Fort Bonifacio Development Corp. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5735. October 12, 2000.] FORT BONIFACIO DEVELOPMENT CORPORATION , petitioner , vs .COMMISSIONER OF INTERNAL REVENUE and REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG AND PATEROS, BUREAU OF INTERNAL REVENUE , respondents . D E C I S I O N Before Us for consideration is a Petition for Review filed on February 24, 1999 seeking for a refund of the amount of P359,652,009.47 representing alleged overpaid value-added tax on Petitioner's sale of lots covering the first quarter of 1997. The antecedent facts of this case giving rise to the controversy at bar are contained in the stipulation of facts of the contending parties: 1.01. Petitioner is a domestic corporation duly registered and existing under the Philippine laws, with office address at Bonifacio Centre, NDCP Compound, Fort Bonifacio, Taguig, Metro Manila, where it may be served with the processes of this Honorable Court. 1.02. Respondent Commissioner of Internal Revenue is the head of the Bureau of Internal Revenue (BIR),with office address at the Office of the Commissioner of Internal Revenue, BIR Building, Quezon City, Metro Manila, where he may be served with summons and other process of this Honorable Court. 1.03. Respondent Revenue District Office, Revenue District No. 44, Taguig & Pateros, Bureau of Internal Revenue, is the chief of the aforesaid District Office, with office address at FTI Administration Building, FTI Complex, Taguig, Metro Manila, where she may be served with summons and other processes of this Honorable Court. 1.04. Petitioner is owned, to the extent of forty-five per cent (45%) of its issued and outstanding capital stock, by the Bases Conversion and Development Authority (BCDA), a wholly owned government corporation created by Republic Act No. 7227 for the purpose of accelerating the conversion of military reservations into alternative productive uses and raising funds through the sale of portions of said military reservations in order to promote the economic and social development of the country in general. The remaining fifty-five per cent (55%) is owned by Bonifacio Land Corporation, a consortium of private domestic corporations. 1.05. Petitioner is engaged in the development and sale of real property. It is the owner of, and is developing and selling, parcels of land within a newtown development area known as the Fort Bonifacio Global City (hereinafter referred to as "Global City"),located within Fort Bonifacio, Taguig, Metro Manila. 1.06. The aforesaid area being developed by petitioner was formerly part of the Fort Bonifacio reservation but was sold on February 8, 1995 by the National Government to petitioner by virtue of R.A. No. 7227 and Executive Order No. 40, dated December 8, 1992. 1.07. On January 1, 1996, Republic Act No. 7716 took effect. The said law restructured the value-added tax (VAT) system by further amending pertinent provisions of the National Internal Revenue Code (NIRC), as already amended by Executive Order No. 273 which took effect on January 1, 1988, and imposed a value-added tax on sale of real properties, among others (Sec. 100[a][1][A] of NIRC, as amended by R.A. No. 7716). While prior to RA. No. 7716 real estate transactions were not subject to VAT, they became subject to VAT upon the effectivity of R.A. No. 7716. 1.08. In May 1996, petitioner commenced developing the Global City, and since October 1996, has been selling lots located thereat to interested buyers. EDATSC 1.09. Petitioner is a duly registered VAT taxpayer. 1.10. With regard to the input tax credit of 8% under Sec. 105 of the NIRC, petitioner submitted an inventory listing real properties owned by it with a total book value of P71,227,503,200.00. The aforesaid inventory was submitted to the BIR, Revenue District No. 44, Taguig and Pateros, on September 19, 1996. 1.11. Per VAT returns filed by petitioner with the BIR, for the first quarter of 1997, petitioner derived the total amount of P3,685,356,539.50 from its sales and lease of lots, on which the output VAT payable to the Bureau of Internal Revenue was P368,535,653.95. 1.12. The VAT returns filed by petitioner likewise show that to pay said amount of P368,535,653.95 due to the BIR, petitioner made cash payments totalling P359,652,009.47 and utilized its regular input tax credit of P8,883,644.48 on purchases of goods and services. 1.13. On November 17, 1998, petitioner filed with the BIR a claim for refund of the amount of P359,652,009.47 which it paid as value-added tax for the first quarter of 1997. 