FIRST DIVISION
COMMISSIONER OF G.R.
No. 149671
INTERNAL REVENUE,
Petitioner, Present:
Panganiban, CJ,
Chairman,
- versus - Ynares-Santiago,
Austria-Martinez,
Callejo, Sr., and
Chico-Nazario, JJ
SEKISUI JUSHI Promulgated:
PHILIPPINES,
INC.,
Respondent. July 21, 2006
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PANGANIBAN, CJ:
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B |
usiness
enterprises registered with the Philippine Export Zone Authority (PEZA) may
choose between two fiscal incentive schemes:
(1) to pay a five percent preferential tax rate on its gross income and
thus be exempt from all other taxes; or (b) to enjoy an income tax holiday, in
which case it is not exempt from applicable national revenue taxes including
the value-added tax (VAT). The present
respondent, which availed itself of the second tax incentive scheme, has proven
that all its transactions were export sales.
Hence, they should be VAT zero-rated.
Before us
is a Petition for Review[1]
under Rule 45 of the Rules of Court, challenging the
“WHEREFORE, premises considered, the
present petition for review is hereby DENIED DUE COURSE and accordingly
DISMISSED for lack of merit. The
Decision dated
On the
other hand, the dispositive portion of the CTA Decision reads:
“WHEREFORE, the instant Petition for
Review is PARTIALLY GRANTED. [Petitioner] is hereby ordered to refund or
to issue a Tax Credit Certificate in favor of the [Respondent] in the amount of
P4,377,102.26 representing excess input taxes paid for the
period covering January 1 to
The
uncontested[6]
facts are narrated by the CA as follows:
“Respondent is a domestic
corporation duly organized and existing under and by virtue of the laws of the
“Having registered with the
Bureau of Internal Revenue (BIR) as a value-added tax (VAT) taxpayer,
respondent filed its quarterly returns with the BIR, for the period January 1
to June 30, 1997, reflecting therein input taxes in the amount of P4,631,132.70
paid by it in connection with its domestic purchase of capital goods and
services. Said input taxes remained
unutilized since respondent has not engaged in any business activity or
transaction for which it may be liable for output tax and for which said input
taxes may be credited.
“On
“Petitioner filed its
Answer to the petition asseverating that: (1) said claim for tax credit/refund
is subject to administrative routinary investigation by the BIR; (2) respondent
miserably failed to show that the amount claimed as VAT input taxes were
erroneously collected or that the same were properly documented; (3) taxes due
and collected are presumed to have been made in accordance with law, hence, not
refundable; (4) the burden of proof is on the taxpayer to establish his right
to a refund in an action for tax refund.
Failure to discharge such duty is fatal to his action; (5) respondent
should show that it complied with the provisions of Section 204 in relation to
Section 229 of the 1997 Tax Code; and (6) claims for refund are strictly
construed against the taxpayer as it partakes of the nature of a tax
exemption. Hence, petitioner prayed for
the denial of respondent’s petition.”[7]
Ruling of the Court of Tax
Appeals
The CTA
ruled that respondent was entitled to the refund. While the company was registered with the
PEZA as an ecozone and was, as such, exempt from income tax, it availed itself
of the fiscal incentive under Executive Order No. 226. It thereby subjected itself to other internal
revenue taxes like the VAT.[8] The CTA then found that only input taxes
amounting to P4,377,102.26
were duly substantiated by invoices and Official Receipts,[9]
while those amounting to P254,313.43 had not been sufficiently proven and were thus
disallowed.[10]
Ruling of the Court of Appeals
The Court
of Appeals upheld the Decision of the CTA.
According to the CA, respondent had complied with the procedural and
substantive requirements for a claim by 1) submitting receipts, invoices, and
supporting papers as evidence; 2) paying the subject input taxes on capital
goods; 3) not applying the input taxes
against any output tax liability; and 4) filing the claim within the two-year
prescriptive period under Section 229 of the 1997 Tax Code.[11]
Hence, this
Petition.[12]
The Issue
Petitioner
raises this sole issue for our consideration:
“Whether or not respondent
is entitled to the refund or issuance of tax credit certificate in the amount
of P4,377,102.26 as alleged unutilized input taxes paid on domestic
purchase of capital goods and services for the period covering January 1 to
The Petition has no merit.
Sole Issue:
Entitlement
to Refund
To support
the issue raised, petitioner advances the following arguments:
“I. The Court of Appeals erred in not holding
that respondent being registered with the Philippine Economic Zone Authority
(PEZA) as an [e]cozone [e]xport [e]nterprise, its business is not subject to
VAT pursuant to Section 24 of Republic Act No. 7916 in relation to Section 103
(now Sec. 109) of the Tax Code, as amended by R.A. 7716.
“II. The Court of Appeals erred in not holding
that since respondent is EXEMPT from Value-Added Tax (VAT), the capital goods
and services it purchased are considered not used in VAT taxable business,
hence, is not allowed any tax credit/refund on VAT input tax previously paid on
such capital goods pursuant to Section 4.106-1 of Revenue Regulations No. 7-95,
and of input taxes paid on services pursuant to Section 4.103-1 of the same
regulations.
