Cargill Philippines, Inc. vs. Commissioner of Internal Revenue

DECISION

CASANOVA, J.:

This case is a consolidation of two Petitions for Review separately filed by petitioner seeking the issuance of a tax credit certificate for its alleged unutilized and/or unapplied input valued-added tax (VAT) for the period covering April 1, 2001 to August 31, 2004 in the aggregate amount of P50,042,344.39, broken down as follows: CTA Case No.

Period Covered

Amount of Claim

6714 April 1, 2001 to February 28, 2003 p 27,847,897.721 7262

March 1 2003 to August 31 2004

22 194 446.67

Total

p 50,042,344.39 Petitioner is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office address at 14th Floor, Citibank Tower, 8741 Paseo de Roxas, Makati City~ 1 Amended Petition for Review, CTA Case No. 6714, Docket, pp. 57-63 2 Stipulation of Facts, Par. 1, Joint Stipulation of Facts and Issues (JSFI), CTA Case No. 7262, Docket,

p. 62; Facts Admitted Par. 1, JSFI, CTA Case No. 6714, Docket, p. 223

·11 GO

Petitioner's primary purpose is "to own, operate, run and manage plants and facilities for the production, crushing, ·extracting or otherwise manufacture and refining of coconut oil, coconut meal, vegetable oil, lard, margarine, edible oil, and other articles of similar nature and their by- products; to engage in research, breeding, developments, production, culture, processing, importation and exportation, and sale by wholesale of agricultural seeds/products of all kinds whatsoever and the rendition of technical assistance and services related thereto; to engage in the import and export business and to deal in all the goods produced and manufactured by it and the by-products thereof at wholesale; to engage in the buy and/or sell, export and/ or import, acquisition, exchange, or otherwise dealing in sugar and other related products by way of wholesale in the domestic as well as export markets and to engage in all activities, including the purchase or lease of machineries and equipment, necessary for the operation thereof. 3 Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue empowered to perform the duties of his office, including among others, the duty to act upon and approve claims for refund or tax credit as provided by law, with office address at the 5 th Floor, BIR National Office Building, Agham Road, Diliman, Quezon City.4 Petitioner is registered with the Bureau of Internal Revenue (BIR}" as a VAT enterprise with Tax Identification No. (TIN)/VAT Registration No. 000- <@.....

3 Stipulation of Facts, Par. 6, JSFI, CTA Case No. 7262, Docket, pp. 63-64 4 Facts Admitted, Par. 2, JSFI, CTA Case No. 6714, Docket, pp. 223-224; Stipulation of Facts, Par. 2, JSFI, CTA Case No. 7262, Docket, p. 62 .

1 1 ,.. 1 ..LO J.

Page 3 'of 42

110-659-000.5 As such, it filed its Quarterly VAT Returns for the period April 1, 2001 to August 31, 2004, including the amendments thereto, on the · following dates:

Original Return

Amended Return

Period Covered

Filed on

Exhibit

Filed on

Exhibit

2nd Qtr CY 2001 7/25/2001 E,V

H

3rd Qtr CY 2001 10/25/2001

(CTA Case

6/11/2002 H-1 , X No. 6714) 4thQtr CY 2001 1/25/2002

K

6/11/2002 K-1 , Z lstQtr CY 2002 4/25/2002

N

6/1 1/2002 N-1, 88 2nd Qtr CY 2002 . 7125/2002 0 1st Qtr FY ending May 31 20036 9/25/2002 P, EE 2nd Qtr FY endinq May 31 2003

I

12/23/2002 Q, FF 3rd Qtr FY ending May 31 2003 3/24/2003 R, GG 4th Qtr FY ending May 31 2003 6/25/2003 8 1st Qtr FY ending May 31 2004 9/25/2003 c 2nd Qtr FY endinq May 31 2004 12/22/2003

D

3rd Qtr FY ending May 31 2004 3/24/2004

E

4thQtr FY ending May 31 2004 6/25/2004

F

1st Qtr FY er1ding May 31 2005 9/23/2004

G

In the said Quart.erly VAT Returns, petitioner reflected an overpayment of P44,920,350.92 for the second quarter of CY 2001 to the third quarter of FY 2003. (April 1, 2001 to February 28, 2003) and P31,915,642.26 for the fourth qua,rter of FY 2003 to the first quarter of FY 2005 (March 1, 2003 to August 31, 2004), computed as follows: 2nd Qtr CY 2001 3rd Qtr CY 2001 4th Qtr CY 2001

Taxable Sales

198,427 281.66 381 557 730.23 135930143.05

Zero-Rated Sales

473 354 243.00 580 569 507.00 430,276 914.00

Exempt Sales

347,042 710.03 728 331 292.00 611 710 221.00

Total Sales

1 018 824 234.69 1 690,458,529.23 1 177 917 278.05

Output VAT

19 842 728. 17 38 155 773.02 13 593 014.31

Less: Input Tax

Carried-over from prev qtr 38 199 071.54 36 933 754.79 27 325 991.94 5 Stipulation of Facts, Par. 3, JSFI, CTA Case No. 7262, Docket, p. 63 6 Petitioner changed from the calendar year [CY] basis of accounting to the fiscal year [FY] (TSN, December 9, 2004, CTA 6714, docket, pa.ge 250)

Presumptive Input Tax

Domestic purchases Total available Input Tax

Less Anv VATRefund/TCC Claimed

Net Creditable Input Tax

VAT Payable/(Excess Input Tax)

Less: Advance Payment

Tax Payablef(Overpayment)

Taxable Sales

Zero-Rated Sales

Exempt Sales

Total Sales

Output VAT

Less: Input Tax

Carried-over from prev qtr

Presumptive Input Tax

Domestic purchases . Total available Input Tax

Less Any VATRefund/TCC

Claimed

Net Creditable Input Tax

VAT Payable/(Excess Input Tax)

Less: Advance Payment

Tax Payable/(Overpayment)

Taxable Sales

Zero-Rated Sales

Exempt Sales

Total Sa les

Output VAT

Less: Input Tax

Carried-over from prev qtr

Presumptive Input Tax

Domestic purchases Total available Input Tax

Less Any VATRefund/TCC Claimed

Net Creditable Input Tax

VAT Payable/ (Excess Input Tax)

Less: Advance Payment

Tax Payable/(Overpayment)

Taxable Sales

Zero-Rated Sales

Exempt Sales

Total Sales

- 18 577 4li.42 56 776 482.96 (36 933 754. 79) - (36 933,754.79) 1st Qtr CY 2002 422 325 623.80 562 453 504.00 702,752 521.00 · 1,687,531,648.80 42 232 562.38 32 199 979.72 - 44 809 937.42 77 009 917.14 (34 777 354.76) - (34 777 354.76) 2nd Qtr FY 2003 320 894 788.30 559 506 262.00 1 244 467 417.39 2 124 868 467.69 32 089 478.83 38 296 476.70 366,627.73 36,190,306.68 74 853 411.11 (42 763 932.28) 1 183 546.99 (43 947 479.27) 1st Qtr FY 2004 87 444 776. 10 686 995 052.00 1 006 442 323.06 1 780 882 151.16 4 496 217.15 492 914.62 10 621 081.02 16 134 087.46 52 051 052.96 43 952 994.02 (13 895 279.94) (30 359 979.72) 13 430 712.00 1 840 000.00 -(27,325,991.94) (32 199 979.72) 2nd Otr CY 2002 1st Qtr FY 2003 169 245 889.30 63 206 898.90 652 076 777.48 476 081 386.20 1 498 589 400.75 817,614 934.90 2 319,912,067.53 1 356 903 220.00 16 924 588.93 6 320 689.89 34 777 354.76 35 063 698.15 - - 17 210 932.32 9 553 468.44 51 988 287.08 44 617 166.59 (35 063 698.15) (38 296 476.70) - - (35,063 698.15) (38 296 476.70) 3rd Qtr FY 2003 4th Qtr FY 2003 250 257 189.10 52 860 375.10 883 282 689.80 841 599 114.80 1 074 034 268.57 956 876 268.40 2,207,574 147.47 1,851,335 758.30 25 025 718.91 5,286 037.51 43 947 479.27 44 920 350.92 1 346 124.84 1 919 473.9.5 16,233 369.67 10 613 969.33 61 526 973.78 57 453 794.20 (36,501 254.87) (52 167 756.69) 8,419 096.05 10,346 816.52 (44,920 350.92) (62 514 573.21) 2nd Otr FY 2004 3rd Otr FY 2004 63 268 426.40 31 675 341.20 807,345 023.00 1 239 127 372.00 981 046 593.00 978 272 042.77 1,851.660 042.40 2 249 074 755.97

Output VAT

Less: Input Tax

Carried-over from prev qtr

Presumptive Input Tax

Domestic purchases Total available Input Tax

Less Any VATRefund/TCC Claimed

Net Creditable Input Tax

8 744 477.61 6 326 842.64 .I 3 167 534. 12 62 514 573.21 32 928 208.72 26 034 524.98 - - 63 543.83 5 281 078.93 3 607 119.81 3 702 213. 10 67 795 652.14 36 535 328.53 29 800 281.9.1 26 122 965.81 4 173 960.91 41 672 686.33 32 361 367.62 VAT Payable/ (Excess I nput Tax) (32 928 208. 72) (26 034 524.98) (26 632 74 7. 79)

Less: Advance Payment

- . 419 748.00

Tax Payable/(Overpayment)

(32 928 208.72) (26 034,524.98) (27 052 495.79) 4th Qtr FY 2004 1st Qtr FY 2005

Taxable Sales

22 632·468.20 5 341 002.60

Zero-Rated Sales

1 586 425 474.00 1 202 714 182.53

Exempt Sales

1 562 169 435.00 1 209 725 224.60

Total Sales

3 171 227 377.20 2,417,780,409.73

Output VAT

. 2 263 246.82 534 100.26

Less: Input Tax

Carried-over from _Qrev qtr 27 052 495.79 28 768 355.45 Presumptive lnJJut Tax 45 758.00 - Domestic purchases 3 603 407.48 4 194 111.97 Total available I I}Qut Tax 30 701 661.27 32 962 467.42

Less Any VATRefund/TCC Claimed

- 512 724.9.0

Net Creditable Input Tax

30 701 661.27 32 449 742.52

VAT Payable/(Excess Input Tax)

(28 438 414.45) (31 915 642.26)

Less: Advance Payment

329 941.00 - Tax Paya ble f (Ove~CI}'ment) (28,768,355.45) (31 915 642.26) ,.

