Colt Commercial Inc. vs. The Commissioner of Internal Revenue

DECISION

MINDARO-GRULLA, } .:

The instant case was deemed submitted for decision on April 11, 2018.

This refers to a Petition for Review¹ filed by petitioner Colt Commercial Inc., against respondent Commissioner of Internal Revenue on April 29, 2016, which seeks that judgment be rendered ordering respondent to refund the amount of Two Million Eighty-Two Thousand Three Hundred Seventy-Six Pesos and Forty-One Centavos (P²,082,376.41) representing unutilized input tax payments attributable to its zero-rated sales for the fourth (4th) quarter of taxable year 2013.2 Petitioner is a corporation duly organized and existing under the laws of the Republic of the Philippines, with Securities and Exchange Commission (SEC) Reg. No. CS2012128193 dated July 17, 2012, having its business address at Suite 508 Padilla Delos Reyes Bldg., 232 Juan

Colt Commercial, Inc. vs. The CIR

Luna St., Brgy. 289 Zone 027, Binondo, Manila.4 It is also registered with the Bureau of Internal Revenue (BIR) as a value-added tax (VAT) taxpayer with Certificate of Registration No. OCN C00005792585 dated August 31, 2012.

Petitioner is represented by its President, Cyrus S. Chung, Jr.6 Respondent, on the other hand, is the government official charged with the administration and enforcement of national internal revenue laws, including the granting of refunds and tax credits of taxes erroneously or illegally collected. He holds office at the BIR National Office Building, BIR Road, Diliman, Quezon City. Petitioner is principally engaged in the business of selling cutting tools and hardware.7 Incidentally, majority of its clients are entities doing business within the economic zone.8 On December 28, 2015, petitioner filed with BIR Revenue District Office (RDO) No. 30 a letter9 dated December 18, 2015, together with BIR Form No. 190510, regarding an application for VAT refund for the 4th quarter of taxable year 2013. Petitioner claims to have unutilized input tax payments attributable to zero-rated sales to its clients within the economic zone in the total amount of P2,082,376.41. On April 1, 2016, petitioner received a letter11 dated March 28, 2016 from Revenue District Officer Leonora R. Ruizol of RDO No. 30, denying its claim for VAT refund. Revenue District Officer Ruizol claims that as per verification of petitioner's VAT Returns, they disclosed that petitioner has already applied the entire amount of input tax, subject for refund, against the output tax by way of carrying it over to the first quarter of the subsequent taxable year 2014. 12 Aggrieved, petitioner elevated the matter to this Court through the instant Petition for Review on April 29, 2016. 4 Exhibit "P-3".

5 Exhibit "P-5".

6 Exhibit "P-4".

7 Exhibit "P-2".

8 Exhibit "P-6".

9 Exhibit "P-13".

10 Exhibit "P-14".

11 Exhibit "P-23"; Exhibit "R-3".

12 Ibid; See Paragraph l.b, Joint Stipulation of Facts and Issues (JSFI), Docket (Vol. IV), p. 2860.

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Colt Commercial, Inc. vs. The CIR DI!CISION

Page 3 or 23

In his Answer13, respondent interposed the following Special and Affirmative Defenses, viz.:

"SPECIAL AND AFFIRMATIVE DEFENSES

5. On the basis of the foregoing allegations and in further support of the Specific Denials herein set forth, respondent respectfully alleges as her defense that:

Claims

for refund are construed strictly against the taxpayer and in favor of the Government.

6. It is said that taxes are essential to government's very existence hence, the dictum that "taxes are the lifeblood of the government." And because taxes are the lifeblood of the nation, the court has always applied the doctrine of strict interpretation in construing tax exemptions. A claim for exemption from tax payments must be clearly shown and be based on language in the law too plain to be mistaken. Else wise stated, taxation is the rule, exemption therefrom is the exception.

7. For this reason, the right of taxation cannot easily be surrendered, statutes granting tax exemptions are considered as a derogation of the sovereign authority. Since tax refunds are regarded as tax exemptions, therefore, these are to be construed strictissimi juris against the person or entity claiming the exemption.

As petitioner already applied input tax claimed against output tax, the claimed refund was properly denied.

8. The instant claim was properly denied through a letter dated March 28, 2016 and served to petitioner on April1, 2016.

9. In order to be entitled to a refund or issuance of a TCC of input VAT due or paid attributable to zero-rated or effectively zero-rated sales, petitioner must prove compliance with the following requisites:

Colt Commercial, Inc. vs. The CIR

1) that there must be zero-rated or effectively zero-rated sales;

2) that input taxes were incurred or paid; 3) that such input taxes are directly attributable to zero- rated or effectively zero-rated sales; 4) that 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.

10. Verification of Vat Returns of petitioner disclosed that it applied the entire amount of input tax, subject for refund against the output tax by way of carrying it over to the 1st quarter of taxable year 2014.

11. As petitioner already applied such input tax against the output tax, then it failed to satisfy the fourth requisite that the input taxes were not applied against any output VAT liability.

12. In an action for refund, the burden of proof is on the taxpayer who claims the exemption and he must justify his claim by the clearest grant under the Constitutional or statutory law and cannot be permitted by vague implications. The taxpayer is charged with the heavy burden of proving that he has complied with and satisfied all the statutory and administrative requirements to be entitled to the tax refund.

