CASE DIGEST: 2015 SC TAXATION CASES
January 2015
1.) BANCO DE ORO, ET AL., Petitioners, RIZAL COMMERCIAL BANKING
CORPORATION AND RCBC
CAPITAL CORPORATION, CAUCUS
OF DEVELOPMENT NGO
NETWORKS, Petitioner- Intervenors
VS. REPUBLIC OF THE
PHILIPPINES, THE
COMMISSIONER OF INTERNAL REVENUE, BUREAU OF INTERNAL REVENUE, SECRETARY OF FINANCE, DEPARTMENT OF FINANCE, THE NATIONAL TREASURER AND BUREAU OF TREASURY, Respondents (G.R. No. 198756, January 13, 2015)
FACTS:
By letterdated March 23, 2001,the Caucus of Development NGO Networks (“CODE-NGO”) with the assistance of its financial advisors, Rizal Commercial Banking Corp. ("RCBC"), RCBC Capital Corp. ("RCBC Capital"), CAPEX Finance and Investment Corp. ("CAPEX") and SEED Capital Ventures, Inc. (“SEED”), requested an approval from the Department of Finance for the issuance by the Bureau of Treasury of 10-year zero-coupon Treasury Certificates (T-notes). The T-notes would initially be
purchased by a special purpose vehicle on behalf of CODE-NGO, repackaged and sold at a premium to investors as the PEACe Bonds. The net proceeds from the sale of the Bonds will be used to endow a permanent fund (Hanapbuhay® Fund) to finance meritorious
activities and projects of accredited non-government organizations (NGOs) throughout the country. A zero-coupon bond is a bond
bought at a price substantially lower than its face value (or at a deep discount), with the face value repaid at the time of maturity. It does not make periodic interest payments, or have so called "coupons" hence the term zero-coupon bond. However, the discount to face value constitutes the return to the bond holder.
The Bureau of Internal Revenue, in reply to CODE-NGO’s letters dated May 10, 15, and 25, 2001, issued BIR Ruling No. 020-2001on the tax treatment of the proposed PEACe Bonds, it is signed by then Commissioner of Internal Revenue René G. Bañez and confirmed that the PEACe Bonds would not be classified as deposit substitutes and would not be subject to the corresponding withholding tax: Thus, to be classified as "deposit substitutes", the borrowing of funds must be obtained from twenty (20) or more individuals or corporate lenders at any one time. In the light of your representation that the PEACe Bonds will be issued only to one entity, i.e., CODE-NGO, the same shall not be considered as "deposit substitutes" falling within the purview of the above definition. Hence, the withholding tax on deposit substitutes will not apply. Meanwhile, in the memorandum
dated July 4, 2001, Former Treasurer Eduardo Sergio G. Edeza (Former Treasurer Edeza) questioned the propriety of issuing the bonds directly to a special purpose vehicle considering that the
latter was not a Government Securities Eligible Dealer (GSED). Former Treasurer Edeza recommended that the issuance of the Bonds "be done through the Automated Debt Auction Processing System (ADAPS)" and that CODE-NGO should get a GSED to bid in [sic] its behalf. The Bureau of Treasury announced
that "P30.0B worth of 10-year Zero [-] Coupon Bonds [would] be auctioned on October 16, 2001”. The notice stated that the Bonds shall be issued to not more than 19 buyers/lenders. The Auction Guidelines reiterated that the Bonds to be auctioned are "[n]ot subject to 20% withholding tax as the issue will be limited to a maximum of 19 lenders in the primary market” (pursuant to BIR Revenue Regulation No. 020 2001). After the auction, RCBC which participated on behalf of CODE-NGO was declared as the winning bidder having tendered the lowest bids. Accordingly, on October 18, 2001, the Bureau of Treasury issued P35 billion worth of Bonds at yield-to-maturity of 12.75% to RCBC for approximately P10.17 billion, resulting in a discount of approximately P24.83 billion. RCBC Capital entered into an
underwriting Agreement with CODE-NGO, whereby RCBC Capital was appointed as the Issue Manager and Lead Underwriter for the offering of the PEACe Bonds. RCBC Capital sold the Government Bonds in the secondary market for
an issue price
of P11,995,513,716.51. Petitioners purchased the PEACe Bonds on different dates.
The Bureau of Internal Revenue, citing three (3) of its rulings rendered in 2004 and 2005, namely: BIR Ruling No. 007-04dated July 16, 2004; BIR Ruling No. DA-491-04dated September 13, 2004; and BIR Ruling No. 008-05dated July 28, 2005, declared the following: The Php 24.3 billion discount on the issuance of the PEACe Bonds should be subject to 20% Final Tax on interest income from deposit substitutes. It is now settled that all treasury bonds (including PEACe Bonds), regardless of the number of purchasers/lenders at the time of origination/issuance are considered deposit substitutes. In the case of zero-coupon bonds, the discount (i.e. difference between face value and purchase price/discounted value of the bond) is treated as interest income of the purchaser/holder. Thus, the Php 24.3 interest income should have been properly subject to the 20% Final Tax as provided in Section 27(D)(1) of the Tax Code of 1997. On October 17, 2011, replying to an
urgent query from the Bureau of Treasury, the Bureau of Internal Revenue issued BIR Ruling No. DA 378-2011 clarifying that the final withholding tax due on the discount or interest earned on the PEACe Bonds should "be imposed and withheld not only on RCBC/CODE NGO but also [on] ‘all subsequent holders of the Bonds.’"Also on the same date, petitioners filed a petition for certiorari, prohibition, and/or mandamus (with urgent application for a temporary restraining order and/or writ of preliminary injunction) before this court.
October 18, 2011, this court issued a temporary restraining order (TRO) "enjoining the
implementation of BIR Ruling No. 370-2011 against the [PEACe Bonds,] subject to the condition that the 20% final withholding tax on interest income there from shall be withheld by the petitioner banks and placed in escrow pending resolution of [the] petition."
On October 28, 2011, RCBC and RCBC Capital filed a motion for leave of court to intervene and to admit petition-in-intervention dated October 27, 2011, which was granted by this court on November 15, 2011.
On November 27, 2012, petitioners filed their "Manifestation with Urgent Reiterative Motion” to direct respondents to comply with the Temporary Restraining Order.
ISSUE:
Whether or not the PEACe Bonds are "deposit substitutes" and thus subject to 20% final withholding tax under the 1997 National Internal Revenue Code? Related to this question is the interpretation of the phrase "borrowing from twenty (20) or more individual or corporate lenders at any one time" under Section 22(Y) of the 1997 National Internal Revenue Code, particularly on whether the reckoning of the 20 lenders includes trading of the bonds in the secondary market.
RULING:
The Court ordered the Bureau of Treasury (“BTr”) to immediately release and pay to the eight (8) redeeming bondholders of the PEACEBONDS, the amount corresponding to 20% final withholding tax (“FWT”) that was withheld by the BTr upon the redemption of the bonds pursuant to BIR Ruling No. 370-2011 (“PEACEBOND Ruling”).
The salient points of the Decision are as follows:
1. The PEACEBOND Ruling which held that all treasury bonds are deposit substitutes is erroneous. The tax ruling disregards the 20-lender rule requirement before a borrowing may be considered a “public borrowing”, hence amounting to the issuance of a deposit substitute. 2. The gains referred to in Section 32
(B) (7) (g) of the Tax Code does not include interest which represents forebearance for the use of money. The said gains are (i) gains realized from trading of the bonds before their maturity date and (ii) the redemption gains of the last bondholder who acquired the bond at the secondary trading. The gains of the last bondholders of the PEACEBONDS on redemption, thereof, are “redemption gains” and not interest income.
3. The phrase “at any one time” in the below quoted definition of a deposit substitute in Section 22 (Y) of the Tax Code cannot be given a restrictive meaning. Section 22 (Y) states:
“The term 'deposit substitutes' shall mean an alternative form of obtaining funds from the public (the term 'public' means borrowing from twenty (20) or more individual or corporate lenders at any one time), other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or purchasing of receivables and other obligations, or financing their own needs or the needs of their agent or dealer.”
The phrase “at any one time” applies to the primary and secondary market of debt instruments.
4. It may not be concluded that the PEACEBONDS had been issued to one singular lender (underwriter)
because the underwriting agreement and term sheet of the underwriter reflected that there were several undisclosed number of investors to whom the PEACEBONDS were distributed.
5. Should it be found that the
underwriter sold the
PEACEBONDS to more than 20 lenders, the ten-year prescriptive period for making an assessment under Section 222 of the Tax Code, and not the general three-year prescriptive period, shall apply. In such case, the appropriate FWT on the interest income may still be
collected from the
underwriter/lender.
QUESTIONS: a.) Based on the case, what
is the nature of the ‘deposit substitutes’? Cite your legal basis.
b.) If in case the underwriter sold the PEACe Bonds to more than 20 lenders, what prescriptive period for making a tax assessment should be followed under Section 222 of NIRC? Explain your answer.
2.) REPUBLIC OF THE PHILIPPINES represented by the COMMISSIONER OF INTERNAL REVENUE, Petitioner VS.
TEAM (PHILS.) ENERGY
CORPORATION (formerly MIRANT
(PHILS.) ENERGY CORPORATION), Respondent (G.R. No. 188016, January 14, 2015) FACTS: Respondent, a domestic corporation, is primarily engaged in the business of developing, designing, constructing, erecting, assembling, commissioning, owning, operating, maintaining, rehabilitating, and managing
gas turbine and other power generating plants and related facilities for conversion into electricity, coal, distillate and other fuel provided by and under contract with the Government, or any subdivision, instrumentality or agency thereof, or any government-owned or controlled corporations or any entity engaged in the development, supply or distribution of energy. The respondent filed its annual income tax return (ITR) for calendar years 2002 and 2003 on April 15, 2003 and April 15, 2004, respectively, reflecting overpaid income taxes or excess creditable withholding taxes in the amounts of P6,232,003.00 and P10,134,410.00 for taxable years 2002 and 2003, respectively.
On March 22, 2005, the respondent filed an administrative claim for refund or issuance of tax credit certificate with the Bureau of Internal Revenue (BIR) in the total amount of P16,366,413.00, representing the overpaid income tax or the excess creditable withholding tax of the respondent for calendar years 2002 and 2003.
Due to the inaction of the BIR and in order to toll the running of the two-year prescriptive period for claiming a refund under Section 229 of the National Internal Revenue Code (NIRC) of 1997, the respondent filed a petition for review in the Court of Tax Appeals (CTA) on April 14, 2005. On May 15, 2008, the CTA in Division
rendered its decision in favor of the respondent. It ordered the petitioner to refund or to issue a tax credit certificate in favor of the respondent. The CTA in Division found that the respondent had signified in its ITRs for the same years its intent to have its excess creditable tax withheld for calendar years 2002 and 2003 be refunded, and that the respondent’s administrative and judicial claims for refund had been timely filed within the two-year prescriptive period under Section 204 (C) in relation to Section 229 of the NIRC
The petitioner then filed a motion for reconsideration, but the CTA in Division denied the motion on September 5, 2008. The petitioner brought a petition for review before the CTA En Banc. On April 15, 2009, the CTA En Banc rendered a decision dismissing the Petition for Review.
The petitioner asserts the necessity of submission of the quarterly return of the respondent to prove its entitlement to the refund pursuant to Sec. 76 of the NIRC because such quarterly returns would establish the correctness of the total amount of payments made and the taxes due as reported on the adjusted return at the end of the year. Petitioner has brought this appeal.
“Section 76. Final Adjusted Return- Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar of fiscal year. If the sum of the quarterly tax payments made during the said
taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: (A) Pay the balance of the tax still due; or
(B) Carry over the excess credit; or (C) Be credited or refunded withthe excess amount paid, as the case may be.”
ISSUE:
Whether or not the respondent proved it’s entitlement to the refund?
RULING:
The court denied the petition for review on certiorari.
The requirements for entitlement of a corporate taxpayer for a refund or the issuance of tax credit certificate involving excess withholding taxes are as follows:
1. That the claim for refund was filed within the two-year reglementary period pursuant to Section 229 of the NIRC;
2. When it is shown on the ITR that the income payment received is being declared part of the taxpayer’s gross income; and
3. When the fact of withholding is established by a copy of the withholding tax statement, duly issued by the payor to the payee, showing the amount paid and income tax withheld from that amount.
The court do not expound anymore on the first requirement because even the petitioner does not contest that the respondent filed its administrative and
judicial claim for refund within the statutory period.
With regard to the second requirement, it is fundamental that the findings of fact by the CTA in Division are not to be disturbed without any showing of grave abuse of discretion considering that the members of the Division are in the best position to analyze the documents presented by the parties.Consequently, we adopt the findings of the CTA in Division, which the CTA En Banc cited, as follows:
“that the total amount of Creditable Withholding Tax per Annual ITRs for calendar years ended December 31, 2002 and December 31, 2003 agrees with the total amount of Creditable Withholding Tax presented on petitioner’s Schedule of Creditable Withholding Tax Certificates for the calendar years ended December 31, 2002 and December 31, 2003.”
With respect to the third requirement, the respondent proved that it had met the requirement by presenting the 10 certificates of creditable taxes withheld at source. The petitioner did not challenge the respondent’s compliance with the requirement.
When the respondent was able to establish prima facie its right to the refund by testimonial and object evidence, the petitioner should have presented rebuttal evidence to shift the burden of evidence back to the respondent. Indeed, the petitioner ought to have its own copies of the respondent’s quarterly returns on file, on the basis of which it could rebut the respondent's claim that it did not carry over its unutilized and excess creditable withholding taxes for the immediately succeeding quarters. The BIR's failure to present such vital document during the trial in order to bolster the petitioner's contention against the respondent's claim for the tax refund was fatal.
QUESTION: Based on the case, when is
the reckoning of the commencement of the two-year period within which to file a refund or tax credit of erroneously or illegally collected taxes? Cite your legal basis.
3.) ROHM APOLLO SEMICONDUCTOR PHILIPPINES, Petitioner VS. COMMISSIONER OF INTERNAL REVENUE, Respondent (G.R. No. 168950, January 14, 2015)
FACTS:
Petitioner (Rohm Apollo) is a domestic corporation registered with the Securities and Exchange Commission. It is also registered with the Philippine Economic Zone Authority as an Ecozone Export Enterprise. Petitioner is in the business of manufacturing semiconductor products, particularly microchip transistors and tantalium capacitors. Further, it is registered with the Bureau of Internal Revenue (BIR) as a value-added taxpayer.
Sometime in June 2000, prior to the commencement of its operations on 1 September 2001, Rohm Apollo engaged the services of Shimizu Philippine Contractors, Inc. (Shimizu) for the construction of a factory. For services rendered by Shimizu, petitioner made initial payments of P198,551,884.28 on 7 July 2000 and P132,367,923.58 on 3 August 2000.
Petitioner treated the payments as capital goods purchases and thus filed with the BIR an administrative claim for the refund or credit of accumulated unutilized creditable input taxes on 11 December 2000. As the close of the taxable quarter when the purchases were made was 30 September 2000, the
administrative claim was filed well within the two-year prescriptive period.
Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of Internal Revenue (CIR) had a period of 120 days from the filing of the application for a refund or credit on 11 December 2000, or until 10 April 2001, to act on the claim. The waiting period, however, lapsed without any action by the CIR on the claim.
Instead of filing a judicial claim within 30 days from the lapse of the 120-day period on 10 April, or until 10 May 2001, Rohm Apollo filed a Petition for Review with the CTA docketed as CTA Case No. 6534 on 11 September 2002. It was under the belief that a judicial claim had to be filed within the two-year prescriptive period ending on 30 September 2002.
On 27 May 2004, the CTA First Division rendered a Decision denying the judicial claim for a refund or tax credit. The CTA First Division held, among others, that petitioner must have at least submitted its VAT return for the third quarter of 2001, since it was in that period that it began its business operations. The purpose was to verify if indeed petitioner did not carry over the claimed input VAT to the third quarter or the succeeding quarters.
On 14 July 2004, petitioner filed a Motion for Reconsideration, but the tax court stood by its Decision.On 18 January 2005, the taxpayer elevated the case to the CTA En Banc via a Petition for Review.On 22 June 2005, the CTA En Banc rendered its Decision denying Rohm Apollo’s Petition for Review. Petitioner filed this Rule 45 Petition, arguing that it has satisfied
all the legal requirements for a valid claim for refund or tax credit of unutilized input VAT.
ISSUE:
Whether or not the CTA acquired jurisdiction over the claim for the refund or tax credit of unutilized input VAT?
RULING:
The court denied the Petition on the ground that the petitioner’s judicial claim for a refund/tax credit was filed beyond the prescriptive period.
Section 112(D) of the 1997 Tax Code states the time requirements for filing a judicial claim for the refund or tax credit of input VAT. The legal provision speaks of two periods: the period of 120 days, which serves as a waiting period to give time for the CIR to act on the administrative claim for a refund or credit; and the period of 30 days, which refers to the period for filing a judicial claim with the CTA. It is the 30-day period that is at issue in this case.
The landmark case of Commissioner of Internal Revenue v. San Roque Power Corporation has interpreted Section 112 (D). The Court held that the taxpayer can file an appeal in one of two ways: (1) file the judicial claim within 30
days after the Commissioner denies the claim within the 120-day waiting period, or (2) file the judicial claim within 30 days from the expiration of the 120-day period if the Commissioner does not act within that period.
On 11 December 2000, petitioner filed with the BIR an application for the refund or credit of accumulated unutilized creditable input taxes. Thus, the CIR had a period of 120 days from 11 December 2000, or until 10 April 2001, to act on the claim. It failed to do so, however. Rohm
Apollo should then have treated the CIR’s inaction as a denial of its claim. Petitioner would then have had 30 days, or until 10 May 2001, to file a judicial claim with the CTA. But Rohm Apollo filed a Petition for Review with the CTA only on 11 September 2002. The judicial claim was thus filed late.
Justice Carpio stated: “The old rule
that the taxpayer may file the judicial claim, without waiting for the Commissioner's decision if the two-year prescriptive period is about to expire, cannot apply because that rule was adopted before the enactment of the 30-day period. The 30-day period was adopted precisely to do away with the old rule, so that under the VAT System the taxpayer will always have 30 days to file the judicial claim even if the Commissioner acts only on the 120th day, or does not act at all during the 120-day period. With the 30-day period always available to the taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of input VAT without waiting for the Commissioner to decide until the expiration of the 120-day period. The 30-day period to appeal is mandatory and jurisdictional.”
As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. The only exception to the general rule is when BIR Ruling No. DA-489-03 was still in force, that is, between 10 December 2003 and 5 October 2010, The BIR Ruling excused premature filing, declaring that the taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review.
Premature filing is allowed for cases falling during the time when BIR Ruling No. DA-489-03 was in force; nevertheless, late filing is absolutely prohibited even for cases falling within that period. The petitioner filed its judicial claim with the CTA on 11 September 2002. This was before the issuance of BIR Ruling No.
DA-489-03 on 10 December 2003. Thus, Rohm Apollo could not have benefited from the BIR Ruling. Besides, its situation was not a case of premature filing of its judicial claim but one of late filing. To repeat, its judicial claim was filed on 11 September 2002 – long after 10 May 2001, the last day of the 30-day period for appeal. The case thus falls under the general rule – the 30-day period is mandatory and jurisdictional.
Hence, the CTA lost jurisdiction over Rohm Apollo’s claim for a refund or credit.
QUESTIONS: a.) What is the general rule
with regard to the 30-day period to appeal after the Commissioner denies the claim within the 120-day waiting period or from the expiration of the 120-day period if the Commissioner does not act within that period? Cite your legal basis.
b.) If in case the taxpayer claiming for a tax refund seek judicial relief by filing a Petition for Review with the Court of Tax Appeals without waiting for the lapse of the 120-day period, will the Court of Tax Appeals acquire jurisdiction? Explain your answer.
4.) CBK POWER COMPANY
LIMITED, Petitioner VS. COMMISSIONER OF INTERNAL REVENUE, Respondent (G.R. Nos. 193383-84, January 14, 2015)
COMMISSIONER OF INTERNAL REVENUE, Petitioner VS. CBK
POWER COMPANY
LIMITED, Respondent (G.R. Nos. 193407-08)
FACTS:
CBK Power is a limited partnership duly organized and existing under the laws of the Philippines, and primarily engaged in the development and operation of the Caliraya, Botocan, and Kalayaan
hydro electric power generating plants in Laguna (CBK Project). To finance the CBK Project, CBK
Power obtained in August 2000 a syndicated loan from several foreign banks, i.e., BNP Paribas, Dai-ichi Kangyo Bank, Limited, Industrial Bank of Japan, Limited, and Societe General (original lenders), acting through an Inter-Creditor Agent, Dai-ichi Kangyo Bank, a Japanese bank that subsequently merged with the Industrial Bank of Japan, Limited (Industrial Bank of Japan) and the Fuji Bank, Limited (Fuji Bank), with the merged entity being named as Mizuho Corporate Bank (Mizuho Bank). One of the merged banks, Fuji Bank, had a branch in the Philippines, which became a branch of Mizuho Bank as a result of the merger.
Certain portions of the loan were subsequently assigned by the original lenders to various other banks, including Fortis Bank (Nederland) N.V. (Fortis-Netherlands) and Raiffesen Zentral Bank Osterreich AG (Raiffesen Bank). Fortis-Netherlands, in turn, assigned its portion of the loan to Fortis Bank S.A./N.V. (Fortis-Belgium), a resident of Belgium. Fortis Netherlands and Raiffesen Bank, on the other hand, are residents of Netherlands and Austria, respectively.
In February 2001, CBK Power borrowed money from Industrial Bank of Japan, Fortis-Netherlands, Raiffesen Bank, Fortis-Belgium, and Mizuho Bank for which it remitted interest payments from May 2001 to May 2003.It allegedly withheld final taxes from said payments based on the following rates, and paid the same to the Revenue District Office No. 55 of
the Bureau of Internal Revenue (BIR): (a) fifteen percent (15%) for Fortis-Belgium, Fortis-Netherlands, and Raiffesen Bank; and (b) twenty percent (20%) for Industrial Bank of Japan and Mizuho Bank.
BANK COUNTRY OF RESIDENC E PREFERENTIA L RATE UNDER THE RELEVANT TAX TREATY Fortis Bank S.A./N.V. Belgium 10% (Article 11[1], RP-Belgium Tax Treaty) Industrial Bank of Japan Japan 10% (Article 11[3], RP-Japan Tax Treaty) Raiffesen Zentral Bank Osterreic h AG Austria 10% (Article 11[3], RP-Japan Tax Treaty) Mizuho Corporate Bank Japan 10% (Article 11[3], RP-Japan Tax Treaty) On April 14, 2003, CBK Power filed a claim for refund of its excess final withholding taxes allegedly erroneously withheld and collected for the years 2001 and 2002 with the BIR Revenue Region No. 9. The claim for refund of excess final withholding taxes in 2003 was subsequently filed on March 4, 2005.
CTA Case No. 6699 was filed by CBK Power on June 6, 2003 seeking the refund of excess final withholding tax in the total amount of P6,393,267.20 covering the year 2001 with respect to interest income derived by [Fortis-Belgium], Industrial Bank of Japan, and [Raiffesen Bank].
CTA Case No. 6884 was filed by CBK Power on March 5, 2004 seeking for the refund of the amount of P8,136,174.31 covering the year 2002 with respect to interest income derived by [Fortis- Belgium],
Industrial Bank of Japan, [Mizuho Bank], and [Raiffesen Bank]. CTA Case No. 7166 was filed by
CBK [Power] on March 9, 2005 seeking for the refund of [the amount of] P1,143,517.21covering the year 2003 with respect to interest income derived by [Fortis Belgium], and [Raiffesen Bank]. CTA Case Nos. 6699 and 6884 were
consolidated first on June 18, 2004. Subsequently, however, all three cases – CTA Case Nos. 6699, 6884, and 7166 – were consolidated in a Resolution dated August 3, 2005. The CTA First Division Rulings:
In a Decision dated August 28, 2008, the CTA First Division granted the petitions and ordered the refund of the amount of 15,672,958.42 upon a finding that the relevant tax treaties were applicable to the case. The CTA First Division categorically declared in the August 28, 2008 Decision that the required International Tax Affairs Division (ITAD) ruling was not a condition sine qua non for the entitlement of the tax relief sought by CBK Power, however, upon motion for reconsideration filed by the Commissioner, the CTA First Division amended its earlier decision by reducing the amount of the refund from P15,672,958.42 to P14,835,720.39 on the ground that CBK Power failed to obtain an ITAD ruling with respect to its transactions with Fortis-Netherlands.
CBK Power elevated the matter to the CTA En Banc on petition for review,docketed as C.T.A E.B. No. 494. The Commissioner likewise filed his own petition for review, which was docketed as C.T.A. E.B.
No. 469. Said petitions were subsequently consolidated.
CBK Power raised the lone issue of whether or not an ITAD ruling is required before it can avail of the preferential tax rate. On the other hand, the Commissioner claimed that CBK Power failed to exhaust administrative remedies when it filed its petitions before the CTA First Division, and that said petitions were not filed within the two-year prescriptive period for initiating judicial claims for refund. The CTA En Banc Ruling: The CTA En Banc affirmed the ruling of the CTA First Division that a prior application with the ITAD is indeed required by Revenue Memorandum Order (RMO) 1-2000, which administrative issuance has the force and effect of law and is just as binding as a tax treaty.
CBK Power’s motion for partial reconsideration and the Commissioner’s motion for reconsideration of the foregoing Decision were both denied in a Resolution dated August 16, 2010 for lack of merit; hence, the present consolidated petitions.
ISSUE:
Whether or not the BIR may add a requirement prior application for an ITAD ruling that is not found in the income tax treaties signed by the Philippines before a taxpayer can avail of preferential tax rates under said treaties?
RULING:
- G.R. Nos. 193383-84: The Court holds that the CTA En Banc committed reversible error in affirming the reduction of the amount of refund to CBK Power from 15,672,958.42 to P14,835,720.39 to exclude its transactions with
Fortis-Netherlands for which no ITAD ruling was obtained. CBK Power’s petition in G.R.
Nos. 193383-84 is therefore granted.
The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000. Logically, noncompliance with tax treaties has negative implications on international relations, and unduly discourages foreign investors. While the consequences sought to be prevented by RMO No. 1-2000 involve an administrative procedure, these may be remedied through other system management processes, e.g., the imposition of a fine or penalty. But we cannot totally deprive those who are entitled to the benefit of a treaty for failure to strictly comply with an administrative issuance requiring prior application for tax treaty relief.
CBK Power could not have applied for a tax treaty relief 15 days prior to its payment of the final withholding tax on the interest paid to its lenders precisely because it erroneously paid said tax on the basis of the regular rate as prescribed by the NIRC, and not on the preferential tax rate provided under the different treaties. As stressed by the Court, the prior application requirement under RMO No. 1-2000 then becomes illogical.
Since CBK Power had requested for confirmation from the ITAD on June 8, 2001 and October 28, 2002before it filed on April 14, 2003 its administrative claim for refund of its excess final withholding taxes, the same should be deemed substantial compliance with RMO No. 1-2000.
- G.R. Nos. 193407-08: The petition
of the Commissioner in G.R. Nos. 193407-08 is denied for lack of merit. CBK Power’s administrative and judicial claims for refund of its excess final withholding taxes covering taxable year 2003 were filed within the two-year prescriptive period.
Commissioner argues that the failure on the part of CBK Power to give him a reasonable time to act on said claim is violative of the doctrines of exhaustion of administrative remedies and of primary jurisdiction. CBK Power maintains that it would be prejudicial to wait for the Commissioner’s ruling before it files its judicial claim since it only has 2 years from the payment of the tax within which to file both its administrative and judicial claims.
DISPOSITIVE: The petition in G.R. Nos. 193383-84 is GRANTED. The Decision dated March 29, 2010 and the Resolution dated August 16, 2010 of the Court of Tax Appeals (CTA) En Banc in C.T.A. E.B. Nos. 469 and 494 are hereby REVERSED and SET ASIDE and a new one entered REINSTATING the Decision of the CTA First Division dated August 28, 2008 ordering the refund in favor of CBK Power Company Limited the amount of Pl5,672,958.42 representing its excess final withholding taxes for the taxable years 2001 to 2003, and the petition in G.R. Nos. 193407-08 is DENIED for lack of merit.
5.) PANAY POWER CORPORATION (formerly AVON RIVER POWER HOLDINGS
CORPORATION), Petitioner VS. COMMISSIONER OF INTERNAL REVENUE, Respondent (G.R. No. 203351, January 21, 2015)
FACTS:
Petitioner is a domestic corporation organized and existing under and by virtue of Philippine laws, it is engaged in the business of acquiring, holding, owning, and operating power generation assets for lighting and power purposes and whole selling the electric power to the National Power Corporation, private electric utilities and electric cooperatives, and for the carrying on of all business incident thereto. On January 26, 2004, petitioner
filed its quarterly VAT returnfor the fourth quarter of 2003. Subsequently, petitioner filed two (2) amendments to its quarterly
VAT return for the said period on January 28, 2005 and January 19, 2006, respectively, with the latter amendment reflecting a total unutilized input VAT amounting to P14,122,347.21. According to petitioner, the aforesaid amount pertains to the input VAT that it paid on its purchases of capital goods and services consisting of power generation assets located in Iloilo City which input VAT have not been utilized against any output VAT liability for the fourth quarter of 2003 or even for subsequent quarters.
On December 29, 2005, petitioner filed an administrative claim for refund/credit of its unutilized input VAT in the amount of P14,122,347.21 before the Revenue District Office No. 51 of the BIR. Thereafter, on January 20, 2006, petitioner filed a judicial claim for tax refund/credit by way of a petition for review before the CTA, docketed as CTA Case No. 7402. The CTA Division denied
petitioner’s claim for tax refund/credit for lack of merit.The CTA Division found that while petitioner presented the testimony of its Senior Accounting Manager stating that the subject purchases were for capital goods and services which were capitalized and reflected in petitioner’s books as depreciable assets, it nevertheless failed to submit any evidence to corroborate the same since petitioner did not submit its books of accounts and audited financial statements for the calendar year 2003.
The CTA Division, in an Amended Decision denied petitioner’s motion for reconsideration and dismissed its claim for tax refund/credit outright on a different ground. It
found that petitioner filed its judicial claim for tax refund/credit on January 20, 2006, or a mere 22 days after it filed its administrative claim on December 29, 2005.The CTA Division held that the observance of the 120-day period provided under Section 112 (D) of the National Internal Revenue Code (NIRC) is mandatory and jurisdictional to the filing of a judicial claim for tax refund/credit, thus concluding that petitioner’s judicial claim for tax refund/credit must be dismissed for being prematurely filed.
The CIR appealed to the CTA En Banc. The CTA En Banc affirmed the Amended Decision of the CTA Division.
ISSUE:
Whether or not the CTA En Banc correctly affirmed the CTA Division’s outright dismissal of petitioner’s claim for tax refund/credit on the ground of prematurity?
RULING:
The petition is partly meritorious. In the Aichi case cited by both the CTA Division and the CTA En Banc, the Court held that the observance of the 120-day period is a mandatory and jurisdictional requisite to the filing of a judicial claim for refund before the CTA. Consequently, its non-observance would lead to the dismissal of the judicial claim on the ground of lack of jurisdiction.
In CIR v. San Roque Power Corporation (San Roque), the Court recognized an exception to the mandatory and jurisdictional nature of the 120-day period. It ruled that BIR Ruling No.
DA-489-03 dated December 10, 2003 provided a valid claim for equitable estoppel under Section 246 of the NIRC. In essence, the aforesaid BIR Ruling stated that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review."
Recently, in Taganito Mining Corporation v. CIR, the Court reconciled the pronouncements in the Aichi and San Roque cases in the following manner: Reconciling the pronouncements in the Aichi and San Roque cases, the rule must therefore be that during the period December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010 (when the Aichi case was promulgated), taxpayers-claimants need not observe the 120-day period before it could file a judicial claim for refund of excess input VAT before the CT A. Before and after the aforementioned period (i.e., December 10, 2003 to October 6, 2010), the observance of the 120-day period is mandatory and jurisdictional to the filing of such claim.
In this case, records disclose that petitioner filed its administrative and judicial claims for refund/credit of its input VAT on December 29, 2005 and January 20, 2006, respectively, or during the period when BIR Ruling No. DA-489-03 was in place, i.e., from December 10, 2003 to October 6, 2010. As such, it need not wait for the expiration of the 120-day period before filing its judicial claim before the CTA, and hence, is deemed timely filed. In view of the foregoing, the CTA En Banc
erred in dismissing outright petitioner's claim on the ground of prematurity.
The Court is not inclined to grant outright petitioner's claim of tax refund/credit in the amount of P14,122,347.21 representing unutilized input VAT for the fourth quarter of 2003. This is because the determination of petitioner's entitlement to such claim would
necessarily involve questions of fact, which are not reviewable and cannot be passed upon by the Court in the exercise of its power to review under Rule 45 of the Rules of Court.Hence, the Court deems it prudent
to remand the case to the CTA Division for resolution of the instant case on the merits.
QUESTION: What are the administrative
remedies available to a taxpayer in order to claim refund/credit of its unutilized input VAT? Cite your legal basis.
6.) WINEBRENNER & IÑIGO
INSURANCE BROKERS,
INC., Petitioner VS. COMMISSIONER OF INTERNAL REVENUE, Respondent (G.R. No. 206526, January 28, 2015)
FACTS:
On April 15, 2004, petitioner filed its Annual Income Tax Return for CY 2003.
About two years thereafter or on April 7, 2006, petitioner applied for the administrative tax credit/refund claiming entitlement to the refund of its excess or unutilized creditable withholding tax (CWT) for CY 2003, by filing BIR Form No. 1914 with the Revenue District Office No. 50 of the Bureau of Internal Revenue (BIR).
