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VALUE-ADDED TAX CASES

ABAKADA GURO PARTY LIST vs. EXECUTIVE SECRETARY


G.R. No. 168056, September 1, 2005

FACTS: Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a
petition for prohibition questioning the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the NIRC. Section 4 imposes a 10% VAT on
sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6
imposes a 10% VAT on sale of services and use or lease of properties. These questioned
provisions contain a uniform proviso authorizing the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of the
following conditions have been satisfied, to wit:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 %).

Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress


of its exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine
Constitution.

G.R. No. 168207

On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise
assailing the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.

Aside from questioning the so-called stand-by authority of the President to increase the VAT
rate to 12%, on the ground that it amounts to an undue delegation of legislative power, petitioners
also contend that the increase in the VAT rate to 12% contingent on any of the two conditions being
satisfied violates the due process clause embodied in Article III, Section 1 of the Constitution, as it
imposes an unfair and additional tax burden on the people, in that: (1) the 12% increase is
ambiguous because it does not state if the rate would be returned to the original 10% if the
conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the people are unsure
of the applicable VAT rate from year to year; and (3) the increase in the VAT rate, which is
supposed to be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP
of the previous year, should only be based on fiscal adequacy.

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Petitioners further claim that the inclusion of a stand-by authority granted to the President by
the Bicameral Conference Committee is a violation of the no-amendment rule upon last reading of a
bill laid down in Article VI, Section 26(2) of the Constitution.

G.R. No. 168461

Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of
Pilipinas Shell Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337:

1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on
depreciable goods shall be amortized over a 60-month period, if the acquisition, excluding
the VAT components, exceeds One Million Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of
input tax to be credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its
political subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final
withholding tax on gross payments of goods and services, which are subject to 10% VAT
under Sections 106 (sale of goods and properties) and 108 (sale of services and use or
lease of properties) of the NIRC.

Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive,
excessive, and confiscatory.

Petitioners argument is premised on the constitutional right of non-deprivation of life, liberty


or property without due process of law under Article III, Section 1 of the Constitution. According to
petitioners, the contested sections impose limitations on the amount of input tax that may be
claimed. Petitioners also argue that the input tax partakes the nature of a property that may not be
confiscated, appropriated, or limited without due process of law. Petitioners further contend that like
any other property or property right, the input tax credit may be transferred or disposed of, and that
by limiting the same, the government gets to tax a profit or value-added even if there is no profit or
value-added.

Petitioners also believe that these provisions violate the constitutional guarantee of equal
protection of the law under Article III, Section 1 of the Constitution, as the limitation on the creditable
input tax if: (1) the entity has a high ratio of input tax; or (2) invests in capital equipment; or (3) has
several transactions with the government, is not based on real and substantial differences to meet a
valid classification. Lastly, petitioners contend that the 70% limit is anything but progressive,
violative of Article VI, Section 28(1) of the Constitution, and that it is the smaller businesses with
higher input tax to output tax ratio that will suffer the consequences thereof for it wipes out whatever
meager margins the petitioners make.

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G.R. No. 168463

Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero
filed this petition for certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337
on the following grounds:

1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in
violation of Article VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on
provisions present in Senate Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119,
121, 125,[7] 148, 151, 236, 237 and 288, which were present in Senate Bill No. 1950,
violates Article VI, Section 24(1) of the Constitution, which provides that all appropriation,
revenue or tariff bills shall originate exclusively in the House of Representatives

G.R. No. 168730

On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and
prohibition on July 20, 2005, alleging unconstitutionality of the law on the ground that the limitation
on the creditable input tax in effect allows VAT-registered establishments to retain a portion of the
taxes they collect, thus violating the principle that tax collection and revenue should be solely
allocated for public purposes and expenditures. Petitioner Garcia further claims that allowing these
establishments to pass on the tax to the consumers is inequitable, in violation of Article VI, Section
28(1) of the Constitution.

RESPONDENTS’ COMMENT

In behalf of the respondents, the OSG contend that R.A. No. 9337 enjoys the presumption of
constitutionality and petitioners failed to cast doubt on its validity.

Relying on the case of Tolentino vs. Secretary of Finance, respondents argue that the
procedural issues raised by petitioners, i.e., legality of the bicameral proceedings, exclusive
origination of revenue measures and the power of the Senate concomitant thereto, have already
been settled. With regard to the issue of undue delegation of legislative power to the President,
respondents contend that the law is complete and leaves no discretion to the President but to
increase the rate to 12% once any of the two conditions provided therein arise.

Respondents also refute petitioners argument that the increase to 12%, as well as the 70%
limitation on the creditable input tax, the 60-month amortization on the purchase or importation of
capital goods exceeding P1,000,000.00, and the 5% final withholding tax by government agencies,
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is arbitrary, oppressive, and confiscatory, and that it violates the constitutional principle on
progressive taxation, among others.

Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal
reform agenda. A reform in the value-added system of taxation is the core revenue measure that will
tilt the balance towards a sustainable macroeconomic environment necessary for economic growth.

ISSUES:

1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the
NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and
Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following
provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1

HELD:

In the Philippines, the value-added system of sales taxation has long been in existence,
albeit in a different mode. Prior to 1978, the system was a single-stage tax computed under the cost
deduction method and was payable only by the original sellers. The single-stage system was
subsequently modified, and a mixture of the cost deduction method and tax credit method was used
to determine the value-added tax payable. Under the tax credit method, 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. (Note: Sinama ko ito kasi binanggit niya last meeting.)

1. No Undue Delegation of Legislative Power


The legislature may delegate to executive officers or bodies the power to determine
certain facts or conditions, or the happening of contingencies, on which the operation of a
statute is, by its terms, made to depend, but the legislature must prescribe sufficient
standards, policies or limitations on their authority. While the power to tax cannot be
delegated to executive agencies, details as to the enforcement and administration of an
exercise of such power may be left to them, including the power to determine the existence
of facts on which its operation depends.
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment
of legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus, the duty

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of correlating information and making recommendations is the kind of subsidiary activity which the
legislature may perform through its members, or which it may delegate to others to perform.
The case before the Court is not a delegation of legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and administration of the increase rate under the
law is contingent. The legislature has made the operation of the 12% rate effective January 1, 2006,
contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the
12% rate upon factual matters outside of the control of the executive. No discretion would be
exercised by the President. Highlighting the absence of discretion is the fact that the word shall is
used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a
statute denotes an imperative obligation and is inconsistent with the idea of discretion. Where the
law is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no
choice but to see to it that the mandate is obeyed.
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the
existence of any of the conditions specified by Congress. This is a duty which cannot be evaded by
the President. Inasmuch as the law specifically uses the word shall, the exercise of discretion by the
President does not come into play. It is a clear directive to impose the 12% VAT rate when the
specified conditions are present. The time of taking into effect of the 12% VAT rate is based on the
happening of a certain specified contingency, or upon the ascertainment of certain facts or
conditions by a person or body other than the legislature itself.
Also, the Secretary of Finance in making his recommendation to the President on the
existence of either of the two conditions, the former is not acting as the alter ego of the President or
even her subordinate. In such instance, he is not subject to the power of control and direction of the
President. He is acting as the agent of the legislative department, to determine and declare the
event upon which its expressed will is to take effect.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of
a fact, namely, whether by December 31, 2005:
 the value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (24/5%) or
 the national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1%).
If either of these two instances has occurred, the Secretary of Finance, by legislative
mandate, must submit such information to the President. Then the 12% VAT rate must be imposed
by the President effective January 1, 2006. There is no undue delegation of legislative power but
only of the discretion as to the execution of a law. This is constitutionally permissible. Congress
does not abdicate its functions or unduly delegate power when it describes what job must be done,
who must do it, and what is the scope of his authority; in our complex economy that is frequently the
only way in which the legislative process can go forward.

