Applied Food Ingredients Co., Inc. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 6171. November 9, 2004.] APPLIED FOOD INGREDIENTS, CO., INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N Before us is a Petition for Review filed by Applied Food Ingredients ("Petitioner") on September 29, 2000 seeking for the allowance of tax credit in the amount of THREE MILLION NINE HUNDRED NINE THOUSAND FIVE HUNDRED ONE PESOS AND EIGHTY THREE CENTAVOS (P3,909,501.83) representing the excess or unused value-added tax input and, correspondingly, for the issuance of a tax credit certificate in its favor covering the period from September 1, 1998 up to March 31, 2000. The uncontested facts are as follows: 1 "1. Petitioner is a corporation duly organized and existing under the laws of the Republic of the Philippines. It is registered with the Securities and Exchange Commission (SEC) under Certificate of Registration No. ASO91-198357 dated November 25, 1991 (Annex 'A-1' of the Petition), with the primary purpose of manufacturing, importing, exporting, buying, selling or otherwise dealing in, at wholesale and retail, such goods as food ingredients, and other goods of similar nature. (Annex 'A-2' of the Petition). 2. Petitioner was registered on February 26, 1997 with Regional District Office (RDO) No. 43 of the Bureau of Internal Revenue in Pasig City (BIR-Pasig), as a withholding agent and Value-Added Tax (VAT) taxpayer under the category of import and export business/industry, VAT Registration No. 001-006-962-V, and RDO Control No. 97-043-005590/001920 (Annex 'B' of the Petition). 3. Petitioner duly filed its monthly VAT declaration and quarterly returns for the period from July 1998 to March 2000, the second quarter of year 2000, and July 2000, as shown in Petitioner's Monthly VAT Declarations and Quarterly VAT Returns for such periods (Annexes 'F-1' to 'F-21' and 'K-1' to 'K-2' of the Petition). 4. Petitioner's first subject VAT return was filed on October 23, 1998, as indicated on its Quarterly VAT Return for the Third Quarter of 1998 (Annex 'F-3' of the Petition). 5. The two (2)-year prescriptive period within which to file a claim for a Tax Credit Certificate (TCC) for said input VAT credits ended two (2) years after the date of filing of the Quarterly VAT Return for the taxable quarter when the export sales were made. 6. Petitioner filed its claim for the issuance of a TCC for said input VAT credits, as evidenced by Petitioner's letter-request and Application for Tax Credit/Refund of Value-Added Tax Paid, both duly received by RDO 43 of BIR-Pasig on July 05, 2000 (Annexes 'I' and 'J' of the Petition, respectively), and by the Petition duly received by this Honorable Court on September 29, 2000. 7. To date, Respondent has neither acted upon nor decided the above claim for TCC." The documents attached to the petition show that petitioner purchased food ingredients and other goods of similar nature from its local and foreign suppliers from the third quarter of taxable year 1997 up to the first quarter of taxable year 2000 and paid the input VAT due on said purchased items. 2 Petitioner also filed before the Bureau of Internal Revenue (BIR) its Quarterly VAT Returns covering the same the same period. The said returns are summed up in the following manner: 3 PURCHASES QUARTER DATE TAXABLE SALES ZERO-RATED IMPORTATION LOCAL EXHIBIT T INVOLVED FILED INVOICE AMOUNT OUTPUT TAX SALES INPUT TAX INPUT TAX F-1 3rd Qtr '97 P8,636,862.50 P785,169.34 P877,659.57 P87,581.11 F-2 1st Qtr '98 20-Apr-98 6,627,213.50 602,473.95 - 708,167.00 104,048.82 F-3 2nd Qtr '98 17-Jul-98 19,543,933.40 1,776,721.18 - 2,020,175.71 175,156.13 F-4 3rd Qtr '98 23-Oct-98 21,354,426.90 1,941,311.52 P761,360.00 2,722,542.00 382,806.97 F-5 4th Qtr '98 25-Jan-99 28,460,860.30 2,587,350.98 976,000.00 2,205,957.00 214,638.20 F-6 1st Qtr '99 26-Apr-99 19,719,082.40 1,792,643.90 - 3,898,259.25 257,219.66 F-7 2nd Qtr '99 45,484,958.22 4,134,996.11 - 3,650,746.57 310,704.86 F-8 3rd Qtr '99 23-Jun-00 38,842,121.11 3,884,212.05 1,673,914.09 3,844,436.84 294,922.08 F-9 4th Qtr '99 23-Jun-00 72,398,674.87 7,239,867.51 10,912,327.22 6,052,495.92 470,048.40 F-10 1st Qtr '00 23-Jun-00 36,995,493.90 3,699,549.39 33,776,925.00 7,051,433.00 562,693.06 Total P298,063,627.10 P28,444,295.93 P47,339,166.31 P32,323,705.86 P2,755,770.47 During the same period, petitioner also made sales and exported portions of the purchased food ingredients and other goods to its foreign buyers. As the export sales were subject to zero percent (0%), petitioner failed to apply the input taxes paid against its output taxes. The total input taxes paid in the amount of P3,909,501.83 which petitioner seeks to apply as tax credit is computed as follows: 4 VAT