CTA Case No. 5078

DECISION

(VAT) CML With: dr: ay ral The factual ba: eared from the petition for review borne cut of the records, and supported by the Liooniroy ferted evideice of petitioner are stated as follows:

i . Petitioner is a multi-purpose cooperative duly organized ing by virtue of the Cooperative Code of the Philippines and other pertinent laws of the Philippines. It is istered] with the Cooperative Development Authority (CDA) 1177 - under Certificate of Registration No. ILO-021, dated March 27,

2. Petitioner is a licensed Sugar Trader with authority to operate as such for crop years 1991-1992 under Certificate. of Revictration Ne STB-92-099, dated October 22, 1991, issued by the Sugar Regulatery Authority (Exh. B) It transacts business only with its members (TSN, Sept. 15, 1994 Hearing, p. 7).

4, Petitioner has for its members planters of sugar cane hereinaiter referred to as Producer. For crop year . 1992, the ?

iY cane harvested by ifs tnembers were assigned to petitioner 7a Teed of Assignment (Exh. E) The Producer { the Cooperative, petitioner herein, its produce ne of the pees et. The price paid shall be net of cash le sificident to the storing and handling of Sugar Dre slycect described as a “Marketing Agreement and Special Power of.

‘rees to turn over in faver of cf i petitio ner the entire supervision and management of the sugar cane Produced. Petitioner in turn undertakes to have the sugar cate tilled and the finished product sold. Thereafter, petitioner shall pay the producer the sum received less the above- mentioned deductions. The corresponding quedans are issued in = account of a particular cooperative member.

1178

SO7G

- 3- Exemption Certificate in favor of stating that it is exempt from all tages and fees _ based on the foregoing and pursuant to Article 61 of the Cooperative Code, you are ezempl from all tazes and fees imposed under the internal revenue laws and other faz laws. Bee exeroption however, does not itt ale =added faz which might be ér/vendor on ; ads. wourw fa se 2h.

This exempiion shall be for a period of ten Sof Je coned frorn the date of your ¢UDA on March ey, 199.

it is emphasized however, that the exemption of the cooperative does not extend to the individual members thereof. xX z= z”

(Emphasis Ours}

b. Subsequently, in letter dated October 21, 1991, Mr. Eeethoven L. Rualo, then Regional Director of Revenue Region No.

u-b, Bacolod City, informed petitioner that he had issued a directive to all personnel in the district offices especially those procesied sugar Dy coc ee without the prepayment of the 1179

DECISION-

C.I.A. CASE NO. 5078 - 4 - Exemnt.ion Certificate. Dertinent l)Ortion of v11l1ich reads as follo\AFS J.

• "

I"'

(E.xl:l. D):

"In n~p1y theret(\ please be ad·vised that I 1Ewe mstruded ;:1.11 rny district oific:es, especially t.ho;::e assigned in the sugar centrals, that they may allow the withdrawal of such processed sugar by cooperatives without the prepayment of advance

Value-Added

Tax

(VAT)

upon showing of the Tax Exemption Certificate issued by our Office.

Ho~Never, ... #e have alsoJ instructed t11e-m that t11ev should inform tlle ' cooperative of the pos:::ibilitv that Vile either,· .

.

' ( 1) Assess the indiVidual member if withdrawals are made in their individual· names considering that the exemption of the cooperative does not extend to the individual member; or (2) Assess the cooperatives themselves if proven that they have engaged in a . systematic and business-like manner the trading of such processed sugar, i.e.,· t)u.ying an(:i selling activities, etc., more so .. if the funds used were borrowed. To our, mind, these activities no longer constitute t1w ordinary ancr usual functions of a cooperative but rather are the activities of a sugar trader .. for t11e purpose of making profit." (Highlight Ours.)

7. In a letter dated March. 3. 1992 (Exll. H), Acting R~gional Director ivhriano A. Aguilar, Jr., warned and instructed Central. Azucarera de La Carlota. to comply with the provisions of Revenue Regulations He 7-89, November o, 1979, regarding t11e advance·, 1180 ;

·, j payment of VAT on the withdrawal of refined sugar. We quote at

Bacclod City

March 3, 1992 Central Azucarera de La Carlota tf ?