13. To reiterate, claims for refund are construed strictly against the claimant for the same partake of the nature of exemption from taxation and as such, they are looked upon with disfavor. This 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 the common burden cannot be permitted to exist upon vague implications. The law does not look with favor on tax exemption and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted."

(Citations Omitted)

CfA Case r,o, 9340 Colt Commercial, Inc. vs. The CIR

On August 8, 2016, a Notice of Pre-Trial Conference14 was issued by this Court, setting the case for pre-trial conference on October 6, 2016 at 9:00 a.m. Thereafter, respondent filed its Pre-Trial Brief15 on September 30, 2016, while, petitioner, on the other hand, filed its Pre- Trial Brief16 on October 3, 2016.

Pre-trial conference ensued.

On October 13, 2016, petitioner filed a Motion to Commission Independent Certified Public Accountant17, praying that Mr. Garry S. Pagaspas, CPA, LLB, Managing Partner of GPP & Co. CPAS, be appointed as the Independent Certified Public Accountant (!CPA) for the instant case.

Finding merit, this Court, in an Order18 dated February 9, 2017, granted petitioner's Motion and commissioned Mr. Pagaspas after taking his oath as the !CPA for the present case. On October 21, 2016, the parties filed their Joint Stipulation of Facts and Issues19 (JSFI). Subsequently, on December 6, 2016, a Pre- Trial Order20 was issued by this Court, adopting the parties' JSFI and, afterwards, deemed the pre-trial terminated. During trial, petitioner offered the testimonies, by way of Judicial Affidavits, of Ms. Cherilyn R. Chung21, its Corporate Secretary and Treasurer; Ms. Jennifer S. Manago22, its Accounting Head; Mr. Cyrus S. Chung, Jr. 23, its President; and Mr. Garry S. Pagaspas24, the court- commissioned !CPA for the instant case. After finishing their respective testimonies, petitioner filed its Formal Offer of Evidence25 on July 25, 2017, offering Exhibits "P-1" to "P-28-B", inclusive of sub-markings, as its documentary evidence. Thus, in the Resolution26 dated September 25, 2017, this Court

Colt Commercial, Inc. vs. The CIR

Pege 6 of 23

admitted all of petitioner's evidence, except for Exhibit "P-7" for its failure to present the original document for comparison. Thereafter, petitioner was deemed to have rested its case. Petitioner's admitted documentary exhibits are as follows:

Exhibit:

Description:

P-1

Petitioner's SEC Certificate of Registration dated July 17, 2012

P-2

Petitioner's Articles of Incorporation dated June 27, 2012

P-3

Petitioner's General Information Sheet dated July 23 2013

P-4

Petitioner's Secretary's Certificate dated August 7, 2015

P-5

BIR Certificate of Registration (BIR Form No. 2303) dated August 31, 2012

P-6

Confirmation Letter of Philippine Economic Zone

Authority (PEZA) Director- General Lilia B. De Lima, dated February 16, 2016 addressed to CCI's President, Mr. Cyrus S. Chung, Jr., confirming the issuance of VAT-zero rating certifications to CCI's clients/purchasers

P-8

Schedule of Petitioner's Sales in 4th Quarter of

Taxable Year 2013

P-9

Certified true copy of sales invoices

P-10

Schedule of Purchases for period of claim with the following details: Registered Name of Supplier, TIN of Supplier, Invoice No., Date of Invoice, OR No., Date of OR, Amount of Purchase, Input Tax and

Total Invoice Amount

P-11

Certified true copy of sales invoices for purchase of goods

P-12

Copy of BIR Authority to use pre numbered loose- leaf form dated October 9 2012

P-13

Cover Letter of Petitioner through Puna and Pef\arroyo Law Offices dated December 18, 2015, received by the BIR RDO 30 on December 28, 2015

P-14

BIR Form No. 1905 on the request for refund received by BIR RDO 30 on December 28 2015

P-15-A

Certification

from

Bureau of Customs

dated September 8, 2014

P-15-B

Certification from Department of Finance -

OSS

dated November 17, 2014

P-16-A

pt Quarter VAT Return for Taxable Year 2013

P-16-B

2nd Quarter VAT Return for Taxable Year 2013

P-16-C

3'd Quarter VAT Return for Taxable Year 2013

P-16-D

4th Quarter VAT Return for Taxable Year 2013

P-17-A

1st Quarter VAT Return for Taxable Year 2014

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Colt Commercial, Inc. vs. The CIR

P-17-B

2nd Quarter VAT Return for Taxable Year 2014

P-17-C

3'd Quarter VAT Return for Taxable Year 2014

P-17-D

4th Quarter VAT Return for Taxable Year 2014

P-18-A

1st Quarter VAT Return for Taxable Year 2015

P-18-B

2nd Quarter VAT Return for Taxable Year 2015

P-18-C

3'd Quarter VAT Return for Taxable Year 2015

P-18-D

4th Quarter VAT Return for Taxable Year 2015

P-19

Schedule of Inward Remittance with attached Bank

Certification

P-20

Import Entry and Internal Revenue Declarations

duly validated by bank with O.R. and

BOC

receipts/Confirmation receipts evidencing payment

of VAT

P-21

Schedule of Importations for period of claim with the following details:

Date of Invoice, Supplier, Description of Goods Imported, AWB/BL No. IED/SM No., Date of Arrival, Total Value, Date of Payment, O.R. No. and VAT Payment

