CTA Case No. 3416 (Decision)

,, .., r REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY TELEFUNKEN SEMICONDUCTOR C.T.A. CASE NO . 3416 PHILIPPINES, INC.� Petitionel:", - versus - C0!111ISSIONER OF INTERNAL REVENUE, Respondent. X-- - - - - - - - - -X DEGI S I 0 N This is a claim for refund or tax cr edit; in the amount of P2,482,042 -5 1�ep1�esen ting alleged erroneous p8ymen t o 3-~~ con tractor ' s tax covering the fourt:h quarter of fiscal year 1979 t:o the thin.i quarter of fiscal year 1981 filed t.1imul t:.:weously on tlanuary 20, 1982 before this Court and wi tll respondent Commissioner of Internal Revenue. It appears that on tlanuary 25 , 1982, the cifief of the appellate divisi on of respondent ' s btu�eau referred petitioner's claim �to the /1akati Revenue District Office for investigation and submission of

DECISION - CTA CASE NO. 3416 -2- report on the m~qtter. And on the petition for review filed with this Court, respondent filed on April 6, 1982 an answer alleging, among others, as special and affirmative defenses that petitioner 's claim for refund or tax credit is being in veL:;- tig~q_ ted, taxes are presumed to have been collected in accordance with lar<~, the bun1en of proof in action for refund is upon peti tloner, and cl::dms for refund are strictly construed against claimants. The b::Jckground facts are not disputed. As narrated by r esp ondent: Petitioner .is a domestic corporation registered r<~ith th e .Board of Investm en t s (.BOI) as an e xport - producer 011 a preferred pi onee r sta tus under Re publif.."? Act 6135 (Exhibit "I"). From October 1979 to Septembe r 1981, the period herein lnvol ved, petl tioner produced semi -conductor de vices amow1ting to P92,843,774.00 wllich were en tlre ly sold to foreign markets. (Rev. Examin'!Jr ' s report dated October 29, 1984, p. 710, B.I.R. r e c o .r d ) . On the Ba ld exportation, i t filed pe1�cent~q,ge tax returns decla:rlng a total of P2, 482, 042.35 as

DECISI ON - CTA CASE NO. 34 16 - 3- contl"actol" 's t~'ix (Exhibits "A�� to "H- 1", inclusive), which were paid and verified to have been received by the government. (pp. 728-729, B.I.R . reco:rd) In a letter dated January 19, 1982 (filed on January 20, 1982 with the Appellate Division of the Bureau of Internal Revenue, pp. 613- 614, B.I.R. recon.i), it alleged that the payment of cont:racto1�'s tax of P2, 482 ,042.35 was erroneous and J"equested for the refund or tax c1�edi t the1�eof. contended th at unde1� the provisions of Section 7 of R.A. 6135 in relation t o Section 8(a) of R.A. 5186, o therwi se kn own as tl1e Investm ent Act, petitioner during the period in question was exempt, except income tax , fr om the payment o f all national intez~al reve nue taxes. Th & sole qu est.ion presented for resolution by the parties i s wh e ther or not petitioner, a semi conducto1� firm with Board of Investments registn~tion unde 1� Republic Act No. 6135 as pioneer � e~port p1�oducer, is subject to the 3~~ contractor's tax. The cont1�olling statute is Section 205(16) of the 1977 National Internal Revenue Code, formerly 7 r �) Ui-1

