Taxation - July 4, 2015 Cases

G.R. No. 153866

February 11, 2005

COMMISSIONER OF INTERNAL REVENE, petitioner, vs. SEAGATE TEC!NOLOG" #$!ILI$$INES%, respondent. Business companies registered registered in and operating from the Special Economic Zone in Naga, Cebu -- like herein respondent -- are entities exempt entities exempt from all internal revenue taxes and the implementing rules relevant thereto, including the value-added taxes or !". !lthough export sales are not deemed exempt transactions, $ero-rated. %ence, transactions, the# are nonetheless $ero-rated. in the present case, the distinction bet&een exempt entities and entities and exempttransactions exempttransactions has has little significance, because the net result is that the taxpa#er is not liable for the !". 'espondent, a !"-registered enterprise, has complied &ith all re(uisites for claiming a tax refund of or credit for the input !" it paid on capital goods it purchased. "hus, the Court of "ax !ppeals !ppeals and the Court of !ppeals did not err in ruling that it is entitled to such refund or credit. "he Case Before us is a )etition for 'evie&* under 'ule + of the 'ules of Court, seeking to set aside the a# /, 00 1ecision of the Court of !ppeals 2C!3 in C!-4' S) No. 55067. "he decretal portion of the 1ecision reads as follo&s8 &'!EREFORE, &'!EREFORE , foregoing premises considered, the petition for revie& is (ENIE( for (ENIE( for lack of merit.97 "he :acts "he C! (uoted the facts narrated b# the Court of "ax !ppeals 2C"!3, as follo&s8 9!s ;ointl# stipulated b# the parties, the pertinent facts x x x involved in this case are as follo&s8 *. <'espondent= is a resident foreign corporation dul# registered &ith the Securities and Exchange Commission to do business in the )hilippines, &ith principal office address at the ne& Cebu "o&nship >ne, Special Economic Zone, Baranga# Cantao-an, Naga, Cebu?

+. <'espondent= is !" <2alue !dded "ax3=-registered entit# as evidenced b# !" 'egistration Certification Certification No. 6/-0A7-000500- issued on  !pril *66/? . !" returns returns for the period * !pril *66A to 70 @une *666 have been filed b# ctober *666 &ith 'evenue 1istrict >ffice No. A7, "alisa# Cebu? /. No final action has been received b# ctober +, *666 &as not acted upon b# the
. <)etitioner= is sued in his official capacit#, having having been dul# appointed and empo&ered to perform the duties of his office, including, among others, the dut# to act and approve claims for refund or tax credit?

+. Claims for tax refundtax credit are construed in Dstrictissimi ;uris against the taxpa#er. "his is due to the fact that claims for refundcredit
7. <'espondent= is registered &ith the )hilippine Export Zone !uthorit# 2)EZ!3 and has been issued )EZ! Certificate No. 6/-0++ pursuant to )residential 1ecree No. 55, as amended, to engage in the manufacture of recording components primaril# used in computers for export. Such registration &as made on 5 @une *66/?

. 4ranting, &ithout admitting, that
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alleged to have purchased are considered not used in !" taxable business. business. !s such, n @ul# *6, 00*, the "ax Court rendered rendered a decision granting the claim for refund.9+ 'uling of the Court of !ppeals "he C! affirmed the 1ecision of the C"! granting the claim for refund or issuance of a tax credit certificate 2"CC3 2"CC3 in favor of respondent in the reduced amount of )*,*,6.55. "his sum represented the unutili$ed but substantiated input !" paid on capital goods purchased for the period covering !pril *, *66A to @une 70, *666. "he appellate court reasoned that respondent had availed itself onl# of the fiscal incentives under Executive >rder No. 2E>3 5 2other&ise kno&n as the >mnibus nvestment Code of *6A/3, not of those under both )residential 1ecree No. 2)13 55, as amended, and Section + of '! /6*5. 'espondent &as, therefore, considered exempt onl# from the pa#ment of income tax &hen it opted for the income tax holida# in lieu of the  percent preferential tax on gross income earned. !s a !"-registered entit#, though, it &as still sub;ect to the pa#ment of other national internal revenue taxes, like the !". oreover, the C! held that neither Section *06 of the "ax Code nor Sections +.*05-* and +.*07-* of '' /-6 &ere applicable. %aving paid the input !" on the capital goods it purchased, respondent correctl# filed the administrative and ;udicial claims for its refund &ithin the t&o-#ear prescriptive period. Such pa#ments &ere -- to the extent of the refundable value -- dul# supported b# !" invoices or official receipts, and &ere not #et offset against an# output !" liabilit#. %ence this )etition. 

