CTA Case No. 4297 (Decision)

- REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY TMX PHILIPPINES, INC., Petitioner, - versus - C.T.A. CASE NO. 4297 COMMISSIONER OF INTERNAL .) REVENUE, Respondent. X- - - - - - - - - - - X D E C I S I Cl N The present action is a claim �or tax credit in . the amount o� P298, 724. 90 which is equivalent to 20X sales taxes paid on suppl.ies and raw � material.s to which Petitioner, a registered zone export enterprise, is all.egedl.y entitled under Presidential. Decree No. 66, the Law Creating The Export Processing Zone Authority And Revising Republ.ic Act No. 5490. Petitioner is a dul.y organized Philippine Corporation engaged in the 'J ,... A r..,tJO j

DECISION - C.T.A. CASE NO . 4297 - 2- manufacture o� watches exclusively exported to and sold in foreign ma rket s with offices at the Export Processing Zone Authority <EPZA >, Mactan Airport Road, Lapu-Lapu City. On various dates within the period fro~ January 1, 1986 to December 31, 1986, Petitioner purchased packaging materials �or its watches consist ing of corrugated cartons from local suppliers and paid a twenty percent <20%) sales tax on such purchases, separately billed by the suppliers in the aggregate amount o� P298,724.90. Respondent has not acted upon Petitioner's application �or tax credit filed on June 18, 1987 pursuant to P.O. 66, as amended, creating the Ex port 1 Proceaaing Zone Autho rity. Hence, this Petition �or Review filed on September 13, 1988. In ita claim for tax credit, Petitioner relied on Sec. 18(i) of Presidential Decree No. 66, as amended.

DECISION - C.T.A. CASE NO. 4297 -3- Counsel for Petitioner is admonished for taking the orders of this Court lightly by filing her memorandum beyond the reglementary period without even the courtesy of filing a motion to extend the time therefore. Such a memorandum filed beyond the reglementary period is nothing more than a mere scrap of paper. Respondent, on the other hand. did not file his own memorandum. There are two issues to be resolved in the case at bar, namely: 1. Whether Petitioner is entitled to tax credit of sales taxes paid on packaging materials~ and 2. Whether the claim of Petitioner for tax credit has prescribed. P. D. l 66 as Section 18 <i > of the No. amended by P. D. No. 1449, s peaks of a registered zone enterprise being entitled to a tax credit equivalent to sales taxes paid on supplies. raw materials and send- manufactured products used in the production of export products and forming part thereof, thus:

DECISION - C.T.A. CASE NO. 4297 -4- " ( i > Tax Cr edit. - Every registered zone enterprise shall enjoy a tax credit equivalent to the sales, c ompensating and specific taxes and duties on supplies, raw materials and semi-manufactured products used in the manufacture, processing or production of its export products and forming part thereof; Provided, That the tax credit shall accrue to the registered zone enterprise only after the final product has in fact been exported. The tax credit shall be used by the Secretary of Finance, upon presentation of the export documents, and shall be in lieu of refunds. It may be used to pay taxes, duties, charges and fees due to the national government in connection with its operations. A tax credit shall be non-transferable, except when such transfer is by hereditary succession or occurs by operation of law; it may be used by the person or entity to whom it is issued only for as long as it enjoys the benefits and incentives provided for in this Decree; and may not be used so as to result in a refund." There is no question that packaging material.s constitute suppl.ies which form part of the export product under the Rul.es and Regulations issued to impl.ement Executive Order No. 226, otherwise known as Omnibus Investments Code, pertinent portion of which reads: "For purposes of article 39(k) of the Code, packaging materials and supplies necessary to put the product into exportable form shall constitute part of such export product. " [Sec. 1 ( j ) , Rule 1 1 Since the Petitioner manufactures watches for export, such watches must 25C /~

DECISION - C.T.A. CASE NO. 4297 -5- necessarily be packed i.n carton boxes to place them i.n exportable �orm. The only legal requirement �or Petitioner to be enti. tled to such tax credi.t i.e the actual use o� such corrugated cartons as packaging materials �or i.ts products exported abroad vhi.ch vas clearly established by Petitioner under Exhi.bi.ts "J" to "V-1". Hence, the Peti.ti.oner being a registered zone export enterprise <Exh. "N"> should be entitled to the tax credit such right to the tax credit i.e �urther buttressed by Sec. 17 o� the . same P.O. 66 vhi.ch provides that "SEC. 17. Tax Treatment of Merchandise in the Zone. - <1> Except as otherw~se provided in this Decree, foreign and domestic merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description, except those prohibited by law, brought into the Zone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed, manipulated, manufactured, mixed with foreign or domestic merchandise or used whether directly or indirectly in such activity, !?h~.J._J. not be s~_Qj�'_9t tQ. CUE.~j:.OmE!. and___!_!}j:~_:[.Q~l_:revenue laws anQ. re_gulationf!! nq!:__ t _q___!p_qal tax ordinance!'!, the :Q_!'ovisions of law to the contrary ~Qtwith~tandi~" <Underscoring supplied> I /~

