CTA Case No. 4333

DECISION

CTA CASE NO.

~333 - 3 - In addition, Petitioner also ask ed for attorney's fe e in th "' amount o f P75,000.00.

To date, Respond ent has not acted upon petiti oner's claim for tax credit . Hence, this instant Petition for Review.

Respondent in hi s answer admits the existence of the EconoMic Support Fund Secretariat and its tax exeMpt status and the BIR

Ruling

No.

101-000-00513-88 dated October 21, 1988 but denies all other allegati ons of th e Petiti oner pertaining to its claiM .

By w y of special and aff irMative defenses, he a lleges t hat Petitioner must show that the taxes were erroneously or illegal ly coll ected; that claiMs for aMo unts re mi tted to the Bureau of Internal Revenue prio r to February 3, 1987 have prescribed and that Petitioner failed to show that it had first applied for zero rating in accordance with Section 8(d) of Revenue Regulation No. 5-87. Also, he allege s that cost of suits and daMages cannot be awarded against the governMent;

tax refunds are construed s trictly against the cla i•ant and that the a111ount of P393, 803.36 sought to be refunded was paid in accordance with law and regulations on the matter. Petitioner Made it s For11al Offer of Evi dence to prove its claim for tax credit to which this ..

- 4 - Court after notice to re s pondent and hearing admitted.

Respondent on hi s part failed to present his own eviden"ces in support of his case. This case is sub11 itt ed for decision based on the pleadings and petit ioner's evidence. The issues presented to this court resolution are a s follows' (1) Whet her or not the gross r ceipts of a contractor of the Secretariat of t he Economic Support Fund Council paid out of the proceeds from the Economic Support Fund are> e)(empted fro m the contrac to r '!\ tax under the Na tional Int rnal R e v enu~ Code pr ior to the i nt roduct ion of the va 1 ue - added t a>e and pr sently are considered effectively zero-rat d tran sac tion s pursuant to Section 100<a> <2> a nd 102 <a> <3> of the present National Internal Rev e nue Code? <2> Wheth,., · or not PPt .tioner is entitled to t h "' <'t ttn r n,. •'" fees b e ing prayed again <St t he r e spondP n t?

for;

Before this cour t can resolve the first issue, it is necessary to quote hereunder the legal basis .

upon which the Bureau of Intern a 1 Rev e nue issued the questioned BIR ruling, especially considering that the said ruling touched only on the VAT aspect of the claim for refund; Section B. 4<a> o f the Stand rd Anne>e attached to all Grant Agreem nts entered into by and between th GovernMent of the Philippines and the U.S. GovernMent provides as follows:

"This Agreement it will be free impcaed under territory of Ph i 1 i p pine !l. " - 5 - Ptld th~ f•n de; pursuant to from any t~x ation or fees laws in . ffect in the th~ Govf' rn ment of the Baosed on the "'b•)vf>, t:tH1 Rureau of Int e rnal Revenue in its afor· nq 10tr.r.t n~tling No .

101-000- 00513-88 eonsidered direct payments from the ESF proc d~ tQ fin4ne~ government project , wi thin the purview of effectively zero r ted tran~actions und r Seetiu" 100<a> <2> and 102<a> <3> of the Ta)( Code .

It is indisput bl.e that pu u nt to the above BIR Ruling petitioner's gross , ~ ecPipts derived from the proceed s of the ESF for services rendered in t h e c onstruction of government projects are subject on ly to zero r te of the value-added tax. However, we find without merit petition er's content ion that its gross r eeipts from the same proceeds sh ould h ave b en likewise ex empted from contractor's ta)( in line with the said ruling since the said proceeds are e)(empt from Philippine Go vern•ent taxe$.

In the case of the v lue- dded tax o th& <ale of oerv (ceo, paragraph <3> r:.ct i o 102 <a> specifically provides for subj cting t zero rate, service! perform . d for persons or en ities exeMpted

~¢- under special laws or international agreements to which the Philippines is a siqnatory as follows: Sec. 102. Value-added tax on sale of services.~ (a) Rate and hase of tax. —- There shall be lovied, assessed and collected a value added tax equivalent to 10% of qross receipts derived by any person engaged in the sale of services. x M Ke Provided, That the following services performed in the Philippines by VAT-registered persons shall be subject to OX,

(1) «x K MH (@) x ® x

(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effeetively subjects the supply of such services to zero rate.

