Benguet Corp. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5934. January 25, 2002.] BENGUET CORPORATION , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE and THE COMMISSIONER OF CUSTOMS , respondents . D E C I S I O N Before Us is a Petition for Review filed on September 29, 1999 claiming for the refund or issuance of a tax credit certificate in the aggregate amount of P16,185,725.99, allegedly representing the excess net creditable VAT input for the third and fourth quarters ended September 30, 1997 and December 31, 1997, respectively. Petitioner is a domestic corporation duly organized and existing under Philippine laws with principal office located at One Corporate Plaza, 845 Arnaiz Avenue, 1223 Makati City. It is primarily engaged in the mining business, which includes the exploration, development and operation of mining properties for purposes of commercial production, and also the marketing of marketable mine products. It is likewise registered with the BIR as a Value-Added Tax (VAT) taxpayer in accordance with Section 107 of the old Tax Code (now Section 236 par. H of the 1997 Tax Code) as evidenced by a VAT Registration Certificate No. 94-410-002700 wherein it has been issued Registration/Tax Identification Number 410-000-051-037 VAT on the sale of its goods effective June 30, 1994 (see Annex A, Petition for Review). On May 4, 1988, Petitioner filed with the BIR an Application for Zero Rate on Sale of its goods to persons or entities. On October 20, 1997, Petitioner filed with the BIR its third quarter VAT Return for the period ended September 30, 1997 (Exhibit "A"), reflecting a total creditable VAT input of P30,539,755.22 of which P13,088,027.83 was generated from its domestic purchases of goods and services and importation of goods for the said quarter, computed as follows: VAT INPUT TAX Carried over from previous quarter P17,451,727.39 Domestic purchases of goods and services 10,398,968.89 Importation of goods 2,689,058.94 P30,539,755.22 (Exhibits A, A-1) =========== On January 20, 1998, Petitioner filed its fourth quarter VAT Return (Exhibit "C") for the period ended December 31, 1997 with the BIR showing a total creditable VAT input of P34,546,845.61 of which P4,661,448.12 was generated from domestic purchases of goods and services and importation of capital goods for the said quarter, computed as follows: VAT INPUT TAX Carried over from previous quarter P29,885,397.49 Domestic purchases of goods and services 4,501,492.12 Importation of goods 159,956.00 Total P34,546,845.61 =========== (Exhibits C, C-1) On July 1, 1999 and September 3, 1999, Petitioner filed with the Tax and Revenue Group of One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance (DOF), its applications for tax credit/refund of its excess or unapplied net creditable VAT inputs for the third quarter ended September 30, 1997 and fourth quarter ended December 31, 1997, in the amount of P12,592,011.34 and P3,593,714.65, respectively (Exhibit B-1 and Annex F). Since the aforementioned claims for refund in the aggregate amount of P16,185,725.99 was not acted upon by the Respondent and in order to preserve its right to judicially claim the same, Petitioner filed its appeal before this Court by way of Petition for Review on September 29, 1999. In his Answer, Respondent Commissioner of Customs raised the following Special and Affirmative Defenses, to wit: "4. The petition states no cause of action as it does not allege the dates when the taxes sought to be refunded were actually paid ( Manufacturer's Bank and Trust Co., etc. vs. Commissioner of Internal Revenue, Ledesma, 31 SCRA 95; Manila Electric Co. vs. Commissioner of Internal Revenue, 67 SCRA 35 ); 5. It is incumbent upon Petitioner to show compliance with the provision of Section 230 of the Tax Code, as amended; 6. 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 ); 7. Taxation is one of the inherent powers of the state and taxes are considered the lifeblood of the nation. Hence, the burden is upon the taxpayer to prove that he actually paid the taxes in question and that he is entitled to the refund sought, and failure to do so, is fatal to the action for refund." Moreover, Respondent Commissioner of Internal Revenue, in his Answer, raised the following Special and Affirmative Defenses, thus: "5. Petition states no cause of action as it does not allege the dates when the taxes sought to be refunded were actually paid; 6. Pursuant to Section 112(D) of the National Internal Revenue Code, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within 120 days from the date of submission of complete documents in support of the application filed and not 60 days as alleged by Petitioner; 7. It is incumbent upon herein Petitioner to show that it has complied with the provision of Section 229 of the Tax Code; 8. Claims for refund are construed strictly against the claimant, the same being in the nature of exemption from taxes ( Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95; Manila Electric Co. vs. Commissioner of Internal Revenue, 67 SCRA 35 ); 9. One who claims to be exempt from payment of a particular tax must do so under clear and unmistakable terms found in the statute ( Asiatic Petroleum vs. Llanes, 49 Phil 466; Union Garment Co. vs. Court of Tax Appeals, 4 SCRA 304 ); 10. In (sic) action for refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure to sustain the same is fatal to the action for tax refund." In the Joint Stipulation of Facts and Restatement of Issues which was concluded between Petitioner and Respondent Commissioner of Internal Revenue, the following issues were agreed upon: "(a) Whether or not Petitioner has unutilized creditable VAT inputs for the period July 1, 1997 to December 31, 1997 in the aggregate amount of P16,185,725.99 arising from its domestic purchases of goods and services, and importation of capital goods which is a proper subject of a claim for refund pursuant to Section 112 of the National Internal Revenue Code (Tax Code), as