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2. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax
Burden
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two
conditions set forth therein are satisfied, the President shall increase the VAT rate to 12%.
The provisions of the law are clear. It does not provide for a return to the 10% rate nor does
it empower the President to so revert if, after the rate is increased to 12%, the VAT collection
goes below the 24/5 of the GDP of the previous year or that the national government deficit
as a percentage of GDP of the previous year does not exceed 1%.

3. Due Process and Equal Protection Clauses


The excess input tax, if any, is retained in business books of accounts and remains
creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which
provides that if the input tax exceeds the output tax, the excess shall be carried over to the
succeeding quarter or quarters. In addition, Section 112(B) allows a VAT-registered person
to apply for the issuance of a tax credit certificate or refund for any unused input taxes, to the
extent that such input taxes have not been applied against the output taxes. Such unused
input tax may be used in payment of his other internal revenue taxes.
Section 8 of R.A. No. 9337 imposed a 70% limitation on the input tax. Thus, a person
can credit his input tax only up to the extent of 70% of the output tax. In laymans term, the
value-added taxes that a person/taxpayer paid and passed on to him by a seller can only be
credited up to 70% of the value-added taxes that is due to him on a taxable transaction.
There is no retention of any tax collection because the person/taxpayer has already
previously paid the input tax to a seller, and the seller will subsequently remit such input tax
to the BIR. The party directly liable for the payment of the tax is the seller. What only needs
to be done is for the person/taxpayer to apply or credit these input taxes, as evidenced by
receipts, against his output taxes.
The input tax is not a property or a property right within the constitutional purview of
the due process clause. A VAT-registered persons entitlement to the creditable input tax is a
mere statutory privilege.
Under the previous system of single-stage taxation, taxes paid at every level of
distribution are not recoverable from the taxes payable, although it becomes part of the cost,
which is deductible from the gross revenue. When Pres. Aquino issued E.O. No. 273
imposing a 10% multi-stage tax on all sales, it was then that the crediting of the input tax
paid on purchase or importation of goods and services by VAT-registered persons against
the output tax was introduced. This was adopted by the Expanded VAT Law (R.A. No.
7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input tax as

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against the output tax is clearly a privilege created by law, a privilege that also the law can
remove, or in this case, limit.
Section 8 of R.A. No. 9337, amending Section 110(A) of the NIRC imposes a 60-
month period within which to amortize the creditable input tax on purchase or importation of
capital goods with acquisition cost of P1 Million pesos, exclusive of the VAT component.
Such spread out only poses a delay in the crediting of the input tax. Petitioners argument is
without basis because the taxpayer is not permanently deprived of his privilege to credit the
input tax.
4. Uniformity and Equitability of Taxation
The tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and
services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and
properties, importation of goods, and sale of services and use or lease of properties. These
same sections also provide for a 0% rate on certain sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the
70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase
of capital goods or the 5% final withholding tax by the government. It must be stressed that
the rule of uniform taxation does not deprive Congress of the power to classify subjects of
taxation, and only demands uniformity within the particular class.
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate
of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales
or receipts not exceeding P1,500,000.00. Also, basic marine and agricultural food products
in their original state are still not subject to the tax, thus ensuring that prices at the
grassroots level will remain accessible.

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CIR VS. SEAGATE TECHNOLOGY


GR NO. 153866, FEBRUARY 11, 2005

FACTS:
1. [Respondent] is a resident foreign corporation duly registered with the Securities and Exchange
Commission to do business in the Philippines, with principal office address at the new Cebu
Township One, Special Economic Zone, Barangay Cantao-an, Naga, Cebu;
2. [Petitioner] is sued in his official capacity, having been duly appointed and empowered to perform
the duties of his office, including, among others, the duty to act and approve claims for refund or tax
credit;
3. [Respondent] is registered with the Philippine Export Zone Authority (PEZA) and has been issued
PEZA Certificate No. 97-044 pursuant to Presidential Decree No. 66, as amended, to engage in the
manufacture of recording components primarily used in computers for export. Such registration was
made on 6 June 1997;
4. [Respondent] is VAT [(Value Added Tax)]-registered entity as evidenced by VAT Registration
Certification No. 97-083-000600-V issued on 2 April 1997;
5. VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by [respondent];
6. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with
supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for
Review), was filed on 4 October 1999 with Revenue District Office No. 83, Talisay Cebu;
7. No final action has been received by [respondent] from [petitioner] on [respondents] claim for VAT
refund.

The administrative claim for refund by the [respondent] on October 4, 1999 was not acted
upon by the [petitioner] prompting the [respondent] to elevate the case to [the CTA] on July 21,
2000 by way of Petition for Review in order to toll the running of the two-year prescriptive period.
For his part, [petitioner] raised the following Special and Affirmative Defenses, to wit:
1. [Respondents] alleged claim for tax refund/credit is subject to administrative routinary
investigation/examination by [petitioners] Bureau;
2. Since taxes are presumed to have been collected in accordance with laws and regulations, the
[respondent] has the burden of proof that the taxes sought to be refunded were erroneously or
illegally collected;
3. Claims for tax refund/tax credit are construed in strictissimi juris against the taxpayer. This is due
to the fact that claims for refund/credit [partake of] the nature of an exemption from tax. Thus, it is
incumbent upon the [respondent] to prove that it is indeed entitled to the refund/credit sought;

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4. Granting, without admitting, that [respondent] is a Philippine Economic Zone Authority (PEZA)
registered Ecozone Enterprise, then its business is not subject to VAT pursuant to Section 24 of
Republic Act No. ([RA]) 7916 in relation to Section 103 of the Tax Code, as amended. As
[respondents] business is not subject to VAT, the capital goods and services it alleged to have
purchased are considered not used in VAT taxable business. As such, [respondent] is not entitled to
refund of input taxes on such capital goods pursuant to Section 4.106.1 of Revenue Regulations
No. ([RR])7-95, and of input taxes on services pursuant to Section 4.103 of said regulations.
5. [Respondent] must show compliance with the provisions of Section 204 (C) and 229 of the 1997
Tax Code on filing of a written claim for refund within two (2) years from the date of payment of tax.

On July 19, 2001, the Tax Court rendered a decision granting the claim for refund.

ISSUE: Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate in
the amount of PHP 12,122,922.66 representing alleged unutilized input VAT paid on capital goods
purchased for the period April 1, 1998 to June 30, 1999.
HELD: YES.
As a PEZA-registered enterprise within a special economic zone, respondent is entitled to
the fiscal incentives and benefit provided for in either PD 66 or EO 226. It shall, moreover, enjoy all
privileges, benefits, advantages or exemptions under both Republic Act Nos. 7227 and 7844.
Respondent as an entity is exempt from internal revenue laws and regulations. This exemption
covers both direct and indirect taxes, stemming from the very nature of the VAT as a tax on
consumption, for which the direct liability is imposed on one person but the indirect burden is
passed on to another.
Respondent, as an exempt entity, can neither be directly charged for the VAT on its sales
nor indirectly made to bear, as added cost to such sales, the equivalent VAT on its purchases. The
exemption is both express and pervasive, among other reasons, since RA 7916 states that “no
taxes, local and national, shall be imposed on business establishments operating within the
ecozone”.
Even though the VAT is not imposed on the entity but on the transaction, it may still be
passed on and, therefore, indirectly imposed on the same entity -- a patent circumvention of the law.
That no VAT shall be imposed directly upon business establishments operating within the ecozone
under RA 7916 also means that no VAT may be passed on and imposed indirectly. Quando aliquid
prohibetur ex directo prohibetur et per obliquum. When anything is prohibited directly, it is also
prohibited indirectly. Special laws expressly grant preferential tax treatment to business
establishments registered and operating within an ecozone, which by law is considered as a
separate customs territory. As such, respondent is exempt from all internal revenue taxes, including
the VAT, and regulations pertaining thereto.

