CTA Case No. 4333 (Decision)

REP RI C or TH~ P � J _xpr t ES COURT Of T X n.~EALS QUE ZON CITY DCCD ENGINEERING CORPORATI ON, Pet i tioner, -vers us - C.T.A. CASE NO. 4333 COMMISSI ONER OF INTERNPL RE VENUE, --- - )( Respondent . - )( DE C I s I 0 N Thi s involves a cla im fo r a ta x cred i t in the a �o unt o f t hree hundred ninety thre e thou s and eight hundred three peso s and t h i r ty s ix c entavos CP393,803 .3G> repr e senting the c~ntrac tor ' s tax and value-added tax alle gedly coll ect ed erroneously or illegally for the p eriod fro� Oc t ober 15, 1986 to July 7, 1988. I t appears from t h e r ecord s of the case that in a letter dated De c ember 23, 1988 petition�r, through i t s Chief Acco u ntant, Mr . Virgilio A. Saur, fil ed the subject claim for tax credi t with r e spon den t, Co��i s s io n er of Internal Re v enue , on Ju 1 y 3, 1980. It a l le ge d th ~ t the co ntr a ctor 's tax and value- added ta x were ei th er erroneo usly ~ithheld by the Ec on o mic Support F u nd Se c retariat <ESFS) or erroneo u s l y pa id by i t dir ectly to the

DECISI CTA CASE NO. 4333 - e- BI R. As le gal b~~i~, P~titioner presented BI R Ruling No. 101-000 -00~ t~ � 8A d. t:~> rl cto be r 21 1988 signed by for~er Commi sioner Bienvenid o A. Tan Jr. The dispositive porti on of the ruling state~ as follow s: "In reply , please be inform ed that pursuant to th RP-US Military Bas es Agreement and t he bilat~ral agree Ment between the tw~ gover nments exeMpting the Economic Support Fund <ESF> proceeds fro M the Phi 1 ippine novP.rnment tax and ther illlpositions, thP use of the fund to finance g o vernm~nt projects which are paid directly fro111 said fund are within the purview of effect � vely zero-rated transactions cont e mplated under Section lOO<a> <2> and 102<a> <3> of the Tax code. In other words, billings by the seller of goods or services who executed the projects fund ed b y ESF shall not inc lude the value-added t ax: Provided, however that the seller of said goods or services ~hall fir~t apply for zero rating in ccordance with Sectio n 8<d> of Re venue Regulation No. 5-87. Petitioner inferrP.d that i n view of the said ruling its gross re ceipt~ from the Economic S upport Fund <ESF> are likewis e exempt from contractor and value- added taxes. Petitiontor prestont ed certifications fro111 t he Economic Support Fund Council, copies of the correspondin g withholding t �ax returns, percentage tax returns, value-added tax returns and the corre~ponding BIR pay�ent orders and Central Bank con fi r111at ion rectoipts to prove the fact of payme nt of s~�d taxes . (

DECISI ON CTA CASE NO. ~333 - 3- In addition, Petitioner also ask ed for attorney's fe e in th "' amount o f P75,000.00 . To date, Respond ent has not acted upon petiti oner's claim for tax credit . He nce, this instant Petition for Review. Respondent in hi s answer admits the existence of the EconoMic Support Fund Secretariat and its tax exeMpt status and the BIR Ruling No. 101-000-00513-88 dated October 21, 1988 but denies all other allegati ons of th e Petiti oner pertaining to its claiM . By w y of special and aff irMative defenses, he a lleges t hat Petitioner must show that the taxes were errone ously or illegal ly coll ected; that claiMs for aMo u n ts re mi tted to the Bureau of Internal Revenue prior to February 3, 1987 have prescribed and that Petitioner failed to show that it had first applied for zero rating in accordance with Section 8(d) of Revenue Regulation No. 5-87. Also, he allege s th at cost of suits and daMages cannot be awarded against the governMent; tax refunds are construed s trictly against the cla i�ant and that the a111ount of P393, 803.36 sought to be refunded was paid in accordance with law and regulations on the matter. Petitioner Made it s For11al Offer of Evi dence to prove its claim for tax credit to which this

