COMMISSIONER OF INTERNAL REVENUE v.

CEBU TOYO properties or services that are VAT-exempt, is not entitled to any input tax on such
CORPORATION. G.R. No. 149073. February 16, 2005 purchases despite the issuance of a VAT invoice or receipt.
FACTS:
The court also held that respondent is subjected to VAT at 0% rate as it is engaged in
Respondent Cebu Toyo Corporation is a domestic corporation engaged in the the export business.
manufacture of lenses and various optical components. Its principal office is located at
the Mactan Export Processing Zone (MEPZ) in Lapu-Lapu City, Cebu and is a
subsidiary of Toyo Lens Corporation, a non-resident corporation organized under the
laws of Japan. It is a zone export enterprise registered with the Philippine Economic
Zone Authority (PEZA), pursuant PD 66 and is also registered with the BIR as a VAT
taxpayer.

The sales of respondent are considered export sales subject to VAT at 0% rate under
Section 106 of the NIRC, as amended.

Respondent then filed, an application for tax credit/refund of VAT paid for the period
April 1, 1996 to December 31, 1997 amounting to P4,439,827.21 representing excess
VAT input payments. Respondents claim that they can avail of the tax credits as they
are VAT-registered exporter of goods at the rate of 0%.

The CIR oppose such stating that they are not entitled to the tax credit as the claims
for refund are strictly construed against respondents as it is of the nature of tax
exemption.

The CTA granted the motion partially to the respondents as they only lowered the tax
credits to P2,158,714.46 representing unutilized input tax payments. The CIR filed a
petition with the CA which was denied.

ISSUE: Whether Cebu Toyo Corporation can avail of the tax credits.

RULING:

YES. Respondents availed of an income tax holiday as provided in the Omnibus

Investments Code ( EO 226). It is one of the fiscal incentives granted to PEZA-
registered enterprises and one of the options to its tax burden. Both the CA and CTA
found that respondent availed of the income tax holiday for four (4) years as it was
shown in their Annual Corporate Income Tax Returns. In it also is where respondent
specified that it was availing of the tax relief under EO 226. Hence, respondent is not
exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is
engaged in taxable rather than exempt transactions.

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

An exemption means that the sale of goods, properties or services and the use or lease
of properties is not subject to VAT (output tax) and the seller is not allowed any tax
credit on VAT (input tax) previously paid. The person making the exempt sale of
goods, properties or services shall not bill any output tax to his customers because the
said transaction is not subject to VAT. Thus, a VAT-registered purchaser of goods,
Commissioner of Internal Revenue v. Seagate Technology
G.R. No. 153866. February 11, 2005

FACTS:
Respondent is a resident foreign corporation duly registered with the Securities and
Exchange Commission to do business in the Philippines and is registered with the
Philippine Export Zone Authority (PEZA). The respondent is Value Added Tax-
registered entity and filed for the VAT returns. An administrative claim for refund of
VAT input taxes in the amount of P28,369,226.38 with supporting documents
(inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review),
was filed on 4 October 1999 and no final action has been received by the respondent
from the petitioner on the claim for VAT refund. Hence, petitioner is sued in his
official capacity. The Tax Court rendered a decision granting the claim for refund and
CTA affirmed the decision. Hence, the present petition for certiorari.

ISSUE:
Whether or not respondent is entitled to the refund or issuance of Tax Credit
Certificate in the amount of P12,122,922.66 representing alleged unutilized input VAT
paid on capital goods purchased for the period April 1, 1998 to June 30, 1999

HELD:
The Petition is unmeritorious. As a PEZA-registered enterprise within a special
economic zone, respondent is entitled to the fiscal incentives and benefit provided for
in either PD 66 or EO 226. It shall, moreover, enjoy all privileges, benefits, advantages
or exemptions under both Republic Act Nos. (RA) 7227 and 7844. Respondent as an
entity is exempt from internal revenue laws and regulations. This exemption
covers both direct and indirect taxes, stemming from the very nature of the VAT as a
tax on consumption, for which the direct liability is imposed on one person but the
indirect burden is passed on to another. Respondent, as an exempt entity, can neither
be directly charged for the VAT on its sales nor indirectly made to bear, as added cost
to such sales, the equivalent VAT on its purchases. The exemption is both express and
pervasive, among other reasons, since RA 7916 states that “no taxes, local and
national, shall be imposed on business establishments operating within the ecozone”.
Even though the VAT is not imposed on the entity but on the transaction, it may still
be passed on and, therefore, indirectly imposed on the same entity -- a patent
circumvention of the law. That no VAT shall be imposed directly upon business
establishments operating within the ecozone under RA 7916 also means that no VAT
may be passed on and imposed indirectly. Quando aliquid prohibetur ex directo
prohibetur et per obliquum. When anything is prohibited directly, it is also prohibited
indirectly. Special laws expressly grant preferential tax treatment to business
establishments registered and operating within an ecozone, which by law is considered
as a separate customs territory. As such, respondent is exempt from all internal
revenue taxes, including the VAT, and regulations pertaining thereto. Thus, the
petition is denied and the decision of lower courts affirmed.
Toshiba Information Equipment (Phils.) Inc. v. CIR, G.R. No. 157594, 09
March 2010
FACTS
Toshiba is a domestic corporation registered with the Philippine Economic Zone
Authority (PEZA) as an Economic Zone (ECOZONE) export enterprise.It filed two
separate applications for tax credit/refund of its unutilized input VAT payments. The
CIR denied the application. On appeal, the CTA ruled that Toshiba is entitled to the
credit/refund of the input VAT paid on its purchases of goods and services relative to
such zero-rated export sales. The Court of Appeals reversed the decision of the CTA in
the petition for review stating that Toshiba is a tax exempt entity under R.A. No. 7916
thus not entitled to refund the VAT payments made in the domestic purchase of goods
and services.
ISSUE
Is Toshiba entitled to VAT refund?
HELD
YES.Such export sales took place before October 15, 1999, when the old rule on the
VAT treatment of PEZA-registered enterprises still applied. Under this old rule, it was
not only possible, but even acceptable, for Toshiba, availing itself of the income tax
holiday option under Section 23 of Republic Act No. 7916, in relation to Section 39 of
the Omnibus Investments Code of 1987, to be subject to VAT, both indirectly (as
purchaser to whom the seller shifts the VAT burden) and directly (as seller whose sales
were subject to VAT, either at ten percent [10%] or zero percent [0%])
Philippine Acetylene Co. Inc. v CIR GR No L-19707, August 17, 1967

FACTS:
Philippine Acetylene Co. Inc. is engaged in the manufacture and sale of oxygen and
acetylene gases. It sold its products to the National Power Corporation (Napocor), an
agency of the Philippine Government, and the Voice of America (VOA), an agency of
the United States Government. When the commissioner assessed deficiency sales tax
and surcharges against the company, the company denied liability for the payment of
tax on the ground that both Napocor and VOA are exempt from taxes.

ISSUE:
Is Philippine Acetylene Co. liable for tax?

RULING:
Yes. Sales tax are paid by the manufacturer or producer who must make a true and
complete return of the amount of his, her or its gross monthly sales, receipts or
earnings or gross value of output actually removed from the factory or mill, warehouse
and to pay the tax due thereon. The tax imposed by Section 186 of the Tax Code is a tax
on the manufacturer or producer and not a tax on the purchaser except probably in a
very remote and inconsequential sense. Accordingly, its levy on the sales made to tax-
exempt entities like the Napocor is permissible.

On the other hand, there is nothing in the language of the Military Bases Agreement to
warrant the general exemption granted by General Circular V-41 (1947). Thus, the
expansive construction of the tax exemption is void; and the sales to the VOA are
subject to the payment of percentage taxes under Section 186 of the Tax Code.
Therefore, tax exemption is strictly construed and exemption will not be held to
conferred unless the terms under which it is granted clearly and distinctly show that
such was the intention.
Philippine Amusement and Gaming Corporation vs The Bureau of To recapitulate, PAGCOR is subject to income taxation but not to VAT.
Internal Revenue
645 SCRA 338 – Taxation Law – Income Taxation – Corporate Taxpayers – PAGCOR
is not exempt from income taxation
Political Law – Equal Protection Clause
The Philippine Amusement and Gaming Corporation (PAGCOR) was created by P.D.
No. 1067-A in 1977. Obviously, it is a government owned and controlled corporation
(GOCC).
In 1998, R.A. 8424 or the National Internal Revenue Code of 1997 (NIRC) became
effective. Section 27 thereof provides that GOCC’s are NOT EXEMPT from paying
income taxation but it exempted the following GOCCs:
1. GSIS
2. SSS
3. PHILHEALTH
4. PCSO
5. PAGCOR
But in May 2005, R.A. 9337, a law amending certain provisions of R.A. 8424, was
passed. Section 1 thereof excluded PAGCOR from the exempt GOCCs hence PAGCOR
was subjected to pay income taxation. In September 2005, the Bureau of Internal
Revenue issued the implementing rules and regulations (IRR) for R.A. 9337. In the
said IRR, it identified PAGCOR as subject to a 10% value added tax (VAT) upon items
covered by Section 108 of the NIRC (Sale of Services and Use or Lease of Properties).
PAGCOR questions the constitutionality of Section 1 of R.A. 9337 as well as the IRR.
PAGCOR avers that the said provision violates the equal protection clause. PAGCOR
argues that it is similarly situated with SSS, GSIS, PCSO, and PHILHEALTH, hence it
should not be excluded from the exemption.
ISSUE: Whether or not PAGCOR should be subjected to income taxation.
HELD: Yes. Section 1 of R.A. 9337 is constitutional. It was the express intent of
Congress to exclude PAGCOR from the exempt GOCCs hence PAGCOR is now subject
to income taxation.
PAGCOR’s contention that the law violated the constitution is not tenable. The equal
protection clause provides that all persons or things similarly situated should be
treated alike, both as to rights conferred and responsibilities imposed.
The general rule is, ALL GOCC’s are subject to income taxation. However, certain
classes of GOCC’s may be exempt from income taxation based on the following
requisites for a valid classification under the principle of equal protection:
1) It must be based on substantial distinctions.
2) It must be germane to the purposes of the law.
3) It must not be limited to existing conditions only.
4) It must apply equally to all members of the class.
When the Supreme Court looked into the records of the deliberations of the lawmakers
when R.A. 8424 was being drafted, the SC found out that PAGCOR’s exemption was
not really based on substantial distinctions. In fact, the lawmakers merely exempted
PAGCOR from income taxation upon the request of PAGCOR itself. This was changed
however when R.A. 9337 was passed and now PAGCOR is already subject to income
taxation.
Anent the issue of the imposition of the 10% VAT against PAGCOR, the BIR had
overstepped its authority. Nowhere in R.A. 9337 does it state that PAGCOR is subject
to VAT. Therefore, that portion of the IRR issued by the BIR is void. In fact, Section
109 of R.A. 9337 expressly exempts PAGCOR from VAT. Further, PAGCOR’s charter
exempts it from VAT.
CIR v Gotamco
GR No L-31092, February 27, 1987

FACTS:
The World Health Organization (WHO) decided to construct a building to house its
offices, as well as the other United
Nations Offices in Manila. Inviting bids for the construction of the building, the WHO
informed the bidders of its tax exemptions. The contract was awarded to John
Gotamco and sons. The Commissioner opined that a 3% contractor’s tax should be due
from the contractor. The WHO issued a certification that Gotamco should be
exempted, but the Commissioner insisted on the tax. Raised in the Court of Tax
Appeals, the Court ruled in favor of Gotamco.

ISSUE:
Is Gotamco liable for the tax?

RULING:
No. Direct taxes are those that are demanded from the very person who, it is intended
or desired, should pay them; while indirect taxes are those that are demanded in the
first instance from one person in the expectation and intention that he can shift the
burden to someone else.

Herein, the contractor’s tax is payable by the contractor but it is the owner of the
building that shoulders the burden of the tax because the same is shifted by the
contractor to the owner as a matter of self-preservation. Such tax is an “indirect tax”
on the organization, as the payment thereof or its inclusion in the bid price would have
meant an increase in the construction cost of the building.

Hence, WHO’s exemption from “indirect taxes” implies that Gotamco is exempt from
contractor’s tax.
Ernesto Maceda vs Executive Secretary Catalino Macaraig, Jr.

197 SCRA 771 – Political Law – Control Power – Acts of the Executive Secretary
The National Power Corporation (NAPOCOR) was created by Commonwealth Act No.
120. In 1949, it was given tax exemption by Republic Act No. 358. In 1984,
Presidential Decree No. 1931 was passed removing the tax exemption of NAPOCOR
and other government owned and controlled corporations (GOCCs). There was a
reservation, however, that the president or the Minister of Finance, upon
recommendation by the Fiscal Incentives Review Board (FIRB), may restore or modify
the exemption.
In 1985, the tax exemption was revived. It was again removed in 1987 by virtue of
Executive Order 93 which again provided that upon FIRB recommendation it can
again be restored. In the same year, FIRB resolved to restore the exemption. The same
was approved by President Corazon Aquino through Executive Secretary Catalino
Macaraig, Jr. acting as her alter ego. Ernesto Maceda assailed the FIRB resolution
averring that the power granted to the FIRB is an undue delegation of legislative
power. Maceda’s claim was strengthened by Opinion 77 issued by then DOJ Secretary
Sedfrey Ordoñez. Macaraig however did not give credence to the opinion issued by the
DOJ secretary.
ISSUE: Whether or not the Executive Secretary can validly ignore the legal opinion of
the Justice Secretary.
HELD: Yes. The Supreme Court first ruled that there is no undue delegation of
legislative power. First of all, since the NAPOCOR is a GOCC and is non-profit it can
be exempt from taxation. Also, Opinion 77 issued by DOJ Secretary Ordoñez was
validly overruled by Macaraig. This action by Macaraig is valid because the Executive
Secretary, by authority of the President, has the power to modify, alter or reverse the
construction of a statute given by a department secretary – pursuant to the president’s
control power.
ATLAS CONSOLIDATED MINING DEVT CORP vs. CIR
524 SCRA 73, 103
GR Nos. 141104 & 148763, June 8, 2007
"The taxpayer must justify his claim for tax exemption or refund by the clearest grant
of organic or statute law and should not be permitted to stand on vague implications."
"Export processing zones (EPZA) are effectively considered as foreign territory for tax
purposes."
FACTS: Petitioner corporation, a VAT-registered taxpayer engaged in mining,
production, and sale of various mineral products, filed claims with the BIR for
refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales
in the taxable quarters of the years 1990 and 1992. BIR did not immediately act on the
matter prompting the petitioner to file a petition for review before the CTA. The latter
denied the claims on the grounds that for zero-rating to apply, 70% of the company's
sales must consists of exports, that the same were not filed within the 2-year
prescriptive period (the claim for 1992 quarterly returns were judicially filed only on
April 20, 1994), and that petitioner failed to submit substantial evidence to support its
claim for refund/credit.
The petitioner, on the other hand, contends that CTA failed to consider the following:
sales to PASAR and PHILPOS within the EPZA as zero-rated export sales; the 2-year
prescriptive period should be counted from the date of filing of the last adjustment
return which was April 15, 1993, and not on every end of the applicable quarters; and
that the certification of the independent CPA attesting to the correctness of the
contents of the summary of suppliers’ invoices or receipts examined, evaluated and
audited by said CPA should substantiate its claims.

ISSUE: Did the petitioner corporation sufficiently establish the factual bases for its
applications for refund/credit of input VAT?