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FORT BONIFACIO vs. CIR


G.R. No. 158885 April 2, 2009/ G.R. No. 170680 April 2, 2009
FACTS:Petitioner FBDC is engaged in the development and sale of real property.
 FBDC acquired from the national government, a vast tract of land that formed part of the
FortBonifacio military reservation.
 Since the sale was consummated prior to the enactment of R.A. 7716, no VAT was paid. FBDC
proceeded to develop the land, and from October, 1966 onwards it has been selling lots.
 Following the effectivity of R.A. 7716, real estate transactions have since been made subject to
VAT. FBDC thereon has become obliged to remit to the BIR output VAT payments it received
from the sales. FBDC likewise invoked its right to avail of the transitional input tax credit and
accordingly submitted an inventory of real properties it owned, with a total book value of ₱71M
 FBDC executed in favor of Metro Pacific 2 contracts to sell conveying 2 parcels of land for
₱1.5B and ₱785M, payable in installments. For the fourth quarter of 1996, FBDC earned a total
of ₱3.5B from the sale of its lots, on which the output VAT payable to the BIR was ₱318M. In the
context of remitting its output VAT payments, FBDC paid a total of ₱269M and utilized (a) ₱28M
representing a portion of its then total transitional/presumptive input tax credit of ₱5.7B, which
petitioner allocated for the 2 lots sold to Metro Pacific; and (b) its regular input tax credit of ₱20M
on the purchase of goods and services.
 Between July and October 1997, FBDC sent 2 letters to the BIR requesting appropriate action
on whether its use of its presumptive input VAT on its land inventory was in order. After
investigating the matter, the BIR recommended that the claimed presumptive input tax credit be
disallowed. Consequently, the BIR issued to FBDC a Pre-Assessment Notice (PAN) dated 23
December 1997 for deficiency VAT for the 4th quarter of 1996.
 FBDC received an Assessment Notice in the amount of ₱45,M, representing deficiency VAT for
the 4th quarter of 1996, including surcharge, interest and penalty.
 After respondent Regional Director denied FBDC’s motion for reconsideration/protest, FBDC
filed a petition for review with the CTA. The CTA rendered a decision affirming the assessment
made by the respondents. FBDC assailed the CTA decision with the C.A whichaffirmed the CTA
decision, but removing the surcharge, interests and penalties, thus reducing the amount due to
₱28,4M
The second petition concerns the claim of FBDC that it is entitled to claim a similar
transitional/presumptive input tax credit, this time for the third quarter of 1997.
 For the third quarter of 1997, FBDC derived ₱3,6B from its sales and lease of lots, the output
VAT payable was ₱359,M Accordingly, FBDC made cash payments totaling ₱347,7M and
utilized its regular input tax credit of ₱19,7M on purchases of goods and services. FBDC filed
with the BIR a claim for refund of the amount of ₱347,7M which it had paid as VAT for the third
quarter of 1997.No action was taken on the refund claim, leading FBDC to file a petition.

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ISSUES:
Whether Section 105 of the Old NIRC may be interpreted in such a way as to restrict its application
in the case of real estate dealers only to the improvements on the real property belonging to their
beginning inventory, and not the entire real property itself.

RULING: On its face, there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of
real properties, together with the improvements thereon, in the beginning inventory of goods,
materials and supplies, based on which inventory the transitional input tax credit is computed. It can
be conceded that when it was drafted Section 105 could not have possibly contemplated concerns
specific to real properties, as real estate transactions were not originally subject to VAT. At the
same time, when transactions on real properties were finally made subject to VAT beginning with
RA. 7716, no corresponding amendment was adopted as regards Section 105 to provide for a
differentiated treatment in the application of the transitional input tax credit with respect to real
properties or real estate dealers.
 First, it made every sale, barter or exchange of "goods or properties" subject to VAT.
 Second, it generally defined "goods or properties" as "all tangible and intangible objects which
are capable of pecuniary estimation."
 Third, it included a non-exclusive enumeration of various objects that fall under the class "goods
or properties" subject to VAT, including "[r]eal properties held primarily for sale to customers or
held for lease in the ordinary course of trade or business."
RA 7716 clarifies that it is the real properties "held primarily for sale to customers or held for
lease in the ordinary course of trade or business" that are subject to the VAT, and not when the real
estate transactions are engaged in by persons who do not sell or lease properties in the ordinary
course of trade or business. It is clear that those regularly engaged in the real estate business are
accorded the same treatment as the merchants of other goods or properties available in the market.
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered
persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of
goods, materials and supplies. During that period of transition from non-VAT to VAT status, the
transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very
beginning, the VAT-registered taxpayer is obliged to remit a significant portion of the income it
derived from its sales as output VAT. The transitional input tax credit mitigates this initial diminution
of the taxpayer’s income by affording the opportunity to offset the losses incurred through the
remittance of the output VAT at a stage when the person is yet unable to credit input VAT
payments.

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KEPCO PHILIPPINES CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE


G.R. NO. 179356, DECEMBER 14, 2009
FACTS:
Petitioner KEPCO Philippines Corporation (Kepco) is a VAT-registered independent power producer
engaged in the business of generating electricity. It exclusively sells electricity to National Power
Corporation (NPC), an entity exempt from taxes under Section 13 of Republic Act No. 6395 (RA No.
6395).
Kepco filed an application for zero-rated sales and subsequently approved. In the course of doing
business with NPC, Kepco claimed expenses reportedly sustained in connection with the production
and sale of electricity with NPC, thus, paying input va andt attributing the same to its zero-rated
sales of electricity with NPC. Afterwards, Kepco filed before CIR a claim for tax refund covering
unutilized input VAT payments attributable to its zero-rated sales transactions. It also filed a petition
for review before the CTA.
Respondent CIR averred that claims for refund were strictly construed against the taxpayer as it
was similar to a tax exemption. Petitioner argues that the 1997 National Internal Revenue Code
(NIRC) does not require the imprinting of the word zero-rated on invoices and/or official receipts
covering zero-rated sales.26 It claims that Section 113 in relation to Section 237 of the 1997 NIRC
"does not mention the requirement of imprinting the words ‘zero-rated’ to purchases covering zero-
rated transactions." Only Section 4.108-1 of Revenue Regulation No. 7-95 (RR No. 7-95) "required
the imprinting of the word ‘zero-rated’ on the VAT invoice or receipt." "Thus, Section 4.108-1 of RR
No. 7-95 cannot be considered as a valid legislation considering the long settled rule that
administrative rules and regulations cannot expand the letter and spirit of the law they seek to
enforce."
The CTA Second Division ruled that out of the total declared zero-rated sales ofP3,285,308,055.85,
Kepco was only able to properly substantiate P1,451,788,865.52 as its zero-rated sales. Only
44.19% of the validly supported input VAT payments being claimed could be considered. The CTA
Second Division likewise disallowed the P5,170,914.20 of Kepco’s claimed input VAT due to its
failure to comply with the substantiation requirement. ccordingly, the CTA Second Division partially
granted Kepco’s claim for refund of unutilized input VAT.
Kepco moved for partial reconsideration, but the CTA Second Division denied it. Kepco appealed to
the CTA En Banc, but dismissed the petition and ruled that "in order for Kepco to be entitled to its
claim for refund/issuance of tax credit certificate representing unutilized input VAT attributable to its
zero-rated sales for taxable year 2002, it must comply with the substantiation requirements under
the appropriate Revenue Regulations, i.e. Revenue Regulations 7-95.

