Vat Digests

CASE DIGESTS ON VALUE-ADDED TAX III. VALUE ADDED TAX

2) What about the remaining 20%, is it liable for VAT? Ruling of the Court 5. In favour of MEDICARD and against CIR. 6. The definition of gross receipts under Revenue under  Revenue Regulations Nos. 16-2005 and and 4-2007,  4-2007,  in relation to Section 108 (A) of the  the  National Internal Revenue Code, as amended byRepublic b yRepublic Act No. 9337, for purposes of determining its Value-Added Tax liability, is hereby declared to EXCLUDE  EXCLUDE  the eighty percent (80%) of the amount of the contract price earmarked as fiduciary funds for the medical utilization of its members. 7. Further, the Value-Added Tax deficiency assessment issued against Medicard Philippine s, Inc. is hereby declared unauthorized  unauthorized  for having been issued without a Letter of Authority by the Commissioner of Internal Revenue or his duly authorized representatives.

1. Medicard Philippines, Inc. v. CIR, G.R. No. 222743 April 5, 2017 Background Facts of the Case: Relevant to the Issue of the Proper VAT Base: 1. MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid health and medical insurance coverage to its clients. 2. Individuals enrolled in its health care programs pay an annual membership fee  fee  and are entitled to various preventive, diagnostic and curative medical services provided by duly licensed physicians, specialists and other professional technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated or accredited by it. 3. As an HMO, MEDICARD primarily acts as an a n intermediary between the purchaser of healthcare services (its members) and the healthcare providers (the doctors, hospitals and clinics) for a SERVICE FEE.   Apart from this, MEDICARD may also directly provide medical, hospital and laboratory services, which depends upon its member's choice. 4. Thus, in the course of its business as such, MEDICARD members can either avail of: (1) medical services from MEDICARD's accredited healthcare providers (By enrolling enro lling membership members hip with wit h MEDICARD, it s members will be able to avail of the pre-arranged medical services from its accredited healthcare  providers without the necessary protocol of posting cash bonds or deposits prior to being attended to or admitted to hospitals or clinics, especially during emergencies, emergencies, at any given time.) OR (2) directly from MEDICARD (MEDICARD may also directly provide medical, hospital and laboratory services, which depends upon its member's choice.) In the former, MEDICARD members obviously knew that beyond the agreement to pre-arrange the healthcare needs of its members, MEDICARD would not actually be providing the actual healthcare service. Thus, based on industry practice, MEDICARD informs its would-be w ould-be member beforehand that:

ISSUE 1: NO. The amounts earmarked earmarked and eventually paid by MEDICARD to the medical service service providers (80% of the Annual Membership Fee) do not form part of “gross receipts”  for  for VAT  purposes 8.

Since an HMO like MEDICARD is primarily engaged in arranging for coverage or designated managed care services that are needed by plan holders/members for fixed prepaid membership fees and for a specified spec ified period pe riod of time, then MEDICARD is  principally engaged in the sale of services.  services.  Its VAT base and corresponding liability is, thus, determined under Section 108 (A) 32 of the Tax the Tax Code, as amended by Republic by Republic Act No. 9337. 9. Under RR Under RR No. 16-2005. Under this RR, an HMO's gross HMO's gross receipts and gross receipts in general were defined, thus: Section 4.108-3. x 4.108-3. x x x HMO's “gross receipts”   shall be the total amount of money or its equivalent representing the SERVICE FEE  FEE  actually or constructively received during received  during the taxable period for the services performed or to be performed for another person, excluding the value-added tax.  [PRESUMPTION  [PRESUMPTION OF WHAT COMPOSES COMPOSES THE SERVICE FEE]   The compensation for their services representing their service fee, is PRESUMED to be the total amount received as enrollment fee from their members plus other charges received. 10. The CTA en banc overlooked banc overlooked that the definition of gross receipts under RR No. 16-2005 merely presumed that the amount received by an HMO as membership fee is the HMO's compensation for their services. As a mere presumption, an HMO is, thus, allowed to establish that a portion of the amount it received as membership fee does NOT actually compensate it but some other person, which in this case are the medical service providers themselves. themselves . 11. The CTA's ruling and CIR's Comment have not pointed to any portion of Section 108 of the  NIRC that would extend the definition of gross receipts even to amounts that do not only pertain to the services to be performed by another person, other than the taxpayer, but even to amounts that were indisputably utilized not by MEDICARD itself but by the medical service providers.

ANNUAL MEMBERSHIP FEE

80% of the amount would be earmarked  for  for medical utilization

20% only would comprise its SERVICE FEE.

ISSUE 2: NO. It is exempt under Section 109 (G)  –  Medical  Medical services rendered by NON-professionals. NON-professionals. 12. Thus, in the course of its business as such, MEDICARD members can either avail of medical services from MEDICARD's accredited healthcare providers or directly from MEDICARD. In the former, MEDICARD members obviously knew that beyond the agreement to pre-arrange the healthcare needs of its members, MEDICARD would not actually be providing the actual healthcare service. Thus, based on industry practice, MEDICARD informs its would-be member

Issues Presented before the Court:

1)

What is the Proper VAT Tax Base? Should the amounts that MEDICARD earmarked and eventually paid to the medical service providers still form part of its Gross Receipts for VAT purposes?

1

CASE DIGESTS ON VALUE-ADDED TAX beforehand that 80% of the amount would be earmarked for medical utilization and only the remaining 20% comprises its service fee. In the LATTER case, MEDICARD's sale of its services is exempt from VAT under Section 109 (G).

2

CASE DIGESTS ON VALUE-ADDED TAX 2. CIR v. PAGCOR, G.R. No. 177387 November 9, 2016 9. IS PAGCOR LIABLE TO VAT JUST BECAUSE IT WAS REMOVED FROM THE ENUMERATION IN THE TAX CODE FOR THE GOCCS EXEMPT FROM VAT?

Facts: 1.

Respondent Philippine Amusement and Gaming Corporation (PAGCOR) has operated under a legislative franchise granted by Presidential Decree No. 1869 (P.D. No. 1869), 1869) , its Charter, Charter , 4 whose Section 13 (2) provides that: (2) Income and other Taxes — (a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to t he earnings of the Corporation, except a Franchise Tax of five percent (5%) of the gross revenue or earnings derived by the Corporation Corporation from its operation under this Franchise.  Franchise.   Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, taxes, levies, fees or assessments of any kind, nature or description, description, levied, established established or collected by any municipal, provincial or national government authority . 2. Notwithstanding the aforesaid 5% franchise tax imposed, the Bureau of Internal Revenue (BIR) issued several assessments against PAGCOR for alleged deficiency value-added tax (VAT), final withholding tax on fringe benefits, and expanded withholding tax.  Argument of CIR: CIR: 3. The CIR insists that tha t R.A. No. 7716 31 has expressly repealed, amended, or withdrawn the 5% franchise tax provision in PAGCOR's Charter; hence, PAGCOR was liable for the 10% VAT. VAT. 32 4. The CIR argues that PAGCOR's gambling operations are embraced under the phrase sale or exchange of services, including the use or lease of properties; that properties; that such operations are not among those expressly exempted from the 10% VAT under Section 3 of of R.A. No. 7716; and that the legislative purpose to withdraw withd raw PAGCOR's 5% franchis e tax was manifested by the language used in Section 20 of o f R.A. No. 7716. Issue before the Court: 1) Is PAGCOR Exempt from VAT? Issue 1: Yes. PAGCOR is exempt from the payment of VAT, because PAGCORs charter, charter, P.D. No. 1869,  1869,  is a special law that grants petitioner exemption from taxes

5. 6.

7.

8.

10.

franchise tax in lieu of all other taxes. A contrary construction would be u nwarranted nwarranted and myopic nitpicking. Despite Section 3 of o f R.A. No. 7716 imposing imposing 10% VAT on the sale or exchange of services, including the use or lease of properties, Section 4 of o f R.A. No. 7716 enumerates the transactions exempt from VAT, viz.: viz.: SEC. 4. Section 103 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows: "SEC. 103. Exempt transactions. — The following shall be exempt from the valueadded tax: xxx xxx xxx "(q) Transactions which are exempt under special laws… Further, R.A. No. 7716 does not specifically exclude PAGCOR's exemption under P.D. under  P.D. No. 1869 from the grant of exemptions from VAT; hence, CIR’s  CIR’s  contention that that R.A. No. 7716 expressly amended PAGCOR's franchise has no leg to stand on.

portion sa lis mota of the 11.  [RS: medyo unnecessary ni siya na portion case, but in case if i-ask whether or not (1) the persons transacting to PAGCOR are liable to VAT, answer is YES AT ZERO PERCENT PERCENT (0%), so no VAT can be shifted to PAGCOR; (2) PAGCOR itself is VAT Exempt under its charter.] A close scrutiny of the above provisos clearly gives PAGCOR a BLANKET EXEMPTION TO TAXES with TAXES  with no distinction on whether the taxes are direct or indirect. XXX indirect. XXX Under the above provision [Section 13 (2) (b) of P.D. 1869], 1869], the term "Corporation" or operator refers to PAGCOR. Although the law does not specifically mention PAGCOR's exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with PAGCOR in casino operations.  operations.  Although, differently worded, the provision clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by granting tax exempt status to persons dealing with PAGCOR in casino operations, operations, thus: [R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A. No. 8424), 8424), as amended, is hereby further amended to read as follows: SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. (B) Transactions Subject to Zero Percent (0%) Rate. The following followi ng services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with PAGCOR in casino operations, it is

Petitioner is exempt from the payment of VAT, because PAGCORs charter, P.D. charter, P.D. No. 1869,  1869,  is a special law that grants petitioner exemption from taxes. Firstly, a basic rule in statutory construction is that a special law cannot be repealed or modified by a subsequently enacted general law in the absence of any express provision in the latter law to that effect. A special law must be interpreted to constitute an exception to the general law in the absence of special circumstances warranting a contrary conclusion. R.A. No. 7716, a 7716, a general law, did not provide for the express repeal of PAGCOR's Charter, which is a special law; hence, the general repealing clause under Section 20 o f R.A. No. 7716 must pertain only to franchises of electric, gas, and water utilities, while the term other franchises in franchises in Section 102 of the NIRC the NIRC should refer only to transport, communications and utilities, exclusive of PAGCOR's casino operations. Secondly, Secondly , R.A. No. 7716 indicates that Congress has not intended to repeal PAGCOR's pri vilege to enjoy e njoy the 5%

3

CASE DIGESTS ON VALUE-ADDED TAX exempting PAGCOR from indirect taxes.

being

liable

to

4

CASE DIGESTS ON VALUE-ADDED TAX 3. Silicon Philippines v. CIR, G.R. No. 173241 March 25, 2015

or sale of taxable goods or services. Based on this definition, the Court finds that the items reflected in petitioner's Summary of Importation of Goods are not capital goods.

FACTS: Petitioner Silicon Philippines, Inc. is engaged in the business of designing, developing, manufacturing and exporting advance and largescale integrated circuit components or "IC's." It is registered with the BIR as a VAT taxpayer. It filed with CIR, an application for credit/refund of unutilized input VAT. Because of Respondent’s   inaction, Petitioner filed a Petition for Review with the Court of Tax Appeals Division. It alleged that it generated and recorded zero-rated export sales paid to it in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. The CTA Division partially granted Silicon's claim for refund of unutilized input VAT on capital goods but did not allow the deductions for training materials, office supplies, and other similar items as they were not considered as capital goods. With regard to the claim for credit/refund of input VAT attributable to its zero-rated export sales, the CTA Division denied the same because Silicon failed to present an Authority to Print (ATP) from the BIR; neither did it print on its export sales invoices the ATP and the word "zero-rated." Petitioner elevated the case to the CTA En Banc which denied the Petition for lack of merit. ISSUE: 1.

2.

HELD: 1.

WON there a need to show that Silicon secured an ATP from the BIR and to indicate the same in its export sales invoices; and to print the word "zero-rated" in its export sales invoices. -YES WON the supplies (i.e. training materials, office supplies, etc.) are classified as capital goods. – NO.

In a claim for credit/refund of input VAT attributable to zerorated sales, Section 112 (A) of the NIRC lays down four requisites: (a) the taxpayer must be VAT-registered; (b) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated; (c) the claim must be filed within two years after the close of the taxable quarter when such sales were made; and (d) the creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax.

. To prove that the claimant is engaged in sales which are zero-rated or effectively zero-rated, duly registered invoices or receipts evidencing zero-rated sales must be presented. However, since the ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or receipts are duly registered is by requiring the claimant to present its ATP from the BIR. Without this proof, the invoices or receipts would have no probative value for the purpose of refund. Similarly, failure to print the word "zero-rated" on the sales invoices or receipts covering zero-rated sales is fatal to a claim for credit/refund of input VAT on zero-rated sales. In this case, petitioner failed to present its ATP and to print the word "zero-rated" on its export sales i nvoices. 2.

To claim a refund of input VAT on capital goods, Section 112 (B) 56 of the NIRC requires that: (a) the claimant must be a VAT registered person; (b) the input taxes claimed must have been paid on capital goods; (c) the input taxes must not have been applied against any output tax liability; and (d) the administrative claim for refund must have been filed within two (2) years after the close of the taxable quarter when the importation or purchase was made.

The term "Capital goods or properties" refers to those goods or properties with estimated useful life greater that one year and which are treated as depreciable assets, used directly or indirectly in the production

5

CASE DIGESTS ON VALUE-ADDED TAX 4. Cargill Philippines, Inc. v. CIR, G.R. No. 203774 March 11, 2015 FACTS: A VAT-registered domestic corporation filed two administrative and  judicial claims for refund of its unutilized input VAT from its export sales. These claims were filed on different dates, to wit: 1. For the first claim, the administrative claim was filed on June 27, 2003 while the judicial claim was filed on June 30, 2003; and 2. For the second claim, both administrative and judicial claims

were filed on May 31, 2005. In the judicial claims, the CIR asked that the claims be denied because the  judicial claims were premature due to non-exhaustion of administrative remedies. ISSUE: Whether or not the judicial claims are premature? RULING: The first claim is premature while the second claim is not. The observance of the 120-day period is a mandatory and jurisdictional requisite to the filing of a judicial claim for refund before the CTA. As such, its non-observance would warrant the dismissal of the judicial claim for lack of jurisdiction. It was, delineated in Aichi that the two (2)year prescriptive period would only apply to administrative claims, and not to judicial claims. Accordingly, once the administrative claim is filed within the two (2)-year prescriptive period, the taxpayer-claimant must wait for the lapse of the 120-day period and, thereafter, he has a 30-day period within which to file his judicial claim before the CTA, even if said 120-day and 30-day periods would exceed the aforementioned two (2)year prescriptive period. Nevertheless, there is a recognized exception to the mandatory and  jurisdictional nature of the 120-day period. During the period December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010 (when the Aichi case was promulgated), taxpayers-claimants need not observe the 120-day period before it could file a judicial claim for refund of excess input VAT before the CTA; but before and after said window period, the mandatory and jurisdictional nature of the 120-day period remained in force. Since the first judicial claim was filed before the exemption window period, it is prematurely filed. And since the second judicial claim was filed within the exemption window period, it is not prematurely filed. Note: To apply the exemption window period (Dec. 10, 2003 to Oct. 6, 2010), the important thing to look out for here is the date when the  judicial claim was made.

6

CASE DIGESTS ON VALUE-ADDED TAX 5. Rohm Apollo Semi-Conductor Philippines v. CIR, G.R. No. 168950 January 14, 2015

before it could seek judicial relief with the CTA by way of Petition for Review.

