CTA Case No. 4658 (Decision)

REPUBLIC OF Til� PlfiLIPPINES COURT OF TAX APPEALS QUEZON CITY ITOGON�-SUYOC MINES, INC. C.T.A. CASE NO. 4658 Petitioner, - - )( �- versus - COMMISSIONER OF INTERNAL REVENUE, Respond~:mt. JC - - - - - DECISION This refers to the claim for refund or tax credit of Itogon-Suyoc Mines, Inc. in the total amount of Pl5,48l,l40.6l representing VAT input taxes allegedly paid for the period from January l, 1988 to October 31, 1990. Allegations in the petition that were admitted unqualifiedly by respondent are hereby narrated. Petitioner is a domestic corporation duly organized and existing under Philippine laws with principal office at Room 305 One Corporate Plaza Building, 845 Pasay Road, Makati, Met .~o Man i 1 a. It is mainly engaged in the mining business which includes, among others the exploration, development, and production of mining 341 /

DECISION -� C.T.A. Case No. 4658 - 2- pl~opel~ties as well as the eventual JDal~keting of 11int> products produced by it. lt is a rt>gistert>d VAT taxpayt>r at East District, Makati with Rt>gistration No. 32-0-000125 t>fft>ctivt> January 1' 1988. Due to changE> of addrt>ss, it surrt>ndert>d said rt>gistration and rt>gistered ant>w with BJR, Wt>st Makati. lt was assignt>d Rt>gistration No. 32 A-8-008955 efft>ctivt> January 1, 1991. lt filt>d with thE> BJR an application for Zt>ro ratE> on it salt>s of mint> products. lt filt>d with respondent's VAT Division four (4) applications for tax credit/refund of valuE> addt>d taxes paid, to wit: Period Covered Aaount Date Filed Jan. 1, 1988 t o p 4,678,984.65 Apri 1 14, 1989 Oct obt>l~ 31, 1988 Nov. 1, 1988 t o 2,527,139.03 Oct. 31' 1989 Apl~i 1 30, 1989 4,056,930.03 1 Apl~i 2, 1990 May 1 , 1989 t o Jan. 31, 1990 Feb. 1 , l 990 t o 4s218s086.90 May 31' 1991 Oct. 31, 1990 P151 481 1 140.61 T0 TAL Likt>wist>, respondent admits in paragraph 2 of her answer the alleged filing by petitiont>r of sevt>ral VAT original and amended, dt>tails of which art> tabulated hereunder: 342

DECISION -- -- 3 - Date Filed C.T.A. Case No. 4658 Duarter Covered May 19, 1988 Kind of Return Mat~ch 21, 1989 Jan. 1, 1988 to Aug. 18, 1988 Ot~i gi nal VAT Apt~ i 1 30, 1988 Mat~ch 21, 1 989 Nov. 21 , 1988 . VAT Jan. 1 , 1988 t o Mat~ch 21, 1988 VAT Apt~ i 1 30, 1988 Feb. 20, 1989 VAT May 19, 1989 VAT May 1 , 1 988 t o May 19, 1988 VAT J ul y 31 , 1988 Aug. 21, 1989 VAT Nov. 17, 1989 VAT May 1 , 1988 t o Feb. 19, 1990 July 31, 1988 May 18, 1990 Aug. 20, 1990 Aug. 1, 1988 to Nov. 20, 1990 Oct � 31 , 1988 Aug. 1, 1988 to Oct � 31 , 1988 Nov. 1, 1988 to Jan. 31, 1989 Nov. 1, 1988 to Jan. 31, 1989 Feb. 1 , 1989 t o Apt~ i 1 30, 1 988 1'1a y 1 , 1 989 t o July 31, 1989 At.tg. 1, 1989 to Oct. 31 , 1989 Nov. 1, 1989 to Jan. 31, 1990 Feb. 1, 1990 to April 30, 1990 May 1, 1990 t o J .., 1 y 31 ' 1 990 Aug. 1, 1990 to Oct. 31, 1990 343