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ISSUE/S:
1. Whether the word "zero-rated" should be imprinted on invoices and/or official receipts as
part of the invoicing requirement? WON non-compliance of invoicing requirements should result in
the denial of the taxpayer’s refund claim?
2. Whether or not Section 4.108.1 of Revenue Regulation 07-95 does requires the word "TIN-
VAT" to be imprinted on a VAT-registered person’s supporting invoices and official receipts.
HELD:
1. Yes. The SC held that 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. The requirement is
reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and
services. 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.
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. Unable to submit the proper invoices,
petitioner Panasonic has been unable to substantiate its claim for refund.
Section 4.108-1 of RR 7-9534 neither expanded nor supplanted the tax code but merely
supplemented what the tax code already defined and discussed. In fact, the necessity of indicating
"zero-rated" into VAT invoices/receipts became more apparent when the provisions of this revenue
regulation was later integrated into RA No. 9337,35 the amendatory law of the 1997 NIRC
Evidently, as it failed to indicate in its VAT invoices and receipts that the transactions were zero-
rated, Kepco failed to comply with the correct substantiation requirement for zero-rated transactions.
2. Yes. The SC held that 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.
Under the law, a VAT invoice is necessary for every sale, barter or exchange of goods or properties
while a VAT official receipt properly pertains to every lease of goods or properties, and for every
sale, barter or exchange of services
The SC distinguished an invoice from a receipt:
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.
A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or other
settlement between seller and buyer of goods, debtor or creditor, or person rendering services and
client or customer.

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In other words, the VAT invoice is the seller’s best proof of the sale of the goods or services to the
buyer while the VAT receipt is the buyer’s best evidence of the payment of goods or services
received from the seller. Even though VAT invoices and receipts are normally issued by the
supplier/seller alone, the said invoices and receipts, taken collectively, are necessary to substantiate
the actual amount or quantity of goods sold and their selling price (proof of transaction), and the
best means to prove the input VAT payments (proof of payment). Hence, VAT invoice and VAT
receipt should not be confused as referring to one and the same thing. Certainly, neither does the
law intend the two to be used alternatively.

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CIR vs American Express International Inc.


GR. 152609 June 29, 2005
Facts: American Express International Phil or [AMEIP] is the Philippine branch of American Express
International-a corporation duly organized and existing under the laws of Delaware USA. AMEIP is
the servicing unit of American Express International Hongkong, wherein the former is engaged
primarily to facilitate the collection and payment of receivable that’s the AMEIHK has from card
members situated in the Philippines. AMEIP then filed its quarterly VAT return and then later sent a
letter to the CIR for the refund of its input tax amounting to 3,763,0603.43 after deduction of its
output tax. The basis for the latter’s request for refund is Sec. 110 of the tax code wherein it was
stated that if there is excess of input tax after the deduction of output tax, the tax payer may request
for a refund or tax credit. AMEIP contention is that the services that it renders falls under the zero-
rated taxable transaction as its services are pursuant to Sec. 102 or those services other than those
mentioned in the preceding paragraph, where the consideration is paid for in acceptable foreign
currency which is remitted inwardly to the Philippines and accounted for in accordance with the
rules and regulations of the BSP. However, the contention of the Petition CIR is that claims for
refund are construed strictly against the claimant as they partake of the nature of tax exemption
from taxes thus therefore it is incumbent upon the AMEIP to prove that it is entitled to the refund and
also that for the services to be considered as zero-rated taxable transaction the services must be
performed outside the Philippines.
Issue: Whether or not AMEIP is entitled to the tax refund of its input tax; and Whether or not AMEIP
services is zero-rated transaction.
Held: The Supreme Court ruled that AMEIP is entitled to the tax refund and that AMAEIP services
falls squarely under the classification of zero-rated transaction. As a general rule, the VAT system
uses the destination principle. However, our VAT law itself provides for a clear exception, under
which is the supply of service shall be zero-rated when the following requirements are met: As a
general rule, the value-added tax (VAT) system uses the destination principle. However, our VAT
law itself provides for a clear exception, under which the supply of service shall be zero-rated when
the following requirements are met: (1) the service is performed in the Philippines; (2) the service
falls under any of the categories provided in Section 102(b) of the Tax Code; and (3) it is paid for in
acceptable foreign currency that is accounted for in accordance with the regulations of the BSP.
Since respondent's services meet these requirements, they are zero-rated. In the case at bar, the
services rendered by AMEIP 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. Respondent's
facilitation service has no physical existence, yet takes place upon rendition, and therefore upon
consumption, in the Philippines. Indeed, these three requirements for exemption from the
destination principle are met by respondent. Its facilitation service is performed in the Philippines.
Thus, it should be zero-rated.
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CONTEX CORP. vs. CIR


G.R. No. 151135 July 2, 2004
FACTS: 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.
As an SBMA-registered firm, petitioner is exempt from all local and national internal revenue taxes
except for the preferential tax provided for in Section 12 (c) of Rep. Act No. 7227. Petitioner also
registered with the BIR as a non-VAT taxpayer under Certificate of Registration RDO Control No.
95-180-000133.
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.
Petitioner filed two applications for tax refund or tax credit of the VAT it paid. The Revenue
district officer of BIR RDO No. 19, denied the first application letter. Subsequently, petitioner filed
another application for tax refund/credit, this time directly with 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. It stressed that Section 112(A) if read
in relation to Section 106(A)(2)(a) of the NIRC, as amended and Section 12(b) and (c) of Rep. Act
No. 7227 would show that it was not liable in any way for any value-added tax.
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 and thus it is
exempt from VAT, pursuant to Rep. Act No. 7227. The CTA also 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 IRRs 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.
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Respondent CIR then filed a petition for review before the CA wherein the latter reversed
and set aside CTA’s decision.

ISSUES:

1. WON the exemption from all local and national internal revenue taxes provided in RA No.
7227 covers the value added tax paid by petitioner.
2. WON 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

HELD:

1. 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 zero-rating and exemption in
designating a value-added tax. 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. The fact
that petitioner is registered as a NON-VAT taxpayer per Certificate of Registration issued by
the BIR. As such, it is exempt from VAT on all its sales and importations of goods and
services.
2. 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 zero-rated sale on the part of the supplier, the
petitioner is not the proper party to claim such VAT refund.
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.

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CIR vs. CA
G.R. No. 125355 MARCH 30, 2000

FACTS:
Commonwealth Management and Services Corporation (COMASERCO) is a domestic
corporation. It is an affiliate of Philippine American Life Insurance Co. (Philamlife). It was organized
by the latter to perform collection, consultative and other technical services, including functioning as
an internal auditor, of Philamlife and its other affiliates.
In 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private respondent
COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.00 for taxable year
1988. In the same year, COMASERCO filed with the BIR, a letter-protest objecting to the latter’s
finding of deficiency VAT. Afterwards, the Commissioner of Internal Revenue sent a collection letter
to COMASERCO demanding payment of the deficiency VAT. The following month of the same year,
COMASERCO filed with the CTA a petition for review contesting the Commissioner’s assessment.
COMASERCO asserted that: 1) it was on a “no-profit, reimbursement-of-cost-only” basis; 2) it was
not engaged in the business of providing services to Philamlife and its affiliates; 3) COMASERCO
was established to ensure operational orderliness and administrative efficiency of Philamlife and its
affiliates, not on the sale of services; and 4) it even did not generate profit but suffered a net loss in
taxable year 1988. Thus, it was not liable to pay VAT.
In 1995, the CTA rendered a decision in favor of the Commissioner with slight modifications.
COMASERCO was liable to pay the amount of P335,831.01. During the same year, COMASERCO
filed with the CA, a petition for review of the decision of the CTA. The CA ruled in favor of the
respondent and based its decision in another tax case involving the same parties where it was held
that COMASERCO was not liable to pay fixed and contractor’s tax and it was not engaged in
business of providing services to Philamlife and its affiliates. Hence, this petition was filed before the
SC.
ISSUE:
Whether or not COMASERCO is engaged in the sale of services, thus liable to pay VAT.

