Taganito Mining Corp v. Commissioner of Internal Revenue

.. REPUBLIC OF THE PHILIPPINES Court of Tax Appeals QUEZON CITY SECOND DIVISION TAGAN ITO M INI NG CORPORATION, CTA CASE NO. 7769 Petitioner, Members: -versus- CASTANEDA, JR., Chairperson CASANOVA, and MINDARO-GRU LLA, J.J. COMM ISS IONER OF INTERNAL Promulgated: REVEN UE, Respondent. APR 0 8 2010 / x--------------------------------------------------------------------------------~---------------x \ ~:qi' ~.m. DECISION MINDARO-GRULLA, J.: This is a Petition for Review with a Supplementa l Petition for Review filed by Toganito Mining Corporation as petitioner, against the Commissioner of Internal Revenue (CIR) as respondent, for the Court in Division, pursuant to Section 4(o), Rule 8, in relation to Rule 4, 2005 Revised Rules of the Court of Tax Appea ls, as amended. Petitioner claims for refund in the amount of P22,42l ,260.26, a llegedly represen tin g unutilized inpu t va lue-added tax (VAT) on importation/domestic purchases of capitol goods and non-capitol goods and services attributable to zero-rated soles for the period covering January l, 2006 to December 31, 2006. C..

DECISION Page 2 o f 14 C TA CASE NO. 7769 The claimed amount was reduced to P4,611 , 123.00, after petitioner filed a Supplemental Petition for Review to reflect the reduction of the refundable input VAT after respondent partially granted petitioner's administrative claim for refund or issuance of tax credit certificate. Petitioner is a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office at 41h Floor, Solid Mills (now BMMCj Buiiding, Dela Rosa Street, Legaspi Village , Makoti City. il is duly registered with the Securities and Exchange Commission (SEC) , as evidenced by Certificate of Registration No. 138682 issued on March 4, 1987. It is primarily engaged in the business of exploring, extracting, mining, selling, and exporting precious metals dnd all kinds of ores, metals , and their by-products. It is a VAT- registered entity with Certificate of Registration (BIR Form No. 2303) No. OCN 8RC0000017 494 and a Board of Investments (BOI)-registered entity with BOI Certificate of Registration No. EP 88-306 dated April 14, 1988. 1 Respondent, on the other hand , is th e duly appointed Commissioner of the Bureau of Internal Revenue (BIR) vested with the authority to exercise the functions of said office, including inter alia, the power to decide claims for refund of internal revenue taxes, fees and other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code (NIRC) or other laws administered by the BIR. He holds office at the BIR National Office Building, Agham Road , Diliman, Quezon City. 1 Pars. 1-4, Stipulated Facts, Joint Stipulation of Facts and Simplification of Issues, Docket, pp. 51-52 ( r, t ~ v l._l · t

DECISION Page 3 o f 14 CTA C ASE NO . 7769 Petitioner filed through the BIWs computerized filing system (EFPS) its Original Quarterly VAT Returns for the first to fourth quarters of 2006 on the following dates: Exhibit Taxable Quarter Date of Filing "X" to "X-3" First April 24, 2006 "Z" to "Z-3" Second July 19, 2006 "AA" to "AA- 5" Third October 18, 2006 "CC" to "CC- 2" Fourth January 25, 2007 Su bsequently, petitioner filed its Amended Quarterly VAT Returns on October 18, 20062 for the first and second quarters of 2006, and on March 25, 20083 for the fourth quarter of 2006. On March 26, 2008, petitioner filed with respondent, through the latter's Excise Taxpayers' Assistance Division under the Large Taxpayers Division or LTAID- II, a claim for credit/refund of input VAT paid on its domestic purchases of taxable goods and services and importation of goods amounting to P22,421 ,260.26, for the period covering January 1, 2006 to December 31, 2006.4 Sinc e respondent has not issued a final decision on petitioner's administrative claim, petitioner filed the instant Petition for Review on April 17, 2008, in ord er to toll the running of the two-year period to judicially claim a tax refund/credit as provided in Section 229 of the NIRC of 1997. 2 Exhibits "W" to " W-5" and "Y" to 'Y-5" 3 Exhibits "BB" to "BB-3" 4 Exhibit "FF" [