Sole ssue8 Entitlement of a VAT-Registered PEA Enterprise to a Refund of or Credit for !nput VAT No doubt, as a )EZ!-registered )EZ!-registered enterprise &ithin a special economic $one, $one, / respondent is entitled to the fiscal incentives and benefits A provided for in either )1 55 6 or E> 5. 5.*0 t shall, moreover, en;o# all privileges, benefits, advantages or exemptions under both 'epublic !ct Nos. 2'!3 // ** and /A++. /A++.* Preferential Ta" Treatment #nder $pecial %a&s f it avails itself of )1 55, not&ithstanding the provisions of other la&s to the contrar#, respondent shall not be sub;ect to internal revenue la&s and regulations for ra& materials, supplies, articles, e(uipment, machineries, spare parts and &ares, except those prohibited b# la&, brought into the $one to be stored, broken up, repacked, assembled, installed, sorted, cleaned, graded or other&ise processed, manipulated, manufactured, mixed or used directl# or indirectl# in such activities.*7 Even so, respondent &ould en;o# a net-operating loss carr# over? accelerated depreciation? foreign exchange and financial assistance? and exemption from export taxes, local taxes and licenses.*+ Comparativel#, Comparativel#, the same e xemption from internal revenue la&s and regulations applies if E> 5* is chosen. Gnder this la&, respondent shall further be entitled to an income tax holida#? additional deduction for labor expense? simplification of customs procedure? unrestricted use of consigned e(uipment? access to a bonded manufacturing &arehouse s#stem? privileges for foreign nationals emplo#ed? tax credits on domestic capital e(uipment, as &ell as for taxes and duties on ra& materials? and exemption from contractors taxes, taxes, &harfage dues, taxes and duties on imported capital e(uipment and spare parts, export taxes, duties, imposts and fees, *5local taxes and licenses, and real propert# taxes. */ ! privilege privilege available to to respondent under the the provision in '! '! // on tax and dut#-free importation of ra& materials, capital and e(uipment*A -- is, ipso facto, also accorded to the *6 $one under '! /6*5. :urthermore, the latter la& -- not&ithstanding other existing la&s, rules and regulations to the contrar# -- extends0 to that $one the provision stating that no local or national taxes shall be imposed therein.* No exchange control polic# shall be









:rom the above-cited la&s, it is immediatel# clear that petitioner en;o#s preferential tax treatment./ t is not sub;ect to internal revenue la&s and regulations and is even entitled to tax credits. "he !" on capital goods is an internal revenue tax from &hich petitioner as an entit# is exempt. !lthough the transactions involving transactions involving such tax are not exempt, petitioner as a !"-registered person, person,A ho&ever, is entitled to their credits. Nature of t'e VAT and t'e Ta" Credit (et'od ie&ed broadl#, the !" is a uniform tax ranging, at present, from 0 percent to *0 percent levied on ever# importation of goods, &hether 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6 as the# pass along the production and distribution chain, the tax being limited onl# to the value added70 to such goods, properties or services b# the seller, transferor or lessor . lessor .7* t is an indirect tax that ma# be shifted or passed on to the bu#er, transferee or lessee of the goods, properties or services.7 !s such, it should be understood not in the context of the person or entit# that is primaril#, primaril#, directl# and legall# liable for its pa#ment, but in terms of its nature as a tax on consumption.77 n either case, though, the same conclusion is arrived at. "he la&7+ that originall# imposed the !" in the countr#, as &ell as the subse(uent amendments of that la&, has been dra&n from the ta" credit met'od .7 Such method adopted the mechanics and self-enforcement features of the !" !" as first implemented and practiced in Europe and subse(uentl# adopted in Ne& Zealand and Canada.75Gnder the present method that relies on invoices, an entit# can credit against or subtract from the !" charged on its sales or outputs the !" paid on its purchases, inputs and imports.7/ f at the end of a taxable (uarter the output taxes7A charged b# a seller 76 are e(ual to the input taxes+0 passed on b# the suppliers, no pa#ment is re(uired. t is &hen the output taxes exceed the input taxes that the excess has to be paid.+* f, ho&ever, the input taxes exceed the output taxes, the excess shall be carried over to the succeeding (uarter or (uarters. (uarters.+ Should the input taxes result from $ero-rated or effectivel# $ero-rated $ero-rated transactions or from the ac(uisition of capital goods, +7 an# excess over the output taxes shall instead be refunded++ to the taxpa#er or credited+ against other internal revenue taxes. taxes.+5 ero-Rated and Effectivel) ero-Rated Transactions

