American Express International, et al. vs. Of Petitioner, et al.

DECISION

This is a judicial claim for refw1d of value added taxes paid by the Petitioner on its domestic purchases of taxable goods and services in the amount of P2,900,585.71 covering the period January to December 1996.

Petitioner American Express International, Inc. - Philippine Branch (AMEX) is a servicing unit of American Express Intemational, Inc. - Hongkong Branch. It is engaged primarily to facilitate the collection of AMEX receivables from cardmcmbcrs situated in the Philippines and payment to service establishments in the Philippines. Petiti~I;er is a VAT registered entity since March 1988 under VAT Registration Certificate No. 088445 (Exh. A).

For the period January to December 1996, Petitioner generated and recorded export sales of services in the total amount of P54,54l ,821.31 which were paid for in Hongkong in foreign currency inwardly remitted to the Philippines in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (TSN, Aug. 17, 1998, p. 24). Thus, zero-rated in accordance with Section 1 02(b )(2) of the then Tax Code.

J

I'

I

- 2- Petitioner paid VAT input taxes for its local purchases of goods and services amounting to P2,900,585.71 alleged to be directly attributable to its zero-rated sales, broken down as follows:

QUARTER

INPUT

INVOLVED

EXHIBIT

TAX

1st c p 791,733.19 2nd

D

610,960.63 3rd

E

626,634.05 4th

F

871,257.84

Total

P219001585.71 Petitioner claims that the above input taxes had not been applied against any VAT output tax as evidenced by Petitioner's Amended Monthly VAT Declarations and Quarterly VAT Returns for 1997 (Exhs. Q to Z).

Consequently, a letter-claim for refund was filed with the Bureau of Internal Revenue on April 1, 1998 (Exh. G) pursuant to Section 106(a) in relation to Section I 02(b )(2) of the Tax Code, as amended.

Petitioner outrightly alleges that the instant petition sprang from the denial by Respondent of its claim. But no proof of such denial was ever presented by Petitioner. In fact, it contrarily asserts that due to the inaction on the part of the- Respondent and further considering the near expiry of the two-year prescriptive period, the filing of the instant petition on April 17, 1998 was apropos. Respondent, by way of Special and Affirmative Defenses, had this to offer: a) Petitioner's claim for refund of alleged excess VAT input taxes is still under investigation/examination by the BIR; b) Petitioner has failed to show compliance with the provision of Section 16(c)(3) of Revenue Regulations No. 5-87, as amended by Revenue 59

- 3- Regulations No. 3-88 by failing to provide the necessary documents required under the said regulations;

c) Tax refunds are in the nature of tax exemptions. As such, they are regarded in derogation of sovereign authority and to be construed in strictissimi juris against the entity claiming the exemption. The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claim by clearest grant of organic or statute law. Failure on the part of petitioner to do so is fatal to its claim for refund; and d) Taxes paid and collected are presumed to have been made 111 accordance with law, hence, not refundable.

The pertinent provisions on refunds of input taxes arc hereunder quoted: SEC. 102. Value-added tax on sale of services and use or lease of properties. - x x x (b) Transactions subject to zero-rate.- x x x (2) Services other than those mentioned in the preceding subparagraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). (Tax Code) SEC. 4.102.2. Zero rating. (a) In general. -A zero-rated sale by a VAT registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be availabl<2 as tax credit or refund in accordance with this regulation. (Revenue Regulations No. 7-95) SEC. 106. Refunds or tax credits of creditable input tax. - (a) Any VAT-registered person, whose sales are zero-rated or effectively zero-rated, may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax. (Tax Code)

- 4- There is no controversy that Petitioner's export s:des were subject lo zero percent VAT. As proven, it is a VAT registered entity. Its export sales of services were paid for in acceptable foreign cunency inwardly remitted to the Philippines and nccounted for in accordance with the rules and regulations of the Bangko Sentralng Pilipinas. In fact, this is confirmed by Respondent's ruling dated April 3, 1989 (Exh. B), partly quoted, viz: "In reply, please be informed that, as a VAT registered entity whose service is paid for in acceptable foreign currency which is remitted inwardly to the Philippines and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines, your service income is automatically zero rated effective January 1, 1988.

[Section

1 02(a)(2) of the Tax Code as amended]. For this, there is no need to file an application for zero-rate."

Furthermore, We already settled the same legal issue in the previous cases filed by AMEX, namely: CTA Case No. 5031 (August 16, 1996), CTA Case No. 5139 (February 3, 1997), CTA Case No. 5209 (December 22, 1997) and CTA Case No. 5308 (December 29, 1997).

Hence, what remains to be resolved in the case at bar is the factual issue of whether or not Petitioner is entitled to the refund of P2,900,585.71 representing input VAT paid for its domestic purchases of goods and services allegedly attributable to its zero-rated sal·s¸for the period January to December of 1996. To support its case and to comply with CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, Petitioner engaged the services of an independent auditor to conduct special audit on its claim for refund and who was also commissioned by this Court. Said auditor ascertained that (a) Petitioner's invoices/official receipts were within the period of the claim;

(b) Petitioner's invoices/official receipts on G*c were original copies; (c) the input.taxes paid were correctly and properly computed; (d) the suppliers'

VAT

registration numbers and

BIR

permit numbers were indicated in the

- 5- invoices/official receipts; and (e) Petitioner's zero-rated sales vvcre paid for in acceptable foreign currency inwardly remitted in the Philippines in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (Exh. I). But it was found out that some transactions of herein Petitioner for the period involved were not properly documented. For instance, there were some purchases which did not have supporting invoices and official receipts.

