Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.), Inc.

SECOND DIVISION [CA-G.R. SP No. 63047. August 29, 2002.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC. , respondent . D E C I S I O N COSICO , J p : Before us is an appeal from the decision, 1 dated October 16, 2000, of the Court of Tax Appeals 2 ("CTA", for brevity) in CTA Case No. 5762, entitled: "Toshiba Information Equipment (Phils.), Inc. vs. Commissioner of Internal Revenue," ordering herein petitioner, Commissioner of Internal Revenue ("CIR," for brevity), to refund or issue a tax credit certificate to herein respondent, Toshiba Information Equipment (Phils.), Inc., in the amount of P1,385,282.08, representing unutilized input taxes paid by respondent for the period January 1, 1997 to June 30, 1997. Assailed also in this appeal is the resolution, 3 dated January 17, 2001, of CTA, denying petitioner's motion for reconsideration. The decretal portion of the said decision reads: WHEREFORE, Petitioner's claim for refund of unutilized input VAT payments is hereby GRANTED but in a reduced amount of P1,385,282.08 computed as follows: Amount of claimed input taxes filed with the DOF One Stop Shop Center P3,268,682.34 P416,764.39 P3,685,446.73 Less: 1) Input taxes not properly supported by VAT invoices and official receipts a. Per SGV's verification (Exh. I) P242,491.45 P154,391.13 P396,882.58 b. Per this Court's further verification (Annex A) 1,852,437.65 35,108.00 1,887,545.65 2) 1998 4th qtr. Output VAT liability applied Against the claimed input taxes 15,736.42 15,736.42 Subtotal P2,110,665.52 P189,499.13 P2,300,164.65 Amount Refundable P1,158,016.82 P227,265.26 P1,385,282.08 ========== ========== ========== Respondent Commissioner of Internal Revenue is ORDERED to REFUND to the Petitioner or in the alternative, ISSUE a TAX CREDIT CERTIFICATE in the amount of P1,385,282.08 representing unutilized input taxes paid by the Petitioner on its purchases of taxable goods and services for the period January 1 to June 30, 1997. SO ORDERED." 4 And the dispositive portion of the resolution, dated January 17, 2001, denying herein petitioner's motion for reconsideration reads: "WHEREFORE, in view of the foregoing, both Motions for Reconsideration filed by Respondent and Petitioner are hereby DENIED for lack of merit. SO ORDERED." 5 The factual antecedents, necessary for the proper adjudication of this appeal, as found by the Court of Tax Appeals, are as follows: "Petitioner (respondent herein) is a domestic corporation duly registered with the Philippine Economic Zone Authority (PEZA) as an ecozone export enterprise (Exh. A). It is principally engaged in the business of manufacturing and exporting of electric machinery, equipment, systems, accessories, parts, components, materials and goods of all kinds, including those relating to office automation and information technology and all types of computer hardware and software, such as, but not limited to HDD-CDD-ROM and personal computer printed circuit board (par. 6, Joint Stipulation of Facts and Issues). Petitioner (respondent herein) is a VAT registered entity and is subject to zero percent (0%) value-added tax on its export sales in accordance with then Section 100(a)(2)(A) of the Tax Code, as amended (pars. 1, 2 & 7, Stipulation of Facts and Issues). On April 14, 1997 and July 21, 1997, petitioner (respondent herein) filed with the Bureau of Internal Revenue its quarterly VAT returns for the first and second quarters of 1997, respectively, declaring input VAT payments on its domestic purchases of taxable goods and services in the aggregate sum of P3,875,139.65, broken down as follows: INPUT VAT Zero Carried over On domestic rated from previous purchases this Exh. 1997 sales quarter quarter Total B 1st qtr. P33,393,306.42 P3,320,034.44 P36,713,340.86 C 2nd qtr. 36,713,340.86 555,105.21 37,268,446.07 P3,875,139.65 Subsequently, on July 23, 1997, petitioner (respondent herein) filed with the BIR its amended quarterly returns for the first and second quarters of 1997 declaring total zero-rated sales amounting to P7,474,677,000.00: INPUT VAT Carried Over On domestic from previous purchases this Exh. 1997 Zero rated sales quarter quarter Total B-1 1st qtr P2,083,305,000.00 