G.R. No.

146984

July 28, 2006

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
MAGSAYSAY LINES, INC., BALIWAG NAVIGATION, INC., FIM LIMITED OF THE MARDEN
GROUP (HK) and NATIONAL DEVELOPMENT COMPANY, respondents.
DECISION

NDC was a VAT-registered enterprise, and thus its "transactions incident to its normal VAT registered activity of
leasing out personal property including sale of its own assets that are movable, tangible objects which are
appropriable or transferable are subject to the 10% [VAT]."7
Private respondents moved for the reconsideration of VAT Ruling No. 568-88, as well as VAT Ruling No. 395-88
(dated 18 August 1988), which made a similar ruling on the sale of the same vessels in response to an inquiry
from the Chairman of the Senate Blue Ribbon Committee. Their motion was denied when the BIR issued VAT
Ruling Nos. 007-89 dated 24 February 1989, reiterating the earlier VAT rulings. At this point, NDC drew on the
Letter of Credit to pay for the VAT, and the amount of P15,120,000.00 in taxes was paid on 16 March 1989.

TINGA, J.:
On 10 April 1989, private respondents filed an Appeal and Petition for Refund with the CTA, followed by a
The issue in this present petition is whether the sale by the National Development Company (NDC) of five (5) of Supplemental Petition for Review on 14 July 1989. They prayed for the reversal of VAT Rulings No. 395-88, 568its vessels to the private respondents is subject to value-added tax (VAT) under the National Internal Revenue
88 and 007-89, as well as the refund of the VAT payment made amounting to P15,120,000.00.8 The
Code of 1986 (Tax Code) then prevailing at the time of the sale. The Court of Tax Appeals (CTA) and the Court Commissioner of Internal Revenue (CIR) opposed the petition, first arguing that private respondents were not the
of Appeals commonly ruled that the sale is not subject to VAT. We affirm, though on a more unequivocal rationalereal parties in interest as they were not the transferors or sellers as contemplated in Sections 99 and 100 of the
than that utilized by the rulings under review. The fact that the sale was not in the course of the trade or business then Tax Code. The CIR also squarely defended the VAT rulings holding the sale of the vessels liable for VAT,
of NDC is sufficient in itself to declare the sale as outside the coverage of VAT.
especially citing Section 3 of Revenue Regulation No. 5-87 (R.R. No. 5-87), which provided that "[VAT] is
imposed on any sale or transactions deemed sale of taxable goods (including capital goods, irrespective of the
The facts are culled primarily from the ruling of the CTA.
date of acquisition)." The CIR argued that the sale of the vessels were among those transactions "deemed sale," as
enumerated in Section 4 of R.R. No. 5-87. It seems that the CIR particularly emphasized Section 4(E)(i) of the
Pursuant to a government program of privatization, NDC decided to sell to private enterprise all of its shares in its Regulation, which classified "change of ownership of business" as a circumstance that gave rise to a transaction
wholly-owned subsidiary the National Marine Corporation (NMC). The NDC decided to sell in one lot its NMC "deemed sale."
shares and five (5) of its ships, which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels.1 The vessels
were constructed for the NDC between 1981 and 1984, then initially leased to Luzon Stevedoring Company, also In a Decision dated 27 April 1992, the CTA rejected the CIRs arguments and granted the petition.9 The CTA
its wholly-owned subsidiary. Subsequently, the vessels were transferred and leased, on a bareboat basis, to the
ruled that the sale of a vessel was an "isolated transaction," not done in the ordinary course of NDCs business,
NMC.2
and was thus not subject to VAT, which under Section 99 of the Tax Code, was applied only to sales in the course
of trade or business. The CTA further held that the sale of the vessels could not be "deemed sale," and thus subject
The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and conditions for to VAT, as the transaction did not fall under the enumeration of transactions deemed sale as listed either in Section
the public auction was that the winning bidder was to pay "a value added tax of 10% on the value of the
100(b) of the Tax Code, or Section 4 of R.R. No. 5-87. Finally, the CTA ruled that any case of doubt should be
vessels."3 On 3 June 1988, private respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the
resolved in favor of private respondents since Section 99 of the Tax Code which implemented VAT is not an
shares and the vessels for P168,000,000.00. The bid was made by Magsaysay Lines, purportedly for a new
exemption provision, but a classification provision which warranted the resolution of doubts in favor of the
company still to be formed composed of itself, Baliwag Navigation, Inc., and FIM Limited of the Marden Group taxpayer.
based in Hongkong (collectively, private respondents).4 The bid was approved by the Committee on
Privatization, and a Notice of Award dated 1 July 1988 was issued to Magsaysay Lines.
The CIR appealed the CTA Decision to the Court of Appeals,10 which on 11 March 1997, rendered a Decision
reversing the CTA.11 While the appellate court agreed that the sale was an isolated transaction, not made in the
On 28 September 1988, the implementing Contract of Sale was executed between NDC, on one hand, and
course of NDCs regular trade or business, it nonetheless found that the transaction fell within the classification of
Magsaysay Lines, Baliwag Navigation, and FIM Limited, on the other. Paragraph 11.02 of the contract stipulated those "deemed sale" under R.R. No. 5-87, since the sale of the vessels together with the NMC shares brought
that "[v]alue-added tax, if any, shall be for the account of the PURCHASER."5 Per arrangement, an irrevocable about a change of ownership in NMC. The Court of Appeals also applied the principle governing tax exemptions
confirmed Letter of Credit previously filed as bidders bond was accepted by NDC as security for the payment of that such should be strictly construed against the taxpayer, and liberally in favor of the government.12
VAT, if any. By this time, a formal request for a ruling on whether or not the sale of the vessels was subject to
VAT had already been filed with the Bureau of Internal Revenue (BIR) by the law firm of Sycip Salazar
However, the Court of Appeals reversed itself upon reconsidering the case, through a Resolution dated 5 February
Hernandez & Gatmaitan, presumably in behalf of private respondents. Thus, the parties agreed that should no
2001.13 This time, the appellate court ruled that the "change of ownership of business" as contemplated in R.R.
favorable ruling be received from the BIR, NDC was authorized to draw on the Letter of Credit upon written
No. 5-87 must be a consequence of the "retirement from or cessation of business" by the owner of the goods, as
demand the amount needed for the payment of the VAT on the stipulated due date, 20 December 1988.6
provided for in Section 100 of the Tax Code. The Court of Appeals also agreed with the CTA that the
classification of transactions "deemed sale" was a classification statute, and not an exemption statute, thus
In January of 1989, private respondents through counsel received VAT Ruling No. 568-88 dated 14 December
warranting the resolution of any doubt in favor of the taxpayer.14
1988 from the BIR, holding that the sale of the vessels was subject to the 10% VAT. The ruling cited the fact that

