Burmeister & Wain Scandinavian Contractor Mindanao, Inc. v. Commissioner of Internal Revenue

FOURTH DIVISION [CA-G.R. SP No. 79272. April 19, 2005.] BURMEISTER & WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N TRIA TIRONA , J p : Assailed in the instant petition is the 29 January 2003 Decision of the Court of Tax Appeals (CTA) in CTA Case No. 6220, denying petitioner's claim for refund due to insufficiency of evidence and the 26 August 2003 Resolution, rejecting petitioner's Motion for Reconsideration praying for the admission of the invoices and receipts which will allegedly prove petitioner's claim for refund. The facts are not disputed. On 21 July 1999, petitioner filed an Application for Tax Refund of Value Added Tax for the period of July to December 1998. 1 No action was taken thereon by respondent Commissioner of Internal Revenue. On 09 January 2001, petitioner filed a Petition for Review 2 with the CTA pressing its claim for refund or issuance of a tax credit certificate in the amount of P1,834,388.55, representing unutilized VAT input taxes paid on domestic purchases of goods and services attributable to zero-rated sales for the fourth quarter of 1998. 3 Petitioner presented the CTA-specially commissioned independent Certified Public Accountant (CPA), who testified on his analysis of petitioner's VAT invoices and receipt for purposes of the claimed refund. The CPA's report 4 containing a detailed discussion of said VAT invoices and receipts was duly received in evidence. Petitioner however, failed to submit the subject VAT invoices and receipts. On 29 January 2003, the CTA rendered its decision, denying petitioner's claim for refund for failure to submit the VAT invoices and receipts evidencing the value-added tax paid. It thus, disposed this case in this wise " Proceeding now to the issue of whether or not petitioner was able to substantiate by documentary evidence its claim for refund, the commissioned auditing firm. . . in its report dated June 27, 2001 . . . stated that out of petitioner's total claimed input taxes of P1,834,388.55, . . . only the . . . amount P1,556,913.68 represents petitioner's valid claim . However this court cannot ascertain the accuracy of the said report since petitioner failed to present the supplier's invoices and official receipts, even if certified to have been previously examined by an independent Certified Public Accountant, would not suffice to establish the truthfulness and accuracy of the contents thereof. These invoices and receipts must be made available for verification by the court itself. Moreover, CTA Circular 10-97, amending the provisions of CTA Circular 1-95, clearly provides that : "2. . . . the receipts, invoices, vouchers or other documents covering the said accounts or payments to be introduced in evidence must be pre-marked by the party concerned and submitted to the Court in order to be made accessible to the adverse party who desires to check and verify the correctness of the summary and CPA certification." The [above-quoted] provision . . . does not permit the petitioner to present only the CPA Certification and Summary Listings of Invoices and Receipts in lieu of submitting the voluminous photocopies of the invoices and receipts before this court. . . It bears stressing that under Section 16(c) of Revenue Regulations No. 5-87, as amended by Revenue Regulations No. 3-88, one of the essential requisites in an application for refund/tax credit of input VAT is the presentation of the "photocopy of the purchase invoice or receipt evidencing the value added tax paid." The said invoices/receipts should conform to the invoicing requirements under Section 4.104-5 of Revenue Regulations No 7-95 in relation to Sections 113 and 237 of the Tax Code . Hence , without the supplies' invoices and official receipts, petitioner's claim must fail . . . " 5 The fallo of CTA's decision reads: " WHEREFORE,. . . the instant petition for review is hereby DENIED due to insufficiency of evidence. SO ORDERED. " From the aforesaid decision, petitioner filed a motion for reconsideration with prayer for the admission of the attached copies of receipts and invoices. 6 In its Motion, petitioner, invoking liberal construction of the CTA procedural rules, sought the admission of the pertinent invoices and receipts or that it be allowed to formally present said documents. 7 It alleged that the non-submission thereof was due to mere inadvertence. On 26 August 2003, the CTA denied petitioner's Motion for Reconsideration on the following grounds: (1) petitioner failed to prove that it actually incurred or paid input taxes in connection with its zero-rated sales of services because there were no VAT invoices/receipts presented to establish such fact; and (2) petitioner did not submit its succeeding 1999 first quarterly VAT return to prove that the claimed input VAT wits not applied against any output VAT liability. CTA elucidated its denial of the claimed refund as follows: ". . . in order that a refund tax credit of input VAT may be granted, the following conditions must be met : 1) there must be zero-rated or effectively zero-rated sale of goods or services ; 2) that input taxes were incurred or paid and duly supported by VAT invoices and/or receipts ; 3) that such input taxes are directly attributable to zero-rated or effectively zero-rated sale of goods or services ; 4) that the input taxes were not applied against any output VAT liability; and 5) that the claim for refund was filed within the two-year prescriptive period . There is no question that petitioner's sales of services for the fourth quarter of 1998 qualify for zero-rating under Section 108(B)(2) the Tax Code and that the claim for refund was filed within the two-year prescriptive period. However, petitioner did not comply with the equally significant second, third and fourth requisites . Petitioner failed to prove [the second requisite] that it actually incurred or paid input taxes in connection with its zero-rated sales of services because there were no VAT invoices/receipts presented to established such fact . . . Further , anent the fourth requisite, petitioner did not submit its succeeding 1999 [first] quarterly VAT return to prove that the claimed input VAT was not carried over to the said period and was not applied against any output VAT liability. xxx xxx xxx . . . even if this court allows the presentation of the VAT invoices and receipts, the said documents are still insufficient to make us change our original decision. Petitioner did not submit its 1999 first quarterly VAT return in order to prove that the claimed excess input VAT payments for the fourth quarter of 1998 were not utilized in the said period." 8 Hence, this petition. The issue here is whether or not petitioner's VAT invoices and receipts may be considered by the CTA in determining petitioner's claim for refund even though they were not formally presented during trial but was only attached to its Motion for Reconsideration before the CTA. The petition is meritorious. Taxation is it 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. 9 Elsewise stated, taxation is the rule, exemption therefrom is the exception. 10 The rules of evidence and jurisprudence do not sanction the grant of evidentiary value to evidence which is not formally offered, this notwithstanding it must be stressed that technical rules of procedure are not ends in themselves but are primarily designed to help in the administration of justice. 11 They are tools designed to facilitate the attainment of justice. 12 The rationale of the rules of procedure is to secure a just determination of every action. The paramount consideration remains the ascertainment of truth. 13 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. 14 Moreover, Section 8 15 of Republic Act No. 1125 creating the Court of Tax Appeals expressly provides that it shall not be governed strictly by technical rules of evidence. 16 Section 2, Rule 1 of the CTA Rules of Procedure echoes this mandate, thus: " These rules shall be liberally construed in order to promote their object and to assist the parties in obtaining just, speedy, and inexpensive determination in every action and proceeding ." 17 In the instant case, the controversy lies on petitioners' failure to present its VAT receipts and invoices during the trial. These documents were not formally offered but were attached to petitioner's Motion for Reconsideration filed with the CTA. Petitioner now seeks to have them admitted and considered by the CTA in determining its claim for refund. Petitioner's plea is primarily anchored in the liberal interpretation of Section 8 of Republic Act No. 1125 and the CTA's Rules of Procedure. 18 The respondent, thru the Solicitor General, counters that petitioner's failure to present the VAT receipts and invoices is not merely procedural but substantive. According to respondent petitioner's failure to submit the said evidence due to inadvertence is tantamount to inexcusable negligence, if not sheer ignorance of the law. We note that the claim for refund was denied on the ground that the VAT invoices and official receipts which are needed by the CTA to verify the truthfulness and accuracy of the report certified by an independent CPA, were not presented by petitioner. Upon submission of the said receipts and invoices, however, the CTA ratiocinated that the claim for refund should still be denied because petitioner allegedly failed to submit its 1999 first quarterly VAT return, which will establish that the claimed excess input VAT payments for the fourth quarter of 1998 were not carried over and applied against any output VAT liability. The records, however, disclose that petitioner's 1999 first quarterly VAT return 20 was in fact formally offered to 21 and duly admitted by the CTA in its 24 September 2002 Resolution. 22 Said return reveals that no input tax was carried over from the previous quarter 23 and that no VAT refund and tax credit were previously claimed by petitioner. Clearly therefore, CTA had all the necessary documents to assess and rule on the validity of petitioner's claim. The VAT invoices and receipts were even properly identified by the independent CPA in the course of his testimony. But instead of squarely ruling on the merits as the needed invoices and receipts were subsequently attached to petitioner's motion for reconsideration, the CTA stubbornly stood firm on the denial of the claim for refund, this time, on the additional ground of non-presentation of the 1999 VAT return, which on the contrary was already submitted by petitioner. In BPI-Family Savings Bank, Inc. vs. Court of Appeals , 24 petitioner's claim for refund was denied because of its failure to present its 1990 Tax Return that would have shown that the amount in dispute was not applied as a tax credit. The Supreme Court, however, found that a copy of petitioner's Final Adjustment Return for 1990 was attached to its Motion for Reconsideration filed before the CTA. Said 1990 tax return which was presented for the first time in petitioner's Motion for Reconsideration before the CTA was considered in granting petitioner's prayer for refund, thus: " The CTA and the CA denied the claim for tax refund. Since petitioner declared in its 1989 Income Tax Return that it would apply the excess withholding tax as a tax credit for the following year, the Tax Court held that petitioner was presumed to have done so. The CTA and the CA ruled that petitioner failed to overcome this presumption because it did not present its 1990 Tax Return, which would have shown that the amount in dispute was not applied as a tax credit. Hence, the CA concluded that petitioner was not entitled to a tax refund . We disagree with the Court of Appeals . In the first place, petitioner prevented evidence to prove its claim that it did not apply the amount as tax credit. During the trial before the CTA the manager of petitioner's accounting department, testified to this fact. It likewise presented its claim for refund and a certification issued by . . . petitioner's vice-president, stating that the amount [claim as tax refund] " has not been and/or will not be automatically credited offset against any succeeding quarters' income tax liabilities for the rest of the calendar year ending December 31, 1990 ." xxx xxx xxx More important, a copy of the Final Adjustment Return for 1990 [which was not presented during the trial] was attached to petitioner's Motion for Reconsideration filed before the CTA. . . . . . In denying the Motion for Reconsideration . . . the CTA ignored said Return. In the same vein, the CA did not pass upon that significant document . xxx xxx xxx . . . in failing to consider said Return, as well as the other documentary evidence presented during trial, the appellate court committed reversible error . . . . there can be no just determination of the present action if we ignore, on grounds of strict technicality, the [1990] Return [attached to petitioner's Motion for Reconsideration and] submitted before the CTA. . . " 25 In the instant case, petitioner failed to submit the VAT invoices and receipts before the CTA to prove that it actually incurred or paid input taxes in connection with its zero-rated sales of services. However, as in the above-quoted jurisprudence, petitioner herein presented the following evidence to prove its claim that it incurred or paid input taxes in connection with its zero-rated sales of services, to wit: (1) the testimony of Jessie Carpio of the independent auditing firm, Punongbayan and Araullo, commissioned by the CTA itself 26 to conduct an examination and analysis of petitioner's VAT invoices and receipts; and (2) petitioner's Exhibit "P" or the Auditor's Report prepared by Punongbayan & Araullo, filed before the CTA. 27 Nevertheless, the CTA denied petitioner's claim for insufficiency of evidence because it "c annot ascertain the accuracy of the [Auditor's Report] since petitioner failed to present the supplier's invoices and official receipts which were verged by Punongbayan and Araullo . . . " EaHIDC Significantly, in its Motion for Reconsideration before the CTA, petitioner attached the needed documents. Unfortunately, the CTA ignored petitioner's Motion and refused to reconsider its decision. In refusing to pass upon the VAT receipts and invoices attached to the Motion for Reconsideration, CTA committed a reversible error. There can be no just determination of the present action if we ignore, on grounds of strict technicality, the documents attached to petitioner's Motion for Reconsideration and submitted before the CTA. In the recent case of Paseo Realty & Development Corporation vs. Court of Appeals , 28 petitioner's failure to present its tax return for 1990 led to the denial of its claim for refund. In the said case, the Supreme Court suggested on what should have been done by petitioner to prove its claim for refund, thus: "Why petitioner failed to present such a vital piece of evidence confounds the Court. Petitioner could very well have attached a copy of its final adjustment return for 1990 when it filed its claim for refund on November 13, 1991. Annex "B" of its Petition for Review dated December 26, 1991 filed with the CTA, in fact, states that its annual tax return for 1990 was submitted in support of its claim. Yet, petitioner's tax return for 1990 is nowhere to be found in the records of this case. . . . As it is , the absence of petitioner's 1990 tax return was the principal basis of the CTA's Resolution reconsidering its earlier Decision to grant petitioner's claim for refund . Petitioner could even still have attached a copy of its 1990 tax return to its petition for review before the Court of Appeals . The appellate court, being a trier of facts, is authorized to receive it in evidence and would likely have taken it into account in its disposition of the petition . In BPI-Family Savings Bank v. Court of Appeals, although petitioner failed to present its 1990 tax return, it presented other evidence to prove its claim that it did not apply and could not have applied the amount in dispute as tax credit . Importantly, petitioner therein attached a copy of its final adjustment return for 1990 to its motion for reconsideration before the CTA buttressing is claim that it incurred a net loss and is thus entitled to refund. Considering this fact, the Court held that there is no reason for the BIR to withhold the tax refund." 29 As can be gleaned from the afore-quoted jurisprudence, if the required evidence was either appended to the movant's Motion for Reconsideration with the CTA or a copy thereof was attached in the petition for Review before the Court of Appeals, the same may be properly considered. Here, petitioner attached the needed invoices and receipts to its Motion for Reconsideration before the CTA. Said court therefore has no reason not to consider the same in determining petitioner's claim for refund. When it is undisputed that a taxpayer is entitled to a refund, the State should not invoke technicalities to keep money not belonging to it. No one, not even the state, should enrich oneself at the expense of another. 30 Indeed, the State must lead by its own example of honor, dignity and uprightness. 31 Consequently, there is no reason for the BIR to withhold the tax refund claimed by petitioner if it rightfully belongs to it. DAETHc With the foregoing disquisition, we find it no longer necessary to discuss the other points raised by the Solicitor General. WHEREFORE, the 29 January 2003 Decision and the 26 August 2003 Resolution of the Court of Tax Appeals in CTA Case No. 6220 is REVERSED and SET ASIDE. The instant case is hereby REMANDED to the Court of Tax Appeals to determine petitioner's claim for refund of Value Added Tax for the period of July to December 1998. The VAT receipts and invoices attached to petitioner's Motion for Reconsideration should be admitted and considered by the Court of Tax Appeals which is directed to dispose of the said case with dispatch. SO ORDERED. Vidallon-Magtolis and Reyes, Jr., JJ., concur. Footnotes 1. Rollo , p. 22. 2. If the Commissioner of Internal Revenue (CIR) takes time in deciding the claim for refund and the two-year prescriptive period under Section 229 of the National Internal Revenue Code is about to end, the suit or proceeding for said refund must be started in the CTA before the end of the said two-year period without awaiting the decision of the CIR. See Hector de Leon, National Internal Revenue Code Annotated, 2000 edition, p. 832. 3. Rollo , p. 22. 4. Id. , pp. 154-200. 5. Emphasis added. 6. Rollo , p. 115. 7. Id. , p. 125. 8. Emphasis supplied. 9. Paseo Realty & Development Corporation vs. Court of Appeals , G.R. No. 119286, October 13, 2004, citing 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. Ibid. 11. AB Leasing and Finance Corporation vs. Commissioner of Internal Revenue , 405 SCRA 380 (2003), citing Rule 132, Section 34, Ong v. Court of Appeals , 301 SCRA 387 (1999) citing Candido v. Court of Appeals , 253 SCRA 78 (1996), Republic v. Sandiganbayan , 255 SCRA 438 (1996), Vda. de Alvarez v. Court of Appeals , 231 SCRA 309 (1994), Veron v. Court of Appeals , 157 SCRA 138 (1988), People v. Cario, et al. , 165 SCRA 664 (1988), People v. Peralta , 237 SCRA 218 (1994). Also see De los Reyes v. Intermediate Appellate Court , 176 SCRA 394 (1989) and People v. Matte , 103 SCRA 484 (1981), Republic v. Court of Appeals , 277 SCRA 633 (1997), Purakan Plantation Co. v. Domingo , 15 SCRA 151 (1965). 12. BPI-Family Savings Bank, Inc., vs. Court of Appeals , 330 SCRA 507 (2000), citing De Guzman v. Sandiganbayan , 256 SCRA 171 (1996) 13. Id. 14. Id. , citing De Guzman v. Sandiganbayan, supra. , De Guzman v. Sandiganbayan, supra. 15. Pertinent portion thereof reads: "Section 8. . . proceedings . The Court of Tax Appeals shall . . . have the power to promulgate rules and regulations for the conduct of the business of the Court, and as may be needful for the uniformity of decisions within its jurisdiction as conferred by law, but such proceedings shall not be governed strictly by technical rules of evidence." (Emphasis added) 16. AB Leasing and Finance Corporation vs. Commissioner of Internal Revenue , supra ., citing Rule 132, Section 34; Ong v. Court of Appeals , 301 SCRA 387 (1999) citing Candido v. Court of Appeals , 253 SCRA 78 (1996), Republic v. Sandiganbayan , 255 SCRA 438 (1996), Vda. de Alvarez v. Court of Appeals , 231 SCRA 309 (1994), Veran v. Court of Appeals , 157 SCRA 438 (1988), People v. Cario, et al. , 165 SCRA 664 (1988), People v. Peralta , 237 SCRA 218 (1994). Also see De los Reyes v. Intermediate Appellate Court , 176 SCRA 394, (1989) and People v. Matte , 103 SCRA 484 (1981), Republic v. Court of Appeals , 277 SCRA 633 (1997), Purakan Plantation Co. v. Domingo , 15 SCRA 151 (1965). 17. Emphasis added. 18. Rollo, pp. 39-40. 19. Id. , p. 253. 20. Id. , p. 130. 21. Id. , p. 128. 22. Id. , p. 132. 23. Id. , p. 131. Exhibit "Q-2" or the slot for "22. Input Tax Carried Over from the Previous Quarter [or the last quarter of 1998] in the 1999 first quarter VAT Return was unfilled. Also, Exhibit "Q-3" or the space for " 28. Less: Any VAT Refund/TCC Claimed " in the same VAT Return was left blank. 24. Supra. , See Footnote No. 15. 25. Emphasis supplied. 26. The first sentence of the 27 June 2001 CPA Report ( Rollo , p. 154) reads: At your [referring to the CTA] request we have performed the procedures described below, with respect to the Application for Tax Credit/Refund of Value Added Tax (VAT) Paid of [petitioner] . . . amounting to P1,834,388.55 covering the period from October 1, 1998 to December 31, 1998 . . . 27. See Rollo , p. 136. 28. Supra. , See footnote No. 12. 29. Emphasis supplied. 30. BPI-Family Savings Bank, Inc., vs. Court of Appeals, supra . 31. Id. , citing De Guzman v. Sandiganbayan, supra .