Commissioner of Internal Revenue v. Seagate Technology Philippines

SECOND DIVISION [CA-G.R. SP No. 61189. June 18, 2001.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . SEAGATE TECHNOLOGY PHILIPPINES , respondent . D E C I S I O N SABIO, J.L., JR . , J p : Before Us for review is the decision of the Court of Tax Appeals rendered in C.T.A. Case No. 5921 entitled " Seagate Technology (Philippines) vs. Commissioner of Internal Revenue ", the dispositive portion of which reads as follows: "WHEREFORE, in view of the foregoing, Petitioner's claim for refund is hereby partially GRANTED. Respondent is ORDERED to REFUND in favor of Petitioner the amount of P11,611,875.14, representing input VAT on capital goods for the period April 1 to December 31, 1997. SO ORDERED." and the Resolution dated September 20, 2000, denying the motion for reconsideration filed by respondent therein (petitioner herein). The undisputed antecedents as narrated in the assailed decision: "Petitioner is a resident foreign corporation duly registered with the Securities and Exchange Commission to do business in the Philippines, with principal office address at the new Cebu Township One, special Economic Zone, Barangay Cantao-an, Naga, Cebu City. It is an ecozone export enterprise engaged in the manufacture of recording components primarily used in computers. It is registered with the Philippine Export Processing Zone Authority (PEZA) pursuant to the provisions of Republic Act 7916 with Certificate of Registration No. 97-044, dated June 6, 1997 (Exh. A). It is likewise registered with the Bureau of Internal Revenue as a VAT entity with Certificate of Registration RDO Control No. 97-083-00600-V, dated April 2, 1997 (Exh. B). ECISAD For the period April 1, 1997 to December 31, 1997, Petitioners seasonably filed its Monthly VAT Declarations and Quarterly Value-Added Tax Returns. These monthly VAT declarations and quarterly VAT returns were simultaneously amended on January 25, 1999. As of September 30, 1997, the accumulated input taxes of Petitioner amounted to P11,730,264.62 (Exh. F-1). Out of the aforesaid amount, Petitioner claims that the sum of P11,705,945.00 refers to payments of input VAT on domestic purchases of capital goods. Petitioner further alleges that it has not started commercial operations in the Philippines, its board of directors approved a complete shutdown and eventual disposal of its facility due to a worldwide decrease in the demand for computer disk drives. On July 15, 1999, it allegedly filed a notice of cessation of business with the PEZA. On July 19, 1999, believing that it is entitled to the refund of input tax on capital goods, Petitioner filed with the Revenue District Office No. 83, Bureau of Internal Revenue, Cebu City, a letter and application for tax credits/refunds of unutilized input taxes in the amount of P11,705,945.00 paid pursuant to Section 112 (b) and (c) of the 1997 T ax Co de, in relation to Section 4.106-1(b) and (d) of Revenue Regulations No. 7-95 (Exhs. D and E). Without waiting for an action from the Respondent, Petitioner, on the next day, July 20, 1999, posted the instant petition for review in order to toll the running of the two-year prescriptive period under the law. In his Answer, Respondent raised the following Special and Affirmative defenses: 4. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau; 5. The amount of P11,705,945.00 being claimed by Petitioner as alleged excess creditable VAT input taxes for the period 01 April 1997 to 30 September was not properly documented; 6. In an action for refund the burden of proof is on the taxpayer to establish its rights to the refund, and failure to sustain the burden is fatal to the claim for refund/credit. 7. Petitioner must show that it has complied with the provisions of Section 204(c) and 229 of the Tax Code on the prescriptive period for claiming tax refund/credit; and 8. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation. ScCIaA In support of its claim for refund, Petitioner presented various documentary exhibits which consist of: 1. PEZA Registration Certificate (Exh. A); 2. BIR and SEC Certificates of Registration (Exhs. B and C); 3. Letter of Application for Tax Credits/Refunds of VAT (Exhs. D and E); 4. The original and amended monthly VAT declarations and quarterly VAT returns for the period April 1, 1996 to November 30, 1999 (Exhs. F-1 to F-7, inclusive of submarkings and H-1 to H-45); 5. Summary of input taxes claimed (Exh. G); and 6. Invoices and official receipts supporting Petitioner's claimed input taxes (Exhs/G-1 to G-14-a, inclusive of submarkings). This case was submitted for decision on June 13, 2000, sans the evidence of the Respondent." (Pp. 1-3, assailed decision; pp. 19-21, Rollo) On August 2, 2000, the Tax Court rendered the assailed decision. Not satisfied, respondent (petitioner herein) filed a motion for reconsideration on August 22, 2000 but the same was denied in a Resolution dated September 20, 2000. Aggrieved, respondent therein (petitioner herein) filed the instant petition for review on the following grounds: I. 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 IN RELATION TO SECTION 103 OF THE TAX CODE, AS AMENDED BY RA NO. 7916. caADSE II. SINCE 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 RA 7916 IN RELATION TO SECTION 103 OF THE TAX CODE, AS AMENDED BY 7716. Petitioner likewise raised the lone issue of whether or not respondent is entitled to a refund/tax credit in the amount of P11,705,905.00 allegedly representing input VAT on capital goods for the period April 1 to December, 1997. The petition must fail . It is a settled principle that issues/matters not raised at the lower court cannot be raised for the first time on appeal. Perusal of the records readily reveals that the grounds relied upon by the petitioner in the instant petition for review were not alleged in their answer before the CTA. It was only raised for the first time in its Motion for reconsideration, which was denied by the court a quo . We quote with conformity the disquisitions of the court a quo in resolving these two (2) grounds in its Resolution of September 20, 2000, thus: "At the outset, the present motion for reconsideration of Respondent deserves an outright denial because the grounds relied upon were only raised for the first time and were not pleaded previously in the Answer, during trial, not in his Memorandum ( Matling Industrial and Commercial Corporation vs. Commissioner of Internal Revenue, CTA Case No . 4206, March 30, 1992 ). However, for academic discussion, it is worthy to expound on the different fiscal incentives granted to PEZA-registered enterprise under the law. Respondent is correct in arguing that if an entity is registered with PEZA as an ecozone enterprise and is remitting 5% of its gross income to payment of the VAT pursuant to provisions of Section 24 of Republic Act No. 7916, to quote: SECTION 24. Exemption from Taxes Under the National Internal Revenue Code . Any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE, in lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises with the ECOZONE shall be remitted to the national governmen t. . . (Emphasis supplied). cSIHCA However, We do not agree that the afore-quoted law is applicable to the case at bar. Section 23 of Republic Act No. 7916 provides: SECTION 23. Fiscal Incentives . Business establishments operating within the ECOZONE shall be entitled to the fiscal incentives as provided for under Presidential Dec ree No. 6 6, the law creating the Expor t Processing Zone Au thority, or those provided for under Book VI of Executive Ord er No. 2 26, otherwise known as the Omn ibus Investment Co de of 1987. Under the aforementioned law, a PEZA registered enterprise has the option to choose between two sets of fiscal incentives. One, that which is provide for under Presidential Decr ee No. 6 6, as amended and Section 24 of R A 79 16 which includes the 5% preferential tax on gross income earned which is in lieu of national and local taxes; and second, as that provided for under Book VI of Executive Ord er No. 2 26, including but not limited to an income tax holiday (ITH) of 4 or 6 years depending on whether an entity is registered as a pioneer or non-pioneer enterprise. If an ecozone enterprise chooses the 5% preferential tax, it is exempt from payment of all national and local taxes. However, if an ecozone enterprise opted for the income tax holiday, it is only exempt from payment of the income tax but still subject to other national internal revenue taxes including the value-added tax. These were explicitly elucidated by the Bureau of Internal Revenue in VAT Ruling N os. 03 7-98; 043-98; 027-99; and 063-99. The records of the case convince Us that Petitioner availed of the fiscal incentives under Executive Or der No. 2 26 because of the fact that Petitioner is a VAT-registered entity with Certificate of Registration RDO Control No. 97-083-0006000-V duly issued by Respondent's Assistant Revenue District Officer, Ms. Gloria D. Decierdo, for and in behalf of Mr. Neito A. Racho, Revenue District Officer, RDO No. 83, Dalisay, Cebu (Exh. B). aADSIc The second ground raised by Respondent deserves no elaboration for being moot and academic because Petitioner is subject to VAT." (pp. 1-3, Resolution; pp. 27-29, Rollo ) This Court will not set aside lightly the conclusion reached by the Court of Tax Appeals, 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, unless there has been an abuse of improvident exercise of authority. (Commissioner of Internal Revenue vs. Court of Appeals, 271 SCRA 605, 608; Cyanamid Phil., Inc. vs. Court of Appeals, et al., G.R. No. 108067, January 20, 2000). We find no cogent reason to digress from the court a quo 's findings, based on evidence submitted and applicable law on the matter. WHEREFORE, premises above-considered, judgment is hereby rendered DISMISSING that instant petition and AFFIRMING IN TOTO the assailed decision dated August 2, 2000 and the September 20, 2000 Resolution of the Court of Tax Appeals. No costs. SO ORDERED. Austria-Martinez and Aquino, JJ., concur.