P33,393,306.42 P3,320,034.44 P36,713,340.86 C-1 2nd qtr 5,411,372,000.00 36,713,340.86 555,105.21 37,268,446.07 P7,494,677,000.00 P3,875,139.65 Pursuant to BIR Audit Memorandum Order No. 2-93, petitioner (respondent herein) filed on March 30, 1999 with the One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance (CENTER-DOF), two separate applications for tax credit of input taxes paid for the first two quarters of 1997 (par. 4, Joint Stipulation of Facts and Issues). The instant petition for review was filed on March 31, 1999, well within the two-year period prescribed by then Section 230 of the Tax Code (par. 8, Joint Stipulation of Facts and Issues). Petitioner (respondent herein) submitted voluminous documents to support its claim and witnesses to identify the same. Respondent (petitioner herein), on the other hand, in answer to the petition, states: 1) Petitioner's (respondent herein) alleged claim for refund/tax credit is subject to administrative routinary investigation/examination by respondent's Bureau; 2) Petitioner (respondent herein) failed miserably to show that the total amount of P3,875,139.65, claimed as VAT input taxes, were erroneously or illegally collected, or that the same are properly documented; 3) Taxes paid and collected are presumed to have been made in accordance with law, hence, not refundable; 4) In an action for tax refund, the burden is on the taxpayer to establish its right to refund and failure to sustain the burden is fatal to the claim for refund; 5) It is incumbent upon the petitioner (respondent herein) to show that it has complied with the provisions of Section 204 in relation to Section 229 of the Tax Code; and 6) Well-established is the rule that claims for refund/tax credit are construed in strictissimi juris against the taxpayer as it partakes of exemption from tax." 6 On October 16, 2000, after trial, 7 the Court of Tax Appeals rendered the assailed decision, 8 ratiocinating in this wise: "xxx xxx xxx There is no quarrel that Petitioner is subject to zero percent VAT on its export sales based on Section 100(a)(2)(A)(i) of the Tax Code, as amended, as Respondent already admitted the same. Said section of the Code, provides, to wit: Sec. 100. Value-added tax on sale of goods or properties . (a) Rate and base of tax . There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. xxx xxx xxx (2) The following sales by VAT-registered persons shall be subject to 0%. (A) Export sales. The term 'export sales' means: (i) 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 and services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). Furthermore, Petitioner proved that indeed its export sales of P7,494,677,000.00 for the first two quarters of 1997 qualify as zero-rated as it established that: a) it is a duly VAT registered PEZA export enterprise; b) it equally generated export sales amounting to P7,494,677,000.00 for the first two quarters of 1997 (see Sales & Collection Summary, commercial export invoices Exhs. N-N-1 to N-3, O-1 to O-30, Q-1 to Q-115 and R-1 to R-776, inclusive); and c) the foreign proceeds of its export sales of P7,494,677,000.00 were inwardly remitted and accounted for in accordance with the BSP rules and regulations (see Sales and Summary Collection, bank credit advices and Petitioner's passbook Exhs. N-1 to N-3, O-1 to O-30, P-1 to P-45, inclusive). Considering therefore, that Petitioner's sales qualify as zero-rated sales, it is not liable to pay output tax on such sales. Undoubtedly, it can claim tax credit or refund of input VAT paid on its purchases of goods, properties or services relative to such zero-rated sales in accordance with Section 4.102-2 of Revenue Regulations No. 7-95 and Section 106(a) of the Tax Code, as amended, hereunder quoted, viz: Section 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. DcTAIH xxx xxx xxx Section 106. Refunds or tax credits of creditable input tax . (a) Any VAT registered person, whose sales are zero-rated or effectively zero-rated, may within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 100(a)(2)(A)(i), (ii) and (b) and Section 102(b)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributable to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. Thus, what is