CIR vs. Magsaysay Lines, Inc. , et. al G.R.
146984, 28 July 2006 Having determined that respondent’s purchase transactions are subject to a zero VAT
Facts:
Because of a government program of privatization, National Development
Company(N
C) decided to sell its National Marine Corporation(NMC) shares and five of its ships. In
a VAT uling, it was held that the sale was subject to VAT since NDC was a VAT
registered enterprise and the transaction is incident to its normal VAT
registered activity of leasing out personal property.
Issue:
Whether or not the sale by NDC whose VAT-
registered activity is leasing out personal property is subject to VAT considering that s
uch sale was made pursuant to a government program of privatization.
Ruling:
No, the sale of the vessels is not subject to VAT since it was not in the ord
inary course of trade or business of NDC. “Course of business” is what is usually done
in the management of trade or business. It connotes regularity. In the case at bar, the
sale was an isolated transaction. The sale which was involuntary and made pursuant t
o the declared policy of government for privatization could no longer be repeated or ca
rried on with regularity. It should be emphasized that the normal VAT-
registered activity of NDC is leasing personal property. Any sale, barter, or exchange o
f goods or services not in the course of trade or business is not subject to tax.
GR No. 153866 CIR vs. Seagate
FACTS: Respondent is a resident foreign corporation duly registered with the
Securities and Exchange Commission to do business in the Philippines and is
registered with the Philippine Export Zone Authority (PEZA). The respondent is Value
Added Tax-registered entity and filed for the VAT returns. An administrative claim for
refund of VAT input taxes in the amount of P28,369,226.38 with supporting documents
(inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review),
was filed on 4 October 1999, but no final action has been received by the respondent
from the petitioner on the claim for VAT refund. CIR asserts that by virtue of the PEZA
registration alone of respondent, the latter is not subject to the VAT. Consequently, the
capital goods and services respondent has purchased are not considered used in the
VAT business, and no VAT refund or credit is due.
ISSUE: Whether or not Seagate, a VAT-Registered PEZA Enterprise is entitled to tax
refund or credit.
HELD: Yes, Seagate is entitled to refund or credit. As a PEZA-registered enterprise
within a special economic zone, respondent is entitled to the fiscal incentives and
benefit provided for in either PD 66 or EO 226. It shall, moreover, enjoy all privileges,
benefits, advantages or exemptions under both Republic Act Nos. (RA) 7227 and
7844.
Respondent, which as an entity is exempt, is different from its transactions which are
not exempt. The end result, however, is that it is not subject to the VAT. The non-
taxability of transactions that are otherwise taxable is merely a necessary incident to
the tax exemption conferred by law upon it as an entity, not upon the transactions
themselves.
The petitioner’s assertion that the capital goods and services respondent has
purchased are not considered used in the VAT business, and thus no VAT refund or
credit is due is non sequitur. On this matter, the SC held that by the VAT’s very nature
as a tax on consumption, the capital goods and services respondent has purchased
are subject to the VAT, although at zero rate.
Seagate has complied with all the requisites for VAT refund or credit. First, respondent
is a VAT-registered entity. Second, the input taxes paid on the capital goods of
respondent are duly supported by VAT invoices and have not been offset against any
output taxes.
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. Its sales
transactions intended for export may not be exempt, but like its purchase transactions,
they are zero-rated. No prior application for the effective zero rating of its transactions
is necessary. Being VAT-registered and having satisfactorily complied with all the
requisites for claiming a tax refund of or credit for the input VAT paid on capital goods
purchased, respondent is entitled to such VAT refund or credit.
rate, the SC has determined that tax refund or credit is in order.
Contex Corp. v. CIR
July 2, 2004
Quisumbing, J.
