1. Gr no. 181961 dec 5, 2011 LVM corp v. Fd sanchez socor dr.kinawa jv 2. Gr no. 179632 oct 19, 2011 southern phil power corp v. CIR 3. Gr no. 193007 july 19, 2011 renato Diaz & aurora maria timbol v. Sec of finance &cir 4. Gr no. 180173 april 6, 2011 microsoft phil inc. v. CIR 5. Gr no. 172087 march 15, 2011 PAGCOR v. BIR 6. Gr no. 179961 january 31, 2011 KGPCO phil sport v. CIR 7. Gr no. 159471 jan 26, 2011 atlas consolidated mining v. CIR 8. Gr no. 172378 jan 17, 2011 silicon phil v. CIR 9. Gr no. 178697 nov 11, 2010 cir v. Sony phils inc.
1.LVM
CONSTRUCTION
DIRECTOR,
ANDRES
CORPORATION,
CHUA
LAO,
VS.
REPRESENTED F.T.
BY
ITS
MANAGING
SANCHEZ/SOCOR/KIMWA
(JOINT
VENTURE), F.T. SANCHEZ CONSTRUCTION CORPORATION, SOCOR CONSTRUCTION CORPORATION AND KIMWA CONSTRUCTION AND DEVELOPMENT CORPORATION ALL REPRESENTED BY FORTUNATO O. SANCHEZ, JR., G.R. NO. 181961
DECEMBER 5, 2011
FACTS.:
LVM Construction Corporation (LVM) is a duly licensed construction firm primarily engaged in the construction of roads and bridges for DPWH
LVM was awarded the construction of the Arterial Road Link Development Project in Southern Leyte (the Project),
It sub-contracted 30% of the contract amount with the Joint Venture composed of respondents F.T. Sanchez Corporation (FTSC), Socor Construction Corporation (SCC) and Kimwa Construction Development Corporation (KCDC).
LVM was the Contractor and the Joint Venture as Sub-Contractor
The Sub-Contract Agreement executed by the parties provided that: 3) payment to the SUB-CONTRACTOR shall be on item of work accomplished in the subcontracted portion of the project at awarded unit cost of the project less 9%. The
CONTRACTOR shall issue a BIR registered receipt to the CONTRACTOR.
SUB-
4) 10% retention to be deducted for every billing of sub-contractor as prescribed under the Tender Documents. 13) The payment to the SUB-CONTRACTOR shall be made within seven (7) days after the
check issued by DPWH to CONTRACTOR has already been made good .
For work rendered in the premises, Joint Venture sent LVM a total of 27 Billings
LVM paid the Joint Venture a partial sum claiming that it had not yet been fully paid by the DPWH .
Having completed the sub-contracted works, the Joint Venture subsequently demanded from LVM the settlement of its unpaid claims as well as the release of money retained by the latter in accordance with the Sub-Contract Agreement.
In a letter, LVM explained the Joint Venture of the fact that its auditors have belatedly discovered that no deductions for E-VAT had been made from its payments on Billing Nos. 1 to 26 and that it was, as a consequence, going to deduct the 8.5% payments for said tax from the amount still due in the premises .
The Joint Venture claimed that, having issued Official Receipts for every payment it received, it was liable to pay 10% VAT thereon and that LVM can, in turn, claim therefrom an equivalent input tax of 10%.
With its claims still unpaid despite the lapse of more than 4 years from the completion of the sub-contracted works, the Joint Venture, thru its Managing Director, Fortunato O. Sanchez, Jr., filed against LVM
complaint for sum of money and damages which was docketed before the Construction Industry Arbitration Commission Commission
Having submitted a Bill of Particul ars in response to LVM’s motion, Joint Venture went on to file an
Amended Complaint claiming amounts of unpaid balances and interests as well as attorneys fees
LVM maintained that it did not release the 10% reten tion for the 26 Billing on the ground grou nd that it had yet to make the corresponding 8.5% deductions for E-VAT which the Joint Venture should have paid to the BIR and as a consequence, there was a need to offset the sums corresponding thereto from the retention money still in its possession.
Moreover, LVM alleged that the Joint Venture’s claims failed to take into consideration its own
outstanding obligation representing the liquidated damages it incurred as a consequence of its delays in the completion of the project
4) 10% retention to be deducted for every billing of sub-contractor as prescribed under the Tender Documents. 13) The payment to the SUB-CONTRACTOR shall be made within seven (7) days after the
check issued by DPWH to CONTRACTOR has already been made good .
For work rendered in the premises, Joint Venture sent LVM a total of 27 Billings
LVM paid the Joint Venture a partial sum claiming that it had not yet been fully paid by the DPWH .
Having completed the sub-contracted works, the Joint Venture subsequently demanded from LVM the settlement of its unpaid claims as well as the release of money retained by the latter in accordance with the Sub-Contract Agreement.
In a letter, LVM explained the Joint Venture of the fact that its auditors have belatedly discovered that no deductions for E-VAT had been made from its payments on Billing Nos. 1 to 26 and that it was, as a consequence, going to deduct the 8.5% payments for said tax from the amount still due in the premises .
The Joint Venture claimed that, having issued Official Receipts for every payment it received, it was liable to pay 10% VAT thereon and that LVM can, in turn, claim therefrom an equivalent input tax of 10%.
With its claims still unpaid despite the lapse of more than 4 years from the completion of the sub-contracted works, the Joint Venture, thru its Managing Director, Fortunato O. Sanchez, Jr., filed against LVM
complaint for sum of money and damages which was docketed before the Construction Industry Arbitration Commission Commission
Having submitted a Bill of Particul ars in response to LVM’s motion, Joint Venture went on to file an
Amended Complaint claiming amounts of unpaid balances and interests as well as attorneys fees
LVM maintained that it did not release the 10% reten tion for the 26 Billing on the ground grou nd that it had yet to make the corresponding 8.5% deductions for E-VAT which the Joint Venture should have paid to the BIR and as a consequence, there was a need to offset the sums corresponding thereto from the retention money still in its possession.
Moreover, LVM alleged that the Joint Venture’s claims failed to take into consideration its own
outstanding obligation representing the liquidated damages it incurred as a consequence of its delays in the completion of the project
CIAC’s decision: granted the Joint Venture’s claims for the payment of the retention money for the 26 billings as well as the interest and also the unpaid balance billing.
CIAC ALSO DISREGARDED THE CONTRACTUAL AND LEGAL BASES FOR LVM’S CLAIM THAT IT HAD THE RIGHT TO OFFSET ITS E-VAT PAYMENTS FROM THE RETENTION MONEY STILL IN ITS POSSESSION AND RULED THAT THE VAT DEDUCTIONS THE DPWH MADE FROM ITS PAYMENTS TO LVM WERE FOR THE WHOLE PROJECT AND ALREADY INCLUDED ALL ITS SUPPLIES AND A ND SUBCONTRACTORS .
Instead of withholding said retention money, LVM was determined to have – to – to its credit and for its use – use – the the input VAT corresponding to the 10% equivalent VAT paid by the Joint Venture based on the BIR-registered official receipts it issued.
Finding that the delays incurred by the Joint Venture were justified, the CIAC likewise denied LVM’s counterclaim for liquidated damages for lack of contractual basis.18
LVM appealed to CA but the latter upheld CIAC’s rejection of LVM’s insistence on the offsetting of E-VAT payments from the retention money , it ruled that:: o
there was no provision in the Sub-Contract Agreement that would hold Sanchez liable for EVAT on the amounts paid to it by LVM.
o
As pointed o ut by the CIAC, ‘the contract documents provide only for the payment of the awarded cost of the project less 9%. Any other deduction must be clearly stated in the provisions of the contract or upon agreement of the parties. xxx The tribunal finds no provision that EVAT will be deducted from the sub-contractor. xxx If [the Joint Venture] should pay or share in the payment of the EVAT, it must be clearly defined in the sub- contract agreement.’
o
CIAC pointed out that Sanchez was required to issue official receipts registered with the BIR for every payment LVM makes for the progress billings, which it did.
o
For these official receipts issued by Sanchez to LVM, Sanchez already paid 10% VAT to the BIR, thus: ‘The VAT Law is very clear. Everyone must pay 10% VAT bas ed on their issued official receipts. These receipts must be official receipts and registered with the BIR.
o
LVM must pay its output Vat based on its receipts .
o
Complainant (Sanchez) must also pay output VAT based on its receipts .
o
The law however allow each entity to deduct the input VAT based on the official receipts issued to it. Thus, LVM has to its credit the 10% output VAT paid by Joint Venture based on the official
receipts issued to it. LVM can use this input VAT to offset any output VAT LVM must pay for any of its other projects."
ISSUES 1. WON respondents’ liability to pay value added tax need not be stated in the sub -contract agreement form part of, and are deemed incorporated and read into said agreement. (YES) 2. WON respondents are deemed to have already paid value added tax merely because respondents had allegedly issued receipts for services rendered.
RULING:
The petition is bereft of merit.
o
FOR LACK OF ANY STIPULATION REGARDING THE SAME IN THE PARTIES’ SUB CONTRACT AGREEMENT, SC RULED THAT SHOULD NOT DEDUCT ITS E-VAT PAYMENTS FROM THE RETENTION MONEY DEMANDED BY THE JOINT VENTURE.
o
a contract constitutes the law between the parties who are, therefore, bound by its stipulations which, when couched in clear and plain language, should be applied according to their literal tenor .
o
there was no agreement regarding the offsetting
o
The record shows that, except for deducting sums corresponding to the 10% retention agreed upon, 9% as contingency on sub-contract, 1% withholding tax and such other itemized miscellaneous expenses, LVM settled the Joint Venture’s Billing Nos. 1 to 26 without any mention of deductions for the
Managing Director, Andres C. E-VAT payments it claims to have advanced. It was, in fact LVM’s Managing Lao, explained (in a letter) the Joint Venture in writing of its intention to deduct said payments . o
From the letter, it is evident that LVM unilaterally broached its intention of deducting the subject E-VAT payments only on 15 May 2001 or long after the project’s completion on 9 July 1999.
o
In the absence of any stipulation thereon, however, the CA correctly disallowed the offsetting of said sums from the retention money undoubtedly due the Joint Venture. Courts are obliged to give give effect to the parties’ agreement and enforce the contract to the letter .
o
The rule is settled that they have no authority to alter a contract by construction or to make a new contract for the parties ; their duty is confined to the interpretation of the one which the parties have made for themselves, without regard to its wisdom or folly.
o
Courts cannot supply material stipulations, read into the contract words it does not contain31 or, for that matter, read into it any other intention that would contradict its plain import. This is particularly true in this case where, in addition to the dearth of a meeting of minds between the parties, their contemporaneous and subsequent acts fail to yield any intention to offset the said E-VAT payments from the retention money still in LVM’s possession.
o
As correctly argued by the Joint Venture, however, there are two (2) contracts under the factual milieu of the case: the main contract DPWH entered into with LVM for the construction project and the Sub-Contract Agreement the latter in turn concluded with the Joint Venture over 30% of said project’s contract amount.
