Tax 2 Cases

TAXATION 2 CASES
[G.R. NO. 190102 - July 11, 2012]

ACCENTURE, INC., Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE, Respondent.
D E C I S I O N
SERENO, J.:
This is a Petition filed under Rule 45 of the 1997 Rules of Civil Procedure, praying for the
reversal of the Decision of the Court of Tax Appeals En Banc (CTA En Banc ) dated 22
September 2009 and its subsequent Resolution dated 23 October 2009.
1
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Accenture, Inc. (Accenture) is a corporation engaged in the business of providing
management consulting, business strategies development, and selling and/or licensing
of software.
2
It is duly registered with the Bureau of Internal Revenue (BIR) as a Value
Added Tax (VAT) taxpayer or enterprise in accordance with Section 236 of the National
Internal Revenue Code (Tax Code).
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On 9 August 2002, Accenture filed its Monthly VAT Return for the period 1 July 2002 to
31 August 2002 (1st period). Its Quarterly VAT Return for the fourth quarter of 2002,
which covers the 1st period, was filed on 17 September 2002; and an Amended
Quarterly VAT Return, on 21 June 2004.
4
The following are reflected in Accenture s VAT
Return for the fourth quarter of
2002:
5
rbl r l l lbrr
Purchases Amount Input VAT
Domestic Purchases- Capital Goods P12,312,722.00 P1,231,272.20
Domestic Purchases- Goods other than capital Goods P64,789,507.90 P6,478,950.79
Domestic Purchases- Services P16,455,868.10 P1,645,586.81
Total Input Tax

P9,355,809.80
Zero-rated Sales

P316,113,513.34
Total Sales

P335,640,544.74
Accenture filed its Monthly VAT Return for the month of September 2002 on 24 October
2002; and that for October 2002, on 12 November 2002. These returns were amended
on 9 January 2003. Accenture s Quarterly VAT Return for the first quarter of 2003,
which included the period 1 September 2002 to 30 November 2002 (2nd period), was
filed on 17 December 2002; and the Amended Quarterly VAT Return, on 18 June 2004.
The latter contains the following
information:
6
rbl r l l lbrr
Purchases Amount Input VAT
Domestic Purchases- Capital Goods P80,765,294.10 P8,076,529.41
Domestic Purchases- Goods other than capital
Goods
P132,820,541.70 P13,282,054.17
Domestic Purchases-Services P63,238,758.00 P6,323,875.80
Total Input Tax

P27,682,459.38
Zero-rated Sales

P545,686,639.18
Total Sales P P572,880,982.68
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. These VAT credits
are in the amounts of P9,355,809.80 for the 1st period and P27,682,459.38 for the 2nd
period, or a total of P37,038,269.18.
7
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Out of the P37,038,269.18, only P35,178,844.21 pertained to the allocated input VAT on
Accenture s "domestic purchases of taxable goods which cannot be directly attributed to
its zero-rated sale of services."
8
This allocated input VAT was broken down to
P8,811,301.66 for the 1st period and P26,367,542.55 for the 2nd period.
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The excess input VAT was not applied to any output VAT that Accenture was liable for in
the same quarter when the amount was earned or to any of the succeeding quarters.
Instead, it was carried forward to petitioner s 2nd Quarterly VAT Return for
2003.
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Thus, on 1 July 2004, Accenture filed with the Department of Finance (DoF) an
administrative claim for the refund or the issuance of a Tax Credit Certificate (TCC). The
DoF did not act on the claim of Accenture. Hence, on 31 August 2004, the latter filed a
Petition for Review with the First Division of the Court of Tax Appeals (Division), praying
for the issuance of a TCC in its favor in the amount of P35,178,844.21.
The Commissioner of Internal Revenue (CIR), in its Answer,
11
argued
thus:rbl r l l lbrr
1. The sale by Accenture of goods and services to its clients are not zero-rated
transactions.
2. Claims for refund are construed strictly against the claimant, and Accenture has failed
to prove that it is entitled to a refund, because its claim has not been fully substantiated
or documented.
chanrobles virtual law library
In a 13 November 2008 Decision,12 the Division denied the Petition of Accenture for
failing to prove that the latter s sale of services to the alleged foreign clients qualified for
zero percent VAT.
13
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In resolving the sole issue of whether or not Accenture was entitled to a refund or an
issuance of a TCC in the amount of P35,178,844.21,
14
the Division ruled that Accenture
had failed to present evidence to prove that the foreign clients to which the former
rendered services did business outside the Philippines.
15
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,
16
the Division cited Commissioner of Internal Revenue v. Burmeister and
Wain Scandinavian Contractor Mindanao, Inc. (Burmeister)
17
as basis.
Accenture appealed the Division s Decision through a Motion for Reconsideration
(MR).
18
In its MR, it argued that the reliance of the Division on Burmeister was
misplaced
19
for the following
reasons:rbl r l l lbrr
1. The issue involved in Burmeister was the entitlement of the applicant to a refund,
given that the recipient of its service was doing business in the Philippines; it was not an
issue of failure of the applicant to present evidence to prove the fact that the recipient of
its services was a foreign corporation doing business outside the Philippines.
20
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2. Burmeister emphasized that, to qualify for zero-rating, the recipient of the services
should be doing business outside the Philippines, and Accenture had successfully
established that.
21
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3. Having been promulgated on 22 January 2007 or after Accenture filed its Petition with
the Division, Burmeister cannot be made to apply to this case.
22
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Accenture also cited Commissioner of Internal Revenue v. American Express (Amex)
23
in
support of its position. The MR was denied by the Division in its 12 March 2009
Resolution.
24
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Accenture appealed to the CTA En Banc. There it argued that prior to the amendment
introduced by Republic Act No. (R.A.) 9337,
25
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. The CTA En Banc agreed 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.
26
Still, it ruled that even though the
provision used in Burmeister was Section 102(b)(2) of the earlier 1977 Tax Code, the
pronouncement therein requiring recipients of services to be engaged in business
outside the Philippines to qualify for zero-rating was applicable to the case at bar,
because Section 108(B)(2) of the 1997 Tax Code was a mere reenactment of Section
102(b)(2) of the 1977 Tax Code.
The CTA En Banc concluded that Accenture failed to discharge the burden of proving the
latter s allegation that its clients were foreign-based.
27
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Resolute, Accenture filed a Petition for Review with the CTA En Banc, but the latter
affirmed the Division s Decision and Resolution.
28
A subsequent MR was also denied in a
Resolution dated 23 October 2009.
Hence, the present Petition for Review
29
under Rule 45.
In a Joint Stipulation of Facts and Issues, the parties and the Division have agreed to
submit the following issues for
resolution:rbl r l l lbrr
1. Whether or not Petitioner s sales of goods and services are zero-rated for VAT
purposes under Section 108(B)(2)(3) of the 1997 Tax Code.
2. Whether or not petitioner s claim for refund/tax credit in the amount of
P35,178,884.21 represents unutilized input VAT paid on its domestic purchases of goods
and services for the period commencing from 1 July 2002 until 30 November 2002.
3. Whether or not Petitioner has carried over to the succeeding taxable quarter(s) or
year(s) the alleged unutilized input VAT paid on its domestic purchases of goods and
services for the period commencing from 1 July 2002 until 30 November 2002, and
applied the same fully to its output VAT liability for the said period.
4. Whether or not Petitioner is entitled to the refund of the amount of P35,178,884.21,
representing the unutilized input VAT on domestic purchases of goods and services for
the period commencing from 1 July 2002 until 30 November 2002, from its sales of
services to various foreign clients.
5. Whether or not Petitioner s claim for refund/tax credit in the amount of
P35,178,884.21, as alleged unutilized input VAT on domestic purchases of goods and
services for the period covering 1 July 2002 until 30 November 2002 are duly
substantiated by proper documents.
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For consideration in the present Petition are the following
issues:rbl r l l lbrr
1. 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?chanroblesvirtualawlibrary
2. Has Accenture successfully proven that its clients are entities doing business outside
the Philippines?
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:rl
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.) 1994
31
amended Title IV of P.D. 1158,
32
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.) 273
33
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.
34
This law, which was approved on 5 May 1994, widened the tax base. Section 3
thereof reads:rl
SECTION 3. Section 102 of the National Internal Revenue Code, as amended, is hereby
further amended to read as follows:rl
"SEC. 102. Value-added tax on sale of services and use or lease of properties. x x x
x x x x x x x x x
"(b) Transactions subject to zero-rate. The following services performed in the
Philippines by VAT-registered persons shall be subject to
0%:rbl r l l lbrr
"(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:rl
(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.rbl r l l lbrr
(1) Processing, manufacturing or repacking goods for other persons doing business
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:rbl r l l lbrr
(1) Processing, manufacturing or repacking goods for other persons doing business
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)cralawlibrary
The meat of Accenture s argument is that nowhere does Section 108(B) of the 1997 Tax
Code state that services, to be zero-rated, should be rendered to clients doing business
outside the Philippines, the requirement introduced by R.A. 9337.
35
Required by Section
108(B), prior to the amendment, is that the consideration for the services rendered be in
foreign currency and in accordance with the rules of the Bangko Sentral ng Pilipinas
(BSP). Since Accenture has complied with all the conditions imposed in Section 108(B),
it is entitled to the refund prayed for.
In support of its claim, Accenture cites Amex, in which this Court supposedly ruled that
Section 108(B) reveals a clear intent on the part of the legislators not to impose the
condition of being "consumed abroad" in order for the services performed in the
Philippines to be zero-rated.
36
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The Division ruled that this Court, in Amex and Burmeister, did not declare that the
requirement that the client must be doing business outside the Philippines can be
disregarded, because this requirement is expressly provided in Article 108(2) of the Tax
Code.
37
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Accenture questions the Division s application to this case of the pronouncements made
in Burmeister. According to petitioner, the provision applied to the present case was
Section 102(b) of the 1977 Tax Code, and not Section 108(B) of the 1997 Tax Code,
which was the law effective when the subject transactions were entered into and a
refund was applied for.
In refuting Accenture s theory, the CTA En Banc ruled that since Section 108(B) of the
1997 Tax Code was a mere reproduction of Section 102(b) of the 1977 Tax Code, this
Court s interpretation of the latter may be used in interpreting the former,
viz:rl
In the Burmeister case, the Supreme Court harmonized both Sections 102(b)(1) and
102(b)(2) of the 1977 Tax Code, as amended, pertaining to zero-rated transactions. A
parallel approach should be accorded to the renumbered provisions of Sections
108(B)(2) and 108(B)(1) of the 1997 NIRC. This means that Section 108(B)(2) must be
read in conjunction with Section 108(B)(1). Section 108(B)(2) requires as follows: a)
services other than processing, manufacturing or repacking rendered by VAT registered
persons in the Philippines; and b) the transaction paid for in acceptable foreign currency
duly accounted for in accordance with BSP rules and regulations. The same provision
made reference to Section 108(B)(1) further imposing the requisite c) that the recipient
of services must be performing business outside of Philippines. Otherwise, if both the
provider and recipient of service are doing business in the Philippines, the sale
transaction is subject to regular VAT as explained in the Burmeister case x x x.
x x x x x x x x x
Clearly, the Supreme Court s pronouncements in the Burmeister case requiring that the
recipient of the services must be doing business outside the Philippines as mandated by
law govern the instant case.
38
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Assuming that the foregoing is true, Accenture still argues that the tax appeals courts
cannot be allowed to apply to Burmeister this Court s interpretation of Section 102(b) of
the 1977 Tax Code, because the Petition of Accenture had already been filed before the
case was even promulgated on 22 January 2007,
39
to wit:rl
x x x. While the Burmeister case forms part of the legal system and assumes the same
authority as the statute itself, however, the same cannot be applied retroactively against
the Petitioner because to do so will be prejudicial to the latter.
40
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The CTA en banc is of the opinion that Accenture cannot invoke the non-retroactivity of
the rulings of the Supreme Court, whose interpretation of the law is part of that law as
of the date of its enactment.
41
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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.
42
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.
43
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Accenture questions the CTA s application of Burmeister, because the provision
interpreted therein was Section 102(b) of the 1977 Tax Code. In support of its position
that Section 108 of the 1997 Tax Code does not require that the services be rendered to
an entity doing business outside the Philippines, Accenture invokes this Court s
pronouncements in Amex. However, a reading of that case will readily reveal that the
provision applied was Section 102(b) of the 1977 Tax Code, and not Section 108 of the
1997 Tax Code. As previously mentioned, an interpretation of Section 102(b) of the
1977 Tax Code is an interpretation of Section 108 of the 1997 Tax Code, the latter being
a mere reproduction of the former.
This Court further finds that Accenture s reliance on Amex is misplaced.
We ruled in Amex that Section 102 of the 1977 Tax Code does not require that the
services be consumed abroad to be zero-rated. However, nowhere in that case did this
Court discuss the necessary qualification of the recipient of the service, as this matter
was never put in question. In fact, the recipient of the service in Amex is a nonresident
foreign client.
The aforementioned case explains how the credit card system works. The issuance of a
credit card allows the holder thereof to obtain, on credit, goods and services from
certain establishments. As proof that this credit is extended by the establishment, a
credit card draft is issued. Thereafter, the company issuing the credit card will pay for
the purchases of the credit card holders by redeeming the drafts. The obligation to
collect from the card holders and to bear the loss in case they do not pay rests on the
issuer of the credit card.
The service provided by respondent in Amex consisted of gathering the bills and credit
card drafts from establishments located in the Philippines and forwarding them to its
parent company's regional operating centers outside the country. It facilitated in the
Philippines the collection and payment of receivables belonging to its Hong Kong-based
foreign client.
The Court explained how the services rendered in Amex were considered to have been
performed and consumed in the Philippines, to wit:rl
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
establishments here. Its services, having been performed in the Philippines, are
therefore also consumed in the Philippines.
44
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The effect of the place of consumption on the zero-rating of the transaction was not the
issue in Burmeister. Instead, this Court addressed the squarely raised issue of whether
the recipient of services should be doing business outside the Philippines for the
transaction to qualify for zero-rating. We ruled that it should. Thus, another essential
condition for qualification for zero-rating under Section 102(b)(2) of the 1977 Tax Code
is that the recipient of the business be doing that business outside the Philippines. In
clarifying that there is no conflict between this pronouncement and that laid down in
Amex, we ruled thus:rl
x x x. As the Court held in Commissioner of Internal Revenue v. American Express
International, Inc. (Philippine Branch), 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 has a 15-year contract to operate and maintain NAPOCOR s two
100-megawatt power barges in Mindanao. (Emphasis in the original)
45
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In Amex we ruled that the place of performance and/or consumption of the service is
immaterial. In Burmeister, the Court found that, although the place of the consumption
of the service does not affect the entitlement of a transaction to zero-rating, the place
where the recipient conducts its business does.
Amex does not conflict with Burmeister. In fact, to fully understand how Section
102(b)(2) of the 1977 Tax Code and consequently Section 108(B)(2) of the 1997 Tax
Code was intended to operate, the two aforementioned cases should be taken together.
The zero-rating of the services performed by respondent in Amex was affirmed by the
Court, because although the services rendered were both performed and consumed in
the Philippines, the recipient of the service was still an entity doing business outside the
Philippines as required in Burmeister.
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:rl
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.
x x x x x x x x x
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. (Emphasis in the
original)
46
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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.
Accenture argues that based on the documentary evidence it presented,
47
it was able to
establish the following
circumstances:rbl r l l lbrr
1. The records of the Securities and Exchange Commission (SEC) show that Accenture s
clients have not established any branch office in which to do business in the Philippines.
2. For these services, Accenture bills another corporation, Accenture Participations B.V.
(APB), which is likewise a foreign corporation with no "presence in the Philippines."
3. Only those not doing business in the Philippines can be required under BSP rules to
pay in acceptable currency for their purchase of goods and services from the Philippines.
Thus, in a domestic transaction, where the provider and recipient of services are both
doing business in the Philippines, the BSP cannot require any party to make payment in
foreign currency.
48
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Accenture claims that these documentary pieces of evidence are supported by the
Report of Emmanuel Mendoza, the Court-commissioned Independent Certified Public
Accountant. He ascertained that Accenture s gross billings pertaining to zero-rated sales
were all supported by zero-rated Official Receipts and Billing Statements. These
documents show that these zero-rated sales were paid in foreign exchange currency and
duly accounted for in the rules and regulations of the BSP.
49
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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
business outside the Philippines.
50
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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
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We deny Accenture s Petition for a tax refund.
The evidence presented by Accenture may have established that its clients are foreign.
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:rbl r l l lbrr
x x x x x x x x x
(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
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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
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A taxpayer claiming a tax credit or refund has the burden of proof to establish the
factual basis of that claim. Tax refunds, like tax exemptions, are construed strictly
against the taxpayer.
54
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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 the
foreign clients to whom petitioner rendered its services were clients doing business
outside the Philippines.
As ruled by the CTA En Banc, the Official Receipts, Intercompany Payment Requests,
Billing Statements, Memo Invoices-Receivable, Memo Invoices-Payable, and Bank
Statements presented by Accenture merely substantiated the existence of sales, receipt
of foreign currency payments, and inward remittance of the proceeds of such sales duly
accounted for in accordance with BSP rules, all of these were devoid of any evidence
that the clients were doing business outside of the Philippines.
55
rll
WHEREFORE, the instant Petition is DENIED. The 22 September 2009 Decision and the
23 October 2009 Resolution of the Court of Tax Appeals En Banc in C.T.A. EB No. 477,
dismissing the Petition for the refund of the excess or unutilized input VAT credits of
Accenture, Inc., are AFFIRMED.
SO ORDERED.

