Vat Digest

7/27/2019 Vat Digest

1/22

COMMISSIONER OF INTERNAL REVENUE,petitioner, vs. SEAGATE TECHNOLOGY (PHILIPPINES,respon!ent.

" E C I S I O N

PANGANI#AN, $.%

Business companies registered in and operating from the Special Economic Zone in Naga, Cebu -- like herein respondent-- are entitiesexempt from all internal revenue taxes and the implementing rules relevant thereto, including the value-added taxes or V!" lthough export sales are not deemed exempt transactions, the# are nonetheless $ero-rated" %ence,in the present case, the distinction bet&een exempt entitiesand exempt transactionshas little significance, because thenet result is that the taxpa#er is not liable for the V!" 'espondent, a V!-registered enterprise, has complied &ith all

re(uisites for claiming a tax refund of or credit for the input V! it paid on capital goods it purchased" !hus, the Court of!ax ppeals and the Court of ppeals did not err in ruling that it is entitled to such refund or credit"

T&e C'se

Before us is a )etition for 'evie& under 'ule *+ of the 'ules of Court, seeking to set aside the a# ., //0ecision of the Court of ppeals 1C2 in C-3' S) No" 44/56" !he decretal portion of the 0ecision reads as follo&s7)HEREFORE, foregoing premises considered, the petition for revie& is "ENIE"for lack of merit"

T&e F'*ts

!he C (uoted the facts narrated b# the Court of !ax ppeals 1C!2, as follo&s78s 9ointl# stipulated b# the parties, the pertinent facts x x x involved in this case are as follo&s7

:" ;'espondent< is a resident foreign corporation dul# registered &ith the Securities and Exchange Commission to do business

in the )hilippines, &ith principal office address at the ne& Cebu !o&nship =ne, Special Economic Zone, Baranga# Cantao-an,Naga, Cebu>" ;)etitioner< is sued in his official capacit#, having been dul# appointed and empo&ered to perform the duties of his office,

including, among others, the dut# to act and approve claims for refund or tax credit>6" ;'espondent< is registered &ith the )hilippine Export Zone uthorit# 1)EZ2 and has been issued )EZ Certificate No" 5.-

/** pursuant to )residential 0ecree No" 44, as amended, to engage in the manufacture of recording components primaril#used in computers for export" Such registration &as made on 4 ?une :55.>

*" ;'espondent< is V! ;1Value dded !ax2


2/22

!he C affirmed the 0ecision of the C! granting the claim for refund or issuance of a tax credit certificate 1!CC2 infavor of respondent in the reduced amount of ):,:,5"44" !his sum represented the unutili$ed but substantiated inputV! paid on capital goods purchased for the period covering pril :, :55@ to ?une 6/, :555"

!he appellate court reasoned that respondent had availed itself onl# of the fiscal incentives under Executive =rderNo" 1E=2 4 1other&ise kno&n as the =mnibus nvestment Code of :[email protected], not of those under both )residential 0ecree No"1)02 44, as amended, and Section * of ' .5:4" 'espondent &as, therefore, considered exempt onl# from the pa#ment ofincome tax &hen it opted for the income tax holida# in lieu of the + percent preferential tax on gross income earned" s aV!-registered entit#, though, it &as still sub9ect to the pa#ment of other national internal revenue taxes, like the V!"

oreover, the C held that neither Section :/5 of the !ax Code nor Sections *":/4-: and *":/6-: of '' .-5+ &ereapplicable" %aving paid the input V! on the capital goods it purchased, respondent correctl# filed the administrative and9udicial claims for its refund &ithin the t&o-#ear prescriptive period" Such pa#ments &ere -- to the extent of therefundable value -- dul# supported b# V! invoices or official receipts, and &ere not #et offset against an# output V!liabilit#"

%ence this )etition"Soe Iss+e

)etitioner submits this sole issue for our consideration78Ghether or not respondent is entitled to the refund or issuance of !ax Credit Certificate in the amount of ):,:,5"44representing alleged unutili$ed input V! paid on capital goods purchased for the period pril :, :55@ to ?une 6/, :555"F

T&e Co+rt/s R+in-

!he )etition is unmeritorious"

CIR vs. SEAGATE TECHNOLOGY

acts7 Seagate !echnolog# 1Seagate2 is registered &ith the )hilippine export Zone uthorit# 1)EZ2 and has been issued

a )EZ certificate t is also a V! registered entit# n administrative claim for refund of V! input taxes in the amount of )%) @,645"@@ &as filed on =ctober *,

:555 No final action as been received b# Seagate from the C' on its claim for V! refund Seagate thus elevated the case to the C! b# &a# of petition for revie& in order to toll the running of the t&o

#ear prescriptive period

SSHE7 GN Segeate is entitled to the refund or issuance of !ax Credit Certificate I JES

'!=7

Seagate is a )EZ registered enterprise

s a )EZ registered enterprise &ithin a special economic $one, Seagate is entitled in the fiscal incentives andbenefits, provided for in either )044 or E= 4" t shall moreover en9o# all privileges, benefits, advantages, orexemptions under both ' .. and ' .@**

Seagate en9o#s preferential tax treatment" t is not sub9ect to internal revenue la&s and regulations and is even

entitled to tax credits" !he V! on capital goods is an internal revenue from &hich Seagate as an entit# is exempt" lthough the

transactions involving such tax is are not exempt, Seagate as a V! registered person ho&ever is entitled to theircredits

V! is a uniform tax ranging at present from /-:/K levied on ever# importation of goods, &hether or not in thecourse of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties, or on eachrendition of services in the course of trade or business as the# pass along the production and distribution chain,the tax being limited onl# to the value added to such goods, properties or services b# the seller, transferor orlessor

t is an indirect tax that ma# be shifted or passed on to the bu#er, transferee or lessee of the goods, properties,or services

!he la& that originall# impose the V! in the countr#, as &ell as subse(uentl# amendments of that la&, has been

dra&n from the tax credit method" Hnder the present method that relied on invoices, and entit# can credit againstor subtract from the V! charged on its sales or outputs the Vat paid on its purchases, inputs and imports"

f at the end of a taxable (uarter the output taxes charged b# a seller are e(ual to the input taxes passed on b#the suppliers, no pa#ment is re(uired" t is &hen the output taxes exceed the input taxes tha the excess has to bepaid" f, ho&ever, the input taxes exceed the output taxes, the excess shall be carried over to the succeeding