o
As the entity which directly dealt with the government insofar as the main contract was concerned, LVM was itself required by law to pay the 8.5% VAT which was withheld by the DPWH in accordance with Republic Act No. 842434 or the Tax Reform Act of 1997 as well as the National Internal Revenue Code of 1997 (NIRC). Section 114 (C) of said law provides as follows: "Section 114. Return and Payment of Value-Added Tax. – (C) Withholding of Creditable Value-added Tax. –
The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or -controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108 of this Code , deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by contractors on every sale or installment payment which shall be creditable against the value-added tax liability of the seller or contractor : Provided, however, That in the case of government public works contractors, the withholding rate shall be eight and one-half percent (8.5%) : Provided, further, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor or person in control of the payment shall be considered as the withholding agent." o
In fixing the base of the tax, the first paragraph A Section 108 of the NIRC provides that "(t)here shall be levied assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties."
o
In the absence of any stipulation regarding the Joint Vent ure’s sharing in the VAT deducted and withheld by the DPWH from its payment on the main contract, the CIAC and the CA correctly ruled that LVM has no basis in offsetting the amounts of said tax from the retention still in its possession.
o
VAT is a uniform tax levied on every importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or on each rendition of services in the course of trade or business. It is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. As an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services, VAT should be understood not in the context of the person or entity that is primarily, directly and legally liable for its payment, but in terms of its nature as a tax on consumption.
o
SC did not find merit in LVM’s harping over the lack of showing in the record that the Joint Venture has actually paid its liability for VAT.
o
LVM insists that the ORs for its payments on the Joint Venture’s billing were issued by respondent F. Sanchez Construction and that the Monthly VAT Declarations were, in fact, filed by Fortunato Sanchez, Sr.
o
However, the evidence on record is to the effect that, failing to register with the Securities and
Exchange Commission (SEC) and to obtain a Mayor’s Permit and authorization from the BIR to print its official receipts, the Joint Venture apprised LVM of its intention to use respondent F. Sanchez Construction’s BIR-registered receipts. o
Aside from being indicative of its knowledge of the foregoing circumstanc es, LVM’s previous unqualified acceptance of said official receipts should, clearly, bar the belated exceptions it now takes with respect thereto. A party, having performed affirmative acts upon which another person based his subsequent actions, cannot thereafter refute his acts or renege on the effects of the same, to the prejudice of the latter.
LVM, AS CONTRACTOR FOR THE PROJECT, WAS LIABLE FOR THE 8.5% VAT WHICH WAS WITHHELD BY THE DPWH FROM ITS PAYMENTS, PURSUANT TO SECTION 114 (C) OF THE NIRC. ABSENT ANY AGREEMENT TO THAT EFFECT, LVM CANNOT DEDUCT THE AMOUNTS THUS WITHHELD FROM THE SUMS IT STILL OWED THE JOINT VENTURE WHICH, AS SUB-CONTRACTOR OF 30% OF THE PROJECT, HAD ITS OWN LIABILITY FOR
10% VAT INSOFAR AS THE SUMS PAID FOR THE SUB-CONTRACTED WORKS WERE CONCERNED.
Although the burden to pay an indirect tax like VAT can, admittedly, be passed on to the purchaser of the goods or services, it bears emphasizing that the liability to pay the same remains with the manufacturer or seller like LVM and the Joint Venture. In the same manner that LVM is liable for the VAT due on the payments made by the DPWH pursuant to the contract on the Project, the Joint Venture is, consequently, liable for the VAT due on the payments made by LVM pursuant to the parties’ Su b-Contract.
2. SOUTHERN PHILIPPINES POWER CORPORATION VS. CIR G.R. NO. 1796 32 OCTOBER 19, 2011 The case is about the sufficiency of sales invoices and receipts, which do not have the words "zero-rated" imprinted on them, to evidence zero-rated transactions, a requirement in taxpayer’s claim for tax credit or refund.
FACTS :
Southern Philippines Power Corporation (SPP), a power company that generates and sells electricity to the NPC, applied with the BIR
for zero-rating of its transactions under Section
108(B)(3) of NIRC.
BIR approved the application for taxable years 1999 and 2000.
6/20/00: SPP filed a claim with respondent CIR for a tax c redit or refund for 1999 .
7/13/01: SPP filed a second claim in tax credit or refund for 2000 .
The amounts represented unutilized input VAT attributable to SPP’s zero-rated sale of electricity to
NPC.
9/29/01: before the lapse of the 2-year prescriptive period for such actions, SPP filed with the CTA
a petition for review covering its claims for refund or tax credit . The petition claimed only the aggregate amount which covered the last two quarters of 1999 and the four quarters in 2000 .
CIR maintained that SPP is not entitled to tax credit or refund since a. the BIR was still examining SPP’s claims for the same; b. SPP failed to substantiate its payment of input VAT; c. its right to claim refund already prescribed, and d. SPP has not shown compliance with Section 204(c) in relation to Section 229 of the NIRC as amended and Revenue Regulation (RR) 5-87 as amended by RR 3-88.
CTA denied SPP’s claims, holding that : 1. its zero-rated official receipts did not correspond to the quarterly VAT returns, bearing a
difference of P800,107,956.61 . 2. and such receipts do not bear the words "zero-rated" in violation of RR 7-95 .
On appeal, the CTA En Banc affirmed CTA 2 nd division’s decision
The CTA En Banc rejected SPP’s contention that its sales invoices reflected the words "zero -rated," pointing out that it is on the official receipts that the law requires the printing of such words.
SPP did not report in the corresponding quarterly VAT return the sales subject of its zero-rated receipts.
ISSUES 1. WON CTA En Banc correctly rejected the invoices that SPP presented and, thus, ruled that it failed to prove the zero-rated or effectively zero-rated sales that it made; 2. WON CTA En Banc correctly ruled that the words "BIR-VAT Zero Rate Application Number
419.2000" imprinted on SPP’s invoices did not comply with RR 7 -95; 3. WON the CTA En Banc correctly held that SPP should have declared its zero-rated sales in its
VAT returns for the subject period of the claim ; and 4. WON CTA En Banc correctly ruled that SPP was not entitled to a tax refund or credit. RULING
SC SET ASIDE CTA’S RULING
criteria governing claims for refund or tax credit under Section 112(A) of the NIRC: 1. The taxpayer is VAT-registered; 2. The taxpayer is engaged in zero-rated or effectively zero-rated sales; 3. The input taxes are due or paid; 4. The input taxes are not transitional input taxes; 5. The input taxes have not been applied against output taxes during and in the succeeding quarters; 6. The input taxes claimed are attributable to zero-rated or effectively zero-rated sales;
7. For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations; 8. Where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and 9. The claim is filed within two years after the close of the taxable quarter when such sales were made.
CTA Ruled that SPP failed to establish that it made zero-rated sales .
SPP submitted official receipts and sales invoices stamped with the words " BIR VAT Zero-
Rate Application Number 419.2000" but the CTA En Banc held that these were not sufficient to prove the fact of sale.
But NIRC Section 110 (A.1) provides that the input tax subject of tax refund is to be evidenced by a VAT invoice "or" official receipt issued in accordance with Section 113.
Section 113 has been amended by Republic Act (R.A.) 9337 but it is the unamended version that covers the period when the transactions in this case took place. It reads:
A. Invoicing Requirements. – A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: 1. A statement that the seller is a VAT-registered person, followed by his taxpayer’s identification number (TIN); and 2.
The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax. (Emphasis supplied)
Sec 113 does not distinguish between an invoice and a receipt when used as evidence of a zero-rated transaction .
Consequently, THE CTA SHOULD HAVE ACCEPTED EITHER OR BOTH OF THESE
DOCUMENTS
AS
EVIDENCE
OF
SPP’S
ZERO -RATED
TRANSACTIONS.
Section 237 of the NIRC also makes no distinction between receipts and invoices as evidence of a commercial transaction:
SEC. 237. ISSUANCE OF RECEIPTS OR SALES OR COMMERCIAL INVOICES. –
All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices , prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however, That in the case of sales, receipts or transfers in the amount of One hundred pesos (P100.00) or more, or regardless of the amount, where the sale or transfer is made by a person liable to value-added tax to another person also liable to valueadded tax; or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client: Provided, further, That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the purchaser. The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the transaction is effected, who, if engaged in business or in the exercise of profession, shall keep and preserve the same in his place of business for a period of three (3) years from the close of the taxable year in which such invoice or receipt was issued, while the duplicate shall be kept and preserved by the issuer, also in his place of business, for a like period. The Commissioner may, in meritorious cases, exempt any person subject to internal revenue tax from compliance with the provisions of this Section. (Emphasis supplied)
BUSINESS FORMS LIKE SALES INVOICES ARE RECOGNIZED IN THE COMMERCIAL WORLD AS VALID BETWEEN THE PARTIES AND SERVE AS MEMORIALS OF THEIR BUSINESS TRANSACTIONS. AND SUCH DOCUMENTS HAVE PROBATIVE VALUE.
CTA also did not accept SPP’s official receipts due to the absence of the words "zero -rated" on it .
The omission, said that court, made the receipts non-compliant with RR 7-95, specifically
Section 4.108.1. BUT SECTION 4.108.1 REQUIRES THE PRINTING OF THE WORDS "ZERO-RATED" ONLY ON INVOICES, NOT ON OFFICIAL RECEIPTS :
SECTION 4.108-1. INVOICING REQUIREMENTS . — All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. The name, TIN and address of seller; 2. Date of transaction; 3. Quantity, unit cost and description of merchandise or nature of service; 4. The name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client; 5. The word "zero-rated" imprinted on the INVOICE covering zero-rated sales ; and 6. The invoice value or consideration.
ACTUALLY, IT IS R.A. 9337 THAT IN 2005 REQUIRED THE PRINTING OF THE WORDS "ZERO-RATED" ON RECEIPTS. BUT, SINCE THE RECEIPTS AND INVOICES IN THIS CASE COVER SALES MADE FROM 1999 TO 2000, WHAT APPLIES IS SECTION 4.108.1 ABOVE WHICH REFERS ONLY TO INVOICES .
A claim for tax credit or refund, arising out of zero-rated transactions, is essentially based on excess payment.
In zero-rating a transaction, the purpose is not to benefit the person legally liable to pay the tax, like SPP, but to relieve exempt entities like NPC which supplies electricity to factories, offices, and homes, from having to shoulder the tax burden that ultimately would be passed to the public.
THE PRINCIPLE OF SOLUTIO INDEBITI SHOULD GOVERN THIS CASE SINCE THE BIR RECEIVED SOMETHING THAT IT WAS NOT ENTITLED TO. THUS, IT HAS TO RETURN THE SAME.
The government should not use technicalities to hold on to money that does not belong to it. Only a preponderance of evidence is needed to grant a claim for tax refund based on excess payment.
SPP does no other business except sell the power it produces to NPC, a fact that the CIR did not contest in the parties’ joint stipulation of facts.8 Consequently, the likelihood that SPP would claim input taxes paid on purchases attributed to sales that are not zero-rated is close to nil.
SC finds that SPP failed to indicate its zero-rated sales in its VAT returns .
o
But this is not sufficient reason to deny it its claim for tax credit or refund when there are other documents from which the CTA can determine the veracity of SPP’s claim.1avvphi1
such failure if partaking of a criminal act under Section 255 of the NIRC could warrant the criminal prosecution of the responsible person or persons.
But the omission does not furnish ground for the outright denial of the claim for tax credit or refund if such claim is in fact justified.
The CTA denied SPP’s claim outright for failure to establish the existence of zero -rated sales, disregarding SPP’s sales invoices and receipts which evidence them.
That court did not delve into the question of SPP’s compliance with the other requisites pr ovided under Section 112 of the NIRC.
Consequently, even as the Court holds that SPP’s sales invoices and receipts would be
sufficient to prove its zero-rated transactions, the case has to be remanded to the CTA for determination of whether or not SPP has complied with the other requisites mentioned .
Such matter involves questions of fact and entails the need to examine the records. The Court is not a trier of facts and the competence needed for examining the relevant accounting books or records is undoubtedly with the CTA.
COURT GRANTS THE PETITION, SETS ASIDE THE COURT OF TAX APPEALS EN BANC
3. RENATO V. DIAZ AND AURORA MA. F. TIMBOL, VS. THE SECRETARY OF FINANCE AND CIR G.R. NO. 193007
JULY 19, 2011
May toll fees collected by tollway operators be subjected to value- added tax?
FACTS:
Renato V. Diaz and Aurora Ma. F. Timbol filed a petition for declaratory relief1 assailing the validity of the impending imposition of VAT by BIR on the collections of tollway operators.
Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as regular users of tollways in stopping the BIR action .
Diaz claims that he sponsored the approval of Republic Act 7716 (EVAT Law) and Republic Act 8424 (the 1997 NIRC) at the House of Representatives.
Timbolclaims that she served as Assistant Secretary of DTI and consultant of the TRB in the past administration.
Petitioners allege that the BIR attempted during the administration of President Gloria Macapagal Arroyo to impose VAT on toll fees. But the imposition was deferred in view of the consistent opposition of Diaz and other sectors to such move .
But, upon President Benigno C. Aquino III’s assumption of office in 2010, the BIR revived the idea and would impose the challenged tax on toll fees beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that:
Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of "sale of services" that are subject to VAT;
a toll fee is a "user’s tax," not a sale of services;
to impose VAT on toll fees would amount to a tax on public service;
since VAT was never factored into the formula for computing toll fees, its imposition would violate the non-impairment clause of the constitution.
Court issued a TRO enjoining the implementation of the VAT.
The Court required the government, represented by respondents Cesar V. Purisima, SOF, and Kim S. Jacinto-Henares, CIR, to comment on the petition within 10 days from notice.
Later, the Court issued another resolution treating the petition as one for proh ibition.
Office of the Solicitor General filed the government’s comment.
The government (SOLGEN) avers that: 1. NIRC imposes VAT on all kinds of services of franchise grantees, including tollway
operations, except where the law provides otherwise ; that the Court should seek the meaning and intent of the law from the words used in the statute; and that the imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars.
2. petitioners have no right to invoke the non-impairment of contracts clause since they clearly
have no personal interest in existing toll operating agreements (TOAs) between the government and tollway operators.
At any rate, the non-impairment clause cannot limit the State’s sovereign taxing power which is generally read into contracts.
3. non-inclusion of VAT in the parametric formula for computing toll rates cannot exempt
tollway operators from VAT.
In any event, it cannot be claimed that the rights of tollway operators to a reasonable rate of return will be impaired by the VAT since this is imposed on top of the toll rate. Further, the imposition of VAT on toll fees would have very minimal effect on motorists using the tollways.
petitioners point out that tollway operators cannot be regarded as franchise grantees under the NIRC since they do not hold legislative franchises.
Finally, BIR Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010), which directs toll
companies to record an accumulated input VAT of zero balance in their books as of August 16, 2010, contravenes Section 111 of the NIRC which grants entities that first become liable to VAT a transitional input tax credit of 2% on beginning inventory . For this reason, the VAT on toll fees cannot be implemented.
ISSUES
procedural issues: 1. Whether or not the Court may treat the petition for declaratory relief as one for prohibition; and 2. Whether or not petitioners Diaz and Timbol have legal standing to file the action.
substantive issues: 1. Whether or not the government is unlawfully expanding VAT coverage by including tollway operators and tollway operations in the terms "franchise grantees" and "sale of services" under Section 108 of the Code; and 2. Whether or not the imposition of VAT on tollway operators a. amounts to a tax on tax and not a tax on services;
b. will impair the tollway operators’ right to a reasonable return of investment under their TOAs; c. is not administratively feasible and cannot be implemented. RULINGS:
A. Procedural Issues:
there are precedents for treating a petition for declaratory relief as one for prohibition if the case has far-reaching implications and raises questions that need to be resolved for the public good. The Court has also held that a petition for prohibition is a proper remedy to prohibit or nullify acts of executive officials that amount to usurpation of legislative authority.
it is not only the right, but the duty of the Court to take cognizance of and resolve the issues that the petition raises (above case is for the public good)
Although the petition does not strictly comply with the requirements of Rule 65, the Court has ample power to waive such technical requirements when the legal questions to be resolved are of great importance to the public. The same may be said of the requirement of locus standi which is a mere procedural requisite.
B. On the Substantive Issues: SC
held it is subject to VAT under enumeration provided in Sec. 108 of NIRC (tollway operators fall
under franchise gratees)
VAT is levied, assessed, and collected, according to Section 108, on the gross receipts derived from the sale or exchange of services as well as from the use or lease of properties.
The third paragraph of Section 108 defines "sale or exchange of services" as follows:
The phrase ‘sale or exchange of services’ means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration …….
It is plain from the above that t he law imposes VAT on "all kinds of services" rendered in
the Philippines for a fee, including those specified in the list.
The enumeration of affected services is not exclusive .
By qualifying "services" with the words "all kinds," Congress has given the term "services" an all-encompassing meaning.
The listing of specific services are intended to illustrate how pervasive and broad is the VAT’s reach rather than establish concrete limits to its application.
Thus, every activity that can be imagined as a form of "service" rendered for a fee
should be deemed included unless some provision of law especially excludes it.
Presidential Decree (P.D.) 1112 or the Toll Operation Decree establishes the legal basis for the services that tollway operators render. Essentially, tollway operators construct, maintain, and operate expressways, also called tollways, at the operators’ expense. Tollways serve as alternatives to
regular public highways that meander through populated areas and branch out to local roads . Traffic in the regular public highways is for this reason slow-moving. In consideration for constructing
tollways at their expense, the operators are allowed to collect government-approved fees from motorists using the tollways until such operators could fully recover their expenses and earn reasonable returns from their investments.
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter’s use of the tollway facilities over which the operator enjoys private proprietary rights12 that its contract and the law recognize. In this sense, the tollway operator is no different from the following service providers
under Section 108 who allow others to use their properties or facilities for a fee : 1) Lessors of property, whether personal or real; 2) Warehousing service operators; 3) Lessors or distributors of cinematographic films; 4) Proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; 5) Lending investors (for use of money); 6) Transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; and 7) Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines.
It does not help petitioners’ cause that Section 108 subjects to VAT "all kinds of services" rendered for a fee "regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties." This means that " services" to be subject to VAT need not fall under the
traditional concept of services, the personal or professional kinds that require the use of human knowledge and skills.
And not only do tollway operators come under the broad term "all kinds of services," they also come under the specific class described in Section 108 as "all other franchise grantees" who are subject to VAT, "except those under Section 119 of this Code."
Petitioners of course contend that tollway operators cannot be considered "franchise grantees" under Section 108 since they do not hold legislative franchises. But nothing in Section 108 indicates that
the "franchise grantees" it speaks of are those who hold legislative franchises .
The term "franchise" has been broadly construed as referring, not only to authorizations that Congress directly issues in the form of a special law, but also to those granted by administrative agencies to which the power to grant franchises has been delegated by Congress .
TOLLWAY OPERATORS ARE, OWING TO THE NATURE AND OBJECT OF THEIR BUSINESS, "FRANCHISE GRANTEES."
Petitioners argue that a toll fee is a "user’s tax" and to impose VAT on toll fees is tantamou nt to taxing a tax.
The operation by the government of a tollway does not change the character of the road as one for public use.
Tollway fees are not taxes. They are not assessed and collected by the BIR and do not go to the general coffers of the government.
Fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income.
VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator . Under Section 105 of the Code, VAT is imposed on any person who, in the course of trade or business, sells or renders services for a fee. In other words, the seller of services, who in this case is the tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll fees.
VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a "user’s tax." VAT is assessed against the tollway operator’s gross receipts and not necessarily on the toll fees. Although the tollway operator may shift the VAT burden to the tollway user, it will not make the latter
directly liable for the VAT. The shifted VAT burden simply becomes part of the toll fees that one has to pay in order to use the tollways.32
Timbol has no personality to invoke the non-impairment of contract clause on behalf of private investors in the tollway projects. She will neither be prejudiced by nor be affected by the alleged diminution in return of investments that may result from the VAT imposition. She has no interest at all in the profits to be earned under the TOAs. The interest in and right to recover investments solely belongs to the private tollway investors.
According to petitioners, VAT on tollway operations is not administratively feasible. Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer. Non-observance of the canon, however, will not render a tax imposition invalid "except to the extent that specific constitutional or statutory limitations are impaired." Thus, even if the imposition of VAT on tollway operations may seem burdensome to implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or the Constitution.
For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which directs toll companies to record an accumulated input VAT of zero balance in their books as of August 16, 2010, the date when the VAT imposition was supposed to take effect. The issuance allegedly violates Section 111(A)36 of the Code which grants first time VAT payers a transitional input VAT of 2% on beginning inventory.
In this connection, the BIR explained that BIR RMC 63-2010 is actually the product of
negotiations with tollway operators who have been assessed VAT as early as 2005, but failed to charge VAT-inclusive toll fees which by now can no longer be collected. The tollway operators agreed to waive the 2% transitional input VAT, in exchange for cancellation of their past due VAT liabilities. Notably, the right to claim the 2% transitional input VAT belongs to the tollway operators who have not questioned the circular’s validity. They are thus the ones who have a right to challenge the circular in a direct and proper action brought for the purpose.
CIR did not usurp legislative prerogative or expand the V AT law’s coverage when she sought to impose VAT on tollway operations. Section 108(A) of the Code clearly states that services of all other franchise grantees are subject to VAT, except as may be provided under Section 119 of the Code. Tollway operators are not among the franchise grantees subject to franchise tax
under the latter provision. Neither are their services among the VAT-exempt transactions under Section 109 of the Code.
the grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative of Congress. The Court’s role is to merely uphold this legislative policy , as reflected first and foremost in the language of the tax statute. Thus, any unwarranted burden that may be perceived to result from enforcing such policy must be properly referred to Congress. The Court has no discretion on the matter but simply applies the law.
The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or the Expanded Value-Added Tax law was passed. It is only now, however, that the executive has earnestly pursued the VAT imposition against tollway operators. The executive exercises exclusive discretion in matters pertaining to the implementation and execution of tax laws. Consequently, the executive is more properly suited to deal with the immediate and practical consequences of the VAT imposition.
4. MICROSOFT PHILIPPINES, INC., VS CIR G.R. NO. 180173
APRIL 6, 2011
FACTS :
Microsoft Philippines, Inc. (Microsoft) is a VAT taxpayer duly registered with BIR.
Microsoft renders marketing services to Microsoft Operations Pte Ltd. (MOP) and Microsoft
Licensing, Inc. (MLI), both affiliated non-resident foreign corporations .