To the mind of the Court, the arguments raised in the present petition have already been adequately discussed and
refuted in the rulings assailed before us. Evidently, the petition should be denied. Yet the Court finds that Section The conclusion that the sale was not in the course of trade or business, which the CIR does not dispute before this
99 of the Tax Code is sufficient reason for upholding the refund of VAT payments, and the subsequent
Court,24 should have definitively settled the matter. Any sale, barter or exchange of goods or services not in the
disquisitions by the lower courts on the applicability of Section 100 of the Tax Code and Section 4 of R.R. No. 5- course of trade or business is not subject to VAT.
87 are ultimately irrelevant.
Section 100 of the Tax Code, which is implemented by Section 4(E)(i) of R.R. No. 5-87 now relied upon by the
A brief reiteration of the basic principles governing VAT is in order. VAT is ultimately a tax on consumption, even CIR, is captioned "Value-added tax on sale of goods," and it expressly states that "[t]here shall be levied, assessed
though it is assessed on many levels of transactions on the basis of a fixed percentage.15 It is the end user of
and collected on every sale, barter or exchange of goods, a value added tax x x x." Section 100 should be read in
consumer goods or services which ultimately shoulders the tax, as the liability therefrom is passed on to the end light of Section 99, which lays down the general rule on which persons are liable for VAT in the first place and on
users by the providers of these goods or services16 who in turn may credit their own VAT liability (or input VAT) what transaction if at all. It may even be noted that Section 99 is the very first provision in Title IV of the Tax
from the VAT payments they receive from the final consumer (or output VAT).17 The final purchase by the end Code, the Title that covers VAT in the law. Before any portion of Section 100, or the rest of the law for that
consumer represents the final link in a production chain that itself involves several transactions and several acts of matter, may be applied in order to subject a transaction to VAT, it must first be satisfied that the taxpayer and
consumption. The VAT system assures fiscal adequacy through the collection of taxes on every level of
transaction involved is liable for VAT in the first place under Section 99.
consumption,18 yet assuages the manufacturers or providers of goods and services by enabling them to pass on
their respective VAT liabilities to the next link of the chain until finally the end consumer shoulders the entire tax It would have been a different matter if Section 100 purported to define the phrase "in the course of trade or
liability.
business" as expressed in Section 99. If that were so, reference to Section 100 would have been necessary as a
means of ascertaining whether the sale of the vessels was "in the course of trade or business," and thus subject to
Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the
taxpayers role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its
VAT. But that is not the case. What Section 100 and Section 4(E)(i) of R.R. No. 5-87 elaborate on is not the
subsequent incarnations,19 the tax is levied only on the sale, barter or exchange of goods or services by persons meaning of "in the course of trade or business," but instead the identification of the transactions which may be
who engage in such activities, in the course of trade or business. These transactions outside the course of trade or deemed as sale. It would become necessary to ascertain whether under those two provisions the transaction may
business may invariably contribute to the production chain, but they do so only as a matter of accident or incident. be deemed a sale, only if it is settled that the transaction occurred in the course of trade or business in the first
As the sales of goods or services do not occur within the course of trade or business, the providers of such goods place. If the transaction transpired outside the course of trade or business, it would be irrelevant for the purpose of
or services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as against their determining VAT liability whether the transaction may be deemed sale, since it anyway is not subject to VAT.
own accumulated VAT collections since the accumulation of output VAT arises in the first place only through the
ordinary course of trade or business.
Accordingly, the Court rules that given the undisputed finding that the transaction in question was not made in the
course of trade or business of the seller, NDC that is, the sale is not subject to VAT pursuant to Section 99 of the
That the sale of the vessels was not in the ordinary course of trade or business of NDC was appreciated by both Tax Code, no matter how the said sale may hew to those transactions deemed sale as defined under Section 100.
the CTA and the Court of Appeals, the latter doing so even in its first decision which it eventually reconsidered.20
We cite with approval the CTAs explanation on this point:
In any event, even if Section 100 or Section 4 of R.R. No. 5-87 were to find application in this case, the Court
finds the discussions offered on this point by the CTA and the Court of Appeals (in its subsequent Resolution)
In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955 (97 Phil. 992), the term
essentially correct. Section 4 (E)(i) of R.R. No. 5-87 does classify as among the transactions deemed sale those
"carrying on business" does not mean the performance of a single disconnected act, but means conducting,
involving "change of ownership of business." However, Section 4(E) of R.R. No. 5-87, reflecting Section 100 of
prosecuting and continuing business by performing progressively all the acts normally incident thereof; while
the Tax Code, clarifies that such "change of ownership" is only an attending circumstance to "retirement from or
"doing business" conveys the idea of business being done, not from time to time, but all the time. [J. Aranas,
cessation of business[, ] with respect to all goods on hand [as] of the date of such retirement or cessation."25
UPDATED NATIONAL INTERNAL REVENUE CODE (WITH ANNOTATIONS), p. 608-9 (1988)]. "Course of Indeed, Section 4(E) of R.R. No. 5-87 expressly characterizes the "change of ownership of business" as only a
business" is what is usually done in the management of trade or business. [Idmi v. Weeks & Russel, 99 So. 761, "circumstance" that attends those transactions "deemed sale," which are otherwise stated in the same section.26
764, 135 Miss. 65, cited in Words & Phrases, Vol. 10, (1984)].
WHEREFORE, the petition is DENIED. No costs.
What is clear therefore, based on the aforecited jurisprudence, is that "course of business" or "doing business"
connotes regularity of activity. In the instant case, the sale was an isolated transaction. The sale which was
SO ORDERED.
involuntary and made pursuant to the declared policy of Government for privatization could no longer be
repeated or carried on with regularity. It should be emphasized that the normal VAT-registered activity of NDC is
leasing personal property.21
This finding is confirmed by the Revised Charter22 of the NDC which bears no indication that the NDC was
created for the primary purpose of selling real property.23

taxpayers role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its
subsequent incarnations, the tax is levied only on the sale, barter or exchange of goods or services by persons who
engage in such activities, in the course of trade or business. These transactions outside the course of trade or
business may invariably contribute to the production chain, but they do so only as a matter of accident or incident.
CIR vs. Magsaysay Lines GR No. 146984 dated July 28, 2006, CASE DIGEST
As the sales of goods or services do not occur within the course of trade or business, the providers of such goods
or services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as against their
Facts: Pursuant to a government program of privatization, The NDC decided to sell in one lot its NMC shares and own accumulated VAT collections since the accumulation of output VAT arises in the first place only through the
five (5) of its ships, which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels.The vessels were constructed ordinary course of trade or business.
for the NDC between 1981 and 1984, then initially leased to Luzon Stevedoring Company, also its wholly-owned
subsidiary. Subsequently, the vessels were transferred and leased, on a bareboat basis, to the NMC. The NMC
That the sale of the vessels was not in the ordinary course of trade or business of NDC was appreciated by both
shares and the vessels were offered for public bidding. Among the stipulated terms and conditions for the public the CTA and the Court of Appeals, the latter doing so even in its first decision which it eventually reconsidered.
auction was that the winning bidder was to pay "a value added tax of 10% on the value of the vessels." On 3 June We cite with approval the CTAs explanation on this point:
1988, private respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the shares and the vessels for
P168,000,000.00. The bid was made by Magsaysay Lines, purportedly for a new company still to be formed
In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955 (97 Phil. 992), the term
composed of itself and was approved by the Committee on Privatization, and a Notice of Award dated 1 July 1988 "carrying on business" does not mean the performance of a single disconnected act, but means conducting,
was issued to Magsaysay Lines who in turn was assessed of VAT through VAT Ruling No. 568-88 dated 14
prosecuting and continuing business by performing progressively all the acts normally incident thereof; while
December 1988 from the BIR, holding that the sale of the vessels was subject to the 10% VAT. The ruling cited "doing business" conveys the idea of business being done, not from time to time, but all the time."Course of
the fact that NDC was a VAT-registered enterprise, and thus its "transactions incident to its normal VAT registered business" is what is usually done in the management of trade or business
activity of leasing out personal property including sale of its own assets that are movable, tangible objects which
are appropriable or transferable are subject to the 10% [VAT].
Court explained that "course of business" or "doing business" connotes regularity of activity. In the instant case,
the sale was an isolated transaction. The sale which was involuntary and made pursuant to the declared policy of
CTA ruled that the sale of a vessel was an "isolated transaction," not done in the ordinary course of NDCs
Government for privatization could no longer be repeated or carried on with regularity. It should be emphasized
business, and was thus not subject to VAT, which under Section 99 of the Tax Code, was applied only to sales in that the normal VAT-registered activity of NDC is leasing personal property.
the course of trade or business. The CTA further held that the sale of the vessels could not be "deemed sale," and
thus subject to VAT, as the transaction did not fall under the enumeration of transactions deemed sale as listed
This finding is confirmed by the Revised Charter of the NDC which bears no indication that the NDC was created
either in Section 100(b) of the Tax Code, or Section 4 of R.R. No. 5-87. Finally, the CTA ruled that any case of for the primary purpose of selling real property. The conclusion that the sale was not in the course of trade or
doubt should be resolved in favor of private respondents since Section 99 of the Tax Code which implemented
business, which the CIR does not dispute before this Court, should have definitively settled the matter. Any sale,
VAT is not an exemption provision, but a classification provision which warranted the resolution of doubts in
barter or exchange of goods or services not in the course of trade or business is not subject to VAT. Accordingly,
favor of the taxpayer. Hence CIR appealed the CTA Decision.
the Court rules that given the undisputed finding that the transaction in question was not made in the course of
trade or business of the seller, NDC that is, the sale is not subject to VAT pursuant to Section 99 of the Tax Code,
Issue:Whether the sale by the National Development Company (NDC) of five (5) of its vessels to the private
no matter how the said sale may hew to those transactions deemed sale as defined under Section 100. Petition
respondents is subject to value-added tax (VAT) under the National Internal Revenue Code of 1986 (Tax Code) Denied.
then prevailing at the time of the sale. The facts are culled primarily from the ruling of the CTA.
Held: NOT SUBJECT TO VAT.
VAT is ultimately a tax on consumption, even though it is assessed on many levels of transactions on the basis of
a fixed percentage. It is the end user of consumer goods or services which ultimately shoulders the tax, as the
liability therefrom is passed on to the end users by the providers of these goods or services who in turn may credit
their own VAT liability (or input VAT) from the VAT payments they receive from the final consumer (or output
VAT). The final purchase by the end consumer represents the final link in a production chain that itself involves
several transactions and several acts of consumption. The VAT system assures fiscal adequacy through the
collection of taxes on every level of consumption, yet assuages the manufacturers or providers of goods and
services by enabling them to pass on their respective VAT liabilities to the next link of the chain until finally the
end consumer shoulders the entire tax liability.
Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the

