CTA Case No. 5673 (Decision)

\,\ REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ROHM ELECTRONICS PHILIPPINES, INC., Petitioner, -versus - C.T.A. CASE NO. 5673 THE COMMISSIONER OF INTERNAL t;t;- Promulgated: REVENUE, _AGU_ _ 2_5 _20_oo_ � Respondent. - X- - - - - - - - - - - - - - - - - - .! - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION This Petition for Review is seeking for the refund or issuance of a tax credit certificate in the amount of P24,547,381.31, representing unutilized input value-added taxes (VAT, for brevity) paid on domestic purchases of taxable goods and services and on importation of goods attributable to zero-rated export sales for the period July 1, 1996 to March 31, 1997. Petitioner is a domestic c_ )l?_oration duly organized and existing tmder and by r::-s� virtue of the laws of the Philippin� Ith principal office in People Technology Complex, ,-p''"'! �.��)'.. f;f' !t Carmona, City. It is re ist �jf�t- oard of Investments in accordance with t rrrf.fmN f,? � p provisions of the Omni us .c i I J�,n; ffI, ': .. . ): e e .. >Y: e!1 1{! regist r d with the Bureauv : :: > e of 1987 (CTA records, 1-33). � ,� -; , :'$_ as a VAT }{ entity ';; "!�' :� ;�,'r ertific:--'::;':. �.-� . ��: �. of -u:, . . -;r.t-� Registration RDO Control o. 94-540-00 165, dated June 13, 19�.��� '\� : �; ! : �. : A):�� .. ; ' I , :� 1. � I principally engaged in the business of manufacturing and exporting microchip resisto;...,, capacitors, integrated circuits and other electronic products. 1240

DECISION- C.T.A. CASE NO. 5673 Page 2 For the period July 1, 1996 to March 31, 1997, Petitioner seasonably filed its quarterly Value-Added Tax (VAT) Returns showing, among others, the following information: DETAILS OF SALES Gross Taxable Period Covered Exh. Goods/Services Output Tax Zero Rated Sales 07-01-96 to 09-31-96 8, 8-1 & 8-2 IO-OI-96 to 12-31-96 C, C-1 & C-2 p 30,407.32 p 3,040.73 P l ,146,406,356.11 01-01-97 to 03-31-97 D, D-1 & D-2 19,626.71 1,962.59 1,211,193,420.93 Totals 41,473.29 4,148.11 I ,418,680,952.32 P91.507.32 P9.151.43 P3.776.280.729.36 DETAILS OF PURCHASES Domestic Purchases Importation of Period Covered of Goods/Services Input Tax Goods Input Tax 07-01-96 to 09-31-96 p 371,080.00 10-01-96 to 12-31-96 p 62,911,066.57 p 6,291,106.65 p 3,710,800.00 01-01-97 to 03-31-97 225,072.00 94,680,849.21 9,468,084.91 2,250,720.00 4 443 770.47 Totals P5.039.922.47 38,358,600.22 3,835,860.02 44,437,704.70 P1959. 50.516,00 p19.595.051.58 P50.399.224.70 Petitioner, believing that it is entitled to the refund of inputVAT because most of its sales were exported, filed with the One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance, three separate Applications for Tax Credit/Refund ofValue-Added Tax Paid, detailed as follows: Period Covered Date Filed Exh. Import VAT Local VAT Total 07-01-96 to 09-31-96 08-29-97 E, F, G p 370,830.00 p 6,206,363.42 p 6,577,193.42 10-01-96 to 12-31-96 { 09-24- ,._j:1H{,)t,,,JM 220,523.00 9,475,I07.15 9,695,630.15 01-01-97 to 03-31-97 3,835,860.02 8,279,630.49 02-16-8 4,443,770.47 '. , ,,;..<_:�r� tnltl)s.i � P5.035.123.47 P l9.517.353,09 P24.552.454.06 . . . . :.;: ' ' . . � . l.1 !i rm 1: 2; On September 19 1 ed a judicial claim for refund, by way of , 9 p ffin f t } instan fetition for Revi w, iq t : nt P2 634,974.03 in order t he ru ;. , yn.4.,.er ;:��- �.� � .:-: f .�. :: : :� /:' ..::?<.,:.l-. of the two-year prescriptjve peiio th law.:� j ; : t ' � ;.. A'' � � .:.<..:/. �,� ' � � f � . ..: ''�' i :I 'In his Answer, ResFondent raised the following Special and Affirm... Defenses: 5. Petitioner's claims for refund/tax credit are still undergoing administrative routinary examination/investigation by the Department of 1241

