Court of Tax Appeals

Matsushita Bisiness Machine Corporation of the Philippines vs. Commissioner of Internal Revenue

CTA Case No. 5706 May 28, 2001

REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

MATSUSHITA BUSINESS MACHINE

CORPORATION OF THE PHILIPPINES,

Petitioner,

-versus-

C.T.A. CASE NO. 5706

COMMISSIONER

REVENUE,

OF INTERNAL

Respondent.

Promulgated:

MAY z s zoo~~~

x-----------------------------------------------------------x

DECISION

This is a Petition for Review for the refund of the amount of P7,786,324.85 representing alleged unutilized and/or unapplied input value-added tax (VAT) for the period October 1 , 1996 to March 3 1, I 997. Petitioner is a corporation duly organized and existing under and by virtue of Philippine laws, with principal office at Bo. Mapandan, Ortigas A venue Extension, Taytay, Rizal, which is engaged in the business of production and export of plain paper copiers, sub-assemblies, parts and components. It is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer on October 5, 1995 under Certificate of Registration issued by Revenue District Office No. 46 (Central Taytay). It is likewise, registered with the Board oflnvestments (BOI) under . ., .

tJ f (j

Certificate of Registration No. EP9.5-216 issued on October 2, 1995 as a preferred enterprise.

For the period October 1, 1996 to March 31, 1997, Petitioner's export sales amounted to US$11 ,839,808.68. Proceeds of the export sales were inwardly remitted in US dollars and were duly accounted for in accordance with the rules and regulations of the Central Bank (Annexes C and C-a, pp. 9-1 0, CT A records). As a VAT registered entity, Petitioner seasonably filed its monthly and quarterly VAT returns. For the period October 1996 to March 1997, Petitioner incurred input VAT on its purchases of goods and services which were attributable to its export sales for the same period in the total amount of P7,786,324.85 as gleaned from its 3rd and 4 111 quarterly VAT returns, to wit:

PERIOD INVOLVED Oct. - Dec. 1996 8 Jan. - Mar. 1997 C Total ZERO-RATED DOMESTIC SALES PURCHASES

VAT INPUT

TAX P 129, I 08,365.33 P41 ,343,213.80 P4, 134,321.38 155,670,285.81 36.520.034.70 _1.652.003.47 P284.778.651. 14 P77.863.248_._5_Q P 7.786.324.85 A circumspect review of the said quarterly VAT returns reveals that Petitioner adopted a fiscal year accounting period (April to March). which covered three (3) quarters of the preceding year and one ( 1) quarter of the succeeding year as compared to a calendar year accounting period. The disparity was explained by Petitioner's witness, Mr. Danilo Asis, Assistant Manager of Matsushita Business Machine Corporation in his testimony before this Comi dated June 8, 1999, to wit: ' ) I "") :-j

U /0

Q. Mr. Witness, I just noted that in the return you have identified as your quarterly VAT return for last quarter for fiscal year 1996, there is a notation in the upper left portion, "FY 1996" and opposite to that is the portion checked quarter, there is a cross for the third quarter.

Can you please reconcile your previous statement that it is the quarterly VAT return of the company for calendar year 1996 with the period appearing in the return? A. The company follows the fiscal year ending March 31 for the fourth quarter of the calendar year 1996 rather than the third quarter of fiscal year 1996. One period covers December 31, 1996 and this is also the fourth quarter of the calendar year 1996. Q. And this is also true with other quarters? · A. Yes, that is also true with the other quarters, that the company also uses the fiscal year ending March 31 as the period for the succeeding quarters.

(TSN, dated June 8, 1999, page 13) Since Petitioner was unable to utilize or apply its accumulated input VAT for the period October 1, 1996 to March 31, 1997, an application for tax credit or refund was filed with the BIRon January 19, 1998, in the total amount of P7,786,324.85. Respondent, however, did not act on the administr:ttive claim, thus, Petitioner filed a Petition for Review with this Court on December 29, 1998 in order to toll the running of the two-year prescriptive period. Respondent, in his Answer, presented the following Special and Affirmative Defenses, to wit:

"6. In an action for refund, the taxpayer has the burden to show that the taxes paid were erroneously or illegally collected and failure to do so is fatal to the action;

PAG E 4

Claims for tax refund are strictly construed against the taxpayer. Petitioner has no cause of action." The issue to be resolved is whether or not Petitioner is entitled to the refund or tax credit of the amount of P7, 786,324.85 consisting of input VAT paid on its purchases of goods and services for the period October I, 1996 to March 31, 1997. We rule in favor of Petitioner. Petitioner basically anchored its claim on the following provisions of the National Internal Revenue Code, viz: SEC. 104. Tax Credits. - x x x

