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COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SEAGATE TECHNOLOGY (PHILIPPINES , respon!ent. " E C I S I O N PANGANI#AN, $.

% Business companies registered in and operating from the Special Economic Zone in Naga, Cebu -- like herein respondent -- are entities exempt from all internal revenue taxes and the implementing rules relevant thereto, including the valueadded taxes or V !" lthough export sales are not deemed exempt transactions, the# are nonetheless $ero-rated" %ence, in the present case, the distinction bet&een exempt entities and exempt transactions has little significance, because the net result is that the taxpa#er is not liable for the V !" 'espondent, a V !-registered enterprise, has complied &ith all re(uisites for claiming a tax refund of or credit for the input V ! it paid on capital goods it purchased" !hus, the Court of !ax ppeals and the Court of ppeals did not err in ruling that it is entitled to such refund or credit" T&e C'se Before us is a )etition for 'evie& under 'ule *+ of the 'ules of Court, seeking to set aside the ,a# -., -//0ecision of the Court of ppeals 1C 2 in C -3' S) No" 44/56" !he decretal portion of the 0ecision reads as follo&s7 ()HEREFORE, foregoing premises considered, the petition for revie& is "ENIE" for lack of merit" T&e F'*ts !he C (uoted the facts narrated b# the Court of !ax ppeals 1C! 2, as follo&s7 8 s 9ointl# stipulated b# the parties, the pertinent facts x x x involved in this case are as follo&s7 :" ;'espondent< is a resident foreign corporation dul# registered &ith the Securities and Exchange Commission to do business in the )hilippines, &ith principal office address at the ne& Cebu !o&nship =ne, Special Economic Zone, Baranga# Cantao-an, Naga, Cebu> -" ;)etitioner< is sued in his official capacit#, having been dul# appointed and empo&ered to perform the duties of his office, including, among others, the dut# to act and approve claims for refund or tax credit> 6" ;'espondent< is registered &ith the )hilippine Export Zone uthorit# 1)EZ 2 and has been issued )EZ Certificate No" 5./** pursuant to )residential 0ecree No" 44, as amended, to engage in the manufacture of recording components primaril# used in computers for export" Such registration &as made on 4 ?une :55.> *" ;'espondent< is V ! ;1Value dded !ax2<-registered entit# as evidenced b# V ! 'egistration Certification No" 5.-/@6///4//-V issued on - pril :55.> +" V ! returns for the period : pril :55@ to 6/ ?une :555 have been filed b# ;respondent<> 4" n administrative claim for refund of V ! input taxes in the amount of )-@,645,--4"6@ &ith supporting documents 1inclusive of the ):-,-4.,5@:"/* V ! input taxes sub9ect of this )etition for 'evie&2, &as filed on * =ctober :555 &ith 'evenue 0istrict =ffice No" @6, !alisa# Cebu> ." No final action has been received b# ;respondent< from ;petitioner< on ;respondentAs< claim for V ! refund" 8!he administrative claim for refund b# the ;respondent< on =ctober *, :555 &as not acted upon b# the ;petitioner< prompting the ;respondent< to elevate the case to ;the C! < on ?ul# -:, -/// b# &a# of )etition for 'evie& in order to toll the running of the t&o-#ear prescriptive period" 8Bor his part, ;petitioner< x x x raised the follo&ing Special and ffirmative 0efenses, to &it7 :" ;'espondentAs< alleged claim for tax refundCcredit is sub9ect to administrative routinar# investigationCexamination b# ;petitionerAs< Bureau> -" Since Dtaxes are presumed to have been collected in accordance &ith la&s and regulations,A the ;respondent< has the burden of proof that the taxes sought to be refunded &ere erroneousl# or illegall# collected x x x> 6" En Citibank, N" " vs" Court of ppeals, -@/ SC' *+5 1:55.2, the Supreme Court ruled that7 8 claimant has the burden of proof to establish the factual basis of his or her claim for tax creditCrefund"F *" Claims for tax refundCtax credit are construed in Dstrictissimi 9urisA against the taxpa#er" !his is due to the fact that claims for refundCcredit ;partake of< the nature of an exemption from tax" !hus, it is incumbent upon the ;respondent< to prove that it is indeed entitled to the refundCcredit sought" Bailure on the part of the ;respondent< to prove the same is fatal to its claim for tax credit" %e &ho claims exemption must be able to 9ustif# his claim b# the clearest grant of organic or statutor# la&" n exemption from the common burden cannot be permitted to exist upon vague implications> +" 3ranting, &ithout admitting, that ;respondent< is a )hilippine Economic Zone uthorit# 1)EZ 2 registered Eco$one Enterprise, then its business is not sub9ect to V ! pursuant to Section -* of 'epublic ct No" 1;' <2 .5:4 in relation to Section :/6 of the !ax Code, as amended" s ;respondentAs< business is not sub9ect to V !, the capital goods and services it alleged to have purchased are considered not used in V ! taxable business" s such, ;respondent< is not entitled to refund of input taxes on such capital goods pursuant to Section *":/4": of 'evenue 'egulations No" 1;''<2.-5+, and of input taxes on services pursuant to Section *":/6 of said regulations" 4" ;'espondent< must sho& compliance &ith the provisions of Section -/* 1C2 and --5 of the :55. !ax Code on filing of a &ritten claim for refund &ithin t&o 1-2 #ears from the date of pa#ment of tax"A 8=n ?ul# :5, -//:, the !ax Court rendered a decision granting the claim for refund"F R+,in- o. t&e Co+rt o. Appe',s

!he C affirmed the 0ecision of the C! granting the claim for refund or issuance of a tax credit certificate 1!CC2 in favor of respondent in the reduced amount of ):-,:--,5--"44" !his sum represented the unutili$ed but substantiated input V ! paid on capital goods purchased for the period covering pril :, :55@ to ?une 6/, :555" !he appellate court reasoned that respondent had availed itself onl# of the fiscal incentives under Executive =rder No" 1E=2 --4 1other&ise kno&n as the =mnibus Envestment Code of :5@.2, not of those under both )residential 0ecree No" 1)02 44, as amended, and Section -* of ' .5:4" 'espondent &as, therefore, considered exempt onl# from the pa#ment of income tax &hen it opted for the income tax holida# in lieu of the + percent preferential tax on gross income earned" sa V !-registered entit#, though, it &as still sub9ect to the pa#ment of other national internal revenue taxes, like the V !" ,oreover, the C held that neither Section :/5 of the !ax Code nor Sections *":/4-: and *":/6-: of '' .-5+ &ere applicable" %aving paid the input V ! on the capital goods it purchased, respondent correctl# filed the administrative and 9udicial claims for its refund &ithin the t&o-#ear prescriptive period" Such pa#ments &ere -- to the extent of the refundable value -- dul# supported b# V ! invoices or official receipts, and &ere not #et offset against an# output V ! liabilit#" %ence this )etition" So,e Iss+e )etitioner submits this sole issue for our consideration7 8Ghether or not respondent is entitled to the refund or issuance of !ax Credit Certificate in the amount of ):-,:--,5--"44 representing alleged unutili$ed input V ! paid on capital goods purchased for the period pril :, :55@ to ?une 6/, :555"F T&e Co+rt/s R+,in-

!he )etition is unmeritorious" CIR vs. SEAGATE TECHNOLOGY Bacts7

Seagate !echnolog# 1Seagate2 is registered &ith the )hilippine export Zone uthorit# 1)EZ 2 and has been issued a )EZ certificate Et is also a V ! registered entit# n administrative claim for refund of V ! input taxes in the amount of )%) -@,645"@@ &as filed on =ctober *, :555 No final action as been received b# Seagate from the CE' on its claim for V ! refund Seagate thus elevated the case to the C! b# &a# of petition for revie& in order to toll the running of the t&o #ear prescriptive period

ESSHE7 GCN Segeate is entitled to the refund or issuance of !ax Credit Certificate I JES ' !E=7 Seagate is a )EZ registered enterprise

s a )EZ registered enterprise &ithin a special economic $one, Seagate is entitled in the fiscal incentives and benefits, provided for in either )044 or E= --4" Et shall moreover en9o# all privileges, benefits, advantages, or exemptions under both ' .--. and ' .@** Seagate en9o#s preferential tax treatment" Et is not sub9ect to internal revenue la&s and regulations and is even entitled to tax credits" !he V ! on capital goods is an internal revenue from &hich Seagate as an entit# is exempt" lthough the transactions involving such tax is are not exempt, Seagate as a V ! registered person ho&ever is entitled to their credits V ! is a uniform tax ranging at present from /-:/K levied on ever# importation of goods, &hether or not in the course of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties, or on each rendition of services in the course of trade or business as the# pass along the production and distribution chain, the tax being limited onl# to the value added to such goods, properties or services b# the seller, transferor or lessor Et is an indirect tax that ma# be shifted or passed on to the bu#er, transferee or lessee of the goods, properties, or services !he la& that originall# impose the V ! in the countr#, as &ell as subse(uentl# amendments of that la&, has been dra&n from the tax credit method" Hnder the present method that relied on invoices, and entit# can credit against or subtract from the V ! charged on its sales or outputs the Vat paid on its purchases, inputs and imports" Ef at the end of a taxable (uarter the output taxes charged b# a seller are e(ual to the input taxes passed on b# the suppliers, no pa#ment is re(uired" Et is &hen the output taxes exceed the input taxes tha the excess has to be paid" Ef, ho&ever, the input taxes exceed the output taxes, the excess shall be carried over to the succeeding

(uarter or (uarters" Should the input taxes result from $ero rated or effectivel# $ero rated transactions or from the ac(uisition of capital goods, an# excess over the output taxes shall instead be refunded to the taxpa#er or credited against other internal revenue taxes Zero 'ated and Effectivel# Zero 'ated !ransactions lthough both are taxable and similar in effect, $ero rated transactions differ from effectivel# $ero rated transactions as to their source Zero rated transactions generall# refer to the export sale of goods and suppl# of services" !he tax rate is set at $ero" Ghen applied to the tax base, such rate obviousl# results in no tax chargeable against the purchaser" !he seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the V ! previousl# charged b# suppliers" Effectivel# $ero rated transactions, ho&ever, refer to the sale of goods or suppl# of services to persons or entities &hose exemption under special la&s or international agreements to &hich the )hilippines is a signator# effectivel# sub9ects such transaction to a $ero rate" gain, as applied to the tax base, such rate does not #ield an# tax chargeable against the purchaser" !he seller &ho chares $ero output tax on such transactions can also claim a refund of or a tax credit certificate fir the V ! previousl# charged b# suppliers"

Zero 'ating and Exemption En terms of the V ! computation, $er rating and exemption are the same, but the extend of relief that results from either one of them is not ppl#ing the destination principle to the exportation of goods, automatic $ero rating is primaril# intended to be en9o#s b# the seller &ho is directl# and legall# liable for the V !, making such seller internationall# competitive b# allo&ing the refund or credit of input taxes that are attributable to export sales" Effective $ero rating on the contrar# is intended to benefit the purchaser &ho not being directl# and legall# liable for the pa#ment of the V !, &ill ultimatel# bear the burden of the tax shifted b# the suppliers" En both instances of $ero rating, there is a !=! L relief for the purchaser from the burden of the tax" But in an exemption there is onl# partial relief because the purchaser is not allo&ed an# tax refund of or credit for input taxes paid"

Exempt !ransaction and Exempt )art# the ob9ect of exemption from the V ! ma# either be the transaction itself or an# of the parties to the transaction n exempt transaction on the one hand", involved goods or services &hich, b# their nature are specificall# listed in and expressl# exempted from the V ! under the !ax Code, &ithout regard to the tax status I V ! exempt or not I of the part# to the transaction" Such transaction is not sub9ect to the V !, but the seller is not allo&ed an# tax refund of or credit for an# input taxes paid" n exempt part#, on the other hand is a person or entit# granted V ! exemption under the ! M Code, a special la& or an international agreement to &hich the )hilippines is a signator#, and b# virtue of &hich, its taxable transactions become exempt from the V !" Such part# is also not sub9ect to the V ! but ma# be allo&ed a tax refund of or credit for input taxes paid, depending on its registration as a V ! r non-V ! taxpa#er" Special la&s ma# certainl# exempt transactions from the V !" %o&ever, the !ax Code provides that those falling under )0 44 are not" )0 44 is the precursor of ' .5:4 I the special la& under &hich Seagate &as registered" !he purchase transactions it entered into are therefore not V ! exempt" !hese are sub9ect to the Vat" Seagate is re(uired to register" Ets sales transactions ho&ever &ill either be $ero rated or taxed at the standard rate of :/ percent" 0epending again on the application of the destination principle Ef Seagate enters into such sales transactions &ith a purchaser --- usuall# in a foreign countr# I for use or consumption outside the )hilippines, these shall be sub9ect to a / percent" Ef entered into &hich a purchase for use or consumption in the )hilippine, then these shall be sub9ect to :/ percent, unless the purchaser is exempt from the indirect burden of the V !, in &hich case it shall also be $ero rated" Since the purchases of Seagate are not exempt from the V !, the rate to be applied is $ero" Ets exemption under both )0 44 and ' .5:4 effectivel# sub9ects such transactions to a $ero rate because the eco$one &ithin &hich it is registered is managed and operated b# the )EZ as a separate customs territor#" !his means that such $one has created the legal fiction of a foreign territor#" Hnder the cross border principle of the V ! s#stem being enforced b# the BE', no V ! shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authorit#" Ef exports of goods and services from the )hilippines to a foreign countr# are free of the V !, then the same rule holds for such exports from the national territor# I except specificall# declared areas --- to an eco$one"

Sales made b# a V ! registered person in the customs territor# to a )EZ registered entit# are considered exports to a foreign countr#, conversel#, sales b# a )EZ registered entit# to a V ! registered person in the customs territor# are deemed imports from a foreign countr#" !his legal fiction is necessar# to give meaningful effect to the policies of the special la& creating the $one" Ef Seagate is located in an export processing $one &ithin that eco$one, sales to the export processing $one , even &ithout being actuall# exported, shall in fact be vie&ed as constructivel# exported under E= --4" Considered as export sales, such purchase transactions b# Seagate &ould indeed be sub9ect to a $ero rate

!he Exemptions Broad and Express ppl#ing the special la&s &e have earlier discussed, Seagate as an entit# is exempt from internal revenue la&s and regulations" !his exemption covers both direct and indirect taxes, stemming from the ver# nature of the V ! as a tax on consumption, for &hich the direct liabilit# is imposed on one person but the indirectl# made to bear, as added cost to such sales, the e(uivalent V ! n its purchases" Birst, ' .5:4 states that 8no taxes, local, and national, shall be imposed on the business establishments operating &ithin the eco$oneF Since this la& does not exclude the V ! from the prohibition, it is deemed included Second, &hen ' @.*@ &as enacted to amend ' .5:4, the same prohibition applied, except for real propert# taxes that presentl# are imposed on land o&ned b# developers !hird, foreign and domestic merchandise, ra& materials, e(uipment and the like 8shall not be sub9ect to internal revenue la&s and regulationsF under )0 44 I the original charter provisions on the latter la& modif# such exemption Bourth, even the rules implementing the )EZ la& clearl# reiterate that merchandise I except those prohibited b# la& I shall not be sub9ect to internal revenue la&s and regulationsF if brought to the eco$oneAs restricted area for manufacturing b# registered export enterprises of &hich Seagate is one" !hese rules also appl# to all enterprises registered &ith the )EZ prior to the effectivit# of such ruled

!ax 'efund as !ax Exemption !o be sure, statutes that grant tax exemptions are construed strictissimi 9uris against the taxpa#er and liberall# in favor of the taxing authorit# !ax refunds are in the nature of such exemptions" ccordingl#, the claimants of those refunds bear the burden of proving the factual basis of them claims and of sho&ing b# &ords to plain to be mistaken, that the legislature intended to exempt them" En the present case, all the cited legal provisions &ith respect to the grant of the tax exemptions are too vivid to pass unnoticed" Seagate &hich as an entit# is exempt, is different from its transactions &hich are not exempt" !he end result, ho&ever, is that it is not sub9ect to the V !" !he non taxabilit# of transactions that are other&ise taxable is merel# a necessar# incident to the tax exemption conferred b# la& upon it as an entit#, not upon the transactions themselves" Nonetheless, its exemption as an entit# and the non exemption of its transactions lead to the same result" V ! registration, not application for effective $one rating indispensable to Vat refund 'egistration is an indispensable re(uirement under our Vat la& B# the V !As ver# nature as a tax on consumption, the capital goods and services Seagate has purchased are sub9ect to V !, although at $ero rate" 'egistration does not determine taxabilit# under the V ! la&" !he BE' regulations additionall# re(uiring an approved prior application for effective $ero rating cannot prevail over the clear V ! nature of SeagateAs transactions" !he scope of such regulations is not 8&ithin the statutor# authorit# granted b# the legislature" =ther than the general registration of a taxpa#er, the V ! status of &hich is aptl# determined, no provision under our V ! la& re(uires an additional application to be made for such taxpa#erAs transactions to be considered effectivel# $ero rated" n effectivel# $ero rated transaction does not and cannot become exempt simpl# because an application therefore &as not made or if made, &as denied" !o allo& the additional re(uirement is to give unfettered discretion to those officials or agents &ho &ithout fluid consideration, are bent on den#ing a valid application

!ax 'efund or credit in order %aving determined that SeagateAs purchase transactions are sub9ect to a $ero V ! rate, the tax refund or credit is in order" s correctl# held b# the lo&er courts, Seagate had chosen the fiscal incentives in E= --4 over those in ' .5:4 and )0 44" Et opted for the income tax holida# regime instead of the + percent preferential tax regime,

!hese t&o regimes are incompatible and cannot be availed of simultaneousl# b# the same entit#" Ghile E= --4 merel# exempts it from income taxes, the )EZ la& exempts it from all taxes" !herefore Seagate can be considered exempt not from the V ! but onl# from the pa#ment of income tax for certain number of #ears depending on its registration"

CONTE0 CORPORATION, petitioner, vs. HON. COMMISSIONER OF INTERNAL REVENUE, respon!ent. " E C I S I O N 1UISUM#ING, $.% Bor revie& is the 0ecision ;:< dated September 6, -//:, of the Court of ppeals, in C -3"'" S) No" 4-@-6, &hich reversed and set aside the decision ;-< dated =ctober :6, -///, of the Court of !ax ppeals 1C! 2" !he C! had ordered the Commissioner of Enternal 'evenue 1CE'2 to refund the sum of )4@6,/4:"5/ to petitioner as erroneousl# paid input valueadded tax 1V !2 or in the alternative, to issue a tax credit certificate for said amount" )etitioner also assails the appellate courtAs 'esolution,;6< dated 0ecember :5, -//:, den#ing the motion for reconsideration" )etitioner is a domestic corporation engaged in the business of manufacturing hospital textiles and garments and other hospital supplies for export" )etitionerAs place of business is at the Subic Ba# Breeport Zone 1SBBZ2" Et is dul# registered &ith the Subic Ba# ,etropolitan uthorit# 1SB, 2 as a Subic Ba# Breeport Enterprise, pursuant to the provisions of 'epublic ct No" .--." ;*< s an SB, -registered firm, petitioner is exempt from all local and national internal revenue taxes except for the preferential tax provided for in Section :- 1c2 ;+< of 'ep" ct No" .--." )etitioner also registered &ith the Bureau of Enternal 'evenue 1BE'2 as a non-V ! taxpa#er under Certificate of 'egistration '0= Control No" 5+-:@/-///:66" Brom ?anuar# :, :55. to 0ecember 6:, :55@, petitioner purchased various supplies and materials necessar# in the conduct of its manufacturing business" !he suppliers of these goods shifted unto petitioner the :/K V ! on the purchased items, &hich led the petitioner to pa# input taxes in the amounts of )+65,*::"@@ and )+/*,/+."*5 for :55. and :55@, respectivel#";4< cting on the belief that it &as exempt from all national and local taxes, including V !, pursuant to 'ep" ct No" .--., petitioner filed t&o applications for tax refund or tax credit of the V ! it paid" ,r" Edilberto Carlos, revenue district officer of BE' '0= No" :5, denied the first application letter, dated 0ecember -5, :55@" Hnfa$ed b# the denial, petitioner on ,a# *, :555, filed another application for tax refundCcredit, this time directl# &ith tt#" lberto )agabao, the regional director of BE' 'evenue 'egion No" *" !he second letter sought a refund or issuance of a tax credit certificate in the amount of ):,:/@,6/.".-, representing erroneousl# paid input V ! for the period ?anuar# :, :55. to November 6/, :55@" Ghen no response &as forthcoming from the BE' 'egional 0irector, petitioner then elevated the matter to the Court of !ax ppeals, in a petition for revie& docketed as C! Case No" +@5+" )etitioner stressed that Section ::-1 2 ;.< if read in relation to Section :/41 21-21a2;@< of the National Enternal 'evenue Code, as amended and Section :-1b2 ;5< and 1c2 of 'ep" ct No" .--. &ould sho& that it &as not liable in an# &a# for an# value-added tax" En opposing the claim for tax refund or tax credit, the BE' asked the C! to appl# the rule that claims for refund are strictl# construed against the taxpa#er" Since petitioner failed to establish both its right to a tax refund or tax credit and its compliance &ith the rules on tax refund as provided for in Sections -/* ;:/< and --5;::< of the !ax Code, its claim should be denied, according to the BE'" =n =ctober :6, -///, the C! decided C! Case No" +@5+ as follo&s7

G%E'EB='E, in vie& of the foregoing, the )etition for 'evie& is hereb# ) '!E LLJ 3' N!E0" 'espondent is hereb# ='0E'E0 to 'EBHN0 or in the alternative to ESSHE ! M C'E0E! CE'!EBEC !E in favor of )etitioner the sum of )4@6,/4:"5/, representing erroneousl# paid input V !" S= ='0E'E0";:-< En granting a partial refund, the C! ruled that petitioner misread Sections :/41 21-21a2 and ::-1 2 of the !ax Code" !he tax court stressed that these provisions appl# onl# to those entities registered as V ! taxpa#ers &hose sales are $ero-rated" )etitioner does not fall under this categor#, since it is a non-V ! taxpa#er as evidenced b# the Certificate of 'egistration '0= Control No" 5+-:@/-///:66 issued b# '0= 'osemarie 'agasa of BE' '0= No" :@ of the Subic Ba# Breeport Zone and thus it is exempt from V !, pursuant to 'ep" ct No" .--., said the C! "

Nonetheless, the C! held that the petitioner is exempt from the imposition of input V ! on its purchases of supplies and materials" Et pointed out that under Section :-1c2 of 'ep" ct No" .--. and the Emplementing 'ules and 'egulations of the Bases Conversion and 0evelopment ct of :55-, all that petitioner is re(uired to pa# as a SBBZ-registered enterprise is a +K preferential tax" !he C! also disallo&ed all refunds of input V ! paid b# the petitioner prior to ?une -5, :55. for being barred b# the t&o-#ear prescriptive period under Section --5 of the !ax Code" !he tax court also limited the refund onl# to the input V ! paid b# the petitioner on the supplies and materials directl# used b# the petitioner in the manufacture of its goods" Et struck do&n all claims for input V ! paid on maintenance, office supplies, freight charges, and all materials and supplies shipped or delivered to the petitionerAs ,akati and )asa# Cit# offices" 'espondent CE' then filed a petition, docketed as C -3"'" S) No" 4-@-6, for revie& of the C! decision b# the Court of ppeals" 'espondent maintained that the exemption of ContexCorp" under 'ep" ct No" .--. &as limited onl# to direct taxes and not to indirect taxes such as the input component of the V !" !he Commissioner pointed out that from its ver# nature, the value-added tax is a burden passed on b# a V ! registered person to the end users> hence, the direct liabilit# for the tax lies &ith the suppliers and not Contex" Binding merit in the CE'As arguments, the appellate court decided C -3"'" S) No" 4-@-6 in his favor, thus7 G%E'EB='E, premises considered, the appealed decision is hereb# 'EVE'SE0 refund of erroneousl# paid taxes is 0ENEE0 accordingl#" S= ='0E'E0";:6< En reversing the C! , the Court of ppeals held that the exemption from duties and taxes on the importation of ra& materials, capital, and e(uipment of SBBZ-registered enterprises under 'ep" ct No" .--. and its implementing rules covers onl# 8the V ! imposable under Section :/. of the ;!ax Code<, &hich is a direct liabilit# of the importer, and in no &a# includes the value-added tax of the seller-exporter the burden of &hich &as passed on to the importer as an additional costs of the goods"F;:*< !his &as because the exemption granted b# 'ep" ct No" .--. relates to the act of importation and Section :/.;:+< of the !ax Code specificall# imposes the V ! on importations" !he appellate court applied the principle that tax exemptions are strictl# construedagainst the taxpa#er" !he Court of ppeals pointed out that under the implementing rules of 'ep" ct No" .--., the exemption of SBBZ-registered enterprises from internal revenue taxes is (ualified as pertaining onl# to those for &hich the# ma# be directl# liable" Et then stated that apparentl#, the legislative intent behind 'ep" ct No" .--. &as to grant exemptions onl# to direct taxes, &hich SBBZ-registered enterprise ma# be liable for and onl# in connection &ith their importation of ra& materials, capital, and e(uipment as &ell as the sale of their goods and services" )etitioner timel# moved for reconsideration of the Court of ppeals decision, but the motion &as denied" N0 SE! SE0E" ContexAs claim for

