Lazi Bay Resources Development, Inc. v. Commissioner of Internal Revenue

SPECIAL FORMER FIFTEENTH DIVISION [CA-G.R. SP No. 73148. March 21, 2007.] LAZI BAY RESOURCES DEVELOPMENT, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N REYES , B ., J p : Challenged by way of a petition for review under Rule 43 of the Rules of Court is the decision rendered by the Court of Tax Appeals dated June 27, 2002 which granted in part the petitioners claim for tax refund in the amount of P2,658,582.7. Similarly assailed is the order of the tax court dated September 16, 2002 which junked the petitioner's motion for partial reconsideration. The following summation of facts is undisputed: Petitioner Lazi Bay Resources Development, Inc. is a domestic corporation engaged in the mining business, which includes exploration, development and operation of mining properties for purposes of commercial production of limestone for the export abroad ( Rollo, p. 46 ). The petitioner company is registered with the Bureau of Internal Revenue as a value-added taxpayer on February 1, 1996 with Tax Identification No. 004-656-458-VAT/RDO Control No. 96-047-005989 ( ibid., p. 47 ). The petitioner is likewise registered with the Board of Investments as a non-pioneer enterprise exporting at least seventy percent (70%) of its limestone production under BOI Certificate of Registration No. EP 95-369 issued on January 26, 1996. Under the specific terms and conditions of its BOI registration, petitioner is entitled to a four-year income tax holiday effective from the start of its commercial operation in December 1996 or from actual start of commercial operation, whichever comes first, but not earlier than the date of registration ( id .). ICDcEA For the period January 1, 1998 to December 31, 1998, petitioner filed its quarterly VAT returns declaring unutilized input VAT paid on domestic purchases of goods/services and importation of capital goods in the total amount of P2,955,263.07, itemized as follows: INPUT VAT Carried-over This Quarter Date of from previous Domestic Importation Exh Filing 1998 Quarter Purchases of goods Total D 5/4/1998 1st qtr P53,592,293.07 P936,250.45 P28,652.92 P964,903.37 E 7/27/1998 2nd qtr 54,357,628.18 263,210.48 557,175.46 820,385.94 F 10/26/1998 3rd qtr 54,803,392.11 605,550.09 519,612.07 1,125,162.16 G 1/25/1999 4th qtr 56,250,671.28 25,191.90 19,619.70 44,811.60 P1,830,202.92 P1,125,060.15 P2,955,263.07 ======= ======= ======= ( Id., p. 47 ) On February 4, 2000, petitioner simultaneously amended its 1998 quarterly VAT returns increasing its reported unutilized input VAT payment from P2,955,263.07 to P5,309,505.53, to wit: INPUT VAT Carried-over This Quarter from previous Domestic Importation Exh 1998 Quarter Purchases of goods Total H 1st P48,047,134.56 P978,688.11 P1,430,109.87 P2,408,797.98 I 2nd 2,408,797.98 263,210.48 557,175.46 820,385.94 J 3rd 3,229,183.92 605,350.09 519,612.07 1,124,962.16 K 4th 562506714,354,34608.28 724,870.67 230,488.78 955,359.45 P2,572,119.35 P2,737,386.18 P5,309,505.53 ======== ======== ======== ( Id., p. 48 ) Subsequently, on April 10, 2000, petitioner further amended its 1998 quarterly VAT returns in order to reflect its 1998 zero-rated sales of US$1,531,040.00, detailed as follows: INPUT VAT Zero-rated Carried-over This Quarter Sales from previous Domestic Importation Exh 1998 (in US$) Quarter Purchases of goods Total L 1st qtr 120,960.00 P48,047,134.56 P978,688.11 P1,430,109.87 P2,408,797.98 M 2nd qtr 469,280.00 2,408,797.98 263,210.48 557,175.46 820,385.94 N 3rd qtr 537,600.00 3,229,183.92 605,350.09 519,612.07 1,124,962.16 O 4th qtr 403,200.00 4,354,346.08 724,870.67 230,488.78 955,359.45 1,531,040.00 P2,572,119.35 P2,737,386.18 P5,309,505.53 ======= ======== ======== ======== ( Ibid ) Pursuant to Revenue Audit Memorandum No. 2-93, petitioner filed on March 13, 2000 with the Department of Finance One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF-OSS), separate administrative claims for refund corresponding to its alleged unutilized input VAT payments for the taxable year 1998, yet the amount claimed was not the sum of P5,309,505.53 as reported above but in the amount of P5,309,705.53, viz: Exhibit 1998 Imported Value Local VAT Total P, T 1st qtr P1,430,109.87 P978,688.11 2,408,797.98 Q, U 2nd qtr 557,175.46 263,210.48 820,385.94 R, V 3rd qtr 519,612.07 605,550.09 1,125,162.16 S, W 4th qtr 230,488.78 724,870.67 955,359.45 P2,737,386.18 P2,572,319.35 5,309,705.53 ========== ========= ========= ( ibid, p.49 ) Claiming inaction on the part of the respondent Commissioner of Internal Revenue and to toll the running of the prescriptive period, petitioner filed the instant petition for review on March 28, 2000. However, petitioner filed a Supplemental Petition for Review on September 29, 2000 substantially increasing its original claim for refund of P5,309,705.53 to P9,481,911.23. The same was admitted by the Court of Tax Appeals on October 6, 2000 ( id .). The petitioner likewise filed with the DOF-OSS on September 28, 2000 and September 29, 2000, supplemental administrative claims for refund in the amounts of P1,207,782.22 and P3,051,623.48, respectively, or totaling P4,259,405.70. As observed by the Tax Court, the petitioner's total administrative claim (original claim of P5,309,705.53 and supplemental claim of P4,259,405.70) in the amount of P9,569,111.23 is higher than the judicial claim of P9,481,911.23 ( id .). To reflect the increase in its unutilized input VAT payment, petitioner amended for the third time on September 28, 2000 its 1998 quarterly VAT returns, as follows: INPUT VAT Zero-rated Carried-over This Quarter Sales from previous Domestic Importation Exh 1998 (in US$) Quarter Purchases of goods Total BB 1st qtr 120,960.00 P48,047,134.56 P1,648,040.20 P1,430,109.87 P3,078,150.07 CC 2nd qtr 469,280.00 3,078,150.07 1,363,529.33 557,175.46 1,920,704.79 DD 3rd qtr 537,600.00 4,998,854.86 1,887,302.63 519,612.07 2,406,914.70 EE 4th qtr 403,200.00 7,405,769.56 1,845,652.89 230,488.78 2,076,141.67 1,531,040.00 P6,744,525.05 P2,737,386.18 P9,481,911.23 ======= ======= ======= ======= ( ibid, p. 50 ) To oppose the petitioner's tax claim, the Commissioner of Internal Revenue, as respondent, raised the following Special and Affirmative Defenses, to wit: "4.) The petition states no cause of action as it does not allege the dates when the taxes sought to be refunded were actually paid; 5.) It is incumbent upon herein petitioner to show that it has complied with the provision of Section 229 of the Tax Code; 6.) Claims for refund are construed strictly against the claimant, the same being in the nature of exemption from taxes (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95; Manila Electric Co. vs. Commissioner of Internal Revenue, 67 SCRA 35); 7.) One who claims to be exempt from payment of a particular tax must do so under clear and unmistakable terms found in the statute (Asiatic Petroleum vs. Llanes, 49 Phil. 466; Union Garment Co. vs. Court of Tax Appeals, 4 SCRA 304); 8.) In action for refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure to sustain the same is fatal to the action for tax refund; and 9.) Taxes paid and collected are presumed to have been made in accordance with the law and regulations, hence, not refundable." ( ibid ) To support its case, the petitioner presented voluminous documents and witnesses to identify the same. Upon the other hand, respondent was declared to have waived his right to present evidence for his failure to appear in court on three consecutive occasions. Thus, the case was submitted for decisions sans memorandum of the respondent ( ibid, p. 51 ). Finding partial merit on the petitioner's claim, on June 27, 2002, the Court of Tax Appeals rendered a decision, the decretal text of which reads thus: "WHEREFORE, in view of all the foregoing, petitioner's claim is hereby PARTIALLY GRANTED. Respondent Commissioner of Internal revenue is ORDERED to REFUND or in the alternative, ISSUE a TAX CREDIT CERTIFICATE in favor of the petitioner in the amount of P2,658,582.78 representing unutilized input VAT directly attributable to petitioner's zero-rated sales for the period January 1, 1998 to December 31, 1998. SO ORDERED." ( ibid, p. 59 ) The petitioner moved for a partial reconsideration of the abovequoted ruling, but the tax court denied the same. CASaEc Dissatisfied, the petitioner elevated the matter before this Court, arguing thusly: I. THE COURT OF TAX APPEALS ERRED IN REQUIRING PETITIONER PROOF OF ACTUAL FOREIGN CURRENCY INWARD REMITTANCE OF THE EXPORT PROCEEDS IN THE AMOUNT OF US$1,531,040.00 TO QUALIFY THE P4,935,606.98 UNUTILIZED VAT INPUT AS DIRECTLY ATTRIBUTABLE TO ZERO-RATED SALES. II. THE COURT OF TAX APPEALS ERRED IN REDUCING THE REFUNDABLE VAT INPUT TAXES IN THE AMOUNT OF P4,935,606.98 PROPORTIONATELY AGAINST THE PERCENTAGE OF EXPORT SALES OF US$895,319.88. ( Rollo, p. 36 ) The petition failed to sway. First, reference to the pertinent provision is imperative, to wit: "SEC. 106. Value-added Tax on Sale of Goods or Properties . (A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. xxx xxx xxx (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). From a plain reading of the law, it is clear that among the conditions that were imposed before export sales could qualify as zero-rated is that proceeds of the same must be "accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas". However, SGV & Co., the auditing firm engaged by the petitioner company, noted in its amended report dated March 12, 2001 that out of the total export sales of petitioner amounting to US$1,531,040.00, only the sum of US$895,319.88 was inwardly remitted and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas as per the certifications issued by Hongkong Bank. Having failed to account for the rest of the US$635,720.12, only the export sales of US$895,319.88 may be zero-rated under section 106 (A) (2) (a) (1) of the 1997 Tax Code. Incidentally, in invoking that the proceeds of the export sales need not be inwardly remitted and accounted for, the petitioner invoked Bangko Sentral Circular No. 1389 ( Consolidated Foreign Exchange Rules and Regulations ). However, this court is not entirely persuaded that the said memorandum actually governs the accounting of export proceeds. This Court is not prepared to extend presumptions in favor of the petitioner. Indubitably, it is the burden of the petitioner to prove that indeed, said circular amended or superseded the requirement of accounting of export proceeds. After all, it is a cardinal policy in this jurisdiction that whoever claims exemption from payment of a particular tax is statutorily obliged to prove his claim under clear and unmistakable terms ( Union Garment Co. vs. Court of Tax Appeals, 4 SCRA 304 ). Also relevant is Section 112 (A) of the 1997 Tax Code, which provides as follows: "SEC. 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 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 extend 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 proceeds 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 be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales." Inasmuch as the export sales of the petitioner, at least to the extent of US$895,319.88, are zero-rated, the petitioner is not liable to pay any output VAT thereon. However, before, the petitioner may be refunded of whatever input VAT it had paid on its domestic purchases of goods/services and importance of capital goods, the abovequoted law requires the petitioner to prove that, indeed, it paid input VAT on its domestic purchases of goods and services and importation of capital goods and that such input VAT paid were directly attributable to its zero rated sales. Likewise, it must be shown by the petitioner that the same input VAT must not have been utilized or carried over to the succeeding taxable quarters. cIETHa Thus, according to a CTA case, in order to be entitled to a refund/tax credit input VAT paid, herein petitioner must necessarily prove that: 1.) That 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; 2.) The claimed input VAT payments are directly attributable to zero-rated sales; 3.) The claimed input VAT payments were not applied against any output tax nor carried over to the succeeding month(s)/quarter(s); and 4.) Both the administrative and judicial claims for refund were filed within the two year prescriptive period ( Taganito Mining Corporation vs. CIR, CTA Case No. 5983, dated October 11, 2001 ). As regards the foregoing, the tax court arrived at the following findings: "To prove compliance with the first requisite, petitioner submitted various suppliers' invoices/official receipts, BOC import entry declarations/official receipts which were verified by the commissioned auditing firm, SGV&Co. However, the aforesaid documents as summarized in Annex I-1 to I-17 of the SGV&Co. report reflected input taxes in the total amount of only P8,926,927.26 which is lower by P554,983.97 as compared against Petitioner's claim of P9,481,911.23. Thus, the discrepancy of P554,983.97 should denied outright for lack of supporting documents. Upon scrutiny of the documents supporting the claim of P8,926,927.26, SGV&Co. noted the following observations and exceptions in its amended report dated March 12, 2001. 1.) Input taxes on importations amounting to P1,873,301.21 were supported by certified true copies of the Import Entry and Internal revenue Declarations (IEIRDs) duly signed by authorized officials of the Bureau of Customs. 