G.R. No. 178697 November 17, 2010 COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. SONY PHILIPPINES, INC., Respondent.

DECISION MENDOZA, J.: This petition for review on certiorari seeks to set aside the May 17, 2007 Decision and the July 5, 2007 Resolution of the Court of Tax Appeals En Banc1 (CTA-EB), in C.T.A. EB No. 90, affirming the October 26, 2004 Decision of the CTA-First Division2 which, in turn, partially granted the petition for review of respondent Sony Philippines, Inc.(Sony). The CTA-First Division decision cancelled the deficiency assessment issued by petitioner Commissioner of Internal Revenue (CIR) against Sony for Value Added Tax (VAT) but upheld the deficiency assessment for expanded withholding tax (EWT) in the amount of P1,035,879.70 and the penalties for late remittance of internal revenue taxes in the amount of P1,269, 593.90.3 THE FACTS: On November 24, 1998, the CIR issued Letter of Authority No. 000019734 (LOA 19734) authorizing certain revenue officers to examine Sonys books of accounts and other accounting records regarding revenue taxes for"the period 1997 and unverified prior years." On December 6, 1999, a preliminary assessment for 1997 deficiency taxes and penalties was issued by the CIR which Sony protested. Thereafter, acting on the protest, the CIR issued final assessment notices, the formal letter of demand and the details of discrepancies.4 Said details of the deficiency taxes and penalties for late remittance of internal revenue taxes are as follows: DEFICIENCY VALUE -ADDED TAX (VAT) (Assessment No. ST-VAT-97-0124-2000) Basic Tax Due Add: Penalties Interest up to 3-31-2000 Compromise Deficiency VAT Due

Basic Tax Due Add: Penalties Surcharge Interest up to 3-31-2000 Compromise Penalties Due

LATE REMITTANCE OF INCOME PAYMENTS (Assessment No. ST-LR3-97-0128-2000) Basic Tax Due Add: Penalties 25 % Surcharge Interest up to 3-31-2000 Compromise Penalties Due

GRAND TOTAL

7,958,700.00

DEFICIENCY EXPANDED WITHHOLDING TAX (EWT) (Assessment No. ST-EWT-97-0125-2000) Basic Tax Due Add: Penalties Interest up to 3-31-2000 Compromise Deficiency EWT Due

DEFICIENCY OF VAT ON ROYALTY PAYMENTS (Assessment No. ST-LR1-97-0126-2000) Basic Tax Due Add: Penalties Surcharge Interest up to 3-31-2000 Compromise Penalties Due

Sony sought re-evaluation of the aforementioned assessment by filing a protest3,157,314.41 2, 2000. Sony submitted relevant documents in on February P support of its protest on the 16th of that same month.6 On October 24, 2000, within 30 days after the lapse of 180 days from 25,000.00 3,182,314.41 submission of the said supporting documents to the CIR, Sony filed a petition for review before the P 11,141,014.41 CTA.7 After trial, the CTA-First Division disallowed the deficiency VAT assessment because the subsidized advertising expense paid by Sony which was duly covered by a VAT invoice resulted in an input VAT credit. As regards the EWT, the CTA-First Division maintained the deficiency EWT assessment on Sonys motor vehicles and on professional fees paid to general professional partnerships. It also assessed the amounts paid P sales agents as commissions with five to 1,416,976.90 percent (5%) EWT pursuant to Section 1(g) of Revenue Regulations No. 6-85. The CTA-First Division, however, disallowed the EWT assessment on rental expense since it found that the total rental P 550,485.82 deposit of P10,523,821.99 was incurred from January to March 1998 which was again beyond the coverage of LOA 19734. Except for the 25,000.00 575,485.82 compromise penalties, the CTA-First Division also upheld the penalties for the late payment of VAT on 1,992,462.72 late remittance of final royalties, for P withholding tax on royalty as of December 1997 and for the late remittance of EWT by some of Sonys branches.8 In sum, the CTAFirst Division partly granted Sonys petition by cancelling the deficiency VAT assessment but upheld a modified deficiency EWT assessment as well as the penalties. Thus, the dispositive portion reads: WHEREFORE, the petition for review is hereby PARTIALLY GRANTED. Respondent is ORDERED to CANCEL and WITHDRAW the deficiency assessment P value-added tax for 1997 for lack of for merit. However, the deficiency assessments for expanded withholding tax and penalties for late remittance of internal revenue taxes are UPHELD. P 359,177.80 Accordingly, petitioner is DIRECTED to PAY the respondent the deficiency expanded withholding tax in the amount of P1,035,879.70 87,580.34 and the following penalties for late remittance of internal revenue taxes 16,000.00 462,758.14 in the sum ofP1,269,593.90: 1. VAT on Royalty P 462,758.14P 429,242.07 831,428.20 8,923.63 P 1,269,593.90

2. Withholding Tax on Royalty LATE REMITTANCE OF FINAL WITHHOLDING TAX (Assessment No. ST-LR2-97-0127-2000) 3. EWT of Petitioner's Branches Total

Plus 20% delinquency interest from January 17, 2000 until fully paid pursuant to Section 249(C)(3) of the 1997 Tax Code. SO ORDERED.9 The CIR sought a reconsideration of the above decision and submitted the following grounds in support thereof: A. The Honorable Court committed reversible error in holding that petitioner is not liable for the deficiency VAT in the amount of P11,141,014.41; B. The Honorable court committed reversible error in holding that the commission expense in the amount of P2,894,797.00 should be subjected to 5% withholding tax instead of the 10% tax rate; C. The Honorable Court committed a reversible error in holding that the withholding tax assessment with respect to the 5% withholding tax on rental deposit in the amount of P10,523,821.99 should be cancelled; and D. The Honorable Court committed reversible error in holding that the remittance of final withholding tax on royalties covering the period January to March 1998 was filed on time.10 On April 28, 2005, the CTA-First Division denied the motion for reconsideration.1avvphi1 Unfazed, the CIR filed a petition for review with the CTA-EB raising identical issues: 1. Whether or not respondent (Sony) is liable for the deficiency VAT in the amount of P11,141,014.41; 2. Whether or not the commission expense in the amount of P2,894,797.00 should be subjected to 10% withholding tax instead of the 5% tax rate; 3. Whether or not the withholding assessment with respect to the 5% withholding tax on rental deposit in the amount of P10,523,821.99 is proper; and 4. Whether or not the remittance of final withholding tax on royalties covering the period January to March 1998 was filed outside of time.11 Finding no cogent reason to reverse the decision of the CTA-First Division, the CTA-EB dismissed CIRs petition on May 17, 2007. CIRs motion for reconsideration was denied by the CTA-EB on July 5, 2007. The CIR is now before this Court via this petition for review relying on the very same grounds it raised before the CTA-First Division and the CTA-EB. The said grounds are reproduced below: GROUNDS FOR THE ALLOWANCE OF THE PETITION I THE CTA EN BANC ERRED IN RULING THAT RESPONDENT IS NOT LIABLE FOR DEFICIENCY VAT IN THE AMOUNT OF PHP11,141,014.41. II AS TO RESPONDENTS DEFICIENCY EXPANDED WITHHOLDING TAX IN THE AMOUNT OF PHP1,992,462.72: A. THE CTA EN BANC ERRED IN RULING THAT THE COMMISSION EXPENSE IN THE AMOUNT OF PHP2,894,797.00 SHOULD BE SUBJECTED TO A WITHHOLDING TAX OF 5% INSTEAD OF THE 10% TAX RATE. B. THE CTA EN BANC ERRED IN RULING THAT THE ASSESSMENT WITH RESPECT TO THE 5% WITHHOLDING TAX ON RENTAL DEPOSIT IN THE AMOUNT OF PHP10,523,821.99 IS NOT PROPER. III THE CTA EN BANC ERRED IN RULING THAT THE FINAL WITHHOLDING TAX ON ROYALTIES COVERING THE PERIOD JANUARY TO MARCH 1998 WAS FILED ON TIME.12 Upon filing of Sonys comment, the Court ordered the CIR to file its reply thereto. The CIR subsequently filed a manifestation informing the Court that it would no longer file a reply. Thus, on December 3, 2008, the Court resolved to give due course to the petition and to decide the case on the basis of the pleadings filed.13 The Court finds no merit in the petition. The CIR insists that LOA 19734, although it states "the period 1997 and unverified prior years," should be understood to mean the fiscal year ending in March 31, 1998.14 The Court cannot agree. Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax.15 The very provision of the Tax Code that the CIR relies on is

unequivocal with regard to its power to grant authority to examine and assess a taxpayer. SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. (A)Examination of Returns and Determination of tax Due. After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. x x x [Emphases supplied] Clearly, there must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity. As earlier stated, LOA 19734 covered "the period 1997 and unverified prior years." For said reason, the CIR acting through its revenue officers went beyond the scope of their authority because the deficiency VAT assessment they arrived at was based on records from January to March 1998 or using the fiscal year which ended in March 31, 1998. As pointed out by the CTA-First Division in its April 28, 2005 Resolution, the CIR knew which period should be covered by the investigation. Thus, if CIR wanted or intended the investigation to include the year 1998, it should have done so by including it in the LOA or issuing another LOA. Upon review, the CTA-EB even added that the coverage of LOA 19734, particularly the phrase "and unverified prior years," violated Section C of Revenue Memorandum Order No. 43-90 dated September 20, 1990, the pertinent portion of which reads: 3. A Letter of Authority should cover a taxable period not exceeding one taxable year. The practice of issuing L/As covering audit of "unverified prior years is hereby prohibited. If the audit of a taxpayer shall include more than one taxable period, the other periods or years shall be specifically indicated in the L/A.16 [Emphasis supplied] On this point alone, the deficiency VAT assessment should have been disallowed. Be that as it may, the CIRs argument, that Sonys advertising expense could not be considered as an input VAT credit because the same was eventually reimbursed by Sony International Singapore (SIS), is also erroneous. The CIR contends that since Sonys advertising expense was reimbursed by SIS, the former never incurred any advertising expense. As a result, Sony is not entitled to a tax credit. At most, the CIR continues, the said advertising expense should be for the account of SIS, and not Sony.17 The Court is not persuaded. As aptly found by the CTA-First Division and later affirmed by the CTA-EB, Sonys deficiency VAT assessment stemmed from the CIRs disallowance of the input VAT credits that should have been realized from the advertising expense of the latter.18 It is evident under Section 11019 of the 1997 Tax Code that an advertising expense duly covered by a VAT invoice is a legitimate business expense. This is confirmed by no less than CIRs own witness, Revenue Officer Antonio Aluquin.20 There is also no denying that Sony incurred advertising expense. Aluquin testified that advertising companies issued invoices in the name of Sony and the latter paid for the same.21 Indubitably, Sony incurred and paid for advertising expense/ services. Where the money came from is another matter all together but will definitely not change said fact. The CIR further argues that Sony itself admitted that the reimbursement from SIS was income and, thus, taxable. In support of this, the CIR cited a portion of Sonys protest filed before it: The fact that due to adverse economic conditions, Sony-Singapore has granted to our client a subsidy equivalent to the latters advertising expenses will not affect the validity of the input taxes from such expenses. Thus, at the most, this is an additional income of our client subject to income tax. We submit further that our client is not subject to VAT on the subsidy income as this was not derived from the sale of goods or services.22 Insofar as the above-mentioned subsidy may be considered as income and, therefore, subject to income tax, the Court agrees. However, the Court does not agree that the same subsidy should be subject to the 10% VAT. To begin with, the said subsidy termed by the CIR as reimbursement was not even exclusively earmarked for Sonys advertising expense for it was but an assistance or aid in view of Sonys dire or adverse economic conditions, and was only "equivalent to the latters (Sonys) advertising expenses."

Section 106 of the Tax Code explains when VAT may be imposed or exacted. Thus: SEC. 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. Thus, there must be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS and not in payment for goods or properties sold, bartered or exchanged by Sony. In the case of CIR v. Court of Appeals (CA),23 the Court had the occasion to rule that services rendered for a fee even on reimbursement-on-cost basis only and without realizing profit are also subject to VAT. The case, however, is not applicable to the present case. In that case, COMASERCO rendered service to its affiliates and, in turn, the affiliates paid the former reimbursement-on-cost which means that it was paid the cost or expense that it incurred although without profit. This is not true in the present case. Sony did not render any service to SIS at all. The services rendered by the advertising companies, paid for by Sony using SIS dole-out, were for Sony and not SIS. SIS just gave assistance to Sony in the amount equivalent to the latters advertising expense but never received any goods, properties or service from Sony. Regarding the deficiency EWT assessment, more particularly Sonys commission expense, the CIR insists that said deficiency EWT assessment is subject to the ten percent (10%) rate instead of the five percent (5%) citing Revenue Regulation No. 2-98 dated April 17, 1998.24 The said revenue regulation provides that the 10% rate is applied when the recipient of the commission income is a natural person. According to the CIR, Sonys schedule of Selling, General and Administrative expenses shows the commission expense as "commission/dealer salesman incentive," emphasizing the word salesman. On the other hand, the application of the five percent (5%) rate by the CTA-First Division is based on Section 1(g) of Revenue Regulations No. 6-85 which provides: (g) Amounts paid to certain Brokers and Agents. On gross payments to customs, insurance, real estate and commercial brokers and agents of professional entertainers five per centum (5%).25 In denying the very same argument of the CIR in its motion for reconsideration, the CTA-First Division, held: x x x, commission expense is indeed subject to 10% withholding tax but payments made to broker is subject to 5% withholding tax pursuant to Section 1(g) of Revenue Regulations No. 6-85. While the commission expense in the schedule of Selling, General and Administrative expenses submitted by petitioner (SPI) to the BIR is captioned as "commission/dealer salesman incentive" the same does not justify the automatic imposition of flat 10% rate. As itemized by petitioner, such expense is composed of "Commission Expense" in the amount of P10,200.00 and Broker Dealer of P2,894,797.00.26 The Court agrees with the CTA-EB when it affirmed the CTA-First Division decision. Indeed, the applicable rule is Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, which was the applicable rule during the subject period of examination and assessment as specified in the LOA. Revenue Regulations No. 2-98, cited by the CIR, was only adopted in April 1998 and, therefore, cannot be applied in the present case. Besides, the withholding tax on brokers and agents was only increased to 10% much later or by the end of July 2001 under Revenue Regulations No. 6-2001.27 Until then, the rate was only 5%. The Court also affirms the findings of both the CTA-First Division and the CTA-EB on the deficiency EWT assessment on the rental deposit. According to their findings, Sony incurred the subject rental deposit in the amount of P10,523,821.99 only from January to March 1998. As stated earlier, in the absence of the appropriate LOA specifying the coverage, the CIRs deficiency EWT assessment from January to March 1998, is not valid and must be disallowed. Finally, the Court now proceeds to the third ground relied upon by the CIR. The CIR initially assessed Sony to be liable for penalties for belated remittance of its FWT on royalties (i) as of December 1997; and (ii) for the period from January to March 1998. Again, the Court agrees with the CTA-First Division when it upheld the CIR with respect to the royalties for December 1997 but cancelled that from January to March 1998.

The CIR insists that under Section 328 of Revenue Regulations No. 582 and Sections 2.57.4 and 2.58(A)(2)(a)29of Revenue Regulations No. 2-98, Sony should also be made liable for the FWT on royalties from January to March of 1998. At the same time, it downplays the relevance of the Manufacturing License Agreement (MLA) between Sony and Sony-Japan, particularly in the payment of royalties. The above revenue regulations provide the manner of withholding remittance as well as the payment of final tax on royalty. Based on the same, Sony is required to deduct and withhold final taxes on royalty payments when the royalty is paid or is payable. After which, the corresponding return and remittance must be made within 10 days after the end of each month. The question now is when does the royalty become payable? Under Article X(5) of the MLA between Sony and Sony-Japan, the following terms of royalty payments were agreed upon: (5)Within two (2) months following each semi-annual period ending June 30 and December 31, the LICENSEE shall furnish to the LICENSOR a statement, certified by an officer of the LICENSEE, showing quantities of the MODELS sold, leased or otherwise disposed of by the LICENSEE during such respective semi-annual period and amount of royalty due pursuant this ARTICLE X therefore, and the LICENSEE shall pay the royalty hereunder to the LICENSOR concurrently with the furnishing of the above statement.30 Withal, Sony was to pay Sony-Japan royalty within two (2) months after every semi-annual period which ends in June 30 and December 31. However, the CTA-First Division found that there was accrual of royalty by the end of December 1997 as well as by the end of June 1998. Given this, the FWTs should have been paid or remitted by Sony to the CIR on January 10, 1998 and July 10, 1998. Thus, it was correct for the CTA-First Division and the CTA-EB in ruling that the FWT for the royalty from January to March 1998 was seasonably filed. Although the royalty from January to March 1998 was well within the semiannual period ending June 30, which meant that the royalty may be payable until August 1998 pursuant to the MLA, the FWT for said royalty had to be paid on or before July 10, 1998 or 10 days from its accrual at the end of June 1998. Thus, when Sony remitted the same on July 8, 1998, it was not yet late. In view of the foregoing, the Court finds no reason to disturb the findings of the CTA-EB. G.R. No. 178090 February 8, 2010 PANASONIC COMMUNICATIONS IMAGING CORPORATION OF THE PHILIPPINES (formerly MATSUSHITA BUSINESS MACHINE CORPORATION OF THE PHILIPPINES), Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION ABAD, J.: This petition for review puts in issue the May 23, 2007 Decision1 of the Court of Tax Appeals (CTA) en banc inCTA 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 valueadded 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 is invoice-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 taxes7 equal to the input taxes8that 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 purchaserclaimant.1avvphi1 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 VATregistered 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 Revenue16 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 G.R. No. 181136 June 13, 2012 WESTERN MINDANAO POWER CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION SERENO, J.: This is a Petition for Review under Rule 45 seeking the reversal of the 15 November 2007 Decision and 9 January 2008 Resolution of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 272, 1 which upheld the Court of Tax Appeals Second Divisions denial of the Petition for refund of unutilized input Value Added Tax (VAT) on the ground that the Official Receipts of petitioner Western Mindanao Power Corporation (WMPC) did not contain the phrase "zero-rated," as required under Revenue Regulations No. 7-95 (RR 7-95). Petitioner WMPC is a domestic corporation engaged in the production and sale of electricity. It is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer. Petitioner alleges that it sells electricity solely to the National Power Corporation (NPC), which is in turn exempt from the payment of all forms of taxes, duties, fees and imposts, pursuant to Section 132 of Republic Act (R.A.) No. 6395 (An Act Revising the Charter of the National Power Corporation). In view thereof and pursuant to Section 108(B) (3) of the National Internal Revenue Code (NIRC),3 petitioners power generation services to NPC is zero-rated. Under Section 112(A) of the NIRC,4 a VAT-registered taxpayer may, within two years after the close of the taxable quarter, apply for the issuance of a tax credit or refund of creditable input tax due or paid and attributable to zero-rated or effectively zero-rated sales. Hence, on 20 June 2000 and 13 June 2001, WMPC filed with the Commissioner of Internal Revenue (CIR) applications for a tax credit certificate of its input VAT covering the taxable 3rd and 4th quarters of 1999 (amounting to P 3,675,026.67)5 and all 6 the taxable quarters of 2000 (amounting to P5,649,256.81). Noting that the CIR was not acting on its application, and fearing that its claim would soon be barred by prescription, WMPC on 28 September 2001 filed with the Court of Tax Appeals (CTA) in Division a Petition for Review docketed as C.T.A. Case No. 6335, seeking refund/tax credit certificates for the total amount of P9,324,283.30. The CIR filed its Comment on the CTA Petition, arguing that WMPC was not entitled to the latters claim for a tax refund in view of its failure to comply with the invoicing requirements under Section 113 of the NIRC in relation to Section 4.108-1 of RR 7-95, which provides: SECTION 4.108-1. Invoicing Requirements All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. the name, 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. In the case of sale of real property subject to VAT and where the zonal or market value is higher than the actual consideration, the VAT shall be separately indicated in the invoice or receipt. Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoice or receipts and this shall be considered as a "VAT Invoice." All purchases covered by invoices other than "VAT" Invoice" shall not give rise to any input tax. If the taxable person is also engaged in exempt operations, he should issue separate invoices or receipts for the taxable and exempt operations. A "VAT Invoice" shall be issued only for sales of goods, properties or services subject to VAT imposed in Sections 100 and 102 of the Code. The invoice or receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records. (Underscoring supplied.) WMPC countered that the invoicing and accounting requirements laid down in RR 7-95 were merely "compliance requirements," which were not indispensable to establish the claim for refund of excess and unutilized input VAT. Also, Section 113 of the NIRC prevailing at the

time the sales transactions were made did not expressly state that failure to comply with all the invoicing requirements would result in the disallowance of a tax credit refund. 7 The express requirement that "the term zero-rated sale shall be written or printed prominently" on the VAT invoice or official receipt for sales subject to zero percent (0%) VAT appeared in Section 113 of the NIRC only after it was amended by Section 11 of R.A. 9337.8 This amendment cannot be applied retroactively, considering that it took effect only on 1 July 2005, or long after petitioner filed its claim for a tax refund, and considering further that the RR 7-95 is punitive in nature. Further, since there was no statutory requirement for imprinting the phrase "zero-rated" on official receipts prior to 1 July 2005, the RR 7-95 constituted undue expansion of the scope of the legislation it sought to implement. CTA Second Division Decision On 1 September 2006, the CTA Second Division dismissed9 the Petition. It held that while petitioner submitted in evidence its Quarterly VAT Returns for the periods applied for, "the same do not reflect any zero-rated or effectively zero-rated sales allegedly incurred during said periods. The spaces provided for such amounts were left blank, which only shows that there existed no zero-rated or effectively zero-rated sales for the 3rd and 4th quarters of 1999 and the four quarters of 2000."10 Moreover, it found that petitioners VAT Invoices and Official Receipts did not contain on their face the phrase "zero-rated," contrary to Section 4.108-1 of RR 7-95. Petitioner moved for reconsideration, but the motion was denied by the CTA in Division in its Resolution dated 30 January 2007.11 CTA En Banc Decision On 13 March 2007, WMPC appealed to the CTA En Banc, which on 15 November 2007 issued a Decision dismissing the appeal and affirming the CTA ruling. The CTA En Banc held that the receipts and evidence presented by petitioner failed to fully substantiate the existence of the latters effectively zero-rated sales to NPC for the 3rd and 4th quarters of taxable year 1999 and the four quarters of taxable year 2000. The CTA En Banc quoted the CTA Second Division finding that the Quarterly VAT Returns that petitioner adduced in evidence did not reflect any zero-rated or effectively zero-rated sales allegedly incurred during the said period, to wit: Petitioner submitted in evidence its Quarterly Value Added Tax Returns for the 3rd and 4th quarters of 1999 and the four quarters of 2000 to prove that it had duly reported the input taxes paid on its domestic purchases of goods and services (Exhibits E to J). However, a closer examination of the returns clearly shows that the same do not reflect any zero-rated or effectively zero-rated sales allegedly incurred during the said periods. The spaces provided for such amounts were left blank, which only shows that there existed no zero-rated or effectively zero-rated sales for the 3rd and 4th quarters of 1999 and the four quarters of 2000. In addition, the CTA En Banc noted that petitioners Official Receipts and VAT Invoices did not have the word "zero-rated" imprinted/stamped thereon, contrary to the clear mandate of Section 4.108-1 of RR 7-95. CTA Presiding Justice Ernesto Acosta filed a Concurring and Dissenting Opinion. Justice Acosta disagreed with the majoritys view regarding the supposed mandatory requirement of imprinting the term "zero-rated" on official receipts or invoices. He opined that Section 113 in relation to Section 23712 of the NIRC does not require the imprinting of the phrase "zero-rated" on an invoice or official receipt for the document to be considered valid for the purpose of claiming a refund or an issuance of a tax credit certificate. Hence, the absence of the term "zero-rated" in an invoice or official receipt does not affect its admissibility or competency as evidence in support of a refund claim. Also, assuming that stamping the term "zero-rated" on an invoice or official receipt is a requirement of the current NIRC, the denial of a refund claim is not the imposable penalty for failure to comply with that requirement. Nevertheless, Justice Acosta agreed with the "decision to deny the claim due to petitioners failure to prove the input taxes it paid on its domestic purchases of goods and services during the period involved." WMPC filed a Motion for Reconsideration, which was denied by the CTA En Banc in a Resolution dated 9 January 2008.13 Hence, the present Petition. Issue Whether the CTA En Banc seriously erred in dismissing the claim of petitioner for a refund or tax credit on input tax on the ground that the latters Official Receipts do not contain the phrase "zero-rated" Our Ruling We deny the Petition.

Being a derogation of the sovereign authority, a statute granting tax exemption is strictly construed against the person or entity claiming the exemption. When based on such statute, a claim for tax refund partakes of the nature of an exemption. Hence, the same rule of strict interpretation against the taxpayer-claimant applies to the claim.14 In the present case, petitioners claim for a refund or tax credit of input VAT is anchored on Section 112(A) of the NIRC, viz: Section 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. Thus, a taxpayer engaged in zero-rated or effectively zero-rated sale may apply for the issuance of a tax credit certificate, or refund of creditable input tax due or paid, attributable to the sale. In a claim for tax refund or tax credit, the applicant must prove not only entitlement to the grant of the claim under substantive law. It must also show satisfaction of all the documentary and evidentiary requirements for an administrative claim for a refund or tax credit. 15 Hence, the mere fact that petitioners application for zero-rating has been approved by the CIR does not, by itself, justify the grant of a refund or tax credit. The taxpayer claiming the refund must further comply with the invoicing and accounting requirements mandated by the NIRC, as well as by revenue regulations implementing them. 16 Under the NIRC, a creditable input tax should be evidenced by a VAT invoice or official receipt,17 which may only be considered as such when it complies with the requirements of RR 7-95, particularly Section 4.108-1. This section requires, among others, that "(i)f the sale is subject to zero percent (0%) value-added tax, the term zero-rated sale shall be written or printed prominently on the invoice or receipt." We are not persuaded by petitioners argument that RR 7-95 constitutes undue expansion of the scope of the legislation it seeks to implement on the ground that the statutory requirement for imprinting the phrase "zero-rated" on VAT official receipts appears only in Republic Act No. 9337. This law took effect on 1 July 2005, or long after petitioner had filed its claim for a refund.1wphi1 RR 7-95, which took effect on 1 January 1996, proceeds from the rulemaking authority granted to the Secretary of Finance by the NIRC for the efficient enforcement of the same Tax Code and its amendments. In Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue,18 we ruled that this provision is "reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and services." Moreover, we have held in Kepco Philippines Corporation v. Commissioner of Internal Revenue19 that the subsequent incorporation of Section 4.108-1 of RR 7-95 in Section 113 (B) (2) (c) of R.A. 9337 actually confirmed the validity of the imprinting requirement on VAT invoices or official receipts a case falling under the principle of legislative approval of administrative interpretation by reenactment. 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. 20 Clearly then, the present Petition must be denied. In addition, it is notable that the CTA Second Division and the CTA En Banc, including Presiding Justice Acosta in his Concurring and Dissenting Opinion, both found that petitioner failed to sufficiently substantiate the existence of its effectively zero-rated sales to NPC for the 3rd and 4th quarters of taxable year 1999, as well as all four quarters of taxable year 2000. It must also be noted that the CTA is a highly specialized court dedicated exclusively to the study and consideration of revenue-related problems, in which it has necessarily developed an expertise.21Hence, its factual findings, when supported by substantial evidence, will not be disturbed on appeal. 22 We find no sufficient reason to exempt the present case from this general rule.

WHEREFORE, premises considered, we DENY the Petition and AFFIRM the Decision dated 15 November 2007 and Resolution dated 9 January 2008 of the Court of Tax Appeals En Banc in CTA EB No. 272. G.R. No. 174212 October 20, 2010 HITACHI GLOBAL STORAGE TECHNOLOGIES PHILIPPINES CORP. (formerly HITACHI COMPUTER PRODUCTS (ASIA) CORPORATION), Petitioner vs. COMMISSIONER OF INTERNAL REVENUE Respondent. DECISION CARPIO, J.: The Case This is a petition for review1 of the 22 March 2006 Decision2 and 14 August 2006 Resolution3 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 54. The 22 March 2006 Decision affirmed the 9 March 2004 Decision4 and 9 December 2004 Resolution5 of the CTA First Division which denied petitioner Hitachi Global Storage Technologies Philippines Corp.s (Hitachi) claim for refund or tax credit in the amount of P25,023,471.84. The 14 August 2006 Resolution denied Hitachis motion for reconsideration. The Facts Hitachi is a domestic corporation engaged in the business of manufacturing and exporting computer products. Hitachi is registered with the Bureau of Internal Revenue (BIR) as a Value-added Tax (VAT) taxpayer, evidenced by Certificate of Registration No. 94-570000298 and Taxpayer Identification No. 003-877-830 (VAT) issued on 28 June 1994. Hitachi is also registered with the Export Processing Zone Authority as an Ecozone Export Enterprise. On 4 August 2000, Hitachi filed an administrative claim for refund or issuance of a tax credit certificate before the BIR. 6 The claim involved P25,023,471.84 representing excess input VAT attributable to Hitachis zero-rated export sales for the four taxable quarters of 1999. On 2 July 2001, due to the BIRs inaction, Hitachi filed a petition for review with the CTA.7 On 9 March 2004, the CTA First Division rendered a decision, the dispositive portion of which reads: IN VIEW OF THE FOREGOING, petitioners claim for refund or issuance of a tax credit certificate in the amount ofP25,023,471.84 representing excess input value-added tax (VAT) payments that are attributable to zero-rated export sales for the four taxable quarters of 1999 is hereby DENIED. SO ORDERED.8 Hitachi filed a motion for reconsideration. In its 9 December 2004 Resolution, the CTA First Division denied Hitachis motion. On 26 January 2005, Hitachi filed a petition for review with the CTA En Banc. In its 22 March 2006 Decision, the CTA En Banc affirmed the 9 March 2004 Decision and 9 December 2004 Resolution of the CTA First Division. Hitachi filed a motion for reconsideration. In its 14 August 2006 Resolution, the CTA En Banc denied Hitachis motion. Hence, this petition. The Ruling of the CTA First Division In its 9 March 2004, the CTA First Division denied Hitachis claim for refund or tax credit because of Hitachis failure to comply with the mandatory invoicing requirements. According to the CTA First Division, Hitachis export sales invoices did not have pre-printed taxpayers identification number (TIN) followed by the word VAT nor did the invoices bear the imprinted word "zero-rated" as required in Section 113(A)9 of the National Internal Revenue Code (NIRC) and Section 4.108-1 of Revenue Regulation No. 7-9510 (RR 7-95). The CTA First Division also found that Hitachis export sales invoices were not duly registered with the BIR as required under Section 23711 of the NIRC and there was no BIR authority to print the invoices or BIR permit number indicated in the invoices. Therefore, the CTA First Division did not consider Hitachis export sales invoices as valid evidence of zerorated sales of goods for VAT purposes and, consequently, denied Hitachis claim for a refund or tax credit. The Ruling of the CTA En Banc The CTA En Banc affirmed the findings of the CTA First Division that Hitachi failed to comply with the mandatory invoicing requirements under the NIRC and RR 7-95. The CTA En Banc agreed with the CTA First Division that Hitachi failed to substantiate its alleged zero-rated sales because its export sales invoices were not duly registered with the BIR. Neither did the export sales invoices indicate Hitachis TIN nor did they state that Hitachi was a VAT registered person. Likewise, the word "zero-rated" was not imprinted on Hitachis export sales invoices.

According to the CTA En Banc, the VAT law is clear that only transactions evidenced by VAT official receipts or sales invoices will be considered as VAT transactions for purposes of the input and output tax. The Issues <="" p=""> I. Whether Hitachis failure to comply with the requirements prescribed under Section 4.108-1 of RR 7-95 is sufficient to invalidate Hitachis claim for VAT refund for taxable year 1999; II. Whether Hitachi has sufficiently complied with the requirements for its claim for VAT refund for taxable year 1999; and III. Whether the CTA En Banc erred when it denied Hitachis claim for VAT refund for taxable year 1999. The Ruling of the Court The petition has no merit. Hitachi argues that Section 4.108-1 of RR 7-95 cannot expand the invoicing requirements prescribed by Section 113(A) of the NIRC, in relation to Sections 237 and 106(A)(2)(a)(1),12 by imposing the additional requirement of printing the word "zero-rated" on the invoices of a VAT registered taxpayer. Hitachi also submits that the nonobservance of the requirements of (1) printing "zero-rated;" (2) BIR authority to print; (3) BIR permit number; and (4) registration of such receipts with the BIR cannot result in the outright invalidation of its claim for refund. We already settled the issue of printing the word "zero-rated" on the sales invoices in Panasonic v. Commissioner of Internal Revenue.13 In that case, we denied 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 face that its sales were "zero-rated." We said: 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 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.1avvphil 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 1997 NIRC (Presidential Decree 1158) for the efficient enforcement of the tax code and of course its amendments. 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 the 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. (Emphasis supplied) Likewise, in this case, when Hitachi filed its claim for refund or tax credit, RR 7-95 was already in force. Section 4.108-1 of RR 7-95 specifically required the following to be reflected in the invoice: Sec.4.108-1. Invoicing Requirements. - All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. the name, 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. xxxx Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoices or receipts and this shall be considered as a "VAT invoice." All purchases covered by invoices other than a "VAT invoice" shall not give rise to any input tax. (Emphasis supplied) Both the CTA First Division and the CTA En Banc found that Hitachis export sales invoices did not indicate Hitachis Tax Identification

Number (TIN) followed by the word VAT. The word "zero-rated" was also not imprinted on the invoices. Moreover, both the CTA First Division and the CTA En Banc found that the invoices were not duly registered with the BIR. Being a specialized court, the CTA has necessarily developed an expertise in the subject of taxation that this Court has recognized time and again.14 For this reason, the findings of fact of the CTA are generally conclusive on this Court absent grave abuse of discretion or palpable error, which are not present in this case.15 Besides, tax refunds, like tax exemptions, are construed strictly against the taxpayer.16 The claimants have the burden of proof to establish the factual basis of their claim for refund or tax credit.17 In this case, Hitachi failed to establish the factual basis of its claim for refund or tax credit. WHEREFORE, we DENY the petition. We AFFIRM the 22 March 2006 Decision and the 14 August 2006 Resolution of the Court of Tax Appeals En Banc in CTA EB No. 54. .R. No. 172378 January 17, 2011 SILICON PHILIPPINES, INC., (Formerly INTEL PHILIPPINES MANUFACTURING, INC.), Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION 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 Decision1 and the April 20, 2006 Resolution2 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 P 15,17 Capital Equipment Total VAT paid on Purchases per Invoices 16,732, Received During the Period for which this Application is Filed Amount of Tax Credit/Refund Applied For P 31,90 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 4th 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 Answer10 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 (L11875, 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 Decision12 partially granting petitioners claim for refund of unutilized input VAT on capital goods. Out of the amount of P15,170,082.00, 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. 795 (Consolidated Value-Added Tax Regulations).13 With regard to petitioners claim for credit/refund of input VAT attributable to its zerorated 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 Reconsideration20 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 Resolution22 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. xxxx 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. xxxx 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 hereby DENIED 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 Decision25 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 Motion27 in a Resolution28 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 zerorated 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 petition33 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."37Hence, 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 zerorated 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 23746 and 23847 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 Revenue49 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 26452 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 VAT1awphi1 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 24455 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 fromP15,170,082.00 to P9,898,867.00 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. G.R. No. 153204 August 31, 2005 COMMISSIONER OF INTERNAL REVENUE, Petitioners, vs. MANILA MINING CORPORATION, Respondent. DECISION CARPIO MORALES, J.: Being assailed via petition for review on certiorari is the April 12, 2002 Decision1 of the Court of Appeals reversing that of the Court of Tax Appeals (CTA)2 which granted the claim of respondent, Manila Mining Corporation, in consolidated CTA Case Nos. 4968 and 4991, for refund or issuance of tax credit certificates in the amounts ofP5,683,035.04 and P8,173,789.60 representing its input value added tax (VAT) payments for taxable year 1991. Respondent, a mining corporation duly organized and existing under Philippines laws, is registered with the Bureau of Internal Revenue (BIR) as a VAT-registered enterprise under VAT Registration Certificate No. 32-6-00632.3 In 1991, respondents sales of gold to the Central Bank (now Bangko Sentral ng Pilipinas) amounted toP200,832,364.70.4 On April 22, 1991, July 23, 1991, October 21, 1991 and January 20, 1992, it filed its VAT Returns for the 1st, 2nd, 3rd and 4th quarters of 1991, respectively, with the BIR through the VAT Unit at Revenue District Office No. 47 in East Makati.5 Respondent, relying on a letter dated October 10, 1988 from then BIR Deputy Commissioner Victor Deoferio that: xxx under Sec. 2 of E.O. 581 as amended, gold sold to the Central Bank is considered an export sale which under Section 100(a)(1) of the NIRC, as amended by E.O. 273, is subject to zero-rated if such sale is made by a VAT-registered person[,]6 (Underscoring supplied) filed on April 7, 1992 with the Commissioner of Internal Revenue (CIR), through the BIR-VAT Division (BIR-VAT), an application for tax refund/credit of the input VAT it paid from July 1- December 31, 1999 in the amount ofP8,173,789.60. Petitioner subsequently filed on March 5, 1991 another application for tax refund/credit of input VAT it paid the amount of P5,683,035.04 from January 1 June 30, 1991. As the CIR failed to act upon respondents application within sixty (60) days from the dates of filing, 7 it filed on March 22, 1993 a Petition for Review against the CIR before the CTA which docketed it as CTA Case No. 4968,8 seeking the issuance of tax credit certificate or refund in the amount of P5,683,035.04 covering its input VAT payments for the 1st and 2nd quarters of 1991. And it filed on May 24, 1993 another Petition for Review, docketed as CTA Case No. 4991, seeking the issuance of tax credit certificates in the amount of P8,173,789.60 covering its input VAT payments for the 3rd and 4th quarters of 1991.9 To the petition in CTA Case No. 4968 the CIR filed its Answer10 admitting that respondent filed its VAT returns for the 1st and 2nd quarters of 1991 and an application for credit/refund of input VAT payment. It, however, specifically denied the veracity of the amounts stated in respondents VAT returns and application for credit/refund as the same continued to be under investigation. On May 26, 1993, respondent filed in CTA Case No. 4968 a "Request for Admissions"11 of, among other facts, the following: xxx 5. That the original copies of the Official Receipts and Sales Invoices, reflected in Annex "C" ([Schedule of VAT INPUT on Domestic Purchase of Goods and Services for the quarter ending March 31, 1991] consisting of 24 pages) and Annex C-1 (Summary of Importation, 2 pages) were submitted to BIR-VAT, as required, for domestic purchases of goods and services (1st semester, 1991) for a total net claimable of P5,268,401.90; while its VAT input tax paid for importation was P679,853.00; (Emphasis and underscoring supplied) xxx

By Reply12 of August 11, 1993, the CIR specifically denied the veracity and accuracy of the amounts indicated in respondents Request for Admissions,13 among other things. The CIRs Reply, however, was not verified, prompting respondent to file on August 30, 1993 a "SUPPLEMENT (To Annotation of Admission)" alleging that as the reply was not under oath, "an implied admission of [its requests] ar[ose]" as a consequence thereof.14 On September 27, 1993, the CIR filed a Motion to Admit Reply, which Reply was verified and attached to the motion, alleging that its Reply of August 11, 1993 was "submitted within the period for submission thereof, but, however, was incomplete [due to oversight] as to the signature of the administering officer in the verification."15 By Resolution16 of February 28, 1994, the CTA, finding that the matters subject of respondents Request for Admissions are "relevant to the facts stated in the petition for review" and there being an implied admission by the CIR under Section 2 of Rule 26 of the then Revised Rules of Court reading: Section 2. Implied Admission. Each of the matters of which an admission is requested shall be deemed admitted unless xxx the party to whom the request is directed serves upon the party requesting the admission asworn statement either denying specifically the matters of which an admission is requested xxx. (Emphasis and underscoring supplied), granted respondents Request for Admissions and denied the CIRs Motion to Admit Reply. With respect to CTA Case No. 4991, respondent also filed a "Request for Admissions" dated May 27, 1993 of the following facts: xxx 2. Petitioners 3rd and 4th Quarters 1991 VAT Returns were submitted and filed with the BIR-VAT Divisions on October 21, 1991 and January 20, 1991, respectively and subsequently, on April 7, 1993 petitioner filed and submitted its application for tax credit on VAT paid for the 2nd semester of 1990; xxx 4. That attached to the transmittal letter [forwarded petitioners application for tax refund credit] of March 31, 1992 (Annex "B") are the following documents: a. Copies of invoices and other supporting documents; b. VAT Registration Certificate; c. VAT returns for the third and fourth quarters of 1990; d. Beginning and ending inventories of raw materials, work-in process, finished goods and materials and supplies; e. Zero-rated sales to Central Bank of the Philippines; f. Certification that the Company will not file any tax credit with the Board of Investments and Bureau of Customs. which completely documented the petitioners claim for refund as required. 5. That the original copies of the Official Receipts and Sales Invoices, reflected in Annex "C" (consisting of 35 pages) and Annex C-1 (Summary of Importation, 2 pages) were submitted to BIR-VAT, as required, to show domestic purchases of goods and services (2nd semester, 1991) which established that the total net claimable ofP7,953,816.38; while its VAT input tax paid for importation was P563,503.00; x x x17 To the Request for Admission the CIR filed a Manifestation and Motion alleging that as the issues had not yet been joined, respondents request is baseless and premature18 under Section 1, Rule 26 of the Revised Rules of Court.19 In the meantime, the CIR filed on August 16, 1993 its Answer, 20 it averring that sales of gold to the Central Bank may not be legally considered export sales for purposes of Section 100(a) in relation to Section 100(a)(1)21 of the Tax Code; and that assuming that a refund is proper, respondent must demonstrate that it complied with the provisions of Section 204(3) in relation to Section 230 of the Tax Code.22 The CIR subsequently filed on March 25, 1992 its Reply to respondents Request for Admission in CTA No. 4991, it admitting that respondent filed its VAT returns and VAT applications for tax credit for the 3rd and 4th quarters of 1991, but specifically denying the correctness and veracity of the amounts indicated in the schedules and summary of importations, VAT services and goods, the total input and output taxes, including the amount of refund claimed.23 By Resolution24 of February 22, 1994, the CTA, in CTA Case No. 4991, admitted the matters covered by respondents Request for Admission except those specifically denied by the CIR. In the same Resolution, the CTA consolidated Case Nos. 4968 and 4991, they

involving the same parties and substantially the same factual and legal issues. Joint hearings of CTA Case Nos. 4968 and 4991 were thus conducted. Through its Chief Accountant Danilo Bautista, respondent claimed that in 1991, it sold a total of 20,288.676 ounces of gold to the Central Bank valued at P200,832,364.70, as certified by the Director of the Mint and Refinery Department of the Central Bank25 and that in support of its application for refund filed with the BIR, it submitted copies of all invoices and official receipts covering its input VAT payments to the VAT Division of the BIR, "the summary and schedules" of which were certified by its external auditor, the Joaquin Cunanan & Co. 26 Senior Audit Manager of Joaquin Cunanan & Co., Irene Ballesteros, who was also presented by respondent, declared that she conducted a special audit work for respondent for the purpose of determining its actual input VAT payments for the second semester of 1991 and examined every original suppliers invoice, official receipts, and other documents supporting the payments;27 and that there were no discrepancies or errors between the summaries and schedules of suppliers invoices prepared by respondent and the VAT invoices she examined.28 Following the filing by respondent of its formal offer of evidence in both cases,29 the CTA, by Resolution30 of July 18, 1995, admitted the same. Upon the issue of whether respondents sales of gold to the BSP during the four quarters of 1991 are subject to 10% VAT under Section 100 of the Tax Code or should be considered zero-rated under paragraph a(2) of said Section 100, the CTA held that said sales are not subject to 10% output VAT, citing Atlas Consolidated Mining and Development Corporation v. Court of Appeals,31 Manila Mining Corporation v. Commissioner of Internal Revenue,32 and Benguet Corporation v. Commissioner of Internal Revenue.33 Nonetheless, the CTA denied respondents claim for refund of input VAT for failure to prove that it paid the amounts claimed as such for the year 1991, no sales invoices, receipts or other documents as required under Section 2(c)(1) of Revenue Regulations No. 3-88 having been presented.34 The CTA explained that a mere listingof VAT invoices and receipts, even if certified to have been previously examined by an independent certified public accountant, would not suffice to establish the truthfulness and accuracy of the contents of such invoices and receipts unless offered and actually verified by it (CTA) in accordance with CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which requires that photocopies of invoices, receipts and other documents covering said accounts of payments be pre-marked by the party concerned and submitted to the court.35 Respondents motion for reconsideration36 of the CTA decision having been denied by Resolution37 of February 11, 1999, respondent brought the case to the Court of Appeals before which it contended that the CTA erred in denying the refund for insufficiency of evidence, it arguing that in light of the admissions by the CIR of the matters subject of it Requests for Admissions, it was relieved of the burden of submitting the purchase invoices and/or receipts to support its claims. 38 By Decision39 of April 12, 2002, the Court of Appeals reversed the decision of the CTA and granted respondents claim for refund or issuance of tax credit certificates in the amounts of P5,683,035.04 for CTA Case No. 4968 andP8,173,789.60 for CTA Case No. 4991. In granting the refund, the appellate court held that there was no need for respondent to present the photocopies of the purchase invoices or receipts evidencing the VAT paid in view of Rule 26, Section 2 of the Revised Rules of Court40 and the Resolutions of the CTA holding that the matters requested in respondents Request for Admissions in CTA No. 4968 were deemed admitted by the CIR41 in light of its failure to file a verified reply thereto. The appellate court further held that the CIRs reliance on the best evidence rule is misplaced since this rule does not apply to matters which have been judicially admitted.42 Hence, the present petition for review,43 the CIR arguing that respondents failure to submit documentary evidence to confirm the veracity of its claims is fatal; and that the CTA, being a court of record, is not expected to go out of its way and dig into the records of the BIR to supply the insufficient evidence presented by a party, and in fact it may set a definite rule that only evidence formally presented will be considered in deciding cases before it.44 Respondent, in its Comment,45 avers that it complied with the provisions of Section 2(c)(1) of Revenue Regulation No. 3-88 when it submitted the original receipts and invoices to the BIR, which fact of submission had been deemed admitted by petitioner, as confirmed by the CTA in its Resolutions in both cases granting respondents Requests for Admissions therein.

To respondents Comment the Office of the Solicitor General (OSG), on behalf of petitioner, filed its Reply, 46arguing that the documents required to be submitted to the BIR under Revenue Regulation No. 388 should likewise be presented to the CTA to prove entitlement to input tax credit.47 In addition, it argues that, contrary to respondents position, a certification by an independent Certified Public Accountant (CPA) as provided under CTA Circulars 1-95 and 10-97 does not relieve respondent of the onus of adducing in evidence the invoices, receipts and other documents to show the input VAT paid on its purchase of goods and services.48 The pivotal issue then is whether respondent adduced sufficient evidence to prove its claim for refund of its input VAT for taxable year 1991 in the amounts of P5,683,035.04 and P8,173,789.60. The petition is impressed with merit. In Commissioner of Internal Revenue v. Benguet Corporation,49 this Court had the occasion to note that as early as 1988, the BIR issued several VAT rulings to the effect that sales of gold to the Central Bank by a VAT-registered person or entity are considered export sales. The transactions in question occurred during the period from 1988 and 1991. Under Sec. 99 of the National Internal Revenue Code (NIRC), as amended by Executive Order (E.O.) No. 273 s. 1987, then in effect, any person who, in the course of trade or business, sells, barters or exchanges goods, renders services, or engages in similar transactions and any person who imports goods is liable for output VAT at rates of either 10% or 0% ("zero rated") depending on the classification of the transaction under Sec. 100 of the NIRC. xxx xxx In January of 1988, respondent applied for and was granted by the BIR zero-rated status on its sale of gold to the Central Bank. On 28 August 1988, Deputy Commissioner of Internal Revenue Eufracio D. Santos issued VAT Ruling No. 3788-88, which declared that "[t]he sale of gold to Central Bank is considered as export sale subject to zero-rate pursuant to Section 100 of the Tax Code, as amended by Executive Order No. 273." The BIR came out with at least six (6) other issuances, reiterating the zero-rating of sale of gold to the Central Bank, the latest of which is VAT Ruling No. 036-90 dated 14 February 1990. x x x50 (Italics in the original; underscoring supplied) As export sales, the sale of gold to the Central Bank is zero-rated, hence, no tax is chargeable to it as purchaser. Zero rating is primarily intended to be enjoyed by the seller respondent herein, which charges no output VAT but can claim a refund of or a tax credit certificate for the input VAT previously charged to it by suppliers. 51 For a judicial claim for refund to prosper, however, respondent must not only prove that it is a VAT registered entity and that it filed its claims within the prescriptive period. It must substantiate the input VAT paid by purchaseinvoices or official receipts.52 This respondent failed to do. Revenue Regulation No. 3-88 amending Revenue Regulation No. 5-87 provides the requirements in claiming tax credits/refunds. Sec.2. Section 16 of Revenue Regulations 5-87 is hereby amended to read as follows: Sec. 16. Refunds or tax credits of input tax. (a) Zero-rated sales of goods and services Only a VAT-registered person may be granted a tax credit or refund of value-added taxes paid corresponding to the zero-rated sales of goods and services, to the extent that such taxes have not been applied against output taxes, upon showing of proof of compliance with the conditions stated in Section 8 of these Regulations. For export sales, the application should be filed with the Bureau of Internal Revenue within two years from the date of exportation. For other zero-rated sales, the application should be filed within two years after the close of the quarter when the transaction took place. xxx (c) Claims for tax credits/refunds. - Application for Tax Credit/Refund of Value-Added Tax Paid (BIR Form No. 2552) shall be filed with the Revenue District Office of the city or municipality where the principal place of business of the applicant is located or directly with the Commissioner, Attention: VAT Division. A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be submitted together with the application. The original copy of the said invoice/receipt, however, shall be presented for cancellation prior to the issuance of the Tax Credit Certificate or refund. xxx (Emphasis and underscoring supplied) Under Section 8 of RA 1125,53 the CTA is described as a court of record. As cases filed before it are litigated de novo, party litigants should prove every minute aspect of their cases. No evidentiary value can be given the purchase invoices or receipts submitted to the BIR as

the rules on documentary evidence require that these documents must be formally offered before the CTA.54 This Court thus notes with approval the following findings of the CTA: xxx [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output tax but this does not ipso factomean that [the seller] is entitled to the amount of refund sought as it is required by law to present evidence showing the input taxes it paid during the year in question. What is being claimed in the instant petition is the refund of the input taxes paid by the herein petitioner on its purchase of goods and services. Hence, it is necessary for the Petitioner to show proof that it had indeed paid the said input taxes during the year 1991. In the case at bar, Petitioner failed to discharge this duty. It did not adduce in evidence the sales invoice, receipts or other documents showing the input value added tax on the purchase of goods and services. 55 xxx Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides categorically that the Court of Tax Appeals shall be a court of record and as such it is required to conduct a formal trial (trial de novo) where the parties must present their evidence accordingly if they desire the Court to take such evidence into consideration.56 (Emphasis and underscoring supplied) A "sales or commercial invoice" is a written account of goods sold or services rendered indicating the prices charged therefor or a list by whatever name it is known which is used in the ordinary course of business evidencing sale and transfer or agreement to sell or transfer goods and services.57 A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or other settlementbetween seller and buyer of goods, debtor or creditor, or person rendering services and client or customer.58 These sales invoices or receipts issued by the supplier are necessary to substantiate the actual amount or quantity of goods sold and their selling price,59 and taken collectively are the best means to prove the input VAT payments. Respondent contends, however, that the certification of the independent CPA attesting to the correctness of the contents of the summary of suppliers invoices or receipts which were examined, evaluated and audited by said CPA in accordance with CTA Circular No. 1-95 as amended by CTA Circular No. 10-97 should substantiate its claims. There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which either expressly or impliedly suggests that summaries and schedules of input VAT payments, even if certified by an independent CPA, suffice as evidence of input VAT payments. Thus CTA Circular No. 1-95 provides: 1. The party who desires to introduce as evidence such voluminous documents must present: (a) a Summary containing the total amount/s of the tax account or tax paid for the period involved and a chronological or numerical list of the numbers, dates and amounts covered by the invoices or receipts; and (b) a Certification of an independent Certified Public Accountant attesting to the correctness of the contents of the summary after making an examination and evaluation of the voluminous receipts and invoices. Such summary and certification must properly be identified by a competent witness from the accounting firm. 2. The method of individual presentation of each and every receipt or invoice or other documents for marking, identification and comparison with the originals thereof need not be done before the Court or the Commissioner anymore after the introduction of the summary and CPA certification. It is enough that the receipts, invoices and other documents covering the said accounts or payments must be premarked by the party concerned and submitted to the Court in order to be made accessible to the adverse party whenever he/she desires to check and verify the correctness of the summary and CPA certification. However, the originals of the said receipts, invoices or documents should be ready for verification and comparison in case of doubt on the authenticity of the particular documents presented is raised during the hearing of the case.60 (Underscoring supplied) The circular, in the interest of speedy administration of justice, was promulgated to avoid the time-consuming procedure of presenting, identifying and marking of documents before the Court. It does not relieve respondent of its imperative task of pre-marking photocopies of sales receipts and invoices and submitting the same to the courtafter the independent CPA shall have examined and compared them with the originals. Without presenting these pre-marked documents as evidence from which the summary and schedules were based, the court cannot verify the authenticity and veracity of the independent auditors conclusions.61

There is, moreover, a need to subject these invoices or receipts to examination by the CTA in order to confirm whether they are VAT invoices. Under Section 21 of Revenue Regulation No. 5-87,62 all purchases covered by invoices other than a VAT invoice shall not be entitled to a refund of input VAT. The CTA disposition of the matter is thus in order. Mere listing of VAT invoices and receipts, even if certified to have been previously examined by an independent certified public accountant, would not suffice to establish the truthfulness and accuracy of the contents thereof unless offered and actually verified by this Court. CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, requires that the photocopies of invoices, receipts and other documents covering said accounts or payments must be pre-marked by the party and submitted to this Court.63 (Underscoring supplied) There being then no showing of abuse or improvident exercise of the CTAs authority, this Court is not inclined to set aside the conclusions reached by it, which, by the very nature of its functions, is dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject.64 While the CTA is not governed strictly by technical rules of evidence,65 as rules of procedure are not ends in themselves but are primarily intended as tools in the administration of justice, the presentation of the purchase receipts and/or invoices is not mere procedural technicality which may be disregarded considering that it is the only means by which the CTA may ascertain and verify the truth of respondents claims. The records further show that respondent miserably failed to substantiate its claim for input VAT refund for the first semester of 1991. Except for the summary and schedules of input VAT payments prepared by respondent itself, no other evidence was adduced in support of its claim. As for respondents claim for input VAT refund for the second semester of 1991, it employed the services of Joaquin Cunanan & Co. on account of which it (Joaquin Cunanan & Co.) executed a certification that: We have examined the information shown below concerning the input tax payments made by the Makati Office of Manila Mining Corporation for the period from July 1 to December 31, 1991. Our examination included inspection of the pertinent suppliers invoices and official receipts and such other auditing procedures as we considered necessary in the circumstances. xxx66 As the certification merely stated that it used "auditing procedures considered necessary" and not auditing procedures which are in accordance with generally accepted auditing principles and standards, and that the examination was made on "input tax payments by the Manila Mining Corporation," without specifying that the said input tax payments are attributable to the sales of gold to the Central Bank, this Court cannot rely thereon and regard it as sufficient proof of respondents input VAT payments for the second semester. Finally, respecting respondents argument that it need not prove the amount of input VAT it paid for the first semester of taxable year 1991 as the same was proven by the implied admission of the CIR, which was confirmed by the CTA when it admitted its Request for Admission,67 the same does not lie. Respondents Requests for Admission do not fall within Section 2 Rule 26 of the Revised Rules of Court.68 What respondent sought the CIR to admit are the total amount of input VAT payments it paid for the first and second semesters of taxable year 1991, which matters have already been previously alleged in respondents petition and specifically denied by the CIR in its Answers dated May 10, 1993 and August 16, 1993 filed in CTA Case Nos. 4869 and 4991, respectively. As Concrete Aggregates Corporation v. Court of Appeals 69 holds, admissions by an adverse party as a mode of discovery contemplates of interrogatories that would clarify and tend to shed light on the truth or falsity of the allegations in a pleading, and does not refer to a mere reiteration of what has already been alleged in the pleadings; otherwise, it constitutes an utter redundancy and will be a useless, pointless process which petitioner should not be subjected to.70 Petitioner controverted in its Answers the matters set forth in respondents Petitions for Review before the CTA the requests for admission being mere reproductions of the matters already stated in the petitions. Thus, petitioner should not be required to make a second denial of those matters it already denied in its Answers.71 As observed by the CTA, petitioner did in fact file its reply to the Request for Admissions in CTA Case No. 4869 and specifically denied the veracity and accuracy of the figures indicated in respondents summary. The Motion to Admit Reply was, however, denied by the CTA as the original Reply was not made under oath.

That the Reply was not made under oath is merely a formal and not a substantive defect and may be dispensed with. 72 Although not under oath, petitioners reply to the request readily showed that its intent was to deny the matters set forth in the Request for Admissions. As for respondents Request for Admission in CTA Case No. 4991, petitioner timely filed its reply and specifically denied the accuracy and veracity of the contents of the schedules and summaries which listed the input VAT payments allegedly paid by respondent for the second semester of 1991. For failure of respondent then not only to strictly comply with the rules of procedure but also to establish the factual basis of its claim for refund, this Court has to deny its claim. A claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.73 WHEREFORE, the petition is hereby GRANTED. The assailed Decision of the Court of Appeals dated April 12, 2002 is hereby REVERSED and SET ASIDE. The Court of Tax Appeals Decision dated November 24, 1998 is hereby REINSTATED. G.R. No. 151135 July 2, 2004 CONTEX CORPORATION, petitioner, vs. HON. COMMISSIONER OF INTERNAL REVENUE, respondent. DECISION QUISUMBING, J.: For review is the Decision1 dated September 3, 2001, of the Court of Appeals, in CA-G.R. SP No. 62823, which reversed and set aside the decision2 dated October 13, 2000, of the Court of Tax Appeals (CTA). The CTA had ordered the Commissioner of Internal Revenue (CIR) to refund the sum of P683,061.90 to petitioner as erroneously paid input value-added tax (VAT) or in the alternative, to issue a tax credit certificate for said amount. Petitioner also assails the appellate courts Resolution,3 dated December 19, 2001, denying the motion for reconsideration. Petitioner is a domestic corporation engaged in the business of manufacturing hospital textiles and garments and other hospital supplies for export. Petitioners place of business is at the Subic Bay Freeport Zone (SBFZ). It is duly registered with the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay Freeport Enterprise, pursuant to the provisions of Republic Act No. 7227. 4 As an SBMAregistered firm, petitioner is exempt from all local and national internal revenue taxes except for the preferential tax provided for in Section 12 (c)5 of Rep. Act No. 7227. Petitioner also registered with the Bureau of Internal Revenue (BIR) as a non-VAT taxpayer under Certificate of Registration RDO Control No. 95-180-000133. From January 1, 1997 to December 31, 1998, petitioner purchased various supplies and materials necessary in the conduct of its manufacturing business. The suppliers of these goods shifted unto petitioner the 10% VAT on the purchased items, which led the petitioner to pay input taxes in the amounts of P539,411.88 and P504,057.49 for 1997 and 1998, respectively.6 Acting on the belief that it was exempt from all national and local taxes, including VAT, pursuant to Rep. Act No. 7227, petitioner filed two applications for tax refund or tax credit of the VAT it paid. Mr. Edilberto Carlos, revenue district officer of BIR RDO No. 19, denied the first application letter, dated December 29, 1998. Unfazed by the denial, petitioner on May 4, 1999, filed another application for tax refund/credit, this time directly with Atty. Alberto Pagabao, the regional director of BIR Revenue Region No. 4. The second letter sought a refund or issuance of a tax credit certificate in the amount of P1,108,307.72, representing erroneously paid input VAT for the period January 1, 1997 to November 30, 1998. When no response was forthcoming from the BIR Regional Director, petitioner then elevated the matter to the Court of Tax Appeals, in a petition for review docketed as CTA Case No. 5895. Petitioner stressed that Section 112(A)7 if read in relation to Section 106(A)(2)(a)8 of the National Internal Revenue Code, as amended and Section 12(b)9 and (c) of Rep. Act No. 7227 would show that it was not liable in any way for any value-added tax. In opposing the claim for tax refund or tax credit, the BIR asked the CTA to apply the rule that claims for refund are strictly construed against the taxpayer. Since petitioner failed to establish both its right to a tax refund or tax credit and its compliance with the rules on tax refund as provided for in Sections 20410 and 22911 of the Tax Code, its claim should be denied, according to the BIR.

On October 13, 2000, the CTA decided CTA Case No. 5895 as follows: WHEREFORE, in view of the foregoing, the Petition for Review is hereby PARTIALLY GRANTED. Respondent is hereby ORDERED to REFUND or in the alternative to ISSUE A TAX CREDIT CERTIFICATE in favor of Petitioner the sum of P683,061.90, representing erroneously paid input VAT. SO ORDERED.12 In granting a partial refund, the CTA ruled that petitioner misread Sections 106(A)(2)(a) and 112(A) of the Tax Code. The tax court stressed that these provisions apply only to those entities registered as VAT taxpayers whose sales are zero-rated. Petitioner does not fall under this category, since it is a non-VAT taxpayer as evidenced by the Certificate of Registration RDO Control No. 95-180-000133 issued by RDO Rosemarie Ragasa of BIR RDO No. 18 of the Subic Bay Freeport Zone and thus it is exempt from VAT, pursuant to Rep. Act No. 7227, said the CTA. Nonetheless, the CTA held that the petitioner is exempt from the imposition of input VAT on its purchases of supplies and materials. It pointed out that under Section 12(c) of Rep. Act No. 7227 and the Implementing Rules and Regulations of the Bases Conversion and Development Act of 1992, all that petitioner is required to pay as a SBFZ-registered enterprise is a 5% preferential tax. The CTA also disallowed all refunds of input VAT paid by the petitioner prior to June 29, 1997 for being barred by the two-year prescriptive period under Section 229 of the Tax Code. The tax court also limited the refund only to the input VAT paid by the petitioner on the supplies and materials directly used by the petitioner in the manufacture of its goods. It struck down all claims for input VAT paid on maintenance, office supplies, freight charges, and all materials and supplies shipped or delivered to the petitioners Makati and Pasay City offices. Respondent CIR then filed a petition, docketed as CA-G.R. SP No. 62823, for review of the CTA decision by the Court of Appeals. Respondent maintained that the exemption of Contex Corp. under Rep. Act No. 7227 was limited only to direct taxes and not to indirect taxes such as the input component of the VAT. The Commissioner pointed out that from its very nature, the value-added tax is a burden passed on by a VAT registered person to the end users; hence, the direct liability for the tax lies with the suppliers and not Contex. Finding merit in the CIRs arguments, the appellate court decided CAG.R. SP No. 62823 in his favor, thus: WHEREFORE, premises considered, the appealed decision is hereby REVERSED AND SET ASIDE. Contexs claim for refund of erroneously paid taxes is DENIED accordingly. SO ORDERED.13 In reversing the CTA, the Court of Appeals held that the exemption from duties and taxes on the importation of raw materials, capital, and equipment of SBFZ-registered enterprises under Rep. Act No. 7227 and its implementing rules covers only "the VAT imposable under Section 107 of the [Tax Code], which is a direct liability of the importer, and in no way includes the value-added tax of the seller-exporter the burden of which was passed on to the importer as an additional costs of the goods."14 This was because the exemption granted by Rep. Act No. 7227 relates to the act of importation and Section 107 15 of the Tax Code specifically imposes the VAT on importations. The appellate court applied the principle that tax exemptions are strictly construed against the taxpayer. The Court of Appeals pointed out that under the implementing rules of Rep. Act No. 7227, the exemption of SBFZregistered enterprises from internal revenue taxes is qualified as pertaining only to those for which they may be directly liable. It then stated that apparently, the legislative intent behind Rep. Act No. 7227 was to grant exemptions only to direct taxes, which SBFZ-registered enterprise may be liable for and only in connection with their importation of raw materials, capital, and equipment as well as the sale of their goods and services. Petitioner timely moved for reconsideration of the Court of Appeals decision, but the motion was denied. Hence, the instant petition raising as issues for our resolution the following: A. WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL AND NATIONAL INTERNAL REVENUE TAXES PROVIDED IN REPUBLIC ACT NO. 7227 COVERS THE VALUE ADDED TAX PAID BY PETITIONER, A SUBIC BAY FREEPORT ENTERPRISE ON ITS PURCHASES OF SUPPLIES AND MATERIALS. B. WHETHER OR NOT THE COURT OF TAX APPEALS CORRECTLY HELD THAT PETITIONER IS ENTITLED TO

A TAX CREDIT OR REFUND OF THE VAT PAID ON ITS PURCHASES OF SUPPLIES AND RAW MATERIALS FOR THE YEARS 1997 AND 1998.16 Simply stated, we shall resolve now the issues concerning: (1) the correctness of the finding of the Court of Appeals that the VAT exemption embodied in Rep. Act No. 7227 does not apply to petitioner as a purchaser; and (2) the entitlement of the petitioner to a tax refund on its purchases of supplies and raw materials for 1997 and 1998. On the first issue, petitioner argues that the appellate courts restrictive interpretation of petitioners VAT exemption as limited to those covered by Section 107 of the Tax Code is erroneous and devoid of legal basis. It contends that the provisions of Rep. Act No. 7227 clearly and unambiguously mandate that no local and national taxes shall be imposed upon SBFZ-registered firms and hence, said law should govern the case. Petitioner calls our attention to regulations issued by both the SBMA and BIR clearly and categorically providing that the tax exemption provided for by Rep. Act No. 7227 includes exemption from the imposition of VAT on purchases of supplies and materials. The respondent takes the diametrically opposite view that while Rep. Act No. 7227 does grant tax exemptions, such grant is not allencompassing but is limited only to those taxes for which a SBFZregistered business may be directly liable. Hence, SBFZ locators are not relieved from the indirect taxes that may be shifted to them by a VAT-registered seller. At this juncture, it must be stressed that the VAT is an indirect tax. As such, the amount of tax paid on the goods, properties or services bought, transferred, or leased may be shifted or passed on by the seller, transferor, or lessor to the buyer, transferee or lessee.17 Unlike a direct tax, such as the income tax, which primarily taxes an individuals ability to pay based on his income or net wealth, an indirect tax, such as the VAT, is a tax on consumption of goods, services, or certain transactions involving the same. The VAT, thus, forms a substantial portion of consumer expenditures. Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the burden of the tax. As earlier pointed out, the amount of tax paid may be shifted or passed on by the seller to the buyer. What is transferred in such instances is not the liability for the tax, but the tax burden. In adding or including the VAT due to the selling price, the seller remains the person primarily and legally liable for the payment of the tax. What is shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the tax.18 Stated differently, a seller who is directly and legally liable for payment of an indirect tax, such as the VAT on goods or services is not necessarily the person who ultimately bears the burden of the same tax. It is the final purchaser or consumer of such goods or services who, although not directly and legally liable for the payment thereof, ultimately bears the burden of the tax.19 Exemptions from VAT are granted by express provision of the Tax Code or special laws. Under VAT, the transaction can have preferential treatment in the following ways: (a) VAT Exemption. An exemption means that the sale of goods or properties and/or services and the use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid.20 This is a case wherein the VAT is removed at the exempt stage (i.e., at the point of the sale, barter or exchange of the goods or properties). 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. On the other hand, a VAT-registered purchaser of VAT-exempt goods/properties or services which are exempt from VAT is not entitled to any input tax on such purchase despite the issuance of a VAT invoice or receipt.21 (b) Zero-rated Sales. These are sales by VAT-registered persons which are subject to 0% rate, meaning the tax burden is not passed on to the purchaser. 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.22 Under Zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In contrast, exemption only removes the VAT at the exempt stage, and it will actually increase, rather than reduce the total taxes paid by the exempt firms business or non-retail customers. It is

for this reason that a sharp distinction must be made between zerorating and exemption in designating a value-added tax.23 Apropos, the petitioners claim to VAT exemption in the instant case for its purchases of supplies and raw materials is founded mainly on Section 12 (b) and (c) of Rep. Act No. 7227, which basically exempts them from all national and local internal revenue taxes, including VAT and Section 4 (A)(a) of BIR Revenue Regulations No. 1-95.24 On this point, petitioner rightly claims that it is indeed VAT-Exempt and this fact is not controverted by the respondent. In fact, petitioner is registered as a NON-VAT taxpayer per Certificate of Registration25 issued by the BIR. As such, it is exempt from VAT on all its sales and importations of goods and services. Petitioners claim, however, for exemption from VAT for its purchases of supplies and raw materials is incongruous with its claim that it is VAT-Exempt, for only VAT-Registered entities can claim Input VAT Credit/Refund. The point of contention here is whether or not the petitioner may claim a refund on the Input VAT erroneously passed on to it by its suppliers. While it is true that the petitioner should not have been liable for the VAT inadvertently passed on to it by its supplier since such is a zerorated sale on the part of the supplier, the petitioner is not the proper party to claim such VAT refund. Section 4.100-2 of BIRs Revenue Regulations 7-95, as amended, or the "Consolidated Value-Added Tax Regulations" provide: Sec. 4.100-2. Zero-rated Sales. A zero-rated sale by a VATregistered 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. The following sales by VAT-registered persons shall be subject to 0%: (a) Export Sales "Export Sales" shall mean ... (5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws, e.g. Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992. ... (c) Sales to persons or entities whose exemption under special laws, e.g. R.A. No. 7227 duly registered and accredited enterprises with Subic Bay Metropolitan Authority (SBMA) and Clark Development Authority (CDA), R. A. No. 7916, Philippine Economic Zone Authority (PEZA), or international agreements, e.g. Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc. to which the Philippines is a signatory effectively subject such sales to zero-rate." Since the transaction is deemed a zero-rated sale, petitioners supplier may claim an Input VAT credit with no corresponding Output VAT liability. Congruently, no Output VAT may be passed on to the petitioner. On the second issue, it may not be amiss to re-emphasize that the petitioner is registered as a NON-VAT taxpayer and thus, is exempt from VAT. As an exempt VAT taxpayer, it is not allowed any tax credit on VAT (input tax) previously paid. In fine, even if we are to assume that exemption from the burden of VAT on petitioners purchases did exist, petitioner is still not entitled to any tax credit or refund on the input tax previously paid as petitioner is an exempt VAT taxpayer. Rather, it is the petitioners suppliers who are the proper parties to claim the tax credit and accordingly refund the petitioner of the VAT erroneously passed on to the latter. Accordingly, we find that the Court of Appeals did not commit any reversible error of law in holding that petitioners VAT exemption under Rep. Act No. 7227 is limited to the VAT on which it is directly liable as a seller and hence, it cannot claim any refund or exemption for any input VAT it paid, if any, on its purchases of raw materials and supplies. WHEREFORE, the petition is DENIED for lack of merit. The Decision dated September 3, 2001, of the Court of Appeals in CA-G.R. SP No. 62823, as well as its Resolution of December 19, 2001 are AFFIRMED. No pronouncement as to costs. G.R. No. 147295 February 16, 2007

THE COMMISIONER OF INTERNAL REVENUE, Petitioner, vs. ACESITE (PHILIPPINES) HOTEL CORPORATION, Respondent. DECISION VELASCO, JR., J.: The Case Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, assailing the November 17, 2000 Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 56816, which affirmed the January 3, 2000 Decision3 of the Court of Tax Appeals (CTA) in CTA Case No. 5645 entitled Acesite (Philippines) Hotel Corporation v. The Commissioner of Internal Revenue for Refund of VAT Payments. The Facts The facts as found by the appellate court are undisputed, thus: Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along United Nations Avenue in Manila. It leases 6,768.53 square meters of the hotels premises to the Philippine Amusement and Gaming Corporation [hereafter, PAGCOR] for casino operations. It also caters food and beverages to PAGCORs casino patrons through the hotels restaurant outlets. For the period January (sic) 96 to April 1997, Acesite incurred VAT amounting to P30,152,892.02 from its rental income and sale of food and beverages to PAGCOR during said period. Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR but the latter refused to pay the taxes on account of its tax exempt status.1awphi1.net Thus, PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid the VAT to the Commissioner of Internal Revenue [hereafter, CIR] as it feared the legal consequences of non-payment of the tax. However, Acesite belatedly arrived at the conclusion that its transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity. On 21 May 1998, Acesite filed an administrative claim for refund with the CIR but the latter failed to resolve the same. Thus on 29 May 1998, Acesite filed a petition with the Court of Tax Appeals [hereafter, CTA] which was decided in this wise: As earlier stated, Petitioner is subject to zero percent tax pursuant to Section 102 (b)(3) [now 106(A)(C)] insofar as its gross income from rentals and sales to PAGCOR, a tax exempt entity by virtue of a special law. Accordingly, the amounts of P21,413,026.78 and P8,739,865.24, representing the 10% EVAT on its sales of food and services and gross rentals, respectively from PAGCOR shall, as a matter of course, be refunded to the petitioner for having been inadvertently remitted to the respondent. Thus, taking into consideration the prescribed portion of Petitioners claim for refund of P98,743.40, and considering further the principle of solutio indebiti which requires the return of what has been delivered through mistake, Respondent must refund to the Petitioner the amount of P30,054,148.64 computed as follows: Total amount per claim 30,152,892.02

Less Prescribed amount (Exhs A, X, & X-20) January 1996 February 1996 March 1996 P 2,199.94 26,205.04 70,338.42 98,743.40 P30,054,148.64 vvvvvvvvvvvvvv WHEREFORE, in view of all the foregoing, the instant Petition for Review is partially GRANTED. The Respondent is hereby ORDERED to REFUND to the petitioner the amount of THIRTY MILLION FIFTY FOUR THOUSAND ONE HUNDRED FORTY EIGHT PESOS AND SIXTY FOUR CENTAVOS (P30,054,148.64) immediately. SO ORDERED.4 The Ruling of the Court of Appeals Upon appeal by petitioner, the CA affirmed in toto the decision of the CTA holding that PAGCOR was not only exempt from direct taxes but was also exempt from indirect taxes like the VAT and consequently, the transactions between respondent Acesite and PAGCOR were "effectively zero-rated" because they involved the rendition of services to an entity exempt from indirect taxes. Thus, the CA affirmed the CTAs determination by ruling that respondent Acesite was entitled to a refund of PhP 30,054,148.64 from petitioner.

The Issues Hence, we have the instant petition with the following issues: (1) whether PAGCORs tax exemption privilege includes the indirect tax of VAT to entitle Acesite to zero percent (0%) VAT rate; and (2) whether the zero percent (0%) VAT rate under then Section 102 (b)(3) of the Tax Code (now Section 108 (B)(3) of the Tax Code of 1997) legally applies to Acesite. The petition is devoid of merit. In resolving the first issue on whether PAGCORs tax exemption privilege includes the indirect tax of VAT to entitle Acesite to zero percent (0%) VAT rate, we answer in the affirmative. We will however discuss both issues together. PAGCOR is exempt from payment of indirect taxes It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the payment of taxes. Section 13 of P.D. 1869 pertinently provides: Sec. 13. Exemptions. xxxx (2) Income and other taxes. (a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial, or national government authority. xxxx (b) Others: The exemptions herein granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation or operator as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator. (Emphasis supplied.) Petitioner contends that the above tax exemption refers only to PAGCORs direct tax liability and not to indirect taxes, like the VAT. We disagree. A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no distinction on whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is also exempt from indirect taxes, like VAT, as follows: Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers to PAGCOR. Although the law does not specifically mention PAGCORs exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the provision clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by granting tax exempt status to persons dealing with PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR is not liable for the P30,152,892.02 VAT and neither is Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3). R.A. 8424. (Emphasis supplied.) Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with PAGCOR in casino operations, it is exempting PAGCOR from being liable to indirect taxes. The manner of charging VAT does not make PAGCOR liable to said tax It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the value. Verily, the seller or lessor has the option to follow either way in charging its clients and customer. In the instant case, Acesite followed the latter method, that is, charging an additional 10% of the gross sales

and rentals. Be that as it may, the use of either method, and in particular, the first method, does not denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT. VAT exemption extends to Acesite Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable for the payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A. 8424), which provides: Section 102. 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% of gross receipts derived by any person engaged in the sale of services x x x; Provided, that the following services performed in the Philippines by VAT-registered persons shall be subject to 0%. xxxx (b) Transactions subject to zero percent (0%) rated. xxxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero (0%) rate (emphasis supplied). The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from the 1987 case ofCommissioner of Internal Revenue v. John Gotamco & Sons, Inc.,5 where the absolute tax exemption of the World Health Organization (WHO) upon an international agreement was upheld. We held in said case that the exemption of contractee WHO should be implemented to mean that the entity or person exempt is the contractor itself who constructed the building owned by contractee WHO, and such does not violate the rule that tax exemptions are personal because the manifest intention of the agreement is to exempt the contractor so that no contractors tax may be shifted to the contractee WHO. Thus, the proviso in P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR. Acesite paid VAT by mistake Considering the foregoing discussion, there are undoubtedly erroneous payments of the VAT pertaining to the effectively zero-rate transactions between Acesite and PAGCOR. Verily, Acesite has clearly shown that it paid the subject taxes under a mistake of fact, that is, when it was not aware that the transactions it had with PAGCOR were zero-rated at the time it made the payments. In UST Cooperative Store v. City of Manila,6 we explained that "there is erroneous payment of taxes when a taxpayer pays under a mistake of fact, as for the instance in a case where he is not aware of an existing exemption in his favor at the time the payment was made."7 Such payment is held to be not voluntary and, therefore, can be recovered or refunded.8 Moreover, it must be noted that aside from not raising the issue of Acesites compliance with pertinent Revenue Regulations on exemptions during the proceedings in the CTA, it cannot be gainsaid that Acesite should have done so as it paid the VAT under a mistake of fact. Hence, petitioners argument on this point is utterly tenuous. Solutio indebiti applies to the Government Tax refunds are based on the principle of quasi-contract or solutio indebiti and the pertinent laws governing this principle are found in Arts. 2142 and 2154 of the Civil Code, which provide, thus: Art. 2142. Certain lawful, voluntary, and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another. Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. When money is paid to another under the influence of a mistake of fact, that is to say, on the mistaken supposition of the existence of a specific fact, where it would not have been known that the fact was otherwise, it may be recovered. The ground upon which the right of recovery rests is that money paid through misapprehension of facts belongs in equity and in good conscience to the person who paid it. 9 The Government comes within the scope of solutio indebiti principle as elucidated in Commissioner of Internal Revenue v. Firemans Fund Insurance Company, where we held that: "Enshrined in the basic legal principles is the time-honored doctrine that no person shall unjustly enrich himself at the expense of another. It goes without saying that

the Government is not exempted from the application of this doctrine."10 Action for refund strictly construed; Acesite discharged the burden of proof Since an action for a tax refund partakes of the nature of an exemption, which cannot be allowed unless granted in the most explicit and categorical language, it is strictly construed against the claimant who must discharge such burden convincingly.11 In the instant case, respondent Acesite had discharged this burden as found by the CTA and the CA. Indeed, the records show that Acesite proved its actual VAT payments subject to refund, as attested to by an independent Certified Public Accountant who was duly commissioned by the CTA. On the other hand, petitioner never disputed nor contested respondents testimonial and documentary evidence. In fact, petitioner never presented any evidence on its behalf. One final word. The BIR must release the refund to respondent without any unreasonable delay. Indeed, fair dealing is expected by our taxpayers from the BIR and this duty demands that the BIR should refund without any unreasonable delay what it has erroneously collected.12 WHEREFORE, the petition is DENIED for lack of merit and the November 17, 2000 Decision of the CA is hereby AFFIRMED. No costs. G.R. No. 172087 March 15, 2011 PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR), Petitioner, vs. THE BUREAU OF INTERNAL REVENUE (BIR), represented herein by HON. JOSE MARIO BUAG, in his official capacity as COMMISSIONER OF INTERNAL REVENUE, Public Respondent, JOHN DOE and JANE DOE, who are persons acting for, in behalf, or under the authority of Respondent.Public and Private Respondents. DECISION PERALTA, J.: For resolution of this Court is the Petition for Certiorari and Prohibition1 with prayer for the issuance of a Temporary Restraining Order and/or Preliminary Injunction, dated April 17, 2006, of petitioner Philippine Amusement and Gaming Corporation (PAGCOR), seeking the declaration of nullity of Section 1 of Republic Act (R.A.) No. 9337 insofar as it amends Section 27 (c) of the National Internal Revenue Code of 1997, by excluding petitioner from exemption from corporate income tax for being repugnant to Sections 1 and 10 of Article III of the Constitution. Petitioner further seeks to prohibit the implementation of Bureau of Internal Revenue (BIR) Revenue Regulations No. 16-2005 for being contrary to law. The undisputed facts follow. PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067-A2 on January 1, 1977. Simultaneous to its creation, P.D. No. 1067-B3 (supplementing P.D. No. 1067-A) was issued exempting PAGCOR from the payment of any type of tax, except a franchise tax of five percent (5%) of the gross revenue. 4 Thereafter, on June 2, 1978, P.D. No. 1399 was issued expanding the scope of PAGCOR's exemption.5 To consolidate the laws pertaining to the franchise and powers of PAGCOR, P.D. No. 18696 was issued. Section 13 thereof reads as follows: Sec. 13. Exemptions. x x x (1) Customs Duties, taxes and other imposts on importations. - All importations of equipment, vehicles, automobiles, boats, ships, barges, aircraft and such other gambling paraphernalia, including accessories or related facilities, for the sole and exclusive use of the casinos, the proper and efficient management and administration thereof and such other clubs, recreation or amusement places to be established under and by virtue of this Franchise shall be exempt from the payment of duties, taxes and other imposts, including all kinds of fees, levies, or charges of any kind or nature. Vessels and/or accessory ferry boats imported or to be imported by any corporation having existing contractual arrangements with the Corporation, for the sole and exclusive use of the casino or to be used to service the operations and requirements of the casino, shall likewise be totally exempt from the payment of all customs duties, taxes and other imposts, including all kinds of fees, levies,

assessments or charges of any kind or nature, whether National or Local. (2) Income and other taxes. - (a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges, or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five percent (5%)of the gross revenue or earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established, or collected by any municipal, provincial or national government authority. (b) Others: The exemption herein granted for earnings derived from the operations conducted under the franchise, specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator. The fee or remuneration of foreign entertainers contracted by the Corporation or operator in pursuance of this provision shall be free of any tax. (3) Dividend Income. Notwithstanding any provision of law to the contrary, in the event the Corporation should declare a cash dividend income corresponding to the participation of the private sector shall, as an incentive to the beneficiaries, be subject only to a final flat income rate of ten percent (10%) of the regular income tax rates. The dividend income shall not in such case be considered as part of the beneficiaries' taxable income; provided, however, that such dividend income shall be totally exempted from income or other form of taxes if invested within six (6) months from the date the dividend income is received in the following: (a) operation of the casino(s) or investments in any affiliate activity that will ultimately redound to the benefit of the Corporation; or any other corporation with whom the Corporation has any existing arrangements in connection with or related to the operations of the casino(s); (b) Government bonds, securities, treasury notes, or government debentures; or (c) BOI-registered or export-oriented corporation(s).7 PAGCOR's tax exemption was removed in June 1984 through P.D. No. 1931, but it was later restored by Letter of Instruction No. 1430, which was issued in September 1984. On January 1, 1998, R.A. No. 8424,8 otherwise known as the National Internal Revenue Code of 1997, took effect. Section 27 (c) of R.A. No. 8424 provides that government-owned and controlled corporations (GOCCs) shall pay corporate income tax, except petitioner PAGCOR, the Government Service and Insurance Corporation, the Social Security System, the Philippine Health Insurance Corporation, and the Philippine Charity Sweepstakes Office, thus: (c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - The provisions of existing special general laws to the contrary notwithstanding, all corporations, agencies or instrumentalities owned and controlled by the Government, except the Government Service and Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO), and the Philippine Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in similar business, industry, or activity.9 With the enactment of R.A. No. 933710 on May 24, 2005, certain sections of the National Internal Revenue Code of 1997 were amended. The particular amendment that is at issue in this case is

Section 1 of R.A. No. 9337, which amended Section 27 (c) of the National Internal Revenue Code of 1997 by excluding PAGCOR from the enumeration of GOCCs that are exempt from payment of corporate income tax, thus: (c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - The provisions of existing special general laws to the contrary notwithstanding, all corporations, agencies, or instrumentalities owned and controlled by the Government, except the Government Service and Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), and the Philippine Charity Sweepstakes Office (PCSO), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in similar business, industry, or activity. Different groups came to this Court via petitions for certiorari and prohibition11 assailing the validity and constitutionality of R.A. No. 9337, in particular: 1) Section 4, which imposes a 10% Value Added Tax (VAT) on sale of goods and properties; Section 5, which imposes a 10% VAT on importation of goods; and Section 6, which imposes a 10% VAT on sale of services and use or lease of properties, all contain a uniform proviso authorizing the President, upon the recommendation of the Secretary of Finance, to raise the VAT rate to 12%. The said provisions were alleged to be violative of Section 28 (2), Article VI of the Constitution, which section vests in Congress the exclusive authority to fix the rate of taxes, and of Section 1, Article III of the Constitution on due process, as well as of Section 26 (2), Article VI of the Constitution, which section provides for the "no amendment rule" upon the last reading of a bill; 2) Sections 8 and 12 were alleged to be violative of Section 1, Article III of the Constitution, or the guarantee of equal protection of the laws, and Section 28 (1), Article VI of the Constitution; and 3) other technical aspects of the passage of the law, questioning the manner it was passed. On September 1, 2005, the Court dismissed all the petitions and upheld the constitutionality of R.A. No. 9337.12 On the same date, respondent BIR issued Revenue Regulations (RR) No. 16-2005,13 specifically identifying PAGCOR as one of the franchisees subject to 10% VAT imposed under Section 108 of the National Internal Revenue Code of 1997, as amended by R.A. No. 9337. The said revenue regulation, in part, reads: Sec. 4. 108-3. Definitions and Specific Rules on Selected Services. xxxx (h) x x x Gross Receipts of all other franchisees, other than those covered by Sec. 119 of the Tax Code, regardless of how their franchisees may have been granted, shall be subject to the 10% VAT imposed under Sec.108 of the Tax Code. This includes, among others, the Philippine Amusement and Gaming Corporation (PAGCOR), and its licensees or franchisees. Hence, the present petition for certiorari. PAGCOR raises the following issues: I WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING REPUGNANT TO THE EQUAL PROTECTION [CLAUSE] EMBODIED IN SECTION 1, ARTICLE III OF THE 1987 CONSTITUTION. II WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING REPUGNANT TO THE NONIMPAIRMENT [CLAUSE] EMBODIED IN SECTION 10, ARTICLE III OF THE 1987 CONSTITUTION. III WHETHER OR NOT RR 16-2005, SECTION 4.108-3, PARAGRAPH (H) IS NULL AND VOID AB INITIOFOR BEING BEYOND THE SCOPE OF THE BASIC LAW, RA 8424, SECTION 108, INSOFAR AS THE SAID REGULATION IMPOSED VAT ON THE SERVICES OF THE PETITIONER AS WELL AS PETITIONERS LICENSEES OR FRANCHISEES WHEN THE BASIC LAW, AS INTERPRETED BY APPLICABLE JURISPRUDENCE, DOES NOT IMPOSE VAT ON PETITIONER OR ON PETITIONERS LICENSEES OR FRANCHISEES.14 The BIR, in its Comment15 dated December 29, 2006, counters: I

SECTION 1 OF R.A. NO. 9337 AND SECTION 13 (2) OF P.D. 1869 ARE BOTH VALID AND CONSTITUTIONAL PROVISIONS OF LAWS THAT SHOULD BE HARMONIOUSLY CONSTRUED TOGETHER SO AS TO GIVE EFFECT TO ALL OF THEIR PROVISIONS WHENEVER POSSIBLE. II SECTION 1 OF R.A. NO. 9337 IS NOT VIOLATIVE OF SECTION 1 AND SECTION 10, ARTICLE III OF THE 1987 CONSTITUTION. III BIR REVENUE REGULATIONS ARE PRESUMED VALID AND CONSTITUTIONAL UNTIL STRICKEN DOWN BY LAWFUL AUTHORITIES. The Office of the Solicitor General (OSG), by way of Manifestation In Lieu of Comment,16 concurred with the arguments of the petitioner. It added that although the State is free to select the subjects of taxation and that the inequity resulting from singling out a particular class for taxation or exemption is not an infringement of the constitutional limitation, a tax law must operate with the same force and effect to all persons, firms and corporations placed in a similar situation. Furthermore, according to the OSG, public respondent BIR exceeded its statutory authority when it enacted RR No. 16-2005, because the latter's provisions are contrary to the mandates of P.D. No. 1869 in relation to R.A. No. 9337. The main issue is whether or not PAGCOR is still exempt from corporate income tax and VAT with the enactment of R.A. No. 9337. After a careful study of the positions presented by the parties, this Court finds the petition partly meritorious. Under Section 1 of R.A. No. 9337, amending Section 27 (c) of the National Internal Revenue Code of 1977, petitioner is no longer exempt from corporate income tax as it has been effectively omitted from the list of GOCCs that are exempt from it. Petitioner argues that such omission is unconstitutional, as it is violative of its right to equal protection of the laws under Section 1, Article III of the Constitution: Sec. 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws. In City of Manila v. Laguio, Jr.,17 this Court expounded the meaning and scope of equal protection, thus: Equal protection requires that all persons or things similarly situated should be treated alike, both as to rights conferred and responsibilities imposed. Similar subjects, in other words, should not be treated differently, so as to give undue favor to some and unjustly discriminate against others. The guarantee means that no person or class of persons shall be denied the same protection of laws which is enjoyed by other persons or other classes in like circumstances. The "equal protection of the laws is a pledge of the protection of equal laws." It limits governmental discrimination. The equal protection clause extends to artificial persons but only insofar as their property is concerned. xxxx Legislative bodies are allowed to classify the subjects of legislation. If the classification is reasonable, the law may operate only on some and not all of the people without violating the equal protection clause. The classification must, as an indispensable requisite, not be arbitrary. To be valid, it must conform to the following requirements: 1) It must be based on substantial distinctions. 2) It must be germane to the purposes of the law. 3) It must not be limited to existing conditions only. 4) It must apply equally to all members of the class.18 It is not contested that before the enactment of R.A. No. 9337, petitioner was one of the five GOCCs exempted from payment of corporate income tax as shown in R.A. No. 8424, Section 27 (c) of which, reads: (c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - The provisions of existing special or general laws to the contrary notwithstanding, all corporations, agencies or instrumentalities owned and controlled by the Government, except the Government Service and Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO), and the Philippine Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in similar business, industry, or activity.19 A perusal of the legislative records of the Bicameral Conference Meeting of the Committee on Ways on Means dated October 27, 1997 would show that the exemption of PAGCOR from the payment of corporate income tax was due to the acquiescence of the Committee

on Ways on Means to the request of PAGCOR that it be exempt from such tax.20 The records of the Bicameral Conference Meeting reveal: HON. R. DIAZ. The other thing, sir, is we --- I noticed we imposed a tax on lotto winnings. CHAIRMAN ENRILE. Wala na, tinanggal na namin yon. HON. R. DIAZ. Tinanggal na ba natin yon? CHAIRMAN ENRILE. Oo. HON. R. DIAZ. Because I was wondering whether we covered the tax on --- Whether on a universal basis, we included a tax on cockfighting winnings. CHAIRMAN ENRILE. No, we removed the --HON. R. DIAZ. I . . . (inaudible) natin yong lotto? CHAIRMAN ENRILE. Pati PAGCOR tinanggal upon request. CHAIRMAN JAVIER. Yeah, Philippine Insurance Commission. CHAIRMAN ENRILE. Philippine Insurance --- Health, health ba. Yon ang request ng Chairman, I will accept. (laughter) Pag-Pag-ibig yon, maliliit na sa tao yon. HON. ROXAS. Mr. Chairman, I wonder if in the revenue gainers if we factored in an amount that would reflect the VAT and other sales taxes--CHAIRMAN ENRILE. No, were talking of this measure only. We will not --- (discontinued) HON. ROXAS. No, no, no, no, from the --- arising from the exemption. Assuming that when we release the money into the hands of the public, they will not use that to --- for wallpaper. They will spend that eh, Mr. Chairman. So when they spend that--CHAIRMAN ENRILE. Theres a VAT. HON. ROXAS. There will be a VAT and there will be other sales taxes no. Is there a quantification? Is there an approximation? CHAIRMAN JAVIER. Not anything. HON. ROXAS. So, in effect, we have sterilized that entire seven billion. In effect, it is not circulating in the economy which is unrealistic. CHAIRMAN ENRILE. It does, it does, because this is taken and spent by government, somebody receives it in the form of wages and supplies and other services and other goods. They are not being taken from the public and stored in a vault. CHAIRMAN JAVIER. That 7.7 loss because of tax exemption. That will be extra income for the taxpayers. HON. ROXAS. Precisely, so they will be spending it.21 The discussion above bears out that under R.A. No. 8424, the exemption of PAGCOR from paying corporate income tax was not based on a classification showing substantial distinctions which make for real differences, but to reiterate, the exemption was granted upon the request of PAGCOR that it be exempt from the payment of corporate income tax. With the subsequent enactment of R.A. No. 9337, amending R.A. No. 8424, PAGCOR has been excluded from the enumeration of GOCCs that are exempt from paying corporate income tax. The records of the Bicameral Conference Meeting dated April 18, 2005, of the Committee on the Disagreeing Provisions of Senate Bill No. 1950 and House Bill No. 3555, show that it is the legislative intent that PAGCOR be subject to the payment of corporate income tax, thus: THE CHAIRMAN (SEN. RECTO). Yes, Osmea, the proponent of the amendment. SEN. OSMEA. Yeah. Mr. Chairman, one of the reasons why we're even considering this VAT bill is we want to show the world who our creditors, that we are increasing official revenues that go to the national budget. Unfortunately today, Pagcor is unofficial. Now, in 2003, I took a quick look this morning, Pagcor had a net income of 9.7 billion after paying some small taxes that they are subjected to. Of the 9.7 billion, they claim they remitted to national government seven billion. Pagkatapos, there are other specific remittances like to the Philippine Sports Commission, etc., as mandated by various laws, and then about 400 million to the President's Social Fund. But all in all, their net profit today should be about 12 billion. That's why I am questioning this two billion. Because while essentially they claim that the money goes to government, and I will accept that just for the sake of argument. It does not pass through the appropriation process. And I think that at least if we can capture 35 percent or 32 percent through the budgetary process, first, it is reflected in our official income of government which is applied to the national budget, and secondly, it goes through what is constitutionally mandated as Congress appropriating and defining where the money is spent and not through a board of directors that has absolutely no accountability. REP. PUENTEBELLA. Well, with all due respect, Mr. Chairman, follow up lang.

There is wisdom in the comments of my good friend from Cebu, Senator Osmea. SEN. OSMEA. And Negros. REP. PUENTEBELLA. And Negros at the same time ay Kasimanwa. But I would not want to put my friends from the Department of Finance in a difficult position, but may we know your comments on this knowing that as Senator Osmea just mentioned, he said, "I accept that that a lot of it is going to spending for basic services," you know, going to most, I think, supposedly a lot or most of it should go to government spending, social services and the like. What is your comment on this? This is going to affect a lot of services on the government side. THE CHAIRMAN (REP. LAPUS). Mr. Chair, Mr. Chair. SEN. OSMEA. It goes from pocket to the other, Monico. REP. PUENTEBELLA. I know that. But I wanted to ask them, Mr. Senator, because you may have your own pre-judgment on this and I don't blame you. I don't blame you. And I know you have your own research. But will this not affect a lot, the disbursements on social services and other? REP. LOCSIN. Mr. Chairman. Mr. Chairman, if I can add to that question also. Wouldn't it be easier for you to explain to, say, foreign creditors, how do you explain to them that if there is a fiscal gap some of our richest corporations has [been] spared [from] taxation by the government which is one rich source of revenues. Now, why do you save, why do you spare certain government corporations on that, like Pagcor? So, would it be easier for you to make an argument if everything was exposed to taxation? REP. TEVES. Mr. Chair, please. THE CHAIRMAN (REP. LAPUS). Can we ask the DOF to respond to those before we call Congressman Teves? MR. PURISIMA. Thank you, Mr. Chair. Yes, from definitely improving the collection, it will help us because it will then enter as an official revenue although when dividends declare it also goes in as other income. (sic) xxxx REP. TEVES. Mr. Chairman. xxxx THE CHAIRMAN (REP. LAPUS). Congressman Teves. REP. TEVES. Yeah. Pagcor is controlled under Section 27, that is on income tax. Now, we are talking here on value-added tax. Do you mean to say we are going to amend it from income tax to value-added tax, as far as Pagcor is concerned? THE CHAIRMAN (SEN. RECTO). No. We are just amending that section with regard to the exemption from income tax of Pagcor. xxxx REP. NOGRALES. Mr. Chairman, Mr. Chairman. Mr. Chairman. THE CHAIRMAN (REP. LAPUS). Congressman Nograles. REP. NOGRALES. Just a point of inquiry from the Chair. What exactly are the functions of Pagcor that are VATable? What will we VAT in Pagcor? THE CHAIRMAN (REP. LAPUS). This is on own income tax. This is Pagcor income tax. REP. NOGRALES. No, that's why. Anong i-va-Vat natin sa kanya. Sale of what? xxxx REP. VILLAFUERTE. Mr. Chairman, my question is, what are we VATing Pagcor with, is it the . . . REP. NOGRALES. Mr. Chairman, this is a secret agreement or the way they craft their contract, which basis? THE CHAIRMAN (SEN. RECTO). Congressman Nograles, the Senate version does not discuss a VAT on Pagcor but it just takes away their exemption from non-payment of income tax.22 Taxation is the rule and exemption is the exception.23 The burden of proof rests upon the party claiming exemption to prove that it is, in fact, covered by the exemption so claimed.24 As a rule, tax exemptions are construed strongly against the claimant.25 Exemptions must be shown to exist clearly and categorically, and supported by clear legal provision.26 In this case, PAGCOR failed to prove that it is still exempt from the payment of corporate income tax, considering that Section 1 of R.A. No. 9337 amended Section 27 (c) of the National Internal Revenue Code of 1997 by omitting PAGCOR from the exemption. The legislative intent, as shown by the discussions in the Bicameral Conference Meeting, is to require PAGCOR to pay corporate income tax; hence, the omission or removal of PAGCOR from exemption from the payment of corporate income tax. It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.27 Thus, the express mention of

the GOCCs exempted from payment of corporate income tax excludes all others. Not being excepted, petitioner PAGCOR must be regarded as coming within the purview of the general rule that GOCCs shall pay corporate income tax, expressed in the maxim: exceptio firmat regulam in casibus non exceptis.28 PAGCOR cannot find support in the equal protection clause of the Constitution, as the legislative records of the Bicameral Conference Meeting dated October 27, 1997, of the Committee on Ways and Means, show that PAGCORs exemption from payment of corporate income tax, as provided in Section 27 (c) of R.A. No. 8424, or the National Internal Revenue Code of 1997, was not made pursuant to a valid classification based on substantial distinctions and the other requirements of a reasonable classification by legislative bodies, so that the law may operate only on some, and not all, without violating the equal protection clause. The legislative records show that the basis of the grant of exemption to PAGCOR from corporate income tax was PAGCORs own request to be exempted. Petitioner further contends that Section 1 (c) of R.A. No. 9337 is null and void ab initio for violating the non-impairment clause of the Constitution. Petitioner avers that laws form part of, and is read into, the contract even without the parties expressly saying so. Petitioner states that the private parties/investors transacting with it considered the tax exemptions, which inure to their benefit, as the main consideration and inducement for their decision to transact/invest with it. Petitioner argues that the withdrawal of its exemption from corporate income tax by R.A. No. 9337 has the effect of changing the main consideration and inducement for the transactions of private parties with it; thus, the amendatory provision is violative of the nonimpairment clause of the Constitution. Petitioners contention lacks merit. The non-impairment clause is contained in Section 10, Article III of the Constitution, which provides that no law impairing the obligation of contracts shall be passed. The non-impairment clause is limited in application to laws that derogate from prior acts or contracts by enlarging, abridging or in any manner changing the intention of the parties.29 There is impairment if a subsequent law changes the terms of a contract between the parties, imposes new conditions, dispenses with those agreed upon or withdraws remedies for the enforcement of the rights of the parties.30 As regards franchises, Section 11, Article XII of the Constitution31 provides that no franchise or right shall be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires.32 In Manila Electric Company v. Province of Laguna,33 the Court held that a franchise partakes the nature of a grant, which is beyond the purview of the non-impairment clause of the Constitution.34 The pertinent portion of the case states: While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires.35 In this case, PAGCOR was granted a franchise to operate and maintain gambling casinos, clubs and other recreation or amusement places, sports, gaming pools, i.e., basketball, football, lotteries, etc., whether on land or sea, within the territorial jurisdiction of the Republic of the Philippines.36 Under Section 11, Article XII of the Constitution, PAGCORs franchise is subject to amendment, alteration or repeal by Congress such as the amendment under Section 1 of R.A. No. 9377. Hence, the provision in Section 1 of R.A. No. 9337, amending Section 27 (c) of R.A. No. 8424 by withdrawing the exemption of PAGCOR

from corporate income tax, which may affect any benefits to PAGCORs transactions with private parties, is not violative of the nonimpairment clause of the Constitution. Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting PAGCOR to 10% VAT is invalid for being contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided that petitioner can be subjected to VAT. R.A. No. 9337 is clear only as to the removal of petitioner's exemption from the payment of corporate income tax, which was already addressed above by this Court. As pointed out by the OSG, R.A. No. 9337 itself exempts petitioner from VAT pursuant to Section 7 (k) thereof, which reads: Sec. 7. Section 109 of the same Code, as amended, is hereby further amended to read as follows: Section 109. Exempt Transactions. - (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: xxxx (k) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except Presidential Decree No. 529.37 Petitioner is exempt from the payment of VAT, because PAGCORs charter, P.D. No. 1869, is a special law that grants petitioner exemption from taxes. Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. No. 9337, which retained Section 108 (B) (3) of R.A. No. 8424, thus: [R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A. No. 8424), 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. (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, including the use or lease of properties: x x x xxxx (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; xxxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; x x x x38 As pointed out by petitioner, although R.A. No. 9337 introduced amendments to Section 108 of R.A. No. 8424 by imposing VAT on other services not previously covered, it did not amend the portion of Section 108 (B) (3) that subjects to zero percent rate services performed by VAT-registered persons to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to 0% rate. Petitioner's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been thoroughly and extensively discussed in Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation.39 Acesite was the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leased a portion of the hotels premises to PAGCOR. It incurred VAT amounting to P30,152,892.02 from its rental income and sale of food and beverages to PAGCOR from January 1996 to April 1997. Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR. However, PAGCOR refused to pay the taxes because of its tax-exempt status. PAGCOR paid only the amount due to Acesite minus VAT in the sum of P30,152,892.02. Acesite paid VAT in the amount of P30,152,892.02 to the Commissioner of Internal Revenue, fearing the legal consequences of its non-payment. In May 1998, Acesite sought the refund of the amount it paid as VAT on the ground that its transaction with PAGCOR was subject to zero rate as it was rendered to a taxexempt entity. The Court ruled that PAGCOR and Acesite were both exempt from paying VAT, thus: xxxx PAGCOR is exempt from payment of indirect taxes It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the payment of taxes. Section 13 of P.D. 1869 pertinently provides: Sec. 13. Exemptions. xxxx

(2) Income and other taxes. - (a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial, or national government authority. (b) Others: The exemptions herein granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation or operator as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator. Petitioner contends that the above tax exemption refers only to PAGCOR's direct tax liability and not to indirect taxes, like the VAT. We disagree. A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no distinction on whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is also exempt from indirect taxes, like VAT, as follows: Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers to PAGCOR. Although the law does not specifically mention PAGCOR's exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the provision clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by granting tax exempt status to persons dealing with PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR is not liable for the P30, 152,892.02 VAT and neither is Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3), R.A. 8424. (Emphasis supplied.) Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with PAGCOR in casino operations, it is exempting PAGCOR from being liable to indirect taxes. The manner of charging VAT does not make PAGCOR liable to said tax. It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the value. Verily, the seller or lessor has the option to follow either way in charging its clients and customer. In the instant case, Acesite followed the latter method, that is, charging an additional 10% of the gross sales and rentals. Be that as it may, the use of either method, and in particular, the first method, does not denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT. VAT exemption extends to Acesite Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable for the payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A. 8424), which provides: Section 102. 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% of gross receipts derived by any person engaged in the sale of services x x x; Provided, that the following services performed in the Philippines by VAT registered persons shall be subject to 0%. xxxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a

signatory effectively subjects the supply of such services to zero (0%) rate (emphasis supplied). The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from the 1987 case ofCommissioner of Internal Revenue v. John Gotamco & Sons, Inc., where the absolute tax exemption of the World Health Organization (WHO) upon an international agreement was upheld. We held in said case that the exemption of contractee WHO should be implemented to mean that the entity or person exempt is the contractor itself who constructed the building owned by contractee WHO, and such does not violate the rule that tax exemptions are personal because the manifest intention of the agreement is to exempt the contractor so that no contractor's tax may be shifted to the contractee WHO. Thus, the proviso in P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR.40 Although the basis of the exemption of PAGCOR and Acesite from VAT in the case of The Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation was Section 102 (b) of the 1977 Tax Code, as amended, which section was retained as Section 108 (B) (3) in R.A. No. 8424,41 it is still applicable to this case, since the provision relied upon has been retained in R.A. No. 9337.421avvphi1 It is settled rule that in case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails, because the said rule or regulation cannot go beyond the terms and provisions of the basic law.43 RR No. 16-2005, therefore, cannot go beyond the provisions of R.A. No. 9337. Since PAGCOR is exempt from VAT under R.A. No. 9337, the BIR exceeded its authority in subjecting PAGCOR to 10% VAT under RR No. 16-2005; hence, the said regulatory provision is hereby nullified. WHEREFORE, the petition is PARTLY GRANTED. Section 1 of Republic Act No. 9337, amending Section 27 (c) of the National Internal Revenue Code of 1997, by excluding petitioner Philippine Amusement and Gaming Corporation from the enumeration of government-owned and controlled corporations exempted from corporate income tax is valid and constitutional, while BIR Revenue Regulations No. 16-2005 insofar as it subjects PAGCOR to 10% VAT is null and void for being contrary to the National Internal Revenue Code of 1997, as amended by Republic Act No. 9337. G.R. No. 164365 June 8, 2007 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PLACER DOME TECHNICAL SERVICES (PHILS.), INC., respondent. DECISION TINGA, J.: Two years ago, the Court in Commissioner of Internal Revenue v. American Express International, Inc. (Philippine Branch)1 definitively ruled that under the National Internal Revenue Code of 1986, as amended,2 "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 [Bangko Sentral ng Pilipinas], are zerorated."3The grant of the present petition entails the extreme step of rejecting American Express as precedent, a recourse which the Court is unwilling to take. The facts, as culled from the recital in the assailed Decision 4 dated 30 June 2004 of the Court of Appeals, follow. On 24 March 1996, at the San Antonio Mines in Marinduque owned by Marcopper Mining Corporation (Marcopper), mine tailings from the Taipan Pit started to escape through the Makulapnit Tunnel and Boac Rivers, causing the cessation of mining and milling operations, and causing potential environmental damage to the rivers and the immediate area. To contain the damage and prevent the further spread of the tailing leak, Placer Dome, Inc. (PDI), the owner of 39.9% of Marcopper, undertook to perform the clean-up and rehabilitation of the Makalupnit and Boac Rivers, through a subsidiary. To accomplish this, PDI engaged Placer Dome Technical Services Limited (PDTSL), a non-resident foreign corporation with office in Canada, to carry out the project. In turn, PDTSL engaged the services of Placer Dome Technical Services (Philippines), Inc. (respondent), a domestic corporation and registered Value-Added Tax (VAT) entity, to implement the project in the Philippines. PDTSL and respondent thus entered into an Implementation Agreement signed on 15 November 1996. Due to the urgency and potentially significant damage to the environment, respondent had

agreed to immediately implement the project, and the Implementation Agreement stipulated that all implementation services rendered by respondent even prior to the agreements signing shall be deemed to have been provided pursuant to the said Agreement. The Agreement further stipulated that PDTSL was to pay respondent "an amount of money, in U.S. funds, equal to all Costs incurred for Implementation Services performed under the Agreement,"5 as well as "a fee agreed to one percent (1%) of such Costs."6 In August of 1998, respondent amended its quarterly VAT returns for the last two quarters of 1996, and for the four quarters of 1997. In the amended returns, respondent declared a total input VAT payment of P43,015,461.98 for the said quarters, and P42,837,933.60 as its total excess input VAT for the same period. Then on 11 September 1998, respondent filed an administrative claim for the refund of its reported total input VAT payments in relation to the project it had contracted from PDTSL, amounting to P43,015,461.98. In support of this claim for refund, respondent argued that the revenues it derived from services rendered to PDTSL, pursuant to the Agreement, qualified as zero-rated sales under Section 102(b)(2) of the then Tax Code, since it was paid in foreign currency inwardly remitted to the Philippines. When the Commissioner of Internal Revenue (CIR) did not act on this claim, respondent duly filed a Petition for Review with the Court of Tax Appeals (CTA), praying for the refund of its total reported excess input VAT totaling P42,837,933.60. In its Answer to the Petition, the CIR merely invoked the presumption that taxes are collected in accordance with law, and that claims for refund of taxes are construed strictly against claimants, as the same was in the nature of an exemption from taxation.7 In its Decision dated 19 March 2002,8 the CTA supported respondents legal position that its sale of services to PDTSL constituted a zerorated transaction under the Tax Code, as these services were paid for in acceptable foreign currency which had been inwardly remitted to the Philippines in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). At the same time, the CTA pointed out that of the US$27,544,707.00 paid by PDTSL to respondent, only US$14,750,473.00 was inwardly remitted and accounted for in accordance with the BSP.9 The CTA also noted that not all the reported total input VAT payments of respondent were properly supported by VAT invoices and/or official receipts, 10 and that not all of the allowable input VAT of the respondent could be directly attributed to its zero-rated sales.11 In the end, the CTA found that only the resulting input VAT ofP17,178,373.12 could be refunded the respondent.12 The CIR filed a Motion for Reconsideration where he invoked Section 4.102-2(b)(2) of Revenue Regulation No. 5-96,13 and especially VAT Ruling No. 040-98 dated 23 November 1998, which had interpreted the aforecited provision. The CTA remained unpersuaded despite the cited issuances. In fact, the CTA Resolution14 dated 20 June 2002, denying the CIRs motion for reconsideration, noted that petitioners argument was not novel as it had debunked the same when first raised before it, referring to its decision dated 19 April 2002 in CTA Case No. 6099, American Express International, Inc. Philippine Branch v. Commissioner of Internal Revenue.15 The CTA reiterated its pronouncement in said case, thus: "x x x it is very clear that VAT Ruling No. 040-98 not only expands the language of Section (108)(B)(2) but also of Revenue Regulation No. 5-96 which interprets the said statute. The same cannot be countenanced. It is a settled rule of legal hermeneutics that the implementing rules and regulations cannot amend the act of Congress x x x for administrative rules and regulations are intended to carry out, not supplant or modify, the law."16 The rulings of the CTA were elevated by petitioner to the Court of Appeals on Petition for Review. In a Decision17dated 30 June 2004, the appellate court affirmed the CTA rulings. As a consequence, the present petition is now before us. Our evaluation of the petition must begin with the statutory scope of the "services performed in the Philippines by VAT-registered persons,"18 referred to in the law applicable at the time of the subject incidents, the National Internal Revenue Code of 1986, as amended19 (1986 NIRC). Section 102(b) of the 1986 NIRC reads: Section 102. Value-Added Tax on Sale of Services and Use or Lease of Properties. (a) x x x (b) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VATregistered 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 20 It is Section 102(b)(2) which finds special relevance to this case. As explicitly provided in the law, a zero-rated VAT transaction includes services by VAT-registered persons other than processing, manufacturing or repacking goods for other persons doing business outside the Philippines, which goods are subsequently exported, the consideration for which is paid in foreign currency and accounted for in accordance with the rules and regulations of the BSP. Still, this provision was interpreted by the Bureau of Internal Revenue through Revenue Regulation No. 5-96, Section 4.102-2(b)(2) of which states: Section 4.102(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. Although there is nothing in Section 4.102-2(b)(2) that is expressly fatal to respondents claim, VAT Ruling No. 040-98 interpreted the provision in such fashion. The relevant portion of the ruling reads: The sales of services subject to zero percent (0%) VAT under Section 108(B)(2), of the Tax Code of 1997, are limited to such sales which are destined for consumption outside of the Philippines in that such services are tacked-in as part of the cost of goods exported. The zero-rating also extends to project studies, information services, engineering and architectural designs and other similar services sold by a resident of the Philippines to a non-resident foreign client because these services are likewise destined to be consumed abroad. The phrase project studies, information services, engineering and architectural designs and other similar services does not include services rendered by travel agents to foreign tourists in the Philippines following the doctrine of ejusdem generis, since such services by travel agents are not of the same class or of the same nature as those enumerated under the aforesaid section. Considering that the services by your client to foreign tourists are basically and substantially rendered within the Philippines, it follows that the onus of taxation of the revenue arising therefrom, for VAT purposes, is also within the Philippines. For this reason, it is our considered opinion that the tour package services of your client to foreign tourists in the Philippines cannot legally qualify for zero-rated (0%) VAT but rather subject to the regular VAT rate of 10%. Petitioner argues that following Section 4.102-2(b)(2) of Revenue Regulation No. 5-96, there are only two categories of services that are subject to zero percent VAT, namely: services other than processing, manufacturing or repacking for other persons doing business outside the Philippines for goods which are subsequently exported; and services by a resident to a non-resident foreign client, such as project studies, information services, engineering and architectural designs and other similar services.21 Petitioner explains that the services rendered by respondent were not for goods which were subsequently exported. Likewise, it is argued that the services rendered by respondent were not similar to "project studies, information services, engineering and architectural designs" which were destined to be consumed abroad by non-resident foreign clients. These views, petitioner points out, were reiterated in VAT Ruling No. 040-98. It is clear from that issuance that the location or "destination" where the services were destined for consumption was determinative of whether the zero-rating availed when such services were sold by a resident of the Philippines to a non-resident foreign client. VAT Ruling No. 040-98 expresses that the zero-rating may apply only when the

services are destined for consumption abroad. This view aligns with the theoretical principle that the VAT is ultimately levied on consumption.22 If the service were destined for consumption in the Philippines, the service provider would have the faculty to pass on its VAT liability to the end-user, thus avoiding having to shoulder the tax itself. Unfortunately for petitioner, his arguments are no longer fresh. The Court spurned them in Commissioner of Internal Revenue v. American Express.23 American Express involved transactions invoked as "zero-rated" by 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."24The CIR in that case relied extensively on the same VAT Ruling No. 040-98 now cited before us. However, the Court would conclude in American Express that the opinion therein that the service must be destined for consumption outside of the Philippines was "clearly ultra vires and invalid."25 The discussion of the issues in American Express was comprehensive enough as to address each issue now presently raised before us. American Express explained the nature of VAT imposed on services in this manner: The VAT is a tax on consumption "expressed as a percentage of the value added to goods or services" purchased by the producer or taxpayer. As an indirect tax on services, its main object is the transaction itself or, more concretely, the performance of all kinds of services conducted in the course of trade or business in the Philippines. These services must be regularly conducted in this country; undertaken in "pursuit of a commercial or an economic activity;" for a valuable consideration; and not exempt under the Tax Code, other special laws, or any international agreement.26 Yet even as services may be subject to VAT, our tax laws extend the benefit of zero-rating the VAT due on certain services. The aforementioned Section 102(b) of the 1986 NIRC activates such zerorating on two categories of transactions: (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; and (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.27 Obviously, it is the second category that begs for further explication, owing to its apparently broad scope, covering as it does "services other than those mentioned in the preceding subparagraph." Yet, as found by the Court inAmerican Express, such broad scope did not mean that Section 102(b) is vague, thus: The law is very clear. Under the last paragraph [of Section 102(b)], 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.28 Since Section 102(b) is, in fact, "very clear," the Court declared that any resort to statutory construction or interpretation was 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. "[W]here the law speaks in clear and categorical language, there is no room for interpretation. There is only room for application." The Court has no choice but to "see to it that its mandate is obeyed."29 It was from the awareness that Section 102(b) is free from ambiguity in providing so broad an extension of the zero-rated benefit on VATregistered persons performing services that the Court in American Express proceeded to consider the same Section 4.102-2(b)(2) of Revenue Regulation No. 5-96 now cited by petitioner. The Court inAmerican Express explained that Revenue Regulation No. 5-96 had amended Revenue Regulation No. 7-95, Section 4.102-2 of which had retained the broad language of Section 102(b) in defining "transactions

subject to zero-rate," adding only, by way of specific example, the phrase "those [services] rendered by hotels and other service establishments."30 However, the amendatory Revenue Regulation No. 5-96 opted for a more specific approach, providing, by way of example, an enumeration of those services contemplated as zero-rated.31 In the present case, it is because of such enumeration that petitioner now argues that "respondents services likewise do not fall under the second category mentioned in Section 4.102-2(b)(2) [as amended by Revenue Regulation No. 5-96], because they are not similar to project studies, information services, engineering and architectural designs which are destined to be consumed abroad by non-resident foreign clients."32 However, the Court in American Express clearly rebuffed a similar contention. 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." 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." xxxx 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. 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. 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 [1986 NIRC] is broad; it is not susceptible of narrow interpretation. (Emphasis supplied)33 The Court in American Express recognized the existence of the contrary holding in VAT Ruling No. 040-98, now relied upon by petitioner especially as he states that the zero-rating applied only when the services are destined for consumption abroad. American Express minced no words in criticizing said ruling. VAT Ruling No. 040-98 relied upon by petitioner is a less general interpretation at the administrative level, 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" in order to qualify for zero rating, it contravenes both the law and the regulations issued pursuant to it. This portion of VAT Ruling No. 040-98 is clearlyultra vires and invalid. 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," this interpretation is not conclusive and will have to be "ignored if judicially found to be erroneous" and "clearly absurd x x x or improper." 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.(Emphasis supplied)34 Petitioner presently invokes the "destination principle," citing that [r]espondents services, while rendered to a non-resident foreign corporation, are not destined to be consumed abroad. Hence, the onus of taxation of the revenue arising therefrom, for VAT purposes, is also within the Philippines. Yet the Court in American Express debunked this argument when it rebutted the theoretical underpinnings of VAT Ruling No. 040-98, particularly its reliance on the "destination principle" in taxation: As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. 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 petitioner's administrative interpretation, 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." 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. 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" when determining the service "location or position x x x for legal purposes." Respondent's 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. xxxx 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]." 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. (Emphasis supplied)35 xxxx Again, contrary to petitioner's stand, for the cost of respondent's service to be zero-rated, it need not be tacked in as part of the cost of goods exported. 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. (Emphasis supplied)36 xxxx 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 to impose the VAT. Performed in the Philippines, such service is necessarily subject to its jurisdiction, for the State necessarily has to have "a substantial connection" to it, in order to enforce a zero rate. The place of payment is immaterial; much less is the place where the output of the service will be further or ultimately used.37 Finally, the Court in American Express found support from the legislative record that revealed that consumption abroad is not a pertinent factor to imbue the zero-rating on services by VAT-registered persons performed in the Philippines. 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 ofI do not know why this comes to my mind tonightis for tourism or escort services. For example, the services of the tour operator or tour escortjust a good name for all kinds of activitiesis 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. xxxx 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 VATregistered person. When he performs services in the Philippines, that is zero-rated. "Senator Maceda: That is right."38 It is indubitable that petitioners arguments cannot withstand the Courts ruling in American Express, a precedent warranting stare decisis application and one which, in any event, we are disinclined to revisit at this juncture. G.R. No. 179632 October 19, 2011 SOUTHERN PHILIPPINES POWER CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION ABAD, J.: The case is about the sufficiency of sales invoices and receipts, which do not have the words "zero-rated" imprinted on them, to evidence zero-rated transactions, a requirement in taxpayers claim for tax credit or refund. The Facts and the Case Petitioner Southern Philippines Power Corporation (SPP), a power company that generates and sells electricity to the National Power Corporation (NPC), applied with the Bureau of Internal Revenue (BIR) for zero-rating of its transactions under Section 108(B)(3) of the National Internal Revenue Code (NIRC). The BIR approved the application for taxable years 1999 and 2000. On June 20, 2000 SPP filed a claim with respondent Commissioner of Internal Revenue (CIR) for a P5,083,371.57 tax credit or refund for 1999. On July 13, 2001 SPP filed a second claim of P6,221,078.44 in tax credit or refund for 2000. The amounts represented unutilized input VAT attributable to SPPs zero-rated sale of electricity to NPC. On September 29, 2001, before the lapse of the two-year prescriptive period for such actions, SPP filed with the Court of Tax Appeals (CTA) Second Division a petition for review covering its claims for refund or tax credit. The petition claimed only the aggregate amount of P8,636,126.75 which covered the last two quarters of 1999 and the four quarters in 2000. In his Comment on the petition, the CIR maintained that SPP is not entitled to tax credit or refund since (a) the BIR was still examining SPPs claims for the same; (b) SPP failed to substantiate its payment of input VAT; (c) its right to claim refund already prescribed, and (d) SPP has not shown compliance with Section 204(c) in relation to Section 229 of the NIRC as amended and Revenue Regulation (RR) 587 as amended by RR 3-88. In a Decision dated April 26, 2006, the Second Division1 denied SPPs claims, holding that its zero-rated official receipts did not correspond to the quarterly VAT returns, bearing a difference of P800,107,956.61. Those receipts only support the amount of P118,945,643.88. Further, these receipts do not bear the words "zero-rated" in violation of RR 795. The Second Division denied SPPs motion for reconsideration on August 15, 2006.

On appeal, the CTA En Banc affirmed the Second Divisions decision dated July 31, 2007.2 The CTA En Banc rejected SPPs contention that its sales invoices reflected the words "zero-rated," pointing out that it is on the official receipts that the law requires the printing of such words. Moreover, SPP did not report in the corresponding quarterly VAT return the sales subject of its zero-rated receipts. The CTA En Banc denied SPPs motion for reconsideration on September 19, 2007. The Issues Presented The case presents the following issues: 1. Whether or not the CTA En Banc correctly rejected the invoices that SPP presented and, thus, ruled that it failed to prove the zero-rated or effectively zero-rated sales that it made; 2. Whether or not the CTA En Banc correctly ruled that the words "BIR-VAT Zero Rate Application Number 419.2000" imprinted on SPPs invoices did not comply with RR 7-95; 3. Whether or not the CTA En Banc correctly held that SPP should have declared its zero-rated sales in its VAT returns for the subject period of the claim; and 4. Whether or not the CTA En Banc correctly ruled that SPP was not entitled to a tax refund or credit. The Courts Rulings One and Two. The Court reiterated in San Roque Power Corporation v. Commissioner of Internal Revenue3 the following criteria governing claims for refund or tax credit under Section 112(A) of the NIRC: (1) The taxpayer is VAT-registered; (2) The taxpayer is engaged in zero-rated or effectively zerorated sales; (3) The input taxes are due or paid; (4) The input taxes are not transitional input taxes; (5) The input taxes have not been applied against output taxes during and in the succeeding quarters; (6) The input taxes claimed are attributable to zero-rated or effectively zero-rated sales; (7) For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations; (8) Where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and (9) The claim is filed within two years after the close of the taxable quarter when such sales were made. While acknowledging that SPPs sale of electricity to NPC is a zerorated transaction,4 the CTA En Banc ruled that SPP failed to establish that it made zero-rated sales. True, SPP submitted official receipts and sales invoices stamped with the words "BIR VAT Zero-Rate Application Number 419.2000" but the CTA En Banc held that these were not sufficient to prove the fact of sale. But NIRC Section 110 (A.1) provides that the input tax subject of tax refund is to be evidenced by a VAT invoice "or" official receipt issued in accordance with Section 113. Section 113 has been amended by Republic Act (R.A.) 9337 but it is the unamended version that covers the period when the transactions in this case took place. It reads: Section 113. Invoicing and Accounting Requirements for VATRegistered Persons. A. Invoicing Requirements. A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-registered person, followed by his taxpayers identification number (TIN); and (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. (Emphasis supplied) The above does not distinguish between an invoice and a receipt when used as evidence of a zero-rated transaction. Consequently, the CTA should have accepted either or both of these documents as evidence of SPPs zero-rated transactions. Section 237 of the NIRC also makes no distinction between receipts and invoices as evidence of a commercial transaction: SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date

of transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however, That in the case of sales, receipts or transfers in the amount of One hundred pesos (P100.00) or more, or regardless of the amount, where the sale or transfer is made by a person liable to value-added tax to another person also liable to value-added tax; or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client: Provided, further, That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the purchaser. The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the transaction is effected, who, if engaged in business or in the exercise of profession, shall keep and preserve the same in his place of business for a period of three (3) years from the close of the taxable year in which such invoice or receipt was issued, while the duplicate shall be kept and preserved by the issuer, also in his place of business, for a like period. The Commissioner may, in meritorious cases, exempt any person subject to internal revenue tax from compliance with the provisions of this Section. (Emphasis supplied) The Court held in Seaoil Petroleum Corporation v. Autocorp Group5 that business forms like sales invoices are recognized in the commercial world as valid between the parties and serve as memorials of their business transactions. And such documents have probative value. Three. The CTA also did not accept SPPs official receipts due to the absence of the words "zero-rated" on it. The omission, said that court, made the receipts non-compliant with RR 7-95, specifically Section 4.108.1. But Section 4.108.1 requires the printing of the words "zerorated" only on invoices, not on official receipts: Section 4.108-1. Invoicing Requirements. All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. The name, 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. x x x x (Emphasis supplied) Actually, it is R.A. 9337 that in 2005 required the printing of the words "zero-rated" on receipts. But, since the receipts and invoices in this case cover sales made from 1999 to 2000, what applies is Section 4.108.1 above which refers only to invoices. A claim for tax credit or refund, arising out of zero-rated transactions, is essentially based on excess payment. In zero-rating a transaction, the purpose is not to benefit the person legally liable to pay the tax, like SPP, but to relieve exempt entities like NPC which supplies electricity to factories, offices, and homes, from having to shoulder the tax burden that ultimately would be passed to the public. The principle of solutio indebiti should govern this case since the BIR received something that it was not entitled to. Thus, it has to return the same. The government should not use technicalities to hold on to money that does not belong to it.6 Only a preponderance of evidence is needed to grant a claim for tax refund based on excess payment. 7 Notably, SPP does no other business except sell the power it produces to NPC, a fact that the CIR did not contest in the parties joint stipulation of facts.8 Consequently, the likelihood that SPP would claim input taxes paid on purchases attributed to sales that are not zerorated is close to nil. Four. The Court finds that SPP failed to indicate its zero-rated sales in its VAT returns. But this is not sufficient reason to deny it its claim for tax credit or refund when there are other documents from which the CTA can determine the veracity of SPPs claim.1avvphi1 Of course, such failure if partaking of a criminal act under Section 255 of the NIRC could warrant the criminal prosecution of the responsible person or persons. But the omission does not furnish ground for the outright denial of the claim for tax credit or refund if such claim is in fact justified. Five. The CTA denied SPPs claim outright for failure to establish the existence of zero-rated sales, disregarding SPPs sales invoices and receipts which evidence them. That court did not delve into the

question of SPPs compliance with the other requisites provided under Section 112 of the NIRC. Consequently, even as the Court holds that SPPs sales invoices and receipts would be sufficient to prove its zero-rated transactions, the case has to be remanded to the CTA for determination of whether or not SPP has complied with the other requisites mentioned. Such matter involves questions of fact and entails the need to examine the records. The Court is not a trier of facts and the competence needed for examining the relevant accounting books or records is undoubtedly with the CTA. WHEREFORE, the Court GRANTS the petition, SETS ASIDE the Court of Tax Appeals En Banc decision dated July 31, 2007 and resolution dated September 19, 2007, and REMANDS the case to the Court of Tax Appeals Second Division for further hearing as stated above. of the Philippines COURT

G.R. No. 172129 Present: QUISUMBING, J., Chairperson, AGBILAO CORPORATION (Formerly CARPIO MORALES, NERGY QUEZON, INC.), TINGA, VELASCO, JR., and BRION, JJ. Promulgated: September 12, 2008 x-----------------------------------------------------------------------------------------x DECISION VELASCO, JR., J.: Before us is a Petition for Review on Certiorari under Rule 45 assailing and seeking to set aside the Decision1 dated December 22, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 78280 which modified the March 18, 2003 Decision2 of the Court of Tax Appeals (CTA) in CTA Case No. 6133 entitled Mirant Pagbilao Corporation (Formerly Southern Energy Quezon, Inc.) v. Commissioner of Internal Revenue and ordered the Bureau of Internal Revenue (BIR) to refund or issue a tax credit certificate (TCC) in favor of respondent Mirant Pagbilao Corporation (MPC) in the amount representing its unutilized input value added tax (VAT) for the second quarter of 1998. Also assailed is the CAs Resolution3 of March 31, 2006 denying petitioners motion for reconsideration. The Facts MPC, formerly Southern Energy Quezon, Inc., and also formerly known as Hopewell (Phil.) Corporation, is a domestic firm engaged in the generation of power which it sells to the National Power Corporation (NPC). For the construction of the electrical and mechanical equipment portion of its Pagbilao, Quezon plant, which appears to have been undertaken from 1993 to 1996, MPC secured the services of Mitsubishi Corporation (Mitsubishi) of Japan. Under Section 134 of Republic Act No. (RA) 6395, the NPCs revised charter, NPC is exempt from all taxes. In Maceda v. Macaraig,5 the Court construed the exemption as covering both direct and indirect taxes. In the light of the NPCs tax exempt status, MPC, on the belief that its sale of power generation services to NPC is, pursuant to Sec. 108(B)(3) of the Tax Code,6 zero-rated for VAT purposes, filed on December 1, 1997 with Revenue District Office (RDO) No. 60 in Lucena City an Application for Effective Zero Rating. The application covered the construction and operation of its Pagbilao power station under a Build, Operate, and Transfer scheme. Not getting any response from the BIR district office, MPC refiled its application in the form of a "request for ruling" with the VAT Review Committee at the BIR national office on January 28, 1999. On May 13, 1999, the Commissioner of Internal Revenue issued VAT Ruling No. 052-99, stating that "the supply of electricity by Hopewell Phil. to the NPC, shall be subject to the zero percent (0%) VAT, pursuant to Section 108 (B) (3) of the National Internal Revenue Code of 1997." It must be noted at this juncture that consistent with its belief to be zero-rated, MPC opted not to pay the VAT component of the progress billings from Mitsubishi for the period covering April 1993 to September 1996for the E & M Equipment Erection Portion of MPCs contract with Mitsubishi. This prompted Mitsubishi to advance the VAT component as this serves as its output VAT which is essential for the determination of its VAT payment. Apparently, it was only on April 14,

Republic SUPREME Manila SECOND DIVISION ER OF INTERNAL REVENUE,

1998 that MPC paid Mitsubishi the VAT component for the progress billings from April 1993 to September 1996, and for which Mitsubishi issued Official Receipt (OR) No. 0189 in the aggregate amount of PhP 135,993,570. On August 25, 1998, MPC, while awaiting approval of its application aforestated, filed its quarterly VAT return for the second quarter of 1998 where it reflected an input VAT of PhP 148,003,047.62, which included PhP 135,993,570 supported by OR No. 0189. Pursuant to the procedure prescribed in Revenue Regulations No. 7-95, MPC filed on December 20, 1999 an administrative claim for refund of unutilized input VAT in the amount of PhP 148,003,047.62. Since the BIR Commissioner failed to act on its claim for refund and obviously to forestall the running of the two-year prescriptive period under Sec. 229 of the National Internal Revenue Code (NIRC), MPC went to the CTA via a petition for review, docketed as CTA Case No. 6133. Answering the petition, the BIR Commissioner, citing Kumagai-Gumi Co. Ltd. v. CIR,7 asserted that MPCs claim for refund cannot be granted for this main reason: MPCs sale of electricity to NPC is not zero-rated for its failure to secure an approved application for zerorating. Before the CTA, among the issues stipulated by the parties for resolution were, in gist, the following: 1. Whether or not [MPC] has unapplied or unutilized creditable input VAT for the 2nd quarter of 1998 attributable to zero-rated sales to NPC which are proper subject for refund pursuant to relevant provisions of the NIRC; 2. Whether the creditable input VAT of MPC for said period, if any, is substantiated by documents; and 3. Whether the unutilized creditable input VAT for said quarter, if any, was applied against any of the VAT output tax of MPC in the subsequent quarter. To provide support to the CTA in verifying and analyzing documents and figures and entries contained therein, the Sycip Gorres & Velayo (SGV), an independent auditing firm, was commissioned. The Ruling of the CTA On the basis of its affirmative resolution of the first issue, the CTA, by its Decision dated March 18, 2003, granted MPCs claim for input VAT refund or credit, but only for the amount of PhP 10,766,939.48. The fallo of the CTAs decision reads: In view of all the foregoing, the instant petition is PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED to REFUND or in the alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner its unutilized input VAT payments directly attributable to its effectively zero-rated sales for the second quarter of 1998 in the reduced amount of P10,766,939.48, computed as follows: Claimed Input VAT P148,003,047.62 Less: Disallowances a.) As summarized by SGV & Co. in its initial report (Exh. P) I. Input Taxes on Purchases of Services: 1. Supported by documents other than VAT Ors P 10,629.46 2. Supported by photocopied VAT OR 879.09 II. Input Taxes on Purchases of Goods: 1. Supported by documents other than VAT invoices 165,795.70 2. Supported by Invoices with TIN only 1,781.82 3. Supported by photocopied VAT invoices 3,153.62 III. Input Taxes on Importation of Goods: 1. Supported by photocopied documents [IEDs and/or Bureau of Customs (BOC) Ors] 716,250.00 2. Supported by brokers computations 91,601.00 990,090.69 b.) Input taxes without supporting documents as summarized in Annex A of SGV & Co.s supplementary report (CTA records, page 134) 252,447.45 c.) Claimed input taxes on purchases of services from Mitsubishi Corp. for being substantiated by dubious OR 135,996,570.008 Refundable Input P10,766,939.48 SO ORDERED.9 Explaining the disallowance of over PhP 137 million claimed input VAT, the CTA stated that most of MPCs purchases upon which it anchored its claims for refund or tax credit have not been amply substantiated by pertinent documents, such as but not limited to VAT ORs, invoices, and other supporting documents. Wrote the CTA:

We agree with the above SGV findings that out of the remaining taxes of P136,246,017.45, the amount of P252,477.45 was not supported by any document and should therefore be outrightly disallowed. As to the claimed input tax of P135,993,570.00 (P136,246,017.45 less P252,477.45 ) on purchases of services from Mitsubishi Corporation, Japan, the same is found to be of doubtful veracity. While it is true that said amount is substantiated by a VAT official receipt with Serial No. 0189 dated April 14, 1998 x x x, it must be observed, however, that said VAT allegedly paid pertains to the services which were rendered for the period 1993 to 1996. x x x The Ruling of the CA Aggrieved, MPC appealed the CTAs Decision to the CA via a petition for review under Rule 43, docketed as CA-G.R. SP No. 78280. On December 22, 2005, the CA rendered its assailed decision modifying that of the CTA decision by granting most of MPCs claims for tax refund or credit. And in a Resolution of March 31, 2006, the CA denied the BIR Commissioners motion for reconsideration. The decretal portion of the CA decision reads: WHEREFORE, premises considered, the instant petition is GRANTED. The assailed Decision of the Court of Tax Appeals dated March 18, 2003 is hereby MODIFIED. Accordingly, respondent Commissioner of Internal Revenue is ordered to refund or issue a tax credit certificate in favor of petitioner Mirant Pagbilao Corporation its unutilized input VAT payments directly attributable to its effectively zero-rated sales for the second quarter of 1998 in the total amount of P146,760,509.48. SO ORDERED.10 The CA agreed with the CTA on MPCs entitlement to (1) a zero-rating for VAT purposes for its sales and services to tax-exempt NPC; and (2) a refund or tax credit for its unutilized input VAT for the second quarter of 1998. Their disagreement, however, centered on the issue of proper documentation, particularly the evidentiary value of OR No. 0189. The CA upheld the disallowance of PhP 1,242,538.14 representing zero-rated input VAT claims supported only by photocopies of VAT OR/Invoice, documents other than VAT Invoice/OR, and mere brokers computations. But the CA allowed MPCs refund claim of PhP 135,993,570 representing input VAT payments for purchases of goods and/or services from Mitsubishi supported by OR No. 0189. The appellate court ratiocinated that the CTA erred in disallowing said claim since the OR from Mitsubishi was the best evidence for the payment of input VAT by MPC to Mitsubishi as required under Sec. 110(A)(1)(b) of the NIRC. The CA ruled that the legal requirement of a VAT Invoice/OR to substantiate creditable input VAT was complied with through OR No. 0189 which must be viewed as conclusive proof of the payment of input VAT. To the CA, OR No. 0189 represented an undisputable acknowledgment and receipt by Mitsubishi of the input VAT payment of MPC. The CA brushed aside the CTAs ruling and disquisition casting doubt on the veracity and genuineness of the Mitsubishi-issued OR No. 0189. It reasoned that the issuance date of the said receipt, April 14, 1998, must be taken conclusively to represent the input VAT payments made by MPC to Mitsubishi as MPC had no real control on the issuance of the OR. The CA held that the use of a different exchange rate reflected in the OR is of no consequence as what the OR undeniably attests and acknowledges was Mitsubishis receipt of MPCs input VAT payment. The Issue Hence, the instant petition on the sole issue of "whether or not respondent [MPC] is entitled to the refund of its input VAT payments made from 1993 to 1996 amounting to [PhP] 146,760,509.48." 11 The Courts Ruling As a preliminary matter, it should be stressed that the BIR Commissioner, while making reference to the figure PhP 146,760,509.48, joins the CA and the CTA on their disposition on the propriety of the refund of or the issuance of a TCC for the amount of PhP 10,766,939.48. In fine, the BIR Commissioner trains his sight and focuses his arguments on the core issue of whether or not MPC is entitled to a refund for PhP 135,993,570 (PhP 146,760,509.48 - PhP 10,766,939.48 = PhP 135,993,570) it allegedly paid as creditable input VAT for services and goods purchased from Mitsubishi during the 1993 to 1996 stretch. The divergent factual findings and rulings of the CTA and CA impel us to evaluate the evidence adduced below, particularly the April 14, 1998 OR 0189 in the amount of PhP 135,996,570 [for US$ 5,190,000 at US$1: PhP 26.203 rate of exchange]. Verily, a claim for tax refund may be based on a statute granting tax exemption, or, as Commissioner of Internal Revenue v. Fortune Tobacco Corporation12 would have it, the result of legislative grace. In such case, the claim is to be

construed strictissimi juris against the taxpayer,13meaning that the claim cannot be made to rest on vague inference. Where the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an exemption, the claimant must show that he clearly falls under the exempting statute. On the other hand, a tax refund may be, as usually it is, predicated on tax refund provisions allowing a refund of erroneous or excess payment of tax. The return of what was erroneously paid is founded on the principle of solutio indebiti, a basic postulate that no one should unjustly enrich himself at the expense of another. The caveat against unjust enrichment covers the government.14 And as decisional law teaches, a claim for tax refund proper, as here, necessitates only the preponderance-of-evidence threshold like in any ordinary civil case.15 We apply the foregoing elementary principles in our evaluation on whether OR 0189, in the backdrop of the factual antecedents surrounding its issuance, sufficiently proves the alleged unutilized input VAT claimed by MPC. The Court can review issues of fact where there are divergent findings by the trial and appellate courts As a matter of sound practice, the Court refrains from reviewing the factual determinations of the CA or reevaluate the evidence upon which its decision is founded. One exception to this rule is when the CA and the trial court diametrically differ in their findings, 16 as here. In such a case, it is incumbent upon the Court to review and determine if the CA might have overlooked, misunderstood, or misinterpreted certain facts or circumstances of weight, which, if properly considered, would justify a different conclusion.17 In the instant case, the CTA, unlike the CA, doubted the veracity of OR No. 0189 and did not appreciate the same to support MPCs claim for tax refund or credit. Petitioner BIR Commissioner, echoing the CTAs stand, argues against the sufficiency of OR No. 0189 to prove unutilized input VAT payment by MPC. He states in this regard that the BIR can require additional evidence to prove and ascertain payment of creditable input VAT, or that the claim for refund or tax credit was filed within the prescriptive period, or had not previously been refunded to the taxpayer. To bolster his position on the dubious character of OR No. 0189, or its insufficiency to prove input VAT payment by MPC, petitioner proffers the following arguments: (1) The input tax covered by OR No. 0189 pertains to purchases by MPC from Mitsubishi covering the period from 1993 to 1996; however, MPCs claim for tax refund or credit was filed on December 20, 1999, clearly way beyond the two-year prescriptive period set in Sec. 112 of the NIRC; (2) MPC failed to explain why OR No. 0189 was issued by Mitsubishi (Manila) when the invoices which the VAT were originally billed came from the Mitsubishis head office in Japan; (3) The exchange rate used in OR No. 0189 was pegged at PhP 26.203: USD 1 or the exchange rate prevailing in 1993 to 1996, when, on April 14, 1998, the date OR No. 0189 was issued, the exchange rate was already PhP 38.01 to a US dollar; (4) OR No. 0189 does not show or include payment of accrued interest which Mitsubishi was charging and demanded from MPC for having advanced a considerable amount of VAT. The demand, per records, is embodied in the May 12, 1995 letter of Mitsubishi to MPC; (5) MPC failed to present to the CTA its VAT returns for the second and third quarters of 1995, when the bulk of the VAT payment covered by OR No. 0189specifically PhP 109,329,135.17 of the total amount of PhP 135,993,570was billed by Mitsubishi, when such return is necessary to ascertain that the total amount covered by the receipt or a large portion thereof was not previously refunded or credited; and (6) No other documents proving said input VAT payment were presented except OR No. 0189 which, considering the fact that OR No. 0188 was likewise issued by Mitsubishi and presented before the CTA but admittedly for payments made by MPC on progress billings covering service purchases from 1993 to 1996, does not clearly show if such input VAT payment was also paid for the period 1993 to 1996 and would be beyond the two-year prescriptive period. The petition is partly meritorious. Belated payment by MPC of its obligation for creditable input VAT As no less found by the CTA, citing the SGVs report, the payments covered by OR No. 0189 were for goods and service purchases made by MPC through the progress billings from Mitsubishi for the period covering April 1993 to September 1996for the E & M Equipment Erection Portion of MPCs contract with Mitsubishi. 18 It is likewise undisputed that said payments did not include payments for the creditable input VAT of MPC. This fact is shown by the May 12, 1995 letter19 from Mitsubishi where, as earlier indicated, it apprised MPC of

the advances Mitsubishi made for the VAT payments, i.e., MPCs creditable input VAT, and for which it was holding MPC accountable for interest therefor. In net effect, MPC did not, for the VATable MPC-Mitsubishi 1993 to 1996 transactions adverted to, immediately pay the corresponding input VAT. OR No. 0189 issued on April 14, 1998 clearly reflects the belated payment of input VAT corresponding to the payment of the progress billings from Mitsubishi for the period covering April 7, 1993 to September 6, 1996. SGV found that OR No. 0189 in the amount of PhP 135,993,570 (USD 5,190,000) was duly supported by bank statement evidencing payment to Mitsubishi (Japan). 20Undoubtedly, OR No. 0189 proves payment by MPC of its creditable input VAT relative to its purchases from Mitsubishi. OR No. 0189 by itself sufficiently proves payment of VAT The CA, citing Sec. 110(A)(1)(B) of the NIRC, held that OR No. 0189 constituted sufficient proof of payment of creditable input VAT for the progress billings from Mitsubishi for the period covering April 7, 1993 to September 6, 1996. Sec. 110(A)(1)(B) of the NIRC pertinently provides: Section 110. Tax Credits. A. Creditable Input Tax. (1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax: (a) Purchase or importation of goods: xxxx (b) Purchase of services on which a value-added tax has been actually paid. (Emphasis ours.) Without necessarily saying that the BIR is precluded from requiring additional evidence to prove that input tax had indeed paid or, in fine, that the taxpayer is indeed entitled to a tax refund or credit for input VAT, we agree with the CAs above disposition. As the Court distinctly notes, the law considers a duly-executed VAT invoice or OR referred to in the above provision as sufficient evidence to support a claim for input tax credit. And any doubt as to what OR No. 0189 was for or tended to prove should reasonably be put to rest by the SGV report on which the CTA notably placed much reliance. The SGV report stated that "[OR] No. 0189 dated April 14, 1998 is for the payment of the VAT on the progress billings" from Mitsubishi Japan "for the period April 7, 1993 to September 6, 1996 for the E & M Equipment Erection Portion of the Companys contract with Mitsubishi Corporation (Japan)." 21 VAT presumably paid on April 14, 1998 While available records do not clearly indicate when MPC actually paid the creditable input VAT amounting to PhP 135,993,570 (USD 5,190,000) for the aforesaid 1993 to 1996 service purchases, the presumption is that payment was made on the date appearing on OR No. 0189, i.e., April 14, 1998. In fact, said creditable input VAT was reflected in MPCs VAT return for the second quarter of 1998. The aforementioned May 12, 1995 letter from Mitsubishi to MPC provides collaborating proof of the belated payment of the creditable input VAT angle. To reiterate, Mitsubishi, via said letter, apprised MPC of the VAT component of the service purchases MPC made and reminded MPC that Mitsubishi had advanced VAT payments to which Mitsubishi was entitled and from which it was demanding interest payment. Given the scenario depicted in said letter, it is understandable why Mitsubishi, in its effort to recover the amount it advanced, used the PhP 26.203: USD 1 exchange formula in OR No. 0189 for USD 5,190,000. No showing of interest payment not fatal to claim for refund Contrary to petitioners posture, the matter of nonpayment by MPC of the interests demanded by Mitsubishi is not an argument against the fact of payment by MPC of its creditable input VAT or of the authenticity or genuineness of OR No. 0189; for at the end of the day, the matter of interest payment was between Mitsubishi and MPC and may very well be covered by another receipt. But the more important consideration is the fact that MPC, as confirmed by the SGV, paid its obligation to Mitsubishi, and the latter issued to MPC OR No. 0189, for the VAT component of its 1993 to 1996 service purchases. The next question is, whether or not MPC is entitled to a refund or a TCC for the alleged unutilized input VAT of PhP 135,993,570 covered by OR No. 0189 which sufficiently proves payment of the input VAT. We answer the query in the negative. Claim for refund or tax credit filed out of time The claim for refund or tax credit for the creditable input VAT payment made by MPC embodied in OR No. 0189 was filed beyond the period provided by law for such claim. Sec. 112(A) of the NIRC pertinently reads:

(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: x x x. (Emphasis ours.) The above proviso clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec. 112(A), "[P]rescriptive period commences from the close of the taxable quarter when the sales were made and not from the time the input VAT was paid nor from the time the official receipt was issued."22 Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid. Be that as it may, and given that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPCs claim for refund or tax credit filed on December 10, 1999 had already prescribed. Reckoning for prescriptive period under Secs. 204(C) and 229 of the NIRC inapplicable To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for the filing of a claim therefor. Secs. 204(C) and 229 respectively provide: Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. The Commissioner may xxxx (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 the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund. xxxx Sec. 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, of any sum alleged to have been excessively or in any manner wrongfully 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 filed 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 a 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. (Emphasis ours.) Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment of the tax or penalty, for the filing of a claim of refund or tax credit. Notably too, both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes. MPCs creditable input VAT not erroneously paid For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services of the

taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax exempt client, resulting in a zero-rated or effectively zerorated transaction, does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation. In Commissioner of Internal Revenue v. Seagate Technology (Philippines), the Court explained the nature of the VAT and the entitlement to tax refund or credit of a zero-rated taxpayer: Viewed broadly, the VAT is a uniform tax x x x levied on every importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or on each rendition of services in the course of trade or business as they pass along the production and distribution chain, the tax being limited only to the value added to such goods, properties or services by the seller, transferor or lessor. It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. As such, it should be understood not in the context of the person or entity that is primarily, directly and legally liable for its payment, but in terms of its nature as a tax on consumption. In either case, though, the same conclusion is arrived at. The law that originally imposed the VAT in the country, as well as the subsequent amendments of that law, has been drawn from the tax credit method. Such method adopted the mechanics and selfenforcement features of the VAT as first implemented and practiced in Europe x x x. Under the present method that relies on invoices, an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports. If at the end of a taxable quarter the output taxes charged by a seller are equal to the input taxes passed on by the suppliers, no payment is required. It is when the output taxes exceed the input taxes that the excess has to be paid. If, however, the input taxes exceed the output taxes, the excess 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 or credited against other internal revenue taxes. xxxx Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers.23 (Emphasis added.) Considering the foregoing discussion, it is clear that Sec. 112(A) of the NIRC, providing a two-year prescriptive period reckoned from the close of the taxable quarter when the relevant sales or transactions were made pertaining to the creditable input VAT, applies to the instant case, and not to the other actions which refer to erroneous payment of taxes. As a final consideration, the Court wishes to remind the BIR and other tax agencies of their duty to treat claims for refunds and tax credits with proper attention and urgency. Had RDO No. 60 and, later, the BIR proper acted, instead of sitting, on MPCs underlying application for effective zero rating, the matter of addressing MPCs right, or lack of it, to tax credit or refund could have plausibly been addressed at their level and perchance freed the taxpayer and the government from the rigors of a tedious litigation. The all too familiar complaint is that the government acts with dispatch when it comes to tax collection, but pays little, if any, attention to tax claims for refund or exemption. It is high time our tax collectors prove the cynics wrong. WHEREFORE, the petition is PARTLY GRANTED. The Decision dated December 22, 2005 and the Resolution dated March 31, 2006 of the CA in CA-G.R. SP No. 78280 are AFFIRMED with the MODIFICATION that the claim of respondent MPC for tax refund or credit to the extent of PhP 135,993,570, representing its input VAT payments for service purchases from Mitsubishi Corporation of Japan for the construction of a portion of its Pagbilao, Quezon power station, is DENIED on the ground that the claim had prescribed. Accordingly, petitioner Commissioner of Internal Revenue is ordered to refund or, in the alternative, issue a tax credit certificate in favor of MPC, its unutilized input VAT payments directly attributable to its effectively zero-rated sales for the second quarter in the total amount of PhP 10,766,939.48. G.R. No. 184823 October 6, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. AICHI FORGING COMPANY OF ASIA, INC., Respondent. DECISION DEL CASTILLO, J.: A taxpayer is entitled to a refund either by authority of a statute expressly granting such right, privilege, or incentive in his favor, or under the principle of solutio indebiti requiring the return of taxes erroneously or illegally collected. In both cases, a taxpayer must prove not only his entitlement to a refund but also his compliance with the procedural due process as non-observance of the prescriptive periods within which to file the administrative and the judicial claims would result in the denial of his claim. This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the July 30, 2008 Decision1 and the October 6, 2008 Resolution2 of the Court of Tax Appeals (CTA) En Banc. Factual Antecedents Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and existing under the laws of the Republic of the Philippines, is engaged in the manufacturing, producing, and processing of steel and its by-products.3 It is registered with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) entity4 and its products, "close impression die steel forgings" and "tool and dies," are registered with the Board of Investments (BOI) as a pioneer status. 5 On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the period July 1, 2002 to September 30, 2002 in the total amount of P3,891,123.82 with the petitioner Commissioner of Internal Revenue (CIR), through the Department of Finance (DOF) One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center.6 Proceedings before the Second Division of the CTA On even date, respondent filed a Petition for Review7 with the CTA for the refund/credit of the same input VAT. The case was docketed as CTA Case No. 7065 and was raffled to the Second Division of the CTA. In the Petition for Review, respondent alleged that for the period July 1, 2002 to September 30, 2002, it generated and recorded zero-rated sales in the amount of P131,791,399.00,8 which was paid pursuant to Section 106(A) (2) (a) (1), (2) and (3) of the National Internal Revenue Code of 1997 (NIRC);9 that for the said period, it incurred and paid input VAT amounting to P3,912,088.14 from purchases and importation attributable to its zero-rated sales;10and that in its application for refund/credit filed with the DOF One-Stop Shop InterAgency Tax Credit and Duty Drawback Center, it only claimed the amount of P3,891,123.82.11 In response, petitioner filed his Answer12 raising the following special and affirmative defenses, to wit: 4. Petitioners alleged claim for refund is subject to administrative investigation by the Bureau; 5. Petitioner must prove that it paid VAT input taxes for the period in question; 6. Petitioner must prove that its sales are export sales contemplated under Sections 106(A) (2) (a), and 108(B) (1) of the Tax Code of 1997; 7. Petitioner must prove that the claim was filed within the two (2) year period prescribed in Section 229 of the Tax Code; 8. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund; and 9. Claims for refund are construed strictly against the claimant for the same partake of the nature of exemption from taxation.13 Trial ensued, after which, on January 4, 2008, the Second Division of the CTA rendered a Decision partially granting respondents claim for refund/credit. Pertinent portions of the Decision read: For a VAT registered entity whose sales are zero-rated, to validly claim a refund, Section 112 (A) of the NIRC of 1997, as amended, provides: 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: x x x Pursuant to the above provision, petitioner must comply with the following requisites: (1) the taxpayer is engaged in sales which are zero-rated or effectively zero-rated; (2) the taxpayer is VAT-registered;

(3) the claim must be filed within two years after the close of the Section 114 of the 1997 NIRC, and We quote, to wit: taxable quarter when such sales were made; and (4) the creditable SEC. 114. Return and Payment of Value-added Tax. input tax due or paid must be attributable to such sales, except the (A) In General. Every person liable to pay the value-added tax transitional input tax, to the extent that such input tax has not been imposed under this Title shall file a quarterly return of the amount of his applied against the output tax. gross sales or receipts within twenty-five (25) days following the close The Court finds that the first three requirements have been complied of each taxable quarter prescribed for each taxpayer: Provided, [with] by petitioner. however, That VAT-registered persons shall pay the value-added tax With regard to the first requisite, the evidence presented by petitioner, on a monthly basis. such as the Sales Invoices (Exhibits "II" to "II-262," "JJ" to "JJ-431," [x x x x ] "KK" to "KK-394" and "LL") shows that it is engaged in sales which are Based on the above-stated provision, a taxpayer has twenty five (25) zero-rated. days from the close of each taxable quarter within which to file a The second requisite has likewise been complied with. The Certificate quarterly return of the amount of his gross sales or receipts. In the of Registration with OCN 1RC0000148499 (Exhibit "C") with the BIR case at bar, the taxable quarter involved was for the period of July 1, proves that petitioner is a registered VAT taxpayer. 2002 to September 30, 2002. Applying Section 114 of the 1997 NIRC, In compliance with the third requisite, petitioner filed its administrative respondent has until October 25, 2002 within which to file its quarterly claim for refund on September 30, 2004 (Exhibit "N") and the present return for its gross sales or receipts [with] which it complied when it Petition for Review on September 30, 2004, both within the two (2) filed its VAT Quarterly Return on October 20, 2002. year prescriptive period from the close of the taxable quarter when the In relation to this, the reckoning of the two-year period provided under sales were made, which is from September 30, 2002. Section 229 of the 1997 NIRC should start from the payment of tax As regards, the fourth requirement, the Court finds that there are some subject claim for refund. As stated above, respondent filed its VAT documents and claims of petitioner that are baseless and have not Return for the taxable third quarter of 2002 on October 20, 2002. Thus, been satisfactorily substantiated. respondent's administrative and judicial claims for refund filed on xxxx September 30, 2004 were filed on time because AICHI has until In sum, petitioner has sufficiently proved that it is entitled to a refund or October 20, 2004 within which to file its claim for refund. issuance of a tax credit certificate representing unutilized excess input In addition, We do not agree with the petitioner's contention that the VAT payments for the period July 1, 2002 to September 30, 2002, 1997 NIRC requires the previous filing of an administrative claim for which are attributable to its zero-rated sales for the same period, but in refund prior to the judicial claim. This should not be the case as the law the reduced amount of P3,239,119.25, computed as follows: does not prohibit the simultaneous filing of the administrative and judicial claims for refund. What is controlling is that both claims for Amount of Claimed Input VAT P 3,891,123.82 refund must be filed within the two-year prescriptive period. Less: In sum, the Court En Banc finds no cogent justification to disturb the Exceptions as found by the ICPA 41,020.37 findings and conclusion spelled out in the assailed January 4, 2008 Decision and March 13, 2008 Resolution of the CTA Second Division. Net Creditable Input VAT P 3,850,103.45 What the instant petition seeks is for the Court En Banc to view and Less: appreciate the evidence in their own perspective of things, which Output VAT Due 610,984.20 unfortunately had already been considered and passed upon. WHEREFORE, the instant Petition for Review is hereby DENIED DUE Excess Creditable Input VAT P 3,239,119.25 COURSE and DISMISSED for lack of merit. Accordingly, the January 4, 2008 Decision and March 13, 2008 Resolution of the CTA Second WHEREFORE, premises considered, the present Petition for Review is Division in CTA Case No. 7065 entitled, "AICHI Forging Company of PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED Asia, Inc. petitioner vs. Commissioner of Internal Revenue, TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE in favor of respondent" are hereby AFFIRMED in toto. petitioner [in] the reduced amount of THREE MILLION TWO SO ORDERED.22 HUNDRED THIRTY NINE THOUSAND ONE HUNDRED NINETEEN Petitioner sought reconsideration but the CTA En Banc denied23 his AND 25/100 PESOS (P3,239,119.25), representing the unutilized input Motion for Reconsideration. VAT incurred for the months of July to September 2002. Issue SO ORDERED.14 Hence, the present recourse where petitioner interposes the issue of Dissatisfied with the above-quoted Decision, petitioner filed a Motion whether respondents judicial and administrative claims for tax for Partial Reconsideration,15 insisting that the administrative and the refund/credit were filed within the two-year prescriptive period provided judicial claims were filed beyond the two-year period to claim a tax in Sections 112(A) and 229 of refund/credit provided for under Sections 112(A) and 229 of the NIRC. the NIRC.24 He reasoned that since the year 2004 was a leap year, the filing of the Petitioners Arguments claim for tax refund/credit on September 30, 2004 was beyond the twoPetitioner maintains that respondents administrative and judicial year period, which expired on September 29, 2004.16 He cited as basis claims for tax refund/credit were filed in violation of Sections 112(A) Article 13 of the Civil Code,17 which provides that when the law speaks and 229 of the NIRC.25 He posits that pursuant to Article 13 of the Civil of a year, it is equivalent to 365 days. In addition, petitioner argued that Code,26 since the year 2004 was a leap year, the filing of the claim for the simultaneous filing of the administrative and the judicial claims tax refund/credit on September 30, 2004 was beyond the two-year contravenes Sections 112 and 229 of the NIRC.18 According to the period, which expired on September 29, 2004.27 petitioner, a prior filing of an administrative claim is a "condition 19 Petitioner further argues that the CTA En Banc erred in applying precedent" before a judicial claim can be filed. He explained that the Section 114(A) of the NIRC in determining the start of the two-year rationale of such requirement rests not only on the doctrine of period as the said provision pertains to the compliance requirements in exhaustion of administrative remedies but also on the fact that the CTA the payment of VAT.28 He asserts that it is Section 112, paragraph (A), is an appellate body which exercises the power of judicial review over of the same Code that should apply because it specifically provides for administrative actions of the BIR. 20 the period within which a claim for tax refund/ credit should be made.29 The Second Division of the CTA, however, denied petitioners Motion Petitioner likewise puts in issue the fact that the administrative claim for Partial Reconsideration for lack of merit. Petitioner thus elevated with the BIR and the judicial claim with the CTA were filed on the same the matter to the CTA En Banc via a Petition for Review.21 day.30 He opines that the simultaneous filing of the administrative and Ruling of the CTA En Banc the judicial claims contravenes Section 229 of the NIRC, which On July 30, 2008, the CTA En Banc affirmed the Second Divisions requires the prior filing of an administrative claim. 31 He insists that such Decision allowing the partial tax refund/credit in favor of respondent. procedural requirement is based on the doctrine of exhaustion of However, as to the reckoning point for counting the two-year period, administrative remedies and the fact that the CTA is an appellate body the CTA En Banc ruled: exercising judicial review over administrative actions of the CIR.32 Petitioner argues that the administrative and judicial claims were filed Respondents Arguments beyond the period allowed by law and hence, the honorable Court has For its part, respondent claims that it is entitled to a refund/credit of its no jurisdiction over the same. In addition, petitioner further contends unutilized input VAT for the period July 1, 2002 to September 30, 2002 that respondent's filing of the administrative and judicial [claims] as a matter of right because it has substantially complied with all the effectively eliminates the authority of the honorable Court to exercise requirements provided by law.33 Respondent likewise defends the jurisdiction over the judicial claim. CTA En Banc in applying Section 114(A) of the NIRC in computing the We are not persuaded.

prescriptive period for the claim for tax refund/credit. Respondent believes that Section 112(A) of the NIRC must be read together with Section 114(A) of the same Code.34 As to the alleged simultaneous filing of its administrative and judicial claims, respondent contends that it first filed an administrative claim with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the DOF before it filed a judicial claim with the CTA. 35 To prove this, respondent points out that its Claimant Information Sheet No. 4970236 and BIR Form No. 1914 for the third quarter of 2002,37 which were filed with the DOF, were attached as Annexes "M" and "N," respectively, to the Petition for Review filed with the CTA.38 Respondent further contends that the non-observance of the 120-day period given to the CIR to act on the claim for tax refund/credit in Section 112(D) is not fatal because what is important is that both claims are filed within the two-year prescriptive period.39 In support thereof, respondent cites Commissioner of Internal Revenue v. Victorias Milling Co., Inc.40where it was ruled that "[i]f, however, the [CIR] takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the [CTA] before the end of the two-year period without awaiting the decision of the [CIR]."41 Lastly, respondent argues that even if the period had already lapsed, it may be suspended for reasons of equity considering that it is not a jurisdictional requirement.42 Our Ruling The petition has merit. Unutilized input VAT must be claimed within two years after the close of the taxable quarter when the sales were made In computing the two-year prescriptive period for claiming a refund/credit of unutilized input VAT, the Second Division of the CTA applied Section 112(A) of the NIRC, which states: 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 or 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. (Emphasis supplied.) The CTA En Banc, on the other hand, took into consideration Sections 114 and 229 of the NIRC, which read: SEC. 114. Return and Payment of Value-Added Tax. (A) In General. Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly basis. Any person, whose registration has been cancelled in accordance with Section 236, shall file a return and pay the tax due thereon within twenty-five (25) days from the date of cancellation of registration: Provided, That only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches. xxxx SEC. 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 filed 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. (Emphasis supplied.) Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a claim for refund/credit of unutilized input VAT should start from the date of payment of tax and not from the close of the taxable quarter when the sales were made.43 The pivotal question of when to reckon the running of the two-year prescriptive period, however, has already been resolved in Commissioner of Internal Revenue v. Mirant Pagbilao Corporation,44 where we ruled that Section 112(A) of the NIRC is the applicable provision in determining the start of the two-year period for claiming a refund/credit of unutilized input VAT, and that Sections 204(C) and 229 of the NIRC are inapplicable as "both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes."45 We explained that: The above proviso [Section 112 (A) of the NIRC] clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec. 112 (A), "[P]rescriptive period commences from the close of the taxable quarter when the sales were made and not from the time the input VAT was paid nor from the time the official receipt was issued." Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid. Be that as it may, and given that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPCs claim for refund or tax credit filed on December 10, 1999 had already prescribed. Reckoning for prescriptive period under Secs. 204(C) and 229 of the NIRC inapplicable To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for the filing of a claim therefor. Secs. 204(C) and 229 respectively provide: Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. The Commissioner may xxxx (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 the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund. xxxx Sec. 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, of any sum alleged to have been excessively or in any manner wrongfully 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 filed 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 a 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. Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment of the tax or penalty, for the filing of a claim of refund or tax credit. Notably too, both provisions apply only

to instances of erroneous payment or illegal collection of internal revenue taxes. MPCs creditable input VAT not erroneously paid For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services of the taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax exempt client, resulting in a zero-rated or effectively zerorated transaction, does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation. xxxx Considering the foregoing discussion, it is clear that Sec. 112 (A) of the NIRC, providing a two-year prescriptive period reckoned from the close of the taxable quarter when the relevant sales or transactions were made pertaining to the creditable input VAT, applies to the instant case, and not to the other actions which refer to erroneous payment of taxes.46 (Emphasis supplied.) In view of the foregoing, we find that the CTA En Banc erroneously applied Sections 114(A) and 229 of the NIRC in computing the twoyear prescriptive period for claiming refund/credit of unutilized input VAT. To be clear, Section 112 of the NIRC is the pertinent provision for the refund/credit of input VAT. Thus, the two-year period should be reckoned from the close of the taxable quarter when the sales were made. The administrative claim was timely filed Bearing this in mind, we shall now proceed to determine whether the administrative claim was timely filed. Relying on Article 13 of the Civil Code,47 which provides that a year is equivalent to 365 days, and taking into account the fact that the year 2004 was a leap year, petitioner submits that the two-year period to file a claim for tax refund/ credit for the period July 1, 2002 to September 30, 2002 expired on September 29, 2004.48 We do not agree. In Commissioner of Internal Revenue v. Primetown Property Group, Inc.,49 we said that as between the Civil Code, which provides that a year is equivalent to 365 days, and the Administrative Code of 1987, which states that a year is composed of 12 calendar months, it is the latter that must prevail following the legal maxim, Lex posteriori derogat priori.50 Thus: Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant. There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori. Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, the two-year prescriptive period (reckoned from the time respondent filed its final adjusted return on April 14, 1998) consisted of 24 calendar months, computed as follows: We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the reglementary period.51 Applying this to the present case, the two-year period to file a claim for tax refund/credit for the period July 1, 2002 to September 30, 2002 expired on September 30, 2004. Hence, respondents administrative claim was timely filed. The filing of the judicial claim was premature However, notwithstanding the timely filing of the administrative claim, we are constrained to deny respondents claim for tax refund/credit for having been filed in violation of Section 112(D) of the NIRC, which provides that: SEC. 112. Refunds or Tax Credits of Input Tax. xxxx (D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete

documents in support of the application filed in accordance with Subsections (A) and (B) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied.) Section 112(D) of the NIRC clearly provides that the CIR has "120 days, from the date of the submission of the complete documents in support of the application [for tax refund/credit]," within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayers recourse is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days. In this case, the administrative and the judicial claims were simultaneously filed on September 30, 2004. Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-day period. For this reason, we find the filing of the judicial claim with the CTA premature. Respondents assertion that the non-observance of the 120-day period is not fatal to the filing of a judicial claim as long as both the administrative and the judicial claims are filed within the two-year prescriptive period52 has no legal basis. There is nothing in Section 112 of the NIRC to support respondents view. Subsection (A) of the said provision states that "any VATregistered person, whose sales are zero-rated or effectively zero-rated may, within two 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." The phrase "within two (2) years x x x apply for the issuance of a tax credit certificate or refund" refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. This is apparent in the first paragraph of subsection (D) of the same provision, which states that the CIR has "120 days from the submission of complete documents in support of the application filed in accordance with Subsections (A) and (B)" within which to decide on the claim. In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) of the NIRC, which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR. The second paragraph of Section 112(D) of the NIRC envisions two scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing an appeal with the CTA. With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc.53 relied upon by respondent, we find the same inapplicable as the tax provision involved in that case is Section 306, now Section 229 of the NIRC. And as already discussed, Section 229 does not apply to refunds/credits of input VAT, such as the instant case. In fine, the premature filing of respondents claim for refund/credit of input VAT before the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA. WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision and the October 6, 2008 Resolution of the Court of Tax Appeals are hereby REVERSED and SET ASIDE. The Court of Tax Appeals Second Division is DIRECTED to dismiss CTA Case No. 7065 for having been prematurely filed.