Commissioner of Internal Revenue v. Starpack (Philippines) Corporation

SPECIAL THIRTEENTH DIVISION [CA-G.R. SP No. 65210. March 22, 2007.] THE COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . STARPACK (PHILIPPINES) CORPORATION , respondent . D E C I S I O N REYES , B. , J p : By way of a petition for review, the Commissioner of Internal Revenue now seeks the nullification of the May 25, 2001 decision of the Court of Tax Appeals in CTA Cases Nos. 5783 and 5784, entitled "Starpack Philippines Corp. vs. The Commissioner of Internal Revenue" ordering herein petitioner to refund herein respondent the amount of P25,926,184.49 supposedly representing unutilized withholding tax credits for the period January 1, 1996 to February 28, 1997. The petition is cast against the following factual setting: Herein respondent Starpack (Philippines) Corporation, formerly known as AR Packing Corporation is a domestic corporation duly authorized to engage in business in the Philippines. Respondent is registered with the BIR with TIN No. 002-201-113 and adopts a calendar year from January 1 to December 31 for purposes of keeping its books of accounts and for filing its annual income tax returns. ( Rollo, p. 18 ) After Starpack's counsel examined its Income Tax Return for the taxable period ended December 31, 1996, Starpack duly filed with the BIR its Corporate Annual Income Tax Return for taxable year ending December 31, 1996. ( ibid., p. 19 ) After Starpack's counsel examined petitioner's income tax return for the taxable period which ended December 31, 1997, Starpack duly filed with the BIR its Corporate Annual Income Tax Return for the taxable year ending December 31, 1997. ( id .) In Starpack's Annual Corporate Income Tax Return for the calendar year ending December 31, 1997, petitioner manifested its intention to be refunded the amount of P25,300,639.72. ( id .) Starpack opted to carry over to the next taxable year, 1998, that portion of its 1996 excess creditable withholding tax in the amount of P1,793,470.00, representing excess creditable withholding tax for its sale of packaging materials to various buyers. ( id .) Starpack filed a formal written claim for refund with the BIR for the following: a. The amount of P25,300,639.72 representing unutilized and unapplied creditable income taxes withheld at source on the sale of Starpack's real properties. Starpack filed a written claim for refund with the BIR on August 20, 1998. b. The amount of P1,793,470.00 representing unutilized and unapplied creditable withholding income taxes withheld at source on the sale of Starpack's packaging materials to various customers for the 1996 taxable year. Petitioner filed with the BIR a formal written claim for refund on December 28, 1998. ( id., pp. 19-20 ) Records show that on April 14, 1999, Starpack filed a petition for review with the Court of Tax Appeals involving a claim for refund and/or issuance of tax credit in the amount of P1,793,470.00 representing Starpack's unutilized and unapplied creditable income taxes withheld at source from its sale of its packaging materials to various customers for the 1996 taxable year. On that same day of April 14, 1999, Starpack filed with the Court of Tax Appeals a petition for review involving a claim for refund and/or issuance of tax credit in the amount of P25,300,640.00 representing Starpack's unutilized and unapplied creditable income taxes withheld at source from its sale of real properties for the 1996 taxable year. ( id., p. 7 ) On May 3, 1999, the Commissioner of Internal Revenue filed two separate answers to the two petitions for review and raised the following Special and Affirmative Defenses, both answers containing similar contents, thus: 1. Assuming but not admitting that petitioner filed an application for refund of unapplied creditable withholding tax, the same is subject to administrative investigation and resolution. 2. Taxes are presumed to have been collected in accordance with law. Hence, Starpack must prove that the taxes sought to be refunded were erroneously and illegally collected. 3. Starpack must show that it has complied with the provisions of Section 69 of the Tax Reform Act of 1997. 