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CIR VS. CEBU TOYO CORP.

451 SCRA 447

FACTS
Cebu Toyo Corporation (CTC) is a zone export enterprise registered w/ PEZA. It is also registered w/ BIR
as a VAT taxpayer. As an export enterprise, CTC sells 80% of its products to its mother corporation, the
Japan-based Toyo Lens Corporation (TLC), pursuant to an Agreement of Offsetting. The rest are sold to
various enterprises doing business in the Mactan Export Processing Zone (MEPZ). Both sales are
considered export sales subject to VAT at 0% rate, thus CTC filed its quarterly VAT returns showing a total
input VAT of about P4.5M.

CTC filed a petition for review w/ the CTA. The CTA held that CTC is entitled to the refund. The CA
affirmed.

CIR’s contention: CTC being registered w/ PEZA as an ecozone enterprise is not subject to VAT; and since
CTC’s business is not subject to VAT, the capital goods it purchased are considered not used in a VAT
taxable business & therefore not entitled to a refund of input taxes.

ISSUE
W/N CTC is entitled to the refund.

RULING
YES. Sec. 23 of RA7916 gives a PEZA-registered enterprise the option to choose between 2 fiscal incentive
incentives: (1) pay 5% preferential tax rate on its gross income & thus be exempt from all other taxes,
including VAT; or (2) to enjoy an income tax holiday, in w/c case it is not exempt from applicable national
revenue taxes including VAT.

Both the CA & CTA found that CTC availed of the income tax holiday for 4 years as clearly reflected in its
ITRs. Hence, CTC is not exempt from VAT & it correctly registered itself as a VAT taxpayer. In fine, it is
engaged in taxable1 rather than exempt2 transactions.

In the case at bar, CTC is engaged in the export business & is registered as a VAT taxpayer. While sales of
goods & supply of services performed in the Philippines are taxable at the rate of 10%, export sales or
sales outside the Philippines is subject to VAT at 0% if made by a VAT-registered person. CTC is subject to
VAT as it availed of the income tax holiday. Perforce, CTC is subject to VAT at 0% rate & is entitled to a
refund of credit of the unutilized input taxes.

1
Taxable transactions - those w/c are subject to VAT either at a 10% rate or 0%. In taxable transactions, the seller
shall be entitled to tax credit for the VAT paid on purchases & leases of goods, properties or services.
2
An exemption means that the sale of gods, properties or services & the use/lease or properties is not subject to VAT
(output tax) & the seller is not allowed on tax credit on VAT (input tax) previously paid. The person making the exempt
sale of goods, properties or services shall not bill any output tax to his customers because the said transaction is not
subject to VAT. Thus, a VAT-registered purchaser of goods, properties or services are VAT-exempt, is not entitled to any
input tax on such purchases despite the issuance of a VAT invoice or receipt.

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