CTA Case No. 5678 (Decision)

f� REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON C ITY AIR LIQUIDE PHILIPPINES, INC., C.T.A. CASE NO. 567S Petitioner, %" Promulgated: -versus - MAY 24 2000 COlVIl\ISI SIONER OF INTERNAL REVENUE AND COlVIl\IIISSIONER OF CUSTOMS, Respondents. X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - X DECISION Before Us for consideration is a Petition for Review filed on September 30, 1998 wherein Petitioner is seeking for the refund of the sum of THREE 1\1ILLION SEVEN HUNDRED T\VO TI-IOUSAJ:\TD EIGI-IT HUJ:\TDRED SLTEEN and 67/100 (P3,702,816.67) representing excess creditable VAT input payments for the third quarter ended September 30, 1996. The antecedent facts giving rise to the controversy at bar arc as follows: Petitioner is a domestic corporation duly organized and existing under the laws of the Republic of the Philippines. It is registered with the BIR as a V1\T taxpayer as shown by the VAT Cetiificate of Registration No. 95-044-002738 \Vherein it has been issued Taxpayer Identification No. 004-4Sl-874-VAT on its sale of goods (Exhibit "B"). On October 22, 1996, Petitioner filed its quarterly \lAT return (Exhibit ''A") for the third quarter ended September 1996 declaring among others the amounts

DECISION- CTA CASE NO. 5678 PAGE2 of P2,690,664.35 and P1,8.17,927.00 as creditable VAT inputs from its domestic purchases and importations, respectively. Contained in the said return arc the following detailed infonnation: P 4.10.11 0.38 VAT output tax Less: VATinput tax can�ied over 54,995,756.93 4.508.591.35 from previous quarters P2,690,664.35 Domestic purchase of goods/ services Importation of goods 1.817,927.00 Total p 59,504,348 .28 Excess VAT credit p 59 094 237.90 Petitioner opted to catTy over the aforementioned excess input tax to the subsequent quarter. However, it changed its mind when it applied for a refund of the VAT input tax for the cunent taxable year. Out of the amount of P4,508,591.35, only the amount of P3,702,816.67 was cJJimed as a refund, broken down as follows: Amount Local Purchases P2,009,282.67 Importations 1,693,534.00 To t a l P3, 702,816.6 7 True enough, the amended quarterly value Jdded tax return for the 41h quatier of taxable year 1996 (Exhibit D) shows that the said amount of P3,702,8.16.67 was deducted from the total available input tax (Exh. D-1) signifying petitioner's intention that it would no longer utilize the said amount as credit to future output tax liability. ,_. l..,:).- ';t

DECISION- CTA CASE NO. 5678 PAGE3 On August 27, 1998, Petitioner filed an application for tax credit/refund of value added tax paid with the One-Stop Shop Inter Agency Tax Credit and Drawback Center of the Depa11ment of Finance in the amount of P3,702,8J6.67 (Exhs. C and C-1). Respondent failed to act immediately upon said claim. In order to protect its right, Petitioner, on September 30, 1998, elevated the matter before this Court by way of Petition for Review. In Answer thereof, Respondent raised the following Special and Affirmative Defenses, to vvit: "4. The alleged claim for refund 1s still subject to administrative routinary investigation an(Vor examination by the Respondent Bureau. 5. The taxes so claimed have been paid and collected in accordance with law and regulations, hence not refundable; 6. Claims for refund are constmed strictly against the claimant for the same pm1ake of the nature of an exemption from taxation (Conunission of Intemal Revenue vs. Ledesma, 31 SCRA 95). Taxation is an inherent power of the state and taxes arc considered the lifeblood of the nation. It is therefore incumbent upon petitioner to prove by express provision of law that i t is entitled thereto. Failure on the pm1 of the Petitioner to do so, all doubts as to the regularity of the claims for refund must be resolved in favor of the respondent. 7. :Moreover, it is incumbent upon petitioner to prove that it has complied with the provisions of Section 230 of the Tax Code." Petitioner, for its part, in order to prove that he is entitled to Lhe claim for Refund, submitted the following documents:

DECISION- Description CTA CASE NO. 5678 PAGE4 Petitioner's Quarterly VAT Return for the 3rd and 41h quarter of 1996. Exhibit "A" and "D" Application for Tax Credit/Refund of VAT paid for the 3rd quarter ''C'" amounting to P3,702,816.67. "B'' BIR Certificate ofRcgislration No. 95-044-002738 issued to Petitioner. "Eto E-14" Rcp011 of the Independent CPA on ''Fto F1- " the results of the Procedures ,,G'' Perfonned on Input Ta.." Claims. Summary ofPetitioner's VAT in put tax credits. Folder containing the VAT invoices ancVor official receipts, import entry declarations and other supporting documents on the tax refund. The aforementioned docu mentary evidence vvere a !tested to by the witnesses presented by the Petitioner. The independent auditor commissioned by this Comt, verified the accuracy of Petitioner's claim for refund of creditable input tax which arose from the local purchases and impmtations of capital goods and services. (Exhibits E to E-14). However, fmclings of the said independent auditor upon examination of the documentary evidence reveals some e xceptions: a) For Petitioner's Local Purchases 1) Purchases of services supported p 4,679.23 by non VAT ORs. 2) Purchases of goods without 34,560.89 supporting invoices. ' v

