CTA Case No. 5651

DECISION

This T\::tition for Review is seeking for thc.: refund or 1ssuanc -.: or a ta.\ credit certiJicate in the amount of P2.589.328.32. r..:prcscnting unutilized input valu..:--addcd tax (VAL for brevity) for the period April L 1996 to June 30. 1996. Petitioner is a domestic corporation duly orgauizeJ and e.\isting under ami by viTlue of the lavvs of the Philippines \Vith principal onice located at Spc.:ciat Export Processing Zom:, Laguna Technopark, Diiian, Laguna. It is liccnscd by thr..: ~ecuritics and Exchange Commission to "operate. conduct and maintain the business of manufJcturing exporting, buying, selling or otherwise dealing in at wholesale. ckctric. r..:lcctronic and soltware products and industrial properties. i.nducli.ng but not limik~d lo h::rd disk clrivc and component parts'" (E:-;.h. K).

ll is an c.\pott c.:ntcq ri:,c.; rc.:gistcred with lll •.: Export Processing Zone Authority pursuant to the provisions of Presicleniial Decree No. GG. as amcncku, with Certificate of Registration No. 9-1--28 (Exit B), dated J\1ay 1 I. 199-L Like\vise, it is registered \Vith the Bureau of internal Revenul~ as a \'AT taxpayer with 199 j (

CT A CASE NO. 5651

Certificate of Registration IU)O Control No. 9-~-570-000298, elated June 28, 1()9.+ (Exhs. A and i\-1).

On October 7, 199-t.. th~ Export Processing Zone .-\uthority through the Sp...:cial Board issued Resolution No. 94-212 approving Petitioner"s application for pionc...:r stat·us of its small-sized, high density hard disk drive and thin film magn~tic head manufacturing filcility.

The board further r...:solved that Petitioner's facilit-_ylproject is entitled to six (6) years income tax holiday (Exh. L-1 ). On July 29. 1Y96. Petitioner filed its quarterly VAT return for the quarter ended June 30, 1996, reflecting a total input V/\T in the amount of P8,039, 567.86 arising from domestic purchases of goods and services (E.\.h. C). ·Out of the aforesaid sum. Petitioner is claiming the refund of P2,589,328.32 by \Vay or the instant petition. On June 25, 1998. Petitioner filed with the Depa11ment o[ Finance an application for tax crcdiLircfund of value-adJcd tax paid for the period April L 1996 to June 30, 1996. in the amount of P2. 589,.328.32.

On June 26, 1998, Petitioner lodged its appeal \Vith this Court in order to toli the rumting of the I\Vo-ycar prescriptive period provided under Si,;clion 2.30 of the Tax Cock. as amended.

In his AJlS\Vcr, Respondent raised the follo\ving Sp~cial and .-\1lirm~1 !i• • ~kknses :

4. Petitioner miserably failed to demonstrate that the ' "'· <..:ase at bar was erroneously or illegally co lice kL,: ~cc t of the

5. Taxes paid and collected an: p r ...; ~ lilllCd to have been made m accordance \vith lavv and regulations. hi,;ncc. not refundable:

6. In an action for lax rcfumllcredit, tl1e bunkn or proof is on the..: taxpayer to establish its right to refund and failure to adduce sutli.cicnt proof is tltal to the action for tax rcfuncUcreclit:

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I)J(C I~ION

- CTA CASE NO. 5651

I'AGU:J

7. II is incumbent upon the petttwncr to sho\v that it has compl ied with the provisions of Section 20-t in relation to Section 229 of tile Tax Code, as amended:

8. Claims for refund arc construed strictly against the claimant for the same partakes the nature of exemption from taxation (ComJnissioner of Internal Revenue vs. Ledesma, G.R. No. L-13 509, .T;muary 30, 1970. 31 SCRA 95) and as such. they arc looked upon \Vith disfavor (Western tvlinolco Corp. vs. Conm1issioncr of Internal Revenue. 12-1- SCRA 1.21 ):

9. Petition for review should he dismissed on the following grounds;

(a) Lack of cause of action on the part of the petitioner i()r no11- exhaustion of administrative remedies. Considering tlwt the petition for review was fidel on the very same da~· (June 25. 1998) when the application for tax rcfund!crcdit was also filed. the petitioner has not given the Commissioner oppottunity to decide 011 the claim. The taxpayer is given a period of two y~,;ars before appealing to the Court of Tax Appeals; and to notif-y the govcmment that such taxes have been questioned, and the notice should then be borne in mind in estimating the revenue avail.:lblc lo r expenditure.

(Bermejo vs.