TAMBUNTING PAWNSHOP,
INC.,
Petitioner,

- versus -

COMMISSIONER OF
INTERNAL REVENUE,
Respondent.

G.R. No. 179085

Present:

PUNO, C.J., Chairperson,
CARPIO MORALES,
LEONARDO-DE CASTRO,
BERSAMIN, and
VILLARAMA, JR., JJ.

Promulgated:

January 21, 2010

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

[1]

Petitioner protested the assessment.
[2]
As the protest merited no response, it filed a
Petition for Review
[3]
with the Court of Tax Appeals (CTA) pursuant to Section 228 of the
National Internal Revenue Code,
[4]
raising the following arguments:

A. Pawnshops are not subject to Value Added Tax pursuant to Section
108 of the National Internal Revenue Code.
[5]

B. Petitioner properly withheld and remitted to the respondent the correct
amount of expanded withholding tax for taxable year 1999.
[6]

C. Petitioner has already paid the assessed amount of P14,398.38 [sic],
representing deficiency withholding tax on compensation, thus,
assessment on withholding on compensation must be cancelled.
[7]

D. Petitioners pawn tickets are not subject to documentary stamp tax
pursuant to existing laws and jurisprudence.
[8]
(emphasis and
underscoring in the original)

The First Division of the CTA ruled that petitioner is liable for VAT and
documentary stamp tax but not for withholding tax on compensation and expanded
withholding tax.
[9]
Thus it disposed:

WHEREFORE, premises considered, the Petition for Review is PARTIALLY
GRANTED. Respondents assessments for deficiency Expanded Withholding Tax and
Withholding Tax on Compensation for the taxable year 1999, in the amounts of Twenty
One Thousand Seven Hundred Twenty Three and 75/100 Pesos (P21,723.75) and Sixty
Seven Thousand Two Hundred One and 55/100 Pesos (P67,201.55), respectively, are
hereby CANCELLED and SET ASIDE. However, the assessments for deficiency Value-
Added Tax and Documentary Stamp Tax are hereby AFFIRMED.

Accordingly, petitioner is ORDERED TO PAY the respondent the amount of Three
Million Fifty Five Thousand Five Hundred Sixty Four and 34/100 Pesos (P3,055,564.34)
and Four Hundred Six Thousand Ninety Two and 500/100 Pesos (P406,092.50)
representing deficiency Value-Added Tax and Documentary Stamp Tax, respectively, for
the taxable year 1999, plus 20% delinquency interest from February 18, 2003 up to the
time such amount is fully paid pursuant to Section 249 (c) of the 1997 NIRC.

SO ORDERED.
[10]
(emphasis in the original; underscoring supplied)

Petitioners Motion for Partial Reconsideration
[11]
having been denied,
[12]
it filed a
Petition for Review
[13]
before the CTA En Banc which dismissed
[14]
it as it did petitioners
Motion for Reconsideration.
[15]

Hence, the present Petition for Review on Certiorari.
[16]

To petitioner, a pawnshop is not enumerated as one of those engaged in sale or
exchange of services
[17]
in Section 108 of the National Internal Revenue
Code.
[18]
Citing Commissioner of I nternal Revenue v. Michel J . Lhuillier Pawnshops,
I nc.,
[19]
it contends that the nature of the business of pawnshops does not fall under
service as defined under the Legal Thesaurus of William C. Burton, viz:

accommodate, administer to, advance, afford, aid, assist, attend, be of use, care for, come to
the aid of, commodere, comply, confer a benefit, contribute to, cooperate, deservire, discharge
ones duty, do a service, do ones bidding, fill an office, forward, furnish aid, furnish
assistance, give help, lend, aid, minister to, promote, render help, servire, submit, succor,
supply aid, take care of, tend, wait on, work for.
[20]

The petition is in part meritorious.

On the issue of whether pawnshops are liable to pay VAT, the Court, in First
Planters Pawnshop, I nc. v. Commissioner of I nternal Revenue,
[21]
held:

In fine, prior to the [passage of the] EVAT Law [in 1994], pawnshops were treated
as lending investors subject to lending investor's tax. Subsequently, with the Court's ruling
in Lhuillier, pawnshops were then treated as VAT-able enterprises under the general
classification of "sale or exchange of services" under Section 108 (A) of the Tax Code of
1997, as amended. R.A. No. 9238 [which was passed in 2004] finally classified pawnshops as
Other Non-bank Financial Intermediaries.

The Court finds that pawnshops should have been treated as non-bank financial
intermediaries from the very beginning, subject to the appropriate taxes provided by law,
thus

Under the National Internal Revenue Code of 1977, pawnshops should have
been levied the 5% percentage tax on gross receipts imposed on bank and non-bank
financial intermediaries under Section 119 (now Section 121 of the Tax Code of 1997);

With the imposition of the VAT under R.A. No. 7716 or the EVAT
Law, pawnshops should have been subjected to the 10% VAT imposed on banks and non-
bank financial intermediaries and financial institutions under Section 102 of the Tax Code
of 1977 (now Section 108 of the Tax Code of 1997);

This was restated by R.A. No. 8241, 24 which amended R.A. No. 7716,
although the levy, collection and assessment of the 10% VAT on services rendered by
banks, non-bank financial intermediaries, finance companies, and other financial
intermediaries not performing quasi-banking functions, were made effective January 1,
1998;

R.A. No. 8424 or the Tax Reform Act of 1997 26 likewise imposed a 10%
VAT under Section 108 but the levy, collection and assessment thereof were again deferred
until December 31, 1999;

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

With no further deferments given by law, the levy, collection and assessment
of the 10% VAT on banks, non-bank financial intermediaries, finance companies, and
other financial intermediaries not performing quasi-banking functions were finally made
effective beginning January 1, 2003;

Finally, with the enactment of R.A. No. 9238 in 2004, the services of banks,
non-bank financial intermediaries, finance companies, and other financial intermediaries
not performing quasi-banking functions were specifically exempted from VAT, 28 and the
0% to 5% percentage tax on gross receipts on other non-bank financial intermediaries was
reimposed under Section 122 of the Tax Code of 1997.