On June 27, 2003, petitioner filed with the BIR a written application for the refund of the amount of P26,122,965.81 representing unutilized input VAT for the period April 1, 2001 to February 28, 2003. 7 Due to respondent's inaction on its claim and in order to toll the running of the two-year prescriptive period within which to file a judicial claim for refund, petitioner filed before this Court a Petition for Review docketed as CTA Case No. 6714 on June 30, 2003. On July 29, 2003, respondent filed his Answer8 praying that the Petition for Review be dismissed for lack of merit.~

On September 29, 2003, petitioner filed with the BIR a supplemental application increasing the amount of unutilized input VAT to· be claimed as refund for the period April 1, 2001 to February 28, 2003 from the original amount of P26,122,965.81 to P27,847,897.72.9 On October 1, 2003, petitioner filed a Motion for Leave of Court to Amend Petition for Review10 dated September 29, 2003. As stated in paragraph 4 of petitioner's motion: Upon further verification of its supporting documents for the instant claim for refund or issuance of TCC, petitioner determined that its unutilized or unapplied input taxes I attributable to its export sales is P27,847,897.72 and not P26,122,965.81 as indicated in the Petition; for Review filed with the Honorable Court.

This court issued a Resolution 11 dated October 22, 2003 granting petitioner's Motion for Leave of Court to Amend Petition for Review and also admitting the Amended Petition for Review filed on October 1, 2003. On December 4, 2003, respondent filed his Motion for Leave to Amend Answer12 which the Court granted in open court oh· February 6, 2004. In his Amended Answer13, respondent raised the following Special and

Affirmative Defenses:

"4. He reiterates and pleads the preceding paragraphs of this answer as part of his Special and Affirmative Defenses; 5.

Petitioner's alleged claim for refund is subject to administrative investigation/examination by the respondent;~ a Docket, pp. 44-50

6.

To support its claim, it is imperative for petitioner to prove the following, viz:

a. The registration requirements of a value-added taxpayer in compliance with Section 6(a) and (b) of Revenue Regulations No. 6-97 in relation to Section 4.107-1(a) of Revenue Regulations No. 7-95 and Section 236 of the Tax Code, as amended;.

b. The invoicing and accounting requirements for VAT-registered persons, as well as the filing and payment

of VAT

in compliance with the provisions of Sections 113 and 114 of the Tax Code, as amended;

c. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim for VAT refund · in pursuance to

Revenue

Memorandum

Order .· No.

53-98, otherwise there would be no sufficient compliance with the filing of administrative claim for refund, the administrative claim thereof being mere pro'-forma, which is a condition sine qua non prior to the filing of judicial claim in accordance with the provision of Section 229 of the Tax Code, as amenqed. It is worthy of emphasis that Section 112 (D) of the

Tax

Code, as amended, requires the submission of complete documents in support of the application filed with the Bureau of Internal Revenue before the 120-day audit period shall apply, and before the taxpayer could avail of judicial remedies as provided for in the law.

Hence, petitioner's failure to submit proof of compliance with the . above-:stated requirements warrants immediate : dismissal of the petition for review.

d. That the input taxes of P27,847,897.72 allegedly : paid by the petitioner on its purchases of goods and services for the period April 1, 2001 to February 28, 2002 were attributable to its export sales and such have not been applied against ~ any output tax and were not carried over in the succeeding taxable quarter or quarters;

e. That petitioner generated export sales in the aggregate . amount of P4,141,519,935.94 for the same period and those were paid for in acceptable foreign currencies and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP), which were made the basis for the application for refund;

f. That petitioner's administrative and judicial claims for tax credit or refund of the unutilized input tax (VAT) was filed within two (2) years after the close of the taxable quarter when the sales were made in · accordance with Sections 112 (A) and (D) and 229 of the Tax Code, as amended;

g. That petitioner's domestic purchases of goods and services were made in the course of its trade or business, properly supported by VAT invoices and/or official receipts and other documents, such as subsidiary purchase Journal, showing that it actually paid VAT in accordance with Sections 110 (A) (2) and 113 of the Tax Code, as amended, and in pursuance to Section 4.104-5 (a) & (b) of Revenue Regulations No. 7-

95 (Re:

Substantiation of Claims for Input Tax

Credit);

h. The requirements as enum~rated under Section 4.104-2 of the Revenue Regulations 7-95. (Re: Persons who can avail of the Input Tax Credits); 7.

Furthermore, 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. Th.is is so because exemptions from taxation are highly disfavored in law and he who claims exemption must be able to justify his claim by the clearest grant of organic or . statutory law. An exemption from common burden cannot be permitted to exist upon vague implications. (Asiatic Petroleum Co. [P.I.] v. Llanes/ 49 Phil. 466 cited in Collector of Internal Revenue v. Manila Jockey Club Inc./ 98 Phil . . 670);~

8.

Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation."

On May 31, 2005, petitioner filed with the Large Taxpayers Service of the BIR an administrative claim for refund of unutilized input taxes for the period covering March 1, 2003 to August 31, 2004 in the total amount of P22,194,446.67 .14 On even date, petitioner filed before this Court a Petition for Review15 docketed as CTA Case No. 7262 praying for the issuance of a tax credit certificate corresponding to its alleged unutilized input taxes for the period · March 1, 2003 to August 31, 2004 in the amount of P22,194,446.67. On July 21, 2005, respondent filed his Answer16 in CTA Case No. 7262 alleging by way of Special and Affirmative Defenses that: "4. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau;

5. The amount of P22,194,446.67 being claimed by petitioner as alleged unutilized and/or unapplied input VAT for the period covering 1 March 2003 to .31 August 2004 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 Tax Code on the prescriptive period for claiming refund/ credit; .· .

@.

14 Stipulation of Facts, Par. 4, JSFI, CTA Case No. 7262, Docket, p. 63 15 Docket, pp. 1-7 (Case No. 7262) 16 Docket, pp. 30-34 (Case No. 7262) 116 3

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 July 2, 2007, petitioner filed a Motion for Consolidation 17 of CTA Case No. 6714 with CTA Case No. 7262 considering that these cases involve · common questions of law and of facts, albeit for different periods and in view of the necessity of proving that petitioner had sufficient input VAT from previous quarters to apply against its output VAT ·liability. The Court granted the said Motion in a Resolution 18 dated July 10, 2007.

During

the proceedings, petitioner proffered testimonial and documentary evidence. Respondent, on the other hand, waived his right to present evidence. 19 Both parties having filed their respective memorandum, the case was submitted fqr decision on August 24, 2009. 20 The ~arties presented the following issues for this Court's resolution: ' I ' CTA Case No. 6714 "1.

Whether or not Petitioner has filed its administrative (original and supplemental) and judicial claims for refund or issuance of TCC in the aggregate amount of P27,847,897.72 within the prescriptive period of two (2) years .~

2. Whether or not for the period April 1, 2001 to February 28, 2003, petitioner generated zero-rated export sales.

3.

Whether or not the foreign exchange proceeds of petitioner's zero-rated export sales were duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).

4. Whether or not for the period April 1, 2001 to February 28, 2003 Petitioner paid input VAT in the total amount of P27,847,897.72 on its purchases of goods and services attributable to export sales.

5. Whether or not the invoicing and accounting requirements for VAT-registered persons, as well as the filing and payment of VAT for the period covered has been complied with by the Petitioner.

6. Whether or not the checklist of requirements prescribed in Revenue Memorandum Order No. 53-98 in connection with the administrative claim for refund has been complied with by the Petitioner. 7.

Whether or not the aforementioned input VAT in the total · amount of P27,847,897.72 were applied against petitioner's output VAT liability in the succeeding quarters.

8.

Whether or not Petitioner is entitled to the claim for refund and/or issuance of a Tax Credit Certificate (TCC) in the amount of P27,847,897.72 representing unutilized and/or unapplied input VAT attributable to export sales for the period April 1, 2001 to February 28, 2003."

. CTA Case No. 7262 "1. Whether or not Petitioner has unapplied or unutilized input VAT for the 4th quarter of fiscal year ending 31 May 2003, the 1st, 2nd, 3rd and 4th quarters of fiscal year ending 31 May 2004, and the 1st quarter of fiscal year ending 31 May 2005, arising from its purchases of goods and services attributable to its zero- rated export sales · during the period covering 1 Marc~ 2003 to 31 August 2004 in the total amount of P22,194,446.67 that can be the proper subject of a claim for refund pursuant to Section 110(8) and Section 112(A) of the Tax Code, as amended.