1.14. Earlier, on October 8, 1998, petitioner filed with the BIR a claim for refund of the amount of P269,340,469.45 which it paid as value-added tax for the fourth quarter of 1996. 1.15. As of the date of the Petition, no action had been taken by respondents on petitioner's claim for refund of November 17, 1998. 1.16. Under Sec. 230 of the NIRC, a suit or proceeding for the recovery of any national internal revenue tax erroneously or illegally assessed or collected must be brought within two (2) years from payment of the tax. This legal provision has been reproduced as Sec. 229 of the National Internal Revenue Code of 1997. With regard to the amount of P359,652,009.75 paid by petitioner as value-added tax for the first quarter of 1997, the two-year period will expire on March 25, 1999, the earliest VAT payment for said quarter having been made on March 25, 1997, as shown in its original Monthly VAT Declaration for February 1997. 1.17. The Secretary of Finance, under Sec. 19 of Republic Act No. 7716 and Sec. 245 (now Sec. 244) of the Tax Code and per recommendation of the Commissioner of Internal Revenue, has promulgated implementing revenue regulations for the enforcement thereof. As agreed upon by the parties in their joint stipulation of facts the issue to be resolved by this Court is whether or not Petitioner is entitled to a refund of the amount of P359,652,009.47, paid by it as value added tax or to a tax credit for the said amount. In the main, Petitioner anchors its arguments on the provisions of Section 105 of the National Internal Revenue Code in relation to Section 100(1)(A) which grants an input tax credit of 8% of the value of the taxpayer's beginning inventory of real properties. In opposition thereto, Respondent relies on Revenue Regulations No. 7-98 implementing Section 105 of the Tax Code as amended by E.O. 273 limiting the basis of the presumptive input tax on the improvements such as buildings, roads, drainage system and other similar structures, constructed on or after January 1, 1998. Respondent further asseverates that the transitory input tax credit shall only be recognized and allowed provided the inventory of goods of properties brought into the transition from non-VAT to VAT regime have previously been purchased subject to the VAT or to any form of sales tax which accordingly had been passed on as a part of the buyer's invoiced price or acquisition cost. Respondent concludes that where no VAT or any form of sales had been passed on as part of the buyer's invoiced price or acquisition cost of the inventory no transitory input tax credit shall be recognized or allowed when the same is brought into the VAT regime as part of the beginning inventory in the transition of the taxpayer's business from non-VAT to Vatable business. Respondent opines that since no such tax forms part of the inventory cost when Petitioner purchased and acquired the raw land from the government under a VAT-free sale transaction, it follows then that no transitory input tax credit shall be allowed when the same is brought into the VAT regime as the taxpayer's transitory beginning inventory. Respondent's contentions are well-taken. We do not agree with the Petitioner that the 8% transitional input tax credit should be based on the value of the taxpayer's beginning inventory of real properties for reasons which are to be viewed in the perspective of its purpose. The transitional input tax credit was first introduced by Executive Order No. 273 also known as the original VAT Law of 1988. By virtue of E.O. No. 273, Section 105 of the Tax Code was amended to read as follows: SEC. 105. Transitional input tax credit . A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be allowed input tax on his beginning inventory of goods ,materials and supplies equivalent to 8% of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies whichever is higher, which shall be credited against the output tax .(Emphasis Supplied.) To implement the provisions of the aforequoted Section 105, the Bureau of Internal Revenue issued Revenue Regulations No. 5-87 specifically Section 26(b) which provides as follows: SEC. 26. Transitory provisions . ... (b) Transitional input tax credits . (1) Manufacturers, producers and importers . The unused deferred tax credit as of December 31, 1987 shall be allowed as input tax credits to all original sellers subject to the value-added tax for the first time, provided that they have registered in accordance with the provisions of Section 107. For this purpose, the amount appearing in their books of accounts and corroborated by the amount reflected in the sales tax return as of December 31, 1987 shall be initially