The services are paid for in acceptable foreign currency and qualify as zero-rated sales for VAT
purposes under Section 108(B)(2) of NIRC on Value-added Tax on Sale of Services and Use or Lease of Properties. (B) Transactions Subject to Zero Percent (0%) Rate. – The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: 1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported x x x; 2) Services other than those mentioned in the preceding paragraph, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); x x x
Microsoft paid VAT input taxes in the amount of P11,449,814.99 on its domestic purchases of taxable goods and services .
12/27/02: Microsoft filed an administrative claim for tax credit of VAT input taxes in the amount of
P11,449,814.99 with the BIR.
The administrative claim for tax credit was filed within two years from the close of the taxable quarters when the zero-rated sales were made .
4/23/03: due to the BIR's inaction, Microsoft filed a petition for review with the CTA It claimed to be entitled to a refund of unutilized input VAT attributable to its zero-rated
CTA Second Division denied the claim for tax credit of VAT input taxes. It ruled that Microsoft failed to comply with the invoicing requirements of Sections 113 and 237 of the NIRC as well as Section 4.108-1 of Revenue Regulations No. 7-957 (RR 7-95). It stated that Microsoft's official receipts
do not bear the imprinted word "zero-rated" on its face, thus, the official receipts cannot be considered as valid evidence to prove zero-rated sales for VAT purposes .
Microsoft filed mfr but denied.
Microsoft then filed a petition for review with the CTA En Banc but denied again the petition
ISSUE : WON Microsoft is entitled to a claim for a tax credit or refund of VAT input taxes on domestic purchases of goods or services attributable to zero-rated sales for the year 2001 even if the word "zero-rated" is not imprinted on Microsoft's official receipts.
RULING :
SC RULED THAT MICROSOFT IS NOT ENTITLED TO CLAIM FOR TAX CREDIT/REFUND ON INPUT VAT
Sections 113(A) and 237 of the NIRC which provide for the invoicing requirements for VAT-registered persons state:
(A) Invoicing Requirements . – A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: 1) A statement that the seller is a VAT-registered person , followed by his taxpayer's identification number (TIN); and 2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the value-added tax . x x x
SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however, That in the case of sales, receipts or transfers in the amount of One hundred pesos (P100.00) or more, or regardless of the amount, where the sale or transfer is
made by a person liable to value-added tax to another person also liable to value-added tax; or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client: Provided, further, That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the purchaser. The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the transaction is effected, who, if engaged in business or in the exercise of profession, shall keep and preserve the same in his place of business for a period of three (3) years from the close of the taxable year in which such invoice or receipt was issued, while the duplicate shall be kept and preserved by the issuer, also in his place of business, for a like period. The Commissioner may, in meritorious cases, exempt any person subject to internal revenue tax from compliance with the provisions of this Section.
RR 7-95 ENUMERATES THE INFORMATION WHICH MUST APPEAR ON THE FACE OF THE OFFICIAL RECEIPTS OR INVOICES FOR EVERY SALE OF GOODS BY VAT-REGISTERED PERSONS. At the time Microsoft filed its claim for credit of VAT input tax, RR 7-95 was already in effect. The provision states: All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly
registered receipts or sales or commercial invoices which must show: 1. the name, TIN and address of seller ; 2. date of transaction; 3. quantity, unit cost and description of merchandise or nature of service; 4. the name, TIN, business style, if any, and address of the VAT-registered purchaser,
customer or client; 5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and 6. the invoice value or consideration .
Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoices or receipts and this shall be considered as a "VAT invoice." All purchases covered by invoices other than a "VAT invoice" shall not give rise to any input tax. (Emphasis supplied)
The invoicing requirements for a VAT-registered taxpayer as provided in the NIRC and revenue regulations are clear. A VAT-registered taxpayer is required to comply with all the VAT invoicing requirements
to be able to file a claim for input taxes on domestic purchases for goods or services attributable to zero-rated sales. A "VAT invoice" is an invoice that meets the requirements of Section 4.108-1
of RR 7-95. Contrary to Microsoft's claim, RR 7-95 expressly states that "[A]ll purchases covered by invoices other than a VAT invoice shall not give rise to any input tax."
Microsoft's invoice, lacking the word "zero-rated," is not a "VAT invoice," and thus cannot give rise to any input tax.
Panasonic v. Commissioner of Internal Revenue: SC
held that 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 is actually paid. Absent such word, the government may be refunding taxes it did not collect. 5. PAGCOR V. BIR GR NO. 172087 MARCH 15, 2011 FACTS:
PAGCOR was created pursuant to PD No. 1067-A2 on January 1, 1977.
Simultaneous to its creation, P.D. No. 1067-B3 was issued exempting PAGCOR from the payment of any type of tax, except a franchise tax of 5% of the gross revenue .
P.D. No. 1399 was later issued expanding the scope of PAGCOR's exemption .
To consolidate the laws pertaining to the franchise and powers of PAGCOR, P.D. No. 18696
Sec. 13. Exemptions. — x x x
(1) Customs Duties, taxes and other imposts on importations . (2) Income and other taxes . –
(a) Franchise Holder :
tax of any kind or form, income or otherwise, as well as fees, charges, or levies of whatever nature
tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of 5%of the gross revenue or earnings derived by the Corporation from its operation under this Franchise.
(b) Others:
earnings derived from the operations conducted under the franchise
charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino(s )…
The fee or remuneration of foreign entertainers contracted by the Corporation or operator in pursuance of this provision
(3) Dividend Income.
provided that such dividend income shall be totally exempted from income or other form of taxes if invested within 6 months from the date the dividend income is received in the following:
o
operation of the casino(s) or investments in any affiliate activity that will ultimately redound to the benefit of the Corporation; or any other corporation with whom the Corporation has any existing arrangements in connection with or related to the operations of the casino(s);
(b) Government bonds, securities, treasury notes, or government debentures; or (c) BOI-registered or export-oriented corporation(s).7
PAGCOR's tax exemption was removed through P.D. No. 1931, but it was later restored by Letter of Instruction No. 1430
R.A. No. 8424 took effect. Section 27 (c) of R.A. No. 8424 provides that GOCCs shall pay corporate income tax, except petitioner PAGCOR, GSIS, SSS, PHIC, and PCSO
With the enactment of R.A. No. certain sections of the NIRC were amended. The particular amendment that is at issue in this case is Section 1 of R.A. No. 9337, which amended Section 27 (c) of NIRC by
excluding PAGCOR from the enumeration of GOCCs that are exempt from payment of corporate income tax
Different groups came to this SC via petitions for certiorari and prohibition assailing the validity and constitutionality of R.A. No. 9337, in particular: 1. Section 4, which imposes a 10 % Value Added Tax (VAT ) on sale of goods and properties; Section 5, which imposes a 10% VAT on importation of goods; and Section 6, which imposes a 10% VAT on sale of services and use or lease of properties, all contain a uniform proviso authorizing the President, upon the recommendation of the Secretary of Finance, to raise the VAT rate to 12%.
The said provisions were alleged to be violative of Section 28 (2), Article VI of the Constitution, which section vests in Congress the exclusive authority to fix the rate of taxes , and of Section 1, Article III of the Constitution on due process, as well as of Section 26 (2), Article VI of the Constitution, which section provides for the " no amendment rule" upon the last reading
of a bill; 2. Sections 8 and 12 were alleged to be violative of Section 1, Article III of the Constitution, or the
guarantee of equal protection of the laws , and Section 28 (1), Article VI of the Constitution; and 3. other technical aspects of the passage of the law, questioning the manner it was passed.
Court dismissed all the petitions and upheld the constitutionality of R.A. No. 9337.12
BIR issued RR No. 16--2005,13 specifically identifying PAGCOR as one of the franchisees subject to 10% VAT imposed under Section 108 of the National Internal Revenue Code of 1997, as amended by R.A. No. 9337.
ISSUE
whether or not PAGCOR is still exempt from corporate income tax and VAT with the enactment of R.A. No. 9337. RULING
petition is PARTLY GRANTED.
Section 1 of Republic Act No. 9337, amending Section 27 (c) of the National Internal Revenue Code of 1997, by excluding petitioner PAGCOR from the enumeration of government-owned and controlled corporations exempted from corporate income tax is valid and constitutional,
while RR No. 16-2005 insofar as it subjects PAGCOR to 10% VAT is null and void for being contrary to the NIRC, as amended by Republic Act No. 9337.
Under Section 1 of R.A. No. 9337, amending Section 27 (c) of the NIRC of 1977, petitioner is no longer exempt from corporate income tax as it has been effectively omitted from the list of GOCCs that are exempt from it. PAGCOR argues that such omission is unconstitutional, as it is violative of its right to equal protection of the laws under Section 1, Article III of the Constitution:
Legislative bodies are allowed to classify the subjects of legislation. If the classification is reasonable, the law may operate only on some and not all of the people without violating the equal protection clause. The classification must, as an indispensable requisite, not be arbitrary. To be valid, it must conform to the following requirements:
1. It must be based on substantial distinctions. 2. It must be germane to the purposes of the law. 3. It must not be limited to existing conditions only. 4. It must apply equally to all members of the class.18
It is not contested that before the enactment of R.A. No. 9337, petitioner was one of the five GOCCs exempted from payment of corporate income tax as shown in R.A. No. 8424, Section 27 (c) of which, reads:
under R.A. No. 8424, the exemption of PAGCOR from paying corporate income tax was not based on a classification showing substantial distinctions which make for real differences, but the exemption was granted upon the request of PAGCOR that it be exempt from the payment of corporate income tax.
With the subsequent enactment of R.A. No. 9337, amending R.A. No. 8424, PAGCOR has been excluded from the enumeration of GOCCs that are exempt from paying corporate income tax. The records of the Bicameral Conference Meeting dated April 18, 2005, of the Committee on the Disagreeing Provisions of Senate Bill No. 1950 and House Bill No. 3555, show that it is the legislative intent that PAGCOR be subject to the payment of corporate income tax.
PAGCOR failed to prove that it is still exempt from the payment of corporate income tax, considering that Section 1 of R.A. No. 9337 amended Section 27 (c) of the National Internal Revenue Code of 1997 by omitting PAGCOR from the exemption.
The legislative intent, as shown by the discussions in the Bicameral Conference Meeting, is to require PAGCOR to pay corporate income tax; hence, the omission or removal of PAGCOR from exemption from the payment of corporate income tax.
the express mention of the GOCCs exempted from payment of corporate income tax excludes all others. Not being excepted, petitioner PAGCOR must be regarded as coming within the purview of the general rule that GOCCs shall pay corporate income tax, expressed in the maxim: exceptio firmat regulam in casibus non exceptis.28
Petitioner further contends that Section 1 (c) of R.A. No. 9337 is null and void ab initio for violating the non-
As regards franchises, Section 11, Article XII of the Constitution31 provides that no franchise or right shall be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires.
In this case, PAGCOR was granted a franchise to operate and maintain gambling casinos, clubs and other recreation or amusement places, sports, gaming pools, i.e., basketball, football, lotteries, etc….
Under Section 11, Article XII of the Constitution, PAGCOR’s franchise is subject to amendment, alteration or repeal by Congress such as the amendment under Section 1 of R.A. No. 9377. Hence, the provision in
Section 1 of R.A. No. 9337, amending Section 27 (c) of R.A. No. 8424 by withdrawing the exemption of PAGCOR from corporate income tax, which may affect any benefits to PAGCOR’s transactions with private parties, is not violative of the non-impairment clause of the Constitution.
Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting PAGCOR to 10% VAT is invalid for being contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided that petitioner can be subjected to VAT. R.A. No. 9337 is clear only as to the removal of petitioner's exemption from the payment of corporate income tax, which was already addressed above by this Court.
Petitioner contends that the tax exemption under NIRC refers only to PAGCOR's direct tax liability and not to indirect taxes, like the VAT. SC disagree.
no distinction on whether the taxes are direct or indirect; PAGCOR is also exempt from indirect taxes, like VAT, as follows:
The manner of charging VAT does not make PAGCOR liable to said tax.
It is settled rule that in case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails, because the said rule or regulation cannot go beyond the terms and provisions of the basic law .
RR No. 16-2005, therefore, cannot go beyond the provisions of R.A. No. 9337. Since PAGCOR is exempt from VAT under R.A. No. 9337, the BIR exceeded its authority in subjecting PAGCOR to 10% VAT under RR No. 16-2005; hence, the said regulatory provision is hereby nullified.
6. KEPCO PHIL SPORT V. CIR GR NO. 179961 JANUARY 31, 2011 FACTS:
Kepco Philippines Corporation (Kepco) is a duly organized domestic
It is a value-added tax (VAT) registered taxpayer engaged in the production and sale of electricity as an independent power producer.
It sells its electricity to NPC.
Kepco filed with CIR an application for effective zero-rating of its sales of electricity to the NPC.
Kepco alleged that for 1999, it incurred a certain amount of input on its domestic purchases of goods and services that were used in its production and sale of electricity to NPC for the same period.
In its 1999 quarterly VAT returns filed with the BIR, Kepco declared the said input VAT as follows:
INPUT TAX A 1st qtr
100,564,209.14 4,804,974.70
B 2nd qtr
105,369,183.84 1,461,960.38
C 3rd qtr
109,394,432.22
109,394,432.22 1,696,979.46
TOTAL
106,831,144.22
106,831,144.22 2,563,288.00
D 4th qtr
105,369,183.84
111,091,411.68 P10,527,202.54
IN 2001, Kepco filed an administrative claim for refund corresponding to its reported unutilized input VAT for the 4 quarters of 1999
Kepco filed a petition for review before the CTA pursuant to Section 112(A) of NIRC, which grants refund of unutilized input taxes attributable to zero-rated or effectively zero-rated sales.
In 2005, the CTA 2nd division denied Kepco’s claim for refund for failure to properly substantiate its
effectively zero-rated sales for the taxable year 1999
CTA held that Kepco failed to comply with the invoicing requirements in clear violation of Section 4.108-1 of RR No. 7-95, implementing Section 108(B)(3) in conjunction with Section 113 of the 1997 NIRC.
Mfr was also denied so Kepco filed an appeal via petition for review before the CTA En Banc, on the ground that the CTA Second Division erred in not considering the input tax as refundable tax credit and in failing to appreciate that it was exclusively selling electricity to NPC, a tax exempt entity.
In 2007, CTA En Banc dismissed the petition, reasoning out that Kepco’s failure to comply with the
requirement of imprinting the words "zero-rated" on its official receipts resulted in non-entitlement to the benefit of VAT zero-rating and denial of its claim for refund of input tax. ISSUE:
WON Kepco’s failure to imprint the words "zero-rated" on its official receipts issued to NPC justifies an outright denial of its claim for refund of unutilized input tax credits. RULING
Kepco contends that the provisions of the 1997 Tax Code do not mention the mandatory requirement of imprinting the words "zero-rated" to purchases covering zero-rated transactions.
Kepco further argues that there is no law or regulation which imposes automatic denial of taxpayer’s refund claim for failure to comply with the invoicing requirements.
The CIR, in his Comment, counters that Kepco is not entitled to a tax refund because it was not able to substantiate the amount representing zero-rated transactions for failure to submit VAT official receipts and invoices imprinted with the wordings "zero-rated
PETITION DENIED; KEPCO cannot refund its input tax paid
NPC is an entity with a special charter and exempt from payment of all forms of taxes, including VAT. As such, services rendered by any VAT-registered person/entity, like Kepco, to NPC are effectively subject to zero percent (0%) rate.
For the effective zero rating of such services the VAT-registered taxpayer must comply with invoicing requirements under Sections 113 and 237 of the 1997 NIRC as implemented by Section 4.108-1 of R.R. No. 7-95
Section 4.108-1. Invoicing Requirements. – All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. The name, TIN and address of seller; 2. Date of transaction; 3. Quantity, unit cost and description of merchandise or nature of service; 4. The name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client;
5. The word "zero-rated" imprinted on the invoice covering zero-rated sales; 6. The invoice value or consideration.
it is the duty of Kepco to comply with the requirements, including the imprinting of the words "zerorated" in its VAT official receipts and invoices in order for its sales of electricity to NPC to qualify for zero-rating.
It must be emphasized that the requirement of imprinting the word "zero-rated" on the invoices or
receipts under Section 4.108-1 of R.R. No. 7-95 is mandatory as ruled by the CTA En Banc, citing Tropitek International, Inc. v. Commissioner of Internal Revenue .
In Kepco Philippines Corporation v. Commissioner of Internal Revenue,14 the CTA En Banc explained the rationale behind such requirement in this wise:
The imprinting of "zero-rated" is necessary to distinguish sales subject to 10% VAT, those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and enforce the other provisions of the 1997 NIRC on VAT , namely: 1. Zero-rated sales [Sec. 106(A)(2) and Sec. 108(B)]; 2. Exempt transactions [Sec. 109] in relation to Sec. 112(A); 3. Tax Credits [Sec. 110]; and 4. Refunds or tax credits of input tax [Sec. 112]
Kepco failed to substantiate the claimed zero-rated sales. The wordings "zero-rated sales" were not imprinted on the VAT official receipts presented by Kepco for taxable year 1999, in clear violation of Section 4.108-1 of R.R. No. 7-95 and the condition imposed under its approved Application/Certificate for Zero-rate as well.
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 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.
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.
Contrary to Kepco’s view, the denial of its claim for refund of input tax is not a harsh penalty. The invoicing requirement is reasonable and must be strictly complied with, as it is the only way to determine the veracity of its claim. Well-settled in this jurisdiction is the fact that actions for tax refund is construed in strictissimi juris against the taxpayer. The pieces of evidence presented entitling a taxpayer to an exemption are also strictissimi scrutinized and must be duly proven.
7. ATLAS CONSOLIDATED MINING V. CIR
GR NO. 159471 JAN 26, 2011
FACTS:
Under Section 100 of the Tax, Atlas is a zero-rated VAT person for being an exporter of copper
concentrates.
Atlas filed its VAT return for the 4 th qtr. of 1993, showing a certain amount of input tax and an excess VAT credit
So it later applied for a tax refund or a tax credit certificate with the CIR and on same date, petitioner filed the same claim for refund with the CTA, claiming that the 2-year prescriptive period provided for under Section 230 of the Tax Code for claiming a refund was about to expire.
CIR failed to file his answer with the CTA; thus, the former declared the latter in default.
CTA rendered its Decision denying petitioner's claim for refund due to petitioner's failure to comply with the documentary requirements prescribed under Section 16 of Revenue Regulations No. 5-87, as amended by Revenue Regulations No. 3-88, dated April 7, 1988.
Petitioner filed mfr praying for the reopening of the case in order for it to present the required documents, together with its proof of non-availment for prior and succeeding quarters of the input VAT subject of petitioner's claim for refund.
CTA granted the motion but later denied petitioner's claim.
It ruled that the action has already prescribed and that petitioner has failed to substantiate its claim that it has not applied its alleged excess input taxes to any of its subsequent quarter's output tax liability
CA affirmed CTA’s decision
ISSUE:
WON ERRED IN HOLDING THAT PETITIONER'S CLAIM FOR REFUND HAS PRESCRIBED, DESPITE FAILURE OF RESPONDENT AND THE COURT OF TAX APPEALS TO RAISE THE ISSUE OF PRESCRIPTION IN RESPONDENT'S ANSWER OR IN THE CTA'S ORIGINAL DECISION DATED 16 SEPTEMBER 1998.
WON CA ERRED IN UPHOLDING THE COURT OF TAX APPEALS' FINDING IN ITS DECISION DATED 24 AUGUST 1998 THAT PETITIONER, IN NOT SUBMITTING ITS EXPORT DOCUMENTS, FAILED TO PRESENT ADEQUATE PROOF THAT ITS INPUT TAXES ARE DIRECTLY ATTRIBUTABLE TO ITS EXPORT SALES.
CA ERRED IN UPHOLDING THE COURT OF TAX APPEALS’ FINDING THAT PETITIONER FAILED TO PRESENT ADEQUATE PROOF THAT IT HAD NOT APPLIED THE CLAIMED INPUT TAX TO ITS OUTPUT TAXES FROM PRIOR AND SUCCEEDING QUARTERS.
RULING:
SC denied the petition
In this case, petitioner is asking this Court to review the factual findings of the CTA and the CA. Petitioner insists that it had presented the necessary documents or copies thereof with the CTA that would prove that it is entitled to a tax refund.
Again, citing the earlier case of Atlas Consolidated Mining and Development Corporation v. CIR,13 this Court has expounded the nature and bases of claiming tax refund, thus:
Applications for refund/credit of input VAT with the BIR must comply with the appropriate revenue regulations.
As this Court has already ruled, Revenue Regulations No. 2-88 is not relevant to the applications for refund/credit of input VAT filed by petitioner corporation; nonetheless, the said applications must have been in accordance with Revenue Regulations No. 3-88, amending Section 16 of Revenue Regulations No. 5-87, which provided as follows –
SECTION 16. Refunds or tax credits of input tax. – (c) Claims for tax credits/refunds. Application for Tax Credit/Refund of Value-Added Tax Paid (BIR Form No. 2552) shall be filed with the Revenue District Office of the city or municipality where the principal place of business of the applicant is located or directly with the Commissioner, Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be submitted together with the application. The original copy of the said invoice/receipt, however, shall be presented for cancellation prior to the issuance of the Tax Credit Certificate or refund. In addition, the following documents shall be attached whenever applicable:
3. Effectively zero-rated sale of goods and services. i) photocopy of approved application for zero-rate if filing for the first time. ii) sales invoice or receipt showing name of the person or entity to whom the sale of goods or services were delivered, date of delivery, amount of consideration, and description of goods or services delivered. iii) evidence of actual receipt of goods or services.
4. Purchase of capital goods. i) original copy of invoice or receipt showing the date of purchase, purchase price, amount of value-added tax paid and description of the capital equipment locally purchased. ii) with respect to capital equipment imported, the photocopy of import entry document for internal revenue tax purposes and the confirmation receipt issued by the Bureau of Customs for the payment of the value-added tax.
5. In applicable cases, where the applicant’s zero-rated transactions are regulated by certain government agencies, a statement therefrom showing the amount and description of sale of goods and services, name of persons or entities (except in case of exports) to whom the goods or services were sold, and date of transaction shall also be submitted.