%ence, the instant petition raising as issues for our resolution the follo&ing7 " G%E!%E' =' N=! !%E EME,)!E=N B'=, LL L=C L N0 N !E=N L EN!E'N L 'EVENHE ! MES )'=VE0E0 EN 'E)HBLEC C! N=" .--. C=VE'S !%E V LHE 00E0 ! M ) E0 BJ )E!E!E=NE', SHBEC B J B'EE)='! EN!E')'ESE =N E!S )H'C% SES =B SH))LEES N0 , !E'E LS" G%E!%E' =' N=! !%E C=H'! =B ! M ))E LS C=''EC!LJ %EL0 !% ! )E!E!E=NE' ES EN!E!LE0 != ! M C'E0E! =' 'EBHN0 =B !%E V ! ) E0 =N E!S )H'C% SES =B SH))LEES N0 ' G , !E'E LS B=' !%E JE 'S :55. N0 :55@";:4<

B"

Simpl# stated, &e shall resolve no& the issues concerning7 1:2 the correctness of the finding of the Court of ppeals that the V ! exemption embodied in 'ep" ct No" .--. does not appl# to petitioner as a purchaser> and 1-2 the entitlement of the petitioner to a tax refund on its purchases of supplies and ra& materials for :55. and :55@" =n the first issue, petitioner argues that the appellate courtAs restrictive interpretation of petitionerAs V ! exemption as limited to those covered b# Section :/. of the !ax Code is erroneous and devoid of legal basis" Et contends that the provisions of 'ep" ct No" .--. clearl# and unambiguousl# mandate that no local and national taxes shall be imposed upon SBBZ-registered firms and hence, said la& should govern the case" )etitioner calls our attention to regulations issued b# both the SB, and BE' clearl# and categoricall# providing that the tax exemption provided for b# 'ep" ct No" .--. includes exemption from the imposition of V ! on purchases of supplies and materials" !he respondent takes the diametricall# opposite vie& that &hile 'ep" ct No" .--. does grant tax exemptions, such grant is not all-encompassing but is limited onl# to those taxes for &hich aSBBZ-registered business ma# be directl# liable" %ence, SBBZ locators are not relieved from the indirect taxes that ma# be shifted to them b# a V !-registered seller"

t this 9uncture, it must be stressed that the V ! is an indirect tax" s such, the amount of tax paid on the goods, properties or services bought, transferred, or leased ma# be shifted or passed on b# the seller, transferor, or lessor to the bu#er, transferee or lessee" ;:.< Hnlike a direct tax, such as the income tax, &hich primaril# taxes an individualAs abilit# to pa# based on his income or net &ealth, an indirect tax, such as the V !, is a tax on consumption of goods, services, or certain transactions involving the same" !he V !, thus, forms a substantial portion of consumer expenditures" Burther, in indirect taxation, there is a need to distinguish bet&een the liabilit# for the tax and the burden of the tax" s earlier pointed out, the amount of tax paid ma# be shifted or passed on b# the seller to the bu#er" Ghat is transferred in such instances is not the liabilit# for the tax, but the tax burden" En adding or including the V ! due to the selling price, the seller remains the person primaril# and legall# liable for the pa#ment of the tax" Ghat is shifted onl# to the intermediate bu#er and ultimatel# to the final purchaser is the burden of the tax" ;:@< Stated differentl#, a seller &ho is directl# and legall# liable for pa#ment of an indirect tax, such as the V ! on goods or services is not necessaril# the person &ho ultimatel# bears the burden of the same tax" Et is the finalpurchaser or consumer of such goods or services &ho, although not directl# and legall# liable for the pa#ment thereof, ultimatel# bears the burden of the tax";:5< Exemptions from V ! are granted b# express provision of the !ax Code or special la&s" Hnder V !, the transaction can have preferential treatment in the follo&ing &a#s7 1a2 V ! Exemption" n exemption means that the sale of goods or properties andCor services and the use or lease of properties is not sub9ect to V ! 1output tax2 and the seller is not allo&ed an# tax credit on V ! 1input tax2 previousl# paid" ;-/< !his is a case &herein the V ! is removed at the exempt stage 1i"e", at the point of the sale, barter or exchange of the goods or properties2" !he person making the exempt sale of goods, properties or services shall not bill an# output tax to his customers because the said transaction is not sub9ect to V !" =n the other hand, a V !-registered purchaser of V !-exempt goodsCproperties or services &hich are exempt from V ! is not entitled to an# input tax on such purchase despite the issuance of a V ! invoice or receipt";-:< 1b2 Zero-rated Sales" !hese are sales b# V !-registered persons &hich are sub9ect to /K rate, meaning the tax burden is not passed on to the purchaser" $ero-rated sale b# a V !-registered person, &hich is a taxable transaction for V ! purposes, shall not result in an# output tax" %o&ever, the input tax on his purchases of goods, properties or services related to such $ero-rated sale shall be available as tax credit or refund in accordance &ith these regulations" ;--< Hnder Zero-rating, all V ! is removed from the $ero-rated goods, activit# or firm" En contrast, exemption onl# removes the V ! at the exempt stage, and it &ill actuall# increase, rather than reduce the total taxes paid b# the exempt firmAs business or non-retail customers" Et is for this reason that a sharp distinction must be made bet&een $ero-rating and exemption in designating a value-added tax" ;-6< propos, the petitionerAs claim to V ! exemption in the instant case for its purchases of supplies and ra& materials is founded mainl# on Section :- 1b2 and 1c2 of 'ep" ct No" .--., &hich basicall# exempts them from all national and local internal revenue taxes, including V ! and Section * 1 21a2 of BE' 'evenue 'egulations No" :-5+" ;-*< =n this point, petitioner rightl# claims that it is indeed V !-Exempt and this fact is not controverted b# the respondent" En fact, petitioner is registered as a N=N-V ! taxpa#er per Certificate of 'egistration ;-+< issued b# the BE'" s such, it is exempt from V ! on all its sales and importations of goods and services" )etitionerAs claim, ho&ever, for exemption from V ! for its purchases of supplies and ra& materials is incongruous &ith its claim that it is V !-Exempt, for onl# V !-'egistered entities can claim Enput V ! CreditC'efund" !he point of contention here is &hether or not the petitioner ma# claim a refund on the Enput V ! erroneousl# passed on to it b# its suppliers" Ghile it is true that the petitioner should not have been liable for the V ! inadvertentl# passed on to it b# its supplier since such is a $ero-rated sale on the part of the supplier, the petitioner is not the proper part# to claim such V ! refund" Section *"://-- of BE'As 'evenue 'egulations .-5+, as amended, or the 8 Consolidated Value- dded !ax 'egulations F provide7 Sec" *"://--" Zero-rated Sales" $ero-rated sale b# a V !-registered person, &hich is a taxable transaction for V ! purposes, shall not result in an# output tax" %o&ever, the input tax on his purchases of goods, properties or services related to such $ero-rated sale shall be available as tax credit or refund in accordance &ith these regulations" !he follo&ing sales b# V !-registered persons shall be sub9ect to /K7

1a2 Export Sales 8Export SalesF shall mean """ 1+2 !hose considered export sales under rticles -6 and .. of Executive =rder No" --4, other&ise kno&n as the =mnibus Envestments Code of :5@., and other special la&s, e"g" 'epublic ct No" .--., other&ise kno&n as the Bases Conversion and 0evelopment ct of :55-" """ 1c2 Sales to persons or entities &hose exemption under special la&s, e"g" '" " No" .--. dul# registered and accredited enterprises &ith Subic Ba# ,etropolitan uthorit# 1SB, 2 and Clark 0evelopment uthorit# 1C0 2, '" " No" .5:4, )hilippine Economic Zone uthorit# 1)EZ 2, or international agreements, e"g" sian 0evelopment Bank 1 0B2, Enternational 'ice 'esearch Enstitute 1E''E2, etc" to &hich the )hilippines is a signator# effectivel# sub9ect such sales to $ero-rate"F Since the transaction is deemed a $ero-rated sale, petitionerAs supplier ma# claim an Enput V ! credit &ith no corresponding =utput V ! liabilit#" Congruentl#, no =utput V ! ma# be passed on to the petitioner" =n the second issue, it ma# not be amiss to re-emphasi$e that the petitioner is registered as a N=N-V ! taxpa#er and thus, is exempt from V !" s an exempt V ! taxpa#er, it is not allo&ed an# tax credit on V ! 1input tax2 previousl# paid" En fine, even if &e are to assume that exemption from the burden of V ! on petitionerAs purchases did exist, petitioner is still not entitled to an# tax credit or refund on the input tax previousl# paid as petitioner is an exempt V ! taxpa#er" 'ather, it is the petitionerAs suppliers &ho are the proper parties to claim the tax credit and accordingl# refund the petitioner of the V ! erroneousl# passed on to the latter" ccordingl#, &e find that the Court of ppeals did not commit an# reversible error of la& in holding that petitionerAs V ! exemption under 'ep" ct No" .--. is limited to the V ! on &hich it is directl# liable as a seller and hence, it cannot claim an# refund or exemption for an# input V ! it paid, if an#, on its purchases of ra& materials and supplies" )HEREFORE, the petition is 0ENEE0 for lack of merit" !he 0ecision dated September 6, -//:, of the Court of ppeals in C -3"'" S) No" 4-@-6, as &ell as its 'esolution of 0ecember :5, -//: are BBE',E0" No pronouncement as to costs" SO OR"ERE". )uno, 1Chairman2, Calle9o, Sr", and !inga, ??", concur" ustria-,artine$, ?", on leave" CIR vs. M'-s'2s'2 Lines F'*ts% )ursuant to a government program of privati$ation, !he N0C decided to sell in one lot its N,C shares and five 1+2 of its ships, &hich are 6,.// 0G! !&een-0ecker, NOloecknerN t#pe vessels"!he vessels &ere constructed for the N0C bet&een :5@: and :5@*, then initiall# leased to Lu$on Stevedoring Compan#, also its &holl#-o&ned subsidiar#" Subse(uentl#, the vessels &ere transferred and leased, on a bareboat basis, to the N,C" !he N,C shares and the vessels &ere offered for public bidding" mong the stipulated terms and conditions for the public auction &as that the &inning bidder &as to pa# Na value added tax of :/K on the value of the vessels"N =n 6 ?une :5@@, private respondent ,agsa#sa# Lines, Enc" 1,agsa#sa# Lines2 offered to bu# the shares and the vessels for ):4@,///,///"//" !he bid &as made b# ,agsa#sa# Lines, purportedl# for a ne& compan# still to be formed composed of itself and &as approved b# the Committee on )rivati$ation, and a Notice of &ard dated : ?ul# :5@@ &as issued to ,agsa#sa# Lines &ho in turn &as assessed of V ! through V ! 'uling No" +4@-@@ dated :* 0ecember :5@@ from the BE', holding that the sale of the vessels &as sub9ect to the :/K V !" !he ruling cited the fact that N0C &as a V !-registered enterprise, and thus its Ntransactions incident to its normal V ! registered activit# of leasing out personal propert# including sale of its o&n assets that are movable, tangible ob9ects &hich are appropriable or transferable are sub9ect to the :/K ;V !<" C! ruled that the sale of a vessel &as an Nisolated transaction,N not done in the ordinar# course of N0CAs business, and &as thus not sub9ect to V !, &hich under Section 55 of the !ax Code, &as applied onl# to sales in the course of trade or business" !he C! further held that the sale of the vessels could not be Ndeemed sale,N and thus sub9ect to V !, as the transaction did not fall under the enumeration of transactions deemed sale as listed either in Section ://1b2 of the !ax Code, or Section * of '"'" No" +-@." Binall#, the C! ruled that an# case of doubt should be resolved in favor of private