a $ero rate. !gain, as applied to to the tax base, such such rate does not #ield #ield an# tax chargeable chargeable against the purchaser. "he seller &ho charges $ero output tax on such transactions can also claim a refund of or a tax credit certificate for the !" previousl# previousl# charged b# suppliers. ero Rating and E"emption n terms of the !" computation, computation, $ero rating and exemption are the same, but the e"tent of relief that that results from either one of them is not. !ppl#ing the destination principle 7 to the exportation of goods, automatic $ero rating+ is primaril# intended to be en;o#ed b# the seller &ho is directl# and legall# liable for the !", making such seller internationall# competitive competitive b# allo&ing the refund or credit of input taxes that are attributable to export sales.  Effective $ero rating, on the contrar#, is intended to benefit the purchaser &ho, not being directl# and legall# liable for the pa#ment of the !", &ill ultimatel# bear the burden of the tax shifted b# the suppliers. n both instances of $ero rating, there is total relief for for the purchaser from the burden of the tax. tax.5 But in an exemption there is onl# partial onl# partial relief relief ,/ because the purchaser is not allo&ed A an# tax refund of or credit for input taxes paid. E"empt Transaction *and E"empt Part) "he ob;ect of exemption from the !" ma# either be the transaction itself or an# of the parties to the transaction. transaction.6 !n e"empt transaction, &hich, b# their nature, transaction, on the one hand, involves goods or services &hich, are specificall# listed in and expressl# exempted from the !" under the "ax Code, &ithout regard to the tax status -- !"-exempt or not -- of the part# to the transaction.50 ndeed, such transaction is not sub;ect to the !", but the seller is not allo&ed an# tax refund of or credit for an# input taxes paid. !n e"empt part) , on the other hand, is a person or entit# granted !" exemption exemption under the "ax "ax Code, a special la& or an international agreement to &hich the )hilippines is a signator#, signator#, and b# virtue of &hich its taxable transactions become exempt from the









Special la&s ma# certainl# exempt transactions from the !".57 %o&ever, the "ax Code provides that those falling under )1 55 are not. )1 55 is the precursor of '! /6*5 -- the special la& under &hich respondent &as registered. "he purchase transactions it transactions it entered into are, therefore, not !"-exempt. "hese are sub;ect to the !"? respondent is re(uired to register. ts sales transactions, ho&ever, &ill either be $ero-rated or taxed at the standard rate of *0 percent, percent,5+ depending again on the application of the destination principle. principle.5 f respondent enters into such sales transactions &ith a purchaser -- usuall# in a foreign countr# -- for use or consumption outside the )hilippines, these shall be sub;ect to 0 percent. percent.55 f entered into &ith a purchaser for use or consumption in the )hilippines, then these shall be sub;ect to *0 percent, percent,5/ unless the purchaser is exempt from the indirect burden of the !", in &hich case it shall also be $ero-rated. Since the purchases of respondent are not exempt from the !", the rate to be applied is $ero. ts exemption under both )1 55 and '! /6*5 effectivel# sub;ects such transactions to a $ero rate,5A because the eco$one &ithin &hich it is registered is managed and operated b# the )EZ! as a separate customs territor) .56 "his means that in such $one is created the legal fiction of foreign territor#. territor#./0 Gnder the cross-border principle /* of the !" s#stem being enforced b# the Bureau of nternal 'evenue 2B'3, 2B'3, / no !" shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authorit#. f exports of goods and services from the )hilippines to a foreign countr# are free of the !", !",/7 then the same rule holds for such exports from the national territor# -- except specificall# declared declared areas -- to an eco$one. Sales made b# a !"-registered person in the customs territor# to a )EZ!-registered entit# are considered exports to a foreign countr#? conversel#, conversel#, sales b# a )EZ!-registered )EZ!-registered entit# to a !"-registered person in the customs territor# are deemed imports from a foreign /+ countr#. countr#. !n eco$one -- indubitabl# a geographical territor# of the )hilippines -- is, ho&ever, regarded in la& as foreign soil. / "his legal fiction is necessar# to give meaningful effect to the policies of the special la& creating the $one./5 f respondent is located in an export processing $one// &ithin that eco$one, sales to the export processing $one, even &ithout being actuall# exported, shall in fact be vie&ed as constructivel) e"ported under under E> 5. 5./A Considered as export sales, sales,/6 such purchase transactions b# respondent &ould indeed be sub;ect to a $ero rate. rate.A0

