Nippon Express Corporation vs. Commissioner of Internal Revenue

DECISION

ACOSTA, PJ:

The Case

Before Us is a Petition for Review requesting for the issuance of a tax credit . certificate in the amount of P20,345,824.29 representing excess input tax attributable to effectively zero-rated sales for taxable year 2001.

The Facts

Petitioner is a corporation duly organized and existing under the Republic of t}1e Philippines. It is registered with the Securities and Exchange Commission under Certificate of Registration No. AS095-005669 with principal office address at U- 2701 Yuchengco Tower, RCBC Plaza, 6819 Ayala Avenue, Salcedo Village, Makati 88 .,

I

City. ' It is registered with the Large Taxpayer District Office of the Bureau of Internal Revenue, Revenue Region No. 8 as a Value Added Tax (VAT) taxpayer. 2 Respondent is the duly appointed government officer vested with the power to decide, approve, and grant refunds or tax credits of overpaid internal revenue taxes as provided by law.3 For the four quarters of 2001 , petitioner filed its a mended quarterly VAT

Returns

4 reflecting, among others, the following:

I" Quarter

2"d Quarter 3'd Quarter 4'h Quarter Taxable sales 14,349,644.90 14,4 78,588.90 14,623,673.80 14,8 18,314.40

Zero Rated Sales

179,8 ~.6,786.50· 185,678-,222.63 185,192,495.32 243,475,301.43

Exempt Sales

61,720,628.4?

105,263,099.90 3, 190,636.94 19,852,036.77

Total Sales

255.887.059Ji2 305.4'1 2.9 11.43 203 006 806 06 2.7.£.112 652 60

Output Tax

I 434 964.42 1.4-17 858.82 1,462,367.38 1.48 1.83 1.44

Less: Input Tax

Input Tax Carried Over

38,250,534.87 44,266,453.28 36,075,229.92 18,027,438.4 1 Input Tax for the quarter 8,150,883.60 7,533,798.74 6,757,946.83 9,564,730.63

Available Input Tax

46,40 1,41 8.47 52,500,252.72 42,833,176.75 27,662, 169.04

Deduction: VAT Refund

14,977,163.9 1 23,273,370.26

Net Creditable Input Tax

46401.4 18.47 37,523.088.8 1 1 2,552, ~0!5. 7 9 27,662, 169.04

Tax Overpayment

44,966,4~3 .28 36,075,222.22 18,Q97 ,4JlL4l 26, 18.Q_JlL6.Q (Underlines supplied) Petitioner filed an administrative claim for refund representing the alleged excess input tax of P20,345,824.29 attributable to its effectively zero-rated sales with the Large Taxpayers District Office, Revenue R.egion No. 8 on April 24, 2003,5 computed as follows:

Output VAT from Taxable Sales ( I 0%)

Less:

Input VAT Attributed to Taxable Sales

Input VAT Attributed to O-rated Sales

R.efundable Excess Input VAT 1 Paragraph I, Joint Stipulation of Facts and Issues. 2 Paragraph 3, Joint Sti pulation of Facts and Issues. 3 Paragraph 2, Joint Stipulation of Facts and Issues. 4 Exhibits B, BB, BBB, and BBBB.

5 Paragraph 4, Joint Sti pulation of Facts and Issues; Exhibit 12. p 5,827,022.20 1,789,111.32 24,383 ,735. 17 (P20345.824.29)

I

' • f Since respondent has not yet resolved the administrative claim,6 petitioner filed with this Court a Petition for, Review on April 25, 2003 requesting for the issuance of a tax credit certificate in the amount of P20,345,824.29 representing excess input tax attributable to effectively zero-rated sales for taxable year 2001. In her Answer filed on June 25, 2003, respondent prayed for the dismissal of

I

the petition for lack of merit. She also alleged therein the following Special and

Affirmative Defenses:

"3. He reiterates and repleads the preceding paragraphs of this answer as part of his Special and Affirmative Defenses;

4. Petitioner's a l.leged claim for issuance of tax credit certificate is still subject to administrative routinary investigation/examination by the respondent' s Bureau;

5. Taxes paid and collected are presumed to have been made in accordance with law, hence, not refundable.

'

6. Petitioner's claim for issuance of tax credit certificate in the amount of P20,345,824.29 as alleged excess input tax attributable to petitioner's effectively zero-rated sales for taxable year 2001 were no~ ful ly substantiated.

7. Petitioner's right to claim for refund/tax credit has already prescribed pursuant to Section 4.106-1 of Rev. Reg. No. 7-95.

