BASF Philippines, Inc. v. Commissioner of Internal Revenue

FORMER FIFTEENTH DIVISION [CA-G.R. SP No. 72106. June 28, 2005.] BASF PHILIPPINES, INC., petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N GUEVARA-SALONGA , J p : Assailed in this petition for review is the Court of Tax Appeals' (CTA) denial of petitioner's claim for the issuance of tax credit certificates in the total amount of P9,175,031.57, representing input taxes paid on domestic purchases and importation of capital goods for the 3rd and 4th quarters of 1998. THE FACTS The undisputed antecedents, as found by the CTA, may be summarized as follows: Petitioner is a domestic corporation engaged in the manufacture of various chemical products. It is registered with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) taxpayer with Certificate of Registration No. OCN 1 RC0000034522, dated January 1, 1997. TIEHSA From July 1 to December 31, 1998, petitioner seasonably filed with the BIR its Quarterly VAT Returns showing an unused input VAT in the total amount of P36,214,053.22 as of December 31, 1998, outlined as follows: Third Quarter: VAT Output Tax P13,255,465.14 Less: VAT Input Tax a. Carried Over from Previous Quarter P30,857,284.97 b. Domestic Purchases 5,431,696.18 c. Importation of Goods 9,581,565.00 Total Available Input Tax P45,870,546.15 Less: Any VAT Refund/TCC Claimed - Net Creditable Input Tax 45,870,546.15 Excess Input Tax P32,615,081.01 ============ Fourth Quarter: VAT Output Tax P8,523,288.22 Less: Vat Input Tax a. Carried Over from Previous Quarter P32,615,081.01 b. Domestic Purchases 5,429,286.43 c. Importation of Goods 6,692,974.00 Total Available Input Tax P44,737,341.44 Less: Any VAT Refund/TCC Claimed - Net Creditable Input Tax P44,737,341.44 Excess Input Tax P36,214,053.22 The total excess input VAT of P36,214,053.22 as of the end of the last quarter of 1998 included the sum of P9,278,495.26 representing input VAT paid on domestic purchases and importation of capital goods for the period July 1, 1998 to December 31, 1998, detailed as follows: Input VAT Supplier Date Exhibit Domestic Importation Summa Kumagai, Inc. 07-22-98 BB P3,691,286.45 Trans-Asia (Phil), Inc. 07-29-98 CC 33,712.13 Summa Kumagai, Inc. 09-21-98 DD 952,462.95 Summa Kumagai, Inc. 11-19-98 EE 928,806.80 Trans-Asia (Phil), Inc. 12-18-98 FF 33,712.13 Trans-Asia (Phil), Inc. 01-13-99 GG 33,712.13 Trans-Asia (Phil), Inc. 11-25-98 HH 33,712.13 Trans-Asia (Phil), Inc. 10-19-98 II 33,712.13 Summa Kumagai, Inc. 10-30-98 JJ 766,178.17 Summa Kumagai, Inc. 11-19-98 KK 7,029.15 Edeleanu Asia Pte Ltd 09-21-98 LL to OO P1,271,700.00 Summa Kumagai, Inc. 12-17-98 PP 1,492,471.09 Totals P8,006,795.26 P1,271,700.00 =========== ========== Thus, pursuant to Section 112(b) of the National Internal Revenue Code of 1997, petitioner filed on September 29, 2000 its administrative claim for refund with the Revenue District Office No. 56 of the BIR together with the Applications for Tax Credit/Refund of VAT Paid in the amounts of P4,779,961.54 and P4,537,190.94 for the third and fourth quarters of 1998, respectively. THDIaC Subsequently, or on October 2, 2000, petitioner filed a petition for review with the CTA against the Commissioner of Internal Revenue. In its petition, it claimed that during the 3rd quarter of 1998, it imported and/or purchased locally capital goods in the total amount of PhP47,799,615.28 and paid the amount of PhP4,779,961.54 as 10% VAT and that it did not claim tax credit or refund of said amount from the Bureau of Customs or BIR. It also alleged that during the 4th quarter, it imported locally capital goods and services in the total amount of PhP45,371,908.98 and paid the amount of PhP4,537,190.94 as 10% VAT. No claim for refund or credit of the amount of PhP4,537,190.94 was made. Hence, on September 29, 2000, it filed with the Revenue District Office No. 056 a claim for tax credit certificate in the total amount of PhP9,317,152.48 representing 10% VAT paid on said purchases for the 3rd and 4th quarters of 1998. According to petitioner, the issuance of a tax credit certificate of 10% VAT paid is allowable under Section 112 (B) of the NIRC as the application was made within two (2) years after the close of the taxable quarter when the importation was made pursuant to Section 204(C) thereof. In his Answer, respondent Commissioner claimed, among others, that the claim for tax refund/tax credit is subject to administrative investigation/examination by the BIR; that petitioner failed to demonstrate that the tax subject of the case was erroneously or illegally collected; that the taxes paid and collected are presumed to have been collected in accordance with law and regulations, hence, not refundable; that petitioner, as taxpayer has the burden of proof to show its right to refund, and failure to adduce sufficient proof is fatal to the action for tax refund/credit; that petitioner must show compliance with the provisions of Section 204(c) and 229 of the Tax Code, as amended; and that tax exemptions, being highly disfavored, cannot be established by mere implication but must be clearly expressed. Finding petitioner's excess input taxes from July 1, 1998 to September 30, 1998 to have been cumulatively added to succeeding quarters under the line "Input Tax Carried Over from Previous Quarter", the CTA in its Decision dated March 20, 2002 1 denied the claim for tax refund/credit. It ratiocinated that the accumulated input taxes of the previous quarter should be offset against the present output tax liability until the same is fully utilized under the "first-in-first-out policy". It further held that if it desires to refund the input tax paid on capital goods, petitioner should have deducted the corresponding amount under the line "Less: Any VAT Refund/TCC Claimed" provided in every quarterly VAT Return. The tax court pointed out that the amount of P36,214,053.22, representing the accumulated input taxes of petitioner as of December 31, 1998 (from which the amount sought to be refunded in the sum of P9,175,031.57 was included) was totally applied to the accumulated output VAT liability in the amount of P42,166,300.52 by the end of June 30, 2000. It elucidated that the petitioner has a remaining output tax in the amount of P5,952,247.30 which can be set-off against the input tax paid during the first quarter of 1999 in the sum of P10,596,786.57. As a consequence, the input taxes as of December 31, 1998 in the amount of P36,214,053.22, of which the amount of P9,175,031.57 was part of, was fully utilized in the 2nd quarter of 2000 (June 30, 2000). It further declared that the amount of P9,175,031.57 which formed part of the accumulated input taxes was habitually carried over from one period to another until the same was fully utilized by the end of June 2000. Thus, petitioner has the option to utilize or apply the same to its future output tax liabilities. In fine, it should have deducted the corresponding amount under the category "Less any VAT Refund/TCC Claimed" provided in every quarterly return so that it will no longer be applied to its future output tax liabilities. The tax court also decreed that on the assumption that the claimed amount has not been applied against any output tax liability during the period July 1, 1998 to September 30, 2000, the same is included in the amount of P77,400,052.47 (the accumulated excess input VAT at the end of the third quarter of 2000), which would be forwarded by petitioner to the next quarter which is the fourth quarter of 2000. Not satisfied with the aforesaid decision, petitioner filed a motion for reconsideration which was denied by the CTA in its Resolution dated July 18, 2002, 2 in this wise: "While it may be true that it was not impossible for the petitioner to deduct the corresponding amounts sought to be refunded in its 1998 third and fourth quarterly VAT returns because at the time of the filing of the said returns petitioners had not yet filed its claim for refund, the court, however, wonders why petitioner still included the said taxes in its accumulated input taxes after it had already filed its written claim for refund. Petitioner should have deducted the amount of P9,175,031.51, at the earliest, against its accumulated input taxes as of the third quarter of 2000. Obviously, when petitioner filed its 2000 third quarterly VAT return on October 25, 2000, petitioner already had pending claims for refund both with the respondent and with this court. When this court ruled that the input taxes sought to be refunded should be deducted under the line "Less: Any VAT Refund, TCC Claimed" provided in every return, it does not necessarily mean that the deduction should be made on every same period covered by the claim for refund. The excess input taxes may still be removed in the subsequent months or quarters. However, petitioner failed in this case to deduct the total amount of P9,175,031.51 from among the accumulated input taxes reflected in the subsequent periods. This is fatal to its claim for refund. The fact that petitioner is habitually carrying over the excess input taxes from one period to another means that it has the intention of applying the same against its future output tax liabilities. As a matter of course, petitioner should have applied first the amount of input taxes carried over from the previous month/quarter against the current output tax liability before utilizing the present input taxes . . . . In its desperate attempt to prove that the amount sought herein was not utilized in the subsequent quarter, petitioner presented its amended VAT Declaration for January 2001 to show that it removed the amounts representing its claim for refund of input taxes on capital goods for the years 1998, 1999 and 2000. However, a perusal of the contents of the original and the amended VAT declarations will show that instead of lowering the amount declared as "Carried Over from Previous Return Period" by P56,170,801.12, the said amount was shown as the "Total Amount Payable (Overpayment)". The change is the amount of overpayment from P93,046,971.31 to P56,170,801.12 is not synonymous with removing the latter amount from the available input taxes as of January 31, 2001. The said amendment merely means that petitioner has an excess input taxes of P56,170,801.12 by the end of January 31, 2001, which amount includes the amount herein sought to be refunded and which petitioner may still utilize in subsequent periods. At any rate, proof of deduction is no longer needed. As discussed in the assailed decision, the input taxes as of December 31, 1998 are deemed utilized as of June 30, 2000 under the principle of "first-in-first-out." THE ISSUES Hence, this petition raising as grounds the following: "-I- THE HONORABLE COURT OF TAX APPEALS GRAVELY ERRED IN NOT TAKING COGNIZANCE OF THE AMENDED 2001 VALUE-ADDED TAX RETURN OF PETITIONER SHOWING THAT THE AMOUNT SUBJECT OF THE REFUND WAS DEDUCTED FROM THE EXCESS INPUT VAT. -II- THE HONORABLE COURT OF APPEALS (sic) GRAVELY ERRED IN RULING THAT INPUT TAXES ON THE PURCHASE OF CAPITAL GOODS FOR THE THIRD AND FOURTH QUARTERS OF THE YEAR 1998 WERE ALREADY FULLY UTILIZED." 3 Petitioner submits that it filed the administrative claim for refund on September 29, 2000 and the petition for review with this Court on October 2, 2000, hence it could not have deducted an amount which has not yet been claimed as refund at the time of the filing of the quarterly VAT returns for 3rd and 4th quarters of 1998. It further claims that the input VAT taxes it paid on capital goods purchased on said quarters were never applied against any output taxes from July 1998 up to the filing of the claim for refund in September 2000. According to petitioner, its accumulated input taxes from July 1998 to September 2000 are more than the amount being claimed as refund, thus the amount claimed as refund was not applied against its output taxes. Necessarily, it is entitled to refund totaling P9,175,031.57, representing excess input VAT payments for capital goods purchased for the 3rd and 4th quarters of 1998. It further asseverates that since its ordinary input taxes often exceeded its output taxes, the input taxes on capital goods purchased for the 3rd and 4th quarters of 1998 were never utilized and hence refundable. It is only after the ordinary input taxes have been used up that the input taxes on capital goods could be utilized. To set-off the input taxes on capital goods against the output tax liability would render useless the two-year prescriptive period to file a claim for refund on the input taxes paid on capital goods. In a nutshell, the sole issue is whether the denial of petitioner's claim for issuance of tax credit certificates is proper. THE COURT'S RULING The petition is devoid of merit. At the outset, it bears to stress that factual findings of the Court of Tax Appeals are binding on this Court and in the absence of strong reasons for this Court to delve into facts, only questions of law are open for determination. 4 The said factual findings can only be disturbed on appeal if not supported by substantial evidence. 5 The CTA is a highly specialized body specifically created for the purpose of reviewing tax cases. Through its expertise, it is undeniably competent to determine whether or not input taxes on capital goods purchased for the 3rd and 4th quarters of 1998 were properly claimed as refund through the evidence presented before it. Hence, as a matter of principle, this Court will not set aside the conclusion reached by the tax court, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. 6 Thus, We agree with the pronouncement of the tax court that the claimed input taxes on the purchase of capital goods for the 3rd and 4th quarters of 1998 were fully utilized by petitioner. As clearly elucidated in the assailed decision, the excess input taxes of P9,175,031.57 for the said quarters were cumulatively added and forwarded to succeeding quarters under the line "Input Tax Carried Over from Previous Quarter." As of December 31, 1998, the accumulated input taxes of petitioner amounted to P36,214,053.22 which included the total claims of P9,175,031.57, and the same was totally applied to the accumulated output tax liability in the amount of P42,166,300.52 by the end of June 30, 2000, before petitioner filed a claim for refund. Thus, the remaining output tax (P5,952,247.30) liability of petitioner was legally set-off against the input taxes paid during the 1st quarter of 1999 in the amount of P10,596,786.57. Evidently, when petitioner filed a claim for the issuance of tax credit certificates on September 2000 on its alleged input taxes for the 3rd and 4th quarters of 1998, the same were already utilized, as these were habitually carried over from one period to another until the end of the 2nd quarter (June) of 2000. EaHIDC Moreover, as petitioner failed to indicate in its Quarterly VAT Return its intention to refund the claimed input taxes in the amount of P4,677,461.53 and P4,497,570.04, for the 3rd and 4th quarters of 1998, respectively, under the line "Less: Any VAT Refund/TCC Claimed", it can be legally presumed that the same were included in the total available input tax, which composed of input taxes carried over from previous quarter, domestic purchases, and importation of goods. As correctly pointed out by the Commissioner, the propriety of deducting the claimed input taxes as refund corresponding the line "Less: Any VAT Refund/TCC Claimed" is to assure the revenue officer that the said refund will no longer be applied to the taxpayer's future output tax liabilities. It appears that since the accumulated input taxes in the amount of P36,214,053.22 at the end of the 4th quarter of 1998 for which the claimed amount (P9,175,031.57) was part of, have been fully utilized and legally set-off against the output tax liability of petitioner as of June 30, 2000 in the sum of P42,166,300.00, the denial by the