HELD: No. Although the Court agreed with the petitioner corporation that the two-
year prescriptive period for the filing of claims for refund/credit of input VAT must be
counted from the date of filing of the quarterly VAT return, and that sales to PASAR
and PHILPOS inside the EPZA are taxed as exports because these export processing
zones are to be managed as a separate customs territory from the rest of the
Philippines, and thus, for tax purposes, are effectively considered as foreign territory,
it still denies the claims of petitioner corporation for refund of its input VAT on its
purchases of capital goods and effectively zero-rated sales during the period claimed
for not being established and substantiated by appropriate and sufficient evidence.
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of
the sovereign authority, and should be construed in strictissimi juris against the
person or entity claiming the exemption. The taxpayer who claims for exemption must
justify his claim by the clearest grant of organic or statute law and should not be
permitted to stand on vague implications.
FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER
OF INTERNAL REVENUE- Transitional Input Value Added Tax

FACTS:
Petitioner was a real estate developer that bought from the national government a
parcel of land that used to be the Fort Bonifacio military reservation. At the time of the
said sale there was as yet no VAT imposed so Petitioner did not pay any VAT on its
purchase. Subsequently, Petitioner sold two parcels of land to Metro Pacific Corp. In
reporting the said sale for VAT purposes (because the VAT had already been imposed
in the interim), Petitioner claimed transitional input VAT corresponding to its
inventory of land. The BIR disallowed the claim of presumptive input VAT and thereby
assessed Petitioner for deficiency VAT.

ISSUE:
Is Petitioner entitled to claim the transitional input VAT on its sale of real properties
given its nature as a real estate dealer and if so (i) is the transitional input VAT applied
only to the improvements on the real property or is it applied on the value of the entire
real property and (ii) should there have been a previous tax payment for the
transitional input VAT to be creditable?

HELD:
YES. Petitioner is entitled to claim transitional input VAT based on the value of not
only the improvements but on the value of the entire real property and regardless of
whether there was in fact actual payment on the purchase of the real property or not.

The amendments to the VAT law do not show any intention to make those in the real
estate business subject to a different treatment from those engaged in the sale of other
goods or properties or in any other commercial trade or business. On the scope of the
basis for determining the available transitional input VAT, the CIR has no power to
limit the meaning and coverage of the term "goods" in Section 105 of the Tax Code
without statutory authority or basis. The transitional input tax credit operates to
benefit newly VAT-registered persons, whether or not they previously paid taxes in the
acquisition of their beginning inventory of goods, materials and supplies.
Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.,
G.R. No. 184823, 06 October 2010

FACTS
Respondent Aichi filed a claim for refund/credit of input VAT for the period July 1,
2002 to September 30, 2002, with the petitioner Commissioner of Internal Revenue
(CIR), through the Department of Finance (DOF) One-Stop Shop Inter-Agency Tax
Credit and Duty Drawback Center.On even date, respondent filed a Petition for
Review with the CTA for the refund/credit of the same input VAT. The CTA partially
granted the petition. In a Motion for Reconsideration, petitioner argued that the
simultaneous filing of the administrative and the judicial claims contravenes Sections
112 and 229 of the NIRC and a prior filing of an administrative claim is a “condition
precedent” before a judicial claim can be filed. The CTA En Banc affirmed the division
ruling.

ISSUE
Whether the respondent’s judicial and administrative claims for tax refund/credit
were filed within the two-year prescriptive period as provided in Sections 112(A) and
229 of the NIRC.