8. Petitioner's sales of services to Philippine Economic Zone Authority (PEZA) registered enterprises do not qualify as zero-rate VAT;

9. It is incumbent upon the latter to show that it has complied with the provisions under Section 204(c) In relation to Section 229 of the Tax Code. Otherwise, its failure to prove the same is fatal to its claim for refund. I 0. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation (Comm issioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 1211)."

After trial ensued, this case was submitted for decision on July 31, 2008 taking into consideration petitioner's Memorandum filed on July 18, 2008, sans the respondent's Memorandum.

6 Paragraph 5, Joint Stipulation of Facts and Issues. 90 to wit:

The Issues

The parties jointly stipulated the following issues to be resolved by this Court, 1.

Whether or not petitioner's sales of services to various Philippine Economic Zone Authority (PEZA) registered companies is zero-rated for VAT purposes under Section I 08(B)(3) of the 1997 Tax Code. 2.

Whether or not petitioner's claim for refund/tax credit in the amount of P20,345,824.29 as alleged excess input VAT paid is attributable to its zero-rated sales for taxable year 200 I. 3.

Whether or not petitioner carried over to the succeeding taxable quarter/year the alleged input VAT paid attributable to its zero-rated sales for taxable year 200 I and applied the same in full to its output VAT liability for the said period.

4.

Whether or not petttJOner has complied with the requirements under Section 204(C) in relation to Section 229 of the Tax Code. The above issues boil down into a single point of whether or not petitioner is entitled to the issuance of a tax credit certificate in the amount of P20,345,824.29 allegedly representing excess input tax attributable to effectively zero-rated sales for taxable year 2001 .

The Court's Ruling

Refunds or tax credits of input tax attributable to zero-rated sales is governed by Section 112 (A) of the 1997 Tax Code which provides: "Section 112. Refunds or tax credits of i1iput tax. -

(A)

Zero-rated or effectively zero-rated sales. - Any VAT -registered person, whose sales are zero rated or effectively zero-rated may, within two (2) years after the close ofthe taxable quarter when the sales were made, apply for the issuance of ·a tax credit cet1ificate 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 106(A)(2)(a)(l), (2) and (B) and Section l08(B)(I) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted · for in accordance with the rules and regulations of the Bangko Sentral ng Pilipirias (BSP): Provided, fw1her, 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 attributable to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales." · 91 Pursuant to the above provision, in order to be entitled to the issuance of tax credit certificate/refund of unutilized input VAT, petitioner must prove compliance with the following requisites 7 :

1.

There must be zero-rated or effectively zero-rated sales; 2.

That input taxes were incurred or paid;

3. That such input taxes are directly attributable to zero-rated sales or effectively zero-rated sales;

4. That the input taxes were not applied against any output VAT liability during and in the succeeding quarters; and

5. ·That the claiin for refund was tiled .within the .~wo-year prescriptive period. Petitioner has established compliance wiih the first three requisites 1 Petitioner rendered services to PEZA-registered enterprises and non-resident foreign corporation, as proved by its sales invoices, transfer slips, credit memos, ce1iificate of PEZA registration,8 Certifications of Non-Registration of Corporation with the Philippine Securities and Exchange Commission,9 2001 Quarterly VAT Returns, 10 and the reports of the commissioned independent CPA. 11 The sales derived therefrom amounting to P729,657,30 1.66 12 which are validly supported by documents, out of the total zero-rated sales declared in petitioners VAT returns of .

P794,162,805.88, 13 qualify for VAT zero-rating pursuant to Sec. 108(B)(2) and (3) of the 1997 Tax Code, viz:

"Sec. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. - xxx (B) Transactions Subject to Zero Percent (0%) Rate.- xxx 7 Nippon Express (Philippines) Corporation vs. Commi ssioner oflnternal Revenue, CTA Case No. 6464, June 15, 2007.

8 E;mibits AC-01 to AC-106164.

9 Exhibits GO to FFFF.

10 Exhibits B to BBBB.

11 Exhibits CC, DD and FF-l.

12 Declared zero-rated sales of P794, 162,805.88 less adjustments: (a) exceptions amounting to P63,702, 191.38 per CPA report (Exhibit CC) and the sum of ?803,31 2.84 zero rated sales pertaining to documents not admitted by this Court as summarized in Exhibits GGGG-1 . 13 Consisting of sales to PEZA registered entities of P267,289,34 1.13 and sales to rion-resident foreign corporation of ?526,873,464 .75.

The consideration of its sales to non-resident foreign corporation in acceptable foreign currency was accounted for by the Commissioned Independent CPA (Exhibit FF-1 ). 92

(2) Services other than those mentioned in the preceding paragraph, 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 (ESP);

(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate."

