CTA Case No. 4892 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY PHILIPPINE lUNRN CORPORR.fiON., Petitioner, THE COI'IMISSIDNER OF INTERNAL C. T. A. CASE NO. 4892 REVENUE, % PNOV"DrWi � Respondent. M- - - - - - - - - - - - - - - - - ~- - - M DECISION ,.� 'i. ... ,'. �,�� ':~!. .:� /�':_, - Tlliio ~n\I~Jve1!>-~ ~ rrr~r1'!�~ ~r,~~~\~~ �'"' ~ -~~ ~�' 1 ' �, .,� �, 1 '\ .d :;,.~ �,~< '.. : ''"}ft~ ..' ~0~-� ��punt of '1'�~~6ly r~pr,$vnting accu�ulated refundable input valuv addvd tax (VAT> for the period October 7, 1991 of Philippine Tonan Corporation. � As alleged in its Petition for Review, petitioner is a do�estic corporation duly organized and eHisting un~er the laws of the Ph1lippines. It is an EPZA-registered enterprise, engaged in the �anufacture and ~ale of wat~r supply hardware and household and kitchen equip�ent with addre~s at Mactan EHport Processing Zone, Lapu-Lapu City. It is likewise, a VAT-registered eHporter of goods and a holder of VAT Registration Certificate No. 59-4-001285. 1411

DECISION - C.T.A. Case No. 4892. -2 For. the period from October 7, 1989 to Septe�ber 5, 1991' petitioner allegedly Struct ..wes Corporation <PSC> for services rendered in the supply of labor and materials, of petitioner's factory and office COJBp] eH. Because of these pay�ents to PSC, which is also a VAT-registered supplier of construction petitioner stated that it accumulated a refundable input value added ta:tt in the total amount of P2,23&,422.00. Hence, on November &, 1991, petitioner filed with the Bureau of Internal Revenue an application for ta:tt credit an~/or refund of value added ta:tt paid. As the Bureau has not approved neither denied its application on Dece�ber 23., '1992 petitionel~ filed with this CoUl~t a following special and affirmat~ve d~fenc9s, to wit: 1. Petitione�~' s claim for t"'efund js still under administrativv investigation; 2. The mere allegation of � refundability does not ipso facto �erit a refund of ta:ttes paid and collected; 3. lt is incumbent upon the petitioner to prove that he has complied with the pt"'ovisions of Section 204 (3) and 230 both of the Ta:tt Code, as amended; and 4. Assuming arguendo there has been compliance with the above provision ~f the TaK Code, petitioner's claiM for refund ha; prescribed. Section 230 of the JaK Code, a; amended, eKpressly provides for a two year 14 . ) ..!.~

DECISION - C.T.R. Case No. Tf892. -3 mandatory period within which to file a claia for refund~ thus: "1 n any case, no suit ot~ p�~oceed i ng sh.all be begun aft e�~ the e~piration of two years fro� the date of payment of the ta~ or penalty regardless of any supervening cause that �ay arise after payment; pt~ovided~ ~~x." Issues having been joined, this Court set the case for trial on the merits. In the initial hearings of the case, petit i one�~ and requested that the evidence. The documents which were marked as Exhs. "A" to "CC", were VAT returns which petitioner allegedly filed with the respondent on Nove�ber 20, 1991, as well as numerous receipts apparently issued by PSC covering pay111ents on its construction services rendered to petitioner for the period from October 7, 1989 to Sept e�beJ~ 5, 1991 .. pP� 83-119). Othet~ �'. \' petit i one�~' s ,,: of R~gistration . F\S EPZA vri:J'"* ~pt.' ;.' -�~" ' '�~ <E~h. "EE" >. Letter filed with t~espondent .~equest i ng t~efund of the total a111ount of P2,23E.o,422.00 was also pl~es ent ed and �a�~ ked as Ex h. "FF". The .~est of petit i onet~' s documentat~y evidence wet~e the schedule of payments to PSC (Exh. "GG" >, application fo�~ ta~ i t cJ~ed ft~efund of VAT paid (Exh. "FF-2">, and 1413