HELD
NO.
The two-year period to file a claim for tax refund/credit for the period July 1, 2002 to
September 30, 2002 expired on September 30, 2004. Hence, respondent’s
administrative claim was timely filed.The filing of the judicial claim was premature.
However, notwithstanding the timely filing of the administrative claim, [the Supreme
Court is] constrained to deny respondent’s claim for tax refund/credit for having been
filed in violation of Section 112(D). Section 112(D) of the NIRC clearly provides that
the CIR has “120 days, from the date of the submission of the complete documents in
support of the application [for tax refund/credit],” within which to grant or deny the
claim. In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an
appeal before the CTA within 30 days from receipt of the decision of the CIR.
However, if after the 120-day period the CIR fails to act on the application for tax
refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA
within 30 days.
In this case, the administrative and the judicial claims were simultaneously filed on
September 30, 2004. Obviously, respondent did not wait for the decision of the CIR or
the lapse of the 120-day period. For this reason, we find the filing of the judicial claim
with the CTA premature. The premature filing of respondent’s claim for refund/credit
of input VAT before the CTA warrants a dismissal inasmuch as no jurisdiction was
acquired by the CTA.
CIR (Commissioner of Internal Revenue) vs. SAN ROQUE
*see pp. 5-10 for the application of OPERATIVE FACT DOCTRINE 
G.R. No. 187485 is a petition for review assailing the decision and resolution
promulgated by the CTA EB affirming the decision and resolution of CTA 2nd
Division. The CTA 2nd Division ordered the CIR to refund or issue a tax credit to San
Roque Power Corporation (San Roque) for unutilized input value-added tax (VAT) on
purchases of capital goods and services for the taxable year 2001.
Facts:
The CTA EB’s narration of the pertinent facts is as follows: [CIR] is the duly
appointed Commissioner of Internal Revenue, empowered, among others, to act upon
and approve claims for refund or tax credit, with office at the Bureau of Internal
Revenue (“BIR”) National Office Building, Diliman, Quezon City. [San Roque] is a
domestic corporation duly organized and existing under and by virtue of the laws of
the Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan.
It was incorporated in October 1997 to design, construct, erect, assemble, own,
commission and operate power-generating plants and related facilities pursuant to
and under contract with the Government of the Republic of the Philippines, or any
subdivision, instrumentality or agency thereof, or any government owned or
controlled corporation, or other entity engaged in the development, supply, or
distribution of energy. As a seller of services, [San Roque] is duly registered with the
BIR with TIN/VAT No. 005-017-501. It is likewise registered with the Board of
Investments (“BOI”) on a preferred pioneer status, to engage in the design,
construction, erection, assembly, as well as to own, commission, and operate electric
power-generating plants and related activities, for which it was issued Certificate of
Registration No. 97-356 on February 11, 1998. On October 11, 1997, [San Roque]
entered into a Power Purchase Agreement (“PPA”) with the National Power
Corporation (“NPC”) to develop hydro-potential of the Lower Agno River and generate
additional power and energy for the Luzon Power Grid, by building the San Roque
Multi-Purpose Project located in San Manuel, Pangasinan. The PPA provides, among
others, that [San Roque] shall be responsible for the design, construction, installation,
completion, testing and commissioning of the Power Station and shall operate and
maintain the same, subject to NPC instructions. During the cooperation period of
twenty-five (25) years commencing from the completion date of the Power Station,
NPC will take and pay for all electricity available from the Power Station. On the
construction and development of the San Roque Multipurpose Project which
comprises of the dam, spillway and power plant, [San Roque] allegedly incurred,
excess input VAT in the amount of ₱559,709,337.54 for taxable year 2001 which it
declared in its Quarterly VAT Returns filed for the same year. [San Roque] duly filed
with the BIR separate claims for refund, in the total amount of ₱559,709,337.54,
representing unutilized input taxes as declared in its VAT returns for taxable year
2001. However, on March 28, 2003, [San Roque] filed amended Quarterly VAT
Returns for the year 2001 since it increased its unutilized input VAT to the amount of
₱560,200,283.14. Consequently, [San Roque] filed with the BIR on even date, separate
amended claims for refund in the aggregate amount of ₱560,200,283.14. [CIR’s]
inaction on the subject claims led to the filing by [San Roque] of the Petition for
Review with the Court [of Tax Appeals] in Division on April 10, 2003.
Trial of the case ensued and on July 20, 2005, the case was submitted for decision.
The Court of Tax Appeals’ Ruling: Division
The CTA Second Division initially denied San Roque’s claim. In its Decision16 dated 8
March 2006, it cited the following as bases for the denial of San Roque’s claim: lack of
recorded zero-rated or effectively zero-rated sales; failure to submit documents
specifically identifying the purchased goods/services related to the claimed input VAT
which were included in its Property, Plant and Equipment account; and failure to
prove that the related construction costs were capitalized in its books of account and
subjected to depreciation.
The CTA Second Division required San Roque to show that it complied with the
following requirements of Section 112(B) of Republic Act No. 8424 (RA 8424) to be
entitled to a tax refund or credit of input VAT attributable to capital goods imported or
locally purchased: (1) it is a VAT-registered entity; (2) its input taxes claimed were
paid on capital goods duly supported by VAT invoices and/or official receipts; (3) it
did not offset or apply the claimed input VAT payments on capital goods against any
output VAT liability; and (4) its claim for refund was filed within the two year
prescriptive period both in the administrative and judicial levels. The CTA Second
Division found that San Roque complied with the first, third, and fourth requirements,
thus: The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts
Admitted, Joint Stipulation of Facts, Records, p. 157). It was also established that the
instant claim of ₱560,200,823.14 is already net of the ₱11,509.09 output tax declared
by [San Roque] in its amended VAT return for the first quarter of 2001. Moreover, the
entire amount of ₱560,200,823.14 was deducted by [San Roque] from the total
available input tax reflected in its amended VAT returns for the last two quarters of
2001 and first two quarters of 2002 (Exhibits M-6, O-6, OO-1 & QQ-1). This means
that the claimed input taxes of ₱560,200,823.14 did not form part of the excess input
taxes of ₱83,692,257.83, as of the second quarter of 2002 that was to be carried-over
to the succeeding quarters. Further, [San Roque’s] claim for refund/tax credit
certificate of excess input VAT was filed within the two-year prescriptive period
reckoned from the dates of filing of the corresponding quarterly VAT returns.
For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT
returns on April 25, 2001, July 25, 2001, October 23, 2001 and January 24, 2002,
respectively (Exhibits “H, J, L, and N”). These returns were all subsequently amended
on March 28, 2003 (Exhibits “I, K, M, and O”). On the other hand, [San Roque]
originally filed its separate claims for refund on July 10, 2001, October 10, 2001,
February 21, 2002, and May 9, 2002 for the first, second, third, and fourth quarters of
2001, respectively, (Exhibits “EE, FF, GG, and HH”) and subsequently filed amended
claims for all quarters on March 28, 2003 (Exhibits “II, JJ, KK, and LL”). Moreover,
the Petition for Review was filed on April 10, 2003. Counting from the respective dates
when [San Roque] originally filed its VAT returns for the first, second, third and fourth
quarters of 2001, the administrative claims for refund (original and amended) and the
Petition for Review fall within the two-year prescriptive period.
San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In
its 29 November 2007 Amended Decision, the CTA Second Division found legal basis
to partially grant San Roque’s claim. The CTA Second Division ordered the
Commissioner to refund or issue a tax credit in favor of San Roque in the amount of
₱483,797,599.65, which represents San Roque’s unutilized input VAT on its purchases
of capital goods and services for the taxable year 2001. The CTA based the adjustment
in the amount on the findings of the independent certified public accountant. The
following reasons were cited for the disallowed claims: erroneous computation; failure
to ascertain whether the related purchases are in the nature of capital goods; and the
purchases pertain to capital goods. Moreover, the reduction of claims was based on the
following: the difference between San Roque’s claim and that appearing on its books;
the official receipts covering the claimed input VAT on purchases of local services are
not within the period of the claim; and the amount of VAT cannot be determined from
the submitted official receipts and invoices. The CTA Second Division denied San
Roque’s claim for refund or tax credit of its unutilized input VAT attributable to its
zero-rated or effectively zero-rated sales because San Roque had no record of such
sales for the four quarters of 2001. The dispositive portion of the CTA Second
Division’s 29 November 2007 Amended Decision reads:
WHEREFORE, [San Roque’s] “Motion for New Trial and/or Reconsideration” is
hereby PARTIALLY GRANTED and this Court’s Decision promulgated on March 8,
2006 in the instant case is hereby MODIFIED.
Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to
ISSUE A TAX CREDIT CERTIFICATE in favor of [San Roque] in the reduced amount
of Four Hundred Eighty Three Million Seven Hundred Ninety Seven Thousand Five
Hundred Ninety Nine Pesos and Sixty Five Centavos (₱483,797,599.65) representing
unutilized input VAT on purchases of capital goods and services for the taxable year
2001. SO ORDERED.
The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007.
The CTA Second Division issued a Resolution dated 11 July 2008 which denied the
CIR’s motion for lack of merit.
The Court of Tax Appeals’ Ruling: En Banc
The Commissioner filed a Petition for Review before the CTA EB praying for the denial
of San Roque’s claim for refund or tax credit in its entirety as well as for the setting
aside of the 29 November 2007 Amended Decision and the 11 July 2008 Resolution in
CTA Case No. 6647. The CTA EB dismissed the CIR’s petition for review and affirmed
the challenged decision and resolution. The CTA EB cited Commissioner of Internal
Revenue v. Toledo Power, Inc. and Revenue Memorandum Circular No. 49-03, as its
bases for ruling that San Roque’s judicial claim was not prematurely filed. The
pertinent portions of the Decision state: More importantly, the Court En Banc has
squarely and exhaustively ruled on this issue in this wise: It is true that Section 112(D)
of the abovementioned provision applies to the present case. However, what the
petitioner failed to consider is Section 112(A) of the same provision. The respondent is
also covered by the two (2) year prescriptive period. We have repeatedly held that the
claim for refund with the BIR and the subsequent appeal to the Court of Tax Appeals
must be filed within the two-year period.
Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and
Development Corporation vs. Commissioner of Internal Revenue that the two-year
prescriptive period for filing a claim for input tax is reckoned from the date of the
filing of the quarterly VAT return and payment of the tax due. If the said period is
about to expire but the BIR has not yet acted on the application for refund, the
taxpayer may interpose a petition for review with this Court within the two year
period. In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the
Collector (now Commissioner) takes time in deciding the claim, and the period of two
years is about to end, the suit or proceeding must be started in the Court of Tax
Appeals before the end of the two-year period without awaiting the decision of the
Collector. Furthermore, in the case of Commissioner of Customs and Commissioner of
Internal Revenue vs. The Honorable Court of Tax Appeals and Planters Products, Inc.,
the Supreme Court held that the taxpayer need not wait indefinitely for a decision or
ruling which may or may not be forthcoming and which he has no legal right to expect.
It is disheartening enough to a taxpayer to keep him waiting for an indefinite period of
time for a ruling or decision of the Collector (now Commissioner) of Internal Revenue
on his claim for refund. It would make matters more exasperating for the taxpayer if
we were to close the doors of the courts of justice for such a relief until after the
Collector (now Commissioner) of Internal Revenue, would have, at his personal
convenience, given his go signal. This Court ruled in several cases that once the
petition is filed, the Court has already acquired jurisdiction over the claims and the
Court is not bound to wait indefinitely for no reason for whatever action respondent
(herein petitioner) may take. At stake are claims for refund and unlike disputed
assessments, no decision of respondent (herein petitioner) is required before one can
go to this Court. (Emphasis supplied and citations omitted) Lastly, it is apparent from
the following provisions of Revenue Memorandum Circular No. 49-03 dated August
18, 2003, that [the CIR] knows that claims for VAT refund or tax credit filed with the
Court [of Tax Appeals] can proceed simultaneously with the ones filed with the BIR
and that taxpayers need not wait for the lapse of the subject 120-day period, to wit: In
response to [the] request of selected taxpayers for adoption of procedures in handling
refund cases that are aligned to the statutory requirements that refund cases should be
elevated to the Court of Tax Appeals before the lapse of the period prescribed by law,
certain provisions of RMC No. 42-2003 are hereby amended and new provisions are
added thereto. In consonance therewith, the following amendments are being
introduced to RMC No. 42-2003, to wit: I.) A-17 of Revenue Memorandum Circular
No. 42-2003 is hereby revised to read as follows: In cases where the taxpayer has filed
a “Petition for Review” with the Court of Tax Appeals involving a claim for refund/TCC
that is pending at the administrative agency (Bureau of Internal Revenue or OSS-
DOF), the administrative agency and the tax court may act on the case separately.
While the case is pending in the tax court and at the same time is still under process by
the administrative agency, the litigation lawyer of the BIR, upon receipt of the
summons from the tax court, shall request from the head of the
investigating/processing office for the docket containing certified true copies of all the
documents pertinent to the claim. The docket shall be presented to the court as
evidence for the BIR in its defense on the tax credit/refund case filed by the taxpayer.
In the meantime, the investigating/processing office of the administrative agency shall
continue processing the refund/TCC case until such time that a final decision has been
reached by either the CTA or the administrative agency. If the CTA is able to release its
decision ahead of the evaluation of the administrative agency, the latter shall cease
from processing the claim. On the other hand, if the administrative agency is able to
process the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the
findings thereof, the concerned taxpayer must file a motion to withdraw the claim with
the CTA. (Emphasis supplied)
****
This Resolution resolves the Motion for Reconsideration and the Supplemental
Motion for Reconsideration filed by San Roque Power Corporation (San Roque) in
G.R. No. 187485, the Comment to the Motion for Reconsideration filed by the
Commissioner of Internal Revenue (CIR) in G.R. No. 187485, the Motion for
Reconsideration filed by the CIR in G.R.No. 196113, and the Comment to the Motion
for Reconsideration filed by Taganito Mining Corporation (Taganito) in G.R. No.
196113.
San Roque prays that the rule established in our 12 February 2013 Decision be given
only a prospective effect, arguing that "the manner by which the Bureau of Internal
Revenue (BIR) and the Court of Tax Appeals(CTA) actually treated the 120 + 30 day
periods constitutes an operative fact the effects and consequences of which cannot be
erased or undone."1
The CIR, on the other hand, asserts that Taganito Mining Corporation's (Taganito)
judicial claim for tax credit or refund was prematurely filed before the CTA and should
be disallowed because BIR Ruling No. DA-489-03 was issued by a Deputy
Commissioner, not by the Commissioner of Internal Revenue.
We deny both motions.
The Doctrine of Operative Fact
The general rule is that a void law or administrative act cannot be the source of legal
rights or duties. Article 7 of the Civil Code enunciates this general rule, as well as its
exception: "Laws are repealed only by subsequent ones, and their violation or non-
observance shall not be excused by disuse, or custom or practice to the contrary. When
the courts declared a law to be inconsistent with the Constitution, the former shall be
void and the latter shall govern. Administrative or executive acts, orders and
regulations shall be valid only when they are not contrary to the laws or the
Constitution."
The doctrine of operative fact is an exception to the general rule, such that a judicial
declaration of invalidity may not necessarily obliterate all the effects and consequences
of a void act prior to such declaration.2 In Serrano de Agbayani v. Philippine National
Bank,3 the application of the doctrine of operative fact was discussed as follows:
The decision now on appeal reflects the orthodox view that an unconstitutional act, for
that matter an executive order or a municipal ordinance likewise suffering from that
infirmity, cannot be the source of any legal rights or duties. Nor can it justify any
official act taken under it. Its repugnancy to the fundamental law once judicially
declared results in its being to all intents and purposes a mere scrap of paper. As the
new Civil Code puts it: "When the courts declare a law to be inconsistent with the
Constitution, the former shall be void and the latter shall govern. Administrative or
executive acts, orders and regulations shall be valid only when they are not contrary to
the laws of the Constitution." It is understandable why it should be so, the Constitution
being supreme and paramount. Any legislative or executive act contrary to its terms