RETURN TOTAL INVENTORY USED FOR USED FOR YEAR QUARTER INPUT TAX AS OF 3/31/00 LOCAL SALES EXPORT SALES ON IMPORTATION 1997 3rd P877,659.57 P64,837.47 P812,537.84 P284.26 1998 1st 708,167.00 628,708.13 79,458.87 2nd 2,020,175.71 40,730.48 1,972,475.23 6,970.00 3rd 2,722,542.00 101,007.27 2,499,831.73 121,703.00 4th 2,205,957.00 278,105.75 1,894,259.98 33,591.27 1999 1st 3,898,259.25 145,071.33 3,462,912.92 290,275.00 2nd 3,650,746.57 169,890.59 2,993,181.36 487,674.62 3rd 3,844,436.84 692,756.21 2,827,514.29 324,166.34 4th 6,052,495.92 1,673,317.27 2,809,156.84 1,570,021.81 2000 1st 7,051,433.00 4,386,738.57 1,699,577.77 965,116.66 P33,031,872.86 P7,552,454.94 P21,600,156.09 P3,879,261.83 LOCAL 1998 3rd P382,806.97 P357,606.97 P25,200.00 1999 3rd 294,922.08 289,882.08 5,040.00 P677,729.05 P647,489.05 P30,240.00 GRAND TOTAL P33,709,601.91 P7,552,454.94 P22,247,645.14 P3,909,501.83 =========== ========== =========== =========== As its claim for the issuance of a TCC was not acted upon by respondent, petitioner filed the present action. On the other hand, respondent filed his Answer on August 9, 2001 and prayed for the dismissal of the above-entitled case as the petitioner has no cause of action to claim for a tax credit. During trial, petitioner presented the following documents as its evidence to establish its right to claim for a tax credit: EXHIBIT DESCRIPTION A Auditor's Report A-1 Auditor's findings in Page 2 A-2 Auditor's findings in Page 3 A-3 The signature above the name Irenea R. Vallestero on page 3 of the Report B Summary of Excess Unutilized Input VAT (Exhibit I of Report) B-1 The amount of P3,909,501.83 indicated as "Grand Total" (page 3 of Exhibit I of Report) C Summary of Export Sales (Exhibit II of Report) C-1 The amount of P47,681,221.95 indicated as "Grand Total" D Schedule of Excess Unutilized Input VAT on Importations E Report of Procedures Conducted in Verifying the Correctness of the Amounts Claimed for the Issuance of TCC for Unutilized Input VAT Credits (Exhibit V of the Report) F-1 to F-10 Petitioner's Quarterly VAT Returns G-1 to G-13 Petitioner's Export Invoices H-1 to H-13 Petitioner's Export Bills of Lading I-1 to I-13 Petitioner's Export Declarations J-1 to J-55 Petitioner's Supplier's Invoices K-1 to K-53 Petitioner's Import Bills of Lading L-1 to L-53 Petitioner's Import Entry documents M-1 to M-55 Petitioner's Official Receipts N-1 to N-21 Petitioner's Delivery Receipts O Petitioner's "SUMMARY OF PURCHASES/INPUT VAT REFUND" O-1 The amount of the P3,909,501.83 on Page 4 of the Report O-2 The amount of [P]626,329.86 on Page 4 of the Report O-3 The amount of P88,961,991.35 on Page 4 of the Report O-4 The amount of P8,896,202.20 on Page 4 of the Report P Petitioner's "SUMMARY OF EXPORT REMITTANCES" Q-1 to Q-9 Certification and credit advice issued by ANZ Bank R Quarterly Value Added Tax Return 2nd Q for the year 2000 R-1 Line 24 A any VAT-Refund/TCC claimed P3,909,501.83 R-2 Signature of Mr. Alex G. Lau R-3 Stamp received by the BIR dated July 24, 2000 Further, upon motion of petitioner, an independent auditor Ms. Irene R. Vallestero from the firm Joaquin Cunanan and Company was commissioned to conduct an independent special audit and examination of the petitioner's various receipts, invoices and other long accounts and to make written report and certification of its findings and conclusions. 5 On March 19, 2002, she testified that: "A. The petitioner is engaged in the manufacture, import and export, buy and sell or trading of food ingredients and other similar goods at wholesale and retail. The input taxes were accumulated from the petitioner's importation and local purchases of food ingredients that could not be recovered because they were exported or sold abroad in transactions that do not give rise to corresponding output VAT." 6 She likewise affirmed the validity of petitioner's claim for tax credit. We quote: "Q. What are your findings in the audit that you conducted? MS. VALLESTERO A. The audit findings confirm the correctness of the petitioner's claim for excess unutilized input VAT." 7 She presented her Report and a summary of her audit to the court which formed part of petitioner's evidence. 