TBG DEVELOPMENT PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBliC IF TIE PHiliPPINES Coon ol Tax Appeals QIUINCITY SECI/18 DN/S/111 TBG DEVELOPMENT C.T.A. CASE NO. 6852 PHILIPPINES, INC., Petitioner, Members: -versus- CASTANEDA, JR., Chairperson UY, and PALANCA-ENRIQUEZ, JJ. COMMISSIONER OF INTERNAL Prom uIgated: REVENUE, JUN 2 ~ Respondent. x---------------------------------------------------------------------------~-------------x DECISION CASTANEDA, JR., J..: Before Us is a Petition for Review seeking a refund or issuance of a tax credit certificate in the amount of P4,058,483.86 allegedly representing unutilized input value-added tax paid on the purchase of a parcel of land in the 4th quarter of taxable year 2001 . TBG Development Philippines, Inc. ("petitioner'') is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines with principal office at the 30th Floor, Citibank Tower, 8741 Paseo de

DECISION C.T.A. CASE NO. 6852 Page 2 of9 Roxas, Makati City. It is engaged in the real estate business, specifically in the purchase, development, subdivision and sale of real estate. As such , petitioner is registered with the Bureau of Internal Revenue ("BIR") as a value-added tax ("VAT") taxpayer evidenced by Certificate Registration No. 9RC0000120885.1 The Commissioner of Internal Revenue ("respondent"), on the other hand , is tasked , among others, to act upon and approve claims for refund or tax credit under the 1997 National Internal Revenue Code ("NIRC"), as amended , with office address at the 5th Floor, BIR National Office Building , Agham Road , Diliman , Quezon City. On December 12, 2001 , petitioner purchased from the First Philippine Industrial Park Inc. a parcel of land situated in the First Philippine Industrial Park in the Municipality of Sto. Tomas, Batangas.2 For the 4th quarter of taxable year 2001 , petitioner filed its Quarterly VAT Return declaring an input VAT in the amount of P4,058,483.86.3 On December 29, 2003, petitioner filed a claim for refund with the BIR of alleged unutilized input VAT for the 4th quarter of taxable year 2001 in the sum of P4 ,058 ,483 .86 .4 The inaction of the respondent on petitioner's claim for refund prompted the latter to elevate the case before this Court on January 23, 2004.5 In Answer to the Petition , respondent raised the following Special and Affirmative Defenses: 1 Pars. 1 & 3, Statement of Facts Admitted, Rollo, pp. 69 & 70; Exhibit B 2 Par. 4, Statement of Facts Admitted, Rollo, p . 70; Exhibits C, D & E 3 Par. 6, Statement of Facts Admitted, Rollo, p. 70; Exhibit F 4 Par. 7, Statement of Facts Admitted, Rollo, pp. 70 & 71 s Rollo, p .1; par. 8, Statement of Facts Admitted, Rollo, p. 71

DECISION C.T.A. CASE NO. 6852 Page 3 of9 4. Petitioner failed to demonstrate that the tax subject of the case at bar was erroneously or illegally collected; 5. Taxes paid and collected are presumed to have been made in accordance with law and regulations, hence, not refundable; 6. In an action for tax refund/credit, the burden of proof is on the taxpayer to establish its right to refund and failure to adduce sufficient proof is fatal to the action for tax refund/credit; 7. It is incumbent upon the petitioner to show that it has complied with the provisions of Section 204 in relation to Section 229 of the Tax Code, as amended as well as the requirements provided for in Revenue Regulations No. 5-87 as amended by Revenue Regulations No. 3-88 and Revenue Regulations No. 7-95, as amended; and 8. Claims for refund are construed strictly against the claimant for the same partakes the nature of exemption from taxation.6 The parties jointly stipulated on the following issues to be resolved by this Court: 1. Whether or not petitioner has unuti �zed input VAT in the amount of P4,058,483.86 on its -'alleged purchases of capital goods for the 4th quarter of taxable year 2001 ; 2. Whether or not the purchases on which the above P4,058,483.86 input VAT were paid are considered as capital goods; 3. Whether or not the purchases on which the above P4,058,483.86 input VAT were paid are used by petitioner in its VAT taxable business; 4. Whether or not the above P4,058,483.86 input VAT on capital goods has not been applied/credited against any output VAT; and 5. Whether or not petitioner's claim for refund/tax credit allegedly representing input VAT for the 4th quarter of taxable year 2001 in the amount of P4,058,483.86 is substantiated by documentary evidence.7 6 Rollo, p. 34 7 Statement of Issues Admitted, Rollo, p . 71