oreover, the exemption is both express and pervasive for the follo&ing reasons8 irst , '! /6*5 states that 9no taxes, local and national, shall be imposed on business establishments operating &ithin the eco$one.9A* Since this la& does not exclude the !" from the prohibition, it is deemed included.E"ceptio included.E"ceptio firmat regulam in casibus non e"ceptis. e"ceptis. !n exception confirms confirms the rule in cases not excepted? excepted? that is, a thing thing not being excepted must be regarded as coming &ithin the purvie& of the general rule. oreover, even though the !" is not imposed on the entit# but on the transaction, it ma# still be passed on and, therefore, indirectl# imposed on the same entit# -- a patent circumvention of the la&. "hat no !" shall be imposed directl# upon business establishments operating operating &ithin the eco$one under '! /6*5 also means that no !" ma# be passed on and imposed indirectl#. indirectl#. uando aliuid pro'ibetur e" directo pro'ibetur et per obliuum. obliuum. Fhen an#thing is prohibited directl#, it is also prohibited indirectl#. $econd , &hen '! A/+A &as enacted to amend '! /6*5, the same prohibition applied, except for real propert# taxes that presentl# are imposed on land o&ned b# developers.A "his similar and repeated prohibition is an unambiguous ratification of the la&s intent in not imposing local or national taxes on business enterprises &ithin the eco$one. T'ird , foreign and domestic merchandise, ra& materials, e(uipment and the like 9shall not be sub;ect to x x x internal revenue la&s and regulations9 under )1 55A7 -- the original charter of )EZ! 2then E)Z!3 that &as later amended b# '! /6*5 . A+ No provisions in the latter la& modif# such exemption. !lthough this exemption exemption puts the government government at an initial initial disadvantage, the reduced tax collection ultimatel# redounds to the benefit of the national econom# b# enticing more business investments and creating more emplo#ment opportunities.A ourt', even ourt', even the rules implementing the )EZ! la& clearl# reiterate that merchandise -except those prohibited b# la& -- 9shall not be sub;ect to x x x internal revenue la&s and regulations x x x9 A5 if brought to the eco$ones restricted restricted areaA/ for manufacturing b# registered export enterprises, enterprises,AA of &hich respondent is one. "hese rules also appl# to all enterprises registered registered &ith the E)Z! prior to the effectivit# of such rules.A6









$i"t', $i"t', the exemption from local and national taxes granted under '! //65 are ipso facto accorded to eco$ones. eco$ones.6/ n case of doubt, conflicts &ith respect to such tax exemption privilege shall be resolved in favor of the eco$one. eco$one.6A !nd sevent', the sevent', the tax credits under '! /A++ -- given for imported ra& materials primaril# used in the production of export goods,66 and for locall# produced ra& materials, capital e(uipment and spare parts used b# exporters of non-traditional products*00 -- shall also be continuousl# en;o#ed b# similar exporters &ithin the eco$one. eco$one.*0*ndeed, the latter exporters are like&ise entitled to such tax exemptions and credits. Ta" Refund as Ta" E"emption "o be sure, statutes that grant tax exemptions are construed strictissimi strictissimi /uris*0 against the taxpa#er *07 and liberall# in favor of the taxing authorit#. authorit#.*0+ "ax refunds are in the nature of such exemptions. exemptions.*0 !ccordingl#, !ccordingl#, the claimants claimants of those refunds bear the burden of proving the factual basis of their claims?*05 and of sho&ing, b# &ords too plain to be mistaken, that the legislature intended to exempt them.*0/ n the present case, all the cited legal provisions are teeming &ith life &ith respect to the grant of tax exemptions too vivid to pass unnoticed. n addition, respondent easil# meets the challenge. 'espondent, &hich as an entit# is exempt, is different from its transactions &hich are not exempt. "he end result, ho&ever, is that it is not sub;ect to the !". "he non-taxabilit# of transactions that are other&ise taxable is merel# a necessar# incident to the tax exemption conferred b# la& upon it as an entit#, not upon the transactions themselves.*0A Nonetheless, its exemption as an entit# and the non-exemption of its transactions lead to the same result for the follo&ing considerations8 considerations8 irst , the contemporaneous construction of our tax la&s b# B' authorities &ho are called upon to execute or administer such la&s*06 &ill have to be adopted. "heir prior tax issuances have held inconsistent positions brought about b# their probable failure to comprehend and full# appreciate the nature of the !" as a tax on consumption and the application of the destination principle.**0 'evenue emorandum Circular No. 2'C3 /+-66, ho&ever, no& clearl# and correctl# provides that an# !"-registered suppliers sale of goods, propert# or

