Colt Commercial Inc. vs. The Commissioner of Internal Revenue

AMENDED DECISION

CASANOVA, J.:

For the

Court's

resolution is petitioner's

Motion for

Reconsideration (of the Decision dated November 17, 2017), filed on December 4, 2017, with respondent's Comment (To Petitioner's Motion for Reconsideration of the Decision dated November 17, 2017), filed by registered mail on December 27, 2017 and received by the Court on January 4, 2018. Petitioner moves for the reconsideration of the Decision dated November 17, 2017 (assailed Decision), the dispositive portion of which reads:

WHEREFORE, premises considered, the instant Petition for Review is DENIED for insufficiency of evidence.

In Interpacific

Transi~ Inc. v. Aviles [186 SCRA 385], we had the occasion to make a distinction between identification of documentary evidence and its formal offer as an exhibit. We said that the first is done in the course of the trial and is accompanied by the marking of the evidence as an exhibit while the second is done only when the party rests its case and not before. A party, therefore, may opt to formally offer his evidence if he believes that it will advance his cause or not to do so at all. In the event he chooses to do the latter, the trial court is not authorized by the Rules to consider the same.

However,

in People

v.

Napat-a [179

SCRA 403] citing People v. Mate [103 SCRA 484], we relaxed the foregoing rule and allowed evidence not formally offered to be admitted and considered by the trial court provided the following requirements are present, viz.: first, the same must have been duly identified by testimony duly recorded and, second,.?- the same must have been incorporated in the records of the case.

From the foregoing declaration, however, it is clear that Vda. de Ofiate is merely an exception to the general rule.

Being an exception, it may be applied only when there is strict compliance with the requisites mentioned therein; otherwise, the general rule in Section 34 of Rule 132 of the Rules of Court should prevail." (Emphasis supplied) From the foregoing, evidence not formally offered may be admitted and considered by the Court, so long as the same has been duly identified by testimony duly recorded, and has been incorporated in the records of the case. Here, the PEZA Certification dated February 16, 2016, pre- marked as Exhibit "P-60", was not formally offered by petitioner. Nonetheless, said exhibit was identified by the ICPA, Mr. Garry S. Pagaspas, in his Judicial Affidavit dated April 22, 20165, as stated in his Sworn Statement attached to the instant motion. In the same Sworn Statement, the ICPA further attested that the said certification is a faithful reproduction of the original and was submitted to this Court as part of the records of this case. Thus, the Court deems it proper to apply in this case the exception to the general rule in Section 34 of Rule 132 of the Rules of Court. Accordingly, the Court shall now proceed to the determination of petitioner's refundable claim, taking into consideration the PEZA Certification dated February 16, 2016. As previously stated in the assailed Decision, petitioner must prove the following in order to be entitled to a refund or issuance of a tax credit certificate of input VAT paid6: 1) the taxpayer is VAT registered; 2) the taxpayer is engaged in zero-rated or effectively zero- rated sales; t¹-

3) the input taxes are due or paid; 4) the input taxes are not transitional input taxes; 5) the input taxes have not been applied against output taxes during and in the succeeding quarters; 6) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales;

7) for zero-rated sales under Section 106(A)(²)(a)(1) and (2); and 106(8); and 108(8)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with the rules and regulations of the 8angko Sentral ng Pilipinas;

8) where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and 9) The claim is filed within two years after the close of the taxable quarter when such sales were made.7 1st and 9th requisites:

As discussed in the November 17, 2017 Decision, petitioner complied with the first and ninth requisites.8 2nd requisite: Petitioner is engaged in zero-rated or effectively zero-rated sales.

Petitioner is a stock corporation duly registered with the

Securities and

Exchange

Commission

(SEC)

under Company Registration No. CS201212819 issued on July 17, 20129 with the following primary purposes:

1~

1.)

To engage in the business of merchandising, distributing and marketing, whether as principal, agent, indenter or manufacturer's representative, wholesale or retail, such as but not limited to industrial, agricultural, manufacturing tools and equipment, engineering products, hardware items, construction materials, and electrical supplies, and or any and all kinds of goods, wares and merchandise; and, 2.)

To engage in the business of import and export as principals, factors, representatives, agents or commissioned merchants with respect to buying, selling, trading or dealing in any and all kinds of goods, wares, products of all classes and description, distribution, import and export business.

For the first quarter of 2013, petitioner reflected total sales of P18,129,609.70 in its amended Quarterly VAT Return: 11

Sales Type

Amount

VA Table

p 4,860,974.98

Zero-Rated

13,268,634.72

Total

p 18,129,609.70 Petitioner alleges that majority of its clients are entities doing business within the economic zone and registered with the PEZA and SBMA.