left for Our resolution are the following issues which the Petitioner and Respondent have jointly stipulated: (I) Whether or not Petitioner has incurred input taxes in the amount of P3,875,139.65 for the period January 1 to June 30, 1997 which are directly attributable to its export sales; (II) Whether or not the input taxes incurred by Petitioner for the period January 1 to June 30, 1997 have not been carried over to the succeeding quarters; (III) Whether or not input taxes incurred by Petitioner for the first two quarters of 1997 have not been offset against any output tax; and (IV) Whether or not input taxes incurred by Petitioner for the first two quarters of 1997 are properly substantiated by official receipts and invoices. After an exhaustive review of the evidence presented as well as the applicable laws, rules, regulations and jurisprudence, We grant Petitioner's claim but in a reduced amount. Petitioner's amended quarterly VAT returns for 1997 showed that it had no VAT taxable sales but only zero-rated export sales in the sum of P2,083,305,000.00 for the first quarter and P5,411,372,000.00 for the second quarter. That being the case, all input taxes incurred by Petitioner for the said two quarters of 1997 were directly attributable to its zero-rated sales for the involved period. In the case of Babcock-Hitachi (Phils.), Inc. vs. Commissioner of Internal Revenue and the Court of Tax Appeals, CA-G.R. SP No. 40703, November 21, 1996, it was ruled that "where Petitioner exports 100% of its products, thus, engaged in purely zero-rated sales, all input taxes incurred on its purchases of goods and services and on capital goods imported or locally purchased are all considered directly attributable to its zero-rated sales. Hence, it appears that for the first two quarters of 1997, Petitioner incurred input taxes directly attributable to its export sales. Anent the issues of carry-over and offsetting, although Petitioner's claimed input taxes were not applied against any output VAT during the first two quarters of 1997, they were carried over to Petitioner's subsequent quarterly VAT returns and were offset against its VAT output liability of P15,736.42 for the fourth quarter of 1998 (Exh. G). Nevertheless, even if such input taxes of P3,875,139.65 for the first two quarters of 1997 were carried over to the succeeding quarters up to the first quarter of 1999 (Exhs. D to H, inclusive). Petitioner deducted the same as "VAT Refund/TCC Claimed" (Exh. H-1) from its total available input taxes of P6,841,468.17 declared in 1999 first quarter VAT return (Exh. H-1). There remained a net creditable input tax of P2,966,328.52 which actually pertains to Petitioner's creditable input taxes for the third quarter of 1997 to the first quarter of 1999 before the deduction of its 1999 first quarter output VAT liability of P25,219.99. In other words, despite the carry over of the subject input taxes of P3,875,139.65, Petitioner's claim is not affected because the said amount was not deducted from Petitioner's total available input taxes in 1999. Notwithstanding the foregoing, still, We cannot allow the total amount of input taxes claimed because as evidenced by the records in this case, not all of the claimed input taxes of P3,875,139.65 were actually incurred by Petitioner. Nor were they duly substantiated by invoices and official receipts. Granting that the amount of P3,875,139.65 being claimed in the instant petition tallies with the total input taxes declared in Petitioner's amended 1997 first and second quarterly VAT returns, nonetheless, said amount is higher by P189,692.92 than what have been claimed administratively by Petitioner with the DOF One Stop Inter-Agency Tax Credit and Duty Drawback Center (see Annexes D, D-1, E and E-1, Petition for Review). Accordingly, Petitioner cannot judicially claim beyond the amount of P3,685,446.23 which was filed in the administrative level. Then Section 230 of the Tax Code clearly mandates: SEC. 230. Recovery of tax erroneously or (sic) illegally collected . No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner, but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears to have been erroneously paid. Moreover, the Summaries of Input VAT for the first