Colkctor, L-3028, July 29, 1950). The petition is pro-f01ma and was done merdy to comply with the letter of the la\v and yet it disregarded the spirit or the very substance of the l;nv. The taxpayer should ha ve like! llis claim lor refund at the earliest possible instance and should not have waited for the last day because by tbcn it would be too late f()r the Conunissioner to act on !tis claim thereby destroying tl1e essence of the doctrine of exhaustion of administrative remedies. Consequently. the application tor rcfuncl/crcdit is not impressed \\-ith merit.

(b) Lack of jurisdiction lor there;.; \vas no decision by· the Commissioner that the Court of Tax 1\ppe~tls could review simp!:· because he was not even given an opportunity to reach that dccisio11. In support of its claim for refund, Petitioner prcsentcd varion." ~uc umentarv exhibits which consist of:

l. The DlR, EPZ:\ and SEC Certificates oi' Registration (E.\.hs. :-\, .\-j . B, and

K):

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D~Cl:-)ION-

CT A CASE NO. 5651

PAGI£ 4

2.

The original and amended Value-added Ta.\ Returns for ille second, third amt fourth quarters of 1996 and first quarter or 1997 (Exhs. C. 0. P. and Q): 3.

The Application for Tax CrcdiVRcfund or \ .Jiuc-added Tax Paid (Lxhs. D and 1vl):

..J..

The original report of the commissioned independent C P :\ \Vith an addendum (Exhs. E. E-1 and X):

5.

Sunmuries of input taxes, e.\port sales, and imvard rcmillanccs for the second quarter of 1996 (Exhs. F-1to F-4. G-1 to G-4. H-1 to H-i 1.): 6.

Photocopies of VAT invoices and/or oflicial receipts supporting the input VAT claimed by Petitioner (Exhs. l-1 to l-48 ):

7.

Photocopies of Petition;,;r·s saks invoices and other exp1>rt saks docurn...:nls (Exhs. J-1 to J-122 and W-1 to W-377):

8.

Eegislration Agreement between LPZ.\ .ltH.I Petitioner together

\Villi

Certificate ofBoard Resolution (Exhs. Land L-1):

9.

Cctiilication issued b_y 1\::titioner"s Treasurer attesting that Jll of its sales for the second quarter of 1996 were lOO~o exported (Exh. N): and

10. Certifications of Remittance from Pilipinas Bank and RCI.3C \Vith rcspcd to foreign currency proceeds of the sales (Exhs. R. S. and Y-J to Y -3 ): On the other hand, counsel Cor the Respondent failed to pn:scnt any controverting evidence. subsequcntl:y the case was submitted for decision on November 1-L 2000, after both patties pn:sented their respective memoranda.

The issues to be resolved by the Court arc as follows: 20 2

CTA CASE NO. 5651 l.

\VItether or not Petitioner \Vas able to comply \Vitlt the provisions of Section 20-1- in relation with Section 229 of the Tax Code. as amended. in filing the instant claim for refund; and 2.

Whether or not Petitioner \Vas able to support \vith substantial evidence its entitlement to the claim for refund pursuant to Section lO()(a) of the Ta:'\ Code, as amended.

Respondent is of the opuuon that the present appeal should be denied on the ground of non-exhaustion of administrative remedies because the claim for refund :mel the petition for review were simultaneously filed on the same day (the petiti on \V:ls actually filed the follovving clay).

Respondent further posits that he \Vas not given a chance to decide the claim hence there \Vas no tkcision that can be revie\ved by this Court.

We disagree.

In the case of Cummissionl'r of lntl'rnal Rl'H'IlUl' Ys. Bank or the Philippine Islands as Liquidator of Paramount Acceptance Corporation and The Court or Tax Appeals, CA-G.R. SP No. 3-1-102, Sept<.>mber 19, 199-t the Court of :\ppeals alTinnccl Our decision in the case of Bank or the _Philippine Islands, as Liquidator or Paramount AcC(•ptancc Corporation vs. Commissioner or Tntl'rnal Ren·nue, CT.:-\ Case No . ..J257, Dec(.'mbcr 20, 1993, where it held: It is clear that a claim _for refund should be filed with the Commissioner of lntemal Revenue as a pre-requisite before court action on tax refund cases can be commenced and that the suit for refund must be filed within t"\\iO years from the elate of payment of the tax. It is also clear from Section 20.:J- that the claim for refund must be filed with the Cmnmission (sic) within two years from payment of the ta:'\. \\-hen the t"\vo-year period is about to prescribe and the claim for refund \Vith the Commissioner of 203

