Republic v. Taganito HPAL Nickel Corp.

THIRD DIVISION [G.R. No. 259024. September 28, 2022.] REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE COMMISSIONER OF INTERNAL REVENUE , petitioner , vs. TAGANITO HPAL NICKEL CORPORATION , respondent . NOTICE Sirs/Mesdames : Please take notice that the Court, Third Division, issued a Resolution dated September 28, 2022 , which reads as follows: " G.R. No. 259024 (Republic of the Philippines, represented by the Commissioner of Internal Revenue vs. Taganito HPAL Nickel Corporation) . The Court resolves to: (1) NOTE the Office of the Solicitor General's (OSG) payment of P1,000.00 under O.R. No. 327951 dated April 18, 2022 for the Sheriff's Trust Fund, relative to the Resolution dated April 25, 2022; and (2) NOTE WITHOUT ACTION the OSG's Manifestation and Motion dated May 11, 2022, submitting the Answer filed by the Commissioner of Internal Revenue in CTA Case No. 9128, which should have been appended to the petition for review on certiorari as Annex "G" but inadvertently not included therein due to logistical constraints in the transmittal of records from the Bureau of Internal Revenue to the OSG, hence, praying that the attached Annex "G" be incorporated and deemed part of the instant petition. Via the instant Petition for Review on Certiorari , 1 the Commissioner of Internal Revenue (CIR) implores this Court to reverse and set aside the Decision 2 dated 28 June 2021 and the Resolution 3 dated 23 February 2022 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 2240, which affirmed the disposition of the Second Division of the CTA (CTA Division) in CTA Case No. 9128; and denied the motion for reconsideration thereof, respectively. The CTA Division ordered the issuance of a tax credit certificate in the amount of P38,828,673.65 in favor of Taganito HPAL Nickel Corporation (respondent), representing its unutilized input taxes for taxable year 2013. The Petition must fail as it crumbles under legal bedrock. At the incipience, the requisites for a successful claim for tax refund or issuance of tax credit certificate are governed by Section 112 4 of the Tax Code. Elsewise stated, a taxpayer engaged in zero-rated or effectively zero-rated transactions may claim refund or tax credit certificate for input taxes attributable to such sales upon compliance with the following essential requisites: one , the taxpayer-claimant is VAT-registered; two , the taxpayer-claimant is engaged in zero-rated or effectively zero-rated sales; three , there are creditable input taxes due or paid attributable to the zero-rated or effectively zero-rated sales; four , that the input tax has not been applied against the output tax; and five , that the application and the claim for a refund have been filed within the prescribed period. 5 Tellingly, Section 112 (A) does not require direct attributability for input tax to be creditable or refundable. In sooth, the law allows as tax credit an allocable portion of a taxpayer's input tax that is not directly and entirely attributable to their zero-rated sales. In such instance, what the law requires is for the creditable input tax to be attributable to the zero-rated or effectively zero-rated sales . At any rate, creditable input tax does not arise solely from purchases that form part of the finished goods. A plain reading of Section 110 6 of the Tax Code readily reveals that it did not limit creditable input tax to purchases or importation of goods which are to be converted into or intended to form part of a finished product for sale, or to be used in the chain of production. In particular, Section 110 (A) also treats as input tax all VAT due from or paid by a VAT-registered person in the course of their trade or business on the importation of goods or local purchase of goods or services, including lease or use of property, from a VAT-registered person. Corollary thereto, even if the purchased goods do not find their way into the taxpayer's finished product, the input tax incurred therefrom can still be credited against the output tax as long as it is (1) incurred or paid in the course of the VAT-registered taxpayer's trade or business, and (2) supported by a VAT invoice issued in accordance with the invoicing requirements of the law. In the case at bench, as aptly found by both the CTA Division and the CTA En Banc , respondent is a VAT-registered taxpayer which filed its claim for a tax refund within the prescriptive period. Moreover, it had sufficiently established that its entire zero-rated sales in 2013 amounting to P1,195,966,104.17 qualified for VAT zero-rating under Section 106 (A) (2) (a) (1) 7 and that it incurred input taxes attributable to zero-rated sales which were not applied against any output VAT liability. Veritably, in a plethora of analogous cases 8 involving claims for input tax refund or issuance of tax credit certificate, the CTA is steadfast in its posture that Section 112 of the Tax Code does not require direct attributability of input taxes to zero-rated sales. This posture becomes all the more significant when juxtaposed with the well-entrenched principle that the factual findings and conclusions of the CTA, as a highly specialized court, are accorded respect and deemed final and conclusive. 