CTA Case No. 4095 (Decision)

REPUBLIC OF THE PHILIPPINIB COURT OF TAX APPEALS QUEZON CITY MACLEOD INTERNATIONAL, INC., F'et:.i tioner, C.T.A. CASE NO. 4095 THE COMMISSIONER OF INTERNAL REVENUE, >t - - -� ..... Respondent. -� ..... �- - - - _,, )( DEC I I0N Thi s is a judic ia l claim for tax credit under then Section 202 (the n Section 167), in relation to Section 166(c), of the Tax Code, of the total amount of pe ::~2 , .135. 09, r-epr-esenting advance sales t<:n: paid on mater-ials used .in t.he manLifactur�e of artic le s e >:pcw�ted abr��oad in .1.985. Petitioner , during the year 1985, made an e>:por�t. sa le to L.C.8(S., Ltd., a U.S. Corporation, of va rious trucks, tractors and equipment. (�xhs. A, B, C & D; te s timony of Toma s L. Rotairo) On ~;ai d e>:por.. ted art .ic les, petitioner had a tot al credita ble ta>: of P832 ,135.09, representing advance s ales tax paid on components of said exported artic les. (Exh s . A .� E �'!f f " ) Petition er was unable to utilize as tax credit the said a mount of P832,135.09 in any of its 34

DECISION CTA CASE NO. 4095 - 2- percentage tax returns for 1985 and 1986~ or claim the same in any government agency. Hence~ on August 6, 1986~ petitioner~ through .its agent~ filed with r�espondent ' s Bureau an application for tax credit for taxes paid on materials used in the manufacture of exported articles totalling P832,135.09. Inasmuch as respondent Commissioner has not yet gr�antec:l pet .itioner's request. for the issuance of tax credit of P832~135.09, a petition for r&view was filed on August 22, 1986 in order� to preserv~ petitioner ' s right to claim the tax credit. Respondent had submitted his case on the pleadings and the records of this case. The sole issue to be determined in this case is whether or not petitioner is entitled to ~ tax cred.i t of advance sa 1 es t.:nt paid on components of articles exported by petitioner. The evidence of petitioner and the records established that petitioner made an export sale to L. C. 8<8 . , LTD. , a U.S. Corporation, of various trucks, tractors, and equipment. (Exhs. A, B, C & D) This fact of exportation was confirmed by witness Tomas L. Rotairo. (t,S.T!.) During the hearing, it was established by 34u

DECISION CTA CASE NO. 4095 - 3- petitioner ' s books of accounts that it had on said eN ported articles, cred.i.table totalling P832~135.09. The Deferred Sales Tax Subsidiary Ledger (Exh. E.> of petitioner clearly showed that it had available sales tax credit on its inventory of goods at hand which it could claim if said articles were sold locally. This was explained by petitioner's witness, Tomas L. Rotairo~ as followsJ "Q. Mr. vJi t.ness, in this case deferred sales ta>: credit account book ther�e appears to be on the first fourteen pages~ there appears the words "Inventory" et cetera plus a certain figure beginning balance and the figure appears below it. Would you kindly .i.n �form this Honorable Court o �f the signi.f icance of this beginning balance? A. That entry there as the p~g!nn.J.D_q Pc:\. .~. ~.!::!<;:_�'____9..!J........_ Q.\::'.C ........Q�'.f..~.r.:.r.::.�'.c.L_..f!..~_f_f!t'.L.r..~d g;~J..~.?.. .........t.~ .Y.-...~;..r_~g_!j;__ ~t,!.PS.!..c:i.J:.~-J~.Q.g_g _r: ,t~L..... t. h.~........~ffi.QJ,I. t !'lt....._.. . b.~.t.-. . !:.~.Pr..!?..�..~..n t_~--ou.r.: l:?.!:l.9..!n.g. _. . .l::n.Y.~Dj;Qr_y_____q.:f____ ~f!.y_,;m ~ e sa 1..~~ .t._. t~.?L....!;. r.::.~?..9..!. i l]_____.t9~_4._s... . -~.E...._9..f..._.Q...~.c em b~.r: ! .9..~.1. � In l. 984, we are required to file the inventory of deferred sales tax credit in order that we can <:!'vai 1 of it i.n the future when we were able to sell the units. Q. Mr. Witness, where did you get these fi.gures for this beginning balances? A. We 1 1 , th~.t........f:..al'f.l.l:?.........f.L9JJl_ !..O.Y.�'.fLt.R.r.::.Y..........9.f. ~9.Y~.0!;~..-..2 .?...t~E.. . . . . . .t.o?.U.:...........f.:..rg_q_!__L .... t .b..~ t _ .. ~tft b.?._Yf:?........f.:t.. .t~q......-...~~.!.t!::L.. _....t_he_ ___~!:!.r.::g~.J:,\__Qf ln.J;.t=._? r.!J.�.\J._R.�'.Y..�'.!ll:-!~.� o. Mr� . Witness, would you .inform thi s Honorable Court of what were the

