SECOND DIVISION
|
COMMISSIONER
OF INTERNAL REVENUE, Petitioner, -
versus - BENGUET
CORPORATION, Respondent. |
G.R. No. 145559
Present:
PUNO, J., Chairperson, SANDOVAL-GUTIERREZ, AZCUNA, and GARCIA, JJ. Promulgated: July 14, 2006 |
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D E C I S I O N
GARCIA, J.:
In this petition for review under
Rule 45 of the Rules of Court, petitioner Commissioner of Internal Revenue
seeks the reversal and setting aside of the following Resolutions of the Court
of Appeals (CA) in CA-G.R. SP No. 38413,
to wit:
1.
Resolution dated May 10, 2000[1] insofar as it ordered petitioner to issue a tax
credit to respondent Benguet Corporation in the amount of P49,749,223.31
representing input VAT/tax attributable to its sales of gold to the Central
Bank (now Bangko Sentral ng Pilipinas or BSP) covering the period from January
1, 1988 to July 31, 1989; and
2.
Resolution dated
The facts, as narrated by the CA in
its basic Resolution of
[Respondent]
is a domestic corporation engaged in mining business, specifically the
exploration, development and operation of mining properties for purposes of
commercial production and the marketing of mine products. It is a
VAT-registered enterprise, with VAT Registration No. 31-0-000027 issued on
On August 28, 1988, then Deputy
Commissioner of Internal Revenue Eufracio D. Santos issued VAT Ruling No.
378-88 which declared that the sale of gold to the Central Bank is considered
an export sale and therefore subject to VAT at 0% rate. On December 14, 1988,
then Deputy Commissioner Santos also issued Revenue Memorandum Circular (RMC)
No. 59-88, again declaring that the sale of gold by a VAT-registered taxpayer
to the Central Bank is subject to the zero-rate VAT. No less than five Rulings
were subsequently issued by [petitioner] from 1988 to 1990 reiterating and
confirming its position that the sale of gold by a VAT-registered taxpayer to
the Central Bank is subject to the zero-rate VAT.
As a corollary, and in reliance, of
the foregoing issuances, [respondent], during the six (6) taxable quarters in
question covering the period January 1, 1988 to July 31, 1989, sold gold to the
Central Bank and treated these sales as zero-rated – that is, subject to the 0%
VAT. During the same period, [respondent] thus incurred input taxes
attributable to said sales to the Central Bank. Consequently, [respondent]
filed with the Commissioner of Internal Revenue applications for the issuance
of Tax Credit Certificates for input VAT Credits attributable to its export
sales - that is, inclusive of direct export sales and sale of gold to the
Central Bank corresponding to the same taxable periods, to wit:
AMOUNT
OF TAX CREDIT APPLIED FOR TAXABLE
PERIOD
P34,449,817.71
P30,382,666.86
P30,146,774.47
P13,467,663.41
P 7,030,261.29
P18,263,960.28
(CTA
Decision dated March 23, 1995; Pages 83-86, rollo)
Meanwhile, on
On the basis of the aforequoted BIR
Issuances, [petitioner] thus treated [respondent’s] sales of gold to the
Central Bank as domestic sales subject to 10% VAT but allowed [respondent] a
total tax credit of only P81,991,810.91 which corresponded to VAT input
taxes attributable to its direct export sales (CTA Decision dated March 23,
1995; Page 87). Notwithstanding this finding of the [petitioner],
[respondent] was not refunded the said amounts of tax credit claimed. Thus, to
suspend the running of the two-year prescriptive period (Sec. 106, NIRC) for
claiming refunds or tax credits, [respondent] instituted x x x consolidated Petitions for Review with the
Court of Tax Appeals, praying for the issuance of “Tax Credit Certificates” for the following input VAT
credits attributable to export sales transacted during the taxable quarters or
periods in question, to wit:
CTA Case
Number Amount of Tax Credit Applied for Taxable
Period
4429 P64,832,374.67
4495 P43,614,437.88 01AUG88to31JAN89
4575 P23,294,221.77
P131,741,034.22
= TOTAL
Significantly, the total amount of P131,741,034.22,
as hereinabove computed, corresponds to the total input VAT credits
attributable to export sales made by [respondent] during the taxable periods
set forth and therefore, represents a combination of input tax attributable to
both (1) direct export sales and (2) sales of gold to the Central Bank. (Words
in brackets added).[3]
In a decision dated P131,741,034.22. The tax court held
that the alleged prejudice to respondent as a result of the retroactive
application of VAT Ruling No. 008-92 issued on January 23, 1992 to the latter’s
gold sales to the Central Bank (CB) from January 1, 1988 to July 31, 1989 is
merely speculative and not actual and imminent so as to proscribe said Ruling’s
retroactivity. The CTA further held that
respondent would not be unduly prejudiced considering that VAT Ruling No. 59-92
which mandates the retroactivity of VAT Ruling No. 008-92 likewise provides for
alternative remedies for the recovery of the input VAT.