DECISION CTA CASE NO. 4333 - 4- Court after notice to re s pondent and hearing admitted. Respondent on hi s part failed to present his own evide n"ces in support of his case. This case is sub11 itt ed for decision based on the pleadings and petit ion er's evidence. The issues presented to this court fo r; resolution are a s follows' (1) Whet her or not the gross r ceipts of a contractor of the Secretariat of t he Economic Support Fund Council paid out of the proceeds from the Economic Supp o rt Fund are> e)(empted fro m the contrac to r '!\ tax u nde r the Na tional Int rnal R e v enu~ C ode p r io r to the i nt roduct ion of the va 1 ue - added t a>e and pr sently are considered effectively zero-rat d tran sac tion s pursuant to Section 100<a> <2> a nd 102 <a> <3> of the present National Internal Rev e nue Code? <2> Whe th,., � or not PPt .tioner is entitled to t h "' <'t ttn r n,. �'" fees b e ing prayed again <St t he r e sp on dP n t? Before this court can resolve the first issue, . it is necessary to quote hereunder the legal basis .. upon which the Bureau of Intern a 1 Rev e nue issued the questioned BIR ruling, especially considering that the said ruling touched only on the VAT aspect of the claim for refund; Section B. 4<a> o f the Stand rd Anne>e attached to all Grant Agreem nts entered into by and between th GovernMent of the Philippines and the U.S. GovernMent provides as follows:

DECISION CTA CASE NO. 4333 - 5- "This Agreement Ptld th~ f�n de; pursuant to it will be free from any t~x ation or fees impcaed under laws in . ffect in the territory of th~ Govf' rn ment of the Ph i 1 i p pine !l. " Baosed on the "'b�)vf>, t:tH1 Rureau of Int e rnal Revenue in its afor� nq 10tr.r.t n~tling No . 101-000- 00513-88 eonsidered direct payments from the ESF pro c d~ tQ fin4ne~ government project , wi thin the purview of effectively zero r ted tran~ac tions und r Seetiu" 100<a> <2> and 102<a> <3> of the Ta)( Code . It is indisput bl.e that pu u nt to the above BIR Ruling petitioner's gross ,~ ecPipts derived from the proceed s of the ESF for services rendered in t h e c onstruction of government projects are su bject on ly to zero r te of the value-added tax. However, we find without merit petition er 's content ion that its gross r eeipts from the same proceeds sh ould h ave b en likewise ex empted from contractor's ta)( in line with the said ruling since the said proceeds are e)(empt from Philippine Go vern�ent taxe$. In the case of the v lue- dded tax o th& <ale of oer v (ceo, paragraph <3> r : . c t i o 102 <a> specifically provides for subj cting t zero rate, service! perform . d for persons or en ities exeM pted

DECISION CTA CASE NO. 4333 - 6- under special laws or internationa l agreements to which the Philippines i s a signatory as follows: Sec. 102. Valt �f>-� -'\ d dP rl t:."'\ )( o n sa eo of S P.rV i C 5 . - ( a ) n r� l;f' ,'!lnr:l h-"'"1? o f t a )( . There '!!hall br> l n" i "d � rll!;c;p sc; e> cl ~nd co 1 1 c t e d a v A J. �'"' <"' rl d Prj t .-� >' "'q q i v a 1 f' n t t o 10~ of gro ss t r c ~'pt~ rlPrivPd by any p r . on ctngag d in t h o s 1 "" 1'\ ( c;py�v icec.; . x xx Prov �d lf' rl . Th""t t IP following c; r v � c p " f tH""' "'" i n t t1,. P II i 1 i p pi n e !; by VAT - gi s ter�ed p~n" -; n nt; !-llr!!ll hP ~ uhj e ct to 0~ . (1) K K K <31 S ervices r Pndered to persons or e1 t i t i '3 who ~ P e x ~mption tndtor specia l w~ or internati onal agr '"e nts to which the h ' lippin @. is " signatory aff e.tively sub j e r:- ts t he upp y of such s rvices to zero 'ate . no pt� ovir:. ' on fo r the cont r actor's t >< ~HHI"' t Srct ion 170 <now r !!! pealed> of the N t ' on a l Int l!rnl\\1 Corl P. . The contractor's t<!.M. !_~_ a _ t~.~___o.n . J: t'!_e__C..QT}t .r._ac.t__q_r,-_ Q..!L..!.h ~_ services are rer"tde_r_t~.fl� Henc e, petitioner, the contractor here, c nnot c 1 i"' fro11 contractor's tax just because the ESF proceeds out of which his services are paid are exe11pt fro11 any Philippine government ta x or imposition. It may be argued that although contractor's tax is a tax payable by th e