2


3/22

(uarter or (uarters" Should the input taxes result from $ero rated or effectivel# $ero rated transactions or fromthe ac(uisition of capital goods, an# excess over the output taxes shall instead be refunded to the taxpa#er orcredited against other internal revenue taxes

Zero 'ated and Effectivel# Zero 'ated !ransactions

lthough both are taxable and similar in effect, $ero rated transactions differ from effectivel# $ero ratedtransactions as to their source

Zero rated transactions generall# refer to the export sale of goods and suppl# of services" !he tax rate is set at$ero" Ghen applied to the tax base, such rate obviousl# results in no tax chargeable against the purchaser" !heseller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the V!previousl# charged b# suppliers"

Effectivel# $ero rated transactions, ho&ever, refer to the sale of goods or suppl# of services to persons orentities &hose exemption under special la&s or international agreements to &hich the )hilippines is a signator#effectivel# sub9ects such transaction to a $ero rate" gain, as applied to the tax base, such rate does not #ield an#tax chargeable against the purchaser" !he seller &ho chares $ero output tax on such transactions can also claim arefund of or a tax credit certificate fir the V! previousl# charged b# suppliers"

Zero 'ating and Exemption

n terms of the V! computation, $er rating and exemption are the same, but the extend of relief that resultsfrom either one of them is not ppl#ing the destination principle to the exportation of goods, automatic $ero rating is primaril# intended to be

en9o#s b# the seller &ho is directl# and legall# liable for the V!, making such seller internationall# competitive b#allo&ing the refund or credit of input taxes that are attributable to export sales" Effective $ero rating on thecontrar# is intended to benefit the purchaser &ho not being directl# and legall# liable for the pa#ment of the V!,&ill ultimatel# bear the burden of the tax shifted b# the suppliers"

n both instances of $ero rating, there is a !=!L relief for the purchaser from the burden of the tax" But in anexemption there is onl# partial relief because the purchaser is not allo&ed an# tax refund of or credit for inputtaxes paid"

Exempt !ransaction and Exempt )art#

the ob9ect of exemption from the V! ma# either be the transaction itself or an# of the parties to thetransaction

n exempt transaction on the one hand", involved goods or services &hich, b# their nature are specificall# listed inand expressl# exempted from the V! under the !ax Code, &ithout regard to the tax status I V! exempt or notI of the part# to the transaction" Such transaction is not sub9ect to the V!, but the seller is not allo&ed an# taxrefund of or credit for an# input taxes paid"

n exempt part#, on the other hand is a person or entit# granted V! exemption under the !M Code, a special la&or an international agreement to &hich the )hilippines is a signator#, and b# virtue of &hich, its taxabletransactions become exempt from the V!" Such part# is also not sub9ect to the V! but ma# be allo&ed a taxrefund of or credit for input taxes paid, depending on its registration as a V! r non-V! taxpa#er"

Special la&s ma# certainl# exempt transactions from the V!" %o&ever, the !ax Code provides that those falling

under )0 44 are not" )0 44 is the precursor of ' .5:4 I the special la& under &hich Seagate &as registered" !hepurchase transactions it entered into are therefore not V! exempt" !hese are sub9ect to the Vat" Seagate isre(uired to register"

ts sales transactions ho&ever &ill either be $ero rated or taxed at the standard rate of :/ percent" 0ependingagain on the application of the destination principle

f Seagate enters into such sales transactions &ith a purchaser --- usuall# in a foreign countr# I for use orconsumption outside the )hilippines, these shall be sub9ect to a / percent" f entered into &hich a purchase for useor consumption in the )hilippine, then these shall be sub9ect to :/ percent, unless the purchaser is exempt from theindirect burden of the V!, in &hich case it shall also be $ero rated"

Since the purchases of Seagate are not exempt from the V!, the rate to be applied is $ero" ts exemption underboth )0 44 and ' .5:4 effectivel# sub9ects such transactions to a $ero rate because the eco$one &ithin &hich itis registered is managed and operated b# the )EZ as a separate customs territor#" !his means that such $one has

created the legal fiction of a foreign territor#" Hnder the cross border principle of the V! s#stem beingenforced b# the B', no V! shall be imposed to form part of the cost of goods destined for consumption outsideof the territorial border of the taxing authorit#" f exports of goods and services from the )hilippines to a foreigncountr# are free of the V!, then the same rule holds for such exports from the national territor# I exceptspecificall# declared areas --- to an eco$one"

3


4/22

Sales made b# a V! registered person in the customs territor# to a )EZ registered entit# are consideredexports to a foreign countr#, conversel#, sales b# a )EZ registered entit# to a V! registered person in thecustoms territor# are deemed imports from a foreign countr#" !his legal fiction is necessar# to give meaningfuleffect to the policies of the special la& creating the $one" f Seagate is located in an export processing $one &ithinthat eco$one, sales to the export processing $one , even &ithout being actuall# exported, shall in fact be vie&ed asconstructivel# exported under E= 4" Considered as export sales, such purchase transactions b# Seagate &ouldindeed be sub9ect to a $ero rate

!he Exemptions Broad and Express ppl#ing the special la&s &e have earlier discussed, Seagate as an entit# is exempt from internal revenue la&s and

regulations" !his exemption covers both direct and indirect taxes, stemming from the ver# nature of the V! as a tax on

consumption, for &hich the direct liabilit# is imposed on one person but the indirectl# made to bear, as added costto such sales, the e(uivalent V! n its purchases"

irst, ' .5:4 states that 8no taxes, local, and national, shall be imposed on the business establishments operating&ithin the eco$oneF Since this la& does not exclude the V! from the prohibition, it is deemed included

Second, &hen ' @.*@ &as enacted to amend ' .5:4, the same prohibition applied, except for real propert#taxes that presentl# are imposed on land o&ned b# developers

!hird, foreign and domestic merchandise, ra& materials, e(uipment and the like 8shall not be sub9ect to internalrevenue la&s and regulationsF under )0 44 I the original charter provisions on the latter la& modif# such exemption

ourth, even the rules implementing the )EZ la& clearl# reiterate that merchandise I except those prohibited b#la& I shall not be sub9ect to internal revenue la&s and regulationsF if brought to the eco$oneAs restricted area formanufacturing b# registered export enterprises of &hich Seagate is one" !hese rules also appl# to all enterprisesregistered &ith the )EZ prior to the effectivit# of such ruled

