Many sales contract disputes involve the evidentiary power of VAT invoices. Although judicial interpretations have clarified some related issues, there are still many disputes in practice. In addition, it is common in practice to request the other party to deliver VAT invoices in advance. Through the analysis of similar cases, the author provides useful reminders for parties with similar situations in practice to protect their own rights.

The plaintiff, Shanghai Hubang Dyeing & Printing Co., Ltd. (hereinafter referred to as Hubang Company), had a dispute with the defendant, Changzhou Jintan Huamei Garment Factory (hereinafter referred to as Huamei Garment Factory), due to a sales relationship. The plaintiff, Hubang Company, claimed that in 2011, the plaintiff and the defendant reached a unanimous agreement on the purchase and sale of all-over printed cloth, agreeing that the defendant would purchase 322 meters of all-cotton printed cloth from the plaintiff at a unit price of 16.5 yuan/meter, totaling 5313 yuan, and the defendant would bear the sample fee of 19687 yuan. The plaintiff submitted the goods to the defendant as agreed and issued a special VAT invoice of Shanghai (invoice number: 03085271) to the plaintiff on August 2, 2011, but the defendant failed to pay the corresponding fees to the plaintiff as agreed. The plaintiff, Hubang Company, believes that both parties to the contract should fully perform the agreed obligations, and the defendant, Huamei Garment Factory, should pay the corresponding fees for purchasing the goods as agreed. Therefore, the plaintiff sued the court requesting the court to order the defendant to pay the plaintiff a total of 25,000 yuan for the all-cotton printed cloth and sample fee, as well as interest calculated on this basis from the date of the lawsuit until the date of actual payment at the loan market quotation rate announced by the National Interbank Funding Center.

The defendant, Huamei Garment Factory, argued that the plaintiff, Hubang Company, only provided an invoice and could not prove that the goods had been delivered. There was no deduction record or account of the 25,000 yuan invoice in the defendant's accounts. The invoice provided by the plaintiff was issued on August 2, 2011, and the plaintiff had never claimed rights from the defendant for nearly ten years. The transactions between the plaintiff and the defendant were all payment first and then invoicing. If there were transactions, the defendant should have received the invoice, and requested the court to reject the plaintiff's claim.

The people's court held that a sales contract is a contract whereby the seller transfers the ownership of the subject matter to the buyer, and the buyer pays the price. In this case, the plaintiff, Hubang Company, only provided an invoice issued to the defendant, Huamei Garment Factory, and failed to provide other evidence to prove that the plaintiff had delivered the goods to the defendant, and the defendant, Huamei Garment Factory, did not recognize it. Because the evidence provided by the plaintiff was insufficient, its claim was not supported. Therefore, the court ruled to reject the lawsuit request of the plaintiff, Shanghai Hubang Dyeing & Printing Co., Ltd. This case was legally applied to the small claims procedure and the judgment was final.

   1. An invoice is only one of the settlement vouchers for both parties to a transaction, but it is not a sales contract in itself.

    According to Article 1 of the "Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Sales Contract Dispute Cases" (Fa Shi [2020] No. 17) (hereinafter referred to as "Interpretation"): If there is no written contract between the parties, and one party claims the existence of a sales contract relationship based on delivery notes, receipt notes, settlement statements, invoices, etc., the people's court shall make a determination on whether the sales contract is established by combining the transaction methods, transaction habits, and other relevant evidence between the parties.

  Article 5, Paragraph 1 of the “Interpretation” stipulates that: If the seller only proves that it has fulfilled the obligation to deliver the subject matter with a special VAT invoice and tax deduction information, and the buyer does not recognize it, the seller shall provide other evidence to prove the fact of delivery of the subject matter. That is to say, a special VAT invoice alone cannot replace the contract and become the basis for judging whether there is a real transaction relationship between the parties. The judgment result in this case is made in accordance with the views of this judicial interpretation.

    2. Special VAT invoices and ordinary invoices have some differences in proving validity as a single voucher.

  Article 5, Paragraph 2 of the “Interpretation” stipulates the evidentiary effect of ordinary invoices as payment vouchers, that is: If the contract stipulates or the parties are accustomed to using ordinary invoices as payment vouchers, and the buyer proves that it has fulfilled the payment obligation with ordinary invoices, the people's court shall support it, unless there is contrary evidence sufficient to overturn it. According to this judicial interpretation, the parties can use the received ordinary invoice as evidence of payment, even if there is no contract, they can also claim that the payment has been made according to transaction habits. The party issuing the invoice has the burden of proving that the payment fact is not true or the transaction habit does not exist. But why does this provision only target ordinary VAT invoices, and not apply to special VAT invoices?

   The author believes that this provision is made based on the principles and practices of VAT taxation. VAT is a turnover tax. As long as the turnover link continues, the VAT paid by merchants at each link is actually pre-paid for the next company, and ultimately it is borne by the next buyer, until the turnover link ends or is interrupted, and then the final buyer bears the VAT paid by everyone in the previous links. When the buyer needs the seller to issue a special VAT invoice, it means that this turnover link will continue. At this time, the buyer who receives the special VAT invoice cannot include the VAT in the cost in the accounting books, but lists it separately as tax payable-VAT payable (input tax). That is to say, the tax amount of the special invoice at this time is paid on behalf of the next company, and others will always pay it back in the future. However, if the buyer receives an ordinary VAT invoice, since it does not have a deduction function, it means that the VAT turnover link ends here, and the buyer has to bear the VAT amount on the ordinary invoice. It must also include the VAT amount on the invoice in the cost in the accounting books, which actually affects the rights and interests of the buyer. Therefore, from the perspective of VAT taxation principles, ordinary VAT invoices have a more substantial impact on the party receiving the invoice than special invoices.

   In addition, from a practical point of view, small-scale VAT taxpayers can only issue ordinary VAT invoices and cannot issue special invoices. Therefore, most of the sales disputes involving ordinary VAT invoices are between merchants and end consumers, or between small-scale taxpayers. The amount involved is not large. Compared with the special VAT invoices with transaction amounts of hundreds of thousands or millions of yuan between general VAT taxpayers, the proof standard does not need to be too cautious and strict.

    3. To claim the authenticity of the transaction, the invoice must also form a superior evidence with other vouchers.

  Article 599 of the Civil Code stipulates that the seller shall deliver the relevant documents and materials other than the documents for extracting the subject matter to the buyer in accordance with the agreement or transaction habits. Article 4 of the “Interpretation” stipulates that the “relevant documents and materials other than the documents for extracting the subject matter” stipulated in the Civil Code shall mainly include insurance policies, warranty cards, ordinary invoices, special VAT invoices, product qualification certificates, quality guarantee certificates, quality appraisal certificates, quality inspection certificates, product import and export quarantine certificates, certificates of origin, instructions for use, packing lists, etc.

In practice, when making judgments, the people's court, in addition to invoices, also combines other relevant evidence to determine whether the sales contract is established. Top 10 tax-related cases in 2018: In the retrial case of the transportation contract dispute between Beijing Railway Logistics Co., Ltd. and Beijing Huiyuan Group (Suzhou) Zhaofeng Logistics Co., Ltd., the Beijing Higher People's Court combined invoices and other relevant evidence during the retrial and made a judgment based on the principle of preponderance of evidence. The court of retrial held that value-added tax special invoices are usually based on real transactions and are the financial and tax vouchers of the unit, which have certain probative value for the occurrence of transactions between the freight parties. Some of the value-added tax special invoices issued by Jingtie Company to Zhaofeng Logistics Company are consistent with the freight charges recorded on the waybill, and Zhaofeng Logistics Company also recognized and deducted the tax, so this part of the value-added tax special invoices should be used as the settlement voucher for the freight charges related to the transportation contract. For another part of the disputed issue, Jingtie Company claimed that the waybill proved that it had fulfilled its transportation obligations, but because Jingtie Company did not issue a value-added tax special invoice to Zhaofeng Logistics Company, the probative value of the waybill was weak, and Zhaofeng Logistics Company did not recognize it, so the court did not adopt it.

Reference case: Sales contract dispute case between Shanghai Hubang Printing & Dyeing Co., Ltd. and Changzhou Jintan Huamei Garment Factory

Case number: (2021) Su0413 Minchu No. 425