accepted as the transitional input tax credit which shall be carried over as allowable tax credits against output tax less any amount for which an application for the issuance of a tax credit certificate has been filed. In the case of corporations filing their sales tax returns on a fiscal quarter basis, they shall file a short period return for the period ending December 31, 1987 which in addition to their ledger account of deferred tax credit shall be the basis of the transitional input tax credits which will be provisionally allowed. A cursory analysis of Section 26(b) of Revenue Regulations No. 5-87 points out two important facts: one, the transitional input tax credit is a benefit granted by law to manufacturers, producers and importers who are being subject to VAT for the first time and second, that the purposes of this benefit is to give recognition to the sales tax component of inventories which would qualify as input tax credit had such goods been acquired during the effectivity of the VAT Law of 1988. It must be remembered that the VAT Law abolished privilege taxes, percentage taxes and, more importantly, the sales tax on original or subsequent sale of articles. These taxes were substituted with the VAT at the constant rate of 0% or 10%. The transition or passage from the sales tax system to the value-added tax system, particularly in 1988, left many manufacturers, producers and importers with inventories consisting of goods upon which sales taxes were already paid or passed on as part of the invoice price or acquisition cost. To be able to utilize the sales taxes, the VAT Law of 1988 included a provision granting these taxpayers the benefit of transitional input tax credit to be utilized to pay for their VAT liability under the present system. The value of their transitional input tax credit corresponds to 8% of the value of their beginning inventories as prescribed by Revenue Regulations No. 5-87. The original VAT Law of 1988 (E.O. 273) was later on amended by Republic Act 7716 otherwise known as the E-VAT Law which now included, among others, the sale of real properties under the term "sale of goods" hence subject to value-added tax. However, the E-VAT Law did not touch the provisions of Section 105 of the Tax Code ( supra ) maintaining the benefit of transitional input tax credit but this time for those not subject to VAT under the original VAT Law of 1988 but are now subject to VAT such as real estate dealers. The purpose was to provide these taxpayers with the benefit of utilizing the VAT or sales tax component of their inventories to pay for its output VAT liabilities under the E-VAT Law. Why, it must be asked, do these taxpayers have a VAT component on their beginning inventories, when they were exempt from paying the VAT under the original VAT Law of 1988? The answer is that these taxpayers may have purchased goods or services where the VAT was passed on to them as part of the invoice price or acquisition cost. Therefore, the VAT passed on to them should qualify as their tax credit in paying their output VAT because this benefit is granted explicitly under the provisions of Section 104 of the 1996 Tax Code which provides, thus: SEC. 104. Tax Credits . (a) Creditable Input tax . Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 108 hereof on the following transactions shall be creditable against the output tax: "(1) Purchase or importation of goods: "(A) For sale; or "(B) For conversion into or intended to form part of a finished product for sale including packaging materials; or "(C) For use as supplies in the course of business; or "(D) For use as materials supplied in the sale of service; or "(E) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code, except automobiles, aircraft and yachts. "(2) Purchase of services on which a value-added tax has been actually paid. "The input tax on domestic purchase of goods or properties shall be creditable:" xxx xxx xxx But because they were not covered by the VAT Law prior to the amendments introduced by the E-VAT Law, the latter law now provides them with the benefit of transitional input tax credit on their beginning inventories equivalent to 8%. Petitioner's contention that it is entitled to a transitional input tax credit equivalent to 8% of its beginning inventory of real property nestles on the erroneous premise that the transitional input tax credit is granted by law to all real estate dealers regardless of whether or not their beginning inventories carry with them prior imposition of business taxes (sales tax or VAT). Viewed from the perspective of its purpose, the benefit of transitional