Fort Bonifacio Development Corp. v. Commissioner of Internal Revenue

NINTH DIVISION [CA-G.R. SP NO. 61158. December 28, 2007.] FORT BONIFACIO DEVELOPMENT CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE and REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG & PATEROS, BUREAU OF INTERNAL REVENUE , respondents . D E C I S I O N CRUZ , J p : Fort Bonifacio Development Corporation (or "petitioner") is engaged in the development and sale of real properties. Among those properties are parcels of land (or "subject land") within a development area known as the Fort Bonifacio Global City (or "Global City"), which formerly formed part of the Fort Bonifacio reservation in Taguig City, Metro Manila. Petitioner acquired the subject land from the National Government on February 8, 1995. STaHIC Under Rep. Act No. 7716 ("New Expanded Value-Added Tax Law", or "E-VAT Law"), which took effect on January 1, 1996, the Value-Added Tax (or "VAT") system was restructured and more transactions, such as sale of real properties, became subject to VAT. Since petitioner's acquisition of the subject land took place before the effectivity of the E-VAT Law, the real estate transaction was not subject to VAT. Sometime in May 1996, petitioner commenced developing the Global City, while in October of the same year, it began selling lots therein. For purposes of claiming the 8% input tax credit under Sec. 105 of the old National Internal Revenue Code (or "NIRC"), petitioner submitted to Revenue District Office (or "RDO") No. 44 of the Bureau of Internal Revenue (or "BIR") on September 19, 1996 an inventory listing of all its real properties, the book value of which aggregated P71,227,503,200.00. Based on this value, petitioner estimated that it has a presumptive input tax credit in the amount of P5,698,200,256.00. EDHCSI Subsequently, petitioner filed its VAT return for the fourth quarter of 1996 showing that it derived a total of P3,498,888,713.60 from sales and lease of lots and that the output VAT payable to the BIR was P318,080,792.14. To settle its VAT liability, petitioner paid P269,340,469.45 in cash and utilized (i) P28,413,783.00 of its claimed total transitional/presumptive input tax credit of P5,698,200,256.00 and (ii) its regular input tax credit of P20,326,539.69 on purchases of goods and services. cSaCDT On October 8, 1998, petitioner filed with the BIR a claim for refund of its VAT payment in the amount of P269,340,469.45 for the fourth quarter of 1996. As the two-year period within which to recover taxes erroneously paid was about to expire without the BIR acting on its claim, petitioner filed a petition for review with the Court of Tax Appeals (or "CTA") on November 19, 1998, impleading as respondents the Commissioner of Internal Revenue (or "CIR") and the Revenue District Officer of RDO No. 44 (or "respondents", when collectively). In support of its claim for refund, petitioner averred that it is entitled to an input tax credit in the sum of P5,698,200,256.00 equivalent to 8% of the value of its properties, and said credit more than offsets its VAT payment of P269,340,469.45. 1uptax08 For their part, respondents maintained that petitioner is not entitled to a refund because (i) it did not comply with Revenue Regulations (or "RR") No. 7-95, implementing Sec. 105 of the NIRC, which required that for purposes of computing the presumptive input tax credit, a real estate dealer should submit to the RDO, not later than January 31, 1996, an inventory of its improvements as of December 31, 1995; (ii) petitioner acquired the subject land under a VAT-free transaction with the National Government; and (iii) under RR No. 7-95, the real estate dealer's entitlement to the 8% presumptive input tax pertains only to the value of their improvements, such as buildings, roads, drainage systems and similar structures, constructed on or after January 1, 1988. acHCSD On September 29, 2000, the CTA rendered a decision denying petitioner's claim for refund on the ground that the latter cannot claim the 8% transitional input tax credit because it paid no creditable tax when it purchased the subject land. The CTA ratiocinated that if petitioner's claim for refund would be granted, it "would be placed at a more advantageous position than a similar VAT-registered person who also becomes liable to VAT but who has actually paid VAT on his purchases of goods, materials and supplies." Such situation, the CTA added, would violate the Constitutional provision that taxation should be uniform and equitable. CTA Associate Judge Amancio Q. Saga made a dissenting opinion, with the observation that RR No. 7-95, upon which the majority based its decision, unduly limited the application of the 