2008/12/09 - Pl. ÚS 48/06: State as Bankruptcy Creditor

09 December 2008

HEADNOTES

The

right to property, as a fundamental right, is protected by Art. 11 of

the Charter of Fundamental Rights and Freedoms. Under the first and

second sentences of the first paragraph of that article, everyone has

the right to own property, and everyone’s property rights has the same

content and enjoys the same protection. One cannot by any interpretation

draw from that provision of the Charter any increased protection for

the rights of the state as an owner, represented in tax matters by the

tax administrator, that would give it an advantage in the event of a

declaration of bankruptcy and de facto accord it a privileged position

vis-à-vis other bankruptcy creditors.


 

CZECH REPUBLIC

CONSTITUTIONAL COURT

JUDGMENT


IN THE NAME OF THE CZECH REPUBLIC

 

The

Plenum of the Constitutional Court, consisting of Stanislav Balík,

František Duchoň, Vlasta Formánková, Vojen Güttler, Ivana Janů, Vladimír

Kůrka, Dagmar Lastovecká, Jiří Mucha, Jan Musil, Jiří Nykodým, Pavel

Rychetský, Miloslav Výborný, Eliška Wagnerová and Michaela Židlická,

ruled on 9 December 2008 on a petition from the Municipal Court in

Prague, filed under Art. 95 par. 2 of the Constitution of the Czech

Republic, seeking a declaration that § 105 par. 1, third sentence of Act

no. 235/2004 Coll., on Value Added Tax, as in effect before it was

amended by Act no. 296/2007 Coll., was unconstitutional, as follows:


The

provision of § 105 par. 1 third sentence of Act no. 235/2004 Coll., on

Value Added Tax, as in effect before it was amended by Act no. 296/2007

Coll., specifically the text “Tax proceedings are not suspended by a

declaration of bankruptcy, and after the declaration of bankruptcy any

excessive assessment is returned to the taxpayer, if it does not, after

the declaration of bankruptcy, have tax debts that arose before the

declaration of bankruptcy,” was inconsistent with Art. 11 par. 1 of the

Charter of Fundamental Rights and Freedoms.

 


REASONING


I.
Definition of the matter and recapitulation of the petition
 

1.

On 19 June 2006 the Constitutional Court received a petition from the

Municipal Court in Prague seeking annulment of § 105 par. 1, third

sentence of Act no. 235/2004 Coll., on Value Added Tax, as amended by

later regulations, specifically of the text “Tax proceedings are not

suspended by a declaration of bankruptcy, and after the declaration of

bankruptcy any excessive assessment is returned to the taxpayer, if it

does not, after the declaration of bankruptcy, have tax debts that arose

before the declaration of bankruptcy,” (the “contested provision”).

2.

The petitioner did this after, in connection with its decision-making

activity, in accordance with Art. 95 par. 2 of the Constitution of the

Czech Republic (the “Constitution”) it concluded that § 105 par. 1,

third sentence of Act no. 235/2004 Coll., on Value Added Tax, as amended

by later regulations, which was to be applied in adjudicating the

matter file no. 11 Ca 253/2005, is inconsistent with Art. 11 of the

Charter of Fundamental Rights and Freedoms (the “Charter”).

3. In

matter file no. 11 Ca 253/2005, the Municipal Court in Prague is ruling

on a complaint from JUDr. J. L., the bankruptcy administrator of the

bankrupt company O.S.A., spol. s r. o., against a decision by the

Financial Office for Prague 7 of 9 August 2005 ref. no.

76204/05/007914/3347, whereby the Financial Office denied the

plaintiff’s appeal against its decision of 18 July 2005 ref. no.