Francis G. Francisco
SUMMARY: Contex is an SBMA-registered firm which exempts it from all local and
national internal revenue taxes except for the preferential tax provided for in Section
12 (c) of RA 7227. Contex Corp. also registered with the BIR as a non-VAT
taxpayer. Contex is claiming a tax credit for 10% VAT passed by its suppliers to
Contex when Contex purchased materials from such suppliers. SC held that Contex
although it is true that the Contex Corp. should not have been liable for the VAT
inadvertently passed on to it by its supplier since such sale to an SBMA-registered
firm is a zero-rated sale on the part of the supplier, Contex Corp. is not the proper
party to claim such VAT refund. Contex Corp. is registered as a NON-VAT taxpayer
and thus, is exempt from VAT. As an exempt VAT taxpayer, it is not allowed any tax
credit on VAT (input tax) previously paid.
DOCTRINE: (a) VAT Exemption. An exemption means that the sale of goods or
properties and/or services and the use or lease of properties is not subject to VAT
(output tax) and the seller is not allowed any tax credit on VAT (input tax) previously
paid. This is a case wherein the VAT is removed at the exempt stage (i.e., at the
point of the sale, barter or exchange of the goods or properties). The person making
the exempt sale of goods, properties or services shall not bill any output tax to his
customers because the said transaction is not subject to VAT. On the other hand, a
VAT-registered purchaser of VAT-exempt goods/properties or services which are
exempt from VAT is not entitled to any input tax on such purchase despite the
issuance of a VAT invoice or receipt.
(b) Zero-rated Sales. These are sales by VAT-registered persons which are
subject to 0% rate, meaning the tax burden is not passed on to the purchaser. A
zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT
purposes, shall not result in any output tax. However, the input tax on his purchases
of goods, properties or services related to such zero-rated sale shall be available as
tax credit or refund in accordance with these regulations.
FACTS: Contex Corp. is engaged in manufacturing hospital textiles and garments and
other hospital supplies for export. Its place of business is the Subic Bay Freeport
Zone (SBFZ) and is duly registered with the Subic Bay Metropolitan Authority (SBMA)
as a Subic Bay Freeport Enterprise, pursuant to RA 7227. As an SBMA-registered
firm, Contex Corp. is exempt from all local and national internal revenue taxes except
for the preferential tax provided for in Section 12 (c) of RA 7227. Contex Corp. also
registered with the BIR as a non-VAT taxpayer.
From 1997-1998, Contex Corp. purchased supplies and materials necessary in the
conduct of its manufacturing business. The suppliers of these goods shifted unto
Contex Corp. the 10% VAT on the purchased items, which led the Contex Corp. to pay
input taxes. Believing it was exempt from VAT, Contex Corp. filed two applications for
tax refund or tax credit of the VAT it paid.
When no response was made from the BIR Regional Director, Contex Corp. elevated
the matter to the CTA which granted only a partial refund stating that Contex Corp.
misread Sections 106(A)(2)(a) and 112(A) of the Tax Code. The tax court stressed
that these provisions apply only to those entities registered as VAT taxpayers whose
sales are zero-rated. Contex Corp. does not fall under this category, since it is a non-
VAT taxpayer. Nonetheless, CTA held that the Contex Corp. is exempt from the
imposition of input VAT on its purchases of supplies and materials and all that Contex
Corp. is required to pay is a 5% preferential tax. Contex appealed to the CA.
CIR still argued that from its very nature, the value-added tax is a burden passed on
by a VAT registered person to the end users; hence, the direct liability for the tax lies
with the suppliers and not Contex. The CA agreed with the CIR and reversed the CTA.
ISSUES: WON the VAT exemption embodied in RA 7227 does not apply to Contex
Corp. as a purchaser.
HELD: Yes, it cannot apply to Contex as purchaser. Contex Corp.’s claim, for
exemption from VAT for its purchases of supplies and raw materials is incongruous
with its claim that it is VAT-Exempt, for only VAT-Registered entities can claim Input
VAT Credit/Refund.
