Takenaka Corporation Philippines Branch vs. Commissioner of Internal Revenue

DECISION

Takenaka Corporation Philippine Branch (''petitioner'') is a foreign corporation duly organized and existing under the laws of Republic of Japan and licensed to transact business in the Philippines. 1 It is registered as a value-added tax (''VAT'') taxpayer as evidenced by its Certificate of Registration bearing Taxpayer Identification No. 005-301-571-000. For purposes of constructing the Ninoy Aquino International Airport Passenger Terminal III (''NAIA-IPT3 Project''), petitioner entered into a subcontracting agreement with the Philippine International Air Terminals Company Incorporated (''PIATCO'') denominated as "On-shore Construction Contract" for the construction of the Ninoy Aquino International Airport Passenger Terminal III (''NAIA-IPT3 Project''). 2 PIATCO is a corporation duly organized and existing under the laws of the Republic of the Philippines and duly registered with the Philippine Economic Zone Authority (''PEZA'') as an Ecozone Developer/Operator evidenced by its Certificate of Registration No. EZ-98-01.3 On April 25, 2001, petitioner filed its 1st Quarterly VAT Return for taxable year 2001 declaring input VAT in the amount of P121,542,661.27: 4

Zero Rated Sates/Receipts

Input Tax Carried Over from Previous Quarter

Domestic Purchases for the Quarter

Purchases Not Qualified for Input Tax

Total Purchases

Total Available Input Tax

Excess Input Tax

P794.243.609.43 P472,273,978.46 165.558.98

P472 439 537 44

p 74,315,259.31 47,227,401 .96 p 121 542,661 .27 cp121 542 661 27) On May 25, 2001, petitioner amended its 1st Quarterly VAT Return for taxable year 2001 reflecting a nil input tax carried over from previous quarter:5

Zero Rated Sales/Receipts

Input Tax Carried Over from Previous Quarter

Domestic Purchases for the Quarter

Purchases Not Qualified for Input Tax

Total Purchases

1 Par. 1, Joint Sipulation of Facts and Issues, Rollo, p. 56 2 Par. 4, Joint Stipuation of Facts and Issues, Rollo, p. 57 3 Par. 5, Joint Stipuation of Facts and Issues, Rollo, p.57 4 Exhibit c

5 Exhibit D

P794,243.609.43 P472,273,978.46 165.558.98

P472 439 537 44

p 47,227,401 .96

Total Available Input Tax

Excess Input Tax

p 47.227.401 .96 cp47 227 401 96) On November 15, 2001, petitioner again amended its 1st Quarterly VAT Return for taxable year 2001 increasing its input VAT to P48,953,903.72, thereby increasing its excess input taxes to P48,953,903. 72: 6

Zero Rated Sales/Receipts

Input Tax Carried Over from Previous Quarter

Domestic Purchases for the Quarter

Purchases Not Qualified for Input Tax

Total Purchases

Total Available Input Tax

Excess Input Tax

P794.243.609.43 P489,538,997.98 165,558.98

P489 704 556 96

p 48,953,903.72 p 48,953,903.72 (p48 953 903 72) For the third time, on September 10, 2002, petitioner amended its 1st Quarterly VAT Return for the taxable year 2001, again increasing its input taxes to PS2,240,921.72, thus, correspondingly increasing its excess input VAT as follows: 7

Zero Rated Sales/Receipts

Input Tax Carried Over from Previous Quarter

Domestic Purchases for the Quarter

Purchases Not Qualified for Input Tax

Total Purchases

Total Available Input Tax

Excess Input Tax

P794.243,609.43 P522,409, 177.95 165,558.98

P522 574 736 93

p 52,240,921 .72 p 52,240,921 .72 (p52 240 921 72) Through an Application for Tax Credits/Refunds and a letter filed with the Bureau of Internal Revenue District Office No. 51, Pasay City on November 5, 2002,8 petitioner requested for the refund or issuance of a tax credit certificate in the amount of PS2,240,921.72 representing its reported unutilized excess input VAT for the first quarter of 2001. The inaction of the respondent on its daim prompted the petitioner to elevate its case before this Court on April 11, 2003.

