The abstract of the judgment (The judgment is available only in Georgian). Abstracts published by the Constitutional Court of Georgia summarise the facts of the case and key legal considerations of the judgment.

Abstract

On 26 July 2018, Second Board of the Constitutional Court of Georgia handed down the judgement on the case of “Ltd "Coca-Cola Bottlers Georgia”, Ltd "Castel Georgia” Jsc "Healthy Water” v. The Parliament of Georgia and the Minister of Finance of Georgia” (constitutional complaint N700).

The complainants challenged the constitutionality of article 192¹ of the Tax Code of Georgia and paragraphs 78¹.1, 78¹.2, 78¹.4, 78¹.8 of the instructions “on Tax Administration” approved by the order N996 Minister of Finance of Georgia on 31 September 2010. According to the complaint, designated provisions contradicted the requirements of the paragraphs 21.1 and 21.2 (right to property) and the first sentence of the paragraph 30.2 (right to free enterprise) of the Constitution of Georgia.

Article 192¹ of the Tax Code established legislative grounds for the mandatory marking of nonexcisable goods and empowered the Minister of Finance of Georgia to compile a list of goods subject to mandatory marking and define the terms of the marking. Disputed provisions of the order of Minister of Finance declared non-alcoholic drinks, including mineral and still waters as goods subject to mandatory marking. In addition, the provisions regulated other issues related to the marking procedure.

The complainants argued that disputed norms obligated them to allow marking service provider company selected by the Revenue Service of Georgia in their bottling plants in order to install marking devices on applicant’s bottling hardware. Complainants stated that marking devices were performing with multiple failures that were disrupting the industrial process and the generated electronic data did not reflect the actually produced goods with proper accuracy. Moreover, applicants indicated that their obligation to cover the marking expenses constituted an extreme financial burden on non-alcoholic drink industry. Applicants questioned the compliance of the disputed provisions with the formal requirements of article 21 of the Constitution of Georgia as the Parliament of Georgia delegated unlimited power to regulate mandatory marking of non-excisable goods.

The respondent party disagreed with applicants opinions. Representatives of the Parliament of Georgia and Ministry of Finance of Georgia asserted that disputed provisions served as valuable legitimate aims of proper tax administration and protection of consumer’s rights. The respondents argued that disputed provisions were in compliance with the formal and material requirements of the Constitution of Georgia.

Initially, the Constitutional Court differentiated between the right to property and right to free enterprise. The financial burden accompanied to mandatory marking was considered in the context of the right to property whereas claims regarding disruption industrial process examined under the right to free enterprise.

The Constitutional Court indicated that Article 21 of the Constitution does not require all property right related issues to be regulated exclusively by primary legislation. The Court interpreted that the Parliament is entitled to delegate regulatory power to secondary legislation if it is not directly prohibited by the Constitution and/or such delegation is not a refusal of the Parliament to carry out its own exclusive powers. The Constitutional Court ascertained that issues related to mandatory marking are not subject to high importance. Therefore, the parliament’s decision to transmit the regulatory power of mandatory marking procedure to the Minister of Finance does not contradict the formal requirements of the Constitution.

The Constitutional Court applied the principle of proportionality to assess the constitutionality of the disputed provisions. The Court shared the respondent’s opinion and recognised that the disputed norms serve as valuable legitimate aims of proper tax administration and protection of consumer’s rights. According to the judgement, the legislator is entitled to interfere in the right to property while pursuing the designated legitimate aims if further requirements of proportionality are followed.

Firstly, the Constitutional Court considered the independent expert opinion attached to the constitutional complaint. Applicant used mentioned opinion, as an evidence to prove that the installed marking devices were functioning with failures and generated data was not beneficial for tax administration. The Court emphasised that according to the opinion, data generated by the devices was precise by 99.48%. Moreover, the court indicated that independent expert opinion does not answer the question of whether the marking devices caused the error or not. The Constitutional Court pointed out that, problems of technical implementation could result in the unconstitutionality of the disputed normative requirements if the law is the basis for existing such technical problems and/or proper technical implementation of the solution required by the law is impossible. Due to absence of designated criteria, the Constitutional Court noted that mandatory marking stipulated by the disputed provision serves as a valuable tool for tax administration.

The complainants argued that the same legitimate goal could be achieved with the same effectiveness by other cost-efficient solutions. As an alternative solution, applicants’ designated constant video surveillance and data generated by their own bottling hardware. The Constitutional Court noted that considering the dynamics of the bottling process, video surveillance could not be a reliable source for generating valuable data for tax administration. In addition, the Court emphasised that one essence of the disputed provisions were effective external control of non-alcoholic drink business industry and only the data generated by the company owned/controlled hardware is not beneficiary for the idea laid behind the mandatory marking. Moreover, the Constitutional Court underlined that marking procedure includes the establishment of a central electronic database where records regarding individualities of the products, companies and other data are automatically transferred upon marking. The database enables automatic reporting by reading the individual matrix on the bottle. The Court remarked that complainants could not prove that functioning of such advanced database is technically possible under their suggested alternatives in a cost-efficient way. Therefore, the Constitutional Court ascertained that mandatory marking procedure is a beneficiary/admissible and essential instrument for proper tax administration.

The Constitutional Court emphasised the financial burden on the companies stemming from the mandatory marking. The Court noted that, in general, the government is entitled to oblige taxpayers to exercise actions which are necessary for tax administration and protecting the consumers’ rights. Since tax regulations usually result in expenses of the taxpayers/companies and such financial burden is inevitably justified by the major legitimate interests of the state.

The Constitutional Court indicated that nominal value of marking is an expense for tax administration where the marking process is not exercised by the taxpayer itself. The Court referred that the overall expense of such financial burden is not enough to determine unconstitutionality of the disputed provisions. Applicants shall prove that financial burden has a major negative impact on business and damage the respective industry itself to a great extent. The complainants shall represent that the burden is not an ordinary unpleasant regulation for the business but an intensive measure that is incompatible with the free market. The court ascertained that such evidence was not presented in the case.

In connection with the right to free enterprise, the Constitutional Court examined arguments regarding the disruption industrial process. The Court underlined that when parties to the constitutional litigation indicate facts as grounds for the unconstitutionality of normative regulation they are expected to represent reliable and relevant evidence to support their arguments. There was no evidence indicating that installed marking devices disrupted industrial process beyond the ordinary, expected level.

Therefore, the Constitutional Court considered the disputed provisions in compliance with the right to property and the right to free enterprise recognised by the Constitution of Georgia.