CTA Case No. 5921 (Decision)

I - -- .__ � �� ___. _.._ REPUBLIC OF THE PHILIPPINES CO URT OF TAX APPEALS QUEZON CITY SEAGATE TECHNOLOGY (PHILJPPINES), Petitioner, - versus- C. T.A. CASE NO. 5921 COlVIlVIISSIONER OF INTERNAL Promulgated: REVENUE, AUG 0 2 2000(5 Respondent. x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION This petition for review is seeking the refund of the amount of Pll, 705,945.00, representing unutilized input value-added tax (VAT, for bre-vity) on domestic purchases of capital goods for the period Apri11, 1997 to December 31, 1997. The facts as stipulated by the pat1ies and borne out by the records of the case are as follows: Petitioner is a resident foreign corporation duly registered with the Securities and Exchange Commission to do business in the Philippines, with principal office address at the new Cebu Township One, Special Economic Zone, Barangay Cantao-an, Naga, Cebu City. It is an ecozone expqf enterprise engaged in the manufacture of recording �, . components primarily U':led iri computers. It is registered with the Philippine Expm1 Processing Zone Authority (fEZA) pursant to the provisions of Republic Act 7916 with ;' . 'I'� i Certificate of Registration No. 97-044, dated June 6, 1997 (Exh. A). It is likew s registered with the Bureau of Internal Revenue as a VAT entity with Certificate of Registration RDO Control No. 97-083-00600-V, dated April2, 1997 (Exh. B). )

DECISION- CTA CASE NO. 5921 PAGE2 For the period April 1, 1997 to December 31, 1997,Petitioner seasonably filed its Monthly VAT Declarations and Quarterly Value-Added Ta," Returns. These monthly VAT declarations and quarterly V AT returns were simultaneouly amended on January 25, 1999. As of September 30, 1997, the accumulated input taxes ofPetitioner amounted to Pll, 730,264.62 (Exh. F-1). Out of the aforesaid amount, Petitioner claims that the sum ofP11, 705,945.00 refers to payments of input VAT on domestic purchases of capital goods. Petitioner further alleges that it has not started commercial operations in the �� Philippines. Its board of directors approved a complete shutdown and eventual disposal of its facility due to a worldwide decrease in the demand for computer disk drives. On July 15, 1999, it allegedly filed a notice of cessation of buiness with thePEZA. On July 19, 1999, believing that it is entitled to the refund of input tax on capital goods, Petitioner filed with the Revenue District Office No. 83, Bureau of Internal ' Revenue, Cebu City, a letter and application for tax credits/refunds of unutilized input taxes in the amount ofPll, 705,945.00 paid pursuant to Section 112(.b) and (.c) of the 1997 Ta," Code, in relation to Section 4.106-1(b) and (d) of Revenue Regulations No. 7- 95 (Exhs. D and E). . . Without waiting for an jiCtion from the Respondent, Petitioner, on the next day, I \. jpsf J tlu\ July 20, 1999, posted the. .\ll' f t 'p' :e t i t : rn for review in order to toll the mnning of : � �. � 4"�.- ,r " . two-year prescriptive period under the law. In his Answer, Respondent raised the following Special and Affirmative defenses: 4. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau; 11 .. �t ,j

I �I DECISION- CTA CASE NO. 5921 PAGEJ 5. The amount of Pl1,705,945.00 being claimed by Petitioner as alleged excess creditableVAT input taxes for the period01 April1997 to30 September1997 was not properly documented; 6. In an action for refund the burden of proof is on the taxpayer to establish its right to the refund, and failure to sustain the bw�den is fatal to the claim for refund/credit. 7 . Petitioner must show that it has complied with the provisions of Sections 204(c)and 229 of the Tax Code on the prescriptive period for �I claiming tax refuncVcredit; and I 8. Claims for refund are construed strictly against the claimant for ''l!I the same partake the nature of exemption from taxation. '1 In supp01t of its claim for refund, Petitioner presented vanous documentary exhibits which consist of: 1. PEZA Registration Cettific ate (Exh. A); 2. BIR and SEC Certificates of Registration(Exhs. B and C); 3. Letter and Application for Tax Credits/Refunds ofVAT (Exi1s . D and E);J 4. The original and amended monthly VAT declarations and quarterly VAT retums for the period April1, 1996 to November30,1999 (Exits. F-1 to F-7, inclusive of submarkings and H1- to H-45); 5. Summary of input taxes claimed (Exit. G); and 6. Invoices and offic J receipts supporting Peti tioner's claimed input taxes Il (Exits. G-1 to G-14-a. , inclwdve of submf. !rkings). . ., . } �; ; ; �. '' . . ... This case was submitted for decision on June 13, 2000, sans the evidence of the Respondent. 1 ' : -� .L �. ) d ., �l . � �J

