CTA Case No. 4967 (Decision)

..- . --- . ��,p REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY INTEL PHILIPPINES MANUFACTURING I INC. I Petitioner, - versus - C.T.A. CASE NO. 4967 COMMISSIONER OF Promulgated: INTERNAL REVENUE, - - - - - - - - - - - - - .f;i MAR 1 0 1997 Respondent. ------X X----- --- DECISION This is a claim for the refund of input taxes alleged to have been paid by the petitioner on its domestic purchases of goods and services covering the period March 1, 1991 to May 31, 1991 in the original amount of P4,327,151.63. Petitioner is a domestic corporation engaged in the business of designing, developing, manufacturing and , exporting advanced and large-scale Integrated circuit components commonly called "VLSI" components or "IC's". It is a VAT registered entity under VAT Registration Certificate No. 32A-3-002649, effective as of January 1, 1988. Petitioner aIIeged that for the period starting March 1, 1991 to May 31, 1991 It generated export sales in the amount of P306,440,972.35 which were alI paid for

DECISION - C.T.A. CASE NO. 4967 -2 - in acceptable foreign currency and inwardly remitted in accordance with existing regulations of the Central Bank and are therefore classified as zero-rated sales. Petitioner further claims that it paid input taxes on its domestic purchases of goods and for he same /� : I ' ' servibes period in the total amount of P4,327,151.63 which remained unutilized because of Its zero output tax Iiab I I ity resuIting from Its zero-rated export saIes. Such input taxes paid were allegedly attributable to petitioner's zero-rated sales. As a result, petitioner filed three separate appl !cations for tax cre9it/refund of input taxes with respondent in the total amount of P4,327,151.63. AII these appIicati ens were received by the respondent on March 18, 1992, July 24, 1992 and July 24, 1992, respectively. Respondent did not act upon these applicatlons for tax credit/refund so petitioner finally elevated its claim to this Court through a petition for review filed on March 18, 1993. On May 11, 1993, during the pendency of this case in Court, respondent issued a Tax Credit Certificate SN. 001873, dated May 11 1 1993, in the amount of P1,052,889.44 in favor of the petitioner r ' epr- esenting a portion of the total amount claimed as tax credit for the period covering March 1, 1991 to May 31, 1991 . Thereafter, petitioner reduced the amount prayed for to

DECISION - C.T.A. CASE NO. 4967 -3 - P3,274,262.19 representing the balance after deducting the allowed portion from the original amount. Respondent's Answer was fiIed on May 12, 1993, stating by way of Special and Affirmative Defenses the following: 8. The petitioner states no cause of action as it does not state the specific date/s when the alleged input taxes were actually paid (Manufacturer's Bank and Trust Co., as Trustee for Gen. Trust Plan vs. Commissioner of Internal Revenue, C.T.A. Case No. 1659, November 29, 1965); '' 9. Petitioner 's claim for refund of the alleged creditable VAT input taxes is still under the usua I rout i nary examinat.l on/ investigation by respondent's Bureau; 10. The allegation that petitioner has creditable VAT input taxes does not ipso facto warrant a refund/tax credit; 11. The aIIeged Input taxes sought to be refunded herein were paid and coI I ected pursuant to law and pertinent BIR implementing ru I es and reguIations, hence, not refundabIe; 12. Petitioner must prove that the alleged input taxes attritlutable to the alleged exported goods have not been appIied to the output tax and must prove that the alleged total foreign exchange proceeds have been accounted for by the Central Bank of the PhiIippines. Likewise, input taxes allegedly paid by petitioner on its IocaI purchases from VAT registered persons must be fu I Iy supported by invoices issued pursuant to Section 108 of the Tax Code and must be made In the manner provided for therein; 13. Claims for refund/tax credit are construed strictly against claimant, the same being In the nature of exemption from taxes (Commissioner of Internal Revenue vs. Ledesma,

.fJ�� I DECISION - C.T.A. CASE NO. 4967 -4 - 31 SCRA 95 [1970]; Manila Electric Co. vs. Commissioner [1975]); of I nterna I Revenue, 67 SCRA 35 14. In a claim for refund, it is incumbent upon petitioner to prove that it is entitled thereto. I t must be able to point to a positive provision of the law granting such right. Failure to do so is fatal to its claim for refund; 15. Moreover, it is incumbent upon the petitioner to prove that it has campiied with the provision of Section 230 of the Tax Code." (pp. 32-34, CTA rec.) The sole issue involved in this case is whether or not the petitioner is entitled to the refund or tax credit of the remaining amount of P3,274,262.19 representing a I I eged unapp I ied input taxes paid for the period covering March 1, 1991 to May 31, 1991. The petitioner anchors its claim on two assertions: first, that its sales from the period March 1, 1991 to May 31, 1991 are a I I classified as export sales and secondly, that all the input taxes claimed for refund are related or directly attributable to such export sales. These claims made by the petitioner, if proven to be true, shall lead to the eventual refund of the amount claimed because of clear provisions of the law and pertinent revenue regulations. Section 100(a) of the Tax Code provides that export sales are subject to 0% VAT, thus: SEC. 100. Va I ue-added tax on sale of goods. (a) Rate and base of tax. There