(b) Excess output or input tax. - If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarters. f ny input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 1 06. XXX XXX XXX Section 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: Provided, however, That in the case of zero-rated sales under Section 1 00( a)(2)(A)(i),(."l) and (b) and Section 1 02(b )(I) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in t) 8 .i

PAG E 5

taxable or exempt sale of goods or properties or se. vices, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. XXX XXX XXX Petitioner considered its sales as export sales. Section l 00 of the National Internal Revenue Code defined export sales, to wit: Section 100. Value-added tax on sale of goods or properties. - (a) Rate and base oftax. - x x x

(2) The following sales by VAT-registered p~rsons shall be subject to 0%:

(A) Export sales. - The term 'export sales' means: (i) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). XXX XXX XXX In order that a claim for refund of input VAT be granted, Petitioner must comply with the following requirements as provided in Section l 06 of the National Internal Revenue Code, to wit:

1. That it is a VAT-registered person;

2. That its sales are zero-rated;

3. That the administrative claim for refund is seasonably filed;

4. That the input taxes claimed were attributable to zero-rated sales and were not applied against output tax liability; and

5. That foreign currency exchange proceeds had been duly accounted for in accordance with the Regulations of the Bangko Sentral ng Pilipinas. Petitioner filed its administrative claim for refund with the BIR for the unutilized accumulated input VAT of P7,786,324.85 on January 19, 1998 and the Petition for Review with this Court on December 29, 1998, both dates are within the two-year prescriptive period and thus, seasonably filed. Under Section I OO(a)(2)(A)(i) of the NIRC, the export sales of a VAT -registered person which are paid for in acceptable foreign currency inwardly remitted to the Philippines and accounted for in accordance with existing rules and regulations of BSP is not subject to the I 0% VAT. In other words, evidence a::; to its registration as VAT entity and the actual export such as sales invoices, bank credit memoranda, export declarations and export permit are necessary to be considered zero-rated (NEC Components Philippines, Inc. vs. CIR, CTA Case No. 5653, promulgated April13, 2000). Records of the case disclosed that Petitioner is a VAT-registered person (Annex "A", p. 7, CTA Records). For the period October 1996 to March 1997, it generated zero- rated sales of P284,778,651.14 as can be gleaned from its 3rd and 4 111 quarter VAT returns which were filed on January 20, 1997 and April 21, 1997, respectively. The report of Petitioner's independent CPA dated July 31, 2000 stated that only the amount of P282,085,927.69 was verified to be duly supported by Export Sales Invoices,

Airway Bills/Bills of Lading, Export Declarations, Bank Credit Advices and portions of Bank's Passbook (Exhibits N, G-2 to G-150, G-152 to G-278 and G-280 to G-404). Being zero-rated sales, the export sales made by Petitioner for the period October 1996 to March 1997 were not liable for any output tax. Therefore, the input taxes in the amount of P4, 134,321.38 for the period October to December 1996 and P3,652,003.47 for the period January to March 1997 or a total ofP7,786,324.85 remained unutilized. A perusal of the quarterly VAT returns show that Petitioner carried forward the excess input taxes subject of the instant case to the succeeding 1 51 to the 3rd quarters of fiscal year 1997, however, on the 4 111 quarter of the same fiscal year, it deducted the amount ofP7,786,936.58 from the total input taxes. ofP15,105,439.03 which was carried over from the previous quarters (see Exhibit "D-3"). In tine, Petitioner has substantially complied with the requirements set forth for the grant of refund of input VAT, thus, it was able to show that:

1. it is a VAT -registered person;

2. its sales are zero-rated;

3. the administrative claim for refund was seasonably filed;

4. the input taxes claimed were attributable to zero-rated sales and were not applied against output tax liability; and

5. foreign currency proceeds had been duly accounted for 111 accordance with the regulations of the Bangko Sentral ng Pilipinas. The Court hereby grants the relief sought by Petitioner but in a reduced amount due to the disallowance made by the independent CPA in his initial report dated May 17,

PAG E 8

1999 in the amount of P246,030.28 as input taxes smce these were not properly substantiated.

Moreover, further examination made by this Court of the photocopied documents submitted by Petitioner found the following additional disallowances: REFERENCE GROSS INPUT SUPPLIER DATE EXHIBIT NO.

