DOJ Opinion No. 047, s. 1992

DOJ OPINION NO. 047 , s. 1992 April 14, 1992 The Acting Secretary Department of Finance Manila M a d a m : This refers to your letter dated March 12, 1992 requesting opinion on the query raised by Commissioner Jose U. Ong regarding the "coverage of 'export sales' that are entitled to zero rate under the VAT (Value-Added Tax ) law or more specifically under Title IV of the National Internal Revenue Code", which we previously declined in Opinion No. 25, current series, on the ground, inter alia , that rendering opinion on the query would "inevitably require an interpretation and/or examination" of the provisions of the National Internal Revenue Code, of the revenue regulations issued by the department of Finance and of the circulars issued by the Central Bank, a function which pertains to the primary jurisdiction of the office which issued the regulation or circular or is in charge of the implementation of the particular law and rule involved. On the premise that it is now the Department of Finance which is seeking an interpretation of the law and rules that it is supposed to implement and enforce, we are prevailed upon to expressed our views on the aforesaid query. prcd The query, we understand, is raised in view of the claims of certain mining firms for refund of the input VAT on their respective sales of gold to the Central Bank and of copper concentrates and other raw materials to the Philippine Smelting and Refining Corporation (PASAR), a BOI-registered export-oriented enterprise. It is the position of the mining firms that the zero-rate VAT under Section 100 of the National Internal Revenue Code should include effectively zero-rated sales under paragraph (a) (2) of said Section 100 which covers both "constructive exports" as defined under the Omnibus Investments Code (E.O. No. 226) and sale of gold to the Central Bank which is also deemed "constructive export" under the pertinent Central Bank Circulars. The BIR, however, rejects this position as devoid of legal basis saying that the zero-rate VAT does not cover constructive and/or indirect exports. prcd The pertinent provisions of the National Internal Revenue code (Tax Code) provide: "SEC. 100. Value-added tax on sale of goods . (a) Rate and base of tax There shall be levied, assessed and collected on every sale, barter or exchange of goods, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods sold, bartered or exchanged, such tax to be paid by the seller or transferor: Provided, that the following sales by VAT-registered persons shall be subject to 0%: (1) export sale; and (2) sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. 'Export sales' means the sale and shipment or exportation 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, or foreign currency denominated sales. 'Foreign currency denominated sales' means sales to non-residents of goods assembled or manufactured in the Philippines, for delivery to residents in the Philippines and paid for in convertible foreign currency remitted through the banking system in the Philippines. . . .". "SEC. 106. Refunds or tax credits of input tax . (a) Export Sales An exporter who is a VAT-registered person may, within two years from the date of exportation, apply for the issuance of a tax credit certificate or refund of the input tax attributable to the goods exported, to the extent that such input tax has not been applied to output tax and upon presentation of proof that the foreign exchange proceeds has been accounted for in accordance with the regulations of the Central Bank of the Philippines. (b) Zero-rated or effectively zero-rated sales. Any person, except those covered by paragraph (a) above, whose sales are zero-rated may, within two years after the close of the quarter when such sales were made, apply for the issuance of a tax credit certificate or refund of the input taxes attributable to such sales to the extent that such input tax has not been applied against output tax. . . ." The mining firms primarily base their claims for refund of input taxes under Section 106, supra , on Section 100 (a) (2) of the Tax Code in conjunction with: (1) Revenue regulations No. 2-88 dated February 15, 1988 issued by then Finance Secretary Vicente Jayme; (2) VAT Ruling No. 00-378-88 dated August 23, 1988 of the BIR; (3) the zero-rate certificates issued to them also by the BIR; (4) Central Bank Circular No. 960, as clarified by Central Bank Circular No. 1301 [1991]; (5) Sections 23 and 77 of the Omnibus Investments Code (E.O. No. 226); and (6) historical precedents. Under Revenue Regulations No. 2-88 , sales of raw materials to export-oriented BOI-registered enterprises shall be subject to zero-rate under the conditions prescribed therein. This issuance virtually concedes that sales to such enterprises are effectively zero-rated pursuant to Section 100 (a) (2) of the Tax Code, supra . prcd On the other hand, under VAT Ruling No . 