CTA Case No. 4623 (Decision)

-- REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS UUEZON CITY BABCOCK-HITACHI <PHILS.) INC.~ Petit i one\'~~ vers\Js C.T.A. CASE N0.4623 THE COMMISSIONER OF INTERNAL REYENUE~ RPspondPnt. X- - - - DECISION PPtitionPr is a rPgistPrPd do�Pstic corporation with principal officE' addrPss at 2305 Pasong Tamo P><tPnsion, Makati, It SE'Pks from rPspondPnt thE' issuancE' .of a tax crPdit cPrtificatP in thE' amount of P3,523,845.17 allPgedly represPnting refund of VAT input taxes paid for thE' period fro� April 1, 1989 to December 31, 1989. It is VAT-rPgistPred with VAT RPgistration No.32A-8- OOGG03. It is likPwise registerPd with the Board of InvPstmPnt as a pionPer enterprise engaged in business as producer of water tube boilers for industrial usagE' and utility power plants. 1441

DECISION C.T.A. CASE NO. 4&23 - 2- It alleges that for the period from April 1 to December 31, 1989, it has accumulated input tax which arose from its domestic purchase of taxable goods and services and importation of capital equipment used in its trade and business. For the said period, quarterly VAT returns which showed zero-rated sales and a creditable input tax in the total amount of P3,523,845.17. �Then it filed with the BJR an application for tax which up to the date of filing the instant petition for review re�ains llmacted upon, hence, this appeal. J~espondent admits the filing by petitioner of an application for tax credit. she asserts that: "4. The present petition is pre�ature because: "a) the clai� fol~ refund of petitione�~ is still pending investigation and consideration before the office of t~espondent; b> no decision has yet been rendered on petitioner's clai� for refund; 5. Petitioner failed to substantiate by proper documents its alleged zero rated sales to serve as basis for its claim for refund of excess input tax; 1442

DECISION C.T.A. CASE NO. 4623 - 3- G. Petitioner likewise failed to show it had strictly complied with the require�ents of Section 204 of the Tax Code in relation to Section 230 thereof. The burden is imposed on petitioner to show compliance with these requirements since a clai� for refund and/or tax credit partakes of the nature of tax exemption which is construed strictly against the claimant <Rainsins, Inc. vs. Auditot~ Gener~al, 25 SCRA 754). " From respondent's answer, spring three <3> questions that need adjudication by this Court, namely: 1. Whether~ or not petition is pt~ematurely filed; 2. Whether or not petitioner failed to substantiate by proper documents its alleged zero rated sales; and 3. Whether or not petitioner had complied with the requirements of Section 204 of the Tax Code in relation to Section 230 thereof. This Court disagrees with respondent's averment that th~ petition at bar is premature. Although the claim may st i 11 be pending investigation and/or consideration by respondent's office, is no legal basis or justification in keeping petitioner endlessly waiting for a decision. Too fundamental is the rule that filing of refund or tax credit claim both in the administrative and judicial levels must be done within two the date of payment. Because of the time element requirement, absence of a decision must not det et~ petitioner from appealing to this Court at the soonest possible time. 1443

DECISION C.T.A. CASE NO. 4&23 - 4- In the case at bar, the two <2> year period is to be reckoned of the periods provided undet~ paragraphs <a>, (b) Ol~ (C) of Section 10& of the TaH Code, whichever is applicable. The strict observance of this two-year period has long been settled in a line of Supreme Court. decisions, one of the111 is hereunde�~ partially quoted: "The clai111 for refund with the Bm~eau of Internal R~venue and the subsequent appeal to ~he Court of TaH Appeals must be filed within the two-year period. If~ however, the Commissioner takes ti111e in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of TaH Appeals before the end of the two- year perind without awaiting the decision of said collector." <Underscoring suppliedi Commissione�~ of lnteJ~nal Revenue vs. Victot~ias Milling Co., Inc., 22 SCRA 12) As regards the second issue, this Cou-.~t aside respondent's contention that petitioner failed to substantiate by proper documents its alleged 2ero rated sales. The transct~ipt of stenographic notes <T. S. N. > taken during the hearing of September 13, 1993 bears the fact �that petitioner presented in Court documentary and testimonial evidence to prove its 2ero rated eMport sales. Pet~t inent portion of said t.s.n. 144�t

