BIR Ruling [DA-003-04]

January 6, 2004 BIR RULING [DA-003-04] Ms. Ruth Vivian G. Gadia Chief, Assessment Division Revenue Region No. 7 Quezon City Dear Ms. Gadia : This refers to your request for a ruling duly indorsed by Revenue District Officer Isidro T. Casals, Jr. of Revenue District Office No. 41, Mandaluyong City on whether or not the report of the investigation on the case of FORMOSTAR GARMENT (PHIL.) CO., INC. (FORMOSTAR for brevity) can be considered as secondary evidence/substitute to the missing copies of sales invoices for the months of January, February, October, November, and December 1993 as per request of the taxpayer. The facts, as you presented in our Memorandum dated June 19, 2000, are as follows: FORMOSTAR applied for a VAT refund of its unutilized input tax amounting to P2,122,344.51 ( Vide : p. 38 of the Docket). During the investigation, the field examiner disallowed P755,447.82 input taxes for failure to comply with the invoicing requirement and recommended that the amount of P1,366,896.69 be refunded to FORMOSTAR. However, during the review it was noted that the required purchase invoices/official receipts for the months of January, February, October, November, and December 1993 were not included in the docket. Hence, only the amount of P836,083.81 was recommended to be refunded representing input tax for the months of March to September 1993, which were properly supported by the required purchase invoices/official receipts. The docket of the case was forwarded to the Office of the Chief, Appellate Division together with the approved ATIVAR for further evaluation and processing of the refund ( Vide : p. 184 of the Docket). On October 6, 1999, the Chief of the Appellate Division forwarded the docket of the case to Revenue District Office No. 41 (RDO 41 for brevity) requesting the latter to prepare a memorandum addressed to the Office of the Commissioner explaining the facts of the case, the law involved and the recommendation of the investigating office particularly on the issue of the misplaced purchase invoices ( Vide : p. 191 of the Docket). On December 29, 1999, FORMOSTAR requested for the issuance of a Tax Credit Certificate in lieu of its original request for cash refund ( Vide : p. 194 of the Docket). In compliance with the memorandum issued by the Chief of the Appellate Division, the field examiner prepared a memorandum explaining the facts of the case and recommended that the Tax Credit Certificate of P836,083.81 representing input tax for the months of February to September 1993 be issued in favor of FORMOSTAR and eventually the docket of the case be forwarded to the Law Division to rule on the issue whether or not the report of the investigator (field examiner) of the case can be considered as secondary evidence and as a substitute to the missing copies of the purchase invoices for the months of January, February, October, November, and December 1993 to support FORMOSTAR's request for the issuance of a Tax Credit Certificate. cTDaEH FORMOSTAR vigorously claimed, in its letter dated April 30, 1999, ( Vide : p. 185 of the Docket) the following: 1. Among the many documents FORMOSTAR submitted to the examiner were the 12-month purchase invoices with a computer list accompanying them consisting of 57 pages found from pp. 66-122 of the Docket. 2. Among the documents the examiners produced during the investigation was their detailed listings of disallowed purchase invoices, where correspondingly the VAT input tax were also disallowed. The total amount of VAT input tax disallowed was P755,447.82 out of P2,122,344.51, the amount applied by FORMOSTAR for tax refund. Therefore, the amount recommended by RDO No. 41 for tax refund is P1,366,896.69. 3. A thorough search for the missing purchase invoices was made in the bodega of the Mandaluyong Revenue District Office with the help of an employee of FORMOSTAR. Unfortunately, the missing 5-month purchase invoices were not found nor FORMOSTAR could furnish photocopies of them. Pictures were taken to show the voluminous documents found in the bodega and to show the effort to search the missing purchase invoices but to no avail. 4. Since the missing purchase invoices were misplaced in the custody of the BIR (RDO No. 41), the detailed listings of the 12-month purchase invoices consisting of 57 pages ( Vide : pp. 66-122 of the Docket) as well as the listings of disallowed VAT input tax ( Vide : pp 123-134 of the Docket) should be accepted as secondary evidence to prove that the 5-month missing purchase invoices were part of the 12-month purchase invoices handled and examined by Revenue Officer Rodolfo G. Hona and his Supervisor, Teofilo A Galinato. In reply, please be informed that under Section 3 of Rule 130 of the Revised Rules on Evidence , it specifically provides that: "SEC 3. Original document must be produced; exceptions. When the subject of inquiry is the contents of a document, no evidence shall be admissible other than the original document itself, except in the following cases: (a) When the original has been lost or destroyed , or cannot be produced in court, without bad faith on the part of the offeror: (b) When the original is in the custody or under the control of the party against whom the evidence is offered, and the latter fails to produce it after reasonable notice. xxx xxx xxx" (Emphasis supplied.) Moreover, Section 5 thereof, provides that: "SEC. 5 When original document is unavailable . When the original document has been lost or destroyed , or cannot be produced in court, the offeror, upon proof of its execution or existence and the cause of its unavailability without bad faith on his part, may prove its contents by a copy, or by a recital of its contents in some authentic document , or by testimony of witnesses in the order stated." (Emphasis supplied.) Accordingly, when the original document has been lost or destroyed, the offeror, upon proof of its execution or existence and the cause of its unavailability without bad faith on his part, may prove its contents by a recital thereof in some authentic document. Basic and axiomatic is the rule that FORMOSTAR should be given ample opportunity to present secondary evidence to prove its claim for the issuance of a Tax Credit Certificate in the amount of P534,812.88 representing excess input VAT for the months of January, February, October, November, and December 1993. However, the said report of investigation cannot be used as secondary evidence since FORMOSTAR failed to prove the existence and the cause of the unavailability of the supposed lost purchase invoices. The assertion that the same were lost in the possession of the RDO was not substantiated by reliable and hard evidence. Consequently, this Office hereby opines and so holds that the report of the investigation conducted by the RDO cannot be used as secondary evidence to prove its claim for refund in the amount of P534,812.88 representing excess input VAT for the months of January, February, October, November, and December 1993 considering that the existence and cause of its unavailability of the purchase invoices for the said months were not proved to allow the presentation of secondary evidence. No pronouncement is made, however, as to the validity of FORMOSTAR's claim for refund on the amount of P534,812.88. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. CSHEAI Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group