·II

As evidenced by its sales invoices, official receipts, transfer slips and credit memo, debit memos, billing statements, requisition slips, acknowledgment receipts and statements of accounts, 14 the 20.01 Quarterly' VAT Retums 15, and the reports of the commissioned · independent CPA, 16 petitioner incurred or paid input taxes ~of P32,007,359.80 during the taxable quarters of 2001, portion thereof is attributable to• its zero-rated sales generated during the same period pursuant to Section 112 (A) of the 1997 Tax Code.

However, out of the. said amount of input taxes, only P25,626,620.82 has been validly supported by proper input VAT documents, 17 which may be the subject of refund in propmiion to the duly substantiated zero-rated sales. Unfortunately, the same could not be granted since petitioner has failed to prove compliance with the last two requisites. It could not be asce1iained whether the .claimed input taxes of P20,345,824.29 were not applied against its output tax in the succeed ing quarters of 2002 absent, as evidence, the VAT returns for the taxable quarters of 2002. Although, petitioner presented as evidence its VAT return for the second quarter of 2003 18 showing as dedu.ction from total available input tax its overpaid VAT ·of P26, 180,337.69 for the 4 111 quarter of 2001, the same cannot give assurance that the claimed input tax of P20,345,824.29 has not been utilized in taxaWe year 2002. Absence of such relevant . evidence (the 2002 quarterly VAT returns), is fatal to petitioner's claim. It could not be ascertained whether the adh1inistrative claim on April 24, 2003 and the Petition for Review on April 25, 2003 were both filed within the two (2) year

I

14 Exhibits H-Ollo H-11038; K, L, M, N, 0 , P, Q, R, S, T, U, V, W, X, Y, and Z. 15 Exhibits B, BB, BBB and BBBB.

.

16 Exhibits CC and DD.

17 Exhibit CC; and p. 180, CT A Rollo.

18 Exhibits C and D.

93 .. '

I

> prescriptive period in the absence of the original 2001 quarterly VAT returns. Said documents are important since the actual date of filing thereof is the reckoning point of the two year prescriptive period for filing a claim for refund or credit. It is settled that tax refunds, like tax exemptions, are construed strictly against the taxpayer and that the claimant has the burden of proof to establish the factual basis of its claim for tax credit or refund. 19 Failure in this regard, petitioner's claim must fail.

WHEREFORE, the instant Petition for Review IS hereby DENIED for insufficiency of evidence.

L ~

. o'--'-- ERNEsTo D. ACOSTA

Presiding Justice

~ CAESAR A. CASANOVA

Associate Justice

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.

L

... Q._...__ ERNESTO D. ACOSTA

Presiding Justice

19 Silicon Philippines, Inc. vs. Commissioner of Internal Revenue, CTA EB Case No. 298, January 18, 2008 citing Citibank, N.A. vs. Court of Appeals and the Commissiuner of Internal Revenue, 280 SCRA 459. 94 ..

..

GST PHILIPPINES, INC.

- versus-

Republic of the Philippines

COURT OF TAX APPEALS

Quezon City

FIRST DIVISION

************** Petitioner, · C.T.A. CASE NO. 7419

Members:

ACOSTA, Chairperson ... BAUTISTA, and CASANOVA, JJ.

COMMISSIONER OF INTERNAL

REVENUE,

Promulgated:

CASANOVA, J.:

This is a Petition for Review filed by GST Philippines, Inc. (petitioner) seeking the issuance of a tax credit certificate or a tax refund in the amount of Thirty Two Million Seven Hundred Twenty Two Thousand One Hundred Nine · Pesos and Sixty Eight Centavos (P32,722,109.68) allegedly representing unapplied input Value Added Tax (VAT) payments attributable to its zero rated revenues for the period from January 1, 2004 to September 30, 2005~ 95

CTA Case No. 7419

STATEMENT OF FACTS

Petitioner is a corporation duly organized and existing under Philippine laws with principal office at 2nd Floor AL.PAP I Building, 140 Leviste Street, Salcedo Village, Makati City.1 It is a duly registered VAT enterprise pursuant to Section 107 of the 1997 National Internal Revenue Code (NIRC) with Tax Identification Number 000-155-645-000.2 . Respondent is a public offJ,cer duly appointed by the President of the Philippines and is the head: of the ' Bureau of . Internal Revenue (BIR) - the government agency officially responsible for the assessment and collection of all national a.nd internal revenue taxes.3 Petitioner filed its 1st to 4th quarterly VAT returns for the year 20Q4 and reflected the following :4

Period 2004

Date of Filing

Zero-rated Sales

1st quarter April 16, 2004 P77,687,420.54 2nd quarter July 15, 2004 53,737,063.05 3rd quarter October 15, 2004 74,280,682.00 4th quarter January 11, 2005 104,633,604.23 Petitioner also filed its VAT returns for the l 5t to 3rd quarters of the year 2005 which reported the following:$- 1 Paragraph 1, Petition for Review in relation to Paragraph 1, Joint Stipulation of Facs and Issues forTrial, Rollo,pp.l ,2 14.