8 Reproduced hereunder are pertinent portions of the Report. Thus: "Our examination of the Company's accounting and related records that support the Company's claim for TCC for excess unutilized input VAT disclosed the following: The dates of the invoices and/or official receipts are within the period covered in the claim; The suppliers' VAT registration number and the Bureau of Internal Revenue permit number of the printer of the invoices and/or official receipts are indicated on the invoices and/or official receipts; The suppliers' invoices, sales invoices and/or official receipts on file are original copies; The input taxes paid are correctly and properly declared in the VAT declaration/return; The input taxes are correctly and properly declared in the VAT declaration/return; The input taxes being claimed for TCC had not been used/applied in payment of output VAT; The purchased goods, where input taxes were paid, formed part of the products that were eventually exported; The export sales summarized on Exhibit II were paid for in acceptable foreign currency; and The foreign exchange proceeds were reported as zero-rated sales in the quarterly VAT returns and were inwardly remitted to the Philippine Banking System. xxx xxx xxx II. CONCLUSION Based on the results of our examination . . ., we verified that: a) the Company purchased goods from domestic and foreign sources reported in the quarterly VAT returns for the period from July 1, 1997 to March 31, 2000; b) the Company paid the corresponding input VAT thereon worth P3,909,501.83; c) such input VAT credits were not applied against any of the Company's output VAT and hence, represent excess unutilized input VAT credits; d) such purchased goods formed part of the Company's zero-rated export sales amounting to P47,681,221.95 for the period from September 1, 1998 to March 20, 2000; e) such export sales were paid for by the buyers in United States Dollars; and f) such foreign exchange proceeds were inwardly remitted into the Company's account in the Philippine branch of the Australia and New Zealand Banking Group Ltd. from February 2, 1999 to March 22, 2000. No matters had come to our attention that caused us to believe that the amount of the Company's claim for refund of VAT input taxes require adjustments except for error in calculation aggregating to P1,336.59, details of which are shown in Exhibit IV. After effecting the above adjustments, claim for TCC for excess unutilized input VAT would be P3,908,165.24. . . " Petitioner also presented its Chief Accountant Myrna Dela Fuente 9 who testified that the petitioner is applying for a TCC in the amount of P3,909,501.83 representing the input taxes for the purchased goods which were not utilized. The trial was terminated without respondent presenting any evidence. Upon petitioner's motion, the court declared respondent to have waived his right to present evidence after his repeated failure to appear on scheduled hearing dates despite notices of hearing sent to him. 10 The case was deemed submitted for decision after petitioner filed its memorandum and after the expiration of the period given to respondent to file his memorandum. 11 The court is now asked to rule on the following issues: 12 "a) Whether or not Petitioner purchased goods. b) Whether or not Petitioner paid the corresponding input VAT worth Three Million Nine Hundred Nine Thousand Five Hundred One Pesos and Eighty Three Centavos (P3,909,501.83) on such purchased goods. c) Whether or not such input VAT credits were applied against any of Petitioner's output VAT. d) Whether or not the above goods formed part of Petitioner's export sales. e) Whether or not such export sales were paid for by the buyer in acceptable foreign currency. EcAISC f) Whether or not such foreign exchange proceeds were inwardly remitted into the Philippine banking system." Simply put, the issue is whether or not petitioner may claim for the issuance of a tax credit certificate for its creditable input taxes paid attributable to its zero-rated export sales. Petitioner, as a VAT registered entity, is legally entitled to file a claim for refund or issuance of a tax credit certificate of unutilized input VAT on importation of and domestic purchases of goods attributable to zero-rated export sales. Section 112 (A) of the 1997 National Internal Revenue Code ("Tax Code") specifically states that: "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: . . . " The zero-rated sales referred to in the above-quoted section pertain to export sales which the Tax Code defined, among others, as: "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[.]" 