FIRST DIVISION [ G.R. NO. 149671, July 21, 2006 ] COMMISSIONER OF INTERNAL REVEN E, !ETITIONER, VS.

SE"IS I J S#I !#ILI!!INES, INC., RES!ONDENT. DECISION !ANGANI$AN, CJ% Business enterprises registered with the Philippine Export Zone Authority (PEZA) may choose between two fiscal incentive schemes: ( ) to pay a five percent preferential tax rate on its gross income and thus be exempt from all other taxes! or (b) to en"oy an income tax holiday# in which case it is not exempt from applicable national revenue taxes including the value$added tax (%A&)' &he present respondent# which availed itself of the second tax incentive scheme# has proven that all its transactions were export sales' (ence# they should be %A& )ero$rated' T&' C()' Before us is a Petition for *eview + , under *ule -. of the *ules of /ourt# challenging the August 0# 122 3ecision+1, of the /ourt of Appeals (/A) in /A$4* 5P 6o' 0-078' &he assailed 3ecision upheld the April 10# 122 3ecision +9, of the /ourt of &ax Appeals (/&A) in /&A /ase 6o' .7. ' &he /A 3ecision disposed as follows: :;(E*E<=*E# premises considered# the present petition for review is hereby 3E6>E3 3?E /=?*5E and accordingly 3>5@>55E3 for lacA of merit' &he 3ecision dated April 10# 122 of the /ourt of &ax Appeals in /&A /ase 6o' .7. is hereby A<<>*@E3 and ?P(EB3':+-, =n the other hand# the dispositive portion of the /&A 3ecision reads: :*#EREFORE# the instant Petition for *eview is !ARTIALL+ GRANTED. +Petitioner, is hereby ordered to refund or to issue a &ax /redit /ertificate in favor of the +*espondent, in the amount of P-#977# 21'10 representing excess input taxes paid for the period covering Canuary to Cune 92# 887': +., T&' F(,-) &he uncontested+0, facts are narrated by the /A as follows: :*espondent is a domestic corporation duly organi)ed and existing under and by virtue of the laws of the Philippines with principal office located at the 5pecial Export Processing Zone# Baguna &echnoparA# BiDan# Baguna' >t is principally engaged in the business of manufacturing# importing# exporting# buying# selling# or otherwise dealing in# at wholesale such goods as strapping bands and other pacAaging materials and goods of similar nature# and any and all eEuipment# materials# supplies used or employed in or related to the manufacture of such finished products' :(aving registered with the Bureau of >nternal *evenue (B>*) as a value$added tax (%A&) taxpayer# respondent filed its Euarterly returns with the B>*# for the period Canuary to Cune 92# 887# reflecting therein input taxes in the amount of P-#09 # 91'72 paid by it in connection with its domestic purchase of capital goods and services' 5aid input taxes remained unutili)ed since respondent has not engaged in any business activity or transaction for which it may be liable for output tax and for which said input taxes may be credited' :=n 6ovember # 88F# respondent filed with the =ne$5top$5hop >nter$Agency &ax /redit and 3uty 3rawbacA /enter of the 3epartment of <inance (/E6&E*$3=<) two (1) separate applications for tax creditGrefund of %A& input taxes paid for the period

Canuary to @arch 9 # 887 and April to Cune 92# 887# respectively' &here being no action on its application for tax creditGrefund under 5ection 1 (B) of the 887 6ational >nternal *evenue /ode (&ax /ode)# as amended# private respondent filed# within the two (1)$year prescriptive period under 5ection 118 of said /ode# a petition for review with the /ourt of &ax Appeals on @arch 10# 888' :Petitioner filed its Answer to the petition asseverating that: ( ) said claim for tax creditGrefund is sub"ect to administrative routinary investigation by the B>*! (1) respondent miserably failed to show that the amount claimed as %A& input taxes were erroneously collected or that the same were properly documented! (9) taxes due and collected are presumed to have been made in accordance with law# hence# not refundable! (-) the burden of proof is on the taxpayer to establish his right to a refund in an action for tax refund' <ailure to discharge such duty is fatal to his action! (.) respondent should show that it complied with the provisions of 5ection 12- in relation to 5ection 118 of the 887 &ax /ode! and (0) claims for refund are strictly construed against the taxpayer as it partaAes of the nature of a tax exemption' (ence# petitioner prayed for the denial of respondentHs petition': +7, Rul./0 12 -&' C1u3- 12 T(4 A55'(l) &he /&A ruled that respondent was entitled to the refund' ;hile the company was registered with the PEZA as an eco)one and was# as such# exempt from income tax# it availed itself of the fiscal incentive under Executive =rder 6o' 110' >t thereby sub"ected itself to other internal revenue taxes liAe the %A&' +F, T&' CTA -&'/ 21u/6 -&(- 1/ly ./5u- -(4') (71u/-./0 -1 !4,877,102.26 9'3' 6uly )u:)-(/-.(-'6 :y ./;1.,') (/6 O22.,.(l R','.5-)#+8, while those amounting to P1.-#9 9'-9 had not been sufficiently proven and were thus disallowed'+ 2, Rul./0 12 -&' C1u3- 12 A55'(l) &he /ourt of Appeals upheld the 3ecision of the /&A' According to the /A# respondent had complied with the procedural and substantive reEuirements for a claim by ) submitting receipts# invoices# and supporting papers as evidence! 1) paying the sub"ect input taxes on capital goods! 9) not applying the input taxes against any output tax liability! and -) filing the claim within the two$year prescriptive period under 5ection 118 of the 887 &ax /ode'+ , (ence# this Petition'+ T&' I))u' Petitioner raises this sole issue for our consideration: :;hether or not respondent is entitled to the refund or issuance of tax credit certificate in the amount of P-#977# 21'10 as alleged unutili)ed input taxes paid on domestic purchase of capital goods and services for the period covering Canuary to Cune 92# 887':+ 9, T&' C1u3-<) Rul./0 &he Petition has no merit' S1l' Entitlement to Refund I))u'%
1,

&o support the issue raised# petitioner advances the following arguments: :>' &he /ourt of Appeals erred in not holding that respondent being registered with the Philippine Economic Zone Authority (PEZA) as an +e,co)one +e,xport +e,nterprise# its business is not sub"ect to %A& pursuant to 5ection 1- of *epublic Act 6o' 78 0 in relation to 5ection 29 (now 5ec' 28) of the &ax /ode# as amended by *'A' 77 0'

:>>' &he /ourt of Appeals erred in not holding that since respondent is EIE@P& from %alue$Added &ax (%A&)# the capital goods and services it purchased are considered not used in %A& taxable business# hence# is not allowed any tax creditGrefund on %A& input tax previously paid on such capital goods pursuant to 5ection -' 20$ of *evenue *egulations 6o' 7$8.# and of input taxes paid on services pursuant to 5ection -' 29$ of the same regulations' :>>>' &he /ourt of Appeals erred in not holding that tax refunds being in the nature of tax exemptions are construed strictissimi juris against claimants':+ -, &hese issues have previously been addressed by this /ourt in Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.), + ., Commissioner of Internal Revenue v. Cebu Toyo Corporation, + 0, an Commissioner of Internal Revenue v. !ea"ate Technolo"y (Philippines). + 7, An entity registered with the PEZA as an eco)one + F, may be covered by the %A& system' 5ection 19 of *epublic Act 78 0# as amended# gives a PEZA$registered enterprise the option to choose between two fiscal incentives: a) a five percent preferential tax rate on its gross income under the said law! or b) an income tax holiday provided under Executive =rder 6o' 110 or the =mnibus >nvestment /ode of 8F7# as amended' >f the entity avails itself of the five percent preferential tax rate under the first scheme# it is exempt from all taxes# including the %A&! + 8, under the second# it is exempt from income taxes for a number of years# +12, but not from other national internal revenue taxes liAe the %A&'+1 , &he /A and /&A found that respondent had availed itself of the fiscal incentive of an income tax holiday under Executive =rder 6o' 110' &his /ourt respects that factual finding' Absent a sufficient showing of error# findings of the /&A as affirmed by the /A are deemed conclusive'+11, @oreover# a perusal of the pleadings and supporting documents before us indicates that when it registered as a %A&$entity $$ a fact admitted by the parties $$ respondent intended to avail itself of the income tax holiday' +19, %erily# being a Euestion of fact# the type of fiscal incentive chosen cannot be a sub"ect of this Petition# which should raise only Euestions of law' By availing itself of the income tax holiday# respondent became sub"ect to the %A&' >t correctly registered as a %A& taxpayer# because its transactions were not %A&$exempt' 6otably# while an eco)one is geographically within the Philippines# it is deemed a )'5(3(-' ,u)-17) -'33.-13y+1-, and is regarded in law as foreign soil' +1., 5ales by suppliers from outside the borders of the eco)one to this separate customs territory are deemed as exports+10, and treated as export sales' +17, &hese sales are )ero$rated or sub"ect to a tax rate of )ero percent'+1F, 6otwithstanding the fact that its purchases should have been )ero$rated# respondent was able to prove that it had paid input taxes in the amount of P-#977# 21'10' &he /&A found# and the /A affirmed# that this amount was substantially supported by invoices and =fficial *eceipts!+18, and petitioner has not challenged the computation' Accordingly# this /ourt upholds the findings of the /&A and the /A' =n the other hand# since 22 percent of the products of respondent are exported# +92, all its transactions are deemed export sales and are thus %A& )ero$rated' >t has been )&19/ -&(- 3')51/6'/- &() /1 1u-5u- -(4 9.-& 9&.,& .- ,1ul6 122)'- .-) 5(.6 ./5u-(4.[81] S./,' -&' )u:=',- ./5u- -(4 .- 5(.6 213 .-) 617')-., 5u3,&()') 12 ,(5.-(l 0116) (/6 )'3;.,') 3'7(./'6 u/u-.l.>'6, .- ,(/ ,l(.7 ( 3'2u/6 213 -&' ./5u- VAT 53';.1u)ly ,&(30'6 :y .-) )u55l.'3). [82] T&' (71u/- 12 !4,877,102.26 .) '4,')) ./5u-(4') -&(=u)-.2y ( 3'2u/6.

;(E*E<=*E# the Petition is DENIED and the assailed 3ecision AFFIRMED' 6o costs# as petitioner is a government agency' 5= =*3E*E3'

#nares$!antia"o, %ustria$&artine', Callejo, !r., and Chico$(a'ario, ))., concur'

+ ,

Rollo#

pp'

F$ F'

+1,

>d' at 11$17' 5pecial &welfth 3ivision' Penned by Custice @artin 5' %illarama# Cr'# with the concurrence of Custices /onrado @' %asEue)# Cr' (3ivision chair) and Elie)er *' de los 5antos (member)'
+9,

>d' at 1F$98' Penned by Cudge Amancio J' 5aga and concurred in by Presiding Cudge Ernesto 3' Acosta (now /&A Presiding Custice)'
+-,

Assailed /&A &he Assailed /&A >d' >d' Assailed

/A 3ecision# Petition /A

3ecision# p'

p' !

0!

rollo# rollo#

p' p' in pp' at at

17' 9F' full' 11$19' 97' 9F' 97$9F'

+.,

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them rollo# id' id' id' .! at rollo#

+7,

3ecision#

+F,

3ecision# at at /A

+8,

+ 2,

p'

10'

+ 1,

&o resolve old cases# the /ourt created the /ommittee on Zero BacAlog of /ases on Canuary 10# 1220' /onseEuently# the /ourt resolved to prioriti)e the ad"udication of long$pending cases by redistributing them among all the "ustices' &his case was recently re$raffled and assigned to the undersigned ponente for study and report'
+ 9,

Petition# >d' -00 -. -. at 5/*A 5/*A 5/*A

p' -$.! 1 --7# 91#

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rollo# id' at

p'

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+ -,

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August <ebruary <ebruary

8# 0# #

122.' 122.' 122.'

+ 0,

+ 7,

+ F,

An eco)one refers to a selected area that is or has a potential to be developed as agro$industrial# industrial# touristGrecreational# commercial# banAing# investment and financial centers' !ee *epublic Act 6o' 78 0# otherwise Anown as :&he 5pecial Economic Zone Act of 88.#: /hapter ># 5ec' -(a)'
+ 8,

Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.), Inc., supra note .! Commissioner of Internal Revenue v. Cebu Toyo Corporation, supra note 0'

+12,

&he income tax holiday is for a period of 0 years for pioneer enterprises and - years for non$pioneer enterprises' (Executive =rder 6o' 110# as amended# Art' 98)'
+1 ,

5upra

note

8'

+11,

Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.), Inc., supra note .' ;hile *epublic Act 6o' 81F1# elevated the /&A to the level of the /A# the rule stands# because findings of trial courts $$ for which speciali)ation is conferred $$ are accorded respect and finality when supported by substantial evidence'
+19,

/&A *epublic

3ecision# Act 6o'

p' 78 0#

0! as

rollo# amended#

p' 5ec'

99' F'

+1-,

+1.,

Commissioner of Internal Revenue v. !ea"ate Technolo"y (Philippines), supra note 7'

+10,

Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.), supra note .'
+17,

>d' &AI /&A 3ecision# >d' Assailed /A pp' at /=3E# 0 and 7! 3ecision# p' ! 5ec' rollo, id' .! id' pp' 99 at at 20(A)(1)(a)(.)' and 9F' 9-' 10'

+1F,

+18,

+92,

+9 ,

+91,

Commissioner of Internal Revenue v. !ea"ate Technolo"y (Philippines), supra note 7'