Commissioner of Internal Revenue vs. Cargill Philippines, Inc.

Input VAT subject to refund or tax credit need only be attributable to zero-rated sales, not directly attributable thereto or shown to form part of the finished product or to have been directly used in the chain of production, pursuant to Section 112(A) in relation to Section 110(A)(1) of the National Internal Revenue Code and Revenue Regulations No. 16-2005.

Cargill Philippines, Inc. is a VAT-registered domestic corporation with Tax Identification No./VAT Registration No. 000-110-659-000. Its primary purpose includes owning and operating plants for production, crushing, extracting, manufacturing and refining of coconut oil and other similar articles, as well as research, production, processing, importation, exportation and wholesale sale of agricultural seeds and products and related technical services. Export sales of coconut oil paid for in acceptable foreign currency and accounted for under Bangko Sentral ng Pilipinas rules were treated as zero-rated for VAT purposes.

Cargill Philippines, Inc. is a VAT-registered domestic corporation engaged in the manufacture and refining of coconut oil and related products and in the wholesale, import and export thereof. For the period April 1, 2001 to August 31, 2004, it filed quarterly VAT returns reflecting overpayments of PHP 44,920,350.92 for the second quarter of calendar year 2001 to the third quarter of fiscal year 2003, or from April 1, 2001 to February 28, 2003, and PHP 31,915,642.26 for the fourth quarter of fiscal year 2003 to the first quarter of fiscal year 2005, or from March 1, 2003 to August 31, 2004. The overpayments were attributed to export sales of coconut oil paid for in acceptable foreign currency and accounted for pursuant to Bangko Sentral ng Pilipinas rules, treated as zero-rated for VAT purposes.

On June 27, 2003, respondent filed its first administrative claim for refund of unutilized input VAT of PHP 26,122,965.81 for April 1, 2001 to February 28, 2003. Professing inaction thereon, it filed a judicial claim on June 30, 2003 before the Court of Tax Appeals as CTA Case No. 6714, and on September 29, 2003 filed a supplemental application increasing the claim to PHP 27,847,897.72 for the same period. On May 31, 2005, respondent filed with the Bureau of Internal Revenue a second administrative claim for PHP 22,194,446.67 for March 1, 2003 to August 31, 2004, and on even date lodged a petition for review before the Court of Tax Appeals as CTA Case No. 7262. Petitioner asserted that the amounts claimed were not properly documented and should be denied.

After consolidation, remand by the Supreme Court of CTA Case No. 7262 for resolution on the merits, and further proceedings, the Court of Tax Appeals Division found respondent entitled to PHP 1,779,377.16 representing unutilized excess input VAT for March 1, 2003 to August 31, 2004 attributable to its zero-rated sales for the same period. The Court of Tax Appeals En Banc affirmed that finding in full.

• Direct Attributability: Petitioner argued that only creditable input taxes incurred from purchases of goods that form part of the finished product of the taxpayer or directly used in the chain of production are refundable, and respondent had the burden of establishing the direct connection of the purchase or input tax to the finished product, failing which the claim must be denied.
• Statutory Requirement and Atlas Doctrine: Petitioner maintained that Section 112 of the National Internal Revenue Code requires input VAT to be directly attributable to zero-rated sales, relying on pronouncements in the 2007 and 2011 cases of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue that input tax must be shown to be entirely and directly attributable to export sales.
• Documentation and Prematurity: Petitioner asserted that the amounts claimed as unutilized input VAT were not properly documented, and earlier avouched that the petitions were prematurely filed for failure to exhaust administrative remedies and observe the 120-day period.

• Factual Nature Beyond Rule 45: Respondent countered that petitioner's stance involves a purely factual issue requiring recalibration of evidence, which is outside the scope of a Rule 45 petition.
• Attributability Already Established: Respondent argued that as early as August 24, 2010, the CTA Division had already explained how the input VAT subject of the claim was attributable to its zero-rated sales.
• Carry-Forward Exclusion: Respondent avouched before the CTA En Banc in CTA EB No. 2001 that the CTA Division erroneously excluded its input VAT carried forward from the previous quarter in the amount of PHP 1,274,092.82, but no longer filed an appeal from the CTA En Banc Decision on that point.

• Direct Attributability: Whether the CTA En Banc erred in finding respondent entitled to refund notwithstanding the provision of the NIRC which allegedly requires that input VAT subject of the claim be directly attributable to zero-rated sales.

• Direct Attributability: No. Refund was properly allowed because the law requires only that creditable input tax be attributable to zero-rated sales, not directly attributable thereto, to the extent not applied against output tax.

• Direct Attributability: Section 112(A) allows any VAT-registered person whose sales are zero-rated or effectively zero-rated to apply for tax credit or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent not applied against output tax, with proportional allocation only where the taxpayer has mixed transactions and the input tax cannot be directly and entirely attributed to one transaction. Because the statute uses attributable and makes no distinction requiring direct attributability to the finished product, none was to be read into it. This reading was bolstered by Section 110(A)(1), which treats as creditable input tax evidenced by VAT invoice or official receipt for purchase or importation of goods for sale, for conversion into or intended to form part of a finished product including packaging, for use as supplies in business, for use as materials in sale of service, or for use in trade or business subject to depreciation or amortization, as well as purchase of services on which VAT was paid, thus not limited to goods converted into the finished product or used in the chain of production. Reliance on the Atlas Consolidated Mining and Development Corporation cases was misplaced because those were decided under Revenue Regulations No. 5-87, as amended by RR No. 3-88, which limited refund to VAT paid directly and entirely attributable to the zero-rated transaction, whereas Revenue Regulations No. 14-2005, superseded by Revenue Regulations No. 16-2005, as amended, most recently by Revenue Regulations No. 21-2021, no longer retained that requirement and instead allows input tax on purchases related to such zero-rated sale as tax credit or refund under Sections 4.106-5 and 4.108-5. Accordingly, no reversible error was committed in affirming entitlement to PHP 1,779,377.16 for March 1, 2003 to August 31, 2004 attributable to zero-rated sales for the same period.