DECISION C.T.A. CASE NO. 4623 - 5- "ATTY. VILLANUEVA Q. Specifically, Ms. Witness, for the pel'~iod April to Dece�ber 1989, how much did your company earn from your export sales? A. U.S. $135,043.00. Q. I a� showing you this document previously mal~ked and compared as Exhibit "NG" for the petitioner, will you please identify what this docu�ent is? A. This is the schedule of our export sales, also schedule of inward remittance as per export earnings. Q. Likewise, can you please tell for the recoJ~d what is the amount appearing below which has been previously ma�~ked as Exhibit "NG-1" for the petitioner? A. U.S� � 135,043.00. Q. And what is this u.s. $135,043.00 rep�~esent s, Ms. Witness? A. This is the a�ount of our export sales as of December 31, 1989. Q. Is this an original OJ~ a photocopy, Ms. Witness? A. Photocopy only. Q. And where is the original? A. We submitted it to the B. I. R. when we filed our VAT refund. ATTY. VILLANUEVA Your Hono~s, �ay we manifest likewise that this schedule of inward re�ittance for export and eal~nings pl~evioll.lsly mal~kPd as Exhibit "NG" forms part of the BJR records, Your Honors. 1440

DECISION C.T.A. CASE NO. 4623 - 6- Q. And on the bottom of this document appears a signature. Will you please identify this signature A. Signature of our former treasurer Yoiiro Yuri. ATTY. VILLANUEVA Your Honors, may we request that the signature of Yojiro Yuri be marked as Exhibit "NG-2" for the petitioner," <Underscor~ing supplied; T.S.N. September 13, 1993 hearing, pp. 17-19) Fro� the foregoing, it is clearly stated that petitioner's proof of its zero-rated sales is the schedule of its export sales which was marked as its Exh i b i t "NG" � Although what was sub�itted in Court was merely a photocopy, petitioner's witness explained in open Court that the original copy of said document was submitted to the BIR when it filed its clai�. This prompted petitioner's counsel to manifest that aforesaid document forms part of the BIR records. Sad to state however, is the fact that the BIR records had not been transmitted to this Court up to the time this case was submitted for decision. Be that as it may, Exhibit "NG" of petitioner is ad�issible, it being properly identified by petitioner's witness and there being no objection interposed by respondent's counsel insofar~ as its existence is concerned, as stated on Petitioner's ,Offel'' of Evidence, ( p. 429, CTA records).

DECISION C.T.A. CASE NO. 4623 -7 To corroborate EHhibit "NG", petitioner likewi~e pre~ented in Court EHhibit~ "NH" to "NH-2" which are ceJ~t i f i cation~ is~1.1ed by Ri.zal Banking <RCBC> a~ to the amount of eHchange remittance receipt~ i~~ued in favor of petitioner. Pertinent portions of the T.S.N. taken d1.wing the September 13, 1993 hearing are again quoted "0. 'Ms. Witness, yo1.1 mentioned that yout~ company eHport 100~ of it~ product~ abroad. Will you please tell us whether the pl~oceed~ of these eHpot~t~ have been inwardly remitted to the Philippines? A. Ye~. o. And what have you to ~how these inward r~emittances? A. Bank certification~ fro� RCBC. 0. Do you have anything to show, Ms. Witness? A. This is the bank certification issued by RCBC. 0. Is this the original or photocopy? A. Photocopy only. 0. Where is the original, M~. Witness? A. We submitted it to the BlR when we filed our VAT refund claim~." <Underscoring suppliedl ~., pp. 13~14) Winding up on the second issue, this Court rules that the submission of schedule of eKport sales backed up