9 Therefore, this Court perceives no cogent reason to diverge from the judgment reached by the CTA En Banc in this case. IN LIGHT OF THE FOREGOING , the Petition for Review on Certiorari filed by the Republic of the Philippines, through the Commissioner of Internal Revenue, is hereby DENIED . The Decision dated 28 June 2021 and the Resolution dated 23 February 2022 of the Court of Tax Appeals En Banc in CTA EB No. 2240 are AFFIRMED in toto . SO ORDERED ." By authority of the Court: (SGD.) MISAEL DOMINGO C. BATTUNG III Division Clerk of Court Footnotes 1. Rollo , pp. 11-50. 2. Id . at 52-66. Penned by Associate Justice Catherine T. Manahan and concurred in by Presiding Justice Roman G. del Rosario and Associate Justices Juanito C. Castaeda, Jr. (now retired), Erlinda P. Uy, Ma. Belen M. Ringpis-Liban, Jean Marie A. Bacorro-Villena, and Maria Rowena Modesto-San Pedro. 3. Id . at 68-74. Penned by Associate Justice Catherine T. Manahan and concurred in by Presiding Justice Roman G. del Rosario and Associate Justices Juanito C. Castaeda, Jr. (now retired), Erlinda P. Uy, Ma. Belen M. Ringpis-Liban, Jean Marie A. Bacorro-Villena, Maria Rowena Modesto-San Pedro, Marian Ivy F. Reyes-Fajardo, and Lanee S. Cui-David. 4. SEC. 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 (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 of 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. Provided, finally, That for a person making sales that are zero-rated under Section 108 (B) (6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales. x x x (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals. 5. See CIR v. Toledo Power Company , 766 Phil. 20, 27 (2015). 6. Section 110. Tax Credits . (A) Creditable Input Tax. (1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax: (a) Purchase or importation of goods: (i) For sale; or (ii) For conversion into or intended to form part of a finished product for sale including packaging materials; or (iii) For use as supplies in the course of business; or (iv) For use as materials supplied in the sale of service; or (v) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code, except automobiles, aircraft and yachts. (b) Purchase of services on which a value-added tax has been actually paid. (2) The input tax on domestic purchase of goods or properties shall be creditable: (a) To the purchaser upon consummation of sale and on importation of goods or properties; and (b) To the importer upon payment of the value-added tax prior to the release of the goods from the custody of the Bureau of Customs. Provided, that the input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed under this Code shall be spread evenly over the a month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds One million pesos (P1,000,000): Provided, however, That if the estimated useful life of the capital good is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a shorter period: Provided, further, That the amortization of the input VAT shall only be allowed until December 31, 2021 after which taxpayers with unutilized input VAT on capital goods purchased or imported shall be allowed to apply the same as scheduled until fully utilized: Provided, finally, That in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or free. (3) A VAT-registered person who is also engaged in transactions not subject to the value-added tax shall be allowed tax credit as follows: (a) Total input tax which can be directly attributed to transactions subject to value-added tax; and (b) A ratable portion of any input tax which cannot be directly attributed to either activity. 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. 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. (B) 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. Provided, however. That any input tax attributable 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. 7. Sec. 106. Value-Added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. x x x (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); x x x 8. See CIR v. S&Woo Construction Philippines, Inc. , CTA EB No. 2420, 22 March 2022; CIR v. Visayas Geothermal Power Company , CTA EB No. 2297, 9 March 2022; CIR v. Pilipinas Kyohritsu, Inc. , CTA EB No. 2382, 22 February 2022; CIR v. S&Woo Construction Philippines, Inc., CTA EB No. 2340, 10 December 2021; CIR v. Maersk Service Centres , CTA EB No. 2260, 29 July 2021; CIR v. Lepanto Consolidated Mining Company , CTA EB No. 2230, 14 July 2021; Rio Tuba Nickel Mining Corp. v. CIR , CTA EB No. 2180, 10 June 2021; CIR v. Lepanto Consolidated Mining Company , CTA EB No. 2051, 30 September 2020; CIR v. Deutsche Knowledge Services Pte. Ltd. , CTA EB No. 2082, 21 July 2020; CIR v. Toledo Power Company , CTA EB No. 1990, 23 June 2020; CIR v. Chevron Holdings, Inc. , CTA EB No. 1950, 3 June 2020; and Air Liquide Philippines, Inc. v. CIR , CTA EB No. 1844, 26 February 2020. All held that Section 112 of the Tax Code does not absolutely require that input taxes subject of a claim for tax refund or issuance of a tax credit certificate be directly attributable to the claimant's zero-rated sales. 9. See Philippine Airlines, Inc. v. CIR , 823 Phil. 1043, 1065 (2018).