Also, there were some invoices and official recei )lS which did not indicate the VAT registration number of the suppliers or the BIR permit. And some invoices and official receipts submitted did not pertain to the period covered by the claim (TSN, Oct. 14, 1998, p. 11). As a consequence thereof, the amount ofP132,831.70 was excluded by the Commissioner from the total claim of P2,900,585.71 (TSN, Sept. 16, 1998, p. 14).

It is worth mentioning that the same amount of P132,831.70 was disallowed by the Revenue Examiner who investigated Petitioner's claim (TSN, Nov. 11, 1999, p. 9).

A circumspect examination of all the extant evidence resulted to an affirmative ruling in favor of the Petitioner but in a reduced amount. Although Petitioner's purchases of goods and services were supported by invoices and official receipts (Exhs. L TO 1-1125), We noted the following exceptions, to wit:

REFERENCE

SUPPUER

PERIOD

EXHIBIT

NUMBER

COMPUTATION

(a) Overstatement of input tax

D'Robe Security Agency

January

Mode Matrix

May

L-20

L-22

L-24

L-416

8361 8411 8453 8851 p 7,549.44 6 445.45 p 7,549.44 6 445.45 7,549.44 6 445.45 4,144.23 2053.10

INPUT

TAX

1,103.99 1,103.99 1,103.99 2,091.13

Prosperous Management

June

AD ACE Advertising

July

-6-

L-520

L-545

(b) Input VAT without supporting document Robbie Stylographic & Dev't. March so !59

(c) Invoice/Official receipt without TIN and/or "V"/V AT after TIN

DM Plus

June

L-475

184 ACE Filling Syhstems Mfg.

July

L-541

727 ACE Filling Syhstems Mfg.

July

L-542

823 Integrated Systems Corp.

August

L-701

45789

Peerless Storage Boxes

October

L-979 to

L-980

1483 4,767.15 4 331.09 545.45 270.22

Subtotal

Subtotal

(d) Invoice/official receipt not in the name of American Express International, Inc. Central CATV, Inc.

August

L-549

I 08265

436.06 436.06 P6,114.39 p 6,960.91 p 7,500.00 106.82 152.55 3,590.91 32.27 p 11,382.55 p 165.00

(e) Not included in the list of transactions to be considered for input vat to be credited against output vat pursuant to Section 4. I 04-1 (a) of Revenue Regulations No. 7-9 5.

Commercial Motors Corporation March

Commercial Motors Corporation March

L-165

L-167

5977 18486

Subtotal

Grand total P242,273.00 7,727.27 P250,000.27 £2.11.623.12 Petitioner offered in evidence Demand Deposit Account Statements, Telex Advices, Journal Entries and General Ledger (Exhs. M lp M-726) to prove that its receipt of payments for services rendered were paid for in acceptable foreign currency inwardly remitted to the Philippines in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas. Therefore, qualifying as zero-rated sales. Nevertheless, as testified to by Petitioner's witnesses, only the amount of P7'0,212,870.34 out of the total amount of r

I

l

- 7- P76,155,373.52 declared in the VAT return had been verified as Petitioner's zero-rated revenues for the taxable year 1996 (Exhs. K-1 to K-3), detailed as follows:

PER

QUARTER

PETITIONER'S

PERP&A'S

INVOLVED

RETURNS

VERIFICA TlON

DISCREPANCY

1st p 16,046,547.08 p 14,584,829.04 p 1,461,718.04 2nd 17,202,364.36 16,035,835.83 1,166,528.53 3rd 21,292,909.87 17,016,053.32 4,276,856.55 4th 21,613,552.21 22,576,152.15 1,962,599.94 p 761155)73.52 p 70)121870.34 p 519421503.18 The difference of P5,942,503 .18 comprised revenues actually genera led within the Philippines or vatable revenues earned by Petitioner when it made advance payments to the service establishments within the Philippines and interests earned on employees' loans. (TSN, Sept. 16, 1998, pp. 18-19, Oct. 14, 1998, p. 14). In other words, not all of Petitioner's input taxes were directly attributable to its zero-rated sales. Moreover, for the fourth quarter of 1996, Petitioner declared only the amount of P21 ,613,552.21 in its amended qumterly VAT return while the independent auditor's verification amounted to P22,576,152.15. We are inclined to consider only the amount declared in the amended quarterly VAT return as Petitioner's zero-rated sales. Accordingly, only the amount of P2,267,003.91, which represents the portion of allowable input tax attributable to zero-rated sales, can be refunded to Petitioner, computed as follows:

Zero-Rated Sales

Divided by Total Sales

Zero-Rated Sales Percentage

Multiply by Allowable Input Tax

Per Petitioner's Claim

P2,900,585.71 P69,250,270.40 P76, 155,373.52 90.93%

- 8-

Less: Disallowances

( a) Per P&A's verification P132,831.70

(b) Per Comi's verification 274,623.12

Amount Refundable

407,452.R2 2 493.130.89 IN THE LIGHT OF ALL THE FOREGOING, Petitioner's claim for refund is hereby PARTIALLY GRANTED.

Respondent Commissioner of Internal Revenue is ORDERED to REFUND to Petitioner the sum ofP2,267,003.91 representing VAT input taxes for the period January to December 1996.

WE CONCUR:

-lS)_, o ERNESTO D. ACOSTA

Presiding Judge

CERTIFICATION

I hereby certify that the above decision was reached after due consultation with the members of the Comi of Tax Appeals in accordance with Section 13, Article VIII of the Constitution.

b- ERNESTO D. A COST A

Presiding Judge