!ax 'efund as !ax Exemption !o be sure, statutes that grant tax exemptions are construed strictissimi 9uris against the taxpa#er and liberall# in

favor of the taxing authorit# !ax refunds are in the nature of such exemptions" ccordingl#, the claimants of those refunds bear the burden of

proving the factual basis of them claims and of sho&ing b# &ords to plain to be mistaken, that the legislatureintended to exempt them" n the present case, all the cited legal provisions &ith respect to the grant of the tax

exemptions are too vivid to pass unnoticed" Seagate &hich as an entit# is exempt, is different from its transactions &hich are not exempt" !he end result,

ho&ever, is that it is not sub9ect to the V!" !he non taxabilit# of transactions that are other&ise taxable ismerel# a necessar# incident to the tax exemption conferred b# la& upon it as an entit#, not upon the transactionsthemselves" Nonetheless, its exemption as an entit# and the non exemption of its transactions lead to the sameresult"

V! registration, not application for effective $one rating indispensable to Vat refund

'egistration is an indispensable re(uirement under our Vat la& B# the V!As ver# nature as a tax on consumption, the capital goods and services Seagate has purchased are

sub9ect to V!, although at $ero rate" 'egistration does not determine taxabilit# under the V! la&"

!he B' regulations additionall# re(uiring an approved prior application for effective $ero rating cannot prevailover the clear V! nature of SeagateAs transactions" !he scope of such regulations is not 8&ithin the statutor#authorit# granted b# the legislature"

=ther than the general registration of a taxpa#er, the V! status of &hich is aptl# determined, no provision underour V! la& re(uires an additional application to be made for such taxpa#erAs transactions to be consideredeffectivel# $ero rated" n effectivel# $ero rated transaction does not and cannot become exempt simpl# becausean application therefore &as not made or if made, &as denied" !o allo& the additional re(uirement is to giveunfettered discretion to those officials or agents &ho &ithout fluid consideration, are bent on den#ing a validapplication

!ax 'efund or credit in order

%aving determined that SeagateAs purchase transactions are sub9ect to a $ero V! rate, the tax refund or creditis in order"

s correctl# held b# the lo&er courts, Seagate had chosen the fiscal incentives in E= 4 over those in ' .5:4and )0 44" t opted for the income tax holida# regime instead of the + percent preferential tax regime,

4


5/22

!hese t&o regimes are incompatible and cannot be availed of simultaneousl# b# the same entit#" Ghile E= 4merel# exempts it from income taxes, the )EZ la& exempts it from all taxes"

!herefore Seagate can be considered exempt not from the V! but onl# from the pa#ment of income tax forcertain number of #ears depending on its registration"

CONTE0 CORPORATION,petitioner, vs. HON. COMMISSIONER OF INTERNAL REVENUE, respon!ent.

" E C I S I O N

1UISUM#ING, $.%

or revie& is the 0ecision;:


6/22

Nonetheless, the C! held that the petitioner is exempt from the imposition of input V! on its purchases of suppliesand materials" t pointed out that under Section :1c2 of 'ep" ct No" .. and the mplementing 'ules and 'egulations ofthe Bases Conversion and 0evelopment ct of :55, all that petitioner is re(uired to pa# as a SBZ-registered enterprise isa +K preferential tax"

!he C! also disallo&ed all refunds of input V! paid b# the petitioner prior to ?une 5, :55. for being barred b# thet&o-#ear prescriptive period under Section 5 of the !ax Code" !he tax court also limited the refund onl# to the inputV! paid b# the petitioner on the supplies and materials directl# used b# the petitioner in the manufacture of its goods" tstruck do&n all claims for input V! paid on maintenance, office supplies, freight charges, and all materials and supplies

shipped or delivered to the petitionerAs akati and )asa# Cit# offices"

'espondent C' then filed a petition, docketed as C-3"'" S) No" 4@6, for revie& of the C! decision b# the Courtof ppeals" 'espondent maintained that the exemption of ContexCorp" under 'ep" ct No" .. &as limited onl# to directtaxes and not to indirect taxes such as the input component of the V!" !he Commissioner pointed out that from its ver#nature, the value-added tax is a burden passed on b# a V! registered person to the end users> hence, the direct liabilit#for the tax lies &ith the suppliers and not Contex"

inding merit in the C'As arguments, the appellate court decided C-3"'" S) No" 4@6 in his favor, thus7

G%E'E='E, premises considered, the appealed decision is hereb# 'EVE'SE0 N0 SE! S0E" ContexAs claim forrefund of erroneousl# paid taxes is 0ENE0 accordingl#"

S= ='0E'E0";:6 &hile doing business conve#s the idea ofbusiness being done, not from time to time, but all the time"Course of business is &hat is usuall# done in the managementof trade or business

Court explained that course of business or doing business connotes regularit# of activit#" n the instant case, the sale&as an isolated transaction" !he sale &hich &as involuntar# and made pursuant to the declared polic# of 3overnment forprivati$ation could no longer be repeated or carried on &ith regularit#" t should be emphasi$ed that the normal V!-registered activit# of N0C is leasing personal propert#"

!his finding is confirmed b# the 'evised Charter of the N0C &hich bears no indication that the N0C &as created for theprimar# purpose of selling real propert#" !he conclusion that the sale &as not in the course of trade or business, &hich the

C' does not dispute before this Court, should have definitivel# settled the matter" n# sale, barter or exchange of goodsor services not in the course of trade or business is not sub9ect to V!" ccordingl#, the Court rules that given theundisputed finding that the transaction in (uestion &as not made in the course of trade or business of the seller, N0C thatis, the sale is not sub9ect to V! pursuant to Section 55 of the !ax Code, no matter ho& the said sale ma# he& to thosetransactions deemed sale as defined under Section ://" )etition 0enied"

MIN"ANAO I GEOTHERMAL PARTNERSHIP v. COMMISSIONER OF INTERNAL REVENUE

3"'" Nos" :566/:, :5*46.arch ::, /:6Carpio,? " )etition for 'evie&

"OCTRINE%

SH'J = 'HLES =N )'ESC')!VE )E'=0S NV=LVN3 V!