input tax credit comes with the condition that business taxes should have been paid first and that said taxes may be used to pay their output tax liability through the transitional input tax credit provided by Section 105. The facts of this case indubitably show that Petitioner purchased the real properties from the National Government in 1995 under a VAT-free sale transaction because the Government as seller was tax exempt hence did not pass any VAT or sales tax as part of the purchase price paid by Petitioner. Also, it must be noted that in 1995, sale of real property was still exempt from the payment of VAT. This fact alone suffices to exclude the Petitioner from availing of the transitional input tax credit provided by law. To base the 8% transitional input tax on the book value of the land is to negate the purpose of the law in granting such benefit. It would be tantamount to giving an undeserved bonus to real estate dealers similarly situated as Petitioner. A bonus which the Government cannot afford to provide. In the case entitled Fort Bonifacio Development Corp. vs. Commissioner of Internal Revenue, et al . , CTA Case No. 5665 promulgated on August 11, 2000 , this Court had the opportunity to uphold the provisions of Section 4.105-1 of Revenue Regulations No. 7-95 where Respondent based the 8% transitional input tax credit on the value of the improvements, thus: "Corollary to our findings that Petitioner was wrong in basing its transitional input tax credit on the book value of its real properties, is our firm conclusion that Respondent was correct in basing the 8% transitional input tax credit on the value of the improvements on the land such as buildings, roads, drainage systems and similar structures constructed on or after the effectivity of Executive Order 273, pursuant to the wordings of Section 4.105-1 of Revenue Regulations No. 7-95 ( supra ). Such basis is consistent with the purpose of the transitional input tax credit because when a real estate dealer puts up improvements on the real properties as those enumerated in Revenue Regulations No. 7-95, VAT is necessarily passed on to them either as part of the acquisition cost of the materials used in building the improvements or as part of the cost of the services rendered in building the same. So in the event those lots with improvements are sold by the dealers upon the effectivity of the E-VAT law or thereafter, the VAT passed on to them can be utilized to pay their output VAT liabilities. It is wrong therefore for the Petitioner to state that Section 4.105-1 of Revenue Regulations No. 7-95 is contrary to law, rather we find it to be consistent and in harmony with the law it seeks to implement." cTECIA WHEREFORE, in view of all the foregoing, the claim for refund representing alleged overpaid value-added tax covering the first quarter of 1997 is hereby DENIED for lack of merit. SO ORDERED. (SGD.) ERNESTO D. ACOSTA Presiding Judge I CONCUR: (SGD.) RAMON O. DE VEYRA Associate Judge Separate Opinions My esteemed colleagues denied the claim for refund in the amount of P359,652,009.47 on the ground that Petitioner is not entitled to the Transitional Input Tax Credit provided under Section 105 of the 1996 Tax Code. I reiterate my dissent to the foregoing conclusion (see my Dissenting Opinion in the case entitled Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5665 promulgated on August 11, 2000) and emphasize the following observations: Section 105 of NIRC, as amended by Executive Order NO. 273, is plainly and unambiguously worded, to wit: SEC. 105. Transitional input tax credit . A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be allowed input tax on his beginning inventory of goods ,materials and supplies equivalent to 8% of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies whichever is higher, which shall be credited against the output tax .(Emphasis Supplied.) There is nothing in the above law which conveys that the 8% transitional input tax shall be based on the value of the improvements of such goods, materials or supplies. Moreover, Section 100(a)(1)(A), in relation to Sections 104(a)(2)(B) and 105 all of the Tax Code which provide that the presumptive input tax of 8% on the cost of the inventory of goods or properties as of December 31, 1995 shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include: (a) real properties held primarily for sale to customer or held for lease in the ordinary course of trade or business and not only to improvements. As relative thereto Section 100[1][A] of the NIRC, as amended by Republic Act No. 7716, provides that the term "goods or