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

FIFTEENTH DIVISION [CA-G.R. SP NO. 80886. September 16, 2005.] INTEL PHILIPPINES MANUFACTURING, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE AND COURT OF TAX APPEALS , respondents . D E C I S I O N AREVALO-ZENAROSA, M . , J p : This is a petition for review under Rule 43 of the Revised Rules of Court seeking to partially reverse the Decision 1 dated May 26, 2003 rendered by the Court of Tax Appeals in CTA Case No. 6129 entitled " Intel Philippines Manufacturing, Inc. vs. Commissioner of Internal Revenue ", the dispositive portion of which reads: "WHEREFORE, the instant petition is PARTIALLY GRANTED. Respondent is hereby ORDERED to ISSUE A TAX CREDIT CERTIFICATE to petitioner in the amount of P8,179,049.00 representing input VAT on importation of capital goods. However petitioner's claim for refund of input VAT in the sum of P21,338,910.44 attributable to zero-rated sales is hereby DENIED for lack of merit. SO ORDERED." Likewise assailed is the November 4, 2003 Resolution 2 denying petitioner's Partial Motion for Reconsideration. FACTS Petitioner is a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office address at 1321 Apolinario Street, Bangkal, Makati City. It is engaged primarily in the business of designing, developing, manufacturing and exporting advance and large-scale integrated circuits components or ICs. On October 25, 1985, petitioner registered with the Board of Investments as a preferred pioneer enterprise for the production/manufacture and export of tested and untested circuits such as large scale integrated circuits and microprocessor and was issued Certificate of Registration No. 85-1010. Eventually, on July 6, 1994, it also registered with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) entity and was issued Certificate of Registration bearing RDO Control No. 94-048-02621. On May 6, 1999, petitioner filed its amended Quarterly VAT Return for the period covering April 1, 1998 to June 30, 1998, reflecting zero-rated sales in the amount of P1,880,660,227.21. At the same time, it indicated VAT input tax from domestic purchases of goods and services in the amount of P21,763,903.11 and VAT input tax for the importation of goods in the amount of P8,220,140.00 or a total of P29,984,043.11. Since petitioner had an output tax of P424,992.67, it alleged that it had an unutilized input tax for the second quarter of 1998 in the amount of P29,559,050.44. On even date, petitioner filed with the One-Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance an application for Tax Credit/Refund of Value-Added Tax Paid for the second quarter of 1998. No final action having been taken by the respondent Commissioner of Internal Revenue (CIR) on the claim for refund and the two (2) year prescriptive period being about to lapse, petitioner elevated the case to the Court of Tax Appeals (CTA) through a Petition for Review 3 on June 30, 2000. In its answer 4 filed on August 2, 2000, respondent CIR raised the following Special and Affirmative Defenses, to wit: 1) Petitioner failed to show compliance with the substantiation requirement under the provision of Section 16 (c)(3) of Revenue Regulations No. 5-87, as amended by Revenue Regulations No. 3-88; 2) Petitioner has not shown proof that the alleged VAT input taxes attributable to its export sales have not yet been applied to the output tax for the period covered in its claim or any succeeding period and that the alleged total foreign exchange proceeds have been accounted for by the Central Bank; 3) The petition states no cause of action as it does not allege the date/s when the taxes sought to be refunded were actually paid; 4) In an action for tax refund/credit, the burden of proof is on the taxpayer to establish its right to the refund and failure to sustain the burden is fatal to the action for tax refund;. 5) Taxes paid and collected are presumed to have been made in accordance with law and regulations, hence not refundable; and 6) Well-settled is the rule that claims for refund is construed against the claimants since it partakes of an exemption from taxation. On May 26, 2003, the CTA rendered the assailed decision granting petitioner's claim for refund of input VAT paid for the importation of goods in the amount of P8,179,049.00 but denying its claim for refund of input VAT attributable to zero-rated sales in the amount of P21,338,910.44. It disallowed refund on domestic purchases of goods and services pertaining to zero-rated sales on the ground that the export sales invoices offered by petitioner have no BIR permit to print, in contravention of Sections 113 (a) and 238 of the Tax Code. 5 Further, petitioner's sales invoices do not show that the sale is "zero-rated" in violation of Section 4.108-1 of Revenue Regulations No. 7-95. 6 As regards the refund of input VAT paid for the importation of goods, out of the total claim of P8,220,140.00, only the amount of P8,179,049.00 was found to have been validly supported by VAT documents such as supplier's invoices, official receipts, import declarations, import remittances and airway bills which showed actual payment of VAT on the importation of capital goods as required by Sec. 4.104-5 (b) of Revenue Regulations No. 7-95. 7 The amount of P41,091.00 was refused because it was supported only by an official receipt issued by the Land Bank of the Philippines from which the CTA cannot solely determine if the same pertains to VAT paid on imported goods. Undaunted, petitioner filed on June 19, 2003 a Partial Motion for Reconsideration arguing that the purpose of imprinting the words "zero-rated" in the sales invoice is to bar the buyer or purchaser from claiming any input VAT from such purchase. Considering that petitioner exports its finished products to its mother company abroad, Intel Corporation, which is a non-resident foreign corporation, there is absolutely no possibility for the latter to claim input VAT on its purchase in the form of tax credit or refund. The non-indication of the BIR Permit to Print and the words "zero-rated" in petitioner's sales invoices does not invalidate the same as to negate the consummation of the export sales actually made. The due execution of the sales invoices, complemented by the other voluminous documents and the testimonies of witnesses clearly prove that petitioner had in fact exported its finished products abroad for the period covering April 1, 1998 to June 30, 1998. If ever the petitioner had been found wanting in complying with some technical requirements, it should have been charged only with a penalty commensurate to its shortcomings, but not one amounting to a denial of a substantial portion of its claim. In VAT Ruling No. 102 (a)(1) 402-88, the CTA even confirmed the taxability of petitioner's sale at zero percent. On November 4, 2003, the CTA issued a Resolution denying petitioner's partial Motion for Reconsideration. It held that although the best means to prove the exportation of goods are the export documents and commercial invoices or receipts, taken collectively, 8 petitioner's export sales documents and sales invoices in this case cannot be taken of probative value for having been made without BIR permit to print and for failing to indicate the word "zero rated". The purpose of imprinting the word "zero-rated" in the sales invoice is to determine whether the sales are subject to the ten percent tax or zero-rated and not to prevent the purchaser from claiming any input tax as petitioner would put it. Without questioning the validity of VAT ruling No. 102 (a)(1) 402 providing for petitioner's taxability at zero percent, the claim for refund was denied for failure to comply with the substantiation requirements which creates doubt whether the sales were indeed zero-rated. Hence the present petition. ISSUE WHETHER THE COURT OF TAX APPEALS ERRED IN DENYING PETITIONER'S CLAIM FOR TAX REFUND OF INPUT VAT ATTRIBUTABLE TO ZERO-RATED SALES IN THE TOTAL AMOUNT OF P21,338,910.44 ON THE FOLLOWING GROUNDS: 1. THE PETITIONER'S ALLEGED FAILURE TO INDICATE ITS BIR AUTHORITY TO PRINT ON ITS EXPORT SALES INVOICES; AND 2. THE PETITIONER'S ALLEGED FAILURE TO REFLECT THE PHRASE "ZERO-RATED" ON CERTAIN INVOICES. RULING The imposition of Value-Added Tax or VAT is provided for under Section 105 of Republic Act 8424, otherwise known as the Tax Reform Act of 1997 which states that "Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT)." VAT is a uniform tax ranging at present from zero percent to ten percent and limited only to the value added to such goods, properties, or services by the seller, transferor, or lessor. 9 Also, it is an indirect tax which may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. 10 Under the present method that relies on invoices, an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports. Thus, if at the end of a taxable quarter the output taxes 11 charged by a seller are equal to the input taxes 12 passed on by the suppliers, no payment is required. It is when the output taxes exceed the input taxes that the excess has to be paid. If, however, the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes. 13 I In the case at bar, petitioner questions the CTA's disallowance of its claim for refund of input VAT on domestic purchases of goods and services attributable to zero-rated sales 14 in the amount of P21,338,910.44 after finding that the export sales invoices offered have no BIR permit to print and they do not