CTA Case No. 5013 (Decision)

RE PUBLIC OF THE PHILIPPINES COURT OF TAX A P PEALS QUEZON CITY ROYAL UNDERGARMENT COR PORATION OF THE PHILI P PINES, INC., .. �'� Petitioner, � '::'.._". "-" - versus - C.T.A. CASE NO. 5013 THE COMMISSIONER OF INTERNAL tJF;;- Promulgated: ' REVENUE, JL- 2 4 97 Respondent. _ _ _ _ _ _ _ X - -- - �DECISION In the case- at bar the issue which is presented for our consideration is whether or not petitioner is entitled to a tax refund/credit of its input taxes for the period May 1, 1991 to July 31, 1991 amounting to P980,881 .96. Petitioner is a domestic corporation duly organized and existing under the laws of the Republic of the Philippines; is registered with the Board of Investments ( BO I ) as a preferred non-pioneer enterprise under P.O. 1789, as amended, for production, manufacture and export of undergarments (i. e., brassieres, panties and girdles); is duly registered as a manufacturer of apparel under the ru I es and reguIations of the Gar-ments and Texti I es Export Board (GETB); and is registered with the Bureau of

DECISION C.T.A. CASE NO. 5013 -2 - Internal Revenue (B I R ) as a Value-Added Tax (VAT) taxpayer, with VAT registration No. 30-1-000546. For the period covering May 1 to July 31, 1991 ' petitioner alleged that it p�r b ces s e d , manufactured and repackaged goods for companies doing � > ... and entit:ies business outside the Philippines, and subsequently exported the same, the consideration of which were allegedly paid for in acceptable foreign currencies, inward I y remitted to the Phi Iippines and accounted for in accordance with the Rules and Regulations of the Central Bank of the Philippines. During the same period, petitioner alleged that it purchased domestic goods and services and imported capital goods necessary for its products and operations in the total amount of P9,808,819.60 and paid an input tax of P980,881.96. On October 2 9, 1992, petitioner filed witll the respondent an application for tax credit/r-efund of the aforementioned � in the total amount of input taxes P980,881.96. The aforesaid app I ication was not acted upon by the respondent, hence, on July 30, 1993, petitioner filed with this Court the instant petition for review. Petitioner presents the propositions as reasons of the petition for review that it is entitled to a refund of the aforementioned VAT input taxes since it fa I Is

DECISION C.T.A. CASE NO. 5013 -3 - squarely within the ambit of Section 102 (a) (1) of the Tax Code, which provides: "SEC. 102. Value-added tax on sale of services. - (a) Rate an'd base of tax. - There shall be levied, eqausisveasl_etndt and collected, a value-added tax to 10% of gross receipts derived by any person engaged in the sale of services. The phrase �"Sale of services" means the performance of alI kinds of services for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, rea I estate, commercia I, customs and immigration brokers; lessors of personal property; lessors or distributors of cinematographic fi I ms; persons engaged in milling, processing, manufacturing or repacking goods for others; and s i 111 i I ar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties: Provided that the fo I I owing services perform e d i il t he Phi I ippines by VAT-registered persons sha I I be subject to 0%. (1) Processing, manufacturing or repacking goods for other persons doing business outside the Phi I ippines which goods are subsequently exported, where tho services are paid for in acceptable foreign currency, inward I y remitted to the Pia iIi ppines and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines. XXX XXX X X x". Further, petitioner states that it la 1 s camp Ii ed with aI I the statutory and procedural requirements, thus, respondent should have granted its claim for refund as mandated by Sec. 16 of Revenue Regulations No. 3-88. 1 � ( { ,:,.,

DECISION C.T.A. CASE NO. 5013 -4- Respondent on the other hand, in her answer stressed that the petitioner's application for tax credit is pending administrative investigation and the amount of P980,881.96 claimed by the ptitioner as input tax for the period May 1 to . . .._. were not properly July 31;":'. 1991 documented. Further respondent raise, in the usual token of a defense, that ( 1 ) it is incumbent upon the petitioner to show that the a I I eged purcl1ase of domestic goods and services and imported capital goods are covered by Section 106 of the Tax Code, (2) in an action for tax credit/refund, the burden of proof is on the petitioner to establish its entitlement thereto, (3) taxes paid and co I I ected are presumed to have been made in accordance with law and regulations, and ( 4) it is incumbent upon the petitioner to show that it has complied with the provisions of Section 204 in relation to Section 230 of the Tax Code, relative to the recovery of erroneously or I legally collected taxes. As ear I ier adverted to at the outset, the issue to be resolved by the Court is whether or not petitioner is entitled to a tax refund/credit of its input taxes for the period May to July 31, 1 991 amounting to P980,881.96. Aside from Sec. 102 earlier mentioned, the other provisions of law applicable in the case at bar are 7 (I .. (..) , .)

