Coral Bay Nickel Corp. v. Commissioner of Internal Revenue

SECOND DIVISION [C.T.A. CASE NO. 8641. August 23, 2016.] CORAL BAY NICKEL CORPORATION , petitioner , vs. COMMISSIONER OF INTERNAL REVENUE , respondent . AMENDED DECISION CASTAEDA, JR. , J p : For resolution of this Court are the following: (1) Petitioner's Motion for Reconsideration filed on September 10, 2015; and (2) Petitioner's Supplemental Motion for Reconsideration filed on October 9, 2015 with respondent's Opposition and/or Comment (Re: Supplemental Motion for Reconsideration) filed through registered mail on October 30, 2015 and received by this Court on November 4, 2015. On January 4, 2016, the Court denied respondent's Motion for Partial Reconsideration (Re: Decision Promulgated on 25 August 2015), while partially granting petitioner's said motions. The dispositive portion of the Resolution 1 reads: "WHEREFORE , in view thereof, respondent's Motion for Partial Reconsideration (Re: Decision Promulgated on 25 August 2015) is hereby DENIED , for lack of merit. On the other hand, petitioner's Motion for Reconsideration with Supplemental Motion for Reconsideration is hereby PARTIALLY GRANTED . Accordingly, set this case for petitioner's presentation of evidence with respect only to Exhibits "P-116.672 to 677" and "P-116.1279", "P-116.522 to 525", "P-116-818 to 819" and "P-116.702" on February 24, 2016 at 9:00 a.m. SO ORDERED." During the scheduled hearing, petitioner presented witness Allen Roy T. Catacutan 2 to prove that it is entitled to a refund or tax credit certificate in the amount of P1,448,993.88 representing its unapplied input Value-Added Tax (VAT) for the year 2011, in addition to the partially granted amount of P23,298,024.25 as per Decision 3 dated August 25, 2015, among others. On March 10, 2016, petitioner filed its Supplemental Formal Offer of Evidence. 4 On April 29, 2016, the Court issued a Resolution 5 admitting petitioner's evidence, subject to the Court's final evaluation and/or appreciation of their purposes, materiality, relevancy and probative value to the issues involved in this case. In the same Resolution, the Court required the parties to submit their memoranda within 30 days from receipt thereof and upon receipt of the memoranda or the lapse of the said period, petitioner's subject motions shall be submitted for resolution. On June 17, 2016, petitioner filed its Memorandum, 6 while respondent failed to file his Memorandum. 7 TAIaHE Prefatorily, the Court notes that petitioner offered as evidence Exhibits "P-150-1" to "P-150-10", which were not included in the list of evidence authorized by the Court to be presented in the Resolution 8 dated January 4, 2016. To recall, the Court found the subject motions to be partially in the nature of motions for new trial, where the Court disallowed the introduction of pieces of evidence which could have been produced during trial had petitioner exercised reasonable diligence in locating the same. In other words, petitioner's plea for new trial was previously denied. Verily, the same reason should be applied with respect to Exhibits ""P-150-1" to "P-150-10", and as such, these pieces of evidence shall not be considered by the Court in resolving the instant case. After careful scrutiny of the evidence submitted to the Court, the Court resolves to partially grant the subject motions. As earlier stated, petitioner seeks to claim additional input VAT in the amount of P1,448,993.88, broken down as follows: Exhibit OR No. Date Supplier Input VAT Input tax on domestic purchase of service supported by VAT OR but with TIN-V only P-116.672 1482 04-Mar-11 Cendaur Engineering P159,845.63 P-116.673 1486 11-Mar-11 Cendaur Engineering 72,685.29 P-116.674 1491 01-Apr-11 Cendaur Engineering 155,544.83 P-116.675 1601 30-May-11 Cendaur Engineering 169,599.00 P-116.676 1616 19-Aug-11 Cendaur Engineering 242,065.87 P-116.677 1619 26-Aug-11 Cendaur Engineering 199,700.46 P-116.1279 1604 10-Jun-11 Cendaur Engineering 173,272.66 Subtotal P1,172,713.74 =========== Input tax on domestic purchase of service supported by VAT OR but with note: collected in behalf of CEN Holdings, Inc. P-116.522 78872 11-Jan-11 Century Properties Mgt., Inc. P64,032.48 P-116.523 79006 04-Feb-11 Century Properties Mgt., Inc. 64,032.48 P-116.524 79095 24-Feb-11 Century Properties Mgt., Inc. 6,480.00 P-116.525 80275 12-Oct-11 Century Properties Mgt., Inc. 74,980.83 P-116.818 80206 29-Sep-11 Century Properties Mgt., Inc. 1,800.00 P-116.819 79198 14-Mar-11 Century Properties Mgt., Inc. 64,032.48 Subtotal P275,358.27 =========== Input tax on domestic purchase of service without supporting document (not in binder) P-116.702 05801 16-Sep-11 Adways Philippines, Inc. P921.87 Subtotal P921.87 GRAND TOTAL P1,448,993.88 =========== In the assailed Decision, 9 the Court disallowed said input VAT for failure to comply with the substantiation requirements required by law and pertinent regulations. Exhibits P-116.672 to 677 and P-116.1279 Petitioner alleges that the official receipts bearing the supplier's TIN-V