69719/05/007914/3347. In this decision the Financial Office for Prague 7

decided to transfer the overpayment of value added tax (“VAT”) by the

bankrupt company O.S.A., spol. s r. o., in the amount of CZK 3,668,

established as of 18 July 2005, in order to cover the company’s debt for

payment of individual income tax on employment income and remuneration

for offices held, established as of 18 July 2005, in the amount of CZK

1,825,71. In the petition, the plaintiff objects that the overpayment of

tax that arose after the declaration of bankruptcy is an asset that

belongs to the bankruptcy estate, and the financial offices are required

to follow § 14 of Act no. 328/1991 Coll., on Bankruptcy and Settlement,

as amended by later regulations, (the “Bankruptcy and Settlement Act”

or “BSA”) and respect the fact that assets belonging to the bankruptcy

estate cannot be set off.

4. In reviewing the matter, the

Municipal Court in Prague took the opinion that § 105 par. 1, third

sentence of Act no. 235/2004 Coll., on Value Added Tax, as amended by

later regulations, specifically the text: “Tax proceedings are not

suspended by a declaration of bankruptcy, and after the declaration of

bankruptcy any excessive assessment is returned to the taxpayer, if it

does not, after the declaration of bankruptcy, have tax debts that arose

before the declaration of bankruptcy,” which might be applied in the

matter, is inconsistent with the constitutional order of the Czech

Republic, specifically with Article 11 of the Charter, and therefore it

filed a petition seeking annulment of that provision under Art. 95 par. 2

of the Constitution, because it is bound by that provision.

5.

In the reasoning of its petition, the Municipal Court in Prague argues

on the basis of Constitutional Court judgment file no. I. ÚS 544/02

[judgment of 7 April 2005 (N 76/37 SbNU 75)], which concludes that if an

ordinary court acted inconsistently with a mandatory norm [§ 14 par. 1

let. i) of the Bankruptcy and Settlement Act] and thus failed to respect

the aims of that Act, it thus unjustifiably gave an advantage to one of

the creditors, i.e. the state, represented by the financial

authorities. The petitioner points out that the relationship between the

bankruptcy administrator and the tax administrator in a tax proceeding

is a public law relationship. Therefore, the question of whether the

bankruptcy administrator does or does not have the right to return of an

overpayment of tax, or in what manner a returnable overpayment is to be

handled, can be reviewed and decided only in terms of and according to

public law regulations, not according to those that govern private law

relationships. Likewise, a tax overpayment under § 64 of Act no.

337/1992 Coll., on the Administration of Taxes and Fees, as amended by

later regulations (the “Act on Administration of Taxes and Fees”) is a

legal concept in public law. In the conclusion of the petition, the

Municipal Court in Prague summarizes, with reference to the settled

decision-making practice of the Constitutional Court, that incorrect

application of a norm of simple law, which, in this case, permits giving

an unjustified advantage to the state, as one of the creditors, would

violate a constitutionally guaranteed right (Art. 11 of the Charter),

and it therefore proposes that the Constitutional Court annul the

contested provision on a date set forth in its judgment.

6.

During the proceeding, the Municipal Court in Prague proposed, under §

63 of Act no. 182/1993 Coll., on the Constitutional Court, and § 95 par.

1 of Act no. 99/1963 Coll., the Civil Procedure Code, as amended by

later regulations, a change to the original petition, the change being

that the Constitutional Court declare that § 105 par. 1, third sentence

of Act no. 235/2004 Coll., on Value Added Tax, as in effect before 1

January 2008, i.e. as in effect before the amendment made by Act no.

296/2007 Coll., (“Act no. 235/2004 Coll.” or the “VAT Act”) was

inconsistent with Art. 11 par. 1 of the Charter. The Municipal Court in

Prague justified its proposal with the fact that the contested provision

was repealed by Act no. 296/2007 Coll., which Amends Act no. 182/2006

Coll., on Insolvency and Methods of Resolving It (the Insolvency Act),

as amended by later regulations, and certain acts connected with

enactment of the Insolvency Act, (“Act no. 296/2007 Coll.”);

nevertheless, the repeal does not change the fact that the contested

provision must continue to be applied to legal relationships that arose

when it was valid and in effect.
 


II.
Recapitulation of the Essential Parts of Responses from the Parties to the Proceeding
 

7.

