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G.R. No.

181961

December 5, 2011

LVM CONSTRUCTION CORPORATION, represented by its Managing Director,


ANDRES CHUA LAO,Petitioner,
vs.
F.T. SANCHEZ/SOCOR/KIMWA (JOINT VENTURE), F.T. SANCHEZ
CONSTRUCTION CORPORATION, SOCOR CONSTRUCTION CORPORATION AND
KIMWA CONSTRUCTION AND DEVELOPMENT CORPORATION all represented by
FORTUNATO O. SANCHEZ, JR., Respondents.
DECISION
PEREZ, J.:
Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for review on
certiorari at bench seeks the reversal of the 28 September 2007 Decision 1 rendered by the then
Thirteenth Division of the Court of Appeals (CA) in CA-G.R. SP No. 94849, 2 the decretal
portion of which states:
WHEREFORE, premises considered, the assailed Decision dated April 26, 2006 of the
Construction Industry Arbitration Commission in CIAC Case No. 25-2005 is hereby
AFFIRMED.
SO ORDERED.3
The Facts
Petitioner LVM Construction Corporation (LVM) is a duly licensed construction firm primarily
engaged in the construction of roads and bridges for the Department of Public Works and
Highways (DPWH). Awarded the construction of the Arterial Road Link Development Project in
Southern Leyte (the Project), LVM sub-contracted approximately 30% of the contract amount
with the Joint Venture composed of respondents F.T. Sanchez Corporation (FTSC), Socor
Construction Corporation (SCC) and Kimwa Construction Development Corporation (KCDC).
For the contract price of P90,061,917.25 which was later on reduced to P86,318,478.38,4 the
Joint Venture agreed to undertake construction of the portion of the Project starting from Sta. 154
+ 210.20 to Sta. 160 + 480.00. With LVM as the Contractor and the Joint Venture as SubContractor, the 27 November 1996 Sub-Contract Agreement5 executed by the parties pertinently
provided as follows:
3) That payment to the SUB-CONTRACTOR shall be on item of work accomplished in
the sub-contracted portion of the project at awarded unit cost of the project less NINE
PERCENT (9%). The SUB-CONTRACTOR shall issue a BIR registered receipt to the
CONTRACTOR.
4) Ten percent (10%) retention to be deducted for every billing of sub-contractor as
prescribed under the Tender Documents.
xxxx
13) The payment to the SUB-CONTRACTOR shall be made within seven (7) days after
the check issued by DPWH to CONTRACTOR has already been made good.6
For work rendered in the premises, there is no dispute regarding the fact that the Joint Venture
sent LVM a total of 27 Billings. For Billing Nos. 1 to 26, LVM paid the Joint Venture the total
sum of P80,414,697.12 and retained the sum of P8,041,469.79 by way of the 10% retention
stipulated in the Sub-Contract Agreement.7 For Billing No. 27 in the sum of P5,903,780.96, on
the other hand, LVM paid the Joint Venture the partial sum of P2,544,934.99 on 31 May
2001,8 claiming that it had not yet been fully paid by the DPWH. 9 Having completed the sub-

contracted works, the Joint Venture subsequently demanded from LVM the settlement of its
unpaid claims as well as the release of money retained by the latter in accordance with the SubContract Agreement. In a letter dated 16 May 2001, however, LVM apprised the Joint Venture of
the fact that its auditors have belatedly discovered that no deductions for E-VAT had been made
from its payments on Billing Nos. 1 to 26 and that it was, as a consequence, going to deduct the
8.5% payments for said tax from the amount still due in the premises. 10 In its 14 June 2001
Reply, the Joint Venture claimed that, having issued Official Receipts for every payment it
received, it was liable to pay 10% VAT thereon and that LVM can, in turn, claim therefrom an
equivalent input tax of 10%.11
With its claims still unpaid despite the lapse of more than four (4) years from the completion of
the sub-contracted works, the Joint Venture, thru its Managing Director, Fortunato O. Sanchez,
Jr., filed against LVM the 30 June 2005 complaint for sum of money and damages which was
docketed before the Construction Industry Arbitration Commission (CIAC) as CIAC Case No.
25-2005.12 Having submitted a Bill of Particulars in response to LVMs motion therefor,13 the
Joint Venture went on to file an Amended Complaint dated 23 December 2005 specifying its
claims as follows: (a) P8,041,469.73 as retention monies for Billing Nos. 1 to 26;
(b) P3,358,845.97 as unpaid balance on Billing No. 27; (c) P6,186,570.71 as interest on unpaid
retention money computed at 12% per annum reckoned from 6 August 1999 up to 1 January
2006; and (d) P5,365,677.70 as interest at 12% per annum on delayed payment of monies
collected from DPWH on Billing Nos. 1 to 26. In addition, the Joint Venture sought indemnity
for attorneys fees equivalent to 10% of the amount collected and/or in a sum not less
than P1,000,000.00.14
In its 21 October 2005 Answer with Compulsory Counterclaim, LVM maintained that it did not
release the 10% retention for Billing Nos. 1 to 26 on the ground that it had yet to make the
corresponding 8.5% deductions for E-VAT which the Joint Venture should have paid to the
Bureau of Internal Revenue (BIR) and that there is, as a consequence, a need to offset the sums
corresponding thereto from the retention money still in its possession. Moreover, LVM alleged
that the Joint Ventures claims failed to take into consideration its own outstanding obligation in
the total amount of P21,737,094.05, representing the liquidated damages it incurred as a
consequence of its delays in the completion of the project. In addition to said liquidated
damages, LVM prayed for the grant of its counterclaims for exemplary damages and attorneys
fees.15 In its 2 January 2006 supplemental answer, LVM likewise argued that the Joint Ventures
prayer for imposition of 12% interest on the retention money and the balance of Billing No. 27 is
bereft of factual and legal bases since no interest was stipulated in the parties agreement and it
was justified in refusing the release of said sums claimed.16
With the parties assent to the 19 December 2005 Terms of Reference which identified, among
other matters, the issues to be resolved in the case, 17 the CIAC proceeded to receive the parties
evidence in support of their respective causes. On 26 April 2006, the CIAC rendered its decision
granting the Joint Ventures claims for the payment of the retention money for Billing Nos. 1 to
26 as well as the interest thereon and the unpaid balance billing from 6 August 1999 to 1 January
2006 in the aggregate sum of P11,307,646.68. Discounting the contractual and legal bases for
LVMs claim that it had the right to offset its E-VAT payments from the retention money still in
its possession, the CIAC ruled that the VAT deductions the DPWH made from its payments to
LVM were for the whole project and already included all its supplies and subcontractors. Instead
of withholding said retention money, LVM was determined to have to its credit and for its use
the input VAT corresponding to the 10% equivalent VAT paid by the Joint Venture based on the
BIR-registered official receipts it issued. Finding that the delays incurred by the Joint Venture
were justified, the CIAC likewise denied LVMs counterclaim for liquidated damages for lack of
contractual basis.18
Elevated by LVM to the CA through a petition for review filed pursuant to Rule 43 of the 1997
Rules of Civil Procedure,19 the CIACs decision was affirmed in toto in the herein assailed
Decision dated 28 September 2007 rendered by said courts Thirteenth Division in CA-G.R. SP
No. 94849.20 In upholding the CIACs rejection of LVMs insistence on the offsetting of E-VAT
payments from the retention money, the CA ruled as follows:

