SILICON PHILIPPINE, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION SILICON PHILIPPINES, INC. C.T.A. CASE NO. 6369 (formerly Intel Philippines Manufacturing, Inc.), Members: Acosta, PJ Petitioner, Bautista, and Casanova, JJ -versus- COMMISSIONER OF INTERNAL Promulgated: REVENUE, A~ '"'r Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION ACOSTA,PJ: The Case The Petition for Revi ew seeks for the issuance of tax credit certificate of input value added tax (VAT) on domesti c purchases of goods and services as well as on importation, attributable to zero-rated sa les in the total amount of Twenty Five Million Three Thousand Two Hundred One Pesos and 61 / 100 (Php25,003,201.61) for the fourth quarter of taxabl e year 1999.

DECISION C.T.A. Case No. 6369 The A ntecedent Facts Petitioner is a corporation duly organi zed and existing under and by virtue of the laws of the Republic of the Philippines w ith principal office at 132 1 Apolinario Street, Bangkal, Makati City, Metro Manila.1 It is registered as a preferred pioneer enterpri se fo r th e production/manu facture and export of tested and untested integrated c ircuits such as large sca le integrated circuits and mi croprocessor. It is a registered entity per Certifi cate of Registratio n No. 85-10 I 0 given by the Board oflnvestments on October 25, 1985 2 as we ll as a VAT registered entity pursuant to Certificate of Registration No . 32A-3-002649 iss ued by th e BIR.3 Respondent is the dul y appo inted Commiss ioner of Interna l Revenue vested w ith authority to exercise the functions of said office, including inter alia, the power to refund any interna l revenu e tax erroneously or illegally assessed or collected, or of any penalty claimed to have been co ll ected w ithout authority, or of any sum alleged to have been excessive ly or in any mann er wro ngfull y co llected, or of VAT input taxes attributab le to zero-rated revenue. She is ho lding office at the BIR National Office Building, Diliman, Quezon C ity, Metro Manila, where he may be served with summons and other lega l processes.4 As a VAT-registered entity, petiti oner filed its Quarterly VAT Return5 for the fourth quarter of 1999, declaring there in its zero-rated sales of P2,407,719,607.48 which allegedly was pa id for in acce ptable fo reign currency and was inwardly remitted to the Philippines in accordance with existing rul es and regulations of the Bangko 1 Admitted by Respondent durin g the Febru ary 22 , 2002 Hearin g 2 Exhibit A 3 Statement of Facts, Mem ora ndum of th e Re spo nde nt 4 Adm itted by Respondent in her Answer 5 Exhibit 0

DECISION C.T.A. Case No. 6369 Sentral ng Pilipinas pursuant to the provisions of Section I06(A)(2)(a)(l) of the 1997 Tax Code . In the sa me VAT Return , petitioner reported an output tax of P80,254.54 on its taxable sales and allegedly paid a total of Php25 ,083,456. 15 input taxes on its domestic purchases as well as on importation of goods, attributable to its zero-rated sa les. On March 16, 2000, petitioner filed before the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance an application for tax credit/refund of P25 ,003 ,20 1.61 representing unutilized input value-added tax6 covering the period from October I, 1999 to December 31 , 1999.7 Despite the alleged prese ntat ion of documentary evidence in support of its application, respondent failed to grant the tax credit being applied for. Consequently, petitioner filed before thi s Court its judicial claim for the issuance of tax credit certificate by way of a Petition for Review on December 21 , 2001. The Commi ss ioner of fnternal Revenu e filed her Answer on February 4, 2002, and prayed for the di smissal of the case. She alleged therein the following Special and Affirmative Defen ses: "4. He reiterates and repleads the preceding paragraphs of this answer as part ofhis Special and Affirmative Defenses; 5. Petitioner 's alleged claim for refund is subject to administrative investigation/examination by the One-Stop Shop Inter- Agency Tax Credit and Duty Drawback Center; 6. To support its claim, it is imperative for petitioner to prove the following to wit: 6 Total input taxes of P25,083 ,456. 15 less output tax of P80,254.54. 7 Exhibits F and G