DU:CI:)ION-

CTA CASE NO. 5(i51 PAC I£ (i lnternal R~venue has not been ac ted upon by him, for the prokction of th ~ interest of the taxpayer, he should file a petition for review with the Court of Tax App~als within th~ said two-y~ar p~ri od ; oth~rw i s~, if th ~ d~cision of the Commissioner is aclvers~ to the taxpay~r and it was made after the two- y~ar period he can no longer appeal th~ s am~ to th~ Court of Tax :\pp~als (Gonzales and Gonzales. National lnternal Revenue Code. 1988 eeL p. JS-L citing Gibbs vs. Collector of lnt~rnal Revenu;.: and Court of L1:-.:: Apjh.:als, 107 Phil. 232; Johnston Lumber Co. vs. CTA, 101 Phil. 151 ). Accordingly. We do not agree \Vith appdlant that it is n~cessary for the Conuni ssion~r of lntcmal R~v~nue to act unfavorably on the claim for refund b~fore the Court of Tax Appeals may acquire jurisdiction. litis is so because of the positive requirement of Section 230 and the doctrine that delay of the Conunissioner in rendering cl~cis ion clo~s not ~:-.::knd th~ peremptory period fixed by the statute.

Neither arc \Ve convinced that the; la\v r~quires that th~ claim f(n· refund should have been filed at the earliest instance in ord~r to give th~ Conunissioner an opportunity to rule on it aml the court to r~vi...;w the ruling of the Conunissioner of lntemal Revenue on appeal.

Til~ law 1-i:-.::cd the same period - t\vo years - lor filing a claim lor refund \Vitll tl1e Commissioner (Sec. 20-L par. 3 ), and for filing of suit in court (Sec. 230). unlike in protests of assessment under Sec.

229 wluch fi:-.::ed the period (thit1y days from receipt of decision) for appealing to the court, thus ckarly implying that the prior decision or the Commissioner is necessary tor the court to take cognizance of the case. Wlule it may be true that the Court of Tax Appeals is essentially an appellate court, ;md should act onl~ · upon claims lor refund that arc unfavorably decided b_y the C01ru11issioner. th ... ~ remedy is aclclressed to the lcgislat·urc.

The taxpJ y~r cannot be faulted for ta.king advantage of the full t\vo- year p ~::riocl prescribed by Jaw in filing his claim fo r refund. The Court of Tax Appeals itself acknovvlcclges that the claim for refund \Vith lhc Conunissioner can be pcnclit1g simultaneously \Vith a suit for refund fikd with said coUit:

.\.X.\.

Accordingly, the Court is convinced that the filing of an application Jor rcfundlcreclit \Vith the R..::spondcnt on June 25. 19Sll) and the petition tor r~vic\v with this Court on June 26, 1998, fall within the two-year p...:riod. The counting of the t\vo-year 204

DI£CISION-

CTA CASE NO. 5651

PAGIC 7

period in claiming for refund of input VAT with the Respond~.: nt is r~.:ckoncd li-Otn the close of the taxable quarter when the sales were made pursuant to Scction1 OG(a) of the Tax Code, as amended, \vhile the prescriptive period in claiming (or the rdund of input V t\ T in this Court is counted from the date of filing of the quarterly VAT return (Nichimen Corporation Philippine Branch vs. Commissioner of Internal RcYcntH', CTA cas£' No. 5384, August 18, 1998; Hop£'wdl Pom.·r (Philippines) Corp. vs. Commissioner or Internal Revenue, CTA Case No. 5389, January 4, 1999). Anent the second issue. Petitioner believes that it is ~.:ntitled to the refund or tax credit of unutilized input VAT arising hom purchases of donH.:stic goods and services because its sales of goods arc 100<!-o exported.

Petitioner eiks as legal bases the provisions or Section 1 OG(a) in n.:lation with Section 1 OO(a)(l) of the Tax Code_ as amended, to wit:

SEC. l OG.

Reji mtl.~ or tax creJits o( creditable input tax. --

(a) Any V 1\T-rcgiskn..:d person. \Vho s~.: sales arc zcro-ra kd or d1~c t i vel y zero-rated, may, within two (2) y...:ars aJkr the clos...: of the taxable quarter when the sales were made, apply for the i ssuanc~ of a tax credit ceL1i.fi.catc or refund or creditable input tax due or paid attributable to such sales, except transitional input tax. to the extent that such i11put tax has not been appli~d against output tax: Provided lwm.:-:wl'. That in the case of zero-rated sales under Section 100(a)(2)(A)(i), (ii) and (b) and Section 102(b)(l) and (2). the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the regulations of the Bangko Sentral ng Pilipi.nas (BSP): Provided. j/u·t/wr. Tbat wh...:re the taxpayer is engaged in zero-rated or effectively zero-rated sak and also in taxable or exempt sale of goods or propcL1ies or s-.:rviccs. and the amount of creditable input tax clue or paid cannot be cliJectly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of saks.