Clearly, there was no provision in the Sub-Contract Agreement that would hold Sanchez liable
for EVAT on the amounts paid to it by LVM. As pointed out by the CIAC in its Award, the
contract documents provide only for the payment of the awarded cost of the project less 9%. Any
other deduction must be clearly stated in the provisions of the contract or upon agreement of the
parties. xxx The tribunal finds no provision that EVAT will be deducted from the sub-contractor.
xxx If [the Joint Venture] should pay or share in the payment of the EVAT, it must be clearly
defined in the sub-contract agreement.
Elucidating further, CIAC pointed out that Sanchez, under the contract was required to issue
official receipts registered with the BIR for every payment LVM makes for the progress billings,
which it did. For these official receipts issued by Sanchez to LVM, Sanchez already paid 10%
VAT to the BIR, thus: The VAT Law is very clear. Everyone must pay 10% VAT based on their
issued official receipts. These receipts must be official receipts and registered with the BIR.
Respondent (LVM) must pay its output Vat based on its receipts. Complainant (Sanchez) must
also pay output VAT based on its receipts. The law however allow each entity to deduct the input
VAT based on the official receipts issued to it. Clearly, therefore, respondent [LVM], has to its
credit the 10% output VAT paid by claimant [Joint Venture] based on the official receipts issued
to it. Respondent [LVM] can use this input VAT to offset any output VAT respondent [LVM]
must pay for any of its other projects."21
LVMs motion for reconsideration of the foregoing decision was denied for lack of merit in the
CAs 26 February 2008 Resolution,22 hence, this Rule 45 petition for review on certiorari.
The Issues
LVM urges the grant of its petition for review upon the following errors imputed against the CA,
to wit:
I
CONTRARY TO THE FINDING OF THE COURT OF APPEALS, RESPONDENTS
LIABILITY TO PAY VALUE ADDED TAX NEED NOT BE STATED IN THE SUBCONTRACT AGREEMENT DATED 27 NOVEMBER 1996 AS THE PROVISIONS OF
REPUBLIC ACT 8424, OTHERWISE KNOWN AS THE NATIONAL INTERNAL
REVENUE CODE OF THE PHILIPPINES, FORM PART OF, AND ARE DEEMED
INCORPORATED AND READ INTO SAID AGREEMENT.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT RESPONDENTS ARE
DEEMED TO HAVE ALREADY PAID VALUE ADDED TAX MERELY BECAUSE
RESPONDENTS HAD ALLEGEDLY ISSUED RECEIPTS FOR SERVICES
RENDERED.23
The Courts Ruling
The petition is bereft of merit.
For lack of any stipulation regarding the same in the parties Sub-Contract Agreement, we find
that the CA correctly brushed aside LVMs insistence on deducting its supposed E-VAT payments
from the retention money demanded by the Joint Venture. Indeed, a contract constitutes the law
between the parties who are, therefore, bound by its stipulations 24 which, when couched in clear
and plain language, should be applied according to their literal tenor.25 That there was no
agreement regarding the offsetting urged by LVM may likewise be readily gleaned from the
parties contemporaneous and subsequent acts which are given primordial consideration in
determining their intention.26 The record shows that, except for deducting sums corresponding to
the 10% retention agreed upon, 9% as contingency on sub-contract, 1% withholding tax and such
other itemized miscellaneous expenses, LVM settled the Joint Ventures Billing Nos. 1 to 26