DECISION C.T.A . Case No. 6369 a. The registration requirements of a Value Added Taxpayers pursuant to Section 6(a) & (b) of the Revenue Regulations No . 6-9 7 in relation to Section 4.107-1 (a) of Revenue Regulations No. 7-95. b. That the VAT input taxes of Php: 25,003,201 .61 allegedly paid by petitioner from its dom estic purchases of services were attributable to its zero-rated sales and such tax has not been applied against any output tax. c. That p etitioner 's claim for tax credit or refund of the excess Input Value Added Tax (VAT) was filed within two (2) years after the close of the tax:able quarter when the sales were made in accordance with Section 4.106-1 (Re: Refimds or Tax Credits of Input Tax) and Section 4.106-2 (Re : Procedures for Claiming Refunds or Tax Credits of Input Tax) ofRevenue Regulations No. 7-95. d. That p etitioner domestic purchases of services were made in the course of its trade or business, properly supported by invoices or rece ipts and import entry or other equivalent do cuments showing that it actually paid VAT in pursuance to Section 4. 104-5(a) & (b) of Revenue Reg. No. 7-95 (Re : Substantiation ofC/aimsfor Input Tax Credit). e. The requirements as enumerated under Section 4.104-2 of the Rev. Reg. 7-95. (Re: Persons who can avail of the Input Tax Credits) f The requirements under Section 4.100-2 in relation to Section 4.102-1 and Section 4.102-2 of the Rev. Reg. No. 7- 95, which provides that petitioner 's export sale of taxable goods and services to p ersons doing business outside the Philippines, are paid f or in acceptable foreign currency actually or constructively remitted to the Philippines and accounted for in accordance with the rules and regulations ofthe Bangko Sentral ng Pilipinas. g. That petitioner has complied with the governing rules and regulations with reference to recovery of tax erroneously or illegally collected as explicitly found in Sections 112(A) and 229 of the Tax Code as amended. 7. Furthermore, in action for refund the burden ofproof is on the taxpayer to establish its right to refimd andfailure to sustain the burden is fatal to the claim for refimdlcredit. This is so because exemptions from taxation are highly disfavored in law and he who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. An exemption from common burden cannot be permitted

DECISION C.T.A . Case No. 6369 to exist upon the vague implications. (Asia Petroleum Co., vs. Llamas 49 Phil. 466) 8. Also, petttwner must show that it has complied with the provisions of Section 204 (c) and 229 of the Tax Code on the prescriptive periodfor claiming refund/credit. " After trial, this case was submitted for dec ision on May 7, 2008 taking into consideration the respective Memorandum ofthe parti es. The lssues8 Whether or not the amount of Php25,003 ,20 1.61 representin g petitioner's a lleged unutilized input VAT taxes paid relative to its domestic purchases of goods and services covering the period from October 01 , 1999 to December 3 1, 1999 were attributable to its zero- rated transactions. II Whether or not th e sa id unutili zed input VAT was carried over and applied aga inst any of petitioner's output VAT liability for the said period or any succeedi ng quarter or quarters. III Whether or not Petitioner' s domestic purchases of services were made in the co urse of its trade or business, properl y supported by invo ices or receipts and impott entry or other equivalent documents showing that it actua ll y pa id VAT. IV Whether or not Petitioner' s export sale of taxable goods and services to persons doing business outside the Philippines, are paid for in acceptable foreign currency denominati on actually or constructively remitted to the Philippines and accounted for in accordance with the rules and regul at ions of the Bangko Sentral ng Pilipinas. The foregoing iss ues boil down into a sing le po int of whether or not petitioner is entitled to the issuance of a tax cred it ce rtificate allegedly arising from its unutilized/excess input tax of ? 25 ,003 ,20 1.6 1, attributable to its zero-rated sales for the fourth quarter of taxabl e yea r 1999. 8 adopted by the parties durin g the February 22, 2002 hearing

