Coca-Cola Bottlers Philippines, Inc. vs. Commissioner of Internal Revenue

DECISION

Fabon-Victorino, J.:

The instant Petition for Review dated April 23, 2010 filed by petitioner Coca-Cola Bottlers Philippines, Inc. seeks for the refund or issuance of tax credit certificate of alleged erroneously paid value-added tax (VAT) arising from the understatement of allowable input VAT for the quarter ended March 31, 2008 in the amount of P123,459,647. 70. Petitioner Coca-Cola Bottlers Philippines, Inc. is a domestic corporation with principal office at No. 1890 Paz Guazon Street, Paco, Manila. It is primarily engaged in the business of manufacturing and selling at wholesale of beverages such as Coca-Cola, Sprite, Royal True Orange, Minute Maid, etc. 1 It is a VAT -registered entity with

Certificate of Registration

No.

00000190025

and Tax

Identification No. 000-112-104-000. 2

Respondent, on the other hand, is the Commissioner of the Bureau of Internal Revenue (BIR) with authority, among others, to decide, approve and grant refunds or tax credits of erroneously or excessively paid taxes. She holds office at the BIR National Office Building, BIR Road, Diliman, Quezon City.

On April 24, 2008, petitioner filed its Quarterly VAT Return 3 for the period of January 1, 2008 to March 31, 2008. However, it was not able to amend the said Quarterly VAT Return since a Letter of Authority4 (LOA) was subsequently issued by the BIR. 5 On April 20, 2010, petitioner filed with the SIR's Large Taxpayers Service an administrative claim6 for refund or tax credit of its alleged over/erroneous payment of VAT for the quarter ended March 31, 2008 in the total amount of P123,459,647. 70. 7 Three (3) days thereafter, or on April 23, 2010, petitioner filed with this Court a judicial claim for refund or issuance of tax credit certificate by way of a Petition for Review.

In her Answer, respondent basically claimed that the action before her is subject to BIR administrative routinary examination and it is incumbent upon petitioner to present evidence to substantiate its claim by proving compliance with all the requisites under the law and rules and regulations.

On September 2, 2010, 8 a Pre-Trial Order was issued incorporating therein the parties' Joint Stipulation of Facts and Issues submitted on August 9, 2010. /

To support its case, petitioner presented witnesses Gerardo E. Espiridion, Rosemarie M. Gamboa, Noel I. Anore, Camille Kate A. Doligosa, and Katherine 0. Constantino.

Witness

Gerardo

E.

Espiridion, petitioner's Tax Manager, identified his Judicial Affidavit dated August 6, 2010 declaring that petitioner is a VAT Registered Taxpayer with Tax Identification No.

000-112-104-000 and

BIR

Certificate of Registration No. OCN 8PC0000019025. On April 24, 2008, petitioner filed its original quarterly VAT Return for the quarter ended March 31, 2008 and amended it on May 20, 2008.

Earlier or on February 25, 2008, petitioner filed its original monthly VAT Return for January 2008 and amended it on March 19, 2008. For the following month of February, its monthly VAT Return was filed on March 23, 2008.

For purchases of goods, petitioner credits its input VAT or the VAT billed by its suppliers against its output VAT liability for the taxable quarter.

For purchases of services paid immediately upon presentation of invoice, petitioner likewise directly credits the input VAT from said transactions against its output VAT for the quarter. However, for purchases of service on credit, petitioner credits the input VAT incurred therein against its output VAT only after payment and not at the time of the transaction .

All these transactions were entered into petitioner's computerized accounting system. However, for the quarter ended March 31, 2008, certain official receipts or transactions were not uploaded into the system resulting in the understatement of input VAT of P123,459,647. 70 for that particular quarter.

Since the

BIR issued LOA for the quarter ending March 31, 2008, petitioner was unable to effect amendment of its quarterly return for the quarter concerned to include the omitted transactions.

Thus on April 20, 2010, petitioner filed an application for refund of P123,459,647. 70 with the BIR for the quarter / ended March 31, 2008.

The said amount has not been carried over or applied to the succeeding months or quarters.