Indeed, these sales are entitled to the benefit of VAT zero- rating pursuant to Section 106(A)(2)( c) of the Tax Code, to wit- "SEC. 106. Value-Added Tax on Sale of Goods or Properties. - (A) Rate and Base of Tax. - x x x~ 11 Exhibit "P-21".

1 2

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

XXX

XXX

XXX

(c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate." Thus, to qualify for VAT zero-rating, petitioner must prove by sufficient evidence that its reported zero-rated sales are valid sales to entities duly registered and accredited with the PEZA and SBMA under Section 106 (A)(2)( c) of the Tax Code, in relation to Section 113(A)(1), (8)(1), (2)(c) and (³) of the same Code; and Section 4.113-1 (A)(1), (8)(1) and (2)(c) of Revenue Regulations (RR) No. 16-05, by presenting the following documents:

1. The sales invoice as proof of sale of goods;

2. Any proof of the buyer's entitlement to tax incentives under special laws (i.e. Certificates of Registration with the PEZA or SBMA pursuant to Republic Act (RA) No. 791612 and RA 722713, respectively, for the corresponding taxable year)" Out of the P13,268,634. 72 zero-rated sales reported for the first quarter of 2013, petitioner was only able to account for a total of P13,221,188.53, which is broken down in the Summary of Zero-Rated Sales,14 while the balance of P47,446.19 remained unaccounted. Considering the Certification15 issued by PEZA dated February 16, 2016, petitioner was able to prove that the following entities, with which it had sales during the first quarter of 2013, were issued VAT zero-rating certifications and were entitled to VAT zero-rating on their local purchases of goods, properties and services for the year 2013:

Customer Name

Zone Location

Applied Machining Corporation

Laguna Technopark-SEZ

Daitoh Precisions, Inc.

Mactan Economic Zone

--~ ------- ----------·- 12 The Special Economic Zone Act of 1995. 13 Bases Conversion and Development Act of 1992. 14 Exhibit "P-36".

15 Exhibit "P-60".

VAT Cert. No.

VAT Cert. Date 939

28-Jan-13

1578

22-Apr-13

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Delta Design Philippines, LLC.

Exas Philippines, Inc.

Famous Secret Precision Machining, Inc.

Fujitsu Die-Tech Corporation of the

Phils.

Gunma Gohkin Philippines Corporation

Imasen Philippine Manufacturing

Corp.

Ina Micro Opto Corporation

Kodachi Seiki Philippines, Inc.

Laguna Auto-Parts Manufacturing

Corp.

Laguna Metts Corporation

Makoto Metal Technology

Incorporated

Manufacturing Automation Solutions

International Inc.

Meinan Philippines Inc.

MKP, Inc.

Nidec Philippines Corporation

Nidec Precision Philippines

Corporation

Parts Philippines Inc.

Penta Technological Products, Inc. Philippine Nagano Seiko, Inc.

Philippine TRC, Inc.

Precise Techno Inc.

Sinag Precision Manufacturing

Laguna Inc.

Suminac Philippines, Inc.

T&S Laser Solutions, Inc.

Tamiya Philippines, Inc.

TMX Philippines, Inc.

Tsukuba Philippine Diecasting

Corporation

Vitalo Packaging International, Inc.