1:2 n administrative claim must be filed &ith the C' &ithin t&o #ears after the close of the taxable (uarter &hen the$ero-rated or effectivel# $ero-rated sales &ere made"12 !he C' has :/ da#s from the date of submission of complete documents in support of the administrative claim &ithin&hich to decide &hether to grant a refund or issue a tax credit certificate" !he :/-da# period ma# extend be#ond thet&o-#ear period from the filing of the administrative claim if the claim is filed in the later part of the t&o-#ear period" f

9


10/22

the :/-da# period expires &ithout an# decision from the C', then the administrative claim ma# be considered denied b#inaction162 9udicial claim must be filed &ith the C! &ithin 6/ da#s from the receipt of the C'As decision den#ing theadministrative claim, or from the expiration of the :/-da#period &ithout an# action from the C'"1*2 ll taxpa#ers, ho&ever, can rel# on B' 'uling No" 0-*@5-/6 from the time of its issuance on :/ 0ecember //6 up toits reversal b# this Court in ichi on 4 =ctober /:/, as an exception to the mandator# and 9urisdictional :/P6/ da#periods"

FACTS%indanao and 1indanao2 are value-added taxpa#ers, and Block )o&er )roduction acilities accredited b# the0epartment of Energ#" !he# had a Build-=perate-!ransfer contract &ith the )hilippine National =il Corporation IEnerg#0evelopment Compan# 1)N=C-E0C2, &hereb# indanao converts steam supplied to it b# )N=C-E0C into electricit#, and thendelivers the electricit# to the National )o&er Corporation 1N)C2 in behalf of )N=C-E0C"

!he Electric )o&er ndustr# 'eform ct of /// 1E)', ' 5:642, amended the !ax 'eform ct of :55. 1' @**2, &henit decreed that sales of po&er b# generation companies shall be sub9ected to a $ero rate of V!" )ursuant to E)',indanao and filed their claims for the issuance of tax credit certificates on unutili$ed or excess input taxes fromtheir sales of generated po&er and deliver# of electric capacit# and energ# to N)C"

!he C! En Banc denied indanao As claims for refund tax credit for the first and second (uarters of //6, and

indanao As claims for refundtax credit for the first, second, third, and fourth (uarters of //6, for being filed out oftime"!he follo&ing are relevant dates7

C! 1EnBanc27

indanao As 9udicial claims &ere filed be#ond the period allo&ed in Sec" ::12, b# &hich the reckoning of the t&o-#ear prescriptive period for filing the application for refund or credit of input V! attributable to $ero-rated sales oreffectivel# $ero-rated sales shall be counted from the close of the taxable (uarter &hen the sales &ere made1regardless of&hether the tax &as actuall# paid2, according to C' v" irant )agbilao Corporation 1irant2 " lso, the sale of the full#-depreciated Nissan )atrol is incidental to indanao As V! $ero -rated transactions and is V!able pursuant to Sec" :/+"

indanao As claims for the first, second, third and fourth (uarters of //6 &ere filed out of time" Section 5 isinapplicable in light of irant" oreover, the procedure prescribed under Section ::1C2 should be follo&ed first before theC! En Banc can act on indanao As claim"

indanao and &ent up to the Supreme Court arguing that their claims &ere timel# filed pursuant to the case of tlas,&hich &as then the controlling ruling at the time of the filing" !he irant case, &hich uses the close of the taxable (uarter

&hen the sales &ere made as the reckoning date in counting the t&o-#ear prescriptive period, cannot be appliedretroactivel# to their pre9udice"

345 ISSUE%

10


11/22

Ghether the reckoning date for counting the t&o-#ear prescriptive period in Section :: should be counted from the end ofthe taxable (uarter &hen the sales &ere made 1irant2 or the date of filing the return 1tlas2Q

HEL"%

Neither tlas nor irant applies, because &hen indanao and indanao filed their respective administrative and9udicial claims in //+, neither case had been promulgated" tlas &as promulgated on @ ?une //., irant on : September//@"Besides, tlas merel# stated that the t&o-#ear prescriptive period should be counted from the date of pa#ment ofthe output V!, not from the close of the taxable (uarter &hen the sales involving the input V! &ere made" !he tlas

doctrine did not interpret, expressl# or impliedl#, the :/P6/ da# periods"

Pres*riptive Perio! or t&e Fiin- o A!6inistr'tive C'i6s

Section ::12 of the :55. !ax Code &as the applicable la& at the time of filing of the claims in issue, therefore the claimsneeded to have been filed &ithin t&o 12 #ears after the close of the taxable (uarter &hen the sales &ere made" indanao and As administrative claims for the first (uarter of //6 had prescribed, but their claims for the second, third andfourth (uarters of //6 &ere filed on time"

Pres*riptive Perio! or t&e Fiin- o $+!i*i' C'i6s

n determining &hether the claims for the second, third and fourth (uarters of //6 had been properl# appealed, there isstill see no need to refer to either tlas or irant, or even to Sec" 5" !he second paragraph of Sect" ::1C2 is clear thatthe taxpa#er can appeal to the C! 8&ithin thirt# 16/2 da#s from the receipt of the decision den#ing the claim or after the

expiration of the one hundred t&ent# da#-period"F

!he :/P6/ da# periods are mandator# and 9urisdictional" !he taxpa#er cannot simpl# file a petition &ith the C! &ithout&aiting for the CommissionerAs decision &ithin the :/-da# period, because other&ise there &ould be no 8decisionF or8deemed a denialF decision for the C! to revie&" oreover, Sec" ::1C2 expressl# grants a 6/-da# period to appeal to theC!, and this period need not necessaril# fall &ithin the t&o-#ear prescriptive period, as long as the administrative claim isfiled &ithin such time" !he said prescriptive period does not refer to the filing of the 9udicial claim &ith the C!, but tothe administrative claim &ith the Commissioner"

S'n Ro7+e% Re*o-nition o #IR R+in- No. "A89:;8 it &as thusprematurel# filed" %o&ever, pursuant to San 'o(ue, the claim (ualifies under the exception to the strict application of the:/P6/da# periods" ts 9udicial claims for the third (uarter and fourth (uarter of //6 &ere filed on time"

indanao filed its administrative claims for the second, third, and fourth (uarters of //6 on * pril //+" Counting :/da#s after filing of the administrative claim &ith the C' 1 ugust //+2 and 6/ da#s after the C'As denial b# inaction,the last da# for filing a 9udicial claim &as on : September //+" %o&ever, the 9udicial claim cannot be filed earlier than ugust //+, &hich is the expiration of the :/-da# period for the Commissioner to act on the claim" indanao prematurel# filed its 9udicial claim for the second (uarter of //6 but claim (ualifies under the exception in San 'o(ue" ts

9udicial claims for the third and fourth (uarters of //6, ho&ever, &ere filed after the prescriptive period"

3>5 ISSUE%Ghether the sale of the full#-depreciated Nissan )atrol is a one-time transaction not incidental to the V! $ero-ratedoperation of indanao , thus not V!ableQ

11


12/22

indanao asserts that the sale of a full# depreciated Nissan )atrol is not an incidental transaction in the course of itsbusiness but an isolated transaction that should not have been sub9ect to :/K V!" t does not follo& that an isolatedtransaction cannot be an incidental transaction for purposes of V! liabilit#" ndeed, a reading of Section :/+ &ould sho&that a transaction 8in the course of trade or businessF includes 8transactions incidental thereto"F n the course of itsbusiness, indanao bought and eventuall# sold a Nissan )atrol" )rior to the sale, the Nissan )atrol &as part of indanaoAs propert#, plant, and e(uipment" !herefore, the sale of the Nissan )atrol is an incidental transaction made in the courseof indanao As business &hich should be liable for V!"

"ISPOSITION%)etitions partiall# granted" !he claim of indanao for the first (uarter of //6 is 0ENE0, &hile its claims for thesecond, third, and fourth (uarters of //6are 3'N!E0" !he claims of indanao for the first, third, and fourth(uarters of //6are 0ENE0 &hile its claim for the second (uarter of //6 is 3'N!E0"

CIR V AMERICAN E0PRESS INTERNATIONAL, INC. (P&i. #r'n*&

3' :+4/5R ?une 5, //+ R ?" )anganibanF'*ts7'espondent, a V! taxpa#er, is the )hilippine Branch of EM HS and &as tasked &ith servicing a unit of EM-%ongkong Branch and facilitating the collections of EM-%O receivables from card members situated in the )hilippinesand pa#ment to service establishments in the )hilippines"

t filed &ith B' a letter-re(uest for the refund of its :55. excess input taxes, citing as basis Section ::/B of the :55.!ax Code, &hich held that 8xxx n# input tax attributable to the purchase of capital goods or to $ero-rated sales b# aV!-registered person ma# at his option be refunded or credited against other internal revenue taxes, sub9ect to theprovisions of Section ::"Fn addition, respondent relied on V! 'uling No" /@/-@5, &hich read, 8n 'epl#, please be informed that, as a V!registered entit# &hose service is paid for in acceptable foreign currenc# &hich is remitted in&ardl# to the )hilippine andaccounted for in accordance &ith the rules and regulations of the Central Bank of the )hilippines, #our service income isautomaticall# $ero rated xxxF)etitioner claimed, among others, that the claim for refund should be construed strictl# against the claimant as the#partake of the nature of tax exemption"C! rendered a decision in favor of respondent, holding that its services are sub9ect to $ero-rate" C affirmed thisdecision and further held that respondentAs services &ere 8services other than the processing, manufacturing orrepackaging of goods for persons doing business outside the )hilippinesF and paid for in acceptable foreign currenc# andaccounted for in accordance &ith the rules and regulations of BS)"Iss+e7GN EM )hils is entitled to refundHe!7

Yes" Section :/ of the !ax Code provides for the V! on sale of services and use or lease of properties" Section :/Bparticularl# provides for the services or transactions sub9ect to /K rate71:2 )rocessing, manufacturing or repacking goods for other persons doing business outside the )hilippines &hich goods aresubse(uentl# exported, &here the services are paid for in acceptable foreign currenc# and accounted for in accordance &iththe rules and regulations of the BS)>12 Services other than those mentioned in the preceding subparagraph, e"g" those rendered b# hotels and other service

establishments, the consideration for &hich is paid for in acceptable foreign currenc# and accounted for in accordance &iththe rules and regulations of the BS)Hnder subparagraph , services performed b# V!-registered persons in the )hilippines 1other than the processing,manufacturing or repackaging of goods for persons doing business outside the )hilippines2, &hen paid in acceptable foreigncurrenc# and accounted for in accordance &ith the '' of BS), are $ero-rated" 'espondent renders service falling underthe categor# of $ero rating"s ageneral rule,the V! s#stem uses the !estin'tion prin*ipeas a basis for the 9urisdictional reach of the tax" 3oodsand services are taxed onl# in the countr# &here the# are consumed" !hus, exports are $ero-rated, &hile imports are taxed"n the present case, the facilitation of the collection of receivables is different from the utili$ation of consumption of theoutcome of such service" Ghile the facilitation is done in the )hilippines, the consumption is not" !he services rendered b#respondent are performed upon its sending to its foreign client the drafts and bulls it has gathered from serviceestablishments here, and are therefore, services also consumed in the )hilippines" Hnder the destination principle, such

service is sub9ect to :/K V!"%o&ever, the la& clearl# provides for an exceptionto the destination principle> that is /K V! rate for services that areperformed in the )hilippines, 8paid for in acceptable foreign currenc# and accounted for in accordance &ith the '' ofBS)"F !he respondent meets the follo&ing re(uirements for exemption, and thus should be $ero-rated71:2 Service be performed in the )hilippines

12
http://www.lawphil.net/judjuris/juri2005/jun2005/gr_152609_2005.htmlhttp://www.lawphil.net/judjuris/juri2005/jun2005/gr_152609_2005.html


13/22

12 !he service fall under an# of the categories in Section :/B of the !ax Code162 t be paid in acceptable foreign currenc# accounted for in accordance &ith BS) ''"

COMMISSIONER OF INTERNAL REVENUE,petitioner, vs. TOSHI#A INFORMATION E1UIPMENT (PHILS.,

INC., respon!ent.