XXX

.\.\.X ·"'" \ .\.

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DECISION-

CTA CASE NO. 5651

PAGIC 8

SEC. 100. J 'a/ue-added hlX on s,de ql goo,/.y or properties. - (,:t) Rate ,1ml base CJ.( tax. - Then.:: shall be levied, assessed and collected on every sale, batier or exchange of goods, a value-added tax equivalent to 1 0 ~-o of the gross selling price or gross value in money of the goods or properties solei. bartered or cxchangecL such tax lobe paid by the seller or transferor:

(2) The fotlovving sales by VAT -registered persons shall be subject to OO,o:

A. Export sales. - T he term 'export sales ' means:

(i) The sale and actual shipment or goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may iJ111uence or detcnnine the transfer of ownership or the goods so exported and paid for in acceptable foreign currency or its equivalent i.n goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). Based on the above provisions of the Tax Code. Petitioner must prove that (l) it is a VAT n.;gistcred person; (2) its sales arc zero-rated; (3) the administrative claim for refund is seasonably filed: (4) the input taxes claimed \Vere attributabk to /.ero-ratccl sales and were not applied against the output tax liability; and ( 5) foreign c uncnc ~' ~.:xchang e proceeds had been duly accounted lo r in accordance \Vitb th~ regulations or Bangko Sentral ng Pilipinas.

A circumspect study or th~ records of the case together \Vilh the plcadiJJgs and evidence at hand, reveals that Petitioner qualifiedly complied with the above requisites. It \Vas established that Petitioner is a VAT registered person as e\;iclenced by the Certificate of Registration ROO Control No. 9-J.-570-000298 issued by RDO }.;o. 57 of the Bureau of Internal Revenue (Exh. A). Petitioner's sales of goods arc 100\~o exported (Ex.hs. J-1 to .T-122, N, and W-1 to \V-377) and therefore subjected to VAT at zero .

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OECISION-

CTA CASE NO. 5651 I'AG!i: 9 percent pursuant to Section 100(a)(2)(A)(i) of theTa:\ C:ode, as ;mlcnJed. lt is also clear that the administrative claim for refund \Vhich was filed on June 25. 1998. was seasonably filed within two years fi·om the close of the second calendar quarter or 199() (Ex.h. ivl). The input la:\es claimed \Vere attributable to the goods exported and were not applied against any output ta:\ liability ( E:J1s.l-l to I--t~) . However, Js attested to by 1vlr. Ruben R. Rubio. the conunissioned independent CPA. and as verified by the Court. input taxes in the sum of P1G5,785.-tl \Vere not supported by evid.:.nc...: (Ex.hs. E ancl E-1). Furthermore. the input taxes for the year 1996 \Vere no longer carried o\·er to the year 1997 as evidenced by the 1997 amended first quarterly VAT return or Petitioner (Ex..h. Q). Lastly. Petitioner \Vas able to prove that foreign currency \.:.\change proceeds in US dollars, representing expott inward remittances, \Vere credited to its US Dollar . \ccounts as certified by Pilipinas Dank and Rizal Conuncrcial Banking Cotvoration (Ex.hs. H-1 to H-1 1, R. R, Y-1, Y-2, and Y-3 ).

Respondent maintains that Petitioner is not legally entitled to the claim for refund because of the fact that it is registered with the Philippim: Economic Zone Authority ( PEZA) as an Ecozonc Export Enterprise hence its business is not subject to VAT pursuant to Section 2-t of Republic Act No. 791 G in relation to Section 1 OJ of the Tax Code. as amenckd RA 7716 \Vhich provide:

SEC. 24. Exemption from Taxes Under the National Internal Revenue Code. - t'my provision of existing l;l\vs. rules and regulations to the contrary notwithstanding, no ta:\es, local and nation~ll, shall be imposed on business cstablislm1et"lts operating within the ECOZONE. ln lieu of paying taxes, ·five percent (5~·o) of the gross income earned by all businesses and enterprises \Vithin the ECOZONE shall be remitted to the national govcmment XX:\ ...