Carmelray Industrial Park

782

18-Jan-13

11-SEZ; Baguio City

Economic Zone

Mactan Economic Zone

1358

27-Feb-13

Daiichi Industrial Park-SEZ

362

03-Jan-13

Laguna Technopark Inc.- 450

07-Jan-13

SEZ

Light Industry & Science

313

28-Dec-12

Park I-SEZ

Laguna Technopark Inc.- 121

13-Dec-12

SEZ

Mactan Economic Zone II-

1367

01-Mar-13

SEZ

Cavite Economic Zone

1459

13-Mar-13

Laguna Technopark Inc.- 79

10-Dec-12

SEZ

Laguna Technopark Inc.- 286

28-Dec-12

SEZ

Madan Economic Zone II-

167

17-Dec-12

SEZ

Calamba Premier

1694

27-Jun-13

International Park-SEZ

Laguna Technopark Inc.- 734

17-Jan-13

SEZ

Cavite Economic Zone

887

23-Jan-13

Laguna Technopark Inc.- 428

07-Jan-13

SEZ

Laguna Technopark Inc.- 443

07-Jan-13

SEZ

Cavite Economic Zone

1263

18-Feb-13

Laguna Technopark Inc.- 747

07-Jan-13

SEZ

People's Technology

861

22-Jan-13

Complex-SEZ

Lima Technology Center-

879

22-Jan-13

SEZ

Cavite Economic Zone

1313

20-Feb-13

Laguna Technopark Inc.- 1827

27-Aug-13

SEZ

First Cavite Industrial

355

02-Jan-13

Estate-SEZ

First Philippine Industrial

30

05-Dec-12

Park-SEZ

Madan Economic Zone II-

1939

11-Nov-13

SEZ

Madan Economic Zone

1001

29-Jan-13

Cavite Economic Zone

718

17-Jan-13

Laguna Technopark-SEZ

395

04-Jan-13

Petitioner likewise submits sales invoices of goods16 supporting the Summary of Zero-Rated Sales for the first quarter of 2013 which were examined by the ICPA to be in compliance with the VAT invoicing requirements under Section 113(A) and (B) of the Taxo.-

CfA CASE NO. 9110

Code, as implemented by Sections 4.113-1(A) and (B) of RR No. 16- 05.

Based on this summary and further scrutiny of the documents submitted to prove zero-rated sales during the first quarter of 2013, the amount of P411,905.00 shall be disallowed due to the following reasons:

Exhibit No.

Client/ Customer

Invoice

Invoice

Amount

No.

Date

Sales to clients without proof of PEZA VAT exemption P-10.1 Histotech Precision (Ph) Inc.

9 1/8/2013 p 2 160.00 P-10.2 Histotech Precision (Ph) Inc.

10 1/8/2013 800.00 P-10.98 Histotech Precision (Ph) Inc.

207 2/1/2013 2 505.00 P-10.318 Histotech Precision (Ph) Inc.

623 3/5/2013 3 500.00 P-10.380 to 381 Histotech Precision (Ph) Inc.

747 to 748 3/12/2013 2 560.00 P-10.451 Histotech Precision (Ph) Inc.

860 3/20/2013 4 240.00 P-10.494 Histotech Precision (Ph) Inc.

970 3/25/2013 8 000.00 P-10.496 Histotech Precision (Ph) Inc.

972 3/25/2013 420.00 P-10.73 to 75

Polarmarine Incorporated

176 to 178 1/31/2013 90 850.00 P-10.217

Polarmarine Incorporated

452 2/20/2013 350.00 P-10.261 to 262

Polarmarine Incorporated

524 to 525 2/26/2013 60 050.00 P-10.490 to 493

Polarmarine Incorporated

966 to 969 3/25/2013 21 900.00 P-10.497

Polarmarine Incorporated

974 3/25/2013 62 700.00 P-10.501 to 502

Polarmarine Incorporated

987 to 989 30 875.00 P-10.55

Silan Technologies Corporation

141 1/28/2013 1440.00 P-10.122

Silan Technologies Corporation

259 2/5/2013 6 505.00 P-10.142

Silan Technologies Corporation

300 2/8/2013 350.00 P-10.401

Silan Technologies Corporation

777 3/14/2013 2 400.00 P-10.121

Turu Santechno Corp:

258 2/5/2013 2 055.00 P-10.136 Turu Santechno Corp.

291 2/5/2013 1 800.00 P-10.335 Turu Santechno Corp.

654 3/7/2013 1,780.00 P-10.495 Turu Santechno Corp.

971 3/25/2013 1,880.00 P-10.220 to 221 Delfingen West Inc.

458 to 459 2/20/2013 13 880.00

Subtotal

, 323 000.00 Copy of sales invoice on records is incomplete P-10.104 Precise Techno Inc.

225 2/4/2013 p 14,500.00 Sales invoice date was altered without corresponding authorized countersignature P-10.648 Precise Techno Inc.

648 3/6/2013 p 465.00 P-10.347

Delta Design Philippines Inc

676 3/8/2013 50,500.00

Subtotal

, 50,965.00 No sales invoice found on records; Sales to clients without proof of PEZA VAT exemption

Silan Technologies Corporation

512 , 15.580.00 - No sales invoice found on records Precise Techno Inc.

