CTA Case No. 5448 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ISLA COMMUNICATIONS CO., INC., C.T. A. CASE NO. 5448 Pet i tioner, Promulgated: - versus - COMMISSIONER OF INTERNAL REVENUE, Respondent . X- - - - DECISION This is a petition seeking for the refund of the sum of P36,246, 189.00 representing alleged erroneously or illegally collected value-added tax on 1=-�etitionet'' ~- i mpot't at ions of t elecommunicat1ons equipment and accessories for the period Decembe r , 1994 to Dece mber, 1995. Pe t i t io n er is a d o me stic corp o ra t io n ex is ting u nder and by v1rtue of Philippine laws and 1s a grantee of a legislative franch1se under Republic Act No. 7372 to instal l , operate and maintain telecommunications services w1thin the Philippines and international po1nts and for For the purpose of carrying out said s et'Y j ce s, partic ul arly that of provi d inq telephone � serv1ce based on GSM syste m <Global Sys tem for Mobile Commu ni cations) as aut h o t�� i z e d in its leqislat iv e Pet i t 1 on et' i mpo r te d the requ1red cap1tal equipment wh1ch includes the cellular units that fot'm an integr��al p<at't of the equip me nt that make up the GS M system that the National �relecommunications CommlSSlon <NrC) has authorized said Petitioner to install and operate.

DEC I SION C. T.A. CASE NO. 5448 �:::> L.. According to Petit1oner, under Sections 13 and 14 of RA 1\lo. 737f:., it is a11owecl to all its capital equipment on a tax and duty-free basis thus: "Sec. 13. Fr-�om the date the l'~ational Telecommunications Commission ~llots the grantee the frequencies and wavelengths to be used by it, the grantee shall be allowed for a pe1����iod of thr~ee C3) year~s to impor~t all i t s capital equipmen t on a tax and dutv-free ba !; is. " ��sec. :i'+. The gr~.::mtee, i t s su.ccessor~s Ql�- assigns shall be liable to pay the same taxes on their real estate, buildings and personal property, exclusive of this franchise, as other persons or corporations which are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successor or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under t~is franchise by the qi�~antee, i t s successor~s or~ C:l.ssigns and the s2.id perrentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the gl�~antee, i t s successor~s OY' assiqns shall continue to be liable for income taxes payable under Title II of the National Irternal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thet~eto." (Under~scor~ing supplied) the wn and duties was allegedly compelled to p~.l.y on its i mp01��'t at ions bec.:ntse Respondent, through the Bureau of Customs ) acting as its agent in the collection of taxes on impOl�~ted ~1oods, woulcj not release the importations unles~.; the tJf::?tT and duties thereon were pajd.

DECISION C.T.A. CASE NO. 5448 - 3- The Petit i one1�' made about t vJent y-e i ght importations of telecommunications equipment on various dates, December' S, Decembe�r' 1995, and paicl the VAT thereon 1n the total c.�unount of P3E..? ~~L~6, :1.8';:3. 00, deta.:i.led C:\ s follows: IMPORT DESCRIPTION VAT PAID DATE PAID 1. Car kits and batteries-348 units p 16,878.00 12-20-94 19,893.00 12-20-94 .'::.>.. Sie1ens Pl-50 units 580,200.00 01-06-95 44,834.00 06-28-95 3. Siemens 53 handsets-250 units 07-07-95 1,207,502.00 07-22-95 4. S3+batteries-33 units 3,918,915.00 07-22-95 07-22-95 5. Nokia 2112 handsets-1000 units 227,431.00 08-16-95 1,081,086.00 09-22-95 6. Motoro~a 7200 handsets-2480 units 10-16-95 755,501.00 11-16-95 7. Motorola 7200 handsets-160 units 7,981,823.00 12-08-95 9, 768,984.00 03-02-95 B. Motorola 7200 handsets-705 units 11-18-95 750,266.00 02-09-95 9. Robert Bosch-600 units 378,454.00 02-02-95 291,814.00 12-23-95 10. Motorola 7200 handsets-7000 units 350,254.00 06-16-95 258,161.00 02-28-95 11. Motorola 7200 handsets-9700 units 633,863.00 02-21-95 292,242.00 03-15-95 p.... Nokia 2112 handsets-600 units 02-03-95 5,384.00 12-06-94 13. Nok1a 2112 handsets-300 units 1,644,840.00 03-29-95 1,133,061.00 (!3-24-95 14. Nokia 2112 handsets-250 units 1,302,222.00 02-01 -95 01-20-95 15. Nokia 2112 handsets-250 units 191,715.00 1,117, 908.00 16. Siemens S3+handsets-200 units 260,220.00 i7. Sie1ens S3+handsets-500 units 127,811.00 256,476.00 18. Nokia 2112 handsets-250 units 506,880.00 P36,246, 189.00 19. Nokia service kits 20. S3-1,300 units 21. Mobile Station-BOO units .':..).�.)... 53-1,000 units .'.J...?.,. Motorola Mobile Stations-150 units 24. Motorola handsets-1 1070 units 'JC" Motorola 2200-205 units L...Jo 26. Motorola 2200 handsets-100 units 27. Mobile Station 7200-200 un its 28. Motorola handsets (500)-1,500 units T 0 TAL Through a letter, with the office of herein Respondent on November 11~ 199E.., Petitioner requested for the refund of the amount of P28,5b3,485.00 as erroneously or colJ.ectPd

