Taganito Mining Corporation vs. Commissioner of Internal Revenue

The 60-month amortization rule for input VAT on capital goods with an aggregate acquisition cost exceeding P1,000,000.00 applies to claims for refund or tax credit of input tax directly attributable to zero-rated export sales.

Taganito Mining Corporation (TMC) is an exporter of beneficiated nickel silicate ores and chromite ores, registered with the Securities and Exchange Commission and the Board of Investments, and a VAT-registered taxpayer. It generated zero-rated export sales and paid input VAT on its domestic purchases and importations of capital goods. The dispute centers on whether the amortization rule for input VAT on capital goods exceeding P1,000,000.00 applies when the taxpayer seeks a refund or tax credit of such input VAT attributable to zero-rated sales.

Taganito Mining Corporation (TMC) is an exporter of beneficiated nickel silicate ores and chromite ores, registered with the Securities and Exchange Commission and the Board of Investments, and a registered VAT taxpayer. From January 1 to December 31, 2007, TMC generated zero-rated export sales amounting to P4,248,232,289.08. During the same period, it paid input VAT on domestic purchases of taxable goods and services and importation of capital and non-capital goods amounting to P22,795,033.33.

On February 11, 2009, TMC filed an application for refund or tax credit of its VAT input taxes for 2007 before the Large Taxpayer's Division of the Bureau of Internal Revenue. Before the application was acted upon, TMC filed a Petition for Review with the Court of Tax Appeals on March 17, 2009. On October 13, 2009, the BIR's Large Taxpayers Service recommended a refund of P15,023,736.12, disallowed P198,746.93 for being unsubstantiated, and disallowed P7,572,550.29 consisting of deferred input VAT on capital goods, recommending it for amortization over 60 months.

In view of the partial recommendation, TMC filed a Motion for Partial Withdrawal of Petition, which was granted by the CTA. TMC then pursued its petition with respect to the deferred input taxes on capital goods amounting to P7,572,550.29, alleging that its input VAT being refunded was directly attributable to its zero-rated export sales. The CTA Division dismissed the petition and denied the motion for reconsideration. The CTA En Banc affirmed the Division's ruling, holding that the amortization of input VAT on capital goods exceeding P1,000,000.00 applies to claims for refund or tax credit, and that only the amortized amount of P1,277,591.16 is creditable or refundable as of December 31, 2007. TMC's motion for reconsideration was denied, prompting the present petition.

• Statutory Construction: Petitioner argued that the Court of Tax Appeals En Banc erred in reading Section 110(A) without considering Section 110(B) and (C), which use the word "any" referring to input tax attributable to zero-rated sales that may be refunded or credited at the taxpayer's option.
• Distinction Between Terms: Petitioner claimed that "creditable input tax" and "input tax credit" are different, with the former referring to input tax creditable against output tax and the latter pertaining to zero-rated transactions with no output tax.
• Regulatory Gap: Petitioner maintained that there is nothing in the regulations providing that the amortization rule applies to input tax credit on capital goods, and that the Court of Tax Appeals En Banc committed judicial legislation in filling the gap in the law.
• Substantiation: Petitioner asserted that it substantiated its claims for refund or tax credit, which the public respondent did not dispute.

• Amortization Rule: Respondent argued that Section 110(A)(2)(b) in conjunction with Section 4.110-3(a) of Revenue Regulations No. 16-05 provide the rule on amortization of creditable input tax, and since the law does not distinguish, amortization also applies to zero-rated transactions involving capital goods with acquisition cost above P1,000,000.00.
• Strict Construction: Respondent pointed out that tax refunds are in the nature of tax exemption and thus the law is construed strictly against those who claim exemption.

• Applicability of Amortization Rule: Whether the input tax credit for purchase of capital goods above P1,000,000.00, which are directly attributable to zero-rated export sales, is required to be amortized over the useful life of the goods.
• Validity of Revenue Regulations: Whether Section 4.110-3 of Revenue Regulations No. 16-2005 is invalid for allegedly removing the distinction between creditable input tax and input tax attributable to zero-rated sales.

• Applicability of Amortization Rule: Yes. The amortization rule under Section 110(A) applies to input VAT on capital goods exceeding P1,000,000.00, even when directly attributable to zero-rated export sales and sought to be refunded under Section 110(B) and Section 112(A).
• Validity of Revenue Regulations: No, the regulation is not invalid. Section 4.110-3 of Revenue Regulations No. 16-2005 merely bridges the gap between Section 110(A) and Section 112(A) and does not amend Section 110(B) of the Tax Code.

