Colt Commercial Inc. vs. The Commissioner of Internal Revenue

DECISION

CASTANEDA, JR.,}.:

This case is a claim for refund in the total amount of P3,577,338.15 which allegedly represents petitioner's unutilized input tax payments attributable to its zero-rated sales for the third (3rd) and fourth (4th) quarters of taxable year 2014.

THE PARTIES

Petitioner Colt Commercial, Inc. is a corporation duly organized and existing under the laws of the Philippines, with business address at Suite 508 Padilla Delos Reyes Bldg., 232 Juan Luna St., Barangay S2«-

289 Zone 027, Binondo, Manila.2 Petitioner is registered with Revenue District Office No. 30 Binondo, Manila, as a Value-added Tax (VAT) taxpayer, with Taxpayer Identification No. 008-327-264-000.3 On the other hand, respondent Commissioner of Internal Revenue (CIR) 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 Bureau of Internal Revenue (BIR) National Office Building, BIR Road, Diliman, Quezon City.

THE FACTS

Petitioner is principally engaged in the business of selling cutting tools and hardware. Majority of its clients are entities doing business within the economic zones, such as the Philippine Economic Zone Authority (PEZA) and Subic Bay Metropolitan Authority (SBMA). Intrinsically, petitioner's sales to its clients in the economic zones are classified as effectively zero-rated transactions pursuant to Section 106 (2)(C) of the National Internal Revenue Code (NIRC) of 1997, as amended.

On February 3, 2016, petitioner filed its amended Quarterly VAT Returns for the third (3rd)4 and fourth ( 4th)5 quarters of taxable year 2014, allegedly reflecting unutilized input tax payments in the amount of of One Million Eight Hundred Twenty Four Thousand Six Hundred Sixty Eight and Forty Three Centavos (P¹,824,668.43) and One Million Seven Hundred Fifty Two Thousand Six Hundred Sixty Nine and Seventy Two Centavos (P1,752,669.72), respectively. On September 29, 2016, petitioner filed its Administrative Claim for Excess Input VAT Refund6 for the 3rd and 4th quarters of taxable year 2014. t-"

Thereafter, claiming inaction thereof, petitioner filed the instant Petition for Review7 on February 24, 2017.

On April 20, 2017, respondent filed his AnswerS, interposing the following special and affirmative defenses, viz.: "It is incumbent upon petitioner to prove that it is entitled to the refund sought because a claim for refund is not ipso facto granted upon filing of the claim.

XXX

9. It must be pointed out that taxes remitted to the Bureau are presumed to have been made in the regular course of business and in accordance with provisions of law.

10. All claims for refund are governed by one same rule: that respondent still has to investigate and ascertain the veracity of the claim. AS the Supreme Court stated in one case, 'A corporate taxpayer's option to avail of tax credit does not, however, mean that it is ipso facto granted.' Hence, petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau of Internal Revenue.

11. Also to support its claim, it is imperative for petitioner to prove and present the following:

a.

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

b.

The invoicing and accounting requirements for VAT- registered persons, as well as the filing and payment of VAT in compliance with the provisions of Section 113 and 114 of the Tax Code, as amended;

c.

Proof of compliance with the prescribed checklist of requirements to be submitted involving claim for VAT refund pursuant to Revenue Memorandum Order No. 53-98, otherwise there would be no sufficient compliance with the filing of an administrative application for refund which is a condition sine qua non prior to the filing of a judicial claim in accordance with JL

CfA Case No. 9539

Section 112 of the Tax Code, as amended. This requires the submission of complete documents in support of the application filed with the Bureau of Internal Revenue before the 120-day audit period shall apply, and before the taxpayer could avail of the judicial remedies as provided for in the law. Hence, petitioner's failure to submit proof of compliance with the above-stated requirements warrants immediate dismissal of the petitioner[sic]for review;

d.

That the input taxes of Php3,577,338.15 allegedly incurred by petitioner for the 3rd and 4th Quarters of 2014 was attributable to its zero-rated sales and such have not been applied against any output tax and were not carried over to the succeeding taxable quarter or quarters;

e.

That petitioner's administrative and judicial claims for tax credit or refund of the unutilized input tax (VAT) was filed within the periods provided in Sections 112 (A) and (C) of the Tax Code, as amended;

f.

