CTA Case No. 4447 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY PHILIPPINE SINTER CORPORATION. Petitioner. - versus - C.T.A. CASE NO. 4447 COMMISSIONER OF INTERNAL REVENUE. Respondent. X X--------------------~---�-------- DECISION This case involves petitioner's claim for refund or tax credit of allege~ creditable input value-added tax in the revised amount of P-3,226. 602.33 for the year 1933. Petitioner is a domestic corporation, duly organized and existing under the la'NS of the Philippines. It is engaged in business as a manufacturer and exporter of sintered ore. It is duly registered with the Board of Investments (BOI) as a preferred pioneer enterprise under Republic Act No. 5136 with BOI Certificate of Registration No. 73-382, dated January 29, 1975. Pet.itione~ is also registered� as a BOI non -pioneer 140

DECJSION- C.TA. CAS� NO. 4.447 enterprise engaged in the production and manufacture for export of dried pinapple pulp feed under President}al Decree No. 1789, as amended by B.P. Blg. 391, otherwise knoV\111 as the Omnibus Investments Code, with BOI Certificate of Regisu-ation (Export Producer -:- New) No. 86-1139. Petitioner is a VAT registered enterprise having been issued by the BIR a VAT Certificate of Registration No. 32A-6- 000491. For the period from January 1 to December 31, 1988, petitioner filed its Quarterly VAT Returns showing a Refundable Input Tax of P 12, 107,759.75 for the last quarter of 1988, computed as follo""WS: ... 1988 First Quarter: p. 4,979583.39 1,7)8,730.58 Output Tax: 11,268.60 Zero Rated Sates (Goods And Services) 1'34,947 .66 Less: Creditable Input Tax: p. 6.884.5'30.23 Carried Over from Previous Quarter p. 6.884.530.23 Domestic Purchase of Taxable Goods Importation of Taxable Goods Purchase of Taxable Services Deemed Paid (BOI) Registered Pioneer Enterprise Total Net Creditable Input Tax (Balance Carried To Socceeding Quarter) Second Quarter: p. 21.996.55 Output Tax: 141 Taxable Sale of Services Less: Creditable Input Tax;

DECJSION- C.TA. CASH NO. 4447 Carried Ovet� From Pt�evious Quarter p. 6,884530.23 Domestic Purchase of Taxable Goods 1,395,959.78 Importation of Taxable Goods Purchase of Taxable Services 449,912.46 Deemed Paid (BOI) Registered Pioneet� Enterprise Total P-8,730,402.47 Net Creditable Input Tax p. 8,708,405.92 (Balance Carried To Succeeding Quat�ter) Third Quarter: Output Tax p. 50,799.61 Taxable Sale of Goods Less: Creditable Input Tax: p. 6. 708,405.92 1358,143.78 Carried Over From Previous Quarter 491,209.41 Domestic Purchase of Taxable Goods Importation ofTaxable Goods P-10.557,7')9.11 Purchase of Taxable Services Deemed Paid (BOI) Registered P-10,506, 959.50 Pioneer Enterprise Total Net Creditable Input Tax (Balance Carried To Succeeding Quarter) Fourth Quarter: Output Tax p. '38.001.60 Taxable Sale of Goods P-10,506,959.50 Less: Ct�editable Input Tax: 1,261,850.72 370,949.13 Carried Over From Previous Quarter Domestic Pu.rchase of Taxable Goods P-12,139,759.35 Importation of Taxable Goods Purcha.se of Taxable Services Deemed Paid (BOI) Registered Pioneet� Enterprise Total Net Creditable Input Tax P.12JOL759.75* (Note: *should be P12,10L757.75) 142