DECISION - CTA CAS E NO . 3416 - 4- Section 191(16), the pertinent portion of which reads: "Sec. 205. C..f.ln..t.J:s.'i.C..t.Q_/:'fJ.., ... Pl~QP..l.:i.e.t..o..r.JJ.. .Q l .:......Q.P.e.t:.~<J tQ:r.:~ .....Q.f ...J.i..Qc.ky~1.J.:.dtL...'.l.nd. ..Q .tlJr:~...1."'B.. A contractor ' s t .:'i.x of three percent of gross receipts i s hereby imposed on the following: XXX XXX XXX ( 16) Business agents and other independent contra ctors, including private detective or watchman agencies, .e.X.QeP.t.....�.l~Qoe... .....r.~ =- .ce.iP.t!3.. Qf... ..iL...P.i<:>nee.l.:.........ell..t .el."'P.l:i!3.e.. l.:.eg1.s..t.el:e.d wi .til ...... .the...........Bo.an ..:i�-��-��..of .........Ill..Y..es...tme.n t.s....... ........tw.de1.: RePU.blic ... Ac.t.....No. ........5.186. " (As ~"1.mended by No. P.D. 1457, thme 11, 1978)". (Underscoring o urs J Respondent thus argues that the appli ca ble law speak s of firms registered under ReptJblic Act No . 5186; perforce, th e pri vLlege of t<<:JX exemption cannot be made to apply t o firms registered under Republic Act No . 6135 s u c h as petitioner h ere.in. It is true that the exempti on [rom the contTactor ' s tax under S ec tion 206(16), SJ.JP.r.a., covers only the gross receipts of pionee1� � t:~'i1 terp1�ises registered with the Boa1�d of Investments unde1� Republic Act No. 5186. No mention is made of the gross receipts of pionee1� enterprises 1�egiste.red under Republic Act No . 6135 UJ1de1� which petitione.r� is registe.r�ed. However, unde.r� Section 7 of Republic 7~J

DECISION - CTA CASE NO . 3416 -5- Act No. 6135 it is provided that registered export producers in ..'l pionee.t� st..~tus are entitled to the incentives provided in Section 8 (a) of Republic Act No . 5186. To quote the pertinent provision of Section 7 of Republic Act No. 6135: SEC. 7. Incentives to registered export producers. Registe.t�ed export producers unless they already enjoy the same privileges unde.t� other l .'.lr-ls shall be entitled to the incentives set forth in paragraphs (h) 1 ( i) and ( j) of Section 7 of Republic Act Numbered Fifty-one hundred eighty- six, known as the Investment Incen t .i ve s Act; and registered export producers that are pioneer ente.t�prises shall be entitled also to the incentives s e t f o.rth in pa.rag:r.'. iphs (a) 1 (b) and (c) of sec ti on 8 of the said Act. In addition t o the s aid incen t .i ves, and in lieu of oth e r ln cen ti ves pz�ov.ided in Secti on 7 and in S ec ti on 9 of tlu..:~t Act, regiBte.t�ed exp<.~rt produces Bhall -�be ent .itl e d to ben e fl t s and lncen ti ves as enumerated h ereunde r: XXX XXX XXX And under paragraph (a) of Section 8 of Republic Act No. pi ')lleer enterprises, like petitioner he.t�ein 1 a .re exe mpt fTom all taxes under the National I1fternal Revenue Code, except income tax 011If a g.t�adua ted basis. Thus: SEC. 8. Incentives to a Pioneer Enterprise. In addition to the incentives pTovided in the preceding s e ction, pioneer ente.t�prises shall be granted the follor-1ing iJwentives benefits: ' ~r ... {

DECISION - CTA CASE NO . 3416 -6- (a) Tax Ex e mptions. Exemption from all �.�xes t.mder th e N~<J.tional Internal Revenue Co de, except income tax, to the follor., _ing extent: (1) One hundred per cent up to Dece mbe r 31, 1972; (2) Seventy- five pe r cent up to December 31, 1975; (3) Fi .fty per cent up to Decembe.r 31, 1.977; (4) Tr-1e n ty per cent up to December 3 .1J 1.979; (5) Te n p e .r cent up t o Decembe.r 31, .1.981. XXX XXX XXX .Th e lar.- seems clear and s pecific. It merely ca l .l s fo:r a ppli ca tion as thus worded. There is no room for in t erpre ta ti on. Construed together, the abo ve - quote d provisions of law yield no other con c lus _ion but that gross r ecei pts of a pioneer enterpri se registered r.-.i th the B,)ard o f In vestments under Rrr:."'1publi c Act No . 6135, as petitioner herein, are exempt fl'om the contractor's tax, which is a tax under th e Na tiona] In te1�nal Revenue, and admittedly not an income tax. It is well -se ttled that a � free from any conBtitutional infi1�mi ty, must be enforced as writ ten. The conclusio11 .reached is in acco1�dance with the policy of the State, as declared in Section 2 of Republic Act No. 6135, "to actively encourage,