properties" shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business. In this regard, We come to the logical conclusion that the 8% transitional input tax provided for under Section 105 in relation to Section 100 of the NIRC, may be based on the value of the taxpayer's beginning inventory of real properties and not only on the improvements thereon. It is an elementary rule in statutory construction that when the words and phrases of the statute are clear and unequivocal, their meaning must be determined from the language employed and the statute must be taken to mean exactly what it says ( Baranda vs . Gustilo ,165 SCRA 757).Thus, taking Section 105 in relation to Section 100 of the Code to mean exactly what it says, Petitioner is indubitably entitled to the input tax credit on its beginning inventory of land. We are not persuaded by Respondent's position that the 8% transitional input tax shall mean the book value of the improvements of the real properties. We find no rhyme or reason why real properties are treated differently from other goods, supplies and materials under the implementing revenue regulation more particularly Section 4.105-1 of Revenue Regulations No. 7-95. Sections 105 and 100 of the Code are quite specific and require no condition or qualification in availing of the transitional input tax save for the filing of a beginning inventory. If a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation or construction. In short, it must be applied according to its plain and obvious meaning according to its express terms and no interpretation or construction is called for ( Republic vs . Court of Appeals ,299 SCRA 199; Cecilleville Realty & Service Corp . vs . Court of Appeals ,278 SCRA 819; Paat vs . Court of Appeals ,266 SCRA 167; Basbacio vs . Office of the Secretary , DOJ ,238 SCRA 5; Victoria vs . COMELEC ,229 SCRA 269; Commissioner of Internal Revenue vs . Limpan Investment Corp .,34 SCRA 148). It is worthy to note that Respondent, in implementing the said Section 105, issued Sec. 4.105-1 of Revenue Regulations No. 7-95 which provides among others, that the basis of input tax credit relative to real properties is the improvements, such as buildings, roads, drainage systems and other similar structures. Hence, it is evident that such implementing regulation extended the terms of Section 105. It is axiomatic that a rule or regulation must bear upon, and be consistent with, the provisions of the enabling statute if such rule or regulation is to be valid ( Lina, Jr . vs . Cario ,221 SCRA 515).The elementary principle of Administrative Law is that in interpreting or implementing provision of law, a government agency cannot go beyond the terms and provisions of the basic law. Much less can it go against the law itself. Administrative rules and regulations issued by a particular department or agency must be in harmony with the provision of law and should be for the sole purpose of carrying into effect the statutory provisions which it is construing or implementing. An administrative agency cannot extend, diminish, or otherwise amend the general provision of law ( Grego vs . COMELEC ,274 SCRA 481; Comm . of Int . Rev . vs . CA ,240 SCRA 368; People vs . Maceren ,79 SCRA 450; Del Mar vs . The Philippine Veterans Administration ,51 SCRA 340; U . S . vs . Tupasi Molina ,29 Phil 119).Furthermore, "administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws or the Constitution" (Art. 7, New Civil Code; Eastern Shipping Lines, Inc . vs . Court of Appeals ,291 SCRA 485).In case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails ( Conte vs . Commission on Audit ,264 SCRA 19; Hijo Plantation, Inc ., et al . vs . Central Bank ,164 SCRA 192; Shell Philippines, Inc . vs . Central Bank ,162 SCRA 628; People vs . Lim ,108 Phil 1091). In reading the entire text of Revenue Regulations No. 7-95, I also observed that the transitory provisions contain inconsistencies that all the more prove my point that Respondent erred in basing the transitional input tax credit of real estate dealers on the value of the improvements. The transitory provisions of Revenue Regulations No. 7-95 are hereunder quoted, thus: TRANSITORY PROVISION (a) Presumptive Input Tax Credits . (i) For goods, materials or supplies not for sale but purchased for use in business in their present condition, which are not intended for further processing and are on hand as of December 31, 1995, a presumptive input tax equivalent to eight percent (8%) of the value of the goods or properties shall be allowed. (ii) For goods or properties purchased with the object of resale in their present condition, the same