DECISION- �I CTA CASE NO. 5911 I PAGE4 The issue to be resolved in the instant case is whether or not Petitioner is entitled to a refund in the amount of Pll, 705,945.00 allegedly representing input VAT on purchases of taxable goods and services. During trial, Petitioner established that it had constructed an office building and a plant in Naga, Cebu City. Tlus was testified to by Petitioner's witness, lvls. Annaliza Pueda, during the hearing held on January 20, 2000 (TSN, January 20, 2000, pp. 11-12 and 18-19). The Court fmd<;J the testimony of 1\IL<;J. Pueda to be credible because it was corroborated by VAT invoices and official receipts showing evidently the payments for the constmction of Petitioner's NagaI Project in New Cebu Township 1, Naga, Cebu and renovation works for Petition er's office (Exhs. G-1 to G- 1 4-a). In fact, Respondent in his memorandum never questioned the claim of Petitioner that it had constructed a plat and a building in Cebu. From the evidence thus presented, the Court is convinced that Petitioner actually made payments for engineering, project management, stmctural and 'architectural services which are all considered capital expenditures (Hopewell Power (Philippines) Corp. vs. Commissioner of Internal Revenue, CTA Case No. 5321, i-J dated January 4, 1999; and ewell Power (Philippines) Corp. vs. Comm issioner of Inter�nal Revenue, CTA a5!t No. 5321, dated October 7, 1998). .,) "; ; . f�te f i f Respondent d no l� f f he oresaid constructions, but he nevertheless fi q Jfltrd. fJ <H;�\ P, ....;''.'f;._ Pe rioner not entitle ', o�. t '!(.\..,,:� �:; � �:\ ; . :� _R.. ?mlent is of the 1 , ,._ itioner ( ... ,'- opinion th . �. . ��? :. - .:.�t ;. ...... .... :__. p su stantiate its claim for rfund due to its failure to comply with the requirements o 'fhe .� Tax Code regarding VAT invoicing. Respondent observed that some invoices were not issued in Petitioner's name as seen in the documents presented as Exhs. G-1, G-2, G-5, 1, .� ..!� ..) u

DECISION- CTA CASE NO. 5921 PAGES G-7, and G-14-a. Ivloreover, Respondent takes issue with the failure of Petitioner to avail of the services of an independent Cet1ified Public Accountant to check the veracity of the claim for refund which he believes to be a valid ground for denying the said claim. Petitioner, on the other hand, strongly believes that it is entitled to the refund sought on the basis of Section 106(b) of the Tax Code which provides as follows: SECTION 106. Refiuuls or tax credits of creditable input tax. - (a) X..'CX (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 purchasec 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. After a careful scmtiny of the records, pleadings and evidence on bane We agree with the Respondent that some invoices and official receipts were not issued in Petitioner's name, hence, they should be disallowed for putposes of computing the input 'VAT pursuant to the provisions of Section 113(A) of the Tax Code which provides: Section 113. Invoicing and Accounting "(A) Invoicing Requirements. -A VAT-registered person shall, for every sale, i'!sue an invoice or receipt. In addition to the information required under Section 237, the following information required under Section 237, the followll1g iriformation shall be indicated in the invoice or receipt: \.-. �;. �; '.,i:. ' !� -f..' � �.. . . ,��. .. tasxtataen1re'n�s(t. id''eOj;n� t�'ceatiosenllneur misbera fl1t Jt "(1) A VAT-registered person, p ; ift followed byhis (TIN); and H !-�, "(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value added tax. 1 � �t �I }. ,_,; I