4. Claims for refund of taxes are construed strictly against claimants, the same being in the nature of an exemption from taxation. ( id., pp. 20-21 ) Since CTA Case No. 5783 and CTA Case No. 5784 involve the same parties and involve substantially common questions of facts and law. Starpack moved for the consolidation of the two aforesaid cases. The Court of Tax Appeals thereunder granted the said motion ( id., p. 8 ). In order to substantiate its claim for refund, Starpack presented the following documentary evidence: 1. Corporation/Partnership Annual Income Tax Return for calendar year 1996; 2. Corporation/Partnership Annual Income Tax Return for calendar year 1997; 3. Corporation/Partnership Annual Income Tax Return for calendar year 1998; 4. Various Certificate of Creditable Taxes withheld at source for the taxable year 1996; 5. Schedule of Starpack's Partial Application of the 1996 CWTR in payment for its income tax due per company's ITR; 6. Certified True Copy of the Original Certification issued by the BIR certifying the fact of remittance of the amount withheld from the income payments made to Starpack; 7. Letter requesting BIR to lend to Starpack the original of the Certificates of CWT issued by various payors; 8. Report and Supplemental Report of the Commissioned Independent Auditor; 9. Summary of Creditable Withholding Taxes for the 1st, 2nd, 3rd, and 4th Quarter of 1996; 10. Subsidiary Sales List. ( id., p. 8 ) The petitioner, CIR, on the other hand did not submit any testimonial or documentary evidence. ( id .) On May 25, 2001, the Court of Tax Appeals granted in part the refund being claimed by the respondent; thusly: "WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED. Respondent is hereby ORDERED to REFUND, or in the alternative, ISSUE a Tax Credit Certificate in the reduced amount of TWENTY FIVE MILLION NINE HUNDRED TWENTY SIX THOUSAND ONE HUNDRED EIGHTY FOUR AND 49/100 PESOS (P25,926,184.49) in favor of the Petitioner, representing the unutilized withholding tax credits for the year ended December 31, 1996. SO ORDERED," ( ibid., p. 34 ) The petitioner moved for the reconsideration of the aforequoted decision, to no avail. Hence, the present recourse before this bench. In seeking a reversal of the tax court's adverse ruling, the petitioner raised the following issues: I. THE COURT OF TAX APPEALS HAS NO JURISDICTION OVER THE CASE BECAUSE THE FILING OF THE PETITION FOR REVIEW IS PREMATURE SINCE THE CLAIM FOR REFUND IS STILL PENDING INVESTIGATION. II. THE COURT OF TAX APPEALS COMMITTED ABUSE OF DISCRETION IN GRANTING THE REFUND SINCE RESPONDENT IS LIABLE TO PAY VALUE-ADDED TAX AND ADDITIONAL INCOME TAX ON THE UNDECLARED INCOME PER INCOME RETURN VIS--VIS WITHHOLDING CERTIFICATE. III. THE COURT OF TAX APPEALS COMMITTED ABUSE OF DISCRETION IN GRANTING THE REFUND SINCE RESPONDENT IS LIABLE TO PAY VALUE-ADDED TAX ON SALE OF ITS REAL PROPERTIES. ( ibid, p. 9 ) The petition is devoid of merit. The Commissioner of Internal Revenue insists that there was a precipitate filing of a petition for review before the Court of Tax Appeals inasmuch the claim for refund is still pending administrative investigation. Obviously, this argument pivots on the two-year prescriptive period provided under the National Internal Revenue Code within which refund cases may be brought before the courts, to wit: "SEC. 230. Recovery of tax erroneously or 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 sum, alleged to have been excessive or 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 [(2)] years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment. . . . " The foregoing provision expressly proscribes any suit or proceeding from being maintained in any court for the refund of tax alleged to have been erroneously collected unless (a) a written claim for the refund or credit thereof has been duly filed with the Commissioner; (b) the suit or proceeding shall have been instituted within two years from the date of payment of the tax or penalty regardless of any supervening cause that might arise after such payment ( Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., 244 SCRA 446 ) Obviously, the foregoing prohibition extends not only to the submission of a written claim for the refund of the tax to the Commissioner. It similarly precludes the filing of a petition with the Court of Tax Appeals beyond the two year prescriptive period. Thus, the respondent was acting within its right when it filed a judicial claim for refund with the CTA on April 14, 1999 despite the pendency of its claim for refund with the Commissioner of Internal Revenue. It is a matter of record that the latter failed to forthrightly resolve the said claim. The respondent company therefore had no recourse but to bring the matter to the Court of Tax Appeals, lest it forfeits altogether its claim for refund on grounds of prescription. SaIACT According to the High Court, if the Commissioner takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of the Commissioner ( Commissioner of Internal Revenue vs. Victoria Milling Co., Inc. G.R. No. L-24108, January 3, 1968 ). The second and third issues likewise failed to sway. In arguing that the respondent is not entitled to the refund of excess taxes, the petitioner harps on the alleged liability of the said company to pay value-added