;

2 Paragraph 2, Joint Stipulation offCicts and Issues for Trial, Ro llo, p. 2 14. 3 Paragraph 2, Petition for Review in relation to Paragraph I, Joint Stipulation of Facts and Issues for Trial, Rollo, p. I, 2 14.

CfA Case No. 7419

Period 2005

1st quarter 2nd quarter 3rd quarter

Date of Filing

Zero-rated Sales

April 25, 2005 P37,742,969.02 July 19, 2005 56,133,761.00 October 26, 2005 51,147,677.80 On June 9 arid August 12, 2004, and on February 18, May 11, and November 18, 2005, petitioner resp~ctively filed claims of its 2004 and 2005 unapplied input VAT payments with the BIR.6 However, the claims for refund remain unresolved by the BIR/ hence, the instant Petition for Review was filed on March 17, 2006. During trial, both parties agreed to the following: that under Revenue Memorandum Order No. 9-00 (RMO 9-00), in relation to Section 106(2)(a) of the National Internal Revenue Code of 1997 (NIRC of 1997), the sale of goods, properties or services made by a VAT-registered supplier to a Bureau of Investment (BOI)-registered exporter with 100% export sales shall be accorded automatic zero-rating. Likewise, under Revenue Memorandum Circular No. 74- 99 (RMC 74-99), the sale of goQ_ds, propertY or services made by a VAT registered supplier to any registered enterprise operating in the ecozone is entitled to the zero percent (0%) VAT.8 On April 21, 2006, respondent filed ~is Answer interposing the following as Special and Affirmative Defenses :J8i-~ 6 Paragraph 6, Joint Stipulation of Facts and Issues for Trial, Rollo, p. 215. 1 Paragraph 7, lbid.

.

1 Paragraph 3, 4, 5, Joint Stipulation of Facts and Issues for Trial, Rollo, pp. 214-2 15. 97

CTA Case No. 7419

"4. Petitioner's alleged claim for refund is subject to administrative investigation/examination by the Bureau;

5. The amount of P32,722,109.68 being claimed by petitioner as alleged unapplied input VAT payments attributable to its zero rated revenues for the period January 1, 2004 to September 30, 2005 was not properly documented;

6.

In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund/credit; 7.

Petitioner must show that it has complied with the provisions of Sections 204 (C) and 229 of the 1997 Tax Code on the prescriptive period for Claiming tax refund/credit; 8.

Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma/ 31 SCRA 95) and such, they are looked upon with disfavor (Western Minolco Corp.

vs.

Commissioner of Internal

Revenue/ 124 SCRA 1211)." .

On August 16, 2007, petitioner filed its Formal Offer of Evidence, while

I

respondent waived her right to present any. On April 8, 2008, petitioner filed its Memorandum while respondent filed her Memorandum on June 17, 2008. On August 1, 2008, the instant case was submitted for decision.

STATEMENT OF ISSUES

The parties have jointly stipulated that the following are the issues for this . Court to resolve:

1. Whether or not petitioner has excess input VAT in the amount of P32,722,109.68 for the period from January 1, 2004 to September 30, 2005;,aa

CfA Case No. 7419

2. Whether or not petitioner's excess input VAT are attributable to its purchases that are directly related to its zero-rated revenue for the same period;

3. Whether or not petitioner's excess input VAT were not applied to any of petitioner's output VAT liability during the same period or the succeeding quarters of 2005;

4. Whether or not petitioner's claim for refund was filed within the period prescribed by law;

5. Whether or not petitioner, based on the facts and applicable laws, is entitled to a refund of its excess and unapplied input VAT payments for the period from Januaryl, 20.04 to September 30, 2005.

THE COURT'S RULING

The foregoing issues boil down to the sole issue of whether or not petitioner is entitled to a refund of its alleged excess and unapplied input VAT payments for the period covering January 1, 2004 to September 30, 2005 in the amount of P32,722,109.68.

Section 112(A) of the NIRC of 1997, as amended, provides for the following:

"SEC.112. Refunds or Tax Credits of Input Tax- (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registccred 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 106(A)(2)(a)(1), (2) and (B) and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in' accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, . further, That where the taxpayer is engaged in zero-rated ~ 99 CfA Case No. 7419 /.' effectively zero-rated sales 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.