DECISION -- C.T.A. Case No. 4658 - 4- Howe vel~, l~espondent denies the and correctness of the amounts declared in the above- mentioned returns for lack of knowledge or information sufficient to form a belief as to the truth thereof. Respondent also denies the allegations in paragraphs a, 9 and 10 of petition which state, among others, the following: "8. Petitioner has duly complied with the requirements for the aforesaid applications by submitting to Respondent's office particularly with the VAT Division, all documents or papers necessary therefor. In fact, Respondent's VAT Division has processed and/or examined petitioner's applications and even issued certain forms of Authority to issue VAT Credit/Refund dates January 29, 1991 and June 10, 1991, x x x. Unfortunately, Respondent has not acted or/approved such authorities for VAT Credit/Refund prepared by his VAT personnel; 9. Under Section 10G<e> of the National Internal Revenue Code, Respondent is mandated to refund input taxes within sixty days from the date ~he application for refund was filed with his office or his duly authorized representative. Evidently, Respondent has violated the aforesaid mandate of the Tax Code to the prejudice of petitioner; 10. x x x This Petition is being filed within the two-year period prescribed by the National Internal Revenue Code, as amended." And by way of Special and Affirmative Defenses, respondent alleges in his answer the following: "4. Petitioner has not shown that the tax sought to be refunded were erroneously or illegally collected; 344

DECISION �� C.T.A. Case No. 4658 -5 5. A claim for refund is construed strictly against the claimant since it partakes of the nature of e~emption from ta~ation . <Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95; Manila Electric Company vs Commissioner of Internal Revenue, 67 SCRA 351>; G. Ta~es are presumed to have been paid and collected in accordance with law; 7. Petitioner has not shown that it has complied with the requirements of Section 292 (now Section 230) and Section 295, paragraph 3 (now Section 204, paragraph 3) of the 1988 National Internal Revenue Code <NIRC> ~ ~ ~; 8. Assuming, at~guendo, that petitionet~ is entitled to a tax refund, the tax payments made before October 18, 1989, have already prescribed. Under Section 292 <now Sec. 230) of the NIRC no suit for the recovery of national internal revenue tax shall be begun after the expiration of two years from the date of payment; 9. The petition for review states no cause of action as it does not state the dates (not merely the periods> when the value-added ta~es were allegedly paid <Manufacture Bank and Trust Co., vs. Commissioner of Intet~nal Revenue, CTA Case No. 1659, December 29, 1965>; 10. For VAT purposes, petitioner's sale of gold to the Central Bank is not considered e~port sale since the same is limited to "ACTUAL EXPORTS" and "FOREIGN CURRENCY DENOMINATED SALES" pursuant to Section 100(a) of the NIRC ~ ~ ~; 11. Under VAT Ruling No. 202, the term zero rating refers to actual e~ports and foreign currency denominated sales, the provision of any special law to the contrary notwithstanding; 12. Petitioner's claim for ta~ refund/credit is bereft of basis in fact and in law." 345

DECISION C.T.A. Case No. 4658 - &- Before discussing the issues involved in this case, it is worth clarifying that the amount being claimed by petitioner as refundable or tax creditable has been reduced and/or changed from P15,481, 140.61 to merely P8,805,901.G5 (pp. 12-14, Memorandum of Petitioner>. Mrs. Estrelita Operario, witness of petitioner, testified in court that the reduction was due to disallowances made after examiners of respondent's VAT Division scrutinized in details the supporting documents of the subject claim. The reduced amount was already accepted by petitioner. In fact, the "Reliefs" pol~tion of its Memol~andum, so states, thus: "RELIEFS WHEREFORE PREMISES CONSIDERED, it is most respectfully prayed of this Honorable Court to give due course to the foregoing and to render judgment 1.> xxx; 2.> )( )( >e; 3. > t~~h~e~~r~e~s~p~o~n~d~e~n~t~~b~e~~o~�~~d~e~r~e~d~ to grant VAT refunds/tax credits in the amount of P8,805,901.G5 as found by the VAT Division of the SIR." <Underscoring supplied; pp. 253-254, CTA records>." The Court now tackles- the issues to be re&olved in the instant case. They are the following: 1. Whether o�~ not the petition states a cause of action; 346

