CTA Case No. 5587 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY EG & G 01\1NI, INC., Petitioner, u - v e rs s - C.T.A. CAST� NO. 5587 COMMISSIONER OF Promulgated: INTERNAL REVENUE, JUL 26 2000, Respondent. x---- - - - - - - - - - ------------- - -- - - - ------------------ - ----- - --x l DECISION I This case involves a claim for refund and/or tax credit in the amount of P3,365, 157.83 representing unutilized input taxes paid by Petitioner on its domestic purchases of goods and services for the period Janucuy to September 30, 1996. Petitioner is a domestic corporation p1incipally engaged in the business of manufacturing, assembling, processing and expotting semi-conductor, electronic and optoelectronic products (Exh. A). It is duly registered with the Bureau of Intemal Revenue as a value-added (VAT) taxpayer (Exh. B) and with the ExportProcessing Zone Authority as an exporter (Exh. M). On December 18, 1996, Petitioner filed amended quarterly VAT ret-urns for the frrst, second and third quarters of 1996 declaring total zero-rated sales of P335,061,586.75 and input taxes paid on domestic purchases of goocl'5 and services in the amount ofP3,365, 157.83, broken down as follows: 11:20

,, DECISION- C. T.A. CASE NO. 5587 ))age 2 Input Taxes Carried-over Cat-ried-over to subsequent from previous On purchases quarter Exh. 1996 Zero-rated Sales quruter tltis quruter c 1st qtr. p 53,702,663.57 P2,887,490 .63 Pl,448,186.49 P4,335,677.12 D 2nd qtr. 138,456,548.82 4,335,677.12 1,282,745.72 5,618,422.84 E 3rd qtr. 142,902.374.36 5,618,422.84 634,225.62 6,252,648.46 Total p35,061,658 75 P-3,365,157 83 Pursuant to BIR Revenue Audit Memorandwn Order No. 2-9;3, Petitioner filed on January 6, 1998 with the One Stop Shop Inter-Agency Credit and Duo/ Drawback Center of the Department of Finance applications for tax credit of input taxes paid for the first (Exits. F & G), second (Exl1s. H & I) and third (Exhs. J & K) quarters of 1996. The said claims not having been acted upon within the sixty-day period prescribed under Section 106(d) of the Tax Code, as amended, the instant petition was accordingly filed by herein Petitioner on March 30, 1998. Respondent, by way of Special an.d Affirmative Defenses, states that: 1) The alleged tax refund for the first quarter, second quarter and third qumter of calendar year 1996 in the aggregate amount of P3,365, 157.83 representing unutilized input taxes paid on its purchases of goods and services, have still to undergo administrative investigation; 2) Claims for refund are construed strictly against claimant for the same pmtake the nature of exemption fiom taxation; 3) df The amount'' tax sought by the Petitioner to be refunded or credited was collected and paid pursuant to law and BIR implementing rules and regulations, hence, the sum is not refundable. Petitioner must prove that the said input tax was actually paid, remitted and received by the respondent's Bureau; and 4) Ivloreover, Petitioner must prove that it has complied with the provision of Section 230 of the Tax Code, as amended. 11_.')_..1,

DECISION- C.T.A. CASE NO. 5587 page3 To support its case, Peti tioner presented documentary and testimonial evidence. Respondent, on the other hand, did not present any evidence. He submitted his case for decision "based on the pleadings"(CTA rec., p. 167). The only issue to be resolved in this case is whether or notPetitioner is entitled to the refund and/or tax credit of input VAT paid on its purchases of goods and services in the amount ofP3,365,157.83 covering the period January to September 30, 1996. We rule in the affmnative. Section IOO(a)(2)(A)(i) of the Tax Code, as amended, implemented by BIR Revenue Regulations No. 7-95, provides: 'l ''(2) The following sales by VAT-registered persons shall be subject to o,u: A) Export sales. -The term "export sales" means: (i) The sale and actual shipment of goods from the Philippines to a foreign country, inespective of any shipping an�angement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or setvices, and accounted for in accordance with the rules and regulations of the Bangko Sentralng Pilipinas (BSP)." In relation thereto, Section 4.100-2 of said revenue regulations ts quoted hereunder: SEC. 4.100-2. Zero-rated sales. A zero-rated sale by a VAT registered person, which is taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or setvices related to such zero-rated sale shall be available as tax credit or refund in accordance with these regulations.