'! /6*5, as amended b# '! A/+A, declared that b# creating the )EZ! and integrating the special economic $ones, 9the government shall activel# encourage, promote, induce and accelerate a sound and balanced industrial, economic and social development of the countr# x x x through the establishment, among others, of special economic $ones x x x that shall effectivel# attract legitimate and productive foreign investments.9 investments.9**7 Gnder E> 5, the 9State shall encourage x x x foreign investments in industr# x x x &hich shall x x x meet the tests of international competitiveness<,= competitiveness<,= accelerate development of less developed regions of the countr#<,= and result in increased volume and value of e xports for the econom#.9**+ :iscal incentives that are cost-efficient and simple to administer shall be devised and extended to significant pro;ects 9to compensate for market imperfections, to re&ard performance contributing to economic development,9** and 9to stimulate the establishment and assist initial operations of the enterprise.9 enterprise.9 **5 Fisel# accorded to eco$ones created under '! /6*5**/ &as the governments polic# -spelled out earlier in '! // -- of converting into alternative productive uses**A the former militar# reservations and their extensions,**6as &ell as of providing them incentives*0 to enhance the benefits that &ould be derived from them** in promoting economic and social development. development.* :inall#, :inall#, under '! /A++, the State declares the need 9to evolve e xport development into a national effort9*7 in order to &in international markets. B# providing man# export and tax incentives, incentives,*+ the State is able to drive home the point that exporting is indeed 9the ke# to national survival and the means through &hich the economic goals of increased emplo#ment and enhanced incomes can most expeditiousl# be achieved.9* "he "ax Code itself seeks to 9promote sustainable economic gro&th x x x? x x x increase economic activit#? and x x x create a robust environment for business to enable firms to compete better in the regional as &ell as the global market.9*5 !fter all, international competitiveness competitiveness re(uires economic and tax incentives to lo&er the cost of goods produced for export. State actions that affect global competition need to be specific and selective in the pricing of particular goods or services. */ !ll these statutor# statutor# policies are are congruent to the constitutional mandates mandates of providing providing incentives to needed investments,*A as &ell as of promoting the preferential use of domestic materials and locall# produced goods and adopting measures to help make these









"he )EZ! la&, &hich carried over the provisions of the E)Z! la&, is clear in exempting from internal revenue la&s and regulations the e(uipment -- including capital goods -- that registered enterprises &ill use, directl# or indirectl#, in manufacturing. *7 E> 5 even reiterates this privilege among the incentives it gives to such enterprises.*77 )etitioner merel# asserts that b# virtue of the )EZ! registration alone of respondent, the latter is not sub;ect to the !". Conse(uentl#, the capital goods and services respondent has purchased are not considered used in the !" business, and no !" refund or credit is due. due . *7+ "his is a non se(uitur. B# the !"s !"s ver# nature as a tax on consumption, the capital goods and services respondent has purchased are sub;ect to the !", although at $ero rate. 'egistration does not determine taxabilit# under the !" la&. oreover, the facts have alread# been determined b# the lo&er courts. %aving failed to present evidence to support its contentions against the income ta" 'olida) privilege privilege of respondent,*7 petitioner is deemed to have conceded. t is a cardinal rule that 9issues and arguments not ade(uatel# and seriousl# brought belo& cannot be raised for the first time on appeal.9*75 "his is a 9matter of procedure9 procedure9*7/ and a 9(uestion of fairness.9*7A :ailure to assert 9&ithin a reasonable time &arrants a presumption that the part# entitled to assert it either has abandoned or declined to assert it.9*76 "he B' regulations additionall# re(uiring an approved prior application for effective $ero rating*+0 cannot prevail over the clear !" nature of respondents transactions. "he scope of such regulations is not 9&ithin the statutor# authorit# x x x granted b# the legislature.*+* irst , a mere administrative issuance, issuance, like a B' regulation, cannot amend the la&? the former cannot purport to do an# more than interpret the latter .*+ "he courts &ill not countenance one that overrides the statute it seeks to appl# and implement. *+7 >ther than the general registration of a taxpa#er the !" status of &hich is aptl# determined, no provision under our !" la& re(uires re(uires an additional application to be made for such taxpa#ers transactions to be considered effectivel# $ero-rated. !n effectivel# $erorated transaction does not and cannot become exempt simpl# because an application therefor &as not made or, if made, &as denied. "o allo& the additional re(uirement is to give unfettered discretion to those officials or agents &ho, &ithout fluid consideration, consideration, are bent on den#ing a valid application. oreover, the State can never be estopped b# the omissions, mistakes or errors of its officials or agents .*++