DECISION C.T.A. Case No. 6369 Th e Court's Ruling For refund/tax credit of unutilized input VAT, Section 112(A) of the National Internal Revenue Code (N IRC) of 1997, prov ides: "Secti on 11 2. Refunds or Tax Credits ofInput Tax. - (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT- registered perso n, whose sa les are zero-rated or effecti ve ly zero rated may w ithin two (2) yea rs after the c lose of the taxable quarter when the sales were made, appl y for the iss uance of a tax credit certificate or refund of creditable input tax du e or pa id attributable to such sales, exce pt transitional input tax, to the extent that such input tax has not been applied aga inst outpu t tax: Provided, however, That in the case of zero-rated sales under Secti on 106(A)(2)(a)( 1), (2) and (B) and Section I08(B)( 1) and (2), th e acce ptable foreign currency exchange proceeds thereof had bee n dul y accounted fo r in accordance w ith the ru les and regul ati ons of the Bangko Sentral ng Pilipinas (BSP): Provided, fu rther, That w here the taxpayer is engaged in zero-rated or effecti vely zero- rated sale and a lso in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or pa id can not be directl y and entire ly attributed to any one of the transactions, it shall be allocated proporti onate ly on th e bas is of th e vo lume of sales." T hus, based on the above-qu oted provi sions of Tax Code, the fo llowing requi sites9 must be compli ed w ith, viz: 1. there mu st be ze ro-rated or effecti ve ly ze ro-rated sales; 2. that input taxes we re incurred or pa id ; 3. th at such input taxes are di rectl y attributable to zero-rated sales or effective ly ze ro-rated sales; 4 . that the input taxes were not applied aga inst any output VAT liabi lity durin g and in the succeedin g qu arters; and 5. th at the c laim fo r refund was fil ed w ithin the two-year prescriptive peri od. 9 Phi lex Min ing Corporati on v. Commi ss ioner of Intern al Revenue, CTA Case No. 6892 and 70 14, promul gated on Jul y 9, 2008

DECISION C.T.A . Case No . 6369 We sha ll now app ly the aforementi oned requisites tn the case at hand to determine whether petitioner is entitled to a tax credit. Going first to the fifth requi site of prescription, Section 11 2(A) of the Tax Code provides that w ithin two years after the close of the taxable quarter when the sales were made, a VAT registered person may app ly for the issuance of a tax credit certificate or refund of creditable input tax due or paid attr ibutab le to such zero-rated or effectively ze ro-rated sales. ln Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, 10 the Supreme Court had the occas ion to rule that the two-year prescripti ve period for the filing of a c la im for VAT refund should not be counted from the c lose of the quarter, but from the date of filin g of the VAT return, for it is only durin g that date that the VAT liab ility or refundability can be determined. Thus, applying the pronouncement of the High Co urt in the case at bar reveals that petitioner 's ad mini strative claim filed on March 16, 2000 and its Petition for Review before this Court on December 2 1, 200 I are we ll w ithin the two-year reglementary period prov ided und er Section 112(A) of the 1997 Tax Code reckoned from the date of filing of its quarterly VAT ret urn for the fourth quarter of 1999 on January 24, 2000, considering that the two-yea r presc riptive period w ill end only on January 24, 2002. As regards the first requisite, We determined that petitioner is engaged in zero- rated sale transactions. Being a VAT and a BOI-registered entity, its export sales are subject to zero percent (0%) rate of VAT pursuant to Section 106(A)(2)(a)(l) of the 1997 Tax Code. 10 G.R. Nos. 141104 & 148763 , June 8, 2007 (t4