respondents since Section 55 of the !ax Code &hich implemented V ! is not an exemption provision, but a classification provision &hich &arranted the resolution of doubts in favor of the taxpa#er" %ence CE' appealed the C! 0ecision" Iss+e%Ghether the sale b# the National 0evelopment Compan# 1N0C2 of five 1+2 of its vessels to the private respondents is sub9ect to value-added tax 1V !2 under the National Enternal 'evenue Codeof :5@4 1!ax Code2 then prevailing at the time of the sale" !he facts are culled primaril# from the ruling of the C! " He,!7 N=! SHB?EC! != V !" V ! is ultimatel# a tax on consumption, even though it is assessed on man# levels of transactions on the basis of a fixed percentage" Et is the end user of consumer goods or services &hich ultimatel# shoulders the tax, as the liabilit# therefrom is passed on to the end users b# the providers of these goods or services &ho in turn ma# credit their o&n V ! liabilit# 1or input V !2 from the V ! pa#ments the# receive from the final consumer 1or output V !2" !he final purchase b# the end consumer represents the final link in a production chain that itself involves several transactions and several acts of consumption" !he V ! s#stem assures fiscal ade(uac# through the collection of taxes on ever# level of consumption, #et assuages the manufacturers or providers of goods and services b# enabling them to pass on their respective V ! liabilities to the next link of the chain until finall# the end consumer shoulders the entire tax liabilit#" Jet V ! is not a singular-minded tax on ever# transactional level" Ets assessment bears direct relevance to the taxpa#erAs role or link in the production chain" %ence, as affirmed b# Section 55 of the !ax Code and its subse(uent incarnations, the tax is levied onl# on the sale, barter or exchange of goods or services b# persons &ho engage in such activities, in the course of trade or business" !hese transactions outside the course of trade or business ma# invariabl# contribute to the production chain, but the# do so onl# as a matter of accident or incident" s the sales of goods or services do not occur &ithin the course of trade or business, the providers of such goods or services &ould hardl#, if at all, have the opportunit# to appropriatel# credit an# V ! liabilit# as against their o&n accumulated V ! collections since the accumulation of output V ! arises in the first place onl# through the ordinar# course of trade or business" !hat the sale of the vessels &as not in the ordinar# course of trade or business of N0C &as appreciated b# both the C! and the Court of ppeals, the latter doing so even in its first decision &hich it eventuall# reconsidered" Ge cite &ith approval the C! As explanation on this point7 En Emperial v" Collector of Enternal 'evenue, 3"'" No" L-.5-*, September 6/, :5++ 15. )hil" 55-2, the term Ncarr#ing on businessN does not mean the performance of a single disconnected act, but means conducting, prosecuting and continuing business b# performing progressivel# all the acts normall# incident thereof> &hile Ndoing businessN conve#s the idea of business being done, not from time to time, but all the time"NCourse of businessN is &hat is usuall# done in the management of trade or business Court explained that Ncourse of businessN or Ndoing businessN connotes regularit# of activit#" En the instant case, the sale &as an isolated transaction" !he sale &hich &as involuntar# and made pursuant to the declared polic# of 3overnment for privati$ation could no longer be repeated or carried on &ith regularit#" Et should be emphasi$ed that the normal V !registered activit# of N0C is leasing personal propert#" !his finding is confirmed b# the 'evised Charter of the N0C &hich bears no indication that the N0C &as created for the primar# purpose of selling real propert#" !he conclusion that the sale &as not in the course of trade or business, &hich the CE' does not dispute before this Court, should have definitivel# settled the matter" n# sale, barter or exchange of goods or services not in the course of trade or business is not sub9ect to V !" ccordingl#, the Court rules that given the undisputed finding that the transaction in (uestion &as not made in the course of trade or business of the seller, N0C that is, the sale is not sub9ect to V ! pursuant to Section 55 of the !ax Code, no matter ho& the said sale ma# he& to those transactions deemed sale as defined under Section ://" )etition 0enied" MIN"ANAO I GEOTHERMAL PARTNERSHIP v. COMMISSIONER OF INTERNAL REVENUE 3"'" Nos" :566/:, :5*46.,arch ::, -/:6 Carpio,? " )etition for 'evie& "OCTRINE% SH,, 'J =B 'HLES =N )'ESC'E)!EVE )E'E=0S ENV=LVEN3 V ! 1:2 n administrative claim must be filed &ith the CE' &ithin t&o #ears after the close of the taxable (uarter &hen the $ero-rated or effectivel# $ero-rated sales &ere made" 1-2 !he CE' has :-/ da#s from the date of submission of complete documents in support of the administrative claim &ithin &hich to decide &hether to grant a refund or issue a tax credit certificate" !he :-/-da# period ma# extend be#ond the t&o-#ear period from the filing of the administrative claim if the claim is filed in the later part of the t&o-#ear period" Ef

the :-/-da# period expires &ithout an# decision from the CE', then the administrative claim ma# be considered denied b# inaction 162 9udicial claim must be filed &ith the C! &ithin 6/ da#s from the receipt of the CE'As decision den#ing the administrative claim, or from the expiration of the :-/-da#period &ithout an# action from the CE'" 1*2 ll taxpa#ers, ho&ever, can rel# on BE' 'uling No" 0 -*@5-/6 from the time of its issuance on :/ 0ecember -//6 up to its reversal b# this Court in ichi on 4 =ctober -/:/, as an exception to the mandator# and 9urisdictional :-/P6/ da# periods" FACTS% ,indanao E and EE 1,indanao2 are value-added taxpa#ers, and Block )o&er )roduction Bacilities accredited b# the 0epartment of Energ#" !he# had a Build-=perate-!ransfer contract &ith the )hilippine National =il Corporation IEnerg# 0evelopment Compan# 1)N=C-E0C2, &hereb# ,indanao converts steam supplied to it b# )N=C-E0C into electricit#, and then delivers the electricit# to the National )o&er Corporation 1N)C2 in behalf of )N=C-E0C" !he Electric )o&er Endustr# 'eform ct of -/// 1E)E' , ' 5:642, amended the !ax 'eform ct of :55. 1' @*-*2, &hen it decreed that sales of po&er b# generation companies shall be sub9ected to a $ero rate of V !" )ursuant to E)E' , ,indanao E and EE filed their claims for the issuance of tax credit certificates on unutili$ed or excess input taxes from their sales of generated po&er and deliver# of electric capacit# and energ# to N)C" !he C! En Banc denied ,indanao EEAs claims for refund tax credit for the first and second (uarters of -//6, and ,indanao EAs claims for refundCtax credit for the first, second, third, and fourth (uarters of -//6, for being filed out of time" !he follo&ing are relevant dates7

C! 1En Banc27 ,indanao EEAs 9udicial claims &ere filed be#ond the period allo&ed in Sec" ::-1 2, b# &hich the reckoning of the t&o#ear prescriptive period for filing the application for refund or credit of input V ! attributable to $ero-rated sales or effectivel# $ero-rated sales shall be counted from the close of the taxable (uarter &hen the sales &ere made1regardless of &hether the tax &as actuall# paid2, according to CE' v" ,irant )agbilao Corporation 1,irant2 " lso, the sale of the full#depreciated Nissan )atrol is incidental to ,indanao EEAs V ! $ero -rated transactions and is V !able pursuant to Sec" :/+" ,indanao EAs claims for the first, second, third and fourth (uarters of -//6 &ere filed out of time" Section --5 is inapplicable in light of ,irant" ,oreover, the procedure prescribed under Section ::-1C2 should be follo&ed first before the C! En Banc can act on ,indanao EAs claim" ,indanao E and EE &ent up to the Supreme Court arguing that their claims &ere timel# filed pursuant to the case of tlas, &hich &as then the controlling ruling at the time of the filing" !he ,irant case, &hich uses the close of the taxable (uarter &hen the sales &ere made as the reckoning date in counting the t&o-#ear prescriptive period, cannot be applied retroactivel# to their pre9udice" 345 ISSUE%

10

Ghether the reckoning date for counting the t&o-#ear prescriptive period in Section ::- should be counted from the end of the taxable (uarter &hen the sales &ere made 1,irant2 or the date of filing the return 1 tlas2Q HEL"% Neither tlas nor ,irant applies, because &hen ,indanao EE and ,indanao E filed their respective administrative and 9udicial claims in -//+, neither case had been promulgated" tlas &as promulgated on @ ?une -//., ,irant on :- September -//@"Besides, tlas merel# stated that the t&o-#ear prescriptive period should be counted from the date of pa#ment of the output V !, not from the close of the taxable (uarter &hen the sales involving the input V ! &ere made" !he tlas doctrine did not interpret, expressl# or impliedl#, the :-/P6/ da# periods" Pres*riptive Perio! .or t&e Fi,in- o. A!6inistr'tive C,'i6s Section ::-1 2 of the :55. !ax Code &as the applicable la& at the time of filing of the claims in issue, therefore the claims needed to have been filed &ithin t&o 1-2 #ears after the close of the taxable (uarter &hen the sales &ere made" ,indanao E and EEAs administrative claims for the first (uarter of -//6 had prescribed, but their claims for the second, third and fourth (uarters of -//6 &ere filed on time" Pres*riptive Perio! .or t&e Fi,in- o. $+!i*i', C,'i6s En determining &hether the claims for the second, third and fourth (uarters of -//6 had been properl# appealed, there is still see no need to refer to either tlas or ,irant, or even to Sec" --5" !he second paragraph of Sect" ::-1C2 is clear that the taxpa#er can appeal to the C! 8&ithin thirt# 16/2 da#s from the receipt of the decision den#ing the claim or after the expiration of the one hundred t&ent# da#-period"F !he :-/P6/ da# periods are mandator# and 9urisdictional" !he taxpa#er cannot simpl# file a petition &ith the C! &ithout &aiting for the CommissionerAs decision &ithin the :-/-da# period, because other&ise there &ould be no 8decisionF or 8deemed a denialF decision for the C! to revie&" ,oreover, Sec" ::-1C2 expressl# grants a 6/-da# period to appeal to the C! , and this period need not necessaril# fall &ithin the t&o-#ear prescriptive period, as long as the administrative claim is filed &ithin such time" !he said prescriptive period does not refer to the filing of the 9udicial claim &ith the C! , but to the administrative claim &ith the Commissioner" S'n Ro7+e% Re*o-nition o. #IR R+,in- No. "A89:;8<= BE' 'uling No" 0 -*@5-/6 provided that the 8taxpa#er -claimant need not &ait for the lapse of the :-/-da# period before it could seek 9udicial relief &ith the C! "F En the consolidated cases of CIR v. S'n Ro7+e, ho&ever, the Supreme Court En Banc held that the taxpa#er cannot simpl# file a petition &ith the C! &ithout &aiting for the CommissionerAs decision &ithin the :-/-da# 9urisdictional period" Not&ithstanding, the Court also held in San 'o(ue that BE' 'uling No" 0 -*@5-/6 constitutes e(uitable estoppel in favor of taxpa#ers" Being a general interpretative rule, it can be relied on b# all taxpa#ers from the time of its issuance on :/ 0ecember -//6 up to its reversal b# the Court in Co66issioner o. Intern', Reven+e v. Ai*&i For-in- Co6p'n2 o. Asi', In*. 1 ichi2 on 4 =ctober -/:/, &here this Court held that the :-/P6/ da# periods are mandator# and 9urisdictional"F ,indanao EE filed its administrative claims for the second, third, and fourth (uarters of -//6 on :6 pril -//+" Counting :-/ da#s after filing of the administrative claim 1:: ugust -//+2 and 6/ da#s after the CE'As denial b# inaction, the last da# for filing a 9udicial claim &ith the C! for the second, third, and fourth (uarters of -//6 &as on :- September -//+" %o&ever, the 9udicial claim could not be filed earlier than :: ugust -//+, &hich &as the expiration of the :-/-da# period for the Commissioner to act" ,indanao EE filed its 9udicial claim for the second (uarter before the expiration of the :-/-da# period> it &as thus prematurel# filed" %o&ever, pursuant to San 'o(ue, the claim (ualifies under the exception to the strict application of the :-/P6/da# periods" Ets 9udicial claims for the third (uarter and fourth (uarter of -//6 &ere filed on time" ,indanao E filed its administrative claims for the second, third, and fourth (uarters of -//6 on * pril -//+" Counting :-/ da#s after filing of the administrative claim &ith the CE' 1- ugust -//+2 and 6/ da#s after the CE'As denial b# inaction, the last da# for filing a 9udicial claim &as on : September -//+" %o&ever, the 9udicial claim cannot be filed earlier than ugust -//+, &hich is the expiration of the :-/-da# period for the Commissioner to act on the claim" ,indanao E prematurel# filed its 9udicial claim for the second (uarter of -//6 but claim (ualifies under the exception in San 'o(ue" Ets 9udicial claims for the third and fourth (uarters of -//6, ho&ever, &ere filed after the prescriptive period" 3>5 ISSUE% Ghether the sale of the full#-depreciated Nissan )atrol is a one-time transaction not incidental to the V ! $ero-rated operation of ,indanao EE, thus not V !ableQ

11

,indanao EE asserts that the sale of a full# depreciated Nissan )atrol is not an incidental transaction in the course of its business but an isolated transaction that should not have been sub9ect to :/K V !" Et does not follo& that an isolated transaction cannot be an incidental transaction for purposes of V ! liabilit#" Endeed, a reading of Section :/+ &ould sho& that a transaction 8in the course of trade or businessF includes 8transactions incidental thereto"F En the course of its business, ,indanao EE bought and eventuall# sold a Nissan )atrol" )rior to the sale, the Nissan )atrol &as part of ,indanao EEAs propert#, plant, and e(uipment" !herefore, the sale of the Nissan )atrol is an incidental transaction made in the course of ,indanao EEAs business &hich should be liable for V !" "ISPOSITION% )etitions partiall# granted" !he claim of ,indanao EE for the first (uarter of -//6 is 0ENEE0, &hile its claims for the second, third, and fourth (uarters of -//6are 3' N!E0" !he claims of ,indanao E for the first, third, and fourth (uarters of -//6are 0ENEE0 &hile its claim for the second (uarter of -//6 is 3' N!E0" CIR V AMERICAN E0PRESS INTERNATIONAL, INC. (P&i,. #r'n*& 3' :+-4/5 R ?une -5, -//+ R ?" )anganiban F'*ts7 'espondent, a V ! taxpa#er, is the )hilippine Branch of ,EM HS and &as tasked &ith servicing a unit of ,EM%ongkong Branch and facilitating the collections of ,EM-%O receivables from card members situated in the )hilippines and pa#ment to service establishments in the )hilippines" Et filed &ith BE' a letter-re(uest for the refund of its :55. excess input taxes, citing as basis Section ::/B of the :55. !ax Code, &hich held that 8xxx n# input tax attributable to the purchase of capital goods or to $ero-rated sales b# a V !-registered person ma# at his option be refunded or credited against other internal revenue taxes, sub9ect to the provisions of Section ::-"F En addition, respondent relied on V ! 'uling No" /@/-@5, &hich read, 8En 'epl#, please be informed that, as a V ! registered entit# &hose service is paid for in acceptable foreign currenc# &hich is remitted in&ardl# to the )hilippine and accounted for in accordance &ith the rules and regulations of the Central Bank of the )hilippines, #our service income is automaticall# $ero rated xxxF )etitioner claimed, among others, that the claim for refund should be construed strictl# against the claimant as the# partake of the nature of tax exemption" C! rendered a decision in favor of respondent, holding that its services are sub9ect to $ero-rate" C affirmed this decision and further held that respondentAs services &ere 8services other than the processing, manufacturing or repackaging of goods for persons doing business outside the )hilippinesF and paid for in acceptable foreign currenc# and accounted for in accordance &ith the rules and regulations of BS)" Iss+e7 GCN ,EM )hils is entitled to refund He,!7 Yes" Section :/- of the !ax Code provides for the V ! on sale of services and use or lease of properties" Section :/-B particularl# provides for the services or transactions sub9ect to /K rate7 1:2 )rocessing, manufacturing or repacking goods for other persons doing business outside the )hilippines &hich goods are subse(uentl# exported, &here the services are paid for in acceptable foreign currenc# and accounted for in accordance &ith the rules and regulations of the BS)> 1-2 Services other than those mentioned in the preceding subparagraph, e"g" those rendered b# hotels and other service establishments, the consideration for &hich is paid for in acceptable foreign currenc# and accounted for in accordance &ith the rules and regulations of the BS) Hnder subparagraph -, services performed b# V !-registered persons in the )hilippines 1other than the processing, manufacturing or repackaging of goods for persons doing business outside the )hilippines2, &hen paid in acceptable foreign currenc# and accounted for in accordance &ith the 'S' of BS), are $ero-rated" 'espondent renders service falling under the categor# of $ero rating" s a general rule, the V ! s#stem uses the !estin'tion prin*ip,e as a basis for the 9urisdictional reach of the tax" 3oods and services are taxed onl# in the countr# &here the# are consumed" !hus, exports are $ero-rated, &hile imports are taxed" En the present case, the facilitation of the collection of receivables is different from the utili$ation of consumption of the outcome of such service" Ghile the facilitation is done in the )hilippines, the consumption is not" !he services rendered b# respondent are performed upon its sending to its foreign client the drafts and bulls it has gathered from service establishments here, and are therefore, services also consumed in the )hilippines" Hnder the destination principle, such service is sub9ect to :/K V !" %o&ever, the la& clearl# provides for an exception to the destination principle> that is /K V ! rate for services that are performed in the )hilippines, 8paid for in acceptable foreign currenc# and accounted for in accordance &ith the 'S' of BS)"F !he respondent meets the follo&ing re(uirements for exemption, and thus should be $ero-rated7 1:2 Service be performed in the )hilippines

12

1-2 162

!he service fall under an# of the categories in Section :/-B of the !ax Code Et be paid in acceptable foreign currenc# accounted for in accordance &ith BS) 'S'"

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. TOSHI#A INFORMATION E1UIPMENT (PHILS. , INC., respon!ent. " E C I S I O N CHICO8NA?ARIO, $.% En this )etition for 'evie& under 'ule *+ of the 'ules of Court, petitioner Commissioner of Enternal 'evenue 1CE'2 pra#s for the reversal of the decision of the Court of ppeals in C -3"'" S) No" +5:/4, ;:< affirming the order of the Court of !ax ppeals 1C! 2 in C! Case No" ++56, ;-< &hich ordered said petitioner CE' to refund or, in the alternative, to issue a tax credit certificate to respondent !oshiba Enformation E(uipment 1)hils"2, Enc" 1!oshiba2, in the amount of ):4,:@@,/*+"**, representing unutili$ed input value-added tax 1V !2 pa#ments for the first and second (uarters of :554" !here is hardl# an# dispute as to the facts giving rise to the present )etition" 'espondent !oshiba &as organi$ed and established as a domestic corporation, dul#-registered &ith the Securities and Exchange Commission on /. ?ul# :55+,;6< &ith the primar# purpose of engaging in the business of manufacturing and exporting of electrical and mechanical machiner#, e(uipment, s#stems, accessories, parts, components, materials and goods of all kinds, including, &ithout limitation, to those relating to office automation and information technolog#, and all t#pes of computer hard&are and soft&are, such as %00, C0-'=, and personal computer printed circuit boards" ;*< =n -. September :55+, respondent !oshiba also registered &ith the )hilippine Economic Zone uthorit# 1)EZ 2 as an EC=Z=NE Export Enterprise, &ith principal office in Laguna !echnopark, BiTan, Laguna" ;+< Binall#, on -5 0ecember :55+, it registered &ith the Bureau of Enternal 'evenue 1BE'2 as a V ! taxpa#er and a &ithholding agent" ;4< 'espondent !oshiba filed its V ! returns for the first and second (uarters of taxable #ear :554, reporting input V ! in the amount of ):6,::@,+*-"//;.< and )+,:-@,.4:"5*,;@< respectivel#, or a total of ):@,-*.,6/6"5*" Et alleged that the said input V ! &as from its purchases of capital goods and services &hich remained unutili$ed since it had not #et engaged in an# business activit# or transaction for &hich it ma# be liable for an# output V !" ;5< Conse(uentl#, on -. ,arch :55@, respondent !oshiba filed &ith the =ne-Stop Shop Enter- genc# !ax Credit and 0ut# 0ra&back Center of the 0epartment of Binance 10=B2 applications for tax creditCrefund of its unutili$ed input V ! for /: ?anuar# to 6: ,arch :554 in the amount of ):*,:.4,4/:"-@,;:/< and for /: pril to 6/ ?une :554 in the amount of )+,:4:,@-/".5,;::< for a total of ):5,66@,*--"/." !o toll the running of the t&o-#ear prescriptive period for 9udiciall# claiming a tax creditCrefund, respondent !oshiba, on 6: ,arch :55@, filed &ith the C! a )etition for 'evie&" Et &ould subse(uentl# file an mended )etition for 'evie& on :/ November :55@ so as to conform to the evidence presented before the C! during the hearings" En his ns&er to the mended )etition for 'evie& before the C! , petitioner CE' raised several Special and ffirmative 0efenses, to &it I +" ssuming &ithout admitting that petitioner filed a claim for refundCtax credit, the same is sub9ect to investigation b# the Bureau of Enternal 'evenue"

4" !axes are presumed to have been collected in accordance &ith la&" %ence, petitioner must prove that the taxes sought to be refunded &ere erroneousl# or illegall# collected" ." )etitioner must prove the allegations supporting its entitlement to a refund" @" )etitioner must sho& that it has complied &ith the provisions of Sections -/*1c2 and --5 of the :55. !ax Code on the filing of a &ritten claim for refund &ithin t&o 1-2 #ears from the date of pa#ment of the tax" 5" Claims for refund of taxes are construed strictl# against claimants, the same being in the nature of an exemption from taxation";:-< fter evaluating the evidence submitted b# respondent !oshiba, ;:6< the C! , in its 0ecision dated :/ ,arch -///, ordered petitioner CE' to refund, or in the alternative, to issue a tax credit certificate to respondent !oshiba in the amount of ):4,:@@,/*+"**";:*< En a 'esolution, dated -* ,a# -///, the C! denied petitioner CE'As ,otion for 'econsideration for lack of merit" ;:+<

!he Court of ppeals, in its 0ecision dated -. September -//:, dismissed petitioner CE'As )etition for 'evie& and affirmed the C! 0ecision dated :/ ,arch -///"

13

Comes no& petitioner CE' before this Court assailing the above-mentioned 0ecision of the Court of the follo&ing grounds I

ppeals based on

:" !he Court of ppeals erred in holding that petitionerAs failure to raise in the !ax Court the arguments relied upon b# him in the petition, is fatal to his cause" -" !he Court of ppeals erred in not holding that respondent being registered &ith the )hilippine Economic Zone uthorit# 1)EZ 2 as an Eco$one Export Enterprise, its business is not sub9ect to V ! pursuant to Section -* of 'epublic ct No" .5:4 in relation to Section :/6 1no& :/52 of the !ax Code" 6" !he Court of ppeals erred in not holding that since respondentAs business is not sub9ect to V !, the capital goods and services it purchased are considered not used in V ! taxable business, and, therefore, it is not entitled to refund of input taxes on such capital goods pursuant to Section *":/4-: of 'evenue 'egulations No" .5+ and of input taxes on services pursuant to Section *":/6-: of said 'egulations" *" !he Court of ppeals erred in holding that respondent is entitled to a refund or tax credit of input taxes it paid on $ero-rated transactions";:4< Hltimatel#, ho&ever, the issue still to be resolved herein shall be &hether respondent !oshiba is entitled to the tax creditCrefund of its input V ! on its purchases of capital goods and services, to &hich this Court ans&ers in the affirmative"

E n EC=Z=NE enterprise is a V !-exempt entit#" Sales of goods, properties, and services b# persons from the Customs !erritor# to EC=Z=NE enterprises shall be sub9ect to V ! at $ero percent 1/K2"
'espondent !oshiba bases its claim for tax creditCrefund on Section :/41b2 of the !ax Code of :5.., as amended, &hich reads7 SEC" :/4" 'efunds or tax credits of creditable input tax " I U 1b2 Capital goods" I V !-registered person ma# appl# for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locall# purchased, to the extent that such input taxes have not been applied against output taxes" !he application ma# be made onl# &ithin t&o 1-2 #ears after the close of the taxable (uarter &hen the importation or purchase &as made";:.< )etitioner CE', on the other hand, opposes such claim on account of Section *":/4-:1b2 of 'evenue 'egulations 1''2 No" .-5+, other&ise kno&n as the V ! 'egulations, as amended, &hich provides as follo&s I Sec" *":/4-:" 'efunds or tax credits of input tax" I " " "1b2 Capital 3oods" -- =nl# a V !-registered person ma# appl# for issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locall# purchased" !he refund shall be allo&ed to the extent that such input taxes have not been applied against output taxes" !he application should be made &ithin t&o 1-2 #ears after the close of the taxable (uarter &hen the importation or purchase &as made" 'efund of input taxes on capital goods shall be allo&ed onl# to the extent that such capital goods are used in V ! taxable business" Ef it is also used in exempt operations, the input tax refundable shall onl# be the ratable portion corresponding to the taxable operations" 8Capital goods or propertiesF refer to goods or properties &ith estimated useful life greater than one #ear and &hich are treated as depreciable assets under Section -51f2, used directl# or indirectl# in the production or sale of taxable goods or services" 1Hnderscoring ours"2 )etitioner CE' argues that although respondent !oshiba ma# be a V !-registered taxpa#er, it is not engaged in a V !-taxable business" ccording to petitioner CE', respondent !oshiba is actuall# V !-exempt, invoking the follo&ing provision of the !ax Code of :5.., as amended I