HELD:
YES.
Contrary to COMASERCO’s contention, Sec. 105 of the Tax Code states that even a non-
stock, non-profit, organization or government entity, is liable to pay VAT on the sale of goods or
services. VAT 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. The term “in the course of trade or business” requires the
regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the
entity is profit-oriented.
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As long as the entity provides service for a fee, remuneration or consideration, then the
service rendered is subject to VAT. Because taxes are the lifeblood of the nation, statutes that allow
exemptions are construed strictly against the grantee and liberally in favor of the government.
Section 109 of the Tax Code enumerates the transactions exempted from VAT. The services
rendered by COMASERCO do not fall within the exemptions. It falls under Section 108 of the Tax
Code in which it defines the phrase “sale of services” as the performance of all kinds of services for
others for a fee, remuneration or consideration.
COMMISSIONER OF INTERNAL REVENUE vs. CEBU TOYO CORPORATION
G.R. No. 149073 February 16, 2005
FACTS: Respondent Cebu Toyo Corporation is a domestic corporation engaged in the manufacture
of lenses and various optical components. Its principal office is located at the Mactan Export
Processing Zone (MEPZ). It is a subsidiary of Toyo Lens Corporation, a non-resident corporation
organized under the laws of Japan. Respondent is a zone export enterprise registered with the
(PEZA). It is also registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer.
As an export enterprise, respondent sells 80% of its products to its mother corporation in
Japan, pursuant to an Agreement of Offsetting. The rest are sold to various enterprises doing
business in the MEPZ.As both sales are considered export sales subject to (VAT) at 0% rate under
NIRC, respondent filed its quarterly VAT returns from April 1996 to Dec 1997 a total input VAT of
₱4,4M.
On March 30, 1998, respondent filed with the Department of Finance, an application for tax
credit/refund of VAT paid for the period April 1996 to Dec1997 amounting to ₱4,4M representing
excess VAT input payments. Respondent, however, did not to wait for the Resolution of its claim by
the CIR. Instead, it filed a Petition with the CTA to toll the running of the two-year prescriptive
period.
Respondent posits that as a VAT-registered exporter of goods, it is subject to a VAT rate of
0% on its export sales that do not result in any output tax. Hence, the unutilized VAT input taxes on
such zero-rated activities are available as tax credits or refunds.
The CTA ruled that the respondent’s sales to Toyo Lens Corporation and to certain
establishments in the MEPZ were export sales subject to VAT at 0%. It found that the input VAT
covered by respondent’s claim was not applied against any output VAT. However, the tax court
decreed that the petition should nonetheless be denied because of the respondent’s failure to
present documentary evidence to show that there were foreign currency exchange proceeds from
its export sales. The CTA also observed that respondent failed to submit the approval by BSP of its
Agreement of Offsetting with Toyo Lens Corporation and the certification of constructive inward
remittance.
Respondent filedReconsideration arguing that: (1) proof of its inward remittance was not
required by law; (2) BSP and BIR regulations do not require BSP approval on its Agreement of
Offsetting nor do they require certification on the amount constructively remitted;
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(3) it was not legally required to prove foreign currency payments on the remaining sales to MEPZ
enterprises; and (4) it had complied with the substantiation requirements under the Tax Code.
Hence, it was entitled to a refund of unutilized VAT input tax.
ISSUE: Whether respondent being registered with the (peza) as an ecozone export enterprise, its
business is not subject to vat; since respondent’s business is not subject to vat, it is not entitled to
refund of input taxes.
RULING:
We find the petition bereft of merit.
Petitioner’s contention that respondent is not entitled to refund for being exempt from VAT is
untenable. This argument turns a blind eye to the fiscal incentives granted to PEZA-registered
enterprises under Section 23 of Rep. Act No. 7916. Note that under said statute, the respondent
had two options with respect to its tax burden. It could avail of an income tax holiday pursuant to
provisions of E.O. No. 226, thus exempt it from income taxes for a number of years but not from
other internal revenue taxes such as VAT; or it could avail of the tax exemptions on all taxes,
including VAT under P.D. No. 66 and pay only the preferential tax rate of 5% under Rep. Act No.
7916. Both the Court of Appeals and the Court of Tax Appeals found that respondent availed of the
income tax holiday for four (4) years starting from August 7, 1995, as clearly reflected in its 1996
and 1997 Annual Corporate Income Tax Returns, where respondent specified that it was availing of
the tax relief under E.O. No. 226. Hence, respondent is not exempt from VAT and it correctly
registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt transactions.
Taxable transactions are those transactions which are subject to value-added tax either at
the rate of (10%) or (0%). In taxable transactions, the seller shall be entitled to tax credit for the
value-added tax paid on purchases and leases of goods, properties or services.
An exemption means that the sale of goods, properties 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. The person making the exempt sale of goods, properties or services
shall not bill any output tax to his customers because the said transaction is not subject to VAT.
Thus, a VAT-registered purchaser of goods, properties or services that are VAT-exempt, is not
entitled to any input tax on such purchases despite the issuance of a VAT invoice or receipt.
Generally, sale of goods and supply of services performed in the Philippines are taxable at
the rate of 10%. However, export sales, or sales outside the Philippines, shall be subject to value-
added tax at 0% if made by a VAT-registered person. Under the VAT system, 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 purchase of goods, properties or services related to such
zero-rated sale shall be available as tax credit or refund.

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While the zero rating and the exemption are computationally the same, they actually differ in several
aspects, to wit:
(a) A zero-rated sale is a taxable transaction but does not result in an output tax while an exempted
transaction is not subject to the output tax;
(b) The input VAT on the purchases of a VAT-registered person with zero-rated sales may be
allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any
input tax on his purchases despite the issuance of a VAT invoice or receipt.
(c) Persons engaged in transactions which are zero-rated, being subject to VAT, are required to
register while registration is optional for VAT-exempt persons.

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CIR vs. PLACER DOME TECHNICAL SERVICES (PHILS.), INC.,


G.R. No. 164365

FACTS:

Sometime in 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 entered into an Implementation 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, as well as a fee agreed to
one percent (1%) of such Costs.

Later, respondent amended its quarterly VAT returns. 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 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.

CIR did not act on this claim. Thus, respondent 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.

ISSUE:

Whether respondent Placer is entitled to the refund as the revenues qualified as zero rated sales.

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HELD:

YES. Section 102(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 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].

It is Section 102(b)(2) which finds special relevance to this case. 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. Yet even as services may be subject to
VAT, our tax laws extend the benefit of zero-rating the VAT due on certain services. Under the last
paragraph of Scetion 102 (b), services performed by VAT-registered persons in the Philippines,
when paid in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the BSP, are ZERO-RATED.

Petitioner invokes the “destination principle,” citing that respondent’s 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. The Court in
American Express debunked this argument. 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. 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.

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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.

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.

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.

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CIR vs Burmeister and Wain Scandinavian Contractor


Gr. 153205 January 22, 2007
Facts: Respondent Burmeister and Wain Scandinavian Contractor is a corporation duly organized
under the laws of the Philippines (BWSC-PH). A foreign consortium composed of BWSC-Denmark,
Mitsui Engineering and Mitsui and Co. entered into a contract with NAPOCOR for the operation and
maintenance of the latter’s two power barges for 15 years. The consortium then subcontracted the
said services to BWSC-PH. NAPOCOR pays the consortium in various currency such as Mark, Yen,
and Peso and the Consortium then pays BWSC-PH through an inward foreign currency in
accordance with the BSP rules and regulations. BWSC-PH then seasonably filed its VAT returns but
due to allegedly misinterpretation of Revenue Regulation, BWSC-PH subjected its sale of services
to VAT for the period of April to December 1996, while no vat was imposed on January to March
1996. Later on, a VAT ruling was secured and ruled that the BWSC-PH is subject to zero-rated
transaction thus prompted the latter to file a tax refund from the BIR. BIR however contends that
respondent’s services are not destined for consumption abroad, thus are not legally qualified for the
0% VAT but are subject to the regular 10% VAT.

