Matsushita Business Machine Corp. of the Philippines v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5706. May 28, 2001.] MATSUSHITA BUSINESS MACHINE CORPORATION OF THE PHILIPPINES , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This is a Petition for Review for the refund of the amount of P7,786,324.85 representing alleged unutilized and/or unapplied input value-added tax (VAT) for the period October 1, 1996 to March 31, 1997. Petitioner is a corporation duly organized and existing under and by virtue of Philippine laws, with principal office at Bo. Mapandan, Ortigas Avenue Extension, Taytay, Rizal, which is engaged in the business of production and export of plain paper copiers, sub-assemblies, parts and components. It is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer on October 5, 1995 under Certificate of Registration issued by Revenue District Office No. 46 (Central Taytay). It is likewise, registered with the Board of Investments (BOI) under Certificate of Registration No. EP95-216 issued on October 2, 1995 as a preferred enterprise. For the period October 1, 1996 to March 31, 1997, Petitioner's export sales amounted to US$11,839,808.68. Proceeds of the export sales were inwardly remitted in US dollars and were duly accounted for in accordance with the rules and regulations of the Central Bank (Annexes C and C-a, pp. 9-10, CTA records). SAHIaD As a VAT registered entity, Petitioner seasonably filed its monthly and quarterly VAT returns. For the period October 1996 to March 1997, Petitioner incurred input VAT on its purchases of goods and services which were attributable to its export sales for the same period in the total amount of P7,786,324.85 as gleaned from its 3rd and 4th quarterly VAT returns, to wit: PERIOD ZERO-RATED DOMESTIC VAT INPUT INVOLVED EXHIBIT SALES PURCHASES TAX Oct.-Dec. 1996 B P129,108,365.33 P41,343,213.80 P4,134,321.38 Jan.-Mar. 1997 C 155,670,285.81 36,520,034.70 3,652,003.47 Total P284,778,651.14 P77,863,248.50 P7,786,324.85 A circumspect review of the said quarterly VAT returns reveals that Petitioner adopted a fiscal year accounting period (April to March) which covered three (3) quarters of the preceding year and one (1) quarter of the succeeding year as compared to a calendar year accounting period. The disparity was explained by Petitioner's witness, Mr. Danilo Asis, Assistant Manager of Matsushita Business Machine Corporation in his testimony before this Court dated June 8, 1999, to wit: Q. Mr. Witness, I just noted that in the return you have identified as your quarterly VAT return for last quarter for fiscal year 1996, there is a notation in the upper left portion, "FY 1996" and opposite to that is the portion checked quarter, there is a cross for the third quarter. Can you please reconcile your previous statement that it is the quarterly VAT return of the company for calendar year 1996 with the period appearing in the return? A. The company follows the fiscal year ending March 31 for the fourth quarter of the calendar year 1996 rather than the third quarter of fiscal year 1996. One period covers December 31, 1996 and this is also the fourth quarter of the calendar year 1996. Q. And this is also true with other quarters? A. Yes, that is also true with the other quarters, that the company also uses the fiscal year ending March 31 as the period for the succeeding quarters. (TSN, dated June 8, 1999, page 13) Since Petitioner was unable to utilize or apply its accumulated input VAT for the period October 1, 1996 to March 31, 1997, an application for tax credit or refund was filed with the BIR on January 19, 1998, in the total amount of P7,786,324.85. Respondent, however, did not act on the administrative claim, thus, Petitioner filed a Petition for Review with this Court on December 29, 1998 in order to toll the running of the two-year prescriptive period. Respondent, in his Answer, presented the following Special and Affirmative Defenses, to wit: "6. In an action for refund, the taxpayer has the burden to show that the taxes paid were erroneously or illegally collected and failure to do so is fatal to the action; 7. Claims for tax refund are strictly construed against the taxpayer. Petitioner has no cause of action." The issue to be resolved is whether or not Petitioner is entitled to the refund or tax credit of the amount of P7,786,324.85 consisting of input VAT paid on its purchases of goods and services for the period October 1, 1996 to March 31, 1997. We rule in favor of Petitioner. Petitioner basically anchored its claim on the following provisions of the National Internal Revenue Code, viz : SECTION 104. Tax Credits . . . . (b) Excess output or input tax . If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarters. Any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 106. xxx xxx xxx 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): Provided, further , That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. xxx xxx xxx Petitioner considered its sales as export sales. Section 100 of the National Internal Revenue Code defined export sales, to wit: SECTION 100. Value-added tax on sale of goods or properties . (a) Rate and base of tax. . . . (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). xxx xxx xxx In order that a claim for refund of input VAT be granted, Petitioner must comply with the following requirements as provided in Section 106 of the National Internal Revenue Code, to wit: 1. That it is a VAT-registered person; 2. That its sales are zero-rated; 3. That the administrative claim for refund is seasonably filed; 4. That the input taxes claimed were attributable to zero-rated sales and were not applied against output tax liability; and 5. That foreign currency exchange proceeds had been duly accounted for in accordance with the Regulations of the Bangko Sentral ng Pilipinas. SDIaCT Petitioner filed its administrative claim for refund with the BIR for the unutilized accumulated input VAT of P7,786,324.85 on January 19, 1998 and the Petition for Review with this Court on December 29, 1998, both dates are within the two-year prescriptive period and thus, seasonably filed. Under Section 100(a)(2)(A)(i) of the NIRC, the export sales of a VAT-registered person which are paid for in acceptable foreign currency inwardly remitted to the Philippines and accounted for in accordance with existing rules and regulations of BSP is not subject to the 10% VAT. In other words, evidence as to its registration as VAT entity and the actual export such as sales invoices, bank credit memoranda, export declarations and export permit are necessary to be considered zero-rated ( NEC Components Philippines, Inc. vs. CIR, CTA Case No. 5653, promulgated April 13, 2000 ). Records of the case disclosed that Petitioner is a VAT-registered person (Annex "A", p. 7, CTA Records). For the period October 1996 to March 1997, it generated zero-rated sales of P284,778,651.14 as can be gleaned from its 3rd and 4th quarter VAT returns which were filed on January 20, 1997 and April 21, 1997, respectively. The report of Petitioner's independent CPA dated July 31, 2000 stated that only the amount of P282,085,927.69 was verified to be duly supported by Export Sales Invoices, Airway Bills/Bills of Lading, Export Declarations, Bank Credit Advices and portions of Bank's Passbook (Exhibits N, G-2 to G-150, G-152 to G-278 and G-280 to G-404). Being zero-rated sales, the export sales made by Petitioner for the period October 1996 to March 1997 were not liable for any output tax. Therefore, the input taxes in the amount of P4,134,321.38 for the period October to December 1996 and P3,652,003.47 for the period January to March 1997 or a total of P7,786,324.85 remained unutilized. A perusal of the quarterly VAT returns show that Petitioner carried forward the excess input taxes subject of the instant case to the succeeding 1st to the 3rd quarters of fiscal year 1997, however, on the 4th quarter of the same fiscal year, it deducted the amount of P7,786,936.58 from the total input taxes of P15,105,439.03 which was carried over from the previous quarters (see Exhibit "D-3"). In fine, Petitioner has substantially complied with the requirements set forth for the grant of refund of input VAT, thus, it was able to show that: 1. it is a VAT-registered person; 2. its sales are zero-rated; 3. the administrative claim for refund was seasonably filed; 4. the input taxes claimed were attributable to zero-rated sales and were not applied against output tax liability; and 5. foreign currency proceeds had been duly accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas. The Court hereby grants the relief sought by Petitioner but in a reduced amount due to the disallowance made by the independent CPA in his initial report dated May 17, 1999 in the amount of P246,030.28 as input taxes since these were not properly substantiated. Moreover, further examination made by this Court of the photocopied documents submitted by Petitioner found the following additional disallowances: WHEREFORE, in view of all the foregoing, Respondent is hereby ORDERED to REFUND in favor of Petitioner the amount of P7,266,350.55 representing the latter's excess/unutilized VAT input taxes for the period October 1, 1996 to March 31, 1997. SO ORDERED. DCISAE (SGD.) AMANCIO Q. SAGA Associate Judge I CONCUR: (SGD.) ERNESTO D. ACOSTA Presiding Judge