DECISION - C.T.A. Case No. 4658 -7 2. Whether or not the claim of petitioner has prescribed; 3. Whether or not petitioner's sale of gold to Central Bank is "export sale" and therefore, subject to zero-rate of VAT. Under paragraph 9 of his answer, respondent argues that petition states no cause of action as it did not state or mention the dates when the value added taxes were allegedly paid. This is untenable. Fol~ the Court understands the difficulty on the part of petitioner to state in its petition all the voluminous invoice numbers together with theh~ respective dates of issuance. this is the reason why in one of the hearings of the case held on April 21, 1993, the Cotwt suggested that the voluminous invoices be presented in court by preparing summaries examined/verified by a certified public accountant <p. 123, CTA records). Said summaries which were duly notarized were marked and offered in court as Exhibits "AA" to "FF" inclusive, of petitionel~. In the titles or captions of these summari~s were indicated the month and year when the goods covered ol~ listed under each summary were purchased or acquired. Such dates, understandably, are dates of payment of input taxes being claimed as refundable or tax creditable~ Besides, in his comment on petitioner's formal offer of evidence <see par. 3, p. 2 Comment; p. 173, CTA records>, 347

DECISION -- C.T.R. Case No. 4658 - 8- respondent admitted all the said summaries without any qualification. As regards the second issue respondent avers that even if it is to be assumed that petitioner is entitled to a tax refund, tax payments made before October 18, 1989, have already prescribed. Respondent's stand is well-taken. The fundamental rule on prescription of claims is clearly provided under Sections 204<3> and 230 of the Tax Code, to wit: "Section 204. AuthOl~ity of the Commissioner to compromise, abate, and refund/credit taxes The Commissioner may <3> Credit or refund taxes erroneously or illegally received, penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition x x x. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two years after the payment of the taK or penalty." <Underscoring supplied) "Section 230. Recovery oF tax err~oneously or~ illegally collected. - .No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any 348

DECISION -- C.T.R. Case No. 4658 -9 penalty claimed to have been collected without authority or of any sum alleged to have been eMcessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissionet~; but such� Sllit or proceeding may b'e maintained, whether or not such taM, penalty, or sum has been paid under protest or duress. ln any case, no, such suit or proceeding shall be begun after the eMpiration of two years from the date of payment of the tax or penalty regardless of any suoervening cause that may arise after payment x x x" <Underscoring supplied) From the foregoing, it is eMpressly mandated that both the claim for refund with the Bureau of Revenue and the subsequent appeal to the Court of TaM Appeals must be filed within the two year period. These two requirements are mandat ol~y and non-compliance therewith would be fatal to the action for refund or taM credit (Johnst.on Lumber Co., lnc. vs. CTA, 101 Phi 1. 151; Guagua Electric Light Co., lnc. vs. Collector, L-14421, Apri 1 29, 1961. > Looking back at the tabulation hereinbefore made, of the four (4) applications for taM credit/refund made by petitioner, it is obviously seen that the amount of P4,678,984.65, P2,527,139.03, and portion of P4,056,930.03, representing input taMes allegedly paid for the period from Januat~y 1, 1988 to October 18, 1989, 349

DECISION - C.T.R. Case No. 4658 - 10 - have already prescribed. Date of filing in court of subject claim is October 18, 1991. Two years backward fl~om this date is October 18, 1989. all payments made prior to the latter date can no longer be refunded on account of prescription. Tackling the third issue is not rendered moot and academic by the settling in of prescription. As the period of petitioner's claim e~tends up to October 31, 1990, payments made between this date and October 18, 1989 have not yet prescribed. For this reason, the Court moves to a discussion of the third issue. That is, whether or not petitioner's sale of gold to the Central Bank is considered as "e~port sale" and therefol~e, subject to zero rate of VAT. Petitioner contends that its sale of gold to Central Bank is "constructive e~pol~t" and must be subject to zero / / rate of VAT. To support its contention, it presented in / CO\.trt as E><hibit "C" the following Central Bank <CB> L- cit~cular thus: "CIRCULAR No. 1301 Series of 19'31 With reference to Section 16'3 of Central Bank Circular No. '369 dated October 21, 1'383, it is hereby stated, for clarification proposes, that all sales of gold to the Central 350