At the time of the disputed assessment, that is, for the year 2000, pawnshops were
not subject to 10% VAT under the general provision on "sale or exchange of services" as
defined under Section 108 (A) of the Tax Code of 1997, which states: "'sale or exchange of
services' means the performance of all kinds of services in the Philippines for others for a
fee, remuneration or consideration . . . ." Instead, due to the specific nature of its business,
pawnshops were then subject to 10% VAT under the category of non-bank financial
intermediaries[.]

Coming now to the issue at hand Since petitioner is a non-bank financial
intermediary, it is subject to 10% VAT for the tax years 1996 to 2002; however, with the
levy, assessment and collection of VAT from non-bank financial intermediaries being
specifically deferred by law, then petitioner is not liable for VAT during these tax years.
But with the full implementation of the VAT system on non-bank financial intermediaries
starting January 1, 2003, petitioner is liable for 10% VAT for said tax year. And beginning
2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for VAT
but it is subject to percentage tax on gross receipts from 0% to 5%, as the case may
be. (emphasis and underscoring supplied)

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

In dodging liability for documentary stamp tax on its pawn tickets, petitioner argues
that such tickets are neither securities nor printed evidence of indebtedness.
[22]
The
argument fails.

Section 195 of the National Internal Revenue Code provides:

Section 195. On every mortgage or pledge of lands, estate or property, real
or personal, heritable or movable, whatsoever, where the same shall be made as a security
for the payment of any definite and certain sum of money lent at the time or previously due
and owing or forborne to be paid, being payable, and on any conveyance of land, estate, or
property whatsoever, in trust or to be sold, or otherwise converted into money which shall
be and intended only as security, either by express stipulation or otherwise, there shall be
collected a documentary stamp tax x x x. (underscoring supplied)

Construing this provision vis a vis pawn tickets, the Court held in Michel J . Lhuillier
Pawnshop, I nc. v. Commissioner of I nternal Revenue:

x x x A D[ocumentary] S[tamp] T[ax] is an excise tax on the exercise of a right or
privilege to transfer obligations, rights or properties incident thereto. x x x

x x x x

Pledge is among the privileges, the exercise of which is subject to DST. A pledge
may be defined as an accessory, real and unilateral contract by virtue of which the debtor
or a third person delivers to the creditor or to a third person movable property as security
for the performance of the principal obligation, upon the fulfillment of which the thing
pledged, with all its accessions and accessories, shall be returned to the debtor or to the
third person. This is essentially the business of pawnshops which are defined under Section
3 of Presidential Decree No. 114, or the Pawnshop Regulation Act, as persons or entities
engaged in lending money on personal property delivered as security for loans.

x x x x

Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:
Pawn ticket is the pawnbrokers receipt for a pawn. It is neither a
security nor a printed evidence of indebtedness.

True, the law does not consider said ticket as an evidence of security or
indebtedness. However, for purposes of taxation, the same pawn ticket is proof of an
exercise of a taxable privilege of concluding a contract of pledge. There is therefore no
basis in petitioners assertion that a DST is literally a tax on a document and that no tax
may be imposed on a pawn ticket.
[23]
(emphasis and underscoring supplied)

With respect to petitioners argument against liability for surcharges and interest
that it was in good faith in not paying documentary stamp taxes, it having relied on the
rulings of respondent CIR and the CTA that pawn tickets are not subject to documentary
stamp taxes
[24]
the Court finds the same meritorious.

It is settled that good faith and honest belief that one is not subject to tax on the
basis of previous interpretations of government agencies tasked to implement the tax law
are sufficient justification to delete the imposition of surcharges and interest.
[25]

WHEREFORE, the petition is IN PART GRANTED. The May 24, 2007 Decision of
the Court of Tax Appeals is AFFIRMED with the MODIFICATION that the assessment
deficiency value-added taxes for the taxable year 1999 and for surcharges and
delinquency interest on deficient Value-Added Tax and Documentary Income Tax
are SET ASIDE.

SO ORDERED.

SILICON PHILIPPINES, INC., (Formerly INTEL PHILIPPINES MANUFACTURING, INC.),Petitioner, vs
COMMISSIONER OF INTERNAL REVENUE,
Respondent.
G.R. No. 172378
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

DEL CASTILLO, J .:

The burden of proving entitlement to a refund lies with the claimant.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the
September 30, 2005 Decision
[1]
and the April 20, 2006 Resolution
[2]
of the Court of Tax Appeals
(CTA) En Banc.

Factual Antecedents

Petitioner Silicon Philippines, Inc., a corporation duly organized and existing under and by
virtue of the laws of the Republic of the Philippines, is engaged in the business of designing,
developing, manufacturing and exporting advance and large-scale integrated circuit components or
ICs.
[3]
Petitioner is registered with the Bureau of Internal Revenue (BIR) as a Value Added Tax
(VAT) taxpayer
[4]
and with the Board of Investments (BOI) as a preferred pioneer enterprise.
[5]

On May 21, 1999, petitioner filed with the respondent Commissioner of Internal Revenue
(CIR), through the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the
Department of Finance (DOF), an application for credit/refund of unutilized input VAT for the period
October 1, 1998 to December 31, 1998 in the amount of P31,902,507.50, broken down as follows:

Amount
Tax Paid on Imported/Locally Purchased
Capital Equipment

P 15,170,082.00
Total VAT paid on Purchases per Invoices
Received During the Period for which
this Application is Filed

16,732,425.50
Amount of Tax Credit/Refund Applied For P 31,902,507.50
[6]

Proceedings before the CTA Division

On December 27, 2000, due to the inaction of the respondent, petitioner filed a Petition for
Review with the CTA Division, docketed as CTA Case No. 6212. Petitioner alleged that for the
4
th
quarter of 1998, it generated and recorded zero-rated export sales in the amount
of P3,027,880,818.42, paid to petitioner in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas;
[7]
and that for the said
period, petitioner paid input VAT in the total amount of P31,902,507.50,
[8]
which have not been
applied to any output VAT.
[9]

To this, respondent filed an Answer
[10]
raising the following special and affirmative defenses, to
wit:

8. The petition states no cause of action as it does not allege the dates when the
taxes sought to be refunded/credited were actually paid;

9. It is incumbent upon herein petitioner to show that it complied with the
provisions of Section 229 of the Tax Code as amended;

10. Claims for refund are construed strictly against the claimant, the same being in
the nature of exemption from taxes (Commissioner of Internal Revenue vs. Ledesma, 31
SCRA 95; Manila Electric Co. vs. Commissioner of Internal Revenue, 67 SCRA 35);

11. One who claims to be exempt from payment of a particular tax must do so
under clear and unmistakable terms found in the statute (Asiatic Petroleum vs. Llanes, 49
Phil. 466; Union Garment Co. vs. Court of Tax Appeals, 4 SCRA 304);

12. In an action for refund, the burden is upon the taxpayer to prove that he is
entitled thereto, and failure to sustain the same is fatal to the action for refund. Furthermore,
as pointed out in the case of William Li Yao vs. Collector (L-11875, December 28, 1963),
amounts sought to be recovered or credited should be shown to be taxes which are
erroneously or illegally collected; that is to say, their payment was an independent single act
of voluntary payment of a tax believed to be due and collectible and accepted by the
government, which had therefor become part of the State moneys subject to expenditure and
perhaps already spent or appropriated; and

13. Taxes paid and collected are presumed to have been made in accordance with
the law and regulations, hence not refundable.
[11]

On November 18, 2003, the CTA Division rendered a Decision
[12]
partially granting petitioners
claim for refund of unutilized input VAT on capital goods. Out of the amount ofP15,170,082.00,
only P9,898,867.00 was allowed to be refunded because training materials, office supplies, posters,
banners, T-shirts, books, and other similar items purchased by petitioner were not considered capital
goods under Section 4.106-1(b) of Revenue Regulations (RR) No. 7-95 (Consolidated Value-Added
Tax Regulations).
[13]
With regard to petitioners claim for credit/refund of input VAT attributable to its
zero-rated export sales, the CTA Division denied the same because petitioner failed to present an
Authority to Print (ATP) from the BIR;
[14]
neither did it print on its export sales invoices the ATP and
the word zero-rated.
[15]
Thus, the CTA Division disposed of the case in this wise:

WHEREFORE, in view of the foregoing the instant petition for review is hereby
PARTIALLY GRANTED. Respondent is ORDERED to ISSUE A TAX CREDIT
CERTIFICATE in favor of petitioner in the reduced amount of P9,898,867.00 representing
input VAT on importation of capital goods. However, the claim for refund of input VAT
attributable to petitioner's alleged zero-rated sales in the amount of P16,732,425.50 is hereby
DENIED for lack of merit.

SO ORDERED.
[16]

Not satisfied with the Decision, petitioner moved for reconsideration.
[17]
It claimed that it is not
required to secure an ATP since it has a Permit to Adopt Computerized Accounting Documents such
as Sales Invoice and Official Receipts from the BIR.
[18]
Petitioner further argued that because all its
finished products are exported to its mother company, Intel Corporation, a non-resident corporation and
a non-VAT registered entity, the printing of the word zero-rated on its export sales invoices is not
necessary.
[19]

On its part, respondent filed a Motion for Partial Reconsideration
[20]
contending that petitioner is
not entitled to a credit/refund of unutilized input VAT on capital goods because it failed to show that
the goods imported/purchased are indeed capital goods as defined in Section 4.106-1 of RR No. 7-
95.
[21]

The CTA Division denied both motions in a Resolution
[22]
dated August 10, 2004. It noted that:

[P]etitioners request for Permit to Adopt Computerized Accounting Documents such as
Sales Invoice and Official Receipt was approved on August 31, 2001 while the period
involved in this case was October 31, 1998 to December 31, 1998 x x x. While it appears
that petitioner was previously issued a permit by the BIR Makati Branch, such permit was
only limited to the use of computerized books of account x x x. It was only on August 31,
2001 that petitioner was permitted to generate computerized sales invoices and official
receipts [provided that the BIR Permit Number is printed] in the header of the document x x
x.

x x x x

Thus, petitioners contention that it is not required to show its BIR permit number on
the sales invoices runs counter to the requirements under the said Permit. This court also
wonders why petitioner was issuing computer generated sales invoices during the period
involved (October 1998 to December 1998) when it did not have an authority or
permit. Therefore, we are convinced that such documents lack probative value and should
be treated as inadmissible, incompetent and immaterial to prove petitioners export sales
transaction.

x x x x

ACCORDINGLY, the Motion for Reconsideration and the Supplemental Motion
for Reconsideration filed by petitioner as well as the Motion for Partial Reconsideration of
respondent are herebyDENIED for lack of merit. The pronouncement in the assailed
decision is REITERATED.

SO ORDERED
[23]

Ruling of the CTA En Banc

Undaunted, petitioner elevated the case to the CTA En Banc via a Petition for
Review,
[24]
docketed as EB Case No. 23.

On September 30, 2005, the CTA En Banc issued the assailed Decision
[25]
denying the petition
for lack of merit. Pertinent portions of the Decision read:

This Court notes that petitioner raised the same issues which have already been
thoroughly discussed in the assailed Decision, as well as, in the Resolution denying
petitioner's Motion for Partial Reconsideration.

With regard to the first assigned error, this Court reiterates that, the requirement of
[printing] the BIR permit to print on the face of the sales invoices and official receipts is a
control mechanism adopted by the Bureau of Internal Revenue to safeguard the interest of
the government.

This requirement is clearly mandated under Section 238 of the 1997 National Internal
Revenue Code, which provides that:

SEC. 238. Printing of Receipts or Sales or Commercial Invoice. All persons who are
engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts
or sales or commercial invoices before a printer can print the same.

