Rule II, Book VI of the Rules Implementing the Labor Code (P.D. No. 442, as amended)

FIRST DIVISION [C.T.A. CASE NO. 7870. September 23, 2011.] MANILA NORTH TOLLWAYS CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION FABON-VICTORINO , J p : Before the Court is a Petition for Review filed by petitioner, Manila North Tollways Corporation, praying for refund or issuance of tax credit certificate in the amount of Php16,960,448.65, allegedly representing its overpaid creditable withholding tax (CWT) for the year 2006. aCcEHS Petitioner Manila North Tollways Corporation is a duly organized domestic corporation with business address at the North Luzon Expressway (NLEX) Compound, Balintawak, Caloocan City, Philippines. 1 It is the builder of the NLEX and is the authorized concessionaire with right to operate, maintain, and charge tolls on NLEX until December 31, 2030. 2 Respondent, on the other hand, is the Commissioner of the Bureau of Internal Revenue (BIR), vested with authority to exercise the function of said office, including among others, the power to decide, approve, and grant refunds and/or tax credits of erroneously paid or illegally assessed or collected internal revenue taxes, or of penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected. She holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. Petitioner avers that on August 29, 1995, Philippine National Construction Company (PNCC) and First Philippine Infrastructure Development Corporation (FPIDC) executed a Joint Venture Agreement (JVA) for the completion, rehabilitation, refurbishing and modernization of the NLEX. Under the JVA, PNCC assigned its usufructuary rights, interests and privileges under its franchise in favor of the Joint Venture Company to be formed under the JVA, insofar as the funding, design, construction, rehabilitation, refurbishing and modernization of the NLEX were concerned. In consideration thereof, PNCC shall receive a percentage of the toll revenues received from the NLEX. 3 On February 4, 1997, petitioner was incorporated to serve as the Joint Venture Company that will undertake the funding, design, construction, rehabilitation, refurbishing and modernization of the NLEX. Subsequently, on April 30, 1998, petitioner was granted the concession to finance, design, rehabilitate, expand, operate and maintain the NLEX under a Supplemental Toll Operation Agreement ("STOA") executed by and amongst petitioner, the PNCC, and the Republic of the Philippines acting through the Toll Regulatory Board (TRB). 4 On September 30, 2004, an Amended and Restated Shareholders' Agreement was entered into among FPIDC, PNCC, Egis Projects, S.A., Leighton Asia (Southern) Limited, and petitioner, whereby PNCC, in consideration of the assignment of its franchise, shall be entitled to receive a share of the gross toll revenue collected from the operation of the NLEX. 5 Consistent with the afore-mentioned agreement, petitioner made payments to PNCC in the year 2006 amounting to Php565,348,288.42, as the latter's revenue share for 2005 and 2006, and withheld the amount of Php28,267,414.42, representing five percent (5%) CWT. 6 However, PNCC insisted that the payment in its favor should be subject to only two percent (2%) and not five percent (5%) CWT. Thus, they placed the amount of Php28,267,414.42 in an escrow account pending a ruling from the BIR on the applicable CWT rate. CcHDSA On January 15, 2007, petitioner, allegedly through inadvertence, remitted to the BIR the full five percent (5%) CWT amounting to Php28,267,414.42. Despite the remittance of the full 5% CWT to the BIR, petitioner still proceeded with the placement of an equivalent amount in the escrow account. On May 2, 2007, the BIR issued BIR Ruling No. DA-282-07 sustaining PNCC's opinion that its Share in Gross Revenues is subject to a two percent (2%) CWT rate. 7 In view thereof, petitioner instructed the escrow agent to release the three percent (3%) difference to PNCC in consonance with the escrow agreement. Of the 3% CWT amounting to Php16,960,448.65, Php15,380,461.95 was reimbursed to PNCC on June 4, 2007. 8 Subsequently, petitioner executed a Settlement Agreement with PNCC whereby the latter relinquishes its right to file or seek any claim for refund before any court, tribunal or administrative body with respect to the three percent (3%) overpaid CWT and recognizes the right of petitioner to pursue the said claim for refund. 9 On December 23, 2008, petitioner filed its administrative claim for refund with the BIR. A supplement to the said administrative claim was subsequently filed on January 13, 2009. 10 The following day, January 14, 2009, petitioner elevated its claim for refund before this Court via a Petition for Review alleging inaction on the part of respondent. In her Answer, 11 respondent alleges the following Special and Affirmative Defenses: "14. Respondent adopts the abovementioned admissions and denials as part of his special and affirmative defenses. 