VAT Ruling No. 066-02

September 25, 2002 VAT RULING NO. 066-02 Sec. 106 (c) Memorandum For: Asst. Commissioner NORA E. TAMAYO Assessment Service SUBJECT : Transdaewoo Automotive Mfg., Inc. (TAMI) This refers to your letter, dated March 18, 2002, seeking for a legal opinion on whether TAMI is entitled to a refund of the input taxes paid on its importation of capital goods, notwithstanding that it has not as yet commenced business operations. It is represented that TAMI was incorporated on October 6, 1994; that, it was duly registered as a VAT taxpayer under VAT Registration No. 080-004-262-830 VAT, dated May 19, 1995; that, in the year 1996, it paid VAT on its importation of capital goods in the amount of P14,602,642.00; that, on October 13, 1997, it filed its Application for Tax Credit/Refund of Value-Added Tax Paid, covering input taxes for the period from January 1 to December 31, 1996, in the total amount of P17,297,706.70; that, the breakdown of this amount was reported by RDO No. 80, Mandaue, Cebu, who investigated TAMI's claim for refund under Letter of Authority No. 130754, dated October 15, 1997, as follows: Per Claim Disallowances Per Audit Local purchased P2,695,064.70 P783,930.39 P1,911,134.11 Importation 14,602,642.00 - 14,602,642.00 Total P17,297,706.70 P783,930.39 P16,513,776.11 =========== ========= =========== That, TAMI has not as yet started with its commercial operations, hence, your request for a legal opinion whether or not TAMI is entitled to a refund of its above mentioned input tax on imported capital goods. In reply, please be informed that since TAMI is a VAT-registered corporation and considering that the input tax at issue pertained to its importation of capital goods during the year 1996, this case is governed by Section 106 (c) of the 1977 of the Tax Code, as amended by R.A. No. 7716, 1 which provides: "(c) Capital goods. A VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes. The application for refund may be made only after the expiration of 2 succeeding quarters following the quarter in which the importation or local purchase was made: Provided , That a VAT-registered person who is just commencing business may apply for refund of input taxes under this paragraph not earlier than 180 days from the date of registration or actual start of business operations, whichever comes later: Provided, however, That the application is filed not later than 2 years from the dates herein prescribed." The foregoing provision has been implemented by Sec. 4.106-1 (b) of RR No. 7-95 (Consolidated Value Added Tax Regulations), which reads as follows: "(b) Capital Goods . Only a VAT-registered person may apply for issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased. The refund shall be allowed to the extent that such input taxes have not been applied against output taxes. The application should be made within two (2) years after the close of taxable quarter when the importation or purchase was made . "Refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are used in VAT taxable business. If it is also used in exempt operations; the input tax refundable shall only be ratable portion corresponding to the taxable operations. "'Capital goods or properties' refer to goods or properties with estimated useful life greater than one year and which are treated as depreciable assets under Section 29 (f), 2 used directly in the production or sale of taxable goods or services." Since, as represented, the importation consisted of capital goods; that, the importation was made in the year 1996; that, TAMI is VAT-registered; and, that TAMI filed its application for refund of its input taxes on the said importation on October 13, 1997 (or within the two-year statute of limitation), all the requisites for entitlement to the said refund, prescribed under the aforequoted law, have been complied with. Moreover, it will be observed from Section 106 (c) of the 1977 Tax Code, as amended by R.A. 7716, that commencement of actual operations of a VAT-registered entity is not a requisite for its entitlement of a refund of its input tax on imported capital goods. 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. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group Footnotes 1. Now, Sec. 112 (B), NIRC, as renumbered by R.A. No. 8424. 2. Now Sec. 34 (F), NIRC, as renumbered by R.A. No. 8424.