DECISION- C. T.A. CASE NO. 5587 page4 Thus, as a VAT registered exporter of goods,Petitioner's export sales are subject to zero (0%) percent VAT. Based on the VAT returns filed, Petitioner generated zero- rated expmt sales in the amount ofP335,061,586.75 for the period January to September 1996. Petitioner's direct export sales were paid for in acceptable foreign currency inwardly remitted to thePhilippines and accounted for in accordance with regulations of the Bangko Sentral ngPilipinas. Furthennore, per the aforecited regulations,Petitioner's export taxes paid on the local purchases of goods and services are available as tax credit or refund. However, the law a.n d regulations require that the claim for refund and/or tax credit of input taxes should be timely filed and properly substantiated. Sections llO(a) and 106(a) and(d) of the Tax Code, as amended, mandate, viz: SEC. 110. Return a11d paym.en.t of value-added tax. - (a) In general. - Every person liable to pay the value-added tax imposed under tlus title shall file a quarterly retum of the amount of his gross sales or receipts within t wenty (20) days following the close of each taxable quarter prescribed for each taxpayer. SEC. 106. Refunds or tax credits of creditable input t.ax. - (a) Any VAT-registered person, whose sales are zero-rated or effectively zero-rated, may, within two (2)years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied againt output tax. (d) Period within ..,Fhich refund or ta" credit of input taxes shall be made. -In proper cases, the Corrunissioner shall grant a refund or issue the tax credit for creditable input taxes within sixty (60) days from the date of submission of complete documents in support of the application filed in accordance with sub-paragraphs (a) and (b) hereof In case of full or partial denial of the claim for tax refund or tax credit, or the failw�e on the patt of the Commissioner to act on the application within the period 11- i' -)J \ .)

:! t DECISION- C.T.A. CASE NO. 5587 page5 prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the sixty-day period, appeal the decision or the unacted claim with the Court ofTax Appeals. (Emphasis supplied.) Counting from April 20, 1996, the date of filing for the frrst quarter of 1996, both the administrative (January 6, 1998) and judicial (March 30, 1998) claims were filed within the prescriptive period allowed by law. �l .1 The substantiation requirements are laid down by Section 4.104-5 of Revenue .1 Regulations No. 7-95, to wit: SEC. 4.105-4. Substantiation of daims for input tax credit. - (a) Input taxes shall be allowed only if the domestic purchase of goods, properties or services is made in the course of trade or business. The input tax should be suppotted by an invoice or receipt showing the infotmation as required under Section 108(a) and 238 of the Code. x..xx A cash-register machine tape issued to a VAT registered buyer by a VAT-registered seller from a machine duly registered with the BIR in lieu of the regular sales invoice, shall constitute valid proof of substantiation of tax credit only if the name and TIN of the pmchaser is indicated in the receipt and authenticated by a duly authorized representative of the seller. Respondent, in his memorandum, asserts that Petitioner failed to submit photocopies of export documents, invoices or receipts. Contrary to this allegation, an independent Certified Public Accountant commissioned by this Court duly certified (Exh. 0) that Petitioner's export sales were evidenced by sales invoices and airway bills (Exhs. Q-1a to Q-305). He noted however, that export sales amounting to P335,986.18 do not have corresponding airway bills. The foreign proceeds of Petitioner's export sales were inwardly remitted in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (Ex1l s. Q-306 and L). 11-- ,':I: �'J

DECISION- C.T.A. CASE NO. 5587 ,,age 6 The same accountant uln :.;;;;rtH1ed thtt the inpvt taxes ofP3,3(i�1 1 1Y. aJ P'1.l.d hy Ptitioner on its local purchass of goods a:nd services were properiy tl\JO!}Vrtr.d by BUppliers' invoices/official receipts 1ExhL P-1 to P-442, inclusive) except ftH' tl'illi amount of.P308,830.50, as computed hereundr: Amount Disallowed 1st quat1er p 64,021.14 2nd quarter 3rd quarter 124,302.94 120,506.42 P308,830.50 In addition to the aforesaid exceptions noted by the said commissiond accountant, the amounts ofP31,645.26 for the frrst quarter and Pl27,361.62 for the third quarter should be disallowed pursuant to Section 5 of Revenue Memorandum Circular No. 6-91, Sections 17 & 29 of Revenue Regulations No. 10-94 and Sections 4.104-5 and 4.108-1 ofRevenue Regul ations No. 7-95, to wit: Invoice Input Tax Claimed - 1996 Exl.,.J _t.ll!Ql!_gt J.�! g_!!, ).rd q_I.J. TotJl l 1.) Not in Ute name of the Company SBPI Realty and Const. Cotp. P-142 p 87,200.08 p 7,927.28 p p 7,927.28 P-437 8,510.00 Phi1and Industries, Inc. , �. P-438 p- . 7,- 927.-2--8 p 773.64 773.64 30,525.00 Phi1.1.td Industries, Tnc. Subtotal _?.,]_75.00 _ _1, 775.00 3 548.64 p 11.475.92 :'� P-67 p 14,500.09 E.l..J.!.�J2 ----- E.__l_,_JJJU Subtotal 2.) Not witJlin the period of claim GAST Industrial Sales p 1,318.19 p 1,318. 1 9 3.) Invoices/OR without TIN or "V"/"VAT" aft.er TIN Leonard Prints P-83 P 7,437.43 p 676.13 p p 676.13 709.09 Leonard Prints P-84 7,800.00 709.09 2,096.37 North Star Electtical Sales P-103 23,060.00 2,096.37 6,818.18 p 10,299.78 A.M. Habijan Garden P-376 75,000.00 --- __2,818.18 Subtotal p 3,481.59 p 6,818.18 4.) Rept.:nted invoice amount is overstated P-401 P208.100.18 P18,918.20 p 18,918.20 MlESCOR Buildern Subtotal P18,918.20 p 18,918.20 . 11 ) - ... l.).