13 However, petitioner must prove compliance with the substantiation requirements provided by the Tax Code and its implementing rules and regulations. Thus, to be entitled to a refund of input VAT on importation and local purchases of goods attributable to zero-rated export sales, petitioner must prove that: 1. Both the administrative and the judicial claim for a tax credit or refund was filed within the two (2) years from the filing of the quarterly VAT return(s) covered by the claim as provided under Section 4.106-2(c) of Revenue Regulations No. 7-95 in relation to Section 112(D) of the Tax Code; 2. The claimed input VAT payments were not applied against any output tax during the period covered by the claim and in the succeeding periods; 3. The claimed input VAT payments are directly attributable to zero-rated sales; and 4. The claimed input VAT payments are duly supported by VAT invoice or official receipts in accordance with Section 4.104-5 of Revenue Regulations No. 7-95 in relation to Section 113 and 237 of the Tax Code. 14 Petitioner was able to comply with the first requirement. Both the administrative and judicial claims for refund filed on July 5, 2000 and September 29, 2000, respectively, were within the two (2)-year prescriptive period reckoned from October 23, 1998 when the Quarterly VAT Return for the third quarter of taxable year 1998 was filed. 15 Petitioner also established that the amount sought to be refunded was not applied against the output tax. As shown in its Quarterly VAT Return for the second (2nd) quarter of taxable year 2000, 16 the amount claimed of P3,909,501.83 was deducted from the Total Available Input Tax in the amount of P15,869,254.24. 17 However, petitioner was not able to establish that the input VAT payments being claimed for tax credit are directly attributable to it zero-rated sales. Sections 113, 237 & 238 of the 1997 Tax Code as well as Section 4.108-1 of Revenue Regulation No. 7-95, as amended, laid down the invoicing requirements for zero-rates sales. We quote: "SEC. 113. Invoicing and Accounting Requirements for VAT Registered Persons . (A) Invoicing Requirements . A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN) ; and (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax. (B) Accounting Requirements . Notwithstanding the provisions of Section 233, all persons subject to the value-added tax under Sections 106 and 108 shall, in addition to the regular accounting records required, maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. The subsidiary journals shall contain such information as may be required by the Secretary of Finance. "SEC 237. Issuance of Receipts or Sales or Commercial Invoices . All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices , prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however , That in the case of sales, receipts or transfers in the amount of One hundred pesos (P100.00) or more, or regardless of amount, where the sale or transfer is made by a person liable to value-added tax to another person also liable to value-added tax; or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client: Provided, further , That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the purchaser. "SEC. 238. Printing of Receipts or Sales or Commercial Invoices . All persons who are engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same. No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be printed are serially numbered and shall show, among other things, the name, business style, Taxpayer Identification Number (TIN) and business address of the person or entity to use the same, and such other information that may be required by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. "SEC. 4.108-1. Invoicing Requirements . All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. the name, TIN, and address of seller; 2. date of transaction; 3. quantity, unit cost, and description of merchandise or nature of service; 4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client; 5. the word "zero-rated" imprinted on the invoice covering zero-rated sales ; and 6. the invoice value or consideration." (Emphases supplied) Petitioner's export sales invoices 18 lack the necessary information required by the Tax Code and regulation quoted above. The said invoices do not show the (1) imprinted words "zero-rated"; (2) petitioner's "TIN-V" or "TIN-VAT"; and (3) the Bureau of Internal Revenue (BIR) Permit Number. It is a hornbook doctrine that failure to present the required valid VAT export invoices is fatal to a claim for refund or tax credit. 19 While petitioner was able to present other documents, such as the Bills of Lading 20 and Export Declarations 21 to prove actual exportation of its products, the court finds these documents insufficient. It has been settled that these documents are not enough evidence to claim for a refund/tax credit. These documents, together with the valid sales invoices, should be taken collectively as the best means to prove the exportation of goods. To elucidate: 22 "By and large, export sales invoices alone are inadequate proofs that the subject goods were actually exported. Such invoices are merely written accounts of the particulars of merchandise shipped or sent to a purchaser or consignee with the value or prices and charges annexed (Philippine Law Dictionary, 3rd Ed., p. 495). By no means are they accurate