There is no similar provision for the contractor's tax under Section 170 (now repealed) of the National Internal Revenue Code. The sale of services and not _on the person for whoa the services are rendered. Hence, petitioner, the contractor here, cannot claim exemption from contractor's tax just because the ESF proceeds out of which his services are paid are exempt from any Philippine government tax or imposition.

It may be argued that although the contractor's tax is a tax payable by the PAD

DEC ISION

CTA CAS E NO. 4 3 33 -· 7 - c ontractor, it is an indirect tax in the sens e t hat it can be passed on to the buyer of the ser vic~s, whi ch in th e case at b a r is th e ESF S thu s r e sult i ng i n t h e i nd irect t ax a ti on of the latt~r' s fund.

Even so, it has been h el d in a case involvin g sales ta x, a tax which is pay ble b y t he Manuf ac tur~r or producer but can be p . ~sPd nn to the purchase r that :

11 · The phrase p_~~-!?_g.Q ___ j ,:_he_, ____ t._~.?:t._fl..D.

is i n a ccurate as ob iously th tax is laid a nd r e Main s on thf' manufacturer and on hi m alone .

The p'~rchaser does not really pa y t h e tax.

Hn p~ys nr m""y p y the s e 11 er more for t hP qoorlG t'>D.ci'l.use of the ~ell e r 's oblig;:d;iPn , but t:h;=d:

s all. x x x.

Th e price js th"' sui" t t.C'I p<'lirl for the g o od s.

The mo nt arldt>d b cause of the t ax is paid to get t h e goods and for not hi n g e l se.

Theref o re i t is par t o f th e price x x x . ' ( L sh' s Products v .

United S t ates 278 U.S. 175 <1928) . ]

" I t may i ndeed be that thl!

i ncidenc l!

o f the ta x ult i matel y set tl es o n t he pur chaser, but it is not for th t reas on alone that on~ l'lay v al idly argue th t it is a tax on thr purchaser. x x x.

But th e t ax burden ~a not even be shifted to th e purcha ser ~ t al l .

A decision to a b s orb th e b urrl en of t he ta>< is l arge l y a mat tl! r of economic s .

Th en i t can no lon ge r be contende d th a t a s ale s t ax is a tax on the purc h aser.

11 (Phil i ppine Acetylene Co., Inc .

vs .

Co•• iss i oner o~ Int•rnal Revenue, 20 SCRA 1056> The obser vation holds t rue for contractor's tax on th e sal e of services which ••Y also be shifted to th e buyer of th ~ services. Th us a pp lied to the in s t an t case, t he fac t that

DEC IRION

CTO CASE NO. 4333 8 - petitioner may add t hP.

contrAc tor's tax to its b il l ing!~ to th ESrS f"or spt•vireu; rendP r E'd to the latt er doe~ not mak the ESF proceeds.

For pet it ione to b e e xempted f rom the pay• n t of cant ract or' s t ax on its gross rec e ipts froM the ESF proc eds there must have been a specific provision nf law to that effect as in the ca e o.

the vf!l lu .-Added tM< on the sa le of se rvice~.

Ex mp ion~ from

t. xation ar highl y di s f avored hi law; ,.nc1 hE> whtl r.lf!l.i ms n exeM ption must b~ ~ble to ju~tify h is c la im by thP. cl e a r e s t grant of o~gani~ or statut law.

An exemption from a co l! lft tH1 burd n cannot b e pwrmitted to exi st upon ;/' vague iMplic tion .

CAsiati Petroleu• Co.

vs. ~~ Llanes ., 49 Phi 1.

4661 Hous v s .

Posadas , 53 Phi 1.

338.)