Based on the aforementioned provisions, to be entitled to a refund of its unutilized input VAT, petitioner has to comply with the following requisites:

I

1. there must be zero-rated or' effectively zero-rated sales;

2. that input taxes were incurred or paid;

3. that such input taxes are directly attributable to zero-rated or effectively zero-rated sales;

4. that the input taxes were not applied against any output VAT liability; and

5. that the claim for refund was filed within the two-year prescriptive period In the instant case, petitioner's VAT returns for the quarters covering the instant claim reported the following zero-rated sales:

Exhibit

Period

Zero-rated Sales

2004

G

1st Qtr p 77,687,420.54

G-1

2nd Qtr 53,737,063.05

G-2

3rd Qtr 74,280,682.00

G-3

4th Qtr 101116331604.23

Subtotal

p 310l338J69.82 2005

G-4

1st Qtr p 37,742,969.02

G-5

2nd Qtr 56,133,761.00

G-6

3rd Qtr 5111471677.80

Subtotal

p 145l024l407.82

TOTAL

p 45513631177.64 The reported zero-rated sales consisted of domestic sales in the amount of P331,305,960.00 and export sales in the amount of P121,267,303.84, as can be seen in petitioner's "Summary of Zero Rated Sales", detailed as follow~ 100

CfA Case No. 7419

Period

ZERO-RATED SALES

Covered

Exh.

Domestic

Ex h.

Export

Total

2004 15t Qtr w p 27,188,225.00 v p 49,052,166.24 p 76,240,391.24 2nd Qtr

X

43,998,340.00 v 31,226,020.55 75,224,360.55 3'd Qtr y 51,758,850.00 v 51,758,850.00 4th Qtr z 65,593,700.00 v 38,708,104.23 104,301,804.23

Subtotal

p 188e,539e,115.00 p 118£98~291.02 p 30~52~406.02 2005 15t Qtr

AA

p 36,374,728.00 v p 1,372,091.02 p 37,746,819.02 2nd Qtr

BB

56,153,361.00 v 56,153,361.00 3'd Qtr cc 50,238,756.00 . v 908,921.80 51,147,677.80

Subtotal

p 142£76~845.00 p 2£281{.012.82 p 14~04~857.82

Total

p 331,305£960.00 p 121£267£303.84 p 452£573£263.84 Nev.ertheless, a comparison of the amount of zero-rated sales declared in the quarterly VAT returns as against the amount declared in the "Summary of

Zero-Rated

Sales"

prepared by petitioner, disclosed a discrepancy of P2,789,913.80, detailed as follows:

Zero-rated Sales

Zero-rated Sales

Period per VAT Returns per SummarY:

Difference

2004 1st Qtr p 77,687,420.54 76,240,391.24 p 1,447,029.30 2nd Qtr 53,737,063.05 75,224,360.55 (21,487,297.50) 3rd Qtr 74,280,682.00 51,758,850.00 22,521,832.00 4th Qtr 104,633,604.23 104;301,804.23 331,800.00

Subtotal

p 310£338J69.82 30~52~406.02 p 2£813l363.80 2005 1st Qtr p 37,742,969.02 37,746,819.02 p (3,850.00) 2nd Qtr 56,133,761.00 56,153,361.00 (19,600.00) 3rd Qtr 51147 677.80 51147 677.80

Subtotal

p 14~024l 407.82 14~04~857.82

Ji

(23{.450.001

TOTAL

p 455£363£177.64 45215731263.84 p 2£789£913.80 A perusal of the documents submitted would show that the difference in the amount of P2,789,913.80 was not supported by any document. Thus, such cannot be considered for VAT zero-ratin~ 101

CfA Case No. 7419

To prove its export sales of P121,267,303.84 and the foreign currency proceeds therefrom, petitioner presented various sales invoices, bills of lading, packing lists and bank credit advices/memos9 and the judicial affidavit of Ms. Maria Lina P. Grecia, petitioner's Budget and Accounting Officer10. A perusal of these documents proved that petitioner shipped and sold its products abroad to the following entities:

1. Malex Industrial Products . ~DN BHD il) Malaysia,

2. CSR Building MaterJals SDN BHD in Malaysia,

3. Hume Cemboard Berhad in Malaysia,

4. UAC Berhad in Malaysia, and

5. Boroo Gold Mining Company in Mongolia. As payment thereof, petitioner received foreign currency payments, which were inwardly remitted in accordance with the BSP rules and regulations. These (export sales) then may fall within the export sales transactions subject to zero percent (0%) VAT referred to under Section 106(A)(2)(a)(1) of the NIRC of 1997, as amended, which states:

"SEC.

106.

Value-Added Tax on Sale of Goods or

Properties. -:- (A) Rate and Base of Tax. -There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, value-added tax equivalent to ten percent (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.

