Eyeland, Inc. v. Commissioner of Internal Revenue

SPECIAL FORMER THIRD DIVISION [CA-G.R. SP No. 80221. June 10, 2004.] EYELAND INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N SALAZAR-FERNANDO , J p : Before this Court is a Petition for Review under Rule 43 of the 1997 Rules of Civil Procedure assailing the Decision 1 dated June 23, 2003 and the Resolution 2 dated October 13, 2003 of the Court of Tax Appeals 3 in C.T.A. Case No. 6346 entitled " Eyeland Inc., Petitioner, versus Commissioner of Internal Revenue, Respondent ", the decretal portions of which read as: Decision dated June 23, 2003 "IN VIEW OF ALL THE FOREGOING, petitioner's claim for refund and/or tax credit of unutilized input VAT amounting to P5,115,500.00 is hereby DENIED for lack of merit. SO ORDERED." Resolution dated October 13, 2003 "WHEREFORE, premises considered, the court hereby RESOLVES to DENY the said motion. SO ORDERED." The facts are: Petitioner Eyeland Inc. (Eyeland for brevity) is a duly registered domestic corporation engaged in the realty business and a value-added tax (VAT) registered entity with Certificate of Registration No. OCN 1RC00000319 and Taxpayer Identification No. 005-749-669-000. On July 5, 1999, Eyeland purchased from Optoland Inc. (Optoland for brevity), a parcel of land located at Brgy. Mamplasan, Bian, Laguna covered by Transfer Certificate of Title No. T-355502 for P51,155,000.00, exclusive of VAT. The Deed of Absolute Sale covering the purchase of the property contained a provision that the corresponding VAT due on said transaction shall be borne and defrayed by Eyeland, for which it paid to Optoland an aggregate amount of P52,433,875.00, which included the VAT due on the transaction. On August 25, 1999, Optoland paid to the Bureau of Internal Revenue (BIR) through Rizal Commercial Banking Corporation (RCBC), Bian Branch, the corresponding VAT due on the said transaction in the total amount of P5,115,500.00. Eyeland, in turn, reported the said VAT as creditable input tax in its monthly and quarterly VAT returns. On September 3, 2001, Eyeland filed with the Commissioner of Internal Revenue (CIR) a formal request for the issuance of a tax credit certificate or tax refund on account of Its creditable input tax amounting to P5,115,500.00. It alleged that since July 5, 1999, it had no output VAT liability because all of its revenues were either exempted from VAT or zero-rated, hence, it was not able to utilize the subject creditable input tax. The CIR nonetheless failed to promptly act on the written claim for refund. Considering that the two-year prescriptive period was about to expire, Eyeland filed a petition for review with the CTA on October 24, 2001. The CIR filed its Answer to the petition for review, specifically denying all material allegations therein, and averred, by way of special and affirmative defenses, that: 1) Eyeland's claim for the issuance of a Tax Credit Certificate/tax refund is subject to administrative routine investigation/examination by the BIR; 2) Taxes paid and collected are presumed to have been paid in accordance with law, hence, not refundable; 3) Assuming that it is entitled to tax refund, it must be shown that it has complied with Section 204(c) in relation to Section 229 of the Tax Code; 4) Claims for refund are construed strictly against the claimant for it partakes the nature of an exemption from taxation. They are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person claiming exemption. Pending review by the CTA, the parties jointly stipulated on the following issues for resolution: 1) Whether or not the alleged unutilized input tax in the amount of P5,115,500.00 is duly substantiated; 2) Whether or not Eyeland is entitled to the refund or tax credit of its unutilized input tax in the amount of P5,115,500.00; 3) Whether or not Eyeland complied with the provisions of Section 204(c) in relation to Section 229 of the Tax Code (RA 8224). On June 23, 2003, the CTA rendered the assailed decision denying Eyeland's claim. It held that Eyeland's failure to submit the VAT official receipt or invoice as required under Section 4.104-5 of Revenue Regulations No. 7-95 is fatal to its claim for refund of creditable input tax under Section 110 of the Tax Code. It concluded that Optoland's payment and remittance of the value-added tax in the amount of P5,115,500.00 does not necessarily and automatically mean that the payment of VAT was made by Eyeland. On October 13, 2003 CTA denied Eyeland's motion for reconsideration of the said decision. Hence, this petition for review raising this sole issue: WHETHER OR NOT THE COURT OF TAX APPEALS ERRED IN DENYING PETITIONER'S CLAIM FOR REFUND AND/OR TAX CREDIT OF UNUTILIZED INPUT VAT IN THE AMOUNT OF P5,115,500.00. 4 Eyeland argues that its claim was amply substantiated by the Deed of Absolute Sale, which stated that the VAT is for its account, and by the written admission and confirmation of Optoland that the VAT was borne and defrayed by it. Eyeland explains that Optoland only remitted the said VAT payment because it was the latter's duty to make payment and remittance as mandated by Section 4.110-1 of Revenue Regulations No. 7-95. In its Comment 5 to the petition, the CIR argues that: Eyeland failed to state its legal basis to entitle it to refund, there being no showing that the land subject of the sale is being used in transactions liable to VAT; its claim for refund does not fall within the provision of Section 112 of the Tax Code, hence, the same should not be allowed; it failed to substantiate its claim for input tax because it failed to present the sales invoice or official receipt that would show that it ultimately shouldered the VAT payment; and the deed of absolute sale and the written admission and confirmation of Optoland in its certification dated July 8, 2003 did not sufficiently comply with the requirements of the law. The petition is not meritorious. The conclusion reached by the Court of Tax Appeals, which by the very nature of its function, is dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject, binds this Court, unless there has been a clear abuse or improvident exercise of authority. 6 The standing rule is that a tax refund is in the nature of a tax exemption, and being in derogation of sovereign authority, it is strictly construed against the claimant and liberally in favor of the taxing authority. The claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. 7 A claim for refund or tax credit of input tax under Section 110 of the Tax Code must be evidenced by a VAT invoice or official receipt stating, in addition to the information required under Section 237 8 of the said Code, the following: (1) a statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); and (2) the total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value added tax. 9 Likewise, Section 4.104-5 of Revenue Regulations No. 7-95 provides: "Section 4.104-5. Substantiation of claims for input tax credit . (a) Input taxes shall be allowed only if the domestic purchase of goods, properties or services is made in the course of trade or business. The input tax should be supported by an invoice or receipt , showing the information as required under Sections 108(1) and 238 of the Code. Input tax on purchases of real property should be supported by a copy of the public instrument, i.e. , deed of absolute sale, deed of conditional sale, contract/agreement to sell, etc., together with the VAT receipt issued by the seller ." (Emphasis supplied) As correctly held by the CTA, Eyeland failed to fully discharge its burden of proving entitlement for refund or tax credit. The VAT receipt issued by the seller is the best evidence that the said tax was shifted to and was actually borne by Eyeland. Its non-presentation as evidence to substantiate the claim for refund is fatal. It is worthy to note that Eyeland failed to offer any explanation why it was not able to present the VAT receipt. Indeed, it is Optoland's duty as a VAT-registered entity to issue the corresponding receipt on the transaction but its failure to issue the same will not exempt Eyeland from presenting the receipt for the purpose of its claim. Section 110 of the Tax Code and Section 4.104-5 of Revenue Regulations No. 7-95 are clear as to the requirement of a VAT receipt or invoice as evidence to substantiate a claim for input tax credit. Such a requirement is indispensable. The receipt is precisely intended to monitor transactions which are liable to the VAT between VAT-registered entities. It should be pointed out that the VAT as imposed, hypothetically reflects two types of taxes, i.e. , the " output tax ", which is the VAT due on the sale or lease of taxable goods or properties or services by any person registered or required to register under Section 236 of the Tax Code, and the " input tax ", which is the VAT due from or paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchase of goods or services, including lease or use of property, from a VAT-registered person. 10 The VAT liability of a VAT registered person is thus determined by the difference between the tax on sales ( output tax ) and the tax on outlays for materials, supplies, services and capital goods ( input tax ). 11 It is logical that from the ensuing sales transaction between Eyeland and Optoland, the VAT due thereon may constitute Eyeland's "input tax", assuming it indeed defrayed the amount due thereon, or Optoland's "output tax". The importance of the VAT receipt thus becomes sufficiently clear because without the same, it cannot be determined with definite certainty whether the ensuing transaction which is liable to the VAT, was already reported by Optoland as its "output tax''. This only confirms the CTA's observation that a payment and remittance of the VAT by Optoland does not necessarily mean a payment of VAT by Eyeland. Optoland's certification 12 dated July 8, 2003 stating the details of the amount paid by Eyeland and indicating that the VAT of P5,115,500.00 was paid, deserves scant consideration. Obviously, the same was resorted to, to cover-up the lack of the VAT receipt covering the sales transaction. In any event, such certification is not the evidence required by the Tax Code for purposes of substantiating a claim for input tax credit or refund. There is nothing under the Section 110 of the Tax Code and Section 4.104-5 of Revenue Regulations No. 7-95 which admits of other evidence in lieu of the required VAT invoice or receipt. Hence, without the invoice or receipt Eyeland cannot claim any tax credit or refund. WHEREFORE, premises considered, this petition for review is DENIED and ordered DISMISSED, and the assailed decision dated June 23, 2003 and the Resolution dated October 13, 2003 of the Court of Tax Appeals In C.T.A. Case No. 6346 are hereby AFFIRMED. DcAEIS SO ORDERED. Del Castillo * and Sundiam, JJ . , concur. Footnotes * Per Office Order No. 158-04-CG dated May 28, 2004. 1. Rollo , pp. 2533, Annex A 2. Rollo , pp. 3437, Annex B 3. Composed of Judges Ernesto D. Acosta ( Presiding ), Juanito C, Castaeda Jr., and Lovell R. Bautista 4. Rollo , p. 14 5. Rollo, pp. 160176 6. Sea-Land Service, Inc. vs. CA , 357 SCRA 441 7. Citibank N.A. v. CA & CIR , 280 SCRA 459 8. Under the said section, duly registered receipts or sales or commercial invoices should be prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service . Likewise, in sales or transfers between persons liable to VAT, the receipt or invoice shall likewise state the name. business style, if any, and address of the purchaser, customer or client . Further, where the purchaser is a VAT-registered person, the purchaser's TIN shall likewise be indicated. 9. Section 113. Invoicing and Accounting Requirements for VAT-Registered Persons. 10. Section 110(A) 11. Tax Law and Jurisprudence, Vitug and Acosta, 2nd Ed., p. 241