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FIRST DIVISION G.R. No. 157594 : March 9, 2010 TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. D E C I S I O N LEONARDO-DE CASTRO, J.: In this Petition for Review on Certiorari Toshiba is a domestic corporation principally engaged in the business of manufacturing and exporting of electric machinery, equipment systems, accessories, parts, components, materials and goods of all kinds, including those relating to office automation and information technology and all types of computer hardware and software, such as but not limited to HDD-CD-ROM and personal computer printed circuit board. In its VAT returns for the first and second quarters of 1997, On March 30, 1999, Toshiba filed with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance (DOF One-Stop Shop) two separate applications for tax credit/refund The next day, on March 31, 1999, Toshiba likewise filed with the CTA a Petition for Review A]fter due hearing, judgment be rendered ordering [herein respondent Commissioner of Internal Revenue (CIR)] to refund or issue to [Toshiba] a tax refund/tax credit certificate in the amount of P3,875,139.65 representing unutilized input taxes paid on its purchase of taxable goods and services for the period January 1 to June 30, 1997. The Commissioner of Internal Revenue (CIR) opposed the claim for tax refund/credit of Toshiba, setting up the following special and affirmative defenses in his Answer
cralawUpon being advised by the CTA,
cralawIn the same pleading, Toshiba and the CIR jointly submitted the following issues for determination by the CTA Whether or not [Toshiba] has incurred input taxes in the amount of Whether or not the input taxes incurred by [Toshiba] for the period January 1 to June 30, 1997 have not been carried over to the succeeding quarters[.] Whether or not input taxes incurred by [Toshiba] for the first two quarters of 1997 have not been offset against any output tax[.] Whether or not input taxes incurred by [Toshiba] for the first two quarters of 1997 are properly substantiated by official receipts and invoices. During the trial before the CTA, Toshiba presented documentary evidence in support of its claim for tax credit/refund, while the CIR did not present any evidence at all.chanroblesvirtua|awlibary With both parties waiving the right to submit their respective memoranda, the CTA rendered its Decision in CTA Case No. 5762 on October 16, 2000 favoring Toshiba. According to the CTA, the CIR himself admitted that the export sales of Toshiba were subject to zero percent (0%) VAT based on Section 100(a)(2)(A)(i) of the Tax Code of 1977, as amended. Toshiba could then claim tax credit or refund of input VAT paid on its purchases of goods, properties, or services, directly attributable to such zero-rated sales, in accordance with Section 4.102-2 of Revenue Regulations No. 7-95. The CTA, though, reduced the amount to be credited or refunded to Toshiba to The dispositive portion of the October 16, 2000 Decision of the CTA fully reads
cralawRespondent Commissioner of Internal Revenue is ORDERED to REFUND to [Toshiba] or in the alternative, ISSUE a TAX CREDIT CERTIFICATE in the amount of Both Toshiba and the CIR sought reconsideration of the foregoing CTA Decision.chanroblesvirtua|awlibary Toshiba asserted in its Motion for Reconsideration The CIR, on the other hand, argued in his Motion for Reconsideration Section 24 of Republic Act No. 7916 SECTION 24. Exemption from Taxes Under the National Internal Revenue Code. Any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government. x x x.chanroblesvirtua|awlibary Section 103(q) of the Tax Code of 1977, as amended Sec. 103. Exempt transactions. The following shall be exempt from the value-added tax: x x x x (q) Transactions which are exempt under special laws, except those granted under Presidential Decree Nos. 66, 529, 972, 1491, and 1950, and non-electric cooperatives under Republic Act No. 6938, or international agreements to which the Philippines is a signatory.chanroblesvirtua|awlibary Section 4.103-1 of Revenue Regulations No. 7-95 SEC. 4.103-1. Exemptions. (A) In general. 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.chanroblesvirtua|awlibary 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.chanroblesvirtua|awlibary The CIR contended that under Section 24 of Republic Act No. 7916, a special law, all businesses and establishments within the ECOZONE were to remit to the government five percent (5%) of their gross income earned within the zone, in lieu of all taxes, including VAT. This placed Toshiba within the ambit of Section 103(q) of the Tax Code of 1977, as amended, which exempted from VAT the transactions that were exempted under special laws. Following Section 4.103-1(A) of Revenue Regulations No. 7-95, the VAT-exemption of Toshiba meant that its sale of goods was not subject to output VAT and Toshiba as seller was not allowed any tax credit on the input VAT it had previously paid.chanroblesvirtua|awlibary On January 17, 2001, the CTA issued a Resolution The CTA took note that the pieces of evidence referred to by Toshiba in its Motion for Reconsideration were insufficient substantiation, being mere schedules of input