" E C I S I O N

CHICO8NA?ARIO, $.%

n this )etition for 'evie& under 'ule *+ of the 'ules of Court, petitioner Commissioner of nternal 'evenue 1C'2pra#s for the reversal of the decision of the Court of ppeals in C-3"'" S) No" +5:/4, ;:


14/22

Comes no& petitioner C' before this Court assailing the above-mentioned 0ecision of the Court of ppeals based onthe follo&ing grounds I

:" !he Court of ppeals erred in holding that petitionerAs failure to raise in the !ax Court the arguments relied uponb# him in the petition, is fatal to his cause"

" !he Court of ppeals erred in not holding that respondent being registered &ith the )hilippine Economic Zoneuthorit# 1)EZ2 as an Eco$one Export Enterprise, its business is not sub9ect to V! pursuant to Section * of

'epublic ct No" .5:4 in relation to Section :/6 1no& :/52 of the !ax Code"

6" !he Court of ppeals erred in not holding that since respondentAs business is not sub9ect to V!, the capitalgoods and services it purchased are considered not used in V! taxable business, and, therefore, it is notentitled to refund of input taxes on such capital goods pursuant to Section *":/4-: of 'evenue 'egulations No" .-5+ and of input taxes on services pursuant to Section *":/6-: of said 'egulations"

*" !he Court of ppeals erred in holding that respondent is entitled to a refund or tax credit of input taxes it paidon $ero-rated transactions";:4 &hile, those destined for useor consumption &ithin the )hilippines shall be imposed &ith ten percent 1:/K2 V!";+

b" )urchases are evidenced b# V! invoices or receipts, &hichever is applicable, &ith shifted V! to thepurchaser prior to the implementation of 'C No" .*-55> and

c" !he supplier issues a s&orn statement under penalties of per9ur# that it shifted the V! and declaredthe sales to the )EZ-registered purchaser as taxable sales in its V! returns"

or invoicesreceipts issued upon the effectivit# of 'C No" .*-55, the claims for input V! b# )EZ-registered companies, regardless of the t#pe or class of )EZ registration, should be denied"

Hnder 'C No" *-//6, the 0= &ould still accept applications for tax creditrefund filed b# )EZ-registeredenterprises, availing of the income tax holida#, for input V! on their purchases made prior to 'C No" .*-55" cceptanceof applications essentiall# implies processing and possible approval thereof depending on &hether the given conditions aremet" 'espondent !oshibaAs claim for tax creditrefund arose from the ver# same circumstances recogni$ed b# -+1:2 and-+1:2 of 'C No" *-//6" t therefore seems irrational and unreasonable for petitioner C' to oppose respondent

18
http://sc.judiciary.gov.ph/jurisprudence/2005/aug2005/150154.htm#_ftn32http://sc.judiciary.gov.ph/jurisprudence/2005/aug2005/150154.htm#_ftn32


19/22

!oshibaAs application for tax creditrefund of its input V!, &hen such claim had alread# been determined and approved b#the C! after due hearing, and even affirmed b# the Court of ppeals> &hile it could accept, process, and even approveapplications filed b# other similarl#-situated )EZ-registered enterprises at the administrative level"

Bindings of fact b# the C! are respected and adopted b# this Court"

inall#, petitioner C', in a last desperate attempt to block respondent !oshibaAs claim for tax creditrefund,challenges the allegation of said respondent that it availed of the income tax holida# under Exec" =rder No" 4, asamended, rather than the five percent 1+K2 preferential tax rate under 'ep" ct No" .5:4, as amended" Hndoubtedl#, thisis a factual matter that should have been raised and threshed out in the lo&er courts" 3iving it credence &ould beliepetitioner C'As assertion that it is raising onl# issues of la& in its )etition that ma# be resolved &ithout need for receptionof additional evidences" =nce more, this Court respects and adopts the finding of the C!, affirmed b# the Court ofppeals, that respondent !oshiba had indeed availed of the income tax holida# under Exec" =rder No" 4, as amended"

)HEREFORE, based on the foregoing, this Court 'S the decision of the Court of ppeals in C-3"'" S)" No"+5:/4, and the order of the C! in C! Case No" ++56, ordering said petitioner C' to refund or, in the alternative, toissue a tax credit certificate to respondent !oshiba, in the amount of ):4,:@@,/*+"**, representing unutili$ed input V!for the first and second (uarters of :554"

SO OR"ERE".

)uno, 1Chairman2, ustria-artine$, Calle9o, Sr", and!inga, ??", concur"

COMMISSIONER OF INTERNAL REVENUE V. MIRANT PAG#ILAO CORP.

Septe6er 4>, >


20/22

0issension in the Court7 ebruar# /:6

)osted on arch 4, /:6b# 'afael L" Encarnacion W )osted in )hilippines - Cases, )hilippines - La&,)hilippines -'egulation,!ax La& W !aggedvalue added tax W

!he primar# issue in the three 162 consolidated cases involving San 'o(ue )o&er, !aganito ining and )hilex ining decidedlast ebruar# :, /:6 revolves around the proper period for filing the 9udicial claim for refund or credit of creditableinput tax" Hnder Section ::12 and ::1C2 of the !ax Code, a taxpa#er &hose sales are $ero-rated or effectivel# $ero-

rated can file his administrative claim for refund or credit at an#time &ithin t&o 12 #ears after the taxable (uarter &henthe sales &ere made and, after full or partial denial of the claim or failure of the Commissioner to act on his application&ithin :/ da#s from submission of the same, he ma#, &ithin 6/ da#s from receipt of the decision den#ing the claim or afterthe expiration of the :/-da# period, file his 9udicial claim &ith the C!"!hese cases all involved the timel# filing b# the taxpa#ers of their administrative claims &ith the Commissioner of nternal'evenue" %o&ever, San 'o(ue and !aganito both prematurel# filed their 9udicial claims &ithout &aiting for the :/-da#period 1for the Commissioner to act on their administrative claims2 to lapse, &hereas )hilex &as a case of late filing since itdid not file its 9udicial claim until after *4 da#s be#ond the :/ P 6/ da# periods" Voting 5 to 4, the ma9orit#, in a decisionpenned b# ?ustice Carpio, denied tax refund or credit to San 'o(ue and )hilex, but granted the same to !aganito"!he ma9orit# denied refund to San 'o(ue on the basis, among others, that the &aiting period for filing a 9udicial claim ismandator# and 9urisdictional and has been in the !ax Code for more than :+ #ears before San 'o(ue filed its 9udicial claimin pril :/, //6 1barel# :6 da#s after it filed its administrative claim2" !he ma9orit#, ho&ever, granted refund to !aganito

&ho, although like San 'o(ue filed its 9udicial claim &ithout &aiting for the :/-da# period to lapse, &as deemed to havefiled its 9udicial claim on time since it &as filed on ebruar# :*, //. or after the issuance of B' 'uling No" 0-*@5-/6 on0ecember :/, //6 1&hich states that the taxpa#er need not &ait for the :/-da# period to lapse before it could seek