The above mentioned provision seeks to eliminate the use of unregistered and double
or multiple sets of receipts by striking at the very root of the problem the printer (H. S. de
Leon, The National Internal Revenue Code Annotated, 7th Ed., p. 901). And what better way
to prove that the required permit to print was secured from the Bureau of Internal Revenue
than to show or print the same on the face of the invoices. There can be no other valid proof
of compliance with the above provision than to show the Authority to Print Permit number
[printed] on the sales invoices and official receipts.

With regard to petitioners failure to print the word zero-rated on the face of its
export sales invoices, it must be emphasized that Section 4.108-1 of Revenue Regulations
No. 7-95 specifically requires that all value-added tax registered persons shall, for every sale
or lease of goods or properties or services, issue duly registered invoices which must show
the word zero-rated [printed] on the invoices covering zero-rated sales.

It is not enough that petitioner prove[s] that it is entitled to its claim for refund by way
of substantial evidence. Well settled in our jurisprudence [is] that tax refunds are in the nature
of tax exemptions and as such, they are regarded as in derogation of sovereign
authority (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95). Thus, tax refunds
are construed in strictissimi juris against the person or entity claiming the
same (Commissioner of Internal Revenue vs. Procter & Gamble Philippines Manufacturing
Corporation, 204 SCRA 377; Commissioner of Internal Revenue vs. Tokyo Shipping Co.,
Ltd., 244 SCRA 332).

In this case, not only should petitioner establish that it is entitled to the claim but it
must most importantly show proof of compliance with the substantiation requirements as
mandated by law or regulations.

The rest of the assigned errors pertain to the alleged errors of the First Division: in
finding that the petitioner failed to comply with the substantiation requirements provided by
law in proving its claim for refund; in reducing the amount of petitioners tax credit for input
vat on importation of capital goods; and in denying petitioners claim for refund of input vat
attributable to petitioners zero-rated sales.

It is petitioners contention that it has clearly established its right to the tax credit or
refund by way of substantial evidence in the form of material and documentary evidence and
it would be improper to set aside with haste the claimed input VAT on capital goods
expended for training materials, office supplies, posters, banners, t-shirts, books and the like
because Revenue Regulations No. 7-95 defines capital goods as to include even those goods
which are indirectly used in the production or sale of taxable goods or services.

Capital goods or properties, as defined under Section 4.106-1(b) of Revenue
Regulations No. 7-95, refer to goods or properties with estimated useful life greater than
one year and which are treated as depreciable assets under Section 29 (f), used directly or
indirectly in the production or sale of taxable goods or services.

Considering that the items (training materials, office supplies, posters, banners, t-
shirts, books and the like) purchased by petitioner as reflected in the summary were not duly
proven to have been used, directly or indirectly[,] in the production or sale of taxable goods
or services, the same cannot be considered as capital goods as defined
above[. Consequently,] the same may not x x x then [be] claimed as such.

WHEREFORE, in view of the foregoing, this instant Petition for Review is
hereby DENIED DUE COURSE and hereby DISMISSED for lack of merit. This Court's
Decision of November 18, 2003 and Resolution of August 10, 2004 are
hereby AFFIRMED in all respects.

SO ORDERED.
[26]

Petitioner sought reconsideration of the assailed Decision but the CTA En Banc denied the
Motion
[27]
in a Resolution
[28]
dated April 20, 2006.

Issues

Hence, the instant Petition raising the following issues for resolution:

(1) whether the CTA En Banc erred in denying petitioners claim for credit/ refund of
input VAT attributable to its zero-rated sales in the amount of P16,732,425.00 due to its
failure:

(a) to show that it secured an ATP from the BIR and to indicate the same in its
export sales invoices; and

(b) to print the word zero-rated in its export sales invoices.
[29]

(2) whether the CTA En Banc erred in ruling that only the amount of P9,898,867.00 can
be classified as input VAT paid on capital goods.
[30]

Petitioners Arguments

Petitioner posits that the denial by the CTA En Banc of its claim for refund of input VAT
attributable to its zero-rated sales has no legal basis because the printing of the ATP and the word
zero-rated on the export sales invoices are not required under Sections 113 and 237 of the National
Internal Revenue Code (NIRC).
[31]
And since there is no law requiring the ATP and the word zero-
rated to be indicated on the sales invoices,
[32]
the absence of such information in the sales invoices
should not invalidate the petition
[33]
nor result in the outright denial of a claim for tax
credit/refund.
[34]
To support its position, petitioner cites Intel Technology Philippines, Inc. v.
Commissioner of Internal Revenue,
[35]
where Intels failure to print the ATP on the sales invoices or
receipts did not result in the outright denial of its claim for tax credit/refund.
[36]
Although the cited case
only dealt with the printing of the ATP, petitioner submits that the reasoning in that case should also
apply to the printing of the word zero-rated.
[37]
Hence, failure to print of the word zero-rated on the
sales invoices should not result in the denial of a claim.

As to the claim for refund of input VAT on capital goods, petitioner insists that it has
sufficiently proven through testimonial and documentary evidence that all the goods purchased were
used in the production and manufacture of its finished products which were sold and exported.
[38]

Respondents Arguments

To refute petitioners arguments, respondent asserts that the printing of the ATP on the export
sales invoices, which serves as a control mechanism for the BIR, is mandated by Section 238 of the
NIRC;
[39]
while the printing of the word zero-rated on the export sales invoices, which seeks to
prevent purchasers of zero-rated sales or services from claiming non-existent input VAT
credit/refund,
[40]
is required under RR No. 7-95, promulgated pursuant to Section 244 of the
NIRC.
[41]
With regard to the unutilized input VAT on capital goods, respondent counters that petitioner
failed to show that the goods it purchased/imported are capital goods as defined in Section 4.106-1 of
RR No. 7-95.
[42]

Our Ruling

The petition is bereft of merit.

Before us are two types of input VAT credits. One is a credit/refund of input VAT attributable
to zero-rated sales under Section 112 (A) of the NIRC, and the other is a credit/refund of input VAT on
capital goods pursuant to Section 112 (B) of the same Code.

Credit/refund of input VAT on zero-rated sales

In a claim for credit/refund of input VAT attributable to zero-rated sales, Section 112 (A)
[43]
of
the NIRC lays down four requisites, to wit:

1) the taxpayer must be VAT-registered;
2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated;

3) the claim must be filed within two years after the close of the taxable quarter when such
sales were made; and

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

To prove that it is engaged in zero-rated sales, petitioner presented export sales
invoices, certifications of inward remittance, export declarations, and airway bills of lading for the
fourth quarter of 1998. The CTA Division, however, found the export sales invoices of no probative
value in establishing petitioners zero-rated sales for the purpose of claiming credit/refund of input
VAT because petitioner failed to show that it has an ATP from the BIR and to indicate the ATP and the
word zero-rated in its export sales invoices.
[44]
The CTA Division cited as basis Sections
113,
[45]
237
[46]
and 238
[47]
of the NIRC, in relation to Section 4.108-1 of RR No. 7-95.
[48]

We partly agree with the CTA.

Printing the ATP on the invoices or receipts is not required

It has been settled in Intel Technology Philippines, Inc. v. Commissioner of Internal
Revenue
[49]
that the ATP need not be reflected or indicated in the invoices or receipts because there is
no law or regulation requiring it.
[50]
Thus, in the absence of such law or regulation, 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 claiming a refund.
[51]

ATP must be secured from the BIR

But while there is no law requiring the ATP to be printed on the invoices or receipts, Section
238 of the NIRC expressly requires persons engaged in business to secure an ATP from the BIR prior
to printing invoices or receipts. Failure to do so makes the person liable under Section 264
[52]
of the
NIRC.

This brings us to the question of whether a claimant for unutilized input VAT on zero-rated sales
is required to present proof that it has secured an ATP from the BIR prior to the printing of its invoices
or receipts.

We rule in the affirmative.

Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated
or effectively zero-rated. To prove this, duly registered invoices or receipts evidencing zero-rated sales
must be presented. However, since the ATP is not indicated in the invoices or receipts, the only way to
verify whether the invoices or receipts are duly registered is by requiring the claimant to present its
ATP from the BIR. Without this proof, the invoices or receipts would have no probative value for the
purpose of refund. In the case of Intel, we emphasized that:

It bears reiterating that while the pertinent provisions of the Tax Code and the rules and
regulations implementing them require entities engaged in business to secure a BIR authority to print
invoices or receipts and to issue duly registered invoices or receipts, it is not specifically required that the
BIR authority to print be reflected or indicated therein. Indeed, what is important with respect to the
BIR authority to print is that it has been secured or obtained by the taxpayer, and that invoices or
receipts are duly registered.
[53]
(Emphasis supplied)

Failure to print the word zero-rated on the sales invoices
is fatal to a claim for refund of input VAT

Similarly, failure to print the word zero-rated on the sales invoices or receipts is fatal to a
claim for credit/refund of input VAT on zero-rated sales.

In Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita
Business Machine Corporation of the Philippines) v. Commissioner of Internal Revenue,
[54]
we upheld
the denial of Panasonics claim for tax credit/refund due to the absence of the word zero-rated in its
invoices. We explained that compliance with Section 4.108-1 of RR 7-95, requiring the printing of the
word zero rated on the invoice covering zero-rated sales, is essential as this regulation proceeds from
the rule-making authority of the Secretary of Finance under Section 244
[55]
of the NIRC.

All told, the non-presentation of the ATP and the failure to indicate the word zero-rated in the
invoices or receipts are fatal to a claim for credit/refund of input VAT on zero-rated sales. The failure
to indicate the ATP in the sales invoices or receipts, on the other hand, is not. In this case, petitioner
failed to present its ATP and to print the word zero-rated on its export sales invoices. Thus, we find
no error on the part of the CTA in denying outright petitioners claim for credit/refund of input VAT
attributable to its zero-rated sales.
Credit/refund of input VAT on capital goods

Capital goods are defined under Section 4.106-1(b) of RR
No. 7-95

To claim a refund of input VAT on capital goods, Section 112 (B)
[56]
of the NIRC requires that:

1. the claimant must be a VAT registered person;

2. the input taxes claimed must have been paid on capital goods;

3. the input taxes must not have been applied against any output tax liability; and

4. the administrative claim for refund must have been filed within two (2) years after the
close of the taxable quarter when the importation or purchase was made.

Corollarily, Section 4.106-1 (b) of RR No. 7-95 defines capital goods as follows:

Capital goods or properties refer to goods or properties with estimated useful life
greater that one year and which are treated as depreciable assets under Section 29 (f),
[57]
used
directly or indirectly in the production or sale of taxable goods or services.

Based on the foregoing definition, we find no reason to deviate from the findings of the CTA
that training materials, office supplies, posters, banners, T-shirts, books, and the other similar items
reflected in petitioners Summary of Importation of Goods are not capital goods. A reduction in the
refundable input VAT on capital goods from P15,170,082.00 toP9,898,867.00 is therefore in order.

WHEREFORE, the Petition is hereby DENIED. The assailed Decision dated September 30,
2005 and the Resolution dated April 20, 2006 of the Court of Tax Appeals En Banc are
hereby AFFIRMED.

SO ORDERED.

PANASONIC COMMUNICATIONS G.R. No. 178090
IMAGING CORPORATION OF THE
PHILIPPINES (formerly MATSUSHITA
BUSINESS MACHINE CORPORATION
OF THE PHILIPPINES),
Petitioner, Present:

Carpio, J., Chairperson,
- versus - Brion,
Del Castillo,
Abad, and
Perez, JJ.
COMMISSIONER OF INTERNAL
REVENUE, Promulgated:
Respondent.
February 8, 2010
x --------------------------------------------------------------------------------------- x

DECI SI ON

ABAD, J .:

This petition for review puts in issue the May 23, 2007 Decision
[1]
of the Court of Tax
Appeals (CTA) en banc in CTA EB 239, entitled Panasonic Communications Imaging
Corporation of the Philippines v. Commissioner of Internal Revenue, which affirmed the
denial of petitioners claim for refund.

The Facts and the Case

Petitioner Panasonic Communications Imaging Corporation of
the Philippines (Panasonic) produces and exports plain paper copiers and their sub-assemblies,
parts, and components. It is registered with the Board of Investments as a preferred pioneer
enterprise under the Omnibus Investments Code of 1987. It is also a registered value-added tax
(VAT) enterprise.

From April 1 to September 30, 1998 and from October 1, 1998 to March 31, 1999,
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),
[2]
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. When the BIR did not act on the
same, Panasonic filed on December 16, 1999 a petition for review with the CTA, averring
the inaction of the respondent Commissioner of Internal Revenue (CIR) on its
applications.

After trial or on August 22, 2006 the CTAs First Division rendered judgment,
[3]
denying
the petition for lack of merit. The First Division said that, while petitioner Panasonics export
sales were subject to 0% VAT under Section 106(A)(2)(a)(1) of the 1997 NIRC, the same did
not qualify for zero-rating because the word zero-rated was not printed on Panasonics export
invoices. This omission, said the First Division, violates the invoicing requirements of Section
4.108-1 of Revenue Regulations (RR) 7-95.
[4]

Its motion for reconsideration having been denied, on January 5, 2007 petitioner
Panasonic appealed the First Divisions decision to the CTA en banc. On May 23, 2007 the
CTA en banc upheld the First Divisions decision and resolution and dismissed the
petition. Panasonic filed a motion for reconsideration of the en banc decision but this was
denied. Thus, petitioner filed the present petition in accordance with R.A. 9282.
[5]

The Issue Presented

The sole issue presented in this case is whether or not the CTA en banc correctly denied
petitioner Panasonics claim for refund of the VAT it paid as a zero-rated taxpayer on the
ground that its sales invoices did not state on their faces that its sales were zero-rated.

The Courts Ruling

The VAT is a tax on consumption, an indirect tax that the provider of goods or services
may pass on to his customers. Under the VAT method of taxation, which isinvoice-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.

Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output
taxes
[7]
equal to the input taxes
[8]
that his suppliers passed on to him, no payment is required of
him. It is when his output taxes exceed his input taxes that he has to pay the excess to the
BIR. If the input taxes exceed the output taxes, however, the excess payment shall be carried
over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or
effectively zero-rated transactions or from the acquisition of capital goods, any excess over the
output taxes shall instead be refunded to the taxpayer.
[9]

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.
[10]

For the effective zero rating of such transactions, however, the taxpayer has to be VAT-
registered and must comply with invoicing requirements.
[11]
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.
Petitioner Panasonic points out, however, that in requiring the printing on its sales
invoices of the word zero-rated, 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.
[12]
Panasonic argues that the
1997 NIRC, which applied to its paymentsspecifically Sections 113 and 237required the
VAT-registered taxpayers receipts or invoices to indicate only the following information:

(1) A statement that the seller is a VAT-registered person, followed by
his taxpayer's identification number (TIN);

(2) The total amount which the purchaser pays or is obligated to pay to
the seller with the indication that such amount includes the value-added tax;

(3) The date of transaction, quantity, unit cost and description of the
goods or properties or nature of the service; and

(4) The name, business style, if any, address and taxpayers
identification number (TIN) of the purchaser, customer or client.

Petitioner Panasonic points out that Sections 113 and 237 did not require the inclusion of
the word zero-rated for zero-rated 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.
But when petitioner Panasonic made the export sales subject of this case, i.e., from April
1998 to March 1999, the rule that applied was Section 4.108-1 of RR 7-95, otherwise known as
the Consolidated Value-Added Tax Regulations, which the Secretary of Finance issued on
December 9, 1995 and took effect on January 1, 1996. It already required the printing of the
word zero-rated on the invoices covering zero-rated sales. When R.A. 9337 amended the
1997 NIRC on November 1, 2005, it made this particular revenue regulation a part of the tax
code. This conversion from regulation to law did not diminish the binding force of such
regulation with respect to acts committed prior to the enactment of that law.
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.
[13]
The requirement is
reasonable and is in accord with the efficient collection of VAT from the covered sales of goods
and services. As aptly explained by the CTAs First Division, 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.
[14]

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.
[15]
Unable to submit the
proper invoices, petitioner Panasonic has been unable to substantiate its claim for refund.
Petitioner Panasonics citation of Intel Technology Philippines, Inc. v. Commissioner of
Internal Revenue
[16]
is misplaced. Quite the contrary, it strengthens the position taken by
respondent CIR. In that case, the CIR denied the claim for tax refund on the ground of the
taxpayers failure to indicate on its invoices the BIR authority to print. But Sec. 4.108-1
required only the following to be reflected on the invoice:

1. The name, taxpayers identification number (TIN) and address of
seller;
2. Date of transaction;
3. Quantity, unit cost and description of merchandise or nature of
service;
4. The name, TIN, business style, if any, and address of the VAT-
registered purchaser, customer or client;
5. The word zero-rated imprinted on the invoice covering zero-rated
sales; and
6. The invoice value or consideration.
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 refund. Here,
however, the ground for denial of petitioner Panasonics claim for tax refundthe absence of
the word zero-rated on its invoicesis one which is specifically and precisely included in the
above enumeration. Consequently, the BIR correctly denied Panasonics claim for tax refund.
This Court will not set aside lightly the conclusions reached by the CTA which, by the
very nature of its functions, is dedicated exclusively to the resolution of tax problems and has
accordingly developed an expertise on the subject, unless there has been an abuse or
improvident exercise of authority.
[17]
Besides, statutes that grant tax exemptions are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
authority. Tax refunds in relation to the VAT are in the nature of such exemptions. The general
rule is that claimants of tax refunds bear the burden of proving the factual basis of their
claims. Taxes are the lifeblood of the nation. Therefore, statutes that allow exemptions are
construed strictly against the grantee and liberally in favor of the government.
[18]

WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioner.
SO ORDERED.
COMMISSIONER OF G.R. No. 152609
INTERNAL REVENUE,

Petitioner

AMERICAN EXPRESS
INTERNATIONAL, INC. Promulgated:
(PHILIPPINE BRANCH),
Respondent. June 29, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
DECISION

PANGANIBAN, J.:

s a general rule, the value-added tax (VAT) system uses the destination
principle. However, our VAT law itself provides for a clear exception, under
which the supply of service shall be zero-rated when the following
requirements are met: (1) the service is performed in the Philippines; (2) the
service falls under any of the categories provided in Section 102(b) of the Tax Code;
and (3) it is paid for in acceptable foreign currency that is accounted for in accordance
with the regulations of the Bangko Sentral ng Pilipinas. Since respondents services
meet these requirements, they are zero-rated. Petitioners Revenue Regulations that
alter or revoke the above requirements are ultra vires and invalid.

The Case
Before us is a Petition for Review
[1]
under Rule 45 of the Rules of Court,
assailing the February 28, 2002 Decision
[2]
of the Court of Appeals (CA) in CA-GR SP
No. 62727. The assailed Decision disposed as follows:
A
WHEREFORE, premises considered, the petition is
hereby DISMISSED for lack of merit. The assailed decision of the Court of Tax
Appeals (CTA) isAFFIRMED in toto.
[3]

The Facts
Quoting the CTA, the CA narrated the undisputed facts as follows:
[Respondent] is a Philippine branch of American Express International, Inc., a
corporation duly organized and existing under and by virtue of the laws of the State of
Delaware, U.S.A., with office in the Philippines at the Ground Floor, ACE Building,
corner Rada and de la Rosa Streets, Legaspi Village, Makati City. It is a servicing unit
of American Express International, Inc. - Hongkong Branch (Amex-HK) and is engaged
primarily to facilitate the collections of Amex-HK receivables from card members
situated in the Philippines and payment to service establishments in the Philippines.

Amex Philippines registered itself with the Bureau of Internal Revenue
(BIR), Revenue District Office No. 47 (East Makati) as a value-added tax (VAT)
taxpayer effective March 1988 and was issued VAT Registration Certificate No.
088445 bearing VAT Registration No. 32A-3-004868. For the period January 1,
1997 to December 31, 1997, [respondent] filed with the BIR its quarterly VAT
returns as follows:

Exhibit Period Covered Date Filed

D 1997 1
st
Qtr. April 18, 1997
F 2
nd
Qtr. July 21, 1997
G 3
rd
Qtr. October 2, 1997
H 4
th
Qtr. January 20, 1998

On March 23, 1999, however, [respondent] amended the aforesaid
returns and declared the following:

Exh 1997
Taxable
Sales
Output
VAT
Zero-rated
Sales
Domestic
Purchases
Input
VAT

I 1
st
qtr P59,597.20 P5,959.72 P17,513,801.11 P6,778,182.30 P677,818.23
J 2
nd
qtr 67,517.20 6,751.72 17,937,361.51 9,333,242.90 933,324.29
K 3
rd
qtr 51,936.60 5,193.66 19,627,245.36 8,438,357.00 843,835.70
L 4
th
qtr 67,994.30 6,799.43 25,231,225.22 13,080,822.10 1,308,082.21

Total P247,045.30 P24,704.53 P80,309,633.20 P37,630,604.30 P3,763,060.43

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. [Respondent] cites as basis therefor, Section 110 (B) of the 1997
Tax Code, to state:

Section 110. Tax Credits. -

x x x x x x x x x

(B) Excess Output or Input Tax. - If at the end of any taxable
quarter the output tax exceeds the input tax, the excess shall be paid by
the VAT-registered person. If the input tax exceeds the output tax, the
excess shall be carried over to the succeeding quarter or quarters. Any
input tax attributable to the purchase of capital goods or to zero-rated
sales by a VAT-registered person may at his option be refunded or
credited against other internal revenue taxes, subject to the provisions of
Section 112.

There being no immediate action on the part of the [petitioner],
[respondents] petition was filed on April 15, 1999.

In support of its Petition for Review, the following arguments were raised
by [respondent]:

A. Export sales by a VAT-registered person, the consideration for
which is paid for in acceptable foreign currency inwardly remitted to the
Philippines and accounted for in accordance with existing regulations of
the Bangko Sentral ng Pilipinas, are subject to [VAT] at zero percent
(0%). According to [respondent], being a VAT-registered entity, it is
subject to the VAT imposed under Title IV of the Tax Code, to wit:

Section 102.(sic) 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% percent of gross
receipts derived by any person engaged in the sale of
services. The phrase sale of services means the performance of
all kinds of services for others for a fee, remuneration or
consideration, including those performed or rendered by
construction and service contractors: stock, real estate,
commercial, customs and immigration brokers; lessors of personal
property; lessors or distributors of cinematographic films; persons
engaged in milling, processing, manufacturing or repacking goods
for others; and similar services regardless of whether o[r] not the
performance thereof calls for the exercise or use of the physical or
mental faculties: Provided That the following services performed in
the Philippines by VAT-registered persons shall be subject to 0%:

(1) x x x
(2) Services other than those mentioned in
the preceding subparagraph, the consideration is
paid for in acceptable foreign currency which is
remitted inwardly to the Philippines and
accounted for in accordance with the rules and
regulations of the BSP. x x x.

In addition, [respondent] relied on VAT Ruling No. 080-89, dated
April 3, 1989, the pertinent portion of which reads as follows:

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 Philippines and accounted for in
accordance with the rules and regulations of the Central [B]ank of
the Philippines, your service income is automatically zero rated
effective January 1, 1998. [Section 102(a)(2) of the Tax Code as
amended].
[4]
For this, there is no need to file an application for
zero-rate.

