Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue

FOURTEENTH DIVISION [CA-G.R. SP No. 79327. August 12, 2004.] INTEL TECHNOLOGY PHILIPPINES, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N TAGLE , J p : This is a Petition for Review Under Rule 43 seeking the nullification of the Decision 1 promulgated on April 21, 2003 by the Court of Tax Appeals in CTA Case No. 6128, the dispositive portion of which reads: "WHEREFORE, in view of the foregoing, petitioner's claim for issuance of a tax credit certificate in the amount of P11,770,181.70 allegedly representing its VAT input taxes on domestic purchases of goods and services for the period of April 1, 1998 to June 30, 1998 is hereby DENIED. SO ORDERED." The antecedent facts of the case are as follows: Intel Technology Philippines, Inc. (hereafter INTEL TECH) is a domestic registered corporation engaged primarily in the business of designing, developing, manufacturing and exporting advanced and large-scale integrated circuits components or IC's. It is registered with the Philippine Economic Zone Authority (PEZA) as an export enterprise under Certificate of Registration No. 95-133 as well as with the Bureau of Internal Revenue (BIR) as a value added tax (VAT) entity under Certificate Registration No. 96-540-000713 with Tax Identification No. (TIN) 004-833-143. For the period covering April 1, 1998 to June 30, 1998, INTEL TECH generated and recorded zero-rated export sales in the amount of P2,538,906,840.16. The said export sales for the second quarter of 1998 were paid for in acceptable foreign currency and were inwardly remitted in accordance with existing regulations of the Central Bank of the Philippines pursuant to Section 100 (a) (2)A of the Tax Code [now Section 108 (A) (2) a(1) of the 1997 Tax Code]. As a VAT registered entity, INTEL TECH filed its monthly VAT Declarations and quarterly VAT Returns for the second quarter of 1998 declaring zero-rated sales of P2,538,906,840.16 and VAT input tax from domestic purchases of goods and services in the total amount of P11,770,181.70. On May 18, 1999, INTEL TECH filed with the Commissioner of Internal Revenue, through the One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance, an Application for Tax Credit/Refund of VAT input taxes paid on its domestic purchases of goods and/or services directly used by INTEL TECH in its commercial operations, amounting to P11,770,181.70, covering the period April 1, 1998 to June 30, 1998. When the two-year prescriptive period to file a refund was about to lapse without any action being undertaken by the Commissioner of Internal Revenue, INTEL TECH filed a Petition for Review on June 30, 2000 before the Court of Tax Appeals (CTA). The CTA simplified the arguments of the parties in its decision 2 in this wise, to wit: "Petitioner argues that being a PEZA and VAT-registered entity engaged in export business which sales were paid for in acceptable foreign currency inwardly remitted to the Philippines in accordance with existing regulations of the BSP, its sales are not subject to 10% VAT but to 0% instead. It anchors its claim for refund on Sections 106 (A) (2)(a) (1) and 108 (B) (1), Title IV of the 1997 Tax Code in relation to Section 112 (A) of the same code, which provide: EHcaDT SEC. 106. Value-Added Tax on Sale of Goods or Properties (A) . . . (1) . . . (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); xxx xxx xxx Section 108. Value Added Tax on Sale of Services and Use or Lease of Properties . (A) . . . (B) Transactions Subject to Zero Percent (0%) Rate . The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: (1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). xxx xxx xxx Section 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-years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund or creditable input tax due or paid attributable to such sales, except transitional output tax, to the extent that such input tax has not been applied to 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 rig 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 directed and entirely attributed to any one of the transactions, it shall be allocated on the basis of the volume of sales. Respondent, however, raised in his memorandum that petitioner's VAT coverage is erroneous, citing Section 24 of Republic Act No 7916 otherwise known as "The Special Economic Zone Act" which provides in part: SEC. 24. Exemption from Taxes Under the National Internal Revenue Code . Any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE . In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the government . . ." Based on the above provision, respondent argued that business establishments operating within the ECOZONE like petitioner are exempt from national or local taxes, which includes the value-added tax. In lieu of paying taxes, said enterprises shall remit to the national government 5% of their gross income. Moreover, respondent claimed that transactions of ECOZONE or PEZA-registered enterprises, being exempt from internal revenue taxes under Section 24 of R.A. No. 7916, fall under "transactions which are exempt under special laws" are exempt from VAT under Section 103(q) of the Tax Code, as amended by R.A. 7716, which in part provides: Section 103. Exempt Transactions . The following shall be exempt from the value-added tax: xxx xxx xxx (q) Transactions which are exempt under special laws, except those granted under Presidential Decree Nos. 66, 529, 972, 1491 and 1590, and non-electric cooperatives under Republic Act 6938 or international agreements to which the Philippines is a signatory. Corollary, since the petitioner's business is exempt from VAT (output tax), it is not allowed any tax credit on VAT (input tax) previously paid pursuant to Section 4.103-1 of Revenue Regulation." 