00-378-88 , the BIR, in reply to the query raised by the Central Bank, ruled that the "sale of gold to Central Bank is considered as export sale subject to zero-rate pursuant to Sec. 100 of the "Tax Code". The zero-rate certificates approved in January and April of 1988, indicate that sales to PASAR, an export-oriented enterprise, and to the Central Bank are "sales to persons or entities which are effectively zero-rated". The principal legal bases invoked by the mining firms, and which presumably are the same legal justifications for the above stated Revenue Regulations, VAT rulings and zero-rate certificates are the aforementioned CB Circular No. 960, as clarified by CB Circular No. 1301, and Sections, 23 and 77 of the Omnibus Investments code. Relative to the sales of gold to the Central Bank, the mining firms cite Section 169 of CB Circular No. 960 dated January 30, 1984, which provides that "[G]old producers shall qualify as export-oriented firms even if their entire output is sold to the Central Bank". This is an incentive which the Central Bank is authorized to grant pursuant to Section 72 of the Central Bank Act (R.A. No. 265, as amended) which allows it to buy and sell gold in any form, and in line with its policy "to conserve this metal through purchases at competitive prices . . . and it prudent use through regulations" (Sec. 162, id.). To add significance to this incentive, the Central Bank clarified in a subsequent Circular (CB Circular No. 1301 dated August 7, 1991), that "all sales of gold to the Central Bank are considered constructive exports". With respect to the sales by mining firms to PASAR, they invoke Sections 23 and 77 of the Omnibus Investments Code under which sales made to an export-oriented enterprises are considered constructive exports or export sales entitling "the exporter thereof to the benefits allowed by law for such transaction". prcd The historical precedents cited by the mining firms consist of previous BIR rulings, as well as Revenue Regulations No. 2-88 of the Department of Finance (DOF), that consistently recognized the zero-rating privilege on the same transactions now subject of their present claims for tax refund. These are 1. BIR Ruling No. 543 (Nov. 15, 1988) which declared that since VAT simply replaced the percentage tax on sales "any reference to the sales taxes should now apply to value-added tax"; 2. BIR Revenue Memorandum Circular No. 59-88 which ruled that "the purchase of gold is considered an export sale pursuant to E.O. 581 and Section 169 of CB Circular No. 960 and is exempt from VAT"; 3. BIR letter to CB dated August 23, 1988 (VAT Ruling No. 00-378-88, supra ) under which BIR affirmed and assured the Central Bank is considered as export sale subject to zero-rate pursuant to Section 100 of the Tax Code, as amended by Executive Order No. 237"; 4. VAT Ruling No. 100 (a)-000-00-319-88 dated July 14, 1988, which allowed zero-rating in case finished goods are used as raw materials in the production of export products by a BOI-registered export producer; 5. VAT Ruling No. 159-89 dated July 7, 1989 where the BIR declared that only the sale of raw materials to BOI-registered enterprise can qualify for effective zero-rating; 6. Revenue Regulations No. 2-88 dated February 15, 1988 ( supra ) which declared that sales of raw materials to export-oriented BOI-registered enterprises shall be subject to zero-rate under certain conditions. To all of the above, the BIR contends that "if an error was committed, the same could not be corrected by committing further errors" citing jurisprudence (e.g., Hilado vs. Collector of Internal Revenue, 100 Phil. 288; PLDT vs. Collector of Internal Revenue, 90 Phil. 676; Pineda vs. CFI, Tayabas, 52 Phil 803; Benguet Consolidated Mining Company vs. Pineda, 98 Phil. 711) holding to the effect that the Government is not bound by the erroneous interpretation or application of the law by its public officers. BIR thus appears to be strongly inclined to discontinue the privilege claimed by the mining firms under Section 100 (1) (2) of the Tax Code and previous favorable revenue regulations and BIR rulings, and would insist on a strict interpretation of Section 100 of the VAT law relying on the settled rule of statutory construction that tax exemption laws should be strictly construed against the taxpayer. It is well to emphasize at this point that the claims for refund of the mining firms are predicated on Section 100 (a) (2) of the Tax Code which speaks of "effectively zero-rated" sales under special