The second witness Rosemarie M. Gamboa also executed a Judicial Affidavit dated September 1, 2010 in which she explained the procedure adopted in accrediting suppliers for petitioner. The group which she heads requires potential suppliers of petitioner to submit documents to prove that they are legitimate business entities and that they are compliant with the invoicing requirements under the National Internal Revenue Code (NIRC), as amended. It has been petitioner's policy not to avail the products or services of the prospective supplier who fails to meet its requirements.

The details of the accepted suppliers are entered into a computer program which is integrated into petitioner's computerized tax system. However, they don't verify the information supplied by prospective suppliers. Witness Noel I. Anore, petitioner's Plant Finance Manager for Cagayan De Oro Plant from September 2007 to February 2009, testified9 that the invoices and official receipts of petitioner in the Cagayan De Oro plant comply with the invoicing requirements under the Tax Code, as amended.

However, all their records and documents, including the invoices and official receipts for the period January 1 to March 31, 2008 subject of the instant claim kept at the Cagayan De Oro plant as of January 11, 2009, were completely destroyed due to flashfloods caused by typhoons on June 29, 2008, October 20, 2008, and January 11, 2009.

In any event, he was able to determine the amount of petitioner's input and output VAT reflected in the destroyed documents for the period pertaining to the instant claim through petitioner's computerized accounting system. He however admitted that he had no personal knowledge about the photos of the flooding at petitioner's plant in Cagayan De Oro for they were taken by the plant security guard.

Camille Kate A. Doligosa, the Plant Finance Manager of petitioner's Iloilo plant, likewise testified through her ./

Judicial Affidavit dated October 15, 2010. 10 She stated that all the invoices and official receipts of petitioner kept in its Iloilo plant complied with the invoicing requirements under the Tax Code, as amended.

However, they were all destroyed, including the invoices and official receipts for the period January 1 to March 31, 2008 subject of the instant claim, due to flashfloods caused by the typhoon which ravaged the province on June 21, 2008. The computerized accounting system of petitioner in which the transactions for the relevant period were encoded saved the day for petitioner as she was able to determine the amount of petitioner's input and output VAT for the period subject of the instant claim for refund.

The cross-examinations of witnesses Noel I. Anore and Camille Kate A. Doligosa were deemed waived for failure of counsel for respondent to appear during hearing, despite due notice.

The Court commissioned Independent Certified Public Accountant (ICPA) Katherine 0. Constantino was last to take the witness stand for petitioner. Based on her Preliminary Independent CPA Report, the unclaimed input taxes paid on domestic purchases of services in the amount of P123,459,647.70, which is the amount sought for refund, were not reported as input tax credits to be applied and utilized against the output tax due for the quarterly VAT Return filed for the 1st quarter ended March 31, 2008. Further, for the quarter ended March 31, 2008, petitioner declared output tax due in the amount of P¹,269,933,934.95.

Based on the accounting system and related records for the said quarter, petitioner's total reported input tax credits in its quarterly VAT Returns amounted to P1,454,376,636.28.

However, input taxes in the amount of P123,459,647.70 were not included as input tax credits.

This amount was also not carried over or applied against any output VAT liability. However, only P12,118,361.10 of the unclaimed refundable input VAT were properly substantiated.

I

On recall, the !CPA, based on her

Final

and Consolidated Independent CPA Report, declared that out of the P123,459,647. 70 subject of the claim, only the amount of P32,800,230.39 were properly substantiated by the proper

VAT

invoices and/or official receipts, while P11,579,571.91 was disallowed for the invoices and/or official receipts pertinent thereto were either dated outside the period of the claim, not in the name of petitioner, without TIN, or due to non-compliance with the invoicing requirements under the pertinent law and rules. The amount of P79,079,845.40, also subject of the claim, has not been verified since petitioner was yet to provide her with the pertinent documents for her examination and verification.

Her Amended Final and Consolidated Independent CPA

Report indicated that following: out of the P123,459,647. 70 input VAT subject of the claim, only P42,866,711.71 was properly substantiated by VAT invoices and/or official receipts; the amount of P1, 752,812.62 was substantiated by bank acknowledgement receipt or bank check voucher, P8,596,425.24 was disallowed, while P70,243,698.13 was left unverified since petitioner failed to provide her with the pertinent documents for examination.