reflect the word "zero-rated". Petitioner asserts that there is no law or regulation which obliges it to indicate its BIR permit to print upon its export sales invoices. Neither does the law or statute penalize such failure by rendering the invoices inadmissible as evidence to support a claim for tax refund or credit. On the other hand, the respondents, through the Office of the Solicitor General, maintain that the CTA correctly denied petitioner's claim for refund because the supporting documents consisting of export sales invoices have no BIR Permit to print in contravention of Sections 113 and 238 of the Tax Code. In resolving this issue, a preliminary review of the pertinent sections of the Tax Code is necessary, thus: "SECTION 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); 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. SECTION 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 : . . ." (emphasis Ours) A reading of the aforequoted provisions reveals that the BIR permit to print is not one of the information required to be stated in the sales invoices or receipts to be issued by a taxpayer. Rather, under Sec 113, the following ought to be stated: (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. On the other hand, Sec. 237 mandates the date of the transaction, quantity, unit cost and description of merchandise or nature of service to be reflected. The two sections are definitely silent on the matter of requiring the BIR authority or permit to print to be shown in the invoice or receipt. If there be any mention of the BIR permit to print, it is under Sec. 238 of the same code which decrees: "SECTION 238. Printing of Receipts or Sales or Commercial Invoices . All persons who are engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same . No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be printed are serially numbered and shall show, among other things, the name, business style, Taxpayer Identification Number (TIN) and business address of the person or entity to use the same, and such other information that may be required by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner." (emphasis supplied) However, the BIR authority or permit to print herein should be viewed separately and independently from the invoicing requirements set forth under sections 113 and 237. Section 238 only provides that the securing of the BIR authority to print by all persons engaged in business is necessary before a printer can print receipts or sales or commercial invoices issued in the course of one's business. It does not state that the same must be shown in the receipts or invoices. Hence, the omission to indicate the said BIR authority or permit to print does not totally militate against the evidentiary weight of petitioner's export sales invoices as to defeat its claim for refund. In relation thereto, petitioner maintains that in the first place, it is not even required to secure an authority to print since the burden falls upon the printer of the receipts and not on the petitioner. Further, the BIR authority to print may be dispensed with considering that its export sales invoices were computer generated under an approved computerized accounting system. We disagree with the petitioner on this matter. The provision is very clear, the need to secure the authority to print from the BIR is imposed upon the person engaged in the business and not on the printer of the receipts. Sec. 238 states: " All persons who are engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same." Equally unavailing is petitioner's insistence that its Permit To Adopt Computerized Accounting System has excused the need to secure a BIR permit to print for the subject invoices. As pointed by the respondents, the said Permit To Adopt a Computerized Accounting System was only made effective starting August 31, 2001, while the invoices in question were issued from April 1 to June 30, 1998. Moreover, the said permit was not offered in evidence during the trial in the Court of tax Appeals, hence cannot be considered on appeal. At any rate, petitioner's failure to secure a BIR authority or permit to print does not completely destroy the integrity of its export sales invoices. The said infraction may possibly be a violation of Section 264 15 of the tax code to which the corresponding penalty may be meted, but certainly, the complete disregard of the export sales invoices or much, the outright denial of petitioner's claim for refund is not among the punishment to be properly imposed. Neither is the omission to reflect the word "zero-rated" in its invoices fatal to petitioner's case. While it is decreed under Sec. 4.108-1 of Revenue Regulations No. 7-95, it is different in the case of the general invoicing requirements set forth under Sections 113 and 237 of the Tax Code. Just like in the case of the BIR permit to print, the latter sections are silent on the requisite of printing the word "zero-rated" in the invoices. The indication of the word "zero-rated" in the invoices truly facilitates the determination of whether the sales are subject to the normal rate of ten percent tax or the preferential rate at zero percent, but its absence does not necessarily mean that the sales are not in fact "zero-rated". The nature of petitioner's business and transactions can easily be perused from its VAT registration papers and other pertinent and material documents. II We shall now determine whether in the light of the evidence presented, petitioner may rightfully claim for refund of input VAT on domestic purchases of goods and services attributable to zero-rated sales in the amount of P21,338,910.44. SECTION 112 of the tax code outlines the procedure for Refunds or Tax Credits of Input Tax, it provides: "(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 extent 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." Thus, the following are the requirements before tax refunds or credits may be awarded to the claimant: (a) It is VAT-registered; (b) Transacted zero-rated or effectively zero-rated sales; (c) Files the application for tax refund or credit within two (2) years after the close of the taxable quarter when the sales were made; (d) The input taxes have not been applied against output tax; and (e) In case of export sales under Section 106(A)(2)(a)(1), 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). We find petitioner to have complied with all these requisites. First, it is a VAT-registered entity with Certificate of Registration bearing RDO Control No. 94-048-02621. Second, it made export sales treated as zero-rated under Section 106(A)(2)(a)(1) of the tax code which provides: " Value-added Tax on Sale of Goods or Properties . (A) Rate and Base of Tax. . . . (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);" Consequently, Section 2 of Revenue Regulations No. 3-88 which amended Section 16 of Revenue Regulations No. 5-87 requires the following documents to be attached to the application for tax credits involving export sales: 1) photocopy of export documents showing the amount of export and the date and destination of the goods exported; and (2) statement from the Central Bank or any of its accredited agent banks that the proceeds of the sale in acceptable foreign currency has been inwardly remitted and accounted with applicable banking regulations. Aside from the fact that its main business is the manufacturing and exporting of finished integrated circuits or ICs, petitioner offered pertinent and competent evidence such as sales invoices, official receipts, export declaration, airway bills and bank certification of inward remittance to prove it actually exported its products to its mother company abroad, Intel Corporation. Only that these were all disregarded simply because petitioner's export sales documents and sales invoices have been printed without the BIR permit to print and do not indicate the word "zero-rated". "Substantial justice, equity and fair play are on the side of petitioner. 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. Indeed, the State must lead by its own example of honor, dignity and uprightness." 16 Third, petitioner filed the application for tax refund or credit within the prescribed period of two (2) years after the close of the taxable quarter when the sales were made and the input taxes were not shown to have been applied against output tax for the same quarter or during the succeeding periods. Lastly, the acceptable foreign currency exchange proceeds of petitioner's export sales had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). The Report of the independent CPA filed with the CTA on July 5, 2001 is elucidating: "Test of Zero-Rated Sales a. As stated in its BOI registration, IPMI's (petitioner herein) registered activity shall be limited to the manufacture and export of tested and untested integrated circuits such as large-scale integrated circuits and microprocessor. Moreover, my examination of IPMI's financial statements confirmed that most the sales entered into by IPMI from April 1 to June 30, 1998 were all export sales; b. Finished goods for the period April 1, 1998 to June 30, 1998 shown in Annex C have been actually exported; c. The amount of revenues for the period April 1 to June 30, 1998 were properly in the books; d. Finished goods exported were paid in US Dollars through inward remittance. . . These were accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas." While the Court concedes that tax refunds are in the nature of tax exemptions and regarded as derogation of the sovereign authority, thus should be construed strictissimi juris against the person or entity claiming the exemption, We find that petitioner in this case was able to discharge its burden of proof to establish its right to a tax credit or refund. "The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the 'hen that lays the golden egg.' And, in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously." 