In all cases, the amount of refund or tax credit that may be granted shall be limited to the amount of the VAT paid directly and entirely attributable to the zero-rated transaction during the period covered by the application for credit or refund.
Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods and services, and the VAT paid (inputs) on purchases of goods and services cannot be directly attributed to any of the aforementioned transactions, the following formula shall be used to determine the creditable or refundable input tax for zero-rated sale:
Amount of Zero-rated Sale
Total Sales x Total Amount of Input Taxes = Amount Creditable/Refundable
In case the application for refund/credit of input VAT was denied or remained unacted upon by the BIR, and before the lapse of the two-year prescriptive period, the taxpayer-applicant may already file a Petition for Review before the CTA. If the taxpayer’s claim is supported by voluminous documents, such as receipts, invoices, vouchers or long accounts, their presentation before the CTA shall be governed by CTA Circular No. 1-95, as amended, reproduced in full below – o
In the interest of speedy administration of justice, the Court hereby promulgates the following rules governing the presentation of voluminous documents and/or long accounts, such as receipts, invoices and vouchers, as evidence to establish certain facts pursuant to Section 3(c), Rule 130 of the Rules of Court and the doctrine enunciated in Compania Maritima vs. Allied Free Workers Union (77 SCRA 24), as well as Section 8 of Republic Act No. 1125:
1. The party who desires to introduce as evidence such voluminous documents must, after motion and approval by the Court, present:
(a) a Summary containing, among others, a chronological listing of the numbers, dates and amounts covered by the invoices or receipts and the amount/s of tax paid; and (b) a Certification of an independent Certified Public Accountant attesting to the correctness of the contents of the summary after making an examination, evaluation and audit of the voluminous receipts and invoices. The name of the accountant or partner of the firm in charge must be stated in the motion so that he/she can be commissioned by the Court to conduct the audit and, thereafter, testify in Court relative to such summary and certification pursuant to Rule 32 of the Rules of Court.
2. The method of individual presentation of each and every receipt, invoice or account for marking, identification and comparison with the originals thereof need not be done before the Court or Clerk of Court anymore after the introduction of the summary and CPA certification. It is enough that the receipts, invoices, vouchers or other documents covering the said accounts or payments to be introduced in evidence must be pre-marked by the party concerned and submitted to the Court in order to be made accessible to the adverse party who desires to check and verify the correctness of the summary and CPA certification. Likewise, the originals of the voluminous receipts, invoices or accounts must be ready for verification and comparison in case doubt on the authenticity thereof is raised during the hearing or resolution of the formal offer of evidence.14
As to the evidence that must be presented, the provisions of the pertinent laws provide:
. – (a) Any VAT-registered person, whose sales are zero-rated, may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in case of zero-rated sales under Section 100 (a) (2) (A) (I), (ii) and (b) and Section 102 (b) (1) and (2), the acceptable foreign currency exchange proceeds thereof have been duly accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales .
Section 16 of Revenue Regulations No. 5-87, as amended by Revenue Regulations No. 3-88, dated April 7, 1988
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be submitted together with the application. The original copy of the said invoice/receipt, however, shall be presented for cancellation prior to the issuance of the Tax Credit Certificate or refund. In addition, the following documents shall be attached whenever applicable:
1. Export Sales
i) Photocopy of export document showing the amount of export, the date and destination of the goods exported. With respect to foreign currency denominated sale, the photocopy of the invoice or receipt evidencing the sale of the goods, as well as the name of the person to whom the goods were delivered.
ii) Statement from the Central Bank or any of its accredited agent banks that the proceeds of the sale in acceptable foreign currency has been inwardly remitted and accounted for in accordance with applicable banking regulations.
In all cases, the amount of refund or tax credit that may be granted shall be limited to the amount of value-added tax (VAT) paid directly and entirely attributable to the zero-rated transaction during the period covered by the application for credit or refund.
The CTA, applying the abovementioned rules, in its Decision dated August 24, 1998, came out with the following factual findings:
The formal offer of evidence of the petitioner failed to include photocopy of its export documents, as required. There is no way therefore, in determining the kind of goods and actual amount of export sales it allegedly made during the quarter involved. This finding is very crucial when we try to relate it with the requirement of the aforementioned regulations that the input tax being claimed for refund or tax credit must be shown to be entirely attributable to the zero-rated transaction, in this case, export sales of goods. Without the export documents, the
purchase invoice/receipts submitted by the petitioner as proof of its input taxes cannot be verified as being directly attributable to the goods so exported.
Lastly, We cannot grant petitioner's claim for credit or refund of input taxes due to its failure to show convincingly that the same has not been applied to any of its output tax liability as provided under Section 106 (a) of the Tax Code . There is no evidence to show that the amount herein claimed for refund when applied for on January 25, 1996 has not been priorly or thereafter applied to its output tax liability.15
The above factual findings of the CTA were even bolstered when it granted petitioner's motion for reconsideration allowing petitioner to submit the necessary documents and other pieces of evidence, so as to comply with the requirements provided for by law. However, despite such allowance, petitioner still failed to comply. Thus, in its Resolution16 dated June 21, 2000, the CTA finally disposed the
case by ruling that:
The Court finds and so holds that Petitioner failed again to present proof that it has not applied the alleged excess input taxes to any of its subsequent quarter's output tax liability . In this Court's decision dated August 24, 1998, We already mentioned that petitioner failed to convince us that its input taxes have not been applied to any of its output tax liability as provided under Section 106 (a). Now on its second opportunity to substantiate its claim, Petitioner again failed to prove this particular allegation. Petitioner merely presented in evidence the following documents to show that it has not applied the amount of P4,534,933.74, subject of the claim, to its 1994 first quarter output tax liability, to wit:
Nowhere in all the documents submitted to this Court by the Petitioner can We find its 1994 first quarter VAT return which, to Our mind and as repeatedly ruled in a litany of cases, is necessary for purposes of determining with particular certainty whether or not the claimed input taxes were applied to any of its output tax liability in the first quarter or in the succeeding quarters of 1994. And there is no reason at this point for Us to digress from this ruling.17
The above factual findings were affirmed and accorded respect by the CA. Nevertheless, petitioner insists that it has submitted documents and other pieces of evidence, except those required by law, that would establish the existence of the input VAT for the fourth quarter of 1993 and that the excess input VAT claimed for refund or tax credit has not been applied to its output tax liability for prior and succeeding quarters.
The above argument, however, is flawed. It must be remembered that when claiming tax
refund/credit, the VAT-registered taxpayer must be able to establish that it does have
refundable or creditable input VAT, and the same has not been applied against its output VAT liabilities – information which are supposed to be reflected in the taxpayer’s VAT returns. Thus, an application for tax refund/credit must be accompanied by copies of the taxpayer’s VAT return/s for the taxable quarter/s concerned .18 The CTA and the CA, based on their appreciation of the evidence presented, committed no error when they declared that petitioner failed to prove that it is entitled to a tax refund and this Court, not being a trier of facts, must defer to their findings. Again, as aptly ruled by this Court in Atlas:19
This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for well-settled is the general rule that the jurisdiction of this Court in cases brought before it from the Court of Appeals, by way of a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, is limited to reviewing or revising errors of law; findings of fact of the latter are conclusive. This Court is not a trier of facts. It is not its function to review, examine and evaluate or weigh the probative value of the evidence presented.
The distinction between a question of law and a question of fact is clear-cut. It has been held that "[t]here is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood of alleged facts."
Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on these sales in the amount it had declared in its returns; whether all the input VAT subject of its applications for refund/credit can be attributed to its zero-rated sales; and whether it had not previously applied the input VAT against its output VAT liabilities, are all questions of fact which could only be answered after reviewing, examining, evaluating, or weighing the probative value of the evidence it presented, and which this Court does not have the jurisdiction to do in the present Petitions for Review on Certiorari under Rule 45 of the Revised Rules of Court.
Granting that there are exceptions to the general rule, when this Court looked into questions of fact under particular circumstances, none of these exist in the instant cases. The Court of Appeals, in both cases, found a dearth of evidence to support the claims for refund/credit of the input VAT of petitioner corporation, and the records bear out this finding. Petitioner corporation itself cannot dispute its non-compliance with the requirements set forth in Revenue Regulations No. 3 -88 and CTA Circular No. 1-95, as amended. It concentrated its arguments on its assertion that the substantiation requirements under Revenue Regulations No. 2-88 should not have applied to it, while being conspicuously silent on the evidentiary requirements mandated by other relevant regulations.20
Taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. And, since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of refund or exemption from tax payments must be clearly shown and be based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception.21
Anent the issue of prescription, wherein petitioner questions the ruling of the CA that the former's claim for refund has prescribed, disregarding the failure of respondent Commissioner of Internal Revenue and the CTA to raise the said issue in their answer and original decision, respectively, this Court finds the same moot and academic. Although it may appear that th e CTA only brought up the issue of prescription in its later resolution and not in its original decision, its ruling on the merits of the application for refund, could only imply that the issue of prescription was not the main consideration for the denial of petitioner's claim for tax refund. Otherwise, the CTA would have just denied the application on the ground of prescription.
8. SILICON PHIL V. C IR GR NO. 172378 JAN 17, 2011 FACTS
Petitioner Silicon Philippines, Inc., a domestic corporation, is engaged in the business of designing,
developing, manufacturing and exporting advance and large-scale integrated circuit components or "IC’s."
Petitioner is registered with the BIR as a VAT taxpayer and with the BOI as a preferred pioneer
enterprise.
5/21/99: petitioner filed with CIR, through the One-Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center of DOF, an application for credit/refund of unutilized input VAT for 4th qtr of 1998
Amount Tax Paid on Imported/Locally Purchased Capital Equipment
P 15,170,082.00
Total VAT paid on Purchases per Invoices Received During the Period for which this Application is Filed
16,732,425.50
Amount of Tax Credit/Refund Applied For Proceedings before the CTA Division
12/27/00 : due to the inaction of the respondent, petitioner filed a Petition for Review with the
CTA
Petitioner alleged that for the 4th quarter of 1998, it generated and recorded zero-rated export sales in the amount of P3,027,880,818.42 , paid to petitioner in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP and that for the said period, petitioner paid input VAT in the total amount of P31,902,507.50,8 which have not been
applied to any output VAT.
CIR filed a special and affirmative defenses stating that:
The petition states no cause of action as it does not allege the dates when the taxes sought to
be refunded/credited were actually paid; o
It is incumbent upon petitioner to show that it complied with the provisions of Section 229 of the Tax Code as amended;
o
Claims for refund are construed strictly against the claimant, the same being in the nature of exemption from taxes
o
One who claims to be exempt from payment of a particular tax must do so under clear and unmistakable terms found in the statute
12/18/03: the CTA Division rendered a Decision partially granting petitioner’s claim for refund of
unutilized input VAT on capital goods . Out of the amount of P15,170,082.00, only P9,898,867.00 was allowed to be refunded because training materials, office supplies, posters, banners, T-
shirts, books, and other similar items purchased by petitioner were not considered capital goods under Section 4.106-1(b) of Revenue Regulations (RR) No. 7-95 (Consolidated VAT Regulations).
With regard to petitioner’s claim for credit/refund of input VAT attributable to its zer o-rated export sales, the CTA Division denied the same because petitioner failed to present an Authority to Print (ATP) from the BIR;14 neither did it print on its export sales invoices the ATP and the word "zero-rated."15 Thus, the CTA Division disposed of the case in this wise:
petitioner moved for reconsideration.