DECISION - C.T.R. Case No. ~658 - 11 - Bank arE' E'>Cports." PPtitionpr concludE's that thE' abovPquotE'd CB circular is a spPcial law. HPncE', its salE' to CB falls undE'r SPction lOOCa> C2> of thE' Ta>C CodE' which providE's: "Section 100. Value-added tax on sale o'F goods. - Ca> RatE' and basE' of ta>C.- Th~rE' shall bE' lE'ViE'd, assE'SSE'd and collPctpd on E'VE'ry salE', bartE'r or E'>CchangE' of goods, a valuP-addE'd ta>C PquivalPnt to 10~ of thE' gross splling pricE' or gross valuE' in monE'y of thE' goods sold bartprjd or E'>CchangPd, such ta>C to bE' paid by thE' SE'llE'r or transfpror : Provided, that the following sales by VAT-registered pE'rsons shall bE' subject to 0~ Cl> E>Cport salE's; and (2) laws or international thE' PhilippinE's is a eKeAI tion subiects such sales to agrE'E'IIlE'nts signatory x >C >C" CUndE'rscoring supplipd) From thE' forPgoing provision of paragraph 2, it is important to notE' that buyPrs of VAT-registE'rE'd sellers 1 must be the persons eKempt under special laws or intPrnational Thus, in a l~E'sol ..,t ion promulgatE'd by this Court, it was hE'ld that: ">C >C )( Undpr thE' said provision, only thosE' salE's madE' to 'pntitiE's whosE' E'>CE'mption undE'r spE'cial laws or intprnational agrE'emPnts to which the PhilippinE's is a signat~ry pffpctivply subjE'cts such salE's to zero ratE'' can bE' considE'red as bPing 'pffE'ctivPly zpro l~atpd.' OthPrwisE' statPd, fol~ a salE' to bE' considered effectively zero-rated, it n~ust be shown that thE' buyE'r is PntitlE'd to an 351

DECISION - C.T.A. Case No. 4658 - 12 - "exemption' under certain special laws or international agreements, and that such "exemption' effectively subjects the sale to zero-rate. X x x <Underscoring supplied; last par. of P� a, pat~. 1 of p. 9, Resolution dtd. May 4, 1994, CTA Case No. 4794, "At 1as Con so 1 idat ed Mining and Deve 1opment Corp. vs. CI R") Evidently, under the aforequoted provision, it is not the sellers who are eKempt from payment of VAT and/or all other kinds of internal revenue taxes. Hence, even if CB Circular No. 1301 is to be treated as having the force and effect of a law, and thet~efore, to be considered as a special law, still the pronouncement undet~ this Circular will not effectively subject petitioner's sale to VAT-zero rate. There must be an express provision in the special law or CB circular that Central Bank, not the instant petitionet~, is exempt from payment of VAT or all kinds of internal revenue taxes. At this point, petitioner may invoke VAT Ruling No. 378-88 dated August 28, 1988 which provides that "sales of gold with the CB is considered as export sale subject to zero-rate pursuant to Section 100 of the Tax Code." Still, this will not hold water in the instant case on the legal basis that said ruling was revoked by VAT Ruling No. 008-92 and the revocation was made retroactive to January 1, 1988 by VAT Ruling No. 59-92. 352

