Commissioner of Internal Revenue v. EG & Gomni, Inc.

SIXTH DIVISION [CA-G.R. SP No. 61402. September 24, 2002.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs .EG & GOMNI, INC. , respondent . D E C I S I O N VIDALLON-MAGTOLIS , J p : Assailed in this petition for review is the Decision dated July 26, 2000 of the Court of Tax Appeals (CTA) in CTA Case No. 5587 which partially granted the respondent's claim for tax refund. The aforesaid decision had the following dispositive portion: "WHEREFORE, in the light of all the foregoing, Petitioner's claim is PARTIALLY GRANTED. Respondent Commissioner of Internal Revenue is hereby ORDERED to REFUND and/or ISSUE TAX CREDIT CERTIFICATE in favor of the petitioner in the amount of P2,897,320.45 representing unutilized input taxes for the period January to September 30, 1996, computed as follows: 1996 1st Qtr. 2nd Qtr. 3rd Qtr. Total Claim (Exhs. F & G) (Exhs. H & I) (Exhs. J & K) Amount of Claim P1,448,186.49 P1,282,745.72 P634,225.62 P3,365,157.83 Less: Disallowance 1) Per SGV Report P64,021.44 P124,302.94 P120,506.42 P308,830.50 (Exh. O) 2) Per Court's further verification 31,645.26 127,361.62 159,006.88 Subtotal P95,666.40 P124,302.94 P247,868.04 P467,837.38 Amount Refundable P1,352,520.09 P1,158,442.78 P386,357.58 P2,897,320.45 =========== =========== =========== =========== "SO ORDERED." 1 We quote with approval the factual findings 2 of the court a quo : "Petitioner (now respondent herein) is a domestic corporation principally engaged in the business of manufacturing, assembling, processing and exporting semi-conductor, electronic and optoelectronic products (Exh. A).It is duly registered with the Bureau of Internal Revenue as a value-added (VAT) taxpayer (Exh. B) and with the Export Processing Zone Authority as an exporter (Exh. M). "On December 18, 1996, Petitioner filed amended quarterly VAT returns for the first, second and third quarters of 1996 declaring total zero-rated sales of P335,061,586.75 and input taxes paid on domestic purchases of goods and services in the amount of P3,365,157.83, broken down as follows: Input Taxes Carried-over On purchases Carried-over Exh. 1996 Zero-rated Sales From previous this quarter to subsequent quarter quarter C 1st qtr. P53,702,663.57 P2,887,490.63 P1,448,186.49 P4,335,677.12 D 2nd qtr. 138,456,548.82 4,335,677.12 1,282,745.72 5,618,422.84 E 3rd qtr. 142,902,374.36 5,618,422.84 634,225.62 6,252,648.46 P335,061,586.75 P3,365,157.83 =========== =========== "Pursuant to BIR Revenue Audit Memorandum Order No. 2-93, Petitioner filed on January 6, 1998 with One Stop Shop Inter-Agency Credit and Duty Drawback Center of the Department of Finance applications for tax credit on input taxes paid for the first, (Exhs. F & G), second (Exhs. H & I) and third (Exhs. J & K) quarters of 1996. "The said claims not having been acted upon within the sixty-day period prescribed under Section 106(d) of the Tax Code, as amended, the instant petition was accordingly filed by herein petitioner on March 30, 1998. "Respondent (now petitioner herein),by way of Special and Affirmative Defenses, states that: "1) The alleged tax refund for the first quarter, second quarter and third quarter of calendar year 1996 in the aggregate amount of P3,365,157.83 representing unutilized input taxes paid on its purchases of goods and services, have still to undergo administrative investigation; "2) Claims for refund are construed strictly against claimant for the same partake the nature of exemption from taxation; ISAcHD "3) The amount of tax sought by the Petitioner to be refunded or credited was collected and paid pursuant to law and BIR implementing rules and regulations, hence, the sum is not refundable. Petitioner must prove that the said input tax was actually paid, remitted and received by the respondent's Bureau; and "4) Moreover, Petitioner must prove that it has complied with the provision of Section 230 of the Tax Code, as amended." After the presentation of evidence, the tax court rendered the questioned decision. The petitioner filed a motion for reconsideration; however, the same was likewise denied. 