DECISION- CIA CASE NO. 5921 PAGE6 "(B) Accounting Requirements. - Notwithstanding the provisions of Section 233, all persons subject to the value-added tax under Sections 106 and 108 shall, in addition to the regular accounting records required, maintain a subsidiary sales joumal and subsidiary purchase joumal on which the daily sales and purchases are recorded. The subsidiary journals shall contain such infonnation as may be required by the Secretary of Finance. As regards the failure of Petitioner to engage the services of an independent CPA, the Court is not convinced that it is a valid ground in denying the claim for refund of Petitioner. The availment of the services of an independent CPA to verify the accuracy of the documents supporting a claim for refund pursuant to CTA Circular No. 1-95, as amended, is not mandatory and only applies if there are voluminous documents to be presented as evidence. In the instant case, the documents to be presented by the Petitioner are not voluminous in nature. Since it appears that Respondent has no material objection regarding the instant claim for refund except for some invoices which were not issued in Petitioner's name, this Court is now ready to resolve the issue in the light of the provisions of the afore- quoted Section 106(b) of the Tax Code. Based on the aforementioned proviso, it is imperative for the Petitioner to prove that: (1) it is a VAT registered pjon; (2) the input taxes claimed were paid on capital ' ./ l� . ... goods; (3) the input taxes h'lYfi nqfeen ap,plied against its output tax liability; and (4) the ; �.:.- - -=- .. . :;. : administrative claim for reflnut w s seasonably filed. 1t. ., . ': : . It was established by the evidence presented that Petitioner is a VAT-registered person as manifested in the Cetiificate of Registration issued by the Bureau of Intemal Revenue, dated April 2, 1997 (Exh. A-2). The sales invoices, official receipts, and other 1., - ..!.. .J () . l

L DECISION- CTA CASE NO. 5921 PAGE? documents suppmting Petitioner's claimed input taxes prove that Petitioner paid input VAT on purchases of goods and services which are all attributable to capital goods. Fmihetmore, the input taxes sought to be refunded remain unapplied as shown by Petitioner's Monthly VAT Declaration for July 1999 whereinPetitioner deducted the sum ofPII,705,945.00 from its total accumulated input taxes (Exl1s. H-41). Lastly,Petitioner was able to prove that the administrative claim for refund was seasonably filed. However, as conectly pointed out by Respondent, tlus Court deemed it proper to exclude input taxes which were earlier discussed to have been issued without the Petitioner's name, to wit: Daet S upilper Invoice/ Exh. Input Tax O.R. No. p 21,041.28 04-21-97 HeadHunter G-1 497 G-2 4 2,644.25 04-21-97 Head Hunter 498 G-5 15,280.56 9460 G-7 04-05-97 John Clements Consultants 000021 G-14-a 7,070.91 66472 8,032.86 05-30-97 Goldtelecomm Specialist, Inc. p 94.069.86 09-26-97 Jo Clements Consultants ) T o t al \VHEREFORE, in view of the foregoing, Petitioner's claim for refund is hereby partially GRANTED. Respondent is ORDERED to REFUND in favor of Petitioner the amount ofP11,611,875.14, repre nting input VAT on capital goods for the period April I to December 31, 1997. ., SOORDEREp. , .. .'\' . ' Q - ERNESTO D. ACOSTA Presiding Judge 1' . .!.... ,,) \.j /!1

L DECISION- CTA CASE NO. 5921 l'AGE8 \iVE CONCUR: h.JYRAI. � Associate J ge I ' I c Q- J Associate CERTIFICATION I hereby certifY that the above decision was reached after due consultation with the members of the Cout1 of Tax Appeals in accordance with Section 13, Aliicle VIII of the Constitution. �0-o ERNESTO D. ACOSTA Presiding Judge 11.t>O