9 Exhibits "MM to MM-66".

1o Exhibit "DO". ' ~

XXX

XXX

XXX

102

CTA Case No. 7419

(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:

(a) Export Sales. -The term 'export sales" means:

(1) 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 own~rship 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)." HoWever~ the aforementione9 . provis~~ns must be read in relation to Section 113(A) of the sam~ Code and Section 4.108-1 of Revenue Regulations No. 7-95 (RR 7-95), which provide that any person claiming VAT zero-rated direct export sales must present at least three (3) types of documents, to wit: a) the sales invoice as proof of sale of goods; b) the export declaration and bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country; and c) bank credit advice, certificate of bank remittance or any other document proving payment for the goods in acceptable foreign currency or its equivalent in goods and services. In other words, only export sales supported .....

~ by these documents shall qualify for VAT zero-rating. Furthermore, the sales invoices supporting the export sales must be registered with the BIR and contain all the required information under the law and regulations, such as the imprinted word "zero-rated" and the taxpayer's TIN- VAT number~ 103 .

CTA Case No. 7419

Evidence shows, however, that petitioner did not submit airway bills or bills of lading for the following three (3) sllipments to Boroo Gold Mining

Company:

Ex h.

Customer

Invoice Number

Amount

MM-43

Boroo Gold Mining Company

4748 p 402,000.00

MM-48

Boroo Gold Mining Company

4816 330,000.00

MM-52

Boroo Gold Mining Company

483.1 3371500.00

TOTAL

p 1l069l500.00 Thus, the foregoing amount shall not be credited for VAT zero-rating for petitioner's failure to substantiate its claim. · From the claimed amount of P121,267,303.84 zero-rated export sales, petitioner's claim is reduced to the amount of P120,197,803.84 (P121,267,303.84 less Pl,069,500.00).

As to the domestic sales of P331,305,960.00, records show that sales

I

were made by petitioner to Philex Mining Corporation, Lepanto Consolidated Mining Co., Philippine Associated Smelting and Refining Corp. (PASAR), and Rapu-rapu Processing, Inc. The first two corporations are VAT taxpayers and BOI registered entities whose products are 100% exported11, while the last two corporations are PEZA registered entities12• The sales made to the first two corporations were properly covered by VAT invoices and official receipts duly stamped with the word "zero-rated", the name of the BOI company/buyer and the corresponding BOI registry number and registration date. While the sale~ 11 Exhibits "C to C-3", and "D to D-3".

12 Exhibit "E", "E-2" and "E-4" and "F to F-2". , .

104 f I

CTA Case No. 7419 made to the last two corporations were supported by proper VAT invoices and official receipts13.

Petitioner's domestic sales to the aforementioned BOI companies and PEZA entity qualify for VAT zero-rating pursuant to Section 106(A)(2)(a)(5) of the NIRC of 1997, as amended, which provides: "SEC. 106.

Value-lidded Ta¥ on Sale of Goods or

Properties. - (A) Rate and Base of Tax: - x x x

(2) The following sales by VAT-registered persons shall be subject to zero percent (0°(o) rate:

(a) Export Sales. -The term 'export sales' means:

XXX

XXX

XXX

(5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws."

The VAT zero-rating of sales made by a VAT taxpayer like herein petitioner to a PEZA entity was further clarified in RMC No. 74-99, the pertinent provisions of which read as follows:

"SECTION 3. Tax Treatment of Sales Made By A VAT Registered Supplier from the Customs Territory, To A PEZA Registered Enterprise.- ( 1) If the Buyer is a PEZA registered enterprise which is subject to the 5°/ol special tax regime, in lieu of all taxes, except real property tax, pursuant to R.A. No. 7916, as amended: 412- 13 Exhibits "NN-1 to TT-58".

105

CTA Case No. 7419

(a) Sale of goods (i.e., merchandise). - This shall be treated as indirect export hence, considered subject to zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916, in relation to ART. 77(2) of the Omnibus Investments Code.

(2) If Buyer is a PEZ,!\ registered enterprise which is not embraced by the 5% special tax regime, hence, subject to · taxes under the NIRC, e.g., Service Establishments which are subject to taxes under the NIRC rather than the 5% special tax regime:

(a) Sale of-goods (i.e., merchandise). - This shall be treated' as indirect expo'ft hence, considered subject to zero percent (0%) -VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916, in relation to ART. 77(2) of the Omnibus Investments Code.

3. In the final analysis, any sale of goods, property or services made by a VAT registered supplier from the Customs Territory to any registered enterprise operating in the ecozone, regardless of the class or type of the latter's PEZA registration, is actually qualified and thus legally entitled to the zero percent (0%) VAT.