AMOUNT VAT

(a) Input taxes without supporting documents

BEVAN SUPPLIES

p 96.90 p 8.81

EXPRESSLANE BROKERAGE

3,688.30 335.30 MEPCO 321 ,574.10 29,234.01

SUPERSTAR INDUSTRIES

4,234.99 385.00 Subtotal p 329,594.29 p 29,963.12

(b) No TIN MANUEL METAL IND.

10/05/96 H-143 83 p 13,041 .00 p 1,185.55

MANUEL METAL INDUSTRIES

11/22/96 H-583 86 27,000.00 2,454.55 R. TIPONES 10/02/96 H-188 5693 2,363.72 214.88 R. TIPONES 12/17/96 H-260 5701 4,974.25 452.20 R. TIPONES 12/17/96 H-260 5702 209.18 19.02 R. TIPONES 12/17/96 H-260 5703 9,749.53 886.32 R. TIPONES SERVICES 01/30/97 J-255 5782 10,543.83 958.52 R. TIPONES SERVICES 02/21/97 J-530 5741 5,088.49 462.59 R. TIPONES SERVICES 02/21/97 J-530 5743 5,815.42 528.67 R. TIPONES SERVICES 02/21/97 J-530 5790 3,746.47 340.59 R. TIPONES SERVICES 02/21/97 J-530 5791 3,054.73 277.71 R. TIPONES SERVICES 04/01/97 J-549 5810 5,368.08 488.01 R.B. AGUILA ENTERPRISES 01/14/96 H-595 3393 750.00 68.18 R.B. AGUILA ENTERPRISES 12/10/96 H-827 2026 2,100.00 190.91

RB AGUILA ENTERPRISE

12/12/96 H-828 2029 1,050.00 95.45 Subtotal p 94,854.70 p 8,623.15

SOLAPCO FOTO QUICK

11/27/96 H-793 17248 p 95.00 p 8.64

(d) Official receipts/invoices not in the name of MATSUSHITA BUSINESS MACHINE CORP. OF THE PHILS.

EN CARGO

08/24/96 H-227 166549 p 475.86 p 43.26 ENCARGO 08/27/96 H-228 166782 301 .13 27.38

EN CARGO

09/16/96 H-229 168052 286.88 26.08

(e)

D'BEST PHOTOSUPPLY

DIAMOND MOTOR CORP.

D-REY PRINTING CORP.

FITWALK FITWALK FOOTSTEP

FOTOWORLD SALES

HK SHOE CITY

PARVIL SHELL

PRO-PHILS COM'L

RAPID AIRFREIGHT

RB AGUILA ENTERPRISE

RYOKA JAPANESE REST.

SENTINEL HARDWARE

SHOEMART

SORIAMONT STEAMSHIP

SPENCER RTW

ST. JAMES BOOKSTORE

TROPICAL HUT

YERCO PACKAGING IND.