Her Supplemental Report to the Amended Final and

Consolidated Independent CPA Report showed that the total substantiated input VAT in relation to petitioner's claim for refund for the quarter ended March 31, 2008 amounted to P48,509,474.01.

After the Resolutions of December 15, 2011, 11 February 8, 2012, 12 and October 12, 2012, 13 on its formal offer of evidence, petitioner rested its case. On the other hand, respondent's right to present evidence was deemed waived. 14

Upon submission of the parties' respective memoranda, the case was submitted for decision on January 2, 2013. 15 The issues16, as jointly stipulated by the parties, are as follows:

1. Whether or not the petition for review is premature considering that petitioner's claim for refund/tax credit of the erroneous payment of Value Added Tax (VAT) arising from understatement of Allowable Input VAT due to failure to include certain input tax that are allowable for the quarter ended March 31, 2008 in the amount of P123,459,647.70 is still pending investigation by the

Bureau of Internal

Revenue.

2. Whether or not petitioner is entitled to the refund or issuance of tax credit certificate in the amount of P123,459,647. 70 representing erroneous payment of Value

Added

Tax

(VAT)

ansmg from understatement of Allowable Input VAT due to alleged failure to include certain input tax that are allowable for the quarter ended March 31, 2008.

3. Whether or not petitioner exhausted administrative remedies prior to the filing of the instant petition.

DISCUSSION/RULING

The first and third issues pertaining to the timeliness of the claim shall be determined simultaneously as they are related.

j

Sections 114, 204(C), and 229 of the National Internal Revenue Code (NIRC) of 1997, as amended relevantly state: SEC. 114.

Return and Payment of

Value-added Tax. - (A) In General. - Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT- registered persons shall pay the value- added tax on a monthly basis.

SEC.

204.

Authority

of the Commissioner to Compromise, Abate and

Refund

or

Credit

Taxes.

The Commissioner may -

XXX

XXX

XXX

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (²) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

SEC.

229.

Recovery

of

Tax

Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national .,1 internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment:

Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. Evident from the foregoing provisions that petitioner is required to file a quarterly return of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter.

Thereafter, the administrative and judicial claims for refund of erroneously or excessively paid tax must be filed within two (2) years from the date of payment of the tax.

Evidence shows that petitioner seasonably filed its Quarterly VAT Return 17 for the quarter ended March 31, 2008 on April 24, 2008.

Hence, petitioner had two years from such date or until April 24, 2010 to file its administrative and judicial claims for refund/tax credit. Clearly, its administrative claim filed on April 20, 2010 as well as its Petition for Review filed before this Court on April 23, 2010 were both well within the two-year prescriptive period required by law.

/

On respondent's theory that the instant Petition for Review was prematurely filed in violation of the doctrine of exhaustion of administrative remedies, the said protestation is simply bereft of merit. Section 229 explicitly provides that no suit or proceeding for claim for refund of erroneously collected taxes may be made after the prescriptive period of two (2) years.

The prescriptive period in Section 229 is mandatory in nature leaving petitioner without any option but to file, as it did, its Petition for Review before this Court on April 23, 2010 or barely three (³) days after its administrative claim for refund was lodged with respondent on April 20, 2010 and a day before the lapse of the two-year prescriptive period on April 24, 2010. In other words, the instant Petition for Review was not prematurely filed on April 23, 2010, contrary to respondent's position. Under the foregoing declaration, is petitioner entitled to the refund or issuance of tax credit under the established factual milieu?

The answer is in the negative.