DECISION - C.T.R. Case No. 4892. -4 cet~t i ficat ions issued by Citibank and Prudential Bank sales �ade by petit i one�~ (E:Khs. "HH" and "I I", t~espectively>. As its testimonial evidence, petit i one�~ presented only one ( 1) witness in the person of Ms. Ligaya Tinapay, fo�~ the plwpose of that petitioner has a refundable input value added taH for the period 1983 to 1991 and also to identify docu�ents relevant to the claim for refund" <T.S.N. Nove�ber 9, on the pl~adings and the records BIR records>, which she promised to sub�it at a later date <Minutes of CTA hearing held on September 19, l994, p. 125, CTA records>. Unfortunately, however, for reasons unknown to the Court, said BJR records have beco�e part of forgotten lore. For up to the ti�e the case was decision, no such BlR records subMitted by respondent's counsel. At any �~ate, like petitioner's counsel who sub�itted a �e�orandu� to su~port his case, respondent's counsel, at least, filed her own memorandu�.

DECISION - C.T.R. Ca~e No. 4892. - 5- The vital issues needing ventilation in this case are the following: l. Whet hel~ ot~ not petit i onet~' s claim has 2. Whether or not petitioner is entitled to a � refund or ta~ credit of its VAT input ta~~s paid on its domestic purchases of ta~able services rendered in the construction of its factory and office comple~. The issue on prescription was raised by respondent in his Answe�~, when he alleged under paragraph 8 thereof that: , ..~�-:r~ t:~- f,,�iOf.!I,,P~ 7~'fl~!~3"-o~~~~~~~~,�~,~\:~J_~:~pt-gi~;,t:t.'~~~t!~!:p~~J:\~~~~~t~-d-'l:�"�"~--:�-~�.p�v.-��'~q~r.),-!.'~f~ ~rl �t'~\:,P1O} .1 p,~,hfcl.�,l,"~�f1~1~l'"~'~ ~�-� ~n � T.lJtt 't<prei"h' � .�cas;.:: ~ ..Pp,ro..edv,,nc,qr~-etdl-?.t~:::du~rtt.t:J,So~ncarf-a~o'1n.:pH~?ll3w�~~J.t.i�to~�f ��~lf�o;:rhf_"~er,:';:��~.'f_4r�;t~-<�r~f:u:C.fot~ttc:ftfwq�-~,v,.e,!:.ta'r1:4�'_::' llandator~y per-if:lf4 ~i~h~rt, "l:ltfh . to f'f.lel 4� ''clallll for refund, thus: "ln any case, no suit or proceeding shall be begun ~fter the e~piration of two years fro� the date of the ta~ or penalty regardless of any supervening cause that �ay arise after payment; provided, ~~~-' From the above, respondent �aintains that the two- year prescriptive period of the instant case, should be counted from the dates of payment of the input ta~es, as 11andated by Section 230 of' the Ta~ Code. The Court begs to disagree. The proper �1 aw that should apply is Section lOG(c) of the Ta~ Code, 1410