It claimed that it is not required to secure an ATP since it has a "Permit to Adopt Computerized Accounting Documents such as Sales Invoice and Official Receipts" from the BIR .
Petitioner further argued that because all its finished products are exported to its mother company, Intel Corporation, a non-resident corporation and a non-VAT registered entity, the printing of the word "zerorated" on its export sales invoices is not necessary.
respondent filed a Motion for Partial Reconsideration contending that petitioner is not entitled to a credit/refund of unutilized input VAT on capital goods because it failed to show that the goods imported/purchased are indeed capital goods as defined in Section 4.106-1 of RR No. 7-95.
The CTA Division denied both motions saying that: o
[P]etitioner’s request for Permit to Adopt Computerized Accounting Documents such as Sales Invoice and Official Receipt was approved on August 31, 2001 while the period involved in this case was October 31, 1998 to December 31, 1998 x x x. While it appears that petitioner was previously issued a permit by the BIR Makati Branch, such permit was only limited to the use of computerized books of account x x x. It was only on August 31, 2001 that petitioner was
permitted to generate computerized sales invoices and official receipts [provided that the BIR Permit Number is printed] in the header of the document x x x. o
Thus, petitioner’s contention that it is not required to show its BIR permit number on the sales invoices runs counter to the requirements under the said "Permit." This court also wonders why petitioner was issuing computer generated sales invoices during the period involved (October 1998 to December 1998) when it did not have an authority or permit. Therefore, we are convinced that such documents lack probative value and should be treated as inadmissible, incompetent and immaterial to prove petitioner’s export sales transaction.
9/30/05: the CTA EN BANC ISSUED THE ASSAILED DECISION DENYING THE PETITION
FOR LACK OF MERIT . It ruled that::
o
the requirement of [printing] the BIR permit to print on the face of the sales invoices and official receipts is a control mechanism adopted by the Bureau of Internal Revenue to safeguard the interest of the government.
o
THIS REQUIREMENT IS CLEARLY MANDATED under Section 238 the tax code:
SEC. 238. Printing of Receipts or Sales or Commercial Invoice . – All persons who are engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same.
…there can be no other valid proof of compliance with the above provision than to show the Authority to Print Permit number [printed] on the sales invoices and official receipts.
With regard to petitioner’s failure to print the word "zero -rated" on the face of its export sales invoices, it must be emphasized that Section 4.108-1 of Revenue Regulations No. 7-95 specifically requires
that all value-added tax registered persons shall, for every sale or lease of goods or properties or services, issue duly registered invoices which must show the word "zero-rated" [printed] on the invoices covering zero-rated sales.
It is not enough that petitioner prove[s] that it is entitled to its claim for refund by way of substantial evidence. Well settled in our jurisprudence [is] that tax refunds are in the nature of tax exemptions and as such, they are regarded as in derogation of sovereign authority . Thus, tax refunds are construed in strictissimi juris against the person or entity claiming the same .
In this case, not only should petitioner establish that it is entitled to the claim but it must most
importantly show proof of compliance with the substantiation requirements as mandated by law or regulations.
Revenue Regulations No. 7-95 defines capital goods as to include even those goods which are indirectly used in the production or sale of taxable goods or services.
Capital goods or properties, as defined under Section 4.106-1(b) of Revenue Regulations No. 7-95, refer "to goods or properties with estimated useful life greater than one year and which are treated as depreciable assets under Section 29 (f), used directly or indirectly in the production or sale of taxable goods or services."
Considering that the items (training materials, office supplies, posters, banners, t-shirts, books and the like) purchased by petitioner as reflected in the summary were not duly proven to have been used, directly or indirectlyin the production or sale of taxable goods or services, the same cannot be considered as capital goods as defined above the same may not then [be] claimed as such.
ISSUES
(1) WON CTA En Banc erred in denying petitioner’s claim for credit/ refund of input VAT attributable to its zero rated sales due to its failure: (a) to show that it secured an ATP from the BIR and to indicate the same in its export sales invoices; and (b) to print the word "zero-rated" in its export sales invoices.29 (2) WON the CTA En Banc erred in ruling that only the amount of P9,898,867.00 can be classified as input VAT paid on capital goods.
Petitioner’s Arguments Petitioner posits that the denial by the CTA En Banc of its claim for refund of input VAT attributable to its zerorated sales has no legal basis because the printing of the ATP and the word "zero-rated" on the export sales invoices are not required under Sections 113 and 237 of the National Internal Revenue Code (NIRC).31 And since there is no law requiring the ATP and the word "zero-rated" to be indicated on the sales invoices,32 the absence of such information in the sales invoices should not invalidate the petition33 nor result in the outright denial of a claim for tax credit/refund.34 To support its position, petitioner cites Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue,35 where Intel’s failure to print the ATP on the sales invoices or receipts did not result in the outright denial of its claim for tax credit/refund.36 Although the cited case only dealt with the printing of the ATP, petitioner submits that the reasoning in that case should also apply to the printing of the word "zero-rated."37 Hence, failure to print of the word "zero-rated" on the sales invoices should not result in the denial of a claim.
As to the claim for refund of input VAT on capital goods, petitioner insists that it has sufficiently proven through that all the goods purchased were used in the production and manufacture of its finished products which were sold and exported.38
Respondent’s Arguments To refute petitioner’s arguments, respondent asserts that the printing of the ATP on the export sales invoices, which serves as a control mechanism for the BIR, is mandated by Section 238 of the NIRC;39 while the printing of the word "zero-rated" on the export sales invoices, which seeks to prevent purchasers of zero-rated sales or services from claiming non-existent input VAT credit/refund,40 is required under RR No. 7-95, promulgated pursuant to Section 244 of the NIRC.41
With regard to the unutilized input VAT on capital goods, respondent counters that petitioner failed to show that the goods it purchased/imported are capital goods as defined in Section 4.106-1 of RR No. 7-95. 42
RULING
THE PETITION IS DENIED
Before us are two types of input VAT credits . One is a credit/refund of input VAT attributable to zerorated sales under Section 112 (A) of the NIRC, and the other is a credit/refund of input VAT on capital goods pursuant to Section 112 (B) of the same Code.
In a
, Section 112 (A)43 of the NIRC
lays down
, to wit:
a. the taxpayer must be
;
b. the taxpayer must be
;
c. the claim must be f ; and d. the creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that
.
.
The CTA Division, however, found the export sales invoices of no probative value in establishing petitioner’s zero-rated sales for the purpose of claiming credit/refund of input VAT because
.
SC PARTLY AGREES WITH THE CTA. o
PRINTING THE ATP ON THE INVOICES OR RECEIPTS IS NOT REQUIRED It has been settled in Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue49 that the ATP need not be reflected or indicated in the invoices or receipts because there is no law or regulation requiring it. Thus, in the absence of such law or regulation, failure to print
the ATP on the invoices or receipts should not result in the outright denial of a claim or the invalidation of the invoices or receipts for purposes of claiming a refund .51
ATP MUST BE SECURED FROM THE BIR But while there is no law requiring the ATP to be printed on the invoices or receipts, Section
238 of the NIRC expressly requires persons engaged in business to secure an ATP from the BIR prior to printing invoices or receipts. Failure to do so makes the person liable under Section 26452 of the NIRC.
CLAIMANT FOR UNUTILIZED INPUT VAT ON ZERO-RATED SALES IS REQUIRED TO PRESENT PROOF THAT IT HAS SECURED AN ATP FROM THE BIR PRIOR TO THE PRINTING OF ITS INVOICES OR RECEIPTS.
Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated or effectively zero-rated. To prove this, duly registered invoices or receipts evidencing zero-rated sales must be presented. However, since the ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or receipts are duly registered is by requiring the claimant to present its ATP from the BIR.
Failure to print the word "zero-rated" on the sales invoices is fatal to a claim for refund of input VAT
Similarly, failure to print the word "zero-rated" on the sales invoices or receipts is fatal to a claim
for credit/refund of input VAT on zero-rated sales .
THE NON-PRESENTATION OF THE ATP AND THE FAILURE TO INDICATE THE WORD "ZERO-RATED" IN THE INVOICES OR RECEIPTS ARE FATAL TO A CLAIM FOR CREDIT/REFUND OF INPUT VAT ON ZERO-RATED SALES. THE FAILURE TO INDICATE THE ATP IN THE SALES INVOICES OR RECEIPTS, ON THE OTHER HAND, IS NOT.
In this case, petitioner failed to present its ATP and to print the word "zero-rated" on its export sales invoices. Thus, we find no error on the part of the CTA in denying outright petitioner’s claim for credit/refund of input VAT attributable to its zero-rated sales.
Capital goods are defined under Section 4.106-1(b) of RR No. 7-95 .To claim a refund of input VAT on capital goods, Section 112 (B)56 of the NIRC requires that: 1. the claimant must be a VAT registered person; 2. the input taxes claimed must have been paid on capital goods; 3. the input taxes must not have been applied against any output tax liability; and 4. the administrative claim for refund must have been filed within two (2) years after the close of the taxable quarter when the importation or purchase was made.
Section 4.106-1 (b) of RR No. 7-95 defines capital goods as follows:
"Capital goods or properties" refer to goods or properties with estimated useful life greater that
one year and which are treated as depreciable assets under Section 29 (f),57 used directly or indirectly in the production or sale of taxable goods or services.
Thus, training materials, office supplies, posters, banners, T-shirts, books, and the other similar
items reflected in petitioner’s Summary of Importation of Goods are not capital goods .
A reduction in the refundable input VAT on capital goods from P15,170,082.00 to P9,898,867.00 is therefore in order.
9. CIR V. SONY PHILS INC. GR NO. 178697 NOV 11, 2010 FACTS
11/24/98: the CIR issued Letter of Authority authorizing certain revenue officers to examine
Sony’s books of accounts and other accounting records regarding revenue taxes for "the period 1997 and unverified prior years."
12/6/99: a preliminary assessment for 1997 deficiency taxes and penalties was issued by the
CIR which Sony protested.
CIR issued final assessment notices, the formal letter of demand and the details of discrepancies.
DEFICIENCY VALUE -ADDED TAX (VAT)
P
11,141,014.41
DEFICIENCY EXPANDED WITHHOLDING TAX (EWT)
P
1,992,462.72
DEFICIENCY OF VAT ON ROYALTY PAYMENTS
P
462,758.14
LATE REMITTANCE OF FINAL WITHHOLDING TAX
P
2,288,473.78
LATE REMITTANCE OF INCOME PAYMENTS
P
10,923.60
GRAND TOTAL
P
15,895,632.65
Sony sought re-evaluation of the aforementioned assessment by filing a protest on February 2, 2000.
Sony submitted relevant documents in support of its protest on the 16th of that same month.6
10/24/00: within 30 days after the lapse of 180 days from submission of the said supporting documents to the CIR, Sony filed a petition for review before the CTA .
CTA-First Division disallowed the deficiency VAT assessment because the subsidized advertising expense paid by Sony which was duly covered by a VAT invoice resulted in an input VAT credit. As regards the EWT, the CTA-First Division maintained the deficiency EWT assessment on Sony’s motor vehicles and on professional fees paid to general professional partnerships. It also assessed the amounts paid to sales agents as commissions with five percent (5%) EWT pursuant to Section 1(g) of Revenue Regulations No. 6-85. The CTA-First Division, however, disallowed the EWT assessment on rental expense since it found that the total rental deposit of P10,523,821.99 was incurred from January to March 1998 which was again beyond the coverage of LOA 19734. Except for the compromise penalties, the CTA-First Division also upheld the penalties for the late payment of VAT on royalties, for late remittance of final withholding tax on royalty as of December 1997 and for the late remittance of EWT by some of Sony’s branches.8
CTA-First Division partly granted Sony’s petition by cancelling the deficiency VAT assessment but upheld a modified deficiency EWT assessment a s well as the penalties .
The CIR sought a reconsideration of the above decision and submitted the following : A. The Honorable Court committed reversible error in holding that petitioner is not liable for the deficiency VAT in the amou nt of P11,141,014.41;
B. The Honorable court committed reversible error in holding that the commission expense in the amount of P2,894,797.00 should be subjected to 5% withholding tax instead of the 10% tax rate; C. The Honorable Court committed a reversible error in holding that the withholding tax assessment with respect to the 5% withholding tax on rental deposit in the amount of P10,523,821.99 should be cancelled; and D. The Honorable Court committed reversible error in holding that the remittance of final withholding tax on royalties covering the period January to March 1998 was filed on time.10
CTA-First Division denied the motion for reconsideration.
CIR filed a petition for review with the CTA-EB raising identical issues:
CTA-EB dismissed CIR’s petition
CIR’s motion for reconsider ation was denied by the CTA-EB on July 5, 2007.
ISSUE:
a. WON SONY IS LIABLE FOR :
DEFICIENCY VAT IN THE AMOUNT OF PHP11,141,014.41.
DEFICIENCY EXPANDED WITHHOLDING TAX IN THE AMOUNT OF PHP1,992,462.72:
b. WON COMMISSION EXPENSE IN THE AMOUNT OF PHP2,894,797.00 SHOULD BE SUBJECTED TO A WITHHOLDING TAX OF 5% INSTEAD OF THE 10% TAX RATE. c. WON ASSESSMENT WITH RESPECT TO THE 5% WITHHOLDING TAX ON RENTAL DEPOSIT IN THE AMOUNT OF PHP10,523,821.99 IS PROPER. d. FINAL WITHHOLDING TAX ON ROYALTIES COVERING THE PERIOD JANUARY TO MARCH 1998 WAS FILED ON TIME. RULING:
PETITION is DENIED
The CIR insists that LOA 19734, although it states "the period 1997 and unverified prior years," should be understood to mean the fiscal year ending in March 31, 1998.14 The Court cannot agree.
Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax.15 The very provision of the Tax Code that the CIR relies on is unequivocal with regard to its power to grant authority to examine and assess a taxpayer.
SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. – (A)Examination of Returns and Determination of tax Due. – After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. x x x [Emphases supplied]
Clearly, there must be a grant of authority before any revenue officer can conduct an
examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity.
As earlier stated, LOA 19734 COVERED "THE PERIOD 1997 AND UNVERIFIED PRIOR
YEARS." FOR SAID REASON, THE CIR ACTING THROUGH ITS REVENUE OFFICERS WENT BEYOND THE SCOPE OF THEIR AUTHORITY BECAUSE THE DEFICIENCY VAT ASSESSMENT THEY ARRIVED AT WAS BASED ON RECORDS FROM JANUARY TO MARCH 1998 OR USING THE FISCAL YEAR WHICH ENDED IN MARCH 31, 1998 .
As pointed out by the CTA-First Division in its April 28, 2005 Resolution, the CIR knew which period
should be covered by the investigation. Thus, if CIR wanted or intended the investigation to include the year 1998, it should have done so by including it in the LOA or issuing another LOA.
Upon review, the CTA-EB even added that the coverage of LOA 19734, particularly the phrase "and unverified prior years," violated Section C of Revenue Memorandum Order No. 43-90 dated September 20, 1990, the pertinent portion of which reads:
A Letter of Authority should cover a taxable period not exceeding one taxable year. The practice of issuing L/As covering audit of "unverified prior years is hereby prohibited. If the audit of a taxpayer shall include more than one taxable period, the other periods or years shall be specifically indicated in the L/A.16 [Emphasis supplied]
On this point alone,
DISALLOWED.
BE
THE DEFICIENCY VAT ASSESSMENT SHOULD HAVE BEEN THAT
AS
IT
MAY,
THE
CIR’S
ARGUMENT, THAT
SONY’S
ADVERTISING EXPENSE COULD NOT BE CONSIDERED AS AN INPUT VAT CREDIT BECAUSE THE SAME WAS EVENTUALLY REIMBURSED BY SONY INTERNATIONAL SINGAPORE (SIS), IS ALSO ERRONEOUS .
The CIR contends that since Sony’s advertising expense was reimbursed by SIS, the former never incurred any advertising expense. As a result, Sony is not entitled to a tax credit. At most, the CIR continues, the said advertising expense should be for the account of SIS, and not Sony.17
The Court is not persuaded. As aptly found by the CTA-First Division and later affirmed by the CTA-EB, Sony’s deficiency VAT assessment stemmed from the CIR’s disallowance of the input VAT credits that should have been realized from the advertising expense of the latter.18 It is evident under Section 11019 of the 1997 Tax Code that an advertising expense duly covered by a VAT invoice is a legitimate business expense. This is confirmed by no less than CIR’s own witness, Revenue Officer Antonio Aluquin.20 There is also no denying that Sony incurred advertising expense. Aluquin testified that advertising companies issued invoices in the name of Sony and the latter paid for the same.21 Indubitably, Sony incurred and paid for advertising expense/ services. Where the money came from is another matter all together but will definitely not change said fact.
The CIR further argues that Sony itself admitted that the reimbursement from SIS was income and, thus, taxable. In support of this, the CIR cited a portion of Sony’s protest filed before it:
o
the fact that due to adverse economic conditions, Sony-Singapore has granted to our client a subsidy equivalent to the latter’s advertising expenses will not affect the validity of the input taxes from such expenses. Thus, at the most, this is an additional income of ou r client subject to income tax. We submit further that our client is not subject to VAT on the subsidy income as this was not derived from the sale of goods or services.22
Insofar as the above-mentioned subsidy may be considered as income and, therefore, subject to income tax, the Court agrees. However, the Court does not agree that the same subsidy should be subject to the 10% VAT. To begin with, the said subsidy termed by the CIR as reimbursement was not even exclusively earmarked for Sony’s advertising expense for it was but an assistance or aid in view of Sony’s dire or adverse economic conditions, and was only "equivalent to the latter’s (Sony’s) advertising expenses."
Section 106 of the Tax Code explains when VAT may be imposed or exacted. Thus:
SEC. 106. Value-added Tax on Sale of Goods or Properties. – Rate and Base of Tax. – There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.
Thus, there must be a sale, barter or exchange of goods or properties before any VAT may be
levied. Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS and not in payment for goods or properties sold, bartered or exchanged by Sony.
In the case of CIR v. Court of Appeals (CA),23 the Court had the occasion to rule that services rendered for a fee even on reimbursement-on-cost basis only and without realizing profit are also subject to VAT. The case, however, is not applicable to the present case. In that case, COMASERCO rendered service to its affiliates and, in turn, the affiliates paid the former reimbursement-on-cost which means that it was paid the cost or expense that it incurred although without profit. This is not true in the present case. Sony did not render any service to SIS at all. The services rendered by the advertising companies, paid for by Sony using SIS dole-out, were for Sony and not SIS. SIS just gave assistance to Sony in the amount equivalent to the latter’s advertising expense but never received any goods, properties or service from Sony.
Regarding the deficiency EWT assessment, more particularly Sony’s commission expense, the CIR insists that said deficiency EWT assessment is subject to the ten percent (10%) rate instead of the five percent (5%) citing Revenue Regulation No. 2-98 dated April 17, 1998.24 The said revenue regulation provides that the 10% rate is applied when the recipient of the commission income is a natural person. According to the CIR, Sony’s schedule of Selling, General and Administrative expenses shows the commission expense as "commission/dealer salesman incentive," emphasizing the word salesman.
On the other hand, the application of the five percent (5%) rate by the CTA-First Division is based on Section 1(g) of Revenue Regulations No. 6-85 which provides: (g) Amounts paid to certain Brokers and Agents. – On gross payments to customs, insurance, real estate and commercial brokers and agents of professional entertainers – five per centum (5%).25
In denying the very same argument of the CIR in its motion for reconsideration, the CTA-First Division, held:
x x x, commission expense is indeed subject to 10% withholding tax but payments made to broker is subject to 5% withholding tax pursuant to Section 1(g) of Revenue Regulations No. 6-85. While the commission expense in the schedule of Selling, General and Administrative expenses submitted by petitioner (SPI) to the BIR is captioned as "commission/dealer salesman incentive" the same does not justify the automatic imposition of flat 10% rate. As itemized by petitioner, such expense is composed of "Commission Expense" in the amount of P10,200.00 and ‘Broker Dealer’ of P2,894,797.00.26
The Court agrees with the CTA-EB when it affirmed the CTA-First Division decision. Indeed, the applicable rule is Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, which was the applicable rule during the subject period of examination and assessment as specified in the LOA. Revenue Regulations No. 2-98, cited by the CIR, was only adopted in April 1998 and, therefore, cannot be applied in the present case. Besides, the withholding tax on brokers and agents was only increased to 10% much later or by the end of July 2001 under Revenue Regulations No. 62001.27 Until then, the rate was only 5%.
The Court also affirms the findings of both the CTA-First Division and the CTA-EB on the deficiency EWT assessment on the rental deposit. According to their findings, Sony incurred the subject rental deposit in the amount of P10,523,821.99 only from January to March 1998. As stated earlier, in the absence of the appropriate LOA specifying the coverage, the CIR’s deficiency EWT assessment from January to March 1998, is not valid and must be disallowed.
Finally, the Court now proceeds to the third ground relied upon by the CIR.
The CIR initially assessed Sony to be liable for penalties for belated remittance of its FWT on royalties (i) as of December 1997; and (ii) for the period from January to March 1998. Again, the Court agrees with the CTA-First Division when it upheld the CIR with respect to the royalties for December 1997 but cancelled that from January to March 1998.
The CIR insists that under Section 328 of Revenue Regulations No. 5-82 and Sections 2.57.4 and 2.58(A)(2)(a)29 of Revenue Regulations No. 2-98, Sony should also be made liable for the FWT on royalties from January to March of 1998. At the same time, it downplays the relevance of the Manufacturing License Agreement (MLA) between Sony and Sony-Japan, particularly in the payment of royalties.
The above revenue regulations provide the manner of withholding remittance as well as the payment of final tax on royalty. Based on the same, Sony is required to deduct and withhold final taxes on royalty payments when the royalty is paid or is payable. After which, the corresponding return and remittance must be made within 10 days after the end of each month. The question now is when does the royalty become payable?
Under Article X(5) of the MLA between Sony and Sony-Japan, the following terms of royalty payments were agreed upon: (5)Within two (2) months following each semi-annual period ending June 30 and December 31, the LICENSEE shall furnish to the LICENSOR a statement, certified by an officer of the LICENSEE,
