Hitachi Computer Products Corporation vs. Commissioner of Internal Revenue

DECISION

This Petition for Review involves a claim for refund or issuance of a tax credit certificate in the amount of THREE MILLION ONE HUNDRED THIRTY SEVEN

THOUSAND

FIVE

HUNDRED THIRTY FIVE

PESOS

AND

FORTY-FIVE

CENTAVOS (P3, 137,535.45) representing unapplied or unutilized creditable value- added tax (VAT) paid for the period October 1, 1996 to December 31, 1996. Petitioner is a domestic corporation organized and existing under the laws of the Republic of the Philippines, with its principal office located at the Special Cxport Processing Zone, Laguna Technopark, Bifian, Laguna. It is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer on its sale of goods effecti ve .June 28, 1994 as evidenced by Certificate of Registration No. 94-570-000298. (Joint Stipulation of racts,

p. 37, CTA records) 73

It is likewise, registered with the Export Processing Zone Authority pursuant to the provisions of the Omnibus Investment Code of 1987 under Certificate of Registration No. 94-28 dated May 11 , 1994. (Joint Stipulation of Facts, p. 38, CTA records) As a special export zone enterprise with pioneer status, it is primarily engaged in the business of manufacturing hard disk drives, plain field head and other computer paraphernals fo r export. It has also availed a six (6) year income tax holiday under the PEZA law as shown in its EPZA Certificate of Board Resolution No. 94-2 12. (Exhibit L) On May 8, 1997, Petitioner fil ed its quarterl y VAT return with the BIR fo r the period October 1, 1996 to December 31, 1996 (ExhibitC). Thereafter, on November 8, 1999, Petitioner fil ed its Amended Quarterl y VAT Return for the same period which reflected, among others, unapplied VAT input tax in the amount of P3, 137,535.45 on its purchases of goods and services allegedl y attributable to its zero-rated sales. (Exhibit 0 ) Furthermore, on December 22, 1998, an application for tax credit or refund of VAT input taxes for the period October I, 1996 to December 3 1, 1996 in the amount of P3, 137,535.45 was fil ed by Petitioner with the One-Stop-Shop Inter-Agency Tax Cred it and Duty Drawback Center of the Department of Finance. As the VAT application for refund was not acteJ upon, the instant Petition was filed with this Court on December 29, 1998.

Respondent in his Answer, advanced the fo llowing Special and Affirmative

Defenses:

"4.

Assuming without admitting that Petitioner tiled a claim for refund, the same is subj ect to investigation by the Bureau of Internal Revenue.

CTA CA SE NO. 5707

5.

Petitioner miserably failed to demonstrate that the tax subject of the case at bar was erroneously or illegally collected. 6.

Taxes paid and collected arc presumed to have been made 111 accordallCe with law <llld regulatiorls, herlcc, nul rcl'urldahlc. 7.

In an action !'or tax rcl'und/crediL the burden or proof is Oil the taxpayer to establish its right to rc!'und and J ~1ilure to adduce sufficient proo f is fatal to the action for tax rcJ'und/credit. 8.

It is incumbent upon the Petitioner to show that it has complied with the provisions of Section 204 in relation to Section 229 of the Tax Code, as amended.

9.

Claims for refund arc construed strictly against the claimant fo r the same partakes the nature of exemption from taxation (Commissioner of Intem al Revenue vs. Ledesma, G. R. Nv. L- I3509, January 30, I 970, J ~ SCRA 95) and as such, they arc looked upon with disfavor

(Westem

Minvlco

Corp.

vs.

Commissioner vf Intem al Revenue, I 2./ SCRA I 21)." ln support of its claim, Petitioner submitted the fo llowing documents: I.

Export

Processing Zone

Authority (EPZA)

Certificate of

Registration and EPZA Certificate of Board Resolution (Exhibits

A and L)

2.

BIR Certificate of Registration as VAT t2'\paycr (Ex h. B) 3.

VAT Return fo r 4111 Qtr. of 1996 (Exh. C inclusive of sub- markings) 4.

VAT Return for 1

51 Qtr. or 1997 ( Exh. D inclusive or sub- markings) 5.

Report of Independent CPA and Addendum to Report (Exh. E and P inclusive of sub-markings) 6.