ZENCO FOOTSTEP

Not within the period of claim ACCUPRO ACCUPRO

AESE SYSTEM INT'L

ASIAN TERMINAL

ASPAC INT'L AIRFREIGHT

CARBAT BATTERY & PARTS

D &LINDUSTRIES

D&LINDUSTRIES

DESIGN CREST

E-WHA FOAM PHILS

EXPRESSLANE BROKERAGE

FILES SYSTEM

FOTOWORLD SALES

MALAYA SHIPPING SERVICES

09/20/96 H-225 48294 6,200.00 563.64

MALAYA SHIPPING SERVICES

09/30/96 J-511 48616 990.00 90.00

MANILA EMBROIDERY

09/20/96 H-152 9701 13,740.10 1,249.10 > 8 ~ 'I J I

MEPCO

NATIONAL BOOKSTORE

NYK FIL-JAPAN

PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER PLASTIMER 09/30/96 09/12/96 09/16/96 09/06/96 09/06/96 08/14/96 09/24/96 09/23/96 08/24/96 08/24/S6 08/24/96 08/24/96 08/24/96 08/24/96 08/24/96 08/24/96 08/24/96 08/24/96 08/24/96 08/24/96 08/24/96 08/24/96 08/31/96 08/24/96 09/07/96 09/07/96 09/07/96 09/07/96 09/09/96 09/10/96 09/09/96 09/09/96 08/24/96 08/24/96 08/24/96 08/24/96 08/24/96 08/24/96 08/24/96 08/24/96 08/24/96 08/27/96 08/31/96 08/31/96 08/31/96 09/05/96 09/06/96 09/06/96 09/09/96 09/09/96 09/09/96 09/09/96 H-303 H-104 H-104 H-104 H-104 H-248 H-249 H-358 H-38 H-39 H-40 H-41 H-42 H-43 H-44 H-45 H-46 H-47 H-48 H-49 H-50 H-54 H-52 H-53 H-54 H-55 H-56 H-57 H-58 H-59 H-60 H-61 H-431 H-432 H-433 H-434 H-435 H-436 H-437 H-438 H-439 H-440 H-441 H-442 H-443 H-444 H-445 H-446 H-447 H-448 H-449 H-450 196 799 957 299169 299170 43050 43263 219358 219359 219360 219362 219363 219364 219368 219370 219371 219372 219377 219379 219385 219386 219561 219678 219776 219777 219779 219780 219817 219820 219821 219822 219365 219373 219374 219375 219376 219380 219381 219382 219384 219432 219562 219582 219583 219723 219741 219743 219823 219824 219825 219834 382,800.00 177.00 125.00 183.00 133.50 6,194.60 4,087.35 14,157.60 10,167.30 792.00 4,334.22 1,589.94 1,633.50 9,900.00 7,976.10 6,310.26 5,947.26 2,237.40 18,018.00 3,418.00 3,118.50 4,504.50 7,623.00 20,790.00 19,514.88 23,555.84 21,436.80 13,896.96 14,553.00 5,020.29 5,197.50 22,471.68 2,482.92 7,336.67 11,869.99 12,104.07 8,488.26 1,386.00 1,386.00 295.68 4,851.00 14,015.76 2,425.50 5,742.00 15,613.29 3,449.93 1,940.40 9,702.00 11,227.50 6,800.64 15,818.88 6,930.00 34,800.00 16.09 11.36 16.64 12.14 563.14 371.58 .287.05 924.30 72.00 394.02 144.54 148.50 900.00 725.10 573.66 540.66 203.40 1,638.00 310.80 283.50 409.50 693.00 1,890.00 1,774.08 2,141.44 1,948.80 1,263.36 1,323.00 456.39 472.50 2,042.88 225.72 666.97 1,079.09 1,100.37 771.66 126.00 126.00 26.88 441.00 1,274.16 220.50 522.00 1,419.39 313.63 176.40 882.00 1,075.20 618.24 1,438.08 630.00 =

PLASTIMER 09/10/96 H-451 219851 6,930.00 630.00 PLASTIMER 09/10/96 H-452 219852 11,227.59 1,020.69 PLASTIMER 09/11/96 H-453 219874 3,603.60 327.60 PLASTIMER 09/13/96 H-454 219957 6,606.60 600.60 PLASTIMER 09/14/S6 H-455 219995 9,644.25 876.75 PLASTIMER 09/14/96 H-456 220009 9,147.60 831.60 PLASTIMER 09/14/96 H-456 220010 508.20 46.20 PLASTIMER 09/14/96 H-457 220012 6,930.00 630.00 PLASTIMER 09/16/96 H-458 220028 5,561.60 505.60 PLASTIMER 09/19/96 H-459 220126 5,590.20 508.20 PLASTIMER 09/19/96 H-460 220127 2,494.80 226.80 PLASTIMER 09/21/96 H-561 220182 4,518.80 410.80 PLASTIMER 09/21/96 H-462 220183 1,738.00 158.00 PLASTIMER 09/21/96 H-463 220184 1,894.20 172.20 PLASTIMER 09/25/96 H-464 220307 1,940.40 176.40 PLASTIMER 09/26/96 H-465 220314 3,102.00 282.00 PLASTIMER 09/26/96 H-466 220315 6,677.55 607.05 PLASTIMER 09/26/96 H-467 220316 7,573.50 688.50 PLASTIMER 09/26/96 H-468 220334 1,551.00 141.00 PLASTIMER 09/27/96 H-469 220363 8,886.24 807.84 PLASTIMER 09/27/96 H470 220364 2,090.88 190.08 PLASTIMER 09/28/96 H-471 220372 16,558.08 1,505.28 PLASTIMER 09/28/96 H-472 220373 14,291.20 1,299.20 PLASTIMER 09/28/96 H-473 220374 3,942.40 358.40 PLASTIMER 09/28/96 H-474 220375 2,772.00 252.00 PLASTIMER 09/28/96 H-475 220376 9,424.80 856.80 POLAVON TRANSPORT 09/30/96 H-123 1361 117,022.40 10,638.46 RAPID AIRFREIGHT 08/12/96 H-236 86723 1,978.36 179.85 RAPID AIRFREIGHT 08/12/96 H-237 86731 144,171.39 13,106.49 RAPID AIRFREIGHT 08/19/96 H-238 86927 2,995.73 272.34 RAPID AIRFREIGHT 08/19/96 H-239 86928 5,526.12 502.37 RAPID AIRFREIGHT 08/19/96 H-240 86937 30,809.74 2,800.89 RAPID AIRFREIGHT 08/19/96 H-241 86945 9,538.70 867.15 RAPID AIRFREIGHT 08/19/96 H-242 86959 948.60 86.24 RAPID AIRFREIGHT 08/19/96 H-243 86965 1,357.03 123.37 RAPID AIRFREIGHT 08/26/96 H-244 87551 6,139.55 558.14 RAPID AIRFREIGHT 08/26/96 H-245 87569 5,095.04 463.19 RAPID AIRFREIGHT 09/03/96 H-246 87887 366,647.08 33,331.55 RAPID AIRFREIGHT 09/26/96 H-299 89020 10,451.73 950.15 RAPID AIRFREIGHT 09/26/96 H-298 88480 1,370.20 124.56 RAPID AIRFREIGHT 09/27/96 H-300 89438 9,874.98 897.82 RAPID AIRFREIGHT 08/23/96 H-320 87694 1,252.00 113.82 RAPID AIRFREIGHT 08/24/96 H-322 87700 3,183.00 289.86 R. BAUTISTA MACHINE 09/26/96 H-134 873 960.00 87.27 STEELITE CONSTRUCTION 08/20/96 H-564 318 60,000.00 5,454.55 SUPERSTAR INDUSTRIES 04/03/97 J-608 2244 19,558.00 1,778.00 SUPERSTAR INDUSTRIES 07/30/96 H-135 1867 410.00 37.27 SUPERSTAR INDUSTRIES 08/10/96 H-136 1902 1,250.00 113.64 SUPERSTAR INDUSTRIES 08/15/96 ~—H-137 1909 2,500.00 227.27 THE PHIL. STAR 09/13/96 H-112 12,540.00 1,140.00 UNIBOX 04/16/96 H-22 93103 21,400.00 1,945.45 UNIBOX 04/15/96 H-23 93104 10,700.00 972.73 OSI