amended; (b) Whether or not the said creditable VAT inputs of the Petitioner for the period July 1, 1997 to December 31, 1997 are substantiated by documentary evidence in the form of invoices, official receipts and other acceptable supporting documents; and (c) Whether or not said unutilized creditable VAT inputs of the Petitioner for the period July 1, 1997 to December 31, 1997 was carried forward to the succeeding taxable quarter and applied against any output VAT of the Petitioner for the said period. We rule in favor of Petitioner. The instant case is not one of first impression. Quoted hereunder are the pertinent provisions of the 1997 Tax Code on the refund of excess input VAT paid on 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 properties . (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)." "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): . . ." (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." In sum, the following basic requisites must be complied with in order for tax refunds or credits of excess input VAT paid may be: granted as provided in Section 100(a)(2)(A)(i) of the 1997 Tax Code, thus: 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 were 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) of the 1997 Tax Code 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. It is undisputed that Petitioner is a VAT-registered entity. (par. 4, Joint Stipulation of Facts, CTA Records, p. 54). Records reveal that 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/memo(s) and official receipts which have been pre-marked by the independent CPA (Exhibit E). Considering that Petitioner's export sales qualify as zero-rated, it is not liable to pay the output tax due thereon. 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 provided under Section 4.102 of Revenue Regulations No. 7-95 in relation to Section 106(a) of the 1997 Tax Code. Moreover, the right to refund or credit the input tax paid is likewise applicable on its importation of capital goods as sanctioned by Section 106(b) of the same code. With regard to the timeliness of Petitioner's action both in the administrative and judicial levels, this Court finds that prescription had not yet set in. Records reveal that Petitioner filed its 1997 third and fourth quarterly VAT returns on October 20, 1997 and January 20, 1998, respectively. The administrative claims were filed on July 1, 1999 and September 3, 1999 for the third and fourth quarterly VAT returns, respectively, while the Petition for Review was filed on September 29, 1999. Hence, both the administrative and judicial claims were filed within the two-year prescriptive period provided under Section 4.106-2(C) of Revenue Regulations No. 7-95. The 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 years after the close of the taxable quarter when the importation or purchase was made. Petitioner declared the following in its third and fourth quarterly VAT returns for the year 1997, to wit: QTR. ZERO-RATED DOMESTIC INPUT INVOLVED EXHIBIT SALES PURCHASES IMPORTATIONS VAT 3rd QTR. A/A-1 P261,926,296.66 P103,989,688.90 P26,890,589.40 P13,088,027.83 4th QTR. C/C-1 169,296,479.55 45,014,921.20 1,599,560.00 4,661,448.12 TOTAL P431,222,776.21 P149,004,610.10 P28,490,149.40 P17,749,475.95 ============ ============ =========== =========== Petitioner's applications for credit/refund of value added tax paid, declared the amounts of P12,592,011.34 (Exhibit B-1) and P3,593,714.65 (Annex F) for the third and fourth quarters, respectively, as input taxes being claimed for an aggregate amount of P16,185,725.99. However, the total claim for refund as declared in Petitioner's third and fourth quarterly VAT returns is P17,749,475.95. Upon examination of Petitioner's 1997 third and fourth quarterly VAT returns (Exhibits A and C), the Court finds that the claimed input taxes were already net of Petitioner's output tax liabilities for the same quarters. Thus, the claimed input taxes on its purchases of taxable goods and services are directly attributable to its zero-rated sales. Records, likewise, reveal that the unutilized input taxes for the third and fourth quarters were carried-over up to the third quarter of taxable year 1998 (Exhibit D-5) but were nevertheless deducted from the total available input taxes for the fourth quarterly VAT of 1998 (Line 27, Exhibit D-6, CTA Records, p. 134). Due to the voluminous nature of the evidence presented, Petitioner engaged the services of an independent accounting firm to conduct an audit and evaluation of the documents pertinent to the input VAT claimed for the period. The findings of the independent CPA, is thus, summarized as follows: (a) Sales amounting to P213,967.63 were not supported by sales invoices. Hence, the corresponding output tax of P21,396.76 was deducted from Petitioner's claim for refund. (b) Input taxes amounting to P1,141,046.41 were disallowed for non-compliance with the VAT invoicing requirements. (c) No exception was noted for Petitioner's inward remittances. Based on the findings of the independent CPA, Petitioner's claim was reduced to P15,023,282.78 (mentioned as Exhibit A in Exhibit E page 140, CTA Records). The Court finds the independent CPA's report to be in order. Upon further verification by the Court, the pre-marked documents presented in evidence resulted to an additional input VAT disallowance of P1,491,612.56 due to the following reasons: (a) Not supported by officials receipts/invoices but by statement of account, account summary, statement of freight charges or debit note. In fine, Petitioner is entitled to the refund of unutilized input VAT in a reduced amount of P13,531,670.26, computed as follows; WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED. Respondent is ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of Petitioner in the amount of P13,531,670.26. SO ORDERED. (SGD.) ERNESTO D. ACOSTA Presiding Judge WE CONCUR: (SGD.) AMANCIO Q. SAGA Associate Judge (SGD.) JUANITO C. CASTAEDA, JR. Associate Judge