3 Citing the ruling in the case of Seagate Technology (Philippines) vs. Commissioner of Internal Revenue , CTA Case No. 5921 which was affirmed in CA-G.R. SP. No. 65797 entitled " Seagate Technology (Philippines) vs . Commissioner of Internal Revenue ," the CTA held that petitioner is legally entitled to claim for a refund/issuance of tax credit certificate of its unutilized VAT input taxes on its domestic purchases of goods and services attributable to its zero-rated sales. Nevertheless, the CTA denied petitioner's claim for refund/issuance of tax credit certificate in view of its failure to substantiate the same. The documents submitted by petitioner, according to CTA, in support of its claim cannot be considered as valid evidence to prove its zero-rated sales of goods for VAT purposes. In arriving at the aforesaid finding, the CTA stated: CIScaA ". . . Nonetheless, after a scrutiny of the documents presented in evidence that included all the export sales invoices, they were found to have no BIR permit to print and some do not have the Taxpayer's Identification Number-Vat (TIN-V), in contravention of Section 113 of the 1997 Tax Code in relation to Section 237 of the same Code . Section 113 and 237 of the Tax Code of 1997 are quoted hereunder for easy reference, to wit: SEC. 113. Invoicing and Accounting Requirements for VAT Registered Persons . (A) Invoicing Requirements A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: 1. A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN) SEC. 237. Issuance of Receipts or Sales or Commercial Invoices . All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices , prepared at least in duplicate, showing the date of transaction quantity, unit cost and description of merchandise or nature of service: Provided, however, That in case of sales, receipts or transfers in the amount of One hundred pesos (P100 . 00) or more, or regardless of amount, where the sale or transfer is made by a person liable to value-added tax to another person also liable to value-added tax ; or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client : Provided, further, That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer's Identification Number (TIN) of the purchaser . (Emphasis supplied) Petitioner INTEL TECH filed a Motion for Reconsideration 4 on May 14, 2004 and a Supplemental Motion for Reconsideration 5 on June 23, 2003. However, the both were denied by the CTA in its Resolution 6 promulgated on September 1, 2003. Dissatisfied with the foregoing Decision and Resolution, INTEL TECH filed this Petition for Review raising the issue: "WHETHER OR NOT INTEL TECH'S CLAIM FOR REFUND OR FOR ISSUANCE OF TAX CREDIT CERTIFICATE WAS PROPERLY DISALLOWED BY THE COURT OF TAX APPEALS FOR INTEL TECH'S ALLEGED FAILURE TO SUBSTANTIATE AND PROVE ITS EXPORT SALES, THE SALES INVOICES IT PRESENTED HAVING BEEN FOUND TO HAVE NO BIR PERMIT TO PRINT WHILE SOME OF WHICH ALSO DO NOT HAVE THE TAXPAYER'S IDENTIFICATION NUMBER-VAT (TIN-VAT), ALLEGEDLY IN CONTRAVENTION OF THE PROVISIONS OF SECTION 113, IN RELATION TO SECTION 237, OF THE 1997 TAX CODE." Petitioner INTEL TECH contends that its failure to imprint its BIR permit to print in its sales invoices is excusable and is not fatal to its claim for refund/issuance of tax credit certificate. It argued that with the permission of the BIR, it used computerized accounting forms as sales invoices in its export sales and this explains the fact that due to mistake and inadvertence, the sales invoices it used have no imprint on its face of the BIR permit to print. Its use of computer-generated sales invoices was duly stamped with the prior approval of the BIR as shown by BIR's letter authority dated April 17, 1997. It argued that the documents it presented such as: 1) Certification of inward remittances; 2) Airway Bills; 3) Export declarations; 4) Certification by Mr. Eliseo Aurellado, the independent CPA, duly commissioned by the CTA, to the effect that it made export sales for the period covered in the amount of P2,538,906,840.16, are sufficient evidence to prove its export sales. Petitioner's contentions are bereft of merit. While it may be true that under Section 106 (a)(2)(a)(1) of the NIRC, VAT registered persons are entitled to claim VAT refunds on their input taxes while their export sales are zero-rated, nevertheless, it is subject to compliance with certain requirements. Section 113 of the NIRC explicitly sets forth the Invoicing and Accounting Requirements for VAT-Registered Persons. To reiterate: (A) Invoicing Requirements A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237 , the following information shall be indicated in the invoice or receipt: 1. A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN) On the other hand, in conjunction thereto, Section 237 requires that: (SEC. 237. Issuance of Receipts or Sales or Commercial Invoices .) "All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices , prepared at least in duplicate, showing the date of transaction quantity, unit cost and description of merchandise or nature of service: Provided, however , That in case of sales, receipts or transfers in the amount of One hundred pesos (P100.00) or more, or regardless of amount, where the sale or transfer is made by a person liable to value-added tax to another person also liable to value-added tax; or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client: Provided, further , That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer's Identification Number (TIN) of the purchaser ." IaEScC xxx xxx xxx From the foregoing, therefore, it is clear that it is not only the export sales that should be proven but also compliance with the requirements set forth under the aforestated sections of the NIRC. Moreover, Revenue