DECISION Page 4 of 14 CTA CASE NO . 776 9 Respondent, in his Answer 5 filed on June 4, 2008, interposed the following Special and Affirmative Defenses: "6. Pe titioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau of Internal Revenue . 7. A claim for refund partakes of the nature of an exemption which ca nnot be allowed unless granted in the most categorical language. These claims are construed strictly against the petitioner and liberally in favor of the taxing authority. (Commissioner of Internal Revenue V. Manila Mining Corp., 468 SCR A 571) . This being so, the claim for refund of excess VAT input ta xes in the amount of Php22.421 .260.26 for CY 2006 must be strictly construed and petitioner has the burden of proving that the following requirements were met or complied with: a. The registration requirements of a value-added taxpayer in compliance with Section 9.236-1 (a) of Revenue Regulations No. 16-2005, and Section 236 of the NIRC of 1997, as amended; b. The invoicing and accounting requirements for VAT-registered persons as well as the filing and payment of VAT in compliance with the provisions of Section 113 and 114 of the NIRC of 1997, as amended; c. Proof of compliance with the prescribed checklist of requirements to be submitted involving .claim for VAT refund in pursuance with Section 9.236-1 (a) of Revenue Regulations No. 16- 2005, Revenue Memorandum Order No. 53-98. Otherwise, there would be no sufficient compliance with the filing of administrative claim for refund which is a condition sine qua non prior to the filing of judicial claim in accordance with the provision of Section 229 of the NIRC of 1997, as amended. It is worthy of emphasis that Section 112 (D) of the NIRC of 1997, as amended, requires the submission of complete documents in support of the application filed with the Bureau of Internal Revenue before the 120-dciy audit period shall apply and before the taxpayer could avail of judicial remedies as provided for in the law. Hence. petitioner's failure to submit proof of compliance with the above stated requirements warrants the dismissal of the petition for review; and 5 Docket, pp. 27-31 L :J4 G

DECISION Page 5 of 14 CTA CASE NO . 7769 d. That petitioner's administrative and judicial claims for tax refund was filed within two (2) years after the close of the taxable quarter when the sales were made in accordance with Sections 112 (A) and (D) and 229 of the NIRC of 1997, as amended. 8. Petitioner failed to show proof of compliance with the above requirements. Hence, the petition should be denied. 9. Moreover, petitioner did not give respondent ample time to resolve its administrative claim for refund based on Section 112 (C) of the NIRC of 1997, which states: 'Section 112. Refunds or Tax Credits of Input Tax- (C) Period within which Refund or Tax Credit of Input Taxes shall be made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty ( 120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax c redit, or the failure on the part of the Commissioner to act on the application within the period 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 one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.' (Italics ours) 10. Hence, when petitioner filed its administrative claim for tax refund with respondent's Excise Taxpayers' Assistance Division on 26 March 2008, respondent had 120 days within which to decide on petitioner's claim for tax refund . And in case of full or partial denial of the claim or failure of respondent to act on the application within the 120 day period, petitioner has 30 days to appeal the decision or inaction with the Court of Tax Appea ls. Thus, respondent had to render a decision within 120 days from 26 March 2008 or until 22 July 2008. In the event that respondent failed to act upon petitioner's claim for tax refund, petitioner has 30 days from 22 July 2008 or until 21 August 2008 to appeal the unacted claim with the Court of Tax Appeals. 11. The above-mentioned periods are clearly given for strict compliance as a prerequisite before seeking redress in a c ompetent court. Such . statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial functions (Agpalo, Statutory Construction, Third Edition [ ·. . .., ~ "''*'

DECISION Page 6 of 14 CTA CASE NO . 7769 1995, pa. 266). For this reason , the courts construe these provisions of statutes as mandatory (Ibid. , citing Alvero vs. De La Rosa, 76 Phil. 428, 434). 12. Petitioner filed the instant petition for review with the Court of Tax Appeals only on 26 March 2008. Clearly, the instant petition for review was filed prematurely. The period provided by Section 112(c) of the NIRC of 1997 gives respondent the opportunity to act on administrative claims for refund . Petitioner denied this o pportunity to respondent . Also, it recognizes the fact that our courts' dockets, in this case the Honorable Court of Tax Appeals, are clogged with cases. Hence, indiscriminate filing of judicial c laims for tax refund, like the instant petition, is not favorable to this Honorable Court. 13. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund and failure to sustain the burden is fatal to the claim for tax refund/credit . This is so because exemptions fro m taxation are highly disfavored in law and he who claims exemption must be able to justify his claim by the clearest grant of · organic or statutory law. An exemption from the common burden cannot be permitted to exist upon vague implications. (Asiatic Petroleum Co. V. Llanes, 49 Phil. 466). 14. Taxes paid and collected by the Bureau of Internal Revenue are presumed to have been made in accordance with law and the rul es and regulations, and the burden to prove otherwise is upon th e petitioner. 15. Based on the foregoing , the petitioner's claim for tax refund has no basis in fact and in law. Thus, the instant petition should be dismissed for lack of cause of action and jurisdiction." During trial. petitioner presented its witnesses Mr. Joseph Cedric V. Calico of AMC & Associates 6 , the Court's duly appointed Independent Certified Public Accountan t?, and Mr. Reynaldo R. Vigilia, Vice President for Finance of petitioners. 6 Docket, p. 182; TSN dated January 13, 2009 7 TSN dated October 2, 2008, page 11 8 Docket, pp. 95 and 118; TSN dated October 2, 2008 and November 24, 2008 [ ·. 4 vn .j

