The Commissioner of Internal Revenue v. Philippine Bobbin Corp.

FOURTEENTH DIVISION [CA-G.R. SP No. 59452. February 19, 2001.] THE COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . PHILIPPINE BOBBIN CORPORATION , respondent . D E C I S I O N VASQUEZ , JR. , J p : This is a petition for Review of the Resolution dated June 7, 2000 promulgated by the Court of Tax Appeals in CTA Case No. 5585, entitled "Philippine Bobbin Corporation vs. The Commissioner of Internal Revenue" . The facts of the case are ably stated in the court a quo's Decision dated February 8, 2000. We quote: "Petitioner is a domestic corporation which manufactures and sells tobacco wrapper and bobbin (T.S.N., Nov. 11, 1998, p. 6). It is registered with the Bureau of Internal Revenue (BIR) as a value-added (sic) tax (VAT) taxpayer (Exh. A). Petitioner is also duly registered with the Export Processing Zone Authority (EPZA) as an export enterprise (Exh. B) and later with the Philippine Economic Zone Authority (EPZA) when the latter took over the management of the former (Exh. EE). For the period January 1, 1996 to March 31, 1996, Petitioner filed its First Quarterly VAT Return with the BIR (Exh. E). For the second, third and fourth quarters of 1996, Petitioner also filed the respective quarterly VAT returns (Exhs. I, M & Q). On February 25, 1997, Petitioner filed its monthly VAT return for January (Exh. T). For the month of February, 1997, petitioner filed its monthly VAT return on March 25, 1997 (Exh. U). On March 26, 1998, Petitioner amended all the abovementioned (sic) returns (Exhs. F, J, N, R, T, & V, respectively) allegedly to reflect the correct amounts previously reported and/or paid. Petitioner declared an aggregate amount of zero-rated export sales of P43,125,658.64 for 1996 and total input tax payments in the sum of P1,588,515.92 for the period January 1, 1996 to February 28, 1997, detailed as follows: Input VAT Carried Over Carried Over Zero-rated From previous On purchases to subsequent 1995 Exh. Sales quarter this quarter Quarter 1st qtr F P6,477,157.77 P P428,410.23 P428,410.23 2nd qtr J 6,539,887.14 428,410.23 407,391.96 835,802.19 3rd qtr N 9,652,352.46 835,802.19 300,760.86 1,136,563.05 4th qtr R 20,456,261.27 1,136,563.05 269,982.32 1,406,545.37 Total P43,125,658.64 P1,406,545.37 1997 Jan. T P1,406,545.37 P157,802.44 P1,564,347.81 Feb. V 1,564,347.81 24,168.11 1,588,515.92 Subtotal P181,970.55 Total P43,125,658.64 P1,588,515.92 Petitioner asserts that the total input VAT of P1,588,515.92 remained unutilized inasmuch as its sales were purely export sales and were zero rated. In other words, it has no output tax liability within which to offset or deduct the said input VAT (TSN, June 24, 1998, p. 13). Consequently, Petitioner filed on October 28, 1997 with the One-Stop-Shop Inter-Agency and Duty-Drawback Center of the Department of Finance a claim for refund of said input taxes allegedly paid for the period involved in this case (Exhs. X to BB, inclusive). Although it is noted that Petitioner failed to present the original copies of the Application for Tax Credit/Refund for Value-Added Tax Paid (BIR Form 2552) (Exh. X) and the Claimant Information Sheet (Exh. Y) for comparison with the marked exhibit. Petitioner nevertheless proved the fact of actual filing of the claim by means of the claim stub (Exh. Z) and official receipts issued by the Department of Finance dated October 28, 1997 (Exh. AA) and November 14, 1997 (Exh. BB) for the payment of filing fees and processing fees, respectively. Further, respondent confirmed this in his memorandum. Considering that the two-year prescriptive period was about to expire and Petitioner's claim remained unresolved, the instant petition was filed on March 27, 1998." (CTA Decision, pp. 1-3; Rollo , pp. 43-45) Philippine Bobbin Corporation essayed a Motion for Reconsideration which the court a quo partially granted in its Resolution dated June 7, 2000, the pertinent provisions of which read: "WHEREFORE, finding petitioner's Motion for Reconsideration meritorious, Our assailed decision is hereby MODIFIED. Respondent Commissioner of Internal Revenue is ORDERED to REFUND to the Petitioner the amount of P1,222,724.81 representing unutilized input value added tax for the period January 1, 1996 to February 28, 1997. SO ORDERED." (CTA Resolution dated June 7, 2000, p. 2; Rollo p. 32) The Commissioner of Internal Revenue now challenges the said Resolution and implores Us to resolve the following issues: CEDScA "1. RESPONDENT, BEING REGISTERED WITH THE PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA) AS AN ECOZONE EXPORT ENTERPRISE, ITS BUSINESS IS NOT SUBJECT TO VAT PURSUANT TO SECTION 24 OF REPUBLIC ACT NO. 7916. SINCE RESPONDENT'S BUSINESS IS NOT SUBJECT TO VAT, THE GOODS, INCLUDING CAPITAL GOODS, AND SERVICES IT PURCHASED ARE CONSIDERED NOT USED IN VAT TAXABLE BUSINESS, AND, THEREFORE, IT IS NOT ENTITLED TO TAX CREDIT CERTIFICATE OR REFUND OF INPUT TAXES ON SUCH GOODS, INCLUDING CAPITAL GOODS, AND SERVICES PURSUANT TO SECTION 4.106-1 OF REVENUE REGULATI ONS NO. 7-9 5, IN RELATION TO SECTION 4.103-1 OF SAID REGULATIONS. 