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

FIRST DIVISION [C.T.A. CASE NO. 6245. June 2, 2006.] MATSUSHITA BUSINESS MACHINE CORPORATION OF THE PHILIPPINES , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N CASANOVA, C ., J p : This case involves a claim for the refund or issuance of a tax credit certificate in the amount of P12,017,138.47 allegedly representing unutilized input value-added taxes attributable to zero-rated sales for the period covering April 1, 1999 to March 31, 2000. Petitioner is a corporation duly organized and existing under the laws of the Republic of the Philippines, with office address at Bo. Mapandan, Ortigas Avenue Extension, Taytay, Rizal, while respondent is the duly appointed Commissioner of Internal Revenue, with authority, among others, to decide, approve and grant tax credits and/or refunds of overpaid or erroneously paid internal revenue taxes. In view of Executive Order No. 132 dated October 26, 1993, the address where the respondent may be served with pleadings and other processes is at The Chief, Legal Division, Bureau of Internal Revenue, Revenue Region No. 7 Bldg., corner Scout Santiago and Quezon Avenue, Quezon City ( pars. 1 & 2, Facts Admitted ). Petitioner was organized to principally engage in the business of manufacturing, importing, exporting, buying and selling or otherwise dealing in, at wholesale, all equipment, apparatus, appliances, instruments and devices concerned with information handling, including but not limited to copiers, scanners, and printers and other goods of similar nature, and any and all equipment, materials, supplies used or employed in or related to the manufacture of such finished products. It is registered with the Bureau of Internal Revenue (BIR) as a value-added tax (VAT) taxpayer starting October 5, 1995 and with the Board of Investments (BOI) in accordance with the provisions of the Omnibus Investments Code of 1987 as a preferred pioneer enterprise for the production and export of plain paper copiers, sub-assemblies, parts and components ( pars. 3, 4 & 5, Facts Admitted ). For the period covering April 1, 1999 to March 31, 2000, petitioner duly filed with the Bureau of Internal Revenue its Quarterly VAT Returns, including amendments thereto, reflecting the following: Period Zero-rated Taxable Input VAT Excess Input Exh Covered Sales Sales Output VAT this Quarter VAT this Qtr 1999 (a) (b) (c) = (b) - (a) A 2nd qtr P221,200,908.52 P4,149,486.92 P4,149,486.92 C 3rd qtr 254,588,328.20 P962,392.42 P96,239.25 1,106,016.13 1,009,776.88 D 4th qtr 193,644,637.07 3,982,480.17 3,982,480.17 2000 E 1st qtr 172,791,772.96 882,544.06 88,254.41 2,779,155.25 2,690,900.84 P842,225,646.75 P1,844,936.48 P184,493.66 P12,017,138.47 P11,832,644.81 ============ ========== ========= =========== =========== On February 8, 2000 and August 25, 2000, petitioner filed with the BIR two separate letters requesting for the refund of its reported unutilized input VAT payments for the periods of April 1, 1999 to September 30, 1999 and October 1, 1999 to March 31, 2000 in the amounts of P5,159,263.80 and P6,673,381.00, respectively, totaling to P11,832,644.81, and citing as legal bases therefor Sections 106(A)(2)(a)(1), 110(B) and 112 of the National Internal Revenue Code (NIRC) of 1997 ( Exhibits H & I ). Due to the respondent's inaction on the aforesaid claims, petitioner appealed before this Court by way of a Petition for Review filed on March 6, 2001, this time praying for the refund or issuance of a tax credit certificate of a higher amount of P12,017,138.47. IcTEAD In his Answer filed on April 20, 2001, respondent interposed the following Special and Affirmative Defenses: 5. That the herein petitioner is not entitled to the refund of the amounts prayed for in the instant petition for review; 6. That the instant petition for review was prematurely filed as petitioner has not exhausted the administrative remedies required by law and jurisprudence on the actions of this nature as no decision has as yet been rendered by the respondent; 7. 