DECISION C.T.A. CASE NO. 4623 - 8- by RCBC certifications is sufficient enough to prove that petitioner has indeed t~eal i zed zero-rated sales. Although E)(hibit "NG" apparently may be said to be self- serving, as it has been prepared and signed by a certain Yojiro Yuri, treasurer of petit i onPr, the certifications of RCBC are accorded credence by this Court. It is of common knowledge that bank transactions are usually treated with strict confidentiality, and as such, once th~y are divulged in Court, more often than not, considered reliable or believed to be true. The third issue to be ventilated concerns petitioner's alleged failm~e to comply with the requirements of Section 204 in relation to Section 230 of the Ta)( Code. Section 204 require ta)(payers to file written claims for credit or refund with the B. I.R. within two years from the payment of the ta)(. Section 230 mandates the filing of a suit for refund/ta)( credit with this Court also within the two-year period from the date of payment of ta)(. Respondent's averment that petitioner �ade no compliance with the aforesaid provisions is a blatant lhP records of the casP bear witness to the fact that pPtitioner almost fully complied with the subject 14<..1.. u-

DECISION C.T.A. CASE NO. 4&23 - 9- provisions of the Ta~ Code. The period covered by petitioner's claim is from April 1, 1989 to December 31, 1989. Various invoices of input ta~es paid bear dates which are within the said period. Petitioner filed a written claim with the VAT Division of the B.I.R. on August 14, 1990 <p. 1G, CTA records). Then on June 27, 1991 it filed its petition for review with this Court. Apparently, it was only in the filing of its clai� in the judicial 1eve 1 that petitioner committed a three-month de 1ay. This is not however, fatal to the entire clai�. If at a 11, only claims covering the period from April 1, 1989 to June 27, 1989 have prescribed. The Court has still jurisdiction over claims beyond June 27, 1989 or fl~om the latter date up to Dece�ber 31, 1989. �The Court takes full cognizance of the mandatory requirements provided under Section 204 and 230 when it co�es to refund or tax credit of all kinds of taxes. However, if the refund or tax credit involves VAT input taxes, the Court strongly upholds the additional applicability of Section lOG of the Ta~ Code. This pt~ovides: "Section lOG. ReFunds o,..� tax ct~edits oF input taK. <a> Exoort Sales.-An e~porte�~ who is a VAT-registered person may within two vears frgm the date of exportation, apply for the issuance 1449

DECISION C.T.A. CASE NO. 4623 - 10 - of a taH credit certificate or refund of the inout tax attributable to the goods eHported, to the eKtent that such input tax has not been applied to output tax and upon presentation of proof that the foreign exchange proceeds has been accounted for in accordance with the regulations of the Central Bank of the Philippines. (b) Zero-rated or effectively zero-rated sales.-Any person, except those covered by paragraph <a> above, whose sales are zero-rated or are effectively zero-rated may, within two years after the close of the quarter when such sales were made, apply for the issuance of a tax credit certificate or refund of the input taxes attributable to such sales to the extent that such input taH has not been applied against output tax. <c> Capital goods. -A VAT-t~egi st ered person May apply for the issuance of a tax credit certificate or refund of inout taxes paid on caoital goods imoorted or locally purchased, to the extent that such input taHes have not been applied against output taxes. The application for refund may be �ade only after the expiration of 2 succeeding quarters following the quarter in which the imoortation or local purchase was made: Provided, that a VAT-registered person who is just commencing business may apply for refund of input taxes under this paragraph not earlier than 180 days from the date of registration or actual start of business operations, whichever comes later; Provided, however, that the application is filed not later than 2 years from the dates herein prescribed. xxx." <Underscoring supplied> A careful perusal of Sections 204, 230 and 106 of the Tax Code reveals that if the refund or tax credit claim involves any kind of internal revenue tax eHcept 1450