DECISION - C.T.A. CASE NO. 4967 - 5- shaII be Ievied, assessed and coIIected on every sale, barter or exchange of goods, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods soId, bartered or exchanged, such tax to be paid by the seller or transferor: Provided, That the foIIowing saIes by VAT-registered persons shalI be subject to 0%: (1) Export sales; and ( 2) sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. 'Export Sales' means the sale and shipment or exportation of goods from the PhiIippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer Qf ownership of the goods so exported, or foreign currency denominated sales. 'Foreign currency denominated sales' means sales to non-residents of goods assembled or manufactured In the Philippines, for delivery to residents in the Philippines and paid for in convertible foreign currency remitted through the banking system in the Philippines." Section 8 (a> of Revenue Regulation No. 5-87 authorizes the refund of input taxes paid in relation to such export sales, thus: SEC. 8. Zero-rating (a) In generaI. A zero-rated sales is a taxable transaction for value-added tax purposes. A sale by a VAT registered person of goods and/or services taxed at zero rate shaII not resuIt in any output tax. The input tax on his purchase of goods or services related to such zero-rated sale shall be avai !able as tax credit or refundable in accordance with Section 16 of these Regulations.

DECISION - C.T.A. CASE NO. 4967 -6- Section 104(b) of the Tax Code provides the following: SEC. 104. Tax Credits. (a) XXX . Creditable input tax. (b) Excess output or input tax. If at the end of any taxable quarter the output tax exceeds the input tax, the excess shaII be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters. Any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 106. Section 106(a) of the same Code further pr.ovides thus: "SEC. 106. Refunds or tax credits of input tax. (a) Export Sales. An exporter ,who is a VAT-registered person may within two years from the date of exportation, apply for the issuance of the input tax attr.ibutable to the goods exported, to the extent that such input tax has not been applied to output tax and upon presentation of proof that the foreign exchange proceeds has been accounted for in accordance with the regulations of the Central Bank of the Philippines. As a SOl-registered enterprise with a pioneer status as export producer, petitioner was able to obtain VAT R uIing No. 102(a)(1)-402(88) which contail)ed the declaration that its service income is automatically zero-rated (Exhibit "F" , p. 156, CTA rec.).

DECISION - C.T.A. CASE NO. 4967 -7- Petitioner 's zero-rated taxability on its export sales, as confirmed by the above-mentioned VAT-ruling, led it to claim for the refund of unutilized input taxes that were paid for its domestic purchases of goods and services directly attributable to such export sales. To support this particular claim for refund, petitioner presented the following documentary evidence: 1) Certification/Report of Punongbayan and Araullo, dated November 29, 1993, which included petitioner 's Export Sales Summary for the period March 1, 1991 to May 31, 1991 and the Summary of Input Taxs paid for the same period <Exhibit "J", pp. 165 - 167, CTA rec.). This certification/report contained a summary of the procedures done in verifying the accuracy of the amount claimed as tax credit; 2) Photocopies of supplier 's sales invoices and official receipts for the period March 1, 1991 to May 31 , 1991, to prove that the input taxes claimed as tax credit are duly supported by invoices and official receipts <Exhibits "K-1" to "K-4722"); and 3) Photocopies of sales invoices, airway bills and bank credit memos to prove the accuracy of the amount- aIIeged to have been generated by its export sales from the period March 1, 1991 to May 31, 1991. The bank credit memos were particularly offered to prove that its