DECISiON - C.T.A. Ca~e No. 4892. - b- considering that the input taxes being clai�ed as refundable or ta~ creditable were fro� acquisition of capital goods, and not fro� input taxes attributable to the goods exported, which was also WJ"Ongfull y ltsed by petitioner as basis of its clai�. Pt"eci se 1y, this was the point emphasized by Atty. Trebiana, counsel for J"espondent, when he conducted the cross-exa�ination of petitioner's witness, Ms. Ligaya Tinapay. Thus: "Q. At any J"at. e, the ta~ sought to be J"efunded is a VAT input tax, l"ight? . A. Yes. �. jiJ._:~ olP �'r\;; , ; . �":�tIa~�~'f~:�:~ ~.,.~f' '~~'!~~ h,�i; n!'l\<i-r"t"i'\ ~:. L~� . t< ' ' lj. vi:r(,;~�i.~p~t ..: f � wilvri :r",-�"~�~ . ��~ : ' ~:he '"\:_� p,~POJ"fl} ~ Ol!, f'll t1 i_ pp i hIt � ) �Hutn ~bntracted~.t~r~ !P~fr_�ct�r ;, for . }'tt;fuir.l , .,pJ J~;~~w-'..�~~.'':p-~r,:.~t,�F~' t""�~ ;~ ~f ;.,, ~P~f.! :f'nd fac-t o�-y, )~igtit?. ' ' t ,.,., �... A. Upon pay�ent of the bills. Q. No. My Question is ~h� contract was for the construct*on of factory pre�tses and officg building? A. Yes. Q. So that is a capital good? The b�Jildings A. But we are only liable for the services. We eMe�pt for our-raw materials and supplies in our production for the services we are liable for the 10~ VAT. o.. My q�Jest ion is the b�J i ld i ng, the office b�Ji ld ing, the factorY 1416

DECISION - C.T.A. Case No. 4892. -7 building are capital goods, right? Capital assets? A. Yes. So in acquisition of capital goods, so the input tax being clai�ed is fro� the acquisition of the capital goods? A. Yes. Q. May 1 read to you the provision of Revenue Regulation No. 5-87 <T. S. N. Hearing, March 25, pp. 14-15) <Underscoring supplied) With th~ ~bove ad�ission by petitioner's witness that the input ta~es were indeed from acquisition of capital assets~ the pertinent provisi?n of Section 106(c) should categorically apply. It states: "~ect ion lQfi~.~ , Rf!Fund'-~ or. fa~ r::ref(i ts oF ~~put ~~~- � . f:.: �� ��' �. ~ � ~~:\, � ~-: ~ ~ ~~kr:.f';J:.r ~� ~-� �.~�;�.-~.~:.. :�: .t f:.'� E)cr . . . .5.� :.:� f.r.:.�...� r; ..' ,� t ~� .,. ,, ., .. ':.'-..t <b> Zero-rated or ~ffectively zero-rate~ sales """ <c> Capital Goods HHH The application for refund �ay be �ade only after the e~oiration of 2 succeeding auarters following the ouarter in which the i�portation or local purchase was made: Pt~ov i ded, That a VAT registered pel~ son who is just co�mencing business may apply for .~ef~md of i np1,.1t taHes \.mdet~ this pat~agt~aph not ear~l iel'� than 180 days fram the date of registration or actual start of business oper~a!;__ions...J_ whichever~ contes later~: Pr~ovided, however, That the aoolication is filed not LU.._ru.:__f;_b.,!_n two <2) yeat"i fr~om the date1 hvr~w in pl~escJ~i brd. HHH" ng <UndrJ~sco�~i suppl i �d>

DECISION - C.T.R. Case No. 48~2. - 8- considel~at ion of the above-stated provision reveals, that in clai�ing a refund/tax credit of input taxes arising fro� acquisition of capital goods, the two-year prescriptive period should be reckoned fro� the expiration of the two succeeding quarters after any of the following quarters, whichever is applicable, namely: (lJ the quarter in which the i�portation was made; � (2) the which the local The instant case i~ covered by ~ttuation nu111ber 2 as stated above, since it involves local purchases of services for the construction of capital assets. the two-year prescriptive period should be counted fro� . the lapse of the two quarters following the quarter in which the purchase was 111ade. Details of the receipt~ of feu� a clearer� deter��inat ion whether� or� not the pay�ents have already prescribed. They are: 1416

