Commissioner of Internal Revenue v. Seagate Technology Phils.

TWENTIETH DIVISION [CA-G.R. SP No. 64635. August 10, 2004.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . SEAGATE TECHNOLOGY PHILS. , respondent . D E C I S I O N * YAP , J p : The petitioner filed the instant Petition for Review under Rule 43 on May 25, 2001, appealing the Decision of the Court of Tax Appeals dated April 23, 2001 in CTA Case No. 5999 entitled "Seagate Technology (Philippines) vs. Commissioner of Internal Revenue" , the dispositive portion of which is quoted hereunder: "WHEREFORE, in light of the foregoing, Respondent is ORDERED to REFUND in favor of the Petitioner the amount of P15,741,076.68 representing the input value added tax paid by Petitioner on its capital goods for the period October 1, 1997 to December 31, 1997. "SO ORDERED." Pursuant to the Rules, and after a Resolution dated June 14, 2001 was complied with, on September 28, 2001, the respondent was directed to Comment on the Petition (Sec. 8, ibid. ). The petitioner filed his Reply or October 30, 2001 (p. 59). On November 28, 2001, the Court required the parties to file memoranda. On December 31, 2001, the respondent filed its memorandum. After its motion for extension of time was granted, petitioner finally filed its memorandum on January 28, 2002. By Resolution dated June 14, 2004, the case was deemed submitted for decision (p. 119). The facts as found by the Court of Tax Appeals in Its Decision dated April 23, 2001 (the "appealed Decision") are not disputed. Thus, the CTA found that: "Petitioner (referring to Seagate Technology Philippines) is a resident foreign corporation duly registered with and licensed by the Securities and Exchange Commission to do business in the Philippines, with principal office address at the New Cebu Township One, Special Economic Zone, Barangay Cantao-an, Naga, Cebu. On June 6, 1997, it was duly registered with the Philippine Export Processing Zone Authority as an Ecozone Export Enterprise, pursuant to the provisions of Republic Act 7916, to engage in the manufacture of recording components primarily used in computers for export and was issued Certificate of Registration No. 97-044 (Exh. A). It is likewise registered as a value-added tax entity and was issued a certificate of registration bearing RDO Control No. 97-083-000600-V dated April 2, 1997 (Exh. B). "On January 26, 1998, Petitioner filed with the Bureau of Internal Revenue (BIR) its 1997 fourth quarterly VAT return (Exh. F) which was subsequently amended on January 25, 1999 (Exh. F-1), showing total input VAT payments from October 1, 1997 to December 31, 1997 in the amount of P24,213,529.98. The payments were allegedly made on its domestic purchases of taxable goods and services amounting to P242,135,299.16, a significant portion of which Petitioner asserts to represent payments for building construction. "Due to a worldwide decrease in the demand for computer disk drives, the Board of Directors of Petitioner approved the complete shutdown and eventual disposal of the facility at its Philippine branch. Thus, even before it could start commercial of operations in the country, Petitioner filed a notice of cessation of business with the PEZA on July 15, 1999. "On October 1, 1999. Petitioner filed with Revenue District Office No. 83 of the BIR, a letter-claim for the refund of the VAT input taxes it paid from October 1, 1997 to December 31, 1997 in the amount of P24,213,529.98 (Exh. C). Petitioner anchored its claim on Section 112 of the 1997 Tax Code, in relation to Section 4.106-1(d) of Revenue Regulations (RR) No. 7-95, as amended, . . . "In addition, Petitioner cited Section 112(B) of the 1997 Tax Code in relation to Section 4.106-1(b) of RR No. 7-95, . . . "As Respondent (in this instance, the Commissioner of Internal Revenue) failed to act on Petitioner's claim for refund and the two-year prescriptive period for the filing of a judicial claim for refund was about to lapse, the instant petition was filed on January 20, 2000. "In his Answer filed on February 8, 2000, Respondent claimed by way of Special and Affirmative Defenses that: "4. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau; 5. The amount of P24,213,529.98 being claimed by petitioner as alleged VAT input taxes for the period of 01 October 1997 to December 1997 was not properly documented; 6. In an action for refund, the burden of proof is on the taxpayer to establish his right to refund, and failure to sustain the burden is fatal to the claim for refund/credit; 7. Petitioner must show that it has complied with the provisions of Section 204(C) and 299 of the Tax Code on the prescriptive period for claiming tax refund/credit; 8. Claims for refund are construed strictly against the claimant for the same partake of the nature of exemption from taxation." "That the instant Petition was timely filed is not disputed (p. 41, CTA Records). Likewise, Respondent admitted that Petitioner is both a VAT-registered entity and a PEZA-registered export enterprise. Thus, to support its claim, Petitioner invokes Section 112(B) of the 1997 Tax Code in relation to Section 4-106-1(b) of RR No. 7-95 . . . which allows the refund of input taxes paid on capital goods imported or locally purchased to the extent that such input taxes have not been applied against output taxes. Respondent, however, counters Petitioner's argument by invoking Section 24 of RA 7916, otherwise known as 'The Special Economic Zone Act', which provides