ROHM ELECTRONICS PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF T HE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ROHM ELECTRONICS PHILIPPINES, INC., Petitioner, -versus- C.T.A. CASE NO. 5909 THE COMMISSIONER OF INTERNAL Promulgated: REVENUE, MAY 22t2?00W2 /_1f1, j~~ R es pond ent. X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X DECISION This Petition for Review is seeking fo r the refund of alleged unutilized input value-added tax (VAT, for brevity) on importation and domestic purchases of goods and services attributabl e to zero-rated export sales in the amount of P18 ,960,206.19 (originally in the amount of P45 ,709,892.97) for the quarter ended March 31, 1998. The facts as borne out by the records and pleadings of the case are as foll ows: Petitioner is a corporation duly organized and ex isting under and by virtue of the laws of the Philippines with office address located at the People 's Technology Complex, Carmona, Cavite (par. 1, Joint Stipulation of Facts & Issues, CTA Records, p . 64). It is engaged in the business of manufacturing and exporting microchip resistors, capacitors, integrated circuits and other electronic products. Petitioner is registered with the Bureau of Internal Revenue as a VAT taxpayer with Certificate of Registration bearing RDO Control No . 94-540-000165 dated June 13, 1994 (Exhibit "D "). It is likewi se reg istered with the Board of Investments in

DEC ISION- CTA CASE NO. 5909 PAGE2 accordance with the provisions of the Omnibus Investments Code of 1987 enjoying a six- year income tax holiday from the stmi of its commercial operations (Exhibits "A ", "B " and "C"). For the period April 1, 1997 to March 31, 1998, petitioner seasonably fil ed its quarterly Value-Added Tax Returns (Ex hibits "E", "F", "G", and "H"). These VAT returns were simultaneously amended on June 24, 1999 reflecting, among others, a total output VAT in the amount of P20,193. 12 with an aggregate input VAT in the sum of P69,2 11 ,51 9.52, and zero-rated export sales of P7,738,53 8,025.25, detailed as follows: Period Output Input VAT Zero-Rated VAT Domest ic Importati on Sales Covered Exh. p 3,901 ,640 .51 p 4,21 9,638 .00 p 3,220.40 19 ,599 ,985 .99 6,689 ,199.00 p 1,671,131,740 .55 2nd Qtr. 1997 I, 1-1, 1-2 4,412 .91 10,131 ,996.83 5,708 ,853 .00 1,867 ,786 ,505.06 3,726 .43 9,756,407 .19 9,203 ,799 .00 1,986 ,165,606.20 3rd Qtr. 1997 L, L-1 , L-2 8,833 .38 P4 3 ,39 0 ,030 .52 P25,82 1,489 .00 2 ,213,45 4 ,173.44 4th Qtr 1997 0 , 0- 1, 0-2 P20,193 .12 P7,738 ,538 ,025 .25 1st Qtr. 1998 R, R,-1 , R-2 Total Pursuant to BIR Revenue Audit Memorandum Order No. 2-93, petitioner fil ed on different occasions seven (7) separate Applicati ons for Tax Credit/Refund of Value- Added Tax Paid with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance covering the aforementioned input taxes in the fo llowing manner: Period Exhibi t Date of Input VAT Cre d its T otal Cove red U, U-1 , U-2 Filing Domestic Importation p 8,111 ,270.57 2"" Qtr. 1997 Y, Y- 1 to Y-3 02-16-98 p 3,90 1,645.57 p 4,209,625.00 Addit io nal V , V-1 , V-2 06-2 5-99 10 ,0 13 .00 3rd Qtr. 1997 Z, Z-1 to Z-3 03-02-98 1 9 , 62 4 , 863 . 8~ 10 ,0 13 .0 0 25,659 ,476.89 Addition a l W , W-1 to W-3 06-25-99 6 ,0 34 ,6 13.00 4th Qtr. 1997 AA , AA-1 to AA-3 04-30-98 10,131 ,996 .83 664,599 .00 Add itional X, X- 1 to X-3 06-25-99 66 4 ,599.0 0 16,274,790 .83 1st Qtr. 1998 07-16 -98 9,756 ,609 .32 6 ,142 ,79 4 .00 Total P4 3,415,115.61 230,658 .00 230 ,658.00 19,191 ,066 .32 9,434,457 .00 P70 , 14 1,87 4 .6 1 P26,726,759 .00

DECISION- CTA CASE NO. 5909 PAGE 3 Petitioner anchored its claims for refund on the provisions of Section 11 2(A) and (B) of the Tax Code, as amended, to quote: Section 112. Refunds or tax credits ofinput 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)(l ), (2) and (B) and Section 108(B)(l) 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, fur ther, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properti es 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. (B) Capital Goods. - A VAT-registered person may appl y for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes. The application may be made onl y within two (2) years after the close of the taxable quarter when the importation or purchase was made . XXX XXX XXX Finding petitioner's claims fo r refund meritorious, the Department of Finance subsequentl y issued tax credit certificates in the amountofP23 ,501 ,626.36 (p. 350, CTA Records) representing a portion of the input VAT claimed for the second and third quarters of 1997. Hence, the remaining input VAT of petitioner amounted to P45,709,892.97, computed as fo llows:

DECISION- CTA CASE NO. 5909 PAG E4 Total input VAT per amended returns Domestic P43 ,390,030 .33 1 Importation 25,821,489.00 P69,2 11 ,519.33 23,501,626.36 Less: TCCs received P45.709.892.97 Unrefunded input VAT Since there was no action on the part of the respondent as to the rest of its claim, petitioner was compelled to file the instant petition for review on July 20, 1999 in order to preserve its right to judicially claim for the refund of unutilized input VAT payments. During the pendency of this case, the Department of Finance again processed, approved and caused the issuance of various tax credit certificates in favor of petitioner (Exhibits CC, BB, EE, III and JJJ). Thus, out of the original claim of petitioner in the amount of P70 ,141 ,874.61 , petitioner reduced its claim for refund or issuance of a tax credit certificate to P 18,960,206.19 representing its unutilized input VAT only for the quarter ended March 31 , 1998 . Therefore, what is left for Us to resolve is whether or not petitioner is still entitled to the remaining amount ofP18,960,206.19 . As a VAT-registered taxpayer whose sales are zero-rated , petitioner is legally entitled to claim for the refund of its unutilized input VAT attributable to the latter's export sales pursuant to the aforequoted Section 112(A) and (B) of the Tax Code, as amended. Thus, We now determine whether petitioner was able to substantiate its remaining claim. Due to the voluminous nature of the documents to be presented, petitioner, pursuant to CTA Circular 1-95, as amended, engaged the services of SGV & Company to 1Should be P43 ,390,030.52.

DECISION- CTA CASE NO. 5909 PAGES conduct a sp ecial audit and examination of various receipts, mvo1ces and other l ong accounts relative to the present case. In its amended report dated A u gu st 16, 2000, the auditing firm presented to the Court the following findings: (Exhibit " YY" ) Exceptions Annex 1st Quarter A1 1998 Purchases of Goods Not Supported A2 by VAT invoices 81 p 2,598 .64 17 ,651.86 Purchases of Services Not Supported 82 17 ,525.46 by VAT Officia l Receipts C1 3,755 .18 Purchases of Goods Supported by Non -VAT Invoices Printed After E1 1,185.37 July31 , 1991 F1 60 ,000 .00 Purchases of Services Supported by F2 Non-VAT Official Receipts Printed H1 1,726.36 After July 31 , 1991 11 436 .36 J1 Purchases of Services Supported by 2,130.00 Non-VAT Official Receipts printed 10,494 .32 on or before Ju ly 31 , 1991 8,247.51 Purchases of Services Supported by p 125,751 .06 VAT Official Receipts Issued Not in the Company's Name Purchases of Goods Supported by Invoices Without 81R Permit Purchases of Services Supported by Official Receipt Without 81R Permit Purchases of Services Outside the Period of Claim Input Taxes Claimed Without Any Supporting Document Erroneous Computation of Input Tax on Importation of Goods Total After verification of the above report together w ith the evidence on record, the Court finds the sam e to be in order and i s h ereby adopted . It shoul d be not ed though that

DECIS ION- CTA CASE NO. 5909 PAGE6 out of the total input taxes in the amount of P19,191 ,066.32 reflected in the 1997 first quarterly VAT return, only the sum of P 18,960,206.00 was verified to have supporting documents. Thus, the excepted input VAT in the amount of P125 ,751.06 should be deducted against the amo unt verified of P 18,960,206.00. In sum, petitioner is entitled to the refund of unutilized input VAT for the first quarter of 1998 in the reduced amount ofP18,825,621.49, computed as fo llows: Input Tax Verified P18 ,960,206.00 Less: Exceptions Noted 125,751.06 Properly Supported Input Taxes Less: Output Tax - First Quarter of 1998 P18 ,834,454.94 Excess Input VAT 8 833.45 p 18.825.621.49 It is also important to note that the input taxes claimed for the first quarter of 1998 in the total amount ofP19,191 ,066.32 (importation and domestic) were already deducted from the accumulated input taxes as of September 30, 1998, as evidenced by the 1998 third quarterly Value-Added Tax (VAT) Return (Exhibits "HH", "HH-1 ", "HH-2", and "HH-3"). WHEREFORE, in view of the foregoing , the instant petition for review is hereby PARTIALLY GRANTED. Respondent is ORDERED to REFUND or, in the alternative, ISSUE a TAX CREDIT CERTIFICATE in the amount of P 18,825 ,621.49 in favor of petitioner. SO ORDERED. ~to- ~ ERNESTO D. ACOSTA Presiding Judge

DEC IS ION- CTA CASE NO. 5909 PAGE 7 I CONCUR: ~-f~C2. ~ . 0-t q{jANil'o C. CASTANEDA,f.fR. Associate Judge CERTIFICATION I hereby certify that the above decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Co nstituti on . k-u<- o~ ERNESTO D. ACOSTA Presid ing Judge