Commissioner of Internal Revenue v. Read-Rite Philippines, Inc.

TWELFTH DIVISION [CA-G.R. SP No. 62725. June 19, 2002.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs .READ-RITE PHILIPPINES, INC. , respondent . D E C I S I O N ASUNCION , EJ. , J p : This petition for review under Rule 43 of the 1997 Rules of Civil Procedure assails the Decision dated September 29, 2000 and the Resolution dated December 22, 2000 of the Court of Tax Appeals in CTA Case No. 5659, which ordered petitioner Commissioner Internal Revenue (CIR) to refund or issue a tax credit certificate to respondent Read-Rite Philippines, Inc. in the amount of P9,755,460.53 representing unutilized input value-added taxes for the period from April 1, 1996 to December 31, 1996. aETAHD Respondent Read-Rite Philippines, Inc. ("Read-Rite" for brevity),formerly known as Sunward Technologies Philippines, Inc.,("Sunward Technologies") is a domestic corporation engaged in the business of manufacturing and exporting magnetic recording heads, tape heads and other electronic products. SATDEI From January 1, 1996 to December 31, 1996, Read-Rite's principal office was located at Km. 19, West Service Road, South Superhighway, Paraaque. While the company was still known as Sunward Technologies it secured its VAT Registration Certificate No. 34-2-002582 dated April 15, 1988 from Revenue District Office (RDO) No. 34 of Paraaque. For the period from January 1, 1996 to December 31, 1996, Read-Rite generated and recorded zero-rated sales of services amounting to P1,172,230,966.06 arising from a Manufacturing Services Agreement entered into between Read-Rite Philippines and Read-Rite International. The aforementioned sales were paid for in U.S. dollars inwardly remitted to the Philippines in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas. For the same period, Read-Rite paid input VAT on its domestic purchases of taxable goods and services amounting to P22,380,640.70. Read-Rite claimed that the payments of input VAT were directly attributable to its zero-rated export sales of services. On February 17, 1997, Read-Rite applied for the cancellation of its VAT registration with RDO of Paraaque due to the transfer of its place of business from Paraaque to Calamba, Laguna. Thereafter, Read-Rite applied for registration with the RDO of Calamba, Laguna, which issued Certificate of Registration No. 97-560-000158 dated February 26, 1997. The aforesaid Certificate indicated that Read-Rite was subject to VAT. On March 5, 1997, Read-Rite was registered with the Philippine Export Processing Zone Authority (PEZA) as an Ecozone Export Enterprise pursuant to the provisions of Republic Act No. 7916 (otherwise known as "The Special Economic Zone Act"). PEZA issued to Read-Rite a Certificate of Registration No. 94-60. For the fiscal year 1997, Read-Rite availed of the fiscal incentives under Executive Order No. 226. On December 29, 1997, Read-Rite, believing that it is entitled to the refund of input VAT payments attributable to its zero-rated sales of services made for the period January 1, 1996 to December 31, 1996, filed with RDO No. 52 of the Bureau of Internal Revenue (BIR) an Application for Tax Credit/Refund of Value-Added Tax Paid together with a letter forwarding various documents in support of its claim for tax credit/refund in accordance with Section 106 (a) [now Section 112 (a)] of the National Revenue Tax Code, as amended (NIRC). After waiting for more than sixty (60) days for the BIR to act on the aforesaid application, Read-Rite was constrained to file a Petition for Review with the Court of Tax Appeals on July 10, 1998 in order to toll the running of the two-year prescriptive period. The BIR, through the petitioner, filed its Answer to such petition. In the assailed Decision dated September 29, 2000, the Court of Tax Appeals (CTA) partially granted the Petition for Review filed by Read-Rite. Although the court a quo barred Read-Rite from claiming the refund/credit of input VAT payments attributable to its zero-rated sales of services for the first quarter of 1996 based on the two-year prescriptive period under the law, it concluded that Read-Rite is entitled to the tax refund/credit because it availed of the fiscal incentives under E.O. No. 226 for PEZA-registered enterprises. The entitlement to the tax refund/credit is supported by the VAT Registration Certificates issued by petitioner's respective Revenue District Officers to Read-Rite, thereby making it liable to pay VAT. Moreover, the court a quo ruled that: "In the absence of convincing proof from the Respondent (CIR) that Petitioner (Read-Rite) is exempt from the payment of VAT because it was paying the 5% preferential tax, We are inclined to grant Petitioner's prayer for tax credit/refund of input taxes claimed but in a reduced amount of P9,755,460.53, computed as follows: Total amount per Schedule of Purchases and Input VAT Paid (Exh. HHH) P24,719,292.43 Less: Disallowances 1. Prescribed input taxes P5,471,317.22 2. Exceptions noted by independent CPA 5,401,544.68 3. Court's exceptions 4,090,970.00 14,963,831.90 Total Input VAT P9,755,460.53 supported and verified WHEREFORE, in view of the foregoing, the Petition for Review is hereby partially GRANTED. Respondent is ORDERED to REFUND OR