DECISION- 81.00 CTA CASE NO. 5678 P39,321.12 PAGES 300.00 3) Input Taxes incorrectly claimed due to the use of P28.062.00 erroneous tax bases. Total amount of Exception b) For Petitioner's Importations 1) Input taxes incotTectly claimed due to the use of erroneous tax base. 2) Import tax claimed in the qum1er but deleted in the 41h quatier to properly reflect the balance of input tax in the books. Total amount of Exception P28,362.00 All told, the main issue needing ventilation in the case at bar is W1-ffiTHER OR NOT PETITIONER IS ENTITLED TO TI-ffi REFUND OF Tf-ffi EXCESS VAT INPUT TA.t"XES IT PAID A1viOUN1TNG TO P3,702,816.67 FOR THE THIRD QUARTER ENDED SEPTE.l\.1BER 30, 1996. The refund of unutilized or excess creditable VAT inputs hom domestic purchases and importations of capital goods is not one of first i.J11pression. for easy reference, we quote hereunder Sections 106 and 106(d), no\V Sections 112 and 112(d) of the Tax Code which were used by the Petitioner as its l egal bases in its claim for refund, thus: "Section 112. Refunds or Tax Credits oflnput Tax. - (A) Zero-rated or Effectively Zero-rated Sales. - 1-\ny VAT-registered person, whose sales are zero-rated or c1fcctivcly zero-rated may, within two (2) years after the close of the tax;]blc qum1er when the sales were made, apply for the issuance of a tax ) . . . ��- . .J vI

DECISION- CTA CASE NO. 5678 PAGE6 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 cmTency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Pro\dcd, futther, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also is taxable or exempt sale of goods or propetiies 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 apply for the issuance of a tax credit cetiificate 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 only within two (2) years after the close of the taxable quarter when the importation or purchase \Vas made. (C) X X X (D) Period within which Refund or Tax Credit of Input Taxes shall be Made. -In proper cases, the Conunissioncr shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) clays from the elate of submission of complete documents in support of the application filed in accordance with Subsections (A) and (B) 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 oue hundred twenty clay period, appeal the decision or the unacted claim with the Court of Tax Appeals." \Ve could then adduce from the said provisions, the basic requirements which must be satisfied in order for refunds or tax credits of input tax may be granted, to wit:

DECISION- CTA CASE NO. 5678 PAGE 7 1. That the applicant must be a VAT-registered person; 2. That there be a domestic purchase or impmtation of capital goods ; 3. That the domestic purchase or impmtation of capital goods is substantiated by sufficient evidence; 4. That the input taxes have not been applied against output taxes; and 5. That the application for the refund of unutilized or excess creditable VAT inputs arising from the domestic purchase and importation of capital goods has been made within two years after the close of the taxable quarter in which the importation or purchase was made. It appears quite evident in the case at bar that there was sufficien t compliance with the aforementioned requirements. First, it has been proven that Petitioner is a VAT registered taxpayer as evidenced by Petitioner's VAT Registration Certificate No. 95-044-002738 issued by Revenue District Office No. 44, Taguig, Pateros effective October 9, 1995 (Exhibit B). Second, the domestic purchases and importations of capital goods and the creditable VAT inputs generated therefrom is clearly reflected in Petitioner's quatterly VAT retum (Exh. A) and is evidenced by the various invoices, official receipts, import entry declarations and other relevant documents submitted by Petitioner. Third, it could be irlferred from the quarterly VAT retums of the third and fourth quarters of 1996 (Exh. A and D), respectively) the fact that the creditable