DECISION C.T.A. CASE NO . 6852 Page 4 of9 All the above issues center on whether or not petitioner is entitled to a refund/tax credit of the amount of P4,058,483.86 allegedly representing unutilized input VAT paid on its purchase of a parcel of land in the 41h quarter of taxable year 2001 . Petitioner anchors its claim on Sections 11 O(B) and 112(8) of the 1997 NIRC, as amended , and on Section 4.106-1 (c) of Revenue Regulations No. 7-95, to wit: SEC. 110. Tax Credits.- XXX XXX XXX "(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters. Any input tax attributable to the purchase of capital goods or to zero- rated sales by a VAT registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112. SEC. 112. Refunds or Tax Credits of Input Tax. - XXX XXX XXX (B) Capital goods. - A VAT registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes. The application may be made only within two (2) years after the close of the taxable quarter when the importation or purchase was made. SEC.4.106-1. Refunds or tax credits of input tax.- (a) x x x XXX XXX XXX (c) Land- Only a VAT registered person may apply for the issuance of a tax credit certificate or refund of input taxes on land purchased to the extent that such input has not been applied to output tax. The application should be made within two (2) years after the close of the taxable quarter when the purchase was made. @

DECISION C.T.A. CASE NO. 6852 Page 5 of9 Refund of input taxes on land shall be allowed to the extent that such land is used in VAT taxable business. Petitioner likewise relies upon the cases of KBP Realty Estate Corporation vs. Commissioner of Internal Revenue8 and Concepcion-Carrier Realty Holdings, Inc. vs. Commissioner of Internal Revenue,9 wherein We held that input VAT on the purchase of a parcel of land may be the proper subject of a claim for refund . The taxpayer has only to prove compliance with the following requisites : 1. That it is VAT-registered person; 2. That it purchased a parcel of land ; 3. That the purchase of a land is substantiated by sufficient evidence; 4. That the input taxes have not been applied against the output taxes; 5. That the application for the refund of unutilized or excess creditable input VAT arising from the purchase of land has been made within two (2) years after the close of the taxable quarter when the purchase was made; and 6. That the land subject of the purchase was used by the taxpayer/applicant in his VAT taxable business. Petitioner is a VAT-registered person . This fact is undisputed as the parties so stipulated and as shown in petitioner's Certificate of Registration issued by the 81 R on November 26, 2001 .10 As regards the second and third requirements , records reveal that petitioner purchased a parcel of land from First Philippine Industrial Park, Inc. on December 12, 2001 for a consideration of P40,584,838.55 (with US dollar equivalent of 780,928.20) and paid the related input VAT thereon in the amount of P4,058,438.86 (with US dollar equivalent of 78,092.82) as s CTA Case No. 6035, May 15,2002 9 CTA Case No. 6137, February 17, 2003 lO Par. 3, Statement of Facts Admitted & Exhibit B

DECISION C.T.A. CASE NO. 6852 Page 6 of9 evidenced by a Deed of Absolute Sale,11 VAT Sales lnvoice,12 VAT Official Receipts13 and Transfer Certificate of Title.14 As regards the fifth requisite , petitioner complied with the same. The reckoning of the two (2)-year prescriptive period for the filing of a claim for input VAT refund commences from the date of filing of the corresponding quarterly VAT return.15 However, considering that petitioner's Quarterly VAT Return for the fourth quarter of 2001 was belatedly filed on February 11 , 2002, the two (2)- year prescriptive period shall be reckoned from January 25, 2002, the last date prescribed by law and regulations for the filing thereof. 16 Thus, the administrative claim and the judicial action filed on December 29, 200317 and on January 23, 2004,18 respectively, were timely made.19 Although petitioner complied with the first, second , third and fifth requirements, it however failed to comply with the fourth requirement that the claimed input VAT should not have been applied against any output tax. Petitioner argues that it did not apply the input VAT paid on the purchase of the subject land against its output VAT in the succeeding taxable quarters. Accord ing to its Accountant, Ms. Josephine S. Ramos, the first amended VAT Quarterly Returns as well as the second amended VAT Quarterly Returns show n Exhibit C 12 Exhibit D 13 Exhibits Q, R & S 14 Exhibit E 15 San Roque Power Corporation, vs. The Commissioner of Internal Revenue, C.T.A. Case No. 6427, October 19, 2005 & Jideco Manufacturing Philippines. vs. Commissioner of Internal Revenue, CTA Case No. 6552, September 16, 2004 16 Sections 114(A) & 112(8) of the 1997 NIRC, as amended & Section 4.106-1(c) of Revenue Regulations No . 7-95 17 Joint Sitpulation of Facts and Issues, Rollo, p . 71 18 Rollo, p.l 19 Petitioner had until January 25, 2004 within which to file its claim