9udicial relief &ith the C!2 but before the =ctober 4, /:/ Supreme Court 1SC2 decision in Commissioner of nternal'evenue v" ichi orging Compan# of sia 1reinstating the :/P6/ da# periods as mandator# and 9urisdictional2" !he ma9orit#held that since the Commissioner has exclusive and original 9urisdiction to interpret tax la&s under Section * of the !axCode, a taxpa#er should not be pre9udiced b# an erroneous interpretation b# the Commissioner and, under Section *4, areversal of a B' ruling cannot adversel# pre9udice a taxpa#er like !aganito &ho in good faith relied on it prior to itsreversal"n den#ing )hilexAs 9udicial claim for refund filed on =ctober :., //., the ma9orit# ruled that the inaction of theCommissioner during the :/-da# period is a 8deemed denialF and )hilexAs failure to file an appeal &ithin 6/ da#s from theexpiration of the :/-da# period rendered the 8deemed denialF decision of the Commissioner final and inappealable"

n his dissenting opinion, ?" Velasco, 9oined b# ?" endo$a and ?" )erlas-Bernabe, suggested that the doctrine applicable toa claim for refund depends on the operative case and the prevailing rulings and practices at the time of filing the claim" nSan 'o(ue, since both the administrative and 9udicial claims &ere filed during the effectivit# of '' .-5+ 1&hich still appliedthe -#ear prescriptive period to 9udicial claims2, San 'o(ue can claim good faith reliance on '' .-5+ and the then prevailingpractices of the B' and C! to believe that the :/ P 6/-da# periods are dispensable so long as both administrative and

9udicial claims are filed &ithin th e -#ear period" n den#ing refund to !aganito, ho&ever, the dissenter pointed out that!aganito cannot claim reliance in good faith on '' .-5+ since it filed its 9udicial claim after November :, //+ &hen '' :4-//+ took effect and superseded '' .-5+ 1including B' 'uling No" 0-*@5-/6 relied upon b# the ma9orit# in grantingrefund to !aganito and &hich this dissenter believed &as a mere application of '' .-5+2, deleting the reference therein tothe -#ear period for filing 9udicial claims" )hilex, on the other hand, filed its claim belatedl# under both the superseded ''.-5+ and the effective '' :4-//+" !his dissenter thus voted to grant refund to San 'o(ue, but to den# it to !aganito and)hilex"n his separate dissenting opinion, C? Sereno, concurred &ith ?" VelascoAs dissent in San 'o(ue and )hilex but disagreed&ith the latterAs stand in !aganito since, at the time !aganito filed its administrative and 9udicial claims for refund, the -

#ear prescriptive period remained the unreversed interpretation of the court" !hus, !aganito cannot be faulted for rel#ingon court interpretations even &ith the existence of '' :4-//+, and for preferring to abide b# court interpretations overmere administrative issuances as the latterAs validit# is still sub9ect to 9udicial determination" !his dissenter believed thatthe mandator# and 9urisdictional nature of the :/P6/ da# periods &as onl# definitel# and categoricall# declared b# the SCin ichi on =ctober 4, /:/ and should onl# be applied prospectivel# from that time, and that previous regard to the:/P6/-da# periods is an exceptional circumstance &hich &arrants procedural liberalit# to taxpa#ers &ho relied on suchinterpretations"n his separate dissenting opinion, ?" Leonen, 9oined b# ?" del Castillo, disagreed that SC interpretations of the la& takeeffect onl# prospectivel#, since the SCAs dut# is to construe and not to make la&, and its interpretation became part of the

la& from the date it &as originall# passed" !his dissenter further reminds us that an 8erroneous application of the la& b#public officers does not preclude a subse(uent correct application of the statute, and the 3overnment is never estopped b#mistake or error on the part of its agents"F ccordingl#, &hile the Commissioner is given po&er and authorit# to interprettax la&s, it cannot legislate guidelines contrar# to the la& it is tasked to implement" %ence its interpretation is notconclusive and &ill be ignored if 9udiciall# found to be erroneous" nd &hile concededl# an# reversal of an# B' ruling cannot

20
http://lexoterica.wordpress.com/2013/03/06/dissension-in-the-court-february-2013/http://lexoterica.wordpress.com/author/rlelexoterica/http://lexoterica.wordpress.com/category/philippines-cases/http://lexoterica.wordpress.com/category/philippines-law/http://lexoterica.wordpress.com/category/philippines-regulation/http://lexoterica.wordpress.com/category/philippines-regulation/http://lexoterica.wordpress.com/category/tax-law/http://lexoterica.wordpress.com/tag/value-added-tax/http://lexoterica.wordpress.com/2013/03/06/dissension-in-the-court-february-2013/http://lexoterica.wordpress.com/author/rlelexoterica/http://lexoterica.wordpress.com/category/philippines-cases/http://lexoterica.wordpress.com/category/philippines-law/http://lexoterica.wordpress.com/category/philippines-regulation/http://lexoterica.wordpress.com/category/philippines-regulation/http://lexoterica.wordpress.com/category/tax-law/http://lexoterica.wordpress.com/tag/value-added-tax/


21/22

adversel# pre9udice a taxpa#er &ho in good faith relied on it prior to its reversal, if it is patentl# clear that the ruling iscontrar# to the text itself, there can be no reliance in good faith" urther, that it is the dut# of the laers of privateparties to best discern the acceptable interpretation of legal text and, in doing so, the# take the risk that the SC &ill ruleother&ise, especiall# if the text of the la& I as in this case I is ver# clear" !his dissenter thus voted to den# refund to allthree taxpa#ers"

Need for commercial sale to claim input V!