Petitioner claims that its accounting practice concerning purchases of services on credit consists of charging the input tax component into the temporary account called "Input Tax-Services-Clearing" upon receipt of the invoice from its supplier of services. When petitioner pays the account, the input taxes recorded in the temporary account is transferred to "Input Tax-Services" account, which is subsequently closed to Output Tax Payable at the end of the taxable quarter. 18 For the quarter ended March 31, 2008, petitioner reported input VAT overpayment of P89,591,299.98 in its

Quarterly VAT Return: 19

Vatable sales/receipts P10 582 782 791.25 Output tax due 1 269 933 934.95 Less: Allowable input tax Carried over from previous quarter/Excess over 70% of output VAT p - Deferred on capital goods exceeding P1M from previous quarter 150 132 731.02 150 132 731.02

Purchase of capital goods exceeding P1M Domestic purchases of goods Importation of goods Domestic purchases of services Total available input tax Less: Deductions from input tax On purchases of capital goods exceeding succeeding period Total allowable input tax

Net VAT Payable

Less: Tax credits/Payments Monthly VAT payments-previous two months Tax still payable/(Overpayment) 110 109 286.96 1 137 242 693.84 86 145 314.84 120 879 340.65 1 454 376 636.29 1 604,509 367.31 P1M deferred to 244,984 132.38 1 359 525 234.93 (89 591 299.98) - P(89,5911 299.98) Petitioner claims that due to inadvertence, several purchases of services on credit with input taxes amounting to P123,459,647. 70 that have been paid in the first quarter of 2008 were not transferred to the Input Tax-Services account and consequently not declared in its Quarterly VAT Return and not charged against the output tax payable for the quarter ended March 31, 2008. This allegedly resulted in the understatement of petitioner's tax overpayment for the same quarter amounting to P123,459,647.70,2° computed as follows:

Per Quarterly

Should be

VAT Return

Output tax due p 1 269 933 934.95 P1 269 933,934.95 Less: Allowable input tax Carried over from previous quarter/Excess over 70% of output VAT p - p - Deferred on capital goods exceeding P1M from previous quarter 150 132 731.02 150 132 731.02 Total input tax carried over from previous quarter Purchase of capital goods exceeding P1M 110 109 286.96 110 109 286.96 Domestic purchases of goods 1 137 242 693.84 1 137 242 693.84 Importation of goods 86 145 314.84 86 145 314.84 Domestic purchases of services:

1.

Paid upon presentation of the invoice 10 911 296.48 10 911 296.48 2.

Purchased on credit and paid during the quarter 233,427 691.87 109 968 044.17 Total available input tax p 1 727 969 015.01 P1 604 509 367.31 Less: Input tax on purchases of capital goods exceeding P1M deferred to succeeding period 244 984 132.38 244 984 132.38 Total allowable input tax 1 482 984,882.63 1,359 525 234.93

Net VAT Payable/(Overpayment)

(213 050 947.68) (89,591 299.98) Less: Monthly VAT payments-previous two -

months

I

I

- Tax still payable/(Overpayment) I P(213,050,947.68) I P(89 591,299.98) VAT Overpayment not carried over to the next 1 p 123 459,647.70 quarter Since respondent issued a Letter of Authority for the examination of its books of accounts for all internal revenue taxes for taxable year 2008, 21 petitioner was unable to amend its VAT Return for the subject quarter to include the input taxes in the amount of P123,459,647. 70 when the error was discovered. Hence, this claim for refund. Petitioner anchors its claim on the above-quoted Sections 204(C) and 229 of the NIRC of 1997, as amended. Note that petitioner is essentially claiming its alleged understatement of overpayment of VAT (excess input taxes) due to undeclared input taxes for the first quarter of 2008.

Section 4.110-8 of Revenue Regulations No. 16- 2005, as amended, relevantly provides, thus: SEC. 4.110-8. Substantiation of Input Tax Credits. - (a)

Input

taxes for the importation of goods or the domestic purchase of goods, properties or services is made in the course of trade or business, whether such input taxes shall be credited against zero-rated sale, non-zero- rated sales, or subjected to the 5°/o Final Withholding VAT, must be substantiated and supported by the following documents, and must be reported in the information returns required to be submitted to the Bureau: (Emphasis supplied)

In other words, in order for input taxes to be available as tax credits, they must be substantiated and reported in the VAT Returns of the taxpayer. Non-compliance with the said twin requirements is fatal to the taxpayer concerned. Significantly, the Court commissioned Independent Certified Public Accountant (CPA) Katherine 0. Constantino, who verified petitioner's documents, discovered that out of the P123,459,647. 70 being claimed by petitioner, only P48,509,474.01 is properly supported, broken down as follows:

PROPERLY SUPPORTED BY

EXHIBIT

OFFI CIA L RECEIPTS (ORS)

AMOUNT

Y6, Annex 4 Amended final and consolidated p report 42 866 711.71

A7 Annex 1

Supplemental report 5 642 762.30

TOTAL

P48,509,474.01 The !CPA also examined petitioner's documents supporting its input taxes from domestic purchases and importation of goods other than capital goods and purchase of services and from purchase of capital goods as reported in its Quarterly VAT Return for the first quarter of 2008 amounting to P1,344,267,349.33 and P110,109,286.96, respectively.

