Eastern Telecommunications Philippines, Inc. v. Commissioner of Internal Revenue

FIFTH DIVISION [CA-G.R. SP No. 63604. 1 March 31, 2005.] EASTERN TELECOMMUNICATIONS PHILIPPINES, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS , respondents . D E C I S I O N LAMPAS PERALTA , J p : Before the Court is a petition for review filed under Rule 43, 1997 Rules of Civil Procedure assailing the (i) Decision dated October 12, 2000 2 of public respondent Court of Tax Appeals (CTA) in CTA Case No. 5656 which dismissed the petition for review filed by petitioner Eastern Telecommunications-Philippines, Inc. for refund/tax credit of its alleged excess VAT input taxes for the period from April 1996 to December 1997; and, (ii) Resolution dated February 15, 2001 3 which denied petitioner's motion for reconsideration of the Decision dated October 12, 2000. THE ANTECEDENTS The antecedent facts are summarized in the Decision dated October 12, 2000 of public respondent CTA, as follows: As represented, Petitioner is a domestic corporation, and is a grantee of a telecommunications franchise by virtue of Republic Act No. 7671, with office address at Telecoms Plaza, 316 Gil Puyat Avenue, Makati City. It is a VAT-registered enterprise whose sales are partly zero-rated, with respect to services it rendered to non-residents (foreign corporations) to service the incoming calls of its clients where such portion of service is performed by Petitioner in the Philippines, and partly VAT-taxable as regards to its domestic sales of services to its clients. For the period April, 1996 to December, 1997, Petitioner allegedly paid VAT input taxes amounting to P50,649,558.35 on its purchases of taxable goods and services, the amount of P24,283,171.24 is alleged to be attributable or allocable to its zero-rated sales, broken down as follows: Taxable Quarter Ratio Allocated Input Taxes 1996 2nd Quarter 37.908% P2,282,945.69 3rd Quarter 37.908% 2,403,547.59 4th Quarter 37.908% 2,357,791.34 1997 1st Quarter 53.759% 3,537,077.13 2nd Quarter 53.759% 3,991,102.80 3rd Quarter 53.759% 6,330,821.31 4th Quarter 53.759% 3,379,885.38 TOTAL P24,283,171.24 ============ On July 1, 1998, Petitioner simultaneously filed its administrative claim for refund/tax credit of the aforesaid amount of P24,283,171.24 with the Bureau of Internal Revenue (BIR) and the instant Petition for Review with this Court, in order to toll the running of the two-year period provided for by law. 4 After the submission of the respective memoranda of the parties, public respondent CTA rendered a Decision dated October 12, 2000 dismissing the petition for lack of merit. Petitioner filed a motion for reconsideration which public respondent CTA denied in a Resolution dated February 15, 2001. Hence, this petition which is based on the following arguments: Petitioner, Through the Presentation of Undisputed (and Deemed Admitted) Documentary and Testimonial Evidence, has Sufficiently Established the Veracity of its Claim for Refund of Excess Input VAT Attributable to Zero-Rated Sales. Assuming Arguendo , that Petitioner Failed to Present Required Evidence Relative to the Zero-Rated Sales, this Failure to Present Evidence on Zero-Rated sales is due to the Excusable Negligence of Petitioner's Former Counsel. Assuming Arguendo , that Petitioner Failed to Present Required Evidence Relative to the Zero-Rated Sales, this Failure or Mistake of Petitioner's Formal Counsel cannot in the Interest of Justice and Fair Play bind Petitioner (former counsel's client). Assuming Arguendo , that Petitioner Failed to Present Required Evidence Relative to the Zero-Rated Sales, Petitioner is not barred from the Submission and/or Presentation of Evidence which would Verily Prove the Merits of its Claim. 5 THE ISSUE Whether public respondent CTA erred in finding that petitioner failed to prove that it is entitled to refund/tax credit of the amount of P24,283,171.24 allegedly representing excess input VAT attributable to zero-rated sales. IcDCaS THE COURT'S RULING Petitioner faults public respondent CTA in finding that it failed to prove that its sales were VAT zero-rated and that its alleged excess input VAT was attributable to VAT zero-rated sales. Petitioner argues that: 32. The documentary and testimonial evidence clearly show and refer to the amount claimed as the refundable excess input VAT as attributable to VAT zero-rated sales, as shown in Petitioner's Amended Quarterly VAT returns, the testimony of its witnesses, and the reports of the commissioned Independent CPA. 33. Further, it should be noted that Respondents did not at any time during the course of the hearings of the instant case question the veracity or the fact Petitioner's transactions were indeed VAT zero-rated sales. . . 