only, marked as Exhibits P-116.672 to 677 and P-116.1279 supporting its input VAT in the amount of P1,172,713.74, comply with the invoicing requirements. On this score, the Court reiterates the pertinent provisions of Section 113 (A) and (B) of the National Internal Revenue Code of 1997, as amended (NIRC of 1997, as amended), to wit: "SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. (A) Invoicing Requirements. A VAT-registered person shall issue: (1) A VAT invoice for every sale, barter or exchange of goods or properties; and (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services. (B) Information Contained in the VAT Invoice or VAT Official Receipt. The following information shall be indicated in the VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT-registered person, followed by his Taxpayer's Identification Number (TIN); (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: Provided , That: xxx xxx xxx (3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and (4) In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and taxpayer identification number (TIN) of the purchaser, customer or client." (Emphasis supplied) Corollary thereto, Section 4.113-1 (A) of Revenue Regulations (RR) No. 16-2005, as amended, states: cDHAES "SEC. 4.113-1. Invoicing Requirements. (A) A VAT-registered person shall issue: (1) A VAT invoice for every sale, barter or exchange of goods or properties; and (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services. Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoice or receipts. Said documents shall be considered as a "VAT Invoice" or "VAT official receipt." All purchases covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any output tax." (Emphasis supplied) Petitioner relies on the case of Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue , 10 where the Supreme Court enumerated the items required to be indicated in the receipts or invoices. Consequently, the Supreme Court ruled that failure to indicate TIN-V in the invoices and receipts does not result to the outright invalidation of the invoices and receipts and likewise, to the outright denial of the claim for tax refund/credit. However, the Intel case is not on all fours with the instant case. Aside from the different period covered in Intel (taxable year 1998 when the old Tax Code and Revenue Regulations were applicable), the issues in Intel case hinges on the validity of the taxpayer's export sales invoices to prove its zero-rated output VAT, not on the validity of the taxpayer's supporting documents to prove its input VAT. Thus, the disallowance of petitioner's input taxes in the amount of P1,172,713.74 is upheld. Exhibits P-116-522 to 525 and P-116-818 to 819 The Court disallowed petitioner's input taxes for being supported by VAT official receipts issued by Century Properties Management, Inc. but with the note "Collected in behalf of CEN Holdings, Inc." Petitioner asserts that those are internal notes only of Century Properties Management, Inc. which should not prejudice petitioner. 11 Further, the VAT official receipts are compliant with the invoicing requirements pursuant to Section 113 (B) of the NIRC of 1997, as amended, and Section 4.113-1 of Revenue Regulations No. 16-2005, as amended. 12 Petitioner's argument is untenable. It should be understood that for the same transaction, the output VAT of the seller becomes the input VAT of the buyer. In the case of Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita Business Machine Corporation of the Philippines) v. Commissioner of Internal Revenue , 13 the Supreme Court explained how the output-input mechanism works under the VAT system, to wit: "The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his customers. Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT charged on its sales or outputs the VAT it paid on its purchases, inputs and imports . For example, when a seller charges VAT on its sale, it issues an invoice to the buyer, indicating the amount of VAT he charged. For his part, if the buyer is also a seller subjected to the payment of VAT on his sales, he can use the invoice issued to him by his supplier to get a reduction of his own VAT liability . The difference in tax shown on invoices passed and invoices received is the tax paid to the government. In case the tax on invoices received exceeds that on invoices passed, a tax refund may be claimed. Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes equal to the input taxes that his suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his input taxes that he has to pay the excess to the BIR. If the input taxes exceed the output taxes, however, the excess payment shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer. " (Underscoring supplied) Thus, the invoicing requirements under the VAT law and regulations must be strictly followed, i.e. , the seller of services and use or lease of properties must issue a VAT-registered official receipt while the seller of goods or properties must issue a VAT-registered invoice in accordance with Sections 113 and 237 of the NIRC of 1997, as amended. In the subject official receipts, it appears that CEN Holdings, Inc. (CENHI) is the seller of services to petitioner, although Century Properties Management, Inc. (CPMI), as the collector, issued the VAT official receipt. In other words, the seller of services, i.e. , CENHI, did not issue a VAT official receipt to petitioner. Ideally, CPMI should report in its VAT Returns the corresponding output taxes from the official receipts it issued to petitioner. However, it may opt to forego reporting the same because the amounts received do not constitute its revenue. Hence, the input-output mechanism under the VAT system is disturbed. ASEcHI This Court reiterates its previous pronouncement in an earlier case that, to ensure proper payment of taxes, the invoicing requirements under the VAT law and regulations should be strictly complied with because these were designed to create an orderly VAT system to avoid prejudice to both taxpayers and government. 14 It is petitioner's right and duty to make sure that VAT invoices and VAT official receipts issued to it are free of encumbrances or impediments, especially when these are in support to a claim for refund. At this point, the following pronouncement by the Supreme Court in the case of Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue 15 should be emphasized: "In fine, we reiterate our consistent ruling that actions for tax refund, as in the instant case, are in the nature of a claim for exemption and the law is not only construed in strictissimi juris against the taxpayer, but also the pieces of evidence presented entitling a taxpayer to an exemption is strictissimi scrutinized and must be duly proven." (Emphasis supplied) In sum, the Court cannot simply ignore the note on petitioner's evidence that its payment is collected by CPMI on behalf of CENHI. Said note, whether it may have been an internal arrangement of CPMI and CENHI, should have put petitioner upon inquiry as may be necessary to know with whom it was dealing with for purposes of VAT refund, as discussed above. As such, the Court upholds the disallowance of input taxes on domestic purchase of services supported by the official receipts with the note "Collected in behalf of CEN Holdings, Inc." in the aggregate amount of P275,358.27. Exhibit P-116.702 The Court disallowed input tax on domestic purchase of service in the amount of P921.87 for being unsupported by a VAT official receipt. It is represented that the Independent CPA (ICPA) incorrectly named the supplier as "Adways Philippines, Inc." instead of "I-Merge Online, Inc." in the ICPA report. 16 In this regard, petitioner submitted Exhibit P-116.702, with the following details: Exhibit OR No. Date Supplier Input Tax P-116.702 05801 16-Sep-11 I-Merge Online, Inc. P921.87 A scrutiny of the said official receipt reveals that it complied with the invoicing requirements provided by law. Consequently, the input tax therein is allowable for refund. In sum, petitioner proved that it is entitled to a refund of input taxes attributable to zero-rated sales for the taxable year 2011 in the adjusted amount of P23,298,946.12, computed as follows: Substantiated input taxes attributable to zero-rated sales per Decision dated August 25, 2015 P23,298,024.25 Add: Substantiated input taxes from purchase of services per Motion for Reconsideration and Supplemental Motion for Reconsideration OR issued by I-Merge Online, Inc. 921.87 Refundable input taxes P23,298,946.12 ============ WHEREFORE , in view thereof, petitioner's Motion for Reconsideration and Supplemental Motion for Reconsideration are PARTIALLY GRANTED . Accordingly, the dispositive portion of the Decision dated August 25, 2015 is AMENDED , as follows: " WHEREFORE , in view thereof, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, let a tax refund be issued in favor of petitioner Coral Bay Nickel Corporation in the reduced amount of P23,298,946.12, representing unutilized input taxes attributable to zero-rated sale of goods for the four taxable quarters of year 2011." SO ORDERED. (SGD.) JUANITO C. CASTAEDA, JR. Associate Justice Caesar A. Casanova and Amelia R. Cotangco-Manalastas, JJ., concur. Footnotes 1. Docket, Vol. II, pp. 806-818. 2. Supplemental Judicial Affidavit of Allen Roy T. Catacutan, Docket, Vol. II, pp. 826-832; Minutes of the Hearing dated February 24, 2016, Docket, Vol. II, p. 858. 3. Docket, Vol. II, pp. 689-709. 4. Docket, Vol. II, pp. 864-870. 5. Docket, Vol. II, pp. 884-885. 6. Docket, Vol. II, pp. 892-926. 7. Records Verification, Docket, Vol. II, p. 927. 8. See Note 1. 9. See Note 3. 10. G.R. No. 166732. April 27, 2007. 11. Par. 17, petitioner's Motion for Reconsideration, Docket, Vol. II, p. 724. 12. Memorandum for the Petitioner, Paragraph 68, Docket Vol. II, p. 916. 13. G.R. No. 178090, February 8, 2010. 14. Sumisetsu Philippines, Inc. v. Commissioner of Internal Revenue , CTA Case No. 8062, May 26, 2015. 15. G.R. No. 159490, February 18, 2008. 16. Exhibit "P-130", Q&A13, Docket Vol. II, pp. 829-830.