and a delivery note (form TORG-12) are not equivalent source documents and should be applied for different legal relations.

At the moment Instruction No. 156 of the Ministry of Finance of the USSR, No. 30 of the State Bank of the USSR, No. 354/7 of the State Statistics Office of the USSR and No. 10/998 of the Ministry for Automotive Transport of the RSFSR dated 30 November 1983 “On the Settlement Procedure for Cargo Carriage by Automotive Transport” (hereinafter – the “Instruction”) is still in legal force (as amended).

Clause 6 of the Instruction contains a provision stating that a consignment note is the only document, which may serve as the grounds for consignors to write off inventory and for consignees to book inventory, and also for the purposes of inventory control, real time accounting and financial accounting.

A company applied to the Supreme Court of Russia to invalidate this provision. According to the company, both the form of the consignment note (form No. 1-T) and the form of the delivery note (No. TORG-12) stipulate the ability to transport goods and, accordingly, both these forms of source accounting documents are equivalent for the purpose of writing off and booking inventory and should be applied for similar legal relations.

In Ruling No. KAS09-515 dated 10 November 2009 the Supreme Court of Russia upheld the decision of the court of first instance, which had dismissed the filed claim.

In said document the court of cassation drew the following conclusions:

Clause 6 of the Instruction should be assessed in close connection with the guidelines on how to apply and fill in the forms approved by Resolution No. 78 of the Russian State Statistics Committee dated 28 November 1997, which introduced a new form of consignment note No. 1-T to replace the previous note.

According to these guidelines, a consignment note No. 1-T is a source accounting document intended to register the movement of inventory and record settlements for their transportation. The consignment note consists of two sections: a section on the cargo and a section on transportation. This document is applied in cases where settlements are performed with the vehicle owners, who transported the cargo and is, in fact, a combination of two documents:

• the first document makes it possible to book the movement of inventory fr om one business entity to another for accounting purposes;
• the second document makes it possible to book transportation work and settlements for cargo transportation services.

Consignment note No. 1-T is issued in four copies, to be allocated between all participants in the transaction for each participant to register corresponding business transactions.

• Consignment note No. 1-T provides sufficient documentation for the booking of business transactions for accounting purposes. No other unified source accounting document is stipulated by effective legislation for entities to book the movement of inventory during transportation by road haulage companies and to account for the work of the road haulage companies;
• Delivery note No. TORG-12 was approved to account for commercial transactions and is applied to the issue (release) of inventory to a third party. It is compiled in two copies, with one copy to be transmitted to the party handing over the goods and one to the third party. This document has no sections that would make it possible to register transportation work and settlements for transportation;
• The arguments that consignment note No. 1-T and delivery note No. TORG-12 are equivalent documents for the purpose of writing off and booking inventory and should be used irrespective of actual transportation, are ill-founded;
• Clause 7 of the Instruction does not prohibit the use of delivery note No. TORG-12 as an inventory section appended to consignment note No. 1-T.

Taking into account this judicial act, one can draw the following practical conclusions:

1. If the transaction to supply goods does not involve their transfer by the supplier directly to the buyer and instead involves their delivery to the buyer by a third-party road haulage company, consignment note No. 1-T should be used. Here the consignment note constitutes sufficient documentation for accounting and tax purposes.

Delivery note No. TORG-12 may only be used in such transactions as an integral appendix to consignment note No. 1-T.

Please note that according to clause 7 of the Instruction the delivery note should be used in cases where it is impossible to list all the items and characteristics of the supplied inventory in the consignment note. This clause of the Instruction details other specifics for issuing these source documents in such situations [1].

2. The use of delivery note No. TORG-12 instead of consignment note No. 1-T to perform these transactions is fraught with tax risks.

We are aware of cases in court practice wh ere the court upheld the legitimacy of using documents other than consignment note No. 1-T as source documents for accounting purposes. At the same time, however, court practice is ambiguous on this matter. Furthermore, the Ruling of the Supreme Court of Russia reviewed here could affect further practice. Therefore, we recommend using consignment note No. 1-T for the deliveries of goods by third-party road haulage companies.