Under § 42 par. 4 and § 69 of Act no. 182/1993 Coll., on the

Constitutional Court, as amended by later regulations, (the “Act on the

Constitutional Court”), the Constitutional Court sent the petition to

the parties to the proceeding – the Chamber of Deputies and the Senate

of the Parliament of the Czech Republic.

8. In his statement of

13 June 2007, the Chairman of the Chamber of Deputies of the Parliament

of the Czech Republic, Ing. Miloslav Vlček, states that the legal

framework for the return of an excessive assessment in § 105 of the VAT

Act was adopted into the law from the proceedings Act no. 588/1992

Coll., on Value Added Tax, as is stated in the background report on the

Act. When approving the contested provision, the legislature relied on

the fact that a tax proceeding is an implementation of the rights and

obligations of a taxpayer vis-à-vis the state, represented by the tax

administrator. The relationship between the taxpayer and the tax

administrator, which is governed by regulations on tax proceedings, is

thus established on inequality, as the purpose of tax regulations is the

collection of taxes so that the state’s revenues will not be reduced.

An excessive assessment of value added tax in the event that [the

assessment exceeds the tax on output /the tax on output exceeds the tax

assessment], is conceived as a payment of tax that the tax administrator

uses to cover tax obligations under § 59 par. 5 of the Act on

Administration of Taxes and Fees, or to cover any debt for payment of

another tax, or, if appropriate, with a different tax administrator,

under specified conditions. The legislative assembly that approved Act

no. 235/2004 Coll. acted in the belief that the Act was consistent with

the Constitution, the constitutional order, and our legal order. It is

up to the Constitutional Court to evaluate the constitutionality of the

cited provision in connection with the petition to annul § 105 par. 1,

third sentence of Act no. 235/2004 Coll., and to issue the appropriate

decision.

9. In the statement from the Senate of the Parliament

of the Czech Republic of 14 June 2007, the Chairman, MUDr. Přemysl

Sobotka, points out, that the Senate already spoke on the issue of the

regulation in § 105 par. 1 of the VAT Act in its statement ref. no.

10412/06 of 17 October 2006 in the matter file no. Pl. ÚS 12/06

[judgment of 2 July 2008 (promulgated as no. 342/2008 Coll.)]. He

further states that the petitioner’s arguments, based only on the

earlier Constitutional Court decision file no. I. ÚS 544/02 (see above)

does not seem convincing, because § 105 of the VAT Act already

explicitly contains what is basically an exception to the regime of the

Bankruptcy and Settlement Act, in contrast to the legal status quo in

effect until 30 April 2004, in which the abovementioned decision was

issued. Although the legislature made it clear in the amendment to the

Bankruptcy and Settlement Act, no. 27/2000 Coll., effective as of 1 May

2000, that it will no longer give the state a privileged position

regarding its claims against bankrupt parties; the state’s privileged

position had lasted for virtually decades and concerned not only tax

claims (fees, duties and social security contributions, if they arose no

more than three years before the bankruptcy filing or during the

bankruptcy proceeding), but by passing the new VAT Act it was as if it

had revised that position and, together with the new Act, agreed that in

the case of an excessive assessment of value added tax the state will

not “share” with the other creditors. It is up to the Constitutional

Court to determine whether the exception provided in § 105 par. 1, third

sentence of the VAT Act, which gives the state, for fiscal reasons,

“higher claims” for satisfaction of its claims than to other bankruptcy

creditors, is the kind of regulation that the Constitutional Court

considered constitutional and defensible under decision file no. I. ÚS

544/02.
 


III.
The Text of the Contested Legal Provision
 

10.

The provision of § 105 par. 1, third sentence of Act no. 235/2004

Coll., on Value Added Tax, as in effect before 1 January 2008, i.e.

before the amendment implemented by Act no. 296/2007 Coll., reads: “Tax

proceedings are not suspended by a declaration of bankruptcy, and after

the declaration of bankruptcy any excessive assessment is returned to

the taxpayer, if it does not, after the declaration of bankruptcy, have

tax debts that arose before the declaration of bankruptcy.”