• Ubi lex non distinguit nec nos distinguere debemos — When the law has made no distinction, courts ought not to recognize any distinction. Applied to reject the added requirement of direct attributability, since Section 112(A) requires only that creditable input tax be attributable to zero-rated sales.
• Attributability of input VAT to zero-rated sales — Any VAT-registered person whose sales are zero-rated or effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for tax credit or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent not applied against output tax; where the taxpayer has both zero-rated/effectively zero-rated and taxable or exempt sales and the input tax cannot be directly and entirely attributed to one transaction, allocation is made proportionately on volume of sales. Applied to sustain refund of PHP 1,779,377.16 upon a showing of attributability without proof of direct use in the finished product.
• Sources of creditable input tax — Under Section 110(A)(1), creditable input tax includes input tax evidenced by VAT invoice or official receipt on purchase or importation of goods for sale, for conversion into or intended to form part of a finished product for sale including packaging materials, for use as supplies in business, for use as materials in sale of service, or for use in trade or business subject to depreciation or amortization except automobiles, aircraft and yachts, and purchase of services on which VAT was paid. Applied to show the law is not confined to goods forming part of the finished product or directly used in production.

• "Ubi lex non distinguit nec nos distinguere debemos." — States the interpretive maxim used to reject reading a direct-attributability requirement into Section 112(A).
• "When the law has made no distinction, the courts ought not to recognize any distinction." — Gives the English formulation of the maxim supporting the holding that attributability suffices.
• "This Court cannot be bound by Revenue Regulations No. 5-87, as amended by Revenue Regulations No. 3-88, requiring direct attributability of input VAT vis-à-vis zero-rated sales." — Explains why the Atlas Consolidated Mining and Development Corporation rulings under the old regulation do not control under the current regulations.
• "the input tax on purchases of goods, properties, or services, related to such zero-rated sale, shall be available as tax credit or refund in accordance with these Regulations." — Quotes the governing standard under Revenue Regulations No. 16-2005 that related input tax, not only directly and entirely attributable input tax, is refundable.

• Commissioner of Internal Revenue vs. Aichi Forging Company of Asia, Inc., 646 Phil. 710 (2010) — Held observance of the 120-day period under Section 112(D) mandatory and jurisdictional to judicial claim; applied earlier to dismiss respondent's premature petitions.
• Commissioner of Internal Revenue vs. San Roque Power Corporation — Recognized exception for equitable estoppel under Section 246 based on BIR Ruling No. DA-489-03 dated December 10, 2003 declaring need not wait for 120-day period; applied to justify remand of second claim filed during exemption window.
• Taganito Mining Corporation vs. Commissioner of Internal Revenue — Reconciled Aichi and San Roque by holding taxpayer-claimants from December 10, 2003 to October 6, 2010 need not observe stringent 120-day period; applied to distinguish first claim filed June 30, 2003 from second claim filed May 31, 2005.
• Panay Power Corporation vs. Commissioner of Internal Revenue — Cited as basis for remanding second refund claim involving factual evidentiary issues beyond Rule 45 review for resolution on merits by CTA Division.
• Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, 551 Phil. 519 (2007) and 655 Phil. 499 (2011) — Required under old regulations that input tax be shown entirely and directly attributable to zero-rated export sales; held inapplicable, having been decided under Revenue Regulations No. 5-87, as amended by RR No. 3-88.

• Section 112(A), National Internal Revenue Code — Provides refund or tax credit of creditable input tax attributable to zero-rated or effectively zero-rated sales, except transitional input tax, to extent not applied against output tax, with proportional allocation for mixed transactions; applied to hold direct attributability not required.
• Section 112(D), National Internal Revenue Code — Provides 120-day period for Commissioner to act and 30-day period to appeal to CTA; applied in earlier dismissal and remand rulings on prematurity.
• Section 110(A)(1), National Internal Revenue Code — Enumerates creditable input taxes on purchases/importations and services; applied to show refundable input VAT is not limited to goods forming part of finished product.
• Section 4.106-5 and Section 4.108-5, Revenue Regulations No. 16-2005 — Provide input tax on purchases related to zero-rated sale of goods or properties and services shall be available as tax credit or refund; applied to confirm current rule uses related, not directly and entirely attributable.
• Revenue Regulations No. 5-87, as amended by Revenue Regulations No. 3-88 — Formerly limited refund to VAT directly and entirely attributable to zero-rated transaction; held superseded and no longer binding after Revenue Regulations No. 14-2005, Revenue Regulations No. 16-2005, and amendments including Revenue Regulations No. 21-2021.

Caguioa (Chairperson), Inting, Gaerlan, and Singh, JJ., concur.