B. Input taxes on domestic purchases of taxable goods and
services related to zero-rated revenues are available as tax refund in
accordance with Section 106 (now Section 112) of the [Tax Code] and
Section 8(a) of [Revenue] Regulations [(RR)] No. 5-87, to state:

Section 106. Refunds or tax credits of input tax. -

(A) Zero-rated or effectively Zero-rated Sales. - Any VAT-
registered person, except those covered by paragraph (a) above,
whose sales are zero-rated or are effectively zero-rated, may,
within two (2) years after the close of the taxable quarter when
such sales were made, apply for the issuance of tax credit
certificate or refund of the input taxes due or attributable to such
sales, to the extent that such input tax has not been applied
against output tax. x x x. [Section 106(a) of the Tax Code]
[5]

Section 8. Zero-rating. - (a) In general. - A zero-rated
sale is a taxable transaction for value-added tax purposes. A sale
by a VAT-registered person of goods and/or services taxed at zero
rate shall not result in any output tax. The input tax on his
purchases of goods or services related to such zero-rated sale
shall be available as tax credit or refundable in accordance with
Section 16 of these Regulations. x x x. [Section 8(a), [RR] 5-
87].
[6]

[Petitioner], in his Answer filed on May 6, 1999, claimed by way of Special
and Affirmative Defenses that:

7. The claim for refund is subject to investigation by the Bureau of
Internal Revenue;

8. Taxes paid and collected are presumed to have been made in
accordance with laws and regulations, hence, not refundable. Claims for
tax refund are construed strictly against the claimant as they partake of
the nature of tax exemption from tax and it is incumbent upon the
[respondent] to prove that it is entitled thereto under the law and he who
claims exemption must be able to justify his claim by the clearest grant of
organic or statu[t]e law. An exemption from the common burden [cannot]
be permitted to exist upon vague implications;

9. Moreover, [respondent] must prove that it has complied with the
governing rules with reference to tax recovery or refund, which are found
in Sections 204(c) and 229 of the Tax Code, as amended, which are
quoted as follows:

Section 204. Authority of the Commissioner to
Compromise, Abate and Refund or Credit Taxes. - The
Commissioner may - x x x.

(C) Credit or refund taxes erroneously or illegally received
or penalties imposed without authority, refund the value of internal
revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused
stamps that have been rendered unfit for use and refund their
value upon proof of destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer files in writing with
the Commissioner a claim for credit or refund within two (2) years
after payment of the tax or penalty: Provided, however, That a
return filed with an overpayment shall be considered a written
claim for credit or refund.

Section 229. Recovery of tax erroneously or illegally
collected.- No suit or proceeding shall be maintained in any court
for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without
authority, or of any sum alleged to have been excessively or in
any manner wrongfully collected, until a claim for refund or credit
has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty
or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be begun
(sic) after the expiration of two (2) years from the date of payment
of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the
Commissioner may, even without written claim therefor, refund or
credit any tax, where on the face of the return upon which
payment was made, such payment appears clearly to have been
erroneously paid.

From the foregoing, the [CTA], through the Presiding Judge Ernesto D.
Acosta rendered a decision
[7]
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
decretal portion of which reads as follows:

WHEREFORE, in view of all the foregoing, this Court finds the
[petition] meritorious and in accordance with law. Accordingly, [petitioner]
is herebyORDERED to REFUND to [respondent] the amount
of P3,352,406.59 representing the latters excess input VAT paid for the
year 1997.
[8]

Ruling of the Court of Appeals
In affirming the CTA, the CA held that respondents services fell under the first
type enumerated in Section 4.102-2(b)(2) of RR 7-95, as amended by RR 5-
96. More particularly, its services were not of the same class or of the same
nature as project studies, information, or engineering and architectural designs
for non-resident foreign clients; rather, they were services other than the
processing, manufacturing or repacking of goods for persons doing business
outside the Philippines. The consideration in both types of service, however,
was paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas.
Furthermore, the CA reasoned that reliance on VAT Ruling No. 040-98 was
unwarranted. By requiring that respondents services be consumed abroad in order to
be zero-rated, petitioner went beyond the sphere of interpretation and into that of
legislation. Even granting that it is valid, the ruling cannot be given retroactive effect,
for it will be harsh and oppressive to respondent, which has already relied upon VAT
Ruling No. 080-89 for zero rating.
Hence, this Petition.
[9]

The Issue

Petitioner raises this sole issue for our consideration:

Whether or not the Court of Appeals committed reversible error in holding
that respondent is entitled to the refund of the amount of P3,352,406.59 allegedly
representing excess input VAT for the year 1997.
[10]

The Courts Ruling

The Petition is unmeritorious.

Sole Issue:
Entitlement to Tax Refund
Section 102 of the Tax Code
[11]
provides:
Sec. 102. Value-added tax on sale of services and use or lease of
properties. -- (a) Rate and base of tax. -- There shall be levied, assessed and
collected, a value-added tax equivalent to ten percent (10%) of gross receipts
derived from the sale or exchange of services x x x.
The phrase 'sale or exchange of services' means the performance of all
kinds of services in the Philippines for others for a fee, remuneration or
consideration, including those performed or rendered by x x x persons engaged
in milling, processing, manufacturing or repacking goods for others; x x x
services of banks, non-bank financial intermediaries and finance companies; x x
x and similar services regardless of whether or not the performance thereof calls
for the exercise or use of the physical or mental faculties. The phrase 'sale or
exchange of services' shall likewise include:
x x x x x x x x x
(3) The supply of x x x commercial knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to
and is furnished as a means of enabling the application or enjoyment of x x x
any such knowledge or information as is mentioned in subparagraph (3);
x x x x x x x x x
(6) The supply of technical advice, assistance or services rendered in
connection with technical management or administration of any x x x commercial
undertaking, venture, project or scheme;
x x x x x x x x x
"The term 'gross receipts means the total amount of money or its
equivalent representing the contract price, compensation, service fee, rental or
royalty, including the amount charged for materials supplied with the services
and deposits and advanced payments actually or constructively received during
the taxable quarter for the services performed or to be performed for another
person, excluding value-added tax.

"(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
subparagraph, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the
[BSP];
x x x x x x x x x

Zero Rating of
Other Services
The law is very clear. Under the last paragraph quoted above, services
performed by VAT-registered persons in the Philippines (other than the processing,
manufacturing or repacking of goods for persons doing business outside the
Philippines), when paid in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP, are zero-rated.
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 companys
regional operating centers (ROCs) was automatically zero-rated effective January 1,
1988.
[12]

Service has been defined as the art of doing something useful for a person or
company for a fee
[13]
or useful labor or work rendered or to be rendered by one
person to another.
[14]
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.
[15]

The Credit Card System
and Its Components
For sure, the ancillary business of facilitating the said collection is different from
the main business of issuing credit cards.
[16]
Under the credit card system, the credit
card company extends credit accommodations to its card holders for the purchase of
goods and services from its member establishments, to be reimbursed by them later on
upon proper billing. Given the complexities of present-day business transactions, the
components of this system can certainly function as separate billable services.
Under RA 8484,
[17]
the credit card that is issued by banks
[18]
in general, or by non-
banks in particular, refers to any card x x x or other credit device existing for the
purpose of obtaining x x x goods x x x or services x x x on credit;
[19]
and is being used
usually on a revolving basis.
[20]
This means that the consumer-credit arrangement
that exists between the issuer and the holder of the credit card enables the latter to
procure goods or services on a continuing basis as long as the outstanding balance
does not exceed a specified limit.
[21]
The card holder is, therefore, given the power
to obtain present control of goods or service on a promise to pay for them in the
future.
[22]

Business establishments may extend credit sales through the use of the credit
card facilities of a non-bank credit card company to avoid the risk of uncollectible
accounts from their customers. Under this system, the establishments do not deposit
in their bank accounts the credit card drafts
[23]
that arise from the credit sales. Instead,
they merely record their receivables from the credit card company and periodically
send the drafts evidencing those receivables to the latter.
The credit card company, in turn, sends checks as payment to these business
establishments, but it does not redeem the drafts at full price. The agreement between
them usually provides for discounts to be taken by the company upon its redemption
of the drafts.
[24]
At the end of each month, it then bills its credit card holders for their
respective drafts redeemed during the previous month. If the holders fail to pay the
amounts owed, the company sustains the loss.
[25]

In the present case, respondents role in the consumer credit
[26]
process
described above primarily consists of gathering the bills and credit card drafts of
different service establishments located in the Philippines and forwarding them to the
ROCs outside the country. Servicing the bill is not the same as billing. For the former
type of service alone, respondent already gets paid.
The parent company -- to which the ROCs and respondent belong -- takes
charge not only of redeeming the drafts from the ROCs and sending the checks to the
service establishments, but also of billing the credit card holders for their respective
drafts that it has redeemed. While it usually imposes finance charges
[27]
upon the
holders, none may be exacted by respondent upon either the ROCs or the card
holders.
Branch and Home Office
By designation alone, respondent and the ROCs are operated as branches. This
means that each of them is a unit, an offshoot, lateral extension, or
division
[28]
located at some distance from the home office
[29]
of the parent company;
carrying separate inventories; incurring their own expenses; and generating their
respective incomes. Each may conduct sales operations in any locality as an extension
of the principal office.
[30]

The extent of accounting activity at any of these branches depends upon
company policy,
[31]
but the financial reports of the entire business enterprise -- the
credit card company to which they all belong -- must always show its financial position,
results of operation, and changes in its financial position as a single unit.
[32]
Reciprocal
accounts are reconciled or eliminated, because they lose all significance when the
branches and home office are viewed as a single entity.
[33]
In like manner, intra-
company profits or losses must be offset against each other for accounting purposes.
Contrary to petitioners assertion,
[34]
respondent can sell its services to another
branch of the same parent company.
[35]
In fact, the business concept of a transfer price
allows goods and services to be sold between and among intra-company units at cost
or above cost.
[36]
A branch may be operated as a revenue center, cost center, profit
center or investment center, depending upon the policies and accounting system of its
parent company.
[37]
Furthermore, the latter may choose not to make any sale itself, but
merely to function as a control center, where most or all of its expenses are allocated
to any of its branches.
[38]

Gratia argumenti that the sending of drafts and bills by service establishments to
respondent is equivalent to the act of sending them directly to its parent company
abroad, and that the parent companys subsequent redemption of these drafts and
billings of credit card holders is also attributable to respondent, then with greater
reason should the service rendered by respondent be zero-rated under our VAT
system. The service partakes of the nature of export sales as applied to
goods,
[39]
especially when rendered in the Philippines by a VAT-registered
person
[40]
that gets paid in acceptable foreign currency accounted for in accordance
with BSP rules and regulations.
VAT Requirements for
the Supply of Service
The VAT is a tax on consumption
[41]
expressed as a percentage of the value
added to goods or services
[42]
purchased by the producer or taxpayer.
[43]
As an
indirect tax
[44]
on services,
[45]
its main object is the transaction
[46]
itself or, more
concretely, the performance of all kinds of services
[47]
conducted in the course of trade
or business in the Philippines.
[48]
These services must be regularly conducted in this
country; undertaken in pursuit of a commercial or an economic activity;
[49]
for a
valuable consideration; and not exempt under the Tax Code, other special laws, or any
international agreement.
[50]