P-22

Reconciliation

of

Export

Sales

and

Dollar

Remittances

P-23

Letter of BIR RDO 30 dated March 28, 2016

P-24

Amended Judicial Affidavit of Cyrus S. Chung Jr. dated February 22, 2017

P-24-A

Signature of Cyrus S. Chung Jr. on his Amended Judicial Affidavit found on page 13 thereof

P-25

Amended Judicial Affidavit of Cherilyn R. Chung dated February 22 2017

P-25-A

Signature of Cherilyn R. Chung on her Amended Judicial Affidavit found on page 7 thereof

P-26

Amended Judicial Affidavit of Jennifer S. Manago dated February 22, 2017

P-26-A

Signature of Jennifer S. Manago on her Amended Judicial Affidavit found on page 12 thereof

P-27

Judicial Affidavit of Garry S. Pagaspas (Independent Certified Public Accountant) dated March 22 2017

P-27-A

Signature of Garry S. Pagaspas on his Judicial Affidavit found on page 19 thereof

P-28

Report of Independent Certified Public Accountant

and its annexes dated March 13 2017

P-28-A

Signature of Garry S. Pagaspas in Page 20 of !CPA Report thereof For his part, respondent presented its lone witness Revenue Officer Samilo A. Cortuna, who testified, by way of Judicial Affidavit27• Thereafter, on October 9, 2017, respondent filed his Formal Offer of Evidence28, offering Exhibits "R-1", Letter of Authority No. 030-2016-

Colt commercial, Inc. vs. The CIR

00000020 dated January 19, 2016 with attached Checklist of Requirements, and "R-3", Letter dated March 26, 2016, as his documentary evidence. Consequently, in the Resolution29 dated February 12, 2018, the Court admitted respondent's evidence. Furthermore, the parties were given a period of thirty (30) days within which to submit their respective memoranda. Considering the filing of respondent's Memorandum30 and that of petitioner's Memorandum31, the present case was deemed submitted for decision on April 11, 2018. 32 This Court rules.

The sole issue33 presented to this Court for resolution is whether petitioner is entitled to a tax refund in the amount of Two Million Eighty-Two Thousand Three Hundred Seventy-Six Pesos and Forty- One Centavos (P2,083,376.41) for the fourth quarter of taxable year 2013.

After due consideration, this Court finds partial merit in petitioner's claim. The pertinent provisions for the determination of the petitioner's claim are Sections 112(A) and (C) of the National Internal Revenue Code (NIRC) of 1997, as amended, which read as follows: "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: Provided, however, That in the case of zero- rated sales under Section 106(A)(2)(a)(1), (2) and (b) and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in 29 Ibid, pp. 3235-3236.

30 !d., pp. 3237-3243.

31 !d., pp. 3252-3270.

32 As per Resolution dated April 11, 2018, id., p. 3247. 33 Par. 2, JSFI, id., p. 2861.

c..

Colt Commercial, Inc. vs. The CIR DI!!CISION

Page 9 or 23

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 the volume of sales: Provided, finally, That for a person making sales that are zero-rated under Section 108(8)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales."

"(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the 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 taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals." From the foregoing, in order to be entitled to a refund or tax credit of unutilized input VAT attributable to zero-rated or effectively zero-rated sales, the following requisites must be met:

1. that the taxpayer is VAT-registered;

2. that the claim for refund was filed within the prescriptive period;

3. that there must be zero-rated or effectively zero-rated sales;

4. that input taxes were incurred or paid;

5. that such input taxes are attributable to zero-rated or effectively zero-rated sales; and

6. that the input taxes were not applied against any output VAT liability.

Colt Commercial, Inc. vs. The CIR

Petitioner is a VAT-registered entity.

As earlier found, petitioner is a registered VAT taxpayer with Taxpayer Identification No. 008-327-264-000, as evidenced by its Certificate of Registration34 dated August 31, 2012. Petitioner's administrative and judicial claims were seasonably filed.

Verily, based on Section 112(A) of the NIRC of 1997, as amended, the administrative claim for the issuance of a Tax Credit Certificate (TCC) or refund of unutilized input VAT must be filed with the BIR within two (2) years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. The present claim involves the 4th quarter of taxable year 2013, which closed on December 31, 2013, thus, counting two years therefrom, petitioner had until December 31, 2015 within which to file its administrative claim for TCC or refund. By filing its administrative claim via a letter35 dated December 18, 2015, together with BIR Form No. 190536, with BIR RDO No. 30 on December 28, 2015, petitioner has filed its administrative claim for refund well within the two-year prescriptive period provided for by law. Now, with regard to petitioner's judicial appeal, Section 112(C) of the same code further provides that the respondent has one hundred twenty (120) days from the date of the submission of the complete documents, in support of the application for tax refund/credit, within which to grant or deny the claim. In case of full or partial denial, petitioner's recourse is to file an appeal, via a Petition for Review, with this Court within thirty (30) days from receipt of the respondent's decision. However, if after the lapse of the 120-day period and respondent still fails to act on the application for tax refund/credit, petitioner's remedy is to appeal the inaction of the CIR to this Court within thirty (30) days. 34 Exhibit "P-5".

35 Exhibit "P-13".

36 Exhibit "P-14".

t..

Colt Commercial, Inc. vs. The CIR

Perusal of the records reveal that, from the date petitioner filed its administrative claim with the BIR, which was on December 28, 2015, respondent has one hundred twenty (120) days, or until April 26, 2016, within which to act on the said claim. Since respondent, through Revenue District Officer Leonora R. Ruizol, issued a letter37 dated March 28, 2016 denying the administrative claim, petitioner had thirty (30) days, reckoned from April 1, 2016, the date when petitioner received the said letter, or until May 2, 201638 within which to elevate the matter via a judicial appeal before this Court. Evidently, by filing the instant Petition for Review on April 29, 2016, petitioner have, likewise, timely filed its judicial claim. Petitioner had zero-rated or effectively zero-rated sales.

In its Articles of Incorporation39, it is expressly stated that petitioner is primarily incorporated for the following purposes:

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 all kinds of goods, wares and merchandise.

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 kind of goods, wares, products of all classes and description, distribution, import and export business. As such, petitioner claims that the majority of its clients are entities doing business within the economic zone and registered with the Philippine Economic Zone Authority (PEZA) and Subic Bay Metropolitan Authority (SBMA), which are classified as zero-rated transactions pursuant to Section 106(A)(2)(c) of the NIRC of 1997, as amended, which reads:

37 Exhibit "P-23"; Exhibit "R-3".

38 May 1, 2016 is a public holiday and also fell on a Sunday. 39 Exhibit "P-2".

CfA Case No. 9340 Colt Commercial, Inc. vs. The CIR DI!CISION

Page 12 of 23

"SEC. 106. Value-Added Tax on Sale of Goods or Properties.- (A) Rate and Base of Tax. - x x x

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

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."

Relative thereto, the pertinent provision of Revenue Regulations (RR) No. 16-200540, as amended, states that, viz.: "SEC.

4.106-5. Zero-Rated Sales of Goods or Properties. - A zero-rated sale of goods or properties (by a VAT-registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services, related to such zero-rated sale, shall be available as tax credit or refund in accordance with these Regulations. The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:

XXX

(c) "Sales to persons or entities deemed tax- exempt under special law or international agreement'~ - Sales of goods or property to persons or entities who are tax exempt under special laws, e.g. sales to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority (SBMA) pursuant to R.A. No. 7227, sales to enterprises duly registered and accredited with the Philippine Economic Zone Authority (PEZA) or international agreements to which the

Philippines

is signatory, such as,

Asian

Development Bank (ADB), International Rice Research 40 "CONSOLIDATED VALUE-ADDED TAX REGULATIONS OF 2005", dated September 1, 2005.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Colt Commercial, Inc. vs. The CIR

Pege 13 of 23

Institute (IRRI), etc., shall be effectively subject to VAT at zero-rate."

Apparently, based on the above-quoted provisions, there is no doubt that the sales of goods to entities registered with the PEZA and SBMA are subject to VAT at zero percent (0%) rate. Therefore, to prove that its clients are duly registered with the PEZA, petitioner submitted a confirmation letter"1 dated February 16, 2016 from the PEZA Deputy Director General for Operations, Ms. Mary Harriet 0. Abordo, verifying its issuance of VAT Zero-Rating Certifications to the following enterprises:

Name of Enterprise

Zone Location

VAT Cert.

Number

ALPHA TECHNO PRECISION TOOLINGS INC.

Cavite Economic Zone

730

APPLIEDMACHINING CORPORATION

Laguna Technopark-SEZ Laguna

939

Technopark-Annex SEZ

CEBU AOI DEVELOPMENT TECHNOLOGIES

Mactan Economic Zone

1636

CORPORATION

CffiZEN MACHINERY PHILIPPINES, INC.

First Philippine Industrial Park-

97

SEZ

CLAYMOUNT ASSEMBLIES PHILIPPINES INC.

Calamba Premiere International

454

Park-SEZ

DAITOH PRECISIONS, INC.

Mactan Economic Zone

1578

DAIWA SEIKO PHILIPPINES CORPORATION

Laguna International Industrial

448

Park-SEZ

DELFINGEN PH-FILIPINAS, INC

Mactan Economic Zone Il-SEZ

First Cavite Industrial Estate-

1569 FORMERLY: SOFANOU (PHILIPPINES), INC

SEZ

Carmelray Industrial Park II-

DELTA DESIGN PHILIPPINES LLC

SEZ

782

Baguio City Economic Zone

E N CORPORATION

Cavite Economic Zone

1259

EXAS PHILIPPINES INC

Mactan Economic Zone

1358

FAMOUS SECRET PRECISION MACHINING INC

Daiichi Industrial Park-SEZ

362

FATEC CORPORATION

First Cavite Industrial Estate-

1073

SEZ

FERUSCHE STAINLESS, INC.

Filinvest Technology Park

1658

Calamba-SEZ

FIRSTEC METALLICS, INC.

Light Industry & Science Park I-

14

SEZ

FUJITSU DIE-TECH CORPORATION OF THE

Laguna Technopark Inc.-SEZ 450

PHILIPPINES

GUNMA GOHKIN PHILIPPINE CORPORATION

Light Industry & Science Park I-

313

SEZ

HARADA AUTOMOTIVE ANTENNA (PHILIPPINES),

First Cavite Industrial Estate-

INC. FORMERLY: NIPPON ANTENNA (PHILIPPINES)

SEZ

1173 INC.

HITACHI INDUSTRIAL MACHINERY PHILIPPINES

First Cavite Industrial Estate-

229 CORP.

SEZ

41 Exhibit "P-6".

VAT Cert.