Accordingly, all sales of goods or property to such enterprise made by a VAT registered supplier from the Customs Territory shall be treated subject to 0% VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC , in relation to Art. 77(2) of the Omnibus Investments Code, while all sales of services to the said enterprises, made by VAT registered supplies from the Customs Territory, shall be treated effectively subject to 0% . VAT, pursuant to Section 108(B)(3), NIRC, in relation to the provisions of R.A. 7916 and the 'Cross Border Doctrine' of the VAT system.

This Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to the benefit of the zero percent (0%) VAT for sales made to the aforerl)entioned · ECOZONE enterprises and shall serve as sufficient compliance to the requirement for prior approval of zero-rating imposed by

Revenu~

lOG

CfA Case No. 7419

Regulations No. 7-95 effective as of the date of issuance of this Circular."

Likewise, in RMO 9-00 dated February 2, 2000, the SIR enumerated the requirements for the zero-rating of sales by a VAT taxpayer to a SOl entity, thus:

"SECTION 3.

Sales of goods, properties or services made by a VAT-registered supplier to a BOI registered exporter shall be accorded automatic zero- rating, i.e., without necessity of applying for and securing approval of the application for ·:zer~-rating as provided in Revenue Regulations No. 7 -95, subject to the following conditions:

(1) The supplier must be VAT-registered,

(2) The SOl-registered buyer must likewise be

VAT-

registered;

(3) The buyer must be a

SOl-registered

manufacturer/produ ~er whose products are 100% exported. For this purpose a Certification to this effect must be issued by the Board of Investments (BOI) and which certification shall be good for one year unless subsequently re-issued by the BOI;

(4) The SOl-registered buyer shall furnish each of its suppliers with a copy of the aforementioned BOI Certification which shall serve as authority for the supplier to avail of the benefits of zero-rating for its sales to said SOl-registered buyers; and;

(5) The VAT-registered supplier shall issue for each sale to SOl-registered manufactur~ r/exporters a duly-registered VAT invoice with the words 'zero-rated' stamped thereon in compliance with Sec. 4. 108-1(5) of RR 7-95. The supplier must likewise indicate in the VAT invoice the ]lame and SOl-registry number of the buyer.~ 107

CfA Case No. 7419

However, a scrutiny of the invoices submitted revealed that there is a discrepancy of P47,600.00 between the sales amount per summary and amount per invoices, detailed as follows:

Invoice

Amount Per

Customer

No.

Amount

Ex h.

Summa!Y

Difference

PASAR

4674 p 720,300.00

NN-62

p 724,800.00 p 4,500.00

PASAR

4698 142,660.00 00-26 146,660.00 4,000.00

PASAR

4726 856,250.00 00-68 . 865,250.00 9,000.00

PASAR

4791 833,420.00

PP-63

840,070.00 6,650.00

PASAR

4854 484,550.00

RR-15

488,400.00 3,850.00

Rapu-rapu Processing

4896 2,Q48;330.00

SS-22

2,064,780.00 16,450.00

PASAR

4911 390!735.00

SS-44

393£885.00 3£150.00

TOTAL

P5,476,245.00 PS,S23,845.00 P47,600.00 Thus, petitioner's total substantiated zero-rated sales amounted only to P451,456,163.84, as computed below:

Declared zero-rated sales Less: Unsubstantiated zero-rated sales Disallowed zero-rated sales:

Export sales Domestic sales

Total

Substantiated zero-rated sales p 1,069,500.00 47 600.00 p 455,363,177.64 2,789,913.80 1£117£100.00 p 451,456,163.84 In view of this, only the portion of the input VAT claim attributable to the 'Substantiated zero-rated sales of P451,456,163.84 will be considered for refund. The rate then to be applied is based ori the volume of sales and is computed as follows:

Substantiated zero-rated sales Divided by total declared zero-rated sales

I

Rate of substantiated zero - ra~ed sales 108 .

p 451,456,163.84 455£363£177.64 99.14% ·•

ITA Case No. 7419

We then proceed to the determination of the amount of unutilized input VAT attributable thereto.

Petitioner's declared excess unutilized input VAT from domestic purchases of goods and services for the first quarter of 2004 to the third quarter of 2005 amounted to P32,722,109.68, broken down as follows: Ex h.

Period

Excess In~ut Tax 2004

G

1st Qtr p 5,413,683.58

G-1

2nd Qtr 5,512,615.30 G-2 .

3rd Qt.r . 121,386.78

G-3

4th Qtr · 613711889.36

Subtotal

p 17,_419£575.02 2005

G-4

1st Qtr p 4,315,797.10

G-5

2nd Qtr 4,364,408.65

G-6

3rd Qtr 616221328.91

Subtotal

p 1~302£534.66

TOTAL

p 32£722£109.68 Based on the review and validation of the commissioned CPA, out of the total input VAT of P32,722,109.68, only the amount of P32,651,524.03 represents petitioner's valid claim 14. The exceptions found are shown below15 :

Descriotion

a. Purchases not supported by document vouchers, suppliers' official receipts and/or sales invoices

b. Purchases of goods not within the covered period

c. Purchases of services with no date in official receipts

d. Suppliers' official receipts/sales invoices not in the name of GST 14 Exhibit "VV", p. 9.

IS Ibid, p. 7.

Reference

(Annexed to Exh. W)

Amount

Annex A.1 p 39,342.95 Annex A.2 766.05 Annex A.3 7,292.35 Annex A.4 7,238.54 109

CfA Case No. 7419 e. Suppliers' TIN not indicated in their official receipts and/or sales invoices

f. Non-vatable payments made to banks

TOTAL

Annex A.5 1,069.09 Annex A.6 14,876.68 p 70,585.65 Nevertheless, upon further examination of the invoices submitted by petitioner, the amount of P32,651,524.03 recommended by the commissioned CPA should be further reduced by P139,282.46 for failure to meet the invoicing requirements mandated under Sections 113, 237 and 238 of the 1997 National Internal Revenue Code of 1997, as amended, as well as Section 4.108-1 of RR 7- 95 (see Annex 1 for details):

Additional Disallowances

Amount

1. Purchase of services not supported by official receipts p 81,076.88

2. Purchase of services supported by undated OR/Petitioner's name not 40,144.06 indicated in the OR

3. Purchase of goods supported by invoices that are not duly registered 17,608.57 ~· Purchases of goods/services without supporting d6cuments 452.95

TOTAL

p 139,282.46 Therefore, only the claimed input VAT of P32,512,241.57 was properly substantiated by VAT invoices or official receipts and only the input VAT of

I

P32,232,636.29 can be attributed to petitioner's substantiated zero-rated sales of P451,456,163.84, computed below:

Input VAT Claim

p 32,722,109.68

Less: Disallowances

Per Independent CPA

70,585.65 .

Per this Court's further verification 139 282.46 Validly supported input VAT p 32,512,241.57 Multiply by rate of substantiated zero-rated sales 99.14% Valid Input VAT attributable to substantiated zero-rated sales P32,232,636.29 110 erA Case No. 7419

Also, these input VAT in the amount of P32,232,636.29 is found not to be applied against any output" VAT and/or carried over to the succeeding taxable quarter(s). In petitioner's quarterly VAT returns of the subject period of claim showed that the amount of P32,232,636.29 is already net of its total output tax liability of P98,151.60 fol' the same period 16 . Thus, petitioner has complied with the fourth requisite pursuant to Section . 112 (A) of the NIRC of 1997, as amended.

Finally, records show that petitioner1s· administrative claims filed on June 9, 2004, August 12, 2004, February 18, 2005,' May 11, 2005 and November 18, 2005 17 and the Petition for Review filed with this Court on March 17, 2006 are well within the two-year prescriptive period. In view thereof, petitioner sufficiently proved that it is entitled to a tax credit certificate in the amount of P32,232,636.29 representing unutilized input VAT for the period covering the first quarter of 2004 to the third quarter of 2005. However, it is noted that respondent has issued a Tax Credit Certificate (TCC) Number 116-07-00079 to petitioner in the amount of P4,863,521.93 for ·the first quarter of 200418.

Thus, petitioner's refundable amount is reduced to P27,369,114.36 after deducting the value of its TCC, which is computed below~ 16 Exhibits"G- I","G-2", "G-4","G-5", " H", and " H- 1 to H-7". 11 Exhibits"!", "J", "K", "L" and "Tvl". , 18 Annex A ofPetitioner's M emorandum. CTA Records p. 388. ill

CfA Case No. 7419

J

Valid Input VAT attributable to substantiated zero-rated sales Less: Tax credit certificate issued p 32,232,636.29 4,863,521.93 Refundable input VAT p 27,369,114.36

WHEREFORE, premises considered, petitioner's claim is hereby GRANTED in the reduced amount of P27,369,114.36. Accordingly, respondent is ORDERED TO REFUND TO PETITION ER IN THE FORM OF A TAX CREDIT CERTIFICATE the amount of P27,369,114.36 representing unutilized excess input VAT attributable to zero-rated s~les for the first quarter of 2004 to the third quarter of 2005.

WE CONCUR:

\.._,_:=: .....

Q~

ERNESTO D. ACOSTA 11 2

CAESA~ANOVA

Associate Justice

CTA Case No. 7419

C E R T fF I C AT I 0 N 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. 113 (L_ ~. 0~~ · ERNESTO D. ACOSTA

Presiding Justice

Chairperson, First Division