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; and 8. Claims for tax refund are strictly construed against the taxpayer. Petitioner has no cause of action. Petitioner and respondent submitted the following issues for resolution: 1. Whether or not the petitioner is entitled to the claim for refund and/or issuance of a tax credit certificate for the amount of P12,017,138.47 representing unutilized and/or unapplied input VAT, attributable to its export sales for the period April 1, 1999 to March 31, 2000, which remains unutilized and/or unapplied against its output VAT liability; 2. Whether or not the accumulated input VAT of P12,017,138.47 arising from petitioner's purchase of goods and services for the period covering April 1, 1999 to March 31, 2000 which purchases of goods and services are attributable to its zero-rated export sales, is duly supported by VAT invoices and receipts; 3. Whether or not petitioner's accumulated input VAT of P12,017,138.47 for the period April 1, 1999 to March 31, 2000 was applied or utilized against its output VAT in the succeeding taxable quarters of taxable year 2000; and 4. Whether or not petitioner is engaged in zero-rated export sales during the period April 1, 1999 to March 31, 2000. We shall first delve on the fourth issue of whether or not petitioner is engaged in zero-rated export sales during the period April 1, 1999 to March 31, 2000, since the resolution of the same determines the necessity of discussing the other issues stipulated by the parties. Petitioner maintains that its export sales which were paid for in US dollars, inwardly remitted and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, are subject to zero percent (0%) VAT pursuant to Section 106(A)(2)(a)(1) of the NIRC of 1997, which states: "SEC. 106. 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, value-added tax equivalent to ten percent (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 zero percent (0%) rate: "(a) Export Sales . The term ' export sales ' means: "(1) 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)." To substantiate its export sales for the period April 1, 1999 to March 31, 2000 and the foreign currency proceeds thereof, petitioner proffered before this Court the following documents: DOCUMENT EXHIBIT NO. Quarterly VAT Returns for the period A, C, D & E April 1, 1999 to March 31, 2000 Certification issued by Security Bank F to F-1 dated November 9, 1999 certifying that for the Period April 1, 1999 to September 30, 1999 the bank received inward remittances in the form of telegraphic transfer from the bank's foreign correspondent banks in favor of petitioner totaling US$11,411,133.31 Certification issued by Security Bank G to G-1 dated June 8, 2000 certifying that the bank received inward remittances totaling US$10,134,351.72 and was credited to the account of petitioner Schedule of Summary of Export Sales LL-1 to LL-27 for the period April 1, 1999 to P to P-26 March 31, 2000 Documents such as invoices, delivery T to T-1648 receipts, bills of lading Bank Certificates of Inward Remittance U to U-3 for the period April 1, 1999 to March 31, 2000 Consolidated Report of the Independent RR-1 to RR-52 CPA, Mr. Ruben R. Rubio, dated September 15, 2004 A perusal of the aforementioned documents reveals that petitioner's products were actually sold and shipped abroad and in consideration thereof, petitioner received foreign currency payments, which were inwardly remitted in accordance with the BSP rules and regulations. These export sales may fall within the export sales transactions subject to zero percent (0%) VAT referred to under Section 106(A)(2)(a)(1) of the NIRC of 1997. CSIHDA However, Section 106(A)(2)(a)(1) of the NIRC of 1997 should not be read in isolation but in conjunction with Section 113 of the same Code, which prescribes that a VAT registered person like petitioner, shall, for every sale, issue an invoice or receipt which must contain the following information: 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. Corollary thereto, Section 4.108-1 of Revenue Regulations No. 7-95, reads as follows: 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. (Emphasis supplied) xxx xxx xxx Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoices or receipts and this shall be considered as a "VAT Invoice" . All purchases covered by invoices other than "VAT Invoice" shall not give rise to any input tax. While petitioner's export invoices bear the TIN-VAT number of petitioner and the printer's BIR permit number, nevertheless, the word "zero-rated" was not imprinted thereon in clear violation of Section 4.108-1 of Revenue Regulations No. 7-95. The law and regulations are explicit in emphasizing strict compliance with the invoicing requirements because for the same transactions the output VAT of the seller becomes the input VAT of the purchaser. Pursuant to Sections 106(D)(1) and 108(C), in relation to Section 110 of the NIRC of 1997, as amended, the output or input tax on the sale or purchase of goods is determined by the total amount indicated in the invoice, while the output or input tax on the sale or purchase of services is determined by the total amount indicated in the official