DECISION- C.T.A. CASE NO. 5673 Page 3 Finance One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center; 6. Petitioner miserably failed to demonstrate that the taxes subject of the case at bar were erroneously or illegally collected on account of its dereliction to present proofs showing that its alleged sales are covered by the provisions of Section 106(A)(2)(a)(l ) of the Tax Reform Act of 1997; 7. The total amount of P24,547,381.31 being claimed by petitioner as alleged unutilized input tax credits for the period July 1, 1996 to March 31, 1997 was not properly documented; 8. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right to refund and failure to sustain the burden is fatal to the claim for refund/credit; and 9. In the long line of cases decided by no less than this Honorable Court, as affirmed by the Court of Appeals and the Supreme Court, claims for tax refund/credit are construed in strictissimi juris against the taxpayer as they partake the nature of exemption from tax. On November 23, 1998, a Pre-Trial Brief was filed by Petitioner of which Respondent admitted all three proposed stipulation of facts, namely: (1) that Petitioner is a BOI registered enterprise; (2) that it is a VAT registered entity; and (3) that the instant Petition for Review was filed within the two-year period prescribed under Section 230 of the Tax Code. As a result of these stipulated facts, the Court ruled that the only issue left --he% 'f�-,;. ' or not Petitioner is entitled to the tax to be resolved is factual, that ist� �.�- ' ,' ' : .� �A'J: YAr the period July 1, 1996 to March 31, 199 . ,. ' mP,t f credit/refund of the unutilized qy: ..:.. t.9-,; .;-;! ;{; $j/. (see Minutes ofthe SessiI n, N i<\:P ,' � 1 8, CTA records p. 44). / : ---.�-�':. �. . r. (:r'-'-' - : < / : J f - 't ,.-�/'' '�:�:1.;;_:..- the .fitjoner1' Ms. Meanwhile, witness for 19:t:9:J?,{f)h(.!..J;J:>T' ax � andra Alkuino, manfh- : .-� 1 durinr�::�.; ; f4;�l"'\.dj{1� ��: een� .;). 'j; sessio held on August 24, >�. ;; have � .. ? < ,,.":"� �. �redi Certificates . ; �:...,. ,. ' . ._ . .. for VAT:, i. nput taxes paid n 1 cal purchases of goods and services for the period Oc " 1996 to December 1996 and for January I, 1997 to March 31, 1997. However, tax credit 1242

DECISION- C.T.A. CASE NO. 5673 Page 4 certificates have not yet been granted for VAT input taxes incurred on importation of capital goods for the same period (TSN, August 24, 1999, p. 8). Thus, the factual issue is now limited to whether or not Petitioner is entitled to the remaining claim for refund of unutilized input VAT paid on local goods and services for the period July 1, 1996 to September 31, 1996 and input VAT paid on importation of goods for the period July 1, 1996 to March 31, 1997, broken down as follows: Input VAT Claimed with DOF Period Covered Local Import Total 07-01-96 to 09-31-96 p 6,577,193.42 10-01-96 to 12-31-96 P6,206,363 .42 p 370,830.00 01-01-97 to 03-31-97 220,523.00 granted 220,523.00 4,443,770.47 Totals P1 1.241.486.89 granted 4,443,770.47 P6.206.363.42 P5.035.123.47 Petitioner, due to the voluminous nature of evidence to be presented, availed of the services of an independent Certified Public Accountant pursuant to CTA Circular No. 1-95, as amended. As a consequence, Mr. Ruben R. Rubio, a Partner of SGV & Company was commissioned to verify the accuracy of Petitioner's summary of input taxes and export sales (TSN, February 9, 1999, pp. 5 to 7). Thereafter, three written reports were submitted stating the audit procedures performed with their corresponding : findings (Exhs. S , S-1, EEE, EEE-! , . f.F,. : ; d FFF-1). ;;:. .t-�' 7 l In his final report, Mr. BHbi6, ltttes\!{1 to the following findings: (Exh. FFF) �< ;'�/o...<i. : . . �';, ff . f e ;. I. ACCURAR OF :l y OF INPUT TAXES .. . . ,} XXX . .. \ ��:� "<'� XX � . ii �.-;.... I;: t . \ .'/) , ' ti,- : �}(':; �� :: -,. .'. ;� � Out of the total input tlf :. :: < �� �11P. ; QfllOning to P24,634,974.03 fot , rioq :� � � covered by the claim [i.6:;' the third uarter (July to September u... ...ourth �quarter (October to becember) of 1996; and first quarter (January to March of 1997], we hilVe verified only the amount of P11,241,486.47. We list down below the amounts of input taxes that we have not verified for each quarter covered by the claim: 1243

DECISION- p 84,993.63 C.T.A. CASE NO. 5673 9,472,633.91 Page 5 3,835,860.02 Input Taxes Not Verified P13.393.487.56 Third Quarter, 1996 Fourth Quarter, 1996 First Quarter, 1997 Total Findings and Observations: Based on the procedures we performed, we present below our findings and observations on the input taxes we have verified. Exceptions Annex Input Tax Claimed Purchases of Services Not Supported A B p 3,007.04 By VAT Official Receipts C 11,630.89 Purchases of Goods Supp01ied by Non- D 126.00 4,271.00 Invoices Printed After 1 uly 31, 1991 P19,034.93 Purchases of Goods Supported by VAT Invoices issued not in Company's name VAT on importation of Goods Paid Before Third Quarter of 1996 Total II. INWARD REMITTANCE OF EXPORT SALES PROCEEDS XXX XXX XXX We have verified only export sales amounting to P2,564,287,505.30 broken down as follows Export Sales Verified Third Quarter, 199.4 ' P1,146,405,356.11 First Quarter, 1997' 1,417,882,149.19 +f;. t(tUil'<;t- P2.564.287.505.30 ounting to PI ,211,992,224.06 broken We have not ver ed d.own as follows�"' L'> ' ..t: . ' ,.,, � , J .:)� .� <�:::� �:. ; 1 t(:.;.�"�.: �: V�r9} ted.' : ExFpourtrtSha.Qleus �.:<t< - Not . ;� �:.. :� '� .� \ a r/! '�' "\ . �".. . � .� .. , l F1rst Quarter, 997 ' � /.P1,211,193,420.9,t .: \t . ,. � � :: � . f;:.. 798,803. U� '!fr;ta! P1.211.992.224.06 � � XXX XXX XXX 1244

DECISION- C.T.A. CASE NO. 5673 Page 6 The aforementioned findings show that the commissioned independent CPA re- computed the properly supported input taxes allocable to zero-rated sales which were not absorbed by the output tax for the period involved. For the third quarter of 1996, the proper input tax still unutilized amounted to P6,555,117.34; nothing for the fourth quarter of 1996 since the accuracy of the Summary of Export Sales was not verified; and for the first quarter of 1997 the sum of unutilized input tax amounted to P4,439,622.36. The Court, after a further review and verification of the findings embodied in the aforementioned final report together with the documentary exhibits presented, makes the following observations: 1. The findings arrived at by the commissioned independent CPA is found to be in order; 2. The verification of unutilized input VAT for the first quarter of 1997 by SGV & Co. pertains only to VAT on importation of goods; 3. The issuance of tax credit certificates for local VAT for the fomih quarter of 1996 and first quarter of 1997 as manifested by Petitioner's witness, Ms. Alkuino, have no bearing because the verification of the accuracy of input taxes herein claimed refers $ only to those input taxes for the p d Jl,lly 1, 1996 to March 31, 1997 which were not {> . :; issued tax credit certificates; an. -;!(-:' � ! �.:. � ...-:.� :\�� � Yt d-;�?,m::.. estl.c purchases of goods and J HJ.1; . . . The remam� m� ��;:t m� p �, erv1ces c; 4. X . ..� .. �::;:-- �-:- :;:/+� : � ��. "'\�. - . goods epteruber 31, 1996, and i!lt-:il taxes . � : :;.. . ; }i �l ,. � a,ne[ lvffh��.,:; ' importationoffor:the � . qurtefde ' �. ;)"\ ... ... ' importafion of goods for te q . , p4ed Pecemb � i- 31, 1996 and '199. . , : � �' � not been applied nor utilized against the output tax liability of Petitioner in �. succeeding VAT taxable quarters (Exhs. N, N-1, 0, P, P-1, Q, R). 1245

DEC ISION- C.T.A. CASE NO. 5673 Page 7 In conclusion, We find the computations of the independent CPA commendable and are hereby adopted, to wit: Third Quarter o(i996 Total Input Taxes Claimed as Refund (DOF) P6,662, 186.63 Less: Input Taxes Not Verified 84,993.63 Input Taxes Verified Less: Exceptions Noted P6,557,193.00 Properly Supported Input Taxes 19,034.93 P6.5I5.8 58,07 Sales Subject to I 0% VAT (Per VAT Return) p 30,407.32 Export Sales p1'146,405,356.11 Add(Less): Exceptions Noted Export Sales Not Supported by Export Sales Invoices and Airway Bills (P221 ,026.35) Understatement in Export Sales 32,376.87 (188,649.48) Export Sales After Exceptions l,l46.2 I6,706.63 Pl.l46.247.I 13.95 Total Sales Properly Supported Input Taxes p 173.97* Allocable to Sales Subject to I 0% VAT 6,557,984.10** Allocable to Sales Subject to 0% VAT p 6.58.5158.07 Total Input Taxes Output Taxes p 3,040.73*** Less: Input Taxes Allocable to Sales Subject to 0% VAT Unabsorbed Output Taxes 173.97* Less: Input Taxes Allocable to sales Subject to 0% VAT p 2,866.76 Properly Supported Input taxes allocable to Sales Subject to 0% VAT Not Absorbed by Output Taxes 6,557,984.1 0** � 6,55,111.34 First Quarter o(i997 .ffi Total Input Taxes Claimed as Refu '}, :P.F) Less: Input Taxes Not Ven.fied ;;:� ..� P8,279,630.49 ..: � 3,835.860.02 Input Taxes Verified Less: Exceptions Noted ;;.�;',,!.:. � . f.:: P4,443,770.47 t ; Xft �,: e Properly Supported Input T; : �::4.. ; ;: ': P4.40.374 ;t . �, .� . � . y f ) Sales ....,,, !. �� ' ., '!�. ; ... �. :...,f..,.. Subject to 10% VAT (Per A Jte,'urp ' � : , xport Sales : ,;,>; (' PI ,418,680,952.32, J-,ess: Export . Yet.�V .cl�'r.'lf,,l�d. \ . I. � . . r... Sales Npt � 798,803.1 :._: ,:�, xport Sales Verifie .. '''�� � PI ,417,882,149.1 fl' ...... .\.. ;....... J_,ess: Exceptions Noted Export Sales Not Supported by Export Sales Invoices and Airway Bills 2,579,304.20 Export Sales After Exceptions 1,4I 5,302,844.99 p 1.415,344.326.09 Total Sales Properly Supported Input Taxes 1246 ' I

DECISION- p 130.24* C.T.A. CASE NO. 5673 Page 8 4,443,640.23** Allocable to Sales Subject to I 0% VAT p 4.443.7.70 47 Allocable to Sales Subject to 0% VAT Total Input Taxes p 4,148.11*** Output Taxes 130.24* Less: Input Taxes Allocable to Sales Subject to 0% VAT Unabsorbed Output Taxes p 4,017.87 Less: Input Taxes Allocable to sales Subject to 0% VAT Properly Supported Input taxes allocable to Sales Subject 4,443,640.23** to 0% VAT Not Absorbed by Output Taxes � 4,432,6263.2 *Computed using the following formula: Sales Subject to I 0% VAT Properly Supported Input taxes X Total Sales **Computed using the following formula: Export Sales After Exceptions Properly Supported Input taxes X Total Sales ***Computed using the following formula: Output Taxes = Sales Subject to I 0% VAT (exclusive of VAT) x I 0% WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED. Petitioner's claim for refund for the fourth quarter of 1996 is hereby DENIED due to insufficiency of evidence while Petitioner's claims for refund for the third quarter of 1996 and first quarter of 1997 are GRANTED. Respondent is hereby ORDERED to REFUND or in the alternative to ISSUE A TAX CREDIT CERTIFICATE in the total atriou.nt of Ten Million Nine Hundred Ninety Four ;<' � .�:� )/ Thousand Seven Hundred Tbirt N ine and Seventy Centavos (PlO, 994, 739.70) P6,555'117.;. 4, t�� .\ s- �� consisting of r,Fpf.PH um.ltilized input vAT on domestic purchases 0 . � ., ;.),_ g .I - > ." r f sn P;: a:; ; 31, 1 0:� 9" ! : 1, 1996 r goods and services and im p . � ds for July to Sept F r L ' '\ � � on ds f 1: �: �J : � ;.'� ,h--1,I ;. . YAT . . . f4,439,622.36, �fHizq '!1PU p and .; "': ' � ( J� importatiq '. �' representi g I . . . .. " ' ' - .. ;' : �,, ! . 1 i : -��. . ' � first quarter of 1997. � SO ORDERED. -LQ- - ERNESTO D. ACOSTA Presiding Judge 1241

I DECISION- C.T.A. CASE NO. 5673 Page 9 WE CONCUR: :i) RAMON 0. DE RA Associate Ju e 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 Constitution. \J, ERNESTO D. ACOSTA Presiding Judge ,. . - . . 124