RATIO: Contex Corp. argues that RA 7227 clearly mandate that no local and national
taxes shall be imposed upon SBFZ-registered firms and hence, said law should govern
the case. Contex Corp. also cites regulations issued by both the SBMA and BIR
clearly providing that the tax exemption provided for by RA 7227 includes exemption
from the imposition of VAT on purchases of supplies and materials.
CIR takes the view that while RA 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 directly liable. Hence, SBFZ locators are not relieved from the
indirect taxes that may be shifted to them by a VAT-registered seller.
Exemptions from VAT are granted by express provision of the Tax Code or special
laws. Under VAT, the transaction can have preferential treatment in the following
ways:
(a) VAT Exemption. An exemption means that the sale of goods or properties
and/or services and the use or lease of properties is not subject to VAT (output tax)
and the seller is not allowed any tax credit on VAT (input tax) previously paid. This is a
case wherein the VAT is removed at the exempt stage (i.e., at the point of the sale,
barter or exchange of the goods or properties).
The person making the exempt sale of goods, properties or services shall not bill any
output tax to his customers because the said transaction is not subject to VAT. On the
other hand, a VAT-registered purchaser of VAT-exempt goods/properties or services
which are exempt from VAT is not entitled to any input tax on such purchase despite
the issuance of a VAT invoice or receipt.
(b) Zero-rated Sales. These are sales by VAT-registered persons which are subject
to 0% rate, meaning the tax burden is not passed on to the purchaser. A zero-rated
sale by a VAT-registered person, which is a taxable transaction for VAT purposes,
shall not result in any output tax. However, the input tax on his purchases of goods,
properties or services related to such zero-rated sale shall be available as tax credit or
refund in accordance with these regulations.
Under Zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In
contrast, exemption only removes the VAT at the exempt stage, and it will actually
increase, rather than reduce the total taxes paid by the exempt firm’s business or non-
retail customers. It is for this reason that a sharp distinction must be made between
zero-rating and exemption in designating a value-added tax.
Contex Corp. rightly claims that it is indeed VAT-Exempt and is even registered as a
NON-VAT taxpayer. As such, it is exempt from VAT on all its sales and importations of
goods and services.
However, Contex Corp.’s claim for exemption from VAT for its purchases is
incongruous with its claim that it is VAT-Exempt, for only VAT-Registered entities can
claim Input VAT Credit/Refund.
While it is true that the Contex Corp. 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 Contex Corp. is not the proper party to claim such VAT refund.
Under the NIRC, “Sales to persons or entities whose exemption under special laws,
e.g. R.A. No. 7227 duly registered and accredited enterprises with Subic Bay
Metropolitan Authority (SBMA) and Clark Development Authority (CDA), R. A. No.
7916, Philippine Economic Zone Authority (PEZA), or international agreements, e.g.
Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc. to
which the Philippines is a signatory effectively subject such sales to zero-rate.”
Since the transaction is deemed zero-rated, Contex Corp.’s supplier may claim an
Input VAT credit with no corresponding Output VAT liability. Thus, no Output VAT may
be passed on to the Contex Corp..
Contex Corp. is registered as a NON-VAT taxpayer and thus, is exempt from VAT. As
an exempt VAT taxpayer, it is not allowed any tax credit on VAT (input tax) previously
paid.
Thus, even assuming that exemption from the burden of VAT on Contex Corp.’s
purchases did exist, Contex Corp. is still not entitled to any tax credit or refund on the
input tax previously paid as Contex Corp. is an exempt VAT taxpayer.
It is the Contex Corp.’s suppliers who are the proper parties to claim the tax credit and
accordingly refund the Contex Corp. of the VAT erroneously passed on to the latter.
DISPOSITIVE: The petition is DENIED. Contex cannot claim a tax refund for its
purchases.
CIR vs. CA and Comaserco
G.R. No. 125355 March 30, 2000
Facts:
Commonwealth Management and Services Corporation (COMASERCO) is a domestic
corporation. It is an affiliate of Philippine American Life Insurance Co. (Philamlife). It
was organized by the latter to perform collection, consultative and other technical
services, including functioning as an internal auditor, of Philamlife and its other
affiliates.