That petitioner's domestic purchases of goods and services were made in the course of trade or business, properly supported by VAT invoices and/or official receipts and other documents, such as subsidiary purchase Journal showing that it actually paid VAT in accordance with Sections 110 (A)(²) and 113 of the Tax Code, as amended, and pursuant to Section 4.104-5 (a) and (b) of Revenue Regulations No. 7-95 (Re: Substantiation of Claims for Input Tax Credits); g.

The requirements as enumerated under Section 4.104-5 of Revenue Regulations No. 7-95 (Re: Substantiation of Claims for Input Tax Credits).

12. With due respect, respondent humbly manifests that petitioner failed to substantiate its claim that it is entitled to the refund being prayed for. Petitioner failed to comply with the invoicing and accounting requirements laid down in Section[s} 113, 114 and 236 of the NIRC of 1997, as amended, and its implementing rules and regulations under RR. 16-2005.

13. In addition, petitioner was not able to prove that it has strictly complied with the submission of all supporting and relevant documents provided under Revenue Memorandum Order (RMO) No. 53- 98 and other existing rules and regulations to warrant the grant of application for refund.

14. The aforementioned provisions of the NIRC as well as the existing rules and regulations are necessary to establish its claim that indeed there is the presence of valid zero-rated sales that would warrant the grant of administrative application for refund on its Jk- unapplied/unutilized input VAT as well as the submission of supporting documents to corroborate the claim being applied for.

15. Further, Section 4.108-1 of Revenue Regulations No. 7-95 specifically enumerates the information that must appear on the face of the receipt or invoice issued by all VAT-registered persons. Section 4.108-1 of Revenue Regulations No. 7-95.- Invoicing Requirements. - All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show:

1.

the name, TIN and address of seller;

2.

date of transaction;

3.

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

4.

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

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

the invoice value or consideration

16. The requirement of imprinting the word 'zero-rated' is useful, practical and necessary not only with respect to the proper implementation of the provisions of the 1997 NIRC on zero-rated transactions but more importantly, to prevent the granting of refund or tax credit to non-existent input VAT.

XXX

20. Another, petitioner must likewise prove that the input taxes have not yet been applied against its output taxes during and in the succeeding quarters.

21. As here, it was made apparent from the VAT returns of the taxpayer that the entire amount of the input tax, sought to be refunded, was already been carried over to the 4th Quarter VAT Return for taxable year 2014, amounting to Php7,298,577.24 and to the pt Quarterly VAT Return for taxable year 2015, amounting to Php6,510,915.49.

22. Per report of the examiner the said amounts also include the excess input taxes carried over from the 1st and 2nd Quarter of 2014. Hence, the input tax being claimed by petitioner has already been applied against its output tax. ?v

CfA Case No. 9539

XXX

Petitioner's claim for refund [was] filed out of time.

25. It must be stressed as well that Section 112 (A) of the NIRC explicitly reads:

'(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: x x x.'

XXX

27. Here, the petition must have been filed on or before 30 September 2016 for the 3rd quarter claim and 31 December 2016 for the 4th quarter claim. Unfortunately, it was filed only on 24 February, 2017.

Tax

refund must be construed strictissimi juris.

XXX

29.

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 construed strictissimi juris against the person or entity claiming the exemption. 30.

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 and satisfied all the statutory and administrative requirements to be entitled to the tax refund.

31. Following the premise above-mentioned, petitioner has the burden of proving that the right to such tax refund indubitably exists and well-founded doubt is fatal to its claim." (Citations Omitted) ;e- On May 3, 2017, respondent filed his Pre-Trial Brief for the Respondent9 while, petitioner, on the other hand, filed its Pre-Trial Brief10 on May 8, 2017. Thereafter, a Joint Stipulation of Facts and Issues11 (JSFI) was filed by the parties, via registered mail, on May 26, 2017.

Consequently, on June 9, 2017, the Court issued a Pre-Trial Order12 which deemed the pre-trial terminated. During trial, petitioner presented its witnesses: the instant case's Independent Certified Public Accountant (ICPA), Sonny S. Bonilla; petitioner's corporate President, Mr. Cyrus S. Chung, Jr.; its corporate Secretary and Treasurer, Ms. Cherilyn R. Chung; and, its Accounting Head, Ms. Jennifer S. Manago. After their respective testimonies, petitioner filed its Formal Offer of Evidence (with CD Volumes 1 and 2)13 on October 2, 2017, offering Exhibits P-1 to P-27-A, inclusive of sub-markings, as its documentary evidence.

In a Resolution14 dated November 17, 2017, the Court admitted petitioner's evidence except for the following exhibits for petitioner's failure to present their original copies for comparison: Exhibit No.