Issue: Whether or not respondent BWSC-PH is entitled to refund; Whether or not respondent
BWSC-PH sale of services is subject to 0% VAT.

Held: The Supreme Court ruled that BWSC-PH sale of services is subject to 10% VAT (now 12%)
because it does not fall under the clear exception stated under Sec 108(b)(2). BUT due to the
previous ruling which BWSC-PH relied upon for the filing of the tax refund, BWSC-PH is entitled to
be refunded for the output tax it has previously paid.

[DOCTRINE:] Under Section 108(b)(2) those services other than those mentioned in the preceding
paragraph, where the consideration is paid for in acceptable foreign currency which is remitted
inwardly to the Philippines and accounted for in accordance with the rules and regulations of the
BSP, this situation must be read and co-related to Section 108(b)(1) where it is a requirement that
the recipient of the services should be persons engaged in business conducted outside the
Philippines or to a nonresident person not engaged in business who is outside the Philippines.
Thus, to qualify as zero-rated taxable transaction falling under Section 108(b) (1) and (2) the
requisites are, (a) services must be performed in the Philippines; (b) for a person doing business
outside the Philippines; (c) paid in acceptable foreign currency accounted for in accordance with the
BSP rules.

In the case at bar, BWSC-PH as subcontractor of Consortium, operates and maintains NAPOCOR's
power barges in the Philippines. 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

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within the Philippines because it has a 15-year contract to operate and maintain NAPOCOR's two
100-megawatt power barges in Mindanao. In contrast, this case involves a recipient of services —
the Consortium — which is doing business in the Philippines. Hence, American Express' services
were subject to 0% VAT, while respondent's services should be subject to 10% VAT.

Nevertheless, in seeking a refund of its excess output tax, respondent relied on VAT Ruling No.
003-99, which reconfirmed BIR Ruling No. 023-95" insofar as it held that the services being
rendered by BWSCMI is subject to VAT at zero percent (0%)." Respondent's reliance on these BIR
rulings binds petitioner.

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CIR vs. ACESITE


GR NO. 147295 FEBRUARY 16, 2007

FACTS:
1. Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leases 6,768.53
square meters of the hotel’s premises to the Philippine Amusement and Gaming Corporation for
casino operations and caters food and beverages to PAGCOR’s casino patrons through the hotel’s
restaurant outlets.
2.For the period January 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
3. 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.
4.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.
5. Acesite filed an administrative claim for refund with the CIR but the latter failed to resolve the
same. Acesite filed a petition with the Court of Tax Appeals.
CTA Decision: Petitioner is subject to zero percent tax 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 be refunded to the petitioner..
CA Decision: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.

ISSUE/S:
(1) Whether PAGCOR’s 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.

HELD:
1. Yes. 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 exemption.
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator
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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.)
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.
2. Yes. 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%
(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).
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.
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. 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.
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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.

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CIR vs. MAGSAYSAY LINES, INC


G.R. No. 146984, July 28, 2006
FACTS: Pursuant to a government program of privatization, National Development Company (NDC)
decided to sell to private enterprise all of its shares in its wholly-owned subsidiary the National
Marine Corporation (NMC). NDC decided to sell in one lot its NMC shares and five (5) of its ships,
which are 3,700 DWT Tween-Decker, Kloeckner type vessels. The vessels were constructed for the
NDC between 1981 and 1984, then initially leased to Luzon Stevedoring Company, also its wholly-
owned subsidiary. Subsequently, the vessels were transferred and leased, on a bareboat basis, to
the NMC. The NMC shares and the vessels were offered for public bidding. Among the stipulated
terms and conditions for the public auction was that the winning bidder was to pay a value added
tax of 10% on the value of the vessels. Thereafter, Magsaysay Lines offered to buy the shares and
the vessels for P168,000,000.00. The bid was approved by the Committee on Privatization, and a
Notice of Award was issued to Magsaysay Lines. The implementing Contract of Sale was executed
between NDC and private respondents. Paragraph 11.02 of the contract stipulated that [v]alue-
added tax, if any, shall be for the account of the PURCHASER. Per arrangement, an irrevocable
confirmed Letter of Credit previously filed as bidders bond was accepted by NDC as security for the
payment of VAT, if any. By this time, a formal request for a ruling on whether or not the sale of the
vessels was subject to VAT had already been filed with the BIR by the law firm of Sycip Salazar
Hernandez & Gatmaitan, presumably in behalf of private respondents. Thus, the parties agreed that
should no favorable ruling be received from the BIR, NDC was authorized to draw on the Letter of
Credit upon written demand the amount needed for the payment of the VAT on the stipulated due
date.

BIR’s decision: The sale of the vessels was subject to the 10% VAT. The fact that NDC was a VAT-
registered enterprise, and thus its transactions incident to its normal VAT registered activity of
leasing out personal property including sale of its own assets that are movable, tangible objects
which are appropriable or transferable are subject to the 10% [VAT].

CTA’s decision: The sale of a vessel was an isolated transaction, not done in the ordinary course of
NDCs business, and was thus not subject to VAT, which under Section 99 of the Tax Code, was
applied only to sales in the course of trade or business.

CA’s decision: At first, it affirmed CTA’s decision. However, it reversed itself upon reconsidering the
case.

ISSUE: WON the transaction in question was made in the course of trade or business of NDC,
hence, subject to VAT.

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HELD: NO. Section 99 of the Tax Code provides that tax is levied only on the sale, barter or
exchange of goods or services by persons who engage in such activities, in the course of trade or
business. These transactions outside the course of trade or business may invariably contribute to
the production chain, but they do so only as a matter of accident or incident. As the sales of goods
or services do not occur within the course of trade or business, the providers of such goods or
services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as
against their own accumulated VAT collections since the accumulation of output VAT arises in the
first place only through the ordinary course of trade or business.

That the sale of the vessels was not in the ordinary course of trade or business of NDC was
confirmed by its charter which bears no indication that the NDC was created for the primary purpose
of selling real property. The conclusion that the sale was not in the course of trade or business,
which the CIR does not dispute before this Court, should have definitively settled the matter. Any
sale, barter or exchange of goods or services not in the course of trade or business is not subject to
VAT.

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COMMISSIONER OF INTERNAL REVENUE v. MIRANT PAGBILAO CORPORATION


G.R. No. 172129

FACTS: MPC, formerly Southern Energy Quezon, Inc., and also formerly known as Hopewell
Corporation, is a domestic firm engaged in the generation of power which it sells to the NPC.
Under Section 134 of Republic Act No. (RA) 6395, the NPC’s revised charter, NPC is
exempt from all taxes. In Maceda v. Macaraig, the Court construed the exemption as covering both
direct and indirect taxes. In the light of the NPC’s tax exempt status, MPC, on the belief that its sale
of power generation services to NPC is zero-rated for VAT purposes, filed with RDO 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, the
Commissioner issued a VAT Ruling stating that "the supply of electricity by Hopewell to the NPC,
shall be subject to (0%) VAT, pursuant to Section 108 (B) (3) of the National Internal Revenue Code
of 1997."
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 1996. 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, 1998 that MPC paid
Mitsubishi the VAT component for the progress billings from April 1993 to September 1996, and for
which Mitsubishi issued OR 0189 in the aggregate amount of PhP 135,993,570.
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 148M, which included PhP
135,9M. 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, MPC went to the CTA via a petition for review.
Answering the petition, the BIR Commissionerasserted that MPC’s claim for refund cannot be
granted for this main reason: MPC’s sale of electricity to NPC is not zero-rated for its failure to
secure an approved application for zero-rating. CTAPARTIALLY GRANTED. The CA rendered its
assailed decision modifying that of the CTA decision by granting most of MPC’s claims for tax
refund or credit.