DECISION C. T. A. CASE NO. 4623 - ll - VAT input tax, there are three important dates to consider, to wit: 1. date of payment of tax being claimed as refundable or creditable; 2. date of filing a written claim for tax refund/credit with the B.I.R.; and 3. date of filing a petition for review with this Court. Dates of accomplishing numbers 2 and 3 should be within two years from date number 1, date of payment of tax (CommissionPt~ of IntPrnal RevpnuP vs. Victorias Milling Co., Inc. 22 SCRA 12>. It m1..1st be notpd that this is a gPneral rulE> for it has sevPral PMCPptions as ruled by the SuprPmP Court. HowPvPr, if thE> refund or tax crpdit clai� covPrs VAT input taxPs, thE> aforPmPntionpd thrPe (3) datps arE> still considered in addition to othPr datPs provided under Section 1 OE.. Thus, if the claim is based on ;::C..::aup~i..:t..::a::..:l~--=a~o~o.,.d:...::s imported or locally p1..wchased [par. (c)' Ibid. J, the filing of claim �ust be made within two <2> years from the date of payment of the input taxes, and the date after the eKpiration of 2 succeeding quarters following the quarter in which the i�portation or local purchase was made. The eKception to this is when the VAT-registered person has just commPnced business, he may 145J.

DECISION C.T.A. CASE NO. 4623 - 12 - apply for refund not earlier than 180 days from the date of .registration or actual start of business operation, whichever comes la~er. Aside from the dates just elucidated, special concern �ust also be accorded to the other requirement provided under paragraphs (a) and (b) of Section 6 that the input taxes being claimed as refundable/ta>e creditable should be attributable to the goods exported or to the zero-rated or effectively zero-rated sales. It is in the light of the foregoing discussions, that this Court will finally adjudicate if petitioner is entitled to the entire amount of P3,523,145.17. Aft et~ a thorough examination of the invoices presented and submitted in Court as evidence for petitioner, we find that only the total amount of P294,&83.00 representing input taxes on capital goods imported from September 1989 to October 1989 can be refunded. ln its application for VAT credit/refund <Exhibit "D", p.139, CTA records), petitioner clearly specified the period covered as September 1989 to October 1989. Breakdown or details of said refundable amount are shown her~eundet~: Datt O.R. No. Particulars E~. Input Taxrs Paid 09-15-6'1 ~76liJ'M Steel platt and stalltss stttl tubt "~ p 9, 1~.00 09-15--el'f 1?7&1980 Electric.l cables and to�l cabinet N-2 187,393.00

DECISION C.T.R. CASE NO. 4623 - 13 09-15-89 2761986 Elrctrical aatrrials D-2 2, 720.00 1o-30-89 289e92~ 88,424.00 Jo-30-89 28~ Elrctrical 1atrrials J.l-2 7.017.00 ~trrials for rqvip1rnt trsting ~2 ~.68l.OO J 0 J Al The purchases of capital goods which were not clai�ed administratively cannot be refunded. These are e)(hibits: R-2, Z, AF, AS, AR, AS, BC, BD, BE, BF, BK, BL, ex, CY, DA, DB, DC, DD, DE, DM, DO, DS, DT, DW, DZ, EA, EB, EC, ED, EF, EI, FA, FT, FU, GC, GI, BR, GW, IE, IH, I I, IN, I z, JG, JL, JN, NO, JR, KD, KX, LW, and MP. Petit i one1~' s claim based on e><port sales [Sec. 106 (a) J' cannot likewise be gt~ant ed. The e><hibits or invoices presented do not pet~tain to pt,.u~chases of goods and services that are attributable to the goods e><ported. These e><hibits at~e e><penses for either of the following: REPAIRS AND MAINTENANCE ACCOUNT: X, AN, AW, AX, AY, AZ, BA, BB, BN, BO, BO, BU, BY, CD, CG, CM, CP, cw, DN, DX, DY, EL, ES, ET, FP, FO., BE, HK, HL, HT, HU, HY, IK, JC, JD, JE, JW, JX, JY, KN, KP, KO, KO, KS, LN, LZ, MF SUPPLIES: CF, CK, CL, DH, DI, DJ, w, BM, BP, BR, BT, BX, CA, CB, EH, EJ, EK, EX, EY, EZ, CN, co, co, cs, CT., cu, cv, DF, DB, FK, FL, FN, SA, GB, GD, DK, DL, DO, DP, DR, DU, DV, EE, EG, EM, EN, EO, EP, EO, ER, EU, EV., EW, GP, GO, ss, FB, FC, FD, DE, FF, FG, FH, FI, FJ, FM, FO, FR, FS, FV, FW, FX, FY, FZ, HE, HF., HB, SF, GG, GN, GJ, BK, BL, GM, GN., so, ST., BU., GV., GX, BY, BZ, HB., HC., HD., 14b0