tax and additional income tax in the light of the alleged discrepancy in the summaries of expanded withholding taxes attached to the tax returns. As correctly argued by the respondent, the "possible assessment" which may result in the investigation being conducted by the Commissioner of Internal Revenue is separate from the claim for refund of excess unutilized and unapplied creditable withholding taxes subject of the petition for review by the tax court. In fact, the Court of Tax Appeals in this case granted the claim for refund notwithstanding the impression of under-declaration, precisely because should an assessment be latter issued against the respondent, it would have to be threshed out in a separate proceeding. In one tax case invoked by the respondent, the Court of Tax Appeals ratiocinated thus: "The argument advanced by respondent cannot serve as obstacle to grant the instant claim for refund because petitioner's alleged tax deficiencies for taxable year 1992 is not the issue presented before us in this petition for review. By bringing up the issue of petitioner's alleged tax deficiencies, respondent seeks to block the grant of the refund by presenting the argument that no refund of taxes is possible because after all the petitioner has an outstanding tax due the government, suggesting the possibility of legal compensation or set-off of taxes. It is already well-settled that internal revenue taxes cannot be the subject of set-off or compensation ( Republic vs. Mambulao Lumber, 4 SCRA 622 )" Lastly, this court is convinced that, indeed, the respondent company is not liable to pay value-added tax on sale of its real properties. The petitioner anchors its claim of VAT liability against the respondent company on Revenue Regulation No. 14-94, Section 8 of which reads in part: "A sale of real property not primarily held for sale to customers or held for lease in the ordinary course of trade or business shall not be considered subject to VAT. Provided, however, that no input tax has been recognized thereon at the time of its acquisition. Input tax is presumed to have been recognized in the following cases: (A) The real property solely consists of a piece of land, without improvement, and was acquired by the seller/transferor on or after October 1, 1994; (B) In respect only of the improvement, if the property consists of (I) land acquired before October 1, 1994, and (II) improvement introduced by the seller/transferor on or after January 1, 1998; Provided, however, that the seller/transferor is a VAT-registered person at the time the said piece of land was acquired, also from a VAT-registered person, or the improvements was introduced, as the case may be. If, based on the foregoing, it is considered that the seller/transferor recognized input tax at the time of acquisition of the real property and/or improvement, he shall pay a VAT on the sale even if he did not hold such property primarily for sale or for lease, computed on the basis of his acquisition cost therefore as shown in his books of accounts and underlying accounting records." From the foregoing, VAT is imposable on sale of real property even if it is not primarily held for sale to customers if the seller recognized input tax at the time of its acquisition. However, as aptly posed by the respondent, at the time of the sale of the real properties by the respondent company, the above provision of Revenue Regulation 14-94 had been modified by Revenue Regulation No. 7-95 which deleted the subsequent paragraphs imposing VAT on the sale of real properties where input tax was recognized at the time of its acquisition. EaHcDS Withal, after consideration of the evidence presented by the respondent company, the Court of Tax Appeals found that the former is indeed entitled, at least in part, to the tax refund it was claiming. Customarily, absent a showing of abuse or improvident exercise of authority, we are not wont to set aside lightly the conclusions reached by the Court of Tax Appeals because by the very nature of its function, it is dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject ( Sea-Land Service, Inc. vs. Court of Appeals, 357 SCRA 441 ). Indeed, it is true that claims of refund are to be construed in strictissimi juris against the taxpayer. Nevertheless, after all presumptions against the grant of such refund are successfully canceled out and the propriety of such refund is eventually established, the same should be released as a matter of right in favor of the taxpayer. WHEREFORE, in the light of the foregoing premises, the instant petition is hereby DISMISSED for lack of merit. SO ORDERED. Lagman and Lanzanas, * JJ., concur. Footnotes * In lieu of Justice Apolinario D. Bruselas, Jr. as per Office Order No. 64-07 RTR.