! !" !"-register -registered ed status, as &ell &ell as compliance &ith &ith the invoicing invoicing re(uirements,*+/ is sufficient for the effective $ero rating of the transactions of a taxpa#er. "he nature of its business and transactions can easil# be perused from, as alread# clearl# indicated in, its !" !" registration papers and photocopied documents attached thereto. %ence, its transactions cannot be exempted b# its mere failure to appl# for their effective $ero rating. >ther&ise, their !" !" exemption &ould be determined, not b# their nature, but b# the taxpa#ers negligence -- a result not at all contemplated. !dministrative !dministrative convenience cannot th&art legislative mandate. Ta" Refund or Credit in 0rder %aving determined that respondents purchase transactions are sub;ect to a $ero !" rate, the tax refund or credit is in order. !s correctl# correctl# held b# both the C! C! and the "ax "ax Court, respondent respondent had chosen the fiscal fiscal incentives in E> 5 over those in '! /6*5 and )1 55. t opted for the income tax holida# regime instead of the  percent preferential percent preferential ta" ta" regime. "he latter scheme is not a perfunctor# aftermath of a simple registration under the )EZ! la&, la&,*+A for E> 5*+6also has provisions to contend &ith. "hese t&o regimes are in fact incompatible and cannot be availed of simultaneousl# b# the same entit#. Fhile E> 5 merel# exempts it from income taxes, the )EZ! la& exempts it from all taxes. "herefore, respondent can be considered exempt, not from the !", but onl# from the pa#ment of income tax for a certain number of #ears, depending on its registration as a pioneer or a non-pioneer enterprise. Besides, the remittance of the aforesaid  percent of gross income earned in lieu of local and national taxes imposable upon business establishments &ithin the eco$one cannot outrightl# determine a !" exemption. Being sub;ect to !", pa#ments erroneousl# collected thereon ma# then be refunded or credited. Even if it is argued that respondent is sub;ect to the  percent preferential percent preferential ta" ta" regime in regime in '! /6*5, Section + thereof does not preclude the !". !". >ne can, therefore, counterargue that such provision merel# exempts respondent from taxes imposed on business. "o repeat, the !" !" is a tax imposed on consumption, not on business. !lthough respondent as an entit# is exempt, the transactions it enters into are not necessaril# so. "he !" pa#ments pa#ments made in











$econd, the $econd, the input taxes paid on the capital goods of respondent are dul# supported b# !" invoices and have not been offset against an# output taxes. !lthough enterprises registered &ith the B> after 1ecember 7*, *66+ &ould no longer en;o# the tax credit incentives on domestic capital e(uipment -- as provided for under !rticle 762d3, "itle , Book  of E> 5* -- starting @anuar# *, *665, respondent &ould still have the same benefit under a general and express exemption contained in both !rticle //2*3, Book  of E> 5? and Section *, paragraph  2c3 of '! //, extended to the eco$ones b# '! /6*5. "here &as a ver# clear intent on the part of our legislators, not onl# to exempt investors in eco$ones from national and local taxes, but also to grant them tax credits. "his fact &as revealed b# the sponsorship speeches in Congress during the second reading of %ouse Bill No. *+6, &hich later became '! /6*5, as sho&n belo&8 9'. 'EC">. x x x Some of the incentives that this bill provides are exemption from national and local taxes? x x x tax credit for locall#-sourced locall#-sourced inputs x x x.9 xxxxxxxxx

G.R. No. 1)3301

Mar*+ 11, 2013











C"! En En Banc denied indanao  4eothermal )artnerships )artnerships 2indanao 3 claims for refund or tax credit for the first 2C"! Case No. /A3, second 2C"! Case No. /A53, third, and fourth (uarters 2C"! Case No. /7*A3 of 007. Both indanao  and  are partnerships registered &ith the Securities and Exchange Commission, value added taxpa#ers registered &ith the Bureau of nternal 'evenue 2B'3, and Block )o&er )roduction :acilities accredited b# the 1epartment of Energ#. 'epublic !ct No. 6*75, or the Electric )o&er ndustr# 'eform !ct !ct of 000 2E)'!3, effectivel# amended 'epublic !ct No. A++, or the "ax 'eform !ct of *66/ 2*66/ "ax Code3,6 &hen it decreed that sales of po&er b# generation companies shall be sub;ected to a $ero rate of !" !".*0 )ursuant to E)'!, indanao  and  filed &ith the C' claims for refund or tax credit of accumulated unutili$ed andor excess input taxes due to !" !" $ero-rated sales in 007. indanao  and  filed their claims in 00. 4.'. No. *6770* indanao  v. C'