Date

17-Jan-13

28-Jan-13

24-May-13

11-Dec-12

07-Jan-13

22-Apr-13

07-Jan-13

18-Apr-13

18-Jan-13

15-Feb-13

27-Feb-13

03-Jan-13

01-Feb-13

05-Jun-13

04-Dec-12

07-Jan-13

28-Dec-12

06-Feb-13

21-Dec-12

20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57

Colt Commercial, Inc. vs. The CIR

HONDA PARTS l'lANUFACTURING CORPORATION

IMASEN PHILIPPINE MANUFACTURING

CORPORATION

INA MICRO OPTO CORPORATION

JFS PRECISION TECHNOLOGY CORP.

KNOWLES ELECTRONICS (PHILIPPINES)

CORPORATION

KODACHI SEIKI PHILIPPINES INC.

LAGUNA AUTO-PARTS MANUFACTURING

CORPORATION

LAGUNA METTS CORPORATION

MAKOTO METAL TECHNOLOGY INC.

MANUFACTURING AUTOMATION SOLUTIONS

INTERNATIONAL INC.

MEINAN PHILIPPINES INC.

MENIMA CASTING PRODUCTS INC.

MICRO-MECHANICS TECHNOLOGY INTERNATIONAL

INC.

MICRON PRECISION PHILIPPINES, INC. MKP, INC.

MTE TECHNOLOGY, INC.

NAKASHIMA PHILIPPINES CORPORATION

FORMERLY: MIKADO PHILIPPINES CORPORATION

NEW ELECTRONICS SYSTEM CO. INC.

NIDEC PHILIPPINES CORPORATION

NIDEC PRECISION PHILIPPINES CORPORATION

NUVALI STEEL PROCESSING CENTER INC. ORBIS PRECISION TECH. INC.

PARTS PHILIPPINES, INC.

PENTA TECHNOLOGICAL PRODUCTS INC.

PHILIPPINE KENKO CORPORATION

PHILIPPINE NAGANO SEIKO, INC.

PHILIPPINE PRECISION TECHNOLOGY INC. PHILIPPINE SANITARY FITTINGS, INC. PHILIPPINES TRC, INC.

PRECISE PARTS COOPERATION (PPCI) INC.

PRECISE TECHNO INCORPORATED

PROPHILE SOUND INDUSTRIES INC.

SEO JIN TRONICS, INC.

SHIMANO (PHILIPPINES) INC.

SINAG PRECISION MANUFACTURING LAGUNA INC. SONION PHILIPPINES INC.

SUMINAC PHILIPPINES INC.

SUNNELIT PHILIPPINES CORPORATION

Page 14 of 23

Laguna Technopark Inc.-SEZ 121

13-Dec-12

Laguna Technopark Inc.-SEZ 633

15-Jan-13

Mactan Economic Zone II-SEZ

1367

01-Mar-13

Golden Mile Business Park-SEZ

1732

09-Jul-13

Baguio City Economic Zone

Cebu Light Industrial Park-SEZ

968

28-Jan-13

Cavite Economic Zone

1459

13-Mar-13

Laguna Technopark Inc.-SEZ 79

10-Dec-12

Laguna Technopark Inc.-SEZ 266

26-Dec-12

Mactan Economic Zone II-SEZ

167

17-Dec-12

Calamba Premiere International

1694

27-Jun-13

Park-SEZ

Laguna Technopark Inc.-SEZ 734

17-Jan-13

First Cavite Industrial Estate-

264

26-Dec-12

SEZ

Carmel ray Industrial Park II- 1413

08-Mar-13

SEZ

Calamba Premiere International

839

21-Jan-13

Park-SEZ

Cavite Economic Zone

887

23-Jan-13

Carmel ray Industrial Park II- 789

18-Jan-13

SEZ

Cavite Economic Zone

1032

30-Jan-13

Cavite Economic Zone

431

07-Jan-13

Laguna Technopark Inc.-SEZ 428

07-Jan-13

Laquna Technooark Inc.-SEZ 443

07-Jan-13

Laquna Technopark Annex-SEZ

1747

15-Jul-13

Laguna International Industrial

306

28-Dec-12

Park-SEZ

Cavite Economic Zone

1263

18-Feb-13

Laquna Technooark Inc.-SEZ 747

17-Jan-13

Mactan Economic Zone

1552

12-Apr-13

People's Technology Complex-

861

22-Jan-13

SEZ

Carmel ray Industrial Park I-SEZ 1720

08-Jul-13

Light Industry & Science Park

Ill-SEZ

1054

31-Jan-13

First Cavite Industrial Estate-

SEZ

Lima Technology Center-SEZ

879

22-Jan-13

First Cavite Industrial Estate-

1907 16-0ct-13

SEZ

Cavite Economic Zone

1313

20-Feb-13

Cavite Economic Zone

165

17-Dec-12

First Cavite Industrial Estate-

1709

02-Jul-13

SEZ

First Philippine Industrial Park-

1979

18-Dec-13

SEZ

Laquna Technooark Inc.-SEZ 1827

27-Aug-13

First Philippine Industrial Park-

1095

01-Feb-13

SEZ

First Cavite Industrial Estate-

355

02-Jan-13

SEZ

Laguna Technopark Inc.-SEZ 695

16-Jan-13

58 59 60 61 62 63 64 65

Colt Commercial, Inc. vs. The CIR

T&S LASER SOLUTIONS, INC.