Its motion for reconsideration having
been denied by the tax court, respondent appealed to the CA whereat its
recourse was docketed as CA-G.R. SP No.
38413.
At first, the CA, in a decision dated
However, upon respondent’s motion for
reconsideration, the CA, in the herein assailed basic Resolution dated May 10, 2000, reversed itself by setting aside its
earlier decision of May 30, 1996 and ordering herein petitioner to issue in
respondent’s favor a tax credit in the amount of P131,741,034.22, to
wit:
IN
THE LIGHT OF ALL THE FOREGOING,
[respondent’s] Motion for Reconsideration, x x x as supplemented, is GRANTED. The Decision of this Court, dated P131,741,034.22.
SO ORDERED.
In its reversal action, the CA ruled that
the tax credit in the total amount of P131,741,034.22 consists of (1) P81,991,810.91,
representing input VAT credits attributable to direct export sales subject to
0% VAT, and (2) P49,749,223.31, representing input VAT attributable to
sales of gold to the CB which were subject to 0% when said sales were made in
1988 and 1989. In effect, the CA rejected
the retroactive application of VAT Ruling No. 008-92 to the subject gold sales
of respondent because of the resulting prejudice to the latter despite the
existence of alternative modes for the recovery of the input VAT.
This time, it was petitioner who
moved for a reconsideration but his motion was denied by the CA in its subsequent
Resolution of
Hence, petitioner’s present recourse
assailing only that portion of the CA Resolution of May 10, 2000 allowing
respondent the amount of P49,749,223.31 as tax credit corresponding to
the input VAT attributable to its sales of gold to the CB for the period
January 1, 1988 to July 31, 1989. It is
petitioner’s sole contention that the CA erred in rejecting the retroactive
application of VAT Ruling No. 008-92, dated
Initially, the Court, in its
Resolution of
The petition must have to fall.
We start with the well-entrenched
rule that rulings and circulars, rules and regulations, promulgated by the
Commissioner of Internal Revenue, would have no retroactive application if to
so apply them would be prejudicial to the taxpayers.[8]
And this is as it should be, for the
Tax Code, specifically Section 246 thereof, is explicit that:
x
x x Any revocation, modification, or reversal of
any rules and regulations promulgated in accordance with the preceding section
or any of the rulings or circulars promulgated by the Commissioner of Internal
Revenue shall not be given retroactive application if the revocation,
modification, or reversal will be prejudicial to the taxpayers except in the
following cases: a) where the taxpayer deliberately misstates or omits material
facts from his return or in any document required of him by the Bureau of
Internal Revenue; b) where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on which the ruling is
based; or c) where the taxpayer acted in bad faith.
There is no question, therefore, as
to the prohibition against the retroactive application of the revocation,
modification or reversal, as the case maybe, of previously established Bureau
on Internal Revenue (BIR) Rulings when the taxpayer’s interest would be
prejudiced thereby. But even if
prejudicial to a taxpayer, retroactive application is still allowed where: (a)
a taxpayer deliberately misstates or omits material facts from his return or
any document required by the BIR; (b) where subsequent facts gathered by the
BIR are materially different from which the ruling is based; and (c) where the
taxpayer acted in bad faith.
As admittedly, respondent’s case does
not fall under any of the above exceptions, what is crucial to determine then is
whether the retroactive application of VAT Ruling No. 008-92 would be
prejudicial to respondent Benguet Corporation.