ISSUE: whether or not respondent [MPC] is entitled to the refund of its input VAT payments made
from 1993 to 1996.

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RULING: The petition is partly meritorious.


Belated payment by MPC of its obligation for creditable input VAT
In net effect, MPC did not, for the VATable MPC-Mitsubishi 1993 to 1996 transactions
adverted to, immediately pay the corresponding input VAT. OR 0189 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
PhP135,993,570 (USD 5,190,000) was duly supported by bank statement evidencing payment to
Mitsubishi (Japan). Undoubtedly, 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 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.

No showing of interest payment not fatal to claim for refund


Contrary to petitioner’s 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.

ISSUE: 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.

RULING: 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.The law
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. Prescriptive 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.
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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.

MPC’s 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 zero-rated 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.

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ATLAS CONSOLIDATED vs. COMMISSIONER OF INTERNAL REVENUE


GR NOS. 141104, 148763, JUNE 8, 2007
FACTS:

Petitioner corporation is engaged in the business of mining, production, and sale of various mineral
products, such as gold, pyrite, and copper concentrates. It is a VAT-registered taxpayer. Petitioner
corporation filed with the BIR the application for the refund/credit of its input VAT on its purchases of
capital goods and on its zero-rated sales. When its application for refund/credit remained
unresolved by the BIR, petitioner filed a Petition for Review with the CTA. The CTA denied the
claims on the grounds that for zero-rating to apply, 70% of the company's sales must consists of
exports, that the same were not filed within the 2-year prescriptive period (the claim for 1992
quarterly returns were judicially filed only on April 20, 1994), and that petitioner failed to submit
substantial evidence to support its claim for refund/credit.

The petitioner, on the other hand, contends that CTA failed to consider the following: sales to
PASAR and PHILPOS within the Export Processing Zone Authority (EPZA) as zero-rated export
sales; the 2-year prescriptive period should be counted from the date of filing of the last adjustment
return which was April 15, 1993, and not on every end of the applicable quarters; and that the
certification of the independent CPA attesting to the correctness of the contents of the summary of
suppliers’ invoices or receipts examined, evaluated and audited by said CPA should substantiate its
claims.

ISSUES:

1. Whether or not the claims were filed within the 2-year prescriptive period

2. Whether or not the claims for refund/credit of input VAT of petitioner corporation have
sufficient legal bases

3. Whether or not petitioner sufficiently established the factual bases for its applications for
refund/credit of input VAT

HELD:

1. YES. The filing of a quarterly income tax returns required in Section 85 (now Section 68) and
implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered
mere installments of the annual tax due. These quarterly tax payments which are computed based
on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income,
should be treated as advances or portions of the annual income tax due, to be adjusted at the end
of the calendar or fiscal year.

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This is reinforced by Section 87 (now Section 69) which provides for the filing of adjustment returns
and final payment of income tax. Consequently, the two-year prescriptive period provided in Section
292 (now Section 230) of the Tax Code should be computed from the time of filing the Adjustment
Return or Annual Income Tax Return and final payment of income tax.

2. YES. Section 106(b)(2), in relation to Section 100(a)(2) of the Tax Code of 1977, as amended,
allowed the refund/credit of input VAT on export sales to enterprises operating within export
processing zones and registered with the EPZA, since such export sales were deemed to be
effectively zero-rated sales.

Tax treatment of goods brought into the export processing zones is only consistent with the
Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres.
According to the Destination Principle, goods and services are taxed only in the country where
these are consumed. In connection with the said principle, the Cross Border Doctrine mandates that
no VAT shall be imposed to form part of the cost of the goods destined for consumption outside the
territorial border of the taxing authority. Hence, actual export of goods and services from the
Philippines to a foreign country must be free of VAT, while those destined for use or consumption
within the Philippines shall be imposed with 10% VAT. Export processing zones are to be managed
as a separate customs territory from the rest of the Philippines and, thus, for tax purposes, are
effectively considered as foreign territory. For this reason, sales by persons from the Philippine
customs territory to those inside the export processing zones are already taxed as exports.

3. NO. 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 purchase invoices or official receipts. This respondent failed to do. Petitioner
corporation failed to present together with its application the required supporting documents,
whether before the BIR or the CTA.

Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the
sovereign authority, and should be construed in strictissimi juris against the person or entity claiming
the exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant of
organic or statute law and should not be permitted to stand on vague implications.

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Silicon Philippines Inc. vs CIR


Gr. 182737 March 2, 2016
Facts: Silicon Philippines Inc. (SPI) (formerly Intel Philippines) is a corporation engaged in the
business of designing, developing, manufacturing and exporting integrated circuit components.
Petitioner sought to recover the VAT it paid on imported capital goods amounting to 25,041,116.42,
due to inaction by the BIR when the former filed an application for tax credit/refund, this prompted
the SPI to file petition for review before the CTA. RULING OF THE CTA SECOND DIVISION: the
CTA Second Division dismissed the petitions for lack of merit. On the other hand, a taxpayer
claiming a refund/tax credit of input VAT paid on purchased capital goods must prove all of the
following: (1) that it is a VAT-registered entity; (2) that it paid input VAT on capital goods purchased;
(3) that its input VAT payments on capital goods were duly supported by VAT invoices or official
receipts; (4) that it did not offset or apply the claimed input VAT payments on capital goods against
any output VAT liability; and (5) that the administrative and judicial claims for a refund were filed
within the two-year prescriptive period. RULING OF THE CTA EN BANC:
It affirmed the finding of the CTA Second Division that petitioner had failed to prove its
capital goods purchases for the 2nd quarter of the year 2001.
Issue: Whether or not SPI timely filed their judicial claim.

Held: The Supreme Court held that under the foregoing provision, the administrative claim of a
VAT-registered person for the issuance by respondent of tax credit certificates or the refund of input
taxes paid on zero-rated sales or capital goods imported may be made within two years after the
close of the taxable quarter when the sale or importation/purchase was made.

In the case of petitioner, its administrative claim for the 2nd quarter of the year 2001 was filed on 16
October 2001, well within the two-year period provided by law. The same is true with regard to the
administrative claims for the 3rd and the 4th quarters of 2001, both of which were filed on 4
September 2002.

Upon the filing of an administrative claim, CIR is given a period of 120 days within which to (1) grant
a refund or issue the tax credit certificate for creditable input taxes; or (2) make a full or partial
denial of the claim for a tax refund or tax credit. Failure on the part of respondent to act on the
application within the 120-day period shall be deemed a denial. The judicial claim shall be filed
within a period of 30 days after the receipt of respondent's decision or ruling or after the expiration
of the 120-day period, whichever is sooner.

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Whether respondent rules in favor of or against the taxpayer — or does not act at all on the
administrative claim — within the period of 120 days from the submission of complete documents,
the taxpayer may resort to a judicial claim before the CTA. The general interpretative rule allowed
the premature filing of judicial claims by providing that the "taxpayer-claimant need not wait for the
lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for
Review."

Aside from a specific exception to the mandatory and jurisdictional nature of the periods provided by
the law, any claim filed in a period less than or beyond the 120+30 days provided by the NIRC is
outside the jurisdiction of the CTA. As shown by the table, the judicial claims of petitioner were filed
beyond the 120+30 day period.

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CIR vs. BURMEISTER and WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC.