15. It is incumbent upon petitioner to prove that the alleged claim for refund was filed within the two-year period provided under Section 229 of the NIRC of 1997. 16. Section 229 of the NIRC of 1997 reads in part: ' Recovery of Tax Erroneously or Illegally Collected No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner . . . .' 17. A valid claim for refund should consist of the following: a. There must be a written claim for refund filed by the taxpayer with the Commissioner of Internal Revenue. This is a mandatory requirement. Without this requirement, the CIR is without any authority to refund. IDAEHT b. The claim for refund must be a categorical demand for reimbursement. c. The claim for refund must be filed within two years from date of payment of the tax or penalty regardless of any supervening cause. In claims for refund, the thirty-day period to appeal should be within the two-year prescriptive period. 18. While it is true that BIR Ruling No. DA-282-2007 was issued favoring petitioner, it is incumbent upon the claimant to prove that the facts as presented therein remain true as it was at the time of the issuance. Every BIR Ruling concludes with the following caveat : 'This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void.' Hence, a BIR Ruling by itself is insufficient for a meritorious claim for refund. 19. In the case of Far East Bank & Trust Company vs. Commissioner of Internal Revenue , the Supreme held: 'A tax refund is in the nature of a tax exemption which must be construed strictissimi juris against the taxpayer. To stress, the taxpayer must present convincing evidence to substantiate a claim for refund.' 20. Petitioner must prove that it is indeed entitled to a claim for refund under existing laws, rules and jurisprudence." In compliance with the Court's directives, the parties filed their respective Pre-Trial Briefs on April 21, 2009. On May 14, 2009, they filed their Joint Stipulation of Facts and Issues filed which was approved on May 22, 2009. Trial ensued during which petitioner presented three (3) witnesses, namely, 1) Huger L. Labang, its Asst. Vice President for Accounting; 2) Atty. Romulo S. Quimbo, Jr., its Vice President for Legal and Regulatory Affairs; and 3) Ms. Miriam M. Pasetes, the Chief Financial Officer of PNCC. Huger Labang, by way of Judicial Affidavit, testified that as petitioner's Asst. Vice President for Accounting, he is responsible for all the accounting matters of petitioner. Allegedly, the instant case arose from the claim for refund or issuance of tax credit certificate of petitioner for its overpaid CWT on its 2006 payments to PNCC. These payments, amounting to Php565,348,288.48, represent the share of PNCC in the gross revenues from the operation of the NLEX. In relation to the said payments, petitioner filed a Creditable Withholding Tax Return on January 15, 2007 and an Amended Creditable Withholding Tax Return 12 on July 27, 2007. Pending the issuance of BIR Ruling No. DA-282-07, petitioner and PNCC placed in escrow the entire amount of Php28,267,414.42, which was withheld by petitioner from its 2006 income payments to PNCC. Thereafter, BIR issued a ruling that that petitioner's payments to PNCC were subject to only 2% CWT. Consequently, petitioner ordered the release of the amount of Php15,380,461.95 to PNCC as partial payment of the 3% CWT difference. The remaining balance of Php1,579,986.70 shall be paid within six (6) months from the execution of the Settlement Agreement. 13 Since petitioner remitted to the BIR the full 5% as CWT it withheld from PNCC, there was an overpayment thereof equivalent 3% CWT from the payments to PNCC. CScTDE Atty. Romulo S. Quimbo testified that petitioner is a duly organized domestic corporation registered with the SEC as indicated in its Certificate of Registration, Amended Articles of Incorporation and By-Laws. As its Vice President for Legal and Regulatory Affairs, he manages all the legal matters pertaining to petitioner. He reviews key contracts and legal documents of petitioner and has them in his custody. Petitioner is the builder of the NLEX and the authorized concessionaire with rights to operate, maintain, and charge tolls on the NLEX, its extensions, linkages and diversions as assignee of the PNCC's franchise over the NLEX. In 2006, petitioner paid PNCC the amount of Php565,348,288.48 as the latter's share in the gross toll revenues from the operation of the NLEX, pursuant to Amended and Restated Shareholder's Agreement dated September 30, 2004 they executed. From the said payments, petitioner withheld and remitted to the BIR 5% CWT. Upon insistence of PNCC that petitioner should only subject its payments to 2% CWT, they agreed to open an escrow account to place the amount of Php28,267,414.42 pending clarification from the BIR on the applicable CWT rate. In its Ruling No. DA-282-07 issued on May 2, 2007, the BIR stated that petitioner belongs to the top 10,000 corporations, hence, the