CTA Case No. 5270 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ABB POWER GENERATION LTD., C.T.A. CASE NO. 5270 Petitioner, - versus - THE COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - DECISION The issue which is presented for our consideration is whether or not petitioner's sales of services to the National Power Corporation (NPC) are subject to VAT at zero percent (0%) under Section 102 (a)(2) of the Tax Code, thus, petitioner is entitled to the refund of the input VAT it paid during the period June, 1993 to August, 1994 total I ing P3,098,569.51. Petitioner is a corporation organized and existing under the laws of Switzerland, duly I icensed by the Securities and Exchange Commission (SEC) to do business in the Phi I ippines as a branch office under SEC Certificate No. AF 0093-000013 dated March 25, 1993, to fulfill its .contractual obligations with the National Power Corporation (NPC). It is registered with the BIR as a VAT enterprise under VAT Registration Certificate No. 170-000-272-159. On November 23, 1994, petitioner filed with the Land Bank-Balanga, Bataan Branch its Value-Added Tax <VAT) Returns for the months of June, 1993 up to August, 1994.

DECISION C.T.A. CASE NO. 5270. - 2- On same date, November 23, 1994, petitioner filed an application for tax refund/credit of the amount of P3,098,569.51 with the BIR Revenue District in Bataan, allegedly representing its input VAT payments for the period June, 1993 to August, 1994. The same was not acted upon by respondent, hence, on July 20, 1995, petitioner filed with this Court the instant petition for review. Petitioner presents the proposition as reason of the petition for review that the services it rendered to the National Power Corporation (NPC) are subject to 0% under Section 102 (a)(2) of the Tax Code, stated hereunder, therefore not subject to any output tax, hence, it is entitled to the refund of the input taxes it paid during the period June, 1993 to August, 1994. SEC. 102. Va I ue-added tax on sa I e of services- (a) Rate and base of tax. There shall be levied, assessed and collected, a value-added tax equivalent to 10% percent of gross receipts derived by any person engaged in the sale of services. The phrase "sale of services" means the performance of alI kinds of services for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of personal property; lessors or distributors of cinematographic films; persons engaged in mi I I ing, processing, manufacturing or repacking goods for others; and similar services regardless of whether or not the performance thereof cal Is for the exercise or use of the physical or mental faculties: Provided That the following services performed in the

DECISION C.T.A. CASE NO. 5270. - 3- Phi I ippines by VAT-registered persons shall be subject to 0%: (1) Processing, manufacturing or repacking goods for other persons doing business outside the Phi I ippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency, inwardly remitted to the Phi I ippines and accounted for in accordance with the rules and regulations of the Central Bank of the Phi I ippines. (2) Services other than those mentioned in the preceding sub-paragraph, the consideration for which is paid for in acceptable foreign currency which is remitted inwardly to the Phi I ippines and accounted for in accordance with the rules and regulations of the Central of the Phi I ippines. (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Phi I ippines is a signatory effectively subjects the supply of such services to zero rate. (Underscoring supplied) X X X On the other hand, respondent demurs and maintains that petitioner's sale of services to the NPC are subject to 10% VAT under said Section 100 (a) of the Tax Code, supra. It reasoned out, inter alia, that petitioner failed to show that it falls within the ambit of Section 102 (a)(2) of the Tax Code; that the contracting services with NPC is not qualified for zero rating and that petitioner fa i I ed to present its approved application for zero-rating as required by Section 8 (d)