Without doubt, the transactions respondent entered into with its Hong Kong-
based client meet all these requirements.
First, respondent regularly renders in the Philippines the service of facilitating
the collection and payment of receivables belonging to a foreign company that is a
clearly separate and distinct entity.
Second, such service is commercial in nature; carried on over a sustained period
of time; on a significant scale; with a reasonable degree of frequency; and not at
random, fortuitous or attenuated.
Third, for this service, respondent definitely receives consideration in foreign
currency that is accounted for in conformity with law.
Finally, respondent is not an entity exempt under any of our laws or
international agreements.
Services Subject to
Zero VAT
As a general rule, the VAT system uses the destination principle as a basis for
the jurisdictional reach of the tax.
[51]
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 petitioners administrative interpretation,
[52]
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.
[53]
Applied to services, the term means the performance or successful completion
of a contractual duty, usually resulting in the performers release from any past or
future liability x x x.
[54]
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 establishments 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
[55]
when determining the service location or position x x x for legal
purposes.
[56]
Respondents 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.
Respondents Services Exempt
from the Destination Principle
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].
[57]
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.
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.
Performance of Service versus
Product Arising from Performance
Again, contrary to petitioners stand, for the cost of respondents service to be
zero-rated, it need not be tacked in as part of the cost of goods exported.
[58]
The law
neither imposes such requirement nor associates services with exported goods. It simply
states that the services performed by VAT-registered persons in the Philippines -- services
other than the processing, manufacturing or repacking of goods for persons doing
business outside this country -- if paid in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP, are zero-rated. The service
rendered by respondent is clearly different from the product that arises from the rendition
of such service. The activity that creates the income must not be confused with the main
business in the course of which that income is realized.
[59]

Tax Situs of a Zero-Rated Service
The law neither makes a qualification nor adds a condition in determining the
tax situs of a zero-rated service. Under this criterion, the place where the service is
rendered determines the jurisdiction
[60]
to impose the VAT.
[61]
Performed in the
Philippines, such service is necessarily subject to its jurisdiction,
[62]
for the State
necessarily has to have a substantial connection
[63]
to it, in order to enforce a zero
rate.
[64]
The place of payment is immaterial;
[65]
much less is the place where the output
of the service will be further or ultimately used.
Statutory Construction or Interpretation Unnecessary
As mentioned at the outset, Section 102(b)(2) of the Tax Code is very
clear. Therefore, no statutory construction or interpretation is needed. Neither can
conditions or limitations be introduced where none is provided for. Rewriting the law
is a forbidden ground that only Congress may tread upon.
The Court may not construe a statute that is free from doubt.
[66]
[W]here the
law speaks in clear and categorical language, there is no room for interpretation. There
is only room for application.
[67]
The Court has no choice but to see to it that its
mandate is obeyed.
[68]

No Qualifications
Under RR 5-87
In implementing the VAT provisions of the Tax Code, RR 5-87 provides for
the zero rating of services other than the processing, manufacturing or repacking of
goods -- in general and without qualifications -- when paid for by the person to whom
such services are rendered in acceptable foreign currency inwardly remitted and duly
accounted for in accordance with the BSP (then Central Bank) regulations. Section 8
of RR 5-87 states:
SECTION 8. Zero-rating. -- (a) In general. -- A zero-rated sale is a taxable
transaction for value-added tax purposes. A sale by a VAT-registered person of
goods and/or services taxed at zero rate shall not result in any output tax. The
input tax on his purchases of goods or services related to such zero-rated sale
shall be available as tax credit or refundable in accordance with Section 16 of
these Regulations.
x x x x x x x x x
(c) Zero-rated sales of services. -- The following services
rendered by VAT-registered persons are zero-rated:
(1) Services in connection with the processing,
manufacturing or repacking of goods for persons doing business
outside the Philippines, where such goods are actually shipped
out of the Philippines to said persons or their assignees and the
services are paid for in acceptable foreign currency inwardly
remitted and duly accounted for under the regulations of the
Central Bank of the Philippines.
x x x x x x x x x
(3) Services performed in the Philippines other than
those mentioned in subparagraph (1) above which are paid for by
the person or entity to whom the service is rendered in acceptable
foreign currency inwardly remitted and duly accounted for in
accordance with Central Bank regulations. Where the contract
involves payment in both foreign and local currency, only the
service corresponding to that paid in foreign currency shall enjoy
zero-rating. The portion paid for in local currency shall be subject
to VAT at the rate of 10%.
RR 7-95 Broad Enough
RR 7-95, otherwise known as the Consolidated VAT Regulations,
[69]
reiterates the
above-quoted provision and further presents as examples only the services performed in the
Philippines by VAT-registered hotels and other service establishments. Again, the
condition remains that these services must be paid in acceptable foreign currency
inwardly remitted and accounted for in accordance with the rules and regulations of
the BSP. The term other service establishments is obviously broad enough to cover
respondents facilitation service. Section 4.102-2 of RR 7-95 provides thus:
SECTION 4.102-2. Zero-Rating. -- (a) In general. -- A zero-rated sale by a VAT
registered person, which is a taxable transaction for VAT purposes, shall not result in any
output tax. However, the input tax on his purchases of goods, properties or services related
to such zero-rated sale shall be available as tax credit or refund in accordance with these
regulations.
(b) Transaction 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 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;
x x x x x x x x x
Meaning of as well as in RR 5-96
Section 4.102-2(b)(2) of RR 7-95 was subsequently amended by RR 5-96 to read
as follows:
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."
Aside from the already scopious coverage of services in Section 4.102-2(b)(2) of
RR 7-95, the amendment introduced by RR 5-96 further enumerates specific services
entitled to zero rating. Although superfluous, these sample services are meant to be
merely illustrative. In this provision, the use of the term as well as is not
restrictive. As a prepositional phrase with an adverbial relation to some other word, it
simply means in addition to, besides, also or too.
[70]

Neither the law nor any of the implementing revenue regulations aforequoted
categorically defines or limits the services that may be sold or exchanged for a fee,
remuneration or consideration. Rather, both merely enumerate the items of service
that fall under the term sale or exchange of services.
[71]

Ejusdem Generis
Inapplicable
The canon of statutory construction known as ejusdem generis or of the same
kind or specie does not apply to Section 4.102-2(b)(2) of RR 7-95 as amended by RR
5-96.
First, although the regulatory provision contains an enumeration of particular or
specific words, followed by the general phrase and other similar services, such words
do not constitute a readily discernible class and are patently not of the same
kind.
[72]
Project studies involve investments or marketing; information services focus
on data technology; engineering and architectural designs require creativity. Aside
from calling for the exercise or use of mental faculties or perhaps producing written
technical outputs, no common denominator to the exclusion of all others characterizes
these three services. Nothing sets them apart from other and similar general services
that may involve advertising, computers, consultancy, health care, management,
messengerial work -- to name only a few.
Second, there is the regulatory intent to give the general phrase and other similar
services a broader meaning.
[73]
Clearly, the preceding phrase as well as is not meant
to limit the effect of and other similar services.
Third, and most important, the statutory provision upon which this regulation is based
is by itself not restrictive. The scope of the word services in Section 102(b)(2) of the
Tax Code is broad; it is not susceptible of narrow interpretation.
[74]

VAT Ruling Nos. 040-98 and 080-89
VAT Ruling No. 040-98 relied upon by petitioner is a less general interpretation
at the administrative level,
[75]
rendered by the BIR commissioner upon request of a
taxpayer to clarify certain provisions of the VAT law. As correctly held by the CA,
when this ruling states that the service must be destined for consumption outside of
the Philippines
[76]
in order to qualify for zero rating, it contravenes both the law and
the regulations issued pursuant to it.
[77]
This portion of VAT Ruling No. 040-98 is
clearly ultra vires and invalid.
[78]

Although [i]t is widely accepted that the interpretation placed upon a statute by
the executive officers, whose duty is to enforce it, is entitled to great respect by the
courts,
[79]
this interpretation is not conclusive and will have to be ignored if judicially
found to be erroneous
[80]
and clearly absurd x x x or improper.
[81]
An administrative
issuance that overrides the law it merely seeks to interpret, instead of remaining
consistent and in harmony with it, will not be countenanced by this Court.
[82]

In the present case, respondent has relied upon VAT Ruling No. 080-89, which
clearly recognizes its zero rating. Changing this status will certainly deprive respondent
of a refund of the substantial amount of excess input taxes to which it is entitled.
Again, assuming arguendo that VAT Ruling No. 040-98 revoked VAT Ruling
No. 080-89, such revocation could not be given retroactive effect if the application of
the latter ruling would only be prejudicial to respondent.
[83]
Section 246 of the Tax
Code categorically declares that [a]ny revocation x x x of x x x any of the rulings x x x
promulgated by the Commissioner shall not be given retroactive application if the
revocation x x x will be prejudicial to the taxpayers.
[84]

It is also basic in law that no x x x rule x x x shall be given retrospective
effect
[85]
unless explicitly stated.
[86]
No indication of such retroactive application to
respondent does the Court find in VAT Ruling No. 040-98. Neither do the exceptions
enumerated in Section 246
[87]
of the Tax Code apply.
Though vested with the power to interpret the provisions of the Tax
Code
[88]
and not bound by predecessors acts or rulings, the BIR commissioner may
render a different construction to a statute
[89]
only if the new interpretation is in
congruence with the law. Otherwise, no amount of interpretation can ever revoke,
repeal or modify what the law says.
Consumed Abroad Not Required by Legislature

Interpellations on the subject in the halls of the Senate also reveal a clear intent
on the part of the legislators not to impose the condition of being consumed abroad
in order for services performed in the Philippines by a VAT-registered person to be
zero-rated. We quote the relevant portions of the proceedings:
Senator Maceda: Going back to Section 102 just for the moment. Will
the Gentleman kindly explain to me - I am referring to the lower part of the first
paragraph with the Provided. Section 102. Provided that the following services
performed in the Philippines by VAT registered persons shall be subject to zero
percent. There are three here. What is the difference between the three here
which is subject to zero percent and Section 103 which is exempt transactions, to
being with?
Senator Herrera: Mr. President, in the case of processing and
manufacturing or repacking goods for persons doing business outside the
Philippines which are subsequently exported, and where the services are paid for
in acceptable foreign currencies inwardly remitted, this is considered as subject
to 0%. But if these conditions are not complied with, they are subject to the VAT.
In the case of No. 2, again, as the Gentleman pointed out, these three
are zero-rated and the other one that he indicated are exempted from the very
beginning. These three enumerations under Section 102 are zero-rated provided
that these conditions indicated in these three paragraphs are also complied
with. If they are not complied with, then they are not entitled to the zero
ratings. Just like in the export of minerals, if these are not exported, then they
cannot qualify under this provision of zero rating.
Senator Maceda: Mr. President, just one small item so we can leave
this. Under the proviso, it is required that the following services be performed in
the Philippines.
Under No. 2, services other than those mentioned above includes, let us
say, manufacturing computers and computer chips or repacking goods for
persons doing business outside the Philippines. Meaning to say, we ship the
goods to them in Chicago or Washington and they send the payment inwardly to
the Philippines in foreign currency, and that is, of course, zero-rated.
Now, when we say services other than those mentioned in the preceding
subsection[,] may I have some examples of these?
Senator Herrera: Which portion is the Gentleman referring to?
Senator Maceda: I am referring to the second paragraph, in the same
Section 102. The first paragraph is when one manufactures or packages
something here and he sends it abroad and they pay him, that is covered. That
is clear to me. The second paragraph says Services other than those mentioned
in the preceding subparagraph, the consideration of which is paid for in
acceptable foreign currency

One example I could immediately think of -- I do not know why this comes
to my mind tonight -- is for tourism or escort services. For example, the services
of the tour operator or tour escort -- just a good name for all kinds of activities --
is made here at the Midtown Ramada Hotel or at the Philippine Plaza, but the
payment is made from outside and remitted into the country.
Senator Herrera: What is important here is that these services are paid
in acceptable foreign currency remitted inwardly to the Philippines.
Senator Maceda: Yes, Mr. President. Like those Japanese tours which
include $50 for the services of a woman or a tourist guide, it is zero-rated when it
is remitted here.
Senator Herrera: I guess it can be interpreted that way, although this
tourist guide should also be considered as among the professionals. If they earn
more than P200,000, they should be covered.
x x x x x x x x x
Senator Maceda: So, the services by Filipino citizens outside the
Philippines are subject to VAT, and I am talking of all services. Do big
contractual engineers in Saudi Arabia pay VAT?
Senator Herrera: This provision applies to a VAT-registered
person. When he performs services in the Philippines, that is zero-rated.
Senator Maceda: That is right."
[90]