VAT payments it had purportedly paid for the first and second quarters of 1997. While the CTA gives credence to the report of its commissioned certified public accountant (CPA), it does not render its decision based on the findings of the said CPA alone. The CTA has its own CPA and the tax court itself conducts an investigation/examination of the documents presented. The CTA stood by its earlier disallowance of the amount of The CTA refused to consider the argument that Toshiba was not entitled to a tax credit/refund under Section 24 of Republic Act No. 7916 because it was only raised by the CIR for the first time in his Motion for Reconsideration. Also, contrary to the assertions of the CIR, the CTA held that Section 23, and not Section 24, of Republic Act No. 7916, applied to Toshiba. According to Section 23 of Republic Act No. 7916 SECTION 23. Fiscal Incentives. Business establishments operating within the ECOZONES shall be entitled to the fiscal incentives as provided for under Presidential Decree No. 66, the law creating the Export Processing Zone Authority, or those provided under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987.chanroblesvirtua|awlibary Furthermore, tax credits for exporters using local materials as inputs shall enjoy the benefits provided for in the Export Development Act of 1994.chanroblesvirtua|awlibary Among the fiscal incentives granted to PEZA-registered enterprises by the Omnibus Investments Code of 1987 was the income tax holiday, to wit Art. 39. Incentives to Registered Enterprises. All registered enterprises shall be granted the following incentives to the extent engaged in a preferred area of investment:
cralawThe CTA pointed out that Toshiba availed itself of the income tax holiday under the Omnibus Investments Code of 1987, so Toshiba was exempt only from income tax but not from other taxes such as VAT. As a result, Toshiba was liable for output VAT on its export sales, but at zero percent (0%) rate, and entitled to the credit/refund of the input VAT paid on its purchases of goods and services relative to such zero-rated export sales.chanroblesvirtua|awlibary Unsatisfied, the CIR filed a Petition for Review In its Decision dated August 29, 2002, the Court of Appeals granted the appeal of the CIR, and reversed and set aside the Decision dated October 16, 2000 and the Resolution dated January 17, 2001 of the CTA. The appellate court ruled that Toshiba was not entitled to the refund of its alleged unused input VAT payments because it was a tax-exempt entity under Section 24 of Republic Act No. 7916. As a PEZA-registered corporation, Toshiba was liable for remitting to the national government the five percent (5%) preferential rate on its gross income earned within the ECOZONE, in lieu of all other national and local taxes, including VAT.chanroblesvirtua|awlibary The Court of Appeals further adjudged that the export sales of Toshiba were VAT-exempt, not zero-rated, transactions. The appellate court found that the Answer filed by the CIR in CTA Case No. 5762 did not contain any admission that the export sales of Toshiba were zero-rated transactions under Section 100(a)(2)(A) of the Tax Code of 1977, as amended. At the least, what was admitted by the CIR in said Answer was that the Tax Code provisions cited in the Petition for Review of Toshiba in CTA Case No. 5762 were correct. As to the Joint Stipulation of Facts and Issues filed by the parties in CTA Case No. 5762, which stated that Toshiba was subject to zero percent (0%) VAT on its export sales, the appellate court declared that the CIR signed the said pleading through palpable mistake. This palpable mistake in the stipulation of facts should not be taken against the CIR, for to do otherwise would result in suppressing the truth through falsehood. In addition, the State could not be put in estoppel by the mistakes or errors of its officials or agents.chanroblesvirtua|awlibary Given that Toshiba was a tax-exempt entity under Republic Act No. 7916, a special law, the Court of Appeals concluded that the export sales of Toshiba were VAT-exempt transactions under Section 109(q) of the Tax Code of 1997, formerly Section 103(q) of the Tax Code of 1977. Therefore, Toshiba could not claim refund of its input VAT payments on its domestic purchases of goods and services.chanroblesvirtua|awlibary The Court of Appeals decreed at the end of its August 29, 2002 Decision WHEREFORE, premises considered, the appealed decision of the Court of Tax Appeals in CTA Case No. 5762, is hereby REVERSED and SET ASIDE, and a new one is hereby rendered finding [Toshiba], being a tax exempt entity under R.A. No. 7916, not entitled to refund the VAT payments made in its domestic purchases of goods and services. Toshiba filed a Motion for Reconsideration In a Resolution dated February 19, 2003, the Court of Appeals denied the Motion for Reconsideration of Toshiba since the arguments presented therein were mere reiterations of those already passed upon and found to be without merit by the appellate court in its earlier Decision. The Court of Appeals, however, mentioned that it was incorrect for Toshiba to say that the issue of the applicability of Section 24 of Republic Act No. 7916 was only raised for the first time on appeal before the appellate court. The said issue was adequately raised by the CIR in his Motion for Reconsideration before the CTA, and was even ruled upon by the tax court. Hence, Toshiba filed the instant Petition for Review with the following assignment of errors
and the following prayer WHEREFORE, premises considered, Petitioner TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC. most respectfully prays that the decision and resolution of the Honorable Court of Appeals, reversing the decision of the CTA in CTA Case No. 5762, be set aside and further prays that a new one be rendered AFFIRMING AND UPHOLDING the Decision of the CTA promulgated on October 16, 2000 in CTA Case No. 5762.chanroblesvirtua|awlibary Other reliefs, which the Honorable Court may deem just and equitable under the circumstances, are likewise prayed for. The Petition is impressed with merit. The CIR did not timely raise before the CTA the issues on the VAT-exemptions of Toshiba and its export sales.chanroblesvirtua|awlibary Upon the failure of the CIR to timely plead and prove before the CTA the defenses or objections that Toshiba was VAT-exempt under Section 24 of Republic Act No. 7916, and that its export sales were VAT-exempt transactions under Section 103(q) of the Tax Code of 1977, as amended, the CIR is deemed to have waived the same.chanroblesvirtua|awlibary During the pendency of CTA Case No. 5762, the proceedings before the CTA were governed by the Rules of the Court of Tax Appeals, Rule 9, Section 1 of the Rules of Court provides: SECTION 1. Defenses and objections not pleaded. Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the evidence on record that the court has no jurisdiction over the subject matter, that there is another action pending between the same parties for the same cause, or that the action is barred by a prior judgment or by statute of limitations, the court shall dismiss the claim.chanroblesvirtua|awlibary The CIR did not argue straight away in his Answer in CTA Case No. 5762 that Toshiba had no right to the credit/refund of its input VAT payments because the latter was VAT-exempt and its export sales were VAT-exempt transactions. The Pre-Trial Brief The CIR did not offer any explanation as to why he did not argue the VAT-exemptions of Toshiba and its export sales before and during the trial held by the CTA, only doing so in his Motion for Reconsideration of the adverse CTA judgment. Surely, said defenses or objections were already available to the CIR when the CIR filed his Answer to the Petition for Review of Toshiba in CTA Case No. 5762.chanroblesvirtua|awlibary It is axiomatic in pleadings and practice that no new issue in a case can be raised in a pleading which by due diligence could have been raised in previous pleadings. The CIR judicially admitted that Toshiba was VAT-registered and its export sales were subject to VAT at zero percent (0%) rate.chanroblesvirtua|awlibary More importantly, the arguments of the CIR that Toshiba was VAT-exempt and the latters export sales were VAT-exempt transactions are inconsistent with the explicit admissions of the CIR in the Joint Stipulation of Facts and Issues (Joint Stipulation) that Toshiba was a registered VAT entity and that it was subject to zero percent (0%) VAT on its export sales.chanroblesvirtua|awlibary The Joint Stipulation was executed and submitted by Toshiba and the CIR upon being advised to do so by the CTA at the end of the pre-trial conference held on June 23, 1999. Pre-trial is an answer to the clarion call for the speedy disposition of cases. Although it was discretionary under the 1940 Rules of Court, it was made mandatory under the 1964 Rules and the subsequent amendments in 1997. It has been hailed as "the most important procedural innovation in Anglo-Saxon justice in the nineteenth century." The nature and purpose of a pre-trial have been laid down in Rule 18, Section 2 of the Rules of Court: SECTION 2. Nature and purpose. The pre-trial is mandatory. The court shall consider:
cralawThe admission having been made in a stipulation of facts at pre-trial by the parties, it must be treated as a judicial admission. In the instant case, among the facts expressly admitted by the CIR and Toshiba in their CTA-approved Joint Stipulation are that Toshiba "is a duly registered value-added tax entity in accordance with Section 107 of the Tax Code, as amended[,]" The CIR cannot escape the binding effect of his judicial admissions.chanroblesvirtua|awlibary The Court disagrees with the Court of Appeals when it ruled in its Decision dated August 29, 2002 that the CIR could not be bound by his admissions in the Joint Stipulation because (1) the said admissions were "made through palpable mistake" The CIR does not deny that his counsel, Atty. Joselito F. Biazon, Revenue Attorney II of the BIR, signed the Joint Stipulation, together with the counsel of Toshiba, Atty. Patricia B. Bisda. Considering the presumption of regularity in the performance of official duty, Yet, the Court observes that the CIR himself never alleged in his Motion for Reconsideration of the CTA Decision dated October 16, 2000, nor in his Petition for Review before the Court of Appeals, that Atty. Biazon committed a mistake in signing the Joint Stipulation. Since the CIR did not make such an allegation, neither did he present any proof in support thereof. The CIR began to aver the existence of a palpable mistake only after the Court of Appeals made such a declaration in its Decision dated August 29, 2002.chanroblesvirtua|awlibary Despite the absence of allegation and evidence by the CIR, the Court of Appeals, on its own, concluded that the admissions of the CIR in the Joint Stipulation were due to a palpable mistake based on the following deduction Scrutinizing the Answer filed by [the CIR], we rule that the Joint Stipulation of Facts and Issues signed by [the CIR] was made through palpable mistake. Quoting paragraph 4 of its Answer, [the CIR] states: "4. He ADMITS the allegations contained in paragraph 5 of the petition only insofar as the cited provisions of Tax Code is concerned, but SPECIFICALLY DENIES the rest of the allegations therein for being mere opinions, arguments or gratuitous assertions on the part of [Toshiba] and/or because they are mere erroneous conclusions or interpretations of the quoted law involved, the truth of the matter being those stated hereunder x x x xcra|aw" And paragraph 5 of the petition for review filed by [Toshiba] before the CTA states: "5. Petitioner is subject to zero percent (0%) value-added tax on its export sales in accordance with then Section 100(a)(2)(A) of the Tax Code x x x.chanroblesvirtua|awlibary x x x xcra|aw" As we see it, nothing in said Answer did [the CIR] admit that the export sales of [Toshiba] were indeed zero-rated transactions. At the least, what was admitted only by [the CIR] concerning paragraph 4 of his Answer, is the fact that the provisions of the Tax Code, as cited by [Toshiba] in its petition for review filed before the CTA were correct. The Court of Appeals provided no explanation as to why the admissions of the CIR in his Answer in CTA Case No. 5762 deserved more weight and credence than those he made in the Joint Stipulation. The appellate court failed to appreciate that the CIR, through counsel, Atty. Biazon, also signed the Joint Stipulation; and that absent evidence to the contrary, Atty. Biazon is presumed to have signed the Joint Stipulation willingly and knowingly, in the regular performance of his official duties. Additionally, the Joint Stipulation The judicial admissions of the CIR in the Joint Stipulation are not intrinsically false, wrong, or illegal, and are consistent with the ruling on the VAT treatment of PEZA-registered enterprises in the previous Toshiba case.chanroblesvirtua|awlibary There is no basis for believing that to bind the CIR to his judicial admissions in the Joint Stipulation that Toshiba was a VAT-registered entity and its export sales were zero-rated VAT transactions would result in "falsehood, unfairness and injustice." The judicial admissions of the CIR are not intrinsically false, wrong, or illegal. On the contrary, they are consistent with the ruling of this Court in a previous case involving the same parties, Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.) Inc. In the Toshiba case, Toshiba sought the refund of its unutilized input VAT on its purchase of capital goods and services for the first and second quarters of 1996, based on Section 106(b) of the Tax Code of 1977, as amended. SEC. 106. Refunds or tax credits of creditable input tax. (a) Any VAT-registered person, whose sales are zero-rated or effectively zero-rated, may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 100(a)(2)(A)(i),(ii) and (b) and Section 102(b)(1) and (2), the acceptable foreign currency exchange proceeds thereof has been duly accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties of services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume sales.chanroblesvirtua|awlibary SEC. 100. Value-added tax on sale of goods or properties. (a) Rate and base of tax. x x x
cralawDespite the difference in the legal bases for the claims for credit/refund in the Toshiba case and the case at bar, the CIR raised the very same defense or objection in both that Toshiba and its transactions were VAT-exempt. Hence, the ruling of the Court in the former case is relevant to the present case.chanroblesvirtua|awlibary At the outset, the Court establishes that there is a basic distinction in the VAT-exemption of a person and the VAT-exemption of a transaction It would seem that petitioner CIR failed to differentiate between VAT-exempt transactions from VAT-exempt entities. In the case of Commissioner of Internal Revenue v. Seagate Technology (Philippines), this Court already made such distinction An exempt transaction, on the one hand, involves goods or services which, by their nature, are specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the tax status VAT-exempt or not of the party to the transaction An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a special law or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions become exempt from VAT x x x. In effect, the CIR is opposing the claim for credit/refund of input VAT of Toshiba on two grounds: (1) that Toshiba was a VAT-exempt entity; and (2) that its export sales were VAT-exempt transactions.chanroblesvirtua|