There being no action taken on the said claim, a petition for review was filed by petitioner before the CTA on April 11, 2006. The case was docketed as CTA Case No. 7440 and was raffled to the Special First Division (CTA Division). CTA Division partially granted petitioner’s claim for refund of excess and unutilized CWT for CY
2003 in the reduced amount of P2,737,903.34 in its April 13, 2010 Decision(original decision). On July 27, 2011, the CTA-Division
reversed itself. In an Amended Decision, it denied the entire claim of petitioner. It reasoned out that petitioner should have presented as evidence its first, second and third quarterly Income Tax Returns (ITRs) for the year 2004 to prove that the unutilized CWT being claimed had not been carried over to the succeeding quarters.
Petitioner elevated the case to the CTA En Banc praying for the reversal of the Amended Decision of the CTA Division. The CTA-En Banc affirmed the Amended Decision of the CTA-Division. It stated that before a cash refund or an issuance of tax credit certificate for unutilized excess tax credits could be granted, it was essential for petitioner to establish and prove, by presenting the quarterly ITRs of the succeeding years, that the excess CWT was not carried over to the succeeding taxable quarters considering that the option to carry over in the succeeding taxable quarters could not be modified in the final adjustment returns (FAR), because petitioner did not present the first, second and third quarterly ITRs for CY 2004, despite having offered and submitted the Annual ITR/FAR for the same year, the CTA-En Banc stated that the petitioner failed to discharge its burden, hence, no refund could be granted.
ISSUE:
Whether or not the submission and presentation of the quarterly ITRs of the succeeding quarters of a taxable year is indispensable in a claim for refund?
RULING:
CIR is ordered to REFUND to petitioner the amount of P2,737,903.34 as excess creditable withholding tax paid for taxable year 2003. The April 13, 2010 Decision of the Court of Tax Appeals Special First Division is REINSTATED.
A taxpayer who seeks a refund of excess and unutilized CWT must:
1) File the claim with the CIR within the two year period from the date of payment of the tax;
2) Show on the return that the income received was declared as part of the gross income; and 3) Establish the fact of withholding by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld.
The irrevocability rule under Section 76 of the NIRC means that once an option, either for refund or issuance of tax credit certificate or carry-over of CWT has been exercised, the same can no longer be modified for the succeeding taxable years. The fact of having carried over petitioner’s 2003 excess credits to succeeding taxable year is in issue. According to the CTA-En Banc and the CIR, the only evidence that can sufficiently show that carrying over has been made is to present the quarterly ITRs. Some members of this Court adhere to the same view. The Court however cannot.
Proving that no carry-over has been made does not absolutely require the presentation of the quarterly ITRs.
Requiring that the ITR or the FAR of the succeeding year be presented to the
BIR in requesting a tax refund has no basis in law and jurisprudence.
Section 76 of the Tax Code does not mandate it. The law merely requires the filing of the FAR for the preceding – not the succeeding – taxable year. Indeed, any refundable amount indicated in the FAR of the preceding taxable year may be credited against the estimated income tax liabilities for the taxable quarters of the succeeding taxable year. However, nowhere is there even a tinge of a hint in any provisions of the [NIRC] that the FAR of the taxable year following the period to which the tax credits are originally being applied should also be presented to the BIR. What Section 76 requires, just like in all civil cases, is to prove the prima facie entitlement to a claim, including the fact of not having carried over the excess credits to the subsequent quarters or taxable year. It does not say that to prove such a fact, succeeding quarterly ITRs are absolutely needed.
The absence of any amount written in the Prior Year excess Credit – Tax Withheld portion of petitioner’s 2004 annual ITR clearly shows that no prior excess credits were carried over in the first four quarters of 2004. And since petitioner was able to sufficiently prove that excess tax credits in 2003 were not carried over to taxable year 2004 by leaving the item "Prior Year’s Excess Credits" as blank in its 2004 annual ITR, then petitioner is entitled to a refund. Unfortunately, the CTA, in denying entirely the claim, merely relied on the absence of the quarterly ITRs despite being able to verify the truthfulness of the declaration that no carry over was indeed effected by simply looking at the 2004 annual ITR.
Verily, with the petitioner having complied with the requirements for refund, and without the CIR showing contrary evidence other than its bare assertion of the absence of the quarterly ITRs, copies of which are easily verifiable by its very own
records, the burden of proof of establishing the propriety of the claim for refund has been sufficiently discharged. Hence, the grant of refund is proper.
The Court does not, and cannot, however, grant the entire claimed amount as it finds no error in the original decision of the CTA Division granting refund to the reduced amount of P2,737,903.34. This finding of fact is given respect, if not finality, as the CTA, which by the very nature of its functions of dedicating itself exclusively to the consideration of the tax problems has necessarily developed an expertise on the subject.
QUESTIONS: a.) What is the nature of the
“Final Adjustment Return (FAR)”? Cite your legal basis.
b.) What are the two options available for taxpayer to settle his income tax liabilities if there is excess quarterly income tax payments? Explain each option.
c.) Are Income Tax Returns (ITRs) the only evidence that can sufficiently show that carrying over the excess credit has been made? Explain your answer.
February 2015
1.) CHINA BANKING
CORPORATION, Petitioner VS. COMMISSIONER OF INTERNAL REVENUE, Respondent (G.R. No. 172509, February 4, 2015)
FACTS:
Petitioner, China Banking Corporation (CBC) is a universal bank duly organized and existing under the laws of the Philippines. For the taxable years 1982 to 1986, CBC was engaged in transactions involving sales of foreign exchange to the Central Bank of the Philippines (now Bangko Sentral ng Pilipinas), commonly known as
SWAP transactions. Petitioner did not file tax returns or pay tax on the SWAP transactions for those taxable years.
Petitioner received an assessment from the Bureau of Internal Revenue (BIR) finding CBC liable for deficiency documentary stamp tax (DST) on the sales of foreign bills of exchange to the Central Bank.
On 8 May 1989, petitioner, through its vice-president, sent a letter of protest to the BIR. On 6 December 2001, more than 12 years after the filing of the protest, the Commissioner of Internal Revenue (CIR) rendered a decision reiterating the deficiency DST assessment and ordered the payment thereof plus increments within 30 days from receipt of the Decision.
CBC filed a Petition for Review with the CTA. The CTA Second Division denied the Petition of CBC. The CTA ruled that a SWAP arrangement should be treated as a telegraphic transfer subject to documentary stamp tax.
Petitioner appealed to the CTA En Banc. The appellate tax court, however, dismissed the Petition for Review in a Decision dated 1 December 2005. CBC filed a Motion for Reconsideration on 21 December 2005, but it was denied in a 20 March 2006 Resolution. The taxpayer now comes to this Court with a Rule 45 Petition, reiterating the arguments it raised at the CTA level and invoking for the first time the argument of prescription.
ISSUE:
Whether or not the right of the BIR to collect the assessed DST from CBC is barred by prescription?
RULING:
The court grants the Petition on the ground that the right of the BIR to collect the assessed DST is barred by the statute of limitations.