cannot survive.
Such a view has support in logic and possesses the merit of simplicity. It may not
however be sufficiently realistic. It does not admit of doubt that prior to the
declaration of nullity such challenged legislative or executive act must have been in
force and had to be complied with. This is so as until after the judiciary, in an
appropriate case, declares its invalidity, it is entitled to obedience and respect. Parties
may have acted under it and may have changed their positions. What could be more
fitting than that in a subsequent litigation regard be had to what has been done while
such legislative or executive act was in operation and presumed to be valid in all
respects. It is now accepted as a doctrine that prior to its being nullified, its existence
as a fact must be reckoned with. This is merely to reflect awareness that precisely
because the judiciary is the governmental organ which has the final say on whether or
not a legislative or executive measure is valid, a period of time may have elapsed
before it can exercise the power of judicial review that may lead to a declaration of
nullity. It would be to deprive the law of its quality of fairness and justice then, if there
be no recognition of what had transpired prior to such adjudication.
In the language of an American Supreme Court decision: "The actual existence of a
statute, prior to such a determination of unconstitutionality, is an operative fact and
may have consequences which cannot justly be ignored. The past cannot always be
erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity
may have to be considered in various aspects, with respect to particular relations,
individual and corporate, and particular conduct, private and official." This language
has been quoted with approval in a resolution in Araneta v. Hill and the decision in
Manila Motor Co., Inc. v. Flores. An even more recent instance is the opinion of
Justice Zaldivar speaking for the Court in Fernandez v. Cuerva and Co. (Boldfacing
and italicization supplied)
Clearly, for the operative fact doctrine to apply, there must be a "legislative or
executive measure," meaning a law or executive issuance, that is invalidated by the
court. From the passage of such law or promulgation of such executive issuance until
its invalidation by the court, the effects of the law or executive issuance, when relied
upon by the public in good faith, may have to be recognized as valid. In the present
case, however, there is no such law or executive issuance that has been invalidated by
the Court except BIR Ruling No. DA-489-03.
To justify the application of the doctrine of operative fact as an exemption, San Roque
asserts that "the BIR and the CTA in actual practice did not observe and did not
require refund seekers to comply with the120+30 day periods."4 This is glaring error
because an administrative practice is neither a law nor an executive issuance.
Moreover, in the present case, there is even no such administrative practice by the BIR
as claimed by San Roque.
In BIR Ruling No. DA-489-03 dated 10 December 2003, the Department of Finance’s
One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF-OSS) asked
the BIR to rule on the propriety of the actions taken by Lazi Bay Resources
Development, Inc. (LBRDI). LBRDI filed an administrative claim for refund for
alleged input VAT for the four quarters of 1998. Before the lapse of 120 days from the
filing of its administrative claim, LBRDI also filed a judicial claim with the CTA on
28March 2000 as well as a supplemental judicial claim on 29 September 2000.In its
Memorandum dated 13 August 2002 before the BIR, the DOF-OSS pointed out that
LBRDI is "not yet on the right forum in violation of the provision of Section 112(D) of
the NIRC" when it sought judicial relief before the CTA. Section 112(D) provides for
the 120+30 day periods for claiming tax refunds.
The DOF-OSS itself alerted the BIR that LBRDI did not follow the120+30 day periods.
In BIR Ruling No. DA-489-03, Deputy Commissioner Jose Mario C. Buñag ruled that
"a taxpayer-claimant need not wait for the lapse of the 120-day period before it could
seek judicial relief with the CTA by way of Petition for Review." Deputy Commissioner
Buñag, citing the 7February 2002 decision of the Court of Appeals (CA) in
Commissioner of Internal Revenue v. Hitachi Computer Products (Asia)
Corporation5 (Hitachi), stated that the claim for refund with the Commissioner could
be pending simultaneously with a suit for refund filed before the CTA.
Before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003, there was no
administrative practice by the BIR that supported simultaneous filing of claims. Prior
to BIR Ruling No. DA-489-03, the BIR considered the 120+30 day periods mandatory
and jurisdictional.
Thus, prior to BIR Ruling No. DA-489-03, the BIR’s actual administrative practice was
to contest simultaneous filing of claims at the administrative and judicial levels, until
the CA declared in Hitachi that the BIR’s position was wrong. The CA’s Hitachi
decision is the basis of BIR Ruling No. DA-489-03 dated 10 December 2003 allowing
simultaneous filing. From then on taxpayers could rely in good faith on BIR Ruling
No. DA-489-03 even though it was erroneous as this Court subsequently decided in
Aichi that the 120+30 day periods were mandatory and jurisdictional.
We reiterate our pronouncements in our Decision as follows:
At the time San Roque filed its petition for review with the CTA, the 120+30 day
mandatory periods were already in the law. Section112(C) expressly grants the
Commissioner 120 days within which to decide the taxpayer’s claim. The law is clear,
plain, and unequivocal: "x x x the Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one hundred twenty (120) days from
the date of submission of complete documents." Following the verbalegis doctrine, this
law must be applied exactly as worded since it is clear, plain, and unequivocal. The
taxpayer cannot simply file a petition with the CTA without waiting for the
Commissioner’s decision within the 120-daymandatory and jurisdictional period. The
CTA will have no jurisdiction because there will be no "decision" or "deemed a denial"
decision of the Commissioner for the CTA to review. In San Roque’s case, it filed its
petition with the CTA a mere 13 days after it filed its administrative claim with the
Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day
period, and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA
the decision or inaction of the Commissioner x x x.
xxxx
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed
strictly against the taxpayer.1âwphi1 One of the conditions for a judicial claim of
refund or credit under the VAT System is compliance with the 120+30 day mandatory
and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is
necessary for such a claim to prosper, whether before, during, or after the effectivity of
the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-
03 on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted,
which again reinstated the 120+30 day periods as mandatory and jurisdictional.6
San Roque’s argument must, therefore, fail. The doctrine of operative fact is an
argument for the application of equity and fair play. In the present case, we applied the
doctrine of operative fact when we recognized simultaneous filing during the period
between 10 December 2003, when BIR Ruling No. DA-489-03 was issued, and 6
October 2010, when this Court promulgated Aichi declaring the 120+30 day periods
mandatory and jurisdictional, thus reversing BIR Ruling No. DA-489-03.
The doctrine of operative fact is in fact incorporated in Section 246 of the Tax Code,
which provides:
SEC. 246. Non-Retroactivity of Rulings. - Any revocation, modification or reversal of
any of the rules and regulations promulgated in accordance with the preceding
Sections or any of the rulings or circulars promulgated by the Commissioner shall not
be given retroactive application if the revocation, modification or reversal will be
prejudicial to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return
or any document required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith. (Emphasis supplied)
Under Section 246, taxpayers may rely upon a rule or ruling issued by the
Commissioner from the time the rule or ruling is issued up to its reversal by the
Commissioner or this Court. The reversal is not given retroactive effect. This, in
essence, is the doctrine of operative fact. There must, however, be a rule or ruling
issued by the Commissioner that is relied upon by the taxpayer in good faith. A mere
administrative practice, not formalized into a rule or ruling, will not suffice because
such a mere administrative practice may not be uniformly and consistently applied. An
administrative practice, if not formalized as a rule or ruling, will not be known to the
general public and can be availed of only by those within formal contacts with the
government agency.
Since the law has already prescribed in Section 246 of the Tax Code how the doctrine
of operative fact should be applied, there can be no invocation of the doctrine of
operative fact other than what the law has specifically provided in Section 246. In the
present case, the rule or ruling subject of the operative fact doctrine is BIR Ruling No.
DA-489-03 dated 10 December 2003. Prior to this date, there is no such rule or ruling
calling for the application of the operative fact doctrine in Section 246. Section246,
being an exemption to statutory taxation, must be applied strictly against the taxpayer
claiming such exemption.
San Roque insists that this Court should not decide the present case in violation of the
rulings of the CTA; otherwise, there will be adverse effects on the national economy. In
effect, San Roque’s doomsday scenario is a protest against this Court’s power of
appellate review. San Roque cites cases decided by the CTA to underscore that the CTA
did not treat the 120+30 day periods as mandatory and jurisdictional. However, CTA
or CA rulings are not the executive issuances covered by Section 246 of the Tax Code,
which adopts the operative fact doctrine. CTA or CA decisions are specific rulings
applicable only to the parties to the case and not to the general public. CTA or CA
decisions, unlike those of this Court, do not form part of the law of the land. Decisions
of lower courts do not have any value as precedents. Obviously, decisions of lower
courts are not binding on this Court. To hold that CTA or CA decisions, even if
reversed by this Court, should still prevail is to turn upside down our legal system and
hierarchy of courts, with adverse effects far worse than the dubious doomsday scenario
San Roque has conjured.
San Roque cited cases7 in its Supplemental Motion for Reconsideration to support its
position that retroactive application of the doctrine in the present case will violate San
Roque’s right to equal protection of the law. However, San Roque itself admits that the
cited cases never mentioned the issue of premature or simultaneous filing, nor of
compliance with the 120+30 day period requirement. We reiterate that "any issue,
whether raised or not by the parties, but not passed upon by the Court, does not have
any value as precedent."8 Therefore, the cases cited by San Roque to bolster its claim
against the application of the 120+30 day period requirement do not have any value as
precedents in the present case.
Authority of the Commissioner to Delegate Power
In asking this Court to disallow Taganito’s claim for tax refund or credit, the CIR
repudiates the validity of the issuance of its own BIR Ruling No. DA-489-03. "Taganito
cannot rely on the pronouncements in BIR Ruling No. DA-489-03, being a mere
issuance of a Deputy Commissioner."9
Although Section 4 of the 1997 Tax Code provides that the "power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance,"
Section 7 of the same Code does not prohibit the delegation of such power. Thus, "the
Commissioner may delegate the powers vested in him under the pertinent provisions
of this Code to any or such subordinate officials with the rank equivalent to a division
chief or higher, subject to such limitations and restrictions as may be imposed under
rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner."
WHEREFORE, we DENY with FINALITY the Motions for Reconsideration filed by
San Roque Power Corporation in G.R. No. 187485,
G.R. No. 153204 August 31, 2005
COMMISSIONER OF INTERNAL REVENUE, v MANILA MINING
CORPORATION,
FACTS:
Respondent, a mining corporation duly organized and existing under Philippines laws,
is registered with the Bureau of Internal Revenue (BIR) as a VAT-registered enterprise
In 1991, respondent’s sales of gold to the Central Bank (now Bangko Sentral ng
Pilipinas) amounted to P200,832,364.70. On April 22, 1991, July 23, 1991, October 21,
1991 and January 20, 1992, it filed its VAT Returns for the 1st, 2nd, 3rd and 4th
quarters of 1991, respectively, with the BIR.
Under Sec. 2 of E.O. 581 as amended, gold sold to the Central Bank is considered an
export sale which under Section 100(a)(1) of the NIRC, as amended by E.O. 273, is
subject to zero-rated if such sale is made by a VAT-registered person, filed with the
Commissioner of Internal Revenue (CIR), through the BIR-VAT Division an
application for tax refund/credit of the input VAT it paid from July 1- December 31,
1999 in the amount of P8,173,789.60.
Petitioner subsequently filed another application for tax refund/credit of input VAT it
paid the amount of P5,683,035.04 from January 1 – June 30, 1991.
As the CIR failed to act upon respondent’s application within sixty (60) days from the
dates of filing, it filed on March 22, 1993 a Petition for Review against the CIR before
the CTA
CTA- DENIED RESPONDENT’S CLAIM FOR REFUND although said sales are not
subject to 10% output VAT.
Failure to prove that it paid the amounts claimed as such for the year 1991, no sales
invoices, receipts or other documents as required under Section 2(c)(1) of Revenue
Regulations No. 3-88 having been presented. The CTA explained that a mere listing of
VAT invoices and receipts, even if certified to have been previously examined by an
independent certified public accountant, would not suffice to establish the truthfulness
and accuracy of the contents of such invoices and receipts unless offered and actually
verified by it (CTA) in accordance with CTA Circular No. 1-95, as amended by CTA
Circular No. 10-97, which requires that photocopies of invoices, receipts and other
documents covering said accounts of payments be pre-marked by the party concerned
and submitted to the court.
CA- Reversed the decision of CTA and granted the claim
the appellate court held that there was no need for respondent to present the
photocopies of the purchase invoices or receipts evidencing the VAT paid in view of
Rule 26, Section 2 of the Revised Rules of Court and the Resolutions of the CTA
holding that the matters requested in respondent’s Request for Admissions in CTA No.
4968 were deemed admitted by the CIR in light of its failure to file a verified reply
thereto
Petitioner argued that the documents required to be submitted to the BIR under
Revenue Regulation No. 3-88 should likewise be presented to the CTA to prove
entitlement to input tax credit. A certification by an independent Certified Public
Accountant (CPA) as provided under CTA Circulars 1-95 and 10-97 does not relieve
respondent of the onus of adducing in evidence the invoices, receipts and other
documents to show the input VAT paid on its purchase of goods and services.
ISSUE: whether respondent adduced sufficient evidence to prove its claim for refund
of its input VAT for taxable year 1991 in the amounts of P5,683,035.04 and
P8,173,789.60.
NO. Respondent failed to do so. As export sales, the sale of gold to the Central Bank is
zero-rated, hence, no tax is chargeable to it as purchaser. Zero rating is primarily
intended to be enjoyed by the seller – respondent herein, which charges no output
VAT but can claim a refund of or a tax credit certificate for the input VAT previously
charged to it by suppliers.
For a judicial claim for refund to prosper, however, respondent must not only
prove that it is a VAT registered entity and that it filed its claims within the
prescriptive period. It must substantiate the input VAT paid by purchase invoices or
official receipts
The CTA is described as a court of record. As cases filed before it are litigated de novo,
party litigants should prove every minute aspect of their cases. No evidentiary value
can be given the purchase invoices or receipts submitted to the BIR as the rules on
documentary evidence require that these documents must be formally offered before
the CTA
As the CTA stated:
[S]ale of gold to the Central Bank should not be subject to the 10% VAT-output tax but
this does not ipso facto mean that [the seller] is entitled to the amount of refund
sought as it is required by law to present evidence showing the input taxes it paid
during the year in question. What is being claimed in the instant petition is the refund
of the input taxes paid by the herein petitioner on its purchase of goods and
services. Hence, it is necessary for the Petitioner to show proof that it had indeed paid
the said input taxes during the year 1991. In the case at bar, Petitioner failed to
discharge this duty. It did not adduce in evidence the sales invoice, receipts or other
documents showing the input value added tax on the purchase of goods and services.
xxx
Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides
categorically that the Court of Tax Appeals shall be a court of record and as such it is
required to conduct a formal trial (trial de novo) where the parties must present their
evidence accordingly if they desire the Court to take such evidence into consideration
There is nothing in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97,
which either expressly or impliedly suggests that summaries and schedules of input
VAT payments, even if certified by an independent CPA, suffice as evidence of input
VAT payments.
Mere listing of VAT invoices and receipts, even if certified to have been previously
examined by an independent certified public accountant, would not suffice to establish
the truthfulness and accuracy of the contents thereof unless offered and actually
verified by this Court. CTA Circular No. 1-95, as amended by CTA Circular No. 10-97,
requires that the photocopies of invoices, receipts and other documents covering said
accounts or payments must be pre-marked by the party and submitted to this Court.
While the CTA is not governed strictly by technical rules of evidence, as rules of
procedure are not ends in themselves but are primarily intended as tools in the
administration of justice, the presentation of the purchase receipts and/or invoices is
not mere procedural technicality which may be disregarded considering that it is the
only means by which the CTA may ascertain and verify the truth of respondent’s
claims.

The records further show that respondent miserably failed to substantiate its claim for
input VAT refund for the first semester of 1991. Except for the summary and
schedules of input VAT payments prepared by respondent itself, no other evidence was
adduced in support of its claim.

As for respondent’s claim for input VAT refund for the second semester of 1991, even
though they made employed the services of Joaquin Cunanan & Co. and executed a
certification, due to the fact that the certification merely stated that it used “auditing
procedures considered necessary” and not auditing procedures which are in
accordance with generally accepted auditing principles and standards, and that the
examination was made on “input tax payments by the Manila Mining Corporation,”
without specifying that the said input tax payments are attributable to the sales of gold
to the Central Bank, this Court cannot rely thereon and regard it as sufficient proof of
respondent’s input VAT payments for the second semester.

DECISION OF CTA IS REINSTATED.

PAGCOR vs. BIR:
ISSUE : W/N PAGCOR IS EXEMPTED FROM VAT. YES.
Facts:
With the passage of Republic Act No. (RA) 9337, the Philippine Amusement and
Gaming Corporation (PAGCOR) has been excluded from the list of government-owned
and -controlled
corporations (GOCCs) that are exempt from tax under Section 27(c) of the Tax Code;
PAGCOR is now subject to corporate income tax.
The Supreme Court (SC) held that the omission of PAGCOR from the list of tax-
exempt GOCCs by RA 9337 does not violate the right to equal protection of the laws
under Section 1, Article III of the Constitution, because PAGCOR’s exemption from
payment of corporate income tax was not based on classification
showing substantial distinctions; rather, it was granted upon the corporation’s own
request to be exempted from corporate
income tax. Legislative records likewise reveal that the legislative intention is to
require PAGCOR to pay corporate
income tax.
With regard to the issue that the removal of PAGCOR from the exempted list violates
the non-impairment clause contained in Section 10, Article III of the Constitution —
which provides that no law impairing the obligation of contracts shall be passed — the
SC explained that following its previous ruling in the case of
Manila Electric Company v. Province of Laguna 366 Phil. 428 (1999), this does not
apply.
Franchises such as that granted to PAGCOR partake of the nature of a grant, and is
thus beyond the purview of the non-impairment clause of the Constitution.
As regards the liability of PAGCOR to VAT, the SC finds Section 4.108-3 of Revenue
Regulations No. (RR) 16-2005,
which subjects PAGCOR and its licensees and franchisees to VAT, null and void for
being contrary to the National Internal
Revenue Code (NIRC), as amended by RA 9337. According to the SC, RA 9337 does
not contain any provision that subjects PAGCOR to VAT. Instead, the SC finds
support to the VAT exemption of PAGCOR under Section 109(k) of the
Tax Code, which provides that transactions exempt under international agreements to
which the Philippines is a signatory or under special laws [except Presidential Decree
No. (PD) 529] are
exempt from VAT. Considering that PAGCOR’s charter, i.e., PD 1869 — which grants
PAGCOR exemption from taxes — is a special law, it is exempt from payment of VAT.
Accordingly, the SC held that the BIR exceeded its authority in subjecting PAGCOR to
VAT, and thus declared RR 16-05 null and void — insofar as it subjects PAGCOR to
VAT — for being
contrary to the NIRC, as amended by RA 9337.
PAGCOR is subject to income tax but remains exempt from the imposition of value-
added tax.
With the amendment by R.A. No. 9337 of Section 27 (c) of the National Internal
Revenue Code of 1997 by omitting PAGCOR from the list of government corporations
exempt for income tax, the legislative intent is to require PAGCOR to pay corporate
income tax. However, nowhere in R.A. No. 9337 is it provided that PAGCOR can be
subjected to VAT. Thus, the provision of RR No. 16-2005, which the respondent BIR
issued to implement the VAT law, subjecting PAGCOR to 10% VAT is invalid for being
contrary to R.A. No. 9337. (Philippine Amusement and Gaming Corporation vs. BIR,
G.R. No. 172087, March 15, 2011)
With the passage of Republic Act No. (RA) 9337, the Philippine Amusement and
Gaming Corporation (PAGCOR) has been excluded from the list of government-owned
and –controlled corporations (GOCCs) that are exempt from tax under Section 27(c) of
the Tax Code; PAGCOR is now subject to corporate income tax. The Supreme Court
(SC) held that the omission of PAGCOR from the list of tax-exempt GOCCs by RA 9337
does not violate the right to equal protection of the laws under Section 1, Article III of
the Constitution, because PAGCOR’s exemption from payment of corporate income
tax was not based on classification showing substantial distinctions; rather, it was
granted upon the corporation’s own request to be exempted from corporate income
tax. Legislative records likewise reveal that the legislative intention is to require
PAGCOR to pay corporate income tax.
With regard to the issue that the removal of PAGCOR from the exempted list violates
the non-impairment clause contained in Section 10, Article III of the Constitution —
which provides that no law impairing the obligation of contracts
shall be passed — the SC explained that following its previous ruling in the case of
Manila Electric Company v. Province of Laguna 366 Phil. 428 (1999), this does not
apply. Franchises such as that granted to PAGCOR partake of the nature of a grant,
and is thus beyond the purview of the non-impairment clause of the Constitution. As
regards the liability of PAGCOR to VAT, the SC finds Section 4.108-3 of Revenue
Regulations No. (RR) 16-2005, which subjects PAGCOR and its licensees and
franchisees to VAT, null and void for being contrary to the National Internal Revenue
Code (NIRC), as amended by RA 9337.
According to the SC, RA 9337 does not contain any provision that subjects PAGCOR to
VAT. Instead, the SC finds support to the VAT exemption of PAGCOR under Section
109(k) of the Tax Code, which provides that transactions exempt under international
agreements to which the Philippines is a signatory or under special laws [except
Presidential Decree No. (PD) 529] are exempt from VAT. Considering that PAGCOR’s
charter, i.e., PD 1869 — which grants PAGCOR exemption from taxes — is a special
law, it is exempt from payment of VAT. Accordingly, the SC held that the BIR exceeded
its authority in subjecting PAGCOR to VAT, and thus declared RR 16-05 null and void
— insofar as it subjects PAGCOR to VAT — for being contrary to the NIRC, as
amended by RA 9337. [Philippine Amusement and Gaming Corporation (PAGCOR) v.
the Bureau of Internal Revenue (BIR), et. al., GR 172087, March 15, 2011.
Silicon Philippines Intel Philippines Manufacturing vs. CIR Thus, failure to print the ATP on the invoices or receipts should not result in the
outright denial of a claim or the invalidation of the invoices or receipts for purposes of
Facts: claiming a refund.
Silicon Philippines, Inc. is a corporation duly organized and existing under the laws of ATP must be secured from the BIR
the Philippines. It is registered with the BIR das a VAT-taxpayer and with the BOI as a
preferred pioneer enterprise. Sec. 238 of the NIRC expressly requires persons engaged in business to secure an ATP
Then, on May, 1999, Silicon filed with the CIR an application for credit/refund of from the BIR prior to printing invoices or receipts. Failure to do so, makes the person
unutilized input VAT for the period of Oct. 1, 1998 to Dec. 31, 1998. liable under Sec. 264 of the Tax Code.
Due to the inaction of the CIR, Silicon, on Dec. 27, 2000, filed a Petition for Review
with the CTA Division. Silicon alleged that the 4th quarter of 1998, it generated and W/N a claimant for unutilized input VAT on zero-rated sales is required to present
recorded zero-rated export sales paid to Silicon in acceptable foreign currency and that proof that it has secured an ATP from the BIR prior to the printing of its invoices or
for the said period, Silicon paid input VAT in the total amount which have not been receipts.
applied to any output VAT. YES. Since ATP is not indicated in the invoices or receipts, the only way to verify
The CIR, on the other hand, raised the defenses that: 1. Silicon did not show that it whether the invoices or receipts are duly registered is by requiring the claimant to
complied with the provisions of Sec. 229 of the Tax Code; 2. That claims for refund are present its ATP from the BIR. Without which, the invoices would have no probative
construed strictly against the claimant similar to the nature of exemption from taxes; value for the purpose of refund.
and that Silicon failed to prove that is entitled for refund. Failure to print the word “zero-rated” on the sales invoices is fatal to a claim for refund
The CTA Division granted Silicon’s claim for refund of unutilized input VAT on capital of input VAT.
goods. However, it denied Silicon’s claim for credit/refund of input VAT attributable to In compliance with Sec. 4.108-1 of RR 7-95, requiring the printing of the word “zero-
its zero-rated export sales. It is because Silicon failed to present an Authority to Print rated” on the invoice covering zero-rate sales is essential as this regulation proceeds
(ATP) from the BIR neither did it print on its export sales invoices the ATP and the from the rulemaking authority of the Secretary of Finance under Sec. 244 of the NIRC.
word zero-rated. In this case, Silicon failed to present its ATP and to print the word “zero-rated” on its
Silicon moved for reconsideration claiming that it is not required to secure an ATP export sales invoices.
since it has a “Permit to Adopt Computerized Accounting Documents such as Sales Thus, the claim for credit/refund of input VAT attributable to its zero-rated sales must
Invoice and Official Receipts from the BIR. And that the printing of the word “zero- be denied.
rated” on its export sales invoices is not necessary because all its finished products are
exported to its mother company, Intel Corp., a non-resident corporation and a non-
VAT registered entity.
ISSUE: W/N Silicon entitled to claim from refund of Input VAT attributable to its
zero-rated sales.
Ruling: no.
There are two types of input VAT credits:
A credit/refund of input VAT attributable to zero-rated sales under Sec. 112(A) of the
NIRC; and
A credit/refund of input VAT on capital goods pursuant to Sec. 112(B) of the same
Code.
To claim for credit/refund of input VAT attributable to zero-rated sales, Sec. 112(A)
laid down 4 requisites:
The taxpayer must be a VAT-registered;
The taxpayer must be engaged in sales which are zero-rated or effectively zero-rated;
The claim must be filed within 2 years after the close of the taxable quarter when such
sales were made; and
The creditable input tax due or paid must be attributable to such sales, except the
transitional input tax, to the extent that such input tax has not been applied against
the output tax.

Printing the ATP on the invoices or receipts is not required.

In a case, the SC ruled that ATP need not be reflected or indicated in the invoices or
receipts because there is no law or regulation requiring it.
ATLAS CONSOLIDATED VS. CIR Court, given that petitioner Kepco's claim involves unutilized input taxes for the 3rd
quarter of 2000. Hence, the prescriptive period applicable in the instant case would
Facts: still be the period enunciated in the case of Atlas Consolidated Mining and
Atlas Consolidated is a zero-rated VAT person for being an exporter of copper Development Corporation vs. CIR (G.R. Nos. 141104 & 148763, June 8, 2007), where it
concentrates. On January 1994, Atlas filed its VAT return for the fourth quarter of was held that the counting of the two-year prescriptive period is reckoned from the
1993, showing a total input tax and an excess VAT credit. Then, on January 1996, Atlas filing of the quarterly VAT returns. Kepco Ilijan Corporation v. Commissioner of
filed for a tax refund or tax credit certificate with CIR. Internal Revenue, C.T.A. E.B. Case No. 528 (C.T.A. Case No. 6550), October 14, 201
However, the CTA denied Atlas claim for refund due to Atlas’ failure to comply with
the documentary requirements prescribed under Sec. 16 of RR No. 5-87, as amended
by RR No. 3-88.
CTA denied Atlas’ MR stating that Atlas has failed to substantiate its claim that it has
not applied its alleged excess in put taxes to any of its subsequent quarter’s output tax
liability.
The CA affirmed CTA’s ruling.
ISSUE: What are the documents required to claim for VAT input refund?
W/N Atlas is entitled to claim to a tax refund.
Ruling:
When claiming tax refund/credit, the VAT-registered taxpayer must be able to
establish that it does not have refundable or creditable input VAT, and the same has
not been applied against its output VAT liabilities – information which are supposed
to be reflected in the taxpayer’s VAT returns.
Thus, an application for tax refund/credit must be accompanied by copies of the
taxpayer’s VAT return/s for the taxable quarter/s concerned.
The formal offer of evidence of Atlas failed to include photocopy of its export
documents, as required. Without the export documents, the purchase invoice/receipts
submitted by Atlas as proof of its input taxes cannot be verified as being directly
attributable to the goods so exported.
Atlas claim for credit or refund of input taxes cannot be granted due to its failure to
show convincingly that the same has not been applied to any of its output tax liability
as provided under Sec. 106(a) of the Tax Code.

National Internal Revenue Code; value-added tax; claim for credit or refund of input
value-added tax; documentary requirements. When claiming tax refund or credit, the
value-added taxpayer must be able to establish that it does have refundable or
creditable input value-added tax (VAT), and the same has not been applied against its
output VAT liabilities- information which are supposed to be reflected in the
taxpayer’s VAT returns. Thus, an application for tax refund or credit must be
accompanied by copies of the taxpayer’s VAT return or returns for taxable quarter or
quarters concerned. Atlas Consolidated Mining and Development Corporation vs
Commissioner of Internal Revenue, G.R. No. 159471, January 26, 2011.
In the recent case of Mirant Pagbilao Corporation vs. CIR (G.R. No. 172129, September
12, 2008), the Supreme Court had ruled that the claim for refund of unutilized input
VAT payments must be filedwithin two (2) years from the close of the taxable quarter
when the relevant sales were made. Said
ruling, however, should not be made to apply to the present case but should be applied
prospectively pursuant to and consistent with the numerous rulings of the Supreme
Kepco vs. CIR
Petitioner KEPCO Philippines Corporation (Kepco) is a VAT-registered independent
power producer engaged in the business of generating electricity. It exclusively sells
electricity to National Power Corporation (NPC), an entity exempt from taxes under
Section 13 of Republic Act No. 6395 (RA No. 6395).3
Kepco filed an application for zero-rated sales and subsequently approved
In the course of doing business with NPC, Kepco claimed expenses reportedly
sustained in connection with the production and sale of electricity with NPC, thus,
paying input va andt attributing the same to its zero-rated sales of electricity with
NPC.
Afterwards, Kepco filed before CIR a claim for tax refund covering unutilized input
VAT payments attributable to its zero-rated sales transactions. It also filed a petition
for review before the CTA.
Respondent CIR averred that claims for refund were strictly construed against the
taxpayer as it was similar to a tax exemption
Petitioner argues that the 1997 National Internal Revenue Code (NIRC) does not
require the imprinting of the word zero-rated on invoices and/or official receipts
covering zero-rated sales.26 It claims that Section 113 in relation to Section 237 of the
1997 NIRC "does not mention the requirement of imprinting the words ‘zero-rated’ to
purchases covering zero-rated transactions."27 Only Section 4.108-1 of Revenue
Regulation No. 7-95 (RR No. 7-95) "required the imprinting of the word ‘zero-rated’ on
the VAT invoice or receipt."28 "Thus, Section 4.108-1 of RR No. 7-95 cannot be
considered as a valid legislation considering the long settled rule that administrative
rules and regulations cannot expand the letter and spirit of the law they seek to
enforce."
The CTA Second Division ruled that out of the total declared zero-rated sales
ofP3,285,308,055.85, Kepco was only able to properly substantiate P1,451,788,865.52
as its zero-rated sales. Only 44.19% of the validly supported input VAT payments being
claimed could be considered. The CTA Second Division likewise disallowed
the P5,170,914.20 of Kepco’s claimed input VAT due to its failure to comply with the
substantiation requirement. ccordingly, the CTA Second Division partially granted
Kepco’s claim for refund of unutilized input VAT
Kepco moved for partial reconsideration, but the CTA Second Division denied it
Kepco appeal to the CTA En Banc, but dismissed the petition and ruled that "in order
for Kepco to be entitled to its claim for refund/issuance of tax credit certificate
representing unutilized input VAT attributable to its zero-rated sales for taxable year
2002, it must comply with the substantiation requirements under the appropriate
Revenue Regulations, i.e. Revenue Regulations 7-95.
ISSUE:
Whether the word "zero-rated" should be imprinted on invoices and/or official
receipts as part of the invoicing requirement? WON non-compliance of invoicing
requirements should result in the denial of the taxpayer’s refund claim?
WON Section 4.108.1 of Revenue Regulation 07-95 does requires the word "TIN-VAT"
to be imprinted on a VAT-registered person’s supporting invoices and official receipts?
HELD:
1. Yes. The SC held that Section 4.108-1 of RR 7-95 proceeds from the rule-making
authority granted to the Secretary of Finance under Section 245 of the 1977 NIRC
(Presidential Decree 1158) for the efficient enforcement of the tax code and of course
its amendments. The requirement is reasonable and is in accord with the efficient
collection of VAT from the covered sales of goods and services. The appearance of the
word "zero-rated" on the face of invoices covering zero-rated sales prevents buyers
from falsely claiming input VAT from their purchases when no VAT was actually paid.
If, absent such word, a successful claim for input VAT is made, the government would
be refunding money it did not collect.
Further, the printing of the word "zero-rated" on the invoice helps segregate sales that
are subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable to
submit the proper invoices, petitioner Panasonic has been unable to substantiate its
claim for refund.
Section 4.108-1 of RR 7-9534 neither expanded nor supplanted the tax code but
merely supplemented what the tax code already defined and discussed. In fact, the
necessity of indicating "zero-rated" into VAT invoices/receipts became more apparent
when the provisions of this revenue regulation was later integrated into RA No.
9337,35 the amendatory law of the 1997 NIRC
Evidently, as it failed to indicate in its VAT invoices and receipts that the transactions
were zero-rated, Kepco failed to comply with the correct substantiation requirement
for zero-rated transactions
Automatic denial of claim
2. Yes. The SC held that only VAT registered persons are required to print their TIN
followed by the word "VAT" in their invoice or receipts and this shall be considered as
a "VAT" Invoice. All purchases covered by invoices other than ‘VAT Invoice’ shall not
give rise to any input tax.
Under the law, a VAT invoice is necessary for every sale, barter or exchange of goods
or properties while a VAT official receipt properly pertains to every lease of goods or
properties, and for every sale, barter or exchange of services
The SC distinguished an invoice from a receipt:
A "sales or commercial invoice" is a written account of goods sold or services rendered
indicating the prices charged therefor or a list by whatever name it is known which is
used in the ordinary course of business evidencing sale and transfer or agreement to
sell or transfer goods and services.
A "receipt" on the other hand is a written acknowledgment of the fact of payment in
money or other settlement between seller and buyer of goods, debtor or creditor, or
person rendering services and client or customer.
In other words, the VAT invoice is the seller’s best proof of the sale of the goods or
services to the buyer while the VAT receipt is the buyer’s best evidence of the payment
of goods or services received from the seller. Even though VAT invoices and receipts
are normally issued by the supplier/seller alone, the said invoices and receipts, taken
collectively, are necessary to substantiate the actual amount or quantity of goods sold
and their selling price (proof of transaction), and the best means to prove the input
VAT payments (proof of payment).46 Hence, VAT invoice and VAT receipt should not
be confused as referring to one and the same thing. Certainly, neither does the law
intend the two to be used alternatively.
PANASONIC IMAGING CORP. VS. CIR, 612 SCRA 28
Abad, J This Court held that, since the BIR authority to print is not one of the items required
to be indicated on the invoices or receipts, the BIR erred in denying the claim for
FACTS: Petitioner Panasonic Communications Imaging Corporation of refund. Here, however, the ground for denial of petitioner Panasonics claim for tax
the Philippines (Panasonic) produces and exports plain paper copiers and their sub- refund the absence of the word zero-rated on its invoices is one which is specifically
assemblies, parts, and components. It is registered with the Board of Investments as a and precisely included in the above enumeration. Consequently, the BIR correctly
preferred pioneer enterprise under the Omnibus Investments Code of 1987. It is also a denied Panasonics claim for tax refund.
registered value-added tax (VAT) enterprise.
Ruling: Wherefore, the petition is DENIED for lack of merit. Cost against
From April 1 to September 30, 1998 and from October 1, 1998 to March 31, 1999, petitioner. SO ORDERED.
petitioner Panasonic generated export sales amounting to US$12,819,475.15 and
US$11,859,489.78, respectively, for a total of US$24,678,964.93. Believing that these
export sales were zero-rated for VAT under Section 106(A)(2)(a)(1) of the
1997 National Internal Revenue Code as amended by Republic Act (R.A.) 8424 (1997
NIRC), Panasonic paid input VAT of P4,980,254.26 and P4,388,228.14 for the two
periods or a total of P9,368,482.40 attributable to its zero-rated sales. Claiming that
the input VAT it paid remained unutilized or unapplied, on March 12, 1999 and July
20, 1999 petitioner Panasonic filed with the Bureau of Internal Revenue (BIR) two
separate applications for refund or tax credit of what it paid.

ISSUE: WON PANASONIC IS ENTITLED TO THE REFUND CLAIMED.

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

For the effective zero rating of such transactions, however, the taxpayer has to be VAT-
registered and must comply with invoicing requirements. Interpreting these
requirements, respondent CIR ruled that under Revenue Memorandum Circular
(RMC) 42-2003, the taxpayers failure to comply with invoicing requirements will
result in the disallowance of his claim for refund. RMC 42-2003 provides:

A-13. Failure by the supplier to comply with the invoicing requirements on the
documents supporting the sale of goods and services will result to the disallowance of
the claim for input tax by the purchaser-claimant.

If the claim for refund/TCC is based on the existence of zero-rated sales by the
taxpayer but it fails to comply with the invoicing requirements in the issuance of sales
invoices (e.g., failure to indicate the TIN), its claim for tax credit/refund of VAT on its
purchases shall be denied considering that the invoice it is issuing to its customers
does not depict its being a VAT-registered taxpayer whose sales are classified as zero-
rated sales. Nonetheless, this treatment is without prejudice to the right of the
taxpayer to charge the input taxes to the appropriate expense account or asset account
subject to depreciation, whichever is applicable. Moreover, the case shall be referred
by the processing office to the concerned BIR office for verification of other tax
liabilities of the taxpayer.
THE COMMISIONER OF INTERNAL REVENUE, Petitioner,

vs.
ACESITE (PHILIPPINES) HOTEL CORPORATION, Respondent.
FACTS:
1. Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leases
6,768.53 square meters of the hotel’s premises to the Philippine Amusement and
Gaming Corporation for casino operations and caters food and beverages to PAGCOR’s
casino patrons through the hotel’s restaurant outlets.
2.For the period January 96 to April 1997, Acesite incurred VAT amounting to
P30,152,892.02 from its rental income and sale of food and beverages to PAGCOR
during said period. Acesite tried to shift the said taxes to PAGCOR by incorporating it
in the amount assessed to PAGCOR but the latter refused to pay the taxes on account
of its tax exempt status.1awphi1.net
3. PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the
latter paid the VAT to the Commissioner of Internal Revenue.
4.However, Acesite belatedly arrived at the conclusion that its transaction with
PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity.
5. Acesite filed an administrative claim for refund with the CIR but the latter failed to
resolve the same. Acesite filed a petition with the Court of Tax Appeals
CTA Decision: Petitioner is subject to zero percent tax insofar as its gross income from
rentals and sales to PAGCOR, a tax exempt entity by virtue of a special law.
Accordingly, the amounts of P21,413,026.78 and P8,739,865.24, representing the 10%
EVAT on its sales of food and services and gross rentals, respectively from PAGCOR
shall be refunded to the petitioner..
CA Decision: PAGCOR was not only exempt from direct taxes but was also exempt
from indirect taxes like the VAT and consequently, the transactions between
respondent Acesite and PAGCOR were "effectively zero-rated" because they involved
the rendition of services to an entity exempt from indirect taxes.
ISSUE/S: (1) whether PAGCOR’s tax exemption privilege includes the indirect tax of
VAT to entitle Acesite to zero percent (0%) VAT rate; and (2) whether the zero percent
(0%) VAT rate under then Section 102 (b)(3) of the Tax Code (now Section 108 (B)(3)
of the Tax Code of 1997) legally applies to Acesite.
HELD:
1. Yes. PAGCOR is exempt from payment of indirect taxes
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an
exemption from the payment of taxes. Section 13 of P.D. 1869 pertinently provides
exemption.
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or
operator refers to PAGCOR. Although the law does not specifically mention PAGCOR’s
exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes
because the law exempts from taxes persons or entities contracting with PAGCOR in
casino operations. Although, differently worded, the provision clearly exempts
PAGCOR from indirect taxes. In fact, it goes one step further by granting tax exempt
status to persons dealing with PAGCOR in casino operations. The unmistakable
conclusion is that PAGCOR is not liable for the P30,152,892.02 VAT and neither is
Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3). R.A.
8424. (Emphasis supplied.)
2. The manner of charging VAT does not make PAGCOR liable to said tax
It is true that VAT can either be incorporated in the value of the goods, properties, or
services sold or leased, in which case it is computed as 1/11 of such value, or charged as
an additional 10% to the value. Verily, the seller or lessor has the option to follow
either way in charging its clients and customer. In the instant case, Acesite followed
the latter method, that is, charging an additional 10% of the gross sales and rentals. Be
that as it may, the use of either method, and in particular, the first method, does not
denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.
3. Yes. VAT exemption extends to Acesite
Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the
latter is not liable for the payment of it as it is exempt in this particular transaction by
operation of law to pay the indirect tax. Such exemption falls within the former Section
102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A. 8424),
which provides:
Section 102. Value-added tax on sale of services – (a) Rate and base of tax – There
shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross
receipts derived by any person engaged in the sale of services x x x; Provided, that the
following services performed in the Philippines by VAT-registered persons shall be
subject to 0%
(3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects
the supply of such services to zero (0%) rate (emphasis supplied).
4. Acesite paid VAT by mistake
Considering the foregoing discussion, there are undoubtedly erroneous payments of
the VAT pertaining to the effectively zero-rate transactions between Acesite and
PAGCOR. Verily, Acesite has clearly shown that it paid the subject taxes under a
mistake of fact, that is, when it was not aware that the transactions it had with
PAGCOR were zero-rated at the time it made the payments.
Solutio indebiti applies to the Government
Tax refunds are based on the principle of quasi-contract or solutio indebiti and the
pertinent laws governing this principle are found in Arts. 2142 and 2154 of the Civil
Code. When money is paid to another under the influence of a mistake of fact, that is
to say, on the mistaken supposition of the existence of a specific fact, where it would
not have been known that the fact was otherwise, it may be recovered.
Action for refund strictly construed; Acesite discharged the burden of proof
Since an action for a tax refund partakes of the nature of an exemption, which cannot
be allowed unless granted in the most explicit and categorical language, it is strictly
construed against the claimant who must discharge such burden convincingly.11
Commissioner of Internal Revenue vs. American Express International,
Inc. (PHILIPPINE BRANCH),
G.R.No. 152609. June 29, 2005
(1)
Facts: American Express international is a foreign corporation operating in the
Philippines, it is a registered taxpayer. On April 13, 1999, [respondent] filed with the
BIR a letter-request for the refund of its 1997 excess input taxes in the amount of
P3,751,067.04, which amount was arrived at after deducting from its total input VAT
paid of P3,763,060.43 its applied output VAT liabilities only for the third and fourth
quarters of 1997 amounting to P5,193.66 and P6,799.43, respectively. The CTA ruled
in favor of the herein respondent holding that its services are subject to zero-rate
pursuant to Section 108(b) of the Tax Reform Act of 1997 and Section 4.102-2 (b)(2) of
Revenue Regulations 5-96. The CA affirmed the decision of the CTA.
Issue: Whether or not the company is subject to zero-rate tax pursuant to the Tax
Reform Act of 1997.
Held: Services performed by VAT-registered persons in the Philippines (other than the
processing, manufacturing or repacking of goods for persons doing business outside
the Philippines), when paid in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP, are zero-rated. Respondent is a
VAT-registered person that facilitates the collection and payment of receivables
belonging to its non-resident foreign client, for which it gets paid in acceptable foreign
currency inwardly remitted and accounted for in conformity with BSP rules and
regulations. Certainly, the service it renders in the Philippines is not in the same
category as “processing, manufacturing or repacking of goods” and should, therefore,
be zero-rated. In reply to a query of respondent, the BIR opined in VAT Ruling No.
080-89 that the income respondent earned from its parent company’s regional
operating centers (ROCs) was automatically zero-rated effective January 1, 1988.
Service has been defined as “the art of doing something useful for a person or company
for a fee” or “useful labor or work rendered or to be rendered by one person to
another.” For facilitating in the Philippines the collection and payment of receivables
belonging to its Hong Kong-based foreign client, and getting paid for it in duly
accounted acceptable foreign currency, respondent renders service falling under the
category of zero rating. Pursuant to the Tax Code, a VAT of zero percent should,
therefore, be levied upon the supply of that service.
As a general rule, the VAT system uses the destination principle as a basis for the
jurisdictional reach of the tax. Goods and services are taxed only in the country where
they are consumed. Thus, exports are zero-rated, while imports are taxed. VAT rate for
services that are performed in the Philippines, “paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the BSP.” Thus, for
the supply of service to be zero-rated as an exception, the law merely requires that
first, the service be performed in the Philippines; second, the service fall under any of
the However, the law clearly provides for an exception to the destination principle;
that is, for a zero percent categories in Section 102(b) of the Tax Code; and, third, it be
paid in acceptable foreign currency accounted for in accordance with BSP rules and
regulations. Indeed, these three requirements for exemption from the destination
principle are met by respondent. Its facilitation service is performed in the Philippines.
It falls under the second category found in Section 102(b) of the Tax Code, because it is
a service other than “processing, manufacturing or repacking of goods” as mentioned
in the provision. Undisputed is the fact that such service meets the statutory condition
that it be paid in acceptable foreign currency duly accounted for in accordance with
BSP rules. Thus, it should be zero-rated.
(2)
Facts:
Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was tasked
with servicing a unit of AMEX-Hongkong Branch and facilitating the collections of
AMEX-HK receivables from card members situated in the Philippines and payment to
service establishments in the Philippines.
It filed with BIR a letter-request for the refund of its 1997 excess input taxes, citing as
basis Section 110B of the 1997 Tax Code, which held that “xxx Any input tax
attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered
person may at his option be refunded or credited against other internal revenue taxes,
subject to the provisions of Section 112.”
In addition, respondent relied on VAT Ruling No. 080-89, which read, “In Reply,
please be informed that, as a VAT registered entity whose service is paid for in
acceptable foreign currency which is remitted inwardly to the Philippine and
accounted for in accordance with the rules and regulations of the Central Bank of the
Philippines, your service income is automatically zero rated xxx”
Petitioner claimed, among others, that the claim for refund should be construed
strictly against the claimant as they partake of the nature of tax exemption.
CTA rendered a decision in favor of respondent, holding that its services are subject to
zero-rate. CA affirmed this decision and further held that respondent’s services were
“services other than the processing, manufacturing or repackaging of goods for
persons doing business outside the Philippines” and paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of BSP.
Issue: W/N AMEX Phils is entitled to refund
Held: Yes. Section 102 of the Tax Code provides for the VAT on sale of services and use
or lease of properties. Section 102B particularly provides for the services or
transactions subject to 0% rate:
(1) Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported, where the
services are paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the BSP;
(2) Services other than those mentioned in the preceding subparagraph, e.g.
those rendered by hotels and other service establishments, the consideration for which
is paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the BSP
Under subparagraph 2, services performed by VAT-registered persons in the
Philippines (other than the processing, manufacturing or repackaging of goods for
persons doing business outside the Philippines), when paid in acceptable foreign
currency and accounted for in accordance with the R&R of BSP, are zero-rated.
Respondent renders service falling under the category of zero rating.
As a general rule, the VAT system uses the destination principle as a basis for the
jurisdictional reach of the tax. Goods and services are taxed only in the country where
they are consumed. Thus, exports are zero-rated, while imports are taxed.
In the present case, the facilitation of the collection of receivables is different from the
utilization of consumption of the outcome of such service. While the facilitation is
done in the Philippines, the consumption is not. The services rendered by 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
Philippines. Under the destination principle, such service is subject to 10% VAT.
However, the law clearly provides for an exception to the destination principle; that is
0% VAT rate for services that are performed in the Philippines, “paid for in acceptable
foreign currency and accounted for in accordance with the R&R of BSP.” The
respondent meets the following requirements for exemption, and thus should be zero-
rated:
(1) Service be performed in the Philippines
(2) The service fall under any of the categories in Section 102B of the Tax Code
(3) It be paid in acceptable foreign currency accounted for in accordance with
BSP R&R.
VAT – Qualification for Zero-rated sale
ACCENTURE, INC. vs. COMMISSIONER OF INTERNAL REVENUE G.R.
No. 190102 July 11, 2012
Facts: Petitioner Accenture, a VAT registered entity, is a corporation engaged in
the business of providing management consulting, business strategies development,
and selling and/or licensing of software. The monthly and quarterly VAT returns of
Accenture show that, notwithstanding its application of the input VAT credits earned
from its zero-rated transactions against its output VAT liabilities, it still had excess or
unutilized input VAT credits in the amount of P37,038,269.18. Thus, Accenture filed
with the Department of Finance (DoF) an administrative claim for the refund or the
issuance of a Tax Credit Certificate (TCC). When the DoF did not act on the claim,
Accenture filed a Petition for Review with CTA praying for the issuance of a TCC in its
favour.
The CIR answered that the sale by Accenture of goods and services to its
clients are not zero-rated transactions and that Accenture has failed to prove that it is
entitled to a refund, because its claim has not been fully substantiated or documented.
Ruling that Accenture’s services would qualify for zero-rating under the 1997 National
Internal Revenue Code of the Philippines (Tax Code) only if the recipient of the
services was doing business outside of the Philippines, the Division of the CTA ruled
that since Accenture had failed to present evidence to prove that the foreign clients to
which the former rendered services did business outside the Philippines, it was not
entitled to refund.
On appeal before the CTA en banc, Accenture argued that because the case
pertained to the third and the fourth quarters of taxable year 2002, the applicable law
was the 1997 Tax Code, and not R.A. 9337 and that prior to the amendment
introduced by (R.A.) 9337, there was no requirement that the services must be
rendered to a person engaged in business conducted outside the Philippines to qualify
for zero-rating. Nevertheless, the CTA en banc affirmed the decision of the division.
Hence this present petition for review before the SC.
Issues:
Should the recipient of the services be "doing business outside the Philippines" for the
transaction to be zero-rated under Section 108(B)(2) of the 1997 Tax Code?
Has Accenture successfully proven that its clients are entities doing business outside
the Philippines?
Is Accenture entitled to tax refund?
Held:
Recipient of services must be doing business outside the Philippines for the
transactions to qualify as zero-rated.
Accenture anchors its refund claim on Section 112(A) of the 1997 Tax Code, which
allows the refund of unutilized input VAT earned from zero-rated or effectively zero-
rated sales. The provision reads:
SEC. 112. Refunds or Tax Credits of Input Tax. -
(A) Zero-Rated or Effectively Zero-Rated Sales. - Any VAT-registered person, whose
sales are zero-rated or effectively zero-rated may, within two (2) years after the close of
the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales,
except transitional input tax, to the extent that such input tax has not been applied
against output tax: Provided, however, That in the case of zero-rated sales under
Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable
foreign currency exchange proceeds thereof had been duly accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale
and also in taxable or exempt sale of goods of properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to any one of
the transactions, it shall be allocated proportionately on the basis of the volume of
sales. Section 108(B) referred to in the foregoing provision was first seen when
Presidential Decree No. (P.D.) 199431 amended Title IV of P.D. 1158 which is also
known as the National Internal Revenue Code of 1977. Several Decisions have referred
to this as the 1986 Tax Code, even though it merely amended Title IV of the 1977 Tax
Code.
Two years thereafter, or on 1 January 1988, Executive Order No. (E.O.) 27333 further
amended provisions of Title IV. E.O. 273 by transferring the old Title IV provisions to
Title VI and filling in the former title with new provisions that imposed a VAT.
The VAT system introduced in E.O. 273 was restructured through Republic Act No.
(R.A.) 7716. This law, which was approved on 5 May 1994, widened the tax base.
Section 3 thereof reads:
SECTION 3. Section 102 of the National Internal Revenue Code, as amended, is hereby
further amended to read as follows:
"SEC. 102. Value-added tax on sale of services and use or lease of properties. x x x
xxx xxx xxx
"(b) Transactions subject to zero-rate. — The following services performed in the
Philippines by VAT-registered persons shall be subject to 0%:
"(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the services are
paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP).
"(2) Services other than those mentioned in the preceding sub-paragraph, the
consideration for which is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)."
Essentially, Section 102(b) of the 1977 Tax Code—as amended by P.D. 1994, E.O. 273,
and R.A. 7716—provides that if the consideration for the services provided by a VAT-
registered person is in a foreign currency, then this transaction shall be subjected to
zero percent rate.
The 1997 Tax Code reproduced Section 102(b) of the 1977 Tax Code in its Section
108(B), to wit:
(B) Transactions Subject to Zero Percent (0%) Rate. - The following services
performed in the Philippines by VAT- registered persons shall be subject to zero
percent (0%) rate.
(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the services are
paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, the consideration
for which is paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); x x x.
On 1 November 2005, Section 6 of R.A. 9337, which amended the foregoing provision,
became effective. It reads:
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read
as follows:
"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
Properties. -
(B) Transactions Subject to Zero Percent (0%) Rate. - The following services
performed in the Philippines by VAT-registered persons shall be subject to zero
percent (0%) rate:
(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the services are
paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP);
"(2) Services other than those mentioned in the preceding paragraph rendered to a
person engaged in business conducted outside the Philippines or to a nonresident
person not engaged in business who is outside the Philippines when the services are
performed, the consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP); x x x." (Emphasis supplied)
We rule that the recipient of the service must be doing business outside the Philippines
for the transaction to qualify for zero-rating under Section 108(B) of the Tax Code.
This Court upholds the position of the CTA en banc that, because Section 108(B) of the
1997 Tax Code is a verbatim copy of Section 102(b) of the 1977 Tax Code, any
interpretation of the latter holds true for the former.
Moreover, even though Accenture’s Petition was filed before Burmeister was
promulgated, the pronouncements made in that case may be applied to the present
one without violating the rule against retroactive application. When this Court decides
a case, it does not pass a new law, but merely interprets a preexisting one. When this
Court interpreted Section 102(b) of the 1977 Tax Code in Burmeister, this
interpretation became part of the law from the moment it became effective. It is
elementary that the interpretation of a law by this Court constitutes part of that law
from the date it was originally passed, since this Court's construction merely
establishes the contemporaneous legislative intent that the interpreted law carried into
effect.
That the recipient of the service should be doing business outside the Philippines to
qualify for zero-rating is the only logical interpretation of Section 102(b)(2) of the 1977
Tax Code, as we explained in Burmeister:
This can only be the logical interpretation of Section 102 (b) (2). If the provider and
recipient of the "other services" are both doing business in the Philippines, the
payment of foreign currency is irrelevant. Otherwise, those subject to the regular VAT
under Section 102 (a) can avoid paying the VAT by simply stipulating payment in
foreign currency inwardly remitted by the recipient of services. To interpret Section
102 (b) (2) to apply to a payer-recipient of services doing business in the Philippines is
to make the payment of the regular VAT under Section 102 (a) dependent on the
generosity of the taxpayer. The provider of services can choose to pay the regular VAT
or avoid it by stipulating payment in foreign currency inwardly remitted by the payer-
recipient. Such interpretation removes Section 102 (a) as a tax measure in the Tax
Code, an interpretation this Court cannot sanction. A tax is a mandatory exaction, not
a voluntary contribution.
xxx xxx xxx
Further, when the provider and recipient of services are both doing business in the
Philippines, their transaction falls squarely under Section 102 (a) governing domestic
sale or exchange of services. Indeed, this is a purely local sale or exchange of services
subject to the regular VAT, unless of course the transaction falls under the other
provisions of Section 102 (b).
Thus, when Section 102 (b) (2) speaks of "services other than those mentioned in the
preceding subparagraph," the legislative intent is that only the services are different
between subparagraphs 1 and 2. The requirements for zero-rating, including the
essential condition that the recipient of services is doing business outside the
Philippines, remain the same under both subparagraphs.
Lastly, it is worth mentioning that prior to the promulgation of Burmeister, Congress
had already clarified the intent behind Sections 102(b)(2) of the 1977 Tax Code and
108(B)(2) of the 1997 Tax Code amending the earlier provision. R.A. 9337 added the
following phrase: "rendered to a person engaged in business conducted outside the
Philippines or to a nonresident person not engaged in business who is outside the
Philippines when the services are performed."
Accenture has failed to establish that the recipients of its services do business outside
the Philippines.
In the CTA’s opinion, however, the documents presented by Accenture merely
substantiate the existence of the sales, receipt of foreign currency payments, and
inward remittance of the proceeds of these sales duly accounted for in accordance with
BSP rules. Petitioner presented no evidence whatsoever that these clients were doing the foreign clients to whom petitioner rendered its services were clients doing business
business outside the Philippines. outside the Philippines.

Accenture insists, however, that it was able to establish that it had rendered services to
foreign corporations doing business outside the Philippines, unlike in Burmeister,
which allegedly involved a foreign corporation doing business in the Philippines.51

We deny Accenture’s Petition for a tax refund.

The evidence presented by Accenture may have established that its clients are
foreign.1âwphi1 This fact does not automatically mean, however, that these clients
were doing business outside the Philippines. After all, the Tax Code itself has
provisions for a foreign corporation engaged in business within the Philippines and
vice versa, to wit:

SEC. 22. Definitions - When used in this Title:

xxx xxx xxx

(H) The term "resident foreign corporation" applies to a foreign corporation engaged
in trade or business within the Philippines.

(I) The term ‘nonresident foreign corporation’ applies to a foreign corporation not
engaged in trade or business within the Philippines. (Emphasis in the original)

Consequently, to come within the purview of Section 108(B)(2), it is not enough that
the recipient of the service be proven to be a foreign corporation; rather, it must be
specifically proven to be a nonresident foreign corporation.

There is no specific criterion as to what constitutes "doing" or "engaging in" or

"transacting" business. We ruled thus in Commissioner of Internal Revenue v. British
Overseas Airways Corporation:52

x x x. There is no specific criterion as to what constitutes "doing" or "engaging in" or

"transacting" business. Each case must be judged in the light of its peculiar
environmental circumstances. The term implies a continuity of commercial dealings
and arrangements, and contemplates, to that extent, the performance of acts or works
or the exercise of some of the functions normally incident to, and in progressive
prosecution of commercial gain or for the purpose and object of the business
organization. "In order that a foreign corporation may be regarded as doing business
within a State, there must be continuity of conduct and intention to establish a
continuous business, such as the appointment of a local agent, and not one of a
temporary character."53

A taxpayer claiming a tax credit or refund has the burden of proof to establish the
factual basis of that claim.1âwphi1 Tax refunds, like tax exemptions, are construed
strictly against the taxpayer.54

Accenture failed to discharge this burden. It alleged and presented evidence to prove
only that its clients were foreign entities. However, as found by both the CTA Division
and the CTA En Banc, no evidence was presented by Accenture to prove the fact that
CASE 1: CIR v CA and COMMONWEALTH MANAGEMENT AND SERVICES
CORPORATION (COMASERCO)
DOCTRINE: VAT is a tax on transactions, imposed at every stage, of the distribution
process on the sale, barter, exchange of goods or property, and on the performance of
services, even in the absence of profit attributable thereto.
The term “in the course of trade or business” requires the regular conduct or pursuit of
a commercial or an economic activity, regardless of whether or not the entity is profit-
oriented.
FACTS: COMASERCO organized by Philam to perform collection, consultative and
other technical services, including functioning as an internal auditor of Philamlife.
The BIR issued an assessment to COMASERVO for deficiency VAT amounting to
P351K. COMASERCO’s annual corporate income tax return ending indicated a net loss
in its operations in the amount of P6K.
COMSERCO then filed with the BIR, a letter-protest objecting to the deficiency. CIR
sent a collection letter demanding payment.
COMASERCO then filed with CTA, a petition for review contesting the assessment. It
asserted that the services rendered to Philamlife were on a “no-profit, reimbursement-
of-cost-only” basis. Averring that it was not engaged in the business of providing
services to Philamlife. That COMASERCO was established to ensure operational
orderliness and administrative efficiency of Philamlif, and not in the sale of services.
COMASERCO stressed that it was NOT PROFIT MOTIVATED, thus not engaged in
business. In fact, it did not generate profit but suffered a net loss in taxable year 1988.
COMASERCO averred that since, it was not engaged in business, it was not liable to
pay VAT.
CTA ruled in favor of CIR, thus COMASERCO was ordered to pay.
COMASERCO filed with the CA. CA reversed the CTA on the ground that hat
COMASERCO was not liable to pay fixed and contractor’s tax for services rendered to
Philamlife and its affiliates. Ruling that COMASERCO was not engaged in business of
providing services to Philamlife.
CIR avers that to “engage in business” and to “engage in the sale of services” are two
different things. CIR avers that the services rendered by COMASERCO to Philamlife,
for a fee of consideration are subject to VAT. VAT is a tax on the value added by the
performance of he service. It is immaterial whether profits is derived from rendering
service.
COMASERCO contends that the term “in the course of trade or business” requires that
the “business” is carried on with a view to profit or livelihood
ISSUE: WON COMASERCO was engaged in the sale of services and thus liable to pay
VAT?
RULING: Court ruled in favor of CIR. COMASERCO is liable to pay, profit is
immaterial.
Congress enacted RA 7717, the Expanded VAT Law (EVAT).
“SEC. 105. Persons Liable.—Any person who, in the course of trade or business, sells,
barters, exchanges, leases goods or properties, renders services, and any person who
imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106
and 108 of this Code.
“The value­added tax is an indirect tax and the amount of tax may be shifted or passed
on to the buyer, transferee or lessee of the goods, properties or services. This rule shall
likewise apply to existing sale or lease of goods, properties or services at the time of the
effectivity of Republic Act No. 7716.
“The phrase “in the course of trade or business” means the regular conduct or pursuit
of a commercial or an economic activity, including transactions incidental thereto, by
any person regardless of whether or not the person engaged therein is a nonstock,
nonprofit organization (irrespective of the disposition of its net income and whether or
not it sells exclusively to members of their guests), or government entity.
“The rule of regularity, to the contrary notwithstanding, services as defined in this
Code rendered in the Philippines by nonresident foreign persons shall be considered
as being rendered in the course of trade or business.”
Contrary to COMASERCO’s contention the above provision clarifies that even a
non-stock, non-profit, organization or government entity, is liable to pay VAT on the
sale of goods or services.
The definition of the term “in the course of trade or business” incorporated in the
present law applies to all transactions even to those made prior to its enactment.
Executive Order No. 273 stated that any person who, in the course of trade or
business, sells, barters or exchanges goods and services, was already liable to pay VAT.
Section 108 of the National Internal Revenue Code of 1997 defines the phrase “sale of
services” as the “performance of all kinds of services for others for a fee, remuneration
or consideration.” It includes “the supply of technical advice, assistance or services
rendered in connection with technical management or administration of any scientific,
industrial or commercial undertaking or project.
Hence, it is immaterial whether the primary purpose of a corporation indicates that it
receives payments for services rendered to its affiliates on a reimbursement-on- cost
basis only, without realizing profit, for purposes of determining liability for VAT on
services rendered. As long as the entity provides service for a fee, remuneration or
consideration, then the service rendered is subject to VAT.
DISPOSITIVE: Both the Commissioner of Internal Revenue and the Court of Tax
Appeals correctly ruled that the services rendered by COMASERCO to Philamlife and
its affiliates are subject to VAT.
CASE 2: CIR v BURMEISTER and WAIN SCANDINAVIAN CONTRACTOR
MINDANAO.
DOCTRINE: the place of payment is immaterial, much less is the place where the
output of the service is ultimately used. An essential condition for entitlement to 0%
VAT under Section 102(b) (1) and (2) is that the recipient of the services is a person
doing business outside the Philippines.
The Court recognizes the rule that the VAT system generally follows the “destination
principle” (exports are zero­rated whereas imports are taxed). However, as the Court
stated in American Express, there is an exception to this rule.25 This exception refers
to the 0% VAT on services enumerated in Section 102 and performed in the
Philippines. For services covered by Section 102(b)(1) and (2), the recipient of the
services must be a person doing business outside the Philippines.
Thus, to be exempt from the destination principle under Section 102(b)(1) and (2), the
services must be
(a) performed in the Philippines;
(b) for a person doing business outside the Philippines; and
(c) paid in acceptable foreign currency accounted for in accordance with BSP rules.
FACTS: It is represented that a foreign consortium composed of Burmeister and Wain
(BWSC) and Mitsui entered into a contract with NAPOCOR for the operation and
maintenance of NAPOCOR’s two power barges. The Consortium appointed BWSC-
Denmark as its coordination manager.
BWSC-Denmark established respondent which subcontracted the actual operation and
maintenance of NAPOCOR’s two power barges and other acts which has to be done in
the Philippines.
NAPOCOR paid fees to Consortium in Mark, Yen and Peso. On the other hand, the
Consortium pays respondent in foreign currency inwardly remitted to the PH through
the banking system.
To ascertain the tax implications of the transactions, respondent sought a ruling from
BIR declaring that if respondent chooses to register as a VAT person and the
consideration for its services is paid for in acceptable foreign currency and accounted,
the services shall be subject to VAT at zero-rate.
Respondent chose to register as a VAT taxpayer. Thus, a Certification of Registration
was issued to it by the Revenue District Office.
For the year 1996, respondent filed its quarterly VAT returns reflecting a total zero
rated sales of P147M with VAT input taxes of P3M.
Respondent availed of the Voluntary Assessment Program (VAP) of the BIR. It
allegedly misinterpreted Revenue Regulation No. 5-96 to be applicable to its case.
Revenue Regulation No. 5-96 provides,
Section 4.102-2(b)(2)—“Services other than processing, manufacturing or repacking
for other persons doing business outside the Philippines for goods which are
subsequently exported, as well as services by a resident to a non-resident foreign client
such as project studies, information services, engineering and architectural designs
and other similar services, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the BSP.”
In conformity with the RR, respondent subjected its sale of services to the Consortium
to 10% VAT, P103M, for the months April to December, because RR became effective
only on April. The 43M, representing Jan to March sales was subjected to zero rate.
Consequently respondent filed its 1996 amended VAT return consolidating the VAT
output and input taxes. It paid P6M as its output tax for 1996.
In 1999, respondent was able to secure VAT Ruling which reconfirmed BIR Ruling
“insofar as it held that the services being rendered by BWSCMI is subject to VAT at
zero percent”
On this strength, respondent filed a claim for the issuance of a tax credit. Respondent
believed that it erroneously paid the output VAT for 1996 due to its availment of the
Voluntary Assessment Program (VAP). It filed a petition for review with CTA to toll the
running of the prescriptive period.
CTA ordered CIR to issue a tax credit certificate for P6M
CA is subject to VA: the Court of Appeals rejected petitioner’s view that since
respondent’s services are not destined for consumption abroad, they are not of the
same nature as project studies, information services, engineering and architectural
designs, and other similar services mentioned in Section 4.102-2(b)(2) of Revenue
Regulations No. 5­96 subject to 0% VAT. Thus, according to petitioner, respondent’s
services cannot legally qualify for 0% VAT but are subject to the regular 10% VAT
The Court of Appeals stated that “only the first classification is required by the
provision to be consumed abroad in order to be taxed at zero rate. In x x x the absence
of such express or implied stipulation in the statute, the second classification need not
be consumed abroad.
The Court of Appeals further held that assuming petitioner’s interpretation of Section
4.102-2(b)(2) of Revenue Regulations No. 5-96 is correct, such administrative
provision is void being an amendment to the Tax Code. Petitioner went beyond merely
providing the implementing details by adding another requirement to zero-rating.
The Court of Appeals explained that under Section 108(b)(2) of the Tax Code,12 for
services which were performed in the Philippines to enjoy zero-rating, these must
comply only with two requisites, to wit: (1) payment in acceptable foreign currency and
(2) accounted for in accordance with the rules of the BSP. Section 108(b)(2) of the Tax
Code does not provide that services must be “destined for consumption abroad” in
order to be VAT zero- rated
ISSUE: Whether respondent is entitled to the refund of P6,994,659.67 as erroneously
paid output VAT for the year 1996?
RULING: Petition to review CA decision is denied.
The Court declares that the denial of the instant petition is not on the ground that
respondent’s services are subject to 0% VAT. Rather, it is based on the
non-retroactivity of the prejudicial revocation of BIR Ruling No. 0239517 and VAT
Ruling No. 003­99,18 which held that respondent’s services are subject to 0% VAT and
which respondent invoked in applying for refund of the output VAT.
Section 102(b) of the Tax Code, the applicable provision in 1996 when respondent
rendered the services and paid the VAT in question
In insisting that its services should be zero-rated, respondent claims that it complied
with the requirements of the Tax Code for zero rating under the second paragraph of
Section 102(b). Respondent asserts that (1) the payment of its service fees was in
acceptable foreign currency, (2) there was inward remittance of the foreign currency
into the Philippines, and (3) accounting of such remittance was in accordance with
BSP rules. Moreover, respondent contends that its services which “constitute the
actual operation and management of two (2) power barges in Mindanao” are not “even
remotely similar to project studies, information services and engineering and
architectural designs under Section 4.102­2(b)(2) of Revenue Regulations No. 5­96.”
As such, respondent’s services need not be “destined to be consumed abroad in order
to be VAT zerorated.”
Respondent is mistaken.
The Tax Code not only requires that the services be other than “processing, has a 15­year contract to operate and maintain NAPOCOR’s two 100­megawatt power
manufacturing or repacking of goods” and that payment for such services be in barges in Mindanao.
acceptable foreign currency accounted for in accordance with BSP rules. Another In contrast to American Express case, this case involves a recipient of services—the
essential condition for qualification to zero- rating under Section 102(b)(2) is that the Consortium—which is doing business in the Philippines. Hence, American Express’
recipient of such services is doing business outside the Philippines. services were subject to 0% VAT, while respondent’s services should be subject to 10%
The phrase “for other persons doing business outside the Philippines” not only refers VAT.
to the services enumerated in the first paragraph of Section 102(b), but also pertains to DISPOSITIVE: Subject to 10% VAT
the general term “services” appearing in the second paragraph of Section 102(b). In
short, services other than processing, manufacturing, or repacking of goods must
likewise be performed for persons doing business outside the Philippines.
This can only be the logical interpretation of Section 102(b)(2). If the provider and
recipient of the “other services” are both doing business in the Philippines, the
payment of foreign currency is irrelevant. Otherwise, those subject to the regular VAT
under Section 102(a) can avoid paying the VAT by simply stipulating payment in
foreign currency inwardly remitted by the recipient of services. To interpret Section
102(b)(2) to apply to a payer-recipient of services doing business in the Philippines is
to make the payment of the regular VAT under Section 102(a) dependent on the
generosity of the taxpayer. The provider of services can choose to pay the regular VAT
or avoid it by stipulating payment in foreign currency inwardly remitted by the
payer-recipient. Such interpretation removes Section 102(a) as a tax measure in the
Tax Code, an interpretation this Court cannot sanction. A tax is a mandatory exaction,
not a voluntary contribution.
Further, when the provider and recipient of services are both doing business in the
Philippines, their transaction falls squarely under Section 102(a) governing domestic
sale or exchange of services. Indeed, this is a purely local sale or exchange of services
subject to the regular VAT, unless of course the transaction falls under the other
provisions of Section 102(b).
Thus, when Section 102(b)(2) speaks of “[s]ervices other than those mentioned in the
preceding subparagraph,” the legislative intent is that only the services are different
between subparagraphs 1 and 2. Expressly included among the transactions subject to
0% VAT are “[s]ervices other than those mentioned in the [first] paragraph [of Section
108(b)] rendered to a person engaged in business conducted outside the Philippines or
to a nonresident person not engaged in business who is outside the Philippines when
the services are performed, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the
BSP.”
In this case, the payer­recipient of respondent’s services is the Consortium which is a
joint­venture doing business in the Philippines. While the Consortium’s principal
members are non-resident foreign corporations, the Consortium itself is doing
business in the Philippines.
Respondent, as subcontractor of the Consortium, operates and maintains NAPOCOR’s
power barges in the Philippines. NAPOCOR pays the Consortium, through its
non-resident partners, partly in foreign currency outwardly remitted. In turn, the
Consortium pays respondent also in foreign currency inwardly remitted and accounted
for in accordance with BSP rules. This payment scheme does not entitle respondent to
0% VAT.
the place of payment is immaterial, much less is the place where the output of the
service is ultimately used. An essential condition for entitlement to 0% VAT under
Section 102(b) (1) and (2) is that the recipient of the services is a person doing
business outside the Philippines. In this case, the recipient of the services is the
Consortium, which is doing business not outside, but within the Philippines because it
CASE 3: CIR v PLACER DOME TECHNICAL SERVICES (PHILS.)
DOCTRINE:
FACTS: In 1996, San Antonio Mines owned by Marcopper Mining, caused potential
environmental damage to the rivers. To contain the damage and prevent the spread of
tailing leak, Placer Dome, owner of 39.9% of Marcopper, undertook to perform the
cleam-up and rehab of Makalupnit and Boac Rivers, through subsidiary. To
accomplish this, PDI engaged Placer Dome Tech Services Limited (PDTSL), a non
resident foreign corp with office in Canada. In turn, PDTSL, engaged PDTSL PH, a
domestic rop and registered VAT entity, to implement the project in the PH.
PDTSL and PDTSL Phils entered into an Implementation Agreement. Due to the
urgency and potentially significant damage to the environment, respondent agreed to
implement the project even prior to the agreement’s signing. The agreement further
stipulated that PDTSL was to pay respondent an amount of money in US funds equal
to all costs incurred for Implementation Services performed under the Agreement as
well as “a fee agreed to 1% of such costs”
In 1998, respondent amendment its VAT returns. Respondent declared a total input
VAT payment of P43M and P42M as its total excess input VAT for the same period.
Then, in Sept 1998, respondent filed an administrative claim for the refund of its
reported total input VAT payments in relation to the project it contracted with PDTSL,
P43M. In support of this claim for refund, respondent argued that the revenues it
derived from services rendered to PDTSL, pursuant to the Agreement, qualified as zero
rated sales, since it was paid in foreign currency inwardly remitted to the PH.
When CIR did not act on this claim, respondent filed a petition for review with the
CTA praying for the refund of its total reported excess input vat of P42M. CIR merely
invoked the presumption that taxes are collected in accordance with law, and that
claims for refund of taxes are construed strictly against claimants, as the same was in
the nature of an exemption from taxation.
CTA supported respondent, that its sale of services to PDTSL constituted a zero rated
transaction. CTA pointed out that out that of the US$27M paid by PDTSL to
respondent, only US$14M was inwardly remitted and accounted for in accordance
with the BSP. The CTA also noted that not all the reported total input VAT payments
of respondent were properly supported by VAT invoices and/or official receipts, and
that not all of the allowable input VAT of the respondent could be directly attributed to
its zero-rated sales. In the end, the CTA found that only the resulting input VAT of
P17M could be refunded the respondent.
The CTA reiterated its pronouncement in said case, thus: “x x x it is very clear that
VAT Ruling No. 040-98 not only expands the language of Section (108)(B)(2) but also
of Revenue Regulation No. 5- 96 which interprets the said stat ute. The same cannot
be countenanced. It is a settled rule of legal hermeneutics that the implementing rules
and regulations cannot amend the act of Congress x x x for administrative rules and
regulations are intended to carry out, not supplant or modify, the law.”
CA affirmed CTA.
ISSUE: WON Sale here is subject to zero rate?
RULING: YES.
Our evaluation of the petition must begin with the statutory scope of the “services
performed in the Philippines by VAT­registered persons,” referred to in the law
applicable at the time of the subject incidents, the National Internal Revenue Code of
1986, as amended(1986 NIRC).
It is Section 102(b)(2) which finds special relevance to this case. As explicitly provided
in the law, a zero-rated VAT transaction includes services by VAT-registered persons
other than processing, manufacturing or repacking goods for other persons doing
business outside the Philippines, which goods are subsequently exported, the
consideration for which is paid in foreign currency and accounted for in accordance
with the rules and regulations of the BSP.
Still, this provision was interpreted by the Bureau of Internal Revenue through
Revenue Regulation No. 5-96,
Although there is nothing in Section 4.102-2(b)(2) that is expressly fatal to
respondent’s claim, VAT Ruling No. 040­ 98 interpreted the provision in such fashion.
Petitioner’s arguments:
Petitioner argues that following Section 4.102-2(b)(2) of Revenue Regulation No. 5-96,
there are only two categories of services that are subject to zero percent VAT, namely:
services other than processing, manufacturing or repacking for other persons doing
business outside the Philippines for goods which are subsequently exported; and
services by a resident to a non-resident foreign client, such as project studies,
information services, engineering and architectural designs and other similar services
Petitioner explains that the services rendered by respondent were not for goods which
were subsequently exported. Likewise, it is argued that the services rendered by
respondent were not similar to “project studies, information services, engineering and
architectural designs” which were destined to be consumed abroad by non­ resident
foreign clients.
VAT Ruling No. 040-98 expresses that the zero-rating may apply only when the
services are destined for consumption abroad. This view aligns with the theoretical
principle that the VAT is ultimately levied on consumption. If the service were
destined for consumption in the Philippines, the service provider would have the
faculty to pass on its VAT liability to the end-user, thus avoiding having to shoulder
the tax itself.
Unfortunately for petitioner, his arguments are no longer fresh. The Court spurned
them in Commissioner of Internal Revenue v. American Express.
American Express involved transactions invoked as “zerorated” by a “VAT­registered
person that facilitates the collection and payment of receivables belonging to its non-
resident foreign client, for which it gets paid in acceptable foreign currency inwardly
remitted and accounted for in conformity with BSP rules and regulations.”24 The CIR
in that case relied extensively on the same VAT Ruling No. 040-98 now cited before
us. However, the Court would conclude in American Express that the opinion therein
that the service must be destined for consumption outside of the Philippines was
“clearly ultra vires and invalid.
American Express explained the nature of VAT imposed on services in this manner:
“The VAT is a tax on consumption “expressed as a percentage of the value added to
goods or services” purchased by the producer or taxpayer. As an indirect tax on
services, its main object is the transaction itself or, more concretely, the performance
of all kinds of services conducted in the course of trade or business in the Philippines.
These services must be regularly conducted in this country; undertaken in “pursuit of a
commercial or an economic activity;” for a valuable consideration; and not exempt
under the Tax Code, other special laws, or any international agreement.
It was from the awareness that Section 102(b) is free from ambiguity in providing so
broad an extension of the zero- rated benefit on VAT-registered persons performing
services that the Court in American Express proceeded to consider the same Section
4.102-2(b)(2) of Revenue Regulation No. 5-96 now cited by petitioner. The Court in
American Express explained that Revenue Regulation No. 5-96 had amended Revenue
Regulation No. 7-95, Section 4.102-2 of which had retained the broad language of
Section 102(b) in defining “transactions subject to zero­rate,” adding only, by way of
specific example, the phrase “those [services] rendered by hotels and other service Again, contrary to petitioner’s stand, for the cost of respondent’s service to be
establishments.”30 However, the amendatory Revenue Regulation No. 5­96 opted for zero-rated, it need not be tacked in as part of the cost of goods exported. The law
a more specific approach, providing, by way of example, an enumeration of those neither imposes such requirement nor associates services with exported goods. It
services contemplated as zero-rated simply states that the services performed by VATregistered persons in the
In the present case, it is because of such enumeration that petitioner now argues that Philippines— services other than the processing, manufacturing or repacking of goods
“respondent’s services likewise do not fall under the second category mentioned in for persons doing business outside this country—if paid in acceptable foreign currency
Section 4.102-2(b) (2) [as amended by Revenue Regulation No. 5-96], because they and accounted for in accordance with the rules and regulations of the BSP, are
are not similar to ‘project studies, information services, engineering and architectural zero-rated. The service rendered by respondent is clearly different from the product
designs’ which are destined to be consumed abroad by non­resident foreign clients.” that arises from the rendition of such service. The activity that creates the income
Petitioner presently invokes the “destination principle,” citing that [r]espondent’s must not be confused with the main business in the course of which that income is
services, while rendered to a nonresident foreign corporation, are not destined to be realized
consumed abroad. Hence, the onus of taxation of the revenue arising therefrom, for Finally, the Court in American Express found support from the legislative record that
VAT purposes, is also within the Philippines. Yet the Court in American Express revealed that consumption abroad is not a pertinent factor to imbue the zero-rating on
debunked this argument when it rebutted the theoretical underpinnings of VAT Ruling services by VAT-registered persons performed in the Philippines.
No. 040­98, particularly its reliance on the “destination principle” in taxation: DISPOSITIVE: Petition denied. (PETITION for review on certiorari of a decision of the
“As a general rule, the VAT system uses the destination principle as a basis for the Court of Appeals.)
jurisdictional reach of the tax. Goods and services are taxed only in the country where
they are consumed. Thus, exports are zero-rated, while imports are taxed.
Confusion in zero rating arises because petitioner equates the performance of a
particular type of service with the consumption of its output abroad. In the present
case, the facilitation of the collection of receivables is different from the utilization or
consumption of the outcome of such service. While the facilitation is done in the
Philippines, the consumption is not. Respondent renders assistance to its foreign
clients—the ROCs outside the country—by receiving the bills of service establishments
located here in the country and forwarding them to the ROCs abroad. The
consumption contemplated by law, contrary to petitioner’s administrative
interpretation, does not imply that the service be done abroad in order to be
zero-rated.
Consumption is “the use of a thing in a way that thereby exhausts it.” Applied to
services, the term means the performance or “successful completion of a contractual
duty, usually resulting in the performer’s release from any past or future liability x x x”
The services rendered by respondent are performed or successfully completed upon its
sending to its foreign client the drafts and bills it has gathered from service establish
ments here. Its services, having been performed in the Philippines, are therefore also
consumed in the Philippines.
Unlike goods, services cannot be physically used in or bound for a specific place when
their destination is determined. Instead, there can only be a “predetermined end of a
course” when determining the service “location or position x x x for legal purposes.”
Respondent’s facilitation service has no physical existence, yet takes place upon
rendition, and therefore upon consumption, in the Philippines. Under the destination
principle, as petitioner asserts, such service is subject to VAT at the rate of 10 percent.
However, the law clearly provides for an exception to the destination principle; that is,
for a zero percent VAT rate for services that are performed in the Philippines, “paid for
in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the [BSP].”
Thus, for the supply of service to be zero-rated as an exception, the law merely
requires that first, the service be performed in the Philippines; second, the service fall
under any of the categories in Section 102(b) of the Tax Code; and, third, it be paid in
acceptable foreign currency accounted for in accordance with BSP rules and
regulations.
CASE 4: PANASONIC COMMUNICATIONS IMAGING CORP OF THE PH v CIR claim for refund. Here, however, the ground for denial of petitioner Panasonic’s claim
DOCTRINE: for tax refund—the absence of the word “zero­rated” on its invoices—is one which is
FACTS: Panasonic produces and exports plain paper copiers and their sub assemblies specifically and precisely included in the above enumeration. Consequently, the BIR
parts. It is a VAT registered enterprise. Panasonic generated US $24M for export sales. correctly denied Panasonic’s claim for tax refund.
Believing that these export sales were zero rated for VAT, it paid P9M attributable to Tax Exemptions; Statutes that grant tax exemptions are construed strictissimi juris
its zero rated sales. Claiming that the input VAT it paid remained unutilized or against the taxpayer and liberally in favor of the taxing authority; Tax refunds in
unapplied, Panasonic filed with BIR 2 separate applications for refund or tax credit of relation to the Value Added Tax (VAT) are in the nature of such exemptions.—This
what it paid. When the BIR did not act on it, Panasonic filed a petition for review with Court will not set aside lightly the conclusions reached by the CTA which, by the very
CTA. nature of its functions, is dedicated exclusively to the resolution of tax problems and
CTA denied it saying that while Panasonic’s export sales were subject to 0% VAT it did has accordingly developed an expertise on the subject, unless there has been an abuse
not qualify for zero rating because the word zero rated was not printed on Panasonic’s or improvident exercise of authority. Besides, statutes that grant tax exemptions are
export invoices. This omission violates the invoicing requirements of Section 4.108-1 construed strictissimi juris against the taxpayer and liberally in favor of the taxing
of Revenue Regulations (RR) 7-95 authority. Tax refunds in relation to the VAT are in the nature of such exemptions. The
ISSUE: Whether or not the CTA en banc correctly denied petitioner Panasonic’s claim general rule is that claimants of tax refunds bear the burden of proving the factual
for refund of the VAT it paid as a zero-rated taxpayer on the ground that its sales basis of their claims. Taxes are the lifeblood of the nation. Therefore, statutes that
invoices did not state on their faces that its sales were “zero­rated.” allow exemptions are construed strictly against the grantee and liberally in favor of the
RULING: government.
The VAT is a tax on consumption, an indirect tax that the provider of goods or services DISPOSITIVE: BIR correctly denied Panasonic’s claim for tax refund.
may pass on to his customers. Under the VAT method of taxation, which is
invoice-based, an entity can subtract from the VAT charged on its sales or outputs the
VAT it paid on its purchases, inputs and imports.6 For example, when a seller charges
VAT on its sale, it issues an invoice to the buyer, indicating the amount of VAT he
charged. For his part, if the buyer is also a seller subjected to the payment of VAT on
his sales, he can use the invoice issued to him by his supplier to get a reduction of his
own VAT liability. The difference in tax shown on invoices passed and invoices
received is the tax paid to the government.
In case the tax on invoices received exceeds that on invoices passed, a tax refund may
be claimed.
Zero-rated transactions generally refer to the export sale of goods and services. The tax
rate in this case is set at zero. When applied to the tax base or the selling price of the
goods or services sold, such zero rate results in no tax chargeable against the foreign
buyer or customer. But, although the seller in such transactions charges no output tax,
he can claim a refund of the VAT that his suppliers charged him. The seller thus enjoys
automatic zero rating, which allows him to recover the input taxes he paid relating to
the export sales, making him internationally competitive
For the effective zero rating of such transactions, however, the taxpayer has to be
VAT-registered and must comply with invoicing requirements. Interpreting these
requirements, respondent CIR ruled that under Revenue Memorandum Circular
(RMC) 42­2003, the taxpayer’s failure to comply with invoicing requirements will
result in the disallowance of his claim for refund.
Petitioner’s arguments:
In requiring the printing on its sales invoices of the word “zero­rated,” the Secretary of
Finance unduly expanded, amended, and modified by a mere regulation (Section
4.108-1 of RR 7-95) the letter and spirit of Sections 113 and 237 of the 1997 NIRC,
prior to their amendment by R.A. 9337.
Petitioner Panasonic points out that Sections 113 and 237 did not require the inclusion
of the word “zero­rated” for zero­rated sales covered by its receipts or invoices. The
BIR incorporated this requirement only after the enactment of R.A. 9337 on November
1, 2005, a law that did not yet exist at the time it issued its invoices.
RULING: This Court held that, since the “BIR authority to print” is not one of the
items required to be indicated on the invoices or receipts, the BIR erred in denying the
CASE 5: FORT BONIFACIO v CIR
FACTS: Petitioner was a real estate developer that bought from the national
government a parcel of land that used to be the Fort Bonifacio military reservation. At
the time of the said sale there was as yet no VAT imposed so Petitioner did not pay any
VAT on its purchase. Subsequently, Petitioner sold two parcels of land to Metro Pacific
Corp. In reporting the said sale for VAT purposes (because the VAT had already been
imposed in the interim), Petitioner claimed transitional input VAT corresponding to
its inventory of land. The BIR disallowed the claim of presumptive input VAT and
thereby assessed Petitioner for deficiency VAT.
ISSUE: Is Petitioner entitled to claim the transitional input VAT on its sale of real
properties given its nature as a real estate dealer and if so (i) is the transitional input
VAT applied only to the improvements on the real property or is it applied on the value
of the entire real property and (ii) should there have been a previous tax payment for
the transitional input VAT to be creditable?
HELD: YES. Petitioner is entitled to claim transitional input VAT based on the value of
not only the improvements but on the value of the entire real property and regardless
of whether there was in fact actual payment on the purchase of the real property or
not.
The amendments to the VAT law do not show any intention to make those in the real
estate business subject to a different treatment from those engaged in the sale of other
goods or properties or in any other commercial trade or business. On the scope of the
basis for determining the available transitional input VAT, the CIR has no power to
limit the meaning and coverage of the term "goods" in Section 105 of the Tax Code
without statutory authority or basis. The transitional input tax credit operates to
benefit newly VAT-registered persons, whether or not they previously paid taxes in the
acquisition of their beginning inventory of goods, materials and supplies.