14

SEC" :/6" Exempt transactions" I !he follo&ing shall be exempt from value-added tax" U 1(2 !ransactions &hich are exempt under special la&s, except those granted under )residential 0ecree No" 44, +-5, 5.-, :*5:, and :+5/, and non-electric cooperatives under 'epublic ct No" 456@, or international agreements to &hich the )hilippines is a signator#";:@< Since respondent !oshiba is a )EZ -registered enterprise, it is sub9ect to the five percent 1+K2 preferential tax rate imposed under Chapter EEE, Section -* of 'epublic ct No" .5:4, other&ise kno&n as !he Special Economic Zone ct of :55+, as amended" ccording to the said section, 8;e<xcept for real propert# taxes on land o&ned b# developers, no taxes, local and national, shall be imposed on business establishments operating &ithin the EC=Z=NE" En lieu thereof, five percent 1+K2 of the gross income earned b# all business enterprises &ithin the EC=Z=NE shall be paidUF !he five percent 1+K2 preferential tax rate imposed on the gross income of a )EZ -registered enterprise shall be in lieu of all national taxes, including V !" !hus, petitioner CE' contends that respondent !oshiba is V !-exempt b# virtue of a special la&, 'ep" ct No" .5:4, as amended" Et &ould seem that petitioner CE' failed to differentiate bet&een V !-exempt transactions from V !-exempt entities" En the case of Commissioner of Enternal 'evenue v" Seagate !echnolog# 1)hilippines2 ,;:5< this Court alread# made such distinction I n exempt transaction, on the one hand, involves goods or services &hich, b# their nature, are specificall# listed in and expressl# exempted from the V ! under the !ax Code, &ithout regard to the tax status I V !-exempt or not I of the part# to the transactionU n exempt part#, on the other hand, is a person or entit# granted V ! exemption under the !ax Code, a special la& or an international agreement to &hich the )hilippines is a signator#, and b# virtue of &hich its taxable transactions become exempt from V !U Section :/61(2 of the !ax Code of :5.., as amended, relied upon b# petitioner CE', relates to V !-exempt transactions" !hese are transactions exempted from V ! b# special la&s or international agreements to &hich the )hilippines is a signator#" Since such transactions are not sub9ect to V !, the sellers cannot pass on an# output V ! to the purchasers of goods, properties, or services, and the# ma# not claim tax creditCrefund of the input V ! the# had paid thereon" Section :/61(2 of the !ax Code of :5.., as amended, cannot appl# to transactions of respondent !oshiba because although the said section recogni$es that transactions covered b# special la&s ma# be exempt from V !, the ver# same section provides that those falling under )residential 0ecree No" 44 are not" )residential 0ecree No" 44, creating the Export )rocessing Zone uthorit# 1E)Z 2, is the precursor of 'ep" ct No" .5:4, as amended, ;-/< under &hich the E)Z evolved into the )EZ " Conse(uentl#, the exception of )residential 0ecree No" 44 from Section :/61(2 of the !ax Code of :5.., as amended, extends like&ise to 'ep" ct No" .5:4, as amended" !his Court agrees, ho&ever, that )EZ -registered enterprises, &hich &ould necessaril# be located &ithin EC=Z=NES, are V !-exempt entities, not because of Section -* of 'ep" ct No" .5:4, as amended, &hich imposes the five percent 1+K2 preferential tax rate on gross income of )EZ -registered enterprises, in lieu of all taxes> but, rather, because of Section @ of the same statute &hich establishes the fiction that EC=Z=NES are foreign territor#" Et is important to note herein that respondent !oshiba is located &ithin an EC=Z=NE" Economic Zone has been described as I n EC=Z=NE or a Special

" " " ;S<elected areas &ith highl# developed or &hich have the potential to be developed into agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers &hose metes and bounds are fixed or delimited b# )residential )roclamations" n EC=Z=NE ma# contain an# or all of the follo&ing7 industrial estates 1EEs2, export processing $ones 1E)Zs2, free trade $ones and touristCrecreational centers" ;-:< !he national territor# of the )hilippines outside of the proclaimed borders of the EC=Z=NE shall be referred to as the Customs !erritor#";--< Section @ of 'ep" ct No" .5:4, as amended, mandates that the )EZ shall manage and operate the EC=Z=NES as a separate customs territor#> ;-6< thus, creating the fiction that the EC=Z=NE is a foreign territor#" ;-*< s a result, sales made b# a supplier in the Customs !erritor# to a purchaser in the EC=Z=NE shall be treated as an exportation from the Customs !erritor#" Conversel#, sales made b# a supplier from the EC=Z=NE to a purchaser in the Customs !erritor# shall be considered as an importation into the Customs !erritor#"

15

3iven the preceding discussion, &hat &ould be the V ! implication of sales made b# a supplier from the Customs !erritor# to an EC=Z=NE enterpriseQ !he )hilippine V ! s#stem adheres to the Cross Border 0octrine, according to &hich, no V ! shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authorit#" %ence, actual export of goods and services from the )hilippines to a foreign countr# must be free of V !> &hile, those destined for use or consumption &ithin the )hilippines shall be imposed &ith ten percent 1:/K2 V !" ;-+< ppl#ing said doctrine to the sale of goods, properties, and services to and from the EC=Z=NES, ;-4< the BE' issued 'evenue ,emorandum Circular 1',C2 No" .*-55, on :+ =ctober :555" =f particular interest to the present )etition is Section 6 thereof, &hich reads I SEC!E=N 6" T'@ Tre't6ent O. S',es M'!e #2 ' VAT Re-istere! S+pp,ier .ro6 T&e C+sto6s Territor2, To ' PE?A Re-istere! Enterprise" I 1:2 Ef the Bu#er is a )EZ registered enterprise &hich is sub9ect to the +K special tax regime, in lieu of all taxes, except real propert# tax, pursuant to '" " No" .5:4, as amended7 1a2 S',e o. -oo!s (i.e., 6er*&'n!ise " I !his shall be treated as indirect export hence, considered sub9ect to $ero percent 1/K2 V !, pursuant to Sec" :/41 21-21a21+2, NE'C and Sec" -6 of '" " No" .5:4, in relation to '!" ..1-2 of the =mnibus Envestments Code" 1b2 S',e o. servi*e" I !his shall be treated sub9ect to $ero percent 1/K2 V ! under the 8*ross Aor!er !o*trineF of the V ! S#stem, pursuant to V ! 'uling No" /6--5@ dated Nov" +, :55@" 1-2 Ef Bu#er is a )EZ registered enterprise &hich is not embraced b# the +K special tax regime, hence, sub9ect to taxes under the NE'C, e"g", Service Establishments &hich are sub9ect to taxes under the NE'C rather than the +K special tax regime7 1a2 S',e o. -oo!s (i.e., 6er*&'n!ise " I !his shall be treated as indirect export hence, considered sub9ect to $ero percent 1/K2 V !, pursuant to Sec" :/41 21-21a21+2, NE'C and Sec" -6 of '" " No" .5:4 in relation to '!" ..1-2 of the =mnibus Envestments Code" 1b2 S',e o. Servi*e" I !his shall be treated sub9ect to $ero percent 1/K2 V ! under the 8cross border doctrineF of the V ! S#stem, pursuant to V ! 'uling No" /6--5@ dated Nov" +, :55@" 162 En the final anal#sis, an# sale of goods, propert# or services made b# a V ! registered supplier from the Customs !erritor# to an# registered enterprise operating in the eco$one, regardless of the class or t#pe of the latterAs )EZ registration, is actuall# (ualified and thus legall# entitled to the $ero percent 1/K2 V !" ccordingl#, all sales of goods or propert# to such enterprise made b# a V ! registered supplier from the Customs !erritor# shall be treated sub9ect to /K V !, pursuant to Sec" :/41 21-21a21+2, NE'C, in relation to '!" ..1-2 of the =mnibus Envestments Code, &hile all sales of services to the said enterprises, made b# V ! registered suppliers from the Customs !erritor#, shall be treated effectivel# sub9ect to the /K V !, pursuant to Section :/@1B2162, NE'C, in relation to the provisions of '" " No" .5:4 and the 8Cross Border 0octrineF of the V ! s#stem" !his Circular shall serve as a sufficient basis to entitle such supplier of goods, propert# or services to the benefit of the $ero percent 1/K2 V ! for sales made to the aforementioned EC=Z=NE enterprises and shall serve as sufficient compliance to the re(uirement for prior approval of $ero-rating imposed b# 'evenue 'egulations No" .-5+ effective as of the date of the issuance of this Circular" Endubitabl#, no output V ! ma# be passed on to an EC=Z=NE enterprise since it is a V !-exempt entit#" !he V ! treatment of sales to it, ho&ever, varies depending on &hether the supplier from the Customs !erritor# is V !-registered or not" Sales of goods, properties and services b# a V !-registered supplier from the Customs !erritor# to an EC=Z=NE enterprise shall be treated as export sales" Ef such sales are made b# a V !-registered supplier, the# shall be sub9ect to V ! at $ero percent 1/K2" En $ero-rated transactions, the V !-registered supplier shall not pass on an# output V ! to the EC=Z=NE enterprise, and at the same time, shall be entitled to claim tax creditCrefund of its input V ! attributable to such sales" Zero-rating of export sales primaril# intends to benefit the exporter 1 i"e", the supplier from the Customs !erritor#2, &ho is directl# and legall# liable for the V !, making it internationall# competitive b# allo&ing it to creditCrefund the input V ! attributable to its export sales"

16

,ean&hile, sales to an EC=Z=NE enterprise made b# a non-V ! or unregistered supplier &ould onl# be exempt from V ! and the supplier shall not be able to claim creditCrefund of its input V !" Even conceding, ho&ever, that respondent !oshiba, as a )EZ -registered enterprise, is a V !-exempt entit# that could not have engaged in a V !-taxable business, this Court still believes, given the particular circumstances of the present case, that it is entitled to a creditCrefund of its input V !"