DECISION C.T.A. CASE NO. 4297 - 6- Petitioner's right howeverr to claim �or refund o� taxes paid �or the period prior to September prescribed inasmuch as the same was filed after the lapse o� the reglementary period o� two <2 > years �rom the dat.e o� payment. o� the tax. Petit.ioner 's allegation t.hat. the t.wo-year prescriptive period under Sec. 230 o� the Tax Code does not. apply t.o claims �or tax credit or indirect. taxes passed on to purchasers o� goods ari.si.ng under special laws simply does not. hold water. Not only once did t.he High Court. rule issues o� similar nature in this wise: "Sections 306 <nov Sec. 230> and 309 of the NIRC were intended to govern all kinds ~f refunds of internal revenue taxes - those taxes imposed and collected _! pursuant to the NIRC. Thus this Court stated that 'this p~ovision' referring to Sec. 306 <nov 230> 'which is mandatory is not su~ect to ~alification and hence i t ~P..P.lies regardless of th~_qQndi t:i,ons under whi.ph __...._p_~_yment has been m.~Q.~' ". <Underscoring supplied; Comm. of Internal Revenue v. Insular Lumber Co., 21 SCRA 1240 citing Guagua Electric Light Plant Co., v. Call. of Internal Revenue and Court of tax Appeals 59 0. G. 4207, 4210 citied in Gonzales v. CTA and CIR May 26, 1965} To hold otherwise is t.o thwart. t.he aforesaid intention and spirit. under1yin~ said provisions. II 2J LJ

DECISION - C.T.A. CASE NO. 4297 -7- To submit that the app1icab1e prescriptive period as a11eged by Petitioner, is ten <10) years as provided for in paragraph <2> of Artic1e 1144 of the Civil. Code is contrary to pub1:lc po1:lcy. The High Court in the same Insu1ar Lumber case reasoned in this wise: "Moreover, public policy demands that tax adjustments be made as early and expeditiously as possible. The reason is that it is on taxes that the government depends for its operation and that any uncertainty or controversy on those matters will somehow impair the smooth functioning of the governmental machinery. Lengthening, therefore, of the period of limitations on refund from two to ten years would be adverse to public policy. Fi nally, when our legislators codified our internal revenue laws in 1939 they intended to concentrate national tax matters in the Tax Code. For Us- to look elsewhere :for provisions governing taxes would be to veer away from such legislative intent." Just so and a~tJ.y enough the ruJ.:lng J.ends settJ.ing eJ.oquence to t.he second issue raised in the instant case. Accordingly, onJ.y those aa1es paid through RepubJ.ic Corrugated Cartons =a=-=f=-t=-=:e:..r::.----=S=e'-"=p-t=-e=:..:m=b:..e::=-r=---=1c..3::::..~r.._____,1=-9=;..8;: 6 and wh :lch have been formaJ.J.y offered wouJ.d be cred:lted to the Petitioner, nameJ.y: 2GJ.

DECISION C.T.A. CASE NO. 4297 -8- Exhibit Invoice Invoice Amount of Date Tax <20Y.) No. __H_Q_!_ _ p 120.33 10-17-86 H-35 18540 09-18-86 211.67 10-17 -86 211. 67 H-36 18361 10- 17 -86 105.00 12-03-86 H-37 18542 11-18-86 211.67 211. 67 H- 3 8 18541 P1!072.01 H-39 18794 H-40 18697 <see Exhibits> The sales taxes paid through Treasure leland Industrial Corp., on the other hand, simply cannot be considered credited since the evidences particularly the sales invoices were not formally offered by the counsel of the Petitioner for sheer neglect. Such evidences, therefore, although identified during the trial are of no value and cannot be considered by the Court. Section 35, Rule 132 of the Rules of Court i.e categorically clear on this matter thus: "Sec. 35. Offer of evi dencel - The court shal.J. consider flQ_~viden_9~~hich has not ~~n formally offered. The purpose for which the evidence is offered must be specified." <Emphasis supplied> "Where the evidence consisting of documents !fere not formally offered at the hearing, even if they are material to the case, the court the same from the record; it has no authority to consider I. r-" ~ ~ - (:;., v (-.~

DECISION - C.T.A. CASE NO. 4297 -9- them" . <Emphasis supp1ied~ Aya1a de Roxas v. Va1encia. 5 Phi1. 182> WHEREFORE. respondent Commissioner o� Interna1 Revenue is hereby ordered to grant a tax credit to petitioner TMX Phi1ippines. Inc. but on1y �or the amount o� P1. 072.01 representing the sa1es taxes it paid on the purchases o� packaging materia1s to which Petitioner is entit1ed being a registered zone export enterprise pursuant to Presidentia1 Decree No. 66 as amended by Presidentia1 Decree No. 1449. so ORDERED. Quezon City. Metro J1ani1a. March 2 9 / 1993. !' ~ GRUBA MANUEL K Associate Judge WE CONCUR: q ~ \Q,~ ERNESTO D. ACOSTA Judge - ~~4 RAMON 0. D RA Associate J ge I I

DECISION C.T.A. CASE NO. 4297 - 10 - I hereby certify that this decision was reached after due consu1tation between the members of the Court of Tax Appea1s in accordance with Section 13, Artic1e VII of the Constitution. Q~\Q-~ ERNESTO D. ACOSTA Presiding Judge Court o� Tax Appea1s 26 � ~