11.

The amendment implemented by Act no. 296/2007 Coll. repealed the third

sentence of paragraph one of § 105 of the VAT Act, effective 1 January

2008.
 


IV.
Review of whether the Act was adopted and issued in a constitutionally prescribed manner
 

12.

The Constitutional Court, in accordance with § 68 par. 2 of the Act on

the Constitutional Court, first considered whether the Act whose

contested provision (as in effect on the date when the financial office

decision contested by the complaint was issued, i.e. as of 9 August

2005) is alleged to be unconstitutional was adopted and issued within

the bounds of constitutionally prescribed competence and in a

constitutionally prescribed manner.

13. The Constitutional Court

confirmed that Act no. 235/2004 Coll. was passed by the Chamber of

Deputies on 26 February 2004 at its 27th, when, out of 187 deputies

present, 94 deputies voted in favor, and 93 were against. On 12 March

2004 the bill was passed on to the Senate, which passed it on 1 April

2004 at its 14the session, when, out of 73 senators present, 37 senators

voted for it, and 31 were against. The president did not sign the Act,

and returned it to the Chamber of Deputies, which voted on it at its

30th session on 22 April 2004. Out of 184 deputies present, 101 voted in

favor, and 83 were against. The Act was promulgated in the Collection

of Laws as no. 235/2004 Coll. on 23 April 2004, and went into effect on 1

May 2004.

14. Therefore, the Constitutional Court states that

the Act was duly adopted and issued within the bounds of

constitutionally provide competence and in a constitutionally prescribed

manner.
 


V.
Review of the Constitutional Court’s competence to review the submitted petition and the petitioner’s active standing
 

15.

The Constitutional Court first had to answer the question whether it

was competent to review the petition on its merits, when the provision

of the VAT Act that the petitioner sought to have annulled, and

subsequently, by amending the petition, sought to have declared

unconstitutional, was repealed by an amendment implemented by Act no.

296/2007 Coll., with effect as of 1 January 2008. However, the contested

provision, as in effect before the amendment implemented by Act no.

296/2007 Coll., was applied in the matter, and so the application of

that provision must also be reviewed in the proceeding on this

complaint.

16. Under § 67 par. 1 of the Act on the

Constitutional Court, although there are grounds to stop proceedings if

the statute, or other legal regulation, or part thereof, which is

proposed to be annulled, ceases to be in effect before the end of the

proceeding before the Constitutional Court. However, as the

Constitutional Court already stated in judgment file no. Pl. ÚS 38/06

[judgment of 6 February 2007 (promulgated as no. 84/2007 Coll., also

available at nalus.usoud.cz)], according to the legal opinion in

judgment file no. Pl. ÚS 33/2000 [judgment of 10 January 2001 (N 5/21

SbNU 29; promulgated as no. 78/2001 Coll.)], under Art. 95 par. 2 of the

Constitution, the Constitutional Court is competent to review the

constitutionality of a contested provision on the merits, even if it was

already repealed (amended), provided that the addressee of the claimed

reason for unconstitutionality is a public authority, and not a private

law subject. In view of the fact that in this matter the addressee of

the claimed reason for unconstitutionality is a public authority, in the

context of the cited legal opinion stated in the matter file no. Pl. ÚS

38/06, the conditions for reviewing the petition on the merits have

been met.

17. With the present petition the petitioner met the

conditions of Art. 95 par. 2 of the Constitution, because it seeks to

have declared unconstitutional § 105 par. 1, third sentence of the VAT

Act, which is connected with its decision-making activity, and therefore

that court is a petitioner with standing under Art. 95 par. 2 of the

Constitution.
 


VI.
Hearing
 

18.