Regulations No. 7-95, as amended, states that: SEC. 4.108-1. Invoicing Requirements . All VAT registered persons shall for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. The name, TIN and address of seller; 2. Date of transaction; 3. Quantity, unit cost and description of merchandise or nature of service; 4. The name, TIN, business style, if any, and address of the VAT registered purchaser, customer or client; 5. The word "zero-rated" imprinted on the invoice covering zero-rated sales; 6. The invoice value or consideration. xxx xxx xxx Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoices or receipts and this shall be considered as a "VAT Invoice." All purchases covered by invoices other than "VAT Invoice" shall not give rise to input tax . Be that as it may, persons required to issue receipts or sales or commercial invoices are mandated under Section 237 of the NIRC to register the same with the BIR. Revenue Regulation No. 2-90, in fact, restored the requirement to register and stamp receipts and invoices prior to their use, as follows: "SEC. 19. Authentication and registration of books, registers, or records ; authority to print receipts, sales or commercial invoices ; and registration and stamping of receipts and in voices . Registration and stamping of receipts and invoices . Before being used, the printed receipts, sales or commercial invoices shall be registered with the revenue district officer where the principal place of business of the taxpayer is located within thirty days from the date of printing the same. The registration of the printed receipts or invoices shall be evidenced by an appropriate stamp on the face of the taxpayer's copy of the authority to print as well as on the front cover, on the back of the middle invoice or receipt and on the back of the last invoice or receipt of the registered booklet or pad , authenticated by the signature of the officer authorized to place the stamp thereon." In resume, VAT-registered persons are directed to issue duly registered invoice or receipt for every sale or lease of goods, properties or services under Section 237, containing the required information in Section 113 of the NIRC. For, a sales invoice is not merely an evidence of payment. From the provision of Section 237, the issuance of an invoice is required the moment there is already a sale or transfer of merchandise or services rendered. In other words, a sales invoice is ordinarily issued to a purchaser only upon payment by the latter of the price of the goods purchased. 7 Verily, under Section 237, only registered receipts or sales or commercial invoices are considered as "VAT invoices." Besides, Revenue Memorandum Circular No. 42-2003 has already clarified the issue relative to the failure of a claimant to comply with certain invoicing requirements. Under said memorandum, failure to comply with the invoicing requirements on the documents supporting the sale of goods and services will result in the disallowance of the claim for input tax by the purchaser-claimant. Thus, if the claim for refund/issuance of tax credit certificate is based on the existence of zero-rated sales by the taxpayer but fails to comply with the invoicing requirements in the issuance of sales invoices ( e . g . failure to indicate the TIN), the claim for tax credit/refund of VAT on its purchases shall be denied since the invoice issued to the customers failed to depict that he is a VAT-registered taxpayer whose sales are classified as zero-rated sales. This treatment, however, is without prejudice to the right of the taxpayer to charge the input taxes to the appropriate expense account or asset account subject to depreciation, whichever is applicable. In the case at bench, the invoices issued by petitioner were found by the CTA to have no authority to print from the BIR. Absence of authority to print in the invoices only leaves us the conclusion that the said invoices are not registered, as the said invoices do not comply with the invoicing requirements under Section 113 and also the requirements of issuance of receipts or sales or commercial invoices under Sec. 237. Surely, an unregistered receipt cannot be used as supporting document for input tax. Parenthetically, the ruling of the CTA that there was failure on the part of petitioner INTEL TECH to substantiate its demand for refund/issuance of tax credit certificate because the documents it submitted in support of its claim cannot be considered as valid evidence to prove its zero-rated sales of goods for VAT purposes is not erroneous. The CTA acts as a highly specialized body specifically created for the purpose of reviewing tax cases and because of its recognized expertise, its findings of fact will not ordinarily be reviewed, absent any showing of gross error or abuse on its part. There being no showing of gross error on the part of the CTA, thus, this Court will have to sustain its findings. It is worth mentioning in passing that petitioner's argument that its computer-generated sales invoices was duly stamped with the approval of the BIR as shown by a letter authority dated April 17, 1997 was not duly established inasmuch as the letter authority was neither presented during the trial of the case nor attached to the present petition for review. HDTSCc WHEREFORE, in view of the foregoing, the instant petition is DENIED. The Decision of the Court of Tax Appeals in CTA Case No. 6128 is hereby AFFIRMED. No pronouncement as to costs. SO ORDERED. Bello, Jr. and Maambong, JJ . , concur. Footnotes 1. Rollo , pp. 2435. 2. Id . 3. Rollo , CTA Decision pp. 2730. 4. Rollo , pp. 3642. 5. Id ., pp. 4348. 6. Id ., pp. 4953. 7. The National Internal Revenue Code Annotated, by Hector S. De Leon, Seventh Ed., 2000, pp. 898899; citing BIR Ruling No. 046, May 27, 1989.