without any mention of deductions for the E-VAT payments it claims to have advanced. 27 It was,
in fact, only on 16 May 2001 that LVMs Managing Director, Andres C. Lao, apprised the Joint
Venture in writing of its intention to deduct said payments,28 to wit:
If you would recall, during our last meeting with Deputy Project Manager of the DPWH-PJHL,
Eng. Jimmy T. Chan, last March 2001 at the PJHL Office in Palo, Leyte, our company made a
commitment to pay up to 99% accomplishment and release the retention money up to the 23rd
partial billing after receipt by our company of the 27th partial billing from JBIC and GOP
relative to the above mentioned project.
Much as our company wants to comply with said commitment, our auditors recently discovered
that all payments made by us to your Joint Venture, relative to the above mentioned project were
made without the corresponding deduction of the E-VAT of 8.50% x 10/11, which your Joint
Venture should have paid to the BIR. Records would show that from billing number 1 up to 26,
no deductions for E-VAT were made. As a matter of fact, our company was the one who
shouldered all payments due for the E-VAT which should have been deducted from the payments
made by us to your Joint Venture. Copy of the payments made by our company to the BIR
relative to the E-VAT is hereto attached as Annex "1" for your perusal and ready
reference.1avvphi1
This being the case and to offset the advances made by our company, we would like to inform
you that our company would deduct the payments made for E-VAT to the amount due to your
Joint Venture. Only by doing so, would our advances be settled and liquidated. We hope that our
auditor and your auditor can discuss this matter to avoid any possible conflict regarding this
matter.
From the foregoing letter, it is evident that LVM unilaterally broached its intention of deducting
the subject E-VAT payments only on 15 May 2001 or long after the projects completion on 9
July 1999.29 In the absence of any stipulation thereon, however, the CA correctly disallowed the
offsetting of said sums from the retention money undoubtedly due the Joint Venture. Courts are
obliged to give effect to the parties agreement and enforce the contract to the letter. 30 The rule is
settled that they have no authority to alter a contract by construction or to make a new contract
for the parties; their duty is confined to the interpretation of the one which the parties have made
for themselves, without regard to its wisdom or folly. Courts cannot supply material stipulations,
read into the contract words it does not contain31 or, for that matter, read into it any other
intention that would contradict its plain import.32 This is particularly true in this case where, in
addition to the dearth of a meeting of minds between the parties, their contemporaneous and
subsequent acts fail to yield any intention to offset the said E-VAT payments from the retention
money still in LVMs possession.lawphi1
In taking exception to the CAs affirmance of the CIACs rejection of its position for lack of
contractual basis, LVM argues that the Joint Ventures liability for E-VAT as an entity that
renders services in the course of trade or business need not be stated in the Sub-Contract
Agreement considering that it is an obligation imposed by law which forms part of, and is read
into, every contract.33 As correctly argued by the Joint Venture, however, there are two (2)
contracts under the factual milieu of the case: the main contract DPWH entered into with LVM
for the construction of the Arterial Road Link Development Project in Southern Leyte and the
Sub-Contract Agreement the latter in turn concluded with the Joint Venture over 30% of said
projects contract amount. As the entity which directly dealt with the government insofar as the
main contract was concerned, LVM was itself required by law to pay the 8.5% VAT which was
withheld by the DPWH in accordance with Republic Act No. 842434 or the Tax Reform Act of
1997 as well as the National Internal Revenue Code of 1997 (NIRC). Section 114 (C) of said law
provides as follows:
"Section 114. Return and Payment of Value-Added Tax.
xxxx

(C) Withholding of Creditable Value-added Tax. - The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or -controlled
corporations (GOCCs) shall, before making payment on account of each purchase of goods from
sellers and services rendered by contractors which are subject to the value-added tax imposed in
Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of
three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross
receipts for services rendered by contractors on every sale or installment payment which shall be
creditable against the value-added tax liability of the seller or contractor: Provided, however,
That in the case of government public works contractors, the withholding rate shall be eight and
one-half percent (8.5%): Provided, further, That the payment for lease or use of properties or
property rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the
time of payment. For this purpose, the payor or person in control of the payment shall be
considered as the withholding agent."
For the Sub-Contract Agreement, on the other hand, respondent F. Sanchez Construction, acting
on behalf of the Joint Venture, issued BIR-registered receipts for the sums paid by LVM for
Billing Nos. 1 to 26, indicating the total amount paid by the latter, the retention fee deducted
therefrom and the tax due thereon.35 These were in consonance with paragraph 3 of the SubContract Agreement which, after stating that LVMs payment shall "be on item of work
accomplished in the sub-contracted portion of the project awarded unit cost of the project less
NINE PERCENT (9%)," simply provided, that "(t)he SUB-CONTRACTOR shall issue a BIR
registered receipt to the CONTRACTOR."36 As the VAT-registered person, on the other hand,
Fortunato T. Sanchez, Sr.37 also filed the corresponding Monthly VAT Declarations 38 with the
BIR which, by themselves, are evidence of the Joint Ventures VAT liability for LVMs payments
on its billings. In fixing the base of the tax, the first paragraph A Section 108 of the NIRC
provides that "(t)here 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."
In the absence of any stipulation regarding the Joint Ventures sharing in the VAT deducted and
withheld by the DPWH from its payment on the main contract, the CIAC and the CA correctly
ruled that LVM has no basis in offsetting the amounts of said tax from the retention still in its
possession. VAT is a uniform tax 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. 39 It is a tax on
transactions, imposed at every stage of the distribution process on the sale, barter, exchange of
goods or property, and on the performance of services, even in the absence of profit attributable
thereto.40 As an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of
the goods, properties or services, VAT 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.41
Neither do we find merit in LVMs harping over the lack of showing in the record that the Joint
Venture has actually paid its liability for VAT. For this purpose, LVM insists that the Official
Receipts for its payments on the Joint Ventures billing were issued by respondent F. Sanchez
Construction and that the Monthly VAT Declarations were, in fact, filed by Fortunato Sanchez,
Sr. However, the evidence on record is to the effect that, failing to register with the Securities and
Exchange Commission (SEC) and to obtain a Mayors Permit and authorization from the BIR to
print its official receipts, the Joint Venture apprised LVM of its intention to use respondent F.
Sanchez Constructions BIR-registered receipts.42 Aside from being indicative of its knowledge
of the foregoing circumstances, LVMs previous unqualified acceptance of said official receipts
should, clearly, bar the belated exceptions it now takes with respect thereto. A party, having
performed affirmative acts upon which another person based his subsequent actions, cannot
thereafter refute his acts or renege on the effects of the same, to the prejudice of the latter.43
To recapitulate, LVM, as Contractor for the Project, was liable for the 8.5% VAT which was
withheld by the DPWH from its payments, pursuant to Section 114 (C) of the NIRC. Absent any
agreement to that effect, LVM cannot deduct the amounts thus withheld from the sums it still