DECISION Page 7 of 14 CTA CASE NO. 7769 On March 17, 2009, petitioner filed a Motion for Partial Withdrawal of Petition 9 , to the extent of P17,810,137.26, in view of the approval by the BIR's Large Taxpayers Service-Excise Tax Division of the application for tax credit/refund of petitioner in the amount of P15,725, 188.58 and the allowance of the previously disallowed amount of P2,084,948.68. This Court, in a Resolutionlo dated April 8, 2009, granted the said Motion . Petitioner was ordered to file its Supplemental Petition for Review; limiting the issue of this case to the remaining amount of P4,611, 123.00, representing petitioner's alleged excess input VAT paid on the importation of capital goods from January 1, 2006 to December 31, 2006. On April 13, 2009, petitioner filed its Formal Offer of Evidence 11 , offering Exhibits "A" to "SS-1 ", inclusive of submarkings; which this Court admitted in a Resolution 12 dated June 4, 2009. Respondent, on his part, submitted this case for decision without presenting any evidence.l 3 On May 26, 2009, petitioner filed its Supplemental Petition for Reviewl 4 , which now reduced the amount of its claim for tax refund'from the original claim of P22.421 ,260.26 to P4,611, 123.00; representing petitioner's alleged excess input VAT paid on the importation of capital goods from January 1, 2006 to December 31,2006. 9 Docket, pp. 196-199 10 Docket, p. 204 11 Docket, pp. 205-215 12 Docket, pp. 515-516 13 Resolution dated November 13, 2009, Docket p. 537; TSN dated November 10, 2009, p. 5 14 Docket, pp. 507-510 {_

DECISION Page 8 of 14 CTA CASE NO. 7769 In his Supplemental Answer 1s filed on June 25, 2009, respondent repleaded all the Special and Affirmative Defenses enumerated in his Answer filed on June 4, 2008, and added the following: "6. Claims for refund are construed strictly against the claimant for the same partake of the nature of exemption from taxation ." On January 26, 2010, this case was submitted for decision, considering petitioner's Memorandum filed on January 7, 2010, and the report o f this Court 's Records Division that respondent failed to file a memorandum. 16 Considering petitioner's Supplemental Petition for Review, the sole issue to be resolved is- " Whether o r not petitioner is entitled to the refund of the amount of P4,6 1 l, 123.00, allegedly representing petitioner 's unutilized input VAT paid on its importation of capital goods for taxable year 2006." Section 112(A) of the NIRC of 1997, as amended, lays down the requisites for claims for issuance of tax credit certificate or refund of input tax attributable to zero-rated or effectively zero-rated sales, to wit: "SEC. 112. Refunds or Ta x Credits of Input Ta x.- (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT- registered person , whose soles are zero-rated or effectively zero-rated may, within two (2) years after the close o f the taxable quarter when the sa les 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 against output ta x: Pro vided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1) , (2) and (B) and Section 108(8) ( 1) and (2), the acceptable foreign currency exc hange proceeds thereof had been duly accounted for in accordance with the rules and regulation s of the Bangko Sen tral ng Pilipinas (BSP): 15 Docket, pp. 522-525 16 Resolution dated January 26, 20 10, Docket, p. 554 (