DECISION C.T.A. CASE NO. 5013 -5- Sections 104 (b) and 106 of the National Internal Revenue Code, which we quote for ready reference, to wit: SEC. 104. Tax Credits. - (a) Creditable XX input tax. X ... .:-, (b) Excess output '7: input tax. - If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid 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, sub j ect to the provisions of Section 106. SEC. 106. Refunds or tax credits of input tax. - (a) Export Sales. - An exporter who is a VAT-registered person may within two years from the date of exportation, app Iy for the issuance of a tax credit certificate or refund of the input tax attributable to the goods exported, to the extent that such input tax has not been app I ied to output' tax and upon presentation of proof that the foreign exchange proceeds has been accounted for in accordance with the regulations of the Central Bank of the Philippines. (b) Zero-rated or effectively zero rated sales. - Any person, except those covered by paragraph (a> above, whose sales are zero-rated or are effectively zero-rated may, within two years after the close of the quarter when such sales were made, apply for the issuance of a tax credit certificate or refund of the input taxes attributable to such sales to the extent that such input tax has not been applied against output tax. (c) Capital goods. A VAT- registered person may apply for the issuance of a tax credit certificate or

DECISION C.T.A. CASE NO. 5013 -6- refund of input taxes paid on capital goods imported or IocaI I y purchased, to the extent that such input taxes have not been appIied against output taxes. The application for refund may be made only after the expiration of 2 succeeding quarters following the quarter in which the importation or� local purchase was made: Provided, �.T.Q.at a VAT-registered person who is j ust c:�ommencing business may apply for refund of input taxes under this paragraph not earlier than 180 days from the date of registration or actual start of business operations, whichever comes later: Provided, however, That the application is filed not later than 2 years from the dates herein prescribed. XXX XXX X X X. Compliance with the aforementioned provisions of law wiII Iead th i s Court to grant the re I ie f s prayed� for by the petitioner. The records vividly show that petitioner 11as complied with the statutory requirements under Sections 106(b) of the Tax Code by having filed a written claim for refund with the respondent and a suit on appeal to this Court within two (2) years after the close of the quarter when such sales were made and that the respondent has recognized the legal merit of the claim when she favorably recommended for approval the same but only in the reduced amount of P649,780.21, due to disallowances, <Exh. 1 ) and that the same is being presently administratively processed or settled.

DECISION C.T.A. CASE NO. 5013 -7- The administrative machinery of the respondent employed in the processing of the claim for refund seems to move barely at idling speed. To be relatively quiescent for some four (4) -ears on a claim of such a simple nature which . - ..,_ controversy nor no longeP� incites excites a queasy sense of expectation, creates an unwarranted bureaucratic inertia of inaction. Apparently the precise question to be determined by the Court is how much should be refunded to the petitioner as its allowable input tax for the period May 1 to July 31, 1991. A minutiose scrutiny of the evidence adduced by both parties, led this Court to agree with respondent that the petitioner's claimed input taxes in the amount of P980,881.96 for the period May 1 to July 31, 1991 should be reduced to P649,780.21 (Exh. 8. 2) due to the following disallowances: 1. Input taxes corresponding to purchases for the account of its affiIiated company amounting to !5"31 , 69 7 � 4 7 (p. 9, Apri I 22 , 1 9 9 6 , T S N ) 2. Input taxes on management fees amounting to P2 75,456.50 for the reasons that the official receipts issued by AGP Industrial Cor'p. did not bare the necessary VAT registration number, therefore not a valid VAT invoice. (p. 10, ApriI 22, 1996, TSN) 3. Input taxes on purchase invoices which did not conform with the i.nvoicing requirements set by ,.?. .-, i.J' J

DECISION C.T.A. CASE NO. 5013 -8 - Sec. 108 of the NIRC, the total of which is 22, 1996, TSN). P23,947.78 (p. 11, Apri The above conclusion is borne by the facts and circumstances of the case. _Respondent has competently and sufficiently supported ,_;s.. ... .'.,.. e v i den c e its findings, which petitioner failed to controvert. It may not be an oversimplification to state that the said findings furnish the bet means of its own exposition in terms of tractable data laid open and fully disclosed and as such deserves the credence that should normally be accorded. Therefore, we affirm the results of the investigation conducted by the respondent. IN THE LIGHT OF ALL THE FOREGOING, the peti-tion is partia I Iy granted. Respondent is hereby ORDERED to REFUND or ISSUE tax credit certificate in the sum of P649,780.21 in the name of the herein petitioner. No costs. SO ORDERED. G(S2.Q ERNESTO D. ACOSTA Presiding Judge WE 1) .. // AM-ON. 0/. DE V A I (.2 A-SA -G Judge �!J C� ' . 0

DECISION C.T.A. CASE NO. 5013 -9- CERTIF CATION 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 VIII -::'- of the Constitution. o_,Q ERNESTO D. ACOST A Presiding Judge Court of Tax Appeals 7 C,...,: :.;