P-7 series

P-9

P-11

P-20

9 Docket (Vol. I), pp. 272-274.

10 !d., pp. 309-324.

11 Docket (Vol II), pp. 381-389.

12 !d., pp. 392-396.

13 !d., pp. 478-500 14 !d., pp. 725-726.

Description

PEZA Certificate of Registration, BIR Certificate of

Registration and

PEZA Form

ERD 97-01 of

Petitioner's clients/purchasers

Certified True Copy of Sales Invoices

Certified True Copies of Sales Invoices for purchase of goods

Import Entry and Internal Revenue Declarations

duly validated by bank with O.R. and BOC receipts/Confirmation receipts evidencing payment

of VAT

~

Meanwhile, in the Order15 dated November 22, 2017, the Court noted counsel for respondent's manifestation that she has no witness to present in this case. Henceforth, the Court gave respondent a period of thirty (30) days within which to submit his Memorandum, while, on the other hand, gave petitioner a period of twenty (20) days within which to submit its Memorandum.

In compliance, petitioner submitted its Memorandum16 on January 3, 2018, while respondent's Memorandum17 was filed on December 22, 2017.

Accordingly, in the Resolution18 dated January 22, 2018, the instant case was deemed submitted for decision.

THE ISSUE

The sole issue19 to be resolved in this case is whether petitioner is entitled to a refund in the amount of P1,824,668.43 and P1,752,669.72 for the 3rd and 4th quarters of taxable year 2014, respectively, representing the unutilized input VAT it incurred in the 3rd and 4th quarters of taxable year 2014.

Petitioner's Arguments

Petitioner argues that its claim for refund was filed on time. Its administrative claim was filed within the two-year period provided under Section 112 of the NIRC of 1997, as amended, while its judicial appeal complied with the mandatory 120-day and 30-day periods provided under the same law. Thus, petitioner insists that it is entitled to the amount sought to be refunded.

Petitioner further contends that its sales are considered zero- rated under Section 106 (A)(2) of the NIRC of 1997, as amended. Moreover, petitioner maintains that its unutilized input VAT for the 3rd ft-

CfA Case No. 9539 and 4th quarters of taxable year 2014 is duly substantiated by its documentary evidence.

Respondent's Arguments

Respondent primarily asserts that petitioner failed to prove that it has duly complied with the documentary requirements needed to claim refund. He also argues that the subject input tax being claimed for by petitioner has already been applied against its output taxes.

THE COURT'S RULING

After due consideration, the Court finds the instant Petition is partly meritorious.

Section 112(A) and (C) of the 1997 NIRC, as amended, provides the basis for refund or tax credit of input tax attributable to zero-rated or effectively zero-rated sales, to wit:

"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(8)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero- rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. x x x"

XXX~

(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." Based on the foregoing, in order to be entitled to a refund or issuance of a Tax Credit Certificate (TCC) for unutilized input VAT attributable to zero-rated or effectively zero-rated sales, the following requisites must be complied with, viz.:

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.

In the instant case, petitioner has sufficiently proven its compliance with the first requisite. that it is a VAT-registered entity, registered with Revenue District Office No. 30, Binondo, Manila with Taxpayer Identification No. (TIN) 008-327-264-000.20 ~

With regard to the second requisite: the Court finds that petitioner have timely filed its administrative and judicial claims. Under Section 112(A) of the 1997 NIRC, as amended, the administrative claim for the issuance of a TCC or refund of 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.

Considering, the present claim covers the 3rd and 4th quarters of TY 2014, the close of the taxable quarter would be September 30, 2014 and December 31, 2014, respectively. Counting two years therefrom, petitioner had until September 30, 2016 and December 31, 2016, respectively, within which to file its administrative claim for refund/TCC. Clearly, the administrative claim for refund was timely filed by petitioner on September 29, 2016.

As to the timeliness of petitioner's judicial appeal, Section 112(C) of the NIRC of 1997, as amended, provides that the CIR has 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 by the CIR, the taxpayer's recourse is to file an appeal before this Court within thirty (30) days from receipt of the decision of the CIR. However, if after the 120-day period, the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to this Court within 30 days.

From the filing of petitioner's administrative claim, together with the supporting documents, on September 29, 2016, respondent had one hundred twenty (120) days or until January 27, 2017 to act on the said claim. Since respondent failed to act on the said claim after the lapse of the 120-day period, petitioner had 30 days or until February 27, 201721 within which to file a judicial claim before this Court. Evidently, petitioner's judicial appeal by way of a Petition for Review filed on February 24, 2017 is well within the period provided by law. As to the third requisite. the Court finds that petitioner is engaged in zero-rated or effectively zero-rated sales. As stated in its ?r- 21 Should be February 26, 2017 but it fell on a Sunday.