receipt. In the case of zero-rated sales transactions, the regulations further require that the word "zero-rated" be imprinted on the face of the covering invoices or official receipts (AMERICAN EXPRESS INTERNATIONAL, INC., PHILIPPINE BRANCH vs. COMMISSIONER OF INTERNAL REVENUE, CTA EB No. 103, March 3, 2006). The rationale for the imprinting of the word "zero-rated" on the face of the covering invoice or official receipt of the seller is for the buyer or purchaser not to claim any input VAT from such purchase as elucidated by this Court in the case of J.R.A. PHILIPPINES, INC. vs. COMMISSIONER OF INTERNAL REVENUE, C.T.A. CASE NO. 6454, June 30, 2005, to wit: Furthermore, Section 110 of the N I RC of 1997, as amended, provides that: "Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax: . . . ." If the invoice or official receipt was not imprinted with "zero-rated", there is a danger that the purchaser of the goods or services may be able to claim input tax on the sale to it by the taxpayer of the goods or services, as the case may be, notwithstanding the fact that no VAT was actually paid on such goods or services since the taxpayer is zero-rated . This is the rationale for the mandatory requirement in Revenue RegulationsNo.7-95 that the words "zero-rated" be imprinted in the invoice or receipt, as the case may be. The zero-rated taxpayer should be entitled to a tax credit/refund on input taxes paid on its purchase of goods or services subject to the mandatory compliance with the invoicing requirements under the regulations. Otherwise, there may result the absurd situation where the government would be crediting/refunding non-existent input tax to purchasers of goods or services of such zero-rated taxpayer . (Emphasis supplied) In the case of TAGANITO MINING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, CTA EB No. 7, January 31, 2006, the Court En Banc held that the issuance of Revenue Regulations No. 7-95 was made pursuant to the respondent's duty of implementing the VAT provisions of the NIRC, thus: Revenue Regulations No.7-95, otherwise known as the Consolidated Value-Added TaxRegulations, was promulgated by the Secretary of Finance pursuant to the authority granted by Section 245 of the National InternalRevenueCode of 1977, which provides: SEC. 245. Authority of Secretary of Finance to promulgate Rules and Regulations. The Secretary of Finance, upon the recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code . (Emphasis supplied) The above provision was re-enacted in toto under Section 244 of the 1997 N I RC. Moreover, to further strengthen the rule making power of the Secretary of Finance in coordination with the Bureau of Internal Revenue, an additional section (SEC. 245) was incorporated defining the extent of such rule making power. Section 245, in pertinent part, provides: SEC. 245. Specific provisions to be continued in rules and regulations . The rules and regulations of the Bureau of Internal Revenue shall, among other things, contain provisions specifying, prescribing or defining: xxx xxx xxx (g) The manner in which revenue shall be collected and paid, the instrument, document or object to which revenue stamps shall be affixed, the mode of cancellation of the same, the manner in which the proper books, records, invoices and papers shall be kept and entries therein made by the person subject to the tax, as well as the manner in which licenses and stamps shall be gathered up and returned after serving their purposes; (Emphasis/italics supplied Considering the legislative grant of authority to the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement of the provisions of the N I RC, Section 4.108-1 of Revenue Regulations No.7-95 requiring the imprinting of the words "zero-rated" on sales invoices or official receipts cannot be said as having no valid basis or legislative root. On the contrary, it is both reasonable and necessary for the effective implementation of the provisions of the N I RC concerning zero-rated sales. Hence, the requirement that sales invoices be imprinted with the word "zero-rated" cannot be taken as an enlargement or expansion of the law for the reason that it merely implements the provisions of the 1997 N I RC on sales that are subject to 10% VAT, zero-rated sales (0%) VAT and exempt sales. The imprinting of "zero-rated" is necessary to distinguish sales subject to 10% VAT, those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and enforce the other provisions of the 1997 N I RC on VAT, namely: 1. Zero-rated sales [Sec. 106(A)(2) and Sec. 108(B)]; 2. Exempt transactions [Sec. 109] in relation to Sec. 112(A); 