CTA Case No. 6127 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION TECHNIRAIL S.A., C.T.A. CASE NOS. 6127 and 6174 Petitioner, -versus- Members: Acosta, Chairperson, Bautista, and Casanova, JJ. COMMISSIONER OF ncr Promulgated:0r- 2006 ',;t�. L\0 PM INTERNAL REVENUE, tW 0 Respondent. ~ X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -� - - - - - - -- - X DECISION ACOSTA, P.J.: These consolidated cases seek the refund or issuance of a tax credit certificate of petitioner's alleged unutilized Creditab le VAT Withheld for the Second, Third and Fourth Quarters of taxable yea r 1998 in the total amount ofP4,0 13 ,388 .72 , broken down as follows: CTA Period Covered Claimed Creditable Case No. 2nd quarter - 1998 VAT Withheld 3rd and 4th quarters- 1998 p 290,819.34 6127 3,722,569.38 6174 TOTAL p 4.013.388.72 The fo llowing are the facts of the case as culled from the records: Petitioner is a branch ofTechnirai l S.A. (Belgium), duly authorized and licensed to do business in the Philippines, with its principal place of business located at the 3/F Raha

DECISION CTA CASE Nos. 6I27 and 6174 Page 2 of I I Sulayman Bldg., 108 Benavidez Street, Legaspi Village, Makati City. It is a duly registered Value-Added Tax (VAT) taxpayer as evidenced by its "Certificate of Registration" dated March 9, 1999 (Exhibit "P "). It is engaged in the business of supplying mass transport equipment and repair and rehabilitation of rail transit system. The Light Rail Transit Authority (LRTA), a Philippine government agency, was among the entities with whom petitioner rendered construction and rail rehabilitation services. During the Second, Third and Fourth Quarters of 1998, petitioner provided various construction services to the LRTA . In consideration for said construction and rail rehabilitation services, the LRTA paid to petitioner the following amounts: P3 ,421 ,404.00 for the Second Quarter; P31 ,906,800.60 for the Third Quarter; and Pll ,8 88, 133.20 for the Fourth Quarter of 1998 . Petitioner filed its Quarterly VAT Returns for the Second, Third and Fourth Quarters of 1998 on June 23, 2000, July 3, 2000 and July 4, 2000, in that order, which showed, among others, the following: Sa les/ Receipts 2nd Quarter 3rd Quarter 41h Quarter Output Tax (Exhibit "A ") (Exhibit "KK '') (Exhibit "LL '') Less: Input Tax p 3,421 ,404.00 P II ,888,133.20 p 342 140.40 p 31,906,800.60 p 1,188,813.32 Carried-Over from previou s qtr. p 3,190,680.06 Domestic Purchases for the quarter Importation of goods for the quarter p 109,627.37 p 3,071,568.54 p I,764,986.64 Total Available Input Tax I ,084 ,061.86 1,687,893.0 1 1,752,728.86 VAT Payable/(Excess Input Tax) I ,997,470.83 196,205 . 15 1,608,086. 79 Less: Creditable VAT Withhe ld Tax Payable/(Overpay ment) p 3, 19 1' 160.06 p 4,955,666.70 p 5, 125,802.29 P(2 ,849,0 19.66) ( I , 764,986.64) ?(3 ,936,988 .97) 290,8 19.3 4 p 2,712,078.05 1,0 10,491.33 �(3,132,832.QQ) �(4 411 Q64 62) P(4 241 48Q.3Q) Subsequently, petitioner filed amended Quarterly VAT Returns for the Second and Fourth Quarters of 1998 on June 26, 2000 and August 10, 2000, respectively, which are detailed hereunder, thus:

DECISION CTA CASE Nos. 6127 and 6174 Sales/Receipts Second Quarter Fourth Quarter Output Tax (Exhibit "MM') Less: Input Tax (Exhibit "B") p 11 ,888, 133.20 p 3,421,404.00 p 1,188,8 13.32 Carried-Over from previous qtr. p 342,140.40 Domestic Purchases for the quarter Importation of goods for the quarter p 109,327.3 7 p 1'764,886.67 Total Avai lable In put Tax I,087,082. 12 1,881 ,513. 13 VAT Payable/(Excess In put Tax) 2,2 16,999.46 I ,608,086. 79 Less: Creditable VAT Withheld 5,254,586.59 Tax Payable/(Overpayment) p 3,413,708.94 (3,07 1,56 8.54) (4,065 ,773 .27) 290 819.34 1 010 491.33 p (3,362,381.88) P (5,QZ6,264.60l In accordance with Section 114 (C) of t he Nationa l I nternal Reven ue Code of 1997, the LRTA withheld Creditable VAT at the rate of 8.5% of said payments to petitioner. The LRTA withheld the following amounts for the Second, Third, and Fourth Quarters of 1998: P290,819.34; P2,712,078.05 ; and P1 ,010,491.33 , respectively. The said Section 114 (C) of the 1997 Tax Code is hereunder quoted for read y reference, to wit: "Sec. 114. Return and Payment of Value-Added Tax.- XXX (C) Withholding of Creditable Value-Added Tax. - T he Government or any of its political subdivisions, instrumentalities or agencies, includi ng government-ow ned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct a nd withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six (6%) on gross receipts for services rendered by contractors on every sale or installment payment which shall be creditable against the value-added tax liability of the seller or contractor: Provided, however, "That in the case of government public works contractors, the withholding rate shall be eight and one-half percent (8.5% ): Provided, further, That the payment for lease or use of properties or property ri ghts to no n-resident owners shall be subject to ten percent (1 0%) withholding tax at the time of payment. For this purpose, the payor or person in control of the payment shall be considered as the withholding agent. "The value-added tax withheld under this Section shall be remitted within ten (1 0) days following the end of the month the withholding was mad e.

DECISION CTA CASE Nos. 6I27 and 6 I74 Page 4 of I I Aside from the requirem ent of withholding the Creditable VAT, the same Section 114 (C) of the 1997 Tax Code provides that the VAT withheld by LRTA from its payments to petitioner is creditable against its VAT liability. However, petitioner alleged that it did not incur VAT liability for the same peri ods against which the subject Creditable VAT withheld for the Second, Third, and Fourth Quarters of 1998 may be credited. Likewise, the subject Creditable VAT withheld by LRTA were supposedly not carried over to the succeeding taxable quarters. Hence, th e same remain unutilized. On June 29, 2000, petitioner, through co unsel, filed with respondent Commissioner of Internal Revenue, through RDO No. 47 (East Makati), a claim for refund of the Creditable VAT Withheld for the Second Quarter of 1998, attributable to its transaction with the LRTA, amounting to P290,819.34 (Paragraph 3, Joint Stipulation of Facts and Issues, CTA Case No. 6127, page 43, Records) . On the same date, petitioner elevated its claim to this Court, by way of a Petition for Review and the case was docketed as CTA Case No. 6127. During the pendency of CTA Case No. 6127, petitioner, through counsel, filed on September 29, 2000 with respondent Commissioner of Internal Revenue, through ROO No. 47 (East Makati), a c laim for refund of the Creditable VAT Withheld for the Third and Fourth Quarters of 1998, attributable to its transactions with the LRTA, in the respective amounts of P1 ,010,491. 33 and P2,712,078.05 or a total of P3 ,722,569.38 (Paragraph 3, Joint Stipulation of Facts and Issues, CTA Case No . 6174, page 41, Records) . The petitioner elevated its c laim with thi s Co urt on even date, via Petition for Review, which was docketed as CTA Case No. 6174. In his Answers to the two Petitions for Review for the two cases ofTechnirail S.A. vs. CIR, docketed as CTA Case Nos. 6127 and 6174, respondent asserted the following Special and Affirmative Defenses, to wit:

DECISION CTA CASE Nos. 6 127 and 6 174 Page 5 of II "4. The petition states no cause of action as it does not allege the dates when the taxes sought to be refunded were actually paid; 5. Claims for refund are construed strictly against the claimant, the same being in the nature of exemption fro m taxes (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95; Manila Electric Co. vs. Commissioner of Internal Revenue, 67 SCRA 35); 6. One who claims to be exe mpt from payment of a particular tax must do so under c lear and unmi stakable terms found in the statute (Asiatic Petroleum vs. Llanes, 49 Phil. 466; Union Garment Co. vs. Court of Tax Appeals, 4 SCRA 304); 7. In an action for refund, the burden is upon the taxpayer to prove that he is entitled thereto, and fai lure to sustain the same is fatal to the action for tax refund ; 8. It is incumbent upon petiti oner to show compliance with the provisions of Section 229 of th e National internal Revenue Code; 9. Taxes paid and col lected are presumed to have been made in accordance with the law and regulati ons, hence not refundable." On March 1, 2001, petitioner fi led a Motion to Consolidate Court of Tax Appeals Case Nos. 61 27 and 6174, on th e gro und that these cases involved the same parties, same facts, and issues. The sa id Motion was granted in open court on March 16, 2001 and confirmed in a Resolution dated March 23, 2001 (Pages 50-53, 55, and 58, Records). On September 15, 2005, after the trial, this Court issued a Resolution directing the parties to file their respective Memorandum within thirty (30) days from receipt of said Resolution. In a Resolution dated December 1, 2005 , the case was ordered submitted for decision, with only the petitioner filin g its Memorandum. Based on the Joint Stipu lation of Facts and Issues dated February 2, 2001 and February 20, 2001, th e fol low ing are the issues to be resolved by the Court: 1. Whether petitioner is entitled to a total refund of ?4,013 ,3 88.72 representing the Creditable VAT Withheld from payments to petitioner from its sale of various construction services attributable to LRTA, a government agency;

DEC IS IO N CTA CASE Nos. 6 127 and 6 174 Page 6 of II 2. Whether f etiti oner has unutili zed or excess Creditable VAT Withheld for the 2nd, 3r and 4th quarters of taxabl e year 1998; and 3. Whether petiti oner has no VAT liability which can be credited against the VAT w ithhe ld fo r 2"d, 3rd and 4th quarters of taxable year 1998. Thi s Co urt w ill first resolve the seco nd and third stipulated issues inasmuch as they both relate to the factua l bas is of the c la im. Anent the issue of whether or not peti tioner has unutilized or excess Creditable VAT Withheld for th e last three qu arters of 1998, records indicate that out of the claimed Creditabl e VAT Withhe ld of P4,01 3,388 .72, the amount ofP3 ,237,663.84 is duly covered by certified true copies of the Certificates of Cred itable Tax Withheld at Source issued by LRTA (Exhibits "C", "NN ", and " 00 ")and Monthl y Returns of Internal Revenu e Taxes Withhe ld on Government Money Payments w ith attac hed Schedule of Remittance filed by LRTA for the subj ect peri od of the c laim (Exhibits "D ", "E ", "G ", "G-1 " to "G-5 ", "H " and "H-1" to "H-5 "). While the rema ining amount of P775,724.88 (P4,013,388. 72 less P3,23 7, 663. 84) does not have corresponding Certifi cates of Creditable Tax Withheld at Source, the actual withholding and subsequ ent remittance thereof to the BIR can be traced to the Monthly Return of Internal Reve nu e Taxes Withhe ld on Government Money Payments for December 1998 filed by LRTA w ith the BIR (Exhibit "!"and "1-6 " to "1-8 "). Likewise, a scrutiny of petitioner's Quarterl y VAT Return s fo r the Second, Third and Fourth Quarters of 1998 (Exhibits "B ", "KK ", and "MM") revea ls th at petitioner declared the gross receipts related to the Creditabl e VAT Wi thh e ld of P4,013,3 88.72 . In other words, petitioner was able to establi sh the fact of w ithho lding of the c la imed Creditable VAT of P4,01 3,3 88.72, which it can validly apply or util ize aga inst its outp ut VAT liability. Regarding th e qu esti on of whethe r or not petitioner has VAT liability against which its unutilized Creditab le VAT Withhe ld can be credited, a closer look at petitioner 's input and

DEC ISION CTA CASE Nos. 6127 and 6 174 output VAT transacti ons for th e subj ect peri od as verified by the commissioned independent CPA shows that it has tota l output VAT li ability of P4,724,589.69. Meanwhile petitioner's accumulated input VAT, coverin g a ll other transactions, amounts to P5 ,260,740.18. The same are illustrated in deta il be low : 1998 2nd Quarter 3rd Quarter 4th Quarter Total p 3,190,680.06 Adjusted Output VAT 1 P 345 096.3 1 p 1,188,8 13.32 p 4,724,589.69 VAT Carry-over 1 972586 .1 0 1,627 ,489 .79 2,089,630.36 5,260,740.18 Verified Input VAT2 1,198,523 .72 VAT Payable/(Excess In put VAT) PC1.627.489 .72)_ P 364.666.5 5 p (900.817.04) p (536.150.49) From the foregoing, petiti oner's accumulated input VAT, covering all other transactions, in the amount of P5,260,740. 18, was more than enough to cover its total output VAT li ability of P4,724,589.69. After deducting the output VAT ofP4,724,589.69 from the input VAT of P5 ,260,740 .18, there still rema ins an excess input VAT in the amount of P5 36,150.49. Inasmu ch as petiti oner had no more output VAT liability for the subject period aga inst which the Creditabl e VAT Withheld may be applied/credited, then such Creditable VAT Withheld am ountin g to P4,0 13,388.72, derived from its transactions with the LRTA, constitutes excess ive ly pa id tax. We now resolve the issue of th e legal bas is of the grant of the claim for refund or issuance of tax credit certi ficate. At thi s juncture, th e pertin ent portions of Sections 110 (A)(l) and (B) and 112(A) of the 1997 Tax Code are hereunder quoted inasmuch as they are the controlling provisions as regards the instances w hen VAT refun d are allowed, to wit: 1 Page 6, Exhibit " Q" 2 Annex " R-A", Exhibit " Q"

DEC ISION CTA CASE Nos. 6 127 and 6 174 Page 8 of I I SEC. 110. Tax Credits. - (A) Creditable Input Tax. - ( I ) Any input tax evidence by a VAT in vo ice or offi cial receipt issued in acco rda nce w ith Section 11 3 hereof on th e fo llowi ng transactions shall be creditable against th e output tax: 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 pa id 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. (Emphasis supplied) XXX XXX xxx" SEC. 112. Refunds or Tax Credits of Input Tax. - (A) Zero-rated or effectively Zero-rated Sales. - Any VAT-registered person, w hose sales are zero-rated or effective ly zero-rated may, w ithin two (2) years after th e c lose of th e 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 tran sitional input tax, to the exte nt th at such input tax has not been applied against output tax: Prov ided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b) and Section 108(B)(1) and (2), the acceptable fore ign c urrency exchange proceeds thereof had been duly accounted for in accordance w ith the rul es and regul ati ons of the Bangko Sentral ng Pilipinas (BSP) XXX. (B) Capital Goods - A VAT-registered perso n 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 app lied against output taxes. xxx (C) Cancellation of VAT Registration. - A person whose registration has been cancelled due to reti rement from or cessati on of business, or due to changes in or cessation of status under Section 106(C) of thi s Code may, within two (2) years from the date of cancellation, apply for the issuance of a tax credit certificate for any unused input tax whi ch may be used in payme nt of hi s oth er intern al revenu e taxes. XXX XXX xxx (Emphasis supplied)

DECISION CTA CAS E Nos. 61 27 and 6174 Page 9 of II The general rule in the case of excess tax, as provided in Section 110 of the 1997 Tax Code, is that the excess shall be carried over to the succeeding quarter or quarters. However, 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 its excess tax, subject to the provisions of Section 112 of the same Tax Code. Section 112 of the 1997 Tax Code, in relation to Sections 106(A)(2)(a) and (b), and 108 (B), specifies the instances when the options of refund or tax credit can be exercised or allowed, namely: ( 1) in cases of zero-rated or effectively zero-rated sales; (2) input taxes paid on capital goods; and (3) in cases of cancellation of VAT registration due to retirement from or cessation of business or due to changes in or cessation of VAT-registered status. The terms " zero-rated" or "effectively zero-rated," as defined in Section 106(A)(2)(a)(1) and (2) contemplate export sales, which can be either (a) sale and actual shipment of goods from the Philippines to a foreign country or (b) sale of raw materials or packaging materials to a non- resident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer' s goods. Based on the foregoing, the specific cases when a refund or issuance of tax credit certificate can be granted or allowed are as follows: 1. Zero-rated or effectively Zero-rated sales, such as a. Export sales b. Foreign currency denominated sale; 2. Input taxes paid on Capital Goods imported or locally purchased; and 3. Cancellation of VAT registration due to retirement from or cessation of business or due to changes in or cessation of VAT status. In the absence of a special law wherein the petitioner would qualify, it means that in case the transaction from which the alleged unutilized input VAT arose is not among those enumerated or specifically mentioned in the significant provisions of the 1997 Tax Code as

DEC ISION CTA CASE Nos . 6 I27 and 6174 Page IOof 11 entitled to refund or issuance of tax credit certificate, then the claim for refund or issuance of a tax credit certificate of th e excess input VAT must fa il. The law cannot be any clearer. Long-settl ed is the rule of statutory constructi on th at the express mention of one person, th ing, act, or consequence excludes all others. This rule is expressed in the familiar max im expressio unius est exclusio alterius. Where a statute, by its terms, is expressly limited to certain matters, it may not, by interpretati on or constructi on, be extend ed to others. The rule proceeds fro m the premi se that the leg islature wo uld not have made specified enumerati ons in a statute had the intenti on been not to restrict its meaning and to confine its terms to those expressly mentioned (Commissioner of Customs vs. Court of Tax Appeals and Litonjua Shipping Company, represented by Granexport Corporation as sub-agent, G.R. Nos. L- 48886-88. July 21, 1993). In th e case before Us, record s indicate that petiti oner's transaction w ith LRTA is not zero-rated or effecti ve ly zero-rated sale nor invo lves capital goods. Likewise, there is no ev idence indicati ng that petitioner has retired from or ceased doing business, or has qualified under any spec ial law. Accordin gly, it is not entitled to refund of or issuance of tax credit ce rtifi cate fo r its excess input tax. Pursuant to Secti on 11 O(b) afo re-quoted, as implemented by Section 4.104-4 of Revenue Regulations No. 7-95 (Consolidated Value-Added Tax Regulations), the remedy of petitioner is to carry-over the excess input VAT to the succeeding taxable months or qu a rte rs . Although the peti tioner has suffi ciently established the existence of its excess unutili zed input VAT in the amount of P4,01 3,388.72, however, since the transacti on from whi ch the said unuti lized amou nt arose is not among the specified instances when the rem edy of refund or issuance of tax credit certificate is permitted, then the petitioner wi ll only be allowed to carry-over the c laimed am ount to the succeedin g taxable months or quarters.

DECISION , CTA CASE Nos. 6 127 and 6174 Page I I of II WHEREFORE, petitioner's claim for refund or iss uance of a tax credit certificate in the amount of P4,0 13,388.72 is hereby DENIED. SO ORDERED. L- ~. ~ ERNESTO D. ACOSTA Presiding Justice CAESAR A. CASANOVA Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of th e Constitution, it is hereby certified that the conc lusions in the above Decision were reached in consultation before the case was assigned to the writer of the opi nion of the Court ' s Di vi sio 11. 0__-\c_ . 0~ ERNESTO D. ACOSTA Presiding Justice