3 Hence, this appeal. The Issue The sole issue in this case is whether or not the respondent (petitioner before the court a quo ) is entitled to a tax refund/tax credit in the amount of P2,897,320.45 representing the alleged unutilized input tax payments for the period April 1, 1996 to December 31, 1997. Petitioner's Arguments The petitioner argues that under Section 24 of Republic Act No. 7916, business establishments operating within the ecozone are exempt from the national and local taxes, including the value-added tax. In lieu of paying taxes, said enterprises shall remit to the national government 5% of the gross income earned by them. Considering that respondent is registered with the Philippine Economic Zone Authority (PEZA) as an ecozone export enterprise, its business is therefore not subject to VAT pursuant to the aforesaid Section 24 of Republic Act No. 7916- vis--vis Section 103 of the Tax Code, as amended by R.A. 7716, which partly provides: "Sec. 103. Exempt Transactions . The following shall be exempt from the value-added tax: "xxx xxx xxx "(q) Transactions which are exempt under special laws, except those granted under Presidential Decree Nos. 66, 1529, 1972, 1491 and 1950, and non-electronic cooperatives under Republic Act No. 6938, or International agreements to which the Philippines is a signatory. . . . ." The transactions of ECOZONE or PEZA-registered enterprises being exempt from internal revenue taxes under Section 24 of RA No. 7916, they fall under the phrase "transactions which are exempt under special laws," hence, are exempt from VAT. Such being the case, the respondent is not allowed any tax credit on VAT input tax previously paid pursuant to Section 4.103-1 of Revenue Regulations No. 7-95 otherwise known as the "Consolidated Value-Added Tax Regulations", the pertinent portions of which state: "Sec. 4.100-2. Zero-rated sales . A zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these regulations. "Sec. 4.103-1. Exemptions . "(A) In general. An exemption means that the sale of goods or properties and/or services and the use or lease of properties is not subject to VAT (output) and the seller is not allowed any tax credit on VAT (input tax) previously paid ..." Following the principle that claims for refund of taxes are construed strictly against the claimant for they partake the nature of tax exemptions, the petitioner is not entitled to the refund sought. Respondent's Arguments On the other hand, the respondent contends that the issues relied upon by the petitioner in this appeal were never raised during the trial nor in the petitioner's answer. Therefore, it cannot be allowed for the first time on appeal. The respondent further argues that the certificate of registration issued by the Bureau of Internal Revenue (BIR) indubitably shows the respondent's registration with the said agency as a VAT-taxable entity. Respondent's registration with the PEZA does not automatically exempt it from the payment of VAT. According to the respondent, a PEZA registered enterprise has the option of choosing between the fiscal incentives granted by P.D. No. 66 and Section 24 of RA 7916 which provides for the five percent (5%) tax in lieu of all taxes including VAT, and that provided under E.O. No. 226 which basically is an Income Tax Holiday (ITH) of 4 or 6 years. The respondent has clearly opted to avail of the ITH incentive by obtaining the requisite registration as a VAT-taxable entity. Thus, it is not VAT exempt. In fact, the BIR's action in processing the respondent's application for VAT registration and his subsequent issuance of the same to the respondent completely belies his allegation. Moreover, the respondent is a duly registered export enterprise as evidenced by its BIR Certificate of Registration; thus, subject to zero percent (0%) VAT rate on its export sales pursuant to Section 100(a) of the Tax Code. Accordingly, being a VAT-registered enterprise, it is subject to 0% VAT on its export sales, and therefore, entitled to a claim for refund of its input tax payment as they are deemed attributable to its zero-rated sales. In addition, the excess input taxes incurred by the respondent arose substantially out of its purchases of taxable goods and services as evidenced by 1996 quarterly VAT returns. And the evidence discloses that the respondent was able to prove the requirements under Section 106(a) of the Tax Code, to wit: a) that it is a VAT-registered entity; b) that the claim was made within the two-year period from the close of the taxable year when the purchase was made; and c) that the amount claimed has not been offset against output taxes. Such being the case, the respondent is entitled to a refund of input taxes of such nature. Finally, considering that the instant appeal raises a question of fact which only a special court such as the CTA has the expertise to take cognizance of and resolve, the findings of fact of the said court should be considered as final absent any showing of grave abuse of authority, and therefore, should no longer be disturbed on appeal. The Court's Ruling The appeal is bereft of merit. Section 24 of Republic Act No. 7916 provides: SEC. 