In 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private
respondent COMASERCO for deficiency value-added tax (VAT) amounting to
P351,851.00 for taxable year 1988. In the same year, COMASERCO filed with the
BIR, a letter-protest objecting to the latter’s finding of deficiency VAT. Afterwards, the
Commissioner of Internal Revenue sent a collection letter to COMASERCO
demanding payment of the deficiency VAT. The following month of the same year,
COMASERCO filed with the CTA a petition for review contesting the Commissioner’s
assessment. COMASERCO asserted that: 1) it was on a “no-profit, reimbursement-of-
cost-only” basis; 2) it was not engaged in the business of providing services to
Philamlife and its affiliates; 3) COMASERCO was established to ensure operational
orderliness and administrative efficiency of Philamlife and its affiliates, not on the sale
of services; and 4) it even did not generate profit but suffered a net loss in taxable year
1988. Thus, it was not liable to pay VAT.
In 1995, the CTA rendered a decision in favor of the Commissioner with slight
modifications. COMASERCO was liable to pay the amount of P335,831.01. During the
same year, COMASERCO filed with the CA, a petition for review of the decision of the
CTA. The CA ruled in favor of the respondent and based its decision in another tax
case involving the same parties where it was held that COMASERCO was not liable to
pay fixed and contractor’s tax and it was not engaged in business of providing services
to Philamlife and its affiliates. Hence, this petition was filed before the SC.
Issue:
Whether or not COMASERCO is engaged in the sale of services, thus liable to pay
VAT.
Held:
Yes. Contrary to COMASERCO’s contention, Sec. 105 of the Tax Code states that
even a non-stock, non-profit, organization or government entity, is liable to pay VAT on
the sale of goods or services. VAT is a tax on transactions, imposed at every stage of
the distribution process on the sale, barter, exchange of goods or property, and on the
performance of services, even in the absence of profit attributable thereto. The term “in
the course of trade or business” requires the regular conduct or pursuit of a
commercial or an economic activity, regardless of whether or not the entity is profit-
oriented.
As long as the entity provides service for a fee, remuneration or consideration, then
the service rendered is subject to VAT. Because taxes are the lifeblood of the nation,
statutes that allow exemptions are construed strictly against the grantee and liberally
in favor of the government. Section 109 of the Tax Code enumerates the transactions
exempted from VAT. The services rendered by COMASERCO do not fall within the
exemptions. It falls under Section 108 of the Tax Code in which it defines the phrase
“sale of services” as the performance of all kinds of services for others for a fee,
remuneration or consideration.
CIR vs American Express, GR No. 152609, June 29, 2005
Facts:
Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was tasked
with servicing a unit of AMEX-Hongkong Branch and facilitating the collections of
AMEX-HK receivables from card members situated in the Philippines and payment to
service establishments in the Philippines.
It filed with BIR a letter-request for the refund of its 1997 excess input taxes, citing as
basis Section 110B of the 1997 Tax Code, which held that “xxx Any input tax
attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered
person may at his option be refunded or credited against other internal revenue taxes,
subject to the provisions of Section 112.”
In addition, respondent relied on VAT Ruling No. 080-89, which read, “In Reply, please
be informed that, as a VAT registered entity whose service is paid for in acceptable
foreign currency which is remitted inwardly to the Philippine and accounted for in
accordance with the rules and regulations of the Central Bank of the Philippines, your
service income is automatically zero rated xxx”
Petitioner claimed, among others, that the claim for refund should be construed strictly
against the claimant as they partake of the nature of tax exemption.
CTA rendered a decision in favor of respondent, holding that its services are subject to
zero-rate. CA affirmed this decision and further held that respondent’s services were
“services other than the processing, manufacturing or repackaging of goods for
persons doing business outside the Philippines” and paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of BSP.