DECISION - C.T.A. Case No. 4892. - 9- 1\irked a'i Offici a) Prtihtmrr' !> Rrcript. Nt. Datr bhibih �u� to WU~w inclv'iiVf 1m IO-G7-8'J P ~ 7,U.OOO.OO �v� to �v~� inclv'iive ~ ll-ll-81 'Jll1 000.00 �w~ to �w-'� inclv,.ive l87 12-IS-81 �n1,ooo.oo ~oc� to ~oc-s� inclu'iive 2% 01--1!\-')0 'Jll1000.00 �BBw to "88-s� inclv'iiv~ ~7 Ol--1!\-')0 11 llS.05l.OO �x� to �x-s� inclu'iive ISC! 02-l'J-')0 'Jll, 000. 00 �y� to �y-s� inclv'ii�e 15l 02-I'J-')0 11 llS. 7SJ.OO �z� to �z-s� inclv'iive 16' Ol-JO-'JO 'Jll,OOO.OO �AA� to �RA-s� inclu'>i�e 16:i Ol-JO-'JO I, llS. 7SJ.OO �p� to ~p~� inclo'iive 0,-i!O-'JO au,m.oo Ui6 wgw to �g~w inclv'iiVf 181 07-oJ-')0 a.no.oo �R� to "R-,. inclv'iive 187 07~-')0 $1,000.00 �s� to �s-\� inclv'iive 207 10-GI-')0 I, \'Jl,000.00 .,. to "T~� inclv'iive 237 IC!-l7-')0 611,07\.80 �J� to '�J-s� inclo'iive 2\1 01~-'JI 8J6, 'JIG. 00 "K� to ~-s� inclv'iive J02 Ol-12-'Jl ~~,000.00 "L� to ~-s� inclv'iive Jl\ 05~-'JI ''liO, 000.00 l' � """ to ""-S" inchl'iive 327 06~1 ~ 000,000.00 '�0~7~ "M-S" inci1J!'! ,jl ''II" ~~~ ' :<",. .' incHJhti -~ (t;~~� �o-4� . ~; ~} {~~' Total Paynats t� P9: P'l\,fiQ0,64l.Sf. J1 The first quarter of payments covered those �ade on October 7, 1989, Noven~ber 17, 1989 and Dece�ber' 15, 1989. Two succeeding quarters from this group of pay�ents would be fr�o� Januar�y 1, 1990 to Jt.-ne .JO, 1990. D�n�ing these two quarters, petitioner is prohibited fro� filing its application for refund or taK credit. Petitioner therefore, could file its application for refund only anyt i�e f\"OII Jtdy 1. 199(), date fro� where the co�..mt ing of the two-year prescriptive period should start, up to *Includes l~ E~panded Withholding TaH. 1413

DECISION - C.T.R. Case No. 4892w 10 - .:::J""'lt:.:.n"-'P=--3=()..z.'--'1=-9=9=2C1, Pnd of thP pPt"'i od .. 1n thP ca~P at bat"', pPtitionPr filPd it~ claim with thP B.. l .. R.. 1991, which was well within the period allowed by law for HOWPVPr, it filed it~ clai� with this Co ..wt only on December 23, 1992, which wa~ way beyond J�.me 301 1992. Pay�ents, therefore, �ade for the year 1989 are already barred by prescription. The last proviso of Section 106(c) requi~es that the filing of the application should bP done not later than 2 years fro� the dates herPin prescribed. ThP word "application" was r:r u~'�fl"'Pl"'!l ~~� ,!~ifiii- . S.Jtt�. t~~,r�.~l~ ~~f.f~r ...r.otr PP.l.�:~ ~tH .Jj: :: -~: ~ "'''. �~. ~~ �l~~,~~ .'~" � ,t f i.~tiP..p.4~. ~. f.~l. Q� ~�� iri: i~, ~~~iht~tr~t�~~ ~�� ', 'I �,_ \r .; ::( ' }-, �,: ' ' �, � � ~~t ~l�p �~ . :1. ;' ,�. ' ~ ~ ~ ~ ' j. ~ �~ ~-~ ;- -~ fi~~!"P of ~hv ~t~~~ ~~ t~e j~~j~i�J li~el; tJ...... reason i~ .. ~ . �.~ . ~, . �' �.:�" ...) : ~~ 1: '(' ...~ ',� :' .. �~� ,t �.: � ~t . Section lO&<c> i~ silent on this �attwr and be~ide~, the application in the ad�ini~trative level, for if it rP�ains unscted upon by the Bl R, or if acted upon but adver~e to the taxpayer, the said claim nece~sarily end~ up with this Court. AnothPr important phra~e to bP interpretPd in this provision i~ "from the dates hPrein prP~cribed." We interprPt the word "dates" as refprring to the two quarters following the thrPP (3) pet"'i od~ of mentioned herPinbefore. is provided in the early part of Section 10& (c). 14~U

