Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc.

TWELFTH DIVISION [CA-G.R. SP No. 65519. August 23, 2002.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC. , respondent . D E C I S I O N ALIO-HORMACHUELOS , J p : Petition for review under Rule 43 of the Rules of Civil Procedure of the Decision dated 20 June 2001 of the Court of Tax Appeals in CTA Case No. 6022, entitled " Burmeister and Wain Scandinavian Contractor Mindanao, Inc. vs. Commissioner of Internal Revenue ," the dispositive portion of which reads: "IN THE LIGHT OF ALL THE FOREGOING, the instant petition for review is hereby GRANTED. Respondent is hereby ORDERED to REFUND or ISSUE a TAX CREDIT CERTIFICATE in the amount of P1,464,723.55 in favor of herein Petitioner, representing the latter's erroneously paid VAT for January, 1998. "SO ORDERED." ( Rollo , p. 29) The following facts are undisputed: Respondent Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (BWSCMI) is registered with the Securities and Exchange Commission and with the Bureau of Internal Revenue (BIR) as a value added tax (VAT) entity. Burmeister and Wain Scandinavian Contractor (BWSC), Mitsui Engineering and Shipbuilding, Ltd. (MES) and Mitsui and Co. Ltd (MITSUI) (collectively known as the Consortium) entered into a Consortium Agreement with the National Power Corporation (NAPOCOR) for the operation and maintenance of the latter's two (2) power barges. The Consortium appointed as its Coordination Manager BWSC which established BWSCMI, herein respondent. BWSCMI subcontracted the actual operations and maintenance of the two (2) power barges, as well as the performance of other works done in the Philippines. The Consortium pays respondent BWSCMI for its services in foreign currency inwardly remitted to the Philippines through the banking system. NAPOCOR pays the capacity and energy fees due under the agreement to the Consortium in mixed currencies. The freely convertible non-peso component of the fees is paid directly to the Consortium's bank account in Denmark and in Japan. Since the peso-component is not freely convertible and can not be remitted and held overseas, it is deposited in a separate and specially designated bank account in the Philippines. NAPOCOR deposits the peso component directly into the said bank account, and respondent BWSCMI assists in its subsequent conversion to foreign currency for remittance to the Consortium's bank account in Denmark. On January 14, 1994, respondent BWSCMI wrote a letter to the Bureau of Internal Revenue (BIR) requesting clarification of the tax implications of the services/contracts described above. On February 14, 1995, the BIR, through then Commissioner Liwayway Vinzons-Chato, opined that if respondent BWSCMI chooses to register as a VAT entity and the consideration for its services is paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, the aforesaid services shall be subject to zero-rate ( Rollo , p. 49, BIR Ruling No. 023-95). On February 25, 1998, respondent BWSCMI filed its VAT declaration for the month of January 1998 and paid VAT amounting to P1,464,723.55 covering its sales of services to the Consortium. On January 7, 1999, the BIR, through then Commissioner Beethoven L. Rualo, reconfirmed that the services being rendered by respondent BWSCMI is subject to zero percent (0%) VAT ( Rollo , p. 58, VAT Review Committee Ruling). On April 22, 1999, respondent BWSCMI filed an administrative claim for refund with the Bureau of Internal Revenue in the amount of P1,464,723.55 representing its alleged erroneously paid VAT for January, 1998 supra . As no affirmative action has been taken by petitioner BIR on the claim for refund, respondent, on February 24, 2000, filed the herein petition for Review with the Court of Tax Appeals. On June 20, 2001, the CTA rendered a Decision ordering petitioner to refund or issue a tax credit certificate in the amount of P1,464,723.55 in favor of respondent BWSCMI ( Rollo , pp. 22-29). The BIR Commissioner thru its Revenue Attorney now files this petition based on the sale ground that: "THE TAX COURT ERRED IN HOLDING THAT RESPONDENT'S SERVICES ARE SUBJECT TO ZERO-RATE FOR VALUE-ADDED TAX (VAT) PURPOSES, CONSIDERING THAT ITS SERVICES ARE NOT SIMILAR TO THE SERVICES MENTIONED IN SECTION 4.102-2 (B)(2) OF REVENUE REGULATIONS NO. 5-96 AS SUBJECT TO VAT AT ZERO-RATE." ( Rollo , p. 11) posing as sole issue: "Whether respondent is entitled to the refund or issuance of tax credit certificate in the amount of P1,464,723.55 as alleged erroneously paid VAT for the month of January, 1998." ( Rollo , p. 10) The petition lacks merit. The law clearly provides as follows: "(b) Transactions subject to Zero Percent (0%) rate The following services performed in the Philippines by VAT registered persons shall be subject to zero percent (0%) rate: "(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." "(2) Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." (Section 112 (b), NIRC) It is well settled that where the law is unambiguous and clear, it must be applied according to its plain and obvious meaning, according to its express terms ( Cecilleville Realty and Services Corporation vs. CA , 278 SCRA 819). We agree with the CTA's ruling that the above provision has the following essential requirements: "(1) Payment of the service fees must be in acceptable foreign currency; "(2) Inward remittance of the foreign currency into the Philippines; and "(3) The inward remittance is accounted for in accordance with the rules and regulations of the Central Bank of the Philippines" (CTA Decision, pp. 5-6, Rollo , pp. 26-27) Respondent's services have been established to have complied with the foregoing requirements. As found by the CTA: "With reference to the first and second requirements, there was ample compliance since records of this case reveal that the sub-contract fees for the services rendered by the Petitioner to the Consortium involving the actual operation and maintenance of NAPOCOR'S two power barges for the period January 1, 1994 to December 31, 1994, amounting to DKK 26,990,000.00 (Danish Kroner) with peso equivalent of P113,001,715.00, were billed to BWSC-Denmark, being the Consortium coordinator, as shown by Petitioner's sales invoices (Exhs. Q to Q-10, inclusive). Thus, in effect, We reject Respondent's contention of non-foreign currency inward remittance for it failed to present convincing evidence, other than its own baseless speculation, that the same foreign currency inwardly remitted to BWSC-MI by virtue of the subcontract agreement is the same foreign currency outwardly remitted back to the Consortium by the Petitioner under the Operations and Maintenance Agreement. What is quite evident in this case is that the payments received by the Petitioner from the Consortium for the subcontract services which the former rendered to the latter and the Petitioner's collection/remittance as collection agent of the Consortium for the services which the Consortium renders to NAPOCOR are two distinct and separate transactions. We simply cannot give more weight to Respondent's conjectures over that of Petitioner's documentary exhibits. Conformably, We hold that there was indeed foreign currency inward remittance to the Petitioner for its sale of services under the Subcontract Agreement. "As regards the last requirement, We likewise agree with the Petitioner that the sub-contract fees in foreign currency were inwardly remitted and accounted for in accordance with the rules and regulations of Bangko Sentral ng Pilipinas since it was evidenced by the bank credit memos/certifications from the Bank of the Philippine Islands and Hongkong and Shanghai Bank (Exhs. R to R-4, inclusive)." ( Rollo , p. 27) It bears stressing that two previous Commissioners of the BIR had already ruled that respondent's services are subject to zero percent (0%) rate VAT. WHEREFORE, for lack of merit, the petition is DENIED and the assailed decision is AFFIRMED in toto . SO ORDERED. Asuncion and Sundiam, JJ . , concur.