DECISION C.T.A. CASE NO. 5270. - 4- of Revenue Regulation 5-87, thus, respondent stressed that the instant claim for refund must be denied. As ear I i er adverted to at the outset, the issue to be resolved by the Court is whether or not petitioner's sales of services to the NPC are considered zero-rated under Section 102 (a)(2) of the Tax Code, therefore not subject to any output tax, hence, petitioner is entitled to the refund of the input VAT it paid during the period June, 1993 to August, 1994, in the tota I amount of P3,098,569.51. We rule against the petitioner. There is nothing cryptic or abstract in the wordings of Section 102 (a)(2) of the Tax Code that would pose an ambiguity or obscurity in their application. The provision itself furnishes the best means of its own exposition that services performed in the Phi I ippines by a VAT registered person other than those mentioned in paragraph (a)(1) of said Section 102, supra, sha I I be considered zero-rated services, provided it is paid-for in acceptable foreign currency inwardly remitted to the Philippines. Understood to mean what it plainly expressed there must be a payment of an acceptable foreign currency from a foreign payor to a Phi I ippine based payee, for the services the latter has rendered in the Phi I ippines, for the benefit of the foreign payor.

DECISION C.T.A. CASE NO. 5270. - 5- It appears quite evident in the case at bar that there was no inward remittance to the Phi I ippines of an acceptable foreign currency, duly accounted for in accordance with the rules and regulations of the Central Bank of the Phi I i pp i nes (now Bangko Sentral ng Pi I ipinas), for the payment of the services rendered by the herein petitioner to the NPC, as the latter is not a foreign company (payor) but a domestic corporation, thus, we agree with respondent that petitioner does not fal I within the ambit of Section 102 (a)(2) of the Tax Code. Moreover, granting arguendo, that petitioner's sale of services to the NPC are considered effectively zero- rated sales under Section 102 (a)(3) of the Tax Code, supra, nevertheless, this Court has to deny the instant claim for refund as petitioner failed to comply with Section 8(d) of Revenue Regulations No. 5-87 which requires that any person claiming that its sales of goods or services are effectively zero-rated under Sections 100 and 102 shall file an application with the Commissioner of Internal Revenue justifying the imposition of zero- rate on said transactions. Quoted hereunder is Section 8 (d) of Revenue Regulations No. 5-87, thus : (d) Application for zero rate.- Any person claiming that its sales of goods or services are effectively zero-rated ubder Sections 100 and 102 shall file an application in a form prescibed therefor with the Commissioner of Internal Revenue justifying the imposition of zero-rate on

DECISION C.T.A. CASE NO. 5270. - 6- the said transactions. Upon approval, his status as a zero-rated taxpayer shal I remain va I i d unt i I revoked. Petitioner in the instant case did not adduce in evidence its approved application for zero-rating in the face of the a I Iegat ion made by respondent that petitioner failed to obtain the approval of the Commissioner of Internal Revenue pursuant to the aforecited section 8 (d) of Revenue Regulations No. 5-87 (see respondent's Answer, page 7, CTA records) Fa i I ure to get an approva I from the Commissioner for a zero-rating classification wi I I make the said sale of services by petitioner to NPC an EXEMPT transaction under paragraph (u) of Art. 103 of the Tax Code, thus, petitioner shall not be entitled to the refund of any input tax it paid on its purchase of goods and services during the period in question. Sec. 9 of Rev. Reg. No. 5-87 provides as follows : Section 9. Exemptions.- (a) In general.- An exemption means that the sale of goods or services is not subject to value-added tax (output tax). The seller is not allowed any tax credit on VAT (input tax) previously paid. A VAT entity who failed to present an approved application for zero-rating as required by Sec. 8(d) of Revenue Regulations No. 5-87 wi I I not be considered a zero-rated enterprise, hence, not entitled to the refund of its input taxes (see Kumagai-Gumi Co., Ltd. (Phi I . Branch) vs. The Commissioner of Internal Revenue, CTA Case No. 4670, July 29, 1997).

DECISION C.T.A. CASE NO. 5270. - 7- IN THE LIGHT OF All THE FOREGOING, the instant petition for review is DISMISSED, for lack of merit, without pronouncement as to cost. SO ORDERED. ~~~~~(;!. ANCIO Q. GA Associate udge WE CONCUR: CERTIFICATION hereby certify that this decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Art i c I e VI I I of the Constitution. L-a~ ~'- ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals