CTA Case No. 4845 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY PHILIPPINE NATIONAL POLICE MULTI - PURPOSE COOPERATIVEr INC. r Petitioner, - versus - C.T.A. CASE NO. 4845 JOSE U. ONGr in his capacity as COMMISSIONER OF INTERNAL REVENUEr Respondent. X- - - - ------X DECISION Be�ore this Court is petitioner's claim for re�und of value-added tax <VAT> in the amount o� P75,110.88 �or purchases it had during the last quarter of 1991. The antecedent facts o� this case are as �allows: The petitioner, Philippine National Police Multi- Purpose Cooperative, Inc. is a cooperative composed solely o� government employees organized under the provisions o� Republic Act <R.A.)No. 6938, otherwise known as The Cooperative Code of the Philippines. I - During the period �rom October to December 1991, the petitioner purchased various merchandise �rom di��erent suppliers. It alleged that the various suppliers included in their sales price the ten per cent <10/.) VAT amounting to P75,110.88 computed as �allows: l8u

DECISION - C.T.A. CASE HO. 4845. - 2- Suppliers VAT Collected Goldstar Phils. Sales Corp. 11, 001.49 Paluwagan Marketi ng Inc. 8,318.45 , Automatic Center 3,648.10 Masa Marketing Corp. 6,470.91 CFC Corporation 1,392.22 Century Canning Corp. 3,589.12 Nestle Phils., Inc. 4,699.55 Marina Sales, Inc. 2,986.11 Conrad and Company, Inc. 1, 471. 15 Pure�oods Corporation Johnson and Johnson 10,690.00 Zuellig Distribut ors, Inc. 4,322.03 Commonwealth Foods, Inc. 1,079.05 Victorias Milling Corporation 2 �, 423. 37 Mac - Van Sales Marketing, Inc. 2,257.50 Cali�orn i a M�g. Co., Inc. 3,724.34 Universal Robina Corporation 1,607.44 Philips Food Corporation 1,800.50 Lamoiyan Corporation 1,709.52 To t a 1 1, 921.01 P75, 111. 86* *With a di��erence o� P0.98 On June 25, 1992~ pet i tioner �iled be�ore the � respondent, Commissioner o� Internal Revenue, a written application �or re�und o� the amount o� P75,110.88 claiming that it is not subject to any government tax under the internal revenue laws and other tax laws <Annex"C", C.T.A. Records, p. 11>. Respondent, in his letter-decision dated July 28, 1992 denied the claim �or re�und. He explained his decision as �ollows: "Please be in�ormed that under Section 99 o� the National Internal Revenue Code <NIRC>, as amended by Executive Order No. 273, the persons liable �or the VAT are not the buyers/ purchasers but the sellers/importers o� goods and those per�orming services �or a �ee. However, since the VAT is an indirect tax, it

DECISION - C.T.A. CASE NO. 4845. -3- can be shifted to customers. Once shifted to the customer as addition to the cost of goods/services sold, it is no longer a tax but an additional cost which the customer has to pay in order to obtain the goods/services <Philippine Acetylene Co. vs. Commissioner of Internal Revenue, G.R. No. L- 19707. August 17, 1967, as cited in BIR Ruling No. 297-88 dated July 6, 1988>. Thus, the shifting of the VAT to you by your suppliers does not make you the person liable thereof." <Annex "A", C.T.A. Records, p. 9) Petitioner filed before this Court on September 8, 1992 the instant Petition for Review of the respondent's decision claiming that the latter erred in holding that the petitioner is not entitled to a refund of the VAT paid on its purchases. Respondent, in his Answer, prays that the petition be denied for lac k of merit arguing by way of special and � affirmative defenses that: 1) the petition has failed to state any cause of action; 2) tax refunds are in the nature of tax exemptions which are construed strictly against the taxpayer; 3) in an action for refund; the taxpayer has the burden . to show that the taxes paid were erroneously o r illegally paid; and 4> the claim for refund is still under investigation. �petitioner filed on January 29, 1993 its Reply and Motion pr aying for the admission of its factual allega ti ons inc luding the genu i neness and due execution of Annexes "A" a nd "C" as they were not denied under oath by the r espondent. lb~

DECISION - C.T.A. CASE NO. 4845. - 4- On June 29, 1993, petitioner �iled its Mani�estation and Motion that the copies o� Request �or Admission sent to the respondent be noted by this Court together with the Exhibits. During the hearing o� June 30, 1993, respondent mani�ested that since the issue involved in the case is purely legal, he "is waving the right to present evidence." <C.T.A. Records, p. 169). Both parties were given thirty (30) days to submit their respective memoranda a�ter which this case shall be considered submitted �or decision. Petitioner �iled its Memorandum on August 16, 1993. On the other hand, respondent did not �ile a memorandum � to support his case. There being no objection on the part o� the I respondent with regard to the petitioner's Request �or Admission o� �actual issues, the only . legal issue le�t �or this Court's resolution is whether or not petitioner is entitled to the re�und o� VAT in the amount o� P75,110.88 representing input taxes �or purchases it had �or the months o� October, November and December o� the taxable year 1991. There is no question that petitioner is a cooperative under the category stated in Article 61 o� the Cooperative Code which reads as �ollows: lbb

DECISION - C.T.A. CASE NO. 4845. - 5- "ART 61. Tax Treatment of Cooperative Duly registered cooperatives under this Code which do not transact any business with nonmembers or the general public shall not be subject to any government taxes or �ees imposed under the internal revenue laws and other tax laws. xxx" Sections 100(a)(2) and 103(u) o� the Tax Code provide: "SEC. 100. Value-added tax on sale of goods - Ca> Rate and base of tax. - There shall be levied, assessed and collected on every sale, barter, or exchange o� goods, a value- added tax equivalent to lOY. o� the gross selling price or gross value in money o� the goods s~ld, bartered or exchanged, such tax to be paid by the seller or trans�eror: Provided, That the �allowing sales by VAT-registered persons shall be subject to OY.. XXX XXX XXX ( 2) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory e��ectively subjects such sales to zero rate. xxx" "SEC. 103. Exempt Transactions the �allowing shall be exempt �rom the value-added tax: XXX XXX XXX Cu> Transactions which are exempt under special laws or international agreements to which the Philippines is a signatory; xxx" The VAT Implementing Regulations provide �or the distinctions between zero-rated and exempt transactions, thus: "SEC. 8. Zero-rating. - (a) In general. A zero-rated sale is a taxable ~ransaction �or value-added tax purposes. A sale by a VAT-' ~ 1. : I I J... u /

DECISION - C.T.A. CASE NO. 4845. -6- registered person o� goods and/or services taxed at zero rate shall not result in any output tax. The input tax on his purchases o� goods or services related to such zero-rated sale shall be available as tax credit or re�undable in accordance with Section 16 o� these Regulations. xxx" "SEC. 9. Exemptions. <a> In general. An exemption means that the sale o� goods or services is not subject to value-added tax <output tax>. The seller is not allowed any tax credit on VAT (input tax> previously paid. The person making the exempt sale o� goods or services shall not separately bill any output tax to his customers because the said transaction is not subject to VAT. xxx" Although the zero-rated transaction is a taxable transaction, the seller o� goods or services is entitled to a re�und or tax credit o� the input tax paid on his purchases o� goods and services. On the other hand, the seller in an exempt transaction is not entitled to such re�und or credit, the input VAT paid on his purchases o� goods and services merely becomes an added cost o� his operations. Petitioner would like this Court to order a re�und o� the amount o� P75,110.88 in its �avor. In its Memorandum, petitioner alleged among others that: "Granting arouendo that the value-added taxes sought by the petitioner to be re�unded to it are in the nature c� indirect taxes, it is the respect�ul submission that the petitioner enjoys exemption �rom indirect taxes in accordance with Article 61 o� Republic Act No. 6938. It is hornbook doctrine that where the law is clear that there is no need to resort to l bu

DECISION - C.T.A. CASE NO. 4845. -7- statutory construction. The tax exemption enjoyed by the petitioner is crystal clear it "shall not be subject to ~..!!Y.. government taxes or �ees imposed under the internal revenue laws and other tax laws." (Article 61, Republic Act No. 6938) Familiar is the maxim, "UBI LEX NON DISTINGUIT NEC NOS DISTINGUERE DEBEMOS, " where the law does not distinguish we should not also distinguish. Since Article 61, Republic Act No. 6938, used the word "any" then the tax exemption grant should include both direct and indirect taxes. Furthermore, granting that there is a need to resort the statutory construction whether Article 61, Republic Act No. 6938 in fact includes exemption from indirect taxes, like the VAT, then it should be interpreted to include among the exemptions the indirect taxes like VAT. This interpretation is in consonance with Article 126 of Republic Act No. 6938, which provides that, "In case o� doubt as to the meaning of any provision of this Code or the regulations issued in pursuance thereo�, the same shall be resolved liberally in favor o� the cooperatives and their members." (underlining supplied) The petitioner is entitled to the refund C. T. A. prayed �or." <Memorandum, pp. 6-7, Records, pp. 179-180> Assuming however that the sale to the petitioner is zero-rated <Section 100), this Court cannot order the refund of input VAT in favor of the petitioner under the circumstances. VAT is a tax on the value added to goods or services. It is a tax on "any person who, in the course of trade o r business, s ells, par~~~g, or exchanges goods, !:ende_r s . s ervices, or engaqes in s imilar transactions and ltJJ

DECISION - C.T. A. CASE NO. 4845. -8 - any person who ~..IT!P.P..I_t �.. goods " <Section 99, Tax Code) <Und e rscoring s upplied>. Assuming further that the petitioner is VAT -exe mpt <Sec. 103), its exemption is limited only to those for which it is directly liable. Hence, it will be exempt from income tax, documentary stamp tax, c ustoms duties and even VAT output tax. In other words, petitioner is not liable for VAT output tax on sales made to its members but is liable for VAT input tax passed on to it by its suppliers. The tax exemption from " any government taxes or fees imposed under the internal revenue laws and other � laws" does not include indirect taxes such as VAT and sales tax passed on by the seller to the buyer. For a taxpayer to be . exempt from indirect taxes , there s hould be a clear intenti on on the part of the Legislature to grant such exe mpt ion. The exempting law should categorically or spe cifically provide for exempti;n from indirect ta xes. <11aceda vs. 11acaraig, Jr. 197 SCRA 771; Commissioner of I nter nal Revenue vs. John Gotamco and Sons, Inc. 148 SCRA 36; Ph ilipp i ne Acetylene Co.� Inc. vs. Commissioner of Internal Revenue 20 SCR A 1056) Re s pondent is correct in sayin~ t hat t he persons liable for the VAT are not the buyers or pur c hase rs but the sellers o r importers of goods and those performing

DECISION - C.T.A. CASE NO. 4845. -9- services �or a �ee. Being the buyer or purchaser, petitioner has no legal standing to clai m �or t h e re�und o� the input ta xes it paid on its purchases . In the case o� Comm~ss~oner o� Internal Revenue vs. John Gotamco and Son s , Inc. <supra> cited by the petitioner, the Supreme Court cancelled the assessment o� 3/. contractor's tax issued by the B. I. R. against the contractor o� World Health Organizatio n <WHO) , an international organization " exempt �rom all direct and i nd irect ta x es". The case wa s brought not by WHO but by its contractor. This Court is not unaware o� the problems or disputes in implementing the VAT scheme. Former Commissioner Bienvenido A. Tan, Jr. , predecessor o� herein respondent, ruled in B.I.R. Ruling 2 89 - 88 that alt h ough the World Food Programme is tax-exempt, its hrol<er c an still be charged the 10/. VAT s in ce t he exemption o� the consignee is only limited to the taxes for wh ich it i s directly liable. "H o wever, XXX i t is ent :l reJy l e ft �to its discretion whether to accept or reject the billing o� the 10/. value-added tax." In an article published in the February issue o� Ateneo Law Journal, i t was observed th~t: "The shifting o� the 10/. VAT is a c o nt.inuinp point o� dispute between sel ler and b\� y e r o� goods and services. Typical o�

O.EGISJON - C.T.A. CASE NO. 4845. - 10 - situation where this controversy arises is where the sel ler sells goods or services to a buye r which is exempt from VAT such as banks, insurance co mpanies, educational institutions, hospitals and restaurants. Since the buy~r has no output tax, the VAT being passed on by the seller is of no use as an input tax credit. Thus, the buyer refuses t.o pay the VAT being shift.ed tfJ him. ln a series of rulings, the BIR held that the persons directly liable for the payment of the VAT ls the seller of goods ~nd services. Howe ver, since the VAT is an indirect tax, it can be shifted to the buyer. Once shifted to the buyer as an addition to the cost of the aoods or services sold, it is no longer a tax but an additiona l cost which the buyer has to pay in order to obtain the goods or services. The shifting of the VAT does not make the buyer the person directly liable therefore; hence, the tax-exempt status and privilege to avoid the passing o n or s hifting of the VAT. Howe ver, while the VAT can be shifted, it is enlirely left to the discretion of � the buyer whether to accept or reject the billing of the VAT. If the buyer rejects the additional billinq, the recourse of the seller is not to proceed with the sale of the goods or services. Thus, it becomes largely a matter of agreement bet wee11 seller and buyer whe �ther or not to shift the VAT." <The Philippine Value Added Ta x System by Cornelio C. Gison, . pp. 138-139). Tax refund partakes of the nature of a t. ax exempt.ion and therefore cannot be allowed unless granted in the most e~ plicit and categorical language. The grant of refu nd priviJeqes mu st. be strictly construed against the taxpayer. <Insular Lumber Co. vs. Court of Tax Appeals , 104 SCHA 710; Commissioner o� Internal Revenue v s. Rio Tuba Nickel Min ing Corporation, 207 SCRA 549)

DECIS I ON - C. T. A. CASE NO . 4 8 4 5. - 11 - WHEREFORE, in vie w of all the foregoing , t h e claim for refund in the amount of P75,110.88 is hereby DENI ED for lack of merit. No pronouncement as to costs. S O ORDERED . Quezon City, Metro Manila , GRUBA Judge ;1M[. Associ WE CO NCUR: Qu...A:; "2, ~ ERNES TO D. ACOS TA ~ f{J_ / RAHON 0 DE VEYRV Associate Judge C:.ERT I .F" IC:A T I O .N I hereby c ertify that this decision was reached after due consultation among the members of t he Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. ~Q..G:~ ERN ESTO 0 . ACOSTA Pre siding Judge