Legislative Approval By Reenactment
Finally, upon the enactment of RA 8424, which substantially carries over the
particular provisions on zero rating of services under Section 102(b) of the Tax Code,
the principle of legislative approval of administrative interpretation by reenactment
clearly obtains. This principle means that the reenactment of a statute substantially
unchanged is persuasive indication of the adoption by Congress of a prior executive
construction.
[91]

The legislature is presumed to have reenacted the law with full knowledge of
the contents of the revenue regulations then in force regarding the VAT, and to have
approved or confirmed them because they would carry out the legislative
purpose. The particular provisions of the regulations we have mentioned earlier are,
therefore, re-enforced. When a statute is susceptible of the meaning placed upon it
by a ruling of the government agency charged with its enforcement and the [l]egislature
thereafter [reenacts] the provisions [without] substantial change, such action is to some
extent confirmatory that the ruling carries out the legislative purpose.
[92]

In sum, having resolved that transactions of respondent are zero-rated, the
Court upholds the formers entitlement to the refund as determined by the appellate
court. Moreover, there is no conflict between the decisions of the CTA and
CA. This Court respects the findings and conclusions of a specialized court like the
CTA which, by the nature of its functions, is dedicated exclusively to the study and
consideration of tax cases and has necessarily developed an expertise on the
subject.
[93]

Furthermore, under a zero-rating scheme, the sale or exchange of a particular
service is completely freed from the VAT, because the seller is entitled to recover, by
way of a refund or as an input tax credit, the tax that is included in the cost of
purchases attributable to the sale or exchange.
[94]
[T]he tax paid or withheld is not
deducted from the tax base.
[95]
Having been applied for within the reglementary
period,
[96]
respondents refund is in order.
WHEREFORE, the Petition is hereby DENIED, and the assailed
Decision AFFIRMED. No pronouncement as to costs.
SO ORDERED.

COMMISSIONER OF INTERNAL G.R. No. 180042
REVENUE,
Petitioner, Present:

Carpio, J., Chairperson,
- versus - Brion,
Del Castillo,
Abad, and
Perez, JJ.
IRONCON BUILDERS AND
DEVELOPMENT CORPORATION, Promulgated:
Respondent.
February 8, 2010
x ---------------------------------------------------------------------------------------- x

DECI SI ON

ABAD, J .:

This addresses the question of whether or not creditable value-added tax (VAT) withheld
from a taxpayer in excess of its output VAT liability may be the subject of a tax refund in place
of a tax credit.

The Facts and the Case

On May 10, 2001 respondent Ironcon Builders and Development Corporation (Ironcon)
sought the refund by the Bureau of Internal Revenue (BIR) of its income tax overpayment and
excess creditable VAT. When petitioner Commissioner of Internal Revenue (CIR) continued
not to act on its claims, on July 1, 2002 Ironcon filed a petition for review with the Court of Tax
Appeals (CTA) in CTA Case 6502, which was raffled to its Second Division.

After hearing, the Second Division held that in regard to the claim for overpaid income
taxes, taxpayers have the option to either carry over the excess credit or ask for a refund. Here,
respondent Ironcon filed two income tax returns for the year 2000, an original and an amended
one. In the original return, Ironcon placed an x mark in a box corresponding to the option
To be carried over as tax credit next year/quarter. Although Ironcons amended return
indicated a preference for refund of the overpaid tax, the Second Division ruled that Ironcons
original choice is regarded as irrevocable, pursuant to Section 76 of Republic Act (R.A.) 8424
(the National Internal Revenue Code of 1997 or NIRC). Further, the Second Division found
that Ironcon actually carried over the credit for overpaid income taxes and applied it to the tax
due for the year 2001. It, therefore, denied Ironcons claim for its refund.

As to the claim for VAT refund, the Second Division found that by the end of 2000,
Ironcon had excess tax credit of P3,135,990.69 carried over from 1999, allowable input tax
of P15,242,271.43, and 6% creditable VAT of P11,027,758.51, withheld and remitted by its
clients. These amounts were deductible from Ironcons total output VAT liability
of P20,073,422.63. Consequently, by the end of 2000 Ironcons actual excess creditable VAT
was P9,332,597.99 only as against its claim for refund of P18,053,715.64.

The CTA held, however, that input VAT payments should first be applied to the reported
output VAT liability. Only after this deduction has been made will the 6% VAT withheld be
applied to the amount of VAT payable. Thus, the excess of P9,332,597.99 mentioned above
represents the excess 6% creditable VAT withheld, not creditable input VAT.

The CTA further ruled that since Ironcon had no more output VAT against which the
excess creditable VAT withheld may be applied or credited, the VAT withheld had been
excessively paid. Thus, the Court ruled that the excess amount may be refunded under Section
204(C) in relation to Section 229 of the NIRC. Before a refund may be granted, however, it
must be shown that the claim was not used or carried over to the succeeding quarters.

Ironcon did not present before the Second Division its VAT returns for the succeeding
quarters of 2001. Without this, the Second Division could not verify whether the tax credit was
applied to output VAT liability in 2001. Thus, the Second Division also denied Ironcons claim
for refund of excess creditable VAT.

Ironcon filed a motion for reconsideration, attaching to it its amended quarterly VAT
returns for 2001. These were marked in open court as Exhibits A-1, B-1, C-1, and D-
1. The CTA promulgated an Amended Decision on July 31, 2006, admitting the exhibits and
ruling that Ironcon sufficiently proved that its excess creditable VAT withheld was not carried
over or applied to any output VAT for 2001. Thus, the Court granted its application for the
refund of unutilized excess creditable VAT ofP9,332,597.99.

Petitioner CIR filed a motion for reconsideration of the amended decision, which the
Second Division denied, prompting the CIR to elevate the matter to the CTA En Bancby way of
a petition for review in CTA EB 235. The CTA En Banc denied the petition in a Decision dated
August 9, 2007. It also denied the CIRs motion for reconsideration, hence, this petition for
review.
[1]

I ssue Presented

Simply put, the only issue the petition raises is whether or not the CTA erred in granting
respondent Ironcons application for refund of its excess creditable VAT withheld.

The Courts Ruling

Respondent Ironcons excess creditable VAT in this case consists of amounts withheld
and remitted to the BIR by Ironcons clients. These clients were government agencies that
applied the 6% withholding rate on their payments to Ironcon pursuant to Section 114 of the
NIRC (prior to its amendment by R.A. 9337). Petitioner CIRs main contention is that, since
these amounts were withheld in accordance with what the law provides, they cannot be regarded
as erroneously or illegally collected as contemplated in Sections 204(C) and 229 of the NIRC.

Petitioner CIR also points out that since the NIRC does not specifically grant taxpayers
the option to refund excess creditable VAT withheld, it follows that such refund cannot be
allowed. Excess creditable VAT withheld is much unlike excess income taxes withheld. In the
latter case, Sections 76 and 58(D) of the NIRC specifically make the option to seek a refund
available to the taxpayer. The CIR submits thus that the only option available to taxpayers in
case of excess creditable VAT withheld is to apply the excess credits to succeeding quarters.

But the amounts involved in this case are creditable withholding taxes, not final taxes
subject to withholding. As the CTA correctly points out, taxes withheld on certain payments
under the creditable withholding tax system are but intended to approximate the tax due from
the payee.
[2]
The withheld taxes remitted to the BIR are treated as deposits or advances on the
actual tax liability of the taxpayer, subject to adjustment at the proper time when the actual tax
liability can be fully and finally determined.
[3]

For the year 2000, Ironcons actual VAT liability payable may be computed as follows:

Output taxes P 20,073,422.63
Less: allowable input taxes P 15,242,271.43
P 4,831,151.20
Less: tax credit (1999) P 3,135,990.69
VAT payable P 1,695,160.51

Respondent Ironcons clients had, however, already withheld and
remitted P11,027,758.51 to the BIR in compliance with Section 114. As stated above, this
withheld amount is to be treated as advance payment for Ironcons VAT liability payable and,
therefore, the difference of P9,332,597.99 should be treated as Ironcons overpaid taxes.

The ruling in Citibank N.A. v. Court of Appeals, while dealing with excessive income
taxes withheld, is also applicable to this case: Consequently and clearly, the tax withheld
during the course of the taxable year, while collected legally under the aforesaid revenue
regulation, became untenable and took on the nature of erroneously collected taxes at the end of
the taxable year.
[4]

Even if the law does not expressly state that Ironcons excess creditable VAT withheld is
refundable, it may be the subject of a claim for refund as an erroneously collected tax under
Sections 204(C) and 229. It should be clarified that this ruling only refers to creditable VAT
withheld pursuant to Section 114 prior to its amendment. After its amendment by R.A. 9337,
the amount withheld under Section 114 is now treated as a final VAT, no longer under the
creditable withholding tax system.
[5]

The rule is that before a refund may be granted, respondent Ironcon must show that it had
not used the creditable amount or carried it over to succeeding taxable quarters. Originally, the
CTAs Second Division said in its January 5, 2006 decision that Ironcons failure to offer in
evidence its quarterly returns for 2001 was fatal to its claim. Ironcon filed a motion for
reconsideration, attaching its 2001 returns, and, at the hearing of the motion, had these returns
marked as Exhibits A-1, B-1, C-1, and D-1. Petitioner CIR argues that these Exhibits
should be deemed inadmissible considering that they were offered only after trial had ended and
should be treated as forgotten evidence.

Citing BPI-Family Savings Bank v. Court of Appeals,
[6]
the CTA ruled that once a claim
for refund has been clearly established, it may set aside technicalities in the presentation of
evidence. Petitioner CIR points out, however, that the present case is not on all fours
with BPI. The latter case dealt with the refund of creditable income taxes withheld, for which
the NIRC specifically grants taxpayers the option to apply for refund of any excess.

But, considering the CTAs finding in the present case that Ironcon had excess creditable
VAT withheld for which it was entitled to a refund, it makes no sense to deny Ironcon the
benefit of the BPI ruling that overlooks technicalities in the presentation of evidence. In BPI,
this Court admitted an exhibit attached to the claimants motion for reconsideration, even if the
claimant submitted it only after the trial.

[The claimant] may have failed to strictly comply with the rules of procedure;
it may have even been negligent. These circumstances, however, should not compel
the Court to disregard this cold, undisputed fact: that [the claimant] x x x could not
have applied the amount claimed as tax credits.
[7]

Substantial justice dictates that the government should not keep money that does not
belong to it at the expense of citizens.
[8]
Since he ought to know the tax records of all
taxpayers, petitioner CIR could have easily disproved the claimants allegations.
[9]
That he
chose not to amounts to a waiver of that right.
[10]
Also, the CIR failed in this case to make a
timely objection to or comment on respondent Ironcons offer of the documents in question
despite an opportunity to do so.
[11]
Taking all these circumstances together, it was sufficiently
proved that Ironcons excess creditable VAT withheld was not carried over to succeeding
taxable quarters.

WHEREFORE, the Court DENIES the petition and AFFIRMS the Court of Tax
Appeals En Bancs decision in CTA EB 235 dated August 9, 2007, its resolution dated October
11, 2007, as well as the amended decision of the Court of Tax Appeals Second Division in
CTA Case 6502 dated July 31, 2006.
SO ORDERED.

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[G.R. NO. 190102 - July 11, 2012]

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