Benguet Corp. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5677. September 17, 2001.] BENGUET CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS , respondents . D E C I S I O N This Petition for Review filed by herein Petitioner on September 30, 1998 involves a claim for refund or tax credit in the aggregate amount of THIRTY THREE MILLION FIVE HUNDRED NINETY THREE THOUSAND SEVEN HUNDRED FOURTEEN & 21/100 PESOS (P33,593,714.21) allegedly representing the excess creditable input VAT paid by Petitioner on its domestic purchases and importation of capital goods for the period covering July 1 to December 31, 1996. Petitioner is a domestic corporation organized and existing under the laws of the Republic of the Philippines. 1 It is registered with the Bureau of Internal Revenue as a VAT taxpayer pursuant to the requirements of Section 107 of the National Internal Revenue Code, as shown by the Certificate of Registration No. 94-410-002700 wherein Petitioner has been issued Registration No. 410-000-051-237-VAT on its sale of goods effective June 30, 1994. 2 On May 4, 1988, it obtained from the BIR an approval of its application for zero-rate on its sale of goods to persons or entities, which are effectively zero-rated. 3 On October 21, 1996 and January 20, 1997, Petitioner filed its 1996 quarterly VAT returns for the third quarter ended September 30, 1996 and fourth quarter ended December 31, 1996 (CTA records, pp. 138-140), respectively, but which Petitioner simultaneously amended on January 31, 1997 (Exhibits A & B). In its amended 1996 third quarterly VAT return (Exhibit A), Petitioner reported an amount of P630,990,265.86 zero-rated sales, taxable sales of P156,318,482.20 with the related output VAT of P15,631,848.22, total input VAT of P26,631,903.84 paid on domestic purchases of goods/services and importation of goods and an excess input VAT of P11,000,055.62, computed as follows: Zero Rated Sales P630,990,265.86 Taxable Sales 156,318,482.20 Total Sales 787,308,748.06 ============= Output VAT P15,631,848.22 Less: Input VAT Domestic Purchases of Goods and services P22,434,942.84 Importation of Goods 4,196,961.00 26,631,903.84 Excess Input VAT P11,000,055.62 ============= Likewise, in its amended 1996 fourth quarterly VAT return (Exhibit B), Petitioner reflected an amount of P375,715,886.32 zero rated sales, taxable sales of P16,154, 551.70 with the corresponding output VAT of P1,615,455.17, total input VAT of P23,999,859.49 paid on domestic purchases of goods/services and importation of goods and an excess input VAT of P22,384,404.32 computed as follows: Zero Rated Sales P375,715,886.32 Taxable Sales 16,154,551.70 Total Sales P391,870,438.02 =============== Output VAT P1,615,455.17 Less: Input VAT Domestic Purchases of Goods and services P20,782,444.49 Importation of Goods 3,217,415.00 23,999,859.49 Excess Input VAT P22,384,404.32 ============== Accordingly, Petitioner filed with the One-Stop-Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance (DOF), two separate applications for VAT tax credits/refunds in the amounts of P11,020,438.09 and P22,573,275.92 covering the periods July 1 to September 30, 1996 and October 1 to December 31, 1996 (Exhibits C & D), respectively. The said amounts allegedly represent excess input VAT payments on importation of goods and domestic purchases of goods/services for the same periods. Since the aforementioned administrative claims for refund in the total amount of P33,593,714.01 were not acted upon by the Respondent and in order to preserve its right to judicially claim the same, Petitioner, on September 30, 1998, elevated the matter before this Court by way of Petition for Review. In answer to the allegations raised by the Petitioner, Respondent, for his part, avers the following Special and Affirmative Defenses, to wit: 1. Respondent Commissioner of Customs replead (sic) and reproduce (sic) all their allegations in the preceding paragraphs of this Answer; 2. The alleged claim for refund is still subject to administrative routinary investigation and/or examination by the Respondent's Bureau; 3. The taxes so claimed have been paid and collected in accordance with law and regulations, hence, not refundable; 4. Claims for refund are construed strictly against the claimant for the same partakes of the nature of an exemption from taxation ( Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95 ). Taxation is an inherent power of the State and taxes are considered the lifeblood of the nation. It is therefore incumbent upon Petitioner to prove by express provision of law that it is entitled thereto. Failure on the part of the Petitioner to do so, all doubts as to the regularity of the claim for refund must be resolved in favor of the Respondent. 5. Moreover, it is incumbent upon Petitioner to prove that it has complied with the provisions of Section 230 of the Tax Code. The pivotal issue in the case at bar is focused on the question of WHETHER OR NOT PETITIONER IS ENTITLED TO THE REFUND OR TO THE ISSUANCE OF A TAX CREDIT CERTIFICATE IN THE TOTAL AMOUNT OF P33,593,714.01 REPRESENTING THE EXCESS INPUT VAT PAID FOR THE PERIOD COVERING JULY 1 TO DECEMBER 31, 1996. The case at bar is not one of first impression. Quoted hereunder are the pertinent provisions of the Tax Code which specifically tackles refund of excess input VAT paid from domestic purchases of goods and services and from importation of capital goods attributable to zero rated or effectively zero-rated sales, thus: "Section 100. Value Added Tax on sale of goods or propertie s. (a) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. xxx xxx xxx 2) The following sales by VAT-registered persons shall be subject to 0%: (A) Export Sales . The term "export sales" means (i) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." 4 "Section 106. Refunds or Tax credits of creditable input tax . (a) Any VAT-registered person, whose sales are zero-rated or effectively zero-rated, may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided , however, That in the case of zero-rated sales under Section 100(a)(2)(A)(i), (ii) and (b) and Section 102 (b)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas (BSP): . . .". EHTIcD (b) Capital Goods . A VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes. The application may be made only within two (2) years after the close of the taxable quarter when the importation or purchase was made." 5 In sum, the afore-quoted provisions list down the basic requisites to be complied with in order for tax refunds or credits of excess input VAT paid may be granted. explicitly mentioned in Section 100(a)(2)(A)(i) are the following: 1. That there be a sale of goods; 2. That the sale be made by a VAT-registered person; 3. That the sale qualifies as export sale as defined by law; 4. That the foreign exchange proceeds of said export sales are properly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas . On the other hand, Section 106(a) and (b) specifically provides for the following requisites before a claim for refund can be granted, thus: 1. That the application of a tax credit or refund has been made within the two-year prescriptive period from the filing of the quarterly VAT return as provided under Section 4.106-2 (c) of Revenue Regulations No. 2-95; 2. That the claimed input taxes on domestic purchases of taxable goods and services are directly attributable to its zero-rated sales; 3. That the claimed input taxes were not offset/applied against any output tax nor carried over to the succeeding months/quarter. There is no doubt with regard to Petitioner's compliance with the aforementioned requirements. The fact that Petitioner is a VAT registered entity is undisputed (par. 2, Joint Stipulation of Facts, CTA records, p. 50). Records would reveal that for the period July 1 to December 31, 1996, Petitioner actually generated export sales and the foreign currency exchange proceeds thereof were inwardly remitted in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). This is evidenced by the various export sales invoices, export declarations, airway bills, bills of lading, bank credit advices/memo(s) and official receipts (Exhibits G & G-1) submitted by Petitioner. Since Petitioner's export sales qualify as zero-rated, Petitioner is not liable to pay output tax thereon. This is true as Petitioner's right to refund or credit the input VAT paid on its purchases of goods, properties or services related to such zero-rated sales is very well provided under Section 4.102 of Revenue Regulations No. 7-95 in relation to Section 106(a) of the Tax Code. Such right to refund or credit input tax paid is likewise applicable on its importation of capital goods as sanctioned by Section 106(b) of the Tax Code. With regard to the timeliness of Petitioner's action both in the administrative and judicial levels, this Court finds that prescription has not yet set in. A perusal of the records shows that Petitioner filed its 1996 original third and fourth quarterly VAT returns on October 21, 1996 and January 20, 1997, respectively. Counting from these dates, Petitioner's administrative claims filed on March 5, 1998 and September 18, 1998 as well as the Petition for Review filed on September 30, 1998 fall within the two-year prescriptive period provided under Section 4.106-2(c) of Revenue Regulations No. 7-95. Said regulation provides that the application for the refund or credit of input taxes paid on capital goods imported or locally purchased shall be made within two (2) years after the close of the taxable quarter when the importation or purchase was made. It must likewise be pointed out that upon examination of Petitioner's 1996 amended third and fourth quarterly VAT returns (Exhibits A & B), this Court found that the claimed input taxes were already net of Petitioner's output tax liabilities for the same quarters. It follows then that the claimed input taxes on its purchases of taxable goods and services are directly attributable to its zero-rated sales. Also, Petitioner was able to prove that it did not apply nor carry-over the claimed input taxes to the succeeding first quarter of 1997. As can be gleaned from the Petitioner's first quarterly VAT return (Exhibit B-1, CTA docket p. 211), no amount was indicated as "Carried over from the previous quarter" (See Exhibit B-2, CTA docket, p. 211). With the requirements substantially complied with by the Petitioner, we will now proceed to examine if the claimed input taxes were sufficiently substantiated by supplier's invoices and/or of official receipts (with respect to domestic purchases of taxable goods and services) and Bureau of Customs official receipts/import entry declarations (with respect to importation of capital goods) pursuant to Section 4.104-5 of Revenue Regulations No. 7-95 in relation to Sections 108 and 238 of the Tax Code. 6 A thorough examination of the records submitted to this Court would reveal that indeed Petitioner substantially met the substantiation requirements. In order to support its claimed input taxes, Petitioner submitted various suppliers' invoices/official receipts, Bureau of Customs (BOC) official receipts and import entry declarations (Exhibits H-1 to H-30; I-1 to I-23; J-1, inclusive) which were summarized in Exhibits K-1 and K-2. It must be noted that due to the voluminous documents involved in this case, the services of an independent accounting firm was engaged to conduct an audit and evaluation of the documents pertinent to the input VAT claimed for the period covered. This Court finds their report adequate save from some other notable disallowances, which will be discussed later. In its final report dated November 16, 1999 (Exhibit E-1), the commissioned auditing firm, SGV & Co., noted the following exceptions as well as the reason for their disallowance (Exhibits E-2 & E-3), thus: Input Taxes Claimed 3rd Qtr 4th Qtr Total A. 1. Purchases of goods and/or services without supporting Documents P332,574.39 P647,202.80 P979,777.19 2. Purchases of goods and/or services supported by documents other than VAT invoices/Ors 117,628.44 87,416.68 205,045.12 3. Purchases of goods and/or services supported by Non- VAT invoices/Ors 869,056.94 930,437.72 1,799,494.66 4. Purchases of goods and/or services supported by documents not issued in the name of the Company 142,324.45 5,412.89 147,737.34 5. Purchases of goods and/or services supported by Invoices/ORs stamped with TIN-V, "TIN-VAT", TIN#VAT# printed after July 31, 1991 15,643.93 15,643.93 6. Purchases of goods and services supported by Invoices/ORs with "TAN-VAT" or "TAN-V" only printed before July 31, 1991 134,286.49 157,685.66 291,972.15 7. Purchases of goods and services supported by invoices/ Ors with "TAN-VAT" or "TAN-V" only printed after July 31, 1991 1,202.01 1,202.01 8. Purchases of goods and/or services supported by invoices/ Ors without BIR permit 571.00 571.00 P1,613,287.65 P1,828,155.75 P3,441,443.40 =========== =========== =========== B. Input taxes paid on importation of goods which are supported only by Import Entry Declarations and Bureau of Customs (BOC) ORs with stamped "Certified True Xerox Copy" and signed by the BOC. 3rd Qtr 4th Qtr Total Input Taxes Claimed 300,687.00 65,456.00 366,143.00 C. Input taxes paid on importation of goods and local purchases of goods/services which are supported only by photocopies of Import Entry Declarations/BOC ORs and VAT invoices/Ors. 3rd Qtr 4th Qtr Total Input Taxes Claimed 849,202.86 1,500,850.21 2,350,053.07 A thorough scrutiny of the SGV & Co. final report and Petitioner's documents reveals that the amounts of P3,441,443.40 and P2,350,053.07 as summarized in letters A and C represent proper disallowances from Petitioner's total claim. As regards the input taxes of P366,143.00 in letter B above, only a portion thereof shall be disallowed on the basis that the BOC official receipts supporting the same were dated outside of the period covered by the subject claim for refund. The said disallowed input taxes covered by BOC official receipts were included in the total additional disallowed input taxes of P2,614,756.96 ( see Annex A ) and P2,216,087.82 ( see Annex B ) for the third and fourth quarters of 1996, respectively, which were also found by this Court as not properly substantiated. Hence, aside from the exceptions of P3,441,443.40 and P2,350,053.07 noted by SGV & Co., the input taxes of P2,614,756.96 and P2,216,087.82 shall also be deducted from Petitioner's total claim. All told, this Court found that Petitioner's claim for refund or issuance of a tax credit certificate representing its unutilized input VAT payments on domestic purchases of taxable goods/services and importation of capital goods for the third and fourth quarters of 1996 be granted but in a reduced a mount of P22,971,372.76 computed as follows: 1 9 9 6 3rd Qtr 4th Qtr Total (Exhibit C) (Exhibit D) Claimed Excess Input Taxes P11,020,438.09 P22,573,275.92 P33,593,714.01 Less: Disallowances 1.) Per SGV Report (Exhibits E-2 & E-3) those summarized in letter A P1,613,287.65 P1,828,155.75 P3,441,443.40 those summarized in letter C 849,202.86 1,500,850.21 2,350,053.07 2.) Per this Court's Further Verification (Annexes A & B) 2,614,756.96 2,216,087.82 4,830,844.78 Total Disallowances P5,077,247.47 P5,545,093.78 P10,622,341.25 Refundable Excess Input Taxes P5,943,190.62 P17,028,182.14 P22,971,372.76 ============ ============ ============ WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED TO REFUND OR CREDIT in favor of the Petitioner the reduced amount of TWENTY TWO MILLION NINE HUNDRED SEVENTY ONE THOUSAND THREE HUNDRED SEVENTY TWO & 76/100 PESOS (P22,971,372.76) representing the excess creditable input VAT paid by Petitioner covering the period July 1, 1996 to December 31, 1996. SO ORDERED. cACEaI (SGD.) AMANCIO Q. SAGA Associate Judge I CONCUR: (SGD.) ERNESTO D. ACOSTA Presiding Judge ATTACHMENT CHEDULE OF ADDITIONAL DISALLOWANCES ON CLAIMED INPUT VAT 3rd QTR 1996 PER THIS COURT'S FURTHER VERIFICATION Footnotes 1. Joint Stipulation of Facts, par. 1, CTA docket p. 47. 2. ibid , par. 2, CTA docket p. 47. 3. See Annex B attached to Petition for Review, CTA docket p. 7. 4. now Section 106 (A)(2)(a)(1) of the NIRC of 1997 (R.A. 8424) 5. now Section 112 (A) and 112 (B) of the NIRC of 1997 (R.A. 8424) 6. Now, section 113 and 237, respectively of the NIRC of 1997 (R.A. 8424)