Issue:
W/N AMEX Phils is entitled to refund
Held:
Yes. Section 102 of the Tax Code provides for the VAT on sale of services and use or
lease of properties. Section 102B particularly provides for the services or transactions
subject to 0% rate:
(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the services
are paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the BSP;
(2) Services other than those mentioned in the preceding subparagraph, e.g. those
rendered by hotels and other service establishments, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the BSP
Under subparagraph 2, services performed by VAT-registered persons in the
Philippines (other than the processing, manufacturing or repackaging of goods for
persons doing business outside the Philippines), when paid in acceptable foreign
currency and accounted for in accordance with the R&R of BSP, are zero-rated.
Respondent renders service falling under the category of zero rating.
As a general rule, the VAT system uses the destination principle as a basis for the
jurisdictional reach of the tax. Goods and services are taxed only in the country where
they are consumed. Thus, exports are zero-rated, while imports are taxed.
In the present case, the facilitation of the collection of receivables is different from the
utilization of consumption of the outcome of such service. While the facilitation is done
in the Philippines, the consumption is not. The services rendered by respondent are
performed upon its sending to its foreign client the drafts and bulls it has gathered from
service establishments here, and are therefore, services also consumed in the
Philippines. Under the destination principle, such service is subject to 10% VAT.
However, the law clearly provides for an exception to the destination principle; that is
0% VAT rate for services that are performed in the Philippines, “paid for in acceptable
foreign currency and accounted for in accordance with the R&R of BSP.” The
respondent meets the following requirements for exemption, and thus should be zero-
rated:
(1) Service be performed in the Philippines
(2) The service fall under any of the categories in Section 102B of the Tax Code
(3) It be paid in acceptable foreign currency accounted for in accordance with BSP
R&R
. CIR v Bursmeiters & Wain Scandinavian
GR 153205; January 22, 2007
Facts: A foreign consortium, parent company of Burmeister, entered into an O&M
contract with NPC. The foreign entity then subcontracted the actual O&M to
Burmeister. NPC paid the foreign consortium a mixture of currencies while the
consortium, in turn, paid Burmeister foreign currency inwardly remitted into the
Philippines. BIR did not want to grant refund since the services are “not destined for
consumption abroad” (or the destination principle).
Issue: Are the receipts of Burmeister entitled to VAT zero-rated status?
Held: PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the
period covered prior to the filing of CIR’s Answer in the CTA.
The claim has no merit since the consortium, which was the recipient of services
rendered by Burmeister, was deemed doing business within the Philippines since its
15-year O&M with NPC can not be interpreted as an isolated transaction.
In addition, the services referring to ‘processing, manufacturing, repacking’ and
‘services other than those in (1)’ of Sec. 102 both require (i) payment in foreign
currency; (ii) inward remittance; (iii) accounted for by the BSP; AND (iv) that the
service recipient is doing business outside the Philippines. The Court ruled that if this
is not the case, taxpayers can circumvent just by stipulating payment in foreign
currency.
The refund was partially allowed since Burmeister secured a ruling from the BIR
allowing zero-rating of its sales to foreign consortium. However, the ruling is only valid
until the time that CIR filed its Answer in the CTA which is deemed revocation of the
previously-issued ruling. The Court said the revocation can not retroact since none of
the instances in Section 246 (bad faith, omission of facts, etc.) are present.
THE COMMISIONER OF INTERNAL REVENUE, Petitioner, 
 vs.
 ACESITE
(PHILIPPINES) HOTEL CORPORATION, Respondent.
FACTS:
1. Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leases
6,768.53 square meters of the hotel’s premises to the Philippine Amusement and
Gaming Corporation for casino operations and caters food and beverages to
PAGCOR’s casino patrons through the hotel’s restaurant outlets.