2. THE COURT OF TAX APPEALS HAS COMMITTED ABUSE OF DISCRETION IN GRANTING THE REFUND BECAUSE OF THE RESPONDENTS' FAILURE TO PRESENT DOCUMENTARY EVIDENCE PROVING EXPORT SALES; 3. ASSUMING WITHOUT ADMITTING THAT THE TAXPAYER'S ACTIVITY IS SUBJECT TO VAT, THE COURT OF TAX APPEALS COMMITTED ABUSE OF DISCRETION WHEN IT GRANTED THE CLAIM FOR REFUND IN THE AMOUNT OF P1,222,724.81 REPRESENTING UNUTILIZED INPUT TAX WHEN THE RESPONDENT IS SUPPOSED TO BE LIABLE TO PAY VAT IN THE AMOUNT OF P2,724,049.94 CONSIDERING THAT THE SALES WERE NOT PROVEN TO BE EXPORT SALES; 4. THE COURT OF TAX APPEALS HAS NO JURISDICTION OVER THE CASE BECAUSE THE FILING OF THE ADMINISTRATIVE CLAIM FOR REFUND WITH THE DEPARTMENT OF FINANCE WAS PREMATURE SINCE THE CLAIM WAS MADE BEFORE THE FILING OF THE AMENDED VAT RETURNS RECLASSIFYING THE SALES TO ZERO-RATED VAT; 5. THE COURT OF TAX APPEALS COMMITTED ABUSE OF DISCRETION IN GRANTING REFUND SINCE RESPONDENT FILED A PRO-FORMA ADMINISTRATIVE CLAIM FOR REFUND WITH THE DEPARTMENT OF FINANCE WHEN IT FAILED TO SUBMIT SUPPORTING RECORDS TOGETHER WITH THE APPLICATION FOR REFUND; AND 6. THE COURT OF TAX APPEALS HAS NO JURISDICTION OVER THE CASE BECAUSE THE FILING OF THE PETITION FOR REVIEW IS PREMATURE SINCE THE CLAIM FOR REFUND IS STILL PENDING INVESTIGATION." ( Petition for Review, p. 5; Rollo, p. 12) The judicious resolution of this petition importunes a simplification of the issues, to wit: 1. May the Court of Tax Appeals exercise its jurisdiction over the instant case? and, 2. Is respondent, Philippine Bobbin Corporation, entitled to its entreated tax credit or refund? The petition is meritorious. Fundamental is the view that taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its function for the welfare of its constituents ( Commissioner of Internal Revenue vs. Court of Tax Appeals, 234 SCRA 348 [1994] ) and so should be collected without unnecessary hindrance ( Philex Mining Corporation vs. Commissioner of Internal Revenue, 294 SCRA 687 [1998] ). This is verily the rationale behind Revenue Regulations No. 7-95 ( pursuant to Sections 245 and 4 of the National Internal Revenue Code, as amended by Republic Act No. 7716) which provides: "Section 4.106-1(a). Only a VAT-registered person may be given a tax credit certificate or refund of VAT paid corresponding to the zero-rated sales of goods, properties or services, excluding the presumptive input tax and to the extent that such input tax has not been applied against the output tax. The application should be made within two (2) years after the close of the taxable quarter when the sales were made. (Emphasis Ours)" "Section 4.106-2. (a) Claims for refunds or tax credit shall be filed with the appropriate Revenue District Office (RDO) having jurisdiction over the principal place of business of the taxpayer. However, direct exporters may also file their claim for tax credit with the One Stop Shop Center of the Department of Finance . (Emphasis Ours) Be it remembered that the close of the first taxable quarter, for which respondent Philippine Bobbin Corporation (PBC, for brevity) claims tax refund in relation to its export sales, was on April 20, 1996. PBC thus had until April 20, 1998 within which to file its claim for tax refund. Clearly then, the filing of respondent's claim with the One Stop Shop Center of the Department of Finance on October 28, 1997 was in accordance with the foregoing Revenue Regulation. The Commissioner of Internal Revenue contends however, that the Court of Tax Appeals had no jurisdiction over the instant case. Inasmuch as no decision has yet been handed down by his office as regards PBC's claim, the Commissioner argues that the court a quo's exercise of jurisdiction over the case at bar was premature and uncalled for. We do not think so. Section 4.106-2 (c) of Revenue Regulations No. 7-95 provides: . . . However, if no action on the claim for tax credit/refund has been taken by the Commissioner of Internal Revenue after the sixty (60 day period from the date of submission of the application but before the lapse of the two (2) year period from date of filing of the VAT return for the taxable quarter , the taxpayer may appeal to the Court of Tax Appeals." (Emphasis ours) This rule is not novel for as early as the case of Commissioner of Internal Revenue vs. Victorias Milling Co., Inc. (22 SCRA 12 [1968]), the High Court declared : "The claim for refund with the Bureau of Internal Revenue and the subsequent appeal to the Court of Tax Appeals must be filed within the two-year period. If, however, the Collector takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started with the Court of Tax Appeals before the end of the two-year period without waiting the decision of the Collector." Here, the Commissioner failed to act on the respondent's