laws . The Omnibus Investments Code is one such "special law". Thus, it would appear that on the basis of Section 100 (a) (2) of the Tax Code in conjunction with Sections 23 and 77 of the Omnibus Investment Code, the sale by mining companies to PASAR of copper concentrates and other raw materials should be zero-rated. With regard to sales of gold to the Central Bank, existing jurisprudence recognizes that Central Bank Circulars "issued for the implementation of the law authorizing its issuance . . . [have] the force and effect of law" (People vs. Que Po Lay, 94 Phil. 640), and therefore C.B. Circulars Nos. 960 and 1301 can be recognized as special laws within the ambit of Section 100 (a) (2) of the Tax Code. prcd With due deference to the BIR, which appears inclined not to overrule previous revenue regulations and VAT rulings interpreting the aforestated provisions of the VAT law, it is settled that the administrative interpretation of agencies charged with the enforcement of the law deserve respect and should be accorded great weight ( In re Allen, 2 Phil 640; Verdera vs. Hernandez, 10 SCRA 4; Warren Manufacturing Workers' Union vs. Bureau of Labor Relations, 159 SCRA 387). While administrative agencies are not bound by precedents and may overrule or abandon their own rulings or interpretations of the law or those of their predecessors in favor of new ones which are deemed more consonant with the letter and spirit of the law, the courts in certain cases would refuse to acknowledge the legal propriety of a turn-about position where to do so would be prejudicial to private parties who may have relied in good faith upon the previous interpretation given by the administrative agency concerned (see Tuazon vs. Lingad, 58 SCRA 170; Connell Bros. Co. (Phil.) vs. Collector of Internal Revenue, 10 SCRA 469). It has been held that the Commissioner or Collector of Customs is precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom or where there has been a misrepresentation to the taxpayer (ABS-CBN Broadcasting Corp. vs. CTA, 108 SCRA 142). Evidently, the inconsistent position which the BIR would want to adopt now would work to the prejudice of the mining firms which had relied on the favorable interpretation of the VAT law heretofore given by the Department of Finance (DOF) and the BIR. Pursuant to Section 104 of the Tax Code, a VAT-registered person may credit any input tax against the output tax payable by the VAT-registered person. As defined in the same provision, "input tax" means the value-added tax paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchases of goods or services from a VAT-registered person. "Output tax" means the value-added tax due on the sale of taxable goods or services by a VAT-registered person. In view of the assurance given by the DOF and BIR's construction of the VAT law that sales of gold to the Central Bank, as well as sales of copper concentrates and other raw materials to PASAR are zero-rate VAT, these mining firms had allegedly not billed the Central Bank and PASAR the 10% VAT on sales (output tax) which would otherwise be collectible under Section 100 of the Tax Code, if the sales were not declared zero-rated. Accordingly, since sales of gold to Central Bank and copper concentrates and other raw materials to PASAR are considered zero-rated under Revenue Regulations No. 2-88 of the DOF and the various VAT rulings of the BIR, there is no output tax from which the mining firms can claim creditable input tax pursuant to Section 104, supra . Finally, the Supreme Court has held that the rule on strict construction of tax statutes does not apply in case of tax exemptions in favor of a government political subdivision or instrumentality because the basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions which is to minimize differential treatment and foster impartiality, fairness, and equality of treatment among taxpayers does not apply in the case of exemptions running to the benefit of the government itself or its agencies. "Provisions granting exemptions to government agencies may be construed liberally, in favor of non-tax liability of such agencies " (Maceda vs. Macaraig, Jr., 197 SCRA 771, citing Cooley on the Law of Taxation, 4th edition, 1414 [1927]). Thus, in line with this ruling, Section 100 (a (2) should "liberally construed in favor of non tax-liability" of the Central Bank, which is a government instrumentality. Based on the foregoing premises, it is out opinion that sales of gold to the Central Bank and of copper concentrates and other raw materials to PASAR are entitled to zero rate under Section 100n (a) (2) of the Tax Code. prcd Please be guided accordingly. Very truly yours, (SGD.) EDUARDO G. MONTENEGRO Acting Secretary