439 p 6,390.00 Copy of sales invoice on records is incomplete P-10.171

Nidec Precision Philippines Corp

339 2/13/2013 , 1,470.00 ~ -----

L_

I

----- erA CASE NO. 9110 l Grand Total I P 411,9os.oo I To summarize, out of the P13,268,634. 72 zero-rated sales declared by petitioner in its amended Quarterly VAT Return for the first quarter of TY 2013, only P12,809,283.53, as computed below, can be considered as valid zero-rated sales:

Total Reported Zero-Rated Sales

p 13,268,634.72

Less:

Unaccounted by petitioner p 47,446.19 Disallowed by this Court 411,905.00 459,351.19

Total Valid Zero-Rated Sales

p 12,809,283.53 7th requisite: For zero-rated sales under Section 106{A)(2)(a)(1),

(2) and (B) and Section 108 {8){1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng

Pilipinas

Note that only zero-rated sales under Sections 106(A)(2)(a)(1),

(2) and (B) and Section 108 (8)(1) and (2) of the Tax Code are required to be paid for in acceptable foreign currency duly accounted for in accordance with the BSP rules and regulations. Since the claimed zero-rated sales fall under Section 106(A)(2)( c) of the Tax Code, the seventh requisite for VAT refund is, therefore, not applicable to the present case. 3rd to 6th and Bth requisites: The input taxes due or paid do not include transitional input taxes, were attributable to zero-rated sales and were not applied against any output VAT liability. Petitioner's amended first Quarterly VAT Return for TY 2013 reflected excess input taxes amounting to P811,768.91, which is the subject of the present claim, computed as follows: Input Taxes on Local Purchases of Goods Other Than Capital p 1,315,864.90

Goods

Input Taxes on Importations of Goods Other Than Capital 79,221.00

Goods

Total Input Taxes

P1,395,085.90

Less: Output Taxes on VATable Sales

583,316.99 Excess Input TaXE!S for the 1st Quarter of TV 2013 p 811,768.91 @--

As can be seen in the return, the above input taxes do not include transitional input taxes provided under Section 111 of the Tax Code17, as petitioner had already been registered as a VAT taxpayer since its registration date with the BIRon August 31, 2012. 18 To support the total input taxes of P1,395,085.90, petitioner submits suppliers' invoices, and Bureau of Customs (BOC) Statements and Receipts of Duties Collected on Informal Entry19 which were examined by the ICPA. These documents only accounted for a total of P1,390,711.71. Thus, the unsupported input VAT amounting to P⁴,374.1920 shall be disallowed for refund. Out of the total accounted input VAT of P1,390,711.71, the ICPA found the following exceptions totaling P170,929.26:

I CPA

Report

Findings

Reference21

Amount

Invoices with alteration

Table 6

p 3,660.34 Invoices not under petitioner's complete name

Table 7

29 798.70 Invoices not under petitioner's registered address

Table 8

100,906.88 Invoices nor under petitioner's TIN

Table 9

273.18 Invoices claimed out of period

Table 11

361290.16

Total

P170,929.26 In addition to the above findings by the ICPA, an examination of the documents supporting the Summary of Domestic Purchases and Importation22 leads us to the disallowance of the amount of P47,114.84 for non-compliance with the substantiation requirements under Sections 110(A) and 113(A) and (B) of the Tax Code, in relation to Sections 4.110-2, 4.110-3, 4.110-8 and 4.113-1 of RR No. 16-05, as amended.

Below is the detailed breakdown of the disallowed input VAT of P47,114.84:~ 17 SEC. 111. Transitional/Presumptive Input Tax Credits. - (A) Transitional Input Tax Credits. -A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory according to rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to two percent (2%) of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax. 18 Exhibit "P-5".

19 Exhibits "P-12" sub-series.

20 P1,395,085.90 less P1,390,711.71.

Exhibit

No.

Supplier

Invoice No.

Unsupported domestic purchase of goods other than capital goods Grind Tech Abrasives Co!'Q.

9591

Guan Yian Hardware

127417 Oriental Construction & Electrical Supply Co., Inc. 597633

Subtotal

Invoice

VAT Amount

Date

3/7/2013 p 208.13 2/22/2013 232.20 3/6/2013 410.36 , 850.69 Domestic purchase of goods other than capital goods supported by VAT Reg. TIN Invoice but with wrong petitioner's address P-12.3

Colt Commercial

81903 1/15/2013 p 2,404.01 P-12.6

Colt Commercial

81906 1/13/2013 8,147.86 P-12.20

Colt Commercial

81923 1/28/2013 1,161.50 P-12.21

Colt Commercial

81924 1/28/2013 5,067.67 P-12.25

Colt Commercial

81929 1/11/2013 270.37 Subtotal , 17,051.41 Domestic purchase of goods other than capital goods supported by VAT Reg. TIN Invoice but with incomplete petitioner's address P-12.180

Valqua Industrial Corporation

177110 3/22/2013 280.71 Domestic purchase of goods other than capital goods supported by VAT Reg. TIN Invoice but VAT amount is not shown separately P-12.1

Colt Commercial

81901 1/8/2013 p 6.56 P-12.36 GYH Industrial Sales Corp.