and second quarters of 1997 submitted by Petitioner for verification by the commissioned audit firm, SGV & CO., and offered as evidence before this Court (Exhs. J-1 to J-4; K-1 to K-3) reflected only a total amount of P3,685,446.73 input taxes. SGV & CO., certified in its report (Exh. I), that out of the total input taxes of P3,685,446.73, the amount of P396,882.58 was not properly substantiated. The reasons being that they involved transactions which were only supported by provisional acknowledgment receipts or by documents other than official receipts, or were not supported by TIN or TIN VAT or by any document at all (see TSN, September 27, 1999, pp. 12 & 13). It is noteworthy that a further verification by this Court on the said SGV report, together with Petitioner's Summaries of Input VAT (Exhs. J-1 to J-4; K-1 to K-3) and supplier's invoices and official receipts (Exhs. L-1 to L-72; M-1 to M-396) for the first and second quarters of 1997, revealed that in addition to the exceptions noted by SGV & Co. of P396,882.58, the amount of P1,887,545.65 detailed per Annex A failed to meet the substantiation requirements provided for under Section 4.104-5 of Revenue Regulations No. 7-95 in relation with Sections 108 and 238 of the then Tax Code. Also, as We earlier discussed, petitioner carried over the subject input taxes to the succeeding quarters and in fact offset it against its output VAT liability of P15,736.42 for the fourth quarter of 1998. The net creditable input tax of P6,601,677.32 (before deduction of the P15,736.42 output VAT) shown in Petitioner's 1998 fourth quarter VAT return corresponds to the declared input taxes of herein Petitioner for the first quarter of 1997 up to the fourth quarter of 1998. Applying the first-in-first-out concept, the amount that was credited to pay the output VAT of P15,736.42 came from the claimed input taxes for the first quarter of 1997, whereby resulting to an excess unutilized input tax of P6,585,940.90 (P6,601,677.32 less P15,736.42). In sum, aside from the input taxes of P2,284,428.23 (the sum of P396,882.58 and P1,887,545.65) which were not properly substantiated by VAT invoices and official receipts, the amount of P15,736.42 which was applied against Petitioner's 1998 fourth quarter output VAT liability should be additionally deducted from Petitioner's input taxes of P3,685,446.73. xxx xxx xxx" 9 Not satisfied with the above decision, herein petitioner, on November 9, 2000, within the period of appeal, 10 filed a motion for reconsideration of the same, on the ground 11 that Toshiba Information Equipment (Phils.) Inc., 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. Hence, it is not allowed any tax credit on VAT input pursuant to Section 4.103-1 of Revenue Regulations 7-95. Herein respondent corporation also sought reconsideration 12 of the above decision of the CTA, arguing that the amount of P1,887,545.65 which was disallowed in the above CTA decision was duly substantiated and supported by Exhibits J-1 to K-3. The CTA in its resolution, 13 promulgated on January 17, 2001, denied both motion for lack of merit, 14 in the following manner, viz: "xxx xxx xxx The issue raised by respondent is nothing new. As a matter of fact, We have, on several occasions, ruled negatively on the same argument of the Respondent. In Seagate Technology (Philippines) versus Commissioner of Internal Revenue , (CTA Case No. 5921, September 20, 2000). We held in this wise: Respondent is correct in arguing that if an entity is registered with PEZA as an ecozone enterprise and it is remitting 5% of its gross income to the national government, it is exempt from payment of the VAT pursuant to provisions of Section 24 of Republic Act No. 7916, to quote: SEC. 24. Exemption from Taxes Under the National Internal Revenue Code . Any provision of existing laws, rule 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. . . . However, We do not agree that the aforequoted law is applicable to the case at bar. Section 23 of Republic Act No. 7916, to quote: SEC. 23. Fiscal Incentives . Business establishments operating within the ECOZONE 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 for under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code 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 provided for under Presidential Decree No. 66, as amended, and Section 24 of RA 7916 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 Order 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. 