EE )rior to ',C No" .*-55, ho&ever, )EZ -registered enterprises availing of the income tax holida# under Executive =rder No" --4, as amended, &ere deemed sub9ect to V !"
En his )etition, petitioner CE' opposed the grant of tax creditCrefund to respondent !oshiba, reasoning thus I En the first place, respondent could not have paid input taxes on its purchases of goods and services from V !-registered suppliers because such purchases being $ero-rated, that is, no output tax &as paid b# the suppliers, no input tax &as shifted or passed on to respondent" !he V ! is an indirect tax and the amount of tax ma# be shifted or passed on to the bu#er, transferee or lessee of the goods, properties or services 1 Section :/+, :55. !ax Code2" U Secondl#, Section *"://-- of 'evenue 'egulations No" .-5+ provides7 8SEC" *"://--" Zero-rated sales" $ero-rated sale b# a V !-registered person, &hich is a taxable transaction for V ! purposes, shall not result in an# output tax" %o&ever, the input tax on his purchases of goods, properties or services related to such $ero-rated sale shall be available as tax credit or refund in accordance &ith these regulations"F Brom the foregoing, the V !-registered person &ho can avail as tax credit or refund of the input tax on his purchases of goods, services or properties is the seller &hose sale is $ero-rated" ppl#ing the foregoing provision to the case at bench, the V !-registered supplier, &hose sale of goods and services to respondent is $ero-rated, can avail as tax credit or refund the input taxes on its 1supplier2 o&n purchases of goods and services related to its $ero-rated sale of goods and services to respondent" =n the other hand, respondent, as the bu#er in such $ero-rated sale of goods and services, could not have paid input taxes for &hich it can claim as tax credit or refund" ;-.< Before an#thing else, this Court &ishes to point out that petitioner CE' is &orking on the erroneous premise that respondent !oshiba is claiming tax credit or refund of input V ! based on Section *"://--, ;-@< in relation to Section *":/4:1a2,;-5< of '' No" .-5+, as amended, &hich allo&s the tax creditCrefund of input V ! on $ero-rated sales of goods, properties or services" Enstead, respondent !oshiba is basing its claim for tax credit or refund on Sec" *":/4-:1b2 of the same regulations, &hich allo&s a V !-registered person to appl# for tax creditCrefund of the input V ! on its capital goods" Ghile in the former, the seller of the goods, properties or services is the one entitled to the tax creditCrefund> in the latter, it is the purchaser of the capital goods" Nevertheless, regardless of his mistake as to the basis for respondent !oshibaAs application for tax creditCrefund, petitioner CE' validl# raised the (uestion of &hether an# output V ! &as actuall# passed on to respondent !oshiba &hich it could claim as input V ! sub9ect to creditCrefund" Ef the V !-registered supplier from the Customs !erritor# did not charge an# output V ! to respondent !oshiba believing that it is exempt from V ! or it is sub9ect to $ero-rated V !, then respondent !oshiba did not pa# an# input V ! on its purchase of capital goods and it could not claim an# tax creditCrefund thereof" !he rule that an# sale b# a V !-registered supplier from the Customs !erritor# to a )EZ -registered enterprise shall be considered an export sale and sub9ect to $ero percent 1/K2 V ! &as clearl# established onl# on :+ =ctober :555, upon the issuance of ',C No" .*-55" )rior to the said date, ho&ever, &hether or not a )EZ -registered enterprise &as V !exempt depended on the t#pe of fiscal incentives availed of b# the said enterprise" !his old rule on V !-exemption or liabilit# of )EZ -registered enterprises, follo&ed b# the BE', also recogni$ed and affirmed b# the C! , the Court of ppeals, and even this Court, ;6/< cannot be lightl# disregarded considering the great number of )EZ -registered enterprises &hich did rel# on it to determine its tax liabilities, as &ell as, its privileges" ccording to the old rule, Section -6 of 'ep" ct No" .5:4, as amended, gives the )EZ -registered enterprise the option to choose bet&een t&o sets of fiscal incentives7 1a2 !he five percent 1+K2 preferential tax rate on its gross income under 'ep" ct No" .5:4, as amended> and 1b2 the income tax holida# provided under Executive =rder No" --4, other&ise kno&n as the =mnibus Envestment Code of :5@., as amended" ;6:<

17

!he five percent 1+K2 preferential tax rate on gross income under 'ep" ct No" .5:4, as amended, is in lieu of all taxes" Except for real propert# taxes, no other national or local tax ma# be imposed on a )EZ -registered enterprise availing of this particular fiscal incentive, not even an indirect tax like V !" lternativel#, Book VE of Exec" =rder No" --4, as amended, grants income tax holida# to registered pioneer and nonpioneer enterprises for six-#ear and four-#ear periods, respectivel#" ;6-<!hose availing of this incentive are exempt onl# from income tax, but shall be sub9ect to all other taxes, including the ten percent 1:/K2 V !" !his old rule clearl# did not take into consideration the Cross Border 0octrine essential to the V ! s#stem or the fiction of the EC=Z=NE as a foreign territor#" Et relied totall# on the choice of fiscal incentives of the )EZ -registered enterprise" gain, for emphasis, the old V ! rule for )EZ -registered enterprises &as based on their choice of fiscal incentives7 1:2 Ef the )EZ -registered enterprise chose the five percent 1+K2 preferential tax on its gross income, in lieu of all taxes, as provided b# 'ep" ct No" .5:4, as amended, then it &ould be V !-exempt> 1-2 Ef the )EZ -registered enterprise availed of the income tax holida# under Exec" =rder No" --4, as amended, it shall be sub9ect to V ! at ten percent 1:/K2" Such distinction &as abolished b# ',C No" .*-55, &hich categoricall# declared that all sales of goods, properties, and services made b# a V !-registered supplier from the Customs !erritor# to an EC=Z=NE enterprise shall be sub9ect to V !, at $ero percent 1/K2 rate, regardless of the latterAs t#pe or class of )EZ registration> and, thus, affirming the nature of a )EZ -registered or an EC=Z=NE enterprise as a V !-exempt entit#" !he sale of capital goods b# suppliers from the Customs !erritor# to respondent !oshiba in the present )etition took place during the first and second (uarters of :554, &a# before the issuance of ',C No" .*-55, and &hen the old rule &as accepted and implemented b# no less than the BE' itself" Since respondent !oshiba opted to avail itself of the income tax holida# under Exec" =rder No" --4, as amended, then it &as deemed sub9ect to the ten percent 1:/K2 V !" Et &as ver# likel# therefore that suppliers from the Customs !erritor# had passed on output V ! to respondent !oshiba, and the latter, thus, incurred input V !" Et bears emphasis that the C! , &ith the help of S3V S Co", the independent accountant it commissioned to make a report, alread# thoroughl# revie&ed the evidence submitted b# respondent !oshiba consisting of receipts, invoices, and vouchers, from its suppliers from the Customs !erritor#" ccordingl#, this Court gives due respect to and adopts herein the C! As findings that the suppliers of capital goods from the Customs !erritor# did pass on output V ! to respondent !oshiba and the amount of input V ! &hich respondent !oshiba could claim as creditCrefund" ,oreover, in another circular, 'evenue ,emorandum Circular 1',C2 No" *---//6, issued on :+ ?ul# -//6, the BE' ans&ered the follo&ing (uestion I V-+7 Hnder 'evenue ,emorandum Circular 1',C2 No" .*-55, purchases b# )EZ -registered firms automaticall# (ualif# as $ero-rated &ithout seeking prior approval from the BE' effective =ctober :555" :2 Gill the =SS-0=B Center still accept applications from )EZ -registered claimants &ho &ere allegedl# billed V ! b# their suppliers before and during the effectivit# of the ',C b# issuing V ! invoicesCreceiptsQ U -+1:27 Ef the )EZ -registered enterprise is pa#ing the +K preferential tax in lieu of all other taxes, the said )EZ -registered taxpa#er cannot claim !CC or refund for the V ! paid on purchases" %o&ever, if the taxpa#er is availing of the income tax holida#, it can claim V ! credit provided7 a" !he taxpa#er-claimant is V !-registered> b" )urchases are evidenced b# V ! invoices or receipts, &hichever is applicable, &ith shifted V ! to the purchaser prior to the implementation of ',C No" .*-55> and c" !he supplier issues a s&orn statement under penalties of per9ur# that it shifted the V ! and declared the sales to the )EZ -registered purchaser as taxable sales in its V ! returns" Bor invoicesCreceipts issued upon the effectivit# of ',C No" .*-55, the claims for input V ! b# )EZ registered companies, regardless of the t#pe or class of )EZ registration, should be denied" Hnder ',C No" *---//6, the 0=B &ould still accept applications for tax creditCrefund filed b# )EZ -registered enterprises, availing of the income tax holida#, for input V ! on their purchases made prior to ',C No" .*-55" cceptance of applications essentiall# implies processing and possible approval thereof depending on &hether the given conditions are met" 'espondent !oshibaAs claim for tax creditCrefund arose from the ver# same circumstances recogni$ed b# V-+1:2 and -+1:2 of ',C No" *---//6" Et therefore seems irrational and unreasonable for petitioner CE' to oppose respondent

18

!oshibaAs application for tax creditCrefund of its input V !, &hen such claim had alread# been determined and approved b# the C! after due hearing, and even affirmed b# the Court of ppeals> &hile it could accept, process, and even approve applications filed b# other similarl#-situated )EZ -registered enterprises at the administrative level"

EEE

Bindings of fact b# the C! are respected and adopted b# this Court"


Binall#, petitioner CE', in a last desperate attempt to block respondent !oshibaAs claim for tax creditCrefund, challenges the allegation of said respondent that it availed of the income tax holida# under Exec" =rder No" --4, as amended, rather than the five percent 1+K2 preferential tax rate under 'ep" ct No" .5:4, as amended" Hndoubtedl#, this is a factual matter that should have been raised and threshed out in the lo&er courts" 3iving it credence &ould belie petitioner CE'As assertion that it is raising onl# issues of la& in its )etition that ma# be resolved &ithout need for reception of additional evidences" =nce more, this Court respects and adopts the finding of the C! , affirmed b# the Court of ppeals, that respondent !oshiba had indeed availed of the income tax holida# under Exec" =rder No" --4, as amended" )HEREFORE, based on the foregoing, this Court BBE',S the decision of the Court of ppeals in C -3"'" S)" No" +5:/4, and the order of the C! in C! Case No" ++56, ordering said petitioner CE' to refund or, in the alternative, to issue a tax credit certificate to respondent !oshiba, in the amount of ):4,:@@,/*+"**, representing unutili$ed input V ! for the first and second (uarters of :554" SO OR"ERE". )uno, 1Chairman2,

ustria-,artine$, Calle9o, Sr", and !inga, ??", concur"


COMMISSIONER OF INTERNAL REVENUE V. MIRANT PAG#ILAO CORP. Septe6Aer 4>, ><<:

F'*ts% ,irant )agbilao Corporation 1 hereinafter 8 ,)C F2 is a domestic firm engaged in the generation of po&er &hich it sells to the National )o&er Corporation 1 hereinafter 8N)CF 2" Bor the construction of the electrical and mechanical e(uipment portion of its )agbilao, Vue$on )lant, &hich appears to have been undertaken from :556 to :554, ,)C secured the services of ,itsubishi Corporation 1 hereinafter 8 ,itsubishiF 2 of ?apan" Et &as onl# on pril :*, :55@ that ,)C paid ,itsubishi the V ! component for the progress billings from pril :556 to September :554, and for &hich ,itsubishi issued =fficial 'eceipt No" /:@5 1 hereinafter 8=fficial 'eceiptF 2" En accordance &ith a V ! 'uling No" /+--55 issued on ,a# :6, :555, the suppl# of electricit# b# ,)C to the N)C, shall be sub9ect to $ero percent V !" ,)C filed on 0ecember -/, :555 an administrative claim for refund of unutili$ed input V !" Et is the allegation of ,)C that since its sales to N)C is sub9ect to $ero percent V !, then the input V ! must be refunded" Iss+es% :" Ghether or not the :55@ =fficial 'eceipt can evidence pa#ment of input V ! corresponding to a :556 to :554 transactionQ -" Ghether or not the claim for V ! refund of ,)C &as filed &ithin the reglementar# periodQ R+,in-% :" !he Supreme Court ruled that the =fficial 'eceipt constituted sufficient proof of pa#ment of creditable input V ! for the progress billings from ,itsubishi for the period covering pril ., :556 to September 4, :554" s the Court distinctl# notes, the la& considers a dul#- vexecuted V ! invoice or =fficial 'eceipt as sufficient evidence to support a claim for input tax credit" -" !he claim for refund or tax credit for the creditable input V ! pa#ment made b# ,)C embodied in the =fficial 'eceipt &as filed be#ond the period provided b# la& for such claim" !he unutili$ed input V ! pa#ments not other&ise used for an# internal revenue tax due the taxpa#er must be claimed &ithin t&o #ears reckoned from the close of the taxable (uarter &hen the relevant sales &ere made pertaining to the input V ! regardless of &hether said tax &as paid or not" 3iven that the last creditable input V ! due for the period covering the progress billing of September 4, :554 is the third (uarter of :554 ending on September 6/, :554, an# claim for unutili$ed creditable input V ! refund or tax credit for said (uarter prescribed t&o #ears after September 6/, :554 or, to be precise, on September 6/, :55@" Conse(uentl#, ,)CAs claim for refund or tax credit filed on 0ecember :/, :555 had alread# prescribed"