DECISION - C.T.A. CASE NO. 4967 - 8- export sales were paid for in acceptable foreign currency inwardly remitted to the Philippines In accordance with existing Central Bank Regulations {Exhibits "L" to "L-655"). A thorough analysis of the evidence presented leads this Court to the conclusion that petitioner is entitled to a tax credit in the amount of P88,568.74, detailed as foIIows: Ref. Supplier's Name Invoice Invoice VAT Reg. Total Net VAT Exh. Nos. Date Number Number Amount Amount Amount No. 4142 Aggregate Ventures 04-04-91 12658 32A-8-001372 510. 00 463. 64 46. 36 K- 120 Phi Is. 1 Inc. 32A-1-008 31500.00 31181, 82 318.18 K-1705 04-12-91 079 32A-1-008 31500. 00 31 181,82 318.18 K-1706 41497 Gascon Technology 32A-1-008 21200. 00 21000. 00 200.00 K-1707 41498 Gascon Technology 04-12-91 083 32A-1-008 101577. 00 91615. 45 961. 55 K-1709 41499 Gascon Technology 32A-1-008 251000. 00 221727. 27 21272. 73 K-1717 04-12-91 081 32A-1-008 21,375. 00 191431. 82 11943. 18 K-1719 5366 Gascon Technology 32A-1-008 11650. 00 11500. 00 150.00 K-1720 3220 Gascon Technology 04-26-91 093 32A-1-008 22,000. 00 201000.00 21000. 00 K-1722 4221 Gascon Technology 32A-1-008 12,500. 00 111363. 64 1 136. 36 K-1724 4222 Gascon Technology 04-03-91 074 32A-1-008 431500. 00 391545. 45 4223 Gascon Technology 32A-1-008 41000. 00 31636. 36 I 4484 Gascon Technology 04-03-91 075 32A-1-008 51300. 00 41818, 18 4485 Gascon Technology 32A-1-008 361152. 00 321865. 45 31954. 555 K-1726 4897 Gascon Technology 04-05-91 076 32A-1-008 81000.00 71272. 73 363. 64 K-1728 4898 Gascon Technology 32A-1-008 81550. 00 71772.73 481.82 K-1729 5824 Gascon Technology 03-26-91 073 32A-1-008 551000. 00 501000. 00 31742 Gascon Technology 32A-1-008 39,600. 00 361000. 00 31286.55 K-1733 41139 Gascon Technology 04-05-91 077 32A-1-008 11500. 00 11363. 64 727. 27 K-1738 41140 Gascon Technology 32A-5-008 71031. 50 777. 27 K-1741 51193 Gascon Technology 03-26-91 071 32-0-0003 271520. 47 61392. 2 51258 Gascon Technology 32-0-0003 691578.41 51000. 00 K-1742 31611 Gras Mktg. & Enter 04-12-91 082 32-0-0003 271520.47 251018.61 31600. 00 K-1744 3703 IBMPhils. 34-6-0003 671915. 00 631253.10 5595 IBMPhils. 04-12-91 078 34-6-0003 961600. 00 251018. 61 136.36 K-1745 41015 IBMPhils. 34-6-0003 481000. 00 611740. 91 639.23 K-1848 5205 JCR Mercanti I e 05-10-91 099 34-6-0003 841600. 00 871818. 18 21501. 86 K--2165 5206 JCR Mercant i I e 431636.36 61325.31 K-2169 4207 JCR Mercantile 03-21-91 069 761909. 09 21501. 86 K-2171 4915 JCR Mercantile 61174.09 K-2462 04-13-91 088 81781.82 K-2463 41363. 64 K-2465 04-15-91 089 71690. 91 K-2497 05-09-91 095 05-20-91 103 03-27-91 14 03-01-91 878404 03-11-91 026391 07-01-91 878871 05-04-91 4698/96 05-02-91 4693/4713 05-09-91 4712/4700 04-17-91 4639/27

DECISION - C.T.A. CASE NO. 4967 -9 - Ref. Supplier's Name Invoice Invoice VAT Reg. Total Net VAT Ex h. Nos. Date Number Nuber Amount Amount Amount No. 5860 JCR Mercant i Ie 05-11-91 4721/26 34-6-0003 65,800.00 59,818.18 5,981.82 K-2506 5861 JCR Mercant i Ie 05-17-91 4745 34-6-0003 32,200.00 29,272.73 2,927.27 K-2507 41047 Lane Moving 03-25-91 32A-1-001 12,397.27 11,270.25 1,127.02 K-2739 4387 Realto Photo 25389 & Optical 04-16-91 39257 24-4-000352 13,800.00 12,545.45 1,254.55 K-3586 41382 SGV Dimensions 04-16-91 951 32A-4-002358 1 t 100.00 1,000.00 100.00 K-3837 Int' I. 4684 The Online 04-01-91 12708 32A-0-000927 104,678.97 95,162.70 9,516.27 K-4054 Adv. System 11-01-91 735 11!100.00 10,090.91 1,009.09 K-4675 411 J.E. Automated P974,256.09 P885,687.35 P88,568.74 Parts Ent. The input taxes that are not directly attributable to petitioner's zero-rated export sales were excludd in the computation of the final amount awarded as credit. These are the following: 1) Purchases of fire extinguishers, fire sprinklers, fire hose cabinet and service charges for their installation and repair, all of which do not form part of the product exporte <Exhibits "K-1702", "K-1704", "K-1731", "K-1732", "K-1736", "K-1739"); and 2) Repair and maintenance of the fax machine which cannot be directly attributable to the zero-rated export sales of the petitioner (Exhibit "K-2444"). Invoices that were also excluded are those whose dates are not within the period being claimed <Exhibits "K-1711", "K-1713", "K-1714", "K-1735", "K-2162").

. . DECISION - C.T.A. CASE NO. 4967 - 10 - Moreover, this Court also excluded in its computation the invoices that were canceIIed by the Department of Finance as these were already considered in the tax credit earlier granted in favor of petitioner. WHEREFORE, in view of the foregoing, this Court hereby orders respondent to issue a TAX CREDIT CERTIFICATE in favor of petitioner the amount of P88,568.74 representing the balance of unutiIized input taxes paid for the period 1991 to May 31, 1991. SO ORDERED. vJI(' . .._� RAMON 0. DE Associate Jud CONCUR: Qll� I ERNESTO D; ACOSTA Presiding Judge CERTIF CATION hereby certify that this decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. Q�Q ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals