Silicon Philippines, Inc. v. Commissioner of Internal Revenue

SPECIAL SECOND DIVISION [CA-G.R. SP No. 70538. November 22, 2007.] SILICON PHILIPPINES, INC. (formerly INTEL PHILIPPINES MANUFACTURING, INC.) , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N BERSAMIN, L.P. , J p : This appeal by petition for review seeks the review and reversal of the decision of the Court of Tax Appeals in CTA Case No. 5760 and CTA Case No. 5902 denying the petitioner's claim for refund of P20,808,586.68 representing the balance of the unutilized input VAT payments for the period from January 1, 1997 to June 30, 1997. The following facts are not disputed. The petitioner, a corporation primarily engaged in business of designing, developing, manufacturing and exporting advance and large-scale integrated circuit components, was registered with the Bureau of Internal Revenue (BIR) as a value-added tax entity pursuant to Sec. 107, National Internal Revenue Code (NIRC), as evidenced by its VAT Registration Certificate No. 32A-3-002649 and Certificate of Registration bearing RDO Control No. 94-048-02621, effective January 6, 1994. It was also registered with the Board of Investments (BOI) as a preferred pioneer enterprise enjoying six years of income tax holiday, for which it was issued BOI Certificate of Registration No. 85-1010. In CTA Case No. 5760, the petitioner alleged that it generated and recorded in the period from January to June 1997 zero-rated export sales of P2,947,072,963.69, 1 which amount was paid to it in acceptable foreign currency inwardly remitted in accordance with the regulations of the Central Bank; that it reported input taxes incurred from domestic goods and services amounting to P37,275,177.41 in the period from January 1997 to June 1997 in its Quarterly VAT Returns and Monthly Declarations for the first and second quarters of 1997; 2 that on July 28, 1998, November 19, 1998 and March 3, 1999, it applied for tax credit/refund of excess VAT input tax paid on its domestic purchases of goods and services from January 1997 to June 1997 with the One-Stop-Shop Inter Agency Tax Credit and Duty Drawback Center of the Department of Finance in the amounts of P17,500,171.58, 3 P19,246,787.63, 4 and P528,218.20, 5 respectively, or in the aggregate amount of P37,275,177.41; and that due to the inaction of the BIR on its applications, it elevated the matter to the CTA on March 31, 1999. In CTA Case No. 5902, the petitioner stated that it applied for refund on June 23, 1999 with the One-Stop-Shop Inter Agency Tax Credit and Duty Drawback Center of the Department of Finance for the excess VAT input taxes paid from April 1997 to June 1997 amounting to P823,737.86; 6 that the BIR failed to act on the application, prompting the elevation of the matter to the CTA on June 30, 1999. HIESTA Both cases were consolidated on September 24, 1999 7 upon the motion of the petitioner filed on August 31, 1999. On March 13, 2000, the petitioner received from the BIR a Tax Credit Certificate dated September 10, 1999 amounting to P17,466,590.73 (SN 021780). 8 Thus, such amount was deducted from the aggregate claim of the petitioner. On February 5, 2002, the CTA rendered a decision adversely against the petitioner, 9 pertinently holding and ruling: We, therefore, proceed to the remaining issues relative to substantiation. In order to be entitled to a refund or tax credit of the unutilized input VAT payments directly attributable to zero-rated sales, Petitioner must prove that: 1.) both the administrative and judicial claims for refund were filed within two years upon filing of the quarterly VAT return(s) covered by the claim as provided under Section 4-106.2(c) of Revenue Regulations No. 7-95 in relation to Section 112(D) of the Tax Code; 2.) the claimed input VAT payments were not applied against any output tax during the period covered by the claim and in the succeeding periods; 3.) the claimed input VAT payments are directly attributable to zero-rated sales; and 4.) the claimed input VAT payments are duly supported by VAT invoices or official receipts in accordance with Section 4.104-5 of Revenue Regulations No. 7-95 in relation to Sections 113 and 237 of the Tax Code. Records show that both Petitioner's administrative and judicial claims for refund in CTA Case Nos. 5760 and 5902 were filed within the two-year prescriptive period counting from April 21, 1997 and July 18, 1977, the dates when Petitioner filed its 1997 first and second quarterly VAT returns (Exhibits C & D), respectively. With reference to the second requirement, Petitioner's quarterly VAT returns for the first and second quarters of 1997 prove that the claimed input VAT payments were already net of its output VAT liabilities for the same quarters. However, Petitioner must also show that the claimed input taxes were not carried over and applied against any output VAT in the succeeding periods. As shown in Petitioner's 1997 and 1998 quarterly VAT returns (Exhibits C, D, V, W, Z, BB, E & CC), Petitioner continuously carried-over the excess input VAT in a given quarter to the succeeding quarter(s). It was only in the third quarter of 1998 that the claimed input VAT of P17,500,171.58 for the first quarter of 1997 was deducted from Petitioner's reported total accumulated excess input VAT as of the third quarter of 1998 (line item#27 of Exhibit E). The amount of P17,500,171.58 pertains to Petitioner's claimed input taxes for which a tax credit certificate was already issued in its favor. As to its remaining claimed input taxes of P20,598,743.69 (the sum of P19,246,787.63, P528,218.20 and P823,737.86), Petitioner failed to clearly show that it deducted the same from its total accumulated input VAT payments as of the fourth quarter of 1998. Although there were deductions from the accumulated input VAT payments indicated in Petitioner's 1997 (2nd, 3rd & 4th) and 1998 (1st & 2nd) quarterly VAT returns, the same failed to reconcile with the subject claims under CTA Case Nos. 5760 and 5902 or that the deducted figures pertain to Petitioner's prior period claims (Exhibits D, V, W, Z, AA & BB). Petitioner's non-compliance with the second requirement is fatal to its claim. The Court finds it unnecessary, therefore, to delve into the rest of the issues raised. WHEREFORE, in view of the foregoing, Petitioner's claim for issuance of a tax credit certificate in the amount of P20,808,586.68 representing the balance of the unutilized input VAT payments for the period January 1 to June 30, 1997 which are directly attributable to its zero-rated sales for the same period is hereby DENIED. Accordingly, the instant Petition for Review is hereby DISMISSED due to insufficiency of evidence. SO ORDERED. 10 On February 20, 2002, the petitioner filed a motion for new trial, 11 explaining that the failure of the counsel to ascertain whether these documents were presented or offered during the trial was excusable negligence, because the preparation of the documents to be formally offered in evidence had been delegated, as a matter of the law firm's policy, to and became a routinary work of Allan Arnaldo, the legal researcher in counsel's team; that the presentation of the quarterly VAT returns for the first and second quarters of 1999, if allowed, would undoubtedly alter the decision of the CTA and fully resolve the sole issue of whether or not the subject input taxes were utilized in the succeeding VAT quarter or quarters. EIaDHS On April 19, 2002, the CTA denied the motion for new trial, observing that the excuse insisted upon by the petitioner's counsel was lacking in plausibility to warrant the granting of new trial; that the petitioner's counsel, who was in charge of the presentation of evidence and who signed the formal offer of evidence, should have known and should have been aware of the evidence necessary to support the petitioner's claim; and that in another case (CTA Case No. 5941 entitled Intel Philippines Manufacturing, Inc. v. Commissioner of Internal Revenue ) that similarly involved the refund of VAT taxes, the same counsel of the petitioner also failed to attach the 1999 1st Quarterly VAT return, prompting the petitioner to file another motion for new trial by laying the blame on the legal researcher. In this appeal, the petitioner raises the sole error, namely: THE RESPONDENT COURT ERRED IN DENYING PETITIONER'S CLAIM FOR VAT REFUND ALLEGEDLY FOR FAILING TO CLEARLY PROVE THAT THE AMOUNT BEING CLAIMED FOR REFUND WAS NOT UTILIZED IN THE SUBSEQUENT QUARTER OR QUARTERS DESPITE PETITIONER'S MOTION FOR NEW TRIAL TO HAVE AN AVENUE TO PRESENT AND SUBMIT SAID DOCUMENTS THAT WILL SURELY, IF ADMITTED, ALTER THE FINDINGS OF THE HONORABLE COURT OF APPEALS AND WOULD UNDOUBTEDLY WARRANT THE ISSUANCE OF AN ORDER FAVORING THE PETITIONER. Before anything more, the Court notes that this case was commenced long before the effectivity of Republic Act 9282, 12 approved on March 30, 2004, which, among others, removed from the Court of Appeals the jurisdiction to review the decisions and rulings of the CTA. 13 That notwithstanding, there is no provision in R.A. 9282 providing for its retroactive application to this case or expressly prohibiting this Court from continuing to exercise its jurisdiction. Settled is the rule that jurisdiction over the subject matter is determined by the law in force at the time of the filing of the action, and once acquired, the court vested with jurisdiction can proceed until final determination of the controversy, 14 and is not obstructed by a new law placing such jurisdiction in another tribunal, 15 unless the ensuing statute expressly provides otherwise. 