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 Nos. 037-98, 043-98; 027-99; and 063-99. The records of this case are sufficient to convince Us that petitioner availed of the fiscal incentives under Executive Order No. 226. There is no dispute that Petitioner is a VAT registered entity ( par. 1, Joint Stipulation of Facts and Issues ). Hence, it is subject to VAT. However, Petitioner is subject to 0% VAT in its export sales in accordance with Section 100(a)(2)(A) of the Tax Code, as amended ( par. 2, Joint Stipulation of Facts and Issues .) Its export sales qualifying as zero-rated sales, Petitioner is not liable to pay output tax on such sales. Accordingly, it can claim tax credit or refund of input VAT paid on its purchases of goods, properties or services relative to such zero-rated sales. Finally, aside from the foregoing, it is worth mentioning that Respondent's motion deserves an outright denial considering that the ground relied upon by the Respondent was only raised for the first time and was never pleaded in his Answer nor was it raised during the trial of this case. ( Matling Industrial and Commercial Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4206, March 30, 1992 ). The Supreme Court also held that "if well-recognized jurisprudence precludes raising an issue only for the first time on appeal, with more reason should such issue be disallowed or disregarded when initially raised only in a motion for reconsideration ( Manila Bay Club Corporation vs. Court of Appeals , 249 SCRA 303). With respect to Petitioner's Motion for Reconsideration, We would like to mention that Exhibits J-1 to K-3 are mere schedules of input VAT for the first and second quarters of 1997. If Petitioner and the commissioned CPA considered the same as sufficient substantiation, We do not. It is likewise worth emphasizing that although We give credence to the said CPA's report, We do not render Our decision based on the findings of the CPA alone. We have Our own CPA and We also conduct an investigation/examination on the documents presented. And as early discussed and detailed in the questioned decision, the amount of P1,887,545.65 was disallowed because the subject purchases were not supported by VAT invoices and/or official receipts. xxx xxx xxx" 15 Hence, this petition. Petitioner anchors his petition on the following grounds: 16 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 7716. II SINCE RESPONDENT IS EXEMPT FROM VAT, IT IS NOT ALLOWED ANY TAX CREDIT ON INPUT TAX PREVIOUSLY PAID PURSUANT TO SECTION 4.103-1 OF REVENUE REGULATIONS NO. 7-95. On April 24, 2001 17 as per resolution, 18 promulgated on April 23, 2001, of this Court, herein respondent corporation was directed to file comment on the petition. Finding that herein respondent corporation would not file such comment, this Court, on September 20, 2001, resolved that the instant case be deemed submitted for decision sans comment. 19 Notwithstanding though, for a more informed resolution of the issues involved in the case at bar, this Court in its resolution, 20 promulgated on March 8, 2002, required the parties to submit their respective memoranda of laws and evidence relied upon to support their respective positions. After considering the arguments raised by the parties, we find the petition meritorious. The crux of the controversy is whether or not respondent corporation is entitled to the refund of the amount of P1,385,282.08 as alleged unutilized input VAT payments for the period January to June 30, 1997. We rule that herein respondent corporation is not entitled to the refund of the alleged unutilized input VAT payments. In the case at bar, respondent corporation is alleged to have export sales, and such export sales are subject to zero-percent (0%) VAT, citing Section 100(2)(A)(i) of the Tax Code. 21 Herein petitioner, C.I.R., on the other hand, argued 22 that such export sales of respondent corporation are not zero-rated transactions, rather, such export sales are exempt transactions, citing Section 103(q) of the Tax Code, as amended by R.A. 7716, 23 in relation to Section 24, R.A. 7916. 