payments by petitioner to PNCC based on percentage of revenues of petitioner from the NLEX are subject to 2% CWT. Consequently, petitioner ordered the release of the amount of Php15,380,461.95 to PNCC as partial reimbursement of the 3% CWT credited by petitioner from its payments to PNCC. In the Settlement Agreement entered on July 20, 2009, PNCC agreed that it shall not file or seek any claim for refund before any court, tribunal or administrative body for the 3% overpaid CWT and it recognized the right of petitioner to pursue said claim for refund. Petitioner's last witness, Miriam M. Pasetes, testified that as the Chief Financial Officer and Treasurer of PNCC, she is responsible for all financial matters of her employer. She confirmed that PNCC received the amount of Php565,348,288.42 from petitioner, representing PNCC's February 2005 to November 2006 NLEX Revenue Share plus interests but exclusive of VAT. From the said payment, 5% CWT in the amount of Php28,267,414.42 was withheld and placed in an escrow account. Further, in PNCC's 2006 ITR, only 2% CWT was claimed on the 2006 NLEX Revenue Share as shown in the Certificate of Creditable Withholding Tax at Source issued by petitioner to PNCC for the January to November 2006 NLEX Revenue Share. She also stated that PNCC's 2005 NLEX Revenue Share including interests on said share were reflected in PNCC's 2005 Amended ITR. However, the corresponding CWT on the 2005 NLEX Revenue Share was not reflected nor applied against the tax due for the said taxable year as PNCC was no longer allowed to further amend its 2005 Amended ITR as it was already in receipt of Letter of Authority from the BIR. SDHCac During the hearing on August 12, 2010, counsel manifested that respondent was waiving her right to present evidence and opted to file a memorandum within thirty (30) days from said date. On October 11, 2010, the instant case was submitted for decision after petitioner filed its Memorandum on September 23, 2010 and respondent on October 6, 2010. THE ISSUES The parties submitted the following issues for the resolution for the Court: 14 "1. Whether or not Petitioner is entitled to claim refund of the creditable withholding tax paid in 2007 for payments to PNCC in the amount of Sixteen Million Nine Hundred Sixty Thousand Four Hundred Forty Eight Pesos and Sixty Five Centavos (Php16,960,448.65); and 2. Whether the Petition for Review was filed within the two year period prescribed under Section 229 of the Tax Code." THE COURT'S RULING The Court finds that petitioner miserably failed to prove its entitlement to the refund. The chronology of events that have led to the filing of the instant petition warrants the determination of the timeliness of the filing of petitioner's claim for refund. Therefore, there is a need to revisit the relevant provisions of Sections 204 (C) and 229 of the National Internal Revenue Code (NIRC) of 1997, to wit: "SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes . The Commissioner may xxx xxx xxx (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund." (Emphasis supplied) "SEC. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. SaAcHE In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." (Emphasis supplied) In the light of the foregoing provisions, the administrative as well as the judicial remedies relative to the claim for refund of erroneously paid tax must be instituted within two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise thereafter . In the instant claim for refund however, the date of payment of CWT could not be determined. Under Section 2.58 of Revenue Regulations (RR) No. 2-98, as amended by Section 5 of RR No. 17-03, CWT should be remitted and the corresponding return filed within ten (10) days following the month of withholding except for taxes withheld for December, which should be remitted and the return filed on January 15 of the following year. However, if the taxpayer avails of the Electronic Filing and Payment System (EFPS), the remittance and filing of return shall be five (5) days later than the deadlines provided under Section 2.58 of Revenue Regulations (RR) No. 2-98, as amended by Section 5 of RR No. 17-03. The provision reads as follows: "Sec. 2.58. RETURNS AND PAYMENT OF TAXES WITHHELD AT SOURCE. (A) Monthly return and payment of taxes withheld at source . xxx xxx xxx (2) WHEN TO FILE (a) For both large and non-large taxpayers, the withholding tax return, whether creditable or final (including final withholding taxes on interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements) shall be filed and payments should be made, within ten (10) days after the end of each month, except for taxes withheld for the month of December of each year, which shall be filed on or before January 15 of the following year ; . . . (b) With respect, however, to taxpayers, whether large or non-large, who availed of the electronic filing and payment system (EFPS), the deadline for electronically filing the applicable withholding tax returns and paying the taxes due thereon via the EFPS shall be five (5) days later than the deadlines set above , unless the EFPS regulations provide for different deadline dates and except for the final capital gains tax on the sale, barter or exchange of real property where the law fixes a definite deadline for the payment thereof." (Emphasis supplied) Petitioner posits that the subject CWT was remitted to the BIR on January 15, 2007, through the filing on the same date of its Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded) [BIR Form No. 1601-E) for the month of December 2006. 