UNIBOX 04/27/96

UNIBOX 05/08/96

UNIBOX 04/16/96

YERCO PACKAGING IND. 06/10/96 YERCO PACKAGING IND. 07/17/96 YERCO PACKAGING IND. 08/28/96 YERCO PACKAGING IND. 08/29/96 (f) (g) Supported only by statement of account 11/29/96 01/09/97 ENCARGO

EXPRESSLANE BROKERAGE

Official receipts/invoices with erasure of payee's name

JOSEPHINE RESTAURANT 10/25/96

TROPICAL HUT 09/17/96

UNIBOX 10/10/96

RAPID AIRFREIGHT 11/25/96

H-24 93340 31,886.00 H-25 93748 7,500.00 H-148 93860 32,500.00 H-144 7452 22,191.01 H-145 7453 27,059.23 H-146 7454 23,533.34 H-597 7535 3,855.00 Subtotal P 2,429,136.16 P J-196 16,566.00 J-253 1758 2,107.27 Subtotal P 18,673.27 P H-155 118555 =P 2,007.50 P H-110 18532 788.30 H-34 102762 32,633.70 J-239 92064 813.00 Subtotal P 36,242.50 P Total P 2,972,620.02 P 2,898.73 681.82 2,954.55 2,017.36 2,459.94 2,139.39 350.45 224,385.79 1,656.60 191.57 1,848.17 182.50 71,66 2,966.70 73.91 3,294.77 273,944.02 Accordingly, the total allowable input taxes to be refunded should only be P7,266,350.55, computed as follows:

Amount Claimed Less: Disallowances

(a) Per independent CPA’s verification (Exh. M)

(b) Per Court’s verification Amount Refundable P 7,786,324.85 P246,030.28 273,944.02 519,974.30 P7,266,350.55 IU

PAGEI4

WHEREFORE, in view of all the foregoing, Respondent is hereby ORDERED to REFUND in favor of Petitioner the amount of P7,266,350.55 representing the latter's excess/unutilized VAT input taxes for the period October 1, 1996 to March 31 , 1997.

SO ORDERED.

I CONCUR:

LlQ.o~ ERNESTO D. A COST A Presiding Judge CERTIFICATION I hereby certify that the above decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution.

ERNESTO D. A COST A Presiding Judge