Articles of Incorporation,22 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 and 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.

Incidentally, petitioner claims that 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). Under Section 106 (A)(2)( c) of the NIRC of 1997, as amended, such transactions are classified as zero- rated, viz.:

"SEC. 106. Value-Added Tax on Sale of Goods or Properties. -

(A)

Rate and Base of Tax. - x x x (1)

X X X

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

(a) X X X

(b) X X X (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, Section 4.106-5 (c) of Revenue Regulations (RR) No. 16-2005,23 as amended, states that: "SEC. 4.106-5. Zero-Rated Sales of Goods or Properties.- x x x. The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:

(a) X X X

(b) X X X

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

Clearly, 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°/o) rate.

To prove that its clients are duly registered with the PEZA, petitioner submitted a Confirmation Letter24 dated July 5, 2016, from the PEZA Deputy Director General for Operations, Ms. Mary Harriet 0. Abordo, addressed to petitioner's President Mr. Cyrus 5. Chung, Jr., validating the issuance of VAT zero-rating certifications to the following entities:

Name of Enterprise

ALPHA TECHNO PRECISION TOOLINGS INC.

•<<0''00'0''000'00'00'00000'0000000'000000000000000000000000000'0'0000000'0'00000'000'M'0000000 '' 2

APPLIED MACHINING CORPORATION

0 •OOOOO>>>O>>>O>OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO>OOOOOOOOOOOOO .... OMOOOOOOOO 23 CONSOLIDATED VALUE-ADDED TAX REGULATIONS OF 2005, September 1, 2005. 24 Exhibit P-6.

···'k_

ASIAN TRANSMISSION CORPORATION

FORMERLY: MIYANO PHILIPPINES, INC. _ CLAYMOUNT ASSEMBLIES PHILIPPINES, INC.

DAIWA SEIKO PHILIPPINES CORPORATION Laguna International . _____..ndustrial Park-SEZ | DELFINGEN PH-FILIPINAS, INC. Mactan Economic Zone FORMERLY: SOFANOU (PHILIPPINES), INC.

DELTA DESIGN PHILIPPINES LLC

01 April 2014

I-SEZ 2014-1661

First Philippine Industrial

—_— Park-SEZ

Calamba Premiere

2014-0023 09 December 2013 _

02 January 2014 |

2014-1665 | 2014-0854

02 April 2014

16 6 January 2 2014

FAMOUS S SECRET PRECISION MACHINING INC.

2014-0536 02 January 2014

FATEC CORPORATION

FERUSCHE STAINLESS, INC.

Light Industry & Science

ven ACK T-SEZ aguna Technopark Inc.-

~~ Light Industry & Science

cee PAK ICSEZ FIRSTEC METALLICS, INC.

UJITSU DIE-TECH CORPORATION OF THE —

GUNMA GOHKIN PHILIPPINES CORPORATION

HARADA AUTOMOTIVE ANTENNA

_ (PHILIPPINES), INC. _ First Cavite Industrial

FORMERLY: NIPPON ANTENNA (PHILIPPINES) | Estate-SEZ

HISTOTECH PRECISION (PH) INC.

2014-0679

2014-0146 | 10 December 2013 |

Light Industry & Science

Park I-SEZ

First Cavite Industrial

nae State-SEZ | Laguna Technopark Inc.- IMASEN PHILIPPINE MANUFACTURING ~~ Laguna Technopark Inc.- CORPORATION nnn SEZ

INA MICRO OPTO CORPORATION Mactan Economie Zone

~ Golden Mile Business

Park-SEZ Baguio City

Economic Zone

Cebu Light Industrial

Park-SEZ 2014-0747 13 January 2014

2014-2017 | 08 October 2014

11 December 2013 |

2014-0331 17 December 2013

2014-0346 | 17 December 2013 13

2014-1476

24 4 February 2 2014 4

_JFS PRECISION TECHNOLOGY CORP. _ 2014-1023 22 January 2014 essen

CORPORATION

LAGUNA AUTO-PARTS MANUFACTURING _ Laguna Technopark Inc.- CORPORATION ed EZ, LAGUNA METTS CORPORATION “Laguna Technopark Inc.