2. Whether or not the unutilized input taxes for the 4th quarter of fiscal year ending 31 May 2003, the 1st, 2nd, 3rd, and 4th quarters of fiscal year ending 31 May 2004 and the 1st quarter of fiscal year ending 31 May 2005 are substantiated by proper invoices and official receipts; and

3. Whether or not the said unutilized input VAT for the 4th quarter of fiscal year ending 31 May 2003, the 1st, 2nd, 3rd and 4th quarters of fiscal year ending 31 May 2004 and the 1st quarter of fiscal year ending 31 May 2005 were carried over to the succeeding taxable quarter(s) and applied against any of the output VAT liability of the petitioner for the said period."

The issues raised by both parties boil down to the principal issue of whether or not petitioner is entitled to the issuance of Tax Credit Certificate (TCC) for its alleged unutilized input VAT covering the periods of April 1, 2001 to February 28, 2003 and March 1, 2003 to August 31, 2004 in the respective amounts of P27,847,897.72 and P22,194,446.67, or in the sum of P50,042,344.39.

Petitioner anchors its claim on Sections 110(6) and 112(A) of the NIRC of 1997, as amended, which allow the refund/tax credit of unutilized input VAT attributable to zero-rated or effectively zero-rated sales, to wit: "SEC. 110. Tax Credits. - (A) Creditable Input Tax. -

(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax:

XXX

XXX

XXX

~

(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 quarter or quarters. Any input tax attributable to the f.

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 ofSection 112."

"SEC. 112. Refunds or Tax Credits of Input 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 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:

Providecf however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1),(2) and (B) and Section 108(6)(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 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 volume of sales." From the foregoing provisions, in order to be entitled to a refund/tax credit of unutilized input VAT, the following conditions must be present:

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 attributable to zero-rated sales 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. _t$._.

1 . w, ') .J_ ( .....

CfA CASE NO. 67 14 & 7262

This Court shall first resolve petitioner's compliance with the fifth requisite which is the timeliness of the filing of the instant claims both in the administrative and judicial levels. The Supreme Court, in the case of Atlas

Consolidated

Mining

and

Development

Corporation

vs.

Commissioner of Internal Revenue21, held that the two-year prescriptive period for the filing of VAT refund claims is reckoned from the date of filing of the corresponding Quarterly VAT Returns. Although in the case of Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (Formerly SOUTHERN ENERGY QUEZON, INC.) 22, the Supreme Court held that the reckoning of the two-year prescriptive period for the filing of a claim for input VAT refund starts from the close of the taxable quarter when the relevant sales were made, this Court finds it proper to apply said ruling to cases filed after the promulgation date of the Mirant case in view of the numerous rulings of the Supreme Court upholding. the prospective application of decisions.23 Records indicate that petitioner originally filed its administrative claim for refund of input VAT covering the period Apr'il 1, 2001 to February 28, 2003 on June 27, 2003 24 and its judicial appeal with this Court, by way of Petition for Review, docketed as CTA Case No. 6714, on June 30, 2003. On the other hand, petitioner filed its administrative claim for refund of input VAT · ~ 21 G.R. Nos. 141104 & 148763, June 7, 2007 22 G.R. No. 172129, September 12, 2008 23 Sps. Benzonan vs. Court of Appeals, G.R. No. 97998, January 27, 1992; Columbia Pictures, Inc. vs. Court of Appeals, G.R. No. 110318, August 28, 1996; Co vs. Court of Appeals, G.R. No. 100776, October 28, 1993; Columbia Pictures, I nc. vs. Court of Appeals, G.R. No. 1103 18, August 28, 1996; E;'eroto vs. Sandiganbayan (Special Division) G.R. NO. 157294-95, November 30, 2006

covering the period March 1, 2003 to August 31, 2004 and the Petition for Review, docketed as CTA Case No. 7262, on the same day of May 31, 2005. All of the preceeding dates of filing fall within the two-year prescriptive period reckoned from the respective dates of filing bf the Quarterly VAT Returns for the periods April 1, 2001 to February 28, 2003 and March 1, 2003 to August 31, 2004.

Proceeding to the first requisite, petitioner, in its Quarterly VAT Returns for the subject periods of claim, reflected zero-rated sales in the amounts of P4,617,601,283.48 and P6,364,206,218.33, respectively, detailed as follows:

Exhibit

Period Covered

Zero-Rated Sales

CTA Case No. 6714

E V

2nd Qtr - CY 2001 p 473 354 243.00 H-1, X 3rd Qtr - CY 2001 580,569,507.00

K-1 Z

4th Qtr- CY 2001 430 276 914.00 N-1, BB 1st Qtr - CY 2002 562,453,504.00 0 2nd Qtr- CY 2002 652 076 777.48 P, EE 1st Qtr- FY endinq May 31, 2003 476 081,386.20 Q, FF 2nd Qtr- FY endinq May 31 2003 559 506 262.00 R,GG 3rd Qtr - FY ending May 31, 2003 883,282,689.80

Total

P4,617,601,283.48 CTA Case No. 7262

B

4th Qtr- FY ending May 31, 2003 p 841,599,114.80 c 1st Qtr - FY endinq May 31, 2004 686 995 052.00

D

2nd Qtr - FY endinq May 31, 2004 807,345,023.00

E

3rd Qtr - FY ending May 31, 2004 1,239,127,372.00

F

4th Qtr- FY ending May 31 2004 1,586,425,474.00

G

1st Qtr - FY ending May 31, 2005 1,202, 714,182.53

Total

P6 364,206,218.33 Petitioner maintains that its export sales of coconut oil, the proceeds of which were paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP are subject to zero percent (0%) VAT pursuant to Section 106(A)(2)(a)(1) of the NIRC of 1997, as amended, which states:~ 1 # .. .

~ .!. { "t "SEC.106. Value-Added Tax on Sale oF Goods or Properties.- .

(A) Rate and Base oF Tax,- xxx

XXX

XXX

XXX

(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 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)." Prescinding from the above law, in order for an export sale to qualify as VAT zero-rated, the following conditions must be present: 1.)

there was sale and actual shipment of goods from the Philippines to a foreign country;

2.)

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

the sale was paid for in acceptable foreign currency or its equivalent in goods or services; and 4.)

the payment was accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas. Petitioner satisfied all of the above requisites. The fact that petitioner is a VAT registered entity is not disputed 25 . For the periods covering April 1, 2001 to February 28, 2003 and March 1, 2003 to August 31, 2004, petitioner shipped and sold its products of crude coconut oil and copra expeller cake/meal/pellets to various foreign buyers abroad and generated export sales in the respective amounts of P4,617,601,334.09 26 and P6,374,292,417.7927 as evidenced by export sales invoices, expo"k_ 25 Stipulation of Facts, Par. 3, JSFI, CTA Case No. 7262, Docket, p. 62; Exhibit D, CTA Case No. 6714 26 Exhibit "CC-6", Annex A, page 3, CTA Case No. 6714 27 Sum of P6,364,206,217.79 and P10,086,200.00 as appearing in Exhibit "M" attached to Exhibit "P-2" and Exhibit "M.l" attached to Exhibit "P", CTA Case No. 7262 1 1 ... r:

..L ( J declarations and bills of lading. 28 Likewise, the foreign currency proceeds thereof (in US dollars) were inwardly remitted in accordance with the rules and regulations of the BSP as shown by the bank notices from JP Morgan Chase Bank (Singapore), credit advices from Standard Chartered Bank - Makati and exports bill payment advices from Hongkong and Shanghai Banking Corporation - Manila Main office.29 A comparison of the total amounts of zero-rated sales for the periods April 1, 2001 to February 28, 2003 and March 1, 2003 to August 31, 2004, as reflected in the Quarterly VAT Returns, with the amounts shown in the summaries of zero-rated sales and related export documents disclosed the following discrepancies:

April 1, 200 1 to March 1, 2003 to February 28, 2003 August 31, 2004 (CTA Case No. 67 14) (CTA Case No. 7262) .

Zero-Rated Sales Per VAT Returns

p . 4 617 601,283.48 p 6 364 206 218.33

Zero-Rated Sales Per Summary/Export

Documents

4 617 601 334.09 6 374 292 417.79

Difference

p (50.61) p (10,086 ,1 99.46) ' Petitioner was unable to account for the minor discrepancy of P50.61. However, the sales discrepancy of P10,086,199.46 pertains to petitioner's zero-rated sales in March 2003 which were erroneously classified as exempt sales in its VAT Return30 . ~

After having resolved that petitioner had VAT zero-rated export sales for the subject period of claim, we shall now determine the amount of unutilized excess input VAT attributable thereto. In its Quarterly VAT Returns for the periods April 1, 2001 to February 28, 2003 and March 1, 2003 to August 31, 2004, petitioner's declared input VAT arising from its domestic purchases of goods and services amounted to P169,330,594.43 and P31,001,900.62, respectively, totaling to P200,332,495.05, broken down as follows:

Exhibit

Period Covered

Input VAT

CTA Case No. 671 4

E V

2nd Qtr CY 2001 p 18 577 411.42

H-1 X

3rd Qtr CY 2001 10 621,081.02

K-1 Z

4th Qtr CY 2001 16 134,087.46 N-1, BB 1st Qtr CY 2002 44 809,937.42 0 2nd Qtr CY 2002 17 210 932.32

P EE

1st Qtr FY ending May 31, 2003 9 553,468.44 Q. FF 2nd Qtr FY ending May 31 2003 36 190 306.68 R,GG 3rd Qtr FY ending May 31, 2003 16,233,369.67

