Philippine Phosphate Fertilizer Corp. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5282. August 11, 1998.] PHILIPPINE PHOSPHATE FERTILIZER CORPORATION , petitioner , vs . THE HONORABLE COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This case involves the judicial claim for refund/tax credit in the amount of P602,349.00 representing excise taxes allegedly paid by petitioner during the period September 1993 to December 1994. Petitioner is a domestic corporation engaged in the business of manufacturing fertilizer. It was registered with the Export Processing Zone Authority (EPZA). It has its base of operations in the Leyte Industrial Development Estate (LIDA), which is one of the areas covered by the provisions of Presidential Decree No. 66 as amended. It is engaged in the business of manufacturing fertilizer for domestic and international distribution. As manufacturer, it procures its fuel oil and other petroleum products locally. Alleging that petroleum products are indispensable in its operations, petitioner secured fuel and oil products from Petron Philippines Corporation (Petron). As importer of the petroleum products and fuel supplies, Petron pays the taxes and duties imposed upon the same. When the petroleum products are later sold by Petron to petitioner, the latter is billed the corresponding taxes and customs duties imposed on the petroleum products. Petron is then reimbursed by petitioner for the taxes and customs duties which Petron had previously paid to the Bureau of Internal Revenue and the Bureau of Customs. Since then, Petron has been charging Philphos for excise taxes on these purchases. In a letter, dated August 28, 1995, petitioner, believing that it enjoys tax and non-tax incentives by virtue of its registration with EPZA as provided for under Section 17(1) of PD 68, sought from the BIR the refund of the amount of P602,349.00 as specific taxes paid for purchases for the period September 1993 to December 1994. On September 1, 1995, as respondent had not granted nor acted upon petitioner's request or claim for tax refund, petitioner was constrained to elevate its case before this Court by way of Petition for Review. Petitioner justified its claim for refund by citing Section 17(1) of PD No. 66, as amended, which provides as follows: "Section 17. Tax Treatment of Merchandise in the Zone . 1) Except as otherwise provided in this Decree, foreign and domestic merchandise, raw materials, supplies , articles, equipment, machineries, spare parts and wares of every description except those prohibited by law, brought into the zone , to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded or otherwise processed, manipulated, manufactured, mixed with foreign or domestic merchandise or used whether directly or indirectly in such activity shall not be subject to customs and internal revenue laws and regulations nor to the local tax ordinances , the provisions of the law to the contrary notwithstanding ". (Emphasis supplied) Respondent, on the other hand, admitted and denied certain facts and by way of special and affirmative defenses, alleges inter alia , that: 1. The petition states no cause of action as it does not allege the dates when the taxes sought to be refunded were actually paid; 2. Petitioner's claim for refund of taxes allegedly paid erroneously is still under investigation by respondent's bureau; 3. Claims for refund are construed strictly against the claimant, the same being in the nature of exemption from taxes; 4. One who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute, which is not so in this case. The issue in this case is whether or not petitioner is entitled to the refund of the amount of P602,349.00 allegedly representing excise taxes paid during the period September 1993 to December 1994. Before we tackle this issue, We must first discuss the legality or validity of petitioner's claim. The term " supplies " mentioned in Section 17(1) of PD 66 should be interpreted to include fuel used in running the machineries and equipment essential for the production of fertilizers. These petroleum products are indispensable to the operations of petitioner. Without the petroleum products supplied by Petron, petitioner would be unable to continue its operations. In the cases of Philippine Phosphate Fertilizer Corporation vs. Hon. Commissioner of Customs, CTA Case No. 4661, May 31, 1993 and Philippine Phosphate Fertilizer Corporation vs. Hon. Commissioner of Customs, CTA Case No. 4957, October 5, 1995, this Court has ruled that Section 17(10) of PD No. 66 is the controlling statute, to wit: "Section 17(1) covers domestic merchandise, raw materials, supplies, articles and wares of every description, except those prohibited by law brought into the zone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleared, graded, or otherwise processed, manipulated, manufactured, mixed or used directly or indirectly in such activity shall not be subject to customs and internal revenue laws and regulations. Oil products produced by local oil companies may be classified as domestic merchandise, raw materials or supplies as legally defined in the Supreme Court case of C ommissioner of Customs vs . Caltex (Philippines) , Inc ., G . R . No . L-13067 , December 29 , 1959 , 106 Phil 829 which states that supplies or materials shall include gasoline from custom duties under Article 103 of R.A. No. 387. For what purpose, among others, these products may be brought into the zone for processing, manipulation manufacture, mixed with foreign and domestic merchandise or used directly or indirectly in such activity. In our particular case, the petroleum products delivered to petitioner is used in the processing of fertilizer for export. While respondent may be correct that these products did not form part of the fertilizer exported, nevertheless, the law does not provide for such requirement but only requires the use of such materials directly or indirectly in such activity. The use of petroleum products, like oil as fuel will easily fall under the phrase used directly or indirectly on such activity. Clearly, these petroleum products can easily qualify for tax and duty free privileges under Section 17(1) of PD No. 66. xxx xxx xxx This interpretation is strengthened by the enactment of EO No 226 (The Omnibus Investments Code). The tax treatment of merchandise inside the zone was re-enacted under Article 77 of Book IV of the Code but not Section 18(1). Said Section 18(1) was deleted from Book IV governing incentives of BOI registered enterprise under Book I which an EPZA registered enterprise may also enjoy as an additional incentive under Article 78. xxx xxx xxx Finally, under paragraph 2 of Executive Order No. 226 aforequoted, the purchase of merchandise by a registered zone enterprise was likewise considered as export sale and the exporter shall be entitled to the benefits allowed by law for such transaction. This will entitle the exporter to duty drawback under Section 106 of the Tariff and Customs Code and tax credit under Section 127(d) of the National Internal Revenue Code. Pursuant to the aforequoted provision of the LOI and EO 226, the mere act of selling and delivering products to the export processing zone enterprise can be considered already as export sale without awaiting for actual exportation. Therefore, the allegation of the respondent that the articles sold to an EPZA-registered enterprise should form part of the finished product actually exported will hold no water at all. cdll All of the above incentives spring from the concept that an export processing zone is carved out of the Philippine territory for purposes of enforcement of customs and tax laws. So that the area or areas fixed or delimited by presidential proclamation or by board resolution of the Export Processing Zone Authority as export processing zone shall be referred to as the zone and the national territory outside of the zone shall be called customs territory (Section 2(e) and (f) of the Amended Rules and Regulations to implement PD 66. The basic policy in establishing a zone is to attract enterprises especially foreign investors who will be manufacturing products primarily for export and be able to do so without their supplies and raw materials being subjected to customs and revenue regulations. Export is the backbone of our economy and is being encouraged by providing enterprises with all the incentives including those which we have discussed above. For which reason the law further states that "all doubts concerning the benefits and incentives granted to enterprises and investors by the Code shall be resolved in favor of investors and registered enterprises." Based on the above-quoted authority, petitioner, as an EPZA registered enterprise is exempted from the payment of excise taxes, and if said taxes were passed on by the supplier to EPZA registered enterprise like the petitioner, tax credit shall be granted to the latter. The fact that it was not the petitioner who had paid the taxes directly to the Bureau of Internal Revenue does not have an adverse effect on petitioner's action for refund. The law granting the exemption makes no distinction as to the circumstances when the law shall apply. Since the law makes no distinction, neither should we. The exemption is so broad as to cover the present situation. Since an export processing zone is not considered to be covered by Philippine customs and internal revenue laws, the taxes paid by the petitioner on the petroleum products should be refunded or credited in its favor. Thus, the only thing left for us to do is to determine whether or not petitioner is entitled to the amount claimed for refund. After a careful scrutiny of the evidence presented, however, there appears to be a dispute with respect to the amount claimed. Petitioner submitted in evidence a certification issued by Petron to prove that the duties imposed upon the petroleum products delivered to petitioner by Petron had been duly paid for by petitioner (Exhibit "A", p. 71, CTA records). Petitioner likewise presented a schedule of petroleum products sold and delivered to petitioner detailing the volume of sales and the excise taxes paid thereon (Exhibits "A-1" to "A-1a", pp. 72-73, CTA records). However, to show that Petron had previously paid the excise taxes on these petroleum products, petitioner presented photocopies of Authority to Accept Payment for Excise Taxes issued by respondent pertaining to petroleum products purchased (Exhibits "A-2" to "A-80", pp. 74-152, CTA records). prcd Although these Authority to Accept Payment for Excise Taxes reflect therein the amount of excise taxes paid by Petron to respondent, this Court cannot verify the exact amount of excise taxes which correspond to the petroleum products delivered to petitioner. This Authority to Accept Payment for Excise Taxes only proves the payment of millions of pesos in excise taxes made by Petron during the period covered by the claim but they fail to show to this Court which part of this huge amount actually represents the excise taxes paid on the petroleum products actually delivered to herein petitioner. Petitioner merely presented a summary of petroleum products sold and delivered by Petron during the period covered by the claim. We cannot, by the summary alone, ascertain the veracity of the amount being claimed neither can it prove the existence of the invoices being referred to therein. Petitioner should have submitted the invoices supporting the schedules of petroleum products sold and delivered to it by Petron. These invoices would reveal whether or not the amount claimed for refund by petitioner is correct. In the recent case entitled Philippine Associated Smelting and Refining Corporation vs . CIR , CTA Case No . 5158 , dated February 17 , 1998 , this Court had the occasion to emphasize the importance of these invoices, when We ruled, thus: "We find the foregoing evidence insufficient to substantiate its claim for refund in the amount of P3,019,071.00. The petitioner failed to submit the invoices supporting the schedules of petroleum products sold and delivered by Petron to PASAR. It is only through these invoices that this Court could verify the truthfulness of the amount claimed by petitioner. Such failure on the part of the petitioner is fatal to its claim for refund." In an action for refund/credits the taxpayer has the burden of showing that the taxes paid are erroneously collected and that failure to meet such a burden is fatal to his cause. Tax refunds partake of the nature of the tax exemptions and therefore cannot be allowed unless granted in the most explicit and categorical language. The grant of refund privileges must be strictly construed against the taxpayer and liberally in favor of the government (Commissioner of Internal Revenue vs. Rio Tuba Nickel Mining Corporation, 201 SCRA 549; Primitivo Andaya vs. The Commissioner of Internal Revenue, CTA Case No. 4646, February 1, 1995; citing TMX Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 4397, March 29, 1993; Citibank N.A. Philippine Branch vs. The Commissioner of Internal Revenue, CTA Case No. 4258, April 1, 1994). Petitioner has the burden to prove the material allegations in its petition as well as the truth of its claim. WHEREFORE, in view of the foregoing, the claim for refund of petitioner in the amount of P602,349.00 is hereby DENIED for lack of merit. SO ORDERED. (SGD.) RAMON O. DE VEYRA Associate Judge WE CONCUR: (SGD.) ERNESTO D. ACOSTA Presiding Judge (SGD.) AMANCIO Q. SAGA Associate Judge