DECISION C.T.A. Case No. 6369 To prove that it had ge nerated a total export sa les of P2,407,719,607.48 during the fourth quarter of 1999, petitioner prese nted th e following docum ents, namel y: (1) sales invo ices, (2) export declarations, and (3) a ir way bills. 11 Moreover, in order to establi sh that the proceeds thereof were dul y acco unted for in accordance w ith the Bangko Sentral ng Pilipinas rul es and regul ati ons, petitioner presented certificates of inward remittances .12 In an amend ed final report, 13 the co mmi ss ioned independent CPA di sclosed that out of the tota l export sa les of P2,407,719,607.48, on ly the amount of PI ,009,237,089 .15 was supported wi th co mpl ete and orig inal export sales documents. In the same report, it was obse rved that out of th e total export sales of P2,407,719,607.48, onl y P563 ,753, 840.22 was supported by ori ginal certificates of inward remittances and P222,62 1,594.56 is cove red by an offsetting arrangement against inter-compa ny payabl es . After review, this Co urt finds th e report of the commi ssioned independent CPA to be in order. Co ns iderin g that the P786,375 ,434.78 14 amount of export sales were duly accounted for in accord ance w ith the BSP rules and regulation, then, such amount _ qualifi es as zero-rated sales subject to zero-percent (0%) VAT under Section 106(A)(2)(a)( l ) ofthe 1997 Tax Code in relation to Section 11 2(A) ofthe same Code. A lthough, it wo uld appea r that petiti oner's alleged unutili zed input tax corre sponding ly attributable to the duly substantiated ze ro-rated sales, may be a proper subject of a cla im for tax credit, the sa me amo unt cann ot be granted. Petiti oner was not able to prove that it had not utilized th e a lleged excess input VAT. Bear in mind that in 11 Exhibits KK to KK-2045 , LL to LL-843 7, MM to MM- 1I 19, NN to NN-242, and 00 to 00- 196 12 Exhibits E and QQ 13 Exhibit PP; pp. 602 to 6 10, Rollo 14 P563 ,753 ,840.22 plu s P222 ,62 1,594.56

DECISION C.T.A. Case No. 6369 order to prove that the c laimed input taxes had not been utilized against output tax for the succeeding qu a rters, petitioner offe red as ev idence Quarterly VAT Return s for the 1st quarter of taxab le year 2000 up to the 4th quarter of taxable year 2001. 15 However, said pieces of ev idence we re denied ad mi ssions by thi s Court in a Reso lution dated July 9, 2007 for petitioner's fai lure to present the origi nals thereof for comparison, as well as, submit the duly marked exhibits. Moreover, the inadmissibility of those exhibits was reiterated in another Resolution dated January 10, 2008 after findin g that petitioner still failed to have the same exhibits compared w ith the ir ori g ina ls, or submitted the certified true cop ies the reof during the subsequent hearin gs 16. Hence, those documentary evidence which adm iss ions were den ied cannot be considered by this Court in di spos ing of the case. Therefore, for fa ilure of the Petitioner to properly substantiate its all egati on that the excess input taxes we re not utilized against its output tax in the succeedi ng qu arters proves fata l to its cla im for refund/tax credit. Settled is the rule that a c laim for tax refund is in the nature of tax exemption . Laws granting tax exemption are construed stricticissimi juris against the taxpayer and liberally in favor of th e taxing auth ority. Taxation is the rule a nd exemption is the exception. The law does not look with favor on tax exempti ons and he who thus seeks to be pri vileged mustjustify it by wo rd s too plain to be mi staken and too categorical to be misinterpreted. 17 Thus, a taxpayer has the burden of proof to establi sh the factual basis of its claim for tax refund .18 Like in thi s case, petitioner is duty-bound to present the original or certified true copy of the subsequent quarterly VAT return s because it is necessary to determin e w hether indeed the c laimed excess input VAT had not been 15 Marked as Exhibits J, K, L, M, N , 0, P, Q, R, S, T and U 16 August 7, 2007 ; September 14, 2007 ; October 19, 2007 ; and October 22, 2007 hearings 17 Sea-Land Services, Inc. vs. Co urt of Appeal s, 359 SCRA 44 1 18 Commissioner of In terna l Re venue v. Tokyo Shippi ng Co., Ltd ., 244 SCRA 332

DECISION C.T.A. Case No . 6369 utilized against any output tax In the subsequent quarter/s. Such important determination is a pre-requi site to gra nt the claimed tax credit/refund . WHEREFORE, the instant Peti ti on for the issuance of tax credit certificate is hereby DENIED for in suffic iency of material ev idence. SO ORDERED. Lo. c~ ERNESTO D. ACOSTA Presiding Justice CAESAR A. CASANOVA Associate Justice CERTIFICATION I hereby certify that the above decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13 , Article VIII ofthe Constitution. L - ~~ c~ ERNESTO D. ACOSTA Presiding Justice