presumptive input tax equivalent to eight percent (8%) of the value of the goods unused as of December 31, 1995 shall be allowed, which amount may also be credited against the output tax of a VAT-registered person. (iii) For real estate dealers, the presumptive input tax of eight percent (8%) of the book value of improvements constructed on or after January 1, 1988 (the effectivity of E.O. No. 273) shall be allowed. Notice that letter (a)(ii) of the aforequoted transitory provisions provides that goods or properties purchased with the object of resale in their present condition comes with the corresponding 8% presumptive input tax of the value of the goods , which amount may also be credited against the output tax of a VAT-registered person. It must be remembered that Section 100 as amended by Republic Act No. 7716 extends the term "goods or properties" to real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business. The provision alone entitles Petitioner to the 8% presumptive input tax of the value of the land (goods or properties) sold. However in letter (a)(iii) of the same Transitory Provisions, Respondent apparently changed its course when it declared that real estate dealers are only entitled to the 8% of the value of the improvements. This glaring inconsistency between these two provisions prove that Revenue Regulations No. 7-95 was not a result of an intensive study and analysis and may have been haphazardly formulated. In sum, interpretation or construction of the provision of Section 105 of the Code is uncalled for. Naturally, the corresponding implementing regulation which provides that the 8% transitional input tax shall be based on the improvements only of the real properties is not valid nor effective. Respondent further asseverates that it is the duty of this Honorable Court, in interpreting the transitional input tax credit under Section 105 of the Tax Code, "to look to the object to be accomplished, the evils to be remedied, or the purpose to be subserved, and should give the law a reasonable or liberal construction which will best effectuate its purpose". Once again, it bears stressing that there is no necessity for interpretation or construction of Section 105 for the same is explicit and categorical. Since there is no room for interpretation, construction, vacillation or equivocation, there is only room for application ( Director of Lands vs . Court of Appeals ,276 SCRA 276; Land Bank of the Philippines vs . Court of Appeals ,258 SCRA 404; Republic vs . Court of Appeals , supra ; Allarde vs . Commission on Audit ,218 SCRA 227; Provincial Board of Cebu vs . Presiding Judge of Cebu CFI, Br . IV ,171 SCRA 1; Cebu Portland Cement Co . vs . Municipality of Naga, et al .,24 SCRA 708) and the law. is applied as written ( Commissioner of Internal Revenue vs . Limpan Investment , supra ).For the first and fundamental duty of the court is to apply the law as they find it and according to its express terms ( Quijano vs . Development Bank of the Philippines ,35 SCRA 270; Luzon Surety Co . Inc . vs . De Garcia ,30 SCRA 111; Resins vs . Auditor General ,25 SCRA 754; People vs . Mapa ,20 SCRA 1164). CSHcDT Likewise, respondent justifies that the questioned regulation is consistent with the Canon of the Value Added Tax System, which is of international application, that transitory input tax credit shall only be allowed provided any form of business tax had been paid and passed-on as part of the invoice price or acquisition cost of the inventory and such inventory is brought into the VAT regime by its owner. Thus, if no such tax forms part of the inventory cost, as in the instant case when Petitioner purchased and acquired the raw land from the Government under a VAT-free sale transaction, no transitory input tax credit shall be allowed when the same is brought into the VAT regime as the taxpayer's transitory beginning inventory. According to the Respondent, the purpose of the transitional input tax credit for inventories brought into the VAT regime, during the transition of the business from non-VAT to VAT, is to prevent the cascading of the VAT or sales tax in a subsequent turnover of inventories, in order to avoid imposition of a tax against tax or VAT against VAT and thus prevent double taxation of the inventory, since the VAT is only intended as a tax on value added on every turnover of the inventory until it reaches the ultimate consumer against whom the full burden or cost of the tax is indirectly passed on as a part of his acquisition cost. Resorting to extrinsic aids in interpreting Section 105 is not proper in the case at bar. Because as We have