Subtotal

p 169,330,594.43 CTA Case No. 7262

B

4th Qtr FY ending May 31, 2003 p 10 613,969.33 c 1st Qtr FY ending May 31 2004 5 281 078.93

D

2nd Qtr FY ending May 31, 2004 3 607,119.81

E

3rd Qtr FY ending May 31 2004 3 702 213.10

F

4th Qtr FY ending May 31, 2004 3,603,407.48

G

1st Otr FY ending May 31, 2005 4 194 111.97

Subtotal

p 31,001,900.62

Total

p 200,332,495.05 Out of the aforestated . input taxes of P200,332,495.05, only the following input taxes, in the aggregate amount of P50,042,344.49, are covered by the instant claims:~ 1 ~ ... .., .a. { i

Period Covered

April! 2001 to February 28 2003 March 1 2003 to Aug. 31 2004

Per VAT Returns

p 169 330 594.43 31,001 900.62

INPUT VAT

Balance Not

Per Claim

Claimed

p 27 847 897.72 p 141 482 696.71 22 194,446.67 8 807 453.95

Total

P200 332 495.05 P50 042 344.39 P150 290 150.66 To verify petitioner's inpwt VAT claim for the period April 1, 2001 to February 28, 2003 (for CTA Case No. 6714), the Court commissioned the independent CPA (ICPA) firm, Sycip Gorres Velayo & Co. (SGV & Co.), through its Partner, Mr. Henry M. Tan. Based on SGV & Co.'s review and validation of petitioner's input VAT claim, it was observed that petitioner's operations are divided into the following business units31 :

BUSINESS UNIT

DESIGNATION

1

Oilseeds

Oils

a.

Makati operations

Makati

b.

General Santos City operations

GSC

c.

Marqosatubig operations

Margosatubig

d.

Branch operations

Branches

2

Meals and Grains

WMT

Animal Feeds (Cargill Animal

3

Nutrition)

CAN

a.

Baliuaq ooerations

Baliuaq

b.

Pulilan operations

Pulilan

c.

Villasis operations

Villasis

d.

General Santos City operations

GSC

4

Suqar

Sugar

5

Administration

Admin

Petitioner records its transactions based on these business' units. Each business unit is assigned a code to identify which unit the sales and ' purch~ses pertain to. The following are the activities and tax treatment of petitioner's business units32 :

BUSINESS UNIT

ACTIVITY

1. Oils Sale of crude coconut oil and 31 Exhibit "CC-4", p. 6

32 Ibid

1 - ... () ..i.. ( u

2. WMT

3. CAN

4. Sugar copra expeller pellet meal treated as zero-rated .

Domestic

sales of crude coconut oil are subjected to ro% Vat while sales of copra expeller pellet meal to local manufacturers · of animal feeds are treated as

VAT-

exempt.

Sale of soybean meals and other feed ingredients in the domestic This activity is treated market as VAT exempt Domestic sale of feed ingredients, animal feeds, and specialty feeds Domestic sale of raw and refined sugar The Company treats its sales of animal feeds as

VAT-

exempt. On the other hand , sales of specialty animal feeds are subjected to 10% VAT.

Sale of raw sugar is treated as

VAT-

exempt while the sale of refined sugar is subjected to 10%

VAT

Petitioner's claims for refund include input taxes from Oils and Admin. All input taxes arising from common expenses were claimed under Admin but the subject claim for refund includes only the input taxes arising from Admin expenses that are either directly attributable or allocable to zero-rated sales. No input taxes from Sugar, WMT and CAN (collectively referred to as the "Other Business Units") are subject of the instant claim for refund. 33 Upon examination of petitioner's summary lists of purchases34 and the related suppliers' invoices and official receipts35 for the period April 1, 2001 to~

February 28, 2003 as well as the final and consolidated report of Mr. Henry M. · Tan of SGV & Co. 36, this Court found that out of the reported input VAT of P169,330,594.43, only the amount of P165,655,103.00 is duly substantiated in accordance with Sections 110(A) and 113(A) of the NIRC of 1997, as amended, in relation to Sections 4.104-1, 4.104-5 and 4.108-1 of Revenue Regulations (RR) No. 7-95, the pertinent provisions of which are hereinbelow quoted, to wit:

NIRC of 1997

"SEC. 110. Tax Credits.-

(A)

Creditable Input Tax.- (1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax:

(a) Purchase or importation of goods: (i) For sale; or .

(ii) For conversion into or intended to form part of a finished product for sale including packaging materials; or (iii) For use as supplies in the course of business; or (iv) For use as materials supplied in the sale of service; or (v) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code, except automobiles, aircraft and yachts. (b) Purchase of services on which a value-added tax has been actually paid.

(2) The input tax on domestic purchase of goods or properties shall be creditable.

(a) To the purchaser upon consummation of sale and on importation of goods or properties; and~ to "GGG-17", "HHH-1" to "HHH-449", "III-1" to "III-459", "JJJ-1" to "JJJ-459", "KKK-1" to "KKK-537", "LLL-1" to "LLL-527", "MMM-r to "MMM-424", "NN N-1" to "NN N-576", "000 -1" to "000-697", "PPP- 1" to "PPP-329", "QQQ-1" to "QQQ-501", "RRR- 1" to "RRR-229", "SSS-1" to "SSS-348", "TIT-1 " to "TIT-289", "UUU-1" to "UUU-168", "VVV-1" to "VVV-455: and "WWW-1" to "WWW-536, CTA Case No. 6714

(b) To the importer upon payment of the value-added tax prior to the release of the goods from the custody of the Bureau of Customs.

However, in the case of purchase of · services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee. (3) A VAT-registered person who is also engaged in transactions not subject to the value-added tax shall be allowed tax credit as follows:

(a) Total input tax which can be directly attributed to transactions subject to value-added tax; and (b) A ratable portion of any input tax which cannot be directly .attributed to either activity. The term 'input tax means the value-added tax due from or paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchase of goods or services, including lease or use of property, from a VAT-registered person. It shall also include the transitional input tax determined in accordance with Section 111 of this Code. The term 'output tax means the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under Section 236 of this Code."

"SEC. 113.

Invoicing and Accounting Requirements for

VAT-Registered Persons.-

(A)

Invoicing Requirements.

-

A VAT-registered

person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); and · (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax." REVENUE REGULATIONS CRR) No. 7-95 "SEC. 4.104-1. Credits for input tax.- 'Input tax' means the value-added tax due from or paid by a VAT-registered person on importation of goods or loca~ 1 , n ..L O.L purchases of goods or services/ including lease or use of prope~ from another VAT-registered person in the course of his trade or business. It shall also include the transitional or presumptive input tax determined in accordance with Section 1 OS of the Code.

It includes input taxes which can be directly attributed to transactions subject to the value-added tax plus a ratable portion of any input tax which cannot be directly attributed to either the taxable or exempt activity. Any input tax evidenced by a VAT invoice or official receipt issued by a VAT-registered person in accordahce with Section 108 of the Code, on the following transactions, shall be creditable against the output tax: (a) Purchase or importation of goods

1. For sale; or

2. For conversion into or intended to form part of a finished product for sale, including packaging materials; or

3. For as supplies in the course of business; or

4. For use as raw materials supplied in the sale of services; or

5. For use in trade or business for which deduction for depreciation or amortization is allowed under the Code, except automobiles, aircraft and yachts.

'Automobile / as contemplated in this section, shall mean a 4-wheeled luxury motor vehicle, which is used in the trade or business of the VAT taxpayer, propelled by any motive fuel with engine displacement of 2,000 cc or more, and specially designed for the transport of persons and not use primarily for the carrying of freight or merchandise; Provided, however, that the definition shall not apply to those required in the trade or business of . the VAT taxpayer, such as hotel limousines, funeral hearse, ambulances and similar vehicles:t2'2-- (b) Purchase of real properties for which a VAT has actually been paid;

(c) Purchase of services in which a VAT has actually been paid;

(d) Transactions "deemed sale" under Section 100 (b) of the Code;

(e) Presumptive jnput tax allowed to be carried over as provided for in

Section

4.105-1 of these Regulations;

(f) A VAT-registered person who is also engaged in transactions not subject to VAT shall be allowed input tax credit as follows:

1.

Total input which can be directly attributed to transactions subject to VAT; and 2.

A ratable portion of any input tax which cannot be directly attributed to either activity." "SEC. 4.104-5. Substantiation of claims for input tax credit. -

(a) Input taxes shall be allowed only if the domestic purchase of goods, properties or · services is made in the course of trade or business. The input tax should be supported by an invoice or receipt showing the information as required under Section 108 (a) and 238 of the Code. Input tax on purchases of real property should be supported by a copy of the public instrument i.e. deed of absolute sale, deed of conditional sale, contract/agreement to sell, etc., together with the VAT receipt issued by the seller. A casf.l-register machine tape issued to a VAT registered buyer by a VAT-registered seller form a machine duly registered with the BIR in lieu of the regular sales invoice, shall constitute valid proof of substantiation of tax credit only if the name and

TIN

of the purchaser is indicated in the receipt and authenticated by a duly authorized representative of the seller.

(b) Input tax on importations shall be supported with the import entry or other equivalent document showing actual payment of VAT on the imported goodsJ?- 118 3

(c) Presumptive input tax shall be supported by an inventory of goods as shown in a detailed list to be submitted to the SIR.

(d) Input ·tax on "deemed sale" transactions shall be substantiated with the required invoices.