19

0issension in the Court7 Bebruar# -/:6 )osted on ,arch 4, -/:6 b# 'afael L" Encarnacion W )osted in )hilippines - Cases, )hilippines - La&, )hilippines 'egulation,!ax La& W !agged value added tax W !he primar# issue in the three 162 consolidated cases involving San 'o(ue )o&er, !aganito ,ining and )hilex ,ining decided last Bebruar# :-, -/:6 revolves around the proper period for filing the 9udicial claim for refund or credit of creditable input tax" Hnder Section ::-1 2 and ::-1C2 of the !ax Code, a taxpa#er &hose sales are $ero-rated or effectivel# $erorated can file his administrative claim for refund or credit at an#time &ithin t&o 1-2 #ears after the taxable (uarter &hen the sales &ere made and, after full or partial denial of the claim or failure of the Commissioner to act on his application &ithin :-/ da#s from submission of the same, he ma#, &ithin 6/ da#s from receipt of the decision den#ing the claim or after the expiration of the :-/-da# period, file his 9udicial claim &ith the C! " !hese cases all involved the timel# filing b# the taxpa#ers of their administrative claims &ith the Commissioner of Enternal 'evenue" %o&ever, San 'o(ue and !aganito both prematurel# filed their 9udicial claims &ithout &aiting for the :-/-da# period 1for the Commissioner to act on their administrative claims2 to lapse, &hereas )hilex &as a case of late filing since it did not file its 9udicial claim until after *-4 da#s be#ond the :-/ P 6/ da# periods" Voting 5 to 4, the ma9orit#, in a decision penned b# ?ustice Carpio, denied tax refund or credit to San 'o(ue and )hilex, but granted the same to !aganito" !he ma9orit# denied refund to San 'o(ue on the basis, among others, that the &aiting period for filing a 9udicial claim is mandator# and 9urisdictional and has been in the !ax Code for more than :+ #ears before San 'o(ue filed its 9udicial claim in pril :/, -//6 1barel# :6 da#s after it filed its administrative claim2" !he ma9orit#, ho&ever, granted refund to !aganito &ho, although like San 'o(ue filed its 9udicial claim &ithout &aiting for the :-/-da# period to lapse, &as deemed to have filed its 9udicial claim on time since it &as filed on Bebruar# :*, -//. or after the issuance of BE' 'uling No" 0 -*@5-/6 on 0ecember :/, -//6 1&hich states that the taxpa#er need not &ait for the :-/-da# period to lapse before it could seek 9udicial relief &ith the C! 2 but before the =ctober 4, -/:/ Supreme Court 1SC2 decision in Commissioner of Enternal 'evenue v" ichi Borging Compan# of sia 1reinstating the :-/P6/ da# periods as mandator# and 9urisdictional2" !he ma9orit# held that since the Commissioner has exclusive and original 9urisdiction to interpret tax la&s under Section * of the !ax Code, a taxpa#er should not be pre9udiced b# an erroneous interpretation b# the Commissioner and, under Section -*4, a reversal of a BE' ruling cannot adversel# pre9udice a taxpa#er like !aganito &ho in good faith relied on it prior to its reversal" En den#ing )hilexAs 9udicial claim for refund filed on =ctober :., -//., the ma9orit# ruled that the inaction of the Commissioner during the :-/-da# period is a 8deemed denialF and )hilexAs failure to file an appeal &ithin 6/ da#s from the expiration of the :-/-da# period rendered the 8deemed denialF decision of the Commissioner final and inappealable" En his dissenting opinion, ?" Velasco, 9oined b# ?" ,endo$a and ?" )erlas-Bernabe, suggested that the doctrine applicable to a claim for refund depends on the operative case and the prevailing rulings and practices at the time of filing the claim" En San 'o(ue, since both the administrative and 9udicial claims &ere filed during the effectivit# of '' .-5+ 1&hich still applied the --#ear prescriptive period to 9udicial claims2, San 'o(ue can claim good faith reliance on '' .-5+ and the then prevailing practices of the BE' and C! to believe that the :-/ P 6/-da# periods are dispensable so long as both administrative and 9udicial claims are filed &ithin th e --#ear period" En den#ing refund to !aganito, ho&ever, the dissenter pointed out that !aganito cannot claim reliance in good faith on '' .-5+ since it filed its 9udicial claim after November :, -//+ &hen '' :4-//+ took effect and superseded '' .-5+ 1including BE' 'uling No" 0 -*@5-/6 relied upon b# the ma9orit# in granting refund to !aganito and &hich this dissenter believed &as a mere application of '' .-5+2, deleting the reference therein to the --#ear period for filing 9udicial claims" )hilex, on the other hand, filed its claim belatedl# under both the superseded '' .-5+ and the effective '' :4--//+" !his dissenter thus voted to grant refund to San 'o(ue, but to den# it to !aganito and )hilex" En his separate dissenting opinion, C? Sereno, concurred &ith ?" VelascoAs dissent in San 'o(ue and )hilex but disagreed &ith the latterAs stand in !aganito since, at the time !aganito filed its administrative and 9udicial claims for refund, the -#ear prescriptive period remained the unreversed interpretation of the court" !hus, !aganito cannot be faulted for rel#ing on court interpretations even &ith the existence of '' :4--//+, and for preferring to abide b# court interpretations over mere administrative issuances as the latterAs validit# is still sub9ect to 9udicial determination" !his dissenter believed that the mandator# and 9urisdictional nature of the :-/P6/ da# periods &as onl# definitel# and categoricall# declared b# the SC in ichi on =ctober 4, -/:/ and should onl# be applied prospectivel# from that time, and that previous regard to the :-/P6/-da# periods is an exceptional circumstance &hich &arrants procedural liberalit# to taxpa#ers &ho relied on such interpretations" En his separate dissenting opinion, ?" Leonen, 9oined b# ?" del Castillo, disagreed that SC interpretations of the la& take effect onl# prospectivel#, since the SCAs dut# is to construe and not to make la&, and its interpretation became part of the la& from the date it &as originall# passed" !his dissenter further reminds us that an 8erroneous application of the la& b# public officers does not preclude a subse(uent correct application of the statute, and the 3overnment is never estopped b# mistake or error on the part of its agents"F ccordingl#, &hile the Commissioner is given po&er and authorit# to interpret tax la&s, it cannot legislate guidelines contrar# to the la& it is tasked to implement" %ence its interpretation is not conclusive and &ill be ignored if 9udiciall# found to be erroneous" nd &hile concededl# an# reversal of an# BE' ruling cannot

20

adversel# pre9udice a taxpa#er &ho in good faith relied on it prior to its reversal, if it is patentl# clear that the ruling is contrar# to the text itself, there can be no reliance in good faith" Burther, that it is the dut# of the la&#ers of private parties to best discern the acceptable interpretation of legal text and, in doing so, the# take the risk that the SC &ill rule other&ise, especiall# if the text of the la& I as in this case I is ver# clear" !his dissenter thus voted to den# refund to all three taxpa#ers" Need for commercial sale to claim input V ! )osted on 0ecember 6/, -//5 b# %ector ," de Leon ?r W )osted in !ax La& W !agged value added tax W Hnder the !ax Code, a taxpa#er ma# claim a tax refund or credit for input V ! attributable to $ero-rated or effectivel# $ero-rated sales" Es it necessar# for a taxpa#er to have made a commercial sale during the period it is claiming a refund of input V !Q En San 'o(ue )o&er Corporation vs" Commissioner of Enternal 'evenue, 3"'" No" :@/6*+, November -+, -//5, San 'o(ue did not make an# commercial sale of electricit# to National )o&er Corporation 1N)C2 during the period in (uestion as San 'o(ue &as still constructing its po&er plant" %o&ever, during the same period, and &hile the po&er plant &as being tested, San 'o(ue produced and transferred electricit# to N)C in exchange for )*-"+ million" San 'o(ue filed a claim for refund &ith the Bureau of Enternal 'evenue 1BE'2" !he BE' failed to act on San 'o(ueAs claim for refund, &hich prompted San 'o(ue to file a petition for revie& &ith the Court of !ax ppeals 1C! 2" !he C! As Second 0ivision rendered a decision den#ing San 'o(ueAs claim for tax refund or credit" ccording to the Second 0ivision, San 'o(ue did not make an# $ero-rated or effectivel#-$ero rated sales for the taxable #ear -//-> hence, San 'o(ueAs claim must be denied" !he C! En Banc eventuall# reiterated the ruling of the Second 0ivision that San 'o(ueAs claim based on Section ::-1 2 of the NE'C should be denied since it did not present an# records of an# $ero-rated or effectivel# $erorated transactions" !he main issue before the Supreme Court is &hether or not San 'o(ue ma# claim a tax refund or credit for creditable input tax attributable to $ero-rated or effectivel# $ero-rated sales pursuant to Section ::-1 2 of the NE'C or for input taxes paid on capital goods as provided under Section ::-1B2 of the NE'C" !he Supreme Court found San 'o(ueAs petition meritorious and reversed the C! " Et laid out the re(uirements for claiming a tax refund or credit7 !o claim refund or tax credit under Section ::-1 2, petitioner must compl# &ith the follo&ing criteria7 1:2 the taxpa#er is V ! registered> 1-2 the taxpa#er is engaged in $ero-rated or effectivel# $ero-rated sales> 162 the input taxes are due or paid> 1*2 the input taxes are not transitional input taxes> 1+2 the input taxes have not been applied against output taxes during and in the succeeding (uarters> 142 the input taxes claimed are attributable to $ero-rated or effectivel# $ero-rated sales> 1.2 for $ero-rated sales under Section :/41 21-21:2 and 1-2> :/41B2> and :/@1B21:2 and 1-2, the acceptable foreign currenc# exchange proceeds have been dul# accounted for in accordance &ith BS) rules and regulations> 1@2 &here there are both $ero-rated or effectivel# $ero-rated sales and taxable or exempt sales, and the input taxes cannot be directl# and entirel# attributable to an# of these sales, the input taxes shall be proportionatel# allocated on the basis of sales volume> and 152 the claim is filed &ithin t&o #ears after the close of the taxable (uarter &hen such sales &ere made" !he Supreme Court noted that the issue pertains to compliance &ith the sixth re(uirement, i"e", &hether the input V ! claimed are attributable to $ero-rated or effectivel# $ero-rated sales7 !he main dispute in this case is &hether or not petitionerAs claim complied &ith the sixth re(uirementXthe existence of $ero-rated or effectivel# $ero-rated sales, to &hich creditable input taxes ma# be attributed" !he C! in 0ivision and en banc denied petitionerAs claim solel# on this ground" !he tax courts based this conclusion on the audited report, marked as Exhibit 8?--,F stating that petitioner made no sale of electricit# to N)C in -//-" ,oreover, the affidavit of Echevarria 1Exhibit 8LF2, petitionerAs Vice )resident and 0irector for Binance, contained an admission that no commercial sale of electricit# had been made in favor of N)C in -//- since the pro9ect &as still under construction at that time" !he Supreme Court ruled that there &as a 8saleF of electricit# b# San 'o(ue to N)C in -//-7 " " " upon closer examination of the records, it appears that on -//-, petitioner carried out a 8saleF of electricit# to N)C" !he fourth (uarter return for the #ear -//-, &hich petitioner filed, reported a $ero-rated sale in the amount of )*-,+//,///"//" En the ffidavit of Echevarria dated 5 Bebruar# -//+ 1Exhibit 8LF2, &hich &as uncontroverted b# respondent, the affiant stated that although no commercial sale &as made in -//-, petitioner produced and transferred electricit# to N)C during the testing period in exchange for the amount of )*-,+//,///"// " " " !he Supreme Court noted that &hile the sale &as not a commercial sale, it &as a deemed sale transaction7 !he Court is not unmindful of the fact that the transaction described hereinabove &as not a commercial sale" En granting the tax benefit to V !-registered $ero-rated or effectivel# $ero-rated taxpa#ers, Section ::-1 2 of the NE'C does not limit the definition of 8saleF to commercial transactions in the normal course of business" Conspicuousl#, Section :/41B2 of the NE'C, &hich deals &ith the imposition of the V !, does not limit the term 8saleF to commercial sales, rather it extends the term to transactions that are 8deemedF sale" " " fter carefull# examining this provision, this Court finds it an e(uitable construction of the la& that &hen the term 8saleF is made to include certain transactions for the purpose of imposing a tax, these same transactions should be included in the term 8saleF &hen considering the availabilit# of an exemption or tax benefit from the same revenue measures" Et is undisputed that during the fourth (uarter of -//-, petitioner transferred to N)C all the electricit# that &as produced

21

during the trial period" !he fact that it &as not transferred through a commercial sale or in the normal course of business does not deflect from the fact that such transaction is deemed as a sale under the la&" Gith its finding that the petition is meritorious" the Supreme Court order the BE' to refund, or in the alternative, to issue a tax credit certificate to San 'o(ue in the amount of )-*4,:6:,4:/"*/, representing unutili$ed input V ! for the period : ?anuar# -//- to 6: 0ecember -//-"

22