• Applicability of Amortization Rule: A holistic reading of Sections 110(A), 110(B), and 112(A) of the NIRC reveals that the amortization rule does not preclude a zero-rated taxpayer from claiming its input tax in full; it merely delays the crediting or refund over the useful life of the capital goods. The use of "any" in Section 110(B) does not prevent the application of the amortization rule. It is not the word "any" which qualifies a claim for refund or tax credit, but the amount of the purchased or imported goods and whether depreciation is allowed. Since the law does not distinguish between input VAT creditable against output VAT and input VAT subject of a claim for refund, the amortization rule necessarily applies to claims for refund. The right to refund is statutory in nature and depends on the limitations provided by law.
• Validity of Revenue Regulations: Revenue regulations are contemporaneous constructions of the NIRC and form part of taxation laws. The Secretary of Finance has the authority to fill in details in the enforcement and administration of tax laws. Section 4.110-3 does not amend Section 110(B); it merely provides the requirements for claiming input tax credit or refund for depreciable assets with acquisition cost exceeding P1,000,000.00. Absent any showing that the regulation contravenes the Tax Code, it must be upheld.

• Ubi lex non distinguit, nec nos distinguere debemus — Where the law does not distinguish, courts ought not to distinguish. Applied in this case to hold that since the law and regulations do not distinguish between input VAT creditable against output VAT and input VAT subject of a claim for refund, the amortization rule applies to both.
• Holistic Statutory Construction — A statute must be read as a whole, and its provisions must be considered in relation to each other to produce a harmonious whole. Applied to construe Sections 110(A), 110(B), and 112(A) of the NIRC together.
• Validity of Revenue Regulations — Revenue regulations issued by the Secretary of Finance are valid if they (1) are germane to the object and purpose of the law; (2) do not contradict, but conform to, the standards the law prescribes; and (3) are issued for the sole purpose of carrying into effect the general provisions of tax laws. Applied to uphold Section 4.110-3 of Revenue Regulations No. 16-2005.
• Strict Construction of Tax Refunds — Tax refunds, similar to exemptions, are strictly construed against the taxpayer, who bears the burden of proving the factual basis of its claim.

• "The amortization rule does not preclude the zero-rated taxpayer from claiming its input tax in full. It is not the word 'any' which qualifies a claim for refund or tax credit of input tax. It is the amount of the purchased or imported goods used for trade or business, and whether depreciation is allowed for it." — This passage articulates the ratio decidendi that the amortization rule applies based on the nature and cost of the capital goods, not on the characterization of the input tax as creditable or refundable.
• "Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not distinguish, we ought not to distinguish. Thus, the law being silent, the same rule on amortization of input VAT necessarily applies to claims for refund." — This quotation, adopted from the Court of Tax Appeals En Banc, defines the application of the amortization rule to claims for refund of input VAT on capital goods.
• "Section 4.110-3 does not amend Section 110(B) of the tax code. Section 4.110-3 merely bridges the gap between Section 110(A) and Section 112(A) as it provides the requirements for claiming input tax credit or refund for: (1) depreciable assets with estimated useful life greater than 1 year; (2) that is used 'directly or indirectly in the production or sale of taxable goods or services;' and (3) with acquisition cost in excess of P1,000,000.00." — This passage explains the validity and function of the implementing revenue regulation in bridging the statutory provisions.

• Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue, 617 Phil. 358 (2009) — Cited for the doctrine of holistic statutory construction, emphasizing that a statute must be read as a whole and not in truncated parts.
• Abakada Guro Party List vs. Ermita, 506 Phil. 1 (2005) — Cited for the proposition that the 60-month amortization of input tax only delays but does not permanently deprive a taxpayer from crediting input tax, and was upheld as a valid limitation.
• La Suerte Cigar & Cigarette Factory vs. Court of Tax Appeals, 746 Phil. 432 (2014) — Cited for the Secretary of Finance's authority to fill in details in the enforcement and administration of tax laws and the standards for valid revenue regulations.
• Taganito Mining Corporation vs. Commissioner of Internal Revenue, 748 Phil. 774 (2014) — Cited as a prior case involving the same parties regarding input VAT for 2006, where the Court held in an obiter that the amount of input tax should be amortized over the estimated useful life of capital goods.

• Section 110(A), National Internal Revenue Code (NIRC) — Provides the rule on creditable input tax, including the 60-month amortization of input VAT on capital goods with aggregate acquisition cost exceeding P1,000,000.00.
• Section 110(B), NIRC — Provides that any input tax attributable to zero-rated sales by a VAT-registered person may, at the taxpayer's option, be refunded or credited against other internal revenue taxes, subject to Section 112.
• Section 112(A), NIRC — Governs refunds or tax credits of input tax for zero-rated or effectively zero-rated sales, requiring that the input tax has not been applied against output tax.
• Section 4.110-3, Revenue Regulations No. 16-2005, as amended by Revenue Regulations No. 4-2007 — Implements the amortization rule for input tax on depreciable capital goods with acquisition cost exceeding P1,000,000.00, and was upheld as a valid implementing regulation.

Hernando, Inting, Delos Santos, and J. Lopez, JJ., concurred.