Benguet Corporation vs. 4495 and 4575 Commissioner of Internal Revenue

DECISION -

- 2 - January 1, 1988.

Sometime in January 1988 petitioner filed an application for zero rating of its sales of mine products, which application was duly approved by respondent Commissioner of Internal Revenue. On May 20, 1988, petitioner filed its VAT return covering the period January 1 to April 30, 1988, stating that during the period covered, petitioner made zero- rated sales in the total amount of P808,329,075.00.

Likewise, on August 22, 1988, petitioner filed its VAT return for the period May 1 to July 31, 1988, stating therein that for the period covered, its zero-rated sales totaled Pl,010,264,729.22.

Subsequently, under dates of December 20, 1988 and February 8, 1989, petitioner filed separate applications for tax credit for input taxes paid during the periods covered Ly its two VAT returns mentioned above, in the total amount of P64,832,374.57 broken down as follows:' Period Covered Jan. 1 - April 30, 1988 May 1 - July 31, 1988 526 Amt. App1ied For P34,449,817.71 30,382,556.86 P64p832p374.57 ==============

- 3 - C1~ CASE ND.4495 On November 21, 1988, petitioner filed its VAT return covering the period August 1, 1988 to October 31, 1988, reflecting therein zero-rated sales totaling ~s92,1aG,25o. 13.

Thereafter, on February 29, 1989, petitioner likewise filed its VAT return covering the period November 1, 1988 to January 31, 1989.

Under dates April 28, 1989 and November 13, 1989, petitioner filed separate applications for tax credit of input taxes totaling P43,G14,437.88, for the periods covered by its two aforesaid VAT returns. broken down as follows: Period Covered Aug. 1, 1988 - Oct. 31, 1988 Nov. 1, 1988 - Jan. 31, 1989 Said claim may be Amoun·t Applied :for P30,146,774.47 13,467,663.41 ll43~614p437.88 ============== On May 22, 1989, petitioner filed its VAT return covering the period February 1, 1989 to April 30, 1989, reflecting zero-rated sales in the total amount of P787,532,806.43.

On August 21, 1989, it filed its VAT return for the period May 1, 1989 to July 31, 1'389, showing zero-rated sales in the total amount of 527 .•

- 4 - ~791,534,245.29.

Thereafter, under dates March 8, 1990 and May 17, 1990, petitioner filed separate applications for tax credit of input tax for the period covered by the two foregoing returns, in the total amount of ~23,294,221.77 broken down as follows: Period Covered Feb. 1 - April 30, 1989 May 1 - July 31, 1989 Amount App1ied For ~ 7,030,261.29 16,263,960.48 P23.294.221.77 -------------- -------------- Upon investigation of petitioner's applications, respondent Commissioner ascertained that there were certain inaccuracies and falsities in petitioner's VAT returns.

Thus, for instance, for the First Quarter of 1988, petitioner forwarded input tax of ~32,170,693.27 to the Second Quarter of the same year. On the Second Quarter, it forwarded input taxes to in the amount of ~19, 131,794.60 to the Third Quarter; and on the Third Quarter, it forwarded input taxes of P8,446,126.13 to the Fourth Quarter of 1988. And for the First Quarter of 1989, petitioner forwarded input taxes of ~7,420,150.43 to the Second Quarter of the same year.

In addition to the foregoing, respondent Commissioner a~so disallowed input taxes attributed to petitioner's ;,1, s~l~~.~{ ~ol~:!P ~~e Central Bank of the Philippines. 528

- 5 - Thus, after due investigation, respondent Commissioner determined that petitioner was entitled to a total tax credit of only P81,991,810.91 attributed to its direct export sales. This amount was broken down as :follows:

On First Quarter Second Quarter Third Quarter Fourth Quarter First Quarter Second Quarter the other hand, p 18,284~739.32 14,281,567.17 15,673,510.77 13,467,663.41 p 61,707,480.67 ==============::::

p 7,030,261.29 13,284,330.24 p 20,284,330.24 =============== respondent Commissioner disallowed a total of P88,187,431.88, representing input ·taxes on petitioner's sales of gold to the Central Bank. The disallowance was based on VAT Ruling No. 8-92 dated January 23, 1992 and VAT Ruling Not 59-92 dated April !'·'·' • ·',· 28, l9,92, which ;revoke~ previa~~ ~tilln~s of • ~ ' • ~ !