On June 9, 2003, respondent filed by registered mail his Answer, raising the following

Special and Affirmative Defenses:

"5.

Petitioner's •lleged clllim for refund/issu•nce of l:llx credit certificllte is still subject to lldministnltive routin•ry investiglltion/exllmin•tion by the respondent's Bul'ellu; 6.

Petitioner's clllim for refund/l:llx credit in the •mount of P52,240,921.72 representing Petitioner's •lleged unutilized •nd un•pplied input VAT for the first qllllrter of tiiX6ble ye~~r 2001 wel8 not fully substtlntillted;

7.

Petitioner's Slife of goods •nd services in fllvor of PIA TCO is not subject to VAT 6t zero petT:Jent r•te under Section 108{8)(2) of the 1997 T•x Code;

B.

It is incumbent upon the petitioner to show tllllt it h•s complied with the provisions of Section 204 in rellltion to Section 229 of the TIIX Code; ••mended;

9.

Clllims for refund 618 construed strictly llfl•inst the cl•im•nt for the Slime plll'fllkes of the n6tul8 of exemption from tiiXIItion (Commissioner of Intern•! Revenue w. Ledesm~~, G.R. No. L-13509, J6nllllry 34 1974 31 SCRA 95) •nd liS such, they 618 looked upon with the disfllvor (Westem Nino/co Corp. w. Commissioner of Intem•l Revenue, 124 SCRA 121); 10.

T•xes p11id •nd collected 618 presumed to h•ve been mllde in IICCOrdilnce with l•w •nd regullltions, hence, not refund•ble; •nd

11. In •n IICtion for l:llx refund/credit, the burden of proof is on the l:llxp11yer to estllblish its right to refund •nd fllilu18 to lldduce sufficient proof is f«•l to the IICI:ion for tllx refund/credit.., The parties mutually agreed that the sole issue to be resolved by this Court is whether or not petitioner's unutilized input tax in the amount of P52,240,921.72 incurred in the first quarter of taxable year 2001 were duly substantiated by documentary evidence to entitle the petitioner to its claim for refund or issuance of a tax credit certificate. 10 Petitioner asserts that it is entitled to the claim for refund or issuance of a tax credit certificate of unutilized input VAT on its zero-rated sales to a PEZA registered enterprise pursuant to Sections 108(8)(3), 110(8) and 112(A) of the 1997 National Internal Revenue Code (''NIRC''),

Section 3 Of of Revenue Memorandum Circular No. 74-9911 and Bureau of Internal Revenue VAT Committee Ruling No. 011-2003,12 which read: "SEC. 108.

V11/ue-Added TIIX on Sll/e of Services 11nd Use or LeiiSe of Properties. -

XXX

XXX

XXX

(B)

Tr1111S11Ctions Subject to Zero Percent (0%) R11te. - The following services performed in the Philippines by VAT-registered persons sh11/l be subject to zero percent (0%) r~~te: (1)xxx (2)xxx

(3) Services rendered to persons or entities whose exemption under speci11/ l11w or inl:emlltioiJIII llflreetnents to which the Philippines is 11 sigiJIItory effectively subjects the supply of such services to zero percent {0%) rllte. • "SEC. 110. TIIX Credits. -