The Court resolves the question in
the affirmative.
Input VAT or input tax
represents the actual payments, costs and expenses incurred by a VAT-registered
taxpayer in connection with his purchase of goods and services. Thus, “input tax” means the value-added tax
paid by a VAT-registered person/entity in the course of his/its trade or
business on the importation of goods or local purchases of goods or services
from a VAT-registered person.[9]
On
the other hand, when that person or entity sells his/its products or services,
the VAT-registered taxpayer generally becomes liable for 10% of the selling
price as output VAT or
output tax.[10] Hence, “output tax” is the value-added tax on
the sale of taxable goods or services by any person registered or required to
register under Section 107 of the (old) Tax Code.[11]
The
VAT system of taxation allows a VAT-registered taxpayer to recover its input
VAT either by (1) passing on the 10% output VAT on the gross selling price or
gross receipts, as the case may be, to its buyers, or (2) if the input tax is
attributable to the purchase of capital goods or to zero-rated sales, by filing
a claim for a refund or tax credit with the BIR.[12]
Simply stated, a taxpayer subject to
10% output VAT on its sales of goods and services may recover its input VAT
costs by passing on said costs as output VAT to its buyers of goods and
services but it cannot claim the same as a refund or tax credit, while a
taxpayer subject to 0% on its sales of goods and services may only recover its
input VAT costs by filing a refund or tax credit with the BIR.
Here, the claimed tax credit of input
tax amounting to P49,749,223.31 represents the costs or expenses
incurred by respondent in connection with its gold production. Relying on BIR Rulings, specifically VAT
Ruling No. 378-88, dated August 28, 1988, and VAT Ruling No. 59-88, dated
December 14, 1988, both of which declared that sales of gold to the CB are
considered export sales subject to 0%, respondent sold gold to the CB from January 1, 1988 to
July 31, 1989 without passing on to the latter its input VAT costs, obviously
intending to obtain a refund or credit thereof from the BIR at the end of the
taxable period. However, by the time
respondent applied for refund/credit of its input VAT costs, VAT Ruling No.
008-92 dated January 23, 1992, treating sales of gold to the CB as domestic
sales subject to 10% VAT, and VAT Ruling No. 059-92 dated April 28, 1992,
retroactively applying said VAT Ruling No. 008-92 to such sales made from
January 1, 1988 onwards, were issued. As
a result, respondent’s application for refund/credit was denied and, as
likewise found by the CA, it was even subsequently assessed deficiency output
VAT on P252,283,241.95
for the year 1988, and P244,318,148.56 for the year 1989.[13]
Clearly, from the foregoing, the prejudice
to respondent by the retroactive application of VAT Ruling No. 008-92 to its
sales of gold to the CB from
Verily, by reason of the denial of
its claim for refund/credit, respondent has been precluded from recovering its
input VAT costs attributable to its sales of gold to the CB during the period
mentioned, for the following reasons:
First, because respondent could not
pass on to the CB the 10% output VAT which would be retroactively imposed on
said transactions, not having passed the same at the time the sales were made
on the assumption that said sales are subject to 0%, and, hence, maybe refunded
or credited later. And second, because respondent
could not claim the input VAT costs as a refund/credit as it has been prevented
such option, the sales in question having been retroactively subjected to 10%
VAT, ergo limiting recovery of said
costs to the application of the same against the output tax which will result
therefrom.
Indeed, respondent stands to suffer
substantial economic prejudice by the retroactive application of the VAT Ruling
in question.
But petitioner maintains otherwise,
arguing that respondent will not be unduly prejudiced since there are still
other available remedies for it to recover its input VAT costs. Said remedies, so petitioner points out, are
for respondent to either (1) use said input taxes in paying its output taxes in
connection with its other sales transactions which are subject to the 10% VAT
or (2) if there are no other sales transactions subject to 10% VAT, treat the
input VAT as cost and deduct the same from income for income tax purposes.
We
are not persuaded.
The
first remedy cannot be applied in this case.