n the course of its operation, indanao  makes domestic purchases of goods and services and accumulates therefrom creditable creditable input taxes. )ursuant to the provisions of the National nternal 'evenue Code 2N'C3, 2N'C3, indanao  alleges that it can use its accumulated input tax credits to offset its output tax liabilit#. Considering, Considering, ho&ever that its onl# revenuegenerating activit# is !" $ero-rated under '! No. 6*75, indanao s input tax credits remain unutili$ed. "hus, on the belief that its sales (ualif# for !" $ero-rating, indanao  adopted the !" $ero-rating of the E)'! in computing for its !" pa#able &hen it filed its Kuarterl# !" 'eturns on the follo&ing dates8

C"! Case No.

// "he :acts

)eriod Covered 20073 *st Kuarter

1ate of :iling >riginal 'eturn

!mended 'eturn

!pril 7, 007

@ul# 7, 00 2sic3, !pril *, 00+ L >ctober , 00+











7. "hat such input !" pa#ments are directl# attributable to $ero-rated sales or effectivel# $ero-rated sales?

%GN1'E1 ::" SEEN !N1 /6*00 )ES>S 2)/,/07,6/./63 representing its unutili$ed input !" for the four 2+3 (uarters of the taxable #ear 007.

+. "hat the input !" pa#ments &ere not applied against an# output !" liabilit#? and

S> >'1E'E1. >'1E'E1.*/

. "hat the claim for refund &as filed &ithin the t &o-#ear prescriptive prescriptive period.*7 Fith respect to the fifth re(uirement, the C"! :irst :irst 1ivision tabulated the dates of filing of indanao s return as &ell as its administrative and ;udicial claims, and concluded that indanao s administrative and ;udicial claims &ere timel# filed in compliance &ith this Courts ruling in !tlas Consolidated ining and 1evelopment Corporation v. Commissioner of nternal 'evenue 2!tlas3. 2!tlas3.*+ "he C"! :irst 1ivision declared that the t&o-#ear prescriptive period for filing a !" refund claim should not be counted from the close of the (uarter but from the date of the filing of the !" return. !s ruled in !tlas, !" liabilit# or entitlement to a refund can onl# be determined upon the filing of the (uarterl# !" return.

indanao  filed a motion for partial reconsideration.*A t stated that the sale of the full# depreciated Nissan )atrol is a one-time transaction and is not incidental to its !" $erorated operations. oreover, the disallo&ed input taxes substantiall# complied &ith the re(uirements for refund or tax credit. "he C' also filed a motion for partial reconsideration. t argued that the ;udicial claims for the first and second (uarters of 007 &ere filed be#ond the period allo&ed b# la&, as stated in Section **2!3 of the *66/ "ax Code. "he C' further stated that Section 6 is a general provision, and governs cases not covered b# Section **2!3. "he C' countered the C"! :irst 1ivisions 1ivisions  September 00A decision b# citing this Courts ruling in Commisioner of nternal 'evenue v. irant )agbilao Corporation 2irant3,*6 &hich stated that unutili$ed input !" !" pa#ments must be claimed &ithin t&o #ears reckoned from the close of the taxable (uarter &hen the relevant sales &ere made regardless of &hether said tax &as paid.











>n *0 arch 0*0, the C"! En Banc rendered its 1ecision 7 in C"! EB No. *7 and denied indanao s petition. "he C"! En Banc ruled that 2*3 Section **2!3 clearl# provides that the reckoning of the t&o-#ear prescriptive prescriptive period for filing the application for refund or credit of input !" !" attributable to $ero-rated sales or effectivel# $ero-rated sales shall be counted from the close of the taxable (uarter &hen the sales &ere made? 23 the !tlas and irant cases applied different tax codes8 !tlas applied the *6// "ax Code &hile irant applied the *66/ "ax Code? 273 the sale of the full#-depreciated full#-depreciated Nissan )atrol is incidental to indanao s !" $ero-rated $ero-rated transactions pursuant to Section *0? 2+3 indanao  failed to compl# &ith the substantiation re(uirements provided under Section **72!3 in relation to Section 7/ of the *66/ "ax Code as implemented b# Section +.*0+-*, +.*0+-, and +.*0A-* of 'evenue 'egulation No. /-6? and 23 the doctrine of strictissimi ;uris on tax exemptions cannot be relaxed in the present case. "he dispositive portion of the C"! En Bancs *0 arch 0*0 1ecision reads8 F%E'E:>'E, F%E'E:>'E, on the basis of the foregoing considerations, the )etition for 'evie& en banc is 1SSSE1 for lack of merit. !ccordingl#, the 1ecision dated September , 00A and the !mended 1ecision dated @une 5, 006 issued b# the :irst 1ivision are !::'E1

