[G.R. NO. 149073 : February 16, 2005]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. CEBU TOYO CORPORATION, Respondent.
D E C I S I O N
In its Decision1 dated July 6, 2001, the Court of Appeals, in CA-G.R. SP No. 60304, affirmed the Resolutions dated May 31, 20002 and August 2, 2000,3 of the Court of Tax Appeals (CTA) ordering the Commissioner of Internal Revenue (CIR) to allow a partial refund or, alternatively, to issue a tax credit certificate in favor of Cebu Toyo Corporation in the sum of
P2,158,714.46, representing the unutilized input value-added tax (VAT) payments.
The facts, as culled from the records, are as follows:
Respondent Cebu Toyo Corporation is a domestic corporation engaged in the manufacture of lenses and various optical components used in television sets, cameras, compact discs and other similar devices. Its principal office is located at the Mactan Export Processing Zone (MEPZ) in Lapu-Lapu City, Cebu. It is a subsidiary of Toyo Lens Corporation, a non-resident corporation organized under the laws of Japan. Respondent is a zone export enterprise registered with the Philippine Economic Zone Authority (PEZA), pursuant to the provisions of Presidential Decree No. 66.4 It is also registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer.5
As an export enterprise, respondent sells 80% of its products to its mother corporation, the Japan-based Toyo Lens Corporation, pursuant to an Agreement of Offsetting. The rest are sold to various enterprises doing business in the MEPZ. Inasmuch as both sales are considered export sales subject to Value-Added Tax (VAT) at 0% rate under Section 106(A)(2)(a)6 of the National Internal Revenue Code, as amended, respondent filed its quarterly VAT returns from April 1, 1996 to December 31, 1997 showing a total input VAT of
On March 30, 1998, respondent filed with the Tax and Revenue Group of the One-Stop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance, an application for tax credit/refund of VAT paid for the period April 1, 1996 to December 31, 1997 amounting to
P4,439,827.21 representing excess VAT input payments.
Respondent, however, did not bother to wait for the Resolution of its claim by the CIR. Instead, on June 26, 1998, it filed a Petition for Review with the CTA to toll the running of the two-year prescriptive period pursuant to Section 2307 of the Tax Code.
Before the CTA, the respondent posits that as a VAT-registered exporter of goods, it is subject to VAT at the rate of 0% on its export sales that do not result in any output tax. Hence, the unutilized VAT input taxes on its purchases of goods and services related to such zero-rated activities are available as tax credits or refunds.
The petitioner's position is that respondent was not entitled to a refund or tax credit since: (1) it failed to show that the tax was erroneously or illegally collected; (2) the taxes paid and collected are presumed to have been made in accordance with law; and (3) claims for refund are strictly construed against the claimant as these partake of the nature of tax exemption.
Initially, the CTA denied the petition for insufficiency of evidence.8 The tax court sustained respondent's argument that it was a VAT-registered entity. It also found that the petition was timely, as it was filed within the prescription period. The CTA also ruled that the respondent's sales to Toyo Lens Corporation and to certain establishments in the Mactan Export Processing Zone were export sales subject to VAT at 0% rate. It found that the input VAT covered by respondent's claim was not applied against any output VAT. However, the tax court decreed that the petition should nonetheless be denied because of the respondent's failure to present documentary evidence to show that there were foreign currency exchange proceeds from its export sales. The CTA also observed that respondent failed to submit the approval by Bangko Sentral ng Pilipinas (BSP) of its Agreement of Offsetting with Toyo Lens Corporation and the certification of constructive inward remittance.
Undaunted, respondent filed on February 21, 2000, a Motion for Reconsideration arguing that: (1) proof of its inward remittance was not required by law; (2) BSP and BIR regulations do not require BSP approval on its Agreement of Offsetting nor do they require certification on the amount constructively remitted; (3) it was not legally required to prove foreign currency payments on the remaining sales to MEPZ enterprises; and (4) it had complied with the substantiation requirements under Section 106(A)(2)(a) of the Tax Code. Hence, it was entitled to a refund of unutilized VAT input tax.
On May 31, 2000, the tax court partly granted the motion for reconsideration in a Resolution, to wit:
WHEREFORE, finding the motion of petitioner to be meritorious, the same is hereby partially granted. Accordingly, the Court hereby MODIFIES its decision in the above-entitled case, the dispositive portion of which shall now read as follows:
WHEREFORE, finding the Petition for Review partially meritorious, respondent is hereby ORDERED to REFUND or, in the alternative, to ISSUE a TAX CREDIT CERTIFICATE in favor of Petitioner in the amount of
P2,158,714.46 representing unutilized input tax payments.
In granting partial reconsideration, the tax court found that there was no need for BSP approval of the Agreement of Offsetting since the same may be categorized as an inter-company open account offset arrangement. Hence, the respondent need not present proof of foreign currency exchange proceeds from its sales to MEPZ enterprises pursuant to Section 106(A)(2)(a)10 of the Tax Code. However, the CTA stressed that respondent must still prove that there was an actual offsetting of accounts to prove that constructive foreign currency exchange proceeds were inwardly remitted as required under Section 106(A)(2)(a).
The CTA found that only the amount of
Y274,043,858.00 covering respondent's sales to Toyo Lens Corporation and purchases from said mother company for the period August 7, 1996 to August 26, 1997 were actually offset against respondent's related accounts receivable and accounts payable as shown by the Agreement for Offsetting dated August 30, 1997. Resort to the respondent's Accounts Receivable and Accounts Payable subsidiary ledgers corroborated the amount. The tax court also found that out of the total export sales for the period April 1, 1996 to December 31, 1997 amounting to Y700,654,606.15, respondent's sales to MEPZ enterprises amounted only to Y136,473,908.05 of said total. Thus, allocating the input taxes supported by receipts to the export sales, the CTA determined that the refund/credit amounted to only P2,158,714.46,11 computed as follows:
Total Input Taxes Claimed by respondent P4,439,827.21 Less: Exceptions made by SGV a.) 1996 P651,256.17 b.) 1997 104,129.13 755,385.30 Validly Supported Input Taxes P3,684,441.91 Allocation: Verified Zero-Rated Sales a.) Toyo Lens Corporation Y274,043,858.00 b.) MEPZ Enterprises 136,473,908.05 Y410,517,766.05 Divided by Total Zero-Rated Sales Y700,654,606.15 Quotient 0.5859 Multiply by Allowable Input Tax P3,684,441.91 Amount Refundable P2,158,714.12
On June 21, 2000, petitioner Commissioner filed a Motion for Reconsideration arguing that respondent was not entitled to a refund because as a PEZA-registered enterprise, it was not subject to VAT pursuant to Section 2413 of Republic Act No. 7916,14 as amended by Rep. Act No. 8748.15 Thus, since respondent was not subject to VAT, the Commissioner contended that the capital goods it purchased must be deemed not used in VAT taxable business and therefore it was not entitled to refund of input taxes on such capital goods pursuant to Section 4.106-1 of Revenue Regulations No. 7-95.16
Petitioner filed a Motion for Reconsideration on June 21, 2000 based on the following theories: (1) that respondent being registered with the PEZA as an ecozone enterprise is not subject to VAT pursuant to Sec. 24 of Rep. Act No. 7916; and (2) since respondent's business is not subject to VAT, the capital goods it purchased are considered not used in a VAT taxable business and therefore is not entitled to a refund of input taxes.17
The respondent opposed the Commissioner's Motion for Reconsideration and prayed that the CTA resolution be modified so as to grant it the entire amount of tax refund or credit it was seeking.
On August 2, 2000, the Court of Tax Appeals denied the petitioner's motion for reconsideration. It held that the grounds relied upon were only raised for the first time and that Section 24 of Rep. Act No. 7916 was not applicable since respondent has availed of the income tax holiday incentive under Executive Order No. 226 or the Omnibus Investment Code of 1987 pursuant to Section 2318 of Rep. Act No. 7916. The tax court pointed out that E.O. No. 226 granted PEZA-registered enterprises an exemption from payment of income taxes for 4 or 6 years depending on whether the registration was as a pioneer or as a non-pioneer enterprise, but subject to other national taxes including VAT.
The petitioner then filed a Petition for Review with the Court of Appeals (CA), docketed as CA-G.R. SP No. 60304, praying for the reversal of the CTA Resolutions dated May 31, 2000 and August 2, 2000, and reiterating its claim that respondent is not entitled to a refund of input taxes since it is VAT-exempt.
On July 6, 2001, the appellate court decided CA-G.R. SP No. 60304 in respondent's favor, thus:
WHEREFORE, finding no merit in the petition, this Court DISMISSES it and AFFIRMS the Resolutions dated May 31, 2000 and August 2, 2000 . . . of the Court of Tax Appeals.
The Court of Appeals found no reason to set aside the conclusions of the Court of Tax Appeals. The appellate court held as untenable herein petitioner's argument that respondent is not entitled to a refund because it is VAT-exempt since the evidence showed that it is a VAT-registered enterprise subject to VAT at the rate of 0%. It agreed with the ruling of the tax court that respondent had two options under Section 23 of Rep. Act No. 7916, namely: (1) to avail of an income tax holiday under E.O. No. 226 and be subject to VAT at the rate of 0%; or (2) to avail of the 5% preferential tax under P.D. No. 66 and enjoy VAT exemption. Since respondent availed of the incentives under E.O. No. 226, then the 0% VAT rate would be applicable to it and any unutilized input VAT should be refunded to respondent upon proper application with and substantiation by the BIR.Ï‚Î·Î±Ã±rÎ¿blÎµÅ¡ Î½Î¹râ€ Ï…Î±l lÎ±Ï‰ lÎ¹brÎ±rÃ¿
Hence, the instant Petition for Review now before us, with herein petitioner alleging that:
I. RESPONDENT BEING REGISTERED WITH THE PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA) AS AN ECOZONE EXPORT ENTERPRISE, ITS BUSINESS IS NOT SUBJECT TO VAT PURSUANT TO SECTION 24 OF REPUBLIC ACT NO. 7916 IN RELATION TO SECTION 103 OF THE TAX CODE, AS AMENDED BY RA NO. 7716.
II. SINCE RESPONDENT'S BUSINESS IS NOT SUBJECT TO VAT, IT IS NOT ENTITLED TO REFUND OF INPUT TAXES PURSUANT TO SECTION 4.103-1 OF REVENUE REGULATIONS NO. 7-95.20
In our view, the main issue for our resolution is whether the Court of Appeals erred in affirming the Court of Tax Appeals resolution granting a refund in the amount of
P2,158,714.46 representing unutilized input VAT on goods and services for the period April 1, 1996 to December 31, 1997.
Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that respondent Cebu Toyo Corporation, as a PEZA-registered enterprise, is exempt from national and local taxes, including VAT, under Section 24 of Rep. Act No. 7916 and Section 10921 of the NIRC. Thus, they contend that respondent Cebu Toyo Corporation is not entitled to any refund or credit on input taxes it previously paid as provided under Section 4.103-122 of Revenue Regulations No. 7-95, notwithstanding its registration as a VAT taxpayer. For petitioner claims that said registration was erroneous and did not confer upon the respondent any right to claim recognition of the input tax credit.
The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years from August 7, 1995 making it exempt from income tax but not from other taxes such as VAT. Hence, according to respondent, its export sales are not exempt from VAT, contrary to petitioner's claim, but its export sales is subject to 0% VAT. Moreover, it argues that it was able to establish through a report certified by an independent Certified Public Accountant that the input taxes it incurred from April 1, 1996 to December 31, 1997 were directly attributable to its export sales. Since it did not have any output tax against which said input taxes may be offset, it had the option to file a claim for refund/tax credit of its unutilized input taxes.
Considering the submission of the parties and the evidence on record, we find the petition bereft of merit.
Petitioner's contention that respondent is not entitled to refund for being exempt from VAT is untenable. This argument turns a blind eye to the fiscal incentives granted to PEZA-registered enterprises under Section 23 of Rep. Act No. 7916. Note that under said statute, the respondent had two options with respect to its tax burden. It could avail of an income tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from income taxes for a number of years but not from other internal revenue taxes such as VAT; or it could avail of the tax exemptions on all taxes, including VAT under P.D. No. 66 and pay only the preferential tax rate of 5% under Rep. Act No. 7916. Both the Court of Appeals and the Court of Tax Appeals found that respondent availed of the income tax holiday for four (4) years starting from August 7, 1995, as clearly reflected in its 1996 and 1997 Annual Corporate Income Tax Returns, where respondent specified that it was availing of the tax relief under E.O. No. 226. Hence, respondent is not exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt transactions.
Taxable transactions are those transactions which are subject to value-added tax either at the rate of ten percent (10%) or zero percent (0%). In taxable transactions, the seller shall be entitled to tax credit for the value-added tax paid on purchases and leases of goods, properties or services.23
An exemption means that the sale of goods, properties or services and the use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid. The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the said transaction is not subject to VAT. Thus, a VAT-registered purchaser of goods, properties or services that are VAT-exempt, is not entitled to any input tax on such purchases despite the issuance of a VAT invoice or receipt.24
Now, having determined that respondent is engaged in taxable transactions subject to VAT, let us then proceed to determine whether it is subject to 10% or zero (0%) rate of VAT. To begin with, it must be recalled that generally, sale of goods and supply of services performed in the Philippines are taxable at the rate of 10%. However, export sales, or sales outside the Philippines, shall be subject to value-added tax at 0% if made by a VAT-registered person.25 Under the value-added tax system, a zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchase of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund.26 Ï‚Î·Î±Ã±rÎ¿blÎµÅ¡ Î½Î¹râ€ Ï…Î±l lÎ±Ï‰ lÎ¹brÎ±rÃ¿
In principle, the purpose of applying a zero percent (0%) rate on a taxable transaction is to exempt the transaction completely from VAT previously collected on inputs. It is thus the only true way to ensure that goods are provided free of VAT. While the zero rating and the exemption are computationally the same, they actually differ in several aspects, to wit:
(a) A zero-rated sale is a taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax;
(b) The input VAT on the purchases of a VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt.
(c) Persons engaged in transactions which are zero-rated, being subject to VAT, are required to register while registration is optional for VAT-exempt persons.
In this case, it is undisputed that respondent is engaged in the export business and is registered as a VAT taxpayer per Certificate of Registration of the BIR.27 Further, the records show that the respondent is subject to VAT as it availed of the income tax holiday under E.O. No. 226. Perforce, respondent is subject to VAT at 0% rate and is entitled to a refund or credit of the unutilized input taxes, which the Court of Tax Appeals computed at
P2,158,714.46, but which we find after recomputation'should be P2,158,714.52.
The Supreme Court will not set aside lightly the conclusions reached by the Court of Tax Appeals which, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority.28 In this case, we find no cogent reason to deviate from this well-entrenched principle. Thus, we are persuaded that indeed the Court of Appeals committed no reversible error in affirming the assailed ruling of the Court of Tax Appeals.
WHEREFORE, the petition is DENIED for lack of merit.Ï‚Î·Î±Ã±rÎ¿blÎµÅ¡ Î½Î¹râ€ Ï…Î±l lÎ±Ï‰ lÎ¹brÎ±rÃ¿
The assailed Decision dated July 6, 2001 of the Court of Appeals, in CA-G.R. SP No. 60304 is AFFIRMED with very slight modification. Petitioner is hereby ORDERED to REFUND or, in the alternative, to ISSUE a TAX CREDIT CERTIFICATE in favor of respondent in the amount of
P2,158,714.52 representing unutilized input tax payments. No pronouncement as to costs.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
1 Rollo, pp. 20-25. Penned by Associate Justice Hilarion L. Aquino, with Associate Justices Ma. Alicia Austria-Martinez (now a member of this Court), and Jose L. Sabio, Jr. concurring.
2 Id. at 26-30.
3 Id. at 31-34.
4 CA Rollo, p. 35. Presidential Decree No. 66 - The title is Creating The Export Processing Zone Authority And Revising Republic Act No. 5490.
5 Id. at 36.
6 SEC. 106. Value-added Tax on Sale of Goods or Properties. '
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.
. . .
(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);
(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); andcralawlibrary
(5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws.
7 SEC. 230. Forfeiture of Cash Refund and of Tax Credit. -
(A) Forfeiture of Refund. A refund check or warrant issued in accordance with the pertinent provisions of this Code, which shall remain unclaimed or uncashed within five (5) years from the date the said warrant or check was mailed or delivered, shall be forfeited in favor of the Government and the amount thereof shall revert to the general fund.
(B) Forfeiture of Tax Credit. A tax credit certificate issued in accordance with the pertinent provisions of this Code, which shall remain unutilized after five (5) years from the date of issue, shall, unless revalidated, be considered invalid, and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer, and the amount covered by the certificate shall revert to the general fund.
(C) Transitory Provision. For purposes of the preceding Subsection, a tax credit certificate issued by the Commissioner or his duly authorized representative prior to January 1, 1998, which remains unutilized or has a creditable balance as of said date, shall be presented for revalidation with the Commissioner or his duly authorized representative or on before June 30, 1998.
8 CA Rollo, p. 60.
9 Rollo, pp. 29-30.
10 SEC. 106 (a), supra, note 6.
11 Should be
12 Rollo, p. 29.
13 SEC. 24. Exemption from Taxes Under the National Internal Revenue Code. Any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government. This five percent (5%) shall be shared and distributed as follows:
(a) Three percent (3%) to the national government;
(b) One percent (1%) to the local government units affected by the declaration of the ECOZONE in proportion to their population, land area, and equal sharing factors; andcralawlibrary
(c) One percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside and contiguous to each ECOZONE: Provided, however, That the respective share of the affected local government units shall be determined on the basis of the following formula:
(1) Population fifty percent (50%);
(2) Land area twenty-five percent (25%); and
(3) Equal sharing twenty-five percent (25%).
14 "The Special Economic Zone Act of 1995."
15 The statute is entitled An Act Amending Republic Act No. 7916, otherwise known as the "Special Economic Zone Act of 1995."
16 SEC. 4.106-1. Refunds or tax credits of input tax. - (a) Zero-rated sales of goods or properties or services - Only a VAT-registered person may be given a tax credit certificate or refund of VAT paid corresponding to the zero-rated sales of goods, properties or services, excluding the presumptive input tax and to the extent that such input tax has not been applied against the output tax. The application should be made within two (2) years after the close of the taxable quarter when the sales were made.
However, where the taxpayer is engaged in both zero-rated or effectively zero-rated sales and in taxable or exempt sales of goods, properties or services, and where the amount of creditable input tax due or paid cannot be directly and entirely attributable to any one of the transaction, only the proportionate share of input taxes allocated to zero-rated or effectively zero-rated sales can be refunded or issued a tax credit certificate
. . .
17 Rollo, p. 31.
18 SEC. 23. Fiscal Incentives. - Business establishments operating within the ECOZONES shall be entitled to the fiscal incentives as provided for under Presidential Decree No. 66, the law creating the Export Processing Zone Authority, or those provided under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987.
Furthermore, tax credits for exporters using local materials as inputs shall enjoy the same benefits provided for in the Export Development Act of 1994.
19 Rollo, p. 25.
20 Id. at 13.
21 SEC. 109. Exempt Transactions. - The following shall be exempt from the value-added tax:
. . .
(q) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree Nos. 66, 529 and 1590;
. . .
22 SEC. 4.103-1. Exemptions. - (A) In general. - An exemption means that the sale of goods or properties and/or services and the use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid.
The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the said transaction is not subject to VAT. On the other hand, a VAT-registered purchaser of VAT-exempt goods/properties or services which are exempt from VAT is not entitled to any input tax on such purchase despite the issuance of a VAT invoice or receipt.
23 Crispin P. Llamado, Jr., Manuel M. San Diego, Asser S. Tamayo, Philippine Taxes On Transfer And Business 205 (1998).
24 Supra, note 22.
25 Supra, note 6.
26 See Revenue Regulations No. 7-95, Section 4.102-2.
27 CA Rollo, p. 36.
28 Sea-Land Service, Inc. v. Court of Appeals, G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446.