“III. The Court of Appeals erred in not holding
that tax refunds being in the nature of tax exemptions are construed strictissimi
juris against claimants.”[14]
These issues have previously been
addressed by this Court in Commissioner of Internal Revenue v. Toshiba
Information Equipment (Phils.),[15]
Commissioner of Internal Revenue v.
An entity
registered with the PEZA as an ecozone[18]
may be covered by the VAT system.
Section 23 of Republic Act 7916, as amended, gives a PEZA-registered
enterprise the option to choose between two fiscal incentives: a) a five
percent preferential tax rate on its gross income under the said law; or b) an
income tax holiday provided under Executive Order No. 226 or the Omnibus
Investment Code of 1987, as amended. If
the entity avails itself of the five percent preferential tax rate under the
first scheme, it is exempt from all taxes, including the VAT;[19]
under the second, it is exempt from income taxes for a number of years,[20]
but not from
other national internal revenue taxes like the VAT.[21]
The CA and
CTA found that respondent had availed itself of the fiscal incentive of an
income tax holiday under Executive Order No. 226. This Court respects that factual
finding. Absent a sufficient showing of
error, findings of the CTA as affirmed by the CA are deemed conclusive.[22] Moreover, a perusal of the pleadings and
supporting documents before us indicates that when it registered as a
VAT-entity -- a fact admitted by the parties -- respondent intended to avail
itself of the income tax holiday.[23] Verily, being a question of fact, the type of
fiscal incentive chosen cannot be a subject of this Petition, which should
raise only questions of law.
By availing
itself of the income tax holiday, respondent became subject to the VAT. It correctly registered as a VAT taxpayer,
because its transactions were not VAT-exempt.
Notably,
while an ecozone is geographically within the
Notwithstanding
the fact that its purchases should have been zero-rated, respondent was able to
prove that it had paid input taxes in the amount of P4,377,102.26. The CTA found, and the CA affirmed, that this
amount was substantially supported by invoices and Official Receipts;[29]
and petitioner has not challenged the computation. Accordingly, this Court upholds the findings
of the CTA and the CA.
On the other hand, since 100 percent
of the products of respondent are exported,[30]
all its transactions are deemed export sales and are thus VAT zero-rated. It has been shown that respondent has no
output tax with which it could offset its paid input tax.[31]
Since the subject input tax it paid for
its domestic purchases of capital goods and services remained unutilized, it can
claim a refund for the input VAT previously charged by its suppliers.[32] The amount of P4,377,102.26 is excess
input taxes that justify a refund.
WHEREFORE, the
Petition is DENIED and the assailed Decision AFFIRMED. No costs, as petitioner is a
government agency.
SO ORDERED.
ARTEMIO V. PANGANIBAN
Chief
Justice
First
Division, Chairman
W E
C O N C U R:
Associate Justice
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII
of the Constitution, I certify that the conclusions in the above Decision were reached
in consultation before the case was assigned to the writer of the opinion of
the Court’s Division.
ARTEMIO V. PANGANIBAN
Chief
Justice
[1] Rollo, pp. 8-18.
[2]
[3]
[4] Assailed CA Decision, p. 6; rollo, p. 27.
[5] CTA Decision, p. 11; rollo, p. 38.
[6] The Petition quoted them in full.
[7] Assailed CA Decision, pp. 1-2; rollo, pp. 22-23.
[8] CTA Decision, p. 10; id. at 37.
[9]
[10]
[11] Assailed CA Decision, p. 5; rollo, p. 26.
[12]
To resolve old cases, the Court created the Committee on Zero Backlog
of Cases on
[13] Petition, p. 4; rollo, p. 11.
[14]
[15]
466 SCRA 211,
[16]
451 SCRA 447,
[17]
451 SCRA 132,
[18]
An ecozone refers to a selected
area that is or has a potential to be developed as agro-industrial, industrial,
tourist/recreational, commercial, banking, investment and financial centers.
[19]
Commissioner of Internal Revenue v. Toshiba Information Equipment
(Phils.), Inc., supra note 15; Commissioner
of Internal Revenue v. Cebu Toyo Corporation, supra note 16.
[20] The income tax holiday is for a period of 6 years for pioneer enterprises and 4 years for non-pioneer enterprises. (Executive Order No. 226, as amended, Art. 39).
[21] Supra note 19.
[22] Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.), Inc., supra note 15.
While Republic Act No. 9282, elevated the CTA to the level of the CA, the rule stands, because findings of trial courts -- for which specialization is conferred -- are accorded respect and finality when supported by substantial evidence.
[23] CTA Decision, p. 6; rollo, p. 33.
[24] Republic Act No. 7916, as amended, Sec. 8.
[25]
Commissioner of Internal Revenue v. Seagate Technology (
[26] Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.), supra note 15.
[27]
[28]
Tax
Code, Sec. 106(A)(2)(a)(5).
[29] CTA Decision, pp. 6 and 11; rollo, pp. 33 and 38.
[30]
[31] Assailed CA Decision, p. 5; id. at 26.
[32]
Commissioner of Internal Revenue v. Seagate Technology (