2.) Input taxes amounting to P2,426,730.16 were not properly supported by VAT invoices/official receipts, BOC IEIRDs/official receipts. In its memorandum, petitioner manifested that the offer of certified true copies in lieu of the originals of the Bureau of Customs Import Entry and Internal Revenue Declarations (IEIRDs) was done in accordance with section 5 of Rule 130 of the Rules of Court. According to the petitioner, the Bureau of Customs requires all seven copies of the IEIRDs to go to a particular office of the Bureau to secure the release of the imported capital goods. Petitioner further manifested that the IEIRDs are accountable forms entrusted to licensed customs broker to document the importation for the purpose of facilitating the release of the shipment of imported goods and that it is common knowledge among licensed customs brokers that the taxpayer-importer himself cannot secure an original copy thereof. Upon a thorough review of petitioner's documents, this court found that out of the input taxes paid by petitioner on its importation which were supported by certified true copies amounting to P1,873,301.21, only the amount of P618,782.26 represents a valid claim. The reason is simple. The corresponding certified true copies of said IEIRDs were either machine validated or had accompanying BOC official receipts proving actual payment of the INPUT VAT of P618,782.26. As to the remaining input taxes of P1,254,518.95, the certified true copies of the IEIRDs submitted were not machine validated or did not have the corresponding BOC official receipts. The same should, therefore, be deducted from petitioner's claim. In addition, it is worth emphasizing that although the exceptions of P2,426,730.16 noted by SGV&Co. were found to be proper disallowances from petitioner's claim, nevertheless, an additional amount of P699,373.90 should likewise be disallowed because the corresponding invoices were not issued under the name of the petitioner or were dated outside of the period of the claim. Apparently and pursuant to Section 4.104-5 of Revenue Regulations No. 7-95, only the input taxes of P4,546,304.25 shall be allowed as creditable input Vat. We now resolved the issue of whether or not the input VAT paid by petitioner in 1998 are directly attributable to petitioner's zero-rated sales. As already discussed earlier, not all of the petitioner's export sales are zero-rated. Only the amount of US$895,319.88 qualified as zero-rated export sales for the year 1998. Thus, the allowable input VAT of petitioner amounting to P4,546,304.25 shall be apportioned between petitioner's zero rated export sales of US$895,319.88 and export sales which were found to be without foreign currency remittances in the sum of US$635,720.12. Upon proper calculation, only the input VAT of P2,658,582.78 can be directly attributed to petitioner's 1998 zero-rated export sales of US$895,319.88. To prove that the input VAT were not applied against any output VAT for the taxable year 1998, petitioner submitted its third amended quarterly VAT returns. Notwithstanding the fact that petitioner carried over the claimed input taxes of P9,481,911.23 to the first quarter of 1999 as shown in its 1999 amended first quarterly Vat return, the same were deducted as "Any VAT refund/TCC Claimed" from the "total available input taxes" of P11,298,395.83 as of March 31, 1999. In short, the resulting excess input taxes of P1,816,484.60 to be carried-over to the succeeding second quarter of 1999 no longer included the claimed 1998 input taxes of P9,481,911.23. It pertained only to the reported input taxes for the first quarter of 1999. In this regard, it appears that petitioner's claimed 1998 input taxes of P9,481,911.23 were not utilized nor applied against any output VAT for the second, third and fourth quarters of 1999. TADaCH We have reviewed the foregoing findings vis--vis the evidence that were elevated to us and have found nothing amiss in the manner by which such evidence were appraised. Indeed, tax refunds are construed in strictissimi juris against the taxpayer ( Province of Tarlac vs. Alcantara, 216 SCRA 790 ). Withal, there is nothing imperiously sacrosanct about pronouncements of specialized tribunals. Nevertheless, absent a showing of abuse or improvident exercise of authority, we are not wont to set aside lightly the conclusions reached by the Court of Tax Appeals because by the very nature of its function, it is dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject ( Sea-Land Service, Inc. vs. Court of Appeals, 357 SCRA 441 ). WHEREFORE, in the light of the foregoing premises, the instant petition is hereby DISMISSED for lack of merit. SO ORDERED. Reyes, Jr. * and Punzalan-Castillo, JJ., concur. Footnotes * In lieu of Justice Santiago Javier Ranada who replaced Justice Arturo D. Brion pursuant to the latter's appointment to the DOLE.