The Bureau of Internal Revenue (BIR) issued the assessment for deficiency DST on 19 April 1989, when the applicable rule was Section 319(c) of the National Internal Revenue Code of 1977, as amended. In that provision, the time limit for the government to collect the assessed tax is set at three years, to be reckoned from the date when the BIR mails/releases/sends the assessment notice to the taxpayer. Further, Section 319(c) states that the assessed tax must be collected by distraint or levy and/or court proceeding within the three-year period.
In this case, the records do not show when the assessment notice was mailed, released or sent to CBC. Nevertheless, the latest possible date that the BIR could have released, mailed or sent the assessment notice was on the same date that CBC received it, 19 April 1989. Assuming therefore that 19 April 1989 is the reckoning date, the BIR had three years to collect the assessed DST. However, the records of this case show that there was neither a warrant of distraint or levy served on CBC's properties nor a collection case filed in court by the BIR within the three-year period.
The attempt of the BIR to collect the tax through its Answer with a demand for CBC to pay the assessed DST in the CTA on 11 March 2002 did not comply with Section 319(c) of the 1977 Tax Code, as amended. The demand was made almost
thirteen years from the date from which the prescriptive period is to be reckoned. Thus, the attempt to collect the tax was made way beyond the three-year prescriptive period.
The running of the statute of limitations was not suspended by the request for reinvestigation.
The fact that the taxpayer in this case may have requested a reinvestigation did not toll the running of the three-year prescriptive period. Section 320 of the 1977 Tax Code states:
“Sec. 320. Suspension of running of statute.—The running of the statute of limitations provided in Sections 318 or 319 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a re-investigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, That if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines.”
A request for reinvestigation alone will not suspend the statute of limitations.
Two things must concur: there must be a request for reinvestigation and the CIR must have granted it. In the present case,
there is no showing from the records that the CIR ever granted the request for reinvestigation filed by CBC. That being
the case, it cannot be said that the running of the three-year prescriptive period was effectively suspended.
In this case, petitioner may have raised the question of prescription only on appeal to this Court. The BIR could have crushed the defense by the mere invocation of the rule against setting up the defense of prescription only at the appeal stage. The government, however, failed to do so. On the contrary, the BIR was silent despite having the opportunity to invoke the bar against the issue of prescription.
A new ruling is entered DENYING respondent's claim for deficiency DST in the amount of P11,383,165.50.
QUESTIONS: a.) What is the nature of the “Documentary Stamp Tax”? Cite your
legal basis.
b.) Who are the persons liable to pay the “Documentary Stamp Tax”? Cite your legal basis.
2.) NIPPON EXPRESS (PHILIPPINES) CORP., Petitioner VS. COMMISSIONER OF INTERNAL REVENUE, Respondent (G.R. No. 185666, February 4, 2015)
FACTS:
As aptly found by the CTA in Division, the factual antecedents of the case are undisputed: Petitioner is registered with the Large Taxpayers District Office of the Bureau of Internal Revenue in Makati City as, among others, a Value-Added Tax (VAT) taxpayer rendering freight forwarding services.
For the calendar year 2000, petitioner’s gross receipts were primarily derived from rendering its services to Philippine Economic Zone Authority (PEZA)-registered
clients. Likewise, it incurred total sales of P1,063,357,608.74. Also, for the same year, petitioner paid input taxes amounting to P31,846,253.57.
The amount of total sales attributable to zero-rated sales would be P24,826,667.61.
Under the premise that it is entitled to a refund of the amount of P24,826,667.61, petitioner filed four separate applications for tax credit/refund with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance (OSSAC-DOF) on September 24, 2001.
Receiving no resolution from OSSAC-DOF, petitioner filed the instant petition for review on April 24, 2002 pursuant to Section 112 in relation to Section 229 of the 1997 Tax Code, as amended
On 15 June 2007, the CTA in Division denied due course and accordingly dismissed petitioner’s claim for the issuance of a TCC on the ground of its failure to comply with the substantiation requirements. It explained that the sales invoices, transfer slips, and credit memos presented in support thereof did not comply with the substantiation requirements provided for under Sections 106, 108, and 113 of the National Internal Revenue Code (NIRC) of 1997, as amended, considering that petitioner’s sales are sales of services which should only be supported by official receipts. Petitioner appealed to the CTA En
Banc by filing a Petition for Review. The CTA En Banc affirmed both the Decision and
Resolution rendered by the CTA in Division in CTA Case No. 6464, pronouncing that although Sections 113 and 237 of the NIRC of 1997, as amended, and Section 4.108-1 of Revenue Regulations (RR) No. 7-95 use the words "invoice" and "receipt" without distinction, nevertheless, the NIRC of 1997, as amended, provides separate provisions, which must be read in relation thereto: Section 106 for VAT on sale of goods or properties, and Section 108 for VAT on sale of services and use or lease of properties. Clearly, the CTA En Banc agreed with the court a quo’s findings that the evidence submitted by petitioner, i.e. sales invoices, transfer slips, credit memos, cargo manifests, and credit notes, as well as formal report of the independent certified public accountant (ICPA), to prove its zero-rated sales, were insufficient so as to entitle it to the issuance of a TCC since the aforesaid legal provisions do not provide for any other document that can be used as an alternative to, or in lieu of an invoice and official receipts.
ISSUE:
Whether or not petitioner is entitled to a tax credit certificate (TCC) in the amount of P24,826,667.61 allegedly representing its excess and unutilized input VAT for the taxable year 2000, in accordance with the provisions of the NIRC of 1997, as amended?
RULING:
The claim for refund is by
prescription BARRED.
Records reveal that the CTA in Division in C.T.A. Case No. 6464 merely focused on the compliance with the substantiation requirements, which
particularly ruled that the evidence submitted by petitioner to prove its zero-rated sales were insufficient so as to entitle it to the issuance of a TCC. The same findings were adopted and affirmed in toto by the CTA En Banc in the assailed 20 August 2008 Decision.
As regards the substantiation requirements, it is worthy to mention that in Kepco Philippines Corporation v. Commissioner of Internal Revenue, the High Court ruled that under the law, a VAT invoice is necessary for every sale, barter or exchange of goods or properties while a VAT official receipt properly pertains to ever; lease of goods or properties, and every sale, barter or exchange of services. In other words, the VAT invoice is the seller's best proof of the sale of the goods or services to the buyer while the VAT receipt is the buyer's best evidence of the payment of goods or services received from the seller. Thus, the High Court concluded that VAT invoice and VAT receipt should not be confused as referring to one and the same thing. Certainly, neither does the law intend the two to be used interchangeably.