Summary of Collection Report and IJank Passbook (Exh. F- 1 to F- 9) 7.

input tax supporting documents (Exh. G- 1 to G-1 23) 8.

Export Sales supporting documents (Exh. H-I to 1-1-43 1, Q- 1 to Q- 63 1) ,.,, ,_ .

I

, L)

9.

Summary of Input Taxes for 4th Qtr. (Exh. 1-1 to I-4) 10.

Summary of Export Sales for 4th Qtr. (Exh . .J-1 to J-9) 11 .

Registration Agreement with EPZA (Exh. K) 12.

Amended Quarterly VAT Return for the 1

51 Qtr. of 1997 (Ex h. M) 13.

Application for Tax Refund (Exh. N) 14.

Amended Quarterl y VAT Return for the 41h Qtr of 1996 (Ex h. 0) 15.

Bank Certifications of Inward Remittances (Exh. R-1 to R-4) On the other hand, Respondent through his counsel, submitted the case for decision based on the pleadings.

The sole issue brought before this Court for consideration is WHETHER OR NOT PETITIONER IS ENTITLED TO TI-lE TAX REFUN D OR CREDIT OF THE EXCESS OR UNUTrLIZED VAT IN PUT TAXES FOR THE PERIOD OCTOBER 1, 1996 TO DECEMBER 3 l , 1996 in the amount of P3, 137,535.45. We rule in favor of Petitioner.

Petitioner basically anchored its claim for refund on Sections 100 and l 06(a) of the Tax Code, quoted hereunder as foll ows:

"Section 100. Value-added tax on sale ofgoods or properties. - (o) Rate and base of tax. - There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.

XXX

XXX

XXX

(2) the following sales by a VAT-registered person shall be subject to 0%: (A) Export sales. - The term 'export sales' means:

Ill

· ~ 'ISH lN ( " 1/\~ ' t\SI ·:

N~l \/ 0 / I It\( i I .~ (i) The sale and actual shipme11t or goods rrom the Philippines to a roreign COUillry, irrespective or any shipping arrangement that may be agreed upon which may influence or determine the trans!Cr of ownership of the goods so exported and paid lor in acceptable foreign currency or its equivalent in goods and services, and accounted lor in accordance with the rules and regulations of the Bangko Scntral ng Pilipinas (BSP);"

"Section 106. Rejimds or tax credits(~( creditable input tox. - (a) Any VAT-registered person, whose sales arc zero-rated or effectively zero rated, may, within two (2) years alter the close of the taxable quarter when the sales were made, apply lor 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, holl!ever, that in the case of zero-rated sales under Section I 00 (a)(2)(A)(i), (ii) and (b) and Section I 02 (b)( I·) and (2), the aq:eptable foreign currency exchange proceeds thereof had been duly accounted lor in accordance with the regulations of the Bangko Sentral ng Pi I i pi nas (BSP): Provided, further, that where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of, goods or properties or services, 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." The foregoing provisions of the Tax Code dictate that the fo llowi ng basic requirements must be complied with in order that refunds or tax credits of input tax may granted:

I .

That there be a sale of goods;

2.

That the sale was made by a VAT-registered person; 3.

That the sale qualifies as export sale as deJined by law; 4.

That the application lor a tax credit or refund be made within two

(2) years from the filing of the VAT quarterly return; 5.

That the foreign exchange proceeds of said export sales are properly accounted for in accordance with the regulations of the BSP;

~(,., t ! '

6.

That the input taxes have not been applied against output taxes. (Benguet Corporation vs. CIR, CTA Case No. 5532, Oct. 12, 1 999) Petitioner fil ed its administrative claim for refund on December 22, 1998 with the One-Stop-Shop Inter-Agency Tax C n~ dit and Duty Drawback Center of the Department of Finance (Exhibit "N") and its judicial claim on December 29, 1998 with the Court of Tax Appeals. It can be recalled that the quarterly VAT return for the period October 1, 1996 to December 31, 1996 which is the subject of Petitioner's claim for refund was fi led on May 8, 1997 and the Amended Quarterly VAT return for the same period, on November 8, 1999.

