In a very recent case, a tax dispute arose regarding a Decision of the Inspectorate by which the Applicant was assessed and ordered to pay excise duties, late-payment interest on excise duties, and an excise duty penalty to the state budget, after the tax administrator determined that diesel fuel subject to the deferred excise duty payment regime (hereinafter referred to as AMLAR) had been disposed of from the vessel (removed and used for unspecified purposes). 

How the Tax Administrator Identified Unaccounted Fuel Disposal

The tax administrator established, based on data from the Excise Information System (AIS) and the AAP journal, that no excise duty calculation documents (DAA) had been issued for this diesel fuel; therefore, the Applicant had not paid excise duties on it. No e-AD had been issued for this diesel fuel either; therefore, AMLAR was not applied at the moment of disposal.

In the appeal, the Applicant argued that the company supplied fuel as fuel stores for international vessels; therefore, the provisions of the Mandatory Quality Indicators for Petroleum Products, Biofuels, and Liquid Fuels Used in the Republic of Lithuania, approved by Order No. 1-348/D1-1014/3-742 of December 22, 2010, of the Minister of Energy of the Republic of Lithuania, the Minister of Environment of the Republic of Lithuania, and the Minister of Transport and Communications of the Republic of Lithuania, were relevant to this type of fuel. 

The Applicant particularly emphasized that it was unclear on what legal basis the Customs Laboratory, when classifying CN codes for marine fuel, applied RRME rather than the relevant parameter, sulfur, and how, in such a case, the unlawfully and incorrectly applied CN code could be considered a valid basis for calculating excise duties.

Why the Applicant's Quality Indicators Argument Failed

The panel of judges of the appellate court emphasized that this administrative case was a tax case examining the validity and lawfulness of the decisions of the State Tax Inspectorate (VMI) and the Tax Disputes Commission (MGK). The Quality Indicators referred to by the Applicant are applied to assess fuel quality from pollution and environmental protection perspectives, not to identify fuel for tax purposes. In other words, the Applicant's arguments concerning the application of the Quality Indicators and the determination of the sulfur parameter were not legally relevant in this administrative case.

The Role of CN Codes and Customs Laboratory Findings in Excise Cases

LVAT noted that the tax administrator established, based on data from the Excise Information System, data from the AAP journal maintained by the Company, and data from the acquisition documents submitted to the i.SAF-T system during the tax audit, that diesel fuel had been brought into the Company's tanker and removed from it. According to the Company's accounting records and the AAP journal, at the end of the period, only diesel fuel with CN codes 2710 19 47 and 2710 19 43 was stored in the excise warehouse (AAPS). Therefore, the circumstances established by the tax administrator, namely that the quality parameters of the diesel fuel stored in the Applicant's fuel tanks differed from the quality parameters specified in the diesel fuel acquisition documents submitted by the Applicant to the tax administrator, constituted sufficient grounds to conclude that the diesel fuel under CN code 2710 20 16 was not the same fuel that the Applicant had acquired according to the data listed in the Excise Information System, the AAP journal, and the acquisition documents.

Thus, in LVAT's opinion, based on all the evidence collected in the case, it may be concluded that the tax administrator reached a substantiated conclusion that diesel fuel under CN code 2710 19 47, to which AMLAR applied, had been disposed of from the vessel (removed and used for unspecified purposes) without DAA and e-AD documents being issued and without excise duties being paid.

Burden of Proof Under Article 67(2) of the Law on Tax Administration

In the administrative case under examination, the Applicant, by asserting that sulfur was the most important quality parameter of marine fuel, did not refute the circumstances established by the tax administrator and did not prove that the diesel fuel mixed with biodiesel, with CN code 2710 20 16, stored in the Applicant's fuel tanks, was the same diesel fuel specified in the Applicant's own acquisition documents. 

On the contrary, the Applicant did not challenge the Customs Laboratory's data and did not provide factual data or evidence that would refute the circumstances established by the tax administrator, as required by Article 67(2) of the Law on Tax Administration, but merely presented declarative arguments. Therefore, it must be held that the tax administrator substantiated the amounts payable calculated for the Applicant, and the Applicant did not refute them.

Tax Assessment Under Article 70 of the Law on Tax Administration

Additionally, it should be noted that LVAT case law also includes cases in which excise duties are calculated pursuant to the provisions of Article 70 of the Law on Tax Administration. In one such case, the dispute concerned additionally calculated excise duties and related amounts after a farmer used gas oil for purposes other than the production of agricultural products.

LVAT held that the calculations under the economic model prepared by the tax administrator proved that fuel intended for heating had not been used for agricultural operations involving the drying of agricultural products, contrary to the claims of the Applicant, who had acquired the fuel under preferential conditions. 

The business entity, not the tax administrator, must prove that the fuel was used for its intended purpose. How and in what manner the Applicant released into the market the fuel acquired under preferential conditions was not the subject matter of that case.

In its ruling, LVAT emphasized that although Article 70(1) of the Law on Tax Administration does not expressly (in clear terms; directly) provide that taxes may be calculated according to the tax administrator's assessment where the value of assets acquired by the taxpayer and/or the taxpayer's personal expenses during the relevant period exceed the declared income, such cases nevertheless fall within the scope of the legal regulation established in Article 70(1) of the Law on Tax Administration.

Proving Taxpayer Income in Civil Transaction Disputes

LVAT has also emphasized that, as regards the assessment of evidence in cases of an analogous category (where the reality of income received by the taxpayer is proven or substantiated based on various civil transactions), LVAT has explained in its case law (for example, in its ruling of March 15, 2007, in administrative case No. A17-301/2007, and its ruling of March 28, 2019, in administrative case No. eA-437-502/2019) that the subject matter of proof in such cases is whether the sums of money were actually transferred to the taxpayer, that is, whether income was received. 

Direct Evidence Requirements (Payment Orders, Witness Testimony)

These circumstances should be proven by direct evidence from which an unequivocal conclusion can be drawn regarding the circumstances constituting the subject matter of proof (for example, payment orders confirming the movement of funds; explanations by the persons from whom the income was allegedly received as to whether the funds were or were not transferred; and testimony of other witnesses who can confirm or refute the transfer of funds). 

The Limited Role of Indirect Evidence in Substantiating Income

The law also does not prohibit proof by indirect evidence, that is, evidence that is connected in several possible ways to the circumstances constituting the subject matter of proof (for example, evidence of the funds that may have been available to the person from whom the income may have been received; evidence concerning the circumstances of the use of the funds received, and so on). 

In cases of this type, a conclusion that the taxpayer has failed to substantiate income should not be drawn solely based on indirect evidence (for example, evidence that the lender had no lawful income). However, in any event, the court assesses the evidence according to its inner conviction, in accordance with the law and the criteria of justice and reasonableness (Article 56(7) of the Law on Administrative Proceedings), and indirect evidence may be useful in confirming or refuting conclusions formulated based on direct evidence.

Thus, it is reasonable to consider that these LVAT interpretations are relevant not only when calculating excise duty but also when generally assessing tax obligations and the calculation of other taxes.