15 However, there is nothing on the record that shows the filing of said return and remittance of the corresponding CWT on said date, i.e. , January 15, 2007. Petitioner submitted only its amended BIR Form No. 1601-E 16 for the month of December 2006, which was filed on July 27, 2007. It did not present in evidence the original return it allegedly filed on January 15, 2007. Absent the original BIR Form No. 1601-E of petitioner for December 2006, the Court cannot with certainty determine if the two-year prescriptive period for purposes of the claim for refund has been complied with by petitioner. On this score alone, the Petition for Review must fail. Assuming for the sake of argument that the Petition for Review was seasonably filed, the instant petition must still be denied for insufficiency of evidence. In asserting entitlement to a refund of erroneously paid CWT, petitioner sweepingly invokes BIR Ruling No. DA-282-07 dated May 2, 2007, addressed to it and PNCC which held that PNCC's share in NLEX revenues represents service income subject to the regular corporate income tax of 35% and 2% CWT. The pertinent portions thereof states, thus: IDTSEH "Based on the foregoing, PNCC's share in the toll revenues in return for the assignment of its rights under the franchise is service income derived in active pursuit of its business, hence subject to regular corporate income tax of 35% under Section 27 (C) of the National Internal Revenue Code of 1997, as amended by Republic Act No. 9337. It is worthy to note, however, that pursuant to its legislative franchise granted under PD 1113, as amended by PD 1894, PNCC is exempt from any present or future taxes in connection with the exercise of its right and privilege under the franchise and/or in connection with its activities pursued in accordance with the grant of its franchise, except for income tax and real property tax. . . . xxx xxx xxx Anent the matter of withholding, Section 2.57.2 (M) of RR No. 2.98, as amended by RR No. 17-2003 provides: 'Sec. 2.57.2. Income payments subject to creditable withholding tax and rates prescribed thereon . Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines: xxx xxx xxx (M) Income payments made by the top ten thousand (10,000) private corporations to their local/resident supplier of goods and local/resident supplier of services other than those covered by other rates of withholding tax. Income payments made by any of the top ten thousand (10,000) private corporations, as determined by the Commissioner, to their local/resident supplier of goods and local/resident supplier of services, including non-resident alien engaged in trade or business in the Philippines Supplier of goods One percent (1%) Supplier of services Two percent (2%) Top ten thousand (10,000) private corporations shall include a corporate taxpayer who has been determined and notified by the Bureau of Internal Revenue (BIR) . . .' (Emphasis supplied) In view of all the foregoing, we confirm your opinion that payments to PNCC based on a percentage of the toll revenue of MNTC Corporation ('MNTC') from the NLEX are subject to the regular corporate income tax and to two percent (2%) creditable withholding tax, to be withheld by MNTC. Consequently, the amount of tax withheld shall be creditable against PNCC's income tax liability for the relevant taxable period." However, for petitioner to be entitled to the refund, the following requisites must concur: 1. that petitioner remitted to the BIR on January 15, 2007 the amount of P28,267,414.42 representing 5% CWT on its 2006 payments to PNCC as the latter's share in toll revenues from the operation of the NLEX covering the period February 2005 to November 2006; and EScAHT 2. that PNCC applied against its income tax liabilities only the amount of P11,306,965.77 representing 2% CWT on its share in NLEX revenues from February 2005 to November 2006 and did not utilize any portion of petitioner's claimed P16,960,448.65 difference in CWT of 3%. On the first requisite, a close scrutiny of petitioner's documentary evidence revealed that PNCC's NLEX revenue share plus interests covering the period from February 2005 to November 2006 amounted to Php625,759,831.24, broken down as follows: Revenue Share for February to Exhibits "DD", December 2005 with interest of "EE", and "GG" P9,463,014.43 which accrued from January to June 2006 P313,419,877.43 Interest on the Feb.