Taganito Mining Corporation vs. Commissioner or Internal Revenue

DECISION

PALANCA-ENRIQUEZ, J.:

When a VAT -registered person export sales qualify as zero-rated sales pursuant to the requisites provided by law, the VAT -registered person is not liable to pay output tax thereon. Accordingly, the VAT- registered person may claim tax refund or credit of its duly substantiated unutilized input VAT paid on its domestic purchases of taxable goods and services and importation of capital goods that are directly attributable to such zero-rated sales. However, absence of clear and convincing proof

(J)U

2 that the VAT on such purchases was shifted to the VAT-registered person, the VAT -registered person cannot claim refund or tax credit on such purchases.

THE CASE

This is a Petition For Review filed on February 24, 2005 by Taganito Mining Corporation (hereafter "petitioner"), which seeks the refund or issuance of a tax credit certificate in the amount of P11,564,034.65, representing the alleged unutilized input VAT for the period covering January 1, 2003 to December 31, 2003.

THE FACTS

The facts, as stipulated by the parties, are as follows: "1) Petitioner is a corporation duly organized and existin~ under the laws of the Philippines with address at 4 Floor, Solid Mills Building, De La Rosa St., Legaspi Village, Makati City;

2) Petitioner is duly registered with the Securities and Exchange Commission with SEC Registration No. 138682 dated March 4, 1987 with the following pnmary purpose.

'To carry on the business, for itself and for others, of mining lode and/or placer mining, developing, exploiting, extracting, milling, concentrating, converting, smelting, treating, refining, preparing for market, manufacturing, buying, selling, exchangin~ shipping, transporting, and otherwise producing and dealing in nickel, chromite, cobalt, gold, silver, copper, lead, zinc, brass, iron, steel, limestone, and all kings of ores, metals and the products and which by- products thereof of every kind and description and by whatsoever process the same can be or may hereafter be produced, and generally and without limit as to amount, to buy, sell, locate, exchange, lease, acquire and deal in lands, mines, and mineral rights and claims, and to conduct all business appertaining thereto; to purchase, locate, lease or otherwise acquire, mining claims and rights, timber rights, water rights, concessions and mines, buildings, dwellings, plants machinery, spare parts, tools and other properties whatsoever which this corporation may from time to time find to be to its advantage, to mine lands, and to explore, work, exercise, develop or tum to account the same; and to acquire, develop and utilize water rights in such manner as may be authorized or permitted by law; to purchase, hire, make, construct or otherwise, acquire, provide, maintain, equip, alter, erect, improve, repair, manage, work and operate private roads, barges, vessels, aircraft and vehicles, private telegraph and telephone lines, and other communication media, as may be needed by the corporation for its own purpose, and to purchase, import, construct, machine, fabricate, or otherwise acquire, and maintain and operate bridges, piers, wharves, wells, reservoirs, plumes, watercourses, waterworks, aqueducts, shafts, tunnels, furnaces, coke ovens, crushing works, gasworks, electric lights and power plants and compressed air plants, chemical works of all kinds, concentrators, smelters, smelting plants, and refineries, matting plants, warehouses, workshops, factories, dwelling houses, stores, hotels or other buildings, engines, machinery, spare parts, tools, implements and other works, conveniences and,, Q / ~w- 3 properties of any description in connection with or which may be directly or indirectly conducive to any of the objects of the corporation, and to contribute to, subsidize or otherwise aid or take part in any operations;' 3) That petitioner is a duly registered VAT entity with Certificate of Registration No. 94-470-000373 issued by the Respondent dated June 15, 1994; 4) That Petitioner is registered with the Board of Investments (BOI) as an exporter of beneficiated nickel silicate ores and chromite ores with BOI Certificate of Registration No. EP-88-306; 5) That the nature of the instant petition is a petition for review of the petitioner's claim for refund; 6) That the Respondent has granted no refund of the amount claimed by Petitioner from the time Petitioner filed its claim for refund up to the present." 4 In his Answer, respondent alleged by way of special and affirmative defenses that:

"4) Petitioner's claim for refund is subject to administrative investigation/examination by the respondent; 5) 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 6-97, in relation to Section 4.107-1 (a) of Revenue Regulations ~~:t95 , 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 claims 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 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 amended. 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 P11,564,034.65 allegedly paid by the petitioner on its purchases of goods and services for the period covering January 1 to December 31, 2003 were attributable to its zero-rated 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'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; t) 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.!04-5 (a) & (b)~ 5

Revenue Regulations 7-95 (Re: Substantiation of Claims

for Input Tax Credit);

g) The requirements as enumerated under Section 4.104-2 of Revenue Regulations 7-95 (Re: Persons who can avail of the Input Tax Credit)."

6 Petitioner presented Reynaldo R. Virgilia, its Vice President of Finance, and Emmanuel M. Silva, its Chief Accountant, as witnesses, and documentary evidence, marked as Exhibits "A " to "BB", inclusive of their submarkings, which were all admitted by the Court in a Resolution dated April 24, 2006.

On the other hand, respondent did not present any evidence and submitted the case for decision.

Thereafter, both parties were granted thirty (30) days from August 31, 2005 within which to file their simultaneous memoranda. Only petitioner filed its memorandum on October 9, 2006, and the case was deemed submitted for decision.

THE ISSUES

As stipulated upon by the parties, the Issues for this Court's consideration are:

I

WHETHER OR NOT PETITIONER'S SALES ARE

EXPORT SALES.

II

WHETHER OR NOT PETITIONER'S EXPORT SALES

WERE

PAID

FOR

IN

ACCEPTABLE

FOREIGN

CURRENCY

AND

ACCOUNTED

FOR

IN

ACCORDANCE

~TH

THE

RULES

AND

REGULATIONS OF THE BANGKO SENTRAL NG

PILIPINAS (BSP).

III

WHETHER OR NOT PETITIONER'S INPUT TAXES

ARE

ATTRIBUTABLE

TO

ITS

ZERO-RATED

TRANSACTIONS.

IV

WHETHER OR NOT PETITIONER'S INPUT TAXES

ARE SUFFICIENTLY SUBSTANTIATED WITH VAT

INVOICES OR OFFICIAL RECEIPTS.

v

WHETHER OR NOT THE VAT INPUT TAXES BEING

CLAIMED

FOR

REFUND/TAX

CREDIT

BY

PETITIONER HAS BEEN CREDITED AGAINST ANY

OUTPUT TAXES OR HAS BEEN CARRIED FORWARD

TO THE SUCCEEDING QUARTER OR QUARTERS~

7

VI

WHETHER OR NOT PETITIONER IS ENTITLED TO A

REFUND OF VAT INPUT TAXES IT PAID FROM

JANUARY

1, 2003

TO

DECEMBER

31, 2003

AMOUNTING TO ELEVEN MILLION FIVE HUNDRED

SIXTY FOUR THOUSAND THIRTY FOUR AND 65/100

(P11,564,034.65).

THE COURT'S RULING

The petition is partly meritorious.

First and Second Issues

8 Being interrelated, the first and second issues shall be discussed jointly.

Petitioner claims that it is primarily engaged in the business of exploring, producing and exporting beneficiated nickel silicate ores and chromite ores which are 100% exported and/or shipped to foreign countries, specifically to Japan and Australia, as certified to by the BOI in accordance with Revenue Memorandum Order No. 9-00.

Petitioner

further contends that since these export sales were paid for in acceptable foreign currency, specifically, in US Dollars, which were inwardly remitted to the Philippines and accounted for in accordance with the rules and regulations of the BSP, the same are subject to zero percent (0~

9 VAT, pursuant to Section 106(A){2)(a)(J) of the National Internal Revenue Code (hereafter NIRC of 1997), as amended, which states: "SEC. 106.