24 There is no dispute that respondent corporation is a PEZA-registered enterprise. 25 Browsing, therefore, over the provisions of R.A. 7916, the law creating Philippine Economic Zone Authority (PEZA), particularly Section 24 thereof, herein respondent corporation, being a PEZA-registered enterprise, is exempted from paying taxes under the National Internal Revenue Code. Section 24 of R.A. 7916 provides: "Sec. 24. Exemption from Taxes Under the National Internal Revenue Code . Any provision of existing laws, rule 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. . . ." Thus, in lieu of paying taxes, five percent (5%) of the gross income earned by herein respondent corporation shall be remitted to the national government, to be distributed in accordance with the proportion stated in Section 24, 26 R.A. 7916. Now, looking at the export sales entered into by herein respondent corporation, the records 27 reveal that such exports sales were made to the following corporations, viz: 1) Toshiba America Information Systems, Inc. 28 ; 2) Toshiba Europe GMBH 29 ;3) Toshiba Multi Media Devises Co., Ltd.; 30 4) Toshiba Corporation 31 ; and 5) Solectron California Corporation. 32 Having established such export sales, the next query then to be resolved are as follows: What kind of transactions are such export sales? Are they zero-rated transactions, or merely exempt transactions? If they are zero-rated transactions, may herein respondent corporation, which is a tax exempt enterprise , being a PEZA-registered entity, claim refund of its VAT payments on its domestic purchases of goods and services? On the other hand, if such export sales are merely exempt transactions, may herein respondent corporation, which is a tax exempt enterprise , being a PEZA-registered entity, claim refund of its VAT payments on its domestic purchases of goods and services? The Court of Tax Appeals ruled that since herein petitioner in its pleading 33 already admitted such export sales as zero-rated transactions, it follows therefore that such export sales are zero-rated transactions. The CTA says: "xxx xxx xxx There is no quarrel that Petitioner is subject to zero percent VAT on its export sales based on Section 100(a)(2)(A)(i) of the Tax Code, as amended, as Respondent already admitted the same . (emphasis supplied) . . . Furthermore, Petitioner proved that indeed its export sales of P7,494,677,000.00 for the first two quarters of 1997 qualify as zero-rated as it established that: a) it is a duly VAT registered PEZA export enterprise; b) it equally generated export sales amounting to P7,494,677,000.00 for the first two quarters of 1997 (see Sales & Collection Summary, commercial export invoices Exhs. N-N-1 to N-3, O-1 to O-30, Q-1 to Q-115 and R-1 to R-776, inclusive); and c) the foreign proceeds of its export sales of P7,494,677,000.00 were inwardly remitted and accounted for in accordance with the BSP rules and regulations (see Sales and Summary Collection, bank credit advices and Petitioner's passbook Exhs. N-1 to N-3, O-1 to O-30, P-1 to P-45, inclusive). xxx xxx xxx" 34 And the CTA concludes: "xxx xxx xxx Considering therefore, that Petitioner's sales qualify as zero-rated sales, it is not liable to pay output tax on such sales. Undoubtedly, it can claim tax credit or refund of input VAT paid on its purchases of goods, properties or services relative to such zero-rated sales in accordance with Section 4.102-2 of Revenue Regulations No. 7-95 and Section 106(a) of the Tax Code, as amended, . . ." 35 We disagree. We are not unaware that as a matter of principle, this Court will not set aside the conclusion reached by an agency such as the Court of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. 