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

SIXTH DIVISION [CA-G.R. SP No. 64219. July 31, 2002.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . HITACHI COMPUTER PRODUCTS (ASIA) CORPORATION , respondent . D E C I S I O N RIVERA , J p : This is a Petition for Review brought under Rule 43 of the Rules of Court assailing the decision of the Court of Tax Appeals dated March 16, 2001 in C.T.A. Case No. 5756 entitled Hitachi Computer Products (Asia) Corporation v. Commissioner of Internal Revenue , the decretal portion of which reads: 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 P988,404.58 in favor of Petitioner. As found by the Court of Tax Appeals, the following are the factual backdrop of the case: Hitachi Computer Products (Asia) Corporation, herein Respondent, is a domestic corporation licensed by the Securities and Exchange Commission to operate, conduct and maintain the business of manufacturing, exporting, 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. Likewise, Respondent is registered with the Bureau of Internal Revenue as a VAT taxpayer with Certificate of Registration RDO Control No. 94-570-000298, dated June 28, 1994. Respondent, which is an ECOZONE export enterprise duly 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, dated May 11, 1994, was granted "pioneer status" for its small-sized, high density hard disk drive and thin film magnetic head manufacturing facility by EPZA through a Special Board Resolution No. 94-212. The Special Board further resolved that Respondent's facility project is entitled to six (6) years income tax holiday. On April 21, 1997, Respondent filed its 1997 First Quarterly Value-Added Tax Return with the Bureau of Internal Revenue reflecting among others, a total VAT input tax on domestic purchases of goods/services, and royalty payments in the amount of P18,850,916.36. On March 25, 1999, Respondent filed with the Tax and Revenue Group of the One-Stop-Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance an application for tax credit/refund of value added tax paid for the period January 1, 1997 to March 31, 1997, in the amount of P2,505,048.85. In order to toll the running of the two-year prescriptive period provided under Section 230 of the Tax Code as amended, the Respondent filed a Petition for Review with the Court of Tax Appeals on March 29, 1999. AIDSTE The Petitioner raised the following Special and Affirmative Defenses before the Court of Tax Appeals: 5. Petitioner's alleged claim for refund/tax credit is subject to administrative routinary investigation/examination by the respondent's Bureau; 6. Petitioner failed miserably to show that the total amount of P2,505,048.85, claimed as VAT input taxes, were erroneously or illegally collected, or that the same are properly documented; 7. Taxes paid and collected are presumed to have been made in accordance with law and regulations, hence, not refundable; 8. In an action for tax refund, the burden is on the tax payer to establish its right to refund, and failure to sustain the burden is fatal to the claim of refund; 9. It is incumbent upon the petitioner to show that it has complied with the provisions of Section 204 in relation to Section 229 of the Tax Code; and 10. Well-established is the rule that claims for refund/tax credit are construed in strictissimi juris against the taxpayer as it partakes the nature of exemption from tax. In its assailed Decision, the court a quo found the Respondent to be a VAT registered person engaged in zero-rated sales paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas ( Rollo, p. 21 ). However, since not all the input taxes were supported by valid VAT invoices and official receipts, the court a quo ordered the refund of the amount of P988,404.58 as only said amount of input VAT was supported by evidences and duly verified. IAEcCa Hence, the instant Petition for Review, where Petitioner raised for the first time the following issues: 1. 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. 2. 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. Petitioner submitted that pursuant to R.A. No. 7916, the law creating the Philippine Economic Zone Authority, business establishments operating within the ECOZONE are exempt from national and local taxes. In lieu of paying taxes, said enterprises shall remit to the national government 5% of the gross income earned by them. The exemption includes VAT. Petitioner further alleged that the transactions of ECOZONE or PEZA registered enterprises, being exempt from internal revenue taxes, fall under Section 103 ( now Sec. 109 ) of the Tax Code, to wit: Sec. 103. Exempt Transactions. The following shall be exempt from value added tax: xxx xxx xxx (q) Transactions which are exempt under special laws, except those granted under Presidential Decree No. 66, 529, 927, 1491 and 1590, and non-electric cooperatives under Republic Act No. 6938, or international agreements to which the Philippines is a signatory; xxx xxx xxx In other words, it is engaged in non-VAT taxable business and therefore cannot claim refund of its input taxes. In its Comment, Respondent submitted that Petitioner is barred from raising the issue of whether or not the Respondent's business is subject to VAT for the first time on appeal after failing to raise said issue before the CTA. Likewise, Respondent claimed that precisely because it is registered with EPZA under P.D. 66, it is not exempt from VAT under Section 103 ( now Sec. 109 ) of the National Internal Revenue Code. Respondent further alleged that it does not remit 5% final tax on gross income to the national government as provided under Sec. 24 of R.A. 7916 because it had availed of the Income Tax Holiday of six (6) years. AaCcST We yield to the objection of the Respondent to the Commissioner's attempt to defeat the Respondent's claim for refund by raising for the first time before this Court the question of whether or not the Respondent is a VAT exempt entity. This question was not raised by the Commissioner before the CTA. Commissioner on appeal cannot be allowed to adopt a theory distinct and different from that he has previously pursued ( Atlas Consolidated Mining & Development Corporation vs. Commissioner of Internal Revenue, G.R. No. L-26911, January 27, 1981 ). The considered view laid down by the Supreme Court in the case of Commissioner of Internal Revenue vs. Wander Philippines, Inc. ( G.R. No. L-68375, April 15, 1988 ) finds application in this case on review, to wit: To allow a litigant to assume a different posture when he comes before the court and challenge the position he had accepted at the administrative level, would be to sanction a procedure whereby the Court which is supposed to review administrative determinations would not review, but determine and decide for the first time, a question not raised at the administrative forum. Thus, it is well settled that under the same underlying principle of prior exhaustion of administrative remedies, on the judicial level, issues not raised in the lower court cannot be raised for the first time on appeal. In any event, the Petitioner based its claim that Respondent was not entitled to a refund of its input tax on the former's premise that the exemption under Section 24 of RA. No. 7916 rendered the respondents business covered by Section 103 ( now Sec. 109 ) of the NIRC on exempt transactions specifically Sub-section (q) or "transactions which are exempt under special laws", We disagree. The exemption under Section 24 of R.A. 7916, the exemption from payment of VAT granted to ECOZONE enterprise registered under PEZA effectively renders the sales of goods and services to the ECOZONE enterprises effectively zero rated ( Section 106 (A) (2) (b) and Section 108 (B) (3) of the New NIRC respectively ). Section 103 of the NIRC ( now Sec. 109) refers to exempt transactions. In exempting an entity from payment of VAT, the exempt stage would be the sale of goods and services to said exempt entity and not the sale of goods and services of said exempt entity to another as the Petitioner would have wanted us to believe in claiming that the Respondent was engaged in non-VAT business. The Respondent was engaged in export sales which under Section 106 (A) (2) (a) of the New NIRC shall be subject to zero percent rate and therefore may apply for a tax credit certificate or refund of creditable input tax due or paid attributable to such sales (S ection 112 (A) of the New NIRC ). IN VIEW OF THE FOREGOING DISQUISITIONS, the instant Petition for Review is hereby DISMISSED. SO ORDERED. Vidallon-Magtolis and Pestao, JJ . , concur.