(e) Input tax from payments made to non-residents shall be supported by a copy of the VAT declaration/return filed by the resident licensee/lessee in behalf of the non-resident licensor/lessor evidencing remittance of the VAT due." "SEC. 4.108- 1. Invoicing Requirements -

All VAT-

registered persons shall, for every sale or lease of goods or properties or services, is·sue duly registered receipts or sales or commercial invoices which must show:. 1.

the name, TIN and address of seller; 2.

date of transaction;

3.

quantity, unit cost and description of merchandise or nature of service;

4.

the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client; 5.

the word "zero rated" imprinted on the invoice covering zero-rated sales; and 6.

the invoice value or consideration. In the case of sale of real property subject to VAT and where the zonal or market value is higher than the actual consideration, the VAT shall be separately indicated in the invoice or receipt.

Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoice or receipts and this shall be considered as a "VAT Invoice". All purchases covered by invoices other than "VAT" Invoice" shall not give rise to any input tax.

If the taxable person is . also engaged in exempt operations, he should issue separate invoices or receipts for the taxable and exempt operations. A "VAT Invoice" shall be issued only for sales of goods, properties or seriices subject to VAT imposed in Sections 100 and 102 of the Code.~ ll8 4

The invoice or receipt shall be prepared at least in duplic·ate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records. " The substantiated input VAT of P165,655,103.00 is composed of P27,051,054.57 input VAT attributable to petitioner's zero-rated sales and P138,604,048.43 input VAT attributable to petitioner's VATable sales, as computed below:

Input Taxes

Input Taxes Not

Covered by

Covered by

Total Input

Claim

Claim

Taxes

Input tax on purchases of goods and se rvices:

'

a. OILS 23 240 505.46 - 23 240 505.46

b. WMT - - -

c. CAN 191 162.28 191 162.28

d. SUGAR 137 646 314.58 137 646 314.58

e. ADMIN

1. Directly attributable to Oils . 3 667 765.08 3 667 765.08

2. Allocable to Oils 939 627.18 939 627.18

3. Directly attributable to other business units 1 980 324.33 1 980 324.33

4. Allocable to other business units 1 664,896.57 1 664 896.57 Unaccounted difference (1.05) (1.05)

Total

27_L847[897. 72 141 482,696.71 169 330,594.43

Less:

a. Input taxes claimed on purchases of goods without supporting documents

Exhibit "CC-4" Annex J

35 829 .56 35 829.56

Exhibit "CC-4" Annex UU

1 271 017.30 1 271 017.30 b.

Input taxes claimed on purchases of services without supporting documents

Exhibit "CC-4" Annexes K AA HH

314 401.01 314 401.01 Exhibit "CC-4" page 18 and Annex LL 22 105.19 40 660.29 62 765.48

Exhibit "CC-4" Annex W

13 906.92 13 906.92 c.

Input taxes claimed on purchases of goods supported by documents other than VAT invoices Exhibit "CC-4" page 18 and Annex MM 2 022.81 3 220.36 5 243 .17 d.

Input taxes claimed on purchases of services supported by documents other than VAT ORs

Exhibit "CC-4" Annexes M CC

167 499.69 167 499.69 Exhibit "CC-4" page 18 and Annex NN 10 039.40 19 272.00 29 311.40

Exhibit "CC-4" Annex WW

57 778.96 57 778.96 e.

Input taxes claimed on purchases of goods supported by VAT invoices not issued in petitioner's name

Exhibit "CC-4" Annex N

f.

Input taxes claimed on purchases of services supported by VAT ORs not issued in petitioner's name

Exhibit "CC-4" Annexes 0 II

g.

Input taxes claimed on purchases of qoods supported by non-VAT invoices

Exhibit "CC-4" Annex P

h.

Input taxes claimed on purchases of goods supported by invoices with pre- printed "TIN" only ~

Exhibit "CC-4" Annex Q

i.

Input taxes claimed on purchase Of services supported by non-VAT ORs

Exhibit "CC-4" Annexes R EE

Exhibit "CC-4" paqe 18 and Annex 00

Exhibit "CC-4" Annex XX

j .

Input taxes claimed on purchases of services supported by an OR with pre- printed "TAN-VAT"

Exhibit "CC-4" Annex S

k.

Input taxes claimed on purchases of services supported by ORs with pre- printed "TIN" only

Exhibit "CC-4" Annex DD

I.

Erroneous computation of input taxes claimed on purchases of services supported by VAT ORs

Exhibit "CC-4" Annexes V FF

Exhibit "CC-4" paqe 18 and Annex PP

Exhibit "CC-4" Annex YY

m. Input tax which the petitioner failed to provide the supporting documents Exhibit "CC-4", under II.D.2, pages 13-14 Exhibit "CC-4" ur.1der II.D.3 - Input VAT per claim VS.

per schedule - Oils

Input VAT

per claim vs.

per schedule -Admin allocable to Oils

n. Ratable portion of input taxes claimed on common expenses-Admin attributable to VAT-exempt sales (P2,484,398.3637 x 52.09% based on adjusted gross sales)

o. Input taxes on local purchases of goods supported by photocopied VAT invoices (Exh. "CC-4" Annex T)

p. Input taxes on local purchases of services supported by photocopied VAT ORs (Exh. "CC-4" Annexes U JJ)

q. Input taxes on local purchases of services supported by photocopied VAT 1 233.64 1 233.64 24 797.89 24 797.89 13 519.80 13 519.80 4 332.26 4 332.26 92 905.29 92 905.29 3 635.03 5 826.93 9 461.96 5 000.00 5 000.00 150.00 150.00 6 036.47 6 036.47 7 799.32 7 799.32 7 238.50 3 949.35 11187.85 5 372.45 5 372.45 191162.28 191 162.28 1.44 1.44 23 943.56 23 943.56 1 294 123.11 1 294 123.11 16 053.80 16 053.80 8 914.37 8 914.37 1 742.45 1 742.45 37 P2,602,368.22 input VAT claim from common expenses (Exh. "CC-4", p. 17) less P117,969.86 (Exh. "CC-4", page 18, nos. 2 to 6 of the Findings)

ORs (Exh. "CC-4", Annex CCC)

Sub-total

Total Input Taxes Supported by VAT

Invoices/ORs

and

Relevant

Documents

Less:

Ratable

portion of input

VAT

allocable to VATable sales (Oils) (P2,5 17,248. 56/P4,620 ,118,582.6538 x P27,085,438.69) Ratable portion of excess input taxes claimed on common expenses - Admin with supporting documents (P2,484,398.36 x .79% 39 based on adjusted gross sales)

VALID INPUT TAXES COVERED BY

CLAIM

ATTRIBUTABLE

TO

ZERO-

RATED SALES

VALID INPUT TAXES NOT COVERED

BY

CLAIM

ATTRIBUTABLE

TO

VATABLE SALES

TOTAL VALID INPUT TAXES

762 459.03 2,913 032.40 3,675 491.43 27,085,438.69 138 569 664.31 165,655 103.00 ·• 14 757.37 (14 757.37) 0.00 19 626.75 (19 626.75) 0.00 27 051,054.57 138 604 048.43 165 655 103.00 In arriving at the foregoing amounts of valid input VAT attributable to zero-rated and VATable sales, the Admin input taxes were allocated based on the ratio of the related sales to total sales as computed by SGV & Co., to wit:

Zero-Rated (0% )

VATable (10% )

Exempt

Total

Gross Sales

4 617 601 283.48 1 941 845 541.92 7 131 699 706.95 13 691146 532.35

Less:

a.

Sales

with no supporting documents (Exh.

"CC-4 '~ Annex

C)

125 380.00 125 380.00

b. Sales adjustments with no supporting documents (Exh. "CC-

4// Annex D)

8 688.00 8 688.00 c.

Sales adjustments not yet verified (Exh. TC-4 '~ Annexes

~F)_

(307 748.62) (307 748.62)

Subtotal

.. (173 680.62) (173 680.62) Adjusted gross sales 4 617 601283.48 1 941 84 5 541.9 2 7 131 873 387.57 13 691 320 212.97 38 Exhibit "CC-4", p. 24 39 Petitioner used a sales ratio of 34.52% (average rate for the period covered by the claim) for Oils or an excess over the adjusted sales ratio for zero-rated sales of 0. 79% 1187

33.73% 14.18% 52.09% 100% With reference to the declared input taxes for· the period March 1, 2003 to August 31, 2004 (in CTA Case No. 7262) in the amount of P31,001,900.62, a scrutiny of the report40 of the Court-commissioned independent CPA firm, Punongbayan & Araullo, through its Partner, Mr. Juan Carlos B. Robles and the supporting documents41 showed that petitioner was able to substantiate, by proper VAT invoices or official receipts, only the amount of P28,101,616.12, representing the sum of the input VAT attributable to zero-rated sales in the amount of P21,473,078.82 and input VAT attributable to VATable sales in the amount of P6,628,537.30, computed as follows:

Input Taxes

Input Taxes

Covered by

Not Covered by

Total Input

Claim

Claim

Taxes

Directly Attributable to Zero-Rated Sales

(Oils)

19 848 714.73 19 848 714.73 Admin Input VAT allocated to Zero-Rated

Sales

2 345 731 .94 2 345 731.94

Suqar and Admin

8 807 453.95 8 807 453.95

Total

22 194,446.67 8 807,453.95 31,001,900.62

Less:

a. Dates indicated on the suppliers' VAT official receipts are not within the period covered by the application for tax credit certificate/refund ( Exh. Kl, pages 4 & S)

Exhibit K-1 334

p 163.64

Exhibit K-1 335

415. 15

Exhibit K-1 336

5,593.50

Exhibit K-1 337

5,008.40

Exhibit K-1 338

100,000.00

Exhibit K-1 343

789.74

Exhibit K-1 357

723.36 ~ 112 693 zg 112,693.79 112,693.79

b. Certain information indicated in the suppliers' VAT invoices and/or official receipts were altered ( Exh. K.2)

c. Suppliers' VAT invoices and/or official receipts are not under the name of the petitioner (Exh. K3) · d.