Section 112(D) of the NIRC of 1997 categorically states that in case of failure on the part of the respondent to act on the application within the 120-day period prescribed by law, petitioner only has 30 days after the expiration of the 120-day period to appeal the unacted claim with the CTA. Since petitioner’s judicial claim for the aforementioned quarters for taxable year 2000 was filed before the CTA only on 24 April 2002,which was way beyond the mandatory 120+30 days to seek judicial recourse, such noncompliance with the mandatory period of 30 days is fatal to its refund claim on the ground of prescription. The CTA has no jurisdiction over petitioner's judicial appeal considering that its Petition for Review was filed beyond the mandatory 30-day period pursuant to Section 112(D) of the NIRC of 1997, as amended, and consistent with the ruling in the San Roque case. Consequently,
petitioner's instant claim for refund must be denied.
QUESTION: What are the instances when
a taxpayer may claim for refund or tax credit of excess input taxes? Explain each instance.
3.) NORTHERN MINDANAO POWER CORPORATION, Petitioner VS. COMMISSIONER OF INTERNAL REVENUE, Respondent (G.R. No. 185115, February 18, 2015)
FACTS:
Petitioner is engaged in the production sale of electricity as an independent power producer and sells electricity to National Power Corporation (NPC). It allegedly incurred input value-added tax (VAT) on its domestic purchases of goods and services that were used in its production and sale of electricity to NPC. For the 3rd and the 4th quarters of taxable year 1999, petitioner’s input VAT totaled to P2,490,960.29, while that incurred for all the quarters of taxable year 2000 amounted to P3,920,932.55.
Petitioner filed an administrative claim for a refund on 20 June 2000 for the 3rd and the 4th quarters of taxable year 1999, and on 25 July 2001 for taxable year 2000 in the sum of P6,411,892.84.
Alleging inaction of respondent on these administrative claims, petitioner filed a Petition with the CTA on 28 September 2001. The CTA First Division denied the Petition and the subsequent Motion for Reconsideration for lack of merit. The Court in Division found that the term "zero-rated" was not imprinted on the receipts or invoices presented by petitioner in violation
of Section 4.108-1 of Revenue Regulations No. 7-95. Petitioner failed to substantiate its claim for a refund and to strictly comply with the invoicing requirements of the law and tax regulations.
On appeal to the CTA En Banc, the Petition was likewise denied. The court ruled that for every sale of services, VAT shall be computed on the basis of gross receipts indicated on the official receipt. Official receipts are proofs of sale of services and cannot be interchanged with sales invoices as the latter are used for the sale of goods.
ISSUE:
1.) Whether or not the CTA acquired jurisdiction over the claim for a refund of input VAT covering the 3rd and the 4th quarters of taxable year 1999 and on 25 July 2001 covering all the quarters of taxable year 2000?
2.) Whether or not Section 4.108-1 of Revenue Regulations (RR) No. 7-95 which expanded the statutory requirements for the issuance of official receipts and invoices found in Section 113 of the 1997 Tax Code by providing for the additional requirement of the imprinting of the terms “zero-rated” is constitutional?
RULING:
1.) The CTA did not acquire jurisdiction over the claim for a refund of input VAT covering the 3rd and the 4th quarters of taxable year 1999 and taxable year 2000.
Pursuant to Section 112(D) of the NIRC of 1997, CIR had 120 days
from the date of submission of complete documents in support of the application within which to decide on the administrative claim. The burden of proving entitlement to a tax refund is on the taxpayer. Absent any evidence to the contrary, it is presumed that in order to discharge its burden, petitioner attached to its applications complete supporting documents necessary to prove its entitlement to a refund. Thus, the 120-day period for the CIR to act on the administrative claim commenced on 20 June 2000 and 25 July 2001.
Both judicial claims must be disallowed.
* Claim for a refund of input VAT covering
the 3rd and the 4th quarters of taxable year 1999: Counting 120 days from 20 June 2000, the CIR had until 18 October 2000 within which to decide on the claim of petitioner for the period covering the 3rd and the 4th quarters of taxable year 1999. If after the expiration of that period respondent still failed to act on the administrative claim, petitioner could elevate the matter to the court within 30 days or until 17 November 2000.
Petitioner belatedly filed its judicial claim with the CTA on 28 September 2001. Petitioner’s claim for the 3rd and the 4th quarters of taxable year 1999 was filed 319 days after the expiration of the 30-day period. It already lost its right to claim a refund or credit of its alleged excess input VAT attributable to zero-rated or effectively zero-rated sales for the 3rd and the 4th quarters of taxable year 1999 by virtue of its own failure to observe the prescriptive periods.
* Claim for the refund of input VAT covering all quarters of taxable year 2000:
For the year 2000, records show that petitioner filed its Petition with the CTA on 28 September 2001 without waiting for the expiration of the 120-day period. Barely 64 days had lapsed when the judicial claim was filed with the CTA. On 28 September 2001 – the date on which petitioner filed its judicial claim for the period covering taxable year 2000 - the 120+30 day mandatory period was already in the law and BIR Ruling No. DA-489-03 had not yet been issued. Considering this fact, petitioner did not have an excuse for not observing the 120+30 day period. The judicial claim was thus prematurely filed for failure of petitioner to observe the 120-day waiting period.
2.) Revenue Regulations (RR) No. 7-95 is constitutional. In fact, this Court has consistently held as fatal the failure to print the word "zero-rated" on the VAT invoices or official receipts in claims for a refund or credit of input VAT on zero-rated sales, even if the claims were made prior to the effectivity of R.A. 9337. Clearly then, the present Petition must be denied.
A VAT invoice is the seller's best proof of the sale of goods or services to the buyer, while a VAT receipt is the buyer's best evidence of the payment of goods or services received from the seller. A VAT invoice and a VAT receipt should not be confused and made to refer to one and the same thing. Certainly, neither does the law intend the two to be used alternatively.
QUESTIONS: a.) What are the information(s) contained in the VAT invoice or VAT official receipt? Cite your legal basis.
b.) If in case, the taxpayer claiming refund failed to print the needed information in the VAT invoice or VAT official receipt, will it
cause dismissal of the claim? Explain your answer.
March 2015
1.) CARGILL PHILIPPINES, INC., Petitioner VS. COMMISSIONER
OF INTERNAL REVENUE,
Respondent (G.R. No. 203774, March 11, 2015)
FACTS:
Cargill is a domestic corporation duly organized and existing under Philippine laws whose primary purpose is to own, operate, run, and manage plants and facilities for the production, crushing, extracting, or otherwise manufacturing and refining of coconut oil, coconut meal, vegetable oil, lard, margarine, edible oil, and other articles of similar nature and their by-products.
Petitioner filed its quarterly VAT returns for the second quarter of calendar year 2001 up to the third quarter of fiscal year 2003, covering the period April 1, 2001 to February 28, 2003, and, later, its quarterly VAT returns for the fourth quarter of fiscal year 2003 to the first quarter of fiscal year 2005, covering the period March 1, 2003 to August 31, 2004. rgill maintained that said overpayments were due to its export sales of coconut oil, the proceeds of which were paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentralng Pilipinas and, thus, are zero-rated for VAT purposes.
On June 27, 2003, Cargill filed an administrative claim for refund of its unutilized input VAT in the amount of P26,122,965.81 for the period of April 1, 2001 to February
