Calamba Steel Center, Inc. v. Commissioner of Internal Revenue

TWELFTH DIVISION [CA-G.R. SP No. 69723. May 31, 2004.] CALAMBA STEEL CENTER, INC. (formerly JS STEEL CORPORATION) , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS , respondents . D E C I S I O N BARRIOS , J p : Petitioner Calamba Steel Center (or Calamba Steel for brevity), in this Petition for Review under Rule 43 of the Rules of Court assails the Decision dated February 14, 2002 of the Court of Tax Appeals (or CTA), denying for insufficiency of evidence its claim for tax refund of P3,633,447.00. The undisputed facts as found by the CTA and adopted by Calamba Steel in its petition, are as follows: On April 15, 1998, Petitioner filed its 1997 annual income tax return a net loss of P68,380,390.00 and a refundable amount of P10,250,857.00 which consisted of the prior year's excess credits of P6,617,410.00 and creditable taxes withhold in 1997 of P3,633,447.00 (Exhibit A-3-a), shown as follows: Gross Income P44,049,491.00 Less: Deductions 112,429,881.00 Net Loss P68,380,390.00 =========== Income Tax Due Less: Tax Credits/Payments 1) Prior year's excess credits P6,617,410,00 2) Creditable taxes withheld the year 3,633,447.00 10,250,857.00 P10,250,857.00 =========== Petitioner carried-over the above excess tax credits of P10,250,857.00 in its 1998 income tax return filed on April 15, 1999 (Exhibit C). Also, Petitioner reported the amounts of P2,927,842.00 and P563,173.00 as creditable taxes withheld for the first three quarters and last quarter of 1998 respectively. Thus, as of December 31, 1998, Petitioner had accumulated tax credits of P13,741,872.00. Although Petitioner reflected again a net loss of P110,514,763.00 and had no income tax due at the normal tax rate, however, it was liable to pay a minimum corporate income tax (MCIT) due of P710,523.00 (Exhibit C-2). Shown below is Petitioner's 1998 income tax overpayment of P13,031,349.00 as computed in its 1998 ITR: Gross Income P35,526,132.00 Less: Deductions 146,040,895.00 Net Loss P110,514,763.00 =========== Minimum Corporate Income Tax Due P710,523.00 Less: Tax Credit /Payments 1) Prior year's excess credits P10,250,857.60 2) Creditable taxes withheld for the first three quarters of 1998 2,927,842.00 3) Creditable taxes withheld for the fourth quarter of 1998 563,173.00 13,741,872.00 Income Tax Refundable 13,031,349.00 =========== According to Petitioner, the 1998 MCIT of P710,523.00 was paid using its 1998 creditable withholding taxes so that the entire prior year's excess credits of P10,250,857.00 which included the 1997 excess creditable withholding taxes of P3,633,447.00 remained unutilized as of December 31, 1998. On April 11, 2000, Petitioner filed an administrative claim for refund corresponding to the alleged unutilized 1997 creditable withholding taxes of P3,633,447.00 (Exhibit NNN). As the two-year prescriptive period for the filing of a judicial claim was about to lapse. Petitioner elevated its case before this Court on April 14, 2000. Petitioner cited as legal bases of its claim the following provisions of Section 69 in relation to Sections 204(3) and 230 of the Tax Code, as amended: "Sec. 69. Final Adjustment Return Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year the corporation shall either: a) Pay the excess tax still due; or b) Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year." "SEC. 204. Authority of the Commissioner to compromise, abate and refund/credit taxes The Commissioner may "(3) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: . . ." 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 penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner, . . . ." "In any case, no such suit or proceeding shall be filed after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefore, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." Respondent, in his Answer, raised the following as Special and Affirmative Defenses: "4) The Petitioner's claim for tax refund/credit is still undergoing administrative routinary investigation/examination by the Respondent's Bureau; 5) The alleged tax sought to be refunded was collected pursuant to law and pertinent BIR implementing rules and regulations; hence, the same is not refundable; 6) Petitioner's allegation that it erroneously and excessively paid the tax during the year under review does not ipso facto warrant the refund/credit; 7) Claims for tax refund or tax credit are construed in strictissimi juris against the taxpayer 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 refund/credit; 8) Petitioner must show that it has complied with the provisions of Sections 204(C) and 229 of the 1997 Tax Code." To support its claim, Petitioner presented testimonial and documentary evidence. Respondent, on the other hand, did not present any controverting evidence. (pp. 3337, rollo ) On February 19, 2002, the CTA rendered a decision, the fallo of which reads: WHEREFORE, in the light of the foregoing, the instant Petition for Review is hereby DENIED for insufficiency of evidence. SO ORDERED (p. 39, rollo ). In this petition, Calamba Steel attributes the following as errors committed by the court a quo . I THE COURT OF TAX APPEALS GRAVELY ERRED IN APPLYING THE SO-CALLED "FIRST-IN, FIRST OUT" PRINCIPLE. II ASSUMING ARGUENDO THAT IT WAS PROPER TO APPLY THE "FIRST IN, FIRST OUT" PRINCIPLE, THE COURT OF TAX APPEALS GRAVELY ERRED IN DENYING PETITIONER REFUND TO A REDUCED AMOUNT. (p. 22, rollo ) Considering that Calamba Steel treats the two assigned errors as interrelated issues, they are hereby discussed in tandem. It avers that the application by the CTA of the "first-in, first-out" principle is erroneous because it has neither statutory or jurisprudential basis. It further asseverates that it did not intend the application of 1997 tax credits to the Minimum Corporate Income Tax (or MCIT) due for taxable year 1998, because crediting of excess tax payments could only be applied against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year pursuant to Section 69 of the National Internal Revenue Code. Hence, its excess tax credits as of December 31, 1998 should amount to the full P3,633,447.00 and not P2,922,924.00 as found by the CTA. Calamba Steel argues that assuming that the application of "first-in, first-out" principle is correct, it is nonetheless entitled to the tax refund in the reduced amount of P2,922,924.00. Not so. The "first-in, first-out" basis is a generally accepted principle of long standing in both accounting and taxation. An example of this is: A certain taxpayer failed to pay his income taxes for two consecutive years, P20,000.00 for 1998 and P30,000.00 for 1999. Later, he decides to pay these but only in the amount of P25,000.00. Utilizing the "first-in, first-out" principle, this amount should first be applied fully to the unpaid income tax for 1998 and it is only the excess which shall then be credited against the 1999 income tax. In the case at bar, what is applicable is res ipsa loquitor , for it is noteworthy that it was not the court a quo but Calamba Steel itself which applied the 1997 excess tax credits to the 1998 MCIT as shown in its 1998 Annual Income Tax Return (p. 97, rollo ). Thus, the CTA correctly hold that: However, petitioner carried-over the said 1997 excess tax credits of P3,633,447.00 to the succeeding year 1998. It is thus clear that petitioner intended to apply the amount of P3,633,447.00 against its 1998 minimum corporate income tax due of P710,523.00 . While petitioner also had creditable taxes withheld in 1998 of P3,491,015 (the sum of P2,927,842.00 and P563,173.00), nonetheless, the prior year's excess (1997) tax credits of P3,633,447.00 shall be utilized first to pay-off its 1998 MCIT of P710,523 under the first-in, first out principle, i.e. , the oldest credits are to be applied first [ Prodigy Distributors, Inc. (Currently HAVI Food Services Philippines, Inc. vs. Commissioner of Internal Revenue , CTA Case No. 5344, Resolution dated August 6, 1998]. Contrary to petitioner's allegation, the 1998 creditable withholding taxes can be applied only when the 1997 excess tax credits are not enough to fully absorb its 1998 income tax liability. In the instant case, 1997 excess amount of P3,633,477.00 far exceeds the 1998 MCIT of P710,523.00. Hence, petitioner's 1997 excess tax credits as of December 31, 1998 amounted only to P2,922,924.00 (P3,633,447.00 less P710,523.00) (pp. 3738, rollo ). As to the next issue, We concur with the CTA that Calamba Steel is not entitled to its claim of tax refund in the reduced amount of 2,922,924.00. It is provided in Section 76 of the National Internal Revenue Code of 1997 that: SEC. 76. Final Adjustment Return Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: a) Pay the balance of tax still due; or b) Carry-over the excess credit ; or c) Be credited or refunded with the excess amount paid, as the case may be. In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefore . (emphasis provided) Mark that under its 1998 Annual Income Tax Return (ITR), Calamba Steel chose to carry-over its 1997 excess tax credits as evinced by the "x" marked on the box corresponding to the option "to be carried as tax credit next year" (p. 18, record). Based on the above provision, such choice once made is irrevocable, hence, it cannot claim for tax refund at the same time. The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other ( Philippine Bank of Communications vs. Commissioner of Internal Revenue , 302 SCRA 241). On the other point, Calamba Steel contends that the 1997 excess tax credit could not be applied to its 1999 income tax liabilities notwithstanding the choice for a carry-over because this could only be credited against the quarterly income tax liabilities for the taxable quarters of taxable year of 1998. Wrong. Under the aforecited Section 76, it is clear that the excess credit may be carried over and credited against the taxable quarters of the succeeding taxable years . Therefore, the 1997 excess credit of P2,922,924.00 which was not fully utilized in 1998 ITR can still be carried over and credited against the 1999 income tax liabilities. In fine, the (Supreme Court) Court of Appeals will not set aside lightly the conclusion reached by the Court of Tax Appeals which, by the very nature of its function, is dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority ( Sea-Land Service, Inc. vs. Court of Appeals , G. R. No. 122605, April 30, 2001). We find no significant reason to deviate from this rule in this case. WHEREFORE, the instant petition is DENIED DUE COURSE and DISMISSED. SO ORDERED. Barrios, Del Castillo and De Leon, JJ., concur.