2.For the period January 96 to April 1997, Acesite incurred VAT amounting to
P30,152,892.02 from its rental income and sale of food and beverages to PAGCOR
during said period. Acesite tried to shift the said taxes to PAGCOR by incorporating it
in the amount assessed to PAGCOR but the latter refused to pay the taxes on account
of its tax exempt status.1awphi1.net
3. PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the
latter paid the VAT to the Commissioner of Internal Revenue.
4.However, Acesite belatedly arrived at the conclusion that its transaction with
PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity.
5. Acesite filed an administrative claim for refund with the CIR but the latter failed to
resolve the same. Acesite filed a petition with the Court of Tax Appeals
CTA Decision: Petitioner is subject to zero percent tax insofar as its gross income
from rentals and sales to PAGCOR, a tax exempt entity by virtue of a special law.
Accordingly, the amounts of P21,413,026.78 and P8,739,865.24, representing the
10% EVAT on its sales of food and services and gross rentals, respectively from
PAGCOR shall be refunded to the petitioner..
CA Decision: PAGCOR was not only exempt from direct taxes but was also
exempt from indirect taxes like the VAT and consequently, the transactions
between respondent Acesite and PAGCOR were "effectively zero-rated" because they
involved the rendition of services to an entity exempt from indirect taxes.
ISSUE/S: (1) whether PAGCOR’s tax exemption privilege includes the indirect tax of
VAT to entitle Acesite to zero percent (0%) VAT rate; and (2) whether the zero percent
(0%) VAT rate under then Section 102 (b)(3) of the Tax Code (now Section 108 (B)(3)
of the Tax Code of 1997) legally applies to Acesite.
HELD:
1. Yes. PAGCOR is exempt from payment of indirect taxes
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an
exemption from the payment of taxes. Section 13 of P.D. 1869 pertinently provides
exemption.
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or
operator refers to PAGCOR. Although the law does not specifically mention
PAGCOR’s exemption from indirect taxes, PAGCOR is undoubtedly exempt from
such taxes because the law exempts from taxes persons or entities contracting
with PAGCOR in casino operations. Although, differently worded, the provision
clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by
granting tax exempt status to persons dealing with PAGCOR in casino
operations. The unmistakable conclusion is that PAGCOR is not liable for the
P30,152,892.02 VAT and neither is Acesite as the latter is effectively subject to zero
percent rate under Sec. 108 B (3). R.A. 8424. (Emphasis supplied.)
2. The manner of charging VAT does not make PAGCOR liable to said tax
It is true that VAT can either be incorporated in the value of the goods, properties, or
services sold or leased, in which case it is computed as 1/11 of such value, or charged
as an additional 10% to the value. Verily, the seller or lessor has the option to follow
either way in charging its clients and customer. In the instant case, Acesite followed
the latter method, that is, charging an additional 10% of the gross sales and rentals.
Be that as it may, the use of either method, and in particular, the first method, does not
denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.
3. Yes. VAT exemption extends to Acesite
Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite,
the latter is not liable for the payment of it as it is exempt in this particular transaction
by operation of law to pay the indirect tax. Such exemption falls within the former
Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A.
8424), which provides:
Section 102. Value-added tax on sale of services – (a) Rate and base of tax – There
shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross
receipts derived by any person engaged in the sale of services x x x; Provided, that
the following services performed in the Philippines by VAT-registered persons shall be
subject to 0%
(3) Services rendered to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a signatory effectively
subjects the supply of such services to zero (0%) rate (emphasis supplied).
4. Acesite paid VAT by mistake
Considering the foregoing discussion, there are undoubtedly erroneous payments of
the VAT pertaining to the effectively zero-rate transactions between Acesite and
PAGCOR. Verily, Acesite has clearly shown that it paid the subject taxes under a
mistake of fact, that is, when it was not aware that the transactions it had with
PAGCOR were zero-rated at the time it made the payments.