Its motion for reconsideration having been denied, on January 5, 2007 petitioner Panasonic appealed the First
Divisions decision to the CTA en banc. On May 23, 2007 the CTA en banc upheld the First Divisions decision
and resolution and dismissed the petition. Panasonic filed a motion for reconsideration of the en banc decision but
this was denied. Thus, petitioner filed the present petition in accordance with R.A. 9282.5
The Issue Presented
G.R. No. 178090

February 8, 2010

PANASONIC COMMUNICATIONS IMAGING CORPORATION OF THE PHILIPPINES (formerly

MATSUSHITA BUSINESS MACHINE CORPORATION OF THE PHILIPPINES), Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

The sole issue presented in this case is whether or not the CTA en banc correctly denied petitioner Panasonics
claim for refund of the VAT it paid as a zero-rated taxpayer on the ground that its sales invoices did not state on
their faces that its sales were "zero-rated."
The Courts Ruling

DECISION

The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his
customers. Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT
ABAD, J.:
charged on its sales or outputs the VAT it paid on its purchases, inputs and imports.6 For example, when a seller
charges VAT on its sale, it issues an invoice to the buyer, indicating the amount of VAT he charged. For his part, if
This petition for review puts in issue the May 23, 2007 Decision1 of the Court of Tax Appeals (CTA) en banc in the buyer is also a seller subjected to the payment of VAT on his sales, he can use the invoice issued to him by his
CTA EB 239, entitled "Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of supplier to get a reduction of his own VAT liability. The difference in tax shown on invoices passed and invoices
Internal Revenue," which affirmed the denial of petitioners claim for refund.
received is the tax paid to the government. In case the tax on invoices received exceeds that on invoices passed, a
tax refund may be claimed.
The Facts and the Case
Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes7 equal to the input taxes8
Petitioner Panasonic Communications Imaging Corporation of the Philippines (Panasonic) produces and exports that his suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his input
plain paper copiers and their sub-assemblies, parts, and components. It is registered with the Board of
taxes that he has to pay the excess to the BIR. If the input taxes exceed the output taxes, however, the excess
Investments as a preferred pioneer enterprise under the Omnibus Investments Code of 1987. It is also a registered payment shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated
value-added tax (VAT) enterprise.
or effectively zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes
shall instead be refunded to the taxpayer.9
From April 1 to September 30, 1998 and from October 1, 1998 to March 31, 1999, petitioner Panasonic generated
export sales amounting to US$12,819,475.15 and US$11,859,489.78, respectively, for a total of
Zero-rated transactions generally refer to the export sale of goods and services. The tax rate in this case is set at
US$24,678,964.93. Believing that these export sales were zero-rated for VAT under Section 106(A)(2)(a)(1) of zero. When applied to the tax base or the selling price of the goods or services sold, such zero rate results in no
the 1997 National Internal Revenue Code as amended by Republic Act (R.A.) 8424 (1997 NIRC),2 Panasonic
tax chargeable against the foreign buyer or customer. But, although the seller in such transactions charges no
paid input VAT of P4,980,254.26 and P4,388,228.14 for the two periods or a total of P9,368,482.40 attributable to output tax, he can claim a refund of the VAT that his suppliers charged him. The seller thus enjoys automatic zero
its zero-rated sales.
rating, which allows him to recover the input taxes he paid relating to the export sales, making him internationally
competitive.10
Claiming that the input VAT it paid remained unutilized or unapplied, on March 12, 1999 and July 20, 1999
petitioner Panasonic filed with the Bureau of Internal Revenue (BIR) two separate applications for refund or tax For the effective zero rating of such transactions, however, the taxpayer has to be VAT-registered and must
credit of what it paid. When the BIR did not act on the same, Panasonic filed on December 16, 1999 a petition for comply with invoicing requirements.11 Interpreting these requirements, respondent CIR ruled that under Revenue
review with the CTA, averring the inaction of the respondent Commissioner of Internal Revenue (CIR) on its
Memorandum Circular (RMC) 42-2003, the taxpayers failure to comply with invoicing requirements will result
applications.
in the disallowance of his claim for refund. RMC 42-2003 provides:
After trial or on August 22, 2006 the CTAs First Division rendered judgment,3 denying the petition for lack of A-13. Failure by the supplier to comply with the invoicing requirements on the documents supporting the sale of
merit. The First Division said that, while petitioner Panasonics export sales were subject to 0% VAT under
goods and services will result to the disallowance of the claim for input tax by the purchaser-claimant.1avvphi1
Section 106(A)(2)(a)(1) of the 1997 NIRC, the same did not qualify for zero-rating because the word "zero-rated"
was not printed on Panasonics export invoices. This omission, said the First Division, violates the invoicing
If the claim for refund/TCC is based on the existence of zero-rated sales by the taxpayer but it fails to comply
requirements of Section 4.108-1 of Revenue Regulations (RR) 7-95.4
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,
misplaced. Quite the contrary, it strengthens the position taken by respondent CIR. In that case, the CIR denied
this treatment is without prejudice to the right of the taxpayer to charge the input taxes to the appropriate expense the claim for tax refund on the ground of the taxpayers failure to indicate on its invoices the "BIR authority to
account or asset account subject to depreciation, whichever is applicable. Moreover, the case shall be referred by print." But Sec. 4.108-1 required only the following to be reflected on the invoice:
the processing office to the concerned BIR office for verification of other tax liabilities of the taxpayer.
1. The name, taxpayers identification number (TIN) and address of seller;
Petitioner Panasonic points out, however, that in requiring the printing on its sales invoices of the word "zerorated," the Secretary of Finance unduly expanded, amended, and modified by a mere regulation (Section 4.108-1 2. Date of transaction;
of RR 7-95) the letter and spirit of Sections 113 and 237 of the 1997 NIRC, prior to their amendment by R.A.
9337.12 Panasonic argues that the 1997 NIRC, which applied to its paymentsspecifically Sections 113 and 237 3. Quantity, unit cost and description of merchandise or nature of service;
required the VAT-registered taxpayers receipts or invoices to indicate only the following information:
4. The name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client;
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN);
5. The word "zero-rated" imprinted on the invoice covering zero-rated sales; and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such
amount includes the value-added tax;
6. The invoice value or consideration.
(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; This Court held that, since the "BIR authority to print" is not one of the items required to be indicated on the
and
invoices or receipts, the BIR erred in denying the claim for refund. Here, however, the ground for denial of
petitioner Panasonics claim for tax refundthe absence of the word "zero-rated" on its invoicesis one which is
(4) The name, business style, if any, address and taxpayers identification number (TIN) of the purchaser,
specifically and precisely included in the above enumeration. Consequently, the BIR correctly denied Panasonics
customer or client.
claim for tax refund.
Petitioner Panasonic points out that Sections 113 and 237 did not require the inclusion of the word "zero-rated"
for zero-rated sales covered by its receipts or invoices. The BIR incorporated this requirement only after the
enactment of R.A. 9337 on November 1, 2005, a law that did not yet exist at the time it issued its invoices.

This Court will not set aside lightly the conclusions reached by the CTA which, by the very nature of its
functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise
on the subject, unless there has been an abuse or improvident exercise of authority.17 Besides, statutes that grant
tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority.
But when petitioner Panasonic made the export sales subject of this case, i.e., from April 1998 to March 1999, the Tax refunds in relation to the VAT are in the nature of such exemptions. The general rule is that claimants of tax
rule that applied was Section 4.108-1 of RR 7-95, otherwise known as the Consolidated Value-Added Tax
refunds bear the burden of proving the factual basis of their claims. Taxes are the lifeblood of the nation.
Regulations, which the Secretary of Finance issued on December 9, 1995 and took effect on January 1, 1996. It Therefore, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the
already required the printing of the word "zero-rated" on the invoices covering zero-rated sales. When R.A. 9337 government.18
amended the 1997 NIRC on November 1, 2005, it made this particular revenue regulation a part of the tax code.
This conversion from regulation to law did not diminish the binding force of such regulation with respect to acts WHEREFORE, the petition is DENIED for lack of merit.
committed prior to the enactment of that law.
Costs against petitioner.
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
SO ORDERED.
course its amendments.13 The requirement is reasonable and is in accord with the efficient collection of VAT
from the covered sales of goods and services. As aptly explained by the 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.14
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.15 Unable to submit the proper invoices, petitioner Panasonic has
been unable to substantiate its claim for refund.
Petitioner Panasonics citation of Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue16 is

2. [Petitioner] is sued in his official capacity, having been duly appointed and empowered to perform the duties of
his office, including, among others, the duty to act and approve claims for refund or tax credit;
3. [Respondent] is registered with the Philippine Export Zone Authority (PEZA) and has been issued PEZA
Certificate No. 97-044 pursuant to Presidential Decree No. 66, as amended, to engage in the manufacture of
recording components primarily used in computers for export. Such registration was made on 6 June 1997;
4. [Respondent] is VAT [(Value Added Tax)]-registered entity as evidenced by VAT Registration Certification No.
97-083-000600-V issued on 2 April 1997;
G.R. No. 153866

February 11, 2005

5. VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by [respondent];

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
SEAGATE TECHNOLOGY (PHILIPPINES), respondent.

6. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting
documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review), was filed on 4
October 1999 with Revenue District Office No. 83, Talisay Cebu;

DECISION

7. No final action has been received by [respondent] from [petitioner] on [respondents] claim for VAT refund.

PANGANIBAN, J.:

"The administrative claim for refund by the [respondent] on October 4, 1999 was not acted upon by the
[petitioner] prompting the [respondent] to elevate the case to [the CTA] on July 21, 2000 by way of Petition for
Review in order to toll the running of the two-year prescriptive period.

Business companies registered in and operating from the Special Economic Zone in Naga, Cebu -- like herein
respondent -- are entities exempt from all internal revenue taxes and the implementing rules relevant thereto,
including the value-added taxes or VAT. Although export sales are not deemed exempt transactions, they are
"For his part, [petitioner] x x x raised the following Special and Affirmative Defenses, to wit:
nonetheless zero-rated. Hence, in the present case, the distinction between exempt entities and exempt
transactions has little significance, because the net result is that the taxpayer is not liable for the VAT. Respondent, 1. [Respondents] alleged claim for tax refund/credit is subject to administrative routinary
a VAT-registered enterprise, has complied with all requisites for claiming a tax refund of or credit for the input
investigation/examination by [petitioners] Bureau;
VAT it paid on capital goods it purchased. Thus, the Court of Tax Appeals and the Court of Appeals did not err in
ruling that it is entitled to such refund or credit.
2. Since taxes are presumed to have been collected in accordance with laws and regulations, the [respondent]
has the burden of proof that the taxes sought to be refunded were erroneously or illegally collected x x x;
The Case
3. In Citibank, N.A. vs. Court of Appeals, 280 SCRA 459 (1997), the Supreme Court ruled that:
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the May 27, 2002
Decision2 of the Court of Appeals (CA) in CA-GR SP No. 66093. The decretal portion of the Decision reads as "A claimant has the burden of proof to establish the factual basis of his or her claim for tax credit/refund."
follows:
4. Claims for tax refund/tax credit are construed in strictissimi juris against the taxpayer. This is due to the fact
"WHEREFORE, foregoing premises considered, the petition for review is DENIED for lack of merit."3
that claims for refund/credit [partake of] the nature of an exemption from tax. Thus, it is incumbent upon the
[respondent] to prove that it is indeed entitled to the refund/credit sought. Failure on the part of the [respondent]
The Facts
to prove the same is fatal to its claim for tax credit. He who claims exemption must be able to justify his claim by
the clearest grant of organic or statutory law. An exemption from the common burden cannot be permitted to exist
The CA quoted the facts narrated by the Court of Tax Appeals (CTA), as follows:
upon vague implications;
"As jointly stipulated by the parties, the pertinent facts x x x involved in this case are as follows:

5. Granting, without admitting, that [respondent] is a Philippine Economic Zone Authority (PEZA) registered
Ecozone Enterprise, then its business is not subject to VAT pursuant to Section 24 of Republic Act No. ([RA])
1. [Respondent] is a resident foreign corporation duly registered with the Securities and Exchange Commission to 7916 in relation to Section 103 of the Tax Code, as amended. As [respondents] business is not subject to VAT, the
do business in the Philippines, with principal office address at the new Cebu Township One, Special Economic capital goods and services it alleged to have purchased are considered not used in VAT taxable business. As such,
Zone, Barangay Cantao-an, Naga, Cebu;
[respondent] is not entitled to refund of input taxes on such capital goods pursuant to Section 4.106.1 of Revenue
Regulations No. ([RR])7-95, and of input taxes on services pursuant to Section 4.103 of said regulations.

Preferential Tax Treatment Under Special Laws

6. [Respondent] must show compliance with the provisions of Section 204 (C) and 229 of the 1997 Tax Code on
filing of a written claim for refund within two (2) years from the date of payment of tax.
If it avails itself of PD 66, notwithstanding the provisions of other laws to the contrary, respondent shall not be
subject to internal revenue laws and regulations for raw materials, supplies, articles, equipment, machineries,
"On July 19, 2001, the Tax Court rendered a decision granting the claim for refund."4
spare parts and wares, except those prohibited by law, brought into the zone to be stored, broken up, repacked,
assembled, installed, sorted, cleaned, graded or otherwise processed, manipulated, manufactured, mixed or used
Ruling of the Court of Appeals
directly or indirectly in such activities.13 Even so, respondent would enjoy a net-operating loss carry over;
accelerated depreciation; foreign exchange and financial assistance; and exemption from export taxes, local taxes
The CA affirmed the Decision of the CTA granting the claim for refund or issuance of a tax credit certificate
and licenses.14
(TCC) in favor of respondent in the reduced amount of P12,122,922.66. This sum represented the unutilized but
substantiated input VAT paid on capital goods purchased for the period covering April 1, 1998 to June 30, 1999. Comparatively, the same exemption from internal revenue laws and regulations applies if EO 22615 is chosen.
Under this law, respondent shall further be entitled to an income tax holiday; additional deduction for labor
The appellate court reasoned that respondent had availed itself only of the fiscal incentives under Executive Order expense; simplification of customs procedure; unrestricted use of consigned equipment; access to a bonded
No. (EO) 226 (otherwise known as the Omnibus Investment Code of 1987), not of those under both Presidential manufacturing warehouse system; privileges for foreign nationals employed; tax credits on domestic capital
Decree No. (PD) 66, as amended, and Section 24 of RA 7916. Respondent was, therefore, considered exempt
equipment, as well as for taxes and duties on raw materials; and exemption from contractors taxes, wharfage
only from the payment of income tax when it opted for the income tax holiday in lieu of the 5 percent preferential dues, taxes and duties on imported capital equipment and spare parts, export taxes, duties, imposts and fees,16
tax on gross income earned. As a VAT-registered entity, though, it was still subject to the payment of other
local taxes and licenses, and real property taxes.17
national internal revenue taxes, like the VAT.
A privilege available to respondent under the provision in RA 7227 on tax and duty-free importation of raw
Moreover, the CA held that neither Section 109 of the Tax Code nor Sections 4.106-1 and 4.103-1 of RR 7-95
materials, capital and equipment18 -- is, ipso facto, also accorded to the zone19 under RA 7916. Furthermore, the
were applicable. Having paid the input VAT on the capital goods it purchased, respondent correctly filed the
latter law -- notwithstanding other existing laws, rules and regulations to the contrary -- extends20 to that zone the
administrative and judicial claims for its refund within the two-year prescriptive period. Such payments were -- to provision stating that no local or national taxes shall be imposed therein.21 No exchange control policy shall be
the extent of the refundable value -- duly supported by VAT invoices or official receipts, and were not yet offset applied; and free markets for foreign exchange, gold, securities and future shall be allowed and maintained.22
against any output VAT liability.
Banking and finance shall also be liberalized under minimum Bangko Sentral regulation with the establishment of
foreign currency depository units of local commercial banks and offshore banking units of foreign banks.23
Hence this Petition.5
In the same vein, respondent benefits under RA 7844 from negotiable tax credits24 for locally-produced materials
Sole Issue
used as inputs. Aside from the other incentives possibly already granted to it by the Board of Investments, it also
enjoys preferential credit facilities25 and exemption from PD 1853.26
Petitioner submits this sole issue for our consideration:
From the above-cited laws, it is immediately clear that petitioner enjoys preferential tax treatment.27 It is not
"Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate in the amount of
subject to internal revenue laws and regulations and is even entitled to tax credits. The VAT on capital goods is an
P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the period April 1, internal revenue tax from which petitioner as an entity is exempt. Although the transactions involving such tax are
1998 to June 30, 1999."6
not exempt, petitioner as a VAT-registered person,28 however, is entitled to their credits.
The Courts Ruling

Nature of the VAT and the Tax Credit Method

The Petition is unmeritorious.

Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent levied on every
importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange
or lease of goods or properties or on each rendition of services in the course of trade or business29 as they pass
along the production and distribution chain, the tax being limited only to the value added30 to such goods,
properties or services by the seller, transferor or lessor.31 It is an indirect tax that may be shifted or passed on to
the buyer, transferee or lessee of the goods, properties or services.32 As such, it should be understood not in the
context of the person or entity that is primarily, directly and legally liable for its payment, but in terms of its
nature as a tax on consumption.33 In either case, though, the same conclusion is arrived at.

Sole Issue:
Entitlement of a VAT-Registered PEZA Enterprise to a Refund of or Credit for Input VAT
No doubt, as a PEZA-registered enterprise within a special economic zone,7 respondent is entitled to the fiscal
incentives and benefits8 provided for in either PD 669 or EO 226.10 It shall, moreover, enjoy all privileges,
benefits, advantages or exemptions under both Republic Act Nos. (RA) 722711 and 7844.12

The law34 that originally imposed the VAT in the country, as well as the subsequent amendments of that law, has

been drawn from the tax credit method.35 Such method adopted the mechanics and self-enforcement features of
the VAT as first implemented and practiced in Europe and subsequently adopted in New Zealand and Canada.36 An exempt transaction, on the one hand, involves goods or services which, by their nature, are specifically listed
Under the present method that relies on invoices, an entity can credit against or subtract from the VAT charged on in and expressly exempted from the VAT under the Tax Code, without regard to the tax status -- VAT-exempt or
its sales or outputs the VAT paid on its purchases, inputs and imports.37
not -- of the party to the transaction.60 Indeed, such transaction is not subject to the VAT, but the seller is not
allowed any tax refund of or credit for any input taxes paid.
If at the end of a taxable quarter the output taxes38 charged by a seller39 are equal to the input taxes40 passed on
by the suppliers, no payment is required. It is when the output taxes exceed the input taxes that the excess has to An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a special
be paid.41 If, however, the input taxes exceed the output taxes, the excess shall be carried over to the succeeding law or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable
quarter or quarters.42 Should the input taxes result from zero-rated or effectively zero-rated transactions or from transactions become exempt from the VAT.61 Such party is also not subject to the VAT, but may be allowed a tax
the acquisition of capital goods,43 any excess over the output taxes shall instead be refunded44 to the taxpayer or refund of or credit for input taxes paid, depending on its registration as a VAT or non-VAT taxpayer.
credited45 against other internal revenue taxes.46
As mentioned earlier, the VAT is a tax on consumption, the amount of which may be shifted or passed on by the
Zero-Rated and Effectively Zero-Rated Transactions
seller to the purchaser of the goods, properties or services.62 While the liability is imposed on one person, the
burden may be passed on to another. Therefore, if a special law merely exempts a party as a seller from its direct
Although both are taxable and similar in effect, zero-rated transactions differ from effectively zero-rated
liability for payment of the VAT, but does not relieve the same party as a purchaser from its indirect burden of the
transactions as to their source.
VAT shifted to it by its VAT-registered suppliers, the purchase transaction is not exempt. Applying this principle to
the case at bar, the purchase transactions entered into by respondent are not VAT-exempt.
Zero-rated transactions generally refer to the export sale of goods and supply of services.47 The tax rate is set at
zero.48 When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The Special laws may certainly exempt transactions from the VAT.63 However, the Tax Code provides that those
seller of such transactions charges no output tax,49 but can claim a refund of or a tax credit certificate for the VAT falling under PD 66 are not. PD 66 is the precursor of RA 7916 -- the special law under which respondent was
previously charged by suppliers.
registered. The purchase transactions it entered into are, therefore, not VAT-exempt. These are subject to the VAT;
respondent is required to register.
Effectively zero-rated transactions, however, refer to the sale of goods50 or supply of services51 to persons or
entities whose exemption under special laws or international agreements to which the Philippines is a signatory Its sales transactions, however, will either be zero-rated or taxed at the standard rate of 10 percent,64 depending
effectively subjects such transactions to a zero rate.52 Again, as applied to the tax base, such rate does not yield again on the application of the destination principle.65
any tax chargeable against the purchaser. The seller who charges zero output tax on such transactions can also
claim a refund of or a tax credit certificate for the VAT previously charged by suppliers.
If respondent enters into such sales transactions with a purchaser -- usually in a foreign country -- for use or
consumption outside the Philippines, these shall be subject to 0 percent.66 If entered into with a purchaser for use
Zero Rating and Exemption
or consumption in the Philippines, then these shall be subject to 10 percent,67 unless the purchaser is exempt
from the indirect burden of the VAT, in which case it shall also be zero-rated.
In terms of the VAT computation, zero rating and exemption are the same, but the extent of relief that results from
either one of them is not.
Since the purchases of respondent are not exempt from the VAT, the rate to be applied is zero. Its exemption
under both PD 66 and RA 7916 effectively subjects such transactions to a zero rate,68 because the ecozone within
Applying the destination principle53 to the exportation of goods, automatic zero rating54 is primarily intended to which it is registered is managed and operated by the PEZA as a separate customs territory.69 This means that in
be enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally
such zone is created the legal fiction of foreign territory.70 Under the cross-border principle71 of the VAT system
competitive by allowing the refund or credit of input taxes that are attributable to export sales.55 Effective zero being enforced by the Bureau of Internal Revenue (BIR),72 no VAT shall be imposed to form part of the cost of
rating, on the contrary, is intended to benefit the purchaser who, not being directly and legally liable for the
goods destined for consumption outside of the territorial border of the taxing authority. If exports of goods and
payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers.
services from the Philippines to a foreign country are free of the VAT,73 then the same rule holds for such exports
from the national territory -- except specifically declared areas -- to an ecozone.
In both instances of zero rating, there is total relief for the purchaser from the burden of the tax.56 But in an
exemption there is only partial relief,57 because the purchaser is not allowed any tax refund of or credit for input Sales made by a VAT-registered person in the customs territory to a PEZA-registered entity are considered exports
taxes paid.58
to a foreign country; conversely, sales by a PEZA-registered entity to a VAT-registered person in the customs
territory are deemed imports from a foreign country.74 An ecozone -- indubitably a geographical territory of the
Exempt Transaction >and Exempt Party
Philippines -- is, however, regarded in law as foreign soil.75 This legal fiction is necessary to give meaningful
effect to the policies of the special law creating the zone.76 If respondent is located in an export processing
The object of exemption from the VAT may either be the transaction itself or any of the parties to the
zone77 within that ecozone, sales to the export processing zone, even without being actually exported, shall in
transaction.59
fact be viewed as constructively exported under EO 226.78 Considered as export sales,79 such purchase

transactions by respondent would indeed be subject to a zero rate.80

equipment;92 and on foreign and domestic merchandise, raw materials, equipment and the like -- except those
prohibited by law -- brought into the zone for manufacturing.93 In addition, they are given credits for the value of
Tax Exemptions Broad and Express
the national internal revenue taxes imposed on domestic capital equipment also reasonably needed and
exclusively used for the manufacture of their products,94 as well as for the value of such taxes imposed on
Applying the special laws we have earlier discussed, respondent as an entity is exempt from internal revenue laws domestic raw materials and supplies that are used in the manufacture of their export products and that form part
and regulations.
thereof.95
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. Ubi lex non distinguit, nec nos
distinguere debemus. Where the law does not distinguish, we ought not to distinguish.
Moreover, the exemption is both express and pervasive for the following reasons:

Sixth, the exemption from local and national taxes granted under RA 722796 are ipso facto accorded to
ecozones.97 In case of doubt, conflicts with respect to such tax exemption privilege shall be resolved in favor of
the ecozone.98
And seventh, the tax credits under RA 7844 -- given for imported raw materials primarily used in the production
of export goods,99 and for locally produced raw materials, capital equipment and spare parts used by exporters of
non-traditional products100 -- shall also be continuously enjoyed by similar exporters within the ecozone.101
Indeed, the latter exporters are likewise entitled to such tax exemptions and credits.

First, RA 7916 states that "no taxes, local and national, shall be imposed on business establishments operating
within the ecozone."81 Since this law does not exclude the VAT from the prohibition, it is deemed included.
Tax Refund as Tax Exemption
Exceptio firmat regulam in casibus non exceptis. An exception confirms the rule in cases not excepted; that is, a
thing not being excepted must be regarded as coming within the purview of the general rule.
To be sure, statutes that grant tax exemptions are construed strictissimi juris102 against the taxpayer103 and
liberally in favor of the taxing authority.104
Moreover, 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
Tax refunds are in the nature of such exemptions.105 Accordingly, the claimants of those refunds bear the burden
imposed directly upon business establishments operating within the ecozone under RA 7916 also means that no of proving the factual basis of their claims;106 and of showing, by words too plain to be mistaken, that the
VAT may be passed on and imposed indirectly. Quando aliquid prohibetur ex directo prohibetur et per obliquum. legislature intended to exempt them.107 In the present case, all the cited legal provisions are teeming with life
When anything is prohibited directly, it is also prohibited indirectly.
with respect to the grant of tax exemptions too vivid to pass unnoticed. In addition, respondent easily meets the
challenge.
Second, when RA 8748 was enacted to amend RA 7916, the same prohibition applied, except for real property
taxes that presently are imposed on land owned by developers.82 This similar and repeated prohibition is an
Respondent, which as an entity is exempt, is different from its transactions which are not exempt. The end result,
unambiguous ratification of the laws intent in not imposing local or national taxes on business enterprises within however, is that it is not subject to the VAT. The non-taxability of transactions that are otherwise taxable is merely
the ecozone.
a necessary incident to the tax exemption conferred by law upon it as an entity, not upon the transactions
themselves.108 Nonetheless, its exemption as an entity and the non-exemption of its transactions lead to the same
Third, foreign and domestic merchandise, raw materials, equipment and the like "shall not be subject to x x x
result for the following considerations:
internal revenue laws and regulations" under PD 6683 -- the original charter of PEZA (then EPZA) that was later
amended by RA 7916.84 No provisions in the latter law modify such exemption.
First, the contemporaneous construction of our tax laws by BIR authorities who are called upon to execute or
administer such laws109 will have to be adopted. Their prior tax issuances have held inconsistent positions
Although this exemption puts the government at an initial disadvantage, the reduced tax collection ultimately
brought about by their probable failure to comprehend and fully appreciate the nature of the VAT as a tax on
redounds to the benefit of the national economy by enticing more business investments and creating more
consumption and the application of the destination principle.110 Revenue Memorandum Circular No. (RMC) 74employment opportunities.85
99, however, now clearly and correctly provides that any VAT-registered suppliers sale of goods, property or
services from the customs territory to any registered enterprise operating in the ecozone -- regardless of the class
Fourth, even the rules implementing the PEZA law clearly reiterate that merchandise -- except those prohibited by or type of the latters PEZA registration -- is legally entitled to a zero rate.111
law -- "shall not be subject to x x x internal revenue laws and regulations x x x"86 if brought to the ecozones
restricted area87 for manufacturing by registered export enterprises,88 of which respondent is one. These rules Second, the policies of the law should prevail. Ratio legis est anima. The reason for the law is its very soul.
also apply to all enterprises registered with the EPZA prior to the effectivity of such rules.89
In PD 66, the urgent creation of the EPZA which preceded the PEZA, as well as the establishment of export
Fifth, export processing zone enterprises registered90 with the Board of Investments (BOI) under EO 226
processing zones, seeks "to encourage and promote foreign commerce as a means of x x x strengthening our
patently enjoy exemption from national internal revenue taxes on imported capital equipment reasonably needed export trade and foreign exchange position, of hastening industrialization, of reducing domestic unemployment,
and exclusively used for the manufacture of their products;91 on required supplies and spare part for consigned and of accelerating the development of the country."112

used in the VAT business, and no VAT refund or credit is due.134 This is a non sequitur. By the VATs very nature
RA 7916, as amended by RA 8748, declared that by creating the PEZA and integrating the special economic
as a tax on consumption, the capital goods and services respondent has purchased are subject to the VAT, although
zones, "the government shall actively encourage, promote, induce and accelerate a sound and balanced industrial, at zero rate. Registration does not determine taxability under the VAT law.
economic and social development of the country x x x through the establishment, among others, of special
economic zones x x x that shall effectively attract legitimate and productive foreign investments."113
Moreover, the facts have already been determined by the lower courts. Having failed to present evidence to
support its contentions against the income tax holiday privilege of respondent,135 petitioner is deemed to have
Under EO 226, the "State shall encourage x x x foreign investments in industry x x x which shall x x x meet the conceded. It is a cardinal rule that "issues and arguments not adequately and seriously brought below cannot be
tests of international competitiveness[,] accelerate development of less developed regions of the country[,] and raised for the first time on appeal."136 This is a "matter of procedure"137 and a "question of fairness."138 Failure
result in increased volume and value of exports for the economy."114 Fiscal incentives that are cost-efficient and to assert "within a reasonable time warrants a presumption that the party entitled to assert it either has abandoned
simple to administer shall be devised and extended to significant projects "to compensate for market
or declined to assert it."139
imperfections, to reward performance contributing to economic development,"115 and "to stimulate the
establishment and assist initial operations of the enterprise."116
The BIR regulations additionally requiring an approved prior application for effective zero rating140 cannot
prevail over the clear VAT nature of respondents transactions. The scope of such regulations is not "within the
Wisely accorded to ecozones created under RA 7916117 was the governments policy -- spelled out earlier in RA statutory authority x x x granted by the legislature.141
7227 -- of converting into alternative productive uses118 the former military reservations and their extensions,119
as well as of providing them incentives120 to enhance the benefits that would be derived from them121 in
First, a mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot purport to
promoting economic and social development.122
do any more than interpret the latter.142 The courts will not countenance one that overrides the statute it seeks to
apply and implement.143
Finally, under RA 7844, the State declares the need "to evolve export development into a national effort"123 in
order to win international markets. By providing many export and tax incentives,124 the State is able to drive
Other than the general registration of a taxpayer the VAT status of which is aptly determined, no provision under
home the point that exporting is indeed "the key to national survival and the means through which the economic our VAT law requires an additional application to be made for such taxpayers transactions to be considered
goals of increased employment and enhanced incomes can most expeditiously be achieved."125
effectively zero-rated. An effectively zero-rated transaction does not and cannot become exempt simply because
an application therefor was not made or, if made, was denied. To allow the additional requirement is to give
The Tax Code itself seeks to "promote sustainable economic growth x x x; x x x increase economic activity; and x unfettered discretion to those officials or agents who, without fluid consideration, are bent on denying a valid
x x create a robust environment for business to enable firms to compete better in the regional as well as the global application. Moreover, the State can never be estopped by the omissions, mistakes or errors of its officials or
market."126 After all, international competitiveness requires economic and tax incentives to lower the cost of
agents.144
goods produced for export. State actions that affect global competition need to be specific and selective in the
pricing of particular goods or services.127
Second, grantia argumenti that such an application is required by law, there is still the presumption of regularity
in the performance of official duty.145 Respondents registration carries with it the presumption that, in the
All these statutory policies are congruent to the constitutional mandates of providing incentives to needed
absence of contradictory evidence, an application for effective zero rating was also filed and approval thereof
investments,128 as well as of promoting the preferential use of domestic materials and locally produced goods
given. Besides, it is also presumed that the law has been obeyed146 by both the administrative officials and the
and adopting measures to help make these competitive.129 Tax credits for domestic inputs strengthen backward applicant.
linkages. Rightly so, "the rule of law and the existence of credible and efficient public institutions are essential
prerequisites for sustainable economic development."130
Third, even though such an application was not made, all the special laws we have tackled exempt respondent not
only from internal revenue laws but also from the regulations issued pursuant thereto. Leniency in the
VAT Registration, Not Application for Effective Zero Rating, Indispensable to VAT Refund
implementation of the VAT in ecozones is an imperative, precisely to spur economic growth in the country and
attain global competitiveness as envisioned in those laws.
Registration is an indispensable requirement under our VAT law.131 Petitioner alleges that respondent did register
for VAT purposes with the appropriate Revenue District Office. However, it is now too late in the day for
A VAT-registered status, as well as compliance with the invoicing requirements,147 is sufficient for the effective
petitioner to challenge the VAT-registered status of respondent, given the latters prior representation before the zero rating of the transactions of a taxpayer. The nature of its business and transactions can easily be perused
lower courts and the mode of appeal taken by petitioner before this Court.
from, as already clearly indicated in, its VAT registration papers and photocopied documents attached thereto.
Hence, its transactions cannot be exempted by its mere failure to apply for their effective zero rating. Otherwise,
The PEZA law, which carried over the provisions of the EPZA law, is clear in exempting from internal revenue their VAT exemption would be determined, not by their nature, but by the taxpayers negligence -- a result not at
laws and regulations the equipment -- including capital goods -- that registered enterprises will use, directly or
all contemplated. Administrative convenience cannot thwart legislative mandate.
indirectly, in manufacturing.132 EO 226 even reiterates this privilege among the incentives it gives to such
enterprises.133 Petitioner merely asserts that by virtue of the PEZA registration alone of respondent, the latter is Tax Refund or Credit in Order
not subject to the VAT. Consequently, the capital goods and services respondent has purchased are not considered

Having determined that respondents purchase transactions are subject to a zero VAT rate, the tax refund or credit x x x x x x x x x
is in order.
"MR. DEL MAR. x x x To advance its cause in encouraging investments and creating an environment conducive
As correctly held by both the CA and the Tax Court, respondent had chosen the fiscal incentives in EO 226 over for investors, the bill offers incentives such as the exemption from local and national taxes, x x x tax credits for
those in RA 7916 and PD 66. It opted for the income tax holiday regime instead of the 5 percent preferential tax locally sourced inputs x x x."153
regime.
And third, no question as to either the filing of such claims within the prescriptive period or the validity of the
The latter scheme is not a perfunctory aftermath of a simple registration under the PEZA law,148 for EO 226149 VAT returns has been raised. Even if such a question were raised, the tax exemption under all the special laws
also has provisions to contend with. These two regimes are in fact incompatible and cannot be availed of
cited above is broad enough to cover even the enforcement of internal revenue laws, including prescription.154
simultaneously by the same entity. While EO 226 merely exempts it from income taxes, the PEZA law exempts it
from all taxes.
Summary
Therefore, respondent can be considered exempt, not from the VAT, but only from the payment of income tax for
a certain number of years, depending on its registration as a pioneer or a non-pioneer enterprise. Besides, the
remittance of the aforesaid 5 percent of gross income earned in lieu of local and national taxes imposable upon
business establishments within the ecozone cannot outrightly determine a VAT exemption. Being subject to VAT,
payments erroneously collected thereon may then be refunded or credited.

To summarize, 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. It has opted for the
income tax holiday regime, instead of the 5 percent preferential tax regime. As a matter of law and procedure, its
registration status entitling it to such tax holiday can no longer be questioned. Its sales transactions intended for
export may not be exempt, but like its purchase transactions, they are zero-rated. No prior application for the
Even if it is argued that respondent is subject to the 5 percent preferential tax regime in RA 7916, Section 24
effective zero rating of its transactions is necessary. Being VAT-registered and having satisfactorily complied with
thereof does not preclude the VAT. One can, therefore, counterargue that such provision merely exempts
all the requisites for claiming a tax refund of or credit for the input VAT paid on capital goods purchased,
respondent from taxes imposed on business. To repeat, the VAT is a tax imposed on consumption, not on business. respondent is entitled to such VAT refund or credit.
Although respondent as an entity is exempt, the transactions it enters into are not necessarily so. The VAT
payments made in excess of the zero rate that is imposable may certainly be refunded or credited.
WHEREFORE, the Petition is DENIED and the Decision AFFIRMED. No pronouncement as to costs.
Compliance with All Requisites for VAT Refund or Credit

SO ORDERED.

As further enunciated by the Tax Court, respondent complied with all the requisites for claiming a VAT refund or
credit.150
CIR, vs. Seagate Technology, GR. No. 178090, February 8, 2010, CASE DIGEST
First, respondent is a VAT-registered entity. This fact alone distinguishes the present case from Contex, in which Statutory Construction. Quando aliquid prohibetur ex directo prohibetur et per obliquum.
this Court held that the petitioner therein was registered as a non-VAT taxpayer.151 Hence, for being merely VAT- Commissioner of Internal Revenue v. Seagate Technology
exempt, the petitioner in that case cannot claim any VAT refund or credit.
G.R. No. 153866. February 11, 2005
Second, the input taxes paid on the capital goods of respondent are duly supported by VAT invoices and have not FACTS:
been offset against any output taxes. Although enterprises registered with the BOI after December 31, 1994 would Respondent is a resident foreign corporation duly registered with the Securities and Exchange Commission to do
no longer enjoy the tax credit incentives on domestic capital equipment -- as provided for under Article 39(d),
business in the Philippines and is registered with the Philippine Export Zone Authority (PEZA). The respondent is
Title III, Book I of EO 226152 -- starting January 1, 1996, respondent would still have the same benefit under a Value Added Tax-registered entity and filed for the VAT returns. An administrative claim for refund of VAT input
general and express exemption contained in both Article 77(1), Book VI of EO 226; and Section 12, paragraph 2 taxes in the amount of P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04 VAT input
(c) of RA 7227, extended to the ecozones by RA 7916.
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.
There was a very clear intent on the part of our legislators, not only to exempt investors in ecozones from national The Tax Court rendered a decision granting the claim for refund and CTA affirmed the decision. Hence, the
and local taxes, but also to grant them tax credits. This fact was revealed by the sponsorship speeches in Congress present petition for certiorari.
during the second reading of House Bill No. 14295, which later became RA 7916, as shown below:
ISSUE:
"MR. RECTO. x x x Some of the incentives that this bill provides are exemption from national and local taxes; x Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate in the amount of
x x tax credit for locally-sourced inputs x x x."
P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the period April 1,
1998 to June 30, 1999

From January 1, 1997 to December 31, 1998, petitioner purchased various supplies and materials necessary in the
HELD:
conduct of its manufacturing business. The suppliers of these goods shifted unto petitioner the 10% VAT on the
The Petition is unmeritorious. As a PEZA-registered enterprise within a special economic zone, respondent is
purchased items, which led the petitioner to pay input taxes in the amounts of P539,411.88 and P504,057.49 for
entitled to the fiscal incentives and benefit provided for in either PD 66 or EO 226. It shall, moreover, enjoy all 1997 and 1998, respectively.6
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
Acting on the belief that it was exempt from all national and local taxes, including VAT, pursuant to Rep. Act No.
taxes, stemming from the very nature of the VAT as a tax on consumption, for which the direct liability is
7227, petitioner filed two applications for tax refund or tax credit of the VAT it paid. Mr. Edilberto Carlos,
imposed on one person but the indirect burden is passed on to another. Respondent, as an exempt entity, can
revenue district officer of BIR RDO No. 19, denied the first application letter, dated December 29, 1998.
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 Unfazed by the denial, petitioner on May 4, 1999, filed another application for tax refund/credit, this time directly
7916 states that no taxes, local and national, shall be imposed on business establishments operating within the with Atty. Alberto Pagabao, the regional director of BIR Revenue Region No. 4. The second letter sought a refund
ecozone. Even though the VAT is not imposed on the entity but on the transaction, it may still be passed on and, or issuance of a tax credit certificate in the amount of P1,108,307.72, representing erroneously paid input VAT for
therefore, indirectly imposed on the same entity -- a patent circumvention of the law. That no VAT shall be
the period January 1, 1997 to November 30, 1998.
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 no response was forthcoming from the BIR Regional Director, petitioner then elevated the matter to the
When anything is prohibited directly, it is also prohibited indirectly. Special laws expressly grant preferential tax Court of Tax Appeals, in a petition for review docketed as CTA Case No. 5895. Petitioner stressed that Section
treatment to business establishments registered and operating within an ecozone, which by law is considered as a 112(A)7 if read in relation to Section 106(A)(2)(a)8 of the National Internal Revenue Code, as amended and
separate customs territory. As such, respondent is exempt from all internal revenue taxes, including the VAT, and Section 12(b)9 and (c) of Rep. Act No. 7227 would show that it was not liable in any way for any value-added
regulations pertaining thereto. Thus, the petition is denied and the decision of lower courts affirmed.
tax.

G.R. No. 151135

July 2, 2004

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 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 20410 and 22911 of the Tax
Code, its claim should be denied, according to the BIR.

CONTEX CORPORATION, petitioner,

vs.
HON. COMMISSIONER OF INTERNAL REVENUE, respondent.

On October 13, 2000, the CTA decided CTA Case No. 5895 as follows:

DECISION

WHEREFORE, in view of the foregoing, 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.