(A) XXX

(B) Excess Output or Input TIIX. -If 11t the end of 11ny tllx11ble qUIIrter the output tllx exceeds the input fiiAI. the excess sh111/ be p11id by the VAT-registel ed pei'SOn. If the input l:llx exceeds the output t11x, the excess sh11/l be c11rried over to the succeeding qUIIrter or qUIII'tels. Any input t11x llttributllb/e to the purchllse of Cllpitlll goods or to zem-rllted Sllles by 11 VAT-registered pei'SOn tniiY 11t his option be refunded or credited llfllllnst other intern11/ nwenue tllxes, subject to the provisions of Section 112. • ''SEC. 112. Refunds or TIIX Credits of Input TIIX. - (A) Zero-Tilted or EHectively Zero-Tilted Sllles. -Any VAT registered pei'SOn whose s11/es 11re zero-Tilted or elfed:ive/y zero-rllted tniiY within two (2) ye11rs lifter the close of the tllx11ble qUIIrter when the Sllles wetw IJJIIde, 11pp/y for the issu11nce of 11 tllx credit certif"ICIIte or relilnd of creditllb/e input tJJx due or p11id llttributllble to such Sllles except trllnsltioiJIII input fiiAI. to the extent thllt such input l:llx hilS not been 11pp/ied llflllinst output l:llx: x x x' REVENUE MEMORANDUM CIRCULAR NO. 74-99 Section 3. TIIX Trelltment of Sll/es Hilde by 11 VAT Registered Supplier fmm the Customs Territory, to 11 PEZA Registered Enterprise. -

XXX

XXX

XXX

(3) In the finlllllnll/ysis, 11ny Sllle of goods, property or sewic:es mllde by 11 VAT registered supplier from the Customs Territory to 11ny registered enterprise oper~~ting in the ecozon4 reg~~rdless of the clllss or type of the /litter's PEZA registrlltion, Is IICtulll/y quill/lied 11nd thus leg•lly entitled to the zem percent (0%) VAT. Acc:ordingly, 11/1 Sllles of goods or pmperty to such enterprise miKie by 11 VAT registered supplier fro the Customs Territory sh11/l be trellted subject to 0% VAT, pursullnt to Sec. 106{A)(2){11) {5), NIRC, in rel11tion to ART. 77(2) of the Omnibus Investments Code, while 111/ s11/es of 11 Dated October 15, 1999 12 Exhibit J, dated January 13, 2003

DEQSION

services to the Sllid enterprises, mlKie by VAT registered suppliers from the Customs Territory, sh111/ be tTellted effectively subject to the 0% VAT, purswmt to Section 108{8){3), NIRC, in rellltion to the provisions of R.A. 791611nd the "Cross Border Doctrine"' of the VAT System. VAT COMMITTEE RULING NO. 011-2003 "Therefore, the Sllle of goods 11nd services rendered by T11ke1111k11 to PIATCO 11re subject to zero percent (0%) VAT 11nd requires no prior 11pprov11/ for zero-Tilting bllsed on RHC No. 74-99. Accordingly, T11ken11k11 is entitled to refund or the issu11noe of 11 l1lx credit certificllte {TCC) covering 111/ its IICCIImulllted VAT input taxes in rellltion to its services ~endered to PIA TCO 11nd from its purchllse of goods 11nd services from duly registered VAT t11xp11yers, duly supported by 11 VAT invoice or offickl/ receipt conforming with the requirements of Section 113 11nd 237 of the T11x Code of 1997; provided thllt the 11pp/iclltion for refund or issUIInce of 11 T11x Credit Certificllte {TCC) is mllde within tiMJ ye~~rs lifter the dose of the l:llx11ble qUIIrter when the Sllles went mllde."' Based on the above, services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subject the supply of such services to zero percent (0%) VAT.13 Thus, petitioner's sales of services to PIATCO are subject to zero percent (0%) VAT. Accordingly, petitioner's reported sales for the first quarter of 2001 in the amount of P794,243,609.43 which are duly supported by VAT offidal receipts14 are subject to zero percent (0%) VAT. We now determine whether petitioner's unutilized input taxes in the amount of P52,240,921. 72 incurred in the first quarter of taxable year 2001 was duly substantiated by documentary evidence to entitle petitioner to its claim. Upon verification of the suppliers' invoices and official receipts submitted by petitioner,15 the commissioned independent CPA, Mr. Richard Dy Go, found that out of the total claimed input VAT of P52,240,921.72, only the amount of P47,402,168.78 was duly substantiated and the remaining amount of P4,838,752.94 should be disallowed due to the following reasons: 16

It em 1 2 3 4 5 6 7 8 9 10 11

Nature

Input VAT on purchases of goods not claimed in the period when the supporting VAT invoices are dated.