G.R. No. 153205, January 22, 2007
FACTS: BWSCMI, respondent, is a domestic corporation duly organized and existing under and by
virtue of the laws of the Philippines. It is represented that a foreign consortium composed of
Burmeister and Wain Scandinavian Contractor A/S (BWSC-Denmark), Mitsui Engineering and
Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract with the National Power
Corporation (NAPOCOR) for the operation and maintenance of the latter’s two power barges. The
Consortium appointed BWSC-Denmark as its coordination manager. BWSC-Denmark then
established respondent which subcontracted the actual operation and maintenance of NAPOCOR’s
two power barges as well as the performance of other duties and acts which necessarily have to be
done in the Philippines. NAPOCOR paid capacity and energy fees to the Consortium in a mixture of
currencies (Mark, Yen, and Peso). On the other hand, the Consortium pays respondent in foreign
currency inwardly remitted to the Philippines through the banking system. In order to ascertain the
tax implications of the above transactions, respondent sought a ruling from the BIR which
responded with BIR Ruling No. 023-95 declaring that if it chooses to register as a VAT person and
the consideration for its services is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP, the aforesaid services shall be subject to VAT
at zero-rate.

Respondent chose to register as a VAT taxpayer. A Certificate of Registration was issued in favor of
it by the Revenue District Office No. 113 of Davao City.

For the year 1996, respondent seasonably filed its quarterly VAT Returns reflecting, among others,
a total zero-rated sales of P147,317,189.62 with VAT input taxes of P3,361,174.14. On December
29, 1997, respondent availed of the Voluntary Assessment Program (VAP) of the BIR. It allegedly
misinterpreted Revenue Regulations No. 5-96 wherein respondent subjected its sale of services to
the Consortium to the 10% VAT in the total amount of P103,558,338.11 representing April to
December 1996 sales since said Revenue Regulations No. 5-96 became effective only on April
1996. The sum of P43,893,951.07, representing January to March 1996 sales was subjected to
zero rate. Consequently, respondent filed its 1996 amended VAT return consolidating therein the
VAT output and input taxes for the four calendar quarters of 1996. It paid the amount of
P6,994,659.67 as its output tax liability for the year 1996. On January 7,1999, respondent was able
to secure a VAT Ruling from the VAT Review Committee which reconfirmed BIR Ruling No. 023-95
insofar as it held that the services being rendered by BWSCMI is subject to VAT at zero percent
(0%). Respondent then filed a claim for the issuance of a tax credit certificate with Revenue District
No. 113 of the BIR for it believed that it erroneously paid the output VAT for 1996 due to its
availment of the Voluntary Assessment Program (VAP) of the BIR.

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CTA’s decision: Ordered petitioner to issue a tax credit certificate in favor of respondent. CA’s
decision: Affirmed.

ISSUE: Whether respondent is entitled to the refund of P6,994,659.67 as erroneously paid output
VAT for the year 1996.

HELD: NO. The Tax Code not only requires that the services be other than processing,
manufacturing or repacking of goods and that payment for such services be in acceptable foreign
currency accounted for in accordance with BSP rules. Another essential condition for qualification to
zero-rating under Section 102(b)(2) is that the recipient of such services is doing business outside
the Philippines. While this requirement is not expressly stated in the second paragraph of Section
102(b), this is clearly provided in the first paragraph of Section 102(b) where the listed services must
be for other persons doing business outside the Philippines. The phrase for other persons doing
business outside the Philippines not only refers to the services enumerated in the first paragraph of
Section 102(b), but also pertains to the general term services appearing in the second paragraph of
Section 102(b). In short, services other than processing, manufacturing, or repacking of goods must
likewise be performed for persons doing business outside the Philippines. 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. When Section 102(b)(2) stipulates payment in acceptable foreign currency under BSP
rules, the law clearly envisions the payer-recipient of services to be doing business outside the
Philippines. Only those not doing business in the Philippines can be required under BSP rules[20] to
pay in acceptable foreign currency for their purchase of goods or services from the Philippines. 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.

In this case, the payer-recipient of respondents services is the Consortium which is a joint-venture
doing business in the Philippines. While the Consortiums principal members are non-resident
foreign corporations, the Consortium itself is doing business in the Philippines. This is shown clearly
in BIR Ruling No. 023-95 which states that the contract between the Consortium and NAPOCOR is
for a 15-year term. Considering this length of time, the Consortiums operation and maintenance of
NAPOCORs power barges cannot be classified as a single or isolated transaction. The Consortium
does not fall under Section 102(b)(2) which requires that the recipient of the services must be a
person doing business outside the Philippines. Therefore, respondents services to the Consortium,
not being supplied to a person doing business outside the Philippines, cannot legally qualify for 0%
VAT.

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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.

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PANASONIC IMAGING CORP. VS. CIR


GR NO. 178090 FEBRUARY 8, 2010

FACTS:
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 value-added 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), 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.

ISSUE:
WON PANASONIC IS ENTITLED TO THE REFUND CLAIMED.

HELD:
NO.
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.
For the effective zero rating of such transactions, however, the taxpayer has to be VAT-
registered and must comply with invoicing requirements. 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:

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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 purchaser-claimant.

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.
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 refund the absence of the word zero-
rated on its invoices is one which is specifically and precisely included in the above
enumeration. Consequently, the BIR correctly denied Panasonics claim for tax refund.
Wherefore, the petition is DENIED for lack of merit. Cost against petitioner. SO ORDERED.

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J.R.A. PHILIPPINES, INC.vs. COMMISSIONER OF INTERNAL REVENUE


G.R. NO. 177127 October 11, 2010
FACTS: Petitioner J.R.A. Philippines, Inc., a domestic corporation, is engaged in the manufacture
and wholesale export of jackets, pants, trousers, overalls, shirts, polo shirts, ladies’ wear, dresses
and other wearing apparel. It is registered with the (BIR) as a VAT taxpayer and as an Ecozone
Export Enterprise with the (PEZA).
On separate dates, petitioner filed with the (RDO) of the BIR, applications for tax
credit/refund of unutilized input VAT on its zero-rated sales for the taxable quarters of 2000 in the
total amount of ₱8,228,276.34. The claim for credit/refund, however, remained unacted by the
respondent. Hence, petitioner was constrained to file a petition before the CTA. Being allegedly
registered with the PEZA as an export enterprise, petitioner’s business is not subject to VAT.
Hence, it is not entitled to tax credit of input taxes.
CTA rendered denying petitioner’s claim for refund/credit of input VAT attributable to its zero-
rated sales due to the failure of petitioner to indicate its (TIN-VAT) and the word "zero-rated" on its
invoices.
ISSUE: Whether the failure to print the word "zero-rated" on the invoices/receipts is fatal to a claim
for credit/ refund of input VAT on zero-rated sales.
RULING: The absence of the word "zero-rated" on the invoices/receipts is fatal to a claim for
credit/refund of input VAT.
The question of whether the absence of the word "zero-rated" on the invoices/receipts is
fatal to a claim for credit/refund of input VAT is not novel. This has been squarely resolved in
Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal
Revenue. In that case, we sustained the denial of petitioner’s claim for tax credit/refund for non-
compliance with Section 4.108-1 of Revenue Regulations No. 7-95, which requires the word "zero
rated" to be printed on the invoices/receipts covering zero-rated sales. We explained that:
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. For the
effective zero rating of such transactions, however, the taxpayer has to be VAT-registered and must
comply with invoicing requirements.
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 CTA’s 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.

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If, absent such word, a successful claim for input VAT is made, the government would be refunding
money it did not collect.
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. Unable to submit the proper invoices,
petitioner Panasonic has been unable to substantiate its claim for refund.
Consistent with the foregoing jurisprudence, petitioner’s claim for credit/ refund of input VAT for the
taxable quarters of 2000 must be denied. Failure to print the word "zero-rated" on the
invoices/receipts is fatal to a claim for credit/ refund of input VAT on zero-rated sales.

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