TAMIYA !PHILIPPINES). INC.

TMX PHILIPPINES, INC.

TSUKUBA PHILIPPINE DIECASTING CORPORATION

URE·SHII TECHNOLOGIES INC.

VITALO PACKAGING INTERNATIONAL INC. WACKER NEUSON MANILA, INC. FORMERLY:

WACKER MACHINERY PHILIPPINES INC

YUTAKA MANUFACTURING (PHILIPPINESl INC.

Page 15 of 23

First Philippine Industrial Park-

30

SEZ

Mactan Economic Zone II -SEZ

1939

Mactan Economic Zone

1001

Cavite Economic Zone

718

Golden Mile Business Park-SEZ

2036

Laauna Technooark-SEZ

395

First Cavite Industrial Estate-

383

SEZ

Laquna Technopark Inc.-SEZ 769 Accordingly, only the sales made to the above-enumerated enterprises during the 4th quarter of taxable year 2013 shall be entitled to VAT zero-rating for purposes of the subject claim. However, as to the sales made to SBMA-registered clients, petitioner, unfortunately, failed to provide similar certifications or confirmations from SBMA. As a result, sales thereto shall be denied VAT zero-rating.

As noted by the court-commissioned ICPA in his ICPA Report42, petitioner had actual export sales in the amount of P2,077,110.82 which were duly supported by (i) airway bills/bills of lading, as proof of actual shipment of goods from the Philippines to a foreign country;43 (ii)certificate of inward remittances;44 and, (iii) reconciliation of export sales and dollar remittances, as proof of payment for the goods in acceptable foreign currency.45 Thus, the ICPA considered the said amount in the computation of petitioner's zero-rated sales.46 Nonetheless, this Court cannot ascertain whether the airway bills submitted by petitioner actually support the purported zero-rated sales declared by petitioner as the same were unreadable. As such, the claimed actual export sales shall also be denied VAT zero-rating. Corollary, Sections 113(A)(1), (B)(1), (2)(c) and (³) of the NIRC of 1997, as amended, as implemented by Sections 4.113-1(A)(1), B(1) and (2)(c) of RR No. 16-05, in relation to Sections 237 and 238 of the same tax code, provide that a VAT taxpayer, like herein petitioner, shall for every sale, barter or exchange of goods or properties, issue a VAT invoice which must contain the following information: 42 Exhibit "P-28".

43 Marked by the !CPA as Exhibit "P-32" of the !CPA Report. 44 Marked by the !CPA as Exhibit "P-19" of the !CPA Report. 45 Marked by the !CPA as Exhibit "P-22" of the !CPA Report. 46 Par. F, Exhibit "P-28", Docket (Vol. IV), p. 2960.

05-Dec-12

11-Nov-13

29-Jan-13

17-Jan-13

28-0ct-14

04-Jan-13

04-Jan-13

18-Jan-13

Colt Commercial, Inc. vs. The CIR

"SEC. 113. Invoicing and Accounting Requirements for VAT- Registered Persons. - (A) Invoicing Requirements.- A VAT-registered person shall issue:

(1) A VAT invoice for every sale, barter, or exchange of goods or properties; and

XXX

(B) Information Contained in the VAT Invoice or VAT Official Receipt. -The following information shall be indicated in the VAT invoice or VAT official receipt:

(1) A statement that the seller is a VAT-registered person, followed by his Taxpayer's Identification Number (TIN);

(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: Provided, that:

XXX

(c) If the sale is subject to zero percent (0%) value-added tax, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt;

(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; x x x" (Emphasis Supplied) "SEC. 4.113-1. Invoicing Requirements. - (A) A VAT-registered person shall issue:-

(1) A VAT invoice for every sale, barter, or exchange of goods or properties; and

XXX

Colt Commercial, Inc. vs. The CIR

Only VAT-registered persons are required to print their TIN followed by the word 'VAT' in their invoice or official receipts. Said documents shall be considered as a 'VAT Invoice' or

VAT

Official

Receipt.

All

purchases covered by invoice/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax. VAT invoice/official receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records. (B) Information contained in VAT invoice or VAT Official Receipt. - The following information shall be indicated in VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT-registered person, followed by his TIN;

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT; Provided, That:

XXX

(c) If the sale is subject to zero percent (0%) VAT, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt; x x x" (Emphases

Supplied)

"SEC. 237. Issuance of Receipts or Sales or Commercial Invoices.- All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service. Provided, x x x" SEC. 238.

Printing of Receipts or Sales or Commercial

Invoices. - All persons who are engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same.

Colt Commercial, Inc. vs. The CIR

No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be printed are serially numbered and shall show, among other things, the name, business style, Taxpayer Identification Number (TIN) and business address of the person or entity to use the same, and such other information that may be required by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. x x x." (Emphases supplied) In its Amended Quarterly VAT Return47 for the fourth quarter of TY 2013, petitioner reported total sales of P30,065,138.71, broken down as follows:

Sales Type

Amount

Vatable Sales

p 6,335,479.75

Zero-Rated Sales

23,729,658.96

Total Sales

p 30,065,138.71 In support of its zero-rated sales amounting to P23,729,658.96 and to prove compliance with the VAT invoicing requirements as mandated by law and pertinent regulations, petitioner submitted its monthly Schedule of Sales48 and the corresponding supporting sales invoices49 thereto.

