TAXATION

DIGEST II

LAW

REVIEW

CASES

PANASONIC
COMMUNICATIONS
IMAGING CORPORATION OF THE
PHILIPPINES
(formerly
MATSUSHITA BUSINESS MACHINE
CORPORATION
OF
THE
PHILIPPINES) vs. COMMISSIONER
OF INTERNAL REVENUE
By: Roman Almalbis
Facts:
Petitioner
Panasonic
Communications
Imaging
Corporation
of
the
Philippines
produces and exports plain paper
copiers and their sub-assemblies,
parts, and components. It is a
registered value-added tax (VAT)
enterprise. From 1998 to 1999,
petitioner generated export sales
where
it
paid
input
VAT
of P9,368,482.40 believing that its
sales are zero-rated sales. Claiming
that the input VAT it paid remained
unutilized. Panasonic filed with the
Bureau of Internal Revenue (BIR) two
separate applications for refund or
tax credit of what it paid. When the
BIR did not act on the same,
Panasonic filed a petition for review
with the Court of Tax Appeals (CTA).
The CTA First Division denied the
petition
stating
that
while
petitioners
export
sales
were
subject to 0% VAT under the NIRC,
the same did not qualify for zerorating because the word "zero-rated"
was not printed on its export
invoices. This omission violates the
invoicing requirements of Section
4.108-1 of Revenue Regulations (RR)
7-95. The motion for reconsideration
was denied. On appeal, the CTA en
banc upheld the First Divisions
decision.

Issue: Whether or not the words

"zero-rated" must appear in the
sales invoice so that a claim for
refund of unutilized input VAT on
zero-rated sales will be proper.
Ruling: Yes.
Zero-rated transactions generally
refer to the export sale of goods and
services. When applied to the tax
base or the selling price of the goods
or services sold, such zero rate
results in no tax chargeable against
the foreign buyer or customer. But,
although
the
seller
in
such
transactions charges no output tax,
he can claim a refund of the VAT that
his suppliers charged him. The seller
thus enjoys automatic zero rating,
which allows him to recover the
input taxes he paid relating to the
export
sales,
making
him
internationally competitive. For the
effective zero rating of
such
transactions, however, the taxpayer
has to be VAT-registered and must
comply with invoicing requirements.
Interpreting
these
requirements,
respondent CIR ruled that under
Revenue
Memorandum
Circular
(RMC) 42-2003, the taxpayers
failure to comply with invoicing
requirements will result in the
disallowance of his claim for refund.
If the claim for refund is based on
the existence of zero-rated sales by
the taxpayer but it fails to comply
with the invoicing requirements in
the issuance of sales invoices, its
claim for tax credit/refund of VAT on
its purchases shall be denied
considering that the invoice it is
issuing to its customers does not
1

depict its being a VAT-registered

taxpayer whose sales are classified
as zero-rated sales. Nonetheless,
this treatment is without prejudice to
the right of the taxpayer to charge
the input taxes to the appropriate
expense account or asset account
subject to depreciation, whichever is
applicable. Moreover, the case shall
be referred by the processing office
to the concerned BIR office for
verification of other tax liabilities of
the taxpayer.

to file a timely protest making the

assessment final and executory. CIR
denies the receipt of the August
2004 protest letter and received a
protest letter on September 27,
beyond
the
30-day
period
prescribed in Section 228 of the
Tax Code.

Asia International
vs. CIR

CTA ruling:

Auctioneers

By: JC Bangoy
Facts:
AIA is a duly organized corporation
within the Subic Special Economic
Zone. It is engaged in the
importation of used motor vehicles
and heavy equipment which it sell to
the public through auction.
On August 25 AIA received a formal
letter of demand from the CIR for
VAT and Excise tax deficiency
totaling PhP 106,870,235, inclusive
of penalties for auction sales
conducted in February 2004
AIA claimed it filed a letter of protest
on August 30, 2004 through
registered
mail
and
additional
supporting documents on September
24 and November 22, 2004. CIR did
not act on the protest and on June
20 2005 AIA filed a petition for
review before the CTA. CIR filed an
answer on July 26.
On March 8, 2006, CIR filed a motion
to dismiss on the ground of lack of
jurisdiction for the allegedly failure

AIA submitted the receipt of the

August Protest Letter with a registry
receipt
and
certified
by
the
postmaster that the letter was
recieved on September 8, 2004.

Granted motion to dismiss citing

Republic vs CA, in short, the
presumption of a letter received
through mail is disputable and must
be proven by the sender when there
is direct denial from the receiver. The
CTA faulted AIA for failure to present
the registry return card and the text
of the protest letter refers to the
formal demand letter dated June 9,
2004.
Motion for Reconsideration denied.
CTA en banc upheld.
AIA filed a petition for review to SC
AIA also filed a manifestation and
motion with leave to defer or
suspend further proceedings on the
ground it availed of the Tax Amnesty
Program under RA 9480 or the Tax
Amnesty Act of 2007. It submitted a
certification of qualification issued
by the BIR on February 2008 stating
AIA has availed and is qualified for
Tax Amnesty for the Taxable Year
2005 and Prior Years pursuant to
RA 9480
Issues:
2

Whether or Not AIA should pay its

assessed tax liabilities
SC Ruling:
YES. It is not classified as a
withholding agent, as the CIR
contends, as part of the exceptions
of the law. It is also untenable that
AIA should have chosen the amnesty
grant under RA 9399 and not under
RA 9480 since the tax payer can
choose which tax amnesty program
it can avail. It does not preclude AIA
from availing RA 9480 for being
within an SEZ.

excise tax cannot be deemed

as withholding taxes merely
because they
constitute
indirect
taxes.
Moreover, records support the
conclusion that AIA
was
assessed
not
as
a
withholding agent but, as the
one directly liable for the
said deficiency taxes.
The Tax Amnesty Program under
RA 9480 may be availed of by
any
person except those who are
disqualified under Section 8
thereof, to wit:

Note:
Indirect taxes, like VAT and
excise tax, are different from
withholding
taxes.
To
distinguish, in indirect taxes,
the incidence of
taxation falls on one person but
the burden thereof can be
shifted or passed
on to another person, such as
when the tax is imposed upon
goods before
reaching the consumer who
ultimately pays for it. On the
other hand, in
case of withholding taxes, the
incidence and burden of taxation
fall on the
same
entity,
the
statutory
taxpayer. The burden of taxation
is not shifted to
the
withholding
agent
who
merely collects, by withholding,
the tax due from
income payments to entities
arising from certain transactions
and remits the
same to the government. Due to
this difference, the deficiency
VAT and

Section 8. Exceptions. The tax

amnesty provided in Section
5 hereof shall not extend to the
following
persons
or
cases
existing as of
the effectivity of this Act:
(a)
Withholding
agents
with respect to their withholding
tax liabilities;
(b) Those with pending
cases
falling
under
the
jurisdiction of
the
Presidential
Commission
on
Good
Government;
(c) Those with pending
cases involving unexplained or
unlawfully acquired wealth
or under the Anti-Graft and
Corrupt Practices
Act;
(d) Those with pending
cases filed in court involving
violation
of
the
Anti-Money
Laundering Law;
3

(e) Those with pending

criminal cases for tax evasion
and
other
criminal
offenses
under Chapter II of Title X of the
National Internal
Revenue Code of 1997, as
amended, and the felonies of
frauds, illegal
exactions and transactions,
and malversation of public funds
and property
under Chapters III and IV of
Title VII of the Revised Penal
Code; and
(f) Tax cases subject of
final and executory judgment by
the
courts.
INTEL
TECHNOLOGY
PHILIPPINES, INC., Petitioner, vs.
COMMISSIONER OF INTERNAL
REVENUE, Respondent.
G.R. No. 166732
2007

April 27,

By: Red Convocar

Facts:
Intel Tech is a domestic corporation
engaged primarily in the business of
designing,
developing,
manufacturing
and
exporting
advanced and large-scale integrated
circuit components. It is registered
with the BIR as VAT entity and with
PEZA
as
an
Ecozone
export
enterprise.

As a VAT-registered entity, Intel filed

its monthly VAT declarations and
quarterly VAT return.
During the 2Q of 1998, Intel declared
zero-rated
export
sales
of
P2,538,906,840.16 and VAT input
taxes from domestic purchases of
goods
and
services
of
P
11,770,181.70.
Zero-rated export sales were paid in
acceptable foreign currency and
were inwardly remitted.
On
1999,
a
claim
for
tax
refund/credit of VAT input taxes on
its domestic purchases of goods and
services
directly
used
in
its
commercial operations was filed by
Intel.
Prior to the lapse of 2-year
prescriptive period and due to
inaction by the CIR, a petition for
review was filed with the CTA and
prayed for the issuance of a tax
credit certificate amounting to
11.7M.
CTA decision: acknowledged that
petitioner is legally entitled to a
refund or issuance of a tax credit
certificate of its unutilized VAT input
taxes on domestic purchases of
goods and service attributable to its
zero-rated sales. However, it denied
the claim for tax refund or issuance
of a tax credit certificate since the
export
invoices
offered
as
evidence could not be considered as
competent evidence to prove its
zero-rated sales of goods for VAT
purposes and for refund or issuance
of a tax credit certificate because no
BIR authority to print said invoices
was indicated.
4

A petition for review was filed before

the CA, arguing that the info (sellers
TIN, statement that seller is VATregistered) required to be printed in
the invoice or receipt do not apply to
its export sales since no input VAT
may
be
claimed
and
that
the absence of BIR authority to print
its TIN-V in some of the invoices is
not fatal to its claim for refund or
issuance of a tax credit certificate as
to invalidate the documents used to
prove its export sales. It declared
that
it
used
computerized
accounting forms as sales invoices in
its export sales based on the letterauthority dated April 17, 1997 of the
BIR. It was only through plain
mistake and inadvertence that the
sales invoices it used had no
authority to print
CA decision: since Intel issued
invoices with the BIRs authority to
print, it must be concluded that
these invoices were not registered as
they did not comply with the
invoicing
requirements
under
Section 113, and the requirements
for issuance of receipts or sales or
commercial invoices under Section
237. Thus, an unregistered receipt
could not be used as supporting
document for input tax.
Issue:
Whether or not Intel is entitled to a
tax refund/credit for failure to
comply
with
the
invoicing
requirements?
Held:
Yes.

