Commissioner of Internal Revenue v. Hitachi Computer Products (Asia) Corp.

FIRST DIVISION [CA-G.R. SP No. 63340. February 7, 2002.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs .HITACHI COMPUTER PRODUCTS (ASIA) CORPORATION , respondent . D E C I S I O N REYES , B. , J p : This is a petition for review interposed under Rule 43 of the Rules of Court from the decision rendered by the Court of Tax Appeals dated February 2, 2001 in CTA Case No. 5651 entitled "Hitachi Computer Products (Asia) Corporation vs. Commissioner of Internal Revenue" which partially granted respondent's claim for refund and consequently ordered petitioner to issue a tax credit certificate in the amount of P2,423,542.91 in favor of the respondent or to return the said sum representing the alleged unutilized input VAT for the period April 1, 1996 to June 30, 1996. First, the facts which gave rise to the present petition: Respondent Hitachi Computer Products (hereinafter referred to as HITACHI) is a domestic corporation duly organized and existing under and by virtue of Philippine laws, with principal office at Special Export Processing Zone, Laguna Technopark, Bian, Laguna. It is licensed under the Securities and Exchange Commission to "operate, conduct and maintain the Business of manufacturing, exporting, buying, selling or otherwise dealing in at wholesale, electric, electronic and software products and industrial properties, including but not limited to hard disk drive and component parts (Exh. K).It is an export enterprise registered with the Export Processing Zone Authority pursuant to the provisions of Presidential Decree No. 66, as amended, with Certificate of Registration No. 94-28 (Exh. B) dated May 11, 1994. Likewise, it is registered by the Bureau of Internal Revenue as a VAT taxpayer with Certificate of Registration RDO Control No. 94-570-000298 dated June 28, 1994 (Exhs. A and A-1). On October 7, 1994, the Export Processing Zone Authority through the Special Board issued Resolution No. 94-212 approving HITACHI's application for pioneer status of its small-sized, high density hard disk drive and thin film magnetic head manufacturing facility. It was further resolved that HITACHI's facility/project is entitled to six (6) years income tax holiday (Exh. L-1). On July 29, 1996, HITACHI filed its quarterly VAT return for the quarter ended June 30, 1996 reflecting a total input VAT in the amount of P8,039,567.86 arising from domestic purchases of goods and services (Exh. C).Out of the aforesaid sum, HITACHI is claiming the refund of P2,589,328.32. On June 25, 1998, HITACHI filed with the Department of Finance an application for tax credit/refund of value-added tax paid for the period April 1, 1996 to June 30, 1996 in the amount of P2,589,328.32. On June 26, 1998, HITACHI lodged its appeal before the Court of Tax Appeals so as to toll the running of the two-year prescriptive period mandated under Sec. 230 of the Tax Code, as amended. By way of riposte, the Commissioner of Internal Revenue, who is the respondent in the instant controversy, raised the following special and affirmative defenses: 1. HITACHI miserably failed to demonstrate that the tax subject of the case at bar was erroneously or illegally collected. 2. Taxes paid and collected are presumed to have been made in accordance with law and regulations, hence, not refundable. 3. In an action for tax refund/credit, the burden of proof is on the taxpayer to establish its right to refund and failure to adduce sufficient proof is fatal to the action for refund/credit. 4. It is incumbent upon HITACHI to show that it has complied with the provisions of Sec. 204 in relation to Sec. 229 of the Tax Code, as amended. 5. Claims for refund are construed strictly against the claimant for the same partakes of the nature of exemption from taxation ( Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor ( Western Minolco Corp. vs. Commissioner of Internal Revenue , 124 SCRA 121). 6. The petition for review filed before the Court of Tax Appeals should be dismissed on the ground of non-exhaustion of administrative remedies inasmuch as the claim for refund was filed on June 25, 1998 and the petition for review was immediately filed a day after or on June 26, 1998. Petitioner BIR Commissioner posits that he was not given reasonable time or opportunity to resolve the claim for refund filed before his office on June 25, 1998. Hence, there was no decision that could be subjected to review by the Court of Tax Appeals. On February 2, 2001, the Tax Court rendered the decision now being assailed, the decretal text of which reads thusly: "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 P2,423,542.91 in favor of Petitioner." At threshold of this suit is the query: Is respondent HITACHI entitled to