DEC ISION CTA CAS E NO. 4 3 33 -� 7 - c on tractor, it is an indirect tax in the sens e t hat it can be passed on to the buyer of the ser vic~s, whi ch in th e case at b a r is th e ESF S thu s r e su lt i ng i n t h e i nd irect t ax a ti on of the latt~r' s fund. Even so, it has been h el d in a case involvin g sales ta x, a tax which is pay ble b y t he Manuf ac tur~r o r p roducer but ca n be p . ~sPd nn to the purchase r that : 11 � The ph rase p_~~-!?_g.Q___ j ,:_he_,____t._~.?:t._fl..D. is i n a ccurate as ob iously th tax is laid a nd r e Main s on thf' manufacturer and on hi m alone . The p'~rchaser does not really pa y t h e tax. Hn p~ys nr m""y p y the s e 11 er mo re for t hP qoorlG t'>D.ci'l.use of the ~ell e r 's oblig;:d;iPn , but t:h;=d: s all. x x x . Th e price js th"' sui" t t.C'I p<'lirl for the g o od s. The mo nt arldt>d b ca use of the t ax is p aid to get t h e goods and for not hi n g e l se. Theref o re i t is par t o f th e price x x x . ' ( L sh' s Products v . United S t ates 278 U.S. 175 <1928) . ] " I t may i ndeed be th at thl! i ncidenc l! o f the ta x ult i matel y set tl es on t he pur ch aser, but it is not for th t reas on alone that on~ l'lay v al idly argue th t it is a tax on thr purchaser. x x x. But th e t ax burden ~a not even be shifted to th e purcha ser ~ t al l . A decision to a b s orb th e b urrl en of t he ta>< is l arge l y a mat tl! r of economic s . Th en i t can no lon ger be contende d tha t a s ale s t ax is a tax on the purc h ase r. 11 (Phil i ppine Acetylene Co . , Inc . vs . Co� � iss i oner o~ Int�rnal Revenue, 20 SCRA 1056> The obser vation holds t rue for ��Y contractor's tax on th e sal e of services which also be shifted to th e bu yer of th ~ services. Th us a pp lied to the in s t an t case, t he fact that

DEC IRION CTO CASE NO. 4333 8- petitioner may add t hP. contrA c tor's tax to its b il l ing!~ to th ESrS f"or spt�vireu; ren dP r E'd to the latt er doe~ not mak the ESF proceeds. For pet it ione to b e e xempted f rom the pay� n t of cant ract or' s t ax on its gross re c e ipts froM the ESF pro c eds there mu st have been a specific provision nf law to that effect as in the ca e o. the vf!l lu . -Added tM< on the sa le of se rvice~. Ex mp ion~ from t. xation ar highl y di s f avored hi law; ,.nc1 hE> whtl r.lf!l.i ms n exeM ption mu st b~ ~ble to ju~tify h is c la im by thP. cl e a r e s t grant o f o~gani~ or statut la w. An exemptio n from vs. ~~ a co l! lft tH1 b urd n cannot b e pwrmitted to exi st upon ; / ' vague iMplic tion . CAsiati Petroleu� Co. Llane s ., 4 9 Phi 1. 4661 Hous v s . Po sada s , 53 Phi 1. 338.) E xe mptions in tax sta tu tes are never presumed � . Exemptions in taxat �on are constr ued in "strictissimi juri s" against the taxpay e r an; / liberally in favor of the taxing aut h o ri t y . <Es ~ ~ Standard Eastern, Inc. vs. Co � � i ss ioner of Custo�s, 18 SCRA 488. > Clearly, pet it ioner' s claim for ta>C credit, representing co ntractor's tax erroneously paid/withheld in the to tal a111ount of P379, 538. 36,_ should be denied. As regards the claim for tax credit for err o neous 1 y paid val u e -adde d t x � n the am ount of