646481 1/30/2013 158.36 P-12.126

Colt Commercial

82256 3/4/2013 10,629.64

Subtotal

, 10,794.56 Domestic purchase of goods other than capital goods supported by VAT Reg. TIN Invoice but VAT amount is not shown separately and with incomplete petitioner's address

I

P-12.181 Cham Samco & Sons, Inc.

5215 3/20/2013 , 156.38' Imp_ortation of g_oods with _l!!'oof of VAT Pll~'ment but issued to Colt Commercial not to petitioner

I

P-12.189 YG-1 Tools Asia Pte Ltd.

800238442CM

3/12/2013 , 1,894.00 Overclaimed input VAT P-12.82

Colt Commercial

82171 2/12/2013 Amount claimed p 4,742.00 Amount Q_er sales invoice 41233.93 p 508.07 P-12.184 Micronphil Industrial Sales Co. 1461 3/11/2013 Amount claimed p 2,100.00 Amount per sales invoice 1 875.00 225.00

Subtotal

, 733.07 Domestic purchase of goods other than capital goods supported by VAT Reg. TIN Invoice but the copy of the invoice is incomplete, the amount of purchase price and VAT cannot be seen P-12.⁵

Colt Commercial

81905 1/3/2013 p 13 259.11 P-12.109

Anglingco Sons Marketing Corp

792267 2121/2013 59.20 P-12.183 Maxilite Merchandising Inc.

49921 3/26/2013 2 035.71

Subtotal

, 15.354.02

Grand Total

- - ~ .. 47,114.84_ Based on the foregoing, petitioner's input VAT allowable as tax credits for the first quarter of TY 2013 only amounted to P1,172,667.61, as computed below: Total Input VAT reported in 1Q of TY 2013 p 1,395,085.90

Less:

Unaccounted Input VAT

p 4,374.19

Disallowances by the ICPA

170,929.26

I

!

Disallowances by the Court

47,114.84 222,418,29 I w

Allowable Input VAT for the 1Q of TY

2013 p 1,172,667.61 However, a portion of the P1,172,667.61 shall be applied against the reported output

VAT

liability of P583,316.99.

Consequently, only the remaining input VAT of P589,350.62 can be attributed to the entire zero-rated sales amounting to P13,268,634.72 and only the input VAT of P568,947.70 is attributable to the valid zero-rated sales of P12,809,283.53, computed as follows:

Allowable Input VAT

p 1,172,667.61

Less: Output VAT

583,316.99

Excess Input VAT Available for Refund

p 589,350.62

Multiply by Percentage of Valid Zero-Rated Sales

over Total Zero-Rated Sales:

Valid Zero-Rated Sales

p 12,809,283.53

Divided by Total Reported Zero-Rated Sales

13,268,634.72 96.54%

Excess Input VAT Attributable to the Valid

p 568,947.70 I

Zero-Rated Sales

Moreover, although the claimed input VAT was carried-over by petitioner in its succeeding Quarterly VAT Returns,23 the same remained unutilized until it was deducted as "VAT Refund/TCC Claimed" in its Quarterly VAT Return for the 4th quarter of TY 2014. 24 Consequently, the subject claim no longer formed part of the excess input VAT of P13,535,267.0125 as of the end of the 4th quarter of TY 2014 which was to be carried over/applied to the succeeding quarters. As such, it eliminates the possibility that the present claim would be applied to future output VAT liability.

WHEREFORE, petitioner's Motion for Reconsideration (of the Decision dated November 17, 2017) is PARTIALLY GRANTED. Accordingly, the assailed Decision dated November 17, 2107 is amended to read as follows:

WHEREFORE, the instant Petition for Review is

PARTIALLY

GRANTED.

Accordingly, respondent is ORDERED TO REFUND to petitioner the amount of P568,947.70, representing its unutilized input taxes.c;t-

attributable to its zero-rated sales for the period covering January 1 to March 31, 2013.

WE CONCUR:

~~ c: .GLf-~~/~.

JlfANITO C. CASTANitbA, JR.

Associate Justice

CAESAR~ANOVA

Associate Justice

{"aAtt-1';-: /!~~ CATHERINET.MANAHAN

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. ~~C,Q.Y-c-A~. ~ .fuANITO C. CASTANEtJA, JR.

Acting Presiding Justice