Input VAT on purchases of goods supported by VAT invoices with stamoed "TIN VAT" Input VAT on purchases of services with supporting documents not in the name of the

Company

Input VAT on purchases of goods supported by invoices without "BIR oermit to orint• Input VAT on purchase of services supported by VAT invoices with stamoed "TIN VAT" Input VAT on purchase of goods supported by invoices printed after January 1, 1996 marked with the suppliers' "TIN V" and not "TIN VAT". Input VAT on purchase of services supported by Non VATORs.

Input VAT on PUrchases of aoods supported by VAT Invoices not In the name of the Company. Input VAT on purchases of goods without supporting documents.

Input VAT on purchases of services not claimed in the same quarter when the supporting VAT ORs are dated.

Input VAT on purchases of goods supported by invoices with pre-printed "TIN V" and stamped "TIN VAT".

Reference

Amount

K-2

P2,429,821 .10

K-3

2 373 679.42

K-4

12,324.84

K-5

9 545.46

K-6

5,090.91

K-7

2,236.36

K-8

1,678.00

K-9

1,561 .74

K-10

1537.84

K-11

750.00

K-12

527.27 P4,838,752.94 A careful examination of the said report and petitioner's supporting documents shows that the recommended substantiated input VAT of P47,402,168.78 shall be further reduced by the following input taxes in the amount of P1,972,636.49: (a) Purchase of service not supported by an official receipt.

VOUCHER

MARKED AS

EXHIBIT

SUPPUER

AMOUNT

INPUT VAT

KK-12

PLOT

p 253,129.80 p 23,011 .80

KK-43

PLOT

177,594.12 16,144.92

KK-46A

Hankyu lnt' Transport Phils 61,631 .09 5,602.83

KK-50

Floro Blue Printing

2,933.34 266.67

KK-60

Kenta Japanese Restaurant

1,710.50 155.50

KK-62

Floro Blue Printing

676.00 61 .45

KK-71

Kodak Express

146.00 13.27

KK-76

Floro Blue Printing

408.50 37.14

KK-77

Kameraworld, Inc.

103.50 9.41

KK-85

KK-88

KK-92

KK-158

KK-181

KK-199

KK-202

KK-205

KK-219

KK-220

KK-254A

KK-255

KK-262

KK-407

KK-410

KK-422

KK-422

KK-424

KK-429

KK-431

KK-439

KK-441

KK-442

Aoro Blue Printing

Sea Food Wharf

Floro Blue Printing

Peking Garden

VSL Philippines

PLOT

Hei Chin Rou

Floro Blue Printing

Floro Blue Printing

Jade Garden

Hotel Taxicab Co.

Hotel Taxicab Co.

Floro Blue Printing

Floro Blue Printing

Floro Blue Printing

Juju-tei Restaurant

Juju-tei Restaurant

Floro Blue Printing

Floro Blue Printing

Floro Blue Printing

Pharoah

Athena Disco

DM Consunji

Subtotal

(b) Purchase of goods not supported by an invoice

KK-40

CADD Shoppe, Inc.

EXHIBIT

SUPPLIER

REFERENCE

NO

(c) Purchase of goods supported by TAN invoice, stamped TIN-VAT

KK-17-1 to 4

OMNICO Consortium

various (d) Purchase of goods/services not in the name of the company.

KK 86-1

Anson Emporium

0913785

KK 200-1

Pharoah

77979

KK 201-1

Pharoah

77851

KK 203-1

Motorists House

014807

KK207-1

South Supermarket

11473

KK 212-1

LBC Express

539236

KK 223-1

LBC Express

539239

KK228-1

Motorists House

007987

KK 233-1

Kameraworld

6454232

KK 243-1

PacifiC Internet

43835

KK-246-1

Motorists House

066122

KK-246-1

Motorists House

008171

KK 259-1

Motorists House

221091 150.00 13.64 20,218.78 1,838.07 1,169.50 106.32 13,543.52 1,231.23 227,362.34 20,858.93 294,000.85 26,727.35 3,500.00 318.18 50.00 4.55 50.00 4.55 13,530.00 1,230.00 1,080.00 98.18 500.00 45.45 706.53 64.23 220.99 20.09 226.49 20.59 2,050.00 186.36 2,800.01 254.55 568.48 51 .68 185.02 16.82 568.59 51 .69 9,595.96 872.36 3,025.99 275.09 514,265.33 47 180.31 p 1,607,701 .23 p 146 773.21 p 17,500.00 p 1,590.90 INVOICE/O.R.