Under § 44 par. 2 of the Act on the Constitutional Court, the

Constitutional Court may, with the consent of the parties, waive a

hearing, if it cannot be expected to clarify the matter further. Because

the petitioner, in its letter of 29 May 2008, the Chairman of the

Chamber of Deputies of the Parliament of the Czech Republic, in his

statement of 13 June 2007 and the Chairman of the Senate of the

Parliament of the Czech Republic, in his letter of 22 May 2008, gave

their consent to waive a hearing, and because the the Constitutional

Court believes that a hearing cannot be expected to clarify the matter

further, a hearing was not held in this matter.
 


VII.
The Constitutional Court’s Prior Case Law relating to the Adjudicated Issue
 

19.

The Constitutional Court has already, in a number of its panel

judgments considered the issue of permissibility of setting off

overpayments of value added tax to cover tax debts if the taxpayer is a

bankrupt party who is in bankruptcy proceedings, e.g. in judgments file

no. I. ÚS 544/02 (see above), file no. II. ÚS 35/05 [judgment of 20

December 2005 (N 232/39 SbNU 457)], file no. III. ÚS 648/04 [judgment of

28 July 2005 (N 145/38 SbNU 135)], file no. III. ÚS 41/05 [judgment of

18 January 2006 (N 19/40 SbNU 147)], file no. IV. ÚS 408/05 [judgment of

31 July 2006 (N 146/42 SbNU 177)]. Upon a petition from the Supreme

Administrative Court seeking annulment of § 37a of Act no. 588/1992

Coll., on Value Added Tax, as amended by later regulations, (“Act no.

588/1992 Coll.”), § 105 par. 1, third sentence of Act no. 235/2004 Coll.

and § 64 par. 2 of the Act on Administration of Taxes and Fees, the

Constitutional Court considered this issue extensively in plenary

judgment file no. Pl. ÚS 12/06 [judgment of 2 July 2008 (promulgated as

no. 342/2008 Coll., also available at nalus.usoud.cz)]. The

conclusions which the Constitutional Court reached in these cited

judgments can also be applied to the presently adjudicated matter.

20.

The Constitutional Court first stated that no interpretation can be

used to draw from Art. 11 of the Charter increased protection of the

rights of the state as an owner, represented in tax matters by a tax

administrator, that would, in cases of bankruptcy proceedings, give it

advantages and accord it a privileged position vis-à-vis the other

bankruptcy creditors in connection with setting of a tax overpayment to

cover a tax debt.

21. The Constitutional Court considered the

question of the possibility of setting of private law and public law

claims, i.e. whether § 14 par. 1 let. i) of the Bankruptcy and

Settlement Act can, as a provision in a private law regulation,

establish the impermissibility of such a setoff alongside private law

claims and with public law claims, also raised by the petitioner in the

present matter, in detail in the abovementioned judgment file no. III.

ÚS 648/04 (see 1above). As the Constitutional Court states in that

judgment, one cannot draw from the Constitutional Court’s prior case law

a generalization about ruling out the possibility of setting off

private law and public law claims. Evaluating the permissibility of such

a setoff depends on the particular positive law framework, and in this

regard one can point to the legal opinion found in the judgment of the

Supreme Administrative Court of the Czechoslovak Republic of 14 October

1932 no. 15.605 (Boh. A 10072/32), that “in order for the legal

institution of compensation, established in private law, to also be used

in the public law area, a special regulation is needed.” On the issue

of whether § 14 par. 1 let. i) of the BSA can also be considered such a

special legal regulation, containing the impermissibility of

compensation of not only private law but also private law and public law

claims, of the BSA, the Constitutional Court took as its starting point

the statement that in the event of conflict between two regulations of

simple law with the same degree of legal force, when, nota bene, their

relationship is not that one includes the other but that they overlap,

the determination of which one is a general regulation and which one is a

special regulation depends on the subject matter of the proceeding

(which is defined by the procedural petition). Thus, the general legal

regulation is the one that, in terms of the simple law, prima facie

governs the subject matter of the proceeding as delineated by the

petition.