2014-0028

09 December 2013

07 January 2014

MAKOTO METAL TECHNOLOGY, INC.

MANUFACTURING AUTOMATION SOLUTIONS

INTERNATIONAL, INC.

MEINAN PHILIPPINES, 7 INC.

II-SEZ 08 January 2014

Calamba Premiere

_International Park-SEZ 26 December 2013

Laguna Technopark Inc.

29 January 2 2014

First Cavite Industrial

_MENIMA CASTING PRODUCTS INC.

ICRO-MECHANICS TECHNOLOGY

NTERNATIONAL INC. | MICRON PRECISION PHILIPPINES, INC.

13 January 2014

“Chiat be premiere”

International Park-SEZ

2014-1419 13 February 2014

MTE TECHNOLOGY, INC. | Carmelray Toestrial Park

ARASHINA PHILIPPINES CORPORATION (NPQ)

_ FORMERLY: MIKADO PHILIPPINES

CORPORATION

2014-0256 | 13 December 2013 |

Cavite Economic Zone = 2014-0614 07 January 2014

Laguna Technopark Inc.-

_ SEZ

NIDEC PHILIPPINES CORPORATION

2014-0226

11 1 December 2013 |

2014-0680 09 January 2 2014

NIDEC SANKYO PHILIPPINES CORPORATION _ Laguna Te Inc.-

Laguna ‘Technopark

2014-1756 16 May 2014 7”

NUVALI STEEL PROCESSING CENTER, INC ORBIS PRECISION TECH. INC. 20 January 2014 "Laguna Technopark Inc.-

SEZ

2014-0444 | 26 December 2013 |

PENTA TECHNOLOGICAL PRODUCTS INC.

People's Technology

i. .Complex-SEZ PHILIPPINE PRECISION TECHNOLOGY, INC. | Carmelray Industria Park

: Light I Industry & Science

Park III-SEZ First Cavite |

Industrial Estate-SEZ

- Lima Technology Cente | 2014-1480

_ Cavite Economic Zone |. 2014-1694 PHILIPPINE E NAGANO SEIKO, INC. 2014-0541 02 January 2014 |

02 April 2014

2014-1663 2014-1750 | _ PHILIPPINE SANITARY FITTINGS, INC.

PHILIPPINES TRC, INC.

24 February 2014

First Cavite Industrial

Estate-SEZ

Laguna Technopark Inc.- SEO JIN TRONICS, INC.

SINAG PRECISION MANUFACTURING LAGUNA, SHIMANO (PHILIPPINES) INC.

2014-1296 | 03 February 2014 |

23 June 2014

_Park-SEZ _ 18 December 2013 |

| First Philippine Industrial

ne PATK-SEZ,

First Cavite Industrial

— Estate-SEZ

Laguna Technopark Inc.-

First Philippine Industrial

vn PATKSEZ TAMIYA A (PHILIPPINES), 1 INC. Mactan Economic Zone TMX. PHILIPPINES, INC. | 7 i Ma Mactan Economic. Zone

UKUBA PHILIPPINE DIECASTING — |

ORPORATION

URE-SHIT TECHNOLOGIES INC.

SONION PHILIPPINES INC. 2014-0 0519 | 27 / December 2013 |

Jessen

SUMINAC PHILIPPINES INC. 2014- ‘0073 09 December 2013 | SUNNELIT PHILIPPINES CORPORATION — 2014- ‘1124 24 January 2 2014

20 December 2013 |

T&S LASER SOLUTIONS, INC. 2014- 0433 2014-0980 2014-1035

21 +1 January 2 2014

22 January 2 2014

09 December 2013

Cavite Economic Zone

"Golden Mile Business

Park-SEZ

2014-2039

28 October 2014

66 67

WACKER NEUSON MANILA, INC.

FORMERLY: WACKER MACHINERY

YUTAKA MANUFACTURING (PHILS.) INC.

First Cavite Industrial

Estate-SEZ

2014-0678

09 January 2014

Laguna Technopark Inc.- 2014-0082

09 December 2013

However, with respect to its alleged SBMA registered clients, petitioner was not able to submit any document to substantiate its entitlement to VAT zero-rating.

Thus, only the sales made to the above-enumerated PEZA entities during the 3rd and 4th quarters of TY 2014 shall qualify for VAT zero-rating.

In line with this, Sections 113(A)(1), (B)(1), (2)(c) and (³) of the 1997 NIRC, 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 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: "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;v-

(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; and 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

(2) X X X 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:

(a) X X X

(b) X X X

(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;" (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: x x x x x x." (Emphases Supplied) "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 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."

