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

SPECIAL FIFTH DIVISION [CA-G.R. SP No. 66342. April 25, 2003.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . HITACHI COMPUTER PRODUCTS (ASIA) CORPORATION , respondent . D E C I S I O N REYES, JR., A. , J p : Before the Court is an appeal from the Decision 1 of the Court of Tax Appeals dated 06 August 2001 in CTA Case No. 5943, 2 the dispositive portion of which reads: "WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of Petitioner, the reduced amount of P1,564,074.40 representing the unutilized/unapplied Value Added Taxes for the period July 1, 1997 to September 30, 1997. SO ORDERED." The antecedent facts are correctly summarized by the Tax Court in the assailed Decision , to wit: "1. Petitioner is a domestic corporation organized and existing under the laws of the Republic of the Philippines, with principal office at the Special Processing Zone, Laguna Technopark, Bian, Laguna. (Paragraph 1 of the Petition for Review and admitted in the Respondent's Answer). 2. Respondent is the duly appointed Commissioner of Internal Revenue, vested with the authority to act as such, including, inter alia , the power to decide, approve and grant refunds and/or tax credits of excess value-added tax (VAT) input payments and holding office at 5F, BIR National Office Building, Diliman, Quezon City, where he may be served with summons and other court processes, (Paragraph 2 of the Petition for Review and admitted in the Respondent's Answer). caIEAD 3. Respondent is represented in the said one-Stop-Shop Inter-Agency Tax Credit and Duty Drawback Center by the Revenue Examiners of the Bureau of Internal Revenue, who are assigned at said Center. (Paragraph 7 of the petition for Review and admitted in the Respondent's Answer) 4. Petitioner is primarily engaged in the business of manufacturing electric, electronic and software products and industrial properties, including but not limited to hard disc drive and component parts, and supplies used or employed in or related to the manufacture of such products, exclusively for export. 5. Petitioner is registered with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) taxpayer in accordance with Section 107 of the Old Tax Code [now Section 236 of the National Internal Revenue Code of 1997], with Taxpayer Identification Number (TIN) 003-877-830. 6. Petitioner is registered with the Philippine Economic Zone Authority (PEZA) as an Export Enterprise enjoying a six-year income tax holiday incentive pursuant to Section 23 of Republic Act No. 7916 or the Special Economic Zone Act of 1995. 7. On October 20, 1997, Petitioner filed with the Bureau of Internal Revenue (BIR) its Quarterly Value-Added Tax Return for the period, July 1, 1997 to September 30, 1997 which reflected a total net creditable input tax in the amount of P15,580,634.71 arising from its domestic purchases of goods and services. 8. On November 8, 1999, Petitioner filed with the BIR its Amended Quarterly Value-Added Tax Return for the period, July 1, 1997 to September 30, 1997 which reflected a total net creditable input tax in the amount of P3,470,534.59. 9. On September 30, 1999, Petitioner filed with the One-Stop-Shop and Duty Drawback Center of the Department of Finance its application for tax credit/refund of unapplied/unutilized input value-added taxes in the amount of P3,470,534.59 for the taxable period, July 1, 1997 to September 30, 1997. 10. To date, the Respondent has not yet approved the administrative claim for refund of the petitioner. Thus, on September 30, 1999, Petitioner elevated the matter with this Court by way of Petition for Review in order to toll the running of the two-year prescriptive period provided under Section 230 of the Tax Code, as amended. In its Answer , 3 public respondent Commissioner of Internal Revenue raised the following Special and Affirmative Defenses, to wit: "xxx xxx xxx; 4. Petitioner's alleged claim for tax refund/tax credit is subject to undergoing administrative routinary investigation/examination by the Respondent's Bureau; 5. The alleged refundable/creditable taxes were paid and collected pursuant to law and BIR implementing rules and regulations, hence, the same are not refundable; 6. 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, January 30, 1979, 1 SCRA 95) as they partake the nature of an exemption from tax, and it is incumbent upon the Petitioner to prove that it is entitled thereto under the law. Failure on the part of the Petitioner to prove the same is fatal to its claim for tax refund/tax credit." On 06 August 2001, the Tax Court rendered a Decision granting the claim for refund in the reduced amount of P1,564,074.40. Not satisfied, petitioner elevated the case before this Tribunal, theorizing: aATEDS "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 R.A. NO. 7716; II. SINCE RESPONDENT'S BUSINESS IS EXEMPT FROM VAT, IT IS NOT ALLOWED ANY TAX CREDIT ON VAT INPUT TAX PREVIOUSLY PAID PURSUANT TO SECTION 4.103-1 OF REVENUE REGULATIONS NO. 7-95." In gist, petitioner insists that under Section 24 of R.A. 7916 or The Special Economic Zone Act, 4 business establishments operating within the Ecozone, such as the herein private respondent, are exempt from national and local taxes, including the Value Added Tax (VAT). In lieu thereof, these enterprises shall remit to the national government five percent (5%) of their gross income. Private respondent, on the other hand, avers that the governing law is not Section 24 of R.A. 7916 but Book VI of Executive Order No. 226, otherwise known as Omnibus Investment Code of 1987. The pivot of inquiry is: Which provision of law is applicable in determining the tax liabilities of the private respondent? Is it Section 24 of R.A. 7916 or Executive Order No. 226? To begin with, it is undisputed that private respondent is registered with the PEZA as an Ecozone Export Enterprise under Certificate of Registration No. 94-28. It is engaged in the business of manufacturing hard disk drives, plain field head and computer paraphernalia for export. Under the law, business establishments operating within the ECOZONE, such as herein private respondent, are given two (2) alternative sets of fiscal incentives under Section 23 of R.A. No. 7916, to wit: " 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." (Emphasis, supplied) These two (2) sets of fiscal incentives granted under the afore-cited provision of law can be summarized as follows: (1) Those under P.D. No. 66, as amended, and Section 24 of R.A. 7916 which includes the 5% preferential tax on gross income earned, which is in lieu of the national and local taxes; and (2) Those provided for under Book VI of Executive Order No. 226, including but not limited to an income tax holiday (ITH) of 4 to 6 years depending on whether an entity is registered as a pioneer or non-pioneer enterprise. Clearly, if a PEZA-registered Ecozone enterprise chooses the 5% preferential tax, it is exempt from payment of all national and local taxes. However, if an Ecozone enterprise opts 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 the value-added tax. These two incentives should be availed of in the alternative. A perusal of the records shows that herein private respondent has availed of the tax incentive under E.O. 226 and is in fact, enjoying a six (6) year income tax holiday granted by the EPZA under Board Resolution No. 94-212 on 07 October 1997. 5 Consequently, private respondent is only exempt from the payment of the income tax but remains subjected to other national internal revenue taxes, such as the VAT. Since private respondent is subject to VAT and is, in fact, registered as a VAT taxpayer since 28 June 1994 with certificate of registration No. 94-570-00028, it can claim for the refund or issuance of a tax credit certificate (TCC) on its unutilized input taxes attributable to its zero-rated export sales. Section 112(A) of the Tax Code in relation to Section 106(A)(2)(a)(1), provide: "Section 112. Refunds or Tax Credits of Input Tax (A) Zero-rated or Effectively Zero-rated Sales Any VAT-registered person, whose sales are zero-rated or effectively zero-rated within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales." while "Section 106. Value-added Tax an Sale of Goods or Properties (A) Rate and Base of Tax . . . (1) . . . (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales The term 'export sales' means: (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); xxx xxx xxx" Notably, based on the foregoing provisions of law, private respondent may file a claim for refund or tax credit of its excess and unutilized input VAT credits if it satisfies the requirements of the law. A scrutiny of the records undeniably showed that private respondent satisfactorily complied with the requirements of the law. With the disquisition above, it is clear that respondent CTA erred not in deciding the case in favor of private respondent. WHEREFORE, premises considered, the Petition is DISMISSED for lack of merit and the assailed 06 August 2001 Decision of the Court of Tax Appeals is hereby AFFIRMED in toto . No costs. SO ORDERED. Pestao and * Pine, Jr . , JJ . , * concur. Footnotes * As per Offices Order No. 79-03-CG. * As per Office Order No. 81-03-CG. 1. Rollo , p. 18. 2. Entitled "Hitachi Computer Products (Asia) Corporation vs. Commissioner of Internal Revenue." 3. Rollo , p. 39. 4. Section 24 of Republic Act No. 7916, "The Special Economic Zone Act", provides, in part: "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 businesses and enterprises within the ECOZONE shall be remitted to the national government . . . " 5. See: CTA Decision dated 06 August 2001, Rollo , p. 60; at p. 62.