DECISION Page 9 o f 14 CTA CASE NO. 7769 Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services. and the amount of creditable input tax due or paid c annot be directly and entirely attributed to any one of the · transactions. it shall be allocated proportionately on the basis of the volume of sales. Based on the foregoing, petitioner must comply with the following requisites to be entitled to a refund: 1. that there must be zero-rated or effectively zero-rated sales; 2. that input taxes were incurred or paid ; 3. that such input taxes are attributable to zero-rated sales or effectively zero-rated sales; 4. that the input taxes were not applied against any output VAT liability; and 5. that the claim for refund was filed within the two-year prescriptive period . The two-year prescriptive period for filing a claim for refund/credit of input VAT on zero-rated sales is counted from the date of filing of the return and payment of the tax due, as held in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue 17 • In the said case. the Supreme Court explained the foregoing rule in this wise: "Lastly, although the taxpayer's refundable or creditable input VAT may not be considered as illegally or erroneously collected , its refund/credit is a privilege extended to qualified and registered taxpayers by the very VAT system adopted by the Legislature. Such input VAT. the same as any illegally or erroneously collected national internal revenue tax. consists of monetary amounts which are currently in th e hands of the government but must rightfully be returned to the taxpayer. Therefore. whether claiming refund/credit of illegally or erroneously collected national internal revenue tax. or input VAT. the ta xpayer must be given equal opportunity for filing and pursuing its claim. 17 G.R. Nos. 141104 and 148763, June 8; 2007 {_

DECISIO N Page 10 o f 14 C TA C ASE N O. 77 69 For the foregoing reasons, it is more practical and reasonable to count the two -year prescriptive period for filing a claim for refund / credit of input VAT on zero -rated sales from the date of filing of the return and payment of the tax du e w hich, according to the low then existing , should be mode wi thi n 20 days fro m the end of ea c h quarter. xxx" (Emphasis supplied) Petitioner 's Schedule of 2006 Import Tronsa c tions 1B reveal s that petitioner 's input VAT claim of P4,61l, 123.00 pertains to importation of c apital goods for the months of January and February 2006 , to wit: Amount of Amount of Exhibit Month Taxable Imports VAT "KK " January p 11,314 ,310.00 p 1' 131,431.00 "KK- 1" February 28,997,433.33 3,479,692.00 p 4,611 ,1 23.00 Since the present claim inv olves p etitio ne r's alleged unutilized input VAT on its importation of capital goods for th e first quarter o f 2006 , the two-year prescriptive period must be reckoned from Apri l 24, 2006 19 , when petitioner filed its Original Quarterly VAT Return for the first quarter o f 2006. Consequently, petitioner had until April 24, 2008, within whi c h to fil e its claim for re fund , both in the administrative and the judicial levels. Cl e arly, pe titioner 's administrative claim for refund 20 filed on March 26, 2008 a nd the judic ial claim for refund filed on April 17, 2008, were filed within the two-ye ar prescriptive period . On petitioner's compliance with the oth e r requisites , a c areful evaluation of petitioner 's Schedule of Purchas es and C o rres ponding Input VA P 1, attached to the Report of the Court-commissi o ne d Independent C e rtified Public 18 Docket, pp. 411 -412 19 Exhibits "X" to "X-3" 20 Exhibit "FF" 21 Exhibits "RR", Independent CPA Report; "RR-A- 1-A" (for the month of January), Docket, p. 451 and "RR-A-1- A" (for the month of February), Docket, p. 453 [...

DECISION Page 11 of 14 CTA CASE NO. 7769 Accountant (CPA)22 , indicates that the claimed amount of P4,611, 123.00 is supported by official receipts with the following details: Month Exhibit No. OR No. OR Date Net Amount Input January "RR-A-1-A-3-A" 0028847 01/12/06 p 11,314,3 10.00 p 1' 131 ,431 .00 "RR-A-1-A-90- February A" 014371 02/27/06 28,997,433.33 3,479,692.00 Total p 4,611 '1 23.00 This Court finds however that the supporting official receipts do not prove petitioner 's actual payment of the claimed input VAT in the amount of P4,611, 123.00. Also, there is no year indicated in the official receipt supporting the January 2006 claim of P1,131 ,431 .00. Hence, the input VAT claim of P4,611 , 123.00 should be denied for failure to meet the substantiation requirements under Section 4.11 0-8(a)( 1) of Revenue Regulations No. 16-05, which reads: "SECTION 4.110-8. Substantiation of Input Tax Credits.- (a) Input taxes for the importation of goods or the domestic purchase of goods, properties or services made in the course of trade or business, whether such input taxes shall be c redited against zero-rated sale, non-zero-rated sales, or su bjected to the 5% Final Withholding VAT, must be substantiated and supported by the following documents, and must be reported in the information returns required to be sub mitted to the Bureau : ( 1) For the importation of goods - import entry or other equivalent document showing actual payment of VAT on the imported goods." (Emphasis supplied) Further, Sections 4.11 0-3 and 4.113-3 of Revenue Regulations No. 16-05, as amended by Revenue Regulations No. 4-2007, provide as follows: 22 Mr. Joseph Cedric V. Calica, Partner of AMC & Associates {_