In petitioner's Amended Quarterly VAT Returns25 for the 3rd and 4th quarters of TY 2014, it reported a total sales of P78,219,628.95, detailed below as follows:

Vatable Sales

i Zero-Rated Sales f . Total sales ' , ~ $,9?$;$9§;11] ······················~············??;?.~?.;§?.?.;1.9] ·········~···········I§;$9?.;$?§.$.1···1 :~~~:

j -~-!~!~t~~- ! ~ii;j~~;~~~~~~~~ :~~iif.~;.~1::.~~:1 ~i.i~~~;~i~~~~J In support of its zero-rated sales and to prove compliance with the VAT invoicing requirements, petitioner submitted its Summary of Zero-Rated Sales26 and the corresponding supporting sales invoices27, Je- 2s Exhibits P-17-C and P-17-D.

which were examined by the court-commissioned ICPA, Mr. Sonny 5. Bonilla.

In his report, the ICPA noted and verified that there were transactions attributable to export sales, thus, are considered zero- rated sales. The said export sales were made to customers namely, Euroasia Technics SDN BHD, Premtool E.K., PT Power Machine Tools and TKM Industries (M) SDN BHD. In addition, the ICPA also claims that one customer, Ebara Benguet, Inc., is registered with the Board of Investments (BOI) were the BOI issued a certification and a list where the said customer is included.28 Unfortunately, however, petitioner failed to provide proof of actual exportation of the alleged export sales, and also, that of the purported BOI certificate of registration of Ebara Benguet, Inc. Furthermore, the letter and list issued by the BOI which supposedly supports the BOI registration of Ebara Benguet, Inc. were among the documents29 which were not ascertained by the ICPA as faithful reproduction of the originals. Therefore, the Court cannot consider the claimed sales of goods to the said entities as entitled to VAT zero- rating.

More so, the ICPA found that petitioner's alleged zero-rated sales to the PEZA entities supported by sales invoices only had a total amount of P59,673,984.96, which is lower than the amount reported per VAT Returns by P36,434.50, as shown below: 30

Zero-Rated Sales

!

o·~ er VAT Returns i luerence ........ P..

.........................................................................•.. P 27.832.672.40 !

(P

2.256.56 }.J.,?ZZ,.?.1Z~Qf? . ;. .

................................ C~1,JZZ.~ . ~1) .... . ......................... L ...................... C ....... :C .... :C ... L.:C ... C ..... :C .. < .. :C.m.:C ·····························' ............................. ~~?,!.~9.,4.~?.~4.~. l .................. (~~~,4.~4.~ . ~9.1 . . The ICPA continues that the above-noted difference of P36,434.50 is attributable to the following: 31 ~

ifference between actual invoice vis-a-vis per schedule-3 quarter

Exhibit ICPA-ZSQ3-263 and ICPA

nsupported difference between the actual schedule vis-a-vis VAT eturn-4" quarter Out of the P36,434.51 difference accounted by the ICPA, items a to cin the aggregate amount of #54,855.01%3 shall be considered for the purpose of determining the amount of zero-rated sales to which the valid input VAT may be attributed. On the other hand, the difference between the actual invoice vis-a-vis per schedule in the amount of P100-and the unsupported difference of ?18,320.50 (items d & e above) which apparently pertain to the amounts not actually reported in petitioner’s VAT Returns for the subject period shall be disregarded.

Also, the following reported zero-rated sales in the total amount of P3,407,517.97, shall be disallowed and, thus, cannot qualify for VAT zero-rating since they were made to entities without proof of PEZA/SBMA/BOI registration and of actual export sales, viz.:

POLARMARINE INC. _ - 39,383.00 | _ICPA-ZSQ3-89

ICPA-ZSQ3-245

32 With a discrepancy of 0.01 due to erroneous computation of ICPA in item e, which should be P18,320.51. 33 Total of (P37,900.00), (P48,800.00), and P31,844.99.