owed the Joint Venture which, as Sub-Contractor of 30% of the Project, had its own liability for
10% VAT insofar as the sums paid for the sub-contracted works were concerned. Although the
burden to pay an indirect tax like VAT can, admittedly, be passed on to the purchaser of the
goods or services, it bears emphasizing that the liability to pay the same remains with the
manufacturer or seller like LVM and the Joint Venture. In the same manner that LVM is liable for
the VAT due on the payments made by the DPWH pursuant to the contract on the Project, the
Joint Venture is, consequently, liable for the VAT due on the payments made by LVM pursuant to
the parties Sub-Contract.
WHEREFORE, premises considered, the petition is DENIED for lack of merit and the CAs 28
September 2007 Decision is, accordingly, AFFIRMED in toto.

G.R. No. 190102

July 11, 2012

ACCENTURE,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

INC., Petitioner,

DECISION
SERENO, J.:
This is a Petition filed under Rule 45 of the 1997 Rules of Civil Procedure, praying for the
reversal of the Decision of the Court of Tax Appeals En Banc (CTA En Banc ) dated 22
September 2009 and its subsequent Resolution dated 23 October 2009.1
Accenture, Inc. (Accenture) is a corporation engaged in the business of providing management
consulting, business strategies development, and selling and/or licensing of software. 2 It is duly
registered with the Bureau of Internal Revenue (BIR) as a Value Added Tax (VAT) taxpayer or
enterprise in accordance with Section 236 of the National Internal Revenue Code (Tax Code).3
On 9 August 2002, Accenture filed its Monthly VAT Return for the period 1 July 2002 to 31
August 2002 (1st period). Its Quarterly VAT Return for the fourth quarter of 2002, which covers
the 1st period, was filed on 17 September 2002; and an Amended Quarterly VAT Return, on 21
June 2004.4 The following are reflected in Accentures VAT Return for the fourth quarter of
2002:5
1wphi1
Purchases

Amount

Input VAT

Domestic Purchases- Capital Goods

P12,312,722.00

P1,231,272.20

Domestic Purchases- Goods other than capital Goods

P64,789,507.90

P6,478,950.79

Domestic Purchases- Services

P16,455,868.10

P1,645,586.81

Total Input Tax

P9,355,809.80

Zero-rated Sales

P316,113,513.34

Total Sales

P335,640,544.74

Accenture filed its Monthly VAT Return for the month of September 2002 on 24 October 2002;
and that for October 2002, on 12 November 2002. These returns were amended on 9 January
2003. Accentures Quarterly VAT Return for the first quarter of 2003, which included the period

1 September 2002 to 30 November 2002 (2nd period), was filed on 17 December 2002; and the
Amended Quarterly VAT Return, on 18 June 2004. The latter contains the following
information:6
Purchases