DECISION C. T.A. CASE NO. 5448 - 4- VAT o:::-:h. A). Subsequently, an additional claim for ~�e fund in the .::"\mount of P7,682,704.00 was file d by Petitioner on November 19'36 <Exh. B) � As there was no action on the part of Respondent, the instant Petition for Review was filed on December 6, 1996 to toll the running of the two-year prescriptive In his Answe~', Respondent claimed, by way of Special and Affirmative Defenses, that: The Petitioner's claim has pad; i a 11 y .1 if not totally, pr�escl�'ibed; B. The Petitioner has no cause of action; The taxes sought by Petitioner to be i�'e funded were presumed to have been paid and collected in accordance with revenue laws, r-�uJ.es and regulations, hence, not refundable; J. 0. The value-added ta x es allegedly withhel d mu st be shown to have been paid and J�'e mitted to the Respondent's bureau where the best evidence are the official receipts; 11. Claims for refund are construed strictly against t h e cl a i ma nt , the same being in the nature of exemption from taxes. CCIR vs. Ledesma, 315 SCI~~~ 35 <1975) ; In an action for tax refund/credit, the burden of proof is on the taxpayer to establish its right to the refund and failure to sustain t he burden is fatal to the action for tax refund. The issues We are tasked to resolve are: whether� or� not Petitioner's right to claim for a refund has already prescribed as alleged by Respondent, and whether or not Petitioner is exe mpt fr�om the

DECISION C.T.A. CASE NO. 5448 - 5- <VAT) pursuant to Sections 13 and 14 of R.A. Sec. 23 of R.P. No. 7925. We find it appropriate to rule first on the question of prescription before delving into the other issue because if the claim for refund has already prescribed, longer any need to discuss the second issue. Respondent maintains that Petitioner's claim for Y'efu.nd has par~tially.1 i f nDt totally pr~escl�'ibed. This Court disagrees with Respondent. Because of the circumstances surrounding this case where the value-added taxes were paid on Petitioner's impor���tat ions, the prescriptive period pr'ovicled under' Section 230 of the Tax Code shall be applicable instead of the periods provided for under Section 106 (a) , (b) and (c) of the Tax Code. Section 230 of the Tax Code provides for a two-year period from payment of the taxes within which to claim fen' a r'efund. The records show that the fir'st paymc~nt of value-added taxes on the importations of Petitioner was on December' ;:=~o, :1.':395 onwar��cfs unt i 1 Janu,:H'Y 20, :1.995. The administrative claims for refund were filed by Petitioner on November' :ll, 1996 and November 19'3b n::xhibits II(..) II "B"l lhe Petition for Review was filed on Decembet�' (::,, 1'39b. It is clear then that all payments of value-added taxes made by Petitioner starting })

DECISIO~ C.T.A. CASE NO. 5448 - 6- two year' per'i od., hence, Respondent's argument li'Ji th respect to prescription is without merit. The second issue cent el�'s on the pr"o per�' interpretation of the provisions of 1 aw upon ~""h :i. ch Petitioner anchors its claim for tax exempt1on: Sections 13 and 14 of RA 7372 providing for a period of thr'ee (3) year's to impDl�'t all its capital equipment on a tax and duty-free basis and the payment of franchise tax of 3'1- in lieu of all taxes on the franchise or earnings thereof and, second, Sec. 23 of RA 7925 providing equality of treatment in the telecommunications industry. According to Respondent, the exemption under Section 13 of RA 7372 refers only to direct taxes. Thus, is being an indit"ect tax, Petitioner should be held liable. We do not agree. The words used in the said Act are too plain and unambiguous to admit of the interpretation advanced by Respondent. The law provided for an importation of its capital equipment on a tax-free basis. If it intended to exE~mpt the gr�-antee only fr"om dir'ect ta><es, it could have easily provided so. Petitioner in this case was able to prove that the units it imported are capital equipment falling under said Section 13 through a cert1fication issued by the National Telecommunications Commission ~

