CTA Case No. 4473 (Decision)

..I . REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY KAWASAKI HEAVY INDUSTRIES LTD. (MANILA OFFICE), Petitioner, -versus - C. T.A . CASE NO. 4473 THE COMMISSIONER OF INTERNAL ~II( ft3 REVENUE , Respondent . X- - - � - - - - - - - - - - X .) DE CI S I 0 N Peti ti.oner , (KH I, Man.ila) is the Manila representative office of Kawasaki Heavy Industries Ltd . of Japan with addreis at 20~~ . Floor, Metrobank Plaza, Sen. Gil J. Puyat Avenue, Makati , Metro Manila. Petitioner " was established in March 1978 under autho rity of Securi ti es an,d Exchange Comm ission Certificate of Registration No . 804 and Board of Investment Registr~tion Certificate of Authority No. 974. Under said authorizations, Petitioner may engage. in the following business activities:

DECISION CTA CASE NO. 4~73 - 2- (1) To oversee the implementation of the joint venture agreement between the Philippine government (through NIDC) AND Kawasaki Heavy Industries, Ltd., ( 2) To conduct and make s urveys and studies of market, economic and financial conditions in the PhilippinesJ and ( 3) To advise and render assistance to local distributors/i nvestors and customers in the Philippines. On July 20 , 1988 and allegedl y upon advice of its auditors, Petitioner paid . the amount of P80,971.~~ r,presenting 10% of value-added tax for the second quarter ending June 30, 1988 (Exhs. E, F & G) � On July 4, 1989, Respondent issued BIR Ruling No . 25-000-00- 136-89 whi ch conf irms the following taxable situations of the Petitioners (1) Petitioner is not a resident foreign corporation since 1 t is not engaged in any inco me generating business activities in the Ph!Jippines (Sec. 20 (h) , Tax Code) 1 �

.. DECISION CTA CASE NO. 4473 - 3- ( 2) It is a non-resident foreign corporation not engaged in trade or� business in the Philippines. The technical services fees it has been remitting to KHI are considere d royalties subject to income tax rate of 35% (Sec . 25(b)(l), ibid), ( 3) KHI does not maintain a branch in the Philippines, ( 4) KHI Manila offi ce is not subject to VAT sine~ it is not engaged in any income generating bus iness activity in the ~hilippines. A person . is su bject to VAT if it renders services "in the course of trade or business" (Sec. 99, Tax Code). On account of the aforesaid ruling, Petitioner filed a claim for refund on April 19, 1990 with the BIR to recover the said amount of PSO, 971. ?...~.. as erroneously paid value-added tax. To date, Respondent has not resolved nor granted the said claim. Hence, the instant petition for review was instituted to beat the two-year prescriptive period. ... Respondent for his p rt admits and denies

.. DECISION CTA CASE NO. 44J3 - 4- certain facts in the petition for review. More importantly, he admits the existence of the BIR ruling aforecited and the fact of filing by Petitioner of the c laim for refund on April 19, 1990 . He alle ged futh er by way of s pecial and affirmative defenses that th taxes paid were due the government, refund s should be construed strict l y against t he taxpayer, that it is incumbent upon the taxpayer to show that the taxes p ai d were erroneous, and that Pet itioner has to show compliance with the requirements of Section 230 of the Tax Code. Beyond those allegations in his Answer, Respondent failed to present any evi dence disputing the said claim for refund. The only issue presented is whether or not Petitioner is subject to value - added tax. We find for the Petitioner. The facts as above narrated are supporte d by the various exhibits presented by the Pe titioner during the hearings and admitted by this Court in its resolution dated December 5 , 1991 . Not a single .. evidence was presented by the Respondent to show otherwise. In fact, in a resolution dated March .)

DECISION CTA CASE NO. 44~3 - 5- 30, 1992, he was considered by this Court to have waived his right to the p rese nta tion of evidence in view of his cons istent failure to appear despite proper notices, evidencing lack of interest to defend his case. The applicable pr?vi sion of law is Section 99 of the National Internal Revenue Code, quoted hereunder: "Sec. 99. Person Liable. Any person who in the c our se of trade or bus in ss, sells, barters or exchange goods, renders serv ices , engages in similar transactions and a ny person who imports goods shall be subject to the valu - �dde d tax (VAT) impose d in Sections 100 to 102 of . this Cod .h In view of the findings ~f the BIR as embodied in its aforementioned ruling that Petitioner is not engaged in ny income generating business activity in the Philippines, this Court likewise believes that it will not be subjected to value-added tax pursuant to the aforequ oted Sect ion 9~ of the Tax Code. Value - added tax is imposable only against person, individual or juridical entity, in the course of their trade or business activities selling, bartering o.r' exchanging of goods, or rendering services for a fee or other simi lar .)

DECISI ON CTA CASE NO. 4473 - 6- transaction. Responden t failed to presen t any evidence th t will show th t Pe titioner has been engaged in any o f these e conomic activities, at le st to di put . it own t ind ings contained in the said BIR rul ing. In view of the foregoing , judgment is hereby r endered ordering Respondent to refund to Petitioner the aaount of P8 0, 971 ..~ .~.. representing e rr on eo sly paid 10~ value -adde d tax. SO ORDERED. Quezon Ci y, Metro Manil a, June 11, 1993. ~C?-~ ERHESTO D. ACOSTA Presiding Judge WE COBCUR~ ' R. GRUBA U. ssoc:i t Judge ~tl<~ I RAMO 0. ~~ A Associ ate Ju e � .. '

DECISION CTA CASE NO. 4.73 - 7- CERT I F I CAT I 0 N I hereby e~rt ify th t this decision was reached after du consul tation among the members of the Court of ~ax Appeals in accordance with Section 13, Article VIII of th Constitution. Q..XA\Cl.. ~ EaNESTO D. ACOSTA Presiding Judge Co urt of Tax Appeals .. '