36 In the case at bar, in ruling that the export sales of herein respondent corporation are zero-rated transactions, the Court of Tax Appeals relied heavily on the stipulation of facts, 37 made by herein petitioner. The Joint Stipulation of Facts and Issues, signed by herein petitioner's counsel Atty. Biason, states in part. "xxx xxx xxx The parties have agreed and admitted to the following facts and issues: xxx xxx xxx 2. Petitioner is subject to zero percent (0%) value-added tax on its export sales in accordance with then Section 100(a)(2)(A) of the Tax Code, as amended. xxx xxx xxx" 38 As a rule, a judicial admission, such as that made by petitioner in the Joint Stipulation of Facts, is binding on the declarant. However, such rule does not apply when there is a showing that (1) the admission was made through a palpable mistake, or that (2) no such admission was made. Indeed, Section 4, Rule 129 of the Rules of Court states: "SEC. 4. Judicial Admissions . An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made." Scrutinizing the Answer 39 filed by herein petitioner, we rule that the Joint Stipulation of Facts and Issues signed by herein petitioner was made through palpable mistake. Quoting paragraph 4 of its Answer, herein petitioner states: "4. He ADMITS the allegations contained in paragraph 5 of the petition only insofar as the cited provisions of Tax Code is concerned, but SPECIFICALLY DENIES the rest of the allegations therein for being mere opinions, arguments or gratuitous assertions on the part of petitioner and/or because they are mere erroneous conclusions or interpretations of the quoted law involved, the truth of the matter being those stated hereunder. xxx xxx xxx" 40 And paragraph 5 of the petition for review filed by herein respondent corporation before the CTA states: "5. Petitioner is subject to zero percent (0%) value-added tax on its export sales in accordance with then Section 100(a)(2)(A) of the Tax Code which provides: "Sec. 100. Value-Added tax on sale of goods . (a) Rate and base of tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods sold, bartered or exchanged, such tax to be paid by the seller or transferor: Provided, that the following sales by VAT-registered persons shall be subject to 0%: (1) Export sales. xxx xxx xxx" 41 As we see it, nothing in said Answer did herein petitioner admit that the export sales of herein respondent corporation were indeed zero-rated transactions. At the least, what was admitted only by herein petitioner, concerning paragraph 4 of his Answer, is the fact that the provisions of the Tax Code, as cited by herein respondent corporation in its petition for review filed before the CTA were correct. Time and again, we find a space here to state that a litigation is neither a game of technicalities nor a battle of wits and legalisms; rather, it is an abiding search for truth, fairness and justice. While stipulations of facts are normally binding on the declarant or the signatory thereto, a party may nonetheless be allowed to show that an admission made therein was the result of a palpable mistake that can be easily verified from the stipulated facts themselves and from other incontrovertible pieces of evidence admitted by the other party. A patently clerical mistake in the stipulation of facts, which would result in falsehood, unfairness and injustice, cannot be countenanced. 42 Hence, we rule that, as shown by the successive pleadings 43 of herein petitioner, the palpable mistake made by petitioner in the stipulation of facts, should not be taken against petitioner, for to do otherwise would result in suppressing the truth through falsehood. Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. 44 Now, going back to the question of what kind of transactions are the export sales made by herein respondent corporation are they zero-rated, or merely exempt transactions? And on the question of whether respondent corporation can claim refund of its VAT payments made in its domestic purchases of goods and services. We rule that such sales are merely exempt transactions, made by a tax exempt entity. Section 109(q) of the Tax Code, as amended, partly provides: HDTCSI "SEC. 109. Exempt Transactions . The following shall be exempt from the value-added tax: (q) transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree Nos. 66, 529 and 1590. xxx xxx xxx" As stated earlier, herein respondent corporation, being a PEZA-registered enterprise, is exempted from paying taxes under the National Internal Revenue Code, under Section 24 of R.A. 7916. Hence, respondent corporation, being a tax exempt entity, under a special law, i.e. , R.A. 7916, cannot, therefore, claim refund of its VAT payments made in its domestic purchases of goods and services. Furthermore, the value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods or services. 