POLARMARINE INC. E . ICPA-2SQ3-249

| TURU SANTECHNO CORPORATION : ICPA-ZSQ3-252

ICPA-ZSQ3-431

ICPA-ZSQ3-442

ICPA-ZSQ3-669

ICPA-ZSQ4-22

ICPA-ZSQ4-516

ICPA-ZSQ4-539

ICPA-ZSQ4-361

ICPA-ZSQ4-106

ICPA-ZSQ4-140

POLARMARINE INCORPORATED .-—sS™ 49,700.00 _ICPA-ZSQ4-585

POLARMARINE INC

From the foregoing, only the amount of P56,248,046.48 represents petitioner’s valid zero-rated sales, computed hereafter as follows:

_Add (Less): Adjustments

g Disallowances by this Court Having resolved that petitioner had VAT zero-rated sales for the 3rd and 4th quarters of TY 2014 in the total amount of P56,248,046.48, the Court shall now proceed to determine the amount of input VAT attributable thereto.

As to the fourth, fifth and sixth requisite. the Court finds that there were input taxes incurred/paid attributable to its zero-rated sales and were not applied against any output VAT liability.

For the 3rd and 4th quarters of TY 2014, petitioner incurred input taxes on its local purchases and importations of goods, other than Pe 35 Total of Out of Period Sale and Difference between actual invoice vis-a-vis per Schedule-3rd quarter (items a toc).

capital goods, in the total amount of P⁵,798,443.29. A portion of which, in the amount of P3,577,338.15, net of output tax due, is the subject herein of petitioner's claim for refund, to wit:

ae

3™ Quarter 4 Quarter Total

“Input Tax on Purchases of Goods | | | oy Other than Capital Goods (Line P 654,782.20 | P 687,146.09 | P 1,341,928.29 | 2,258,995. 00. 2,197,520.00 | 4,456,515.00 | 221,1 _P1,824, 668. 43 _P1,752,669.72 _ P3,577,338.15 |

_Excessinputtaxclaimed

In support of its total input taxes of P5,798,443.29, petitioner submitted various sales invoices*® for its local purchases of goods, Import Entry and Internal Revenue Declarations (IEIRDs) and Bureau of Customs (BOC) receipts/Confirmation receipts?” evidencing payment of VAT for its imported goods.

However, upon examination of the said documents, the ICPA noted some exceptions on petitioner's local purchases of goods in the total amount of ®6,390.65, summarized as follows:*® Vat not indicated separately in the invoice

(Exhibits "ICPA G-1" to "ICPA G-13")

Point of Sale (POS) receipts only (Exhibits

NICPA G-12" to "ICPA G13")

VAT written as zero-rated sales ~ (Exhibit "ICPA-13%) ee Not validated due to unavailability of — | __Supporting documents _ a _ Unsupported difference between the actual chedule vis-a-vis vat return P 692.14 P 2,184.27, P 2,876.41 87.86.

62. 62.68.

2,515.34 _ 3,157.69 206.01 From the above findings, items 1 to 4, in the aggregate amount of P⁶,184.64* shall be disallowed for failure to meet the substantiation be 36 Annex F to F.1, ICPA Report (Exhibit P-27).

37 Annex H to H.1, Lbid.

38 See Par, 5.E., page 11, Ja.

39 Should be P6,007.43.

4 Total of P2,876.41, P87.86, P62.68 and P3,157.69.

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.

As to the unsupported difference between actual schedule and the VAT return (item no. 5), further review reveals that the amount of P6,007.4/3/ for the third quarter shall be disallowed for not being duly supported. While, conversely, the difference for the fourth quarter which actua//y amounts to (P5,796.06), shall, likewise, be disregarded for the same does not form part of the instant claim. The particulars of the said amounts are presented below, viz.:

“TipaTaxper | pUTPET | owerence | __3rd Quarter 648,774.77 —P 6,007.43.

Furthermore, the input VAT on petitioner’s local purchases in the amount of P30,576.27 shall also be disallowed for various reasons, which are stated in the table hereafter, for ease of reference:

_ Supplier's s Name Invoice _ Exhibit No.® | Reason for disallowance

| Aching Industrial Sales

pported by VAT invoice but not issued in petitioner's registered name.

| Supported by VAT invoice with _ alteration on the amount but without _ Supported by VAT invoice with — | ICPA PQ3-128 | _alteration on the amounts but without _ Supported by VAT invoice but with — complete TIN of petitioner __ Supported by var | invoice but without

ICPA PQ3-6

_ Bon Industrial Sales 219859 7,141.50 ICPA PQ3-74

| Globe International

_ Distributor Center Inc.

230386 1, 325.1 14

_ Plastic Consumer Corporation

T invoice | but ‘without

245311 .