)osted on 0ecember 6/, //5 b# %ector " de Leon ?rW )osted in!ax La&W !agged value added taxW

Hnder the !ax Code, a taxpa#er ma# claim a tax refund or credit for input V! attributable to $ero-rated or effectivel#$ero-rated sales" s it necessar# for a taxpa#er to have made a commercial sale during the period it is claiming a refund ofinput V!QnSan 'o(ue )o&er Corporation vs" Commissioner of nternal 'evenue,3"'" No" :@/6*+, November +, //5,San 'o(ue didnot make an# commercial sale of electricit# to National )o&er Corporation 1N)C2 during the period in (uestion as San 'o(ue&as still constructing its po&er plant" %o&ever, during the same period, and &hile the po&er plant &as being tested, San'o(ue produced and transferred electricit# to N)C in exchange for )*"+ million"San 'o(ue filed a claim for refund &ith the Bureau of nternal 'evenue 1B'2" !he B' failed to act on San 'o(ueAs claimfor refund, &hich prompted San 'o(ue to file a petition for revie& &ith the Court of !ax ppeals 1C!2" !he C!As Second0ivision rendered a decision den#ing San 'o(ueAs claim for tax refund or credit" ccording to the Second 0ivision,San 'o(ue did not make an# $ero-rated or effectivel#-$ero rated sales for the taxable #ear //> hence, San 'o(ueAs claimmust be denied" !he C! En Banc eventuall# reiterated the ruling of the Second 0ivision that San 'o(ueAs claim based on

Section ::12 of the N'C should be denied since it did not present an# records of an# $ero-rated or effectivel# $ero-rated transactions"!he main issue before the Supreme Court is &hether or not San 'o(ue ma# claim a tax refund or credit for creditable inputtax attributable to $ero-rated or effectivel# $ero-rated sales pursuant to Section ::12 of the N'C or for input taxespaid on capital goods as provided under Section ::1B2 of the N'C"!he Supreme Court found San 'o(ueAs petition meritorious and reversed the C!" t laid out the re(uirements for claiminga tax refund or credit7!o claim refund or tax credit under Section ::12, petitioner must compl# &ith the follo&ing criteria7 1:2 the taxpa#er isV! registered> 12 the taxpa#er is engaged in $ero-rated or effectivel# $ero-rated sales> 162 the input taxes are due orpaid> 1*2 the input taxes are not transitional input taxes> 1+2 the input taxes have not been applied against output taxesduring and in the succeeding (uarters> 142 the input taxes claimed are attributable to $ero-rated or effectivel# $ero-ratedsales> 1.2 for $ero-rated sales under Section :/412121:2 and 12> :/41B2> and :/@1B21:2 and 12, the acceptable foreign

currenc# exchange proceeds have been dul# accounted for in accordance &ith BS) rules and regulations> 1@2 &here thereare both $ero-rated or effectivel# $ero-rated sales and taxable or exempt sales, and the input taxes cannot be directl# andentirel# attributable to an# of these sales, the input taxes shall be proportionatel# allocated on the basis of sales volume>and 152 the claim is filed &ithin t&o #ears after the close of the taxable (uarter &hen such sales &ere made"!he Supreme Court noted that the issue pertains to compliance &ith the sixth re(uirement, i"e", &hether the input V!claimed are attributable to $ero-rated or effectivel# $ero-rated sales7!he main dispute in this case is &hether or not petitionerAs claim complied &ith the sixth re(uirementXthe existence of$ero-rated or effectivel# $ero-rated sales, to &hich creditable input taxes ma# be attributed" !he C! in 0ivision anden banc denied petitionerAs claim solel# on this ground" !he tax courts based this conclusion on the audited report, markedas Exhibit 8?-,F stating that petitioner made no sale of electricit# to N)C in //" oreover, the affidavitof Echevarria 1Exhibit 8LF2, petitionerAs Vice )resident and 0irector for inance, contained an admission that no commercialsale of electricit# had been made in favor of N)C in // since the pro9ect &as still under construction at that time"!he Supreme Court ruled that there &as a 8saleF of electricit# b# San 'o(ue to N)C in //7" " " upon closer examination of the records, it appears that on //, petitioner carried out a 8saleF of electricit# to N)C"!he fourth (uarter return for the #ear //, &hich petitioner filed, reported a $ero-rated sale in the amount of)*,+//,///"//" n the ffidavit of Echevarria dated 5 ebruar# //+ 1Exhibit 8LF2, &hich &as uncontroverted b#respondent, the affiant stated that although no commercial sale &as made in //, petitioner produced and transferredelectricit# to N)C during the testing period in exchange for the amount of )*,+//,///"// " " "!he Supreme Court noted that &hile the sale &as not a commercial sale, it &as a deemed sale transaction7!he Court is not unmindful of the fact that the transaction described hereinabove &as not a commercial sale" n grantingthe tax benefit to V!-registered $ero-rated or effectivel# $ero-rated taxpa#ers, Section ::12 of the N'C does notlimit the definition of 8saleF to commercial transactions in the normal course of business" Conspicuousl#, Section :/41B2 ofthe N'C, &hich deals &ith the imposition of the V!, does not limit the term 8saleF to commercial sales, rather it extends

the term to transactions that are 8deemedF sale" " "fter carefull# examining this provision, this Court finds it an e(uitable construction of the la& that &hen the term 8saleF ismade to include certain transactions for the purpose of imposing a tax, these same transactions should be included in theterm 8saleF &hen considering the availabilit# of an exemption or tax benefit from the same revenue measures" t isundisputed that during the fourth (uarter of //, petitioner transferred to N)C all the electricit# that &as produced

21
http://lexoterica.wordpress.com/2009/12/30/need-for-commercial-sale-to-claim-input-vat/http://lexoterica.wordpress.com/author/lexposition/http://lexoterica.wordpress.com/category/tax-law/http://lexoterica.wordpress.com/tag/value-added-tax/http://sc.judiciary.gov.ph/jurisprudence/2009/november2009/180345.htmhttp://sc.judiciary.gov.ph/jurisprudence/2009/november2009/180345.htmhttp://sc.judiciary.gov.ph/jurisprudence/2009/november2009/180345.htmhttp://lexoterica.wordpress.com/2009/12/30/need-for-commercial-sale-to-claim-input-vat/http://lexoterica.wordpress.com/author/lexposition/http://lexoterica.wordpress.com/category/tax-law/http://lexoterica.wordpress.com/tag/value-added-tax/http://sc.judiciary.gov.ph/jurisprudence/2009/november2009/180345.htm


22/22

during the trial period" !he fact that it &as not transferred through a commercial sale or in the normal course of businessdoes not deflect from the fact that such transaction is deemed as a sale under the la&"Gith its finding that the petition is meritorious" the Supreme Court order the B' to refund, or in the alternative, to issuea tax credit certificate to San 'o(ue in the amount of )*4,:6:,4:/"*/, representing unutili$ed input V! for the period :?anuar# // to 6: 0ecember //"

Vat Digest

Documents

Transcript of Vat Digest