FACTS: Rohm Apollo is a domestic corporation, registered with the SEC and the PEZA. It is also registered with the Bureau of Internal Revenue (BIR) as a value-addedtaxpayer.

A final note, the taxpayers are reminded that that when the 120-day period lapses and there is inaction on the part of the CIR, they must no longer wait for it to come up with a decision thereafter. The CIR's inaction is the decision itself. It is already a denial of the refund claim. Thus, the taxpayer must file an appeal within 30 days from the lapse of the 120-day waiting period.

Sometime in June 2000, prior to the commencement of its operations on 1 September 2001, Rohm Apollo engaged the services of Shimizu Contractors for the construction of a factory and made initial payments on July and August of the same year. Rohm Apollo treated the payments as capital goods purchases and thus filed with the BIR an administrative claim for the refund or credit of accumulated unutilized creditable input taxes on 11 December 2000. As the close of the taxable quarter when the purchases were made was 30 September 2000, the administrative claim was filed well within the two-year prescriptive period. (Section 112 (B), in relation to Section 112 (A) of the 1997 Tax Code sets a time frame for the filing of the application at two years from the close of the taxable quarter when the purchase was made.) Pursuant to Section 112 (D) of the 1997 Tax Code, the Commissioner of Internal Revenue had a period of 120 days from the filing of the application for a refund or credit on 11 December 2000, or until 10 April 2001, to act on the claim. The waiting period, however, lapsed without any action by the CIR on the claim. Instead of filing a judicial claim within 30 days from the lapse of the 120day period on 10 April, or until 10 May 2001, Rohm Apollo filed a Petition for Review with the CTA on 11 September 2002. The CTA division and en banc denied the petition. ISSUE: WON the Petition was filed on time? RULING: The taxpayer's judicial claim for a refund/tax credit was filed beyond the prescriptive period. Section 112 (D) of the 1997 Tax Code states the time requirements for filing a judicial claim for the refund or tax credit of input VAT. It speaks of two periods: the period of 120 days, which serves as a waiting period to give time for the CIR to act on the administrative claim for a refund or credit; and the period of 30 days, which refers to the period for filing a  judicial claim with the CTA. The landmark case of Commissioner of Internal Revenue v. San Roque PowerCorporation 21 has interpreted Section 112 (D). The Court held that the taxpayer can file an appeal in one of two ways: (1) file the judicial claim within 30 days after the Commissioner denies the claim within the 120-day waiting period, or (2) file the judicial claim within 30 days from the expiration of the 120-day period if the Commissioner does not act within that period. The 30-day period was adopted precisely to do away with the old rule, so that under the VAT System the taxpayer will always have 30 days to file the judicial claim even if the Commissioner acts only on the 120th day, or does not act at all during the 120-day period. With the 30-day period always available to the taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of input VAT without waiting for the Commissioner to decide until the expiration of the 120-day period. As a general rule, the 30-day period to appeal is both mandatory and  jurisdictional. The only exception to the general rule is when BIR Ruling No. DA-489-03 was still in force, that is, between 10 December 2003 and 5 October 2010, The BIR Ruling excused premature filing, declaring that the taxpayer-claimant need not wait for the lapse of the 120-day period

7

CASE DIGESTS ON VALUE-ADDED TAX 6. Fort Bonifacio Development Corporation v. CIR, et. al., consolidated cases of G.R. No. 175707, G.R. NO. 18003, G.R. No. 181092 November 19, 2014.

hand, is an amount subtracted directly from one's total tax liability. Note: The rates and section numbers here may not be applicable at the present because the facts on the case started on 1995. This case was ruled based on the stare decisis on the En Banc’s ruling on G.R. 173425 (see assigned case no. 10)

FACTS: A domestic corporation engaged in the development and sale of real estate acquired real estate under the old Tax Code E.O. 273 which took effect on January 1, 1988. Goods under E.O. 273 did not include real estate and hence, transactions involving the latter were not subject to VAT. However, when R.A. 7716 (The E-VAT law) took effect on January 1, 1996, goods included real estate and transactions involving the latter were subject to VAT. Consequently, the real estate corporation registered under the VAT system. The corporation is now claiming under Sec. 105 a transitional input tax credit for its inventory when it became VAT-registered. It was denied by the CIR, CTA and CA on the grounds: 1. The purpose of the transitional input tax was to give recognition to the sales tax component of inventories which would qualify as input tax credit had such goods been acquired during the effectivity of the VAT Law of 1988. 2. there must have been previous payment of sales tax or valueadded before transitional input tax credit may be granted ISSUE: Whether or not the real estate corporation is entitled to transitional input tax. RULING: Yes, the real estate corporation is entitled to transitional input tax. On the first point raised by the CIR, CTA and CA, E.O. 273 provided for two types of transitional input tax, to wit: (1) one in Sec. 25 for presumptive input tax on inventory as of December 31, 1987 the tax on which has not been taken up or claimed as deferred sales tax credit and (2) one in Sec. 105 for presumptive input tax on inventory of persons who become liable for VAT or who elect to be VAT-registered. These sections were unaltered by the amendments to the Tax Code. The transitional input tax in Sec. 25 is sufficient to cover the recognition of sales tax. Hence, it would have been unnecessary to provide for another one in Sec. 105 if that was the purpose. But rather the legislators intended only as a requisite for entitlement under Sec. 105 that the taxpayer in question has become liable to VAT or has elected to be a VATregistered person. On the second point raised by the CIR, CTA and CA, if indeed the transitional input tax credit is premised on the previous payment of VAT, then it does not make sense to afford the taxpayer the benefit of such credit based on "8% of the value of such inventory" should the same prove higher than the actual VAT paid higher" because the actual VAT (now 12%) paid on the goods, materials, and supplies would always be higher than the 8% (now 2%) of the beginning inventory which would have to exclude all goods, materials, and supplies where no taxes were paid. Clearly, limiting the value of the beginning inventory only to goods, materials, and supplies, where prior taxes were paid, was not the intention of the law. Otherwise, it would have specifically stated that the beginning inventory excludes goods, materials, and supplies where no taxes were paid.Therefore, prior payment of t axes is not required for a taxpayer to avail of the 8% transitional input tax credit provided in Section 105 of the old NIRC Hence, even if the real estate corporation did not pay any sales tax nor input tax on the acquisition of the real estate to be sold that are subject to VAT, it is entitled to a transitional input tax based on all of its beginning inventory when it registered under the VAT system. Other important Rulings: Tax credit is not synonymous to tax refund. Tax refund is defined as the money that a taxpayer overpaid and is thus returned by the taxing authority. Tax credit, on the other

8

CASE DIGESTS ON VALUE-ADDED TAX 7. CIR vs. Team Sual Corporation (Formerly Mirant Sual Corporation), G.R. No. 194105. February 5, 2014

That the two-year prescriptive period within which to file a claim for refund/tax credit of unutilized input VAT is about to lapse is inconsequential and would not justify the immediate filing of a petition for review with the CTA sans  compliance with the 120-day mandatory period. The 120-day mandatory period may extend beyond the two-year prescriptive period for filing a claim for refund/tax credit. Consequently, the 30-day period given to the taxpayer-claimant likewise need not fall under the two-year prescriptive period. What matters is that the administrative claim for refund/tax credit of unutilized input VAT is filed with the BIR within the two-year prescriptive period.

Facts Team Sual Corporation (TSC), a VAT-registered corporation, is principally engaged in the business of power generation and the subsequent sale thereof solely to National Power Corporation (NPC). The Commissioner of Internal Revenue (CIR) granted TSC's application for zero-rating arising from its sale of power generation services to NPC for the taxable year 2000. TSC filed its VAT returns for the first, second, third, and fourth quarters of such year.

TSC filed its administrative claim for refund/tax credit with the BIR on March 11, 2002, which is still within the two-year prescriptive period. However, without waiting for the CIR decision or the lapse of the 120-day period from the time it submitted its complete documents in support of its claim, TSC filed a petition for review with the CTA on April 1, 2002 — a mere 21 days after it filed its administrative claim with the BIR. Clearly, TSC's petition for review with the CTA was prematurely filed; the CTA had no jurisdiction to take cognizance of TSC's petition since there was no decision as yet by the CIR denying TSC's claim, fully or partially, and the 120-day period had not yet lapsed.

On March 11, 2002, TSC filed with the BIR an administrative claim for refund, claiming that it is entitled to the unutilized input VAT in the amount of more than P179m arising from its zero-rated sales to NPC for the taxable year 2000. On April 1, 2002, without awaiting the CIR's resolution of its administrative claim for refund/tax credit, TSC filed a petition for review with the CTA seeking the refund or the issuance of a tax credit certificate for the amount stated. Issue Should TSC’s claim for tax credit/refund be granted.

TSC ’s argument: Nevertheless, TSC submits that the requirement to exhaust the 120-day period prior to filing the judicial claim with the CTA is a species of the doctrine of exhaustion of administrative remedies; that the nonobservance of the doctrine merely results in lack of cause of action, which ground may be waived for failure to timely invoke the same. TSC claims that the issue of its non-compliance with the 120-day period, as a ground to deny its claim, was already waived since the CIR did not raise it in the proceedings before the CTA.

Ruling No. The claim should not be granted for failure to comply with the statutory and administrative procedures in claiming for tax credit/refund. Rationale Section 112 of the NIRC provides for the rules to be followed in claiming a refund/tax credit of unutilized input VAT, thus:  Any VAT-registered person, whose sales are zero-rated xxx within two years after the close of the taxable quarter when the sales were made, apply   for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales xxx.

SC held that this argument is untenable. A petition for review that is filed with the CTA without waiting for the 120-day mandatory period renders the same void. The Court then pointed out that a person committing a void act cannot claim or acquire any right from such void act.

 Xxx the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty days  from the date of submission of complete documents in support of the application filed  xxx. In case of full or partial denial of the claim  for tax refund or tax credit, or the failure on the  part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty days  from the receipt of the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal   the decision or the unacted claim with the Court of Tax Appeals.

TSC ’s argument: In insisting that the 120-day period is not mandatory, TSC further points out that the BIR, under BIR Ruling No. DA-489-03 and Revenue Memorandum Circular No. 49-03, had already laid down the rule that the taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA. As such, the TSC claims, its failure to comply with the 120-day mandatory period is not cause to deny its judicial claim for refund/tax credit. SC held that this assertion is also untenable. As to RMC No. 49-03, nowhere in the RMS was it stated that a taxpayerclaimant need not wait for the lapse of the 120-day mandatory period before it can file its judicial claim with the CTA. RMC No. 49-03 only authorized the BIR to continue the processing of a claim for refund/tax credit notwithstanding that the same had been appealed to the CTA. As to BIR Ruling No. DA-489-03, it states that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review. However, taxpayers can only rely on BIR Ruling No. DA-489-03 from the time of its issuance on December 10, 2003 up to its reversal by this Court in   Aichi case on October 6, 2010, where it was held that the 120-day period is mandatory and jurisdictional.

A taxpayer-claimant may only file a petition for review with the CTA within 30 days from either: (1) the receipt of the decision of the CIR denying, in full or in part, the claim for refund/tax credit; or (2) the lapse of the 120-day period given to the CIR to decide the claim for refund/tax credit. The 120-day period that is given to the CIR within which to decide claims for refund/tax credit of unutilized input VAT is mandatory and jurisdictional. The taxpayer-claimant must wait for the 120-day period to lapse, should there be no decision fully or partially denying the claim, before a petition for review may be filed with the CTA. Otherwise, the petition would be rendered premature and without a cause of action. Consequently, the CTA does not have the jurisdiction to take cognizance of a petition for review filed by the taxpayerclaimant should there be no decision by the CIR on the claim for refund/tax credit or the 120-day period had not yet lapsed.

TSC filed its judicial claim for refund/tax credit of its unutilized input VAT with the CTA on April 1, 2002 —  more than a year before the issuance of BIR Ruling No. DA-489-03. Accordingly, TSC cannot benefit from the declaration laid down in such BIR Ruling.

9

CASE DIGESTS ON VALUE-ADDED TAX 8. CIR v. Toledo, Power, Inc., G.R. No. 183880 January 20, 2014. FACTS: A VAT-registered partnership engaged in the zero-rated sale of power generation services. It is claiming a refund on its input taxes related to such sale for the third and fourth quarters of 2001. It filed its administrative claim on September 30, 2003. In order to preserve its right because the administrative claim has not been acted upon, it filed two petitions for review with the CTA – one on October 24, 2003 for its claim for the third quarter of 2001 and another on January 22, 2004 for its claim for the fourth quarter of 2001. ISSUE: Whether or not the CTA acquired jurisdiction over the claims. RULING: The CTA acquired jurisdiction only over the claim for the fourth quarter of 2001 but did not acquire jurisdiction over the claim for the third quarter of 2001. The 120+30 day rule is mandatory. An exception to the rule is when the  judicial action is filed within the exemption window period (December 10, 2003 to October 6, 2010). Both the claims did not abide by the 120+30 day rule but the claim for the fourth quarter was within the exemption window period. Hence, the CTA acquired jurisdiction only over the claim for the fourth quarter of 2001 but did not acquire jurisdiction over the claim for the third quarter of 2001. Other Important Ruling: Although one of the invoicing requirements is that the receipt/invoices must show the word "zero-rated" imprinted on the invoice covering zero-rated sales, there is sufficient compliance if the same was merely stamped and not preprinted. 2-year period is 760 days. Note: Like in assigned case 2 above, the rules on the determination of the prescriptive were enumerated in this case, to wit: 1. An administrative claim must be filed with the CIR within two years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. 2. The CIR has 120 days from the date of submission of complete documents in support of the administrative claim within which to decide whether to grant a refund or issue a tax credit certificate. The 120-day period may extend beyond the two-year period from the filing of the administrative claim if the claim is filed in the later part of the two-year period. If the 120-day period expires without any decision from the CIR, then the administrative claim may be considered to be denied by inaction. 3. A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR's decision denying the administrative claim or from the expiration of the 120-day period without any action from the CIR. 4. All taxpayers, however, can rely on BIR Ruling No. DA-48903 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on October 6, 2010, as an exception to the mandatory and jurisdictional 120+30 day periods.

10

CASE DIGESTS ON VALUE-ADDED TAX 9. CBK Power Company Limited vs. CIR, G.R. No. 198729-30 January 15, 2014.

foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. (D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsections (A) and (B) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the claim which was not acted upon with the Court of Tax Appeals. Judicial Claim Section 112(D) further provides that the CIR has to decide on an administrative claim within one hundred twenty (120) days from the date of submission of complete documents in support thereof. Bearing in mind that the burden to prove entitlement to a tax refund is on the taxpayer, it is presumed that in order to discharge its burden, petitioner had attached complete supporting documents necessary to prove its entitlement to a refund in its application, absent any evidence to the contrary. Thereafter, the taxpayer affected by the CIR’s  decision or inaction may appeal to the CTA within 30 days from the receipt of the decision or from the expiration of the 120-day period within which the claim has not been acted upon. Considering further that the 30-day period to appeal to the CTA is dependent on the 120-day period, compliance with both periods is  jurisdictional. The period of 120 days is a prerequisite for the commencement of the 30-day period to appeal to the CTA. It must be emphasized that this is not a case of premature filing of a  judicial claim. Although petitioner did not file its judicial claim with the CTA prior to the expiration of the 120-day waiting period, it failed to observe the 30-day prescriptive period to appeal to the CTA counted from the lapse of the 120-day period. For failure of petitioner to comply with the 120+30 day mandatory and  jurisdictional period, petitioner lost its right to claim a refund or credit of its alleged excess input VAT. WHEREFORE, premises considered, the instant Petition is DENIED.

Rule of law: The filing for refund or tax credit certificate must be made within two (2) years after the close of the taxable quarter when the sales were made. The Commissioner of BIR must rule on the application for refund or tax credit certificate within 120 days after the filing of the claim. In case of denial, the taxpayer should file petition for review with the court of tax appeals within 30 days from receipt of the adverse decision or within the same period after the lapse of 120 days period in case of inaction of the CIR. Facts: Petitioner is engaged, among others, in the operation, maintenance, and management of the Kalayaan II pumped-storage hydroelectric power plant, the new Caliraya Spillway, Caliraya, Botocan; and the Kalayaan I hydroelectric power plants and their related facilities located in the Province of Laguna.6 On 29 December 2004, petitioner filed an Application for VAT Zero-Rate with the Bureau of Internal Revenue (BIR) in accordance with Section 108(B)(3) of the National Internal Revenue Code (NIRC) of 1997, as amended. The application was duly approved by the BIR. Thus, petitioner’s  sale of electricity to the NPC from 1 January 2005 to 31 October 2005 was declared to be entitled to the benefit of effectively zero-rated value added tax (VAT).7 Petitioner filed its administrative claims for the issuance of tax credit certificates for its alleged unutilized input taxes on its purchase of capital goods and alleged unutilized input taxes on its local purchases and/or importation of goods and services, other than capital goods, pursuant to Sections 112(A) and (B) of the NIRC of 1997, as amended, with BIR Revenue District Office (RDO) No. 55 of Laguna, as follows :8 Period Covered

Date Of Filing

st quarter of 2005

30-Jun-05

2nd quarter of 2005

15-Sep-05

rd quarter of 2005

28-Oct-05

Alleging inaction of the Commissioner of Internal Revenue (CIR), petitioner filed a Petition for Review with the CTA on 18 April 2007. CTA ruled that petitioner’s  judicial claims for the three quarters of 2005 were belatedly filed. ISSUE: Whether or not the petitioner timely filed for judicial claim for tax credit certificate. Ruling: No. Petitioner failed to observe the mandatory 120+30 days to file petition for review with the CTA due to CIR’s inaction of the application for refund. Refund must be filed within 30 days from receipt of CIR’s denial of the application or within 30 days after the lapse of 120 days in which the CIR must decide on the application. Hence, petition is denied. In this case, the petitioner filed for administrative refund with the BIR on 2005 for the three quarters but it only filed Petition for Review with the CTA on 18 April 2007 for alleged inaction of the CIR. Evidently, the period to file for petition for review with the CTA within 30 days after the lapse of 120 days has not been complied with by the petitioner. The pertinent provision of the NIRC at the time when petitioner filed its claim for refund provides: SEC. 112. Refunds or Tax Credits of Input Tax. –(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1),(2) and (B) and Section 108 (B)(1) and (2), the acceptable

11

CASE DIGESTS ON VALUE-ADDED TAX 10. CIR vs. Mindanao II Geothermal Partnership, G.R. No. 191498, January 15, 2014 Facts Mindanao II is a partnership registered with the Securities and Exchange Commission. It is engaged in the business of power generation and sale of electricity to the National Power Corporation (NAPOCOR) and is accredited by the Department of Energy. On 6 October 2005, Mindanao II filed with the Bureau of Internal Revenue (BIR) an application for the refund or credit of accumulated unutilized creditable input taxes. In support of the administrative claim for refund or credit, Mindanao II alleged, among others, that it is registered with the BIR as a value-added taxpayer and all its sales are zero-rated under the EPIRA law. It further stated that for the second, third, and fourth quarters of taxable year 2004, it paid input VAT in the aggregate amount of P7,167,005.84, which were directly attributable to the zero-rated sales. The input taxes had not been applied against output tax. Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of Internal Revenue (CIR) had a period of 120 days, or until 3 February 2006, to act on the claim. The administrative claim, however, remained unresolved on 3 February 2006 (more than 120 days). Under the same provision, Mindanao II could treat the inaction of the CIR as a denial of its claim, in which case, the former would have 30 days to file an appeal to the CTA, that is, on 5 March 2006. Mindanao II, however, did not file an appeal within the 30-day period. Apparently, Mindanao II believed that a judicial claim must be filed within the two-year prescriptive period provided under Section 112(A) and that such time frame was to be reckoned from the filing of its Quarterly VAT Returns for the second, third, and fourth quarters of taxable year 2004, that is, from 26 July 2004, 22 October 2004, and 25 January 2005, respectively. Thus, on 21 July 2006, Mindanao II, claiming inaction on the part of the CIR and that the two-year prescriptive period was about to expire, filed a Petition for Review with the CTA docketed as CTA Case No. 6133. On 12 August 2008, the CTA Second Division rendered a Decision ordering the CIR to grant a refund or a tax credit certificate, but only in the reduced amount of P6,791,845.24, representing unutilized input VAT incurred for the second, third and fourth quarters of taxable year 2004. A Motion for Reconsideration was filed by CIR claiming that the last day of filing was 5 March 2006. Meanwhile, on 12 September 2008, this Court promulgated CIR v. Mirant Pagbilao Corporation (Mirant). Mirant fixed the reckoning date of the two-year prescriptive period for the application for refund or credit of unutilized input VAT at the close of the taxable quarter when the relevant sales were made , as stated in Section 112(A). As to the issue of compliance with the 30-day period for appeal to the CTA, the CTA En Banc held that this was a requirement only when the CIR actually denies the taxpayer’s claim. But in cases of CIR inaction, the 30-day period is not a mandatory requirement; the judicial claim is seasonably filed as long as it is filed after the lapse of the 120-day waiting period but within two years from the date of filing of the return. Issues The resolution of this case hinges on the question of compliance with the following time requirements for the grant of a claim for refund or credit of unutilized input VAT: (1) the two-year prescriptive period for filing an application for refund or credit of unutilized input VAT; and (2) the 120+30 day period for filing an appeal with the CTA. Held Mindanao II’s application for refund was FILED ON TIME BUT its judicial claims were filed out of time. 1. It is untrue that both the admin and judicial claims must be filed within the two-year prescriptive period. Both the CTA Second Division and CTA En Banc decisions held that the phrase "apply for the issuance of a tax credit certificate or refund" in Section 112(A) is construed to refer to both the administrative claim filed with the CIR and the  judicial claim filed with the CTA. This view, however, has no legal basis.

2.

In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi), we dispelled the misconception that both the administrative and judicial claims must be filed within the two-year prescriptive period: “There  is nothing in Section 112 of the NIRC to support respondent’s view. Subsection (A) of the said provision states that "any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales." The phrase "within two (2) years x x x apply for the issuance of a tax credit certificate or refund" refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. This is apparent in the first paragraph of subsection (D) of the same provision, which states that the CIR has "120 days from the submission of complete documents in support of the application filed in accordance with Subsections (A) and (B)" within which to decide on the claim.” The message of Aichi is clear: it is only the administrative claim that must be filed within the two-year prescriptive period; the judicial claim need not fall within the two-year prescriptive period. Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for "excess" input VAT is two years from the close of the taxable quarter when the sale was made by the person legally liable to pay the output VAT. This prescriptive period has no relation to the date of payment of the "excess" input VAT. The "excess" input VAT may have been paid for more than two years but this does not bar the filing of a judicial claim for "excess" VAT under Section 112(A), which has a different reckoning period from Section 229. Moreover, the person claiming the refund or credit of the input VAT is not the person who legally paid the input VAT. Such person seeking the VAT refund or credit does not claim that the input VAT was "excessively" collected from him, or that he paid an input VAT that is more than what is legally due. He is not the taxpayer who legally paid the input VAT. Two things are clear from the above quoted San Roque disquisitions. First, when it comes to recovery of unutilized input VAT, Section 112, and not Section 229 of the 1997 Tax Code, is the governing law. Second, prior to 8 June 2007, the applicable rule is neither Atlas nor Mirant, but Section 112(A). The two year prescriptive-period is thus summarized in this timeline, viz – Before 8 June 2007

After 8 June 2007

Use Sec. 112 (A): Close of taxable quarter when the relevant sales were made

Use Atlas case: Date of filing o payment of tax

In this case, Mindanao II filed its administrative claims for refund or credit for the second, third and fourth quarters of 2004 on 6 October 2005. The case thus falls within the first period as indicated in the above timeline. In other words, it is covered by the rule prior to the advent of either Atlas or Mirant. Let us summarize the conclusions so far: (1) it is only the administrative claim (AGAIN, THIS IS THE ONE FILED BEFORE CIR, NOT THE ONE FILED BEFORE CTA AS AN APPEAL EITHER BECAUSE OF REJECTION OR INACTION

12

CASE DIGESTS ON VALUE-ADDED TAX WITHIN 120 DAY PERIOD) that must be filed within the twoyear prescriptive period; and (2) the two-year prescriptive period begins to run from the close of the taxable quarter when the relevant sales were made. --THIS IS THE CRUCIAL PART: Notwithstanding the timely filing of the administrative claims, we find that the CTA En Banc erred in holding that Mindanao II’s judicial claims were timely filed. 30-Day Period Also Applies to Appeals from Inaction. Thus, if CIR does not act within 120 days, it shall be considered a rejection of the claim and the taxpayer has 30 days within which to file an appeal with the CTA. Section 112(D) speaks of two periods: the period of 120 days, which serves as a waiting period to give time for the CIR to act on the administrative claim for refund or credit, and the period of 30 days, which refers to the period for interposing an appeal with the CTA. It is with the 30-day period that there is an issue in this case. In this case, the facts are not up for debate. Mindanao II filed its administrative claim for refund or credit for the second, third, and fourth quarters of 2004 on 6 October 2005. The CIR, therefore, had a period of 120 days, or until 3 February 2006, to act on the claim. The CIR, however, failed to do so. Mindanao II then could treat the inaction as a denial and appeal it to the CTA within 30 days from 3 February 2006, or until 5 March 2006. Mindanao II, however, filed a Petition for Review only on 21 July 2006, 138 days after the lapse of the 30-day period on 5 March 2006. The judicial claim was therefore filed late. We sum up the rules established by San Roque on the mandatory and jurisdictional nature of the 30-day period to appeal through the following timeline: Bearing in mind the foregoing rules for the timely filing of a  judicial claim for refund or credit of unutilized input VAT, we rule on the present case of Mindanao II as follows: As mentioned above, Mindanao II filed its judicial claim with the CTA on 21 July 2006. This was after the issuance of BIR Ruling No. DA-489-03 on 10 December 2003, but before its reversal on 5 October 2010. However, while the BIR ruling was in effect when Mindanao II filed its judicial claim, the rule cannot be properly invoked. The BIR ruling, as discussed earlier, contemplates premature filing. The situation of Mindanao II is one of late filing. To repeat, its judicial claim was filed on 21 July 2006 – long after 5 March 2006, the last day of the 30-day period for appeal. In fact, it filed its judicial claim 138 days after the lapse of the 30-day period. SUMMARY OF THE RULES SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND OR CREDIT OF INPUT VAT

2. The 30-day period always applies, whether there is a denial or inaction on the part of the CIR. 3. As a general rule, the 3 0-day period to appeal is both mandatory and jurisdictional. (Aichi and San Roque) 4. As an exception to the general rule, premature filing is allowed only if filed between 10 December 2003 and 5 October 2010, when BIR Ruling No. DA-489-03 was still in force. (San Roque) 5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-03 was in force. (San Roque)

The lessons of this case may be summed up as follows: A. Two-Year Prescriptive Period 1. It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi) 2. The proper reckoning date for the two-year prescriptive period is the close of the taxable quarter when the relevant sales were made. (San Roque) 3. The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12 September 2008. Atlas states that the two-year prescriptive period for filing a claim for tax refund or credit of u nutilized input VAT payments should be counted from the date of filing of the VAT return and payment of the tax. (San Roque) B. 120+30 Day Period 1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within thirty days after the Commissioner denies the claim within the 120-day period, or (2) file the  judicial claim within thirty days from the expiration of the 120-day period if the Commissioner does not act within the 120-day period.

13

CASE DIGESTS ON VALUE-ADDED TAX 11. Team Energy Corporation (formerly Mirant Pagbilao Corp.) vs. CIR, G.R. No. 190928 January 13, 2014 FACTS: A domestic corporation is engaged in the sale of electricity to NAPOCOR is asking for a refund for unutilized input taxes for the first quarter of 2002. It filed its administrative claim on December 22, 2003 and its  judicial claim on April 22, 2004. The CTA denied the refund because the judicial claim was not filed within the 2 year period from the close of the taxable quarter or from March 23, 2002. ISSUE: Whether or not the domestic corporation complied with the 2 year period. RULING: The domestic corporation complied with the 2 year period. Well enunciated in the San Roque case that the taxpayer can file his claim for refund at any time within the two-year period. What is only required of him is to file his judicial claim within 30-days after denial or after the expiration of the 120-day period. In the case at bar, the administrative claim was filed well within the 2year period. It does not matter that the judicial claim was filed outside the 2-year period since it nonetheless complied with the 120+30 day rule. Thus, the domestic corporation is entitled to a refund.

14

CASE DIGESTS ON VALUE-ADDED TAX 12. Fort Bonifacio Dev’t. Corporation v. CIR, et. al., G.R. No. 173425

Rep. Act No. 7716 clarifies that it is the real properties "held primarily for sale to customers or held for lease in the ordinary course of trade or business" that are subject to the VAT, and not when the real estate transactions are engaged in by persons who do not sell or lease properties in the ordinary course of trade or business. It is clear that those regularly engaged in the real estate business are accorded the same treatment as the merchants of other goods or properties available in the market. In the same way that a milliner considers hats as his goods and a rancher considers cattle as his goods, a real estate dealer holds real property, whether or not it contains improvements, as his goods.

January 22, 2013. FACTS: The petition in G.R. No. 180035 "seeks to correct the unauthorized limitation of the term 'real properties' to 'improvements thereon' by Revenue Regulations 7-95 and the error of the Court of Tax Appeals and Court of Appeals in sustaining the aforesaid Regulations." The parties entered into a Stipulation of Facts, Documents, and Issue 14 before the CTA for each case. It was established before the CTA that petitioner is engaged in the development and sale of real property . It is the owner of, and is developing and selling, parcels of land within a "newtown" development area known as the Fort Bonifacio Global City.

By limiting the definition of goods to "improvements" in Section 4.105-1, the BIR not only contravened the definition of "goods" as provided in the Old NIRC, but also the definition which the same revenue regulation itself has provided.

In May 1996, petitioner commenced developing the Global City, and since October 1996, had been selling lots to interested buyers . 18 At the time of acquisition, value-added tax (VAT) was not yet imposed on the sale of real properties. Republic Act No. 7716 (the Expanded ValueAdded Tax [E-VAT] Law), 19 which took effect on January 1, 1996, restructured the VAT system by further amending pertinent provisions of the National Internal Revenue Code (NIRC). Section 100 of the old NIRC was so amended by including "real properties" in the definition of the term "goods or properties," thereby subjecting the sale of "real properties" to VAT.

2. Whether there must have been previous payment of sales tax or value-added tax by petitioner on its land before it may claim the input tax credit granted by Section 105 of the NIRC; If indeed the transitional input tax credit is integrally related to previously paid sales taxes, the purported causal link between those two would have been nonetheless extinguished long ago. Yet Congress has reenacted the transitional input tax credit several times; that fact simply belies the absence of any relationship between such tax credit and the longabolished sales taxes. Obviously then, the purpose behind the transitional input tax credit is not confined to the transition from sales tax to VAT.

While prior to Republic Act No. 7716, real estate transactions were not subject to VAT, they became subject to VAT upon the effectivity of said law.  Thus, the sale of the parcels of land by petitioner became subject to a 10% VAT, and this was later increased to 12%, pursuant to Republic Act No. 9337. 20 Petitioner afterwards became a VATregistered taxpayer.

Section 105 states that the transitional input tax credits become available either to (1) a person who becomes liable to VAT; or (2) any person who elects to be VAT-registered. The clear language of the law entitles new trades or businesses to avail of the tax credit once they become VATregistered. The transitional input tax credit, whether under the Old NIRC or the New NIRC, may be claimed by a newly-VAT registered person such as when a business as it commences operations.

On the basis of Section 105 of the NIRC, 22 petitioner claims a transitional or presumptive input tax credit of 8% to the total value of the real properties listed in its inventory. 23

It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of foods, materials and supplies. During that period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a significant portion of the income it derived from its sales as output VAT. The transitional input tax credit mitigates this initial diminution of the taxpayer's income by affording the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when the person is yet unable to credit input VAT payments.

ISSUES: The main issue before us now is whether or not petitioner is entitled to a refund. YES. Thus, we find that petitioner is entitled to a refund. To resolve the issue stated above, it is also necessary to determine: 1. Whether the transitional/presumptive input tax credit under Section 105 of the NIRC may be claimed only on the "improvements" on real properties;

The Court has thus categorically ruled that prior payment of taxes is not required for a taxpayer to avail of the 8% transitional input tax credit provided in Section 105 of the old NIRC and that petitioner is entitled to it, despite the fact that petitioner acquired the Global City property under a tax-free transaction.

On its face, there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of real properties, together with the improvements thereon, in the beginning inventory of goods, materials and supplies, based on which inventory the transitional input tax credit is computed.

To require prior payment of taxes . . . is not only tantamount to judicial legislation but would also render nugatory the provision in Section 105 of the old NIRC that the transitional input tax credit shall be "8% of the value of [the beginning] inventory or the actual [VAT] paid on such goods, materials and supplies, whichever is higher" because the actual VAT (now 12%) paid on the goods, materials, and supplies would always be higher than the 8% (now 2%) of the beginning inventory which, following the view of Justice Carpio, would have to exclude all goods, materials, and supplies where no taxes were paid. Clearly, limiting the value of the beginning inventory only to goods, materials, and supplies, where prior taxes were paid, was not the intention of the law. Otherwise,

Rep. Act No. 7716, which significantly is also known as the Expanded Value-Added Tax (EVAT) law, expanded the coverage of the VAT by amending Section 100 of the Old NIRC in several respects, some of which we will enumerate. First, it made every sale, barter or exchange of "goods or properties" subject to VAT. Second, it generally defined "goods or properties" as "all tangible and intangible objects which are capable of pecuniary estimation." Third, it included a non-exclusive enumeration of various objects that fall under the class "goods or properties" subject to VAT, including "[r]eal properties held primarily for sale to customers or held for lease in the ordinary course of trade or business."

15

CASE DIGESTS ON VALUE-ADDED TAX it would have specifically stated that the beginning inventory excludes goods, materials, and supplies where no taxes were paid.

16

CASE DIGESTS ON VALUE-ADDED TAX 13. CIR v. San Roque, G.R. No. 187485

Philex, on the other hand, filed its judicial claim only 426 days after the 120-day period. Unlike San Roque’s case, it is not one of premature filing but late filing. Thus, Philex’s  judicial claim will have to be rejected because of late filing.

February 12, 2013 FACTS: San Roque incurred excess input tax for taxable year 2001. On March 28, 2003, it filed claims for refund of excess input VAT. On April 10, 2003, it filed its petition for review.

Taganito, on the other hand, can claim the benefit of BIR Ruling No. DA489-03 since the petition for review was filed within on February 17, 2007 – within December 10, 2003 and October 6, 2010 even though it filed its  judicial claim within the 120+30 day period.

Taganito incurred excess input tax for taxable year 2005. On November 14, 2006, it filed an application for tax credits/refunds. On February 17, 2007, it filed its petition for review.

Other Important Ruling in the Decision and Resolution of MR:

Philex incurred excess input tax for taxable year 2005. On March 20, 2006, it filed its claim for refund/tax credit. On October 17, 2007, it filed its petition for review.

-

Excess Input tax is not excessively collected input tax because at the time the input VAT is collected the amount is correct and proper.

-

Any revocation, modification or reversal of any of tax rules and regulations (including BIR Rulings) shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, subject to certain exceptions.

-

A mere administrative practice, not formalized into a rule or ruling, will not suffice because such a mere administrative practice may not be uniformly and consistently applied

-

BIR Ruling No. DA-489-03 cannot be repudiated because it was a mere issuance by a Deputy Commissioner because the Commissioner may delegate the powers vested in him to any subordinate officials with the rank equivalent to a division chief or higher.

ISSUE: Whether or not San Roque, Taganito or Philex’s petitions for review were filed on time. RULING: Only Taganito’s  petition for review was filed on time. San Roque’s was filed prematurely while Philex’s was belatedly filed. The 120 day waiting period (originally fixed at 60 days) and the 30 day period to appeal is mandatory and jurisdictional. The 30 day period need not necessarily fall within the two-year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period. The reasons being that 1.

The law states that the taxpayer may apply with the Commissioner for a refund or credit "within two (2) years," which means at anytime within two years.

2.

The two-year prescriptive period does not refer to the filing of the judicial claim with the CTA but to the filing of the administrative claim with the Commissioner.

3.

if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period (equivalent to 730 days but see assigned case no. 8, where two-year means 24 calendar months), 60 then the taxpayer must file his administrative claim for refund or credit within the first 610 days of the twoyear prescriptive period.

Nothwithstanding the rules above, in accordance with the doctrine of equitable estoppel, reliance on BIR Ruling No. DA-489-03 can be made. BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek  judicial relief with the CTA by way of Petition for Review." Since it is a general interpretative rule, all taxpayers can rely on BIR Ruling No. DA489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional. (Note: It was clarified in the resolution to the MR why before BIR Ruling No. DA-489-03, the 120+30 day rule is mandatory. The doctrine of operative fact does not apply before BIR Ruling No. DA-489-03 because there was no administrative practice by the BIR that supported simultaneous filing of claims.) In the case at bar, San Roque did not comply with the 120-day waiting period. It filed after only 13 days and for violating a mandatory provision of law, it cannot claim any right arising from such void petition. Thus, San Roque's petition is a mere scrap of paper for being prematurely filed.

17

CASE DIGESTS ON VALUE-ADDED TAX 14. CIR v. Dash Engineering, G.R. No. 184145

creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax

December 11, 2013 Topic: Mandatory compliance with filing period for claims for refund (120+30)

xxx xxx xxx Section 112 (D) (now subparagraph C) of the NIRC provides that: Sec. 112.Refunds or Tax Credits of Input Tax. —

Dash Engineering (Dash) is a VAT-registered Corporation, and listed as an ecozone IT export enterprise in PEZA. It filed its monthly and quarterly value-added tax (VAT) returns for the period from January 1, 2003 to June 30, 2003. On August 9, 2004, it filed a claim for tax credit or refund in the amount of P2,149,684.88 representing unutilized input VAT attributable to its zero-rated sales. Since CIR didn’t act on this, Dash filed a petition for review with the CTA on May 5, 2005. The CTA partially granted this in the reduced amount of P1147683.78.

xxx xxx xxx (D)Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsections (A) and (B) hereof.

CIR’s Argument: Dash failed to comply with the 30-day period referred to in Sec. 112 (C) of the NIRC. CIR had 120 days from Aug. 9, 2004 (the day Dash claimed for administrative refund) within which to act on the claim (aka, until Dec. 7, 2004). Dash then had only 30 days from the lapse of this period (aka, until Jan 6, 2005) to file a petition for review with the CTA. Dash only filed the petition on May 5, 2005. This was jurisdictional, and failure to comply bars an appeal.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (emphasis supplied)

Issue: 1.

WON Dash’s claim for refund was filed within the prescriptive period under the Tax Code. —NEGATIVE

Held: Dash’s Judicial claim for refund must be denied for having been filed late. Ratio: CIR is correct in its assertion that compliance with the periods is jurisdictional and mandatory. Dash’s judicial claim for refund must be denied for having been filed late. Although Dash filed its administrative claim with the BIR on August 9, 2004 before the expiration of the two-year period in Section 112 (A), it undoubtedly failed to comply with the 120+30-day period in Section 112 (D) (now subparagraph C) which requires that upon the inaction of the CIR for 120 days after the submission of the documents in support of the claim, the taxpayer has to file its judicial claim within 30 days after the lapse of the said period. The 120 days granted to the CIR to decide the case ended on December 7, 2004. Thus, Dash had 30 days therefrom, or until January 6, 2005, to file a petition for review with the CTA. Unfortunately, DEPI only sought judicial relief on May 5, 2005 when it belatedly filed its petition to the CTA, despite having had ample time to file the same, almost four months after the period allowed by law. As a consequence of DEPI's late filing, the CTA did not properly acquire  jurisdiction over the claim. Taxes are the lifeblood of the government, and, consequently, tax laws must be faithfully and strictly implemented as they are not intended to be liberally construed. ========================================================= ===================== Relevant provisions (as cited in the case): Section 112 (A) provides for a two-year period for filing a claim for refund, to wit: Sec. 112.Refunds or Tax Credits of Input Tax. — ( A ) Zero-rated or Effectively Zero-rated Sales . — A n y VAT- r e g is t e r e d person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of

18

CASE DIGESTS ON VALUE-ADDED TAX 15. Accenture, Inc. vs. CIR, G.R. No. 190102

Later on, RA 9337, which took effect in 2005, inserted in the second paragraph the requirement that the persons whom a Philippine corporation transacts with or sells services to must be doing business outside the Philippines.

July 11, 2012. Facts: Accenture, Inc. (Accenture) is a corporation, which is VAT registered, engaged in the business of providing management consulting services, business strategies development, and selling and/or licensing of software. Majority of its clientele are foreign corporations.

Accenture argues that the requirement cannot be made applicable to these 2002 transactions. Neither can the Burmeister decision be made applicable to it, because this present case was already filed at the time when the decision in Burmeister case promulgated. The Court, however, retorted that the ruling is applicable, being merely an interpretation of a statute and which expresses the contemporaneous legislative intent. Thus, the ruling is deemed to have effect as of the time of the effectivity of the law interpreted, that is, the un-amended 1997 Tax Code.

In its VAT Returns for the year 2002, a total of Php 35M of input VAT remained unapplied or unclaimed. In 2004, therefore, Accenture filed with the Department of Finance (DOF) an administrative claim for the refund or the issuance of a Tax Credit Certificate (TCC). Because of the DOF’s inaction, Accenture filed a Petition for Review with the Court of Tax Appeals (CTA), praying for the issuance of a TCC in the amount of Php 35M.

Also, the fact that Congress deemed it proper to amend the Tax Code, by placing specifically in the law that the buyer of the services or goods must be doing business outside the Philippines, affirms the Court’s reasoning and interpretation of the un-amended 1997 Tax Code provision.

The Commissioner of Internal Revenue (CIR), opposed to the petition, arguing that Accenture was not entitled to a refund or a TCC, because the transactions, from which the excess input VAT was claimed, did not involve buyers who are doing business outside the Philippines. Hence, the transactions were not subject to 0% VAT, but at least exempt. Accenture argued that its clients need not be doing business outside the Philippines since the law applicable should be the un-amended Tax Code of 1997, not the provisions inserted by RA 9337. However, even if the latter law is applicable, still Accenture was able to prove that its clients were doing business outside the Philippines. He proves that his clients were doing business outside the Philippines by presenting receipts which purport that the clients were  foreign corporations and that th ese receipts are zero-rated VAT receipts.

2.

Among the pieces of evidence presented are the receipts which purport that the clients are foreign corporations, that their clients have not established any branch in the Philippines as per Securities and Exchange Commission’s  (SEC) records, and which are said to be 0% VAT receipts. However, the Court concluded that these pieces of evidence, at most, merely established the fact of the transactions and that these clients are foreign corporations. Using 0% VAT receipts is not a conclusive evidence of the fact that the transaction is really zero-rated; otherwise, the determination which transaction is 0% VAT or not is left at the discretion of the persons transacting and not anymore on the law.

The CTA Division denied the petition, which denial was affirmed by the CTA En Banc. The motion for reconsideration having been denied, Accenture filed a Petition for Review with the Supreme Court (SC), insisting on the same theories.

There is no specific criterion as to what constitutes “doing” business in the Philippines, at that time. Each case must be decided according to its peculiar circumstances. Thus, having failed to prove that their clients are doing business outside the Philippines and having the burden of proving and establishing that its transactions belong to the zero-rated ones –  it being in same nature of an exemption, which is construed strictly against the taxpayer or the one claiming exemption – Accenture’s claim for tax refund for input VAT in 2002 is denied.

Issues: 1.

Should the clients of Accenture be doing business outside the Philippines, for it to be able to avail of zerorate VAT?

2.

If so, are the clients of Accenture doing business outside the Philippines under the evidence presented?

Ruling and Discussion: 1.

No, Accenture failed to prove that its clients are doing business outside the Philippines.

Yes, the clients of Accenture must be doing business outside the Philippines.

Sec. 102 (B) has two paragraphs. The first provides that the processing, manufacturing or repacking of goods, which are subsequently exported, for other persons doing business outside the Philippines is subject to 0% VAT and that it must be paid in foreign currency and in accordance with the Bangko Sentral ng Pilipinas (BSP) rules. The second provides merely provides the latter requirement. However, the Court ruled in Burmeister case that the clear and logical import of the Tax Code, prior to its amendment, is that it requires that services which are not processing, manufacturing or repacking of goods must also be to persons or entities doing business outside the Philippines, in addition to the requirement that it be paid in foreign currency and accounted for in accordance with the BSP rules. Even though only the first paragraph which states that the buyer should be doing outside the Philippines, the Court ruled that the second paragraph would be then rendered ineffective, if the same requirement is not deemed as imposed in the second paragraph, because then the forced exaction of taxes would be at the mercy of the contracting parties who could just stipulate that the contract be paid in foreign currency.

19

CASE DIGESTS ON VALUE-ADDED TAX 16. Western Mindanao Power Corp. vs. CIR, G.R. No. 181136

considering that it took effect long after petitioner filed its claim for a tax refund, and considering further that the RR 7-95 is punitive in nature. Further, since there was no statutory requirement for imprinting the phrase zero-rated on official receipts prior to the amendment, the RR 7-95 constituted undue expansion of the scope of the legislation it sought to implement.

June 13, 2012 Facts: 

Petitioner WMPC is a domestic corporation engaged in the production and sale of electricity. It is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer.



Petitioner alleges that it sells electricity solely to the National Power Corporation (NPC), which is in turn exempt from the payment of all forms of taxes, duties, fees and imposts, pursuant to Section 13 of RA No. 6395 (An Act Revising the Charter of the National Power Corporation). In view thereof and pursuant to Section 108(B) (3) of the NIRC, petitioner’s power generation services to NPC is zero-rated.



Under Section 112(A) of the NIRC, a VAT-registered taxpayer may, within two years after the close of the taxable quarter, apply for the issuance of a tax credit or refund of creditable input tax due or paid and attributable to zero-rated or effectively zero-rated sales.



WMPC filed with the Commissioner of Internal Revenue (CIR) applications for a tax credit certificate of its input VAT covering the taxable 3 rd and 4th quarters of 1999 (amounting to ₱3,675,026.67) and all the taxable quarters of 2000 (amounting to ₱5,649,256.81).



Noting that the CIR was not acting on its application, and fearing that its claim would soon be barred by prescription, WMPC filed with the Court of Tax Appeals (CTA) in Division a Petition for Review, seeking refund/tax credit certificates for the total amount of ₱9,324,283.30.



The CIR filed its Comment on the CTA Petition, arguing that WMPC was not entitled to the latter’s claim for a tax refund in view of its failure to comply with the invoicing requirements   under Section 113 of the NIRC in relation to Section 4.108-1 of RR 7-95, which provides:

CTA Second Division dismissed the Petition. It held that while petitioner submitted in evidence its Quarterly VAT Returns for the periods applied for, the same do not reflect any zero-rated or effectively zero-rated sales allegedly incurred during said periods. The spaces provided for such amounts were left blank, which only shows that there existed no zerorated or effectively zero-rated sales for the 3 rd and 4th quarters of 1999 and the four quarters of 2000. Moreover, it found that petitioners VAT Invoices and Official Receipts did not contain on their face the phrase zero-rated, contrary to Section 4.108-1 of RR 795.



WMPC appealed to the CTA En Banc, which held that the receipts and evidence presented by petitioner failed to fully substantiate the existence of the latter’s effectively zero-rated sales to NPC for the 3 rd and 4thquarters of taxable year 1999 and the four quarters of taxable year 2000. The CTA En Banc noted that petitioners Official Receipts and VAT Invoices did not have the word zero-rated imprinted/stamped thereon, contrary to the clear mandate of Section 4.108-1 of RR 7-95.

Issue: Whether the claim of petitioner for a refund or tax credit on input tax must be dismissed on the ground that the latter’s Official Receipts do not contain the phrase zero-rated Ruling:

SECTION 4.108-1. Invoicing Requirements All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: xxx  5. the word zero rated imprinted on the invoice covering zero-rated sales; and



Being a derogation of the sovereign authority, a statute granting tax exemption is strictly construed against the person or entity claiming the exemption. When based on such statute, a claim for tax refund partakes of the nature of an exemption. Hence, the same rule of strict interpretation against the taxpayer-claimant applies to the claim.



A taxpayer engaged in zero-rated or effectively zero-rated sale may apply for the issuance of a tax credit certificate, or refund of creditable input tax due or paid, attributable to the sale. Section 112. Refunds or Tax Credits of Input Tax . –

xxx Only VAT-registered persons are required to print their TIN followed by the word VAT in their invoice or receipts and this shall be considered as a VAT Invoice. All purchases covered by invoices other than VAT Invoice shall not give rise to any input tax.

(A)

 xxx 



WMPC countered that the invoicing and accounting requirements laid down in RR 7-95 were merely compliance requirements, which were not indispensable to establish the claim for refund of excess and unutilized input VAT. Also, Section 113 of the NIRC prevailing at the time the sales transactions were made did not expressly state that failure to comply with all the invoicing requirements would result in the disallowance of a tax credit refund. The express requirement that the term zero-rated sale shall be written or printed prominently on the VAT invoice or official receipt for sales subject to zero percent (0%) VAT appeared in Section 113 of the NIRC only after it was amended by Section 11 of R.A. 9337. This amendment cannot be applied retroactively,

20

Zero-rated or Effectively Zero-rated Sales. any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zerorated sale and also in taxable or exempt sale of goods of properties or services, and

CASE DIGESTS ON VALUE-ADDED TAX the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. 

In a claim for tax refund or tax credit, the applicant must prove not only entitlement to the grant of the claim under substantive law. It must also show satisfaction of all the documentary and evidentiary requirements for an administrative claim for a refund or tax credit.



The mere fact that petitioners application for zero-rating has been approved by the CIR does not, by itself, justify the grant of a refund or tax credit. The taxpayer claiming the refund must further comply with the invoicing and accounting requirements mandated by the NIRC, as well as by revenue regulations implementing them.



Under the NIRC, a creditable input tax should be evidenced by a VAT invoice or o fficial receipt, which may only be considered as such when it complies with the requirements of RR 7-95, particularly Section 4.108-1. This section requires, among others, that (i)f the sale is subject to zero percent (0%) value-added tax, the term zero-rated sale shall be written or printed prominently on the invoice or receipt.



Court has consistently held as fatal the failure to print the word zero-rated on the VAT invoices or official receipts in claims for a refund or credit of input VAT on zerorated sales, even if the claims were made prior to the effectivity of R.A. 9337.



DENIED

21

CASE DIGESTS ON VALUE-ADDED TAX 17. Silicon Phil., Inc. vs. CIR, G.R. No. 172378 January 17, 2011 – invoicing requirements

The term "Capital goods or properties" refers to those goods or properties with estimated useful life greater that one year and which are treated as depreciable assets, used directly or indirectly in the production or sale of taxable goods or services. Based on this definition, the Court finds that the items reflected in petitioner's Summary of Importation of Goods are not capital goods.

FACTS: Petitioner Silicon Philippines, Inc. is engaged in the business of designing, developing, manufacturing and exporting advance and largescale integrated circuit components or "IC's." It is registered with the BIR as a VAT taxpayer. It filed with CIR, an application for credit/refund of unutilized input VAT. Because of Respondent’s   inaction, Petitioner filed a Petition for Review with the Court of Tax Appeals Division. It alleged that it generated and recorded zero-rated export sales paid to it in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. The CTA Division partially granted Silicon's claim for refund of unutilized input VAT on capital goods but did not allow the deductions for training materials, office supplies, and other similar items as they were not considered as capital goods. With regard to the claim for credit/refund of input VAT attributable to its zero-rated export sales, the CTA Division denied the same because Silicon failed to present an Authority to Print (ATP) from the BIR; neither did it print on its export sales invoices the ATP and the word "zero-rated." Petitioner elevated the case to the CTA En Banc which denied the Petition for lack of merit. ISSUE: 1.

WON there a need to show that Silicon secured an ATP from the BIR and to indicate the same in its export sales invoices; and to print the word "zero-rated" in its export sales invoices. -YES

2.

WON the supplies (i.e. training materials, office supplies, etc.) are classified as capital goods. – NO.

HELD: 1.

In a claim for credit/refund of input VAT attributable to zerorated sales, Section 112 (A) of the NIRC lays down four requisites: (a) the taxpayer must be VAT-registered; (b) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated; (c) the claim must be filed within two years after the close of the taxable quarter when such sales were made; and (d) the creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax.

. To prove that the claimant is engaged in sales which are zero-rated or effectively zero-rated, duly registered invoices or receipts evidencing zero-rated sales must be presented. However, since the ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or receipts are duly registered is by requiring the claimant to present its ATP from the BIR. Without this proof, the invoices or receipts would have no probative value for the purpose of refund. Similarly, failure to print the word "zero-rated" on the sales invoices or receipts covering zero-rated sales is fatal to a claim for credit/refund of input VAT on zero-rated sales. In this case, petitioner failed to present its ATP and to print the word "zero-rated" on its export sales i nvoices. 2.

To claim a refund of input VAT on capital goods, Section 112 (B) 56 of the NIRC requires that: (a) the claimant must be a VAT registered person; (b) the input taxes claimed must have been paid on capital goods; (c) the input taxes must not have been applied against any output tax liability; and (d) the administrative claim for refund must have been filed within two (2) years after the close of the taxable quarter when the importation or purchase was made.

22

CASE DIGESTS ON VALUE-ADDED TAX 18. Renato V. Diaz, et al. vs. Secretary of Finance, et al., G.R. No. 193007

1.Whether or not the government is unlawfully expanding VAT coverage by including tollway operators and tollway operations in the terms "franchise grantees" and "sale of services" under Section 108 of the Code; and

July 19, 2011 – sale of services, VATability of Tolls

2.Whether or not the imposition of VAT on tollway operators

FACTS: BIR attempted during the administration of President Gloria Macapagal-Arroyo to impose VAT on toll fees.  This was temporary suspended. Upon President Benigno C. Aquino III's assumption of office in 2010, the BIR revived the idea and would impose the challenged tax on toll fees beginning August 16, 2010 unless judicially enjoined.

that a toll fee is a "user's tax," not a sale of services;



amount to a tax on public service; and





petitioners have no right to invoke the non-impairment of contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway operators



the non-inclusion of VAT in the parametric formula for computing toll rates cannot exempt tollway operators from VAT.



 APPLICABLE LAW: VAT is levied, assessed, and collected, according to Section 108, on the gross receipts derived from the sale or exchange of services as well as from the use or lease of properties. The third paragraph of Section 108 defines "sale or exchange of services" as follows:

it cannot be claimed that the rights of tollway operators to a reasonable rate of return will be impaired by the VAT since this is imposed on top of the toll rate.

The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including

tollway operators cannot be regarded as franchise grantees under the NIRC since they do not hold legislative franchises.



the BIR intends to collect the VAT by rounding off the toll rate and putting any excess collection in an escrow account. But this would be illegal since only the Congress can modify VAT rates and authorize its disbursement.



BIR Revenue Memorandum Circular 63-2010 (BIR RMC 632010), which directs toll companies to record an accumulated input VAT of zero balance in their books as of August 16, 2010, contravenes Section 111 of the NIRC which grants entities that first become liable to VAT a transitional input tax credit of 2% on beginning inventory. For this reason, the VAT on toll fees cannot be implemented.

is not administratively feasible and cannot be implemented.

The word "franchise" broadly covers government grants of a special right to do an act or series of acts of public concern. Nothing in Section 108 indicates that the "franchise grantees" it speaks of are those who hold legislative franchises. It has been broadly construed as referring, not only to authorizations that Congress directly issues in the form of a special law, but also to those granted by administrative agencies to which the power to grant franchises has been delegated by Congress.

Petitioners’  reply: 

c)

Tollway operators are franchise grantees and they do not belong to exceptions  (the low-income radio and/or television broadcasting companies with gross annual incomes of less than P10 million and gas and water utilities) that Section 119 spares from the payment of VAT.

Respondent through OSG’s answer: NIRC imposes VAT on all kinds of services   of franchise grantees, including tollway operations.

will impair the tollway operators' right to a reasonable return of investment under their TOAs; and

Not only do tollway operators come under the broad term "all kinds of services," they also come under the specific class described in Section 108 as "all other franchise grantees " who are subject to VAT, "except those under Section 119 of this Code."

VAT was never factored into the formula for computing toll fees, its imposition would violate the non-impairment clause of the constitution.



b)

1. NO. Tollway operations is included as “franchise grantees” and as “sale of service”

when it enacted the NIRC, Congress did not intend to include toll fees within the meaning of "sale of services" that are subject to VAT;



amounts to a tax on tax and not a tax on services;

RULING:

Petitioner Diaz’ s contention: 

a)

xxx ; services of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119 of this Code and xxx 2. a. Not a tax on tax VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. In indirect taxation, a distinction is made between the liability for the tax and burden of the tax. The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is not the seller's liability but merely the burden of the VAT.

ISSUES:

23

CASE DIGESTS ON VALUE-ADDED TAX

VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under Section 105 of the Code, VAT is imposed on any person who, in the course of trade or business, sells or renders services for a fee. In other words, the seller of services, who in this case is the tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll fees. Nor toll fees were deemed as a "user's tax." VAT is assessed against the tollway operator's gross receipts and not necessarily on the toll fees. Although the tollway operator may shift the VAT burden to the tollway user, it will not make the latter directly liable for the VAT. The shifted VAT burden simply becomes part of the toll fees that one has to pay in order to use the tollways. What the government seeks to tax here are f ees collected from tollways that are constructed, maintained, and operated by private tollway operators at their own expense under the build, operate, and transfer scheme that the government has adopted for expressways. A tax is imposed under the taxing power  of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income.



CIR did not usurp legislative prerogative or expand the VAT law's coverage  when she sought to impose VAT on tollway operations. Section 108 (A) of the Code clearly states that services of all other f ranchise grantees are subject to VAT, except as may be provided under Section 119 of the Code. Tollway operators are not among the franchise grantees subject to franchise tax under the latter provision. Neither are their services among the VAT-exempt transactions under Section 109 of the Code.



Tax exemptions must be justified by clear statutory grant and based on language in the law too plain to be mistaken. But as the law is written, no such exemption obtains for tollway operators. The Court is thus duty-bound to simply apply the law as it is found.



Lastly, the grant of tax exemption is a matter of legislative policy  that is within the exclusive prerogative of Congress. The Court's role is to merely uphold this legislative policy, as reflected first and foremost in the language of the tax statute.



Congress has given the term "services" an all-encompassing meaning. The listing of specific services are intended to illustrate how pervasive and broad is the VAT's reach rather than establish concrete limits to its application. Thus, every activity that can be imagined as a form of "service" rendered for a fee should be deemed included unless some provision of law especially excludes it.



Section 108 subjects to VAT "all kinds of services" rendered for a fee "regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties."

b. Not necessarily impair tollway’s reasonable rate of recovery This is purely speculative. Equally presumptuous is her assertion that a stipulation in the TOAs known as the Material Adverse Grantor Action will be activated if VAT is thus imposed. The Court cannot rule on matters that are manifestly conjectural.  Neither can it prohibit the State from exercising its sovereign taxing power based on uncertain, prophetic grounds. c. Cannot rule upon the matter The Court cannot preempt the BIR's discretion on the matter, absent any clear violation of law or the Constitution. The Court cannot prematurely declare as illegal, BIR RMC 63-2010 which directs toll companies to record an accumulated input VAT of zero balance in their books as of August 16, 2010, the date when the VAT imposition was supposed to take effect. The tollway operators agreed to waive the 2% transitional input VAT, in exchange for cancellation of their past due VAT liabilities. Notably, the right to claim the 2% transitional input VAT belongs to the tollway operators who have not questioned the circular's validity. Any declaration by the Court that the manner of its implementation is illegal or unconstitutional would be premature. Besides, any concern about how the VAT on tollway operations will be enforced must first be addressed to the BIR on whom the task of implementing tax laws primarily and exclusively rests. Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer. TO SUM UP PRINCIPLES APPLIED:

24

CASE DIGESTS ON VALUE-ADDED TAX 19. KEPCO Phils. V. CIR, G.R. No. 179961, 31 January 2011 – invoicing requirements

KEPCO cites the Intel case to support its claim for refund. In the Intel case, the claim for tax refund or issuance of a tax credit certificate was denied due to the taxpayer's failure to reflect or indicate in the sales invoices the BIR authority to print. The Court held that the BIR authority to print was not one of the items required by law or BIR regulation to be indicated or reflected in the invoices or receipts, hence, the BIR erred in denying the claim for refund. In the present case, however, the principal ground for the denial was the absence of the word "zero-rated" on the invoices, in clear violation of the invoicing requirements.

FACTS KEPCO is a domestic corporation and is a valud added tax registered taxpayer engaged int he production and sale of electricity as an independent power producer. Kepco filed with the CIR an applicaiton for effective zero-rating of its sales of electricity to the NPC. Kepco alleged that for the year 1999, it incurred input VAT of P10, 527, 202. 54 on its domestic purchases of goods and services that were used in its production and sale of electricity to NPC for the same period.

Regarding Kepco's contention, that non-compliance with the requirement of invoicing would only subject the non-complying taxpayer to penalties of fine and imprisonment and not to the outright denial of the claim for tax refund or credit, must likewise fail. Section 264 categorically provides for penalties in case of "Failure or Refusal to Issue Receipts or Sales or Commercial Invoices, Violations related to the Printing of such Receipts or Invoices and Other Violations," but not to penalties for failure to comply with the requirement of invoicing.

Thereafter, Kepco filed a petition for review before the CTA. The CTA rendered a decision denying Kepco’s  claim for refund for failure to properly substantiate its effectively zero-rated sales for the taxable year 1999. Kepco filed an appeal via petition for review before the CTA En banc which dismissed the petition for failure of Kepco to imprint the words “zero-rated”  on its official receipts which results in nonentitlement to the benefit of VAT zero-rating and dneial of its claim for refund of input tax. Hence, the petition.

Actions for tax refund, as in this case, are in the nature of a claim for exemption and the law is construed in strictissimi juris against the taxpayer.

ISSUE whether or not the failure of KEPCO to imprint the words “zero-rated” on its vat official receipts justifies an outright denial of its claim for refund of untutilized input tax credits DECISION No. There is no doubt that NPC is an entity with a special charter and exempt from payment of all forms of taxes, including VAT. As such, services rendered by any VAT-registered person/entity, like Kepco, to NPC are effectively subject to zero percent (0%) rate. For the effective zero rating of such services, however, the VATregistered taxpayer must comply with invoicing requirements under the NIRC Section 4.108-1.Invoicing Requirements. — All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1.The name, TIN and address of seller; 2.Date of transaction; 3.Quantity, unit cost and description of merchandise or nature of service; 4.The name, TIN, business style, if any, and address of the VATregistered purchaser, customer or client; 5.The word "zero-rated" imprinted on the invoice covering zero-rated sales; 6.The invoice value or consideration. Indeed, it is the duty of Kepco to comply with the requirements, including the imprinting of the words "zero-rated" in its VAT official receipts and invoices in order for its sales of electricity to NPC to qualify for zerorating. It must be emphasized that the requirement of imprinting the word "zero-rated" on the invoices or receipts is mandatory. The appearance of the word "zero-rated" on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually paid. If, absent such word, a successful claim for input VAT is made, the government would be refunding money it did not collect. Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are subject to 10% (now 12%) VAT from those sales that are zero-rated so that the BIR may properly implement and enforce the provision of the NIRC on VAT.

25

CASE DIGESTS ON VALUE-ADDED TAX 20. CIR v. Aichi Forging, G.R. No. 184823

days, and the Administrative Code of 1987, which states that a year is composed of 12 calendar months, it is the latter that must prevail being the more recent law, following the legal maxim, Lex posteriori derogat priori.

October 6, 2010 – procedure for input tax credit Facts:

Thus, applying this to the present case, the two-year period to file a claim for tax refund/credit for the period July 1, 2002 to September 30, 2002 expired on September 30, 2004. Hence, respondent’s   administrative claim was timely filed.

Respondent Aichi Forging Company of Asia, Inc., a VAT registered entity, is engaged in the manufacturing, producing, and processing of steel and its by-products. On September 30, 2004, respondent filed a claim for refund/credit of input VAT in relation to its zero-rated sales for the period of July 1, 2002 to September 30, 2002 in the total amount of P3,891,123.82 with the petitioner CIR, through the Department of Finance (DOF) One-Stop Shop.

2. Yes. We find the filing of the judicial claim with the CTA premature. Section 112(D) of the NIRC clearly provides that the CIR has “120 days, from the date of the submission of the complete documents in support of the application [for tax refund/credit],”  within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days.

On even date, respondent filed a Petition for Review 7 with the CTA for the refund/credit of the same input VAT. The CTA 2nd Division partially granted respondent’s  claim for refund/credit. Petitioner filed a Motion for Partial Reconsideration, insisting that the administrative and the judicial claims were filed beyond the two-year period to claim a tax refund/credit provided for under Sections 112(A) and 229 of the NIRC. He reasoned that since the year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year period, which expired on September 29, 2004. He cited as basis Article 13 of the Civil Code, which provides that when the law speaks of a year, it is equivalent to 365 days. In addition, petitioner argued that the simultaneous filing of the administrative and the judicial claims contravenes Sections 112 and 229 of the NIRC. According to the petitioner, a prior filing of an administrative claim is a “condition precedent” before a judicial claim can be filed.

Subsection (A) of Section 112 of the NIRC states that “any  VATregistered person, whose sales are zero-rated or effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales.” The phrase “within two (2) years x x x apply for the issuance of a tax credit certificate or refund” refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. . The premature filing of respondent’s  claim for refund/credit of input VAT before the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.

The CTA denied the MPR thus the case was elevated to the CTA En Banc for review. The decision was affirmed. Thus the case was elevated to the Supreme Court. Respondent contends that the non-observance of the 120-day period given to the CIR to act on the claim for tax refund/credit in Section 112(D) is not fatal because what is important is that both claims are filed within the two-year prescriptive period. In support thereof, respondent cited Commissioner of Internal Revenue v. Victorias Milling Co., Inc. [130 Phil 12 (1968)] where it was ruled that “if   the CIR takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the CTA before the end of the two-year period without awaiting the decision of the CIR.” Issues: 1. Whether or not the claim for refund was filed within the prescribed period. 2. Whether or not the simultaneous filing of the administrative and the  judicial claims contravenes Section 229 of the NIRC, which requires the prior filing of an administrative claim, and violates the doctrine of exhaustion of administrative remedies. Ruling: 1. Yes. As ruled in the case of Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (G.R. No. 172129, September 12, 2008), the twoyear period should be reckoned from the close of the taxable quarter when the sales were made. In Commissioner of Internal Revenue v. Primetown Property Group, Inc (G.R. No. 162155, August 28, 2007, 531 SCRA 436), we said that as between the Civil Code, which provides that a year is equivalent to 365

26

CASE DIGESTS ON VALUE-ADDED TAX 21. Commissioner of Internal Revenue vs. Sony Phil., Inc., G.R. No. 178697, November 17, 2010 – in the course of trade or business

rated was not printed on Panasonics export invoices. This omission violates the invoicing requirement. ISSUE:

Principle: There must be a sale, barter or exchange of goods or properties before any VAT may be levied. Mere dole out is not considered as a sale, barter or exchange. So, no VAT can be levied.



Facts: HELD:

CIR issued LOA authorizing certain revenue officers to examine Sony’s  books of accounts and other accounting records regarding revenue taxes for the period 1997 and unverified prior years.



The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his customers. Under the VAT method of taxation, which is invoice-based , an entity can subtract from the VAT charged on its sales or outputs the VAT it paid on its purchases, inputs and imports. The difference in tax shown on invoices passed and invoices received is the tax paid to the government. In case the tax on invoices received exceeds that on invoices passed, a tax refund may be claimed.



Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes equal to the input taxes that his suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his input taxes that he has to pay the excess to the BIR. If the input taxes exceed the output taxes, however, the excess payment shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer.



Zero-rated transactions generally refer to the export sale of goods and services. The tax rate in this case is set at zero. When applied to the tax base or the selling price of the goods or services sold such zero rate results in no tax chargeable against the foreign buyer or customer. But, although the seller in such transactions charges no output tax, he can claim a refund of the VAT that his suppliers charged him. The seller thus enjoys automatic zero rating, which allows him to recover the input taxes he paid relating to the export sales, making him internationally competitive.



For the effective zero rating of such transactions, the taxpayer has to be VAT-registered and must comply with invoicing requirements.



CIR ruled under Revenue Memorandum Circular (RMC) 422003 that the taxpayer’s  failure to comply with invoicing requirements will result in the disallowance of his claim for refund.



When R.A. 9337 amended the 1997 NIRC on November 1, 2005, it made this particular revenue regulation a part of the tax code. This conversion from regulation to law did not diminish the binding force of such regulation with respect to acts committed prior to the enactment of that law.



The printing of the word zero-rated on the invoice helps segregate sales that are subject to 10% (now 12%) VAT from those sales that are zero-rated.



Unable to submit the proper invoices, petitioner Panasonic has been unable to substantiate its claim for refund.

A preliminary assessment for 1997 deficiency taxes and penalties was issued by the CIR which Sony protested. The CIR issued final assessment notices, the formal letter of demand and the details of discrepancies; these contain the deficiency taxes and penalties for late remittance of internal revenue taxes. It sought re-evaluation from the assessment, but after the lapse of the period; it, then, filed a petition for review to CTA. CTA ruled that the deficiency VAT assessment is disallowed because the subsidized advertising expense paid by Sony which was duly covered by a VAT invoice resulted in an input VAT credit. CIR contended that Sony’s advertising expense could not be considered as an input VAT credit because the same was eventually reimbursed by Sony International Singapore (SIS). Since Sony’s advertising expense was reimbursed by SIS, the former never incurred any advertising expense. As a result, Sony is not entitled to a tax credit. Issue: a.) Whether or not the subsidy made by Sony Singapore in favor of Sony Philippines is a sale, barter, exchange of goods or properties subject to VAT? b.) Whether or not the advertising expense incurred by Sony Philippines is a legitimate business expense that would result into an input VAT credit? Ruling: a.) No, it is not subject to VAT. It is because there was no such sale, barter or exchange in the subsidy given by Sony Singapore to Sony Philippines. It was but a dole out by Sony Singapore and not in payment for goods or properties sold, bartered or exchanged by Sony Philippines. b.) Yes, it is because an advertising expense duly covered by a VAT invoice is a legitimate business expense that would result into an input VAT credit. 22. Panasonic Communications Imaging Corp. of the Phil. vs. CIR, G.R. No. 178090, February 8, 2010 -- invoicing requirements FACTS: 

Panasonic Communications Imaging Corporation of the Philippines is a registered value-added tax enterprise.



From April 1 to September 30, 1998 and from October 1, 1998 to March 31, 1999, Panasonic generated export sales amounting to a total of US$24,678,964.93.



Believing that these export sales were zero-rated for VAT under Section 106(A)(2)(a)(1) of the 1997 National Internal Revenue Code, Panasonic paid input VAT attributable to its zero-rated sales.



Claiming that the input VAT it paid remained unutilized or unapplied, on March 12, 1999 and July 20, 1999 petitioner Panasonic filed with the Bureau of Internal Revenue two separate applications for refund or tax credit of what it paid. BIR did not act on it so Panasonic filed a petition for review in the CTA.

CTA: 

Whether or not the CTA correctly denied petitioner’s  claim for refund of the VAT it paid as a zero-rated taxpayer on the ground that its sales invoices did not state on their faces that its sales were zero-rated.

While petitioner Panasonics export sales were subject to 0% VAT under Section 106(A)(2)(a)(1) of the 1997 NIRC, the same did not qualify for zero-rating because the word zero-

27

CASE DIGESTS ON VALUE-ADDED TAX 23. CIR v. SM Prime Holdings, Inc., G.R. No. 183505 February 26, 2010 – VATability of cinema tickets FACTS: The Bureau of Internal Revenue both sent Preliminary Assessment Notices (PAN) to SM Prime Holdings and First Asia, corporations both engaged in the business of operating cinema houses, for non-payment of VAT. The CIR in particular sent four PANs to First Asia for non-payment of VAT for four taxable years. Both corporation filed a letter-protest before the BIR but was subsequently denied, forcing them to file a Petition for Review before the CTA where the sole issue was whether gross receipts derived from admission tickets by cinema/theater operators or proprietors are subject to VAT. CTA First Division ruled for SM Prime holdings and First Asia, declaring that the activity of showing cinematographic films is not a service covered by VAT under the NIRC of 1997. The CTA First Division held that the House of Representatives resolved that there should only be one business tax applicable to theaters and movie houses, which is the 30% amusement tax imposed by cities and provinces under the LGC of 1991. CIR appealed to the CTA En Banc but the latter dismissed the appeal and reiterated that the exhibition or showing of motion pictures, films, or movies is instead subject to amusement tax under the LGC of 1991 and not VAT. CIR challenged the case before the SC. ISSUE: WON the gross receipts derived by operators or proprietors of cinema/theater houses from admission tickets are subject to VAT. Held: No. Historically, the activity of showing motion pictures, films or movies by cinema/theater operators or proprietors has always been considered as a form of entertainment subject to amusement tax. Prior to the Local Tax Code, all forms of amusement tax were imposed by the national government. When the Local Tax Code was enacted, amusement tax on admission tickets from theaters, cinematographs, concert halls, circuses and other places of amusements were transferred to the local government. Under the NIRC of 1977, the national government imposed amusement tax only on proprietors, lessees or operators of cabarets, day and night clubs, Jai-Alai and race tracks. The VAT law was enacted to replace the tax on original and subsequent sales tax and percentage tax on certain services. When the VAT law was implemented, it exempted persons subject to amusement tax under the NIRC from the coverage of VAT. When the Local Tax Code was repealed by the LGC of 1991, the local government continued to impose amusement tax on admission tickets from theaters, cinematographs, concert halls, circuses and other places of amusements. Amendments to the VAT law have been consistent in exempting persons subject to amusement tax under the NIRC from the coverage of VAT. Only lessors or distributors of cinematographic films are included in the coverage of VAT.

28

CASE DIGESTS ON VALUE-ADDED TAX 24. Tambunting Pawnshop, Inc. v. CIR, G.R. No. 179085, 21 January 2010 – VATability of Pawnshops

▪

FACTS Respondent Commissioner of Internal Revenue assessed petitioner Tambunting Pawnshop for deficiency Value-Added Tax for the taxable year 1999. Petitioner questioned such assessment and argued that pawnshops are not subject to Value Added Tax pursuant to Section 108 of the National Internal Revenue Code.



ISSUE ▪

Whether pawnshops are in involved in "sale or exchange of services" under the general provision therefore subjecting it to VAT and justifying the assessments made for the taxable year 1999. RULING OF THE SUPREME COURT The petition is IN PART meritorious.

▪

WHY PARTLY MERITORIOUS (1)

(2)

Pawnshops were once treated as non-VATable non-bank financial intermediaries. Subsequently, they were made VATable and subject to 10% VAT. Ultimately (AT PRESENT), they are back to being non-VATable non-bank financial intermediaries.

▪

HOWEVER, even during the period when they were considered VATable, the levy, assessment and collection of such VAT were deferred until December 31, 2002. 

DISCUSSION OF THE COURT

(2)

In 1994, with the passage of the Expanded Value-Added Tax Law, pawnshops were made subject to the 10% VAT imposed on banks and non-bank financial intermediaries and financial institutions under Section 102 of the Tax Code of 1977 (now Section 108 of the Tax Code of 1997) BUT the levy, collection and assessment of the 10% VAT were made effective January 1, 1998.

(3)

R.A. No. 8424 or the Tax Reform Act of 1997 likewise imposed a 10% VAT under Section 108 BUT  the levy, collection and assessment thereof were again DEFERRED until December 31, 1999.

(4)

The levy, collection and assessment of the 10% VAT was FURTHER DEFERRED by R.A. No. 8761 until December 31, 2000, and by R.A. No. 9010, until December 31, 2002.

(5)

With no further deferments given by law, THE LEVY, COLLECTION AND ASSESSMENT OF THE 10% VAT on banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions WERE FINALLY MADE EFFECTIVE BEGINNING JANUARY 1, 2003.

Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax years 1996 to 2002; HOWEVER, with the levy, assessment and collection of VAT from non-bank financial intermediaries BEING SPECIFICALLY DEFERRED  by law, then petitioner is not liable for VAT during these tax years. But with the full implementation of the VAT system on nonbank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for said tax year. Beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5%, as the case may be.

25. CIR vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 153205

Historical background of how pawnshops are treated in relation to VAT: In 1977, pawnshops were considered as non-bank financial intermediaries subject to 5% tax on gross receipts.

INSTEAD, due to the specific nature of its business, PAWNSHOPS WERE THEN SUBJECT TO 10% VAT UNDER THE CATEGORY OF NON-BANK FINANCIAL INTERMEDIARIES.

In light of the foregoing ruling, since the imposition of VAT on pawnshops, which are non-bank financial intermediaries, was deferred for the tax years 1996 to 2002, petitioner is not liable for VAT for the tax year 1999.

REMEMBER: The assessments in question pertain to the taxable year 1999.

(1)

At the time of the disputed assessment, that is, for the year 2000, pawnshops were not subject to 10% VAT under the general provision on "sale or exchange of services" as defined under Section 108 (A) of the Tax Code of 1997, which states: "'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration..."

January 22, 2007 – Zero-rating of services, Destination Principle To be exempt from the destination principle under Section 102(b)(1) and (2), the services must be (a) performed in the Philippines; (b) for a person doing business outside the Philippines; and (c) paid in acceptable foreign currency accounted for in accordance with BSP rules. Facts: A foreign consortium composed of Burmeister and Wain Scandinavian Contractor A/S (BWSCDenmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract with the National Power Corporation (NAPOCOR) for the operation and maintenance of NAPOCORs two power barges. The Consortium appointed BWSC-Denmark as its coordination manager. BWSC-Denmark, in turn established BWSCM which subcontracted the actual operation and maintenance of NAPOCORs two power barges as well as the performance of other duties and acts which necessarily have to be done in the Philippines. NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, Yen, and Peso). The freely convertible non-Peso component is deposited directly to the Consortiums bank accounts in Denmark and Japan, while the Peso-denominated component is deposited in a separate and special designated bank account in the Philippines. On the other hand, the Consortium pays BWSCMI in foreign currency inwardly remitted to the Philippines through the banking system.

Finally, with the enactment of R.A. No. 9238 in 2004, the services of banks, non- bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions were specifically exempted from VAT, and the 0% to 5% percentage tax on gross receipts on other non-bank financial intermediaries was reimposed under Section 122 of the Tax Code of 1997.

BWSCMI then ascertained its tax liability by asking a BIR Ruling. BIR declared that if BWSCMI chooses to register as a VAT person and the consideration for its services is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations

IN RELATION TO THE QUESTIONED ASSESSMENTS

29

CASE DIGESTS ON VALUE-ADDED TAX of the Bangko Sentral ng Pilipinas (BSP), the aforesaid services shall be subject to VAT at zero-rate. Thus BWSCMI registered as a VAT payer and seasonably filed its quarterly VAT-Returns with a total zero-rated sales of P147,317,189.62 with VAT input taxes ofP3,361,174.14.

Consortium, operates and maintains NAPOCORs power barges in the Philippines. NAPOCOR pays the Consortium, through its non-resident partners, partly in foreign currency outwardly remitted. In turn, the Consortium pays respondent also in foreign currency inwardly remitted and accounted for in accordance with BSP rules. This payment scheme does not entitle respondent to 0% VAT. In this case, the recipient of the services is the Consortium, which is doing business not outside, but within the Philippines because it has a 15-year contract to operate and maintain NAPOCORs two 100-megawatt power barges in Mindanao.

In 1997, BWSCMI availed of the Voluntary Assessment Program (VAP) of the BIR. It allegedly misinterpreted a Revenue Regulation, which states that as services by a resident to a non-resident  foreign client such as project studies, information services, engineering and architectural designs and other similar services, that subjected its sale of services to the Consortium to the 10% VAT. Thus BWSCMI filed an amended 1996 VAT Return subjecting its services to 10% VAT and claiming thereto input Tax. However, the VAT Review Committee, through a VAT Ruling, reconfirmed the prior BIR Ruling subjecting the services it rendered to 0%. Thus, it filed a claim for the issuance of a tax credit certificate in 1999.

Further, the Output VAT paid must be refunded to BWSCMI as it had relied on a BIR Ruling and a VAT Ruling. As provided for under Section 246 of the Tax Code: any revocation of a ruling by the CIR shall not be given retroactive application if the revocation will prejudice the taxpayer. Further, there is no showing of the existence of any of the exceptions enumerated in Section 246 of the Tax Code for the retroactive application of such revocation. Thus, the Output VAT paid by BWSCMI must be credited

CIR contends that the services rendered by BWSCMI is subject to 10% VAT claiming that the services must be destined for consumption abroad to enjoy the VAT zero-rated. BWSCMI, however, claims that it complied with the requirements of the Tax Code for zero rating under the Section 102(b) par. 2; it asserts that: (1) the payment of its service fees was in acceptable foreign currency, (2) there was inward remittance of the foreign currency into the Philippi nes, and (3) accounting of such remittance was in accordance with BSP rules. As such, BWSCMI’s services need not be destined to be consumed abroad in order to be VAT zero-rated. CTA granted. CA affirmed.

back to it.

Issue: WON BWSCMI is entitled to the Output VAT it had paid. Held: Yes, it is entitled to the Output VAT on the basis of the fact that a revocation of a ruling by the CIR should not be given retroactive application as such will prejudice the taxpayer. However, BWSCMI’s contention is without merit as the services it renders is for the consortium, a recipient DOING BUSINESS IN the PHILIPPINES. For one to avail of the zero-rated VAT under Sec. 102 (b)(2) of the Tax Code, it is required that: 1) the services be other than processing, manufacturing or repacking of goods; 2) that payment for such services be in acceptable foreign currency accounted for in accordance with BSP rules; AND 3) that the recipient of such services is doing business outside the Philippines. While this requirement is not expressly stated in the second paragraph of Section 102(b), this is clearly provided in the first paragraph of Section 102(b) where the listed services must be for other persons doing business outside the Philippines. The phrase for other persons doing business outside the Philippines not only refers to the services enumerated in the first paragraph of Section 102(b), but also pertains to the general term services appearing in the second paragraph of Section 102(b). In short, services other than processing, manufacturing, or repacking of goods must likewise be performed for persons doing business outside the Philippines. Further, when the provider and recipient of services are both doing business in the Philippines, their transaction falls squarely under Section 102(a) governing domestic sale or exchange of services. Indeed, this is a purely local sale or exchange of services subject to the regular VAT, unless of course the transaction falls under the other provisions of Section 102(b). Therefore, BWSCMI’s  services to the Consortium, not being supplied to a person doing business outside the Philippines, cannot legally qualify for 0% VAT. BWSCMI, as subcontractor of the

30

CASE DIGESTS ON VALUE-ADDED TAX 26. CIR v. American Express International, Inc., G.R. No. 152609

foreign currency and accounted for in accordance with the rules and regulations of the [BSP]

June 29, 2005– Zero-rating of services, Destination Principle

The law is very clear. Under the last paragraph quoted above, services performed by VAT-registered persons in the Philippines (other than the processing, manufacturing or repacking of goods for persons doing business outside the Philippines), when paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are zero-rated.

Facts: Respondent American Express (Amex) is a Philippine branch of American Express International, Inc. It is a servicing unit of American Express International, Inc. - Hongkong Branch (Amex-HK) and is engaged primarily to facilitate the collections of Amex-HK receivables from card members situated in the Philippines and payment to service establishments in the Philippines.

Respondent is a VAT-registered person that facilitates the collection and payment of receivables belonging to its non-resident foreign client, for which it gets paid in acceptable foreign currency inwardly remitted and accounted for in conformity with BSP rules and regulations. Certainly, the service it renders in the Philippines is not in the same category as "processing, manufacturing or repacking of goods" and should, therefore, be zero-rated. In reply to a query of respondent, the BIR opined in VAT Ruling No. 080-89 that the income respondent earned from its parent company’s  regional operating centers (ROCs) was automatically zero-rated effective January 1, 1988.

Amex Philippines registered itself with the Bureau of Internal Revenue (BIR) as a value-added tax (VAT) taxpayer. For the period January 1, 1997 to December 31, 1997, it filed with the BIR its quarterly VAT returns. On April 13, 1999, it filed with the BIR a letter-request for the refund of its 1997 excess input taxes in the amount of P3,751,067.04, which amount was arrived at after deducting from its total input VAT paid ofP3,763,060.43 its applied output VAT liabilities only for the third and fourth quarters of 1997 amounting toP5,193.66 and P6,799.43, respectively. Amex cites as basis therefore, Section 110 (B) of the 1997 Tax Code which refers to excess output or input tax, to state:

The VAT is a tax on consumption "expressed as a percentage of the value added to goods or services" purchased by the producer or taxpayer. As an indirect tax on services, its main object is the transaction itself or, more concretely, the performance of all kinds of services conducted in the course of trade or business in the Philippines. These services must be regularly conducted in this country; undertaken in "pursuit of a commercial or an economic activity;" for a valuable consideration; and not exempt under the Tax Code, other special laws, or any international agreement.

(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VATregistered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters. 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 Section 112.’ In arguing that the services rendered by Amex is a zero-rated transaction, it cited Section 108 (B) (cited and to be explained below). Petitioner, on the other hand, claimed by way of Special and Affirmative Defenses that: the claim for refund is subject to investigation by the Bureau of Internal Revenue; taxes paid and collected are presumed to have been made in accordance with laws and regulations, hence, not refundable; claims for tax refund are construed strictly against the claimant as they partake of the nature of tax exemption; and that Amex must prove that it has complied with the governing rules with reference to tax recovery or refund, which are found in Sections 204(c) and 229 of the Tax Code.

Without doubt, the transactions respondent entered into with its Hong Kong-based client meet all these requirements. First , respondent regularly renders in the Philippines the service of facilitating the collection and payment of receivables belonging to a foreign company that is a clearly separate and distinct entity. Second , such service is commercial in nature; carried on over a sustained period of time; on a significant scale; with a reasonable degree of frequency; and not at random, fortuitous or attenuated. The consumption contemplated by law, contrary to petitioner’s administrative interpretation,52 does not imply that the service be done abroad in order to be zero-rated.

The CTA and CA decided in favor of Amex.

Third , for this service, respondent definitely receives consideration in foreign currency that is accounted for in conformity with law.

Issue: Whether or not Amex is engaged in a zero-rated transaction entitling it to a tax refund in the amount of P3,352,406.59 allegedly representing excess input VAT for the year 1997."10

Finally , respondent is not an entity exempt under any of our laws or international agreements. Principle Applied:

Ruling: Yes, Amex is engaged in a zero-rated transaction, hence, entitled to a tax refund.

General rule: The value-added tax (VAT) system uses the destination principle. (Where the goods/services are destined for consumption is where the VAT should be imposed.)

Sec 108 (B) of the Tax Code provides:

Exception: The destination principle does not apply when the supply of service is zero-rated.

Transactions subject to zero percent (0%) rate. –  The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:

The supply of service is zero-rated when the following requirements are met: (1) the service is performed in the Philippines;

(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)

(2) the service falls under any of the categories provided in Section 102(b) of the Tax Code; and (3) it is paid for in acceptable foreign currency that is accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas. Since respondent’s  services meet these requirements, they are zerorated.

(2) Services other than those mentioned in the preceding subparagraph, the consideration for which is paid for in acceptable

31

CASE DIGESTS ON VALUE-ADDED TAX

32

CASE DIGESTS ON VALUE-ADDED TAX 27. Philippine Phosphate Fertilizer v. CIR

by a CPA. It is not a mandatory requirement. Since petitioner did not present invoices, on the assumption that such were not necessary, then it also did not present a certification because there was nothing to certify.

G.R. No. 141973, 28 June 2005 – Rules of procedure

As to the procedural matter, Philphos can ask for new trial not on the basis of “newly  discovered evidence”  but on “mistake” or “excusable negligence” because it was acting in prudence when it did not present the invoices, as it also did not and was, in fact, not required to submit such documents in its previous similar cases.

FACTS: 

Philphos is a domestic corporation engaged in the manufacture of fertilizers for domestic and international distribution.



It is registered with the Export Processing Zone Authority (EPZA) and is exempted from the payment of excise taxes.



In the process of manufacturing fertilizers, Philphos uses oil and petroleum products that it procures from Petron.



Petron initially pays the BIR the taxes and duties imposed and is then reimbursed by Philphos when it the latter buys the petroleum products.



For the reimbursement it made to Petron in the payment of taxes and duties and by virtue of incentives it is supposed to enjoy as an EPZA registered company, Philphos sought a refund in the amount of P 602,349.00



No action was taken by the BIR and since the two-year period to file a case for tax refund before the Court of Tax Appeals was about to expire, Philphos instituted a petition for review before the CTA against the Commissioner of Internal Revenue.



To further its claim, Philphos submitted the following:

“Since  it is not disputed that petitioner is entitled to tax exemption, it should not be precluded from presenting evidence to substantiate the amount of refund it is claiming on mere technicality especially in this case, where the failure to present invoices at the first instance was adequately explained by petioner (Philphos).”

a. copies of Petron’s  Authority to Accept Payment of Excise Taxes showing the millions of pesos of excise tax paid by Petron b. schedule of petroleum products sold and delivered by Petron to Philphos c. certification issued by Petron stating that the duties imposed on the pretroleum products delivered to Philphos have also been paid for by Philphos through Petron 

The CTA ruled that while Philphos was exempt from the payment of excise taxes, “it failed to sufficiently prove that it is entitled to refund…since   it did not submit invoices to support the summary of petroleum products sold and delivered to it by Petron.”



In its motion for reconsideration, Philphos claims that in previous cases of the same nature, it was not required to submit invoices; hence, it prayed for it to be allowed to present such required invoices.



The CTA denied the motion for the reason that in the previous cases, CTA Circular 1-95 was not yet in effect. This circular requires that for voluminous documents to be presented as evidence, the petitioner must submit a summary of the dates and amounts covered by invoices and receipts and this should be duly certified by a Certified Public Accountant. It argued that to grant Philphos motion to present evidence would be to grant a new trial of the case.

ISSUE: Whether or not the CTA erred in denying Philphos’ claim for refund due to its failure to present invoices and receipts. RULING: The case was remanded to the CTA for reception of the invoices supporting the schedule of petroleum products sold and delivered to Philphos, for the proper and immediate determination of the amount to be refunded to it. RATIO: The Circular used by the CTA to justify its ruling, does not require invoices to be presented in claiming refunds. It merely states that parties who desire to introduce it as evidence should submit a summary duly certified

33

CASE DIGESTS ON VALUE-ADDED TAX 28. CIR v. Cebu Toyo Corporation, G.R. No. 149073

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.

February 17 2005 – zero-rating vs exempt Parties:

-

1) Cebu Toyo Corporation :

-

-

domestic corporation engaged in the manufacture of lenses and various optical components used in television sets, cameras, compact discs and other similar devices office at Mactan Export Processing Zone (MEPZ) a subsidiary of Toyo Lens Corporation

ISSUE:  WON the CTA erred in granting the refund in the amount of P2,158,714.46 representing unutilized input VAT on goods and services ?

zone export enterprise regsitered with the PEZA and the BIR as a VAT taxpayer

2) Tokyo Lens Corporation a non-resident corporation organized under the laws of Japan -

Contentions: CIR and OSG: Cebu Toyo Corporation is not entitled to any refund or credit on input taxes it previously paid notwithstanding its registration as a VAT taxpayer. The registration was erroneous and did not confer upon the respondent any right to claim recognition of the input tax credit.

FACTS: CTC as an export enterprise, respondent sells 80% of its products to its mother corporation, 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 P4,462,412.63.

Cebu Toyo Corporation: It availed of the income tax holiday under E.O. No. 226 for four years making it exempt from income tax but not from other taxes such as VAT. Its export sales are not exempt from VAT, contrary to petitioner’s claim, but its export sales is subject to 0% VAT.

On March 30, 1998, CTC filed an application for tax credit/refund of VAT paid amounting to P4,439,827.21 representing excess VAT input payments.To toll the running of the 2 year prescriptive period, they filed a Petition for Review with the CTA maintaining that as an exporter of goods, it is subject to VAT at the 0% rate on its export sales that do not result in any outpux tax, hence the unutilized VAT input taxes on its purchases of goods are available as tax credit.

RULING: 1) Determine if engaged in taxable transaction: The fiscal incentives granted in Section 23 of Rep. Act No. 7916 allows respondents 2 options in regards to the tax burden: A)avail of an income tax holiday pursuant to provisions of E.O. No. 226 (exempt it from income taxes for a number of years but not from other internal revenue taxes such as VAT) or; B) 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.

CTA: Respondent was a VAT-registered entity and the transactions were export sales subject to VAT but nonetheless for failure to present documentary evidence to show that there were foreign currecny exchange proceeds from its export sales, and failure to submit the Agreement of Offsetting to the BSP, it was not entitled to tax credit.

Respondent availed of the income tax holiday for four (4) years and 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.

On Motion for Recon, Ruling:

-

-

-

No need for BSP approval of the Agreement of Offsetting since the same may be categorized as an inter-company open account offset arrangement

Taxable transactions - transactions subject to VAT either at the rate of ten percent (10%) or zero percent (0%); the seller shall be entitled to tax credit for the value-added tax paid on purchases and leases of goods, properties or services.

But they must 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).

Exemption - 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. Here, the person making the exempt sale 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 VATexempt, is not entitled to any input tax on such purchases despite the issuance of a VAT invoice or receipt.24

only the amount of Y274,043,858.00 covering respondent’s sales to Toyo Lens Corporation and purchases from said mother company were actually offset against respondent’s related accounts receivable and accounts payable as shown by the Agreement for Offsetting

Commissioner’s  Motion for Recon, grounds:

-

-

respondent was not entitled to a refund because as a PEZAregistered enterprise, it was not subject to VAT pursuant to Section 24 of Republic Act No. 7916, as amended by Rep. Act No. 8748.

Respondent is engaged in taxable transactions subject to VAT. 2. Determine whether 10% (12%) or 0 % rate of VAT.

Not being subject to VAT, the capital goods it purchased must be deemed not used in VAT taxable business and therefore it was not entitled to refund

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 VATregistered person.

Court of Tax Appeals, Ruling:

-

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.

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,

Denief Motion: grounds relied upon were only raised for the first time and that Section 24 of Rep. Act No. 7916 was not

34

CASE DIGESTS ON VALUE-ADDED TAX 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.  awphi1.nét  Purpose:

-

to exempt the transaction completely from VAT previously collected on inputs

-

to ensure that goods are provided free of VAT

Difference between zero rating and exemption: Zero Rating

-

-

-

taxable transaction but does not result in an output tax input VAT on the purchase of a VAT registered person with 0 rate sales may be allowed tax credits/ refund persons engaged in such transactions are required to register

Exemption

-

-

-

exempted transactions not subject to the output tax seller is not entitled to any input tax on his purchases despite the issuance of a VAT invoice registration is option for VAT exempt persons

In the case at bar: respondent is engaged in the export business and is registered as a VAT taxpayer per Certificate of Registration of the BIR. It 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 atP2,158,714.46, but which we find —after recomputation —should be P2,158,714.52.

35

CASE DIGESTS ON VALUE-ADDED TAX 29. Contex Corp. vs. CIR, G.R. No. 151135

national and local internal revenue taxes, including VAT and Section 4(A)(a) of BIR Revenue Regulations No. 1-95.

July 2, 2004 – zero-rating vs exempt

On this point, petitioner rightly claims that it is indeed VAT-Exempt and this fact is not controverted by the respondent. In fact, petitioner is registered as a NON-VAT taxpayer per Certificate of Registration issued by the BIR. As such, it is exempt from VAT on all its sales and importations of goods and services.

FACTS: Petitioner is a domestic corporation engaged in the business of manufacturing hospital textiles and garments and other hospital supplies for export. Its place of business is at the Subic Bay Freeport Zone (SBFZ). It is duly registered with the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay Freeport Enterprise, pursuant to the provisions of Republic Act No. 7227.As an SBMA-registered firm, petitioner is exempt from all local and national internal revenue taxes except for the preferential tax provided for in Section 12(c) 5 of Rep. Act No. 7227. Petitioner also registered with the Bureau of Internal Revenue (BIR) as a non-VAT taxpayer under Certificate of Registration RDO Control No. 95-180000133.

Petitioner's claim, however, for exemption from VAT for its purchases of supplies and raw materials is incongruous with its claim that it is VATExempt, for only VAT-Registered entities can claim Input VAT Credit/Refund. The point of contention here is whether or not the petitioner may claim a refund on the Input VAT erroneously passed on to it by its suppliers. While it is true that the petitioner should not have been liable for the VAT inadvertently passed on to it by its supplier since such is a zero-rated sale on the part of the supplier, the petitioner is not the proper party to claim such VAT refund. Cc Section 4.100-2 of BIR's Revenue Regulations 7-95, as amended, or the "Consolidated Value-Added Tax Regulations" provide:

From January 1, 1997 to December 31, 1998, petitioner purchased various supplies and materials necessary in the conduct of its manufacturing business. The suppliers of these goods shifted unto petitioner the 10% VAT on the purchased items, which led the petitioner to pay input taxes in the amounts of P539,411.88 and P504,057 .49 for 1997 and 1998, respectively . Acting on the belief that it was exempt from all national and local taxes, including VAT, pursuant to Rep. Act No. 7227, petitioner filed two applications for tax refund or tax credit of the VAT it paid but were denied.

Sec. 4.100-2. Zero-rated Sales. — 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 purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these regulations. The following sales by VAT-registered persons shall be subject to 0%:

CTA granted a partial refund on the ground that it applies only to those entities registered as VAT taxpayers whose sales are zero-rated. Nonetheless, the CTA held that the petitioner is exempt from the imposition of input VAT on its purchases of supplies and materials but is required to pay as a SBFZ-registered enterprise a 5% preferential tax. CTA also disallowed all refunds of input VAT paid by the petitioner prior to June 29, 1997 for being barred by the two-year prescriptive period under Section 229 of the Tax Code

(a) Export Sales "Export Sales" shall mean xxx xxx xxx (5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws, e. g. Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992.

In reversing the CTA, the Court of Appeals held that the exemption from duties and taxes on the importation of raw materials, capital, and equipment of SBFZ-registered enterprises under Rep. Act No. 7227 and its implementing rules covers only "the VAT imposable under Section 107 of the [Tax Code], which is a direct liability of the importer, and in no way includes the value-added tax of the seller-exporter the burden of which was passed on to the importer as an additional costs of the goods." Petitioner timely moved for reconsideration of the Court of Appeals decision, but the motion was denied. Hence, the instant petition xxx xxx xxx

ISSUES:

(c) Sales

I. WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL AND NATIONAL INTERNAL REVENUE TAXES PROVIDED IN REPUBLIC ACT NO. 7227 COVERS THE VALUE ADDED TAX PAID BY PETITIONER, A SUBIC BAY FREEPORT ENTERPRISE ON ITS PURCHASES OF SUPPLIES AND MATERIALS. II. WHETHER OR NOT THE COURT OF TAX APPEALS CORRECTLY HELD THAT PETITIONER IS ENTITLED TO A TAX CREDIT OR REFUND OF THE VAT PAID ON ITS PURCHASES OF SUPPLIES AND RAW MATERIALS FOR THE YEARS 1997 AND 1998. HELD: I. The petitioner's claim to VAT exemption in the instant case for its purchases of supplies and raw materials is founded mainly on Section 12(b) and (c) of Rep. Act No. 7227, which basically exempts them from all

to persons or entities whose exemption under special laws, e. g. R.A. No. 7227 duly registered and accredited enterprises with Subic Bay Metropolitan Authority (SBMA) and Clark Development Authority (CDA), R.A. No. 7916, Philippine Economic Zone Authority (PEZA), or international agreements, e. g. Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc. to which the Philippines is a signatory effectively subject such sales to zero-rate."

Since the transaction is deemed a zero-rated sale, petitioner's supplier may claim an Input VAT credit with no corresponding Output VAT liability. Congruently, no Output VAT may be passed on to the petitioner.

36

CASE DIGESTS ON VALUE-ADDED TAX II. As an exempt VAT taxpayer, it is not allowed any tax credit on VAT (input tax) previously paid. In fine, even if we are to assume that exemption from the burden of VAT on petitioner's purchases did exist, petitioner is still not entitled to any tax credit or refund on the input tax previously paid as petitioner is an exempt VAT taxpayer. Rather, it is the petitioner's suppliers who are the proper parties to claim the tax credit and accordingly refund the petitioner of the VAT erroneously passed on to the latter. Accordingly, we find that the Court of Appeals did not commit any reversible error of law in holding that petitioner's VAT exemption under Rep. Act No. 7227 is limited to the VAT on which it is directly liable as a seller and hence, it cannot claim any refund or exemption for any input VAT it paid, if any, on its purchases of raw materials and supplies. Dispositive Portion:  WHEREFORE, the petition is DENIED for lack of merit. The Decision dated September 3, 2001, of the Court of Appeals in CA-G.R. SP No. 62823, as well as its Resolution of December 19, 2001 are AFFIRMED. No pronouncement as to costs.

37

CASE DIGESTS ON VALUE-ADDED TAX 30. CIR vs. CA, et al., G.R. No. 125355 March 30, 2000 – in the course of trade or business vis-à-vis engaged in business

ISSUE: Whether COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon.

FACTS:

DISPOSITION: The Court GRANTS the petition and REVERSES the decision of the Court of Appeals in CA-G.R. SP No. 37930

SYNOPSIS: Commonwealth Management and Services Corporation (COMASERCO, for brevity), is a corporation duly organized and existing under the laws of the Philippines. It is an affiliate of Philippine American Life Insurance Co. (PhilamLife), organized by the letter to perform collection, consultative and other technical services, including functioning as an integral auditor, of Philamlife and its other affiliates.

RULING: (1) Contrary to COMASERCO’s  contention, R.A. 7716, the Expanded VAT Law (EVAT) clarifies that even a non-stock, non-profit, organization or government entity, is liable to pay VAT on the sale of goods or service. – On May 28, 1994, Congress enacted RA 7716, the Expanded VAT Law (EVAT), amending among other sections Section 99 of the Tax Code. On January 1, 1998, Republic Act 8424, the National Internal Revenue Code of 1997, took effect. The amended law provides that:

On January 24, 1992, the BIR issued an assessment to private respondent COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.01, for taxable year 1988. COMASERCO’s  annual corporate income tax return ending December 31, 1988 indicated a net loss in its operation in the amount of P6,077.00

“SEC. 105. Persons Liable. – Any person who, in the course of trade or business, sells, barters. Exchanges, leases goods or properties, renders services, and nay person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 and 108 of this Code.

On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the latter’s finding of deficiency VAT. On August 20, 1992, the Commissioner of Internal Revenue sent a collection letter to COMASERCO demanding payment of the deficiency VAT

“The value-added tax is an indirect tar and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the good, properties or services. This rule shall likewise apply to existing sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716. “The  phrase “in the course of trade or business” means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged there in is a nonstock. Nonprofit organization (irrespective of the disposition of its net income andw whether or not it sells exclusively to members of their guests), or government entity.

On September 29, 1992, COMASERCO filed with the Court of Tax Appeals a petition for review contesting the Commissioner’s  assessment. COMASERCO asserted that the services it rendered to Philamlife and its affiliates, relating to collection, consultative and other technical assistance, including functioning as an internal auditor, were on a “noprofit, reimbursement-of-cost-only”  basis. It averred that it was not engaged in the business of providing services to Philamlife and its affiliates. COMASERCO was established to ensure operational orderliness and administrative efficiency of Philamlife and its affiliates, and not in the sales of service. COMASERCO stressed that it was not profit-motivated, thus not engaged in business. In fact, it did not generate profit but suffered a net loss in taxable year 1988. COMASERCO averred that since it was not engaged in business, it was not liable to pay VAT.

“The  rule on regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or business.” Contrary to COMASERCO’s contention the above provision clarifies that even a non-stock, non-profit, organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods, or property, and on the performance of services”, even in the absence of profit attributable thereto. The term “in the course of business” requires the regular conduct or pursuit of a commercial or an activity, regardless of whether or not the entity is profit-oriented.

On June 22, 1995, the CTA rendered decision in favor of the CIR. On July 26, 1995, respondent filed with the Court of Appeals, petition for review of the decision of the Court of Appeals. After due proceedings, on May 13, 1996, the Court of Appeals rendered decision reversing that of the Court of Tax Appeals.

(2) “In the course of Trade or Business,”  defined. – The definition of the term “in the course of trade or business” incorporated in the present laws applies to all transactions even to those made prior to its enactment. Executive Order No. 273 stated that any person who, in the course of trade or business, sells, barters or exchanges goods or services, was already liable to pay VAT. The present law merely stresses that even a nonstock, nonprofit organization or government entity is liable to pay VAT for the sale of goods and services.

The CA anchored its decision on the ratiocination in another tax case involving the same parties, where it was held that COMASERCO was not liable to pay fixed and contractor’s  tax for services rendered to Philamlife and its affiliates. The CA, in that case, reasoned that COMASERCO was not engaged in business of providing services to Philamlife and its affiliates. In the same manner, the Court of Appeals held that COMASERCO was not liable to pay VAT for it was not engaged in the business of selling service.

(3) “Sales of Services,” defined. – Section 108 of the NIRC of 1997 defines the phrase “sale of services” as the “performance  of all kinds of services for others for a fee, remuneration or consideration.”   It includes “the supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking or project.”

On July 16, 1996, the Commissioner of Internal Revenue filed with this Court a petition for review on certiorari assailing the decision of the Court of Appeals. Petitioner Commissioner on Internal Revenue aver that to “engage in business” and to “engage in the sale of services” are two different things. Petitioner maintains that the services rendered by COMASERCO to Philamlife and its affiliates, for a fee or consideration, are subject to VAT. VAT is a tax on value added by the performance of the service. It is immaterial whether profit is derived from rendering the service.

(4) A domestic corporation that provided technical, research, management and technical assistance to its affiliated companies and received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on services rendered. – On February 5, 1998, the Commissioner of Internal Revenue issued BIR

38

CASE DIGESTS ON VALUE-ADDED TAX Ruling No. 010-9812 emphasizing that a domestic corporation that provided technical, research, management and technical assistance to its affiliated companies and received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on services rendered. In fact, even if such corporation was organized without any intention of realizing profit, any income or profit generated by the entity in the conduct of its activities was subject to income tax. Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability of VAT on services rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT.

39