DECISION C.T.A. CASE NO. 6852 Page 7 of9 that petitioner deducted the amount of P4,058,483.86 representing the VAT paid on the purchase of land from the total available input tax that may be carried over to the subsequent quarters. Thus, petitioner's second amended VAT Quarterly Return for the first quarter of taxable year 2002 indicated the amount of P4,058,483.86 as a deduction from input tax under Line 25A thereof. We are not persuaded . In its VAT return for the 4th quarter of 2001 20 and second amended VAT returns for the first, second , third and fourth quarters of 2002,21 petitioner declared that it had no commercial operations. Therefore, it reflected no amount of output VAT liability against which the claimed input VAT of P4,058,483.86 may be applied or credited . While petitioner carried-over the claimed input VAT of P4,058,483.86 in its second amended VAT return for the first quarter of 2002, the same was deducted as "Any VAT Refund!TCC Claimed" from the "Total Available Input Tax". 22 Consequently, the claimed input tax of P4,058,483.86 was no longer carried-over in the second amended VAT returns for the subsequent second , third and fourth quarters of 2002.23 Nevertheless, these VAT returns are insufficient to prove that no amount of petitioner's claimed input VAT was applied against any output VAT liability. Notably, the second amended VAT returns of petitioner for the first, second , third and fourth quarters of 2002 were simultaneously filed on June 24, 2004. Prior to th is date, petitioner, as the law requires , should have already filed its VAT returns for the first, second , third and fourth quarters of 2003 and the first quarter of 2004. These VAT returns should have been presented by petitioner in order for this Court to 20 Exhibit F 21 Exhibits G-2, H-2, I-2 & J-2 22 Exhibit G-2 23 Exhibits H-2, I-2 & J-2

DECIS ION C.T.A. CASE NO. 6852 .. Page 8 of9 ascertain that the claimed input VAT in the amount of P4,058,483.86 was not actually applied against any output VAT liability in the said periods. It must be emphasized that petitioner filed its Formal Offer of Evidence only on July 26, 2005, thus , it could have easily presented these VAT returns as well as the VAT returns for the second , third and fourth quarters of 2004 and first quarter of 2005. Yet, it did not. Indubitably, petitioner failed to establish that the input taxes subject of this case have not been applied against its output taxes . In addition , petitioner also failed to comply with the sixth requirement that the purchased land was used by petitioner in its VAT taxable business. Indeed , the parties admitted that petitioner leases out the said parcel of and in the pursuit of its business.24 However, despite such admission, the VAT returns do not reflect that the subject land was leased out, inasmuch as petitioner did not declare any amount of output tax on rental income. WHEREFORE, premises considered , the Petition for Review is hereby DISMISSED for lack of merit. SO ORDERED. Ck_~~C!.-~~ .fr:f\."L. afUANITO C. CASTANEDA, Associate Justice WE CONCUR: (On Leave) OLGA PALANCA-ENRIQUEZ Associate Justice 24 Par. 5, Statement of Facts Admitted, Rollo, p. 70

DEC ISION C.T.A. CASE NO . 6852 Page 9 of9 CERTIFICATION Pursuant to Article VIII , Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. G.~�t:> e .a..v-~~/ ~. 0 UANITO C. CASTANEDA, Sk.' Acting Presiding Justice