6 The argument is bereft of merit. It is hornbook doctrine that tax refunds are in the nature of tax exemptions, and the burden of proving entitlement to tax refund lies on the taxpayer. Apropos is BPI Leasing Corporation vs. Court of Appeals , 7 wherein the Supreme Court said: It is also apt to add that tax refunds are in the nature of tax exemptions. As such, these are regarded as in derogation of sovereign authority and are to be strictly construed against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption and he must be able to justify his claim by the clearest grant under Constitutional or statutory law, and he cannot be permitted to rely upon vague implications. Nothing that BLC has raised justifies a tax refund. Petitioner failed to discharge its burden of proving that it is entitled to tax refund or credit. As public respondent CTA noted, petitioner failed to prove that its sales were zero-rated, as it did not present documentary evidence such as contracts, sales invoices, bank credit memoranda, bank statements and other proofs of inward remittances of foreign currency to show that it actually made export sales. This is fatal to its claim because public respondent CTA has no means to determine whether or not petitioner indeed engaged in VAT zero-rated transactions. Public respondent CTA thus explained: While Petitioner was able to prove that it has an accumulated input tax for the period April 1996 to December 1997 as evidenced by the various official receipts and sales invoices supporting its purchases of vatable goods and services (Exhs. K, L, M, N, O, P, Q, R, S, T, U, V, W, X, AA, BB, CC, DD, FF, & GG), it failed to prove that its sales were zero-rated. The wordings of Section 108 (B)(2) [formerly Section 102(a)(2) of the Tax Code is clear and unambiguous when it says that services performed in the Philippines by a VAT registered person, other than those mentioned in paragraph(B)(1) of said Section 108, supra , shall be considered zero-rated services, provided it is 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 (BSP). Thus, in order for a sale to qualify as zero-rated sales, the following requirements should be complied with: (a) the payment of service fees must be in acceptable foreign currency; (b) there must be inward remittance of the foreign currency into the Philippines; and (c) the inward remittance is accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas ( Burmeister & Wain Scandinavian Contractors, Mindanao, Inc. vs. Commissioner of Internal Revenue , CTA Case No. 5376, August 04, 1999). Understood to mean what it plainly expressed, there must be documentary evidence such as, sales invoices and bank credit memoranda, among others, to show that indeed the taxpayer had actually made export sales. However, in the case at bar, no such documents were presented or offered in evidence. The Court therefore has no evidence to consider in support of Petitioner's claim that it made export sales for the years 1996 and 1997 which were actually paid for in foreign currency and inwardly remitted to the Philippines in accordance with BSP regulations. Although a report was submitted by an independent CPA pursuant to CTA Circular No. 1-95, as amended, only "The Summary of Input Taxes" on purchases of goods and services were verified. The export sales were not verified as stated in the footnote of the report wherein the independent CPA simply relied on the amounts of export sales furnished by petitioner (Exh. EE). Mr. Rubio clearly stated in his report that the revenue figures were merely provided by the Petitioner. Absence of the export documents have been ruled in the numerous cases as tantamount to a denial of petitioner's claim for refund. . . As indicated above, Petitioner failed to submit and offer as evidence the sales invoices, bank credit memos, among others, in support of its case. Petitioner cannot expect the Court to go beyond evaluating evidence which are not on hand. Furthermore, We agree with the Respondent that Petitioner failed to submit the documents required by Revenue Regulations No. 3-88 with respect to sale of services, such as: (1) authenticated Copy of the Contract showing the person for whom the services were rendered, the amount of the consideration and description of the services and the document evidencing actual payments; (2) Statement from the Central Bank or any of its accredited agent bank that the consideration in acceptable foreign currency has been inwardly remitted and accounted for in accordance with banking regulations; (3) Statement showing the amount of foreign currency, the date of inward remittance, conversion rate into Philippine currency and the total peso value thereof. The failure of Petitioner to submit in evidence the documents required under Section 2 of Revenue Regulations No. 3-88 prevented Us from confirming the veracity of the amount claimed by the Petitioner as excess input VAT payments ( Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue , CTA Case Nos. 4601, 4632, 4655 and 4701, November 18, 1997). . . 