17 WHEREFORE, the instant petition is hereby GRANTED. Accordingly, the decision dated May 26, 2003 of the Court of Tax Appeals denying petitioner's claim for refund of input VAT on domestic purchases of goods and services attributable to zero-rated sales in the amount of P21,338,910.44 is REVERSED and SET ASIDE. A new judgment is hereby rendered granting petitioner's claim for tax refund/credit in the total amount of P21,338,910.44. SO ORDERED. Salazar-Fernando and Carandang, JJ., concur. Footnotes 1. Rollo , pp. 32-41. 2. Ibid . pp. 67-70. 3. Id ., pp. 42-51. 4. Id ., pp. 52-54. 5. 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); and 2. The total amount which the purchaser pays or is obliged to pay to the seller with the indication that such amount includes the value-added tax. Section 238. Printing of Receipts of Sales or Commercial Invoices . All persons who are engaged in business shall secure from the Bureau of internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same. 6. 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 the seller; xxx xxx xxx 5. the word "zero-rated" imprinted on the invoice covering zero-rated sales: 7. Sec. 4.104-5. Substantiation of claims for input tax credit . . . . (b) Input tax on importations shall be supported with the import entry or other equivalent document showing actual payment of VAT on imported goods. 8. Citing the case of Commissioner of Internal revenue vs. Philippine Bobbin Corporation, CA-G.R. SP No. 59452, promulgated on February 19, 2001. 9. The Fundamentals of Taxation by Hector S. De Leon. 13th edition, p. 130. 10. 2nd par of Sec. 105 11. The term ' output tax ' means the value-added tax 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 this Code (Sec. 110 A)(3) of the Tax Code). 12. The term ' input tax ' means the value-added tax 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. It shall also include the transitional input tax determined in accordance with Section 111 of this Code. (Sec. 110 [A][3] of the Tax Code) 13. Commissioner of Internal Revenue vs. Seagate Technology (Philippines) , G.R. No. 153866, February 11, 2005. Sec. 110 (B) of the tax code states: Excess Output or Input Tax . If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters. Any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112. . . ." (emphasis supplied) 14. Zero-rated Sales. These are sales by VAT-registered persons which are subject to 0% rate, meaning the tax burden is not passed on to the purchaser. A zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with the regulations ( Contex Corporation vs. Commissioner of Internal Revenue , G.R. No. 151135, July 2, 2004) 15. SECTION 264. Failure or refusal to issue Receipts or Sales or Commercial Invoices, Violations Related to the Printing of such Receipts or Invoices and Other Violations. (a) Any person who, being required under Section 237 to issue receipts or sales or commercial invoices, fails or refuses to issue such receipts or invoices, issues receipts or invoices that do not truly reflect and/or contain all the information required to be shown therein, or uses multiple or double receipts or invoices, shall, upon conviction for each act or omission, be punished by a fine of not less than One Thousand Pesos (P1,000) but not more than Fifty Thousand Pesos (P50,000) and suffer imprisonment of not less than two (2) years but not more than four (4) years. (b) Any person who commits any of the acts enumerated hereunder shall be penalized in the same manner and to the same extent as provided for in this Section: 1. Printing of receipts or sales or commercial invoices without authority from the Bureau of Internal Revenue; 2. Printing of double or multiple sets of invoices or receipts; or 3. Printing of unnumbered receipts or sales or commercial invoices, not bearing the name, business style, taxpayer identification number, and business address of the person or entity. 16. BPI-Family Savings Bank, Inc., vs. Court of Appeals, et al ., G.R. No. 122480, April 12, 2000. 17. Roxas v. Court of Tax Appeals, 23 SCRA 276 (1968), cited in the case of Philex Mining Corporation vs. Commissioner of Internal Revenue, Court of Appeals, and the Court of Tax Appeals, G.R. No. 125704, August 28, 1998.