claim for refund despite the lapse of sixty days after its filing. Moreover, the two-year prescriptive period from the date of filing of the claim for refund was about to expire. Under these circumstances and buttressed by the preceding regulation and jurisprudence, respondent had every right to commence its appeal as it did on March 27, 1998 (less than a month before the expiration of the two-year prescriptive period), and the Court of Tax Appeals was well within its authority to exercise jurisdiction over the case. We are thus left with one issue to resolve: Is PBC entitled to its entreated refund? It is not. Well entrenched in our jurisprudence is that tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. ( Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc., 309 SCRA 87 [1999] ). Accordingly, the claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund ( Citibank, N.A. vs. Court of Appeals, 280 SCRA 459 [1997] ). PBC presented the following evidence to prove its thesis: (a) VAT, EPZA and PEZA registration certificates; (b) testimony of Ms. Daisy dela Rica; (c) export sales invoices; (d) Solidbank credit advises and BPI credit memos; and (e) CPA certification (CTA Decision, p. 7; Rollo, p. 49). Lamentably these documents are not sufficient to warrant the grant of a tax refund in favor of the respondent. In order to prove a claim for refund in relation to export sales, claimant shall attach the following documents: "i) Photo copy of the export document showing the amount of export, and the date and destination of the goods exported. . . . ii) Statement from the Central Bank or any of its accredited agent banks that the proceeds of the sale in acceptable foreign currency has been inwardly remitted and accounted for in accordance with applicable banking regulations." (Section 16 of Revenue Regulations No. 5-87, as amended by Section 2 of Revenue Regulations No. 3-88) The said regulation further provides that the statement from the Central Bank or any of its accredited agent banks "shall show the amount in foreign currency of the export proceeds or consideration and the date of inward remittance, conversion rate into Philippine currency and the total peso value thereof. Readily apparent in the preceding requirements is the State's desire to make sure that the goods subject of the zero-rated sales were indeed exported and that the foreign currency given in payment for the said goods were in fact inwardly remitted to the Philippines, before any claim for tax refund is granted. Respondent nevertheless insists that it had complied with the said requirements considering that the proffered export sales invoices contained the amount of export sales as well as the date and destination of the goods exported. It further ratiocinates that the bank credit advises or memos proved the payment of the exported goods in acceptable foreign currency accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas ( Comment, p. 9; Rollo p. 102). PBC missed the point completely. 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 expiration) 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 of receipts, bills of lading, airway bills, and export declarations or permits. These documents, taken collectively, are the best means to prove the expiration of goods. HcSDIE Neither may the credit memos and advises, issued by the Bank of the Philippine islands and Solidbank, be considered as the bank statement required by law. A credit memo is merely an advice from the bank to the depositor indicating that a certain amount has been credited to the account of the depositor in the books of a bank. The credit memo is in effect an advice to present the deposit book for posting of the amount previously credited in the bank's book. Like a deposit slip, it is evidence of the amount and date of deposit. ( Viray, handbook on Bank Deposits, 3rd Revised Ed., pp. 137-138 ). As previously pointed out, the statement issued by the Bangko Sentral ng Pilipinas or any of its accredited agent banks must state: (a) that the proceeds of the export sale are in acceptable foreign currency; (b) the amount of the foreign current; (c) the conversion rate into Philippine currency and the total peso value thereof; (d) that the proceeds of the export sale was inwardly remitted and accounted for in accordance with applicable banking regulations; and (e) the date of inward remittance. These informations are not found in a simple credit memo. In fine, for failing to produce the vital documents decreed by law, Philippine Bobbin Corporation fell short of proving the veracity of its claim that the sale of the subject goods was an export sale and in effect deemed as zero-rates sale. Inevitably, its claim for tax refund must be denied. IN VIEW OF ALL THE FOREGOING, the appealed resolution is REVERSED and SET ASIDE and a new one entered dismissing the Petition, for lack of merit . No cost. SO ORDERED. Villarama, Jr. and Tria Tirona, JJ . , concur.