Both claims, therefore, were fil ed within the two-year reglementary period prescribed under then Section 23 0 in relation to Sections I 06 (a) and (b) and 11 0 all of the Tax Code.

Before proceeding to the merits of the case, it is necessary to address the issue raised by Respondent, that since Petitioner is registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Enterprise, its business is not subject to VAT pursuant to Section 24 of Republic Act No. 7916. Accordingly, Petitioner is not allowed any input tax credit previously paid pursuant to Section 4.1 03- 1 of Revenue Regulations No. 7-95.

The Court has, however, ruled on the aforementioned issue in the case of READ- RITE PHlLIPPINES, INC. (formerly Sunward Technologies Phils., Inc.) vs. COMMISSIONER OF INTERNAL REVENUE, CTA Case No. 5659, dated September 29, 2000, pertinent portions of which are hereunder quoted as fo llows: 778

DEC ISION-

PAG E 7

"This Court would like to stress that under Section 23 of Republic Act No. 79 16, two dif!Crcnt fiscal incentives arc granted to an ccozonc enterprise to wit:

Sec.

23.

Fiscal

Incentives.

Business

establishments operating within the ECOZONE shall be entitled to the fi scal incentives as provided fo r under the Presidential Decree No. 66, the law creating the Export Processing Zone authority, or thqse provided for under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987."

Based on the aforequoted Section 23 of RJ\ 79 16, a PEZA registered enterprise has the option to choose between two sets of fiscal incentives.

One is that which is provided for under Presidential Decree No. 66, as amended and Section 24 of RA 79 16 which includes the 5% preferential tax on gross income earned which is in lieu of national-a11d local taxes; and second as those provided for under Book VJ of Executive Order No. 226, including but not limited to an income tax holiday (rfl-f) of 4 to 6 years depending on whether or not an entity is registered as a pioneer or non-pioneer enterprise. If an ecozone enterprise chooses the 5% preferential tax, it is exempt from payment of national and local taxes. However, if an ecozone enterprise chooses the income tax holiday, it is only exempt from payment lf the income tax but still subject to other national internal revenue taxes including the value- added tax. The difference between these 2 sets of fiscal incentives was explained by the Bureau of Internal Revenue in VAT Rul ing Nos. 037-98; 043-98; 027-99 and 063-99." (See also Resolutions in the cases of SEA GATE TECHNOLOGY (PHILIPPINES) vs. COMMISSSIONER OF INTERNAL REVENUE, CTA Case No. 592 1, dated September 20, 2000 and TOS HIBA INFORMATION

EQU IPMENT

(PHI LS)

INC.

vs.

COMMISSIONER

OF

INTERNAL REVENUE, CTA Case No. 5762, dated .January 17, 200 I.) (Underlining ours) Gleaned from the records of the case, Petitioner is subject to VAT since it is enjoying an income tax holiday as evidenced by the certificate of Board Resolution fro m the Philippine Export Zone Authority (Exh. L). During the hearing held on January 10, 2000, Petitioner's witness, Mr. Jonathan D. Capunitan, Accounting Supervisor, attested thereto as follows:

Q: Can you tell this Honorable Court, Mr. Witness, where Hitachi is located?

A:

Hitachi Computer products (Asia) Corproration is located at Technology A venue, Phase II, Laguna Techno Park, Binan, Laguna.

Q: Is there any particular reason to your knowledge that I-I itachi is located in PEZA Laguna Techno Park?

A: Yes. Our mother company decided to locate Hitachi Computer Products in Laguna Techno park in order to avail of the incentives such as income tax holiday, as provided in the law under Republic Act 7962.

Q:

What is your b as i ~ in saying that Hitachi is entitled to income tax holiday under R.A. 7962?

A:

Hitachi Computer Products (Asia) Corporation was granted income tax holiday under the Certificate of Board Resolution, attached to the Registration Agreement between Hitachi Computer Products (Asia) Corporation and PEZA. Thus, since Petitioner is still enJoymg an mcome tax holiday, it shall only be exempt from payment of income tax but shall be subject to other national internal revenue taxes including the value-added tax.

A perusal of the records of the case disclose that Petitioner's Amended Quarterl y ~ .