As correctly found by the CA, respondent has clearly shown that it has no
“other transactions” subject to 10% VAT, and petitioner has failed to prove the
existence of such “other transactions” against which to set off respondent’s
input VAT.[14]
Anent
the second remedy, prejudice will still, indubitably, result because treating
the input VAT as an income tax deductible expense will yield only a partial and
not full financial benefit of having the input VAT refunded or used as a tax
credit. We quote with approval the CA’s
observations in this respect, thus:
x x x even assuming that input VAT
is still available for deduction, [respondent] still suffers prejudice. As a zero-rated taxpayer (pursuant to the
1988 to 1990 BIR issuances), [respondent] could have claimed a cash refund or
tax credit of the input VAT in the amount of P49,749,223.31. If it had been allowed a cash refund or tax
credit, it could have used the full amount thereof to pay its other tax
obligations (or, in the case of a cash refund, to fund its operations). With VAT Ruling No. 059-92, [respondent] is
precluded from claiming the cash refund or tax credit and is limited to the
so-called remedy of deducting the input VAT from gross income. But a cash refund or tax credit is not the
same as a tax deduction. A tax deduction
has less benefits than a tax credit.
Consider the following differences;
2.42.1 A tax credit may be used to pay any national internal revenue tax
liability. Section 104(b) of the Tax
Code states;
“(b) Excess
output or input tax. – xxx Any input tax attributable to xxx 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 106.”
On the other hand, a tax deduction
may be used only against gross income for purposes of income tax. A tax deduction is not allowed against other
internal revenue taxes such as excise taxes, documentary stamp taxes, and
output VAT.
2.42.2 In terms of income tax, a tax deduction is only an expense item in computing income tax liabilities (Sections 27 to 29, Tax Code) while a tax credit is a direct credit against final income tax due (Section 106[b], Tax Code). This is illustrated in the example below:
Assume
that in 1988, respondent had a gross income of P1,000,000,000 and deductible
expenses in general (such as salaries, utilities, transportation, fuel and
costs of sale) of P500,000,000.
Assume also that [respondent] had input VAT of P131,741,034.22,
the amount being claimed in the instant case.
[Respondent’s] income tax liability, depending on whether it utilized
the input tax as tax credit or tax deduction, would be as follows:
a. Tax credit
Gross
Income (Section 28, Tax Code) P1,000,000,000.00
Deductions (Section 29, Tax Code) ( 500,000,000.00)
Taxable
Income (Section 27, Tax Code) P
500,000.000.00
Tax rate (Section 24[a], Tax Code) x 35%
Tax
Payable P
175,000,000.00
Tax
Credit (131,741,034.22)
Tax
due P 43,258,965.78
b. Tax deduction
Gross
income (Section 28, Tax Code) P1,000,000,000.00
Deductions
General
(Section 29, Tax Code) P500,000,000.00
Input VAT (VAT Ruling No. 059-92) P131,741,034.22P 631,741,034.22)
Taxable
income (Section 27, Tax Code) P
368,258,966.78
Tax rate (Section 24[a], Tax Code) x 35%
Tax
payable P
128,890,638.02
Tax Credit -
Tax due ______________
P
128,890,638.02
Thus, if the input VAT of P131,741,034.22
were to be credited against the income tax due, the income tax payable is only P43,258,965.78. On the other hand, if the input VAT were to
be deducted from gross income before arriving at the net income, the income tax
payable is P128,890,638.02. This
is almost three (3) times the income tax payable if the input VAT were to be
deducted from the income tax payable.
As can be seen from above, there is a substantial difference between a tax credit and a tax deduction. A tax credit reduces tax liability while a tax deduction only reduces taxable income (emphasis supplied).
A tax credit of input VAT fully
utilizes the entire amount of P131,741,034.22, since tax liability is
reduced by the said amount. A tax
deduction is not fully utilized because the savings is only 35% or P46,109,361.98. In the above case, therefore, the use of
input VAT as a tax deduction results in a loss of 65% of the input VAT, or P85,631,672.24,
which [respondent] could have otherwise fully utilized as a tax credit.
x x x x x x x x x
x
x x the deduction of an expense under Section 29
of the Tax Code is not tantamount to a recovery of the expense. The deduction of a bad debt, for instance,
does not result in the recovery of the debt.