• • • ~ . ' • .~ • respondent C~mmi$~:\.one:r wh~ch,' in ef:f'~ctr treated saies of.gold to the Centr~~ pank as constructive exports for purposes of zero-rating and instead, consider such sales subject to the lOX Value-Added Tax. Hence, these petitions. 529

- 6 - In these consolidated petitions, petitioner contends that the retroactive application o£ VAT

Ruling

No.

8-92 violates Section 246 o£ the Tax Code, provides that - "Any revocation, modi£ication, or reversal o£ any o£ the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application i£ the revocation, modi£ication, or reversal will be prejudicial to the taxpayers except in the following cases <a> where the taxpayer deliberately misstates or omits material £acts from his return or in any document required of him by the Bureau of Internal Revenue;

<b> where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (c) where the taxpayer acted in bad faith." which It further argues that such retroactive application would be prejudicial to it. Thus:

"The undue prejudice caused to the petitioner by a retroactive application o£ VAT

Ruling

No. 008-92 is evident. It was issued only on January 23, 1992 which is years after petitioner has religiously relied on and complied with previous BIR issuances and rulings that sales o£ gold to the Central Bank are considered as export sales.

The petitioner has also relied on CB Circulars which have the effect of law. Hence, these sales should be considered as zero-rated and the VAT input taxes corresponding to such i~les are refundable. :· ~ X X ~

~ X

X .-·, . }[ ~[ X ·- ' -<:' 530 Gti As Case Noes, 4429, 4498 & 4575 | a The petitioner has no other activities: pubjest to the 10% VAT: © THe! Conversion of. the dnput taxes inte. dost deductions for ‘incoted o tas purposes 18) ui. ho: use to petitisner beduube it hasclittiesur, ho incote te deduct these frofi. «The fast: teheite, that the petitioner was not able to ‘Glaim ¢ash teftunds which dt) 6aH use te .finance ite. ‘operations, Neither were (aie) petitionet: ‘ahie to obtain tak eredits whieh dt may use freely if the payment of their (sid) internal otevenue. tax iiebiiities:)-What de worse, 46 the fact that petitioner. was fot able tu pass ot the 10% VAT to the Cetitral Bank, on the ‘portions corresponding to dowsl sales, if. these sales should not have been treated. as eport gales. To dssesa petitioner the 10% “VAT of these sales would indeed be unduly § ‘prejudicial, a re Furthermore, it 48 undeniable that ‘petitioner telied on BIR’s Various. issuances ‘that sales of gold to the Central Bank are ‘terb-rated, solid its gold produse to the cB tow: prejudiced to the extent of i711 of the (plrchase price of its goid sales to the -. Central ‘Bent and could het how demand and \ Becure payment of said amount from the Centred Bank, tt de highly improbable that the Central Bank wiil ever pay the prejudiced 1741 purchase price and there is no way petitioner to (io) recoup sich loss but, ‘left nothing to shoulder the damage.

HR x Ht # XM 2 coe ittontestable (sit), petitioner shali be ~— y a retroactive application of © B-92 because the bales of gold — Ge Batki:vere consummated A At that.

the |.

without passing or billing the VAT on these ie ‘Bales, hich it couid have dome, It stands ~ 7 bbetstow - ag Gs Tr As Case “How. (4429, 4455: & AS75 degal | bohsequences ate «attached thd petitioner (sid), in ite. vein attempt to. revoke previous fulings,’ ‘Cannot hide from. the: doetrdthe | uf eatopped bébauge, to allow hiin: “-teie) de tantamount td bad faith, betrayal of:

st and See Terrteee ere justive te Pie setts We ‘held that ‘PeSpOn éH Camudisedoner te” Borreét. dn cuntending that. petitioner wiil- fot suffer dny ufidue.” ‘prejudiae from 4 -retrodative | apfiieation: ‘of VAT RUlings © Ne - 008-52). and §=59+92, As” pointed tub =_by” * feepondent in his Ruling Nos 59- “924 When the. game “minding: . sompanies, Fee ying upon the aforementioned eariier BIR’ rulings; stld > théir gold t6 the CB at zero. rate VAT, they did not fully pass — oe ; on to. the CB the Gost of their ,”° © respective input taxes. “Said input , taxes rémained iff their possessions -{sigj;' The oly frepercussion of the Frypcetion of the said eariier Wild be prevented the said | breaks jut, they | aaa er Viame in paying”” ne ey in

