BIR Ruling [DA-319-05]

July 15, 2005 BIR RULING [DA-319-05] Rio Tuba Nickel Mining Corporation 2nd Floor, Solid Mills Building Dela Rosa Street, Legaspi Village Makati City Attention: Mr. Norberto R. Reyes Vice President Finance Gentlemen : This refers to your letter dated January 21, 2004 requesting for the immediate implementation of BIR Ruling No. DA031-04 dated January 19, 2004, where this Office ruled that "...since Rio Tuba Nickel Mining Corporation is a BOI-registered enterprise, the processing of tax credit/refund shall be within the jurisdiction of the OSS-DOF as what was done before in several claims filed by Rio Tuba Nickel Mining Corporation. "WHEREFORE, IN VIEW OF THE FOREGOING, this will therefore serve as an authority for the OSS-DOF to process the claim of Rio Tuba Nickel Mining Corporation relative to its claim for tax credit/refund of the value-added tax paid." In the aforesaid letter, Rio Tuba is claiming for the issuance of tax credit certificate/refund of the input taxes which have not been applied against its output tax liability for the taxable years as follows, to wit: 1997 P15,641,354.76 1998 10,112,214.18 1999 12,045,313.86 2001 12,008,267.60 Total P49,807,149.90 ============ It would be best to have an understanding of how these amounts were arrived at: ACHEaI 1997 1998 1999 2001 Total Total P16,337,587.33 P10,055,620.07 P12,920,062.94 P12,890,892.30 P52,844,162.64 Input Less: 736,232.57 543,406.89 874,749.08 882,642.70 3,037,013.24 Output Net P15,641,354.76 P10,112,213.18 P12,045,313.86 P12,008,267.60 P49,807,149.40 Input Breakdown of Input: 1997 1998 1999 2001 Total Importation 6,377,215.00 782,715.00 4,823,468.00 854,521.00 12,837,919.00 Local 10,000,372.33 9,872,905.07 8,096,594.94 12,036,371.30 40,006,243.64 Total 16,377,587.33 10,655,620.07 12,920,062.94 12,890,892.30 52,844,162.64 However, in a recently issued letters by the Department of Finance (DOF) dated June 30, 2005, the said Office denied the claim of Rio Tuba for the application for tax credit of input taxes in the respective amounts of P12,008,267.80 attributable to zero-rated sales for taxable 2001 and P15,641,354.76 for the purchases of goods and services as the same were charged to expense in violation of Revenue Memorandum Circular (RMC) No. 42-2003. In reply thereto, please be informed that as a VAT-registered entity, Rio Tuba, is entitled to claim for refund of unutilized VAT input taxes on domestic purchases of goods and services and on the importation of goods attributable to its zero-rated sales. This being because, Rio Tuba was able to comply with the substantiation requirements provided for by law and its implementing rules and regulations. In the case of Intel Philippines Manufacturing, Inc. vs. Commissioner of Internal Revenue , CTA Case Nos. 5760 and 5902, February 5, 2002 ,this Court laid down the following requirements to be entitled to the refund of input VAT on purchases of goods and services attributable to zero-rated sales: (1) both the administrative and judicial claims for refund were filed within two (2) years upon filing of the quarterly VAT return (s) covered by the claim as provided under Section 4.106.2(c) of Revenue Regulations No. 7-95 in relation to Section 112(D) of the Tax Code; (2) the claimed input VAT payments were not applied against any output tax during the period covered by the claim and in the succeeding periods; (3) the claimed input VAT payments are directly attributable to zero-rated sales; and (4) the claimed input VAT payments are duly supported by VAT invoices or official receipts in accordance with Section 4.104-5 of Revenue Regulations No. 7-95 in relation to Sections 113 and 237 of the Tax Code. TAScID Inasmuch as Rio Tuba, a BOI registered enterprise, was able to proof that its input taxes for the taxable years 1997, 1998, 1999 and 2001 have never been applied against its output tax or the output taxes as shown in the above table are less than the input taxes covered for the above-mentioned taxable years and its claim for refund was seasonably filed with the OSS-DOF as required under Section 112(A) of the Tax Code of 1997, as implemented by Revenue Regulations No. 7-95. This Office is of the opinion that BIR Ruling No. DA021-04 dated January 19, 2004 holds true and should now be implemented. Moreover, it is a principle in taxation that any revocation, modification or reversal of any of the rules and regulations shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayer . . . (Sec. 246, Tax Code of 1997) In the instant case, the prejudice to Rio Tuba of the retroactive application of RMC No. 42-2003 is beyond question. As the denial of the claim of Rio Tuba, based on RMC No. 42-2003, for tax refund or credit in the amount of P49,807,149.90, is not only prejudicial to the latter but also taking of property without due process of law. However, once the claim of Rio Tuba is granted, the entire amount of P49,807,149.90 should be declared as income and therefore subject to the ordinary corporate income tax prescribed in Section 27(A) of the Tax Code of 1997. WHEREFORE, in view of the foregoing, this Office holds and maintains its stance in BIR Ruling No. DA031-2004 dated January 19, 2004 that RMC No. 42-2003 should not be applied retroactively. Accordingly, this will therefore serve as an authority for the OSS-DOF to process the claim of Rio Tuba relative to its claim for tax credit/refund of the input VAT in the total amount of P49,807,149.90. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group