DECISION C.T.A. CASE NO. 5448 - 7- WTC) (E;-:h. G-3). The importations were likewise made within the period of three (3} years from the date the NTC alloted the Petitioner the frequencies and wave lengths to be used by it, which is, Apr~i J. 6, 1'394 <Ex h. D�-1 > � On the other hand, this Court has already settled the question of whether~ the "in-1 ieu-of�-all-taxes" pr~ovision ~rJould include Petitioner's exemption paying the value-added tax. In Our recently decided case of PLOT vs. The Hon. Commissioner of I n ternal Revenue , CTA Case No. 5178, promulgated last Febr uary 18, 1998, Wf? 1�~e i t el�~at ed Our~ pr~<:? vi ou s r--uling in the case of PLOT vs. The Hon. Commissioner of Internal Revenue , CTA Case No. 5106, December 18, 1995, thus: "Petitioner~ contended t h at the phr~ase "in lieu of all taxes" cover~s the exemption fr~om the payment of the VAT on its purchases of imported equipments, machineries and spare parts on account of its paying the 3% franchise tax. This was intensified by BIR Ruling No. UN����l40����94, dated Apr~il 19, 199.l~, whu:h specifically confirms the opinion of petitioner on this aspect covering its VAT exemption. Thus, it states" (t)he 'in lieu of all taxes' provision under Section 12 of R.A.7082 clearly exempts PLDT from a l l taxes including the 10~ value-added tax <VAT) prescribed by Section 101 (a) of the same Code on its importations of equipment, machineries and spare parts necessary in the conduct of its business covered by the franchise, except the aforementioned enumerated taxes for which PLDT is expr~essly made liable." l�lor~eovel�~, the above ruling has likewise been confirmed by the Department of Finance thru Acting Secretary Romeo L. Bernardo on January 5, 1995 addressed to petitioner~, xxx" XXX XXX )(X X

DECISION C.T.A. CASE NO . 544 8 - 8- "The ph1�~,:1.se "in lieu of" means instead of, in place of., or~ in substitution for (Blc:1ck v. Ba J�~n e s, t.~6 P. ~::d 6E:5, 626, 14(:~ Ka r1.. 301., Rutherland v. Oroville-Wyandotte Irr. Dist., 22 P. 2d 505, 218 Cal. 242, Words and Phrases, Vol. ;:::1, p � .t.~7i~~). It doe~; not me21.n "in addition to" (Gas!:.man Const. Co. v.. Baltimo1�~e Brick Co., 246 Mel. 478, 228 A.. 2d 472, 474 Black's Law Dictionary, 6th eel., 1990, p. 70.7). The "in lieu of" implies the existence of something for which a substitution is being made. Thus, the "in lieu of all other-�� taxr,)s" means that none other than the tax specified however described, can be demanded. It limits the liability to the specific tax <State of Tennessee v. Bank of Commerce, 53 F. 735, 736, Wor~ds and Phi�~ases, VoL ~7~1, p. 474). Thus the phr~ase "in lieu of all taxes" has the effect of exempting from taxation the VA�r <which is cover-'ed unde1�~ the genet~al ter~m "taxes" under~ Sect ion 12 of R. A. 708~::;:) on the put~chases of imported equipments, machineries and spare parts made by petitioner by virtue of its paying of the 3% Franchise Tax pursuant to Section 117 of the NIRC and Section 12 of R.A. 7082. The rationale or purpose for the exemption from all other taxes except the income tax and the real property tax granted on petitioner upon the payment of the 3% Franchise Tax is that such exemption is part of the inducement for the acceptance of the franchise and the rendition of public service by the gY'c.mteE!" n::.y'ov.Lnce of i��1:isami!; D1��'ic~ntal v. Cagayan Electr--ic Power~ and Light Company, Inc., G. R. No. 1.~535~5, J�anr..ta�r~y 12, 1 990~, HH SCfH1 38) . Furthermore, there is nothing in the provisions of Section 12 of R.A. 7082 which can be construed as expressly excepting petitioner from the exemption to the VAT similar to the proviso on income tax and real property taxes. The only tax imposable on petitioner is the 3% Franchise Tax, the income tax and the real property tax. Otherwise, the law could very well have provided that petitioner should and is still liable to the VAT. It is an elementary rule in statutory construction that the exceptions in the law will not be enlarged beyond the actual si~nification of the words used or extended beyond the limits which the

