Philippine Fast Ferry Corp. v. Commissioner of Internal Revenue

NINTH DIVISION [CA-G.R. SP No. 75004. July 10, 2006.] PHILIPPINE FAST FERRY CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N AREVALO-ZENAROSA, M ., J p : Before Us is a petition 1 for review under Rule 43 of the Rules of Court seeking to reverse the Decision 2 dated August 15, 2002 of the Court of Tax Appeals, denying petitioner's claim for refund or tax credit and the Resolution 3 dated December 17, 2002, denying petitioner's motion for reconsideration. The facts of the case are as follow: Petitioner Philippine Fast Ferry Corporation is a corporation organized and existing under and by virtue of the laws of the Philippines. On September 10, 1998, petitioner entered into Bareboat Charter Agreements (Bareboat Agreement) with Nenaco (BVI) Limited (Nenaco) , an offshore company, with postal address at P.O. Box 957 Offshore Incorporation Center Road Town, Tortola, BVI, for the lease of three (3) high speed Catamaran Passenger Vessels for a charter hire fee of Three Thousand One Hundred Dollars (US$3,100.00) per vessel per day for the period from September 1998 up to February 1999 and Three Thousand Four Hundred Fifty Dollars (US$3,450.00) per vessel per day from March 1999 until December 31, 1999. On July 19, 1999, the aforementioned Bareboat Charter Agreements were amended lowering the charter hire fee to US$2,000.00 per day per vessel and amending the charter period from "date of delivery until December 31, 1999" to "date of delivery until December 31, 2000." For the period April 1999 to December 1999, petitioner, in behalf of Nenaco, filed the latter's Monthly Value-Added Tax (VAT) Declarations and paid a total amount of Ten Million Six Hundred Ninety-Four Four Hundred Eighty-One Pesos (P10,694,481.00) as output VAT and the gross amount of Four Million Two Hundred Sixty-Seven Thousand Two Hundred Eighty Pesos (P4,267,280.00) representing 4.5% final income tax due on the charter hire fees it paid to Nenaco based on the charter hire fees of Three Thousand Four Hundred Fifty Dollars (US$3,450.00). Believing that its VAT and final tax payments were overpaid during the period of April 1999 to December 1999 due to the reduction of the charter hire fee from $3,450.00 to $2,000.00, petitioner, authorized by Nenaco as its agent, filed a claim for refund/issuance of the credit certificate of overpaid value-added tax and final tax. ICESTA Allegedly, petitioner's Finance Team Leader or the officer-in-charge was informed of the amendment of the Bareboat Agreement only in February 2000 when the external auditors of the petitioner, Joaquin Cunanan, were conducting an audit of the 1999 books of accounts. Thus, resulting in the overpayment of the VAT and final tax for the period of 1999. On August 7, 2000, petitioner filed a claim for refund with the Bureau of Internal Revenue of the amount of Five Million Six Hundred Thirty-Eight Thousand Six Hundred Sixty-Six Pesos (P5,638,666.00) and Two Million Four Hundred Eighty-Seven Thousand One-Hundred Ninety Pesos and Thirty Centavos (P2,487,190.30) representing the overpaid 1999 value-added and final taxes, respectively, of Nenaco. On May 22, 2001, the instant petition for review was filed before the Court of Tax Appeals (CTA) in order to toll the running of the two-year prescriptive period provided under Section 229 4 of the Tax Code, as amended. However, the amount of claim was reduced to Five Million Eight Hundred Twenty-Seven Thousand Nine Hundred Thirty-Four Pesos (P5,827,934.00) for the period April 1999 to December 1999, computed as follows: Value-added tax P4,177,297.00 5 Final Withholding Tax 1,650,637.00 6 Total P5,827,934.00 =========== On August 15, 2002 , CTA rendered a decision denying the petitioner's claim for refund, the dispositive portion of which reads: "Finally, it bears stressing that the present petition involves a claim for refund. The burden of proof is upon the petitioner to show that it is entitled thereto ( Citibank N.A. vs Court of Appeals, et al. , G.R. No. 107343, October 10, 1997). The court's duty is to apply the law based on the facts established and the evidence presented. WHEREFORE, in view of all the foregoing, petitioner's claim for refund or tax credit in the amount of P5,827,934.00 is hereby DENIED for lack of merit SO ORDERED." Petitioner filed a motion for reconsideration, but the same was denied by CTA. Hence, this petition. Petitioner asserts that it is entitled to the refund of the amount of Five Million Eight Hundred Twenty-Seven Hundred Thirty-Four Pesos (P5,827,934.00) representing erroneously or illegally paid 4.5% final income tax and 10% value-added tax for the taxable year 1999 which have been withheld at source. 7 And that: 1. The Court of Tax Appeals erred in declaring that petitioner is not entitled to the refund/tax credit of the overpaid final income and value-added taxes because the petitioner failed to show that the overpaid bareboat charter fees were ever refunded to the petitioner. 2. The Court of Tax Appeals erred in declaring that petitioner is not entitled to the refund/tax credit of said overpaid taxes because the petitioner failed to convince the court that it did not utilize or offset the amount claimed against Nenaco's future finale income tax liabilities and petitioner also failed to prove that neither Nenaco nor petitioner benefited twice on the erroneous transaction. 3. The Court of Tax Appeals erred in declaring that the petitioner is not entitled to tax refund/tax credit because the petitioner failed to present its books to show how the said transaction was treated and recorded. 4. The Court of Tax Appeals erred in declaring that the petitioner is not entitled to tax refund/tax credit since the amount that was actually paid to Nenaco was the higher rate of US$3,450.00 per day, hence, the payment of the 10% value added tax based on the said rate was proper. 8 On the contrary, respondent avers that petitioner is not entitled to the amount sought because the taxes paid and remitted were based on the previously agreed rate of US$3,450.00 and the subsequent reduction of the charter hire fee to US$2,000.00 per vessel did not make the payment of said taxes erroneous. The sole issue to be resolved in this petition is whether or not petitioner is entitled to the refund of the amount of Five Million Eight Hundred Twenty-Seven Thousand Nine Hundred Thirty-Four Pesos (P5,827,934.00) allegedly representing over paid taxes for the taxable year 1999. We rule to affirm the decision of the CTA. Taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. And since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of refund or exemption from tax payments must be clearly shown and be based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception. 9 To settle the issue in this petition, we find it necessary to examine the provisions of law imposing the final tax and the VAT in order to ascertain the correct amount of taxes that should be paid by Nenaco as a result of the reduction of the charter hire fee in the Bareboat Agreement. Nenaco is a non-resident corporation engaged in the leasing of vessel chartered by the Philippine Nationals. Its income from Philippine source is subject to 4.5% final tax and 10% output VAT pursuant to Sections 28 (B)(3) and 108 (A) of the Tax Code , as amended, which states: "Section 28 (B) (3) of the Tax Code, as amended, provides: (A) Tax on Resident Foreign Corporation. xxx xxx xxx (B) Tax on Non-resident Foreign Corporation . xxx xxx xxx (3) Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals . A nonresident owner or lessor of vessels shall be subject to a tax of four and one-half percent (4 1/2 %) of gross rental, lease or charter fees from leases or charters to Filipino citizens or corporations, as approved by the Maritime Industry Authority." "Section 108. Value-added Tax on Sale of Service and Use or Lease of Properties . (A) Rate and Base of Tax . There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipt derived from the sale or exchange of services, including the use or lease of properties." (Emphasis Supplied) Based on the above-quoted provision, Nenaco is subject to final income tax of 4.5% of gross rental earned from petitioner and VAT equivalent to 10% of gross receipt. Nenaco's income for the period April 1999 to December 1999 should be US$2,000.00 per vessel per day based on the amended bareboat agreements. Its final income tax liability of 4.5% should, therefore, be based on such reduced amount. Since petitioner based the 4.5% final tax on the higher rate of US$3,450.00, there appears to have an overpayment of final taxes in the amount of One Million Six Hundred Fifty Thousand Six Hundred Thirty-Seven Pesos (P1,650,637.00), computed as follows: PERIOD Original Exh. 4.5% Final Overpayment 1999 4.5% Final Tax based on of 4.5% Final Tax Paid Amended Rate Tax Paid May P550,097.33 Q P318,897.00 P231,200.33 June 530,675.55 R 307,638.00 223,037.55 July 552,262.71 S 320,155.50 232,107.21 August 572,765.38 T 332,037.90 240,727.48 September 571,405.39 U 331,249.50 240,155.89 October 580,562.03 U 336,557.70 244,004.33 November 569,616.91 W 330,212.70 239,404.21 December 339,897.33 X 339,897.33 TOTAL P4,267,282.63 P2,616,645.63 P1,650,637.00 However, petitioner is not entitled to the said amount. This is because the evidence presented by petitioner is wanting. Petitioner failed to show that the overpaid bareboat charter fees were ever refunded to the petitioner. It likewise failed to prove that it did not utilize or offset the said amount against Nenaco's future final income tax liabilities. Hence, it failed to present corroborative/documentary evidence to prove its allegation. Petitioner should have presented its books to show how the said transaction was treated and recorded and to further prove that neither Nenaco nor petitioner benefited twice on the erroneous transaction. Petitioner argues that there is no need to present its books because it is not claiming its own overpaid taxes but that of Nenaco, hence, the books of accounts of the petitioner are irrelevant and immaterial to this case. On the other hand, Nenaco, being a non-resident foreign corporation, is not required to maintain and is not maintaining books of accounts in the Philippines. That is precisely the reason why it is taxed on the gross charter fees from leases or charter to Filipino citizens or corporations. There is no reference whatsoever that is made to the books of a non-resident foreign corporation which would become the basis of its tax liabilities. The basis of VAT and the final withholding taxes is the gross rentals or gross amount of charter hire fees as provided in the bareboat agreement which provides for a Two Thousand Dollars (US$2,000.00) per day payment and not Three Thousand Four Hundred Fifty Dollars (US$3,450.00). 10 SHADcT We do not agree. The confusion as to petitioner's entitlement to a refund could altogether have been avoided had it presented documentary/corroborative evidence, like the books of accounts containing the exact adjusting entries. These pieces of evidence would also have shown whether petitioner or Nenaco benefited twice on the erroneous transaction. Why petitioner failed to present such a vital piece of evidence confounds the Court. Petitioner could very well have attached a copy of its books of accounts or other evidence necessary to prove its claim for refund. Petitioner could still have attached a copy of its books of accounts to its petition for review before this Court. This Court, being a trier of facts, is authorized to receive it in evidence and would have taken it into account in our disposition of the petition. In this case, petitioner's failure to present sufficient evidence to prove its claim for refund is fatal to its cause. After all, it is axiomatic that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. Tax refunds, like tax exemptions, are construed strictly against the taxpayer. 11 Moreover, based on the above-quoted provision, the tax base for VAT should be "Gross Receipt", which means that the VAT liability of taxpayer is based on the amount of income actually or constructively received . Petitioner, on the other hand, argues that the 10% VAT shall be withheld and remitted to the BIR on accrual basis or once the charter hire fees are accrued in the books of the payor. It does not require proof of actual payment to the lessor of the charter hire fees before a withholding agent can be held responsible for withholding and remitting taxes to BIR. It can further be observed therefrom that the basis of the taxes would be the amount stated in the contract. 12 We do not agree. Section 108 (a)(8) of the Tax Code , provides for the definition of "Gross Receipt" as: "Section 108 (a) (8) . . . The term 'gross receipts' means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax." (Emphasis Supplied) It can be observed from the foregoing definition of gross receipts that the VAT accrues only upon actual or constructive receipt of the consideration, irrespective of whether the service is performed or yet to be performed. It is only upon actual or constructive receipt of payment that a service taxpayer becomes liable to output VAT. Tax refunds are in the nature of tax exemptions. 13 Such exemptions are strictly construed against the taxpayer, being highly disfavored. Hence, those who claim to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. They must be able to point to some positive provision, not merely a vague implication, 14 of the law creating that right. 15 The right of taxation will not be surrendered, except in words too plain to be mistaken. The reason is that the State cannot strip itself of this highest attribute of sovereignty its most essential power of taxation by vague or ambiguous language. Since tax refunds are in the nature of tax exemptions, these are deemed to be "in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption." 16 WHEREFORE, the instant petition is hereby DISMISSED. ACCORDINGLY, the Decision dated August 15, 2002 of the Court of Tax Appeals, and the Resolution dated December 17, 2002, are hereby AFFIRMED. SO ORDERED. Dacudao and Carandang, JJ., concur Footnotes Rollo received on May 5, 2005. 1. Rollo , pp. 6-30. 2. Annex A, Rollo , pp. 31-39. 3. Annex D, Rollo , pp. 225-228. 4. SECTION 229. 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 excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) 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 therefor, 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. 5. Output VAT PERIOD Output Exh. Output VAT Overpayment 1999 VAT Paid Based on of Output VAT Amended Rate April P1,211,571.00 H P702,360.00 P509,211.00 May 1,222,438.50 I 708,660.00 513,778.50 June 1,179,279.00 J 683,640.00 495,639.00 July 1,227,247.60 K 711,450.00 515,797.60 August 1,272,811.95 L 737,862.00 534,949.95 September 1,269,789.75 M 736,110.00 533,679.75 October 1,290,137.85 N 747,906.00 542,231.85 November 1,265,815.35 O 733,806.00 532,009.35 December 755,327.40 P 755,327.40 TOTAL P10,694,418.40 P6,517,121.40 P4,177,297.00 6. PERIOD Original Exh. 4.5% Final Overpayment 1999 4.5% Final Tax based on of 4.5% Final Tax Paid Amended Rate Tax Paid May P550,097.33 Q P318,897.00 P231,200.33 June 530,675.55 R 307,638.00 223,037.55 July 552,262.71 S 320,155.50 232,107.21 August 572,765.38 T 332,037.90 240,727.48 September 571,405.39 U 331,249.50 240,155.89 October 580,562.03 U 336,557.70 244,004.33 November 569,616.91 W 330,212.70 239,404.21 December 339,897.33 X 339,897.33 TOTAL P4,267,282.63 P2,616,645.63 P1,650,637.00 7. Rollo , pp. 10. 8. Rollo , pp. 10-11. 9. PASEO REALTY & DEVELOPMENT CORPORATION vs. COURT OF APPEALS, G.R. No. 119286, October 13, 2004; Mactan Cebu International Airport Authority v. Marcos , 330 Phil. 392 (1996), citations omitted; See also Commissioner of Internal Revenue v. S.C. Johnson & Son, Inc. , 368 Phil. 388 (1999) 10. Rollo , pp. 23-24. 11. Citibank, N.A. v. Court of Appeals , 345 Phil. 695 (1997), 280 SCRA 459; Commissioner of Internal Revenue v. Tokyo Shipping Co., Ltd. , 314 Phil. 220 (1995); PASEO REALTY & DEVELOPMENT CORPORATION vs. COURT OF APPEALS, G.R. No. 119286, October 13, 2004. 12. Rollo , p. 26. 13. Commissioner of Internal Revenue v. S.C. Johnson & Son, Inc. , 368 Phil. 388, 411, June 25, 1999; Magsaysay Lines, Inc., v. Court of Appeals , 329 Phil. 310, 324, August 12, 1996; Commissioner of Internal Revenue v. Tokyo Shipping Co., Ltd ., 314 Phil. 220, 228, May 26, 1995. 14. Davao Light & Power Co., Inc. v. Commissioner of Customs , 44 SCRA 122, 130, March 29, 1972) and almost said "to be odious to the law." 15. Asiatic Petroleum Co., Ltd. v. Llanes , 49 Phil. 466, 471, October 20, 1926. 16. COMMISSIONER OF INTERNAL REVENUE vs. SOLIDBANK CORPORATION, G.R. No. 148191, November 25, 2003.