DECISION CTA CASE NO. 4095 - 4- imported items for which these advance sales ta>t payments were made? A. We 1 1 , the �.c!Y..~D.�..E.L...!�Lc.'-.l.e~_.t.~.~...fl-~.meq_t were made f or� t he ~:;_p_fTI.Q.9..!.1.~.!J..t ~---Q.f. ~rrLC?..<;;l:..Q.t::_l ~[L.....:t.t.:!::!.f...K!?.___.?.D.q_._ t!J.t;t_.S.Q..ffi_Q_OQ.~f"'!..~ f .9J:__,.t..bJ~L.E.~Ifl.J..::J~D..Q�;J~g_Q~.r.L_t.r.:. a c;,.t..Q.r:.'i?.. that t-Ie have imported at that time." (Emphasis ours). Take note that as testified to by witness, Tomas L . Rot.:~.i. r-<::l, the beginning ba 1 ance of said Subsidiary Ledger t-ler-e t.aken from the inventory of advance sales t.:1>: credit (E x h. f') which was required by law to be submitted to the Bureau of Internal Revenue. The same Deferred Sales Tax Subsidiary Ledger (Ex h. �} t.-1hich included the articles e>:ported as goods at hand likewise reflected the ta>: cr�>dit available on each article e>:ported. Hence, the total t:.a >: cr� ed its available on said e>tported ar� ticles can readily verified. As e>:plained by Rotai ro on direct examination, the amount of P832 ,135.09 was ascertained as follows: "(:1. 1'1r". Witness, in this journal entry dated October� 23, 1985 there appears a line here 'Pre-paid Sales Tax 441 and P8 ~32,135.09'. Will you kindly tell this Honorable Court of the significance of these items? A. t.<Jell, this pre-paid sales ta>: code 441 is the code that we are using in our general ledger which corresponds