AMOUNT

INPUT VAT

P19,392,128.23 P 1,779,094.35 p 99.00 p 9.00 25,144.00 2,285.82 23,170.00 2,106.36 73.00 6.64 315.15 28.65 75.00 6.82 75.00 6.82 46.00 4.18 480.00 43.64 1,881 .00 171 .00 137.00 12.45 73.00 6.64 500.00 45.45

KK 391-2

KK 408-2

KK 41~1

KK423

KK 433-1

KK434-1

Pro Golf Ventures, Inc

South Supermarket

Pharoah

RYG Enterprises

Anson Emporium

South Supermarket

Subtotal

(e) Overstated input tax

KK-290-30

Steel Asia Manufacturing Corp.

KK-290-70

Steel Asia Manufacturing Corp.

KK-290-89

Steel Asia Manufacturing Corp. (f) Date with erasure

KK 357-1

Bakahan at Manukan Eatery

(g) Purchase of goods without supporting document

Steel Asia Manufacturing

TOTAL

94211 14674 78087 00340 0952211 16182 75437 Shld be 76252 76265 19553 7,494.70 681 .34 314.82 28.62 20,862.49 1,896.59 330.00 30.00 2,635.05 239.55 349.80 3H!O p 84,055.01 p 7 641 .37 p 358,237.01 p 32,567.01 212,737.00 19,339.73 p 145,500.01 p 13,227.28 p 58,345.50 p 5,304.14 4,961 .55 451 .05 p 53,383,95 p 4,8:23.09 p 211,358.64 p 19,214.42 163,503.68 14,863.97 p 47 854.96 p 4 350.45 p 246,738.92 p 22,430.82 p 4,931 .96 p 448.36 p 97,956.41 p 8,905.13 781 .94 71.09 1,581 .40 143.76 41,626.39 3,784.22 19,286.12 1.Z:23.28 p 161,232.26 p 14 657.48 P21 ,514,287.61 P1,972,636.49 Therefore, only the claimed input VAT amounting to P45,429,532.29 (P47,402,168.78 less P1,972,636.49) was properly supported by VAT invoices/offidal receipts. However, the independent CPA also noted that petitioner issued VAT Official Receipts in the amount of P401,454.61 on certain receipts which might be potentially subjected to output VAT. According to petitioner's Finance and Accounting Manager, Mr. Forcadela, these receipts merely represent refunded rental deposits, thus, it was not declared for VAT purposes. Since a VAT offidal receipt was issued, the commissioned CPA computed an output tax in the amount of P36,496.87. 17 We agree with the findings of the commissioned independent CPA. Hence, the output VAT of P36,496.87 shall be deducted from the substantiated input VAT of P45,429,532.29, thereby leaving a refundable excess input VAT of P45,393,035.42 which are all attributable to zero-rated sales.

WHEREFORE, premises considered, the Petition is partially GRANTED. Respondent is hereby ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE to petitioner in the amount of Forty Five Million Three Hundred Ninety Three Thousand Thirty Five Pesos and 42/100 (P45,393,035.42), representing unapplied or unutilized input taxes for the first quarter of taxable year 2001.

WE CONCUR:

(On Leave)

CAESAR A. CASANOVA

Associate Justice

17 Exhibit K, CPA's Report, p.S ~~.~ ERNESTO D. ACOSTA

Presiding Justice

DEOSION

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. \ ~-,- "· ~ ERNESTO D. ACOSTA

Presiding Justice

Chairman, First Division