45 Besides, tax exemptions extend only to taxes which the taxpayer is directly liable to pay and not to those taxes, such as the value-added tax, which are merely passed on to it as a consequence of the sale. 46 WHEREFORE, premises considered, the appealed decision of the Court of Tax Appeals in CTA Case No. 5762, is hereby REVERSED and SET ASIDE, and a new one is hereby rendered finding respondent corporation, being a tax exempt entity under R.A. 7916, not entitled to refund the VAT payments made in its domestic purchases of goods and services. SO ORDERED. Guerrero and Tria-Tirona, JJ . , concur. Footnotes 1. Penned by Judge Amancio Q. Saga, and concurred by Presiding Judge Ernesto D. Acosta and Judge Ramon O. De Vera, Rollo , pp. 019-028. 2. Judge Ernesto D. Acosta, Presiding Judge. 3. Rollo , pp. 031-034. 4. CTA Decision, promulgated on October 16, 2000, Rollo , pp. 027-028. 5. CTA Resolution, promulgated on January 17, 2001, Rollo , p. 034. 6. CTA Decision, Rollo , pp. 019-021. 7. This Court notes that Atty. Joselito Biason, counsel of herein petitioner, C.I.R., did not even conduct cross-examination during the trial. See Transcript of Stenographic Notes, July 27, 1999, p. 14; TSN, September 27, 1999, p. 14; TSN, October 21, 1999, p. 9. 8. Herein petitioner submitted the case before the CTA for decision without presenting any evidence. And both herein petitioner and respondent opted not to present their respective memoranda, Rollo , p. 021. 9. CTA decision, Rollo , pp. 021-027. 10. Rollo , p. 008. 11. Rollo , p. 031. 12. Ibid . 13. Rollo , pp. 031-034. 14. Rollo , p. 034. 15. CTA Resolution, January 17, 2001, Rollo , pp. 031-034. 16. Petition for Review, Rollo , p. 012. 17. Notice of Resolution, Rollo , p. 52. 18. Rollo , p. 53. 19. Rollo , p. 54. 20. Rollo , pp. 56-57. 21. Memorandum of respondent, Rollo , p. 94. 22. Memorandum of petitioner, Rollo , pp. 75-76. 23. Republic Act 7716 is an Act restructuring the value-added tax (VAT) system, widening its tax base and enhancing its administration, and for these purposes amending and repealing the relevant provisions of the National Internal Revenue Code, as amended, and for other purposes. 24. Otherwise known as "The Special Economic Zone Act of 1995". 25. Exhibit "A"; See Transcript of Stenographic Notes, July 27, 1999, p. 7. 26. 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. This five percent (5%) shall be shared and distributed as follows: (a) Three percent (3%) to the national government; (b) One percent (1%) to the local government units affected by the declaration of the ECOZONE in proportion to their population, land area, and equal sharing factors; and (c) One percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside and contiguous to each other ECOZONE: Provided, however , That the respective share of the affected local government units shall be determined on the basis of the following formula: (1) Population fifty percent (50%) (2) Land area twenty-five percent (25%) (3) Equal sharing twenty-five percent (25%) 27. Exhibits "Q1-Q115"; "R1-R323; "R324-R560"; "R561-R776". 28. maintaining office in the United States of America. 29. maintaining office in Germany. 30. maintaining office in Japan. 31. also maintaining office in Japan. 32. maintaining office in the United States of America. 33. paragraph 4, Answer, Rollo , p. 040. 34. Rollo , pp. 021-022. 35. Rollo , pp. 022-023. 36. Commissioner of Internal Revenue vs. Court of Appeals , 303 SCRA 614, 621 (1999). 37. Joint Stipulation of Facts and Issues, Records, p. 34. 38. Ibid. 39. Rollo , pp. 040-042. 40. Answer, Rollo , pp. 040-041. 41. Petition for Review, Rollo , p. 036. 42. Atlas Consolidated Mining & Development Corporation vs. Commissioner of Internal Revenue, 318 SCRA 388 (1999). 43. See for instance Petition for Review, filed before us, Rollo , p. 014. 44. Philippine Bank of Communications vs. Commissioner of Internal Revenue , 302 SCRA 241, 253 (1999). 45. Vitug and Acosta, Tax Law and Jurisprudence 228 (2000). 46. Domondon, Bar Reviewer in Taxation 570 (1999).