Saal cee ra:

vertlenen:

- It has come to the attention of this Office that you are allowing the withdrawal from your mill premises of refined sugar milled by members of La Carlota Mill District Multi-Purpose Cooperative, Inc. . without prior advance payment of the 10% Value- Added Tax by the owners/sellers thereof, in clear Code, La Carlota Mill District Multi-Purpose Cooperative, Inc. may be exempt from all tazes and fees itmposed under the internal revenue regulations and other tax laws, yet this exemption does not however extend to its individual members. Correspondingly, individual members thereof cannot invoke the exemption privileges of the cooperative. Accordingiy, the sugar cane and the resulting refined sugar owned by the planters- members and sold through the cooperative is subject to the 10% Value-Added Tax advance payment prior to its removal from mill premises. Attached herewith are xerox copies of letters clearly defining the status of members of the cooperative signed by

Deputy Commissioners Victor Deoferio and Eufracio

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BECISION -

C.T.A. CASE WO. 5078 ad ete ober 1, 1991 and November 13, sively Underscoring Ours.)

You are therefore instructed to comply strictly with the prov ision of Revenue Regulations No. 7-89, u will be liable to‘ the penalty - Section 255 in relation to Section the National Internal Revenue Code, UF -.

Very truly. yours,

(Sed)

MARIANO A. AGUILAR, IR!

Actg. Regional Director.

Copy Turnished:

“duit Purpo: sec Coopers live, Inc.

if RDG, EG f Wes, nF

8. On the basis of the above-ctted letter, Central Azucarera de La Carlota indiscriminately applied the provisions of Reveriue Regulations No. 7-89 fo cooperatives by withholding the 10% advance payment for VAT on the withdrawals made by

3. By virtue of the Tax Exemption Certificate (dated Getober 1, 1991) issued by respondent pursuant to the tax exemption privileges granted to Cooperatives under Sec. 61 of | RA. 5935 (Cooperative Code of the Philippines) and the letter of the Bureau dated October 21,1991, petitioner through its counsel wrote Central Acucarera de La Carlota to allow withdrawals of the » 1182

-_7F-

sugar owned by the cooperative and quedan exclusively under its name without the advance payment of the VAT (Exh. 1).

10. On March 25, 1992, petitioner through its tax consultant wrote the Restonal Director of Revenue Region No. 6-B, Bacolod City (Exh. J), askine for clarification regarding its instruction to the Central te comply with Revenue Regulations No. oo because it appears that the Central did not make any distinction between the individual member and the Cooperative. il. There being no action on the part of Central Azucarera de La Carlota and the EIR, petitioner informed the Bureau that it shail be paying the VAT under Prone in order not to delay the © a ae iB :

Kon

et cs

Fe

E

td tA | ~ boa ee 4 es fae) un =.

ot ea) = poh fm ia p v sy a ce) y pe ts) <a

Ng

~j follows

Exhibits Date OR No Amount

L 4-07-92 O137G61S L P 357,273.24 M 4-O7-Gs OIA7616L ~~ 327,829.42 N 4-20-92 O140749L 240,599.78 Oo 4-20-92 0146344 L 86,000.00.

P 4-20-92 0140982L 67,295.72 Q 4-20-92 0140981 L 118,726.00 R 4-20-92 0140980 L 271,093.50 5 4-24-92 0141138 L 64.500.00 TOTAL VAT PAID P1533, 317.66

12. On February 11, 1994, petitioner filed a claim for refund with the respondent’ (Exh. T). On March 18, 1994 petitioner informed respon dent that it is appealing its claim for 1185 - § - _ refund with this Court (Exh. U), pursuant to Section 204(3) of the National internal Revenues Code, in order te toll the running of the prescriptive period for judicially claiming for a refund. Hence, even without the decision of respondent on petitioner's claim for — review through rewistered mail and the same was received by the ° pendent falied to answer within the fime prescribed motion of petilioner, respondent was declared in default.