On the other hand, a tax credit, because it can be fully utilized to
reduce tax liability, is as good as cash and is thus effectively a full
recovery of the input VAT cost.[15] (Emphasis in the original; Words in brackets
supplied).
We may add that the prejudice which
befell respondent is all the more highlighted by the fact that it has been
issued assessments for deficiency output VAT on the basis of the same sales of
gold to the CB.
On a final note, the Court is fully
cognizant of the well-entrenched principle that the Government is not estopped
from collecting taxes because of mistakes or errors on the part of its agents.[16] But, like other principles of law, this also
admits of exceptions in the interest of justice and fair play, as where
injustice will result to the taxpayer.[17]
As this Court has said in ABS-CBN Broadcasting Corporation v. Court of
Tax Appeals and the Commissioner of Internal Revenue:[18]
The insertion of Sec. 338-A [now Sec. 246]
into the National Internal Revenue Code
x x x
is indicative of legislative intention to support the principle of good
faith. In fact, in the United States
x x
x it has been held that the
Commissioner or Collector 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. [Word in brackets supplied].
Here, when respondent sold gold to
the CB, it relied on the formal assurances of the BIR, i.e., VAT Ruling No. 378-88 dated
Accordingly, we find that the CA did
not commit a reversible error in holding that VAT Ruling No. 008-92 cannot be
retroactively applied to respondent’s sales of gold to the CB during the period
January 1, 1988 to July 31, 1989, hence, it is entitled to tax credit in the amount
of P49,749,223.31 attributable to
such sales.
IN VIEW WHEREOF, the instant petition
is DENIED and the assailed CA
Resolutions are AFFIRMED.
No costs.
SO ORDERED.
CANCIO C. GARCIA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Associate Justice
Chairperson
|
ANGELINA SANDOVAL-GUTIERREZ Associate Justice |
RENATO C. CORONA Associate Justice |
ADOLFO S. AZCUNA
Associate Justice
A T T E
S T A T I O N
I attest 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.
REYNATO S. PUNO
Associate Justice
Chairperson, Second Division
C E R T I F I C A T I O N
Pursuant to Article VIII, Section 13
of the Constitution, and the Division Chairperson's Attestation, it is hereby certified
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.
ARTEMIO V. PANGANIBAN
Chief Justice
[1] Penned by Associate Justice Romeo
J. Callejo, Sr., now a member of this Court, and concurred in by Associate Justices
Godardo A. Jacinto (ret.) and Candido V. Rivera (ret.); Rollo, pp. 20-34.
[2] Rollo, pp. 35-36.
[3] CA Resolution; Rollo, pp. 21-24.
[4] Rollo, pp. 51-64.
[5] Penned by Associate Justice Pacita
Canizares-Nye (ret.), with former Associate Justice Pedro Ramirez (ret.) and
former CA Associate Justice Romeo J. Callejo, Jr., concurring; Rollo, pp.
86-94.
[6] Rollo, pp. 95-96.
[7] Rollo, p. 173.
[8] CIR v. Court of Appeals, Court of Tax Appeals & Alhambra Industries,
Inc., G.R. No. 117982, February 6,
1997, 267 SCRA 557, 564; CIR v.
Telefunken Semiconductor Phils., Inc., et al., G.R. No. 103915, October 23,
1995, 249 SCRA 401, 407; CIR v. Burroughs
Limited and CTA, G.R. No. L-66653,
[9] Section 104 (a) of the (old) Tax
Code, now Section 110 (A).
[10] Sec. 100 (a) of the (old) Tax Code. Said provision specifically reads: “Sec. 100 Value-added tax on sales 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 x x x”; now Sec. 106 (A).
[11] Section 104 (a) of the (old) Tax
Code, now Section 110 (A).
[12] Sec.
104 (b) of the (old) Tax Code. Said provision specifically reads:
(b) Excess Output
or Input Tax. – x x x Any input tax
attributable to the purchase of capital goods or 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 Sec. 106; now Sec. 110 (B).
[13]
[14] CA Resolution,
[15] Rollo, pp. 30-33.
[16] CIR
v. Court of Appeals, Court of Tax Appeals and Alhambra Industries, Inc., supra
at p. 565.
[17] Ibid.
[18] Supra at pp. 151-152.