- 9 - connection with their other sales transactions which are subject to the 10% VAT.

It £allows, there is no prejudice that may ensue from the retroactive application of the said revocation because what they only lose is the right to have their input taxes re£unded which, in the £irst place and under the law, they are any way, clearly not entitled to.

Granting £or the sake a£ argument, that they have no other sales transactions subject to lOX VAT against which their input taxes may be used in payment, then, it follows, they are constituted as the final persons against which the costs cif the tax passed-on shall legally stop and rest, hence, in this connection, said input taxes may already be legally converted as cost available as deduction for income tax purposes.

On this score, they are also not prejudiced by the retroactive application of the said ruling.

Petitioner's relianc,e on the ruling in the ABS-CBN case is clearly misplaced.

In the first place, there is nothing in said decision which absolutely prohibits a retroactive application a£ the rules, regulations, rulings or decisions promulgated or rendered by respondent Commissioner pursuant to his rule-making authority.

On _ the contrary, the decision clearly supports what We have stated here.

Moreover, the factual situation obtaining in the ABS-CBN case is clearly not on all fours with the instan·t case. "

We £ind the £oregoing ruling applicable to the inst~nt ~ases.

..T~e admi }te~ _evidence on record does not .;-: ~<':' . . ::.

··- ~ ~ •. ~;!. J. :.

-~ ; • show that petit.,J.C.;pei·_ ~i,{,t -~~, J.lll~~.f¥ p,;rejudiced by the ' .· .... •' . ' ;-. .\ . ~-··: 'i. ~.-.. ~ . .

retroactive application ·C)~: tf~~ quf}~t,i.Pneq fHfi :rulings.

• .• o ! ' ' ·~ I ;.

•,:; . : . ·.

. ' . ·• /; ·..

:

.

;., 533

DECISION --

- 10 - The mere fact that petitioner may now be precluded from passing on the lOX VAT on its sales to the Central Bank and may thus no longer have such input taxes refunded in cash cannot necessarily be equated with undue prejudice since VAT Rulings No. 8-92 and 59-92 still provide petitioner avenues for relief, that is by converting said input taxes as cost deductions for income tax purposes.

Petitioner has not shown by means o:f competent evidence that such alternative relief notwithstanding, it still stands to. su:f:fer undue economic prejudice in the sense that the amount which it would be entitled to deduct as costs for income tax purposes is substantially less than the amount o:f input taxes to which it could have been entitled to a re:fund if the ques·tioned rulings were not applied retroactively.

In other words, absent any showing that the alternatives available to petitioner under the questioned rulings are clearly inadequate, any claimed prejudice on petitioner's part would at best be speculative.

In the case o:f Atlas l'Jining Consolidated and Development Corporation <supra> cited above, We ruled that the prejudice referred to in Section 246 of the Tax Code must be actual and imminent, as opposed to one that is contingent or speculative. Thus:

534

- 11 - "The question therefore, is:

will petitioner be prejudiced by a retroactive application of VAT Rulings No. 008-92 and 59- 92.

Petitioner argues in the a££irmative, saying that by such revocation, it is now 'unnecessarily exposed to a possible assessment for VAT taxes on the sales to CB, PASAR and Philphos. ' This argument is, however, purely speculative and there£ore untenable.

The fact is that petitioner has not been assessed by respondent Commissioner any deficiency tax as a result of the retroactive application of VAT Rulings No.

008-92 and 59-92.