22. In judgment file no. III. ÚS 648/04, just as in the

plenary judgment file no. Pl. ÚS 12/06 (both, see above), the

Constitutional Court, starting with the principle of giving priority to a

constitutional interpretation of simple law, concluded that § 14 par. 1

let. i) of the BSA is a special legal regulation that establishes the

impermissibility of set-off not only of private law, but also private

law and public law claims. As such, therefore, § 14 par. 1 let. i) of

the BSA, in the position of a special regulation, has priority over the

general regulation contained in § 59 par. 3 let. e), § 40 par. 11 and §

64 par. 2 of the Act on Administration of Taxes and Fees, and a

constitutional interpretation of these provisions leads to meeting the

purpose and aims of the Bankruptcy and Settlement Act.
 


VIII.
Consistency of the Content of the Contested Statutory Provision with the Constitutional Order
 

23.

After recapitulating the prior case law, the Constitutional Court

proceeded to review the content of the contested provision in terms of

its consistency with the constitutional order of the Czech Republic

[Art. 87 par. 1 let. a) of the Constitution].

24. The

abovementioned panel judgments and plenary judgment of the

Constitutional Court on setting off overpayments of value tax reviewed

the issue of protecting the property rights of bankruptcy creditors

against increased protection of the rights of the state as an owner in

the position of a bankruptcy creditor in terms of the previous legal

regulation of value added tax, established by Act no. 588/1992 Coll. The

present petition relates to the legal regulation of value added tax

provided by the following statute, Act no. 235/2004 Coll., in effect as

of 1 May 2004. This later legal regulation, in § 105 par. 1, third

sentence of the Act on VAT, unlike the previous legal regulation,

expressly stated that “tax proceedings are not suspended by a

declaration of bankruptcy, and after the declaration of bankruptcy any

excessive assessment is returned to the taxpayer, if it does not, after

the declaration of bankruptcy, have tax debts that arose before the

declaration of bankruptcy.” Thus, for the period from 1 May 2004 to 31

December 2007 (i.e. until amendment by Act no. 296/2007 Coll.), the

legislature regulated the set-off of tax overpayment to cover a tax debt

by a mandatory norm that left the tax administrator no other possible

procedure secundum et intra legem, than that imposed by the contested

provision, i.e. it gave the tax administrator an obligation to return to

the taxpayer any excessive assessment, only if the tax payer does not,

after the declaration of bankruptcy, have tax debts that arose before

the declaration of bankruptcy.

25. The legislature repealed the

contested provision with effect as of 1 January 2008 in connection with

the adoption of Act no. 296/2007 Coll., which, in addition to the VAT

Act, also amended the Insolvency Act, the Act on Administration of Taxes

and Fees, and some other statutes. The background report to the

government draft of Act no. 296/2007 Coll. states, regarding amendment

of the VAT Act, that it follows on from the changes reflected in the

text of the draft amendment to the Act on Administration of Taxes and

Fees, and the background report characterizes these changes by the need

to define tax debts for purposes of insolvency proceedings. Repeal of

the contested provision of the VAT Act by Act no. 296/2007 Coll. is an

explicit expression of the legislature’s intent, with effect pro futuro.

In connection with this repeal of the contested provision, which took

place only after the adjudicated petition was submitted to the

Constitutional Court, the Municipal Court in Prague changed its original

petition, and proposed that the now derogated provision be declared

unconstitutional.

26. The essence of the petition is the

petitioner’s claim that, in view of its being bound by the statute, and

thus also by the contested provision, it cannot, for the period when

that provision was valid and in effect, protect the property rights of

creditors, in view of the more advantageous position of the state as one

of the bankruptcy creditors, and therefore it finds the contested

provision inconsistent with Art. 11 par. 1 of the Charter.

27.