in part, . . . "Respondent alleges that Petitioner, being an ECOZONE or PEZA-registered enterprise, is not subject to VAT under the aforementioned section of RA 7916. And since Petitioner's business is not subject to VAT, the capital goods it purchased are considered not used in VAT taxable business, thus, it is not entitled to the refund of input taxes on such capital goods pursuant to Section 4.106-1 of RR 7-95 . . ." The CTA subsequently decided in the manner afore-quoted in the earlier portion hereof. The petitioner comes before Us, raising as grounds for the Petition that: 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 NO. 7716. II. SINCE RESPONDENT'S BUSINESS IS NOT SUBJECT TO VAT, THE CAPITAL GOODS IT PURCHASED ARE CONSIDERED NOT USED IN VAT TAXABLE BUSINESS AND, THEREFORE, IT IS NOT ENTITLED TO REFUND OF INPUT TAXES ON SUCH CAPITAL GOODS PURSUANT TO SECTIONS 4.3106-1 AND 4.103-1 OF REVENUE REGULATIONS NO. 7-95. Arguing that since the respondent is registered with the PEZA as an Ecozone Enterprise under Certificate of Registration No. 97-044 (Exh. A), it is exempt from the payment of all national and local taxes, including VAT, under Section 24, RA 7916. In lieu of paying taxes, respondent, as an Ecozone enterprise shall, under the said law, remit to the national government 5% of the gross income earned by it. Moreover, under Section 103 of the Tax Code, as amended by RA 7716, which provides for exempt transactions from the value-added tax, thus: "SEC. 103. Exempt transactions . 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, and non-electric cooperatives under Republic Act No. 6938, or international agreements to which the Philippines is a signatory: xxx xxx xxx" transaction of ECOZONE or PEZA-registered enterprises are exempt under a special law from the payment of internal revenue taxes under Section 24, RA 7916, respondent's transactions are exempt from VAT. Considering that respondent is not engaged in a VAT taxable business, its registration as a VAT taxpayer is erroneous. Since respondent is not subject to VAT, it is not entitled to the refund of input taxes on its purchase of capital goods as these purchases are not deemed to have been used in a VAT-taxable business. The arguments raised by the petitioner was ruled by the CTA in the following manner: "The first issue (on whether or not petitioner's Seagate PEZA-registered business is subject to VAT) has already been addressed by this Court through a resolution promulgated on September 20, 2000 in CTA Case No. 5921, involving the same parties. In said resolution, the Court ruled: "Respondent is correct in arguing 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 the VAT pursuant to the provisions of Section 24 of Republic Act No. 7916, to quote: xxx xxx xxx "However, We do not agree that the aforequoted law is applicable to the case at bar. Section 23 of Republic Act No. 7916 provides: "Section 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 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 the payment of all national and local taxes. However, if an ecozone enterprise opted for the income tax holiday, it is only exempt from the 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." We find nothing abhorrent in the legal reasoning of the Court of Tax Appeals, it being grounded upon the law, rulings and statutes applicable to the case before it. The Court will not set aside lightly the conclusion reached by the Court of Tax Appeals which, by the very nature of its function, is dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority ( Sea Land Service, Inc. v. Court of Appeals, 357 SCRA 441). In its Comment to the Petition, the respondent touched upon certain facts which the petitioner failed to dispute, namely that the CTA ruling in this case, that respondent is entitled to a VAT refund, was affirmed by the Court in Commissioner of Internal Revenue vs. Seagate Technology Philippines , CA-G.R. SP No. 61189, promulgated on June 18, 2001 and, on a Petition for Review on Certiorari with the Honorable Supreme Court, under G.R. No. 148523, promulgated on September 5, 2001, the Petition was DENIED for failure of the petitioner to show that a reversible error had been committed by the appellate court. In fine, the issue on whether the respondent was properly a VAT registered entity, and its entitlement to a VAT refund, are res judicata in the instant case, the requisites thereof being present herein ( Arreza v. Diaz, Jr., 364 SCRA 88; Roxas v. Court of Appeals, 363 SCRA 207). Nothing is more settled in law than that once a judgment attains finality, it thereby becomes immutable and unalterable ( Gallardo-Corro v. Gallardo, 350 SCRA 568). Finally, petitioner has failed to question the findings of the Court of Tax Appeals with respect to the issue on substantiation and has, therefore, irrevocably bound itself thereto. In reviewing administrative decisions, the Court cannot examine the factual basis and sufficiency of the evidence the findings of facts must be respected, so long as they are supported by substantial evidence ( Protector's Services, Inc. v. Court of Appeals, 330 SCRA 404). WHEREFORE, finding no reversible error in the Decision of the Court of Tax Appeals in CTA Case No. 5999, promulgated on April 23, 2001, the Petition for Review is hereby DENIED. SO ORDERED. Magpale and Bato, Jr., JJ ., concur. Footnotes * This case was unloaded to the undersigned ponente on July 12, 2004 by virtue of Republic Act 8246.