DECISION C. T. A. CASE NO. 4623 - 14 - HH, HI, HJ, HM, HN, HP, HQ, HR, HS, HV, HW, HX, HZ, IA, lB, IC, ID, IF, IG, lH, IJ, lK, 1M, IL, IO, IP, IQ, IS, IT IU, IV, IW, I X, IV, JA, JB, JF, JH, J I' JJ, JK, JM, JP, JS, JT, JU, JV, JZ, KA, KB, KC, KE, KF, KG, KH, KJ, KI, KK, KL, KM, KR, KU, KT, KV, KW, KY, KZ, LA, LB, LC, LD, LE, LF, LG, LH, L I, LM, LO, LP, LQ, LR, LS, LT, LU, LV, LX, LV, MA, MB, MC, MD, ME, MG, MH, MI, MJ, MK, ML, MM, MO, MN, MQ, MS, MT, MU, MR, MV, MW, MX, MY, MZ, NA, NB, NC, ND, NE, NF The above invoices covered expenses i ncurJ~ed fol~: typesetting and stl~i ppi ng cha�~ges; photo pl~ocessing services; :xet~o:x sel~vices; p1,.1rchase> of pe>tty cash vouchet~s, check vouchers, acknowledgment receipts, 1 ett er head stat i onari es, envelopes, calling cards, folders and lots of various kinds of office supplies. CAR RENTAL: T, U, V, AC, AD, AH, AI, AJ, IK, IL, IM, AP, AT, AU, AV SECURITY SERVICES: BS, BY, CD, CG, CM, CP DELIVERY SERVICES: Y, AE The first invoice or E:xh. "Y" refe�~s to trucking service fee paid for the delivery of drafting stools and tables to Babcock Office in Bauan, Batangas. The second invoice or E:xh. service� fee paid for the delivery of Babcock-Hitachi

DECISION C.T.A. CASE NO. 4623 - 15 - drafting machine, locker cabinet and drawing paper cabinet. VISA FEES: AQ, BG, BH, BI, BJ These invoices pertain to service fees and visa fees paid fot~ the eHtensions of ACR's of Ym~i /Yoj i ro; Imai/Munesaburo; and Tamura/Hajime. MANPOWER/JANITORIAL SERVICES: CH, CI, CJ X-RAY: AO EHhibits "HO" and "JO" are not also refundable as they are not VAT invoices. WHEREFORE, in view of the foregoing, the clai� fot~ taH credit is hereby granted but only in the amo1..mt of P294,G83.00. Respondent is hereby ordered to issue taH cet~tificate credit I so ORDERED. in said amount in fj.or of petitioner. /!~ ~ I RAMON o. DE / Associate 14~5

DECISION - 16 - C.T.A. CASE NO. 4623 WE CONCUR: ~ ~ 12 � C>w,\-... ERNESTO D. ACOSTA CERTIFICATION I hereby certify that the decision was reached after due consultatio~ a�ong the members of the Court of Ta~ Appeals in accordance with Section 13, Article VIII of the Constitution. <{~-Q~Q~ ERNESTO D. ACOSTA PJ~esiding Judge 14~8