Value-Added Tax on Sale of Goods or

Properties.- (A) Rate and Base ofT ax. - x x x

(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;

XXX

XXX."

Under the aforecited provision, m order for an export sale to qualify as zero-rated, the following requisites must be present: 1) there was a 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. or

10 After a careful examination of the evidence on record, the Court finds that petitioner has complied with all the above requirements. The fact that petitioner is a VAT registered entity is not disputed (Joint Stipulation of Facts and Issues, par. 3). For the period January 1, 2003 to December 31, 2003, petitioner actually shipped its products abroad to foreign buyers and generated export sales in the amount of US$10,542,771.66, with the peso equivalent of P567,193,182.63, as shown in petitioner's Schedule of Export Sales (Annex T-Il of Exhibit "T") and various export documents, such as export sales invoices, export declarations/permits, bills of lading, ore transport permits and outward foreign manifest (Exhibits "T-6-A-1 " to "T-6-L-22 "). Likewise, the foreign currency proceeds of US$10,542,771.66 derived from said export sales were inwardly remitted and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, as evidenced by the Security Bank Client Advices {Exhibits "T-6-A-1 " to "T-6-L-22 ") . Considering, therefore, that petitioner's export sales qualify as zero-rated sales, it is not liable to pay output VAT thereon. Accordingly, petitioner can claim tax credit/refund of the unutilized input VAT paid on its domestic purchases of taxable goods/services and importation~

11 capital goods, which are directly attributable to such zero-rated sales, pursuant to Section 112{A) of the NIRC of 1997, as amended.

Third and Fourth Issues

We now proceed to the determination of whether or not petitioner incurred input taxes in connection with its zero-rated export sales for the four quarters of 2003.

In its report dated August 30, 2005, the commissioned auditing firm, Punongbayan & Araullo, noted the following findings with respect to petitioner's claimed input VAT:

1) The amount of input taxes which the Company applied for refund for the period January 1 to December 31, 2003 is lower by P20,710.38 than the total input taxes paid/incurred for the same period, as indicated in Exhibit T -1. The amount is computed as follows:

Amount applied for refund Amount of input taxes paid/incurred Pl1 ,564,034.65 11,584,745.03 p 20.710.38 2) Of the total input taxes paid/incurred, we noted exceptions totalling P88,190.93.

These

are summarized in Exhibit "T-Ill".

Such amount has been considered in the Amended VAT returns filed on August 23, 2005.

3) Of the total input taxes Pl1,584,745.03 per Exhibit T-1, paid/incurred of we noted that~

12 input VAT paid/incurred totalling P11,496,554.10 are properly recorded in the books of accounts of the Company and supported by original suppliers' invoices and/or official receipts. (Exhibit "T", p. 4) A careful examination and scrutiny of petitioner's 2003 monthly Schedules of Purchases and Corresponding Input VAT [both for Head Office and Minesite] (Exhibits "T-1-A " and "T-1-B " of Exhibit "T") and the related supporting documents reveals that the input taxes/incurred of P11,496,554.10, as found by the independent CPA, consisted of input taxes on domestic purchases of goods/services in the amount of P1 ,326,115.22 and input taxes on importation of capital goods in the amount ofP10,170,438.88, broken down as follows:

INPUT VA T

On Domestic

On Importation

Annexed to Exhibit T as

Purchases of

of 2003

Exh T-1-A

Exh T-1-8

Exh T-Ill-A

Goods/Services

Capital Goods

Total

Jan.

pp. 1-2

p. 3 p 27,313.09 p 27,313.09 Feb.

pp. 3-4

p. 1

p. 1 117,765.33 117,765.33 Mar.