Likewise, she verified petitioner's input taxes on purchases of capital goods for the four quarters of 2007 and found the following to be duly substantiated :22

1ST QUARTER

1ST QTR TO 4TH

2008

QTR 2007

Input Taxes from:

Domestic purchases and importation of goods other than capital goods and p purchase of services 163 238 596.79 Purchase of capital goods - p 1 026 823.89

TOTAL

P163,238 596.79 p 1,026,823.89 The substantiated claimed input tax of P48,509,474.01 for the first quarter of 2008 was recorded in petitioner's books of accounts but was not reported in its VAT Return

due to alleged inadvertence.

Therefore, petitioner cannot credit or offset the undeclared input taxes against output taxes for the said taxable period.

Corollary thereto, Section 110(A)(2) and (B) of the NIRC of 1997, as amended, 23 states: SEC. llO.Tax Credits. -

(A)

Creditable Input Tax. -

XXX

XXX

XXX

(2) The input tax on domestic purchase or importation of goods or properties by a VAT -registered person shall be creditable:

(a) To the purchaser upon consummation of sale and on importation of goods or properties; and (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.

Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds One million pesos (Pl,OOO,OOO.OO):

Provided, however, That if the estimated useful life of the capital good is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a 23 Republic Act No. 9361, November 21, 2006 shorter period: Provided, finally, that 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.

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:

Provided, however, That any input tax attributable 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 of Section 112.

(Emphasis

and underscoring supplied) The foregoing provides for the time when the input taxes are creditable. Moreover, the output and input taxes contemplated in the provisions are those reported in the taxpayer's VAT Return. Thus, input tax for the first quarter of 2008 should be declared in the Quarterly VAT Return pertaining to the same quarter so that it could be creditable against the output tax of the same taxable period. Petitioner's Quarterly VAT Return for the first quarter of 2008 shows the following output taxes due in the amount of P1,269,933,934.95.

Had

petitioner declared the substantiated input taxes of P48,509,474.01 in its Quarterly VAT Return for the first quarter of 2008, considering its output taxes and substantiated input taxes for the first quarter of 2008 per the ICPA examination, it would not have had enough input taxes to offset against its output taxes for the same taxable periods. To illustrate, the computation is shown hereunder:

/

Output Tax

Less: Substantiated Input Taxes

On domestic purchases and importation of goods and purchases of services On capital goods exceeding P1M:

Carried over from previousguarter Add: Purchases during the quarter Total input tax on capital goods Less: Deferred to succeeding quarter Amortized input tax allowable for the quarter

VAT Payable

1st Quarter 2008 p 1 269 933,934.95 163,238,596.79 p 1 026 823.89 - p 1 026 823.89 244/984 132.38 (243 957 308.49) - P1,106,695 338.16 Hence, the claimed P123,459,647.70 in the instant case essentially represents undeclared input t axes for the first quarter of 2008, and not erroneously paid VAT or understatement of VAT overpayment.

Section 112 of the

NIRC of 1997, as amended, explicitly provides the following instances when excess input tax es may be claimed for refund:

1. when they are attributable to zero-rated or effectively zero-rated sales, and

2. upon cancellation of VAT registration due to retirement from or cessation of business. Petitioner's claim for refund of its undeclared input tax es for the first quarter of 2008 clearly does not fall under any of the foregoing instances provided by law. In fine, petitioner is not entitled to a tax refund or issuance of tax credit certificate in the amount of P123,459,647. 70.

WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED, for lack of merit.

FASON-VICTORINO

I Concur:

ER~ P.UY

Associate Justice

ATTESTATION

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. ER~.UY

Chairperson

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.

Presiding Justice