Solutio indebiti applies to the Government
Tax refunds are based on the principle of quasi-contract or solutio indebiti and the
pertinent laws governing this principle are found in Arts. 2142 and 2154 of the Civil
Code. When money is paid to another under the influence of a mistake of fact, that is
to say, on the mistaken supposition of the existence of a specific fact, where it would
not have been known that the fact was otherwise, it may be recovered.
Action for refund strictly construed; Acesite discharged the burden of proof
Since an action for a tax refund partakes of the nature of an exemption, which cannot
be allowed unless granted in the most explicit and categorical language, it is strictly
construed against the claimant who must discharge such burden convincingly.11
CIR vs Toshiba Information Equipment (Phil.) G.R. No. 150154, 9 August 2005
Facts:
Toshiba was claiming a refund for the input tax it paid on unutilized capital goods purc
hased. However, the CIR said that it cannot because the capital goods and services it
purchased are considered not used in VAT taxable business and therefore, it is not ent
itled to refund of input taxes. Toshiba, on the other hand, contended that it is PEZA-
registered and located within the ecozone and therefore for, VAT-exempt entity.
Issue:
Whether or not Toshiba is entitled to refund for the input tax it paid on unutilized capital
goods purchased considering that it is registered with PEZA and located within the ec
ozone.
Ruling:
Yes. CIR failed to differentiate between VAT-exempt transactions from VAT-
exempt entities. An exempt transactions are transactions specifically listed in and expr
essly exempted from VAT under the Tax Code without regard to the tax status, VAT-
exempt or not, of the taxpayer. An exempt party, on the other hand, is a person or entit
y granted VAT-
exemption under the Tax Code, special law or an international agreement to which the
Philippines is a signatory and by virtue of which its taxable transactions become exem
pt from VAT.
Toshiba, a PEZA-registered and located within a ecozone is a VAT-
exempt entity because of Sec 8 of Ta 7916 which establishes the fiction that ecozones
are foreign territory. Therefore, a supplier from the custom territory cannot pass on out
put VAT to an ecozone enterprise, like Toshiba, since it is exempt.
CIR VS CEBU TOYO
FACTS:
Respondent Cebu Toyo Corporation is a domestic corporation engaged in the
manufacture of lenses and various optical components. Its principal office is located at
the Mactan Export Processing Zone (MEPZ) in Lapu-Lapu City, Cebu and is a
subsidiary of Toyo Lens Corporation, a non-resident corporation organized under the
laws of Japan. It is a zone export enterprise registered with the Philippine Economic
Zone Authority (PEZA), pursuant PD 66 and is also registered with the BIR as a VAT
taxpayer.
The sales of respondent are considered export sales subject to VAT at 0% rate under
Section 106 of the NIRC, as amended.
Respondent then filed, an application for tax credit/refund of VAT paid for the period
April 1, 1996 to December 31, 1997 amounting to P4,439,827.21 representing excess
VAT input payments. Respondents claim that they can avail of the tax credits as they
are VAT-registered exporter of goods at the rate of 0%.
The CIR oppose such stating that they are not entitled to the tax credit as the claims
for refund are strictly construed against respondents as it is of the nature of tax
exemption.
The CTA granted the motion partially to the respondents as they only lowered the tax
credits to P2,158,714.46 representing unutilized input tax payments. The CIR filed a
petition with the CA which was denied.
ISSUE: Whether Cebu Toyo Corporation can avail of the tax credits.
RULING:
YES. Respondents availed of an income tax holiday as provided in the Omnibus
Investments Code ( EO 226). It is one of the fiscal incentives granted to PEZA-
registered enterprises and one of the options to its tax burden. Both the CA and CTA
found that respondent availed of the income tax holiday for four (4) years as it was
shown in their Annual Corporate Income Tax Returns. In it also is where respondent
specified that it was availing of the tax relief under EO 226. Hence, respondent is not
exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is
engaged in taxable rather than exempt transactions.