8 Notably, apart from petitioner's failure to prove that it actually made export sales for the period from April 1996 to December 1997, it failed to prove that it duly filed its quarterly VAT returns for 1998 to show that its 1997 VAT input taxes sought to be refunded have not been applied to the output taxes for 1998. As public respondent noted: Moreover, Petitioner failed to file in evidence its quarterly VAT returns for taxable year 1998. The same is indispensable in proving that its 1997 VAT input taxes sought to be refunded have not been carried over nor applied to the output taxes of the year 1998. In view thereof, there is absence of evidence on record that would warrant the relief sought for by Petitioner. 9 Petitioner further argues that assuming that it failed to present the required evidence relative to the zero-rated sales, it should not be barred from the presentation of additional evidence to prove the merits of its claim. 10 Allegedly, it was due to the excusable negligence of its former counsel that it failed to sufficiently substantiate its claim for tax refund. The argument has no merit. It is axiomatic that the negligence of counsel binds the client. Clients should take the initiative of periodically checking the progress of their cases so that they could take timely steps to protect their interest. 11 Thus, petitioner is bound by the mistake or negligence of its previous counsel, as it ought to be aware of the actions taken by the latter. Petitioner's allegation that it should be "allowed to present additional evidence as may be necessary, which evidence will be subject to examination and cross examination by the Respondent, and which evidence will be formally offered and further come under the examination and evaluation of this Honorable Court," deserves no merit. By its own admission, petitioner had been allowed by public respondent CTA to present additional pieces of evidence which were covered by petitioner's supplemental formal offer of evidence. 12 Petitioner was thus afforded more than ample opportunity to present the merits of its claim. Hence, public respondent CTA cannot be faulted when it stated in its Resolution dated February 15, 2001: It is a settled rule in this jurisdiction that mistakes of attorneys as to the competency of witness, the sufficiency, relevancy, materiality or immateriality of certain evidence, the proper defense, or the burden of proof are not proper grounds for a new trial ( Vivero vs. Santos, 52 O.G. 1424, February 28, 1956; Montes vs. CFI, 48 Phil 640, January 27, 1926; People vs. Manzanilla, 43 Phil 167, March 9, 1922 ). Hence, the alternative motion for new trial of Petitioner must likewise be denied. For to do so, this Court would give rise to a dangerous precedent in that there would be no end to a hearing before this Court because, every time a party is aggrieved by the Court's decision, he can have it set aside by filing a motion for new trial and be allowed to present additional evidence, albeit the ground for same was not among those mentioned by Rule 37 of the Rules of Court. 13 Consequently, the Court will not depart from the conclusion reached by public respondent CTA 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. In Commissioner of Internal Revenue vs. Court of Appeals 14 , the Supreme Court ratiocinated: We reiterate that the "Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. Through its expertise, it is undeniably competent to determine the issue of whether" Ateneo de Manila University may be deemed a subject of the three percent contractor's tax "through the evidence presented before it." Consequently, "as a matter of principle, this Court will not set aside the conclusion reached by . . . 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 . . ." This point becomes more evident in the case before us where the findings and conclusions of both the Court of Tax Appeals and the Court of Appeals appear untainted by any abuse of authority, much less grave abuse of discretion. Thus, we find the decision of the latter affirming that of the former free from any palpable error. WHEREFORE, the petition is denied for lack of merit. caHIAS SO ORDERED. Reyes and Guevarra-Salonga, JJ., concur. Footnotes 1. The case was part of the cases unloaded from other justices and re-raffled to the ponente to form part of her initial caseload, per Office Order No. 23-04-CG. 2. Rollo , pp. 7-14 3. Rollo , pp. 15-18 4. Rollo , pp. 7-8 5. Rollo , pp. 28, 34, 35, 36 6. Rollo , p. 31 7. G.R. No. 127624, November 18, 2003 8. Rollo , pp. 49-52 9. Rollo, pp. 13-14 10. Rollo , p. 36 11. Macondray & Co., Inc. vs. Provident Insurance Corporation , G.R. No. 154305, December 9, 2004 12. Rollo , p. 26 13. Rollo , p. 57 14. G.R. No. 115349, April 18, 1997