QUISUMBING, J.:
SO ORDERED.12
For review is the Decision1 dated September 3, 2001, of the Court of Appeals, in CA-G.R. SP No. 62823, which
reversed and set aside the decision2 dated October 13, 2000, of the Court of Tax Appeals (CTA). The CTA had
In granting a partial refund, the CTA ruled that petitioner misread Sections 106(A)(2)(a) and 112(A) of the Tax
ordered the Commissioner of Internal Revenue (CIR) to refund the sum of P683,061.90 to petitioner as
Code. The tax court stressed that these provisions apply only to those entities registered as VAT taxpayers whose
erroneously paid input value-added tax (VAT) or in the alternative, to issue a tax credit certificate for said amount. sales are zero-rated. Petitioner does not fall under this category, since it is a non-VAT taxpayer as evidenced by
Petitioner also assails the appellate courts Resolution,3 dated December 19, 2001, denying the motion for
the Certificate of Registration RDO Control No. 95-180-000133 issued by RDO Rosemarie Ragasa of BIR RDO
reconsideration.
No. 18 of the Subic Bay Freeport Zone and thus it is exempt from VAT, pursuant to Rep. Act No. 7227, said the
CTA.
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 Nonetheless, the CTA held that the petitioner is exempt from the imposition of input VAT on its purchases of
duly registered with the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay Freeport Enterprise, pursuant supplies and materials. It pointed out that under Section 12(c) of Rep. Act No. 7227 and the Implementing Rules
to the provisions of Republic Act No. 7227.4 As an SBMA-registered firm, petitioner is exempt from all local and and Regulations of the Bases Conversion and Development Act of 1992, all that petitioner is required to pay as a
national internal revenue taxes except for the preferential tax provided for in Section 12 (c)5 of Rep. Act No.
SBFZ-registered enterprise is a 5% preferential tax.
7227. Petitioner also registered with the Bureau of Internal Revenue (BIR) as a non-VAT taxpayer under
Certificate of Registration RDO Control No. 95-180-000133.
The CTA also disallowed all refunds of input VAT paid by the petitioner prior to June 29, 1997 for being barred
by the two-year prescriptive period under Section 229 of the Tax Code. The tax court also limited the refund only

to the input VAT paid by the petitioner on the supplies and materials directly used by the petitioner in the
manufacture of its goods. It struck down all claims for input VAT paid on maintenance, office supplies, freight
charges, and all materials and supplies shipped or delivered to the petitioners Makati and Pasay City offices.

1998.

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
Respondent CIR then filed a petition, docketed as CA-G.R. SP No. 62823, for review of the CTA decision by the contends that the provisions of Rep. Act No. 7227 clearly and unambiguously mandate that no local and national
Court of Appeals. Respondent maintained that the exemption of Contex Corp. under Rep. Act No. 7227 was
taxes shall be imposed upon SBFZ-registered firms and hence, said law should govern the case. Petitioner calls
limited only to direct taxes and not to indirect taxes such as the input component of the VAT. The Commissioner our attention to regulations issued by both the SBMA and BIR clearly and categorically providing that the tax
pointed out that from its very nature, the value-added tax is a burden passed on by a VAT registered person to the exemption provided for by Rep. Act No. 7227 includes exemption from the imposition of VAT on purchases of
end users; hence, the direct liability for the tax lies with the suppliers and not Contex.
supplies and materials.
Finding merit in the CIRs arguments, the appellate court decided CA-G.R. SP No. 62823 in his favor, thus:

The respondent takes the diametrically opposite view that while Rep. Act No. 7227 does grant tax exemptions,
such grant is not all-encompassing but is limited only to those taxes for which a SBFZ-registered business may be
WHEREFORE, premises considered, the appealed decision is hereby REVERSED AND SET ASIDE. Contexs directly liable. Hence, SBFZ locators are not relieved from the indirect taxes that may be shifted to them by a
claim for refund of erroneously paid taxes is DENIED accordingly.
VAT-registered seller.
SO ORDERED.13
In reversing the CTA, the Court of Appeals held that the exemption from duties and taxes on the importation of
raw materials, capital, and equipment of SBFZ-registered enterprises under Rep. Act No. 7227 and its
implementing rules covers only "the VAT imposable under Section 107 of the [Tax Code], which is a direct
liability of the importer, and in no way includes the value-added tax of the seller-exporter the burden of which
was passed on to the importer as an additional costs of the goods."14 This was because the exemption granted by
Rep. Act No. 7227 relates to the act of importation and Section 10715 of the Tax Code specifically imposes the
VAT on importations. The appellate court applied the principle that tax exemptions are strictly construed against
the taxpayer. The Court of Appeals pointed out that under the implementing rules of Rep. Act No. 7227, the
exemption of SBFZ-registered enterprises from internal revenue taxes is qualified as pertaining only to those for
which they may be directly liable. It then stated that apparently, the legislative intent behind Rep. Act No. 7227
was to grant exemptions only to direct taxes, which SBFZ-registered enterprise may be liable for and only in
connection with their importation of raw materials, capital, and equipment as well as the sale of their goods and
services.

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 or passed on by the seller, transferor, or lessor
to the buyer, transferee or lessee.17 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.18 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.19

Petitioner timely moved for reconsideration of the Court of Appeals decision, but the motion was denied.
Hence, the instant petition raising as issues for our resolution the following:

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. WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL AND NATIONAL INTERNAL REVENUE
TAXES PROVIDED IN REPUBLIC ACT NO. 7227 COVERS THE VALUE ADDED TAX PAID BY
PETITIONER, A SUBIC BAY FREEPORT ENTERPRISE ON ITS PURCHASES OF SUPPLIES AND
MATERIALS.

(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.20 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).

B. WHETHER OR NOT THE COURT OF TAX APPEALS CORRECTLY HELD THAT PETITIONER IS
The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers
ENTITLED TO A TAX CREDIT OR REFUND OF THE VAT PAID ON ITS PURCHASES OF SUPPLIES AND because the said transaction is not subject to VAT. On the other hand, a VAT-registered purchaser of VAT-exempt
RAW MATERIALS FOR THE YEARS 1997 AND 1998.16
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.21
Simply stated, we shall resolve now the issues concerning: (1) the correctness of the finding of the Court of
Appeals that the VAT exemption embodied in Rep. Act No. 7227 does not apply to petitioner as a purchaser; and (b) Zero-rated Sales. These are sales by VAT-registered persons which are subject to 0% rate, meaning the tax
(2) the entitlement of the petitioner to a tax refund on its purchases of supplies and raw materials for 1997 and
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, "Export Sales" shall mean
properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with
these regulations.22
...
Under Zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In contrast, exemption only
(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise known as the
removes the VAT at the exempt stage, and it will actually increase, rather than reduce the total taxes paid by the Omnibus Investments Code of 1987, and other special laws, e.g. Republic Act No. 7227, otherwise known as the
exempt firms business or non-retail customers. It is for this reason that a sharp distinction must be made between Bases Conversion and Development Act of 1992.
zero-rating and exemption in designating a value-added tax.23
...
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 (c) Sales to persons or entities whose exemption under special laws, e.g. R.A. No. 7227 duly registered and
all national and local internal revenue taxes, including VAT and Section 4 (A)(a) of BIR Revenue Regulations No. accredited enterprises with Subic Bay Metropolitan Authority (SBMA) and Clark Development Authority (CDA),
1-95.24
R. A. No. 7916, Philippine Economic Zone Authority (PEZA), or international agreements, e.g. Asian
Development Bank (ADB), International Rice Research Institute (IRRI), etc. to which the Philippines is a
On this point, petitioner rightly claims that it is indeed VAT-Exempt and this fact is not controverted by the
signatory effectively subject such sales to zero-rate."
respondent. In fact, petitioner is registered as a NON-VAT taxpayer per Certificate of Registration25 issued by the
BIR. As such, it is exempt from VAT on all its sales and importations of goods and services.
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.
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
On the second issue, it may not be amiss to re-emphasize that the petitioner is registered as a NON-VAT taxpayer
Credit/Refund.
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
The point of contention here is whether or not the petitioner may claim a refund on the Input VAT erroneously
purchases did exist, petitioner is still not entitled to any tax credit or refund on the input tax previously paid as
passed on to it by its suppliers.
petitioner is an exempt VAT taxpayer.
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:

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.

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 WHEREFORE, the petition is DENIED for lack of merit. The Decision dated September 3, 2001, of the Court of
services related to such zero-rated sale shall be available as tax credit or refund in accordance with these
Appeals in CA-G.R. SP No. 62823, as well as its Resolution of December 19, 2001 are AFFIRMED. No
regulations.
pronouncement as to costs.
The following sales by VAT-registered persons shall be subject to 0%:
(a) Export Sales

SO ORDERED.