DECISIDN- C.TA. CASH NO. 4447 - Page4- Petitioner claims that as a domestic and export producer registered witl1 the BOI it is not subject to the contractor's tax {now the VAT) for t11eir registered operations under R.A. 5186 in relation With R.A. _6135 and Executive Order No. 1045. For its sales of services involving t11e processing of ~intered ore for export to Japan, the same is subject to 0% rate pursuant to Section 102{a){1) of the Tax Code. Hence, petitioner filed a claim for refund or tax credit with U1e BIR with respect to its refundable input taxes for the year 1988, pursuant to Section 106{b) of the Tax Code in relation wiUl Section 16 of Revenue Regulations No. 5087, as amended by Revenue Regulations No. 3-88, computed as follo'WS: APPLICATION FOR TAX CREDIT /REFUND OF VALUE-ADDED TAX PAID Date filed: December 28. 1988 INCLUSIVE DATES OF PARTICULARS INPUT TAX PAYMENTS AMOUNT FROM TO ~ '326,117 .27 3.402. 705.26 TAX PAID ON IMPORTED/ LOCALLY PURCHASED CAPITAL EQUIPMENT Jan., 1988 June 30, 1988 TOTAL VAT PAID ON PURCHASES PER INVOICES RECEIVED DURING THE PERIOD FOR WHICH THIS APPLICATION IS FILED Jan. L 1988 june 30, 1988 AMOUNT Of TAX CREDIT ~3. 728.822.53 APPLIED fOR: 143

DIDSION- C.TA. CASE NO. 4447 - Pa~-5- Date filed: December 14. 1989 INCLUSIVE DATES OF �:! PARTICULARS INPUT TAX PAYMENTS AMOUNT fROM TO TAX PAID 011 IMPORTED/ p. 174,061.45 LOCALLY PURCHASED 915,974.47 CAPITAL EQUIPMENT July, 1988 Sept 1988 91,676.55 TOTAL VAT PAID ON Sept., 1988 PL18L712.47 PURCHASES PER INVOICES RECEIVED DURING THE , PERIOD fOR VHICH THIS APPLICATION IS fiLED July, 1988 c'"- _,__.- TOTAL VAT PAID ON PURCHASES PER INVOICES RECEIVED BEFORE THE PERIOD fOR WHICH THIS APPLICATION IS fiLED BUT lofOT PREVIOUSLY CLAIMED ON BIR FROM NO. 2550 AND BIR EORM NO. 2592. jan., 1988 june, 1988 AMOUNT Of TAX CREDIT I REfUND APPLIED fOR: Date filed: January 24. 1990 INCLUSIVE DATES OF PARTICULARS INPUT TAX PAYMENTS AMOUNT FROM TO TAX PAID ON IMPORTED/ p "36,969.61 LOCALLY PURCHASED CAPITAL EQUIPMENT Oct 1988 Dec., 1988 TOTAL VAT PAID ON Dec., 1988 � 698..522.62 PURCHASES PER INVOICES RECEIVED DURING THE PERIOD FOR VHICH THIS APPLICATION IS FILED Oct._ 1988 144

DECISION- - Pawft- C.T.A. CASE NO. 4.447 . TOTAL VAT PAID Ol~ PURCHASES PER INVOICES RECEIVED BEFORE THE PERIOD FOR WHICH THIS APPLICATION IS FILED BUT NOT PREVIOUSLY CLAIMED ON BIR fROM NO. 2550 AND BIR fORM NO. 2592. July, 1988 Sept., 1988 302.516.31 AMOUNT Of TAX CREDIT I PL039 .008.54 REFUND APPLIED fOR: ll5,949.543.54 TOTAL TAX CREDIT /REFUND APPLIED fOR: Subsequent to the filing of this petition for review on April 20, 1990, respondent issued a Tax Credit Certificate (SN 0002 2 1) in favor of petitioner on June 16, 1992, in the amount of P-3.669,779.26, in accordance with Section 106(a) of the NIRC, computed as follo"VVS: Amount Claimed P-5.949.543.54 1,803.127.79 Deductions: D1..1e to in?"'ices/receipts w/o VAT :reg. no. 859,281.33 Not properly documented 347.300.11 Difference in the lists and documents over claim 36.969.61 Input tax as claimed by Bohol (reimbursable) 559.576.74 Input Tax attributable to 155.242.36 . taxable activity (tugging services) P 29.069,462.38 X P4J46,415.75 P776, 425.159.82 Allowable Input Tax attributal>le to 0 rated sales P3.991J73.39 Less: Excess Output tax due Output tax dtle P3.371.843.74 I Penalty 10.000.00 . P1J8L843.74 Less: Available Input Tax: Input tax on purchases attt'ibutable to taxal>le activities P 155.242.36 145

DECISION- C.TA. CASE NO. 4447 - Pa~P7- Allowable Presumptive 2.905.207.25 Input tax . P:3.060. 449.61 Allowable Input Tax attt�ibutable to 321,394.13 0 rated sales recommended for P.3.669 < 779.26 issuance of Tax Credit Cet�tificate Petitioner insist that it is still entitled to the refund of P.3. 226,602.3{ll, computed as follows: Allowable Input Tax P-1991,173.39 Presumptive Input Tax 2.905.207.25 Less: Tax Credit Certificate P-6,896,380.64 Creditable Input Tax applied 3.669. 779.2 6 on the alleged Output VAT P-3,226,602.38 of petitioner's tugging activities (Note:* should be P-3,226,60 1.38) Respondent contends that the petition states no cause of action due to petitioner's failure to allege the dates when 'the taxes sought to be refund or credited were paid. The mer~ filing of the returns and applications for refund or tax credit does not ipSt? f..:rt~h' merit the grant of a refund .or tax credit. In claims for refund/tax credit the burden is on the taxpayer to show proof that it is entitled to said claim. This is why claims for refund of taxes are strictly construed against the claimant, the same being in the nature of an exemption from taxation. The issue is whether or. not petitioner is entitled to the refund or issuance of a tax credit in the amount of P3,226,602.38, representing alleged overpaid input tax for the year 1988 not yet refunded ~n favor of petitioner. 14 6

DF'.CISION - C.T.A. CASE NO. 44.47 - PageS- It is petitioner's contention that. the income from tugging and wharfing operations are zero-rated pursuant b::> Section 102(a)(2) of the Tax Code, as amended~ which provides: "SEC. 102. Value -added tax on sale of services. - (a) Rate and base of tax. - There shall be levied, assessed and collected a value-added tax equivalent to 10% percent of gross receipts d~rived by any person engaget.:t in the sale of services-. The phrase 'sale of services� means the performance of all kinds of services for others for a fee, remuneration of consideration, including those performed or rendered by construction and service contractors; stock, real state commercial_. customs and immigration brokers; lessors of personal property, lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; and similar services regardless of \'.Jhether of not the performance thereof calls for the exercise or use .of the physical or mental faculties: Provided, That the follo'Wing serives performed in tlle _Philippines by VAT-registered persons shall be subject to 0%: I, (1) XXX (2) Services other than those mentioned in the preceding subsection, the consideration for which is paid for in acceptable foreign currency which is remitted inwardly to the Philippines and accounted for in accordance with the rules and regulations of the Central Bank�of the Philippines." and VAT Ruling No. 054-92, dated April 28, 1992, to \vit: "This refers to your letter dated May 23, 1991 requesting for a confirmation that your client, PHILIPPINE SINTER CORPORATION (PSC) is subject to ,, zero percent VAT, pursuant to the provisions of Section 102 (a )(2 ), NIRC, viz: .l.47

DECJSION- C.T.A. CASE NO. 4447 - Page9- 'Services ... the consideration for which is paid for in acceptable foreign currency which is remitted inwardly to the Philippines and accounted for in accordance With the rules and regulations of t11e Central Bank of t11e Philippines.' It is represented that one of the principal businesses of PSC is tugging services for a fee (i.e., docking and undocking of foreign vessels to facilitate the unloading of the incoming cargo; t11at, PSC bills its clients-foreign vessel owners in U.S. dollar and its Philippine peso equivalent; that, the said foreign vessel-owners have shipping agents in the Philippines; that the said foreign owners remit payments in foreign exchange thru their said Philippine shipping agents to pay for your billings; that these foreign exchange inward remittances are accounted for in accordance with the Central Bank rules and regulations (i.e, converted into Philippine peso) and that your client is accordingly paid for by the said shipping agents already in terms of the Philippine peso. In reply, please be informed that the premises of t11e aforequoted provisions of Section 102 (a)(2 ), NIRC, is that a VAT-registered person�s sales of services are paid for in foreign exchange, provided, said payment is in"v"ardly remitted and accounted for according to the Central Bank rules and regulations. This means the said foreign exchange payment have been surrendered to the Central Bank for conversion into Philippine peso. These premises of the law are complied With based on facts submitted. In view t11ereof, this Office hereby confirms t11at your client's sales of services to the aforementioned foreign ovmers of vessels, is subject to zero percent VAT, pursuant to Section 102 (a)(2). NIRC." 148

DECISION- C.T.A. CASE NO. 44.47 -Page to- Respondent's examiner seeks to justify the disallo-rw'ance of input t3.xes attributable to petitioner's tugging services by claiming that the same is not zero-rated because "the company did not bill directly the foreign principal and that the payments were not received in foreign currency but in pesos" (Exh. 1-A). As a result, petitioner is still liable for output tax of P3.371,843.74. In addition, a compromise penalty of P 10,000.00 was charged for use of official reciept vvithout VAT registration number and non-issuance of sales invoices on scrap sales and other deemed sales transactions. The allowable presumptive input tax and input tax on purchases totalling P-3,060,449.61 were applied from the output tax liability of a total of P-3,381,843.74. The excess output tax of P321,394.13 (P3,381,843.74 less P-3,060,449.61) was deducted from the allowable input tax of P3,991, 173.39. Furthermore, respondent opined that the Court cannot award a refund or credit in excess of that which petitioner has applied for in the administrative level. Petitioner's application for refund or credit of value-added tax for the year 1988, pursuant to Section t06 of the Tax Code, amounted to P5,949,543.54. Hence, petitioner is not entitled to cl8:im for a refund or credit in excess of what it had actually applied for vvith the BIR. Having been awarded a Tax Credit Certificate in the amount of P3,669,449.61, petitioner cannot claim by way of this petition for review a�n, additional amount of P3,226,602.38. Othervvise, it would exceed the original claim for refund/tax credit of P5,949.543.54. 149

DE.CJSION- C.TA. CASE NO. 4447 - Pa~11- Moreover, as indicated in the examiner's report of i !, ' investigation, petitioner has agreed to their findings, quoted hereunder: "(). Subject taxpayer is agreeable to the foregoing findings per infonnal conference held on May 6, 1991 thru its authorized representative (see p. 432)." The real question posed is, "Is the tugging operations of petitioner zero-rated or not?" After a scrutiny of )the real question at issue, we have arrived at the conclusion that the tugging operations of petitioner is zero-rated under Section 102 (a)(2) of the Tax Code and BIR Ruling No. 054-92, dated April 23, 1992. Therefore, income from tugging operation is not subject to the output VAT. The tugging services rendered by petitioner to foreign vessels or foreign principals thrc~ugh its local shipping agents (New Filipino Maritime Agencies, Inc.) in the Philippines qualifies under Section 102(a)(2) as zero-rated VAT. Petitioner rendered docking (Tuggage Entrance) and undocking services (Tu.ggage Departure) to foreign vessels (foreign principals). For the tuggage sep.,rices rend' ered, petitioner bills New Filipino Maritime Agencies, Inc. (NFf..fAI t the local husbanding agent, tugging charges computed based on US Dollars and converted in its equivalent Philippine Pesos. The foreign principal then remits to NFMAI the payment thereof in US Dollars. NFMAI in turn pays petitioner in Pllilippine Pesos out of 150

DF.CISION- C.T.A. CASH NO. 4.447 - Pa.~P12- � is so, because the foreign currency payment remitted to the Philippines through the banking system is automatically converted into Philippine Pesos pursuant to Central Bank laV\1'8 and regulations. With this antecedent facts established during the hearings of tllis case, petitioner llas proven that indeed it's tugging services is zero-rated under Section 102(a)(2) of the Tax Code. This even finds support in the opinion of the Commissioner of Internal Revenue in BIR Ruling No. 054-92, April 23, 1992. Under Section 245 of the Tax Code, the Commissioner of Internal Revenue is all,)wed to promulgate rulings or opinions in connection with the implementation of the provisions of internal revenue laws. In connection with this provision, the Supreme Court has ruled that the details and manner of carrying out the law are oftentimes left to t.he administrative agent entrusted with. its enforcement. In this sense, it llas been said that the rules and regulations are the product of a delegated power to create new or additional legal provisions that. have the effect of law. (Victorias Milling Co. Inc. v. Social Security Commission.. March 17.. 1962.. 114 Phil. 555J � Courts will and should respect the contemporaneous construction placed upon a statute by the executive officers, Whose duty it is to enforce it, and unless such interpretation is dearly erroneous will ordinarily be controlled thereby. (Molina v~ Rafferty.. February 1.. 19 Ht 37 Phils. 545; see also People v. Hernandez.. December 22.. 1933.. 59 Phils. 272.) In the case at bar, we see nothing erroneous in t.he interpretation of responden1t 5v\1Tith respect to petitioner's

DHCISION- C.T.A. CASE NO. 4447 - Page13- tugging operation being zero-rated under Section 102(a)(2) of the Tax Code. The only thing left to be done is t11e determination of the amount still allowable to be refunded or credited in favor of petitioner after the grant of a Tax Credit Certificate of P1669,779.26. In t11e petition for review filed by petitioner, it prays for t11e refund or credit of P 12.107,759.2 5. Subsequently, in the memorandum stage, petitioner after having been awarded a tax credit of P3,669,779.26 still prays for the refund or credit of P476,636.49. In a supplemental memorandum, petitioner changed its prayer from P476,636.49 to P3.226,602.33. What is the correct amount to whic~ petitioner is still entitled to be refunded or credited after .arriving at the conclusion that its tugging operations is subject to a zero-rate VAT? We believe that petitioner is still entitled to be refunded or issued a Tax Credit Certificate in the amount of P476,636.49 as indicated in its Memorandum filed on October 27, 1993. This Court has adopted the view that petitioner's tugging operation is subject to zero-rate VAT. � Thus, respondent's examiner should not have disallowed the amounts of P 155,242.36 as input tax attributable to t..axable activity (tugging services) and P321394.13 as excess output tax due after deducting the input tax on purchases and the presumptive input tax from what the examiner considered as tugging services subject to VAT inclusive of compromise penalty. Furth�ermore, the compromise penalty should not be imposed because the petitioner did not agree to it.s 152

'' '\ DHCISION- C.T.A. CASE NO. 4447 - PaF14- imposition. (Wonder Mechanical Engineering Corporation v. Court of Tax Appeals. L-22805 & 27858. 64 SCRA 555. June 30. 1975.) It is noteworthy to point that petitioner applied only for the refund or credit of P5,949,54.3.54. Respondent is correct in saying tl1at. petitioner can only claim by -way of a petition for review the same amount it had claimed for in tl1e administrative level pursuant to Section 7 of Republic Act. No. 1125. Thus, the corresponding disallo-wance made by the examiner pertaining to petitioner's tugging operations cover only tl1e amounts of P 155,242.36 and P321,394.13 or the sutn of P476,636.49. Finding, petitioner's tugging operation is zero-rated, tl1e amount of P476,636.49 should therefN�e be refunded or credited in favor of petitioner, it being covered by its application for refund or credit of P5,949,543.54. The Court finds that only the amount of P 1,303,127.79 was properly disallowed from t11e claim of P-5,949543.54. With the issuance by t11e respondent of Tax Credit Certificate No. SN 0002 2 1, dated June 16, 1992, for the amount of P-3.669,779.26, petitioner is entitled to an additional refund or credit of P-476,636.49 per our findings. WHEREFORE. in view of the foregoing. the petition for review is found to be meritorious and the same is hereby GRANTED with modification, that only the amount of P-476,636.49 should be refunded or credited in �favor of petitioner pursuant to Section 106 of the Tax Code.. Respondent is hereby ordered to refund or issue a Tax Credit Certificate in favor of r>etitioner in the amour�t. of Ii476 6~n 4Q t�epr~B~t1t1~q 153

~~ C.T.A. CASE NO. 4447 - Page15- (;reditable input tax erroneously applied to tl1e alleged output VAT liability of petitioner for t11e year 1988. No costs of suits. SO ORDHRHD. Associate Judge WH CONCUR: CERTIFICATION I hereby certify tl1at this decision was reached after due consultation 'among the members of the Court of Tax Appeals in accordance with Section 13 Article VIII of the Constitution. Q.. -L.. '\9..- ~ HRNHSTO D. ACOSTA Presiding Judge Court of Tax Appeals 154