CIR v Sekisui Jushi

Facts
1. Sekisui is a domestic corporation duly organized under the
Philippine laws. It has an office located in a Special Export
Processing Zone in Binan, Laguna.
2. It is engaged in the business of manufacturing, importing,
exporting, buying, selling or dealing in wholesale of goods
such as strapping bands and other packaging materials and
goods of similar nature, and any and all equipment, materials,
supplies used or employed in or related to the manufacture of
the finished products.
3. It is also registered as a VAT taxpayer and paid input taxes for
January 1 to June 30 1997.
4. Respondent, however, filed 2 applications for tax credit/refund
with Center-DOF for the input taxes it has paid claiming that it
should be VAT zero-rated.
5. No action was made by the BIR. This prompted the respondent
to file an action with the CTA within the 2 year prescriptive
period.
6. CIR prayed for the denial of the petition and claims that tax
credit/refund is subject to routinary investigation; that the
collection was made in accordance with the law and that
respondent failed to show that the same was erroneously
collected.
7. CTA rendered that Sekisui is entitled for refund being
registered with PEZA ecozone and claims were duly
substantiated by invoices and official receipts.
8. CA affirmed the decision.
Issue
Whether or not Sekisui is entitled to the tax credit/refund.
Held
Yes. Respondent is entitled to refund. As decided in the case CIR v
Toshiba, an entity registered with the PEZA as an ecozone may be
covered by the VAT system, which may choose between 2 fiscal
incentive schemes;
1. To pay 5% preferential tax rate on its gross income and thus
be exempt from all other taxes including VAT
2. To enjoy an income tax holiday which means income tax
exempt but is not exempt from applicable national revenue
taxes including VAT
It is found by the lower courts that respondent had availed an
income tax holiday. By availing this, the respondent became subject
to VAT. However, because it is located in an ecozone, which is
geographically within the Philippines but deemed separate territory

the sales made are deemed as export sales. These sales are zerorated.
Furthermore, it has been shown that respondent has no output tax,
which could offset the input tax since all its transactions are deemed
export sales and are zero-rated . Therefore the input tax remained
unutilized allowing respond to claim refund for the input tax
previously charged by its suppliers.