DECISION Page 12 of 14 CTA CASE NO . 7769 "SECTION 4.110-3. Claim for Input Tax on Depreciable Goods. - Where a VAT-registered person purchases or imports capitol goods, which are depreciable assets for income tax purposes, the aggregate acquisition cost of which (exclusive of VAT) in a calendar month exceeds One Million pesos (Pl.OOO,OOO.OO). regardless of the acquisition cost of each capitol good, shall be claimed as credit against output tax in the following manner: (a) If the estimated useful life of a capitol good is five (5) years or more - The input tax shall be spread evenly over a period of sixty (60) months and the claim for input tax credit will commence in the calendar month when the capital good is acquired. The total input ta xes o n purchases or importations of this type of capitol goods shall be divided by 60 and the quotient will be the amount to be claimed monthly. (b) If the estimated useful life of a capitol good is less than five (5) years- The input tax shall be spread evenly on a monthly basis by dividing the input tax by the actual number of months comprising the estimated useful life of a capital good. The claim for input tax credit shall commence in the month that the capitol goods were acquired. Where the aggregate acquisition cost (exclusive of VAT) of the existing or finished depreciable capital goods purchased or imported during any calendar month does not exceed one million pesos (P 1,000,000.00) , the total input taxes will be allowable as credit against output tax in the month of acquisition . Capital goods or properties refers to goods or properties with estimated useful life greater than one ( 1) year and which are treated as depreciable assets under Sec. 34(F) of the Tax Code, used directly or indirectly in the production or sale of taxable goods or services. The aggregate acquisition cost of depreciable assets in any c alendar month refers to the total price, excluding the VAT, agreed upon for one or more assets acquired and not on the payments actually made during the calendar month . Thus, an asset acquired on installment for an acquisition cost of more than P1 ,000,000.00, excluding the VAT, will be subject to the amortization of input tax despite the fact that the monthly payments/installments may not exceed P1 ,000,000.00." "S ECTION 4.11 ~-3. Accounting Requirements. - Notwithstanding th e provisions of Sec. 233, all persons subject to VAT under Sec. 106 and 108 of the Tax Code shall. in addition to the regular accounting records required, maintain a subsidiary sales journal and subsidiary purc hase journal on which every sole or purchase on any given day is (

DEC ISION Pa ge 13 of 14 CTA CAS E NO. 7769 recorded . The subsidiary journal sha ll c ontain such informa tion as may be req uired by the Commissioner of Internal Revenue : A subsidiary record in ledger form shall be maintained for the acquisition, purchase or importation of depreciable assets or capital goods which shall contain, among others, information on the total input ·tax thereon as well as the monthly input tax claimed in VAT declaration or return." (Emphasis supplied) Applying the foregoing, petitioner failed to prove that the importations pertainin g to the input VAT claim of P4,611 , 123.00 are in the nature of "capital goods or properties " as d efined under Se ction 4.1 10-3 (b) o f Re venue Regulations No. 16-05. Assuming arguendo that the subject importations qualify as capital goods or properties, the related input VAT of P4,611 , 123.00 shall be spread/amortized over the estimated useful life of the capital goods or properties, w hich will mean that the same amount would not be entirely refundable . Si nce there was no evidence presented for this purpose, petitioner's claim for refu nd must fail. It is a well settled rule that a taxpayer claimant, like herein petitioner, has the burden o f proof to show that it is entitled to the refund of the amount claimed , considering that taxes are presumed to have been collected in accordance with laws and regulations. The burden of proof rests upon the taxpayer to establish by sufficient and competent evidence its entitlement to a refund .23 For failure of petitioner to establish the factual basis of its claim for refund, this Court has to deny the claim. 23 Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 336 (

DECISION Pa g e 14 o f 14 CTA CASE NO. 7769 WHEREFORE, the instant Petition for Review and the Supplemental Petition for Review are hereby DENIED for lack of merit. - SO ORDERED . ~N . MLv-~-G~ CIELITO N. MINDARO-GRULLA Associate Justice WE CONCUR: ~v, Q. ~~ ~~ JUANITO C. CASTANEDA, JR. CAESAR A. CASANOVA Associate Justice Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultatio n before the c ase was assigned to th e writer of the opinion of the Court's Division . ~~o.a.:;t-'~ ~ 11iANITO C. CASTANEDA';' Jif.' Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII , Section 13 of the Constitution, and the Division Chairperson 's Attestation , it is hereby certified that the conclusions in the above Decision w ere reached in consu ltation before the case was assigned to the writer of the opinion of the Court En Bane. L\9. Q c.--yL_ ERNESTO D. ACOSTA Presiding Justice