E xe mptions in tax statutes are never presumed • . Exemptions in taxat ·o n are constr ued in "strictissimi juri s" against the taxpay e r an;

/ liberally in favor of the taxing aut h ori t y . <Es ~~ Standard Eastern, Inc. vs. Co • • i ss ioner of Custo•s, 18 SCRA 488. > Clearly, pet it ioner' s claim for ta>C credit, representing contractor's tax erroneously paid/withheld in the total a111ount of P379, 538. 36,_ should be denied.

As regards the claim for tax credit for err oneous 1 y paid val u e -added t x · n the am ount of

9 - P14,2G5.00, ad vert~d to Arlier, petitioner i5 entitled thereto by virtue of BIR

Ruling

No.

tot-ooo-oostJ-ae.

Re pondent avers that peti - t i o n er•s cl i~ h ould be deni~d for its fai lure t o ~ h ow that: it had f il~~t applied for zero-r t i n g in accordance with Sect:i. n B<d> of Revenue Regulat ions No. 5-87 which reds~~ follo~ ~: il(d) ()pplicat· j rq' for· t-h,., 'mpo sition of ~ ro r t • -Any ~~rson rl~im ' ng that its ~ les of goods or ervices are ff c ti ve l y zero-rated unrlPr s~ctio ns 100 and 102 ~hall f;

nn i"'f'Pl'cAI:'i on in a for - prescribed th rPfc11 ~ti th the Com•is ioner of Internal Rev~nue justifying the · ~positi on of zero rate on the 1$ id transact ion~.

Upvn approva l, his st tu'l\ as zero-r ted ta )(payer shall re111ain v 1 id unt i 1 N!voJ.ced." The evidence prese n ted by petition er shows th th_ said v lue- dd ed t ax WA paid to t h e

B IR

on Septembet"' 20, 19f'E\ < Ewh~. T.

1 - 1 to Tt - 9, pp.

lhe <tfo l .,.,_ ;rt BlR Ruling No. 101-000- 00513-88 holdinq that dir ct p yments f t"'o m the ESF proceeds for ~~rv ices r nd red are subj ect to zero r t of the vtl'llu e - add Pd tax, was iss ued only on October 21,~988 after petition e r had al r eady p id the value-added ta~ in question .

Petiti oner cann o t therefor b f ulted for not h a ving f i r st a p pl i d for th e a bovem ntioned z e ro rat ing since its p Y"' nt of the value-added ta x - 10 - th e n indicates that petition e r wa s not aware that it was subj ect t o z ero ra t e until after the issuance of t he Bin r 11 ling. Acr.ordingly, th e c l ai111 for the errone ou ~ l y f'!C'Iid vrd tJ --added ta x 111ust be granted.

Finally, with r Pspect to petitioner's cl ai111 for attorney's fee s in the amount of P75,000. 00 a nd the recovery of cost s of sui t , the rule i~ well- settled that cost s o f suit are n ot reco verable agai nst governM ent e n t i t i es a nd officers when th ey are sued purel y in th e i r off ici al capaci ty as was respondent in thi s c As e.

And there bein g no showing that as such he acted in e v ident bad faith, the award of attorney ' s fee s would be unjust ified. <Philippine Veterans Af fai rs Offic e vs. Anover, 125 SCRA 354; Section 1, Rule 142, Rules of Court.)

WHEREFORE, respondent Co••ission•r of Int•rnal Revenue is herttby ordttred to grant a taM cr•dit in favor of petitioner in the a•ount of P14,265.00, representing erroneously paid value-added taM.

However, this court d n ies the clai• for taM cr•dit involving alleged erroneously paid contractor's taM in the a•ount of P379,538.36, as well as th• P75,000 attorney' s f e e ~ DECISt£1N CTA CASE NO.

~333 - 11 -

WE CONCUR :

~ C- <;2 .f\-'\J- );

REYES .fudge J udge ~ C.~~ ER STO D. ACOSTA Associ ate J dge CERTlFlCATI N I hereby certif y that this dec"sio n was reached after due con -; tl tr:!t; i.n n l"nnq thP PIIP.I'Ibers of t he Co ur t o f Tax Appeals in accordance with Section 13, Arti c l e VIII of the Constitution. Court