DEClSION- C. T.A. CASE NO. 5587 page7 5.) IttVuit:e/Oit with handwdttett!typewtil.ten "Y" iu"re.ad of'prep1inted VAT after TIN f' Jtl,lO L OO .45o.Z:5 Nilcon TtmL'l. & Setvices P-40J P210,111.00 P 19,101.00 2Ul1ttJO Nilcon Trans. & Services P-404 203,018.75 18,456.25 19,3J -2 Nilcon Trans. & Setvices P-405 231,201.30 21,018.30 20,631.50 Nilcon Trans. & Se.tvices P-406 212,863.75 19,351.25 18,436.50 Nilcon Trans. & SeJVices P-407 226,946.50 20,631.50 P 116,994.80 Nilcon Trans. & SeJVices P-408 202,801.50 184 , 36.50 Subtotal Pll6,994.80 Tot a l pll645,2g P127361.62 P 159.0,680 Respondent likewise avers that Petitioner failed to show proof that it has not applied its VAT input taxes to any tax liabilities in the succeeding (fourth) quarter of 1996. We find Respondent's contention to be devoid of merit. Records disclose that Petitioner is engaged solely in export sales and has not incurred any output tax liability. Therefore, it follows that the input taxes of P3,365, 157.83 for the period from January to September 30, 1996 were not applied to any output tax liability. Although the amount of P6,252,648.46, (comprising Petitioner's input taxes in the amounts of P2,887,490.63 for 1995 and P3,365,157.83 for the first three quarters of 1996] was caiTied over to the fourth q_uarter of 1996 (Exh. N), the same was not offset against any output tax liability for the said quarter. Moreover, Petitioner deducted the said amount of P6,252,648.46 from the total VAT tax credits of P9,199,702.51 leaving the amount of P2,947,054.05 as the only amount of input taxes for the fourth quarter of 1996 which is to be carried over to the subsequent quarter (Exh. N-2). WHEREFORE, in the light of all the foregoing, Petitioner's claim is PARTIALLY G.RAN'TED. Respondent Commissione�� of Internal Revenue is hereby ORDERED to REFUND and/or ISSUE TAX CREDIT CERTIFICATE in favor of the Petitioner in the amount of P2,897,320.45 representing mmtilized input taxes for the period January to September 30, 1996, computed as follows: \ 1 � ..

DECISION- C. T.A. CASE NO. 5587 page8 1 9 96 1st Qtr. 2nd Qtr. 3rd Qtr. Total Claim (E.xhs. H & I) (Exhs. J &K) (Exhs. F & G) Amotmt of Claim P1,282,745.72 P634.225.62 P3,365,157.83 p 1,448.186.49 Less: Disallowances p 124,302.94 P120,506.42 p 308,830.50 1.) Per SGV Report. (E.xh. 0) p 64,021.14 p 124,302.94 31,645.26 127,361.62 159,006.88 2.) Per Cmut's fhrther E1 1'i8,427.4 8 P247,868.04 p 467,837.38 p 95,666.40 verification E.38635.Z5.8 E2.82Z�.32Q.45. E1.35252Q.Q9 Subtotal Amount Refundable SO ORDERED. \;VE CONC1JR: Li). ERNESTO D. ACOSTA Presiding Judge CERTIFICATION I hereby certify that this decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13 Article VIIT of the Constitution. - ERNESTO D. ACOSTA Presiding Judge 1,- .._.,.�t�-\