Taxable transactions are those transactions which are subject to value-added tax
either at the rate of ten percent (10%) or zero percent (0%). In taxable transactions,
the seller shall be entitled to tax credit for the value-added tax paid on purchases and
leases of goods, properties or services.
An exemption means that the sale of goods, properties or services and the use or
lease of properties is not subject to VAT (output tax) and the seller is not allowed any
tax credit on VAT (input tax) previously paid. The person making the exempt sale of
goods, properties or services shall not bill any output tax to his customers because the
said transaction is not subject to VAT. Thus, a VAT-registered purchaser of goods,
properties or services that are VAT-exempt, is not entitled to any input tax on such
purchases despite the issuance of a VAT invoice or receipt.
The court also held that respondent is subjected to VAT at 0% rate as it is engaged in
the export business.
FACTS:
Both cases involved applications for tax refund of the input VAT by
petitioner corporation on its zero-rated sales in the taxable quarters of the years 1990
and 1992. The Court of Tax Appeals and Court of Appeals denied the claims for failure
to meet the requirements of Sec 2 of Revenue Regulation No. 2-88 which provides
that, sale of raw materials to export-oriented BOI-registered enterprises whose export
sales, under rules and regulations of the BOI, exceed 70% of the total annual
production, shall be subject to zero-rate.
Petitioner corporation assails the validity of said regulation contending that it imposes
additional requirements, not found in Sec 100(a) of the Tax Code of 1977. Also that,
PASAR and PHILPHOS to whom the sale were made are registered not only with BOI,
but also with the then Export Processing Zone Authority.
Under Sec. 100(a) of the Tax Code, Export Sales are subject to 0% VAT and “Export
Sale” means the sale and shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods so exported, or foreign
currency denominates sales.
ISSUE:
Whether or not petitioner corporation is entitled to the refund of input VAT.
HELD:
YES, petitioner corporation is entitled to tax refund of input VAT. The Supreme Court
held that Sec 2 of Revenue Regulation No. 2-88 should not have been applied.
PASAR and PHILPHOS, in addition to being registered with BOI, were also registered
with EPZA and located within an export-processing zone. The transactions were
considered export sale.
According to the Destination Principle, goods and services are taxed only in the
country where these are consumed. In connection with the said principle, the
Cross Border Doctrine mandates that no VAT shall be imposed to form part of
the cost of the goods destined for consumption outside the territorial border of
the taxing authority. Hence, actual export of goods and services from the
Philippines to a foreign country must be free of VAT, while those destined for
use or consumption within the Philippines shall be imposed with 10% VAT(Now
12% under R.A. No 9337). Export processing zones are to be managed as a
separate customs territory from the rest of the Philippines and, thus, for tax
purposes, are effectively considered as foreign territory. For this reason, sales
by persons from the Philippine customs territory to those inside the export
processing zones are already taxed as exports.
FACTS:
Mirant filed its final adjusted Annual Income Tax Return for fiscal year ending 1999
declaring a net loss. It then amended the said return this time reflecting an increased
net loss and showing that it opted to carry over as tax credit its overpayment to the
succeeding taxable year. This excess tax credit was unutilized in 2000 as Mirant still
reported a net loss. Mirant then filed a claim for refund of its excess creditable income
tax for 1999.

ISSUE:

Can Mirant claim for refund its excess credits from 1999?

HELD:

NO. Mirant’s choice to carry over its 1999 excess income tax credit to succeeding
taxable years is irrevocable, regardless of whether it was able to actually apply the
said amount to a tax liability. It is a mistake to understand the phrase "for that taxable
period" as a prescriptive period for the irrevocability rule – i.e., that since the tax credit
in this case was acquired in 1999, and Respondent opted to carry it over to 2000, then
the irrevocability of the option to carry over expired by the end of 2000, leaving
Respondent free to again take another option as regards its 1999 excess income tax
credit. The Court ruled that this interpretation effectively renders nugatory the
irrevocability rule.