-Dec. 2005 Revenue Exhibits "CC", Share which accrued from July to "FF", and "GG" August 4, 2006 2,020,468.81 Exhibits "CC", Revenue Share for January to "GG", "HH-2", November 2006 310,319,485.00 and "X-1" Total P625,759,831.24 ============== Record reveals that on August 4, 2006 and January 12, 2007, PNCC issued Official Receipts 17 in favor of petitioner acknowledging receipt of the afore-stated share in the NLEX revenues. The Official Receipts indicate that petitioner withheld the 5% CWT from the said payment in the amount of Php28,267,414.42, computed based on petitioner's payment of Php625,759,831.24 less VAT amounting to Php60,411,542.82. 18 However, petitioner failed to prove its remittance to the BIR of the 5% CWT of Php28,267,414.42 as it did not present to the Court its original BIR Form No. 1601-E for the month of December 2006. Petitioner submitted only its amended BIR Form No. 1601-E 19 for the month of December 2006, which reflected a CWT remittance of only Php248,348.58 (inclusive of surcharge, interest, and compromise of Php83,673.84). With regard the second requisite, petitioner likewise failed to establish that PNCC applied against its income tax liabilities only the amount of Php11,306,965.77, representing 2% CWT on its share in NLEX revenues from February 2005 to November 2006, and did not utilize any portion of petitioner's claimed Php16,960,448.65 difference in CWT of 3%. According to petitioner, out of the P28,267,414.42 CWT it remitted to the BIR, only a total of Php6,206,389.70 was credited against PNCC's tax payable in its 2006 income tax return representing 2% CWT on the 2006 NLEX revenue share. PNCC was not able to claim the 2% CWT on the 2005 NLEX revenue share in its 2005 income tax return since PNCC was already under audit by the BIR when it received the CWT Certificate on its 2005 NLEX revenue from petitioner. Under the circumstances, PNCC could no longer validly cause further amendment in its 2005 income tax return in order to claim the CWT on the 2005 revenue share. 20 To support its contention, petitioner presented the Letter of Authority 21 dated April 3, 2007 from Revenue District Office No. 41 of the BIR; PNCC's Annual Income Tax Returns for 2005 22 (amended) and 2006; 23 judicial affidavit 24 of Ms. Miriam M. Pasetes, PNCC's Chief Financial Officer and Treasurer; and Certificate of Creditable Tax Withheld at Source 25 issued by petitioner to PNCC for the period from January 1, 2006 to November 30, 2006. CHIScD The Court however finds the alleged supporting documents insufficient to validate petitioner's claim. Based on the record, petitioner filed its Formal Offer of Evidence on May 4, 2010. 26 In the interim, PNCC must have filed its Annual Income Tax Returns for taxable years 2007, 2008, and 2009 and could have credited against its income tax liabilities during the said years the CWT on its 2005 NLEX revenue share. These returns together with the related Certificates of Creditable Tax Withheld at Source will assist the Court in ascertaining whether only 2% CWT was claimed by PNCC as regards its 2005 NLEX revenue share. Time and again, this Court ruled that tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the taxpayer who is claiming the exemption. 27 Given the latin principle, Ei incumbit probation qui dicit, no qui negat (He who asserts, not he who denies, must prove), it was incumbent upon petitioner to prove with the required quantum of evidence its entitlement to the refund claimed, and the Court will render its decision on the basis of the facts established through the evidence presented applying the law and jurisprudence relevant to the issue under consideration, notwithstanding absent of controverting evidence on the part of respondent. WHEREFORE , the instant Petition for Review is hereby DENIED for insufficiency of evidence. SO ORDERED. (SGD.) ESPERANZA R. FABON-VICTORINO Associate Justice Ernesto D. Acosta, P.J., concurs. Erlinda P. Uy, J., is on leave. Footnotes 1. Exhibits "L", "M", and "N". 2. Exhibit "R". 3. Docket, p. 2, Petition for Review. 4. Exhibit "R". 5. Exhibit "S". 6. Exhibit "CC". 7. Exhibit "D". 8. Exhibits "J", "J-1", "E", "E-2", "E-3", "F", "F-2", "G", "V", "V-1" and "GG". 9. Exhibit "V". 10. Exhibits "H" and "I". 11. Docket, pp. 81-87. 12. Exhibit "A". 13. Exhibit "V", pp. 469-472. 14. Docket, p. 134. 15. Par. 9, Petition for Review, docket p. 3; Exhibit "K", p. 3. 16. Exhibit "A". 17. Exhibits "CC" and "DD". 18. Exhibit "GG", Q & A No. 23, pp. 5-6. 19. Exhibit "A". 20. Pars. 28-29, Petitioner's Memorandum, docket, p. 547. 21. Exhibit "BB". 22. Exhibit "Z". 23. Exhibit "HH". 24. Exhibit "GG". 25. Exhibit "X". 26. Docket, pp. 287-303. 27. Asiatic Petroleum Co. vs. Llanes , 49 Phil. 466; Northern Phil. Tobacco Corp. vs. Mun. of Agoo, La Union , 31 SCRA 304; Reagan vs. Commissioner , 30 SCRA 968; Austria Sugar Central, Inc. vs. Commissioner of Customs , 29 SCRA 617.