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 within the ECOZONE shall be remitted to the national government. ..." Apparently, under the aforequoted provision, business establishments operating within the ecozone are exempt from national and local taxes, value-added tax included, the same being a national tax. In lieu thereof, the said enterprises shall remit to the government 5% of the gross income earned by them. However, Section 23 of the same law, in relation to Presidential Decree No. 66 and Executive Order No. 266, provides: "SEC. 23. Fiscal Incentives . Business establishments operating within the ECOZONES shall be entitled to the fiscal incentives as provided for under Presidential Decree No. 66, the law creating the Export Processing Zone Authority, or those provided under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987. "Furthermore, tax credits for exporters using local materials as inputs shall enjoy the same benefits provided for in the Export Development Act of 1994." Thus, under the aforementioned law, a PEZA-registered enterprise has the option to choose between two sets of fiscal incentives. First, that which is provided for under PD No. 66, as amended, and Sec. 24 of RA No. 7916 which includes 5% preferential tax on gross income earned, in lieu of national and local taxes, and second, that provided for under Book VI of EO No. 226, 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, including VAT. However, if an ecozone opted for the ITH, it shall only be exempt from income tax, but will still be subject to other internal revenue taxes provided for under NIRC, such as, but not limited to value-added tax. In the case at bar, it is uncontrovertible that the respondent opted to avail of the ITH incentive by obtaining the requisite registration as a VAT-taxable entity. 4 Per Certificate of Registration RDO Control No. 95-570-000439, the respondent registered as such on May 10, 1995. Unfortunately, there is no showing which period the respondent availed of the 4-year or the 6-year. In any case, pursuant to Art. 39 of EO No. 266, during the 4 or 6-year ITH, as the case may be, the respondent shall only be exempt from income tax, but it shall be subject to other internal revenue taxes provided under the NIRC, including VAT. Therefore, during the aforesaid 4-year or 6-year period reckoned from the date of its registration on May 10, 1995, the respondent's sales of goods, property and services shall be subject to 10% VAT. The respondent alleges though that it is a duly registered export enterprise as evidenced by its BIR Certificate of Registration No. 95-19 5 ;thus, subject to zero-per cent VAT on its export sales pursuant to Sec. 100(a)(2)(A)(i) of the 1995 Tax Code. Therefore, it is entitled to a claim for refund of its input tax payment relative to its zero-rated sale. We agree. The records show that the respondent reportedly generated a zero-rated export sales in the amount of P335,061,586.75 (P53,702,663.57 + P138,456,548.82 + P142,902,374.36) for the period January to September 1996. The respondent's direct export sales were paid for in acceptable foreign currency inwardly remitted to the Philippines and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas. 6 Hence, its export sales shall be subject to zero percent rate pursuant to Section 100 7 (a)(2)(A)(i) of the 1995 Tax Code, viz : "SEC. 100. Value-added Tax on Sale of Goods or Properties . "xxx xxx xxx "(2) [Zero-rated Sales.] 