tax refund or credit of),7*,000.A7 for the second (uarter of 007. n C"! Case Case No. /7*A, indanao  claims a tax refund or credit of)/,6+0,//.A7 for the third and fourth (uarters of 007. indanao  is similarl# situated as indanao . "he C"! Second 1ivisions narration of the pertinent facts is as follo&s8 xxxx n 1ecember *66+, indanao  entered into a contract of Build->perate-"ran Build->perate-"ransfer sfer 2B>"3 &ith the )hilippine National >il Corporation I Energ# 1evelopment Corporation 2)N>C-E1C3 2)N>C-E1C3 for the finance, design, construction, construction, testing, commissioning, commissioning, operation, maintenance and repair of a +/-mega&att geothermal po&er plant. Gnder the said B>" contract, )N>C-E1C shall suppl# and deliver steam to indanao  at no cost. n turn, indanao  &ill convert the steam into electric capacit# and energ# for )N>C-E1C and shall subse(uentl# suppl# and deliver the same to the National )o&er Corporation 2N)C3, 2N)C3, for and in behalf of )N>C-E1C.











!lleging inaction inaction on the part of C', C', indanao  elevated elevated its claims before before this Court Court on !pril !pril , 00, @ul# /, 00, and September 6, 00 docketed as C"! Case Nos. /A, /A5, and /7*A, respectivel#. %o&ever, %o&ever, on >ctober *0, 00, indanao  received a cop# of the letter dated September 70, 007 2sic3 of the B' den#ing its application for tax A creditrefund. "he Court of "ax !ppeals 'uling8 1ivision >n + >ctober 00A, the C"! Second 1ivision rendered its 1ecision 6 in C"! Case Nos. /A, /A5, and /7*A. "he C"! Second 1ivision 1ivision found that 2*3 pursuant to Section **2!3, indanao  can onl# claim 60./J of the amount of substantiated excess input !" because a portion &as not reported in its (uarterl# !" returns? 23 out of the )*+,*A,6+.A0 excess input !" !" applied for refund, onl# )**,5/,++/.*+ can be considered substantiated excess input !" due to disallo&ances b# the ndependent Certified )ublic !ccountant, ad;ustment on the disallo&ances disallo&ances per the C"! Second 1ivisions further verification, and additional disallo&ances per the C"! Second 1ivisions 1ivisions further verification?

filing a claim for refund or credit of input !" on $ero-rated sales from the date of filing of the return and pa#ment of the tax due. "he dispositive portion of the C"! Second 1ivisions 1ivisions *0 arch 006 'esolution reads8 F%E'E:>'E, F%E'E:>'E, premises considered, the C's otion for )artial 'econsideration and indanao s otion for )artial 'econsideration &ith otion for Clarification are hereb# 1ENE1 for lack of merit. S> >'1E'E1. >'1E'E1.7+ "he 'uling of the Court of "ax !ppeals8 En Banc >n 7* a# 0*0, the C"! En Banc rendered its 1ecision 7 in C"! EB Case Nos. +/5 and +A7 and denied the petitions filed b# the C' and indanao . "he C"! En Banc found no ne& matters &hich have not #et been considered and passed upon b# the C"! Second 1ivision in its assailed decision and resolution.













23 >n !pril +, 00, indanao  applied for an administrative claim for refund of

273 :rom !pril +, 00, &hich is also presumabl# the date indanao  submitted













S> >'1E'E1

76

. "he doctrine of strictissimi ;uris on tax exemptions should be relaxed in the













Section ** of the *66/ "ax Code













nternal 'evenue v. San 'o(ue )o&er Corporation, "aganito ining Corporation v.

refund. "he mere fact that a taxpa#er has undisputed excess input !", !", or that the tax &as













administrative administrative claim before the C' on + !pril 00. Both claims have prescribed,

Section **2C3 also expressl# grants the taxpa#er a 70-da# period to appeal to the C"! the









































































Taxation - July 4, 2015 Cases

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