.

VAT Return fo r the 4 Quarter of 1996 reported zero-rated sales in the amount of P 1,878,649,262.24 (Exh. 0). However, based on the addendum report of the independent CPA, the zero-rated sales for the 4 111 Quarter of 1996 in the amount of P50,537.044.44 were not substantiated by the necessary export documents. On the other hand, the zero- rated sales amounting to P I ,828, 11 2,2 17.80 were supported by export documents such as ;ao

L

Export Sales Invoices and Airway Bills (Exhs. H-1 to I-I-43 1, Q-1 to Q-63 1 and P) (Addendum Report of SGV - Ex h. P) Moreover, Petitioner's inward remittances representing payments of export sales were supported by certifications from Rizal Commercial Banking Corporation (RCBC) and Pilipinas Bank (Exhibits R-2 to R-A) and partly corroborated by Petitioner's passbook from RCBC (Exhibits K-8 & K-9). The independent CPA further reported that there was an insignilicant discrepancy of P4,6 13,769.36 or 0.245% out of the total export sales proceeds of PI ,878,649,262.24 which cannot be traced from the bank certifications. (Exh. P) The claimed unutilized creditable VAT input taxes for the period October I, 1996 to December 31, 1996 were not carried over to the succeeding period as adduced in Petitioner's VAT Return lor the I st quarter or 1997 showing a nil VAT input lax carried over.

To prove its claim, Petitioner submitted various VAT invoices and official receipts. In the special audit conducted by the independent CPA, the amount of P64 1 ,872. 18 was disallowed as it was not properly substantiated fo r VAT purposes. (Exh. E) The verification conducted by the Court further added the fo llowing disallowances:

INPUT

SUPPLIER

EXHIBIT

DATE

AMOUNT

VAT

(a) Not within the period of claim

DOLPHIN ENVIRONMENTAL

G-5 to G-8

Prior to Oct. '96 p 60,919.98 p 5,538.16

CONTROL

DOLPHIN ENVIRONMENTAL

G-12 to G-17

Prior to Oct. '96 96,720.03 8,792.73

CONTROL

DOLPHIN ENVIRONMENTAL

G-9 to G-10

9/21/96 35,360.05 3,214.55

CONTROL

THE ONLINE ADVANCED

G-26

4/11/96 62,722.33 5,706.03

SYSTEMS

THE ONLINE ADVANCED

G-27

5/3/96 15,949.34 1,449.94

SYSTEMS

P/\GE 10

ROYAL INSURANCE

PHIL. FUJI XEROX CORP.

(b) No supporting document PHPC CO. L TO.

G-41

G-104

Subtotal

Total

9/17/96 1/10/97 p 234,704.58 136,118.29 21,336.78 12,374.39 642,494.60 p 58,412.58 p 2,658,448.65 p 241 ,677.15 p 3,300,943.25 p 300,089.73 In sum, Petitioner has sufficiently complied with all the requirements for the grant of the refund. However, due to the foregoing disallowances by the independent CPA and the Court, Petitioner's claim is granted but in the reduced amount of P2, 195,573 .54, computed as fol lows:

Amount Claimed

Less: Disallowances

P3, 137,535.45

(a) Per SOY's Verification (Exh. E) P641 ,872.18

(b) Per Court's Verification 300,089.73

Amount Refundable

94 1 961.91 P2 195 573.54 W HEREFORE, in view of all the foregoing, Respondent is hereby ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of Petitioner in the amount of P2, 195,573.54 representing excess c reditabJ~ VAT input taxes paid for the period October 1, 1996 to December 3 1, 1996.

I CONCUR:

Lb . c~ ERNESTO D. A COST A

Presiding Judge

, ;jA_

~$AGA

~A JV~~:~~~e]~dge

DECISION -

CT/\ CASE NO. 5707

J>/\GE I I

CERTIFICATION

I hereby certify that the above decision was rcac h ~ d after due consultation with the members of the Court or Tax Appeals in accordance with Section 13, Article VIII or the Constitution.

lL'-'~ (() . l -L--'-.-/'-- I•: I{NI(sTo D. ACOSTA l'rcsi di11g .ludgc 783