DECISION -- CTA CASE NO. 3416 - 7- promote , and diversify exports of services and of manufactures utilizing domestic rarvr materials to the ful .l est ex t ent possible, and to develop new markets f or Philippine products, in on:ier to at tain a rising lev�el of production and employment, inc;rease foreign exchange earnings, hasten the economic development of th e n ation, and assu1�e that the benefits of deve_lopmen t accrue to the Fi .lipino people. " UnqueBtionably, i f t;h e c.>piri t. of the larvr is to be follor.red and itB intention fulfilled, gross receipts o f p _i oneer e nterpri ses r egistere d r-li th t:he Board of Inr,restments under Republi c Act No. 6135 are exempt from the cont.racto1� ' s tax unde r t h e applicable Na t _i ona l In ter:.. al Revenue Code in the same mann e r that gross recei pts of reg_istered pi on eer enterpri ses unde r Republic Act No. 5186 are exempted by the .same cod e. To ru .le otherr,rise would be to incur in self-contradiction. As a matter of fact, r espondent Commissioner of I f1ternal Revenue in his ruling of February 4, 'i 974 in favor of the Asian T1�ansmission Co1�poration held that both a registered export producer on a pioneer sta tu s WH.:fer Republic Act No. 61 .1. 5 and .~. pioneer Lnciustnr under Republic Act No. 5186 are entitled to

DECISION - CTA CASE NO. 34.1.6 -8- the � .same tax exemption benefi t.s under the Tax Code. To quote: This refers to your lette.r.s dated No vember 29 and December 19, 1973 requesting a ru .ling as to r-1hethe:r your contractors namely, C. E. Construction Corporation and !18 .r.steel Corporation are e.-Yempt fro m the payment of the 3.9.i contractor's tax pre:::cr:�ibed under Section _1:"}1 ( 16) of the Tax Code. It appears that your application for registration as export producer under Republic Act No. 6.135 has been approved by the Board of Investments on tlanua.ry 8, 1974 on a pioneer status. In reply, I have the honor to inform yoc1 that under tlJe last 1�aragraph of Section 191(16) of the Tax Code, gross receipts x x x from a pioneer industry r egistered with the Board of Investments wnfer the provisions of RepubLic Act Numbered Five Thousand One Hundred t?. .nd eigh ty -� s .ix ", are exempt from the contractor 's tax. It is clear that the intention of the lar-1 is to relieve the pi onee r indus try from ultimately s ho u lder.ing the contractor ' s tax which cou,ld be passed on to .it legally by its contractor. Pursuant to Section 7 of Republic Act No. 6135, that corporation as a 1�egistered export p1�oducer on a pioneer status is entitled to the same t'-~x incentives granted to a pioneer industry set forth in Secti on 8(a) of Republic Act No. 5186. Under this latter provision, a pionee.r industry is exempt from all taxes unde1� the Nati onal I11 ternal Rev.e11ue Code, except .income tax. In other words, both a registered export producer 011 a pioneer status under Republi c Act No . 6135 and a pionee1� industry under Republic Act No . 1-1 r:- � IL (

DECISION - CTA CASE NO. 3416 -9- 5186 are entitled to the s~<J.me tax exempt_ion benefits under the J'ax Code. Such being the case, like the latter, the former should not also shoulder the contractor's tax which cot~ld be passed on it legally by its cont:ractor. In view thereof, the gross receipts derived by C. E. Construc tion Corpo ration and Na.r:steel Corporation from the construction of your transmission plant in Canlubang, Laguna , are exempt fr om the 3.9t contractor's tax. Since there ~ ::> no showing that .respondent Comm .i ss .ion e:r lns revoked, modified or reversed this ruling of Feb.n~a ry 4, 1974, or d e nied petition e r ' s claim for refund/ tax credit of P2,482,042.35 involve d in this case on the ground that the exempti on from contractor ' s t:ax w1der Section 205 ( 16) of the applicable Na ti ona .Z Internal Revenue Code covers only firms r egistered under Republi c Act No. 5186, and the pr .ivil ege cannot be made t o apply to th ose registered unde r Republic Act No. 6135, like p et i t .i on e r herein, the very l ogical view is th at the Burea u of In terna .l Revenue adheres to its rUling that registered pioneer enterprises u!'lder Republic Act No. 6135 are exempt from the contractor's tax in the same manner as those registered under Republic Act No. 5186. Respondent haB n o t even allege:.xl in his tmswer to the petition