- Supported by VAT invoice but without TOPA P7490 the address of petitioner _ Supported by VAT invoice but without the address of petitioner __ Supported by VAT invoice but without _| the address of petitioner Supported by VAT invoice but without _ the address of petitioner Supported by VAT invoice but without e address of petitioner Supported by VAT invoice but without the address of petitioner | Screw i City Hardware 245694 . ICPA PQ3-468 is Screw City Hardware 246077 . ICPA A PQ3- “469

ICPA A POR -557

a Pa ae

ICPA PQ3-559

189586 ICPA PQ3-567

fourth Quarter ee Bon n Industrial Sales 227103 ICPA PQ4-84 pported by VAT invoice but witho e TIN of petitioner __ Supported by VAT invoice but without pported by VAT invoice but issue not in petitioner's registered name outs .atd without the TIN of petitioner ; Supported by VAT invoice but without TCPA PQ4-304 | the address and TIN of petitioner _ Supported by VAT invoice but without e address and TIN of petitioner | Supported by VAT invoice with | alteration on the amounts but without | untersignature Supported by VAT invoice but without the TIN of petitioner __ pported by VAT invoice but witho he TIN of petitioner __ - Supported by VAT invoice ‘but the - | ICPA PQ4-526 | input VAT amount was not separately | indicated G.P. Enterprises I Inc. 523409

\ Guan Yiac Hardware 155770 | ICPA PQ4-142

126478

| Mjs ‘Appliance C Center 126894 ICPA PQ4-305

| Sanyoseiki Stainless Steel

Corp. | ICPA PQ4-386 157642

_ Union ‘Hardware 34846 ICPA PQ4-455

34848

_ Union Hardware ICPA PQ4-457

| Union Hardware 35649

_ P30,576.27 | Meanwhile, upon examination of the documents supporting petitioner’s input VAT on _ importations** in the amount of P4,456,515.00, the Court finds that the same complies with the invoicing and substantiation requirements prescribed under Sections 110 (A) and 113 (A) and (B) of the NIRC of 1997, as amended, relation to Sections 4.110-1, 4.110-8 and 4.113-1 of RR No. 16-05.

In summation therefore, petitioner’s valid input VAT for the 3" and 4" quarters of TY 2014 amounts to ®5,755,674.95, computed as follows: 2- #4 Annex H to H.1, ICPA Report (Exhibit P-27).

Additional! disallowances by this 59. 30,576.27 |

Court

Proceeding therefrom, a portion of petitioner’s valid input VAT shall be applied against the output VAT liability for the 3 and 4 quarters of TY 2014 in the aggregate amount of P2,221,105.14. Consequently, only the remaining input VAT of ®3,534,569.81 can be attributed to the declared zero-rated sales of ®59,710,419.46 and only the input VAT of ®3,329,613.97 is attributable to the valid zero-rated sales of P56,248,046.48, computed as follows:

| Less: Output VAT per returns . 1,131,996.3 2,221,105.1 Divide by Declared Zero-Rated Sales pe _Multiply by Total Valid Zero-Rated Sales __...26,653,308.03 | ___29,594,738.45 | 56,248,046.48 _ Excess Input VAT attributable to _Nalid Zero-Rated Sales cb P 1,724,549.79 | P 1,609,547.26 | P 3,334,097.05 On a final note, petitioner was able to prove that the claimed input VAT of P1,824,668.43 and P1,752,669.72 for the 3% and 4% quarters of TY 2014, respectively, were not applied against any output VAT in the succeeding quarters. Thus, the same remained unutilized as the amounts were deducted as “VAT Refund/TCC claimed” in its Amended Quarterly VAT Returns for the 3rd* and 4th** quarters of TY 2014. Clearly, the subject claim no longer formed part of the excess input VAT of P6,510,915.49% as of the end of the fourth quarter of TY 2014 that 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. Se

WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent is ORDERED to refund or issue a tax credit certificate in favor of petitioner in the reduced amount of THREE MILLION THREE

HUNDRED THIRTY FOUR THOUSAND NINETY SEVEN PESOS

AND 05/100 (P3,334,097.05) or One Million Seven Hundred Twenty Four Thousand Five Hundred Forty Nine and 79/100 Pesos Only (P1,724,549.79) and One Million Six Hundred Nine Thousand Five Hundred Forty Seven and 26/100 Pesos Only (P1,609,547.26), respectively, representing unutilized input VAT attributable to its zero-rated sales for the 3rd and 4th quarters of TY 2014.

Associate Justice

c~7~ CATHERINET.MANAHAN

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.

~ec-u~ C, ~~ . ~.

JUANITO C. CASTANEDA;lR.

Associate Justice

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