However, upon closer evaluation, this Court finds that the following zero-rated sales totaling in the amount of P2,773,125.84 should be disallowed for the reasons hereinafter stated, to wit: Invoice No.

Client

Amount

\ Exhibit No.

Sales to clients without proof of PEZA registration/VAT exemption 4258

Turu Santechno Corporation

4345 Delfingen West, Inc.

4428

Silan Technologies Corporation

4741

Silan Technoloqies Corporation

4791 Delfingen West, Inc.

4926

Turu Santechno Corporation

4928

Turu Santechno Corporation

5010 Delfingen West, Inc.

47 Exhibit "P-16-D".

48 Exhibit "P-8".

49 Exhibit "P-9"; Exhibits "P-33-1" to "P-33-780" of the !CPA Report. 6,120.00

P-9

28,000.00 P-33.59 4,530.00

P-9

2,400.00

P-9

12,520.00 P-33.293 12,350.00

P-9

3,840.00

P-9

14,000.00 P-33.408 ITA Case No. 9340 Colt Commercial, Inc. vs. The CIR

DECISION

5046

Turu Santechno Corporation

5052

Turu Santechno Corporation

5194

Turu Santechno Corporation

5289 Oelfingen West, Inc.

5292

Turu Santechno Corporation

5564

Silan Technologies Corporation

5587 Oelfingen West, Inc.

5656 Oelfingen West, Inc.

subtotal

Page 19 of 23

52,840.00

P-9

19,590.00

P-9

3,900.00

P-9

7,400.00 P-33.555 2,600.00

P-9

8,270.00

P-9

15,000.00 P-33.711 8,000.00 P-33.740 201,360.00 Sales to clients without proof of SBMA registration/VAT exemption 4240

Polarmarine Incorporated

19,800.00 P-33.1 4373

Polarmarine Incorporated

202,750.00 P-33.74 4374

Polarmarine Incorporated

4,000.00 P-33.75 4375 Hitachi Terminals Mechatronics Phils. Inc 4,400.00 P-33.76 4376

Polarmarine Incorporated

4,600.00 P-33.77 4377 Hitachi Terminals Mechatronics Phils. Inc 13,100.00 P-33.78 4600 Hitachi Terminals Mechatronics Phils. Inc 40,000.00 P-33.192 4621 Hitachi Terminals Mechatronics Phils. Inc 600.00 P-33.199 4656

Polarmarine Incorporated

68,115.00 P-33.220 4658

Polarmarine Incorporated

4,000.00 P-33.222 4671 Hitachi Terminals Mechatronics Phils. Inc 29,900.00 P-33.231 4804

Polarmarine Incorporated

2,600.00 P-33.300 4805

Polarmarine Incorporated

600.00 P-33.301 5076

Polarmarine Incorporated

30,300.00 P-33.438 5173 Hitachi Terminals Mechatronics Phils. Inc 4,400.00 P-33.486 5219

Polarmarine Incorporated

28,700.00 P-33.512 5285

Polarmarine Incorporated

10,600.00 P-33.551 5286

Polarmarine Incorporated

340.00 P-33.552 5555

Polarmarine Incorporated

3,600.00 P-33.693 5558

Polarmarine Incorporated

22,250.00 P-33.694 subtotal 494,6SS.OO Export sales without proof of actual shipments (illegible Shipment Waybills) 4266 Premtool e.k.

219,930.64 P-33.769 4273

Euroasia Technics SON BHO

118,869.66 P-33.770 5003 Premtool e.K.

308,425.14 P-33.771 5006 Premtool e.K.

224,281.40 P-33.772 5332

Euroasia Technics Sdn Bhd

59,378.25 P-33.773 5335

Hillmec Engineering Sdn Bhd

75,316.74 P-33.774 5377 Premtool e.k.

193,931.41 P-33.775 5381 Premtool e.k.

80,657.05 P-33.776 5605 Premtool e.K.

302,454.90 P-33.777 5617

Hillmec Engineering SON BHO

61,770.40 P-33.778 5618

Euroasia Technics SON BHO

105,629.40 P-33.779 5619 Premtool e.K.

326,465.85 P-33.780 subtotal 2,077,110.84

TOTAL

2,773,125.84

Colt Commercial, Inc. vs. The CIR

Accordingly, only the amount of P20,956,533.12 represents petitioner's valid zero-rated sales, computed as follows:

Reported Zero-Rated Sales

p 23,729,658.96 Less: Disallowances by this Court 2 773,125.84

Valid Zero-Rated Sales

p 20,956,533.12 Thus, having resolved that petitioner had VAT zero-rated sales for the 4th quarter of taxable year 2013 in the amount of P20,956,533.12, this Court shall now proceed to determine the amount of input VAT attributable thereto. Petitioner had input taxes attributable to its zero-rated and were not applied against any output VAT liability.