already pointed out, Section 105 does not require any interpretation or construction. In the case of People vs . Amigo ,252 SCRA 43, the Supreme Court held that it is a settled rule of legal hermeneutics that if the language under consideration is plain, it is neither necessary nor permissible to resort to extrinsic aids. Petitioner also astutely counters that there is no such canon of the Value Added Tax System governing the conditions for granting transitory input tax credits which is of international application for reasons that: "The design and structure of VAT as legislated in the Philippines has certain characteristic features which make it unique. For instance, although in most countries, the VAT is comprehensive in scope allowing very few exemptions, the Philippine VAT system is replete with exemptions from VAT which affect the over-all taxable vase. The zero rating of certain domestic foreign currency denominated transactions in the Philippine VAT law is another feature not found in the VAT systems of other countries. Likewise, the Philippines is one of the only two countries (the other is New Zealand) which imposes VAT on sale of land. In fact, the imposition in the Philippine VAT law of tax on the sale of land is not in consonance with the view of Alan A. Tait, whose work is cited in respondent's Memorandum, that: "The VAT is supposed to be a tax on flows. Land is a stock and transfer of that stock should not be liable to VAT." These are legislative elements in the Philippine VAT law which is not in line with international VAT practices. Thus, there are components embedded in the Philippine VAT structure which do not conform to the VAT structure of other countries. This shows that the Philippine VAT system differs from, and was not legislated in accordance with, whatever "canon" is perceived to be applicable internationally." aIcSED In fact, We are in full accord with Petitioner's propositions that: (1) Contrary to Respondent's position, the rationale for allowing the provisional input tax credit in Section 105 of the NIRC as input tax creditable against output tax, is not necessarily that the goods were previously and actually subjected to other forms of indirect taxes, but to provide relief from burdensome tax; (2) When the Government sold the land, it did not anticipate that the subsequent sale thereof will be subject to VAT and that upon imposition of VAT thereon, the VAT will become a major component of the selling price. Nor did the purchaser of the land, in offering a price for the land, anticipate the imposition of VAT thereon. As a consequence of such imposition, however, the purchasers of land will ultimately bear the indirect tax burden. Thus, to impose the VAT on sales of land acquired prior to January 1, 1996, (the date of effectivity of EVAT Law) without allowing transitional input tax credit as provided for under Section 105 of the NIRC, will unduly increase the cost of the land instead of mitigating the unintended burden of the tax. (3) Had Congress intended to make applicable the so-called "Canon of the Value Added Tax System" and "internationally accepted practice" it would also have amended Section 105 together with the other provisions of the old NIRC. But it did not. (4) Moreover, it bears noting that in Revenue Regulations No. 6-97 (dated January 2, 1997), which were issued to implement Republic Act No. 8241 (the law amending R.A. No. 7716), and which amended Revenue Regulations No. 7-95, the provision in Section 4.105-1 of Revenue Regulations No. 7-95 has been deleted. The amendment appears to recognize that the basis of the 8% input tax credit should not be confined to the value of the improvements. In addition, I would like to reiterate that Section (a)(ii) of the TRANSITORY PROVISIONS of Revenue Regulations No. 7-95 which implemented Republic Act No. 7716, specifically recognized the availability of presumptive/transitional input VAT on its unused inventory of goods or property as of December 31, 1995 at 8% of the inventory cost. Accordingly, Petitioner herein is authorized to make an accounting entry in its books of accounts, as follows: Input VAT P5,698,200,256.00 Inventory P5,698,200,256.00 which journal entry serves as the legal basis for making available the 8% transitional input VAT as tax credit against the output VAT. Considering therefore, that Petitioner has a balance of input tax of P5,698,200,256.00 in its favor, the payment of output in actual cash was erroneous or illegal. WHEREFORE, in view of the foregoing ,I vote to grant the claim for refund in the amount of P359,652,009.47. (SGD.) AMANCIO Q. SAGA Associate Judge