Amount

Input VAT

Domestic Purchases- Capital Goods

P80,765,294.10

P8,076,529.41

Domestic Purchases- Goods other than capital Goods

P132,820,541.70

P13,282,054.17

Domestic Purchases-Services

P63,238,758.00

P6,323,875.80

Total Input Tax

P27,682,459.38

Zero-rated Sales

P545,686,639.18

Total Sales

P572,880,982.68

The monthly and quarterly VAT returns of Accenture show that, notwithstanding its application
of the input VAT credits earned from its zero-rated transactions against its output VAT liabilities,
it still had excess or unutilized input VAT credits. These VAT credits are in the amounts of
P9,355,809.80 for the 1st period and P27,682,459.38 for the 2nd period, or a total of
P37,038,269.18.7
Out of the P37,038,269.18, only P35,178,844.21 pertained to the allocated input VAT on
Accentures "domestic purchases of taxable goods which cannot be directly attributed to its zerorated sale of services."8 This allocated input VAT was broken down to P8,811,301.66 for the 1st
period and P26,367,542.55 for the 2nd period.9
The excess input VAT was not applied to any output VAT that Accenture was liable for in the
same quarter when the amount was earnedor to any of the succeeding quarters. Instead, it was
carried forward to petitioners 2nd Quarterly VAT Return for 2003.10
Thus, on 1 July 2004, Accenture filed with the Department of Finance (DoF) an administrative
claim for the refund or the issuance of a Tax Credit Certificate (TCC). The DoF did not act on the
claim of Accenture. Hence, on 31 August 2004, the latter filed a Petition for Review with the
First Division of the Court of Tax Appeals (Division), praying for the issuance of a TCC in its
favor in the amount of P35,178,844.21.
The Commissioner of Internal Revenue (CIR), in its Answer,11 argued thus:
1. The sale by Accenture of goods and services to its clients are not zero-rated transactions.
2. Claims for refund are construed strictly against the claimant, and Accenture has failed to prove
that it is entitled to a refund, because its claim has not been fully substantiated or documented.
In a 13 November 2008 Decision,12 the Division denied the Petition of Accenture for failing to
prove that the latters sale of services to the alleged foreign clients qualified for zero percent
VAT.13
In resolving the sole issue of whether or not Accenture was entitled to a refund or an issuance of
a TCC in the amount of P35,178,844.21,14 the Division ruled that Accenture had failed to present
evidence to prove that the foreign clients to which the former rendered services did business
outside the Philippines.15 Ruling that Accentures services would qualify for zero-rating under the
1997 National Internal Revenue Code of the Philippines (Tax Code) only if the recipient of the
services was doing business outside of the Philippines,16 the Division cited Commissioner of
Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc.
(Burmeister)17 as basis.

Accenture appealed the Divisions Decision through a Motion for Reconsideration (MR).18 In its
MR, it argued that the reliance of the Division on Burmeister was misplaced 19 for the following
reasons:
1. The issue involved in Burmeister was the entitlement of the applicant to a refund, given that
the recipient of its service was doing business in the Philippines; it was not an issue of failure of
the applicant to present evidence to prove the fact that the recipient of its services was a foreign
corporation doing business outside the Philippines.20
2. Burmeister emphasized that, to qualify for zero-rating, the recipient of the services should be
doing business outside the Philippines, and Accenture had successfully established that.21
3. Having been promulgated on 22 January 2007 or after Accenture filed its Petition with the
Division, Burmeister cannot be made to apply to this case.22
Accenture also cited Commissioner of Internal Revenue v. American Express (Amex) 23 in
support of its position. The MR was denied by the Division in its 12 March 2009 Resolution.24
Accenture appealed to the CTA En Banc. There it argued that prior to the amendment introduced
by Republic Act No. (R.A.) 9337, 25 there was no requirement that the services must be rendered
to a person engaged in business conducted outside the Philippines to qualify for zero-rating. The
CTA En Banc agreed that because the case pertained to the third and the fourth quarters of
taxable year 2002, the applicable law was the 1997 Tax Code, and not R.A. 9337. 26 Still, it ruled
that even though the provision used in Burmeister was Section 102(b)(2) of the earlier 1977 Tax
Code, the pronouncement therein requiring recipients of services to be engaged in business
outside the Philippines to qualify for zero-rating was applicable to the case at bar, because
Section 108(B)(2) of the 1997 Tax Code was a mere reenactment of Section 102(b)(2) of the
1977 Tax Code.
The CTA En Banc concluded that Accenture failed to discharge the burden of proving the latters
allegation that its clients were foreign-based.27
Resolute, Accenture filed a Petition for Review with the CTA En Banc, but the latter affirmed the
Divisions Decision and Resolution.28 A subsequent MR was also denied in a Resolution dated 23
October 2009.
Hence, the present Petition for Review29 under Rule 45.
In a Joint Stipulation of Facts and Issues, the parties and the Division have agreed to submit the
following issues for resolution:
1. Whether or not Petitioners sales of goods and services are zero-rated for VAT purposes under
Section 108(B)(2)(3) of the 1997 Tax Code.
2. Whether or not petitioners claim for refund/tax credit in the amount of P35,178,884.21
represents unutilized input VAT paid on its domestic purchases of goods and services for the
period commencing from 1 July 2002 until 30 November 2002.
3. Whether or not Petitioner has carried over to the succeeding taxable quarter(s) or year(s) the
alleged unutilized input VAT paid on its domestic purchases of goods and services for the period
commencing from 1 July 2002 until 30 November 2002, and applied the same fully to its output
VAT liability for the said period.
4. Whether or not Petitioner is entitled to the refund of the amount of P35,178,884.21,
representing the unutilized input VAT on domestic purchases of goods and services for the period
commencing from 1 July 2002 until 30 November 2002, from its sales of services to various
foreign clients.
5. Whether or not Petitioners claim for refund/tax credit in the amount of P35,178,884.21, as
alleged unutilized input VAT on domestic purchases of goods and services for the period
covering 1 July 2002 until 30 November 2002 are duly substantiated by proper documents.30
For consideration in the present Petition are the following issues:

1. Should the recipient of the services be "doing business outside the Philippines" for the
transaction to be zero-rated under Section 108(B)(2) of the 1997 Tax Code?
2. Has Accenture successfully proven that its clients are entities doing business outside the
Philippines?
Recipient of services must be doing business outside the Philippines for the transactions to
qualify as zero-rated.
Accenture anchors its refund claim on Section 112(A) of the 1997 Tax Code, which allows the
refund of unutilized input VAT earned from zero-rated or effectively zero-rated sales. The
provision reads:
SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero-Rated or Effectively Zero-Rated Sales. - Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output tax: Provided, however, That in the
case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and
(2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods of properties or services, and the amount of creditable input tax
due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be
allocated proportionately on the basis of the volume of sales. Section 108(B) referred to in the
foregoing provision was first seen when Presidential Decree No. (P.D.) 1994 31 amended Title IV
of P.D. 1158,32 which is also known as the National Internal Revenue Code of 1977. Several
Decisions have referred to this as the 1986 Tax Code, even though it merely amended Title IV of
the 1977 Tax Code.
Two years thereafter, or on 1 January 1988, Executive Order No. (E.O.) 273 33 further amended
provisions of Title IV. E.O. 273 by transferring the old Title IV provisions to Title VI and filling
in the former title with new provisions that imposed a VAT.
The VAT system introduced in E.O. 273 was restructured through Republic Act No. (R.A.)
7716.34 This law, which was approved on 5 May 1994, widened the tax base. Section 3 thereof
reads:
SECTION 3. Section 102 of the National Internal Revenue Code, as amended, is hereby further
amended to read as follows:
"SEC. 102. Value-added tax on sale of services and use or lease of properties. x x x
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"(b) Transactions subject to zero-rate. The following services performed in the Philippines by
VAT-registered persons shall be subject to 0%:
"(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP).
"(2) Services other than those mentioned in the preceding sub-paragraph, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP)."
Essentially, Section 102(b) of the 1977 Tax Codeas amended by P.D. 1994, E.O. 273, and R.A.
7716provides that if the consideration for the services provided by a VAT-registered person is
in a foreign currency, then this transaction shall be subjected to zero percent rate.
The 1997 Tax Code reproduced Section 102(b) of the 1977 Tax Code in its Section 108(B), to
wit:

(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the
Philippines by VAT- registered persons shall be subject to zero percent (0%) rate.
(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, the consideration for which
is paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP); x x x.
On 1 November 2005, Section 6 of R.A. 9337, which amended the foregoing provision, became
effective. It reads:
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as
follows:
"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
Properties. (B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:
(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 paragraph rendered to a person
engaged in business conducted outside the Philippines or to a nonresident person not engaged in
business who is outside the Philippines when the services are performed, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP); x x x." (Emphasis supplied)
The meat of Accentures argument is that nowhere does Section 108(B) of the 1997 Tax Code
state that services, to be zero-rated, should be rendered to clients doing business outside the
Philippines, the requirement introduced by R.A. 9337.35 Required by Section 108(B), prior to the
amendment, is that the consideration for the services rendered be in foreign currency and in
accordance with the rules of the Bangko Sentral ng Pilipinas (BSP). Since Accenture has
complied with all the conditions imposed in Section 108(B), it is entitled to the refund prayed
for.
In support of its claim, Accenture cites Amex, in which this Court supposedly ruled that Section
108(B) reveals a clear intent on the part of the legislators not to impose the condition of being
"consumed abroad" in order for the services performed in the Philippines to be zero-rated.36
The Division ruled that this Court, in Amex and Burmeister, did not declare that the requirement
that the client must be doing business outside the Philippinescan be disregarded, because
this requirement is expressly provided in Article 108(2) of the Tax Code.37
Accenture questions the Divisions application to this case of the pronouncements made in
Burmeister. According to petitioner, the provision applied to the present case was Section 102(b)
of the 1977 Tax Code, and not Section 108(B) of the 1997 Tax Code, which was the law effective
when the subject transactions were entered into and a refund was applied for.
In refuting Accentures theory, the CTA En Banc ruled that since Section 108(B) of the 1997 Tax
Code was a mere reproduction of Section 102(b) of the 1977 Tax Code, this Courts
interpretation of the latter may be used in interpreting the former, viz:
In the Burmeister case, the Supreme Court harmonized both Sections 102(b)(1) and 102(b)(2) of
the 1977 Tax Code, as amended, pertaining to zero-rated transactions. A parallel approach should
be accorded to the renumbered provisions of Sections 108(B)(2) and 108(B)(1) of the 1997
NIRC. This means that Section 108(B)(2) must be read in conjunction with Section 108(B)(1).

Section 108(B)(2) requires as follows: a) services other than processing, manufacturing or


repacking rendered by VAT registered persons in the Philippines; and b) the transaction paid for
in acceptable foreign currency duly accounted for in accordance with BSP rules and regulations.
The same provision made reference to Section 108(B)(1) further imposing the requisite c) that
the recipient of services must be performing business outside of Philippines. Otherwise, if both
the provider and recipient of service are doing business in the Philippines, the sale transaction is
subject to regular VAT as explained in the Burmeister case x x x.
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Clearly, the Supreme Courts pronouncements in the Burmeister case requiring that the recipient
of the services must be doing business outside the Philippines as mandated by law govern the
instant case.38
Assuming that the foregoing is true, Accenture still argues that the tax appeals courts cannot be
allowed to apply to Burmeister this Courts interpretation of Section 102(b) of the 1977 Tax
Code, because the Petition of Accenture had already been filed before the case was even
promulgated on 22 January 2007,39 to wit:
x x x. While the Burmeister case forms part of the legal system and assumes the same authority
as the statute itself, however, the same cannot be applied retroactively against the Petitioner
because to do so will be prejudicial to the latter.40
The CTA en banc is of the opinion that Accenture cannot invoke the non-retroactivity of the
rulings of the Supreme Court, whose interpretation of the law is part of that law as of the date of
its enactment.41
We rule that the recipient of the service must be doing business outside the Philippines for the
transaction to qualify for zero-rating under Section 108(B) of the Tax Code.
This Court upholds the position of the CTA en banc that, because Section 108(B) of the 1997 Tax
Code is a verbatim copy of Section 102(b) of the 1977 Tax Code, any interpretation of the latter
holds true for the former.
Moreover, even though Accentures Petition was filed before Burmeister was promulgated, the
pronouncements made in that case may be applied to the present one without violating the rule
against retroactive application. When this Court decides a case, it does not pass a new law, but
merely interprets a preexisting one.42 When this Court interpreted Section 102(b) of the 1977 Tax
Code in Burmeister, this interpretation became part of the law from the moment it became
effective. It is elementary that the interpretation of a law by this Court constitutes part of that law
from the date it was originally passed, since this Court's construction merely establishes the
contemporaneous legislative intent that the interpreted law carried into effect.43
Accenture questions the CTAs application of Burmeister, because the provision interpreted
therein was Section 102(b) of the 1977 Tax Code. In support of its position that Section 108 of
the 1997 Tax Code does not require that the services be rendered to an entity doing business
outside the Philippines, Accenture invokes this Courts pronouncements in Amex. However, a
reading of that case will readily reveal that the provision applied was Section 102(b) of the 1977
Tax Code, and not Section 108 of the 1997 Tax Code. As previously mentioned, an interpretation
of Section 102(b) of the 1977 Tax Code is an interpretation of Section 108 of the 1997 Tax Code,
the latter being a mere reproduction of the former.
This Court further finds that Accentures reliance on Amex is misplaced.
We ruled in Amex that Section 102 of the 1977 Tax Code does not require that the services be
consumed abroad to be zero-rated. However, nowhere in that case did this Court discuss the
necessary qualification of the recipient of the service, as this matter was never put in question. In
fact, the recipient of the service in Amex is a nonresident foreign client.
The aforementioned case explains how the credit card system works. The issuance of a credit
card allows the holder thereof to obtain, on credit, goods and services from certain
establishments. As proof that this credit is extended by the establishment, a credit card draft is
issued. Thereafter, the company issuing the credit card will pay for the purchases of the credit

card holders by redeeming the drafts. The obligation to collect from the card holders and to bear
the lossin case they do not payrests on the issuer of the credit card.
The service provided by respondent in Amex consisted of gathering the bills and credit card
drafts from establishments located in the Philippines and forwarding them to its parent
company's regional operating centers outside the country. It facilitated in the Philippines the
collection and payment of receivables belonging to its Hong Kong-based foreign client.
The Court explained how the services rendered in Amex were considered to have been
performed and consumed in the Philippines, to wit:
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 performers release from any past or future liability x x x." The services rendered by
respondent are performed or successfully completed upon its sending to its foreign client the
drafts and bills it has gathered from service establishments here. Its services, having been
performed in the Philippines, are therefore also consumed in the Philippines.44
The effect of the place of consumption on the zero-rating of the transaction was not the issue in
Burmeister.1wphi1Instead, this Court addressed the squarely raised issue of whether the
recipient of services should be doing business outside the Philippines for the transaction to
qualify for zero-rating. We ruled that it should. Thus, another essential condition for qualification
for zero-rating under Section 102(b)(2) of the 1977 Tax Code is that the recipient of the business
be doing that business outside the Philippines. In clarifying that there is no conflict between this
pronouncement and that laid down in Amex, we ruled thus:
x x x. As the Court held in Commissioner of Internal Revenue v. American Express International,
Inc. (Philippine Branch), the place of payment is immaterial, much less is the place where the
output of the service is ultimately used. An essential condition for entitlement to 0% VAT under
Section 102 (b) (1) and (2) is that the recipient of the services is a person doing business outside
the Philippines. In this case, the recipient of the services is the Consortium, which is doing
business not outside, but within the Philippines because it has a 15-year contract to operate and
maintain NAPOCORs two 100-megawatt power barges in Mindanao. (Emphasis in the
original)45
In Amex we ruled that the place of performance and/or consumption of the service is immaterial.
In Burmeister, the Court found that, although the place of the consumption of the service does
not affect the entitlement of a transaction to zero-rating, the place where the recipient conducts
its business does.
Amex does not conflict with Burmeister. In fact, to fully understand how Section 102(b)(2) of
the 1977 Tax Codeand consequently Section 108(B)(2) of the 1997 Tax Codewas intended
to operate, the two aforementioned cases should be taken together. The zero-rating of the
services performed by respondent in Amex was affirmed by the Court, because although the
services rendered were both performed and consumed in the Philippines, the recipient of the
service was still an entity doing business outside the Philippines as required in Burmeister.
That the recipient of the service should be doing business outside the Philippines to qualify for
zero-rating is the only logical interpretation of Section 102(b)(2) of the 1977 Tax Code, as we
explained in Burmeister:
This can only be the logical interpretation of Section 102 (b) (2). If the provider and recipient of
the "other services" are both doing business in the Philippines, the payment of foreign currency
is irrelevant. Otherwise, those subject to the regular VAT under Section 102 (a) can avoid paying
the VAT by simply stipulating payment in foreign currency inwardly remitted by the recipient of
services. To interpret Section 102 (b) (2) to apply to a payer-recipient of services doing business
in the Philippines is to make the payment of the regular VAT under Section 102 (a) dependent on
the generosity of the taxpayer. The provider of services can choose to pay the regular VAT or
avoid it by stipulating payment in foreign currency inwardly remitted by the payer-recipient.
Such interpretation removes Section 102 (a) as a tax measure in the Tax Code, an interpretation
this Court cannot sanction. A tax is a mandatory exaction, not a voluntary contribution.