Again, in its Amended Quarterly VAT Return for the 4th quarter of taxable year 2013, petitioner reflected input taxes on local purchases and importations of goods other than capital goods in the total amount of P2,842,633.98. From the said amount, P2,082,376.41, net of output tax due, is the subject herein of petitioner's claim for refund, viz.:

Input Tax on Purchases of Goods Other than Capital Goods p 511,365.98 Importation of Goods Other than Capital Goods 2,331 268.00

Total

p 2,842,633.98

Less: Output Tax

760 257.57 Excess input tax claimed p 2,082,376.41 In support of its total input taxes of P2,842,633.98, petitioner submitted certified true copies of Sales Invoices for Purchase of Goods50, and Bureau of Customs' Import Entry and Internal Revenue Declarations51 (IEIRDs) with receipts/Confirmation receipts evidencing payment of VAT for imported goods. However, upon examination of the said documents, the ICPA noted certain exceptions which failed to meet the substantiation

Colt Commercial, Inc. vs. The CIR requirements under Sections 110(A) and 113(A) and (B) of the NIRC of 1997, as amended, in relation to Sections 4.110-1, 4.110-8 and 4.113-1 of RR No. 16-05, in the total amount of P563,809.26, broken down as follows: 52

Description

Input VAT

Reference

Amount

(ICPA Report)

Printed in thermal paper p 422.12 Table 6; Exh P-35 Not under CCI's complete name 20,182.50 Table 7; Exh P-36 Without or incomplete registered 264,432.04 Table 8; Exh P-37 address of CCI Without or incorrect CCI's TIN 70,133.53 Table 9; Exh P-38 Input VAT not separate in invoice 2,990.10 Table 10; Exh P-39 Out of quarter 205,648.97 Table 11: Exh P-40 Total amount not fully compliant p 563,809.26 Furthermore, the input VAT in the amount of P221,692.40 shall, likewise, be disallowed for the reasons stated hereafter:

Supplier's Name

Invoice No.

Amount

Exhibit No.

Reason for the disallowancE

On Local Purchases

G. P. Enterprises Inc.

504954 p 1,466.25 P-34.40 Supported by VAT invoice bl without TIN of petitioner G.P. Enterprises Inc.

507561 384.40 P-34.41 Supported by VAT invoice bl without TIN of oetitioner Supported by VAT invoice but wit

Screw City Hardware

265682 6.75 P-34.127 alteration on date withm counter-sionature subtotal p 1,857.40

On Importations

Supported

by

IEIRD

withal

Whizcut of Sweden AB

8648923485 p 39,983.00 P-34.183 machine validation;

no a thE documents provided to prov payment of the claimed input VA

Supported

by

IEIRD

withm YG-1 Tools Aisa Ple. Ltd.

131215637 80,736.00 P-34.200 machine validation;

no othE documents provided to prov payment of the claimed input VA

Supported

by

IEIRD

withal Ehwa Diamond Ind. Co., Ltd.

8361505202 5,779.00 P-34.217 machine validation;

no othE documents provided to prov payment of the claimed input VA

Supported

by

IEIRD

withal

Whizcut of Sweden AB

86S9392954

93,337.00 P-34.229 machine validation;

no a thE documents provided to prov payment of the claimed input VA 52 Par. D, Exhibit "P-28" (!CPA Report), Docket (Vol. IV), p. 2963.

L

Colt Commercial, Inc. vs. The CIR subtotal

TOTAL

P 221 692.40 I Page zz or Z3 In sum, petitioner's valid input VAT for the 4th quarter of taxable year 2013 only amounts to P2,057,132.32, which is computed as follows:

Input VAT per Return

p 2,842,633.98

Less: Disallowances

Per ICPA Report

563,809.26 Per Court's further verification 221,692.40

Total Valid Input VAT

p 2,057,132.32 Proceeding therefrom, a portion of petitioner's valid input VAT shall be applied against the output VAT liability for the 4th quarter of taxable year 2013 in the amount of P760,257.57. Consequently, only the remaining input VAT of P1,296,874.75 can be attributed to the declared zero-rated sales of P23,729,658.96, which means that only the input VAT of P1,145,317.71 is actually attributable to the zero- rated sales of P20,956,533.12, as seen below: Valid input VAT p 2,0571132.32

Less: Output VAT

760,257.57 Excess valid input VAT p 1,296,874.75 Divide by declared zero-rated sales 23,729,658.96 Multiply by valid zero-rated sales 20,956,533.12 Excess input VAT attributable to p 1,145,317.71 valid zero-rated sales All told, petitioner was able to prove that the claimed excess input VAT of P2,082,376.41 for the 4th quarter of taxable year 2013 was not applied against any output VAT in the succeeding quarters. The said amount remained unutilized as it was deducted as "VAT Refund/TCC claimed" in its Amended Quarterly VAT Returns for the 3'd quarter of taxable year 2015.53 Apparently, the subject claim no longer formed part of the excess input VAT of P278,416.7754 at the end of the said quarter of taxable year 2015 which can be carried over/applied to the succeeding quarters. Henceforth, it eliminates the possibility that the presEnt claim would be applied to future output VAT liability.

Colt Commercial, Inc. vs. The CIR

WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Accordingly, respondent is ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the reduced amount of P1,145,317.71, representing unutilized input VAT attributable to its zero-rated sales for the 4th quarter of taxable year 2013.

WE CONCUR:

Presiding Justice

~N.Ivt~-..~-b~ CIELITO N. MINDA-RO-GRULLA

Associate Justice

• ER~P.UY

Associate Justice

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.

Chairperson, Special 1st Division