BIR Ruling [DA-375-03]

October 17, 2003 BIR RULING [DA-375-03] Sec. 113; RR 7-95; VAT Ruling Nos. 073-97 & 084-02 Dole Philippines, Inc. (Stanfilco Division) Doa Socorro Street, Belisario Heights Subdivision Lanang, Davao City Attention: Mr. John Gregory C. Dioquino Manager-Shared Services Gentlemen : This refers to your letter dated June 4, 2003 stating, in effect, that Davao Integrated Transportation Facilities, Inc. (DITFI), a duly organized domestic corporation, is the exclusive trucker of export bananas and other materials of Dole Philippines, Inc. Stanfilco Division (Stanfilco for brevity); that DITFI is a VAT-registered taxpayer; that it has been billing Stanfilco VAT and duly remitting to the government its corresponding output VAT; that Dole Philippines, Inc. is an export-oriented company engaged in commercial agribusiness operations exporting more than 90% of its consolidated products to United States and other countries in Europe, Asia and Middle East; that Stanfilco, a division of Dole Philippines, Inc., exports 100% of its exportable banana production to Japan, Korea, China and Middle East; that in its operations, it enjoys the transport services of DITFI as its exclusive trucker of its bananas from the plantations to the wharf; that Stanfilco records the VAT portion of the billings of DITFI as input VAT and includes these in its application for tax credit; that Dole Philippines, Inc. is VAT registered and all its export sales are zero-rated as provided for under Section 108 of the National Internal Revenue Code and its implementing Revenue Regulations; that regularly it files its VAT returns and correspondingly pays output VAT within the reglementary period; that DITFI bills are duly covered by VAT registered invoices and collections are covered by duly registered Official Receipts, except for the first and second quarter of taxable year 2001 wherein the Official Receipts it issued were marked "NV"; that while the official receipts issued to acknowledge payments by Stanfilco for VATable transactions done in the first and second quarter of taxable year 2001 were marked "NV", DITFI has advised Stanfilco that the official receipts were old print-outs and that DITFI was verbally advised by the local BIR office to use up these forms until a revised series marked with the word "VAT" have been printed and made ready for use, which advice was complied with by DITFI beginning on the third quarter of the taxable year 2001; that when Stanfilco claimed for tax credit of its input VAT at the DOF One Stop Shop, its claim for tax credit, specifically for the input VAT from its transactions with DITFI during the first and second quarter of taxable year 2001, was disallowed on the ground that the official receipts issued by DITFI were marked "NV"; that the foregoing bills/transactions amounting 'to P9,499,556.61 were covered by valid VAT invoices and were included in the quarterly lists of summary of sales and purchases of DITFI, and consequently, were subject to the 10% VAT. From the foregoing, you, in effect, pose the following questions: Is Stanfilco entitled to tax credit for the input VAT it derived from its VATable transaction with DITFI? If no, what will be its course of action? Considering that DITFI has duly remitted its output VAT to the government, can Stanfilco still claim refund from DITFI? In reply, please be informed that Section 4.108-1 of Revenue Regulations No. 7-95, otherwise known as the "Consolidated Value-Added Tax Regulations," implementing then Section 108 of the Tax Code, as amended, now Section 113 of the Tax Code of 1997, requires that all VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices. These sales invoices or receipts are necessary to substantiate the actual amount or quantity of goods sold and their selling price, and will serve as documentary evidence of the purchaser to substantiate his deduction of input taxes from his output tax. 1 A sales or commercial invoice on which the taxpayer's identification number, prefixed with the word TIN and suffixed with the word "VAT," appears, qualifies such invoice or receipt as a VAT invoice 2 which, when issued by a VAT-registered seller for taxable transactions, can be used by a VAT-registered purchaser to substantiate his claim for an input tax credit. Consequently, purchases covered by invoices other than VAT invoice shall not give rise to any input tax. In other words, "purchases covered by invoices other than 'VAT Invoice' will not entitle a VAT-registered purchaser to input tax credit." 3 In the instant case, the transactions between DITFI and Stanfilco, specifically in the first and second quarter of taxable year 2001, were duly covered by VAT-registered invoices although the official receipts issued thereafter were not in accordance with the VAT Regulations since the said receipts were marked "NV" instead of the word "VAT". The fact that the official receipts issued by DITFI do not bear the information that DITFI is a VAT-registered taxpayer as required under Section 4.108-1 of Rev. Regs. No. 7-95, does not motu proprio invalidate the claim for input tax credit of Stanfilco, particular to the transactions done in the first and second quarters of taxable year 2001. Under then Section 108 of the Tax Code, as amended, now Section 110 of the Tax Code of 1997, as implemented by Section 4.104-5 of Rev. Regs. No. 7-95, any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 of the same Code shall be creditable against the output tax. Accordingly, before a taxpayer may avail of tax credit/tax refund of VAT/input tax on its purchases, it must prove to the Bureau of Internal Revenue (BIR) that these purchases are taxable transactions and are duly supported by VAT invoices or receipts. 4 Note that for purposes of substantiating claims for input tax credit in connection with the substantiation requirements laid down in Section 110 of the Tax Code in relation to Section 113 thereof, the disjunctive term " or " (placed in between the words VAT invoice and official receipt ) as used in the foregoing provisions clearly indicates an alternative. Needless to say, presentation of either the VAT invoice or receipt is sufficient proof of compliance of the requirements set forth in the above provisions and its implementing regulations. Thus, in the case of Southern Cross Cement Corporation vs. Commissioner of Internal Revenue , 5 the petitioner-taxpayer's claim for input tax credit which was substantiated either by VAT invoices and/or official receipts was granted by the Court of Tax Appeals (CTA). It should be noted that the above transactions by and between DITFI and Stanfilco were duly covered by valid VAT invoices, hence, there was substantial compliance by DITFI of the invoicing requirements prescribed under Section 113 of the Tax Code. Such being the case, the claim of Stanfilco for input tax credit is therefore fully substantiated. HaIESC Moreover, as represented and as the attached documents show, DITFI has included in its quarterly lists of summary of sales and purchases for the first and second quarter of taxable year 2001 its bills to Stanfilco amounting to P9,499,556.61 and has already paid the corresponding quarterly VAT thereof. Thus, disallowing the claim of Stanfilco for input tax credit on the foregoing transactions will not be justified as the Government will, in effect, be unjustly enriched at the expense of the former. It is important to note that tax credits (or tax refunds) are based on the legal principle of quasi-contract or solutio indebiti. The Government comes within the scope of the solutio indebiti principle, and as stated by the Supreme Court: "Enshrined in the basic legal principles is the time-honored doctrine that no person shall unjustly enrich himself at the expense of another. It goes without saying that the Government is not exempted from the application of this doctrine." 6 In addition thereto, in the case of BPI-Family Savings Bank, Inc. vs. Court of Appeals, Court of Tax Appeals and the Commissioner of Internal Revenue, 7 no less than the Supreme Court emphasized that: "Technicalities and legalism, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding taxes." It must be emphasized that Stanfilco was only the recipient of the receipts bearing the letters NV and unfortunately, it accepted the same without anticipating that it would have some adverse effects on its claim for input tax credit. It would therefore be most unfair if by reason of such a technicality which happened through no fault of its own, Stanfilco would be made to suffer by unjustly disallowing its claim. Based on the foregoing, it is the considered opinion of this Office that the application for input tax credit by Stanfilco, particularly to the input VAT on the transactions done in the first and second quarters of taxable year 2001 amounting to P9,499,556.61, should be granted, however, subject to verification by the concerned office of the authenticity of the documents submitted substantiating its claim. Finally, the Revenue District Officer (RDO) concerned is hereby ordered to impose the corresponding penalty against DITFI as prescribed in Revenue Memorandum Order No. 56-2000, in relation to Section 264 of the Tax Code of 1997, for failure to issue the prescribed receipts. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group Footnotes 1. See Atlas Consolidated Mining & Development Corporation , C.T.A. Case Nos. 4984, 5008, 5037 & 5061, November 14, 1997. 2. Regs. 07-95, Sec. 4,108-1. 3. Regs. 5-87, Sec. 21. 4. VAT Ruling Nos. 073-97 and 084-02, dated December 15, 1997 and December 20, 2002. 5. C.T.A. Case Nos. 5932 and 5747, Sept. 26, 2001. 6. Commissioner v. Fireman's Fund Insurance Co., L-30644, March 9, 1957, citing Ramie Textiles, Inc. v. Mathay, 89 SCRA 586. 7. G.R. No. 122480, dated April 12, 2000.