207 \ l (

CT A CASE NO. 5651

SEC. 103. The follmving shall be exempt from the value-added lax:

.\.X.\ .\.\X ( q) Transactions which are exempt under special law ~, txcept those granted under Presidential Decree Nos. 66. 529, 972, 1.:1-91 and 1590, and non-electric cooperatives under Republic Act No. 6938, or intcmali.onal agreements to \Vhich the Philippines is a signatory (Underlining supplied) Respondent contends that since Petitioner is exempt from VAT. it is not allO\vcd any tax credit on VAT input taxes paid on its purchases of goods and services alleged to be attributable to its zero-rated sales pursuan l to :)eel ion -L l 03-1 of Revenue Rcguiations No. 7-95.

On this point, \Ve agree with the Respondent that if an entity is rcgist..:rcd with PEZA as an ccozone cntcq)rise and is remitting S(!u of its gross income to tl11..: national government, it is exempt from the payrncnt of VAT. I-lo\vever, We do not agree that the aforcquotcd provisos arc applicable in the case at bar. FirsL Petitioner is unckr income tax holiuay and is not remitting su·o of its gross income to the national government) Second. Section 1 03( q) of the Tax Code. as amended. specifically excepted. among others, transactions under Presidential Decree No. (l6, hom trans;:Jctions \Vhich ~1re exempt from VAT under special laws, hence Petitioner. being registered \Vith the EPZA under the provisions of Presidential Decree No. 66 is not cxc.tnpt hom Lhc p;1yment of the value-added tax.

It bears stressing thal under Section 23 of Republic Act No. 7916, two different fiscal incentives arc granted to an ccozonc enterprise, to \Vit: SEC. 23. Fiscal Incentives. -- Dusincss cslablislunents operating \-Vitl1in the ECOZONE shall be entitled to the fiscal incentives as provided ...

208 l

CTA CASE NO. 5651 for under the Presidential Decree No. 66, the lavv creating the Export Processing Zone Authority. or those provided for under Book VI of Executive Order No. 226, otherwise known as the Onm ibus Investments Code of 19H7.

Based on the aforequoted Section 23 of RA 791.6, a PEZA regis t.;rcd enterprise has the option to choose between two sets of fiscal incentives. One, is that provided for unckr Presidential Decree No. 6(). as amended. and Scctiou 2-J. of RA 7916 \VIuch includes the 5°·(> preferential ta x on gross income earned which is in lieu of national and local taxes; and second. as tl1ose provided for under Book VI of Execu t i~vc Order No. 226, including but not limited to an income tax holiday (ITI-l) of ..J. to 6 years depending on whether or an entity is registered as a pioneer or nou-pioneer cnlcqJrisc. rr an ecozouc enterprise chooses the Sl?'o prdcrential tax, it is exempt from pa:vmcnt of all national and local taxes. l-IO\vever. if an ccozone enterprise chooses the income tax holiday. it is only exempt h om payment of the income tax but still subject to other nation:1l internal revenue taxes including the value-added tax.

It must be pointed out that an ecozone enterprise cannot avail of these two sds of fiscal incentives at the same time. This vvas explained by the B ureau of .lnt.;mal Revenue in VAT Ruling Nos. 037-n; O..J.3-9H; 027-99; and 063-99 (Read-H.itc Philippines Inc. (Fornwrly Sunward Tt~chnologics Phils., l.nc. vs. Commissiom•r of l nh:·rnal R (•venuc, CTA Case No. 5659, September 29, 2000).

Sin e~ Petitioner availed of the fiscal incentives under Executive Order No. 226. that is. an income tax holichy for six years starting from October 7, 199..J. as evidenced by CcrtiJicatc of Bo;:ml Resolution No. 9..J.- 2 l2 (Exh. L-1 ) it became subject to va luc-addecl tax. ...

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CTA CASE NO. 5651

PAGE 12

In sum, Petitioner is entitled to the n:::hmd of unutilizcd input VAT in a reduced amount ofP2,423,542.9L computed as follovvs :

Total input VAT' claimed per Petition lor Rcvie\v Less: Unsupported input VAT Amount of input VAT supported and veriJicd P2. 539.328.32 1G5. 785.41 _E2., +1-15 + 2,9J vVHERl!:FORE. in view of the foregoing, the Petition for Revic\v is hereby PARTL-J.LLr GR~INTED .

Respondent is ORDER.l£.0 to REFUND or lSS Ul£ a TA . ..\: CH.gDlT CERTlFJCATE in the amount ofP2,423,5+2.91 in1 ~n:or of Petitioner.

WE CONCUR:

~k_-~ ERNESTO 0. ACOSTA residing Judge

CERTIFICATION

I hereby certify that the above decision \Vas reached after clue consultation with the members of the Court of Tax Appeals in accordance with Section 13, A.rtick vrrr of the Constitution.

~- ~· Q'-'< 0--.

ERNESTO D. ACOSTA

Presiding Judge