DECISION- CTA CASE NO. 5678 PAGE8 VAT inputs generated during the third quarter of 1996 was not applied against any output VAT liability. And lastly, Petitioner's claim for refund was filed within the t"\vo-ycar prescriptive period as provided under Section 230 in relation to Section 106(a) and (b) and Sections 110 of the Tax Code. As the reckoning date from which the two- year prescriptive period is to be counted appears to be ambiguous, this Court has already settled said matter in a resolution it promulgated on July 20, 1998 in which it mled that the two-year period of the claims for \/AT refund should be counted from the date of filing of the VAT retum. Thus: "This Court, x x x consequently agrees with the interpretation of petitioner that the two-year period should be counted from the date of filing of the conespaneling VAT quarterly retum which is within 20 days after the close of each taxable quarter. "This will hmmonize Section 106 with Section 230 of the Tax Code which was inteqJreted by the Supreme Comi in the case of CIR vs. TlviX Sales, Inc., GR No. 83736, dated January 15, 1992; and ACCRA Investments Corp. vs. ClR, 204 SCRA 957, that the two year period should be counted from the ftling of the fmal income tax rerum because it is only during that date that the exact tax liability or refundability of tax can be determined. In the same manner, it is only after the filing of the quarterly VAT return that we can determine the VAT liability or refundability of\/AT. It should be noted that the basic requirement is that VAT refund can only be granted to the extent that the input taxes have not been applied against output tax. All these things can only be detem1ined if a return is filed. It is logical therefore, to conclude that the t'l<vo year period should not immediately be counted from the close of the quarter but from the date of filing of the VAT return (Atlas Consolidated Mining and Development Corporation vs. ClR, CTA Case No. 5296, July 20, 1998).

DECISION- CTA CASE NO. 5678 PAGE9 Applying the foregoing in the case at bar, it is apparent that Pet.itioner's claim has not yet been batTed by prescription. It is to be recalled that Petitioner filed its application for tax credit/refund of the VAT paid in the administrative level on August 27, 1998 (Exhibits C and C-1) and the Petition for Review� 011 September 30, 1998. Both dates of filing are \Vell within the two-year prescriptive period commencing on October 22, 1996 (Exh. A), the date when the third quarterly VAT return was filed. Having established the legal right of the Petitioner to the refund sought for, we will now proceed to detetmine the exact amount of VAT input tax to be refunded to the Petitioner. Records of the case shows that on March 25, 1.999, this Court commissioned an independent auditor in the person of l\1r. Ruben R. Rubio to perf01m a special audit on Petitioner's claim for Refund. In his report elated April 26, 1999, the independent auditor states that out of the total claim for refund in the amount of P3, 702,816.67, the amount of P39,321.12 for Petitioner's domestic purchases and P28,362.00 for its imp011ations should be disallowed for the reason earlier discussed. After a review of the evidence at hand, this Court agrees with the fmdings of the Independent Auditor as to the disallowed amount as well as the reasons for the disallowance. The rep011 prepared by the commissioned CPA is given weight as it is in order and consistent with the auditing procedures conducted by this Court. However, a further examination of the pertinent documents (Exh. G) such

DECISION- CTA CASE NO. 5678 PAGElO as the sales mv01ce, official receipt, import entry declaration and bank debit advice, reveals that the claim for input tax in the amount of P388,627.78 should likewise be disallowed for the following reasons: 1. The official receipt with reference no. 1228 issued by Datem Inc. with the input VAT of P10,638.78 should be disallowed as the receipt bears no elate. (See 251/292 of Exhibit G). The date is vital in order to determine when the receipt is issued and whether it falls within the qu;:uier/period involved in the claim for refund. 2. The import entry declaration with the input VAT of P377,989.00 should likewise be disallowed as it has no supporting document that could establish the fact or payment. (See 257/292 to 263/292 of Exhibit G). As the import entry declaration is not the certified true copy of the document, a bank debit advise should be attached thereto as proof of payment of the input VAT. Considering a ll the foregoing disallowances, the fmal amount of input VAT to be refunded should be reduced to P3,246,505.77 computed as follows: A. C01vllv1ISSIONER OF INTERNAL REVENUE Claimed Amount P39,321.12 P2,009,282.G7 Less: Disallowances 10,638.78 -+9 959.90 (a) Per SGV verification (Exhs. A-1 to A-3) (b) Per Court's verification Refundable Amount PL959,322.77 B. CONrMISSIONER OF CUSTOMS Claimed Amount p 28,362.00 PI ,693,534.00 Less: Disallowances 377,989.00 406.351.00 (a) Per SGV verification (Exhs. B-1 to B-2) (b) Per Comi's verification Refundable Amount P1,287,183.00 � . I '_J '0 r...

DECISION- P3, 246,505.77 CTA CASE NO. 5678 PAGE 11 TOTAL REFUNDABLE AMOUNT \VHEREFORE, in the light of the foregoing, fmding the Petition to be partially meritorious, the same is hereby GR.A.NTED. Respondent is hereby ORDERED to REFUND in favor of the Petitioner the reduced amount of P3,246,505.77 representing the excess VAT input taxes paid for the third quarter ended September 30, 1996. SO ORDERED. ERNESTO D. ACOSTA Presiding Judgc ''E CONCUR: (on leave) R10N 0. DE VEYR.A Associate Judge CERTIFICATION I hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. (Q. ERNESTO D. ACOSTA Presiding Judge G3