3. Tax Credits [Sec. 110]; and 4. Refunds or tax credits of input tax [Sec. 112]. The rule is that as long as the administrative regulation is not in conflict with the law it seeks to implement, the same should be taken as part of the law taking into consideration the underlying purpose of the rule or regulation. xxx xxx xxx We agree with the respondent that the issuance of Revenue Regulation No.7-95 was made pursuant to the respondent's duty of implementing the 1977 N I RC, as amended. The requirement of imprinting the word "zero-rated" fulfills the intent of the law. It is useful, practical and necessary not only with respect to the proper implementation of the provisions of the 1997 N I RC on zero-rated transactions but more importantly, to prevent the granting of refund or tax credit of non-existent input VAT. It is an act of tax administration which is not violative of the rule on non-delegation of delegated powers. xxx xxx xxx Hence, the need for strict compliance with the mandatory requirement of imprinting the word "zero-rated" on sales invoices or official receipts regardless of whether or not the business entity engages only in export sales since Revenue Regulations No.7-95 did not make any distinction on the different kinds of zero-rated sales. To emphasize, it is explicit from the provisions of Section 113 of the NIRC of 1997 in relation to Section 237 of the same Code and Section 4.108-1 of Revenue Regulations No. 7-95, that a VAT registered person like herein petitioner must issue a duly registered VAT invoice or receipt for every sale transaction . Such VAT invoice or receipt must show the taxpayer's identification number (TIN) followed by the word VAT, printer's BIR permit number and the word "zero rated" imprinted on the invoice or receipt covering a zero-rated sale . Considering so, the export sales referred to under Section 106(A)(2)(1)(a) of the NIRC of 1997 as subject to zero percent (0%) VAT are those covered by duly registered VAT invoices bearing all the required information. Since the word "zero-rated" was not imprinted on its sales invoices, petitioner's reported export sales for the period April 1, 1999 to March 31, 2000 in the amount of P842,225,646.75 cannot qualify for VAT zero-rating. Consequently, the claimed input VAT attributable thereto in the amount of P12,017,138.47 cannot be granted. It is clear from the provisions of Section 112(A) of the NIRC of 1997 that there must be zero-rated or effectively zero-rated sales in order that a refund of input VAT could prosper, to wit: 'SEC. 112. Refunds or Tax Credits of input Tax . "(A) zero rated or Effectively Zero-rated Sales . 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 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." Accordingly, this Court finds it unnecessary to discuss the other issues raised. IN VIEW OF THE FOREGOING, the Petition for Review is hereby DENIED for lack of merit. CHaDIT SO ORDERED. I CONCUR: (SGD.) LOVELL R. BAUTISTA Associate Justice Separate Opinions ACOSTA , J., dissenting : With due respect to my colleagues, I wish to express my dissent to the position of the majority with regard to the finding that petitioner's failure to imprint the term "zero-rated" will automatically invalidate an otherwise valid, competent, and relevant export sales invoices and the subsequent denial of petitioner's claim for refund representing input VAT paid on its zero-rated transactions. Allow me to explain my point that contrary to the view of the majority, (1) pertinent provisions of the 1997 TaxCode do not require imprinting of the word "zero-rated;" (2) the absence of the term "zero-rated" in the invoice does not affect the admissibility and competency of the same as evidence in support of its refund claim; (3) assuming the propriety of imposing the alleged requirement to imprint the word "zero-rated" in the invoice, the invalidation of the same and the denial of the refund claim are not the legally imposable penalties for failure to meet such alleged requirement; and (4) the other equally valid pieces of evidence presented and formally offered are sufficient proof to justify the grant of the VAT refund claim attributable to its zero-rated transactions. At this juncture, the relevant provisions of the 1997 TaxCode, namely, Section 113 and 237 , are hereunder quoted for ready reference, to wit: "Section 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. xxx xxx xxx "Section 237. Issuance of Receipts or Sales of 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 case of sales, receipts or transfers in the amount of One Hundred Pesos (P100.00) or more, 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 were the purchaser is a VAT registered person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer's Identification Number (TIN) of the purchaser. . . .". Based on the foregoing, the only information required to be indicated in an invoice or official receipt, as a precondition for its validity and for claiming a refund claim of input VAT paid, are as follows: (1) A statement that the seller is a VAT-registered person; (2) The taxpayers identification number (TIN); (3) The total amount which the purchaser pays or is obligated to pay to the seller indicating the inclusion of the value-added tax; (4) Transaction date; (5) Quantity of merchandise; (6) Description of merchandise or nature of service; (7) Unit cost; (8) The name, business style, if any, and address of the purchaser, customer or client 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; and (9) The TIN of the VAT-registered purchaser. Likewise, the tenor of Section 112 (A) of the TaxCode permits all VAT-registered enterprises engaged in zero-rated transactions to claim a refund of their creditable input tax due or paid to the extent that such input tax has not been applied against output tax within a period of two (2) years after the close of the taxable quarter. And nowhere is it shown that failure to imprint the word "zero-rated" in the invoice will cause the outright rejection of the refund claim. The lone provision where the "requirement" of imprinting the term "zero-rated" on the VAT invoice can claim to get its authority from is Section 4.108-1 of Revenue Regulations No.7-95 ( The ImplementingRulesand Regulations of the VATlaw ). But, the said provision is merely a regulation created for the sole and limited purpose of implementing a very exact law. Long-settled is the legal principle that administrative rules and regulations cannot expand the letter and spirit of the law they seek to enforce. And in case of conflict between the basic law and a rule or regulation issued to implement said law, the law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law ( People vs.Lim, 108 Phil. 1091 ). In the recently promulgated case of Commissioner of Internal Revenue vs.Seagate Technology (Philippines), G.R. No. 153866, February 11, 2005, the Honorable High Tribunal emphasized the need to focus only on the legally mandated requirements for claims for VAT refund and explained that, A VAT-registered status, as well as compliance with the invoicing requirements (Section 113 (A) of the TaxCode), is sufficient for the effective zero rating of the transactions of a taxpayer. The nature of its business and transactions can easily be perused from, as already clearly indicated in, its VAT registration papers and photocopied documents attached thereto. . . . Administrative convenience cannot thwart legislative mandate . Consequently, the requisites to be entitled to the refund/tax credit of unapplied or unutilized input VAT are as follows: 1. There must be zero-rated or effectively zero-rated sales; 2. That input taxes were incurred or paid; 3. That the input taxes are attributable to such zero-rated or effectively zero-rated sales; 4. That the input taxes were not applied against any output VAT liability; and 5. The claim for refund was filed within the two-year prescriptive period. In the case before Us, the petitioner has satisfied the foregoing requisites and established its right to the tax refund through duly submitted material and documentary exhibits. The documents formally offered as evidence by the petitioner, particularly, the export documents, such as, export sales invoices, delivery receipts, Bills of Lading, Schedule of Summary of Export Sales, and bank certifications of its inward remittances ( Exhibits "T" to "T-1648", "LL-1" to "LL-27", "P" to "P-26", "F" to "F-1", "G" to "G-1", and "U" to "U-3" ) sufficiently prove that the petitioner's export sales were actually made. The substantive and main requirement of the TaxCode, which is the actual sale and shipment of goods to be considered as zero-rated sales, was satisfactorily complied with and effectively proven before this Court by the petitioner. Accordingly, I manifest my dissent to the majority opinion that the term "zero-rated" must be imprinted in the export sales invoice to be a valid evidence in claiming for refund of excess input taxes, notwithstanding the requirement stated in a BIR Regulation; and that failure to do so will not cause the outright denial of the refund claim, especially, if there are other pieces of evidence proving the export transactions and the taxpayer's VAT status. aHcACI