16 We now resolve the issue presented for our consideration. It is true that claims for tax refund should be carefully and thoroughly scrutinized, because taxes are the lifeblood of the Government, that without them the Government can neither exist nor endure. 17 The prompt and certain availability of the taxes being of the essence, 18 and considering that tax refunds are in the nature of tax exemptions, tax refunds are regarded as in derogation of sovereign authority and have to be construed in strictissimi juris against the person or entity claiming the exemption. 19 Herein, however, the petitioner was able to establish its claim. According to the CTA, the petitioner's sales qualified as zero-rated sales and thus the petitioner was not liable for output VAT thereon. Thus, the petitioner was entitled to claim a refund or tax credit of the unutilized input VAT paid on its domestic purchases of goods and services that were directly attributable to such zero-rated sales. Under the NIRC of 1997, the petitioner had two options, that is, it could apply for the issuance of a tax credit certificate, or it could apply for the refund of creditable input tax due or paid attributable to such sales. The relevant provision reads: Sec. 112. Refund 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 may, 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; . . . . xxx xxx xxx The CTA declared that the petitioner was legally entitled to the refund sought, having sufficiently shown that its export sales for the period from January 1, 1997 to June 30, 1997 qualified for zero-rating as provided under Sec. 100, (a), (2), (A), (i), NIRC of 1997. 20 The BIR issued Tax Credit Certificate SN 021780, which, according to the CTA, was one of the amounts being claimed in the present case. Moreover, according to the CTA, the fact that the petitioner was a VAT registered entity was not disputed. Further still, the CTA said that since petitioner's export sales qualified as zero-rated sales, the petitioner was not liable to pay output VAT thereon, thus entitling the petitioner to claim a refund or tax credit of the unutilized input VAT paid on its domestic purchases of goods and services which were attributed directly to such zero-rated sales. 21 The only reason for the denial of the petitioner's claim was the non-presentation of the quarterly VAT returns for the first and second quarters of 1999. In its motion for new trial, however, the petitioner attached the omitted documents, but the CTA ignored them in denying the motion for new trial. We hold that the CTA committed reversible error for so denying the motion for new trial considering that even the respondent Commissioner stated in his comment that the only documents that would erase any doubt on the matter were the quarterly returns. 22 In BPI-Family Savings Bank Inc. v. Court of Appeals, 23 the Supreme Court relaxed procedural rules when the petitioner failed to present its 1990 Return that would have shown that the amount in dispute was not applied as a tax credit, holding thus: True, strict procedural rules generally frown upon the submission of the Return after the trial. The law creating the Court of Tax Appeals, however, specifically provides that proceedings before it "shall not be governed strictly by the technical rules of evidence." The paramount consideration remains the ascertainment of truth. Verily, the quest for orderly presentation of issues is not an absolute. It should not bar courts from considering undisputed facts to arrive at a just determination of a controversy. In the present case, the Return attached to the Motion for Reconsideration clearly showed that petitioner suffered a net loss in 1990. Contrary to the holding of the CA and the CTA, petitioner could not have applied the amount as a tax credit. In failing to consider the said Return, as well as the other documentary evidence presented during the trial, the appellate court committed a reversible error. It should be stressed that the rationale of the rules of procedure is to secure a just determination of every action. They are tools designed to facilitate the attainment of justice. But there can be no just determination of the present action if we ignore, on grounds of strict technicality, the Return submitted before the CTA and even before this Court. . . . . xxx xxx xxx Finally, respondents argue that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the claimant. Under the facts of this case, we hold that petitioner has established its claim. Petitioner may have failed to strictly comply with the rules of procedure; it may have even been negligent. These circumstances, however, should not compel the Court to disregard this cold, undisputed fact: that petitioner suffered a net loss in 1990, and that it could not have applied the amount claimed as tax credits. Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honor, dignity and uprightness. The 1999 first-quarter and second-quarter VAT returns that the CTA disregarded unquestionably indicated that the VAT refund applications that were deducted from the accumulated input VAT payments included the amounts being claimed herein, which can only mean that the amounts claimed for refund were not yet utilized as tax credit or were not carried over and applied against any output VAT in the said 1999 quarters. The negligence of the petitioner's counsel in not seeing to it that the 1999 VAT returns were actually included in the formal offer of documentary evidence for the petitioner is not compelling enough to close the door to the consideration of such returns by virtue of the indubitable fact that the petitioner was legally entitled to the refund being sought here. Substance should prevail over technicality. In this regard, the neglect of the petitioner's counsel in the matter may be viewed with greater understanding. As held in Suarez v. Court of Appeals: 24 (A)s a general rule, a client is bound by his counsel's conduct, negligence, and mistakes in handling the case during the trial. 25 However the rule admits exceptions. A new trial may be granted where the incompetency of counsel is so great that the defendant is prejudiced and prevented from fairly presenting his defense . 26 Where a case is not tried on the merits because of the negligence of counsel rather than the plaintiff, the case may be dismissed but, in the interest of justice, without prejudice to the filing of a new action . 27 WHEREFORE, the DECISION DATED FEBRUARY 5, 2002 is REVERSED and SET ASIDE. The COMMISSIONER OF INTERNAL REVENUE is ordered to issue the tax credit certificate for P20,808,586.68 representing the balance of the unutilized input VAT payments for the period from January 1, 1997 to June 30, 1997 in favor of the petitioner. SO ORDERED. Hormachuelos and Tayag, * JJ., concur. Footnotes * Vice J. Estela M. Perlas Bernabe who is on leave per Office Order No. 100-07-CMV. 1. Rollo, p. 82; Joint Stipulation of Facts, CTA Case No. 5760. 2. Rollo, p. 80; Joint Stipulation of Facts, CTA Case No. 5760. 3. Annex F, petition. 4. Annex G, petition. 5. Annex H, petition. 6. Annexes E and F, petition. 7. Rollo, p. 84. 8. Annex E-1, petition. 9. Annex G, petition. 10. Rollo, pp. 102-104. 11. Annex H-1, petition. 12. An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its Rank to the Level of a Collegiate Court with Special Jurisdiction and enlarging its Membership, Amending for the Purpose Certain Sections or Republic Act No. 1125, As Amended, Otherwise Known as the Law Creating the Court of Tax Appeals, and for Other Purposes. 13. Sec. 11 and Sec. 12, R.A. 9282, respectively amending Sec. 18 and Sec. 19, Republic Act 1125. 14. Icasiano v. Icasiano, 11 SCRA 422; Denila vs. Bellosillo, 64 SCRA 63. 15. PLDT v. Judge Dulay, 172 SCRA 31. 16. Latchme Motoomull v. De la Paz, GR 45302, July 24, 1990; Southern Food Sales Corp. v. Judge Salas, 206 SCRA 333. 17. National Power Corporation v. City of Cabanatuan, 401 SCRA 259 (2003). 18. Sison Jr. v. Ancheta, 130 SCRA 654 (1984). 19. Commissioner of Internal Revenue v. Procter and Gamble Philippines, 204 SCRA 377 (1991). 20. Now Sec. 106, (A), (2), (a), (1), NIRC, as amended. 21. Rollo, pp. 101-102. 22. Rollo, p. 136. 23. 330 SCRA 507 (2000). 24. 220 SCRA 274 (1993). 25. Citing Fernandez v. Tan Ting Tic, 1 SCRA 1138 [1961]; Rivera vs. Vda. De Cruz, 26 SCRA 58 [1968]; Don Lino Gutierrez & Sons, Inc. v. Court of Appeals, 61 SCRA 87 [1974]. 26. Citing People v. Manzanilla, 43 Phil. 167; 16 CJ. 1145; 24 C.J.S. 68. 27. Citing de los Reyes v. Capule, 102 Phil. 464 [1957].