8% transitional input tax to the book value of improvements on real property. He noted that Secs. 100 and 105 of the NIRC are specific and provide no condition or qualification for the availment of the transitional input tax except for the filing of a beginning inventory. Thus, he opined, RR No. 7-95 went beyond the clear meaning and intention of Sec. 105, id. He also noted that the majority's interpretation of Sec. 105, id., i.e., that input tax credit is available only to those who previously paid VAT or sales taxes on their inventory, unduly qualified the import of the statute. DACIHc Rebuffed by the CTA, petitioner came to this Court via the instant petition for review, imputing error to the CTA for: (i) holding that Sec. 4.105-1 of RR No. 7-95 is not contrary to the provisions of Secs. 100 and 105 of the NIRC; (ii) holding that respondent CIR was correct in basing the 8% input tax credit provided for in Sec. 105, id., solely on the value of the improvements on the land; (iii) not holding that the 8% input tax credit may also be base on the value of the taxpayer's beginning inventory of land; (iv) virtually amending Sec. 105, id., by requiring a condition not provided therein; (v) holding that petitioner is not entitled to the input tax credit under Sec. 105, id., because it did not previously pay VAT or sales taxes on its inventory of land; (vi) not holding that the input tax credit claimed by petitioner is statutorily presumed; (vii) applying the rule on uniformity in taxation; and (viii) denying its claim for refund. Petitioner further asserts that the requirement in Sec. 4.105-1 of RR No. 7-95, that the 8% input tax credit should be based solely on the improvements on the land, is inconsistent with the clear wording of Sec. 105 of the NIRC; that Sec. 105, id., does not require previous payment of VAT or sales tax on its land before it may claim the 8% input tax credit; and that having established entitlement to the transitional/presumptive input tax credit equivalent to 8% of the value of its inventory of land, or the amount of P5,698,200,256.00, it should be granted a refund of its payment for output VAT. ECSHAD On the other hand, respondents submit (i) that the 8% input tax credit provided for in Sec. 105, in relation to Sec. 100, of the NIRC is based on the value of the improvements on the land; (ii) that the taxpayer is not entitled to the input tax credit under Sec. 105, id., unless it has previously paid VAT or sales taxes on its inventory of land; and (iii) that Sec. 4.105-1 of RR No. 7-95 is valid, effective and has the force and effect of law as it implements Sec. 105, id. Determination of the instant petition hinges on the issue of whether Sec. 4.105-1 of RR No. 7-95 is valid. We rule in the affirmative. Well-entrenched is the principle that the findings and conclusions reached by the CTA which, by the very nature of its function, is dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject, deserve respect ( Commissioner of Internal Revenue vs. Citytrust Banking Corporation , 499 SCRA 477, 483, citing Sea-Land Service, Inc. vs. Court of Appeals , 357 SCRA 441). Thus, unless there has been abuse or improvident exercise of authority, none of which has been shown in the present case, the decision of the CTA will not be disturbed. HISAET Sec. 4.105-1 of RR No. 7-95 reads: "Sec. 4.105-1. . . . (a) Transitional input tax credit on beginning inventories. Taxpayers who became VAT-registered persons upon exceeding the minimum turnover of P550,000.00, or who voluntarily register even if their turnover does not exceed P550,000.00 (except franchise grantees of radio and television broadcasting whose threshold is P10,000,000.00) shall be entitled to a transitional input tax on the inventory on hand as of the effectivity of their VAT registration on the following: HITAEC (1) Goods purchased for resale in their present condition; (2) Materials purchased for further processing, but which have not yet undergone processing; (3) Goods which have been manufactured by the taxpayer; (4) Goods in process and supplies, all of which are for sale or for use in the course of the taxpayer's trade or business as a VAT-registered person. SEHaTC However, in the case of real estate dealers, the basis of the presumptive input tax shall be the improvements, such as buildings, roads, drainage systems, and other similar structures, constructed on or after the effectivity of E.O. 273 (January 1, 1988) . The transitional input tax shall be eight percent (8%) of the value of the beginning inventory or actual VAT paid on such goods, materials and supplies, whichever is higher, which amount may be allowed as tax credit against the output tax of the VAT-registered person. The value allowed for income tax purposes on inventories shall be the basis for the computation of the 8% transitional input tax, excluding goods that are exempt from VAT under Sec. 103 of the Code. The threshold amount of P550,000.00 applies only for the calendar year 1997. However, not later than the 31st day of January of each calendar year thereafter, the said amount shall be adjusted to its present value using the Consumer Price Index as published by the NSO." RR No. 7-95 seeks to implement Sec. 105 of the NIRC, as amended by Rep. Act No. 8241, which provides: "Sec. 105. Transitional/Presumptive Input Tax Credits. (a) Transitional Input Tax Credits. A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to eight percent (8%) of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax ." (Underscoring supplied) ACIEaH Sec. 105 of the NIRC, as amended, provides that the allowance for the 8% input tax on the beginning inventory of a VAT-covered entity is "subject to the filing of an inventory as prescribed by regulations." This means that the legislature left to the BIR the determination of what will constitute the beginning inventory of goods, materials and supplies which will, in turn, serve as the basis for computing the 8% input tax. While the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration of an exercise of such power may be left to them, including the power to determine the existence of facts on which its operation depends ( Abakada Guro Party List vs. Ermita , 469 SCRA 1). Hence, there is no gainsaying that the CIR and the Secretary of Finance, in limiting the application of the input tax of real estate dealers to improvements constructed on or after January 1, 1988, merely exercised their delegated authority under Sec. 105, id., to promulgate rules and regulations defining what should be included in the beginning inventory of a VAT-registered entity. The State has the power to make reasonable and natural classifications for purposes of taxation. Thus, whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the State's power is entitled to the presumption of validity and, as a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness, discrimination or arbitrariness ( Abakada Guro Party List vs. Ermita , supra) . In the instant case, We find that, contrary to petitioner's attacks against its validity, the limitation on the beginning inventory of real estate dealers contained in Sec. 4.105-1 of RR No. 7-95 is reasonable and consistent with the nature of the input VAT. To illustrate, Sec. 104 of the NIRC, as amended by Rep. Act No. 7716, defines "input tax" as the value-added tax due from or paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchase of goods or services, including lease or use of property, from a VAT-registered person. It also includes the transitional input tax determined in accordance with Sec. 105 of the NIRC. Petitioner claims entitlement to the transitional input tax credits pursuant to Sec. 105 of the NIRC, although the land it purchased from the government was not subject to VAT. Such interpretation, however, goes against the very concept of input taxes, which implies that VAT or some form of sales tax has been previously paid on the inputs used by a taxable person in the course of his business. Tracing the legislative history and intent of Sec. 105, id., We quote with approval the following ratiocination of the CTA: "Further, inasmuch as the factual milieu of herein case happened during the effectivity of Republic Act No. 7716 where no change on Section 105 came about, this Court deems it imperative to delve both into the antecedents of Section 105, the focal provision at bar, in order to ascertain the true intent of the legislature in its enactment, most especially in the light of the contrary interpretation adopted by the Respondent over it. IEaCDH xxx xxx xxx A cursory examination of the transitory provisions of Executive Order No. 273 under Section 25 thereof provides some clues crucial to unraveling the present controversy, to quote: Sec. 25. Transitory provisions . (a) All VAT-registered persons shall be allowed transitional input taxes which can be credited against output tax in the same manner as provided in Section 104 of the National Internal Revenue Code as follows: 1) The balance of the deferred sales tax credit account as of December 31, 1987 which are accounted for in accordance with regulations prescribed therefor; 2) A presumptive input tax equivalent to 8% of the value of the inventory as of December 31, 1987 of materials and supplies which are not for sale, the tax on which was not taken up or claimed as deferred sales tax credit; and 3) A presumptive input tax equivalent to 8% of the value of the inventory as of December 31, 1987 of goods for sale, the tax on which was not taken up or claimed as deferred sales tax credit. HTAEIS Tax credit prescribed in paragraphs (2) and (3) above shall be allowed only to a VAT-registered person who files an inventory of the goods referred to in said paragraphs as provided in regulations. (Italics supplied) It is to be observed that the above transitory provisions dwelt on the mechanics for the allowance of transitional input taxes mentioned in Section 104 of the Tax Code, supra, which in turn, discussed of the same transitional input tax dealt under Section 105, supra . All three provisions thus are interrelated and treats on the same subject of transitional input taxes. Under paragraphs 2 and 3 of the then transitory provisions, a presumptive input tax equivalent to 8% of the value of the inventory as of December 31, 1987 of materials and supplies which were not for sale and of goods for sale was allowed only on the condition that the taxes on such inventory have not been taken up or claimed as deferred sales tax credit. This revelation is a contributory factor in this Court's position that the 8% transitional input tax should not be viewed as an outright grant or presumption without need of prior taxes having been paid. The simple instance in the aforesaid paragraphs of requiring the tax on the materials, supplies or goods comprising the inventory to be currently unutilized as deferred sales tax credit before the 8% presumptive input tax can be enjoyed readily leads to the inevitable conclusion that such 8% tax cannot be just granted to any VAT liable person if he has no priorly paid creditable sales taxes. Legislative intent thus clearly points to priorly paid taxes on goods, materials and supplies before a VAT-registered person can avail of the 8% presumptive input tax." 2005jurcd Based on the foregoing antecedents, it is clear why the second paragraph of Sec. 4.105-1 of RR No. 7-95 limits the transitional input taxes of real estate dealers to the value of improvements constructed on or after January 1, 1988. Since the sale of land was not subject to VAT or other sales taxes prior to the effectivity of Rep. Act No. 7716, real estate dealers at that time had no input taxes to speak of. With this in mind, the CIR correctly limited the application of the 8% transitional input tax to improvements of real estate dealers constructed on or after January 1, 1988 when the VAT was initially implemented. This is, as it should be, for to grant petitioner a refund or credit for input taxes it never paid would be tantamount to unjust enrichment. As petitioner itself observes, the input tax credit provided for by Sec. 105 of the NIRC is a mechanism used to grant some relief from burdensome taxes. It follows, therefore, that not having been burdened by VAT or any other sales tax on its inventory of land prior to the effectivity of Rep. Act No. 7716, petitioner is not entitled to the relief afforded by Sec. 105, id. We likewise consider quite a stretch petitioner's assertion that although its inventory of land was not subject to tax, the same should be "presumed" to have been taxed. There is no need to resort to presumptions if an event or incident has already been established as a fact. In this case, to repeat, there is no denying that the inventory of land in question was never subject to VAT or other sales taxes. Hence, it would be the height of absurdity to presume otherwise. CDTSEI Similarly, there is no merit in petitioner's claim that the CTA erred in applying the rule on uniformity of taxation. The Supreme Court has held that "[u]niformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities" ( Tan vs. Del Rosario, Jr., 237 SCRA 324, citing Juan Luna Subdivision vs. Sarmiento , 91 Phil. 371). Certainly, petitioner is not similarly situated as those business entities which previously paid taxes on their inputs. Consequently, it cannot insist on getting the same tax treatment as said business entities with respect to transitional input taxes. Finally, it bears stressing that a tax refund or credit, for that matter, is in the nature of a tax exemption which must be construed strictissimi juris against the taxpayer (Far East Bank & Trust Company vs. Commissioner of Internal Revenue , G.R. No. 149589, September 15, 2006). In light of the foregoing disquisition regarding the nature of transitional input taxes, We hold that petitioner's claim for tax credit has no basis, in fact and in law. WHEREFORE, the instant petition is DISMISSED and the assailed decision of the Court of Tax Appeals dated September 29, 2000 is hereby AFFIRMED in toto. EIcSTD SO ORDERED. Lampas-Peralta and Pizarro, JJ., concur.