DECI S I ON -- CTA CA S E NO. 3416 - 10 - f c1 r re ~'i e w f il e d in thi s cas e th e d e f e n se that since Secti on 2 05 (16) o f the appli ca bl e Tax Code mentions firm s r egistered under Republic Act No. 5186, the privil ege of tax exempti on cann o t be made to apply to enterpri ses r egistere d under Republic Act No. 6135 s uch a s p e titioner h e r e in. While such a~�gumen t r-1as ave rre d in r esponde nt ,s memo randum, and on the assumpti on that it may be c onsidere d as revocation o f th e Fe bruary 4, .1974 r uling as far as this cas e ~ s con cern e d, Secti on 327 (n o w Sec ti on 278 ) o f the Nat i on a l In te rnal Re ve nu e Co d e e x pressly provides tha t an y r e v ocat i on, mo difi c ati on or re ~'ers al of any ru .lin gs or c irc ulars p~�omul ga t e d by th e Comm.i ss i on e r o f In t e r n a l Re venue cann o t be g i ven r e troac tive a ppl icati on i f th e r evocation , mo d i fica ti on o r r e r,'ersa J4 r-1i l .l be pre ju dicJa l t o t h e t axpaye r , e xce pt i n three ca Be s which admi t t e dly .u�e n o t appli c able t o p e t .i t i o ner . l-Ye 11 0 signifi c ance t;here f or e in the c<.1h t e nti on o f ��espondent that it was only upon the advent of Executive Orde r No. 815 promulgated on thme 2 6, 1982 , entitled "To Safeguard and Promote the De v e l opme nt of the Philippine Semiconductor El ec troni cs Indu s try .. , r-1hen semi conductor ~rc I t..:

DEr:ISION - CTA CASE NO . 34.16 - 11 - electronics firms with registration under RepubLic Act No. 613/i r,.re_re extended the privilege of exemption from contractor's tax. The peremptory requ _iremen ts of state pol icy th l3. t would stress the urgency to actively encourage, promote and diversify exports to the fuLlest extent possible in order to atta _in production and employment, increase foreign exchange and hasten the econ omic development of the nation as d ecla:red in Section 2 o.f Republic Act No. 6135, quoted above, r,.rou .ld require for the full and uncondi tl onal compliance r,.ri th the language of Section 7 of said Republic Act No. 6135, SYPr.Q.. The rule .is r-vell established that the terms of the statute provide the safest guide as to the statutory policy, to r,rhich obedience is due and from r,.rhlch dev.iat:i(f)n is not allowable. (Padilla vs. City of Pasay, L-24039, June 29, 1962, 23 SCRA 1349; Commissioner of Customs vs. Court of Tax Appeals, L- 48144 - 47, June 28, 1988.) As ,;~ptly st~"lted by p e titioner, the isstuwce of Executive Order No . 815 dated thme 26, 1982 is a recognition of our government �s concern for the growth and development of otu� export industry.

DECISION - CTA CASE NO . 34 .l 6 - 12 - WHEREFORE, finding the claim of petitioner Te .l e fun.k en Semiconductor (Philippin e s), Inc., well ta.ken t.IJ e r e fund/tax c .r e di t of th e amo unt sought is her e by g ranted. No costs. SO ORDERED . Qu ezon C.ity , Metro Nani la, Decembe r 28, .1 988 . AlfANTE ILLER Presiding J udge NE CONCUR: ----c. ROAQUIN <Judge 7C

DECISION - CTA CASE NO. 3416 - 13 - CER TIFI CATION I hereby certify that this decision Wl~s reached afte.r due consultation among the membe.rs of the CotJ.rt of Tax Appeals in accon:fance with Section 13, Article VIII of the Constitution . AMANTE PTesiding tludge Court of Tax Appeals �