In connection with the unconstitutionality of the contested provision

claimed by the petitioner, it is necessary to consider the provision in

its relationship to § 14 par. 1 let. i) of the BSA, as it also follows

from the petitioner’s belief that the unconstitutionality of the

contested provision from the petitioner’s belief that the

unconstitutionality of the contested provision lies in its application

to the case before the petitioner, of a bankrupt party, which is subject

to the regime of the Bankruptcy and Settlement Act. In reviewing the

relationship between the abovementioned legal regulations, the

Constitutional Court begins first with the constitutionally enshrined

fundamental rights, as corresponds to the requirement of respect for the

rights and freedoms of the human being and the citizen, as the

foundation of a state governed by the rule of law (Art. 1 par. 1 of the

Constitution). The primacy of the individual before the state (Art. 1 of

the Charter) must also be respected in cases of conflict between the

fundamental rights and the general interests of the state.

28.

The right to property, as a fundamental right whose protection is

affected by the contested provision, is protected by Art. 11 of the

Charter. Under the first and second sentences of the first paragraph of

that article of the Charter, everyone has the right to own property, and

everyone’s property rights has the same content and enjoys the same

protection. One cannot by any interpretation draw from that provision of

the Charter any increased protection for the rights of the state as an

owner. However, in the present matter, application of the contested

provision necessarily results in such unjustified advantaging of the

state, and the provision thus de facto accorded the state, represented

in tax matters by the tax administrator, a privileged position vis-à-vis

other bankruptcy creditors. In contrast, the derogation of the

contested provision, which the legislature enacted by Act no. 296/2007

Coll., did not in any way give an advantage to the state, because,

assuming the due exercise of its claims under § 20 of the BSA, it does

not suffer any marked detriment, or a detriment not greater than that of

other bankruptcy creditors. In this conclusion the Constitutional Court

agrees with its previous conclusions from the abovementioned judgments;

for brevity it refers to the arguments therein.

29. The

Constitutional Court sees no reason to deviate from the conclusions it

reached in the cited judgments, even as regards the petitioner’s

objection that the question of returning an overpayment of value added

tax can be reviewed and decided only in terms of and according to public

claw legal regulations. In judgment file no. III. ÚS 648/04 (see above)

the Constitutional Court concluded that § 14 par. 1 let. i) of the BSA

is a special legal regulation in relation to provisions of the Act on

Administration of Taxes and Fees that establish the impermissibility of

compensation not only of private law, but also private law and public

law claims, and therefore, in the position of a special regulation, it

has priority over a general regulation, contained in the cited

provisions of the Act on Administration of Taxes and Fees (see the

recapitulation of prior case law provided above). Using these arguments,

one can also reach a similar conclusion in the present matter, as

regards the relationship between § 14 par. 1 let. i) of the BSA and the

contested § 105 par. 1, third sentence of the VAT Act.

30. In

its settled case law the Constitutional Court has repeatedly emphasized

the priority of a constitutional interpretation of a legal regulation,

or its individual provisions, over annulment. In the present petition,

the contested § 105 par. 1, third sentence of the VAT Act is a mandatory

regulation, which cannot be overcome by a constitutional

interpretation, because its mandatory nature does not permit the

addressee (the tax administrator) to deviate from this regulation

without acting contra legem.

31. Based on the abovementioned

arguments, the Constitutional Court concluded in the adjudicated matter

that § 105 par. 1, third sentence of Act no. 235/2004 Coll., on Value

Added Tax, in the version in affect before being amended by Act 296/2007

Coll., did not permit the ordinary courts to meet their obligations in

protecting the fundamental rights and freedoms of bankruptcy creditors

when reviewing the decision of a tax administrator to set off a tax

overpayment to compensate a tax debt in the administrative judiciary,

which is a failure to respect the principles enshrined in Art. 11 par. 1

of the Charter. Therefore, the Constitutional Court granted the

petitioners petition submitted under Art. 95 par. 2 of the Constitution,

with the provision that, in view of Art. 89 par. 2 of the Constitution,

the public authorities are required to reflect the consequences of the

unconstitutionality that has been determined in their decision making,

i.e. not to apply the cited provision when resolving specific cases.