Commissioner of Internal Revenue of the claim for refund of said input taxes is proper. Section 122 of the NIRC categorically provides that a VAT registered person may apply for refund of input taxes on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes, viz : "Section 112. Refunds or Tax Credits of Input Tax. xxx xxx xxx (B) Capital Goods. A VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes . The application may be made only within two (2) years after the close of the taxable quarter when the importation or purchase was made." (Underscoring supplied.) To bolster petitioner's position that its input taxes on capital goods have not been utilized, it asserts that ordinary input taxes should first be applied against its output tax liability. To set-off input taxes on capital goods against output taxes would render useless the two (2) year prescriptive period under Section 112 of the NIRC. We do not agree. The above-mentioned provision of law does not state that ordinary input taxes should first be set-off against the output tax liability of a taxpayer. It merely provides that if a VAT-registered person has input taxes on capital goods and the same are not applied to its output taxes, it may apply for refund within 2 years from the close of the quarter when the purchase or importation was made. The said provision of law does not delineate the kind of taxes that should first be set-off against the taxpayer's output tax liability. It appears that a VAT-registered person has only the option whether or not to apply or utilize its input taxes on capital goods to its future output tax liabilities. On top of this, We do not subscribe to petitioner's contention that since its accumulated input taxes .from July 1998 to September 2000 are more than the total amount claimed as refund, the latter was not applied against its output tax liabilities. While it is true that petitioner has accumulated input taxes of P77,400,052.47 as of the end of 3rd quarter of 2000 or September 30, 2000, it does not necessarily mean that the input taxes (P9,175,031.57) claimed as refund for the 3rd and 4th quarters of 1998 were not yet fully utilized. It bears stressing that under the "first-in-first-out" policy, the excess input taxes from July 1, 1998 to September 30, 2000 were incorporated to the following quarters corresponding the line "Input Tax Carried Over from Previous Quarter". In such a case, the accumulated input taxes of the previous quarter was set-off against the current output taxes until the same is fully utilized. Thus, this resulted to the accumulated input taxes in the amount of P77,400,052.47 as of September 2000. In fact, the CTA substantially amplified that the amount of P9,175,031.57, representing input taxes for the 3rd and 4th quarters of 1998 were habitually carried over from one period to another until the same was fully utilized at the end of the 2nd quarter of 2000, when petitioner had a remaining output tax liability of P5,952,247.30. Even granting arguendo that the input taxes claimed as refund were not applied against petitioner's output tax liabilities from July 1, 1998 to September 30, 2000, said input tax was included in the total amount of P77,400,052.47 7 representing the accumulated excess input VAT. It appears that the excess input tax reflected in the 4th quarter of 1998 in the total amount of P36,214,053.22, 8 which included the amount of P9,175,031.57 subject of the claim for refund, has been deducted as adjustments from the total excess input VAT for the 2nd quarter of 1999. Certainly, petitioner could not legally claim that its input taxes for the 3rd and 4th quarters of 1998 have not been fully utilized. Under the factual milieu of the case, no sufficient proof was adduced by petitioner to show that it has made any deduction of the amount claimed as refund in its Quarterly VAT Returns. Thus, this Court has no way of determining whether the input taxes claimed as refund were indeed not applied by petitioner to its output tax liability. Necessarily, the failure of petitioner to sustain its claim is fatal to its cause following the time-tested doctrine that tax refunds are construed strictissimi juris against the person or entity claiming the same. 9 The reason being that tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority. Thus, when tax refund is claimed, it must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim. 10 In light of the laws and jurisprudence on the matter, We find no reason to deviate from the findings and conclusion of the CTA. Thus, the claim for refund amounting to P9,175,031.57, representing input taxes for the 3rd and 4th quarters of 1998 was properly denied by the Court of Tax Appeals. WHEREFORE, the foregoing considered, the petition is DENIED and the assailed Decision and Resolution are hereby AFFIRMED in toto . SO ORDERED. Buzon and Pine, JJ., concur. Footnotes 1. Annex "A", pp. 26-34, ibid . 2. Annex "B", pp. 35-38, ibid . 3. pp. 14-15, ibid . 4. Phil. Refining Coy vs. CA , 256 SCRA 667. 5. CIR vs. Tours Specialist, Inc. , 183 SCRA 402. 6. CIR vs. CA , 271 SCRA 605. 7. pp. 32-33, Rollo . 8. p. 33, ibid . 9. Paseo Realty & Development Corp. vs. CA , G.R. No. 119286, October 13, 2004. 10. Commissioner of Internal Revenue vs. Procter and Gamble, Phil. , G.R. No. 66838, December 2, 1991.