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Further, when the provider and recipient of services are both doing business in the Philippines,
their transaction falls squarely under Section 102 (a) governing domestic sale or exchange of
services. Indeed, this is a purely local sale or exchange of services subject to the regular VAT,
unless of course the transaction falls under the other provisions of Section 102 (b).
Thus, when Section 102 (b) (2) speaks of "services other than those mentioned in the preceding
subparagraph," the legislative intent is that only the services are different between subparagraphs
1 and 2. The requirements for zero-rating, including the essential condition that the recipient of
services is doing business outside the Philippines, remain the same under both subparagraphs.
(Emphasis in the original)46
Lastly, it is worth mentioning that prior to the promulgation of Burmeister, Congress had already
clarified the intent behind Sections 102(b)(2) of the 1977 Tax Code and 108(B)(2) of the 1997
Tax Code amending the earlier provision. R.A. 9337 added the following phrase: "rendered to a
person engaged in business conducted outside the Philippines or to a nonresident person not
engaged in business who is outside the Philippines when the services are performed."
Accenture has failed to establish that the recipients of its services do business outside the
Philippines.
Accenture argues that based on the documentary evidence it presented,47 it was able to establish
the following circumstances:
1. The records of the Securities and Exchange Commission (SEC) show that Accentures clients
have not established any branch office in which to do business in the Philippines.
2. For these services, Accenture bills another corporation, Accenture Participations B.V. (APB),
which is likewise a foreign corporation with no "presence in the Philippines."
3. Only those not doing business in the Philippines can be required under BSP rules to pay in
acceptable currency for their purchase of goods and services from the Philippines. Thus, in a
domestic transaction, where the provider and recipient of services are both doing business in the
Philippines, the BSP cannot require any party to make payment in foreign currency.48
Accenture claims that these documentary pieces of evidence are supported by the Report of
Emmanuel Mendoza, the Court-commissioned Independent Certified Public Accountant. He
ascertained that Accentures gross billings pertaining to zero-rated sales were all supported by
zero-rated Official Receipts and Billing Statements. These documents show that these zero-rated
sales were paid in foreign exchange currency and duly accounted for in the rules and regulations
of the BSP.49
In the CTAs opinion, however, the documents presented by Accenture merely substantiate the
existence of the sales, receipt of foreign currency payments, and inward remittance of the
proceeds of these sales duly accounted for in accordance with BSP rules. Petitioner presented no
evidence whatsoever that these clients were doing business outside the Philippines.50
Accenture insists, however, that it was able to establish that it had rendered services to foreign
corporations doing business outside the Philippines, unlike in Burmeister, which allegedly
involved a foreign corporation doing business in the Philippines.51
We deny Accentures Petition for a tax refund.
The evidence presented by Accenture may have established that its clients are
foreign.1wphi1 This fact does not automatically mean, however, that these clients were doing
business outside the Philippines. After all, the Tax Code itself has provisions for a foreign
corporation engaged in business within the Philippines and vice versa, to wit:
SEC. 22. Definitions - When used in this Title:
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(H) The term "resident foreign corporation" applies to a foreign corporation engaged in trade or
business within the Philippines.

(I) The term nonresident foreign corporation applies to a foreign corporation not engaged in
trade or business within the Philippines. (Emphasis in the original)
Consequently, to come within the purview of Section 108(B)(2), it is not enough that the
recipient of the service be proven to be a foreign corporation; rather, it must be specifically
proven to be a nonresident foreign corporation.
There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting"
business. We ruled thus in Commissioner of Internal Revenue v. British Overseas Airways
Corporation:52
x x x. There is no specific criterion as to what constitutes "doing" or "engaging in" or
"transacting" business. Each case must be judged in the light of its peculiar environmental
circumstances. The term implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of commercial gain or for the
purpose and object of the business organization. "In order that a foreign corporation may be
regarded as doing business within a State, there must be continuity of conduct and intention to
establish a continuous business, such as the appointment of a local agent, and not one of a
temporary character."53
A taxpayer claiming a tax credit or refund has the burden of proof to establish the factual basis of
that claim.1wphi1 Tax refunds, like tax exemptions, are construed strictly against the taxpayer.54
Accenture failed to discharge this burden. It alleged and presented evidence to prove only that its
clients were foreign entities. However, as found by both the CTA Division and the CTA En Banc,
no evidence was presented by Accenture to prove the fact that the foreign clients to whom
petitioner rendered its services were clients doing business outside the Philippines.
As ruled by the CTA En Banc, the Official Receipts, Intercompany Payment Requests, Billing
Statements, Memo Invoices-Receivable, Memo Invoices-Payable, and Bank Statements
presented by Accenture merely substantiated the existence of sales, receipt of foreign currency
payments, and inward remittance of the proceeds of such sales duly accounted for in accordance
with BSP rules, all of these were devoid of any evidence that the clients were doing business
outside of the Philippines.55
WHEREFORE, the instant Petition is DENIED. The 22 September 2009 Decision and the 23
October 2009 Resolution of the Court of Tax Appeals En Banc in C.T.A. EB No. 477, dismissing
the Petition for the refund of the excess or unutilized input VAT credits of Accenture, Inc., are
AFFIRMED.
SO ORDERED.