ISSUE A TAX CREDIT CERTIFICATE in the amount of P9,755,460.53 in favor of Petitioner. SO ORDERED." On October 19, 2000, petitioner filed a Motion for Reconsideration of the aforesaid Decision. In its Resolution dated December 22, 2000, the Court of Tax Appeals denied petitioner's Motion but clarified that the issue of whether or not Read-Rite availed of the fiscal incentives under E.O. 226 is immaterial because said corporation was not yet a PEZA-registered enterprise during the year 1996 and thus, subject to VAT. Hence, this petition. In his petition, petitioner avers that Read-Rite, being registered with PEZA as an Ecozone Export Enterprise, is exempt from paying national (including VAT) and local taxes pursuant to Section 24 R.A. No. 7916, in relation to Section 103 of the NIRC, as amended. Petitioner asserts that Read-Rite, in lieu of paying taxes, is required to remit to the national government five percent (5%) of its gross income. Petitioner concludes that since Read-Rite is exempt from VAT, it is not allowed any tax credit/refund on input VAT previously paid. In its Comment, Read-Rite does not deny that it is a PEZA-registered enterprise. However, it emphasized that it was only registered with the PEZA on March 5,1997 while the claim for the tax refund/credit covers the period January 1, 1996 to December 31, 1996. Read-Rite asserts that for the year 1996, it was a VAT-registered entity that religiously paid its input VAT on domestic purchases of taxable goods and services which were directly attributable to its zero-rated sales of services. Going over the record, We find no reason to disturb the above findings of the Court of Tax Appeals, there being no showing that they are not substantiated by the evidence at hand. It is a basic rule in taxation that the factual findings of the CTA, when supported by substantial evidence, will not be disturbed on appeal unless it is shown that the said court committed gross error in the appreciation of facts ( Commissioner of Internal Revenue v. Mitsubishi Metal Corporation , 181 SCRA 214, 220 [1990]). In the present case, the CTA in its questioned December 22, 2000 Resolution, correctly determined that Read-Rite was not a PEZA-registered enterprise, but a VAT-registered entity, during the year 1996: "It became a PEZA-registered enterprise on March 5, 1997 (Exh. D). The records show that during fiscal year 1997, when it became a PEZA-registered enterprise, it availed of the fiscal incentives under Executive Order No. 226. Based on the antecedent facts, it is crystal clear that Petitioner, during the period January 1, 1996 to December 31, 1996, is still subject to VAT and is not a PEZA registered enterprise (hence, VAT exempt) as contended by the Respondent." It is immaterial that Read-Rite is presently a PEZA-registered enterprise since the incentives granted by the PEZA to it only apply during the period of its registration with PEZA ( Section 5, Rule XIII, Part VII, Rules and Regulations to Implement the special Economic Act of 1995 ).Clearly, prior to March 5, 1997, Read-Rite was a VAT-registered entity which could rightfully seek a refund/credit of input VAT that it paid on domestic purchases of taxable goods and services which are directly attributable to its zero-rated export sales of services. Obviously, the petitioner intentionally overlooked this fact in its zealous effort to deny the tax refund/credit being claimed by Read-Rite. In Chu Hoi Horn vs. Court of Appeals (G.R. No. L.-22046, October 29, 1968),the Supreme Court declared that: "This Court is bound by the findings of facts of the Court of Tax Appeals, especially so where the evidence in support thereof is more than substantial, only questions of law thus being left open to it for determination. Such an approach to problems of this character does not only have a legal basis but is dictated by the realities of the situation. A tribunal like the Court of Tax Appeals necessarily develops expertise, dealing as it does with one particular branch of the law; it can be relied upon, therefore, at least on factual matters to make full and judicious use of the knowledge that it has acquired through such long years of experience. It is in a position to appreciate fully the manifold complexities usually associated with tax problems and thus to come up with the correct solutions. It has been the invariable policy of the Court therefore, not to substitute its discretion for that of respondent Court of Tax Appeals. Petitioner has not shown any reason why there should be a deviation from such a norm." Since the petitioner only questioned CTA's classification of Read-Rite as a VAT-registered entity for the period January 1, 1996 to December 31, 1996, the findings of fact of the CTA pertaining to Read-Rite's sufficient compliance with the legal requirements for a tax refund/credit and its entitlement to a tax refund/credit in the reduced amount of P9,755,460.53, are binding upon this Court, the same being reasonably supported by substantial evidence. WHEREFORE, based on the foregoing premises, the instant petition is hereby DENIED. The assailed Decision dated September 29, 2000 and the Resolution dated December 22, 2000 are hereby affirmed in toto . SO ORDERED. Alio-Hormachuelos and Sundiam, JJ . , concur.