CTA Case No. 4686 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAK APPEALS QUEZON CITY BENGUET CORPORATION, Petitioner, versus C.T.A. CASE NOS. 4686 and 4829 COMMISSIONER OF INTERNAL REVENUE, Promu1gated: ~ SEP 271911i ~ Respondent. X- - - - - - - - - - - - - - - - - - - - - - X DECI s I 0 N These cases involve two separate petitions �iled by petitioner to toll the running o� the two-year prescriptive period �or the �iling o� claims �or the issuance o� tax credit certi�icates or re�und o� input tax attributable to exportations o� certain goods~ pursuant to Section 204 o� the National Internal Revenue Code. Petitioner is a domestic corporation engaged in the mining business, speci�ically the exploration, development and operation o� mining properties �or purposes o� commercial production and the marketing o� mine products. It is a VAT-registered enterprise, with VAT Registration No. 31-9-000027 issued on January 1, 1988. Sometime in January 1988 petitioner �iled an 1216

DECISION - C.T.A. CASE NOS. 4686 & 4829 - -2- application �or zero rating o� its sales o� mine productst which application was duly approved by respondent Commissioner o� Internal Revenue. On May 21t 1990 petitioner �iled its VAT return �or the period February 1, 1990 up to April 30t 1990t re�lecting therein zero-rated sales totalling P795,060,159.68. The same return also states that for the period covered, petitioner allegedly made input tax payments in the amount of P29t583,438.16 on its local purchases of materials and supplies and capital goodst on importations of materials and supplies and capital and on purchases o� servicest and a creditable input tax in the amount of P22,020,426.62. On August 20, 1990, petitioner filed its VAT return for the period May 1, 1990 to July 31, 1990, reflecting zero-rated sales totalling P865t271,330.93. The return also showed a total of P27t717,396.37 as input tax payments on its local purchases o� materials and supplies and capital goods, and on purchases o� servicest and a balance o� P14t543t822.04 as creditable input tax after applying P12t577t709.71 against the .output tax �or the same quarter, and carrying over the balance o� P595,864.62 to the succeeding quarter. 1217

DECISION - C.T.A. CASE NOS. 4686 & 4829- -3- On April 17, 1991 and May 21, 1991, petitioner �iled separate applications �or tax credit o� input taxes �or the periods February 1 to April 30, 1990, and May 1 to July 31, 1990, respectively, in the amount o� P36,564,248.66, broken down as follows: Period Covered Amount Applied For February 1 - April 30, 1990 p 22,020,426.62 May 1 July 31, 1990 p 14,543,822.04 p 36,564,248.66 =============== Failing to obtain a favorable response to its application despite the lapse ~f the 60-day period provided under Section 106<e> of the Tax Code for the resolution of claims for tax credit, petitioner filed the instant petition to toll the running of the reglementary two-year prescriptive period for the filing of claims for tax refund under Section 204 of the Tax Code. On November 20, 1990, petitioner �iled its VAT return �or the period August 1, 1990 to October 31, 1990, showing zero-rated sales in the amount o� P624, 153,479.93. The return also showed input tax payments totalling P31,737,827.66 on petitioner's 1218

DECISION - C.T.A. CASE NOS. 4686 & 4829 - -4- purchases o� materials and supplies and capital goods, on importations o� materials and supplies and capital goods, and on purchases o� services, and a balance o� ~25,490,310.37 as creditable input tax a�ter applying ~6,247,517.29 against the output tax �or the same quarter. On February 20, 1991, petitioner �iled its VAT return �or the period November 30, 1990 to January 31, 1991, showing zero-rated sales in the amount o� ~918,902,263.59. The return also reflected input tax payments of ~38,700,599.21 on petitioner's local purchases o� materials and supplies and capital goods, and on purchases o� services, and a balance o� ~22,854,688.93 as creditable input tax after applying P15,845,910.28 against the output tax for the same quarter. On July 30, 1991 and December 2, 1991, petitioner �iled separate applications �or input tax credit �or the periods August 1 to October 31, 1990 and November 1 to January 31, 1991, respectively, in the total amount o� ~48,244,999.30, broken down as follows: August 1 - October 31, 1990 p 25,490,310.37 Koveaber 1, 1990 - January 31, 1991 p 22,854,688.93 1219 p 48,344,999.30 ----------------

DECISION - C.T.A. CASE NOS. 4686 & 4829 - -5- Again, �ailing to get a �avorable response �rom respondent despite the lapse o� the reglementary period �or resolving applications �or tax credit, petitioner �iled the instant petition. During the pendency o� these cases, Revenue Examiner Mercedes Daroya-Magno issu~d a Memorandum dated May 7, 1993 <Exhibit C> addressed to respondent Commissioner, outlining the results o� her investigation o� petit~oner's claims. Said memorandum states in part as �allows: "2. Sale o� gold to CB were treated by the subject taxpayer as direct export. However, based on VAT Ruling No. 008-92 and RHO 22-92, this O��ice ruled that the sale o� gold by the mining companies to the Central Bank is a local sale~ thus subject to the value-added tax o� lOY. thereo�. The total sales o� gold to CB amounted to $37,7715,494.02 or P928,501,946.56 for the period under any VAT its sale of gold to CB, naturally no output tax this sale was declared on its VAT returns. Therefore, Benguet is still liable for output tax due thereon which is computed by multiplying the invoice amount by factor 1/11. XXX XXX XXX 10. The output tax due on sale of gold to CB which was.credited to the ava~lable input tax, which resulted to an assessment computed as follows: 1220

DECISION - C.T.A. CASE NOS. 4686 & 4829 - -6- Aaount of claia p 118,329,433.64 Less: Disallowances 40,589,933.23 77, 739,'500. 41 Allowable input tax 84,409,267.87 Less: Other deduction 6,669,767.46 Output tax on sale of gold 1,667,441.87 to Central Bank 4,344,612.42 IP928,501,946.56/11) 25,000.00 bount due , 12, 706, 821. 75 Add: 251 surcharge Interest 110-12-90 to ================ 05-20-93) Aaount still due and collectible As previously stated, the disallowance of petitioner's claims was based on VAT Ruling No. 8-92 dated January 23, 1992 and VAT Ruling No. 59-92 dated April 28, 1992, which retroactively revoked previous rulings of respondent Commissioner treating sales of gold to the Central Bank as constructive exports for purposes of zero-rating, and instead considered such sales as domestic sales and therefore subject to the lOX Value-Added Tax. It is the retroactive application of these two rulings that petitioner assails in these consolidated petitions. Petitioner contends that the retroactive application of VAT Ruling No. 8-92 violates Section 246 of the Tax Code, as well as certain decisions of the Supreme Court which hold that BIR rulings cannot be 1221

DECISION - C.T.A. CASE NOS. 4686 & 4829 - -7- applied retroactively ii to do so would be prejudicial to the taxpayers <c.I. Marinduque Iron Mines Agents vs. Municipality oi Hinabangan, Samar, 11 SCRA 417; ABS-CBN vs. Commissioner oi Internal Revenue, 108 SCRA 142>. To bolster its claim, petitioner asserts that - "The undue prejudice qaused to the petitioner by a retroactive application oi VAT Ruling No. 008-92 is evident. It was issued only on January 23, 1992 which is years a�ter petitioner has religiously relied on and complied with previous BIR issuances and rulings that sales oi gold to the Central Bank are considered as export sales. The petitioner has also relied on CB Circulars which have the eiiect o� law. Hence, these sales should be considered as zero-rated and the VAT input taxes corresponding to such sales are refundable. XXX XXX XXX The petitioner has no other activities subject to the lOX VAT. The conversion o� the input taxes into cost deductions �or income tax purposes is o� no use to petitioner because it has little or no income to deduct these �rom. The �act remains, that the petitioner was not able to claim cash re�unds which it can use to �inance its operations. Neither were (sic) petitioner able to obtain tax credits which it may use �reely in the payment oi their <sic) internal revenue tax liabilities. What is worse, is the �act that petitioner was not able to pass on the lOX VAT to the Central Bank, on the portions corresponding to local sales, i� these sales should not have been treated as export sales. To assess petitioner the lOX VAT on these sales would indeed be unduly prejudicial. Furthermore, it is undeniable that petitioner relied on BIR's various issuances that sales OI gold to the Central Bank are zero-rated, sold ita gold produce to the CB without passing or billing the VAT on these

DECISION - C.T.A. CASE NOS. 4686 & 4829 - -8- sales, which it could have done. It stands now prejudiced to the extent o� 1/11 o� the purchase price o� its gold sales to the Central Bank and could not now demand and secure payment o� said amount �rom the Central Bank. It is highly improbable that the Central Bank will ever pay the prejudiced 1/11 purchase price and there is no way petitioner to <sic> reboup such loss but, leit nothing to shoulder the damage. XXX XXX XXX Uncontestable <sic>, petitioner shall be prejudiced by a retroactive application o� VAT Ruling 8-92 because the sales o� gold with <sic> the Central Bank were consummated �rom February 1, 1990 to January 31, 1991. At that time, petitioner in good iaith relied on the representations and issuances o� the BIR that sales o� gold to the Central Bank were export- sales subject to zero-rate. Thus, petitioner's reliance on these administrative issuances was the operative �act to which legal consequences are attached and petitioner <sic>, in its vain attempt to revoke previous rulings, cannot hide �rom the doctrine o� estoppel because, to allow him <sic> is tantamount to bad iaith, betrayal o� trust and inconsistent with justice and �air play. XXX XXX XXX Following these doctrinal rulings VAT Ruling 8-92 cannot be given retroactive eifects on petitioner's sales of gold to CB �rom February 1, 1990 to January 31, 1991 because it would be prejudicial to petitioner �or the �allowing reasons: 1. The BIR has issued assessment notices and demand letters �or alleged deiiciency VAT output tax on petitioner's sale o� gold to CB; 2. The BIR has o��setted <sic> �rom petitioner's reiundable input tax the latter's alleged VAT output tax liability on its sale o� gold to CB was mare prejudicial than the mere 122J

DECISION - C.T.A. CASE NOS. 4686 & 4829 - -9 - issuance o:f an assessment notice and demand letter to pay because it e:f:fectively denied petitioner the opportunity to contest the assessment and petitioner was deprived o:f its property without due process o:f law. -" <Petitioners' memorandum, PP� 13 19) We hold against petitioner. The issue o:f the retroactive application o:f VAT Ruling Nos. 8-92 and 59-92 has been repeatedly resolved by this Court in a number o:f cases, some o:f which even involve petitioner. In all such cases, We have consistently upheld the retroactive application o:f these two rulings. In Benguet Corporation ~ Commissioner o:f Internal Revenue <CTA Case Nos. 4429, 4495 and 4575>, We had occasion to squarely address the very same issue raised by petitioner in the instant cases. In upholding the retroactive application o:f VAT Rulings 8-92 and 59-92, We explained our position as :follows: "In Atlas Consolidated Mining and Development Corporation ~ Commissioner o:f Internal Revenue <CTA Case No. 4794, April 5, 1994>, We held that the retroactive application o:f VAT Rulings Nos. 8-92 and 59-92 may not necessarily be proscribed by Section 246 o:f the Tax Code, especially so where there is no showing o:f actual and imminent prejudice to the taxpayer as a result thereo:f. Thus: 'We hold that respondent Commissioner is correct in contending that petitioner will not su:f:fer any undue prejudice :from a

DECISION - C.T.A. CASE NOS. 4686 & 4829 - - 10 - retroactive application o� VAT Rulings No. 008-92 and 59-92. As pointed out by respondent in his Ruling No. 59-92, 'When the same mining companies, relying upon the a�orementioned earlier BIR rulings, sold their gold to the CB at zero rate VAT, they did not �ully pass on to the CB the cost ,o� their respective input taxes. Said input taxes remained in their possessions (sic>. The only repercussion o� the revocation o� the � said earlier rulings is - they will be prevented the option o� claiming the said input taxes as re�und. But, they remain entitled to use the same in paying their output taxes in connection with their other sales transactions which are subject to the lOX VAT. It �allows, there is no prejudice that may ensue �rom the retroactive application o� the said revocation because what they only lose is the right to have their input taxes re�unded which, in the �irst place and under the law, they are any way, clearly not entitled to. Granting �or the sake o� argument, that they have no other sales transactions subject to lOX VAT against which their input taxes may be used in payment, then, it �allows, they are constituted as the �inal persons against which the cost o� the tax passed-on shall legally stop and rest, hence, in this connection, said input taxes may already be legally converted as cost available as deduction �or income tax purposes. On this score, they are also not prejudiced by the retroactive application o� the said ruling.

DECISION - C.T.A. CASE NOS. 4686 & 4829 - - 11 Petitioner's reliance on the ruling in the ABS-CBN case is clearly misplaced. In the �irst place, there is nothing in said decision which absolutely prohibits a retroactive application o� the rules, regulations, rulings or decisions promulgated or rendered by respondent Commissioner pursuant to his rule- making authority. On the contrary, the decision clearly supports what We have stated here. Moreover, the �actual situation obtaining in the ABS-CBN case .is clearly not on all �ours with the instant case." We �ind the �oregoing ruling applicable to the instant cases. The admitted evidence on record does not show that petitioner will be unduly prejudiced by the retroactive application o� the questioned BIR rulings. The mere �act that petitioner may now be precluded �rom passing on the lOX VAT on its sales to the Central Bank and may thus no longer have such input taxes re�unded in cash cannot necessarily be equated with undue prejudice since VAT Rulings No. 8-92 and 59-92 still provide petitioner avenues �or relie�, that is by converting said input taxes as cost deductions �or income tax purposes. Petitioner has not shown by means o� competent evidence that such alternative relie� notwithstanding, it still stands to su��er undue economic prejudice in the sense that the amount which it would be entitled to deduct as costs �or income tax purposes is substantially less than the amount o� input taxes to which it could have been entitled to a re�und i� the questioned rulings were not applied retroactively. In other words, absent any showing that the alternatives available to petitioner under the questioned rulings are clearly inadequate, any claimed prejudice on petitioner's part would at best be speculative." In the more recent case o� Benguet Consolidated ~ Commissioner o� Internal Revenue <CTA Case No. 4945, January 26, 1995> We again upheld the validity o� the questioned VAT rulings in this wise:

DECISION - C.T.A. CASE NOS. 4686 & 4829 - - 12 - "Petitioner in its Memorandum also disputed the retroactive application o� VAT Ruling No. 008-92 to 1991 the year when such sales <to the Central Bank> took place. It argued that Section 246 o� the Tax Code prohibits retroactivity o� rulings when the same will be prejudicial to the taxpayers. In entering into such transactions with the Central Bank, petitioner maintains that it relied on previous BIR Rulings which considered sales o� gold to CB ,as zero-rated, thus the petitioner was not able to pass on the lOX VAT to the Central Bank, moreover, the petitioner claims the BIR has already issued an assessment demanding �or the payment o� VAT on these transactions. Petitioner contends that a retroactive application o� the a�orementioned rulings given these circumstances is highly prejudicial on its part. This Court �inds the position o� the petitioner untenable. We agree with the Respondent that such retroactive application will not be prejudicial to the petitioner. In VAT Ruling No. 59-92, respondent elucidates this point clearly: 'When the said mining companies, relying upon the a�orementioned earlier BIR rulings, sold their gold to the CB at zero rate VAT, they did' not �ully pass on to the CB the cost o� their respective input taxes. Said input taxes remained in their possessions (sic). The only repercussion o� the revocation o� the said earlier rulings is - they will be prevented the option o� claiming the said input taxes as re�und. But, they remain entitled to use the same in paying their output taxes in connection with their other sales transactions which are subject to the lOX VAT. It �allows, there is no prejudice that may ensue from the retroactive application of the said revocation because what they only lose is the right to have their input taxes 1227

DECISION - C.T.A. CASE NOS. 4686 & 4829 - - 13 - re�unded which, in the �irst place and under the law, they are any way, clearly not entitled to. Granting �or the sake o� argument, that they have no other sales transactions subject to lOX VAT against which their input taxes may be used in payment, then, it �allows, they are constituted as the �inal persons against which the costs o� the tax passed-on shall legally , stop and rest,� hence, in this connection, said input taxes may already be legally converted as cost available as deduction �or income tax purposes. On this score, they are also not. prejudiced by the retroactive application o� the said ruling. ' With respect to the contention o� petitioner that the assessment issued to them by the �BIR makes damage and prejudice su��ered by them actual present and real, VAT 59-92 Ruling has this to say: 'This o��ice does not also believe that the said mining companies may be unduly prejudiced i� the said revocation is retroactively applied and this o��ice assesses the said companies �or de�iciency lOX VAT, according to the opinion No. 4, s. 1992. said mining companies did not pass on to the CB any lOX VAT because they relied, in good �aith, upon the said earlier rulings o� the BIR. Please be in�ormed, however, that under Section 6 o� VAT Revenue Regulations No. 5-87 in connection with the procedures in computing �or the lOX VAT on sales <output tax>, i� the sale is not shown in the sales invoice, the lOX VAT or output tax therein is computed, based on 1/llth o� the amount billed to the buyer <in this case, the buyer is the CB>. It �allows, the de�iciency 1228

DECISION - C.T.A. CASE NOS. 4686 & 4829 - - 14 - lOY. that may be assessable against the said companies will only be equal to 1/llth o� the amount billed to the CB rather than lOY. thereo�. In short, said companies may only be charged based on the tax amount actually and technically passed on tci the CB as part o� the invoiced price. The said companies may also deduct, as input tax credit, their a�orementioned input taxes, which, by virtue o� the said revocation are not allowable as input tax re�und. It �allows, the said mining companies will not truly be unduly prejudiced by the said retroactive application o� the revocation." We �ind the �oregoing disquisitions on all �ours with the instant cases. It bears stressing that petitioner's claimed injury �rom the retroactive application o� the questioned rulings is the alleged assessment purportedly issued by respondent �or de�iciency output tax o� F12,706,821.75. Signi�icantly, however, the admitted evidence on record does not show that a notice o� assessment had in �act already been issued against petitioner. On the contrary, Revenue Examiner Magno, on re-direct examination by petitioner's counsel, candidly admitted that she was not aware i� any notice o� assessment was issued to petitioner as a result o� her recommendation. Thus: Q: <Atty. Belen>: Would you know whether �the assessment re�erred to during your cross whether this has been released? A: I don't know. 1228

DEC!SION - C.T.A. CASE NOS. 4686 & 4829 - - 15 - Q: You don't know. Would you know whether this has been paid? Would you know whether this has already been relea~ed? A: Released the Q: The assessment. Judge De Veyra: Do you know? A: Already served to the taxpayer? Q: Yes. Judge De Veyra: What is your answer? A: I did not know. Judge De Veyra: You do not know. Next question. Atty. Belen: No more, Your Honors. The fact of the matter is that petitioner did not present a single shred of evidence to show the assessment purportedly issued against it by respondent. Neither is there anything in the BIR records submitted to the Court that would show that such notice of assessment had indeed been issued to and received by petitioner~ and what action, if any, petitioner took in respect of such notice. Finally, anent the alleged damage resulting from the offsetting of petitioner's output tax liability from its refundable input tax, suffice it to say that petitioner's primary remedy lies in a protest which should be properly lodged in the office of respondent Commissioner. The records before us do not indicate .1.... rr..J....r>:o

DECISION - C.T.A. CASE NOS. 4686 & 4829- - 16 - that petitioner �protested such o��setting, much less that respondent Commissioner had rendered a decision on such protest which would necessitate the exercise by this Court o� its appellate jurisdiction over decisions o� respondent Commissioner. Consequently, We are constrained to conclude that the claimed prejudice to petitioner arising �rom the retroactive application o� VAT Ruling Nos. 8-92 and 59-92 is, at best, highly speculative and, there�ore, untenable. Claims �or re�und are in the nature o� claims �or exemption �rom taxation <see Comm. o� Internal Revenue vs. Ledesma, L-17509, Jan. 30, 1970, 31 SCRA 95~ Resins, Inc. vs. Auditor General, L-17888, Oct. 29, 1968, 25 SCRA 754. > Claims �or re�und are construed strictly against the claimants and cannot be allowed unless proven explicity and categorically. <Caltex [Phil.] Inc. vs. Comm. o� Internal Revenue, CTA Case No. 2871, Jan. 29, 1986. Petitioner <taxpayer> has the burden o� proo� to show that it is entitled to the re�und o� the amount claimed as re�undable because taxes are presumed to have been collected in accordance with laws and regulations. <Caltex [Phil.] Inc. vs. Comm. o� Internal Revenue, CTA Case No. 2871, January 29, 1986. 1231

DECISION - C.T.A. CASE NOS. 4686 & 4829 - - 17 - WHEREFORE, in view o� the �oregoing, the petition is hereby DISMISSED. No pronouncement as to costs. SO ORDERED. WE CONCUR: ;.?, ) <Diss nting Opinion> ERH TO D. ACOSTA- p esid~ng RAKOH 0. DE VEYR~/ Associate Judge�,/ C::ERTIFIC::ATICJN I hereby certi�y that this decision was reached a�ter due consultation among the members o� the Court o� Tax Appeals in accordance with Section 13, Article VIII o� the Constitution. e~dl�~ ERHESTO D. ACOSTA Presiding judge Court o� Tax Appeals