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); "xxx xxx xxx" 8 For enlightenment, we quote hereunder the pertinent provision of Revenue Memorandum Circular No. 74-99 dated October 15, 1999, thus: "SECTION 1. Scope . This Circular is being issued to consolidate and harmonize all the pertinent tax laws and their corresponding implementing rules and regulations in respect of sales of goods, property and services to and from ECOZONES, in relation to the provisions of R.A. No. 7916, as amended by R.A. No. 8748, entitled "The Special Economic Zone Act of 1995" which created the Philippine Economic Zone Authority (PEZA). "xxx xxx xxx "SECTION 3. Tax Treatment Of Sales Made By A VAT Registered Supplier From The Customs Territory To A PEZA Registered Enterprise . (1) If the Buyer is a PEZA registered enterprise which is subject to the 5% special tax regime, in lieu of all taxes, except real property tax, pursuant to R.A. No. 7916, as amended: (a) Sale of goods (i.e.,merchandise) . This shall be treated as indirect export hence, considered subject to zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916, in relation to ART. 77(2) of the Omnibus Investments Code. (b) Sales of service . This shall be treated subject to zero percent (0%) VAT under the `cross border doctrine' of the VAT System, pursuant to VAT Ruling No. 032-98 dated Nov. 5, 1998. "(2) If Buyer is a PEZA registered enterprise which is not embraced by the 5% special tax regime, hence, subject to taxes under the NLRC, e.g., Service Establishments which are subject to taxes under the NIRC rather than the 5% special tax regime . (a) Sales of goods (i. e.,merchandise) . This shall be treated as indirect export hence, considered subject to zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916 in relation to ART. 77(2) of the Omnibus Investments Code . (b) Sales of Service . This shall be treated subject to zero percent (0%) VAT under the `cross border doctrine' of the VAT System, pursuant to VAT Ruling No. 032-98 dated Nov. 5, 1998. "3. In the final analysis, any sale of goods, property or services made by a VAT registered supplier from the Customs Territory to any registered enterprise operating in the ecozone, regardless of the class or type of the latter's PEZA registration, is actually qualified and thus legally entitled to the zero percent (0%) VAT. Accordingly, all sales of goods or property to such enterprise made by a VAT registered supplier from the Customs Territory shall be treated subject to 0% VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC , in relation to ART. 77(2) of the Omnibus Investments Code, while all sales of services to the said enterprises, made by VAT registered suppliers from the Customs Territory, shall be treated effectively subject to the 0% VAT, pursuant to Section 108(B)(3), NIRC, in relation to the provisions of R.A. 7916 and the `Cross Border Doctrine' of the VAT system. "This Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to the benefit of the zero percent (0%) VAT for sales made to the aforementioned ECOZONE enterprises and shall serve as sufficient compliance to the requirement for prior approval of zero-rating imposed by Revenue Regulations No. 7-95 effective as of the date of the issuance of this Circular." The respondent falls under category no. 2 (a) of Section 3. This being the case, the respondent's export sales paid on the local purchases of goods and services are available for tax credit or refund in accordance with Section 4.102.2 of Revenue Regulations No. 7-95, to wit: SEC. 4.102-2. Zero-Rating . (a) In general. A zero-rated sale by a VAT registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these regulations." In view of the foregoing, we find no cogent reason to deviate from the findings of the tax court, whose expertise on tax cases, we highly recognize. "...The Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. ... "Because of this recognized expertise, the findings of the CTA will not ordinarily be reviewed absent a showing of gross error or abuse on its part. The findings of fact of the CTA are binding on this Court and in the absence of strong reasons for this Court to delve into facts, only questions of law are open for determination." 9 WHEREFORE, the petition is DISMISSED for lack of merit. SO ORDERED. Dacudao and Guaria, III, JJ . , concur. Footnotes 1. Rollo ,p. 28. 2. Id .at pp. 2122. 3. Id .at pp. 2930. 4. Exhibit B, Id .at p. 92. 5. Exhibit M, Id .at p. 99. 6. Exhs. G, I & K, Id .at pp. 94, 96 & 98. 7. Section 106 under 1997 Tax Code. 8. National Internal Revenue Code of 1997. 9. Philippine Refining Company vs. Court of Appeals ,256 SCRA 667, 676.