DECISION - C.T.R. Case No. 4658 13 - Petitioner opposes the retroactive application of VAT Ruling No. 008-92. lt says that VAT Ruling No. 59-92 is in violation of Section 246 of the Tax Code which .. Sec. 246. Non-,~et,~oactivity of' ,~ulings. - Any revocation, modification or reversal of any of the rules and regulations pro�ulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayers except in the following cases: (a) where the taxpayer deliberately misstates or omits material facts from the return or in any document required of him by the Bureau of lntet~nal Revenue; (b) whel~e the facts subsequently gathered by the Bureau of Internal Revenue are mater{ally different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad faith." Again, this side issue has similarly been decided in the previously cited resolution, thus: "x � x x We hold that respondent Commissioner is correct in contending that petitioner will not suffer any undue prejudice from a retroactive application of VAT Rulings No. 008-92 and 59-92. As pointed out by respondent in his Ruling No. 59-92, 'When the same mining companies, relying upon the aforementioned earlier BlR rulings, sold their gold to the CB at zero rate VAT, they did not fully pass-on to the CB the cost of their respective input taxes. Said input taxes remained in their possessions(sic). The only repercussion of the revocation of the said earlier ruling is - they will be prevented the option of claiming the 353

DECISION - C.T.R. Case No. 4658 14 - said input ta~es as refund. But, they remain entitled to use the same in paying their output ta~es in connection with their other sales transactions which are subject to the 10" VAT. It follows, thel~e is no prejudice that may ensue from the retroactive application of the said revocation because what they only lose is the right to have their input ta~es refunded which, in the first place and under the law, they are any way, clearly not entitled to. Granting for the sake of argument, that they have no other sales transactions subject to 10" VAT against which their input ta~es may be 1..1sed in payment, then, it fo 11 ows, they are constituted as the final persons against which the costs of the ta~ passed-on shall legally stop and rest, hence, in this connection, the said input ta~es may already be legally converted as cost available as deduction for income ta~ ~urposes. On this score, they at~e also not prejudiced by the retroactive application of the said ruling.' <Underscoring supplied; pp. 14-15, Resolution, Jbid. > Assuming .arguendo, that VAT Ruling No. 378-BB has not been revoked retroactively, still petitioner's sale cannot be considered as to fall under Section 100(a) (2) of the Ta~ Code. Aside from the legal requirement that there must be a special law e~pl~essly or effectively subjecting its sale transactions to VAT zero-rate, there is another requirement which is mandatorily provided under the VAT implementing regulations, thus: "Section a. Zero-rating - 354

DECISION - C.T.R. Case No. 4658 - 15 - <a> x x x (b) )( )( )( (c) x x x (d) Application for the imple�entation of zero-rate - Any person claiming that its sales of goods or services are effectively zero rated under Sections 100 and 102 shall file an application in a form prescribed therefor with the Commissioner of Internal Revenue justifying the imposition of zero rate on said transactions. Upon approval, his status as a zero rated taxpayer shall remain valid until revoked." (Underscoring supplied) Fr~om the above, it is a mandatory requirement that persons who claim that their sales transactions are effectively zero-rated must file an application for zero- rate with the BJR. The application must be duly approved by the Commissioner of Internal Revenue. Considering that petitioner's application for zero-rate has not been approved by the Commissioner of Internal Revenue, petitioner's sale of gold to CB cannot be considered as effectively zero-rated. Compliance to the two (2) requ i r~ement s is a must pursuant to Section 100(a) <2> of the VAT law and its implementing regulations. Petitioner's sales to CB can neither fall under Section 100 (a) <1 > which refers to "actual sales" or "foreign currency denominated sales" only. They are not also effectively zero-rated. They do not fall under any of the two <2> classifications of effectively zero-rated 355

DECISION C.T.R. Case No. 4GSO �-- H> .. transactions as provided under paragraph <2> of Section 100 of the VAT law. WIIEREFORE, in view of all the fot~egoing, petitioner's clai~ for refund or ta~ credit is hereby DENIED for lack of merit. No pronouncement as to costs. SO ORDERED. ,._; p~~~ RAMON 0. DE YE R Associate Jud e WE CONCUR: <Dissenting Opinion) ERNESTO D. ACOSTA GRUBA Associ CERTIFICATION I hereby certify that this decision was reached after due consultation between the members of the Court of Ta~ Appeals in accordance with Section 13, Article VIII of the Constitution. ~Q.~. ERNESTO D. ACOSTA Pt~e siding Jt.tdge Court of Ta~ Appeals 356