Original

suppliers' invoices and/or official receipts on file were not examined (Exh. K6)

e. Supplier's VAT invoices and/or official receipts do not have BIR permit to print Exh. K7 Exh. K7-0thers

f. Transactions supported !:Jy tape receipts Exh. KB Exh. K B-Others g.

Supplier's

invoices and/or official receipts are reqistered as Non-VAT Exh. K9 Exh. K 9-0thers

h. Differences in input tax computation Exh. K11

Excess of Input VAT

· Claim over Input VAT

per Audit

p 33,425.00

Less:

Excess of Input VAT

per Audit over Input

VAT per Claim

5,734.54

Net Amount

E'2Z,69Q."'6 Exh. K 11-0thers

Excess of Input VAT

Claim over Input VAT

per Audit

p 32,896.55

Less:

Excess of Input VAT

per Audit over Input

VAT per Claim

20,513.04

Net Amount

E' 12.383.51

i. Difference between the input VAT per summary listing of local purchases attributable to zero-rated sales and the input VAT claimed by petitioner (Exh. ''P" page 5) j . Difference between the input VAT that was properly allocated to zero-rated sales and the allocated input VAT claimed by petitioner

Per Claim

P2,345,731.94

Per Allocation

2,1Z5.6Z6.53

Difference

P

170.0SS.41

k. Admin Input VAT attributable to VAT- exempt sales (P4,392,643.91

X

48.34%))

Subtotal

10 532.37 7 782.42 644.51 450.24 4 239.00 ' 23 523.72 17 942.81 9 318.05 434.22 33,425.00 32,896.55 352 942.34 170 055.41 2 123 404.07 721 367.85 2,178_L_916.65 10 532.37 7 782.42 644.51 •.

450.24 4 239.00 23 523.72 17 942.81 9 318.05 434.22 33,425.00 32,896.55 352 942.34 170 055.41 2 123 404.07 2 900 284.50 ~ 1l8 Q

VALID INPUT TAXES COVERED BY

CLAIM

ATTRIBUTABLE

TO

ZERO-

RATED SALES

VALID INPUT TAXES NOT COVERED

BY

CLAIM

ATTRIBUTABLE

TO

VATABLE SALES

TOTA~ VALID INPUT TAXES

21 473 078.82 6 628,537.30 28 101 616.12 In arriving at the foregoing valid input taxes attributable to zero-rated and VATable sales, the Admin Input VAT of P4,392,643.91 was allocated based on the ratio of the related sales to total sales as shown below:

Zero-Rated (0%)

VATABLE (10% }

Exempt

Total

Gross Sales

6 374 292 417.79 274 183 243 .1:~ 6 241 450 253.70 12 889 925 914.62

Add(Less):

Zero-Rated

sales erroneously classified as exempt sales 10 086 200.00 ( 10 086 200.00) - Adjusted gross sales _(with support) 6 384 378 617.79 274 183 243.13 6 231 364 053.70 12 889 925 914.62 Adjusted sales ratio 49.53% 2.13% 48.34% 100.00%

Allocated Admin

Input VAT

2 175 676.53 93 563.32 2 123 404.07 4 392 643.91 Admin Input VAT per claim Exh. P, Annex IV 4,436,799.24

Less:

Supplier's VAT invoices and/or official receipts do not Exh. K.7-0thers have BIR permit to print 4 239.00 Transactions supported by tape receipts Exh. K.8-0thers 11 060.04 Supplier's invoices and/or official receipts are Exh. K.9-0thers registered as Non-VAT . 434 .22 Excess of Input VAT per claim over input VAT per Exh. K.11-0thers '1. ., .

audit 28 422.07

Subtotal

44 155.33

Valid Admin Input VAT

..

4 39~ 643.91 ·We proceed to the issue of whether or not the claimed input taxes were applied against any output VAT liability during and in the succeeding period of claim.

Based

on the related Quarterly VAT Returns, petitioner's VAT transactions for the periods April 1, 2001 to February 28, 2003 and March 1, 2003 to August 31, 2004 may be summarized as fol l ows~

Output VAT

Less: Input Tax

Carried-over from prev qtr

Presumptive Input Tax

Domestic purchases Total available Input Tax

VAT Payable/(Excess Input Tax)

Less: Advance Payment

Tax Payablef(Overpa yme nt) April 1, 2001 to Feb. 28 2003 p 194 184 554.44 p 38,199 071.54 6 701 884.34 169 330 594.43 p 214 231 550.31 J20 046 995.8~ 24 873 355.04 P(44,920 3 5 0 .91) March 1, 2003 to

Total

Aug. 31 2004 p 26 322 238.96 p 220 506 793.40 ·, p 44,920 350.91 p 38 199 071.54 2 028 775.78 8 730 660.12 31 001 900.62 p 200 332 495.05 p 77 951 027.31 247 262 226.71 J51 6·28 788.35) P (26 755 433.3U 11 096 505.52 35 969 860.56 P(62,725 293.87_2 Pj 6 2L725 293.87_2 The above summary indicates that aside from the input tax credits arising from its domestic purchases for the subject period of claim, petitioner had an input VAT carry-over from previous quarter in the amount of P38,199,071.54, presumptive input tax in the amou8t of P8,730,660.12 and advance VAT payment of P35,969,860.56 which were applied against the output tax of P220,506,793 .40.

In its Quarterly VAT Return for the first quarter of CY 2001, petitioner computed the input VAT carry-over of P38,199,071.54 as follows:

Total Output Taxes

p 38,700..L447.19 Less: Accumulated Input Taxes Carried Over from

Previous Quarter

21,633,716.56

Sub-total

p 17,066,730.63 Less: Total Input Taxes from Current Purchases 55 265,802.17 Excess Input Tax Credits to be Carried Over p _{_38 199[071.54) Using the First-In, First-Out (FIFO) method, i.e., older credits are applied first, the other Court-commissioned ICPA in CTA Case No. 6714, Constantino Guadalquiver & Co. through its Partner, Ms. Katherine 0 . Constantino, noted that the input VAT carry-over of P38,199,071.5~ originated from petitioner's current purchases for the first quarter of CY 2001 in the amount of P55,265,802.17. Although in the normal course of events, the input tax credits from previous quarter will h~ave to be applied first to pay for any current quarter's

I

output tax liability befbre the current quarter's input tax can be credited, the Court cannot allow petitioner to deduct the output tax for the first quarter of CY 2001 in the amount of P38!700,447.19 against the unsubstantiated input tax carry over from the previous quarter (fourth quarter of CY 2000) in the amount of P21,633,716.56. To be creditable against the output tax, the input tax carry-over of P21,633,716.56 must be substantiated by proper VAT invoices or receipts as provided for under Section 110(A) in relation to Section 110(6) of the NIRC of 1997, which states: "SEC. 110. Tax Credits.- A.

Creditable Input Tax -

(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax:

XXX

XXX

XXX

(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 quarter or quarters." As regards the input VAT on petitioner's current purchases for the first quarter of CY 2001 in the amount of P55,265,802.17, the Court finds that only the amount of P54,114,735.26 was properly substantiated for VAT purposes, detailed as follows:~

Exhibit

zzzzzzzz

Reported Input Taxes

Less:

Input

taxes claimed on purchases of goods and services without any supporting Annexes B, documents

0 and U

Input taxes claimed on purchase of goods supported by a non-

Annexes C

VAT invoice

and P

Input

taxes claimed on purchases of services supported by documents other than VAT

Annexes D

ORs and R

Input

taxes claimed on purchases of services supported by photocopied ORs with TIN only

Annex E

Input

taxes claimed on purchases of services supported by documents other than VAT

Annexes F

ORs

and V Input taxes claimed on purchase of services supported by VAT ORs not iSS\.led in the petitioner's name

Annex G

Input taxes claimed on purchase of services supported by photocopied VAT ORs not issued in the petitioner's name

Annex H

Erroneous computation of input taxes claimed on purchase of services supported by VAT ORs

Annex I

Input

taxes claimed on purchases of goods supported by photocopied VAT invoices

Annex J

Input

taxes claimed on purchases of services supported by photocopied VAT ORs

Annex L

Input

taxes claimed on purchases of goods supported by documents other than

VAT

invoices

Annex Q

Input

taxes claimed on purchases of services supported by ORs with pre-printed "TIN-

VAT" and "N-VAT"

Annex W

Subtotal

Total Input Taxes Supported by VAT Invoices/ORs and

Relevant Documents

Oils

Sugar

Admin

Total

2,284,966.41 52,14lt,863.65 838,972.11 55,265,802.17 236,288.56 217.11 829.44 237,335.11 818.18 2,946.82 3 765.00 68,767.32 15 103.83 83,871.15 8,293.85 8,293.85 2,102.22 224,951.89 227,054.11 813.64 813 .64 1,200.96 1,200.96 2 594.01 2,594.01 49,040.15 49,040.15 231 215.41 231 215.41 3 830.03 3,830.03 24,279.53 24,279.53 601,134.30 249,448.53 22,710.12 873,292.95 1,683,832.11 51,89;l,415.12 816,261.99 54,392,509.22

Less:

Ratable portion of Admin input VAT allocable to exempt sales (P816,261.99 x 34.03%42) 277,773 .96 277,773 .96

Total Valid Input Taxes

1,683,832.11 51,892,415.12 538,488.03 54,114,735.26 After having removed petitioner's output tax liability for the first quarter of CY 2001 in the amount of P38,700,447.19 from its P54,114,735.26 verified input tax credits on current purchases, there still remains an input tax credit of P15,414,288.07, as shown below, which can be carried-over and offset against the output tax due in the succeeding second quarter of CY 2001:

Total Output Taxes

p 38 700 447. 19

Less: Valid Input Tax on Current Purchases

54 114,735.26 Excess Input Tax Credits to be Carried Over to 2nd Qtr CY 2001 p (15 414,288.07) With reference to petitioner's declared presumptive input VAT in the amount of P6, 701,884.34 covering the period of April 1, 2001 to February 28, 2003, the Court-commissioned ICPA, Mr. Henry M. Tan, in his final and consolidated report dated June 23, 2005 , noted as follows43 : " E. Presumptive input tax and advance VAT payments

1. Presumptive input tax Our verification of the supporting documents on the Company's presumptive input taxes amounting to P6,701,884.34 showed that this amount is supported by original copies of invoices of the Company's suppliers of raw sugar. All the suppliers' invoices were dated within the period of claim. The Company computed the presumptive input tax as 1.5% of gross purchases of raw sugar.

Total raw sugar purchases for the period covered by the claim amounted to P44 6,79 2, 289.33 .~ 4 2 Percentage of exempt sales to total sales for the 1st Quarter of CY 2001

Furthermore, we noted that the photocopies of the documents submitted to this Honorable Court as evidences (e.g., VAT invoices) were faithful reproductions of the original documents we have examined."

The Court agrees with the ICPA's observation that the presumptive input VAT of P6,701,884.34 is duly supported by VAT invoices 44 .

Hence, petitioner may validly claim the amount of P6,701,884.34 as deduction from its output tax for the subject period of claim pursuant to Section 111(6)(1) of the NIRC of 1997, as amended, in relation to Section 9 of Revenue Regulations No. 29-02, which are all quoted herein below for easy reference: "SEC. 111. Transitional/Presumptive Input Tax Credits. -

XXX

XXX

XXX

(B) Presumptive Input Tax Credits.-

(1) Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing refined sugar and cooking oil, shall be . allowed a presumptive input tax, creditable against the output tax, equivalent to one and one- half percent ( 1 1/2%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production.

As used in this Subsection, the term "processing' shall mean pasteurization, canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such manner as to prepare it for special use to which it could not have been put in its original form or condition.

SECTION

9. Presumptive input tax. - Persons or firms engaged in the production and manufacturing of refined sugar for their own account shall be allowed a presumptive input tax, which is creditable against the output tax, equivalent to one and one-half percent of the gross value in money of their purchases of primary agricultural products which are used as inputs to&.. 44 Exhibits "YYY-1" to "YYY-378" as summarized in Exhibits "XXX- 1" to "XXX-5" l fg r .L ,j their production. Primary agricultural products shall be limited to sugar cane and other agricultural productS: which are main raw materials for the production of sugar." However, as to the presumptive input VAT for the period March 1, 2003 to August 31, 2004 in the amount of P2,028, 775.78, petitioner failed to provide supporting VAT invoices, hence, it cannot be credited against petitioner's output tax.

Regarding petitioner's claimed P24,873,355.04 advance VAT payments on sale of refined sugar for the period April 1, 2001 to February 28, 2003, petitioner presented Payment Forms (BIR Forms. No. 0605) and Certificates of Advance Payment of VAT totaling P21,883,355.04, detailed as follows: 1) Supported by Payment Forms and Certificates of Advance

Payment of VAT

Exhibit

No.

Advance VAT

Certificate of

Date Paid

Payment

Advance Payment of

Payment

Form

VAT

ZZZ-19

ZZZ-20

1/ 14/ 2003 p 145 312.00

ZZZ-22

ZZZ-23

1/ 20/ 2003 697,470.01

ZZZ-25

ZZZ-28

1/ 27/ 2003 676 783.66

ZZZ-26

ZZZ-27

1/ 14/ 2003 1 304,008.00

ZZZ-29

ZZZ-30

1/24/ 2003 633 916.00

ZZZ-31

zn:-32 1/24/ 2003 398,240.00

ZZZ-34

ZZZ-33

1/29/2003 319,276.00

ZZZ-35

ZZZ-36

2/ 03/ 2003 633 916.00

ZZZ-37

ZZZ-36

2/3/2003 8 512.00

ZZZ-38

ZZZ-39

2/ 3/2003 691,209.07

ZZZ-40

ZZZ-41

2/3/ 2003 37,418.05

ZZZ-42

ZZZ-43

2/10/ 2003 708,543.88

ZZZ-44

ZZZ-45

2/18/ 2003 704 401.55

ZZZ-46

ZZZ-47

2/21/2003 728)65.63

Subtotal

p 7,687,371.85 2) Supported by Payment Forms only

ZZZ-1

8/8/2001 p 3,450,000.00

ZZZ-2

8/8/2001 460,000.00

ZZZ-3

8/15/2001 460,000.00 ·,

ZZZ-4

ZZZ-5

ZZZ-6

ZZZ-7

ZZZ-8

ZZZ-9

ZZZ-10

ZZZ- 11

ZZZ-12

ZZZ-13

ZZZ-14

ZZZ-15

ZZZ-16

ZZZ-17

ZZZ-18

ZZZ-21

ZZZ-24

8/22/2001 320,712.00 8/28/200 1 460 ,000 .00 8/31/2001 460,000.00 8/3 1/2001 3,450,000.00 9/10/2001 460,000.00 9/17/2001 460,000.00 9/28/2001 460,000.00 10/5/2 001 920,000.00 10/5/2 001 460,000.00 10/5/2001 460,000.00 10/29/2002 313,536.00 . 10/30/2002 153,594.00 11 /4/2002 356,638. 00 11 /12/2002 172,696.99 11/19/2002 187,082.00 1/1 0/2003 223,056.20 1/2 1/2003 508,668.00

Subtotal

p 14,195,983.19

Total

p 21,883,355.04 Sections 5 and 7 of RR 7-89 enumerate the required proofs in order that the advance VAT payment on sale of refined sugar may be credited against the output tax, thus:

"SECTION 5. Proof of advance payment - The sugar refinery shall issue a certificate of advance payment in a form prescribed therefore to each owner/seller upon payment in advance of the VAT as required in Section 3 of these Regulations. This certificate and the official receipt issued by the BIR for the advance payment shall serve as proof of the credit for such advance payment against output tax as provided in Section 7 of these Reg~lations.

XXX

XXX

XXX

SECTION 7. Credit for advance payments. - In addition to the input tax credits allowed under Section 104 of the Tax Code as implemented by Section 10 of Revenue Regulations No. 5-87, the amount of advance payments made by sellers of refined sugar under these Regulations sha ll be allowed as a credit against their output tax on the actual gross selling price of refined sugar. The advance payment certificate issued under Section 5 hereof shall be adjusted to the quarterly VAT returns to support the claim for credit of advance tax payment." (Emphasis supplied). ~

1. (' .. , ..I..~ I

The foregoing provisions of RR No. 7-89 were amended by Sections 5 and 8 of RR No. 29-02 which, respectively, read as follows: "SECTION 5. Proof of advance payment -The Revenue District Office (ROO) concerned or the duly constituted unit in its place such as the Regional Task Force on Sugar, as the Regional Director may decide, shall issue a Certificate of Advance Payment of the VAT (Annex A) as required in Section 3 of these Regulations. This certificate shall serve as the authority of the sugar mill/refinery to release the refined sugar described therein, and together with the payment form (BIR Form No. 0605 or its equivalent) andthe SIR- prescribed deposit slip duly validated by the AAB, or the Revenue Official Receipt (ROR) issued by the Revenue Collection Officer (RCO) or the duly authorized City or Municipal Treasurer, as the case may be, shall serve as proof of the payment for the advance VAT wh,ich can be credited against output tax in the filed VAT · Return as provided in Section 8 of these Regulations. SECTION 8.

Credit for advance payments. - In addition to the input tax credits allowed under Section 110 of the Code, the amount of advance payments made by sellers of refined sugar under these Regulations shall be allowed as credit against their output tax on the actual gross selling price of refined sugar. The advance payment certificate issued under Section 5 hereof shall be attached to the quarterly VAT returns to support the claim for credit of advance VAT payment." (Emphasis supplied).

Based on the aforequoted revenue regulations, the advance VAT payment of P7,687,371.85, duly supported by Payment Forms and Certificates of Advance Payment of VAT, may be applied against petitioner's output tax. However, as regards petitioner's claimed advance VAT payments in the amount of P14,195,983.19, supported merely by Payment Forms, the same cannot be allowed to be credited against its output tax. The Payment Forms should have been machine validated or supported by official receipt issued bk_ l.i9 8 the BIR's Authorized Agent Bank (AAB) or the Revenue Official Receipt (ROR) issued by the Revenue Collection Officer (RCO) or the duly authorized City or Municipal Treasurer.

In addition, petitioner should have presented the corresponding Certificate of Advance Payment of the VAT as required under Sections 5 and 7 of RR 7-89, as amended by Sections 5 and 8 of RR 29-02. Also, petitioner's claimed P11,096,505.52 advance VAT payments for the period March 1, 2003 to August 31, 2004 shall be disallowed for petitioner's failure to substantiate the same.