confirmations that goods were actually shipped out of the country. Yet, that is what the law requires. Section 100 (a)(2) of the National Internal Revenue Code (then in effect at the time of the alleged exportation) defines "Export Sales" as the sale and 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. In that case, it is imperative for any claimant of a tax refund or credit in relation to the Input VAT paid to prove not only the existence of the sale but also the actual shipment of the goods from the Philippines to a foreign country. "Rather than limiting the documentary requirements to just the export invoices, the law specifically enjoined the production of "export documents" to affirm the authenticity of the export sales. In commercial practice, export documents include commercial invoices or receipts bills of lading, airway bills, and export declarations or permits. These documents, taken collectively, are the best means to prove the exportation of goods ." (Emphasis supplied.) Proceeding from the foregoing, the court is constrained to deny petitioner's claim for a tax credit. Petitioner failed to discharge its duty of presenting evidence in support of its claim. As aptly explained by the Court of Appeals in Benguet Corporation vs. Commissioner of Internal Revenue : 23 "Under Sections 108 and 238 of the NIRC, aforequoted, a VAT-registered entity is required to issue invoices or receipts for the transactions therein mentioned. These provisions of the NIRC are mandatory because the law consistently uses the word 'shall'. Even in the regulations issued to implement the VAT provisions on invoicing in the NIRC, the word 'shall' is repeatedly used. As a general rule, the word 'may' when used in a statute is permissive and operates to confer discretion; while the word 'shall' is imperative, operating to impose a duty which may be enforced . . . "Moreover, the nature of the VAT system necessitates that invoices or receipts be issued. Since the VAT system is a multi-stage, multi-point tax where the tax is levied at all stages . . ., it is necessary and convenient that the seller issues an invoice or receipt in order to facilitate computation of the tax credits. "Thus, a claim for tax credit which is not accompanied by the required invoices or receipts cannot be granted. . . " WHEREFORE, premises considered, the Petition for Review is hereby DENIED. SO ORDERED. (SGD.) JUANITO C. CASTAEDA, JR. Associate Justice I CONCUR: (SGD.) ERLINDA P. UY Associate Justice Footnotes 1. Joint Stipulation of Facts and Issues filed on September 27, 2001 by the parties which was approved by the court through a Resolution promulgated on October 2, 2001. 2. Which are: (1) Summary of Purchases/Input VAT Refund for its Export Shipments from September 1998 to March 2000 (Annexes C-1 to C-4); (2) Export Sales Summary by Item/Product for the period September 1998 to March 2000 (Annexes D-1 to D-6); (3) Summary of Export Remittances from N.P. Foods Singapore, Ltd. From September 1998 to March 2000 (Annex E); (4) Monthly VAT Declarations, Amended Monthly VAT Declarations, Quarterly VAT Returns and Amended Quarterly VAT Returns from July 1998 to March 2000 (Annexes F-1 to F-21, K-1 and K-2); (5) Summary of Input VAT used for Export Sales as of March 31, 2000 (Annex G); (6) Financial Statements for the period December 31, 1999 and 1998 with Balance Sheets, Statements of Income and Retained Earnings and Statement of Cash Flows (Annex H); (7) Claim for the Issuance of Tax Credit Certificate on Excess Input Taxes (Annex I); and (8) Application for Tax Credit/Refund of VAT Paid (Annex J). 3. Exhibits "F-1" to "F-10". 4. Annex "G" attached to the Petition. 5. Motion to Commission An Independent Auditor filed on October 31, 2001. 6. TSN, p. 9, March 19, 2002. 7. TSN, p. 5, April 29, 2002. 8. Exhibits "A", "B", "C", "D" and "E", inclusive of submarkings. 9. During July 3, 2002 and October 29, 2003 hearing. 10. June 24, 2003 Resolution. 11. July 16, 2004 Resolution. 12. Joint Stipulation of Facts and Issues. 13. Section 106 (A) (2) (a) (1). 14. Intel Philippines Manufacturing, Inc. v. Commissioner of Internal Revenue , CTA Case Nos. 5760 and 5902, February 5, 2002 cited in Rio Tuba Nickel Mining Corporation vs. Commissioner of Internal Revenue , CTA Case No. 6293, February 3, 2004. 15. Exhibit F-4. 16. Exhibit R. 17. Exhibit R-1. 18. Exhibits G-1 to G-13. 19. Intel Philippines Manufacturing, Inc. vs. Commissioner of Internal Revenue , CTA Case No. 6040, October 24, 2003. 20. Exhibits H-1 to H-12. 21. Exhibits I-1 to I-13, inclusive of submarkings. 22. Commissioner of Internal Revenue vs. Philippine Bobbin Corporation , CA-G.R. SP No. 59452, February 19, 2001. 23. CA-GR SP Nos. 37205, 38958 & 39435, July 10, 1998.