DECISION - C.T.A. Case No. 48~2. - ll - The last portion of Section 106(c), as interpreted simply states that the filing of the clai� for refund or ta~ cr~dit of input taxes i�posed on capital assets should be filed ad�inistratively and judicially within two years after the lapse of two quarters following any of these periods of ti�e, to wit: (1) quarter in which the i�portation was �ade; <2> quarter in which the local purchase was �ade; and (3) if business has just co��enced, application �ust be filed after the lapse of 180 days fro� the date , gr , , ~�� . . {~ ' . : '� ~ ,~ct.~J�=--~ 1 operations, whichever co~es l~ter. The second batch of pay�ents cover rec~ipt5 dated 1990.. prohibiting petitioner fro� filing its clai� ~ould be 1, 1990 to Septe�bet~ 30, 1990. Hence, the two-yeat~ pt~esct~i pt i ve pet~i od WOJ.tld s t a r t fJ~o� Octobet~ ,1, 1990 and end on Septe�bet~ 30, 1992. For this batch, adt~~inistt-at ive clai!l was r~ightfully filed on Nove�ber 6, 1991 as this was aftet~ Octobet~ l, 1'390. Judicial clai�, howevel~, was filed only on Dece�beJ~ 23, 1992, which was beyond Septe�ber 30, 1992, the deadline of the two-year prescriptive period. Therefore, the pay�ents 11ade during the first quarter of 1990 also prescribed. 14~1

DECISION = C.T.R. Case No. 4892. 12 There was only one pay�ent done for the second 199(). This was covered by Official Receipt No. 1&& dated April 20, 1990. Six �onths preventing petitioner from filing its clai� would be fro� July 1, 199() to December 31, 1990. Thus, the two-yeat~ prescriptive period would begin fro� January 1, 1991 and end on December 31, 1992. Filing of clai� with the B. 1. R. was on November &, 1991. Petition for Review was filed with this Court ori Oece�ber 23, 1992. Both the judicial claims, lPJlf. pitY~~f'~ ~- '' ~'\~~t~.... flp�~ il: a~,, ~ 'fi'~.!" J:f i fL ~~-~ >: ~.~, J~r ~ ~~~ ~ ~ ~~ ! '� !._ f :-~ I :l�t.~ .;:. ;:.~.; ~J ~ :� ~:: I.. j< � On account that the rest of the rece~pts, subject of this case, bear dates much later than April 20, 1990, which pay�ent has just bePn found as not having is undoubtedly safe to�conclude that all the said receipts did not also prescribe. Summing up the issue on pt~esct~iption, only t~eceipts dated October 7, 1989 up to Ma�~ch 30, � 1990 have been pt~escri pt ion. This finding respondent's allegation that "petitioner's purchase of 1989 to Dece�beJ~ 17., 1990 had already prescribed <pat~. 3, p. 5, Respondent's p. 148, 142~