Considering all of the above findings, petitioner's verified excess input VAT as of August 31, 2004 amounts to only P3,053,469.99 computed as follows: April 1, 2001 to March 1, 200 3 to Feb. 28, 2003 Aug. 31, 2004

Total

Output VAT

p 194,184,554.44 p 26,322,238.96 p 220,506,793.40

Less: Input Tax

Carried-over from prev qtr p 15,414,288.07 p 1,274 092.82 p 15,414,288.07

Presumptive Input Tax

6 701,884.34 - 6 701 884.34 Domestic purchases 165,655,103.00 28,101,616 .12 193 756,719.12 Total available Input Tax p 187 771 275.41 p 29 375 708.95 p 215 872 891.54

VAT Payable/ (Excess Input Tax)

p 6,413,279.03 p (3,053,469 .99) p 4,633,901.86

Less: Advance Payment

7,687,371.85 - 7 687 371.85 Tax Pa yable/ (Ove rpayme nt) p (1,274,092.82) p (3,053,469.99) p (3,053,469.99) As evidenced by petitioner's Quarterly VAT Returns for the first45 and second 46 quarters of FY ending May 31, 2004 as well as the first47, third 48 and fourth 49 quarters of FY ending May 31, 2005, the subject input VAT claims of P27,847,897.72 and P22,194,446.67 covering the periods April 1, 2001 to February 28, 2003 and March 1, 2003 to August 31, 2004, respectively, were deducted as "Any VAT Refund/TCC Claimed" from the total available inpu~ 45 Exhibit "C" (Case No. 7262)

46 Exhibit "D" Ibid

47 Exhibit "G"' Ibid

48 Exhibit "E8 ': Ibid

4g Exhibit "F8 " , Ibid

I

tax. This means that no amount of the subject claims for refund was carried- over/applied in the succeeding first quarter of FY ending May 31, 2006. In fine, this Court finds petitioner to have sufficiently proven its entitlement to the issuance of Tax Credit Certificate representing unutilized input VAT attributable or allocable to its zero-rated export sales for the period April 1, 2001 to August 31, 2004 in the reduced amount of P3,053,469.99, as computed above.

WHEREFORE, the instant PETITION FOR REVIEW is PARTIALLY GRANTED.

Respondent Commissioner of Internal Revenue is hereby ORDERED to ISSUE a TAX CREDIT CERTIFICATE in the amount of

THREE MILLION FIFTY THREE THOUSAND FOUR HUNDRED SIXTY

NINE AND 99/100 PESOS (P3,053,469.99) in favor of petitioner, representing its unutilized input VAT attributable or allocable to its zero-rated export sales for the period April 1, 2001 to August 31, 2004.

WE CONCUR:

Q~~· Q Vy0..-

(With Concurring and Dissenting Opinion)

ERNESTO D. ACOSTA

Presiding Justice

CAESAR A. CASANOVA

Associate Justice

UTISTA

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.

q_ __:;:-u.r - ~ ERNESTO D. ACOSTA

Presiding Justice

Chairman, First Division

REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

Special First Division

CARGILL PHILIPPINE S, INC., Petitioner, -versus-

COMMISSIONE R OF INTERNAL

REVE N UE

Respondent.

CTA Case Nos. 6714 & 7262

Members:

i\COSTA , P]. , BAUTISTA, and CASANOVA,JJ .

Promulgated:

A~ll."a~ X - -- ---------------~--------------~-~------------------------------------ --- - -- ------------ X

CONCURRING AND DISSENTING OPINION

While I concur in the denial of the claim for issuance of tax credit cer.tificate for the alleged unutilized input VAT in the P etitions for Review flied by Cargill Philippines, Inc., I respectfully dissent wi th the decision of the majority, specifically in partially allowing therein petitioner's claim for issuance of tax credit certificate as discussed below.

On the issue of timeliness .of the filing of the claims, the majority ruled that, "records indicate that petitioner· originally filed its administrative claim for refund of input VAT covering April 1, 2001 to February 28, 2003 on June 27, 2003 and its judicial appeal by way of Petition for Review docketed as CTA Case No. 6714 on June 30, 2003. O n the other band, petitioner fli ed its administrative claim for refund of input VAT covering the period March 1, 2003 to August 31, 2004,. and the Petition for Review docketed as CTA Case No. 7262 on the same day of ~Aa)' 31, 2005. All of the preceding elates of filing fall within the two-year prescriptive. period reckoned from the respective dates of filing the Quarterly VAT Returns for the period 1\pril 1, 2001 to February 28, 2003 and March 1, 2003 to August 31, 2004." Stated otherwise, the majority believes that a taxpaver has to file an administrative and judicial clairn within the two-year period; otherwise, the taxpayer will lose the option to seek the refund or issuance of tax credit and to appeal the decision of the Commissioner.

At this point, it should be emphasized that the applicable law in the cases at bar is Section 112 of the N IRC which unequivocally provides for the basis and procedure for tax refunds or credits of input tax attributable to zero-rated sales, tJiz: Section 112. Refunds or Tax Credits of I11put Tax. - (A) Zero-1'Clted or EffectiveiJ' Zero-rated Sales. - any VAT- registered persor1, whose sales are zero-rated or effectively zero-rated may, within two (2) vears after the close of the taxable guarter 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 (B)(l ) 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 or effectively zero-rated sale and also in taxable or exempt sale of goods of properties or services, and the amount of creditable input tax due or paid cannot 2 1.- (' .....

~ 'JJ

be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. (D) Pniod within which Rejimd or Tax Credlt of Input Taxes shall be Made. - In proper cases, the Commissioner shall g rant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days' from the date of submission of com lete documents in su ort of the application filed m accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of tbe claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpaye r affected m ay, within thirty (30) days from the receipt of the d ecision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the un acted claim w ith the Court of T ax Appeals. (Emphasis Surplied.) The foregoing provisions clearly state that a VAT -registered taxpayer who desires to refund its unu tilized or excess input VAT attributable to zero-rated sales may apply for refund or issuance of a tax credit certificate within two (2) years from the close of the taxable quarter. The Commissioner of In ternal Revenue (Commissioner) shall, in this case, grant the refund or issue a tax credit certificate within one hundred twenty

(120) days from the submission of complete documents. In case of a denial or inaction by the Commissioner withi1~ the 120-day period, the VAT-registered taxpayer may appeal to the Court within thirty (30) days from receipt of the decision or the lapse of the 120- day period.

Flowing from the above, it is manifest that the aforequoted provisions lay down the indispensable requirement for the taxpayer to await the decision, or the lapse of the 120-day period due to inaction of the Commissioner before it can file its claim with this Court.

3 •

I

1- r ~ 'J i ~ To reiterate, th e following dates are material in the present petitions:

CTA Case

Period

Administrative

Judicial

120cday period 30 days No.

Covered

Claim

Claim

after filing of after the

Administrative

120-day

Claim

period 67 14 April !, 200 1- June 27, 2003 June 30, 2003 O ctober 25,

November

February 28, 2003 24, 2003 2003 7262 March 1, May31;2005 May 31,2005 September 28,

October

2003- August

2005 28,2005 31,2004 Applying, therefore, Section 112(D) in relation to Sections 112(A) and (B) of the NIRC in the cases at bar, petitioner's filing of administrative claims for refund or issuance of tax credit certificate on June 27, 2003 and May 31 , 2005 are well within the 2-year period provided under Section 112(A) and (B). H owever, the judicial claims as shown in th e table above did not afford th e Respondent-Commissioner the 120-day period required in Section 112(D ). In the Petition for Review docketed as CTA Case No. 6714, only 3 days have lapsed after the filing of its administrative claim when petitioner filed its judicial appeal; worse, in Petition for Review docketed as CTA Case No. 7262, petitioner filed both its administrative and judicial claim on the same day of May 31, 2005. Clearly, petitioner should have filed its judicial cl a it~ within thirty days after the lapse of the 120-day period for th e Commissioner to render a decision on its administrative claim s. Failing which, the petition filed without observing the 120-day period in Section 11 2(D) is premature. Such filing is a violation of the doctrine of exhaustion of administrative rem edi.es. E xpounding on the prem aturity of the petitions, it is a sound rule that, before one resorts to the courts, the administrative rem edy provided by law must first be exhausted.

1 A party seeking an administrative remedy must not m erely initiate the prescribed administrative procedure to obtain relief, but also pursue it to its appropriate conclusion before seeking judicial intervention in order to give the administrative 1 Ruflno Lopez & Sons, Inc. vs. Court of Tax Appeals, 100 Phil 580. 4 agency an opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to court action.~ This non-exhaustion of administrati,re remedies renders the action premature, i.e., the claimed cause of action is not ripe for judicial determination and for that reason a party has no cause of action to ventilate in court. ' The premature invocation of court's intervention is fatal to one's cause of action. Accordingly. absent any finding of waiver or estoppel, the case is susceptible of dismissal for failure to state a cause of action 4 Thus, I am in the opinion that it was an error on the part of the majority to have entertained the Glse and eventually partially grant the claim for issuance of tax credit certificate.

In the first place, the majority should have dismissed the petitions for its failure to state a cause of action. Accordingly, for reasons stated above, I vote for the DENIAL of the instant petition.

~~-c~ ERNESTO D. ACOSTA

Presiding Justice

2 Corrunissioner of Internal Revenue vs. Rosemarie Acosta, G.R. No. 154068, August 3, 2007. 3 Carale vs. Abarintos, G .R. No. 120704, March 3, 1997. ~ Paat vs. Court of Appeals, G. R. No. 1111 07, January 10, 1997; 266 SCRi\ 167, pp. 175-177. 5 1 ~06