CTA Case No. 6022 (Decision)

J.tEPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BU RMEISTE R AND WAIN SCAN DI NAV IAN CONTRACTOR M INDANAO, INC., Petitioner, �� versus - C.T.A. CASE NO. 6022 COMM ISSlONER OF INTERNAL R EV I~ NUE, Promul gated: Responde nt. _j_!J!U_0~2aa1jg,"'r~ X - - - �� - - .. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X D ECIS ION The case at bar seeks the refund of the amount of P1 ,464,723.55 representing Petitioner's alleged erroneous ly paid value-added tax (VAT) for the period covering the month of January, 1998 . As represented, Petiti oner is a corporation dul y organized and existing under and hy virtue of the laws of the Philippines. It is registered with the Securities and Exchange Commission (SEC) and with the Bureau of Internal Revenue (BIR) as a VAT entity. Burmeister and Wain Scandinavian Contractor, a Danish Corporation (BWSC, for (brevity), Mitsui Engineering and Shipbuilding, Ltd . (MES) and Mitsui & Co., Ltd., (MITSUI), both Japanese corporations, entered into a Consortium Agreement with the National Power Corporation (NAPOCOR, for brevity) for the operation and mai ntenance of the latter 's two power barges. Having been appointed by the Consortium as its 784

DECISION- CTA CASE NO . 6022 PAG E?. Coordinat ion Manager, BWSC establis hed Burmeister and Wain Scandinav ian Co ntrac tor~:, Mindanao, In c. (B WSCM 1), here in Petitioner, which s ubco ntrac ted the actual o peration s and maintenan ce of th e two power barges, as well as the performance of other wo rk s, w hi ch will necessarily ha ve to be clone in the Philippines . �� !' il ll The Consortium pays he re in Petit io ner BWSCMI for its se rvi ces 111 foreign currency inwardl y remitted to the Philippines through the banking system. NAPOCO R pays the capacity and energy fees du e und er the agreement to the consortium in a mixture of currencies. The freely convertible no n-P eso component of the fees is paid directly to the consortium's bank accounts in Denmark and Japa n and since the peso component is not fi�eely convertible a nd cannot be remitted and he, :.! overseas, it is deposited in a separate and especiall y designated bank acco unt in the Philippines. NAPOCO R deposits th e peso component directly into the bank acco unt and BWSCMI assists in its su bsequent conversion to foreign curre ncy for remittance to the consortium's bank acco unt in De nmark. In order to be certa in about the ta x status of its transactions, BWSCM l Jilcd w ith th<:: BIR a letter dated January 14, 1994, requesting for c larifica ti on of the tax implications of the contracts described above. In BIR Ruling No. 023-95 dated February 14, 1995 , the BlR rul ed that ifBWSCMI chooses to register as a VAT person and the consideration for its servi ces is pa id for in acceptable foreign currency and accounted for in accorda nce with the rul es and regulations of th e Centra l Bank of th e Philippines. th e afo resaid services sha ll be subj ect to VAT at zero-rate.

DECISION- CTA CASE NO. 6022 PAG E 3 On February 25, I998 , herein Petitioner BWSCMI filed VAT declaration for the month of January, 1998 and paid VAT amounting to One Million Four Hundred Sixty Four Thousand Seven Hundred Twenty Three Pesos and Fifty Five Centavos (P1,464,723.55) , covering its alleged ze ro-ra ted sales ofservices to the consortium. On the be li ef that its sales of services are not subject to 10%, value-added tax but are zero-rated pursuant to Section I 08(8)(2) of the Tax Code and BIR Rulin g No. 023- 95, Petitioner filed an admini strative claim for refund with the Bureau of Internal Revenue on April 22, 1999 in th e amount of PI ,464,723.55 representing Petitioner's alleged erroneously paid VAT for January, 1998 . As no affirmative action has been taken by Respondent on the claim for refund , Petitioner, on February 24, 2000, filed with thi s Court the instant Petition for Rev iew. On March I5 , 2000. Respo nd ent fil ed his Answer and advanced th e following Special and Affirmative Defenses: "5. Petitioner's alleged claim for tax credit is subject to administrative routinary in ves ti gation/exa minati on by res pondent's Bureau; 6 . The tax so ught to be re fund ed was co ll ec ted and paid pursuant to law and pertinent BIR impleme nting rul es and reg ul at ions , hence, not refund able. 7. Petitioner's allegation that its tran sactions qualify as ze ro-rated does not ipso facto warrant the credit. Petitioner has the burden of proving that it is indeed entitled to the credit sought as it is a well-settled rul e th at claims for tax refund/tax credit are construed in "strictissimi juris" aga inst the taxpa yer (Co mmi ss ioner of Internal Reve nue vs. Ledesma , G .R. No . L- 13509, 30 .J anuary 1979, 31 SCRA 95). This is due to the fact that cla ims for refund/credit partake th e nature of an exe mption hom tax. Thus, it is incumbent upon the petitioner to prove that it is indeed entitled to the refund/credit so ught. Failure on th e part of �he petitioner to prove the same is fatal to its claim for tax credit. He who claims exempti on must

DEC IS ION- CTA CASE NO. 6022 PAGE4 be abl e to justi fy hi s claim by th e c lea res t gra nt of organic or statutory law. An exe mpti on from the co mm on burd ~ n cannot be pe rmitted to exi st upon vague impli cation s. (Asiati c Petro leum C o. vs. Ll a mas, 49 Phil. 4G6) 8. Moreover, petitione r must prove that it has compli ed with the prov ision of Section 229 of the Tax Code, as am end ed . ln its Memora ndum , Petiti oner repl eads its co ntenti ons as stated in its Petiti on for Rev iew and mainta ins that since it is a VAT-regis te red entity and the conside rati on fo r its services rend ered to the co nso rtium were made in acce ptable fore ign curre ncy and invvardl y re mitted to th e Philippines and acco unted fo r in accord ance w ith the ex isting regulations o f the Centra l Bank o f th e Philippines, Pe titi oner's sa le of serv ices are not subj ect to the I0% va lue-add ed tax but instead subj ect tJ ze ro perc e nt (0%), p urs uant to Section I08(8)(2) of the Tax Code, w hi c h reads: Section 108. Value-added tax 011 sale of services and use or lease of I". Properties. - x x x ' (B) Ti�an.mctions S ubjec.:t to Zero Percent (0%) Rate. - T he following services perfo rmed in th e Philippines by VAT-reg istered persons shall be subj ect to zero percent (0%) rate; ( J) XXX XXX XXX (2) Se rv ices other than those menti oned in th e preceding paragraph. the co nsiderati on lo r whi ch is pa id lo r in <1cceptable fo re ign currency and acco unted Jo r in acco rd ance w ith the rules a nd regu la tions of the Ba ngko Sentra l ng Pilipinas (BS P). XXX X XX XX X

DECISION- CTA CASE NO. 6022 PAG E 5 Petitioner submit s th at s ince th e above transactions we re s ubject to zero- rate VAT, thus, th e VAT taxes paid fo r January. 1998, in th e amount o f Pl ,464 ,723.55, is in th e nature of erron eous payment, he nce, rcf'und ab le to it. On th e other hand, Respond ent argues th at since �Petitioner's serv ices a re not deslined to be co nsum ed abroad, th ey arc no t of th e same c lass o r o f th e same natu re as "proj ect s tudi es, info rm atio n se rvices, engineering a nd arc hitec tura l des igns and o ther similar services", mentioned in Section 4.! 02-(b)(2) of R evenue Regu lati ons No. 5-96, which are des tined to be co nsumed ab road. As s uch, they ca nnot legall y qualify tor zero- rat ed VAT but rather arc s ub.i ec t to th e reg ular VAT rate of I Q<X>. The iss ue tha t co mes to lo re fo r o ur co nside ra tion is w hether o r not the sa le of services by the Petitioner to th e Co nsortium qu a lify as ze ro-rated, pursuant to Section 108(B)(2) of the Tax Code, thu s. it is entitl ed to the amount so ug ht to be refund ed. We rule in th e anirma tive. The above iss ue was settl ed by thi s Co urt in CTA Case 1\io. 5376 invol v ing the same parties in a deci sion promulgated on August 4, 1999. Thus, th e Co urt is compe ll ed to reasse rt what it had rul ed earlier. Pe rtinent portions of the sa id deci sio n arc quo ted below. thu s: "A me re glance at Section I 02(a)(2) o f th e Tax Code wo uld readily reveal that to quali fy as zero- rated, the sa le of' se rvices must compl y with th e following requirements, to wi t: 1.) Payme nt of th e se rv1 ce fees mus t be 111 acceptable foreign currency;

,., DEC ISION- CTA CA SE NO. 6022 PAGE6 2.) Inwa rd re mittance of the foreign currency into the Philippines; and 3.) The inwa rd remittance is acco unted lo r in accordance wi th the rul es and regul ati ons of the Central Bank of th e Philippines (now Bangko Se ntral ng Pilipinas). With reference to the first and seco nd requirements, there was ample compli ance since records o r thi s case revea l that the sub-contrac t fees fo r the se rvices rende red by the Petiti oner to the Consortium invo lving the actua l operati on and maintenance of NA POCO R's two power barges for the period January I, 1994 to December 3 1, 1994, amountin g to DKK 26,990,000.00 (Dani sh Kroner) with peso equi va lent of Pll 3.00 1.71 5. 00 , we re bill ed to BWSC-Denm ark, bein g th e Consortium coo rdinator, as sho wn by Petiti oner' s sa les invo ices (Ex hs. Q to Q�� l 0. inclusive) . Thus, in effect, We rejec t Respondent 's co ntenti on of non-foreign currenc_ in ward remittance lor it faikd to present convincin g ev idence, other than its own baseless specul atio n, that the same foreign currency in wa rdl y remitted to BWSC- MI by virtue of the subcontrac t agree ment is the sa me fo reign currency outwardly rem itted back to the Co nso rtium by the Petiti oner under the Operati ons and Maintenance Ag ree ment. What is quite ev ident in thi s case is that the pay ments rece ived by the Petiti oner from the Co nsortium for the subco nt ract services whi ch the former rendered to the latter and the Petitioner's coll ection/re mittance as co ll ecti on age nt of the Con sortium fo r th e services which the Co nsortium renders to NA POCO R are two di stinct and separa te transacti ons. We simpl y cannot give more weight to Respondent ' s co nj ectures over that of Petiti oner' s doc umentary ex hibits. Con formab ly, We hold that there was indeed fo reign currency in wa rd remitta nce to the Petiti oner for its sa le of se rvices under the Subco ntrac t Agreement. As rega rds the las t requirement, We likewise agree with the Pet iti oner that the sub-contrac t fees in foreign currency were inwa rdl y remitted and acco unted for in acco rdance with the rul es and regul ati ons of Bangko Sentral ng Pilipinas since it was ev ide nced by the bank credi t memos/ce rtifi cations hom the Bank of the Philippine Islands and Hongkong and Shanghai Bank (Exhs. R to R-4, incl usive)" The fact that Petiti oner's services to the Conso rtium vvere paid in acceptab le fore ign currenc y inwa rdl y remitted to the Philippines and acco unted for by the Bangko Scntral ng Pilipinas wa s clea rl y estab li shed by Petiti oner \�vhen it presented to th e Co ur t, Ms. Grace

------ DEC ISION- CTA CA SE N O. 6022 PA GE 7 Beli sari o, its Chi ef Accountant. Her testimony likewise established tlwt th ey were granted two (2) BIR rulin gs ex press ly dec laring that the subcontractor's fees it received from the Consortium is subj ec t to VAT at zero rate and that on January, 1998 . Petiti oner erroneously paid to Respond ent a VAT amounting to PI ,464.72 3.55 (TSN, July 13, 2000). To ~hore up its pos iti on, Petiti oner presented in ev idence the various Bank Credit Memos (Ex hs. I to K) and th e ce rtifi ca ti on iss ued by th e Branch Manage r of the Ba nk of the Philippine Islands (BPI ), Davao Lanang Branch (Exhs. CC and CC-1 ). to prove that Petiti oner is being paid in US doll ars which is an acceptabl e foreign currency acco unted .. for in accordance vvith the rul es and regulations of the BSP and that the amounts 1' appearing in the various Ba nk Credit Memos we re remitted as subcontractor's fees and were dul y accounted for in accord ance with the BSP regulati ons. The above ex hibits and other ex hibi ts of Petiti oner were not co ntroverted by .Respond ent. hence, the Co urt find s that Petitioner fa ll s squarely within the ambit of Secti on I 08(13)(2) of the Tax Code, supra, thus subj ect to Vat at zero percent (0%) rate, and therefore enti tled to the clai med refund able amount in acco rdance with Secti on 11 2(A) of the Tax Code, which states. to wit: Section I 12. Rejimds or lax credits ofinput tax. - (A) Zero-roted or Ejj"ective!y Zero-mted Soles. - Any VAT- registered person. whose sa les are zero- rated, rnay within t\VO (2) yea rs a fter the close of the taxa bl e quarter when the sales were made, <t pply for the issuance of a ta x credit certificate or refund or creditabl e input tax clue or paid attributabl e to such sales, except transitional input tax. to the ex tent that such input tax has not bee n appli ed aga in st output tax : Provided. however, That in the case or zero�� rated sa les und er Secti on I06(A)(2)(a)( I), (2) and (13) and

DFC IS ION- CTA CASE NO. 6022 PAGE 8 Section I08(8)( I ) and (2), the acceptab le foreign currency exchange proceeds th ereof had bee n duly accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas (BSP) : Provided, further, That where th e taxpayer is engaged in ze ro- ra ted or effectively zero-ra ted sa le and a lso in taxable or exempt sa le of goods o r propert ies or se rvices, a nd the amount of creditab le input la x due or paid cannot be d irect ly and entirely att ributed to any o ne of the transac ti ons, it s ha ll be a ll ocated proportionately o n the bnsis of the vo lume or sales. IN THE LIGHT OF ALL Tl-lli.: FOREGOING, the instant petition for rev iew is hereby GRANTED . Responden t is hereby ORDERED to REFUND or ISSUE a TAX CREDIT CERTIFICATE in th e a mo unt of PI ,464,72~ .55 in f~lvor of herein Petitio ner, representing the latter's erro neo us ly paid VAT fo r January, 1998. SO ORDERED. I CONCUR: Ll�).c~ ERNESTO D. ACOSTA Presiding Judge CERTIFICATION l hereby certi fy that the above dec isio n was reached a rter due consultati on w ith the or membe rs of th e Court Tax Appea ls in accordance w ith Sec ti o n 13 , Article VIII of the Cons tituti o n. ~t9~Q~ ERNESTO D. ACOSTA Presiding Judge