DECISION CTA CASE NO. 409~ - 5- to the pre-paid sales tax. The amount of P832,1 35 .09 represents the amount of ~.9Y..~nce............?~J. g�.. .._. tax~..-�P~.:I,~. <_:..Q.t.:':!:'..~.l�.Q.QQ.q !..O..Q!. Y_... _t.Q ..._. ! h f'L.......I::~IJ..j,_t~__t.l"!.~_t,, 1:1.�r..~--~...>.tP..9...r.:.Y?.!1. _~.1:1r o ~.9..� Q. And how did you arrive at this figure of P832,135.09, Mr. Witness? A. t1-Je 11 , I f i r s t �I.�.I;..~Lt a.,!.Q __j:JJ..t:L...JlQ.og~. �Q.1..�I. . ....J~y_,_ggJ..ng__qygr.. .._ t;h4iL !.!J..Y..9J:..�.~ and then I r:~.f~ .r.~.f!.. _...!:<:J.__.....Q.\-Ir_ .... 9..~.f.~rr.~.Q.. !!?..~..~..f.?:...�__ :t..~L...<;:_r.:~.<;H.!:........QQQ..I:L...E..r.:!.Q._ !;:I_e..t..~ r.m.!.D.~ ! .f.... . .. !J1gr:..t;>..........!Jl!i...... ~D.Y..... _.~Q.Y_~n 1;_1\?._ ..~~!.~.!. !.._.t..~.li P. ~.!9.... -.Q.D.._ t..b.!'?.... _.~ >t.P..Q.r t..~.9...-..9..Q.9d ~- . U pan ver�i f icat.ion and noted if there are any advance sales t.:n:, I noted it and compiled the amount and arrived at that figure of P832,000.00." (Emphasis ours). (pp . 9 - 10, T.S . N., September 10, 1987). And on cross - examination, the witness stated: "0. Now, MF�. Witness, w.i l l you kindly tell us how did you arrive with the amnunt of P832,135.09 which is the subject of this c 1aim for ta>: crecH t? A. \&Jell, as I have said before, L...f. J.. r:~t. ~.�r,::.~rJ:,.~.J.!.}.e;o..r.t.............t:.t!�L .. ...J.LIJ..i t...?.... ._ .. .!:. b~ .:t. _.�../.~..r:..~ !S_P!..�1. , and after i::\Scertain ing the units that were so 1d l ......r.J?t.~r.____ig_p,!,~.r:. 9..E.?.fg .r::..r.:.�'.Q._..__?_~l~.~. ....-. .....t.�l_>.,;.._ .......f=. r:..~.�1. i t;__Q.oqJ..~. �11.9.?..!.<:;Lt~..r.:.Y...........L!?..Q..9.~..r.:.. .. . .~POk .......~n..c;L_t h~.!J...._ .! 1:1?..2.-.......- .... ~ ~.1..~....._....._...t.J.:L... - .......E.?�.~ r t..~J n ......-.-...t.h~ I;..Q r:..r..t?..? . . P 9 D.QJ.D..g.......~..9 . Y. ~D�g_.� .cio\..l~~-� - ��t. ~L..t.b .~t. ":!~!.:~-.-....P..S\_i...Q..... .....9.!J.__,t,t.J.~....--g.QOQ�___,,1;,_h�\j._ ..~~.J:~ !:F.XPQr..!...E?...Q...~... Q. How did you come to ascertain that the a moun t of P832,135.09 is the amount claimed to be the advance sales tax on exported items?

DECISION CTA CASE NO. 4095 - 6- {':'lj. . ~Je 11 , our Q.�'..f.f.?..r. r:~.c.t_ ~EJ~-~ -. J-~1L.....~ rec;;Ltt. ~?.9.91' _.... _!;b~tJ ?.Jf:lj,�:l..r:Y. _._ . ~ -~-Q_g.!':_? L....._~QPJ~--h~E.. Q.f?_~-, !:;_r.:: .;lpt:i,..P.Q . ._P..D......._.t:}}.!;'_._ffiQ.Q.�?.!.~---� ..!.h.!J:__W.~ b�'_y~ ~ and if you wi 11 compare the invoice it is indicated in the invoice the models of the unit that wer"e e>:ported abroad. ?'nd ba~ed on the comparison we could ascertain the amount of the sales tax paid." (pp. 19 - 21~ T.S.N., September 10~ 1987). The De �fen"�ed s.-"'1 es Tax Subsidiary Ledger as well as the books of accounts were prepared in the ordinary course of business of petitioner. It '-'ISS also prepared in accordance e>:isting regu 1at ions on the subject. The correctness and accur.-::~ cy of said books were never impugned. No evidence to the contrary was presented by respondent Commissioner of Internal Revenue. We hold that the said e>:port sale of pet.i. tioner is e>:empt from sa 1es tc:n:. Under the then appli.cable laws (Sec. 202 of the Ta>: Code, taken in relation to Sec. 167 of the same Tax Code)~ all export sales made by petitioner are exempt from sales tax. Section 202(d) of the then Tax Code provides that "Sec. 202. E:tr..t.:i,_c;J_~.E........flo:L....J?.b!.P...i.~.! t_g__, pgr:._c::g.Q_!;_�:'_g ~l..._,_t_"" >.:..........Qr.L__~ aJ_g.~. "'I i t h T b.~. :f. 9.1.1Q.I'.:I:!..D..Q..._..._!:?..h.~.1. L. ._.I2..~.----�~!.:t~JJU2.t.....- ......f.J:.9_f!l....~b..~ pgr:.f:::.~_D.t�.\g_e.L...t.~.?.:. ~�. .imposed in Sections 194ll 195~ 196, 197, 198, 199 and 201:

DECISION CTA CASE NO. 4095 - 7- (d) Articles shipped or e>tported by the m~nufacturer or producer, irrespective of any shipping arrangement t ha t may be agr�� eed upon which may in�f luence or determine the transfer of ownership of the articles so e>~ported. )(>!)( Any percentage or specific ta>: paid under this Title IV respectively, on domestically manufactured or on imported raw materials used in the manufacture of finished products exported s hall be a llowed to be credited against other tax li abilities of the manufacturer-exporter: f:r:qy_i_q~_c:l _s .. JJ9_~_fl?.Y.g.r.:. ~ That the amount of the t~x on the article sha ll be indicated as a separate item in the sales invoice. )DDt The above provision was thereafter amended by E x ecutive Order No. 36 e ffective August 1~ 1986, to r.. e.::td as fo 11 ows: "Sect .ion 167. Br.t.. ,!:c:J .�!'L. -~D 9.....__,.J;.Lc::\1:..1~.::. ";\c:;:.:t-!. 9r.J.� ..DQJ.. - ~.q!~J-~c_.t .... .i9. ....?."i\.! .~.?..........t-:..~.>.J The following s hall be exempt from the sales tax imposed in Section 163 hereof: ){ )! >~ H >f >f (d) Articles shipped or exported by the manufacturer, produc er, or trader, i rr�espec t.i. ve o �f any s hipping arrangement that may be agreed upon I.'Jhich may inf 1uence or determine the transfer of ownership of the articles so exported. On the other hand~ the remedies avai 1 able to the e>: porter wer-e:

DECISION CTA CASE NO. 409~ - 8- " Sec � .166. >tX >t (b) T_.\_~J -��--����- f=..r.~_g_.li_ ___ .._�.P.O..... _..._.... ..�.r.:..t..i.c.::J.._g_~ !'?..?:!. Pl?.rJ.:_~_g_ . Any e>:c i se. sa 1es, mi 11 er' s or advance sales tax paid under this Title IV of this Code on domestically man ufactured or imported raw materials used in the manufacture and forming part of the finished products subject to ta>t under Section 163 (1), (2) and (4) hereof shall be allowed as a tax credit against any internal revenue tax liability direc tly due from the manufacturer e>:port.inr.-l said products: E.r.::.Q.~:i,s:f~_q, , That the amount of the tax on locally purcha sed raw material, part, accessory~ or other article is indicated as a separate item in the sales invoice of the supplier from whom it was last purchaEed; and . Er.:.~L�~ .Q!?.fi.~ f..!,.~_r..t..tL~r. , That the direct ex porter s h a 1 1 f .:i.Jg_�--~.IJ- ..~.Qp_l..l .<;E..tt,J. QJL.....i..Q..t::'. !:.�..~!.._c.::.r:.~.Q.J..t:. _y~J..t .bJ..r:L..QD.~--.Y!':?...\..r.......:f. r:.P.m._t_ht;?_~.J..Q.~~ P:L ...t..b~..--.~.�);. ~..!2.1~..-Y.~�..r._:i.:n..Y...b..i c:..b.... . ...tb.~---g_~Q.r...t. ~l..~.?.........~.f.f..~<.:::..t..~.Q- � In case finished products are e >: ported by c:~ n e >: port trader other than the manufacturer or producer~ the entire amount of sales and e>:cise ta>:es separately indicated in the sales invoice nf the immedii~t: e !E-eller� o �f the finished produc ts exporte d shall be allowed to be credited against other tax liabilities of the e >:pcwt tr�ade r subject to t.hP. t i 1 ing of an appl.i.cat.ion as pr�escribed by the Bur� e e:'u." It is a fact that petitioner had, on the aforementioned e>:por� ted artie les ~ paid creditable ta >:es totalling which were established, both documentary and testimonial, and which were uncontroverted by respondent. WHEREFORE, petitioner Macleod International,

DECISION CTA CASE NO. 4095 - 9- Inc. is entitled to taM credit of the amount of P832,135.09. Without pronouncement as to costs. SO ORDERED. Ouezon City~ 16, 1990. CO~S;fANTE � ROAQUIN ~sociate Judge I CONCUR: CERTIFICATION I hereby certify that this decision was reached after due consultation between the members of the Court of Ta}: Appea 1s in accordance with Section 13, Article VIII of the Judge Appeals