DECI SI ON C.T.A. CASE NO. 5448 - 9- v-Jol�'ds themselves actually set <De Jesus ... City of Manila? 29 Phil. 73} This aforequoted decision of PLDT, in CTA Case No. 5106, was affirmed by the Court of Appeals in the case entitled Commissioner of Inte1�'nal '" f~ e v e n 1.1. f.~ "v .J �� PLDT, G. F~. S P 1\lo. �40E:!:l, d.:~ted Febt'Uat'Y if,, 19r:38. Petitioner' also invokes Section 23 of Republic Act (Public Telecommunications Policy Act of the r.::.hilij:'lpines>, 11-Jhich PY'OVides: "Section 23. Equality of Tr'eatment :in the Telecommunications Industry.-Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may he1�'eafter' be gl�'anted, shall ipso Facto becom<'? part of previously granted telecommunications f ranchises and shall be accorded immediately and unconditionally to the grantees of such ft'anchises: Pr'ovided, however', That the foregoing shall neither apply to nor affect provisions of t e lecommunications franchises concerning territory covered by the franchise, the life span of the ft'anchise, Ot' the type of sel�'vice au.thor'ized by the fl�'anchise". Respondent, however, alleges that under Republic Act No. 7716, other-wise known as the Expanded implemented in 1996, t he services of franchise of telephone and te.l.egr'aph, r'ad i o a n d television broadcasting not falling under Section 117 of the Tax Code are already subject to VAT pursuant to Section 102 (now Sec. iOE:\} of the Tax Code. Thus, acccn'd in g to Respondent, applying the rationale behind the ipso facto or most-favored treatment clause of the law <R.A.

DECISION C.T.A. CASE NO. 5448 - 10 - to place com~eting groups on equal footing a.nd not give one an advantage over the ot her, then it is but fa i r that Petitioner's services will now be also subjected to the 10% value-added tax. We are not coPv~nced by Respondent's assertions. Cw'.l nee W<? have consistently held that the " in 1 i e �J of all taxes" pt~ovision includes exemption from paying the VAT, then to h old Petitioner liable in this case would seem violative of t he " i pso fact o " provision of Sec. 23 of R. A. 7925 pr~oviding fat~ "equality of t�.~eatment in the telecommunications industr~y." the instant petition for refund covers payments made f r-� o m De c e mb e r~ 6 , 1994 up to December 23, 1995 and the Expanded VAT Law \!~as, accor'ding to l~espondent, implemented only in 1996. Finally, PetitionET has pt~esented to the satisfaction of the Court the receipts issued by the Bureau of Customs with their correspondi n g disbursement vouch er~s, the Impor~t Entr~y and Revenue and the Certifications is�;ued by it to prove that the taxes subject of the i n s t ant Pet i t i on vH::- l�' c paid and duly received by the said agency. WHEREFORE , in v1e~�J of all the fot�e~Joing, thi::; Cou.�t finds the instant petitton meritorious and in accordance with la~.-.J. 1lcccwcl in g 1 'y' , Re �; pone! (?nt is hereby ORDERED to REFUND in favor~ of Petitioner~ the amount of erroneou~~gy ~� 36, c:45, 18'3. oo, t~epr~esent ing value-added

DECISION C.T.A. CASE NO. 5448 - 11 - taxes on its import a tions of telecommunications equ1pment and accessories. SO ORDERED. ~~� ~~rt~' /RAMON 0. DE VEY / Associ;;:'- e J,_,dg / l.JE CONCUR: ERNESTO D. ACOSTA P t~ esiding Ju dg e CERTIFICATION I hereb y certify that this d e cision was reached after d~e consultatior with the members of the Court of Tax Appeals in accordance with Se c t i on 13, Article VIII of the Cons t i t ut i on. ~~'~ ERNESTO D. ACOSTA P t~esi d inq Judqe Court of Tax Appeals