eded with the reception of petitioner's evidence Thereaiter, the only thing left for resolution by the Court in a judgement by default under fection 1 of Rule 14 of the Revised Rules of Court is to determine petitioner’s entitlement te the claim The issue ig limited to whether or not petitioner is entitled to claim for the refund of P1,533,317.66, representing erroneously and illegally collected VAT from April 7-24, 199¢. A close scrutiny of the evidence presented by petitioner Will show that petitioner indeed paid the VAT from the period April 7-24, 1992 (see Exhs. L te §, inclusive). Central Azucarera de La Caricta collected from petitioner the 10% VAT on all of its withdrawal of refined sugar.for the said period in the total amount of PL533.317.66. It was only after the Central received the letter, dated March 3, 1992, coming from the Regional Office et the BIR that it started to collect the 10% VAT from petitioner.

1184 - g - It is hardly necessary to observe that the Central dealt mainiv on the igst paragraph of the said letter instructing it to ~ comply strictly with the provision of Revenue Regulations No. 7-

89. The imposition made by Mr. Mariano A. Aguilar, Jr. Acting Revional Director, upon the Central is clearly discernible if taken in its whele context. In ether words, it should be read together with the provision regarding the exemptions enjoyed by cooperatives. The exemption of cooperatives dees not extend to its individual members. Therefore, individual members cannot aptly stated that respondent has in fact admitted that cooperatives, like petitioner’s herein, have the privilege of tax exemptions and to that effect correspondingly issued a2 Tax Exemption Certificate in faver of petitioner, pursuant to Section 61 of R.A. 6938, otherwise known as the Cooperative Code of the Philip pines es, which provides:

“ART. 61. Taz Treatment of Cooperatives. - [uly registered cooperatives under this Code which do not transact any business with nonmembers or the general public shall not be subject to any government taxes or fees imposed under the internal revenue laws and other tax laws. Cooperatives not falling under this article shall be g° verned by the succeeding section.”

To assure, however, that the privilege is not abused or circumvented, the respondent's Acting Regional Director instructed the Central te collect the 10% VAT on the sugar cane milled by the planter-members and reiter ated that the 1180

DECISION -

C.T.A. CASE HO. 5078 -~ 10 - exemption of cooperatives dees not extend to the individual members thereof. In other words, it merely clar ified the previous ruling, dated October 1, 1991 (S26-0-38-91). No other conclusion can be drawn from the language of the March 3, 1992 scan cf the privilege extended te con is plain. Only the cooperatives are 7 The directive is for the Central to impose the 10% VAT pursuant to Revenue Regulations No. 7-69 on individual members We are not to contuse about what seers feasible (on the part of the Central) with about what is right. As a matter of fact, we are nel impressed by the non-observance of the Central in- - recognizing the exeription granted te cooperatives by its fear of ' being penalized under Section 255 in relation to Section 254 and.

' 374 of the National Internal Revenue Code.

The 10% VAT impesed upen the withdrawal of refined sugar made by the petitioner falis flatly in conflict with the law eranting its tax exemption (Section 61 of RA 6938) The ‘blindness of the Central cannot be excused.. We uphold the plain — nterpretation of the language of the March 3, 1992 letter. Thus, | no other construction should be given. After having - established its exemption from faxes, _ petitioner likewise has proven by sufficient evidence that it had erroneously paid the VAT from April 7-24, 1992 (Exhs. L to S$, 1186 - ii - inclusive) and therefore is entitled to the refund sought for by way of this petition for review,

WHEREFORE, the Court finds the petition tobe meritorious espendent is ordered to refund in favor of petitioner the amount of P1533,317.66, representing erroneously paid Value-Added 7 ilo pronouncement as to cost.

Presiding Judge

WE CONCUR:

NWEL E. GRUBA 1187

DECISION -

C.T.A. CASE NO. 5076 - {2 -

CERTIFICATION

i hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in Cua @. Que ERNESTO D. ACOSTA Presiding Judge ‘f

Court of Tax Appeals

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