For the prohibition in Section 246 of the Tax Code to apply, it must be shown that the ta)tpayer will suffer actual and imminent, opposed to contingent and speculative, prejudice as a result of the retroactive application." In an attempt to differentiate its situation from that obtaining in the Atlas case, petitioner filed an addendum dated June 30, 1994 wherein it claimed that it has been assessed by n:>spondent Commissioner for deficiency value-added taxes for the years 1988 to 1989, and that it has in fact already protested such assessment.

We find petitioner's contention unmeritorious. In the first place, Section 35, Rule 132 o£ the Rules of Court provides that only such evidence been formally offered and admitted shall · .. I" ?O~~+~~fed b~ ~pe court in resolving a case. Thus:

.

- ":·' .. -.

stc .. -~i." 35.

Pffer pf evidence.

' ' ... -.

·.' . .; :

• .

... .• ....

~.

' l ' ' co~rt .. ~shall cansi4e~ pb'~v~~~nce which riot ~e~!l :fqrmally c;~f:ferep: :The purpose which·-~ .. the e-viqfini:;e: iik ·. Qttered must spec.i:fied~ · .. ; '-, .,~ ' .

,, . .

' .

535 The has for be be

- 12 ·- In the instant cases, the assessment and demand letters which were allegedly sent by respondent Commissioner to petitioner appear to be dated October 19, 1992.

On the other hand, the records show that petitioner concluded the presentation of its evidence on November 11, 1993. On November 17, 1993, it filed its formal offer of evidence, which was ruled upon by the Court on December 21, 1993. The demand letters referred to in petitioner's Addendum dated June 30, 1994 were not presented during the trial of these cases, nor were they formally offered and admitted into evidence by the Court.

Petitioner does not even pretend that said letters partake of the nature of newly-discovered evidence which it could not have presented during the trial. If petitioner truly believed that these documents were of such vital importance to its case, it should have taken steps to ensure that these were properly brought before the Court.

It would be highly improper for the Court to consider such documents at this stage, not only because of the clear and express mandate of Section 35 of Rule 1~2 p~t also ·.· tant~1llo\.mt.

. ' .

·.·' right to .due to hold : o~he-:r·wise •.' ... , '·, . ·~ would to · preseni its q~n e~~~en¢e to '· 536 be

- 13 - petitioner's claim.

In the· second place, petitioner itself admits that the alleged assessment is the subject of protest proceedings still pending before respondent Commissioner, a fact which is confirmed by the latter in her Memorandum dated April 8, 1994 <Respondent's 1'1emor andum,

p. 9). The Court cannot pre-empt the decision of respondent Commissioner in said protest case by ruling that the alleged assessment, assuming that "lhe same was.

indeed the result of the retroactive application of VAT Rulings No.

008-92 and 59-92, is improper and would be prejudicial to petitioner.

This issue is still properly within the primary jurisdiction of respondent Commissioner of Internal Revenue, and under Section 7<1> of Republic Ac"l No. 1125, Our jurisdiction is limited to reviewing decisions of respondent Commissioner on disputed assessments <Philippine American L.ife Insurance Co., Inc. vs. Comm.iss.ioner of Internal Revenue, CTA Case No.

2981, June 6, 1986>.

As held in a long line of cases, this Cour·t is a court of special jurisdiction; as such, it can take cognizance only of such matters as are clearly within its jurisdiction <see, Commissioner of Inter·nal Revenue vs.

l1.illa, 22 SCRA 3, Fernandez vs.

Commissioner of Int.ernal Revenue, CTA Case No.

3432, 537

DECISION -

C.T.A. Case Nos.

4429~ 4495 & 4575 - 14 - February 25, 1983, Philippine American Life Insurance Company, Inc.

11s. Commissioner of Internal Revenue, supra>.

WHEREFORE, in view of the foregoing~ the petition is hereby DISMISSED.

No pronouncement as to costs.

WE CONCUR:

/Dissenting) ERHESTO D. ACOSTA J_residing~u ge

/72J~ ~

/ RAMON 0. DE V A I Associate Ju ge /1J:uE GRUBA Associ CERTIFICATION I hereby certify t~at this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13 Article VIII of the Constitution.

538 ~~cfl a.~ ERHESTO D. ACOSTA Presiding Judge Court of Tax Appeals