Commissioner of Internal Revenue v. Seagate Technology (Philippines)

THIRTEENTH DIVISION [CA-G.R. SP No. 66093. May 27, 2002.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs .SEAGATE TECHNOLOGY (PHILIPPINES) , respondent . D E C I S I O N GOZO-DADOLE , J p : This is an appeal from the Decision of the Court of Tax Appeals dated July 19, 2001 in CTA Case No. 6146, entitled " Seagate Technology (Philippines) vs. Commissioner of Internal Revenue ," the dispositive portion of which reads: "WHEREFORE, in view of the foregoing, the Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner in the reduced amount of P12,122,922.66 representing the unutilized input VAT paid on capital goods purchased for the period covering April 1, 1998 to June 30, 1999. SO ORDERED." The facts as found by the Tax Court are stated in its Decision dated July 19, 2001, to wit: "As jointly stipulated by the parties, the pertinent facts and issues involved in this case are as follows: 1. Petitioner is a resident foreign corporation duly registered with 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 (by judicial notice, CTA Case No. 5921); 2. Respondent is sued in his official capacity, having been duly appointed and empowered to perform the duties of his office, including, among others, the duty to act and approve claims for refund or tax credit; 3. Petitioner is registered with the Philippine Export Zone Authority (PEZA) and has been issued PEZA Certificate No. 97-044 pursuant to Presidential Decree No. 66, as amended, to engage in the manufacture of recording components primarily used in computers for export. Such registration was made on 6 June 1997 (by judicial notice, CTA Case 5921); 4. Petitioner is a VAT-registered entity as evidenced by VAT Registration Certificate No. 97-083-000600-V issued on 2 April 1997 (by judicial notice, CTA Case No. 5921); 5. VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by Petitioner; 6. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review),was filed on 4 October 1999 with Revenue District Office No. 83, Talisay Cebu; 7. No final action has been received by Petitioner from Respondent on Petitioner's claim for VAT refund. The administrative claim for refund by the Petitioner on October 4, 1999 was not acted upon by the Respondent prompting the Petitioner to elevate the case to this Court on July 21, 2000 by way of Petition for Review in order to toll the running of the two-year prescriptive period. For his part, Respondent filed an Answer to the instant Petition for Review and raised the following Special and Affirmative Defenses, to wit: 1. Petitioner's alleged claim for tax refund/credit is subject to administrative routinary investigation/examination by Respondent's Bureau; 2. Since `taxes are presumed to have been collected in accordance with laws and regulations' ( Caltex Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 2871, January 29, 1986),the Petitioner has the burden of proof that the taxes sought to be refunded were erroneously or illegally collected lies on the Petitioner ( sic ); 3. In Citibank, N.A. vs. Court of Appeals , 280 SCRA 459 (1997), the Supreme Court ruled that: 'A claimant has the burden of proof to establish the factual basis of his or her claim for tax credit/refund.' 4. Claims for tax refund/tax credit are construed in `strictissimi juris' against the taxpayer ( Commissioner of Internal Revenue vs. Ledesma, G.R. No. L-13509, 30 January 1979, 31 SCRA 95 (1979]).This is due to the fact that claims for refund/credit partakes the nature of an exemption from tax. Thus, it is incumbent upon the Petitioner to prove that it is indeed entitled to the refund/credit sought. Failure on the part of the Petitioner to prove the same is fatal to its claim for tax credit. He who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. An exemption from the common burden cannot be permitted to exist upon vague implications ( Asiatic Petroleum Co. vs. Llamas, 49 Phil. 466 ); 5. Granting, without admitting, that Petitioner is a Philippine Economic Zone Authority (PEZA) registered Ecozone Enterprise, then its business is not subject to VAT pursuant to Section 24 of Republic Act No. 7916 in relation to Section 103 of Tax Code, as amended. As Petitioner's business is not subject to VAT, the capital goods and services it alleged to have purchased are considered not used in VAT taxable business. As such, Petitioner is not entitled to refund of input taxes on such capital goods pursuant to Section 4.106.1 of Revenue Regulations No. 7-95, and of input taxes on services pursuant to Section 4.103 of said regulations. 6. Petitioner must show compliance with the provisions of Section 204 (C) and 229 of the 1997 Tax Code on filing of a written claim for refund within two (2) years from the date of payment of tax. In order to substantiate its claim for refund, Petitioner presented the following documentary evidence which have been duly admitted by this Court in its Resolution dated January 11, 2001, thus: Exhibit Description A Certificate of Registration No. 97- 044 issued by PEZA B VAT Certificate of Registration issued on April 2, 1997 bearing RDO Control No. 97-093-000600-V C Application for refund of VAT input filed with BIR RDO No. 83, Cebu City CC Duly Accomplished Application for Tax Refunds/Credits (BIR Form 1914) D SEC Certificate of Registration bearing SEC Reg. No. A1997-1382 dated March 5, 1997 E to BB Monthly VAT Declarations and Quarterly VAT Returns covering the period January 1, 1998 to November 1999 DD Summary of Input Taxes for the 1st Quarter of 1998 up to the second quarter of 1999 DD-1 to Various Invoices and Official DD-2 issued by suppliers to the Petitioner On the other hand, counsel for the Respondent opted not to present any controverting evidence and instead submitted his case based on the pleadings. The case was then submitted for decision on May 7, 2001, after both parties presented their respective memorandum." On July 19, 2001, the Tax Court rendered a decision granting the claim for refund. Hence, this petition assigning the following error, to wit: WHETHER OR NOT RESPONDENT IS ENTITLED TO A REFUND/TAX CREDIT IN THE AMOUNT OF P12,122,922.66 ALLEGEDLY REPRESENTING INPUT VAT ON CAPITAL GOODS FOR THE PERIOD APRIL 1, 1998 TO JUNE 30, 1999. Petitioner contends that respondent being registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export Enterprise, per Certificate of Registration No. 97-044, its business is not subject to VAT pursuant to Section 24 of RA 7916, in relation to Section 109, of the Tax Code but in lieu of paying taxes, respondent shall remit to the National Government 5% of its gross income earned. The mere fact that respondent has issued VAT invoice, the Tax Code does not confer upon it the corresponding right to recognize, much less, claim, an input tax credit in accordance with the last paragraph of Section 109 of the Tax Code. Petitioner further contends that 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 4.106-1 and 4.103-1 of Revenue Regulations No. 7-95 because refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are used in VAT taxable business. In case of exempt operations, the input tax refundable shall only be the ratable portion corresponding to the VAT taxable operations. Furthermore, the capital goods must be used directly or indirectly in the production or sale of VAT taxable goods or services. In the case at bench, petitioner is engaged in non-VAT taxable business. Its operations are not VAT taxable. It is not engaged in the production or sale of VAT taxable goods or services. Consequently, the capital goods it purchased are considered not used in VAT taxable business, and, therefore, refund of input taxes on such capital goods is not allowed. Moreover, if a taxpayer is not subject to VAT (output tax),as in the case of respondent, he is not allowed any tax credit on VAT (input tax) previously paid. As stated earlier, even its registration as a VAT taxpayer did not confer upon it the right to recognize nor claim input VAT. Petitioner's contentions lack merit. That respondent being a Vat registered taxpayer is not undisputed. In fact, it was issued VAT Certificate of Registration with RDO Control No. 97-083-0006-000-V on April 2, 1997 and continues to be registered as such up to the present. An examination of petitioner's VAT Certificate of Registration will readily show that respondent is a "Value Added Taxpayer" and not a "Non-Vat Taxpayer".So, contrary to petitioner's contention, respondent is not exempt from VAT, but is subject to VAT being a VAT registered entity. Respondent being a VAT registered taxpayer is strengthened by the admission of petitioner, per joint stipulations of facts and issues dated October 4, 2000, executed and signed by both the counsel for the petitioner and respondent which they have filed before the Court of Tax Appeals in CTA Case No. 6146 last October 17, 2000 and approved by the said Court in its resolution dated October 17, 2000. While on the other hand, there is no dispute that the contention of petitioner that respondent being a PEZA registered enterprise is not subject to VAT pursuant to Section 24 of the PEZA law and is not entitled to a VAT refund is unsupported with any evidence whether testimonial or documentary considering that petitioner has failed to present any evidence to support this contention. In fact, the records do not show that respondent has remitted the 5% tax to the National Government. As a matter of fact, the entitlement of the respondent to a VAT refund has already been settled by the Court of Tax Appeals in CTA Case No. 5999 dated April 23, 2001, entitled, "Seagate Technology (Philippines) vs. Commissioner of Internal Revenue",wherein the said Court quoted in verbatim its resolution in CTA Case No. 5921 dated August 2, 2000, which cases involve the same parties, the same subject matter and issues as in this instant case wherein the respondent claim for VAT refund representing unutilized input taxes attributable to purchases of capital goods. We quote with approval the ruling of the Court of Tax Appeals in these cases, as follows: "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: Sec. 24. Exemption from taxes under the National Internal Revenue Code. Any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all business and enterprises within the ECOZONE shall be remitted to the National Government. .. 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 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 fiscal 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 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 opted for the income tax holiday, it is only exempt from payment of the income tax but still subject to other national internal revenue taxes including value added tax. These rulings were explicitly elucidated by the Bureau of Internal Revenue in VAT Ruling Nos. 037-98; 043-98; 027-99 and 063-99. The records of the case convince US that Petitioner availed of the fiscal incentives under Executive Order No. 226 because of the fact that Petitioner is a VAT registered entity. . ." ( Rollo ,pp. 58-59) Moreover, neither Section 149 of the Tax Code is applicable in this case nor Sections 4.106-1 and 4.103-1 of Revenue Regulations No. 7-95 considering that respondent is a VAT Taxpayer. Finally, on the basis of the records, respondent has satisfactorily complied with the requisites in order to be entitled to the VAT refund, to wit: 1. That it is a VAT registered entity; 2. That it paid input VAT on capital goods purchased; 3. That its input VAT payments on capital goods are duly supported by VAT invoices or official receipts; 4. That it did not offset or apply the claimed input VAT payments on capital goods against any output VAT liability; and 5. That the administrative and judicial claims for refund were filed within the two-year prescriptive period. although for a lesser amount which is only in the amount of P12,122,922.66 out of its total claim for refund of P12,267,981.04. WHEREFORE, foregoing premises considered, this petition for review is DENIED for lack of merit. SO ORDERED. Valdez, Jr .and Tolentino, JJ . , concur.