the refund or issuance of tax credit certificate in the amount of P2,423,542.91 as alleged unutilized input VAT payments for the period April 1, 1996 to June 30, 1996? The answer, We believe, is in the affirmative. It ought to be stressed at the outset that a claim for refund should be filed with the Commissioner of Internal Revenue as a pre-requisite before court action on tax refund cases can be commenced and that the same must be filed within two years from the date of payment of the tax. Nonetheless, it should be equally underscored that the law imposes a positive requirement that the said claim for refund should be filed with the Commissioner within two years from payment of the tax. In this regard, the Supreme Court had previously pronounced that when the two-year period is about to prescribe and the claim for refund with the Commissioner of Internal Revenue has not been acted upon by him, for the protection of the interest of the taxpayer, he should file a petition for review with the Court of Tax Appeals within the said two-year period; otherwise, if the decision of the Commissioner is adverse to the taxpayer and it was made after the two-year period he can no longer appeal the same to the Court of Tax Appeals ( Gibbs vs. Collector of Internal Revenue and Court of Tax Appeals , 107 Phil 232, Johnson Lumber Co. vs. CTA ,101 Phil 151). It appears, therefore, that it is not necessary for the Commissioner of Internal Revenue to first act unfavorably on the claim for refund before the Court of Tax Appeals could validly take cognizance of the case. This is so because of the positive mandate of Section 230 of the Tax Code and also by virtue of the doctrine that the delay of the Commissioner in rendering his decision does not extend the reglementary period prescribed by statute. Incidentally, the taxpayer could not be faulted for taking advantage of the full two-year period set by law for filing his claim for refund. Indeed, no provision in the tax code requires that the claim for refund be filed at the earliest instance in order to give the Commissioner an opportunity to rule on it and the court to review the ruling of the Commissioner of Internal Revenue on appeal. The law fixed the same period two years for filing a claim for refund with the Commissioner (Sec. 204, par. 3),and for filing of suit in court (Sec. 230),unlike in protests of assessment under Sec. 229 which fixed the period (thirty days from receipt of the decision) before an appeal could be made in court. Indeed, only the latter case presupposes the existence of a prior decision of the Commissioner which could be subjected to review by the court. In fact, the Court of Tax Appeals itself acknowledges that the claim for refund with the Commissioner could be pending simultaneously with a suit for refund filed before the former ( Commissioner of Internal Revenue vs. Bank of the Philippine Islands as Liquidator of Paramount Acceptance Corporation and the Court of Tax Appeals ,CA-G.R. SP No. 34102, September 19, 1994). Beyond doubt, the filing of an application for refund/credit by Hitachi with petitioner BIR Commissioner (June 25, 1998) and the petition for review instituted before the Court of Tax Appeals (June 26, 1998) both fall within the two year prescriptive period which, under the law, should be reckoned as follows: in case of a claim for refund of input VAT with the BIR Commissioner, from the close of the taxable quarter when the sales were made; in case of a claim for refund of input VAT before the Court of Tax Appeals, from the date of filing of the quarterly VAT return ( Nichimen Corporation Philippine Branch vs. Commissioner of Internal Revenue ,CTA Case No. 5384, August 18, 1998). In the main, HITACHI hinges its claim for refund/tax credit of unutilized input VAT arising from purchases of domestic goods and services on the fact that its sales of goods are 100% exported and therefore, zero-rated. HITACHI invokes Sec. 106(a) in relation with 100(a)(1) of the Tax Code, to wit: "Sec. 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 attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales." "Sec. 100. Value-added tax on sale of goods or properties 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 or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas." As duly found by the Court of Tax Appeals, HITACHI is a VAT registered person as evidenced by the Certificate of Registration RDO Control No. 94-570-000298 issued by RDO No. 57 of the Bureau of Internal Revenue (Exh. A).Moreover, its sales of goods are 100% exported (Exhs. J-1 to J-122, N, and w-1 to W-377) and therefore subjected to VAT at zero percent (0%) pursuant to Section 100(a)(2)(A)(i) of the Tax Code, as amended. HITACHI was likewise able to prove that foreign currency exchange proceeds in US dollars representing export inward remittances were credited to its US Dollar Accounts as certified by Pilipinas Bank and Rizal Commercial Banking Corporation (Exhs. H-1 to H-11, RY-1, Y-2, and Y-3). The petitioner BIR Commissioner postulates that HITACHI is not legally entitled to the refund inasmuch as it is registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export Enterprise and as such, its business is not subject to VAT pursuant to Sec. 24 of Republic Act No. 7916 which provide: 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 ...." Sec. 103 of the Tax Code is likewise invoked by the petitioner, viz : "Sec. 103. 