La Frutera, Inc. v. Commissioner of Internal Revenue

TWENTY-SECOND DIVISION [CA-G.R. SP No. 69378. April 24, 2006.] LA FRUTERA, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N VIDAL , M. D ., J p : This is a Petition for Review under Rule 43 of the Revised Rules of Civil Procedure, from the Resolution 1 of the Court of Tax Appeals (CTA) in CTA Case Nos. 5898 and 5937 promulgated on 14 January 2002 partially granting the motion for reconsideration filed by LA FRUTERA, INC. (hereinafter Petitioner) and denying the COMMISSIONER OF INTERNAL REVENUE's (hereinafter Respondent) Motion for Reconsideration. Per the records, instant petition was filed on Our office on 21 February 2002 2 or prior to the effectivity of RA 9282 which expanded the jurisdiction of the CTA and elevated its rank to the level of a special collegiate court. Hence, this Court shall continue in the exercise of its jurisdiction in this case. The facts as summarized by the Court of Tax Appeals : Petitioner is a domestic corporation organized and existing under the laws of the Republic of the Philippines with principal place of business at Datu Paglas Estate, Barangay Digal, Buluan, Maguindanao, Autonomous Region of Muslim Mindanao (ARMM). It is a VAT registered taxpayer as evidenced by the BIR Certificate of Registration dated April 1, 1997, with RDO Control No. 97-107-002104VAT. It is at the same time registered with the Board of Investment (BOI) with Certificate of Registration No. EP-014-97 issued on July 7, 1997. Petitioner's line of business is categorized as a Banana Exporter with Philippine Standard Industry Classification No. 1141. As a VAT registered taxpayer, Petitioner regularly files its monthly VAT declarations and quarterly VAT returns. On July 21, 1997, Petitioner filed its quarterly VAT return for the second calendar quarter of the year 1997 declaring a VAT input tax of P564,073.10 from its domestic purchases of goods and services but with no output tax liability. On October 23, 1997, Petitioner filed its quarterly VAT return for the third calendar quarter of the year 1997 declaring an input tax of P304,525.79 generated from its domestic purchases of goods and services and the input tax from the previous quarter of P564,073.10 or a total input tax of P868,598.89 as of September 30, 1997. Petitioner had no output tax, thus, pursuant to Revenue Audit Memorandum Order (RAMO) No. 2-93, Petitioner filed on June 29, 1999, with the Tax and Revenue Group of the One-Stop-Shop Inter-Agency Tax Credit and duty Drawback Center of the Department of Finance, an application for tax credit/refund of its excess creditable VAT input payments for the second quarter ended June 30, 1997 in the amount of P564,073.10. Pursuant to the same RAMO, Petitioner likewise filed on August 19, 1999, with the same agency under the Department of Finance, an application for tax credit/refund of its excess creditable VAT input payment for the third quarter ended September 30, 1997 in the amount of P304,525.79. DEICaA Meanwhile, on September 27, 1999, Petitioner filed an amended VAT return for the third quarter of 1997 declaring the total amount of P868,598.89 as the total refundable amount of input VAT from its domestic purchase of goods and the input VAT carried over from the previous quarter. Consequently, Petitioner also amended the quarterly VAT return for the 4th quarter of 1997 to show that the input tax claimed was no longer carried over. This amended VAT return was filed on February 23, 2000. Up to this date, herein Respondent has not yet approved Petitioner's application. Hence, Petitioner filed the instant Petition for Review to toll the running of the prescriptive period for claiming a refund. CTA Case No. 5898 was filed with this Court on June 30, 1999 while CTA Case No. 5937 was filed on September 29, 1999. For his part, Respondent accordingly filed an Answer with Special and Affirmative Defenses on July 14, 1999 (for CTA Case No. 5898) and October 19, 1999 (for CTA Case No. 5937). After considering the stipulated issues presented by the parties, this Court deemed it proper to summarize them into one main pivotal issue of "WHETHER OR NOT PETITIONER IS ENTITLED TO THE REFUND OR TAX CREDIT OF P868,598.89 ALLEGEDLY REPRESENTING PETITIONER'S EXCESS OR UNUTILIZED CREDITABLE INPUT VAT AS OF SEPTEMBER 30, 1997, ARISING FROM ITS DOMESTIC PURCHASES OF GOODS AND SERVICES AND ON CAPITAL GOODS IMPORTED OR LOCALLY PURCHASED. After trial on the merits, the CTA rendered the assailed Decision on 17 September 2001. The dispositive portion of which reads: "WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED. Respondent is ORDERED to REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of the Petitioner the reduced amount of P281,978.27 representing the excess/unutilized creditable input VAT for the 2nd and 3rd quarters of 1997. SO ORDERED." 3 On 15 October 2001, a Motion for Reconsideration 4 was filed by the Respondent praying for the denial of Petitioner's claim for refund. On the other hand, Petitioner filed on 19 October 2001 a Motion for Partial Reconsideration 5 assailing in part the CTA's Decision of 17 September 2001. In its Resolution dated 14 January 2002, the CTA partially granted the Petitioner's Motion for Reconsideration and denying the Respondent's Motion for lack of merit. The decretal portion thereof reads: WHEREFORE, in view of the foregoing, the instant Motion for Reconsideration filed by Petitioner is PARTIALLY GRANTED. The dispositive portion of our decision promulgated on September 17, 2001 is accordingly MODIFIED. Respondent is hereby ORDERED TO REFUND or to ISSUE A TAX CREDIT CERTIFICATE in favor of the Petitioner the amount of P311,523.72 representing the excess/unutilized creditable input VAT for the 2nd and 3rd quarters of 1997. Respondent's Motion for Reconsideration is DENIED for lack of merit. AIaDcH SO ORDERED. 6 Hence this petition raising the lone issue 7 : . . . THAT THE HONORABLE COURT OF TAX APPEALS ERRED IN TAKING THE POSITION OF THE RESPONDENT AND NOT GRANTING THE TOTAL CLAIM OF P868,598.89 AS TAX CREDIT DUE TO THE FOLLOWING INSTANCES: 1. IN NOT ALLOWING AS TAX CREDITS THE INPUT VALUED (sic) -ADDED TAX (VAT) PAID ON TRANSPORTATION AND OFFICE EQUIPMENT DESPITE THE PRONOUNCEMENTS IN THE HONORABLE COURT'S DECISION DATED SEPTEMBER 17, 2001 EXPRESSLY FINDING " TRANSPORTATION AND OFFICE EQUIPMENT " AS CAPITAL GOODS[;] (Emphasis originals) 2. IN HOLDING THAT THE DEFINITION OF "CAPITAL GOODS" UNDER SECTION 4.106-1(b) OF REVENUE REGULATIONS NO. 7-95 DOES NOT INCLUDE VARIOUS DOMESTIC PURCHASES SUCH AS FISH NETS, PLASTIC BAGS, TOOLS, SHOVELS AND THE LIKE USED IN THE CULTIVATION AND PROPAGATION OF BANANA SEEDLINGS[;] 3. IN HOLDING THAT THE GOODS USED IN THE INITIAL START UP OF THE BANANA PLANTATION RECORDED AS DEFERRED DEVELOPMENT COST AND RECLASSIFIED AS PROPERTY AND EQUIPMENT AT START OF THE COMMERCIAL OPERATIONS, ARE MERELY CAPITAL EXPENSES AND CANNOT BE CONSIDERED AS CAPITAL GOODS[;] 4. IN HOLDING THAT THE INVOICES AND OFFICIAL RECEIPTS SUPPORTING VARIOUS PURCHASES OF CAPITAL GOODS DO NOT CONTAIN MATERIAL DESCRIPTIONS AS TO THE KIND OF GOODS SPECIFICALLY PURCHASED DESPITE THE FINDINGS IN THE REPORT OF THE COMMISSIONED INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT WHO VERIFIED THE SAME. OUR RULING We find the appeal to be devoid of merit. Petitioner contends that the CTA in its Resolution of 14 January 2002 did not consider the net creditable input VAT for the 2nd and 3rd quarters of 1997 for purchases of transportation, equipment and other capital goods, duly substantiated by invoices and receipts. For purposes of clarity, it is noteworthy to refer to the Supreme Court's extensive discussion on the nature of VAT law in CIR vs. SEAGATE Technology (Phils.) 8 , thus: The law that originally imposed the VAT in the country, as well as the subsequent amendments of that law, has been drawn from the tax credit method. Such method adopted the mechanics and self-enforcement features of the VAT as first implemented and practiced in Europe and subsequently adopted in New Zealand and Canada. Under the present method that relies on invoices, an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports. If at the end of a taxable quarter the output taxes charged by a seller are equal to the input taxes passed on by the suppliers, no payment is required. It is when the output taxes exceed the input taxes that the excess has to be paid. If, however, the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes. For a clearer understanding of the business tax under consideration, We deem it prudent to discuss the concept of value-added tax in relation to output and input taxes. Value-added tax is a tax levied on a wide range of goods or services. It is a tax on the value, added by every seller, with aggregate annual sales of articles and/or services, exceeding P550,000.00, to the taxpayer's purchase of goods reported and services rendered, unless exempt. 9 Otherwise stated, output tax refers to the value-added tax on the sale or lease of the goods, properties or services while input tax refers to the value-added tax on the purchase or lease of the goods, properties or services. 10 And the value added-tax payable refers to the difference between the output tax and the input tax that is to be paid to the BIR. 11 On the other hand, capital goods or properties as defined in Section 4.106-1(b) of the Revenue Regulations No. 7-95 refer to goods and properties with estimated useful life of greater than one (1) year which are treated as depreciable assets under Section 29(f) 12 and used directly or indirectly in the production or sale of taxable goods and services. Section 29(f) of said Regulation provides: (f) Depreciation. (1) General Rule. there shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including reasonable allowance for obsolescence) of property used in the trade or business. ECTAHc Additionally, depreciation is defined as the periodic reduction of the value of a tangible permanent asset due to passage of time, wear and tear and obsolescence of the asset. 13 In the instant case, We subscribe to the findings of the CTA that the purchases used for the improvement of the land that the Petitioner wants to pass as capital goods were those used for the harrowing and plowing of the land and for the digging of canals for the drainage system, which are not heavy equipments, hence, cannot be considered as capital goods. Records disclose that the Petitioner has been claiming the refund of input taxes paid on purchases of goods that were used in the cultivation of the land for banana plantation, for the propagation and plantation of the seedlings and for the maintenance of the plants and preservation of the fruits until harvest time. the Petitioner maintains that those purchases were in the nature of capital goods. The CTA concluded that although the purchases made by the Petitioner such as shovels and other light tools 14 are capitalized, however they are not considered as capital goods. Only the purchases of transportation, equipment and office equipment can be considered capital goods since they are subject to depreciation. The CTA is of the well-considered opinion that the property subject to depreciation consists only of building, machinery and equipment which are not short-lived. 15 Indeed, We are not inclined to differ with the CTA's findings on the subject under consideration. Even the Supreme Court has recognized the mastery of the CTA in matters of taxation when it categorically declared in CIR vs. Cebu Toyo Corporation 16 that it will not set aside lightly the conclusions reached by the Court of Tax Appeals which, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority . In the case at bar, We find no cogent reason to deviate from the aforecited well-entrenched principle absent any showing of abuse of authority committed by the Court of Tax Appeals. It has been a long standing policy and practice of the Court to respect the conclusions of quasi-judicial agencies such as the Court of Tax Appeals, a highly specialized body specifically created for the purpose of reviewing tax cases. 17 Furthermore, statutes granting tax exemptions are construed stictissimi juris against the taxpayer and liberally in favor of the taxing authority. In CIR vs. SEAGATE Technology (Phils.) supra the Supreme Court ruled that "tax refunds are in the nature of such exemptions. Accordingly, the claimants of those refunds bear the burden of proving the factual basis of their claims; and of showing, by words too plain to be mistaken, that the legislature intended to exempt them." In sum, in the case at bar, all the cited legal provisions are teeming with life with respect to the grant of tax exemptions, too vivid to pass unnoticed. WHEREFORE, premises considered, the appealed Decision of the Court of Tax Appeals is hereby AFFIRMED in toto . SO ORDERED. Borja and Rosario, JJ., concur. Footnotes 1. Rollo , pp. 30-34. 2. Rollo , pp. 2-17. 3. CTA Decision, p. 11; Rollo , p. 28. 4. Respondent's Comment; Rollo , p. 127. 5. Rollo , pp. 112-116. 6. Rollo , p. 34; Resolution, p. 5. 7. Rollo , pp. 4-5. 8. G.R. No. 153866, February 11, 2005. 9. Domondon, Taxation Reviewer Vol. II, Fourth Edition, p. 569. 10. Co Untian, Tax Digest , 2002 Edition, p. 112. 11. Ibid . 12. 1995 National Internal Revenue Code. 13. Co Untian, Tax digest , 2002 Edition, p. 35. 14. Rollo , p. 25. 15. Rollo , p. 26. 16. G.R. No. 149073, February 16, 2005. 17. Commissioner of Internal Revenue vs. General Foods (Phils.), Inc. , 401 SCRA 545