The following sales by VAT-registered

persons shall be subject to zero
percent (0%) rate:
(a) Export Sales.--The term export
sales means:
(1) The sale and actual shipment of
goods from the Philippines to a
foreign country, irrespective of any
shipping arrangement that may be
agreed upon which may influence or
determine the transfer of ownership
of the goods so exported and paid
for in acceptable foreign currency or
its equivalent in goods or services,
and accounted for in accordance
with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP).
A taxpayer engaged in zero-rated or
effectively zero-rated transactions
may apply for a refund or issuance
of a tax credit certificate for input
taxes paid attributable to such sales
upon complying with the following
requisites: (1) the taxpayer is
engaged in sales which are zerorated
(like
export
sales)
or
effectively
zero-rated;
(2)
the
taxpayer is VAT-registered; (3) the
claim must be filed within two years
after the close of the taxable quarter
when such sales were made; (4) the
creditable input tax due or paid must
be attributable to such sales, except
the transitional input tax, to the
extent that such input tax has not
been applied against the output tax;
and (5) in case of zero-rated sales
under Section 106(A)(2)(a)(1) and
(2), Section 106(B), and Section
108(B)(1) and (2), the acceptable
foreign currency exchange proceeds
thereof had been duly accounted for
in accordance with BSP rules and
regulations.
5

The
documentary
evidence
submitted by Intel such as summary
of export sales, sales invoices,
official receipts, airway bills and
export declarations, prove that it is
engaged in the "sale and actual
shipment
of
goods
from
the
Philippines to a foreign country."
Hence, Intel is considered engaged
in export sales (a zero-rated
transaction) if made by a VATregistered entity.
The
certification
of
inward
remittances attests to the fact of
payment "in acceptable foreign
currency or its equivalent in goods or
services, and accounted for in
accordance with the rules and
regulations of the BSP.
Therefore,
Intels
evidence,
juxtaposed with the requirements of
Sections 106 (A)(2)(a)(1) and 112(A)
of the Tax Code, as enumerated
earlier, sufficiently establish that it is
entitled to a claim for refund or
issuance of a tax credit certificate for
creditable input taxes.
While entities engaged in business
are required to secure from the BIR
an authority to print receipts or
invoices and to issue duly registered
receipts or invoices, it is not required
that the BIR authority to print be
reflected or indicated therein.
In any case, the provisions of law
and revenue regulations do not
provide that failure to reflect or
indicate in the invoices or receipts
the BIR authority to print, as well as
the TIN-V, would result in the
outright
invalidation
of
these
invoices or receipts. Neither is it
provided therein that such omission

or failure would result in the outright

denial
of
a
claim
for
tax
credit/refund.
In a claim for refund or issuance of a
tax credit certificate attributable to
zero-rated sales, what is to be
closely
scrutinized
is
the
documentary substantiation of the
input VAT paid, as may be proven by
other export documents, rather than
the supporting documents for the
zero-rated export sales. And since
petitioner
has
established
by
sufficient evidence that it is entitled
to a refund or issuance of a tax
credit certificate, in accordance with
the requirements of Sections 106 (A)
(2)(a)(1) and 112(A) of the Tax Code,
then its claim should not be denied,
notwithstanding its failure to state
on the invoices the BIR authority to
print and the TIN-V.
The incentives offered to PEZA
enterprises, among which are tax
exemptions
and
tax
credits,
ultimately redound to the benefit of
the national economy, enticing as
they do more enterprises to invest
and do business within the zones,
thus creating more employment
opportunities and infusing more
dynamism to the vibrant interplay of
market forces.
The case shall nevertheless be
remanded to the CTA for proper
determination and computation of
petitioners tax credit/refund. The
difference of P2,081,372.32 from
petitioners input VAT claim of
P11,770,181.70 was not supported
by sufficient documentary proof.

Eastern
Telecommunication
Philippines vs. Commissioner, G.R.
No. 168856, 29 August 2012
Petitioner
Eastern
Telecommunications Philippines, Inc.
(ETPI)
is
a
duly
authorized
corporation
engaged
in
telecommunications
services
by
virtue of a legislative franchise. It
has
entered
into
various
international service agreements
with
international
non-resident
telecommunications companies and
it
handles
incoming
telecommunications
services
for
non-resident
foreign
telecommunication companies and
the relay of said international calls
within the Philippines. In addition, to
broaden
the
coverage
of
its
distribution of telecommunications
services,
it
executed
several
interconnection agreements with
local carriers for the receipt of
foreign calls relayed by it and the
distribution of such calls to the
intended local end-receiver.3
From these services to non-resident
foreign
telecommunications
companies, ETPI generates foreign
currency
revenues
which
are
inwardly remitted in accordance with
the rules and regulations of the
Bangko Sentral ng Pilipinas to its US
dollar accounts in banks such as the
Hong Kong and Shanghai Banking
Corporation,
Metrobank
and
Citibank. The manner and mode of
payments follow the international
standard as set forth in the Blue
Book or Manual prepared by the
Consultative
Commission
of
International
Telegraph
and
Telephony.4

ETPI seasonably filed its Quarterly

Value-Added Tax (VAT) Returns for
the year 1999, but these were later
amended on February 22, 2001, to
wit:
VAT Exce
Qu VAT Zero- Exem
Input ss
art Outp Rated pt
Dom Input
er ut
Sales Sales
estic VAT
P 6,6 P 6,4
P 24 P 117, P 68,
Fir
46,6 00,1
6,49 492,5 961,1
st
24.3 30.6
3.67 85.78 71.91
5
8
11,9
Se 396, 406,2 238,4 5,95
59,3
co 701. 16,04 24,70 5,93
62.6
nd 57 9.26 2.46 3.54
5
17,8
243, 245,2 143,9 6,10
Th
33,5
620. 67,02 57,18 8,82
ird
67.2
78 6.51 2.21 5.34
2
23,6
Fo 975, 279,8 164,2 6,75
17,5
urt 939. 51,24 56,06 9,94
75.6
h 54 2.11 3.38 8.00
7
P 1,8 P 1,04
Tot 53,7 8,826,
al 55.5 903.6
6
6

P 615
,599,
119.9
6

P 25,
471,
331.
23

Both
ETPI
and
respondent
Commissioner of Internal Revenue
(CIR) confirmed the veracity of the
entries under Excess Input VAT in the
table above, pursuant to their Joint
Stipulation of Facts and Issues dated
June 13, 2001.5
Of the total excess input tax for the
period from January 1999 to
December 1999, ETPI claims that the
following are allocable to its zerorated transactions:6
Qua Excess
7

Input
Taxes
Attributa
ble
rter
to ZeroRated
Transacti
ons
P 6,020,2
46.15
Seco 5,394,64
nd 6.08
Thir 5,533,12
d
9.35
Four 6,122,89
th
0.17
First

Total

P 23,070,
911.75

Believing that it is entitled to a

refund for the unutilized input VAT
attributable to its zero-rated sales,
ETPI filed with the Bureau of Internal
Revenue (BIR) an administrative
claim for refund and/or tax credit in
the amount of P 23,070,911.75
representing
excess
input
VAT
derived from its zero-rated sales for
the period from January 1999 to
December 1999.7
On March 26, 2001, without waiting
for the decision of the BIR, ETPI filed
a petition for review before the Court
of Tax Appeals (CTA) to toll the
running of the two-year prescriptive
period.8
In its Decision,9 dated December 12,
2003, the Division10 of the CTA (CTADivision) denied the petition for lack
of merit, finding that ETPI failed to
imprint the word "zero-rated" on the
face of its VAT invoices or receipts, in
violation of Revenue Regulations No.
7-95. In addition, ETPI failed to

substantiate its taxable and exempt

sales, the verification of which was
not included in the examination of
the
commissioned
independent
certified public accountant.
Aggrieved, ETPI elevated the case to
the CTA-En Banc, which promulgated
its Decision11 on April 19, 2005
dismissing the petition and affirming
the decision of the CTA-Division. The
CTA-En Banc ruled that in order for a
zero-rated taxpayer to claim a tax
credit or refund, the taxpayer must
first comply with the mandatory
invoicing requirements under the
regulations. One such requirement is
that the word "zero-rated" be
imprinted on the invoice or receipt.
According to the CTA-En Banc, the
purpose of this requisite is to avoid
the danger that the purchaser of
goods or services may be able to
claim input tax on the sale to it by
the taxpayer of goods or services
despite the fact that no VAT was
actually paid thereon since the
taxpayer is zero-rated. Also, it
agreed with the conclusion of the
CTA-Division that ETPI failed to
substantiate its taxable and exempt
sales.
ETPI
filed
a
motion
for
reconsideration, but it was denied by
the CTA-En Banc in its July 8, 2005
Resolution.12
Hence, this petition.
The Issues
ETPI presents the following grounds
for the grant of its petition:
I
The CTA-En Banc erred when it
sanctioned the denial of petitioners
8

claim for refund on the ground that

petitioners invoices do not bear the
imprint
"zero-rated,"
and
disregarded the evidence on record
which clearly establishes that the
transactions
giving
rise
to
petitioners claim for refund are
indeed zero-rated transactions under
Section 108(B)(2) of the 1997 Tax
Code.
II
The CTA-En Banc erred when it
denied petitioners claim for refund
based on petitioners alleged failure
to substantiate its taxable and
exempt sales.
III
Petitioner
presented
substantial
evidence that unequivocally proved
petitioners zero-rated transactions
and its consequent entitlement to a
refund/tax credit.
IV
In civil cases, such as claims for
refund,
strict
compliance
with
technical rules of evidence is not
required.
Moreover,
a
mere
preponderance of evidence will
suffice to justify the grant of a
claim.13
The central issue to be resolved in
this case is whether ETPIs failure to
imprint the word "zero-rated" on its
invoices or receipts is fatal to its
claim for tax refund or tax credit for
excess input VAT.
The Courts Ruling
The petition is bereft of merit.

Imprinting of the word "zero-rated"

on the invoices or receipts is
required
ETPI argues that the National
Internal Revenue Code of 1997
(NIRC)
allows
VAT-registered
taxpayers to file a claim for refund of
input taxes directly attributable to,
or otherwise allocable to, zero-rated
transactions subject to compliance
with certain conditions.14 Nowhere in
the NIRC does it appear that the
invoices or receipts must have been
printed with the word "zero-rated"
on its face or that failure to do so
would result in the denial of the
claim.15Such a requirement only
appears in Revenue Regulations No.
7-95 which, ETPI insists, cannot
prevail over a taxpayers substantive
right to claim a refund or tax credit
for input taxes attributable to its
zero-rated transactions.16 Moreover,
the lack of the word "zero-rated" on
ETPIs invoices and receipts does not
justify the outright denial of its claim
for refund, considering that the zerorated nature of the transactions has
been sufficiently established by
other
equally
relevant
and
17
competent evidence. Finally, ETPI
points out that the danger to be
avoided
by
the
questioned
requirement, as mentioned by the
CTA-En Banc, is more theoretical
than real. This is because ETPIs
clients for its zero-rated transactions
are non-resident foreign corporations
which are not covered by the
Philippine VAT system. Thus, there is
no possibility that they will be able
to unduly take advantage of ETPIs
omission to print the word "zerorated" on its invoices and receipts.18
ETPI is mistaken.

Section 244 of the NIRC explicitly

grants the Secretary of Finance the
authority
to
promulgate
the
necessary rules and regulations for
the effective enforcement of the
provisions of the tax code. Such
rules and regulations "deserve to be
given weight and respect by the
courts in view of the rule-making
authority given to those who
formulate them and their specific
expertise in their respective fields."19
Consequently,
the
following
invoicing requirements enumerated
in Section 4.108-1 of Revenue
Regulations No. 7-95 must be
observed
by
all
VAT-registered
taxpayers:
Sec.
4.108-1.
Invoicing
Requirements. All VAT-registered
persons shall, for every sale or lease
of goods or properties or services,
issue duly registered receipts or
sales or commercial invoices which
must show:
1. the name, TIN and
address of seller;

6. the invoice value or

consideration.
In the case of sale of real property
subject to VAT and where the zonal
or market value is higher than the
actual consideration, the VAT shall
be separately indicated in the
invoice or receipt.
Only VAT-registered persons are
required to print their TIN followed
by the word "VAT" in their 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 need for taxpayers to indicate in
their invoices and receipts the fact
that they are zero-rated or that its
transactions are zero-rated became
more apparent upon the integration
of the abovequoted provisions of
Revenue Regulations No. 7-95 in
Section 113 of the NIRC enumerating
the invoicing requirements of VATregistered persons when the tax
code was amended by Republic Act
(R.A.) No. 9337.20

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 VATregistered
purchaser,
customer or client;
5. the word "zero-rated"
imprinted on the invoice
covering
zero-rated
sales; and

A consequence of failing to comply

with the invoicing requirements is
the denial of the claim for tax refund
or tax credit, as stated in Revenue
Memorandum Circular No. 42-2003,
to wit:
A-13: Failure by the supplier to
comply
with
the
invoicing
requirements on the documents
supporting the sale of goods and
services
will
result
to
the
disallowance of the claim for input
tax by the purchaser-claimant.
If the claim for refund/TCC is based
on the existence of zero-rated sales
10

by the taxpayer but it fails to comply

with the invoicing requirements in
the issuance of sales invoices (e.g.
failure to indicate the TIN), its claim
for tax credit/refund of VAT on its
purchases
shall
be
denied
considering that the invoice it is
issuing to its customers does not
depict its being a VAT-registered
taxpayer whose sales are classified
as zero-rated sales. Nonetheless,
this treatment is without prejudice to
the right of the taxpayer to charge
the input taxes to the appropriate
expense account or asset account
subject to depreciation, whichever is
applicable. Moreover, the case shall
be referred by the processing office
to the concerned BIR office for
verification of other tax liabilities of
the taxpayer. (Emphasis supplied)

and services. As aptly explained by

the
CTAs
First
Division,
the
appearance of the word "zero-rated"
on the face of invoices covering
zero-rated sales prevents buyers
from falsely claiming input VAT from
their purchases when no VAT was
actually paid. If, absent such word, a
successful claim for input VAT is
made, the government would be
refunding money it did not collect.

In this regard, the Court has

consistently held that the absence of
the word "zero-rated" on the
invoices and receipts of a taxpayer
will result in the denial of the claim
for
tax
refund.
In
Panasonic
Communications
Imaging
Corporation of the Philippines v.
Commissioner
of
Internal
21
Revenue, the Court affirmed the
decision of the CTA denying a claim
by petitioner for refund on input VAT
attributable to zero-rated sales for
its failure to print the word "zerorated" on its invoices, ratiocinating
that:

The pronouncement in Panasonic

has since been repeatedly cited in
subsequent cases, reiterating the
rule that the failure of a taxpayer to
print the word "zero-rated" on its
invoices or receipts is fatal to its
claim for tax refund or tax credit of
input VAT on zero-rated sales.23

Section 4.108-1 of RR 7-95 proceeds

from the rule-making authority
granted to the Secretary of Finance
under Section 245 of the 1977 NIRC
(Presidential Decree 1158) for the
efficient enforcement of the tax code
and of course its amendments. The
requirement is reasonable and is in
accord with the efficient collection of
VAT from the covered sales of goods

Further, the printing of the word

"zero-rated" on the invoice helps
segregate sales that are subject to
10% (now 12%) VAT from those sales
that are zero-rated. Unable to submit
the
proper
invoices,
petitioner
Panasonic has been unable to
substantiate its claim for refund.
(Emphases supplied)22

Tax refunds are strictly construed

against the taxpayer; ETPI failed
to substantiate its claim
ETPI contends that there is no need
for it to substantiate the amounts of
its taxable and exempt sales
because its quarterly VAT returns,
which clearly show the amounts of
taxable sales, zero-rated sales and
exempt sales, were not refuted by
the CIR.24 As regards its accumulated
input VAT paid on purchases of
goods and service allocable to its
zero-rated sales, ETPI asserts that its
submission of invoices and receipts,
as well as the verification of the
commissioned independent certified
11

public
accountant,
should
be
sufficient to support its claim for
refund.25
The Court disagrees.
ETPI should be reminded of the wellestablished rule that tax refunds,
which are in the nature of tax
exemptions, are construed strictly
against the taxpayer and liberally in
favor of the government. This is
because taxes are the lifeblood of
the nation. Thus, the burden of proof
is upon the claimant of the tax
refund to prove the factual basis of
his claim.26 Unfortunately, ETPI failed
to discharge this burden.1wphi1

The Court finds no cogent reason to

disturb the decision of the tax court.
The CT A has developed an expertise
on the subject of taxation because it
is a specialized court dedicated
exclusively to the study and
resolution of tax problems.30 As such,
its findings of fact are accorded the
highest respect and are generally
conclusive upon this Court, in the
absence of grave abuse of discretion
or palpable error.31 Its decisions shall
not be lightly set aside on appeal,
unless this Court finds that the
questioned decision is not supported
by substantial evidence or there is a
showing of abuse or improvident
exercise of authority. 32

The CIR is correct in pointing out

that ETPI is engaged in mixed
transactions and, as a result, its
claim for refund covers not only its
zero-rated sales but also its taxable
domestic sales and exempt sales.
Therefore, it is only reasonable to
require ETPI to present evidence in
order to substantiate its claim for
input VAT.27

WHEREFORE,
the
petition
1s DENIED. The April .19, 2005
Decision and the July 8, 2005
Resolution of the Court of Tax
Appeals En Bane, in CTA E.B. No. 11
(CTA
Case
No.
6255)
are
hereby AFFIRMED.

Considering that ETPI reported in its

annual return its zero-rated sales,
together with its taxable and exempt
sales, the CTA ruled that ETPI should
have
presented
the
necessary
papers to validate all the entries in
its return. Only its zero-rated sales,
however, were accompanied by
supporting documents. With respect
to its taxable and exempt sales, ETPI
failed to substantiate these with the
appropriate
documentary
evidence.28 Noteworthy also is the
fact
that
the
commissioned
independent certified public account
did not include in his examination
the
verification
of
such
29
transactions.

By: Ace Macalalag

CIR vs SEKISUI JUSHI PHILIPPINES,

INC.

Facts:
Sekisui Jushi is a Philippine Export
Zone Authority (PEZA) registered
entity engaged in the manufacture
and export of strapping bands and
other
packaging
materials.
Under Philippine laws, PEZA
registered business enterprises may
choose between two fiscal incentive
schemes:
o A) To pay a 5% preferential tax
rate on its gross income and thus be
exempt from all other taxes; or
12

o B) To enjoy an income tax holiday,

in which case it is not exempt from
applicable national revenue taxes
including
the
VAT.
Sekisui availed itself of option B.
Having availed of option B, Sekisui
is subject to VAT. Thus, Sekisui
registered as a VAT-registered person
and subsequently filed its quarterly
returns with the BIR, reflecting their
input taxes in the amount of P4, 361,
132.70 paid by it in connection with
its domestic purchase of capital
goods
and
services.
It sought for refund of its unutilized
input taxes.

Issue:
Whether or not respondent is
entitled to the refund or issuance of
tax credit certificate in the amount
of
P4,377,102.26
as
alleged
unutilized input taxes paid on
domestic purchase of capital goods
and
services.
Held:
Yes.
An entity registered with the PEZA as
an ecozone may be covered by the
VAT system. Section 23 of Republic
Act 7916, as amended, gives a PEZAregistered enterprise the option to
choose
between
two
fiscal
incentives:
a) a
five
percent
preferential tax rate on its gross
income under the said law; or b) an
income tax holiday provided under
Executive Order No. 226 or the
Omnibus Investment Code of 1987,
as
amended.
If the entity avails itself of the five
percent preferential tax rate under

the first scheme, it is exempt from

all taxes, including the VAT; under
the second, it is exempt from income
taxes for a number of years, but not
from other national internal revenue
taxes
like
the
VAT.
By availing itself of the income tax
holiday, respondent became subject
to the VAT. It correctly registered as
a
VAT
taxpayer,
because
its
transactions were not VAT-exempt.
Notably, while an ecozone is
geographically within the Philippines,
it is deemed a separate customs
territory and is regarded in law as
foreign soil. Sales by suppliers from
outside the borders of the ecozone
to this separate customs territory
are deemed as exports and treated
as export sales. These sales are
zero-rated or subject to a tax rate of
zero
percent.
Notwithstanding the fact that its
purchases should have been zerorated, respondent was able to prove
that it had paid input taxes in the
amount of P4,377,102.26. The CTA
found, and the CA affirmed, that this
amount was substantially supported
by invoices and Official Receipts; and
petitioner has not challenged the
computation. Accordingly, this Court
upholds the findings of the CTA and
the
CA.
On the other hand, since 100
percent
of
the
products
of
respondent are exported, all its
transactions are deemed export
sales and are thus VAT zero-rated. It
has been shown that respondent has
no output tax with which it could
offset its paid input tax. Since the
subject input tax it paid for its
domestic purchases of capital goods
and services remained unutilized, it
can claim a refund for the input VAT
previously charged by its suppliers.
13

The amount of P4,377,102.26 is

excess input taxes that justify a
refund.

CONTEX CORPORATION VS. HON.

COMMISSIONER OF INTERNAL
REVENUE
G.R. No. 151135, 02 July 2004
By: Gwapo
FACTS:
Petitioner is a domestic corporation
engaged
in
the
business
of
manufacturing hospital textiles and
garments and other hospital supplies
for export. Petitioners place of
business is at the Subic Bay Freeport
Zone (SBFZ). It is duly registered
with the Subic Bay Metropolitan
Authority (SBMA) as a Subic Bay
Freeport Enterprise, pursuant to the
provisions of Republic Act No. 7227.
As
an
SBMA-registered
firm,
petitioner is exempt from all local
and national internal revenue taxes
except for the preferential tax
provided for in Section 12 (c) of Rep.
Act No. 7227. Petitioner also
registered with the Bureau of
Internal Revenue (BIR) as a non-VAT
taxpayer
under
Certificate
of
Registration RDO Control No. 95-180000133.
From January 1, 1997 to December
31, 1998, petitioner purchased
various supplies and materials
necessary in the conduct of its
manufacturing
business.
The
suppliers of these goods shifted unto
petitioner the 10% VAT on the
purchased items, which led the

petitioner to pay input taxes in the

amounts
of
P539,411.88
and
P504,057.49 for 1997 and 1998,
respectively.
Acting on the belief that it was
exempt from all national and local
taxes, including VAT, pursuant to
Rep. Act No. 7227, petitioner filed
two applications for tax refund or tax
credit of the VAT it paid. Mr. Edilberto
Carlos, revenue district officer of BIR
RDO No. 19, denied the first
application letter, dated December
29, 1998.
Unfazed by the denial, petitioner on
May
4,
1999,
filed
another
application for tax refund/credit, this
time directly with Atty. Alberto
Pagabao, the regional director of BIR
Revenue Region No. 4. The second
letter sought a refund or issuance of
a tax credit certificate in the amount
of
P1,108,307.72,
representing
erroneously paid input VAT for the
period January 1, 1997 to November
30, 1998.
When no response was forthcoming
from the BIR Regional Director,
petitioner then elevated the matter
to the Court of Tax Appeals, in a
petition for review docketed as CTA
Case No. 5895. Petitioner stressed
that Section 112(A) if read in relation
to
Section
106(A)(2)(a)of
the
National Internal Revenue Code, as
amended and Section 12(b) and (c)
of Rep. Act No. 7227 would show
that it was not liable in any way for
any value-added tax.
In opposing the claim for tax refund
or tax credit, the BIR asked the CTA
to apply the rule that claims for
refund are strictly construed against
14

the taxpayer. Since petitioner failed

to establish both its right to a tax
refund or tax credit and its
compliance with the rules on tax
refund as provided for in Sections
204 and 229 of the Tax Code, its
claim should be denied, according to
the BIR.

exempted from VAT under RA No.

7227 as a purchaser?

On October 13, 2000, the CTA

decided the Petition for Review is
hereby
PARTIALLY
GRANTED.
Respondent is hereby ORDERED to
REFUND or in the alternative to
ISSUE A TAX CREDIT CERTIFICATE in
favor of Petitioner the sum of
P683,061.90,
representing
erroneously
paid
input
VAT.
Respondent CIR then filed a petition,
docketed as CA-G.R. SP No. 62823,
for review of the CTA decision by the
Court
of
Appeals.
Respondent
maintained that the exemption of
Contex Corp. under Rep. Act No.
7227 was limited only to direct taxes
and not to indirect taxes such as the
input component of the VAT. The
Commissioner pointed out that from
its very nature, the value-added tax
is a burden passed on by a VAT
registered person to the end users;
hence, the direct liability for the tax
lies with the suppliers and not
Contex.

1. No. On the first issue, petitioner

argues that the appellate courts
restrictive
interpretation
of
petitioners VAT exemption as limited
to those covered by Section 107 of
the Tax Code is erroneous and
devoid of legal basis. It contends
that the provisions of Rep. Act No.
7227 clearly and unambiguously
mandate that no local and national
taxes shall be imposed upon SBFZregistered firms and hence, said law
should govern the case. Petitioner
calls our attention to regulations
issued by both the SBMA and BIR
clearly and categorically providing
that the tax exemption provided for
by Rep. Act No. 7227 includes
exemption from the imposition of
VAT on purchases of supplies and
materials.
The
respondent
takes
the
diametrically opposite view that
while Rep. Act No. 7227 does grant
tax exemptions, such grant is not allencompassing but is limited only to
those taxes for which a SBFZregistered business may be directly
liable. Hence, SBFZ locators are not
relieved from the indirect taxes that
may be shifted to them by a VATregistered seller.

Finding merit in the CIRs arguments,

the appellate court decided CA-G.R.
SP No. 62823 in his favor, the
appealed
decision
is
hereby
REVERSED AND SET ASIDE. Contexs
claim for refund of erroneously paid
taxes is DENIED accordingly.
ISSUES:
1. Whether of not the CA is correct in
finding that petitioner CONTEX is not

2. Whether or not petitioner CONTEX

is entitled to tax refund on its
purchases of supplies and raw
materials?
HELD:

At this juncture, it must be stressed

that the VAT is an indirect tax. As
such, the amount of tax paid on the
goods, properties or services bought,
transferred, or leased may be shifted
15

or passed on by the seller,

transferor, or lessor to the buyer,
transferee or lessee. Unlike a direct
tax, such as the income tax, which
primarily taxes an individuals ability
to pay based on his income or net
wealth, an indirect tax, such as the
VAT, is a tax on consumption of
goods,
services,
or
certain
transactions involving the same. The
VAT, thus, forms a substantial
portion of consumer expenditures.
Further, in indirect taxation, there is
a need to distinguish between the
liability for the tax and the burden of
the tax. As earlier pointed out, the
amount of tax paid may be shifted or
passed on by the seller to the buyer.
What is transferred in such instances
is not the liability for the tax, but the
tax burden. In adding or including
the VAT due to the selling price, the
seller remains the person primarily
and legally liable for the payment of
the tax. What is shifted only to the
intermediate buyer and ultimately to
the final purchaser is the burden of
the tax. Stated differently, a seller
who is directly and legally liable for
payment of an indirect tax, such as
the VAT on goods or services is not
necessarily
the
person
who
ultimately bears the burden of the
same tax. It is the final purchaser or
consumer of such goods or services
who, although not directly and
legally liable for the payment
thereof, ultimately bears the burden
of the tax.
Exemptions from VAT are granted by
express provision of the Tax Code or
special laws. Under VAT, the
transaction can have preferential
treatment in the following ways:

(a) VAT Exemption. An exemption

means that the sale of goods or
properties and/or services and the
use or lease of properties is not
subject to VAT (output tax) and the
seller is not allowed any tax credit
on VAT (input tax) previously paid.
This is a case wherein the VAT is
removed at the exempt stage (i.e.,
at the point of the sale, barter or
exchange
of
the
goods
or
properties).
The person making the exempt sale
of goods, properties or services shall
not bill any output tax to his
customers
because
the
said
transaction is not subject to VAT. On
the other hand, a VAT-registered
purchaser
of
VAT-exempt
goods/properties or services which
are exempt from VAT is not entitled
to any input tax on such purchase
despite the issuance of a VAT invoice
or receipt.
(b) Zero-rated Sales. These are sales
by VAT-registered persons which are
subject to 0% rate, meaning the tax
burden is not passed on to the
purchaser. A zero-rated sale by a
VAT-registered person, which is a
taxable
transaction
for
VAT
purposes, shall not result in any
output tax. However, the input tax
on
his
purchases
of
goods,
properties or services related to such
zero-rated sale shall be available as
tax credit or refund in accordance
with these regulations.
Under Zero-rating, all VAT is
removed from the zero-rated goods,
activity
or
firm.
In
contrast,
exemption only removes the VAT at
the exempt stage, and it will actually
increase, rather than reduce the
total taxes paid by the exempt firms
16

business or non-retail customers. It

is for this reason that a sharp
distinction must be made between
zero-rating
and
exemption
in
designating a value-added tax.
Apropos, the petitioners claim to
VAT exemption in the instant case for
its purchases of supplies and raw
materials is founded mainly on
Section 12 (b) and (c) of Rep. Act No.
7227, which basically exempts them
from all national and local internal
revenue taxes, including VAT and
Section 4 (A)(a) of BIR Revenue
Regulations No. 1-95.
On this point, petitioner rightly
claims that it is indeed VAT-Exempt
and this fact is not controverted by
the respondent. In fact, petitioner is
registered as a NON-VAT taxpayer
per Certificate of Registration issued
by the BIR. As such, it is exempt
from VAT on all its sales and
importations of goods and services.
Petitioners claim, however, for
exemption from VAT for its purchases
of supplies and raw materials is
incongruous with its claim that it is
VAT-Exempt, for only VAT-Registered
entities
can
claim
Input
VAT
Credit/Refund.
The point of contention here is
whether or not the petitioner may
claim a refund on the Input VAT
erroneously passed on to it by its
suppliers.
While it is true that the petitioner
should not have been liable for the
VAT inadvertently passed on to it by
its supplier since such is a zero-rated
sale on the part of the supplier, the

petitioner is not the proper party to

claim such VAT refund.
Section 4.100-2 of BIRs Revenue
Regulations 7-95, as amended, or
the Consolidated Value-Added Tax
Regulations provide:
Sec. 4.100-2. Zero-rated Sales. A
zero-rated sale by a VAT-registered
person,
which
is
a
taxable
transaction for VAT purposes, shall
not result in any output tax.
However, the input tax on his
purchases of goods, properties or
services related to such zero-rated
sale shall be available as tax credit
or refund in accordance with these
regulations.
The following sales by VAT-registered
persons shall be subject to 0%:
(a) Export Sales
Export
...

Sales

shall

mean

(5) Those considered export sales

under Articles 23 and 77 of
Executive Order No. 226, otherwise
known as the Omnibus Investments
Code of 1987, and other special
laws, e.g. Republic Act No. 7227,
otherwise known as the Bases
Conversion and Development Act of
1992.
...
(c) Sales to persons or entities
whose exemption under special laws,
e.g. R.A. No. 7227 duly registered
and accredited enterprises with
Subic Bay Metropolitan Authority
(SBMA) and Clark Development
Authority (CDA), R. A. No. 7916,
Philippine Economic Zone Authority
17

(PEZA), or international agreements,

e.g. Asian Development Bank (ADB),
International Rice Research Institute
(IRRI), etc. to which the Philippines is
a signatory effectively subject such
sales to zero-rate.

Commissioner
of
Internal
Revenue v. Seagate Technology

Since the transaction is deemed a

zero-rated sale, petitioners supplier
may claim an Input VAT credit with
no
corresponding
Output
VAT
liability. Congruently, no Output VAT
may be passed on to the petitioner.

Respondent is a resident foreign

corporation duly registered with the
Securities
and
Exchange
Commission to do business in the
Philippines and is registered with the
Philippine Export Zone Authority
(PEZA). The respondent is Value
Added Tax-registered entity and filed
for
the
VAT
returns.
An
administrative claim for refund of
VAT input taxes in the amount of
P28,369,226.38
with
supporting
documents
(inclusive
of
the
P12,267,981.04 VAT input taxes
subject of this Petition for Review),
was filed on 4 October 1999 and no
final action has been received by the
respondent from the petitioner on
the claim for VAT refund. Hence,
petitioner is sued in his official
capacity. The Tax Court rendered a
decision granting the claim for
refund and CTA affirmed the
decision. Hence, the present petition
for certiorari.

2. No. On the second issue, it may

not be amiss to re-emphasize that
the petitioner is registered as a NONVAT taxpayer and thus, is exempt
from VAT. As an exempt VAT
taxpayer, it is not allowed any tax
credit on VAT (input tax) previously
paid. In fine, even if we are to
assume that exemption from the
burden of VAT on petitioners
purchases did exist, petitioner is still
not entitled to any tax credit or
refund on the input tax previously
paid as petitioner is an exempt VAT
taxpayer.
Rather, it is the petitioners suppliers
who are the proper parties to claim
the tax credit and accordingly refund
the petitioner of the VAT erroneously
passed on to the latter.
Accordingly, we find that the Court
of Appeals did not commit any
reversible error of law in holding that
petitioners VAT exemption under
Rep. Act No. 7227 is limited to the
VAT on which it is directly liable as a
seller and hence, it cannot claim any
refund or exemption for any input
VAT it paid, if any, on its purchases
of raw materials and supplies.

G.R. No. 153866. February 11, 2005

By: Edgar Praile II
FACTS:

ISSUE:
Whether or not respondent is
entitled to the refund or issuance of
Tax Credit Certificate in the amount
of
P12,122,922.66
representing
alleged unutilized input VAT paid on
capital goods purchased for the
period April 1, 1998 to June 30, 1999
HELD:
The Petition is unmeritorious. As a
PEZA-registered enterprise within a
18

special economic zone, respondent

is entitled to the fiscal incentives
and benefit provided for in either PD
66 or EO 226. It shall, moreover,
enjoy
all
privileges,
benefits,
advantages or exemptions under
both Republic Act Nos. (RA) 7227
and 7844. Respondent as an entity is
exempt from internal revenue laws
and regulations. This exemption
covers both direct and indirect taxes,
stemming from the very nature of
the VAT as a tax on consumption, for
which the direct liability is imposed
on one person but the indirect
burden is passed on to another.
Respondent, as an exempt entity,
can neither be directly charged for
the VAT on its sales nor indirectly
made to bear, as added cost to such
sales, the equivalent VAT on its
purchases. The exemption is both
express and pervasive, among other
reasons, since RA 7916 states that
no taxes, local and national, shall
be
imposed
on
business
establishments operating within the
ecozone. Even though the VAT is
not imposed on the entity but on the
transaction, it may still be passed on
and, therefore, indirectly imposed on
the same entity -- a patent
circumvention of the law. That no
VAT shall be imposed directly upon
business establishments operating
within the ecozone under RA 7916
also means that no VAT may be
passed on and imposed indirectly.
Quando aliquid prohibetur ex directo
prohibetur et per obliquum. When
anything is prohibited directly, it is
also prohibited indirectly. Special
laws expressly grant preferential tax
treatment
to
business
establishments
registered
and

operating within an ecozone, which

by law is considered as a separate
customs
territory.
As
such,
respondent is exempt from all
internal revenue taxes, including the
VAT, and regulations pertaining
thereto. Thus, the petition is denied
and the decision of lower courts
affirmed.
Fort Bonifacio Devt Corp vs CIR
By: Irish Mombay
Administrative rule or regulation
cannot contravene the law on which
it is based. (Sec.4.105-1 of RR 7-95
is an administrative rule and
regulation implementing an existing
law Term used in Tanada v Tuvera)
Facts:
In the April 2, 2009 Decision, which
is what CIR wants to be reconsidered
in this case, the Court struck down
Section 4.105-1 of RR 7-95 for being
in conflict with the law. It held that
the CIR had no power to limit the
meaning and coverage of the term
"goods" in Section 105 of the Old
NIRC sans statutory authority or
basis and justification to make such
limitation. This it did when it
restricted the application of Section
105 in the case of real estate dealers
only to improvements on the real
property
belonging
to
their
beginning
inventory.
Issues:
1. WON CIR Revenue Regulations 795 validly repealed Section 105 as
19

amended
by
EO273.
2. WON CIR Revenue Regulations
#6-97
repealed
CIR
Revenue
Regulation
#7-95
Held:
1. NO, admin rule and reg less than
statutes
1. EO No. 273 [1987] contains first
VAT law. It amended several
provisions of the Internal Revenue
Code of 1986 (Old NIRC). In
anticipation of the probable burdens
of the shift to the VAT system it
allowed
newly
VAT-registered
persons to avail of a transitional
input tax credit as provided for in
Section105 of the Old NIRC. Section
105 as amended by EO 273.
Sec. 105. Transitional Input Tax
Credits. A person who becomes
liable to value-added tax or any
person who elects to be a VATregistered person shall, subject to
the filing of an inventory as
prescribed
by
regulations,
be
allowed input tax on his beginning
inventory of goods, materials and
supplies equivalent to 8% of the
value of such inventory or the actual
value-added tax paid on such goods,
materials and supplies, whichever is
higher, which shall be creditable
against
the
output
tax.
+ RA 7716 [1996] - amended Sec.
100 of Old NIRC by imposing for the
first time value-added-tax on sale of
real properties. The amendment
basically states that a 10% VAT shall
be
imposed
upon
goods
or
properties among others. It clarified
that the term goods and properties
shall
mean
all
tangible
and

intangible objects which are capable

of pecuniary estimation and shall
include: (A) Real properties held
primarily for sale to customers or
held for lease in the ordinary course
of
trade
or
business;
xxx
However, RA 7716 did not amend
the provisions of SEC 105 of the Old
NIRC, regarding transitional input tax
credit.
+ RA 8424 (1997) - National Internal
Revenue Code of 1997 (New NIRC)
however
amended
Sec.
105specifically by Sec. 111(A) of the
New NIRC The provisions on the
transitional input tax credit are now
embodied in Section 111(A) of the
New
NIRC,
which
reads:
Section
111.
Transitional/Presumptive Input Tax
Credits. (A) Transitional Input Tax
Credits.- A person who becomes
liable to value-added tax or any
person who elects to be a VATregistered person shall, subject to
the filing of an inventoryaccording to
rules and regulations prescribed by
the Secretary of finance, upon
recommendation
of
the
Commissioner, beallowed input tax
on his beginning inventory of goods,
materials and supplies equivalent for
8% of the value of suchinventory or
the actual value-added tax paid on
such goods, materials and supplies,
whichever is higher, which shall
becreditable against the output tax.
[Emphasis
SCs.]
Rule on statutory construction
sections of the law cannot be
interpreted apart from each other. All
of it must be considered in fixing the
meaning of any of its parts in order
to produce a harmonious whole.
Rule applied - statutory definition of
20

the term "goods or properties"

leaves no room for doubt. Sec.
100.Value-added tax on sale of
goods or properties. (a) Rate and
base of tax. xxx. (1) The term
goods or properties shall mean all
tangible and intangible objects which
are capable of pecuniary estimation
and shall include: (A) Real properties
held primarily for sale to customers
or held for lease in the ordinary
course of trade or business; xxx.
Sec 100 of the Old NIRC defined the
term "goods or properties" by the
unambiguous terms "real properties
held primarily for sale to costumers
or held for lease in the ordinary
course of business." The term
"goods" as used in Section 105 of
the same code could not have a
different meaning. This has been
explained in the prior Decision.
ADMINISTRATIVE RULE IN ISSUE:
RR No. 7-95 is an Administrative Rule
and Regulation based upon the
existing statutes Old and New NIRC.
Section 4.100-1 of which made by
the BIR which includes in its
enumeration of "goods or properties"
such "real properties held primarily
for sale to customers or held for
lease in the ordinary course of trade
or business." Said definition was
taken from the very statutory
language of Section 100 of the Old
NIRC.
Section 4.105-1 of RR no. 7-95
however limited this definition to
"improvements" - BIR thus not only
contravened
the
definition
of
"goods" as provided in the Old NIRC,
but also the definition which the
same revenue regulation itself has
provided
Section 4.105-1 of RR 7-95 restricted

the definition of "goods", viz:

However, in the case of real estate
dealers, the basis of the presumptive
input tax shall be the improvements,
such as buildings, roads, drainage
systems,
and
other
similar
structures, constructed on or after
the effectivity of EO 273 (January
1,1988).
Par 3, Art. 7 of NCC, states that an
administrative rule or regulation
cannot contravene the law on which
it is based. RR 7-95 is inconsistent
with Section 105 insofar as the
definition of the term "goods" is
concerned.
This is already a legislative act that
is beyond the authority of the CIR
and the Secretary of Finance more
so when the law which the
administrative rule is contravening is
also the law which it is based upon.
Admin rules should not be in
contradiction to, but in conformity
with, the standards prescribed by
law.
RULE:
In
order
to
be
valid,
an
administrative rule or regulation
must conform, not contradict, the
provisions of the enabling law. An
implementing rule or regulation
cannot modify, expand, or subtract
from the law it is intended to
implement. Any rule that is not
consistent with the statute itself is
null
and
void.
Thus, RR 7-95, insofar as it restricts
the definition of "goods" as basis of
transitional input tax credit under
Section
105
is
a
nullity.
2. YES, no repealing cause does not
mean alack of intent to repeal.
On January 1, 1997, RR 6-97 was
issued by the Commissioner of
21

Internal Revenue. RR 6-97 was

basically a reiteration of the same
Section 4.105-1 of RR 7-95, except
that the RR 6-97 deleted the
following
paragraph.
However, in the case of real estate
dealers, the basis of the presumptive
input tax shall be the improvements,
such as buildings, roads, drainage
systems,
and
other
similar
structures, constructed on or after
the effectivity of E.O. 273 (January
1,1988)
It is clear, therefore, that under RR
6-97, the allowable transitional input
tax credit is not limited to
improvements on real properties.
The particular provision of RR 7-95
has effectively been repealed by RR
6-97which is now in consonance with
Section 100 of the NIRC, insofar as
the definition of real properties as
goods
is
concerned.
The failure to add a specific
repealing
clause
would
not
necessarily indicate that there was
no intent to repeal RR 7-95. The fact
that the aforequoted paragraph was
deleted created an irreconcilable
inconsistency
and
repugnancy
between the provisions of RR 6-97
and RR 7-95

Then, on May 1999, Silicon filed with

the
CIR
an
application
for
credit/refund of unutilized input VAT
for the period of Oct. 1, 1998 to Dec
31, 1998.

Silicon Philippines vs. CIR

The CTA Division granted Silicons

claim for refund of unutilized input
VAT on capital goods. However, it
denied
Silicons
claim
for
credit/refund
of
input
VAT
attributable to its zero-rated export
sales. It is because Silicon failed to
present an Authority to Print (ATP)
from the BIR neither did it print on
its export sales invoices the ATP and
the word zero-rated.

By: Jonica Rei Napulan

Facts:
Silicon
Philippines,
Inc.
is
a
corporation duly organized and
existing under the laws of the
Philippines. It is registered with the
BIR as a VAT-taxpayer and with the
BOI
as
a
preferred
pioneer
enterprise.

Due to the inaction of the CIR,

Silicon, on Dec. 27, 2000, filed a
Petition for Review with the CTA
Division. Silicon alleged that the 4th
quarter of 1998, it generated and
recorded zero-rated export sales
paid to Silicon in acceptable foreign
currency and that fort he said period,
Silicon paid input VAR in the total
amount which have not been applied
to any output VAT.

The CIR, on the other hand, raised

the defenses that:
1)
Silicon did not show that it
complied with the provisions of Sec.
229 of the Tax Code
2)
That claims for refund are
construed
strictly
against
the
clamant similar to the nature of
exemption from taxes, and
3)
Silicon failed to prove that it is
entitled for refund

22

Silicon moved for reconsideration

claiming 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 form the BIR.
And the printing of the word zerorated on its export sales invoices is
not necessary because all its
finished products are exported to its
mother company, Intel Corp., a nonresident corporation and a non-VAT
registered entity.
ISSUE: W/N Silicon is entitled to
claim
refund
of
Input
VAT
attributable to its zero-rated sales.
HELD: NO.
There are two types of VAT credits:
1)
A credit/refund of input VAT
attributable to zero-rated sales
under Sec. 112 (A) of the NIRC; and
2)
A credit/refund of Input VAT on
capital goods pursuant to Sec.
112(B) of the same Code.
To claim for credit/refund of Input
VAT attributable to zero-rated sales,
Sec 112(A) laid down four requisites:
1)
the taxpayer must be VATregistered
2)
the taxpayer must be engaged
in sales which are zero-rated of
effectively zero-rated
3)
the claim must be filed within
two (2) years after the close of the
taxable quarter when such sales
were made; and
4)
the creditable input tax due or
paid must be attributable to such
sales, except the transitional input
tax, to the extent that such input tax
has not been applied against the
output tax.

Printing the ATP on the

invoices or receipts is not required.
In one case, the SC ruled that the
ATP need not be reflected or
indicated in the invoices or receipts
because there is no law or regulation
requiring it. Thus, 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.

Under Section 112(A) of the NIRC, a

claimant must be engaged in sales
which are zero-rated or effectively
zero-rated. To prove this, duly
registered
invoices
or
receipts
evidencing zero-rated sales must be
presented. However, since the ATP is
not indicated in the invoices or
receipts, the only way to verify
whether the invoices or receipts are
duly registered is by requiring the
claimant to present its ATP from the
BIR. Without this proof, the invoices
or receipts would have no probative
value for the purpose of refund. In
the case of Intel, we emphasized
that It is not specifically required
that the BIR authority to print be
reflected
or
indicated
therein.
Indeed, what is important with
respect to the BIR authority to print
is that it has been secured or
obtained by the taxpayer, and that
invoices or receipts are duly
registered.
W/N a claimant for unutilized
input VAT on zero-rated sales is
required to present proof that it
has secured an ATP from the BIR
prior to the printing of its
invoices or receipts.
23

YES. Since ATP is not indicated in the

invoices or receipts, the only way to
verify whether the invoices or
receipts are duly registered is by
requiring the claimant to present its
ATP from the
BIR. Without which, the invoices
would have no probative value for
the purpose of refund. Failure to
print the word zero-rated on the
sales invoices is fatal to a claim for
refund of input VAT.

In compliance with Sec. 4.108-1 of

RR 7-95, requiring the printing of the
word zero-rated on the invoice
covering zero-rate sales is essential
as this regulation proceeds from the
rulemaking
authority
of
the
Secretary of Finance under Sec. 244
of the NIRC

In this case, Silicon failed to present

its ATP and to print the word zerorated on its export sales invoices.

Thus, the claim for credit/refund of

input VAT attributable to its zerorated sales must be denied.

Whether or not the petitioner

can claim input VAT paid on
capital goods.

To claim a refund of input VAT on

capital goods, Section 112 (B) 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 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 goods or
properties with estimated useful life
greater that 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. Based on
this definition, the Supreme Court
affirmed the findings of the CTA that
training materials, office supplies,
posters, banners, T-shirts, books,
and the other similar items reflected
in
petitioners
Summary
of
Importation of Goods are not capital
goods.
The
reduction
in
the
refundable input VAT on capital
goods from
P15,170,082.00 to
P9,898,867.00 is proper.
G.R. NO. 187485 CIR V. SAN
ROQUE POWER CORPORATION
By: Kristiane Osorio
FACTS:
San Roque is a domestic corporation
with a principal office at Barangay
San Roque, San Manuel, Pangasinan.
It was incorporated to design,
construct, erect, assemble, own,
commission and operate powergenerating
plants
and
related
facilities pursuant to and under
contract with the Phil. Government.
San Roque is VAT Registered as a
seller of services. It is also registered
with the Board of Investments
24

("BOI") on a preferred pioneer status,

to
engage
in
the
design,
construction, erection, assembly, as
well as to own, commission, and
operate electric power-generating
plants and related activities.
In 1997, [San Roque] entered into a
Power Purchase Agreement ("PPA")
with NPC. The PPA provides that [San
Roque] shall be responsible for the
design, construction, installation,
completion,
testing
and
commissioning of the Power Station
and shall operate and maintain the
same, subject to NPC instructions.
During the cooperation period of
twenty-five (25) years commencing
from the completion date of the
Power Station, NPC will take and pay
for all electricity available from the
Power Station.
On
the
construction
and
development of the San Roque MultiPurpose, [San Roque] allegedly
incurred, excess input VAT which it
declared in its Quarterly VAT Returns
filed for the same year. [San Roque]
duly filed with the BIR separate
claims for refund, representing
unutilized input taxes as declared in
its VAT returns for taxable year 2001.
On March 28, 2003, [San Roque]
filed amended Quarterly VAT Returns
for the year 2001 since it increased
its
unutilized
input
VAT.
Consequently, [San Roque] filed with
the BIR a separate amended claims
for refund.
[CIRs] inaction on the subject claims
led to the filing of the Petition for
Review with the CTA-Division on April
10, 2003.

Trial of the case ensued and on July

20, 2005, the case was submitted for
decision.
CTA Divisions Ruling:
The CTA Second Division initially
denied San Roques claim on the
following grounds: lack of recorded
zero-rated or effectively zero-rated
sales; failure to submit documents
specifically identifying the purchased
goods/services
related
to
the
claimed input VAT which were
included in its Property, Plant and
Equipment account; and failure to
prove that the related construction
costs were capitalized in its books of
account
and
subjected
to
depreciation.
The CTA 2nd Division required San
Roque to show that it complied with
the
following
requirements
of
Section 112(B) of Republic Act No.
8424 (RA 8424)17 to be entitled to a
tax refund or credit of input VAT
attributable
to
capital
goods
imported or locally purchased: (1) it
is a VAT-registered entity; (2) its
input taxes claimed were paid on
capital goods duly supported by VAT
invoices and/or official receipts; (3) it
did not offset or apply the claimed
input VAT payments on capital goods
against any output VAT liability; and
(4) its claim for refund was filed
within the two-year prescriptive
period both in the administrative and
judicial levels.
The CTA Second Division found that
San Roque complied with the first,
third, and fourth requirements, thus:
The fact that [San Roque] is a VAT
registered entity is admitted (par. 4,
Facts Admitted, Joint Stipulation of
25

Facts, Records, p. 157). It was also

established that the instant claim of
560,200,823.14 is already net of
the 11,509.09 output tax declared
by [San Roque] in its amended VAT
return for the first quarter of 2001.
Moreover, the entire amount of
560,200,823.14 was deducted by
[San Roque] from the total available
input tax reflected in its amended
VAT returns for the last two quarters
of 2001 and first two quarters of
2002 (Exhibits M-6, O-6, OO-1 & QQ1). This means that the claimed
input taxes of 560,200,823.14 did
not form part of the excess input
taxes of 83,692,257.83, as of the
second quarter of 2002 that was to
be carried-over to the succeeding
quarters. Further, [San Roques]
claim for refund/tax credit certificate
of excess input VAT was filed within
the two-year prescriptive period
reckoned from the dates of filing of
the corresponding quarterly VAT
returns.
For the first, second, third, and
fourth quarters of 2001, [San Roque]
filed its VAT returns on April 25,
2001, July 25, 2001, October 23,
2001
and
January
24,
2002,
respectively (Exhibits "H, J, L, and
N").
These
returns
were
all
subsequently amended on March 28,
2003 (Exhibits "I, K, M, and O"). On
the other hand, [San Roque]
originally filed its separate claims for
refund on July 10, 2001, October 10,
2001, February 21, 2002, and May 9,
2002 for the first, second, third, and
fourth
quarters
of
2001,
respectively, (Exhibits "EE, FF, GG,
and HH") and subsequently filed
amended claims for all quarters on
March 28, 2003 (Exhibits "II, JJ, KK,

and LL"). Moreover, the Petition for

Review was filed on April 10, 2003.
Counting from the respective dates
when [San Roque] originally filed its
VAT returns for the first, second,
third and fourth quarters of 2001,
the administrative claims for refund
(original and amended) and the
Petition for Review fall within the
two-year prescriptive period.
San Roque filed a Motion for New
Trial and/or Reconsideration on 7
April 2006. In its 29 November 2007
Amended
Decision,19
the
CTA
Second Division found legal basis to
partially grant San Roques claim.
The CTA Second Division ordered the
Commissioner to refund or issue a
tax credit in favor of San Roque in
the amount of 483,797,599.65,
which
represents
San
Roques
unutilized input VAT on its purchases
of capital goods and services for the
taxable year 2001. The CTA based
the adjustment in the amount on the
findings of the independent certified
public accountant. The following
reasons were cited for the disallowed
claims:
erroneous
computation;
failure to ascertain whether the
related purchases are in the nature
of capital goods; and the purchases
pertain to capital goods. Moreover,
the reduction of claims was based on
the following: the difference between
San
Roques
claim
and
that
appearing on its books; the official
receipts covering the claimed input
VAT on purchases of local services
are not within the period of the
claim; and the amount of VAT cannot
be determined from the submitted
official receipts and invoices. The
CTA Second Division denied San
Roques claim for refund or tax credit
26

of
its
unutilized
input
VAT
attributable to its zero-rated or
effectively zero-rated sales because
San Roque had no record of such
sales for the four quarters of 2001.
The dispositive portion of the CTA
Second Divisions 29 November
2007 Amended Decision reads:
WHEREFORE, [San Roques] "Motion
for New Trial and/or Reconsideration"
is hereby PARTIALLY GRANTED and
this Courts Decision promulgated on
March 8, 2006 in the instant case is
hereby MODIFIED.
Accordingly, [the CIR] is hereby
ORDERED to REFUND or in the
alternative, to ISSUE A TAX CREDIT
CERTIFICATE in favor of [San Roque]
in the reduced amount of Four
Hundred Eighty Three Million Seven
Hundred Ninety Seven Thousand
Five Hundred Ninety Nine Pesos and
Sixty
Five
Centavos
(483,797,599.65)
representing
unutilized input VAT on purchases of
capital goods and services for the
taxable year 2001.
The Commissioner filed a Motion for
Partial
Reconsideration
on
20
December 2007. The CTA Second
Division issued a Resolution dated
11 July 2008 which denied the CIRs
motion for lack of merit.
The Court of
Ruling: En Banc

Tax

Appeals

The Commissioner filed a Petition for

Review before the CTA EB praying for
the denial of San Roques claim for
refund or tax credit in its entirety as
well as for the setting aside of the 29
November 2007 Amended Decision
and the 11 July 2008 Resolution in
CTA Case No. 6647.
The CTA EB dismissed the CIRs
petition for review and affirmed the
challenged decision and resolution.
The CTA EB cited Commissioner of
Internal Revenue v. Toledo Power,
Inc.21 and Revenue Memorandum
Circular No. 49-03,22 as its bases for
ruling that San Roques judicial claim
was not prematurely filed. The
pertinent portions of the Decision
state:
More importantly, the Court En Banc
has squarely and exhaustively ruled
on this issue in this wise:
It is true that Section 112(D) of the
abovementioned provision applies to
the present case. However, what the
petitioner failed to consider is
Section
112(A)
of
the
same
provision. The respondent is also
covered by the two (2) year
prescriptive
period.
We
have
repeatedly held that the claim for
refund with the BIR and the
subsequent appeal to the Court of
Tax Appeals must be filed within the
two-year period.

Accordingly, the Supreme Court held

in the case of Atlas Consolidated
Mining
and
Development
Corporation vs. Commissioner of
Internal Revenue that the two-year
prescriptive period for filing a claim
27

for input tax is reckoned from the

date of the filing of the quarterly VAT
return and payment of the tax due. If
the said period is about to expire but
the BIR has not yet acted on the
application for refund, the taxpayer
may interpose a petition for review
with this Court within the two year
period.
In the case of Gibbs vs. Collector, the
Supreme Court held that if, however,
the Collector (now Commissioner)
takes time in deciding the claim, and
the period of two years is about to
end, the suit or proceeding must be
started in the Court of Tax Appeals
before the end of the two-year
period without awaiting the decision
of the Collector.
Furthermore,
in
the
case
of
Commissioner of Customs and
Commissioner of Internal Revenue
vs. The Honorable Court of Tax
Appeals and Planters Products, Inc.,
the Supreme Court held that the
taxpayer need not wait indefinitely
for a decision or ruling which may or
may not be forthcoming and which
he has no legal right to expect. It is
disheartening enough to a taxpayer
to keep him waiting for an indefinite
period of time for a ruling or decision
of the Collector (now Commissioner)
of Internal Revenue on his claim for
refund. It would make matters more
exasperating for the taxpayer if we
were to close the doors of the courts
of justice for such a relief until after
the Collector (now Commissioner) of
Internal Revenue, would have, at his
personal convenience, given his go
signal.

has already acquired jurisdiction

over the claims and the Court is not
bound to wait indefinitely for no
reason
for
whatever
action
respondent (herein petitioner) may
take. At stake are claims for refund
and unlike disputed assessments, no
decision of respondent (herein
petitioner) is required before one can
go to this Court. (Emphasis supplied
and citations omitted)
Lastly, it is apparent from the
following provisions of Revenue
Memorandum Circular No. 49-03
dated August 18, 2003, that [the
CIR] knows that claims for VAT
refund or tax credit filed with the
Court [of Tax Appeals] can proceed
simultaneously with the ones filed
with the BIR and that taxpayers need
not wait for the lapse of the subject
120-day period, to wit:
In response to [the] request of
selected taxpayers for adoption of
procedures in handling refund cases
that are aligned to the statutory
requirements that refund cases
should be elevated to the Court of
Tax Appeals before the lapse of the
period prescribed by law, certain
provisions of RMC No. 42-2003 are
hereby amended and new provisions
are added thereto.
In
consonance
therewith,
the
following amendments are being
introduced to RMC No. 42-2003, to
wit:

I.) A-17 of Revenue Memorandum

Circular No. 42-2003 is hereby
revised to read as follows:

This Court ruled in several cases that

once the petition is filed, the Court
28

In cases where the taxpayer has

filed a "Petition for Review" with the
Court of Tax Appeals involving a
claim for refund/TCC that is pending
at the administrative agency (Bureau
of Internal Revenue or OSS-DOF), the
administrative agency and the tax
court may act on the case
separately. While the case is pending
in the tax court and at the same
time is still under process by the
administrative agency, the litigation
lawyer of the BIR, upon receipt of the
summons from the tax court, shall
request from the head of the
investigating/processing office for
the docket containing certified true
copies of all the documents pertinent
to the claim. The docket shall be
presented to the court as evidence
for the BIR in its defense on the tax
credit/refund case filed by the
taxpayer. In the meantime, the
investigating/processing office of the
administrative agency shall continue
processing the refund/TCC case until
such time that a final decision has
been reached by either the CTA or
the administrative agency.
If the CTA is able to release its
decision ahead of the evaluation of
the administrative agency, the latter
shall cease from processing the
claim. On the other hand, if the
administrative agency is able to
process the claim of the taxpayer
ahead of the CTA and the taxpayer is
amenable to the findings thereof, the
concerned taxpayer must file a
motion to withdraw the claim with
the CTA.
TAGANITO
MINING
CORPORATION VS CIR (2013)
By: Purita Monica Adriana Lima

G.R. No. 196113 is a petition for

review
assailing
the
Decision
promulgated on 8 December 2010 as
well as the Resolution promulgated
on 14 March 2011 by the CTA En
Banc. In its Decision, the CTA En
Banc reversed the 8 January 2010
Decision as well as the 7 April 2010
Resolution of the CTA Second
Division and granted the CIRs
petition for review in CTA Case No.
7574. The CTA En Banc dismissed,
for having been prematurely filed,
Taganito
Mining
Corporations
(Taganito)
judicial
claim
for
P8,365,664.38 tax refund or credit.
Facts:
Petitioner,
Taganito
Mining
Corporation, is a corporation duly
organized
and
existing
under
Philippine laws, organized for the
purpose of mining, etc. It is a VATregistered entity and likewise, is
registered
with the
Board of
Investments (BOI) as an exporter of
beneficiated nickel silicate and
chromite ores.
In the year 2005, Taganito reported
zero-rated
sales
amounting
to
P1,446,854,034.68; input VAT on its
domestic
purchases
and
importations of goods (other than
capital
goods)
and
services
amounting to P2,314,730.43; and
input VAT on its domestic purchases
and importations of capital goods
amounting to P6,050,933.95.
In 2006, filed with the CIR a letter
claiming a tax credit/refund of its
suppose input VAT amounting to 8
million for the period covering Jan
2004-Dec 2005. On the same date,
[Taganito]
likewise
filed
an
29

Application for Tax Credits/Refunds

for the period covering January 1,
2005 to December 31, 2005 for the
same amount.
On November 29, 2006, [Taganito]
sent again another letter dated
November 29, 2004 to [the CIR], to
correct the period of the above claim
for tax credit/refund in the said
amount of 8,365,664.38 as actually
referring to the period covering
January 1, 2005 to December 31,
2005.
As the statutory period within which
to file a claim for refund for said
input VAT is about to lapse without
action on the part of the [CIR],
[Taganito] filed the instant Petition
for Review on February 17, 2007.
The CIR interposes the following
defenses, among others:
xxxx

before the 120-day audit period shall

apply, and before the taxpayer
could avail of judicial remedies
as provided for in the law. Hence,
[Taganitos] failure to submit proof of
compliance with the above-stated
requirements warrants immediate
dismissal of the petition for review.
Xxxxx
9. In an action for refund/credit, the
burden of proof is on the taxpayer to
establish its right to refund, and
failure to sustain the burden is fatal
to the claim for refund/credit.
10. Claims for refund are construed
strictly against the claimant for the
same
partake
the
nature
of
exemption from taxation and as
such, they are looked upon with
disfavor.
Section 112. Refunds or Tax Credits
of Input Tax.

7. Proof of compliance with the

prescribed checklist of requirements
to be submitted involving claim for
VAT refund pursuant to Revenue
Memorandum
Order
No.
5398, otherwise there would be no
sufficient compliance with the
filing of administrative claim for
refund, the administrative claim
thereof being mere proforma,
which is a condition sine qua
non prior to the filing of judicial
claim in
accordance
with
the
provision of Section 229 of the 1997
Tax Code.

xxx

Further, Section 112 (D) of the Tax

Code,
as
amended,
requires
the submission
of
complete
documents in support of the
application filed with the BIR

In cases of full or partial denial for

tax refund or tax credit, or the failure
on the part of the Commissioner to
act on the application within the
period
prescribed
above,
the

xxx

xxx

(D) Period within which refund or Tax

Credit of Input Taxes shall be Made.
In proper cases, the Commissioner
shall grant a refund or issue the tax
credit certificate for creditable input
taxes within one hundred (120)
days
from
the
date
of
submission
of
complete
documents in support of the
application filed in accordance
with Subsections (A) and (B)
hereof.

30

taxpayer
affected
may, within
thirty (30) days from the receipt
of the decision denying the
claim or after the expiration of
the
one
hundred
twenty
dayperiod, appeal the decision
or the unacted claim with the
Court of Tax Appeals. (Emphasis
supplied.)
CTA
Division
partially
Taganitos claim.

granted

Upon appeal to the CTA En Banc, the

CTA EB granted the CIRs petition for
review and reversed and set aside
the
challenged
decision
and
resolution.
The CTA EB found that Taganito filed
its administrative claim on 14
November 2006, which was well
within the period prescribed under
Section 112(A) and (B) of the 1997
Tax Code. However, the CTA EB
found that Taganitos judicial claim
was prematurely filed. Taganito filed
its Petition for Review before the CTA
Second Division on 14 February
2007. The judicial claim was filed
after the lapse of only 92 days from
the filing of its administrative claim
before the CIR, in violation of the
120-day period prescribed in Section
112(D) of the 1997 Tax Code.
HELD:
National Internal Revenue Code;
value added tax; 120-day period
given by law to the Commissioner of
Internal Revenue to grant or deny
application for tax refund or credit
mandatory and jurisdictional. Failure
to comply with the 120-day waiting
period
violates
a
mandatory
provision of law. It violates the

doctrine
of
exhaustion
of
administrative remedies and renders
the petition premature and thus
without a cause of action, with the
effect that the Court of Tax Appeals
(CTA) does not acquire jurisdiction
over the taxpayers petition. The
charter of the CTA expressly
provides that its jurisdiction is to
review on appeal decisions of the
Commissioner of Internal Revenue
(CIR) in cases involving xxx refunds
of internal revenue taxes. When a
taxpayer prematurely files a judicial
claim for tax refund or credit with
the CTA without waiting for the
decision of the CIR, there is no
decision of the CIR to review and
thus the CTA as a court of special
jurisdiction has no jurisdiction over
the appeal. The charter of the CTA
also expressly provides that if the
CIR fails to decide within a specific
period required by law, such
inaction shall be deemed a denial of
the application for a tax refund or
credit. It is the CIRs decision or
inaction deemed a denial, that the
taxpayer can take to the CTA for
review. Without a decision or an
inaction xxx deemed a denial of
the CIR, the CTA has no jurisdiction
over a petition for review.
REVENUE
MEMORANDUM
CIRCULAR NO. 39-2007
By: Vanity Gail
Issued on June 13, 2007 clarifies the
Income Tax and Value-Added Tax
(VAT) treatment of agency fees/gross
receipts
of
security
agencies
including the withholding of taxes
due thereon. The issue that comes
into fore is whether or not the
security guards salaries, which form
31

part of the Contract Price of the

security services rendered by the
Security Agency, can be treated as
gross income of the Security Agency,
which will constitute as part of the
taxable gross receipts subject to
VAT,
whether
actually
or
constructively received. In view of
the clear language of the law and its
implementing regulations placing
the primary obligation on the Client
to pay the salaries of the security
guards coupled with the requirement
that the monies received by the
Security
Agency
representing
salaries shall be earmarked and
segregated for the said guards, the
amount
paid
by
the
Client
representing the salaries of the
security guards will not form part of
the Security Agencys gross income,
and neither will it form part of its
taxable gross receipts when actually
or constructively received. The
Security Agency must record as part
of its gross income the Agency Fee
portion of the payment, net of the
VAT thereon. Since the security
guards salaries are tacked in as part
of the service fees, the security
agency must always recognize that
portion of the fees as a LIABILITY. For
this purpose, the Contract for
Security Services entered into by
and between the security agency
and its Client must provide for a
breakdown of the amount of security
services into two components: (1)
the Agency Fee, and (2) the Security
Guards Salaries. If the Contract does
not provide for a breakdown of the
amount payable to the security
agency,
the
entire
amount
representing the Contract Price will
be taxed as income to the Agency,

which must form part of its gross

receipts,
whether
actually
or
constructively received. The Client
who is engaged in business can
claim as a deduction from gross
income the total amount paid to the
Security Agency, net of the VAT on
the Agency Fee. It is allowed to
recognize an input tax based on the
Agency Fee if the transaction is
covered by a VAT Official Receipt
issued by the Security Agency. It is
also required to withhold and remit
the Expanded Withholding Tax (EWT)
on the Agency Fee. The portion of
the expense pertaining to the
security guards salaries will be
covered
by
a
NonVAT
Acknowledgment Receipt issued by
the Security Agency. For VAT
purposes, the taxable gross receipts
of the Security Agency pertains to
the
amount
actually
or
constructively
received
by
it
constituting its gross income. Since
only the amount covering the
Agency Fee represents its gross
income, then that portion alone of
the Contract Price, when actually or
constructively
received,
will
constitute the Security Agencys
taxable gross receipts. This means
that the amount received by the
Security
Agency,
which
is
segregated, earmarked or set aside
for the salaries of the security
guards, will not form part of its gross
receipts but should be recognized as
a LIABILITY. Accordingly, the 12%
output tax will only be computed on
the Agency Fee which shall in turn
be the input tax of its Client. Only
the
portion
of
the
payment
representing the Agency Fee, if
covered by a VAT Official Receipt,
32

will entitle the VAT-registered Client

to a claim of input tax credit. This
means that the amount of output tax
paid by the Security Agency is the
amount of input tax available to the
Client. The Client cannot claim an
input tax on the salary portion of the
expense (Security Services) because
it pertains to services exempt from
VAT. Section 109(I) of the National
Internal Revenue Code (NIRC), as
amended, specifically exempts from
VAT services rendered by individuals
pursuant to an employer-employee
relationship. The services of the
security guards squarely fall under
this category of exempt transaction.
This is because, in substance, the
Client has the principal obligation to
bear the prescribed wage rates for
the security guards as mentioned,
and the Security Agency will be
jointly and severally liable therefore
only in the event of the Clients
failure to pay. Consonant with the
provisions of Section 113 of the
NIRC,
as
amended,
and
as
implemented by Section 4.113-1 of
Revenue Regulations (RR) No. 162005, the Security Agency shall
issue a VAT Official Receipt for every
sale, barter or exchange of services.
The VAT Official Receipt shall cover
the entire amount which the Client
pays to the Security Agency
representing the compens ation of
its services (Agency Fee) with the
indication that such amount received
includes the VAT. The VAT on the
Agency Fee must always be shown
as a separate item in the VAT Official
Receipt. The VAT shown on the VAT
Official Receipt will constitute the
output tax of the Security Agency
and in turn, the input tax of its

Client. With respect to the security

guards
salaries,
which
are
mandated by law to be paid by the
Client through the Security Agency,
the amount so paid representing
salaries must be covered by a NonVAT Acknowledgement Receipt. This
document,
coupled
with
the
notarized certification of the EWT
shall be a sufficient substantiation
for the expense that will be claimed
as a deduction from gross income by
the Client. As a general rule, all
income payments which are required
to be subjected to withholding of
income tax shall be subject to the
corresponding withholding tax rate
to be withheld by the person having
control over the payment and who,
at the same time, claims the
expenses. Insofar as the Agency
Fee is concerned, the Client is
constituted as the withholding agent
of the EWT following the rule
abovementioned.
However,
with
respect to the portion of the
Contract Price representing the
amount segregated and earmarked
as salaries of the security guards,
the Security Agency shall be the one
responsible for the withholding of
the tax on compensation income.
This is so because while it is the
Client who claims the payment as an
expense, it is the Security Agency
that physically controls the payment
to the salaries of the Security
guards. However, in order to comply
with
the
requirement
for
deductibility under Section 34(K), in
relation to Sections 58 and 81, all of
the NIRC, as amended, the Security
Agency must furnish its Client, on or
before January 31 of the year
following the year of withholding, a
33

Notarized Certification indicating the

names of the guards employed by
the
Client,
their
respective
Taxpayers Identification Numbers
(TINs), the amount of their salaries
and the amount of tax withheld from
each. This certification together with

the
covering
Non-VAT
Acknowledgment Receipt must be
kept on file by the Client as
substantiation for the claim of the
expense.

34