pp. 5-6 pp. 2-3

p. 1 206,915.06 p 203,510.43 410,425.49

April

pp. 7-8 pp. 4-5

p. 1 213,995.49 213,995.49

May

pp. 9-11 pp. 6-7

p. 1 236,071 .72 236,071 .72

June

p. 12 pp. 1, 3 100,119.94 7,533,486.24 7,633,606.18

July

pp. 13-14 78,539.57 78,539.57 Aug.

pp. 15-16 pp. 2,4 28,008.85 28,008.85 Sept.

p. 17 pp. 2,3 23,580.04 2,433,442.21 2,457,022.25 Oct.

pp. 18-19

p. 3 101 ,950.89 101 ,950.89 Nov.

pp. 20-21 pp. 3,4 69,241 .54 69,241 .54 Dec.

p. 22

p. 3 122,613.70 122,613.70

Total:

P1326 11522

P1 o 170 438 88 P114ll65~

13 While petitioner was able to substantiate its domestic purchases of goods and services with VAT invoices/official receipts, however, We find that the amount of P1,326,115.22 is not entirely allowable as input tax credit.

Pursuant to Revenue Memorandum Order No. 9-00, sales of goods, properties or services made by a VAT -registered supplier to a BOI registered entity whose products are 100% exported shall be accorded automatic VAT zero-rating, subject to the following reportorial and documentary requirements, prescribed under Section 3 of Revenue Memorandum Order No. 9-00:

"SEC. 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 zero-rating as provided in Revenue Regulations No. 7-95, subject to the following conditions: (1) The supplier must be VAT-registered; (2) The BOI-registered buyer must likewise be VAT- registered;

(3) The buyer must be a

BOI-registered

manufacturer/producer 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 BOI-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 BOI-registered buyers; and (5) The VAT-registered supplier shall issue for each sale to BOI-registered manufacturer/exporters a duly registered VAT invoice with the words "zero-rated" stamped thereon in compliance with Sec. 4.108-1(5) of Revenue Regulations No. 7-95. The supplier must likewise indicate in the VAT-invoice the name and BOI-registry number of the buyer."

14 In the case at bench, record shows that petitioner was issued a Certification by the BOI attesting to the fact that petitioner is a BOI registered entity with 100% exports. The Certification was valid for the period May 21, 2003 to December 31, 2003. Under Section 3.4 of said RMO 9-00, said Certification shall serve as authority for the local suppliers of petitioner to avail of the benefits of zero-rating on their sales to petitioner covering the period May 21, 2003 to December 31, 2003. On the basis of said Certification, no output tax should, therefore, be shifted by the local suppliers to petitioner. Hence, in the absence of clear and convmcmg proof that petitioner's local suppliers passed on or shifted the VAT on such domestic purchases to petitioner, it cannot claim the amount~

15

P597,272.04, as input tax credits on its domestic purchases for the period May 21, 2003 to December 31, 2003, broken down as follows:

Annexed to Exhibit T as

lneut V AT Claim

Year 2003

Exhibit T-1-A

Exhibit T -111-A

Exhibit

Amount

Total

May 21-31

T-4-E-40

p 162.27

T-4-E-42

496.58

T-4-E-43

1,359.01

T-4-E-45

410.07

T-4-E-49

911 .82

T-4-E-51

3,107.64

T-4-E-53

309.09

T-4-E-57

1,090.91

T-4-E-68

263.64

T-4-E-69

181 .64

T-4-E-67

319.09

T-4-E-71

229.09

T-4-E-73

1,351 .06

T-4-E-72

1,478.18

T-4-E-92

674.12

T-4-E-93

1,925.41

T-4-E-94

3,851 .51

T-4-E-95

4,933.24

T-4-E-96

2,341 .99

T-4-E-97

8,163.80

T-4-E-98

1,889.16

T-4-E-99

2,025.98

T-4-E-100

2,442.75

T-4-E-101

1,447.26

T-4-E-102

986.21

T-4-E-103

793.65

T-4-E-104

2,420.92

T-4-E-105

1,328.80

T-4-E-106

4,513.28

T-4-E-107

1,206.98

T-4-E-108

12,331 .00

T-4-E-109

2,420.27

T-4-E-110

1,858.49

T-4-E-111

1,738.65

T-4-E-112

2,253.96 p 73,217.51

June

Page 12

Pages 1, 3 100,119.94

July

Pages 13-14

78,539.57

August

Pages 15-16

Pages 2,4 28,008.85

September

Pages 2,3 23 , 58~

October

November

December

Pages 18-19

Pages 20-21

Pages 3,4

16 101 ,950.89 69,241 .54 122,613.70

Total:

P 597 272 04

Petitioner, therefore, may claim the amount of P728,843.18 only as input tax credits on its domestic purchases of goods/services for the period January 1, 2003 to May 20, 2003, to wit:

Annexed to Exhibit T as

Year2003

Exhibit T-1-A

Exhibit T-1-B

Exhibit T-Ill-A

Input VAT Claim

January

Pages 1-2

Page 3

p 27,313.09

February

Pages 3-4

117,765.33

March

Pages 5-6

Pages 2-3

Page 1

206,915.06

April

Pages 7-8

Pages 4-5

Page 1

213,995.49

May 1-20

Pages 9-11

Pages 6-7

Page 1

162,854.21

Total :

P Z28 843,j 8 As regards the input VAT payment of Pl0,170,438.88 on petitioner's importations, We find the same a valid claim considering that it was directly paid to the Bureau of Customs and is duly covered by machine validated BOC import entry declarations and official receipts, in accordance with the substantiation requirements prescribed under Section 4.104-5(b) of Revenue Regulations No. 7-95. In sum, petitioner's valid input tax credits amounts to P10,899,282.06, which represents the sum of the input VAT of P728,843.18 on its domestic purchases of goods/services for the pev

17 May 1-20, 2003 and input VAT payment of Pl0,170,438.88 on importations made for the year 2003. Fi(th Issue As regards the fifth issue of whether or not the input VAT of P10,899,282.06 has been credited against any output tax or has been carried forward to the succeeding quarter or quarters, records show that the same was already net of output tax and was not carried over to the succeeding quarters. The input VAT claim of Pl1,564,034.65 (which includes the amount of P10,899,282.06 found by this Court as a valid claim) is already net of the output VAT liability of petitioner for taxable year 2003 in the amount of P136.36. Furthermore, in its VAT return for the fourth quarter of 2004, petitioner deducted the total claim of P11 ,564,034.65 as "Any VAT Refund/TCC Claimed" from the "Total Available Input Tax" as of the fourth quarter of 2003 (Exhibit "Y"). It is clear, therefore, that the input VAT claim of Pl1 ,564,034.65 was not carried over to the succeeding quarter/s. For all the foregoing, this Court finds that petitioner has sufficiently proven its entitlement to a refund or issuance of a tax credit certificate, but in the reduced amount of PI0,899,282.06, represent~

18 unutilized input taxes attributable to its zero-rated sales for the four quarters of2003.

WHEREFORE, premises considered, the instant Petition For

Review

1s hereby

PARTIALLY

GRANTED.

Respondent

Commissioner of Internal Revenue is hereby ORDERED to REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor ofpetitioner in the reduced amount of TEN MILLION EIGHT HUNDRED

NINETY NINE THOUSAND TWO HUNDRED EIGHTY TWO

AND 06/100 PESOS (P10,899,282.06), representing unutilized input taxes attributable to zero-rated export sales for the four quarters of2003.

WE CONCUR:

Ch~C! .~~ck 9,' .nfANITO-C. CASTANEDA,<1R.

Associate Justice

Associate Justice

E~.UY

Associate Justice

..

ATTESTATION

19 I attest 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.

~&f.

c~~t.;"i~ ..

Associate Justice

Chairperson, Second Division

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, 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. ~~ ~ ERNESTO D. ACOSTA

Presiding Justice