DEC IS 100 - C.T.A. Case No. 4892. - 13 Obviously, the discrepancy arose due to respondent's application of Section 230, instead of Section lO&<c> of the Tax Code. It is the Court's firm belief that the latter provision is the proper applicable law. As regards the second issue, petitioner argues that being an exporter, it is subject to zero rate of VAT. Petitioner has wrongfully anchored its claim on Section lOG<a> of the Tax Code. As We have just stated, the proper law applicable to this case is Section lOG<c>, which speaks of refunds or tax credits of input taxes on capital goods. We will resolve this issue in the light of the first part of the law which reads: ~! ~tJ-=t i on l ~'!' �. . .;... :'��... -~~ 5: ~f:. ~ � @~n~!!~�. ,J~':~fa., � trr~~~, ::.�-~_,�: :;_,.�:,/>~: �-:~�~�, �. C''-: ;:: :� �~":.: �, �:<~. :�; �. �. '� inpt't taM.. <a> ExpDl~t Sales. Hxx (c) Capital goods. A VRT-registered person �ay apply for the i~suance of a t~x credit certificate or refund of input taxe� paid on capital goods i�portrd or locally purchased, to the extent that such input taHrt have not been applied against output taMes. ~xx" <Underscoring supplied) clai�ant, must be able to prove that the input taxes have not been applied against o\�tput taxes. Unluckily, however, for petitioner despite the a�end�ent of all its VAT returns which were all filed on Nove�ber 20, 1991 or just 16 days after it filed its written clai� with the 14~J

DECISION - C.T.R. Case No~ 4892. 14 - B. 1. R. on November G, 1991, petitioner still failed to show this mandatory proof that its input taMes have not been applied against output taMes. � FoJ~ what has been evidently shown in its VAT return for the third quarter of 1991 <Exhibit "1" Petitioner; P� 91, CTA records>, was that the amount of P2,331,872.GG, which was denominated as net creditable input tax was also recorded therein as balance carried to succeeding quarter. In the same return, there was no amount indicated opposite the particulars "tax credit certificate applied for" or "refunds ~pplied for." Thus, when petitioner filed its input t;axe9 to its VAT output taxes in the 51Jcc,eeding quarter. This fact or i~pression remains 1 as there was no proof to the contrary ever presented. Consequently, although only a portion of petitioner's claim has prescribed, the unprescribed part cannot still be granted as the same had already been applied against output taxe5. The Cour't cannot pr-esu.we that in the fourth q �Aar't er' of t�:nt, f)@t l t lOI'HU" cd.c; f\ot �~,t.;,., 'i'ea l i zE> ~11cal ostrllles 4htf ther-efor-e, ther-e we ..-e no outp�At taxes against which input taxes �ay be applied. As borne by the records of the case, petitioner failed to present evidence, e i thel''

DECISION - C.T.R. Case No. 4892. 15 - testi�onial or documentary, to this effect. As a finale, "Ta~ refund partakes of the nature of a ta~ e~e�ption and therefore, cannot be allowed unless granted in the �ost e~plicit and categorical language. The grant of refund privileges �ust be strictly construed against the ta~payet~." (Insular Lu�ber Co. vs. CTA, 104 SCRA 710; CIR vs. Rio Tuba Nickel Mining Corp., 207 SCRA 549) Wf-EREFORE, in view of the fOJ~egoing, the petition is het~eby DENIED. Costs against the petitioner. . SO ORDERED. /t,u. ��.-'<K�,:� -4~- t�~,(.,_.�'�,�,~#tf.~:;:�~~<~�.. ~ ~~ Associate J\.tdge WE CONCUR: ~&.�~ E~~O D. RCOSTR A/ ciate Judge ~~J~

DECISION - C.T.A. Case No. 4892. - lG - CERTIFICRTION 1 hereby certify that this decision was reached after due consultation a�ong the �e�bers of the Court of Tax Appeals in accordance with Section 13, Article Vlll of the Constitution. ~RNE~T~D~A p,~esiding Judge Cotw~ of Tax Appeals 14:::6