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 ,529, 972, 1491 and 1590 ... The petitioner BIR Commissioner posits that transactions of ECOZONE or PEZA-registered enterprises, being exempt from internal revenue taxes under Sec. 24 of R.A. No. 7916, fall under the phrase "transactions which are exempt under special laws" ,pursuant to Sec. 103 of the Tax Code, as amended, hence, are exempt from VAT. The petitioner further asseverates that inasmuch as HITACHI is exempt from VAT by virtue of the above referred provision, it is not allowed any tax credit on VAT input taxes paid on its purchases of goods and services alleged to be attributable to its zero-rated sales. We disagree. A careful reading of the very provision invoked by the petitioner elicits a conclusion antithetical to his claim. Apropos, the petitioner's assertion that the contested transactions of HITACHI are VAT exempt must be rejected. As may be readily gleaned from the aforementioned proviso, while the Tax Code specifically excepted from the coverage of VAT transactions which are exempted under special laws, those transactions made under Pres. Decree No. 66, among others, are deemed excluded and fall outside the umbrage of the said exemption .Proceeding from the indisputable fact that HITACHI is registered with EPZA under the provisions of Presidential Decree No. 66, it behooves Us to surmise that the latter could not be deemed covered by the exemption enumerated under Sec. 103. Anent the exemption embodied under Sec. 24, R.A. 7916, the ratiocinations conveyed by the CTA in its decision are pertinent and accurate, viz : "On this point, we agree with the Respondent (petitioner herein) that if an entity is registered with PEZA as an ecozone enterprise and is remitting 5% of its gross income to the national government, it is exempt from the payment of VAT. However, We do not agree that the aforequoted provisos are applicable in the case at bar. First, Petitioner is under income tax holiday and is not remitting 5% of its gross income to the national government . . . . It bears stressing that under Section 23 of Republic Act No. 7916, two different fiscal incentives are granted to an ecozone enterprise, to wit: SEC. 23. Fiscal Incentives. Business establishments operating within the ECOZONE shall be entitled to the fiscal incentives as provided for under the 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 Investments Code of 1987. Based on the aforequoted Section 23 of RA 7916, a PEZA registered enterprise has the option to choose between two sets of fiscal incentives. One, is that 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 those provided for under Book VI of Executive Order No. 226, including but not limited to an income tax holiday (ITH) of 4 to 6 years depending on whether or not 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 chooses 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. It must be pointed out that an ecozone enterprise cannot avail of these two sets of fiscal incentives at the same time. This was explained by the Bureau of Internal Revenue in VAT Ruling Nos. 037-98; 043-98; 027-99; and 063-99 ( Read-Rite Philippines Inc. (Formerly Sunward Technologies Phils.,Inc. vs. Commissioner of Internal Revenue , CTA Case No. 5659, September 29, 2000). Since petitioner (HITACHI) availed of the fiscal incentives under Executive Order No. 226, that is, an income tax holiday for six years starting from October 7, 1994 as evidenced by Certificate of Board Resolution No. 94-212 (Exh. L-1) it became subject to value-added tax. (CTA decision, pp. 29-30) Finally, it is worth noting that as a general proposition, findings arrived at by highly specialized bodies such as the Court of Tax Appeals, when ably supported by evidence, should not be disturbed on appeal absent a showing of gross error in its appreciation of facts ( Commissioner of Internal Revenue vs. Court of Appeals , 298 SCRA 83). WHEREFORE, having found the assailed decision to be in accord with the pertinent laws and jurisprudence, the instant appeal is hereby DISMISSED. SO ORDERED. Austria-Martinez and Barrios, JJ . , concur.