DECISION - CTA CASE NO. 4333 9- P14,2G5.00, ad vert~d to Arlier, petitione r i5 entitled thereto by virtue of BIR Ruling No. t ot -ooo-oostJ - ae. Re pondent avers that peti - t i o n er�s cl i~ h ould be deni~d for its fai lure t o ~ h ow th at: it had f il~~t applied for zero-r t i n g in accordance with Sect:i. n B<d> of Revenue Regulat ions No. 5-87 which reds~~ follo~ ~: il(d) ()pplicat� j rq' for� t-h,., 'mpo sition of ~ ro r t � -Any ~~rson rl~im ' ng that its ~ les of goods or ervices are f f c t i ve l y zero-ra ted unrlPr s~ctio ns 100 and 102 ~hall f; nn i"'f'Pl'cAI:'i on in a for - prescribed th rPfc11 ~ti th the Com�is ioner of In ternal Rev~nue justifying the � ~positi on of zero rate on the 1$ id transact ion~. Upvn approva l, his st tu'l\ as zero-r ted ta )(payer shall re111ain v 1 id unt i 1 N!voJ.ced ." The evidence prese n ted by petition er shows th th_ said v lue- dd ed t ax WA paid to t h e B IR on Septembet"' 20 , 19f'E\ < Ewh~. T. 1 - 1 to Tt - 9, pp. lhe <tfo l .,.,_ ;rt BlR Ruling No. 101-000- 00513-88 holdinq that dir ct p yme nts f t"'o m the ESF proceeds for ~~rv ices r nd red are su bj ec t to zero r t of the vtl'llu e - add Pd tax, was iss ued o nly on October 21,~988 after petitio n e r had al r eady p id the value-added ta~ in qu estio n . Petiti oner cann o t therefor b f ulted for not h a ving f i r st a p pl i d for th e a bovem ntioned z e ro rat in g sin ce its p Y"' nt of the value-added ta x

DECISION CTA CASE NO. 4 333 - 10 - th e n indica tes th at pe tition e r wa s not aware that it was subj ect t o z ero rat e until after the issuance of t he Bin r 11 ling. Ac r. ordingly, th e c l ai111 for the errone ou ~ l y f'! C'Iid vrd tJ -- added ta x 111u st be granted. Finally, with r Pspect to petitioner's cl ai111 for attorney's fee s in the amount of P75,000. 00 a nd the recovery of cost s of sui t , the rule i~ well- settled that cost s o f suit are n ot reco verable ag ai nst governM en t e n t i t i es a n d officers when th ey are sued purel y in th e i r off ici al capaci ty as was respondent in thi s c As e. An d the re bein g no showing that as such he acted in e v ident bad faith, the award of attorney ' s fee s would be unjust ified. <Philippine Veterans Af fai rs Offic e vs. Anover, 125 SCRA 354; Section 1, Rule 142, Rules of Court.) WHEREFORE, respondent Co��ission�r of Int�rnal Revenue is herttby ordttred to grant a taM cr�dit in favor of petitioner in the a�ount of P14,265.00, representing erroneously paid value-added taM. However, this court d n ies the clai� for taM cr�dit involving alleged erroneously paid contractor's taM in the a�ount of P379,538.36, as well as th� P75,000 attorney' s fe e ~

DECISt�1N CTA CASE NO. ~333 - 11 - SO ORDERED. ~ C.~~ ER STO D. ACOSTA Associ ate J dge WE CONCUR : .f~\'-\J-C)-;<;2 REYES .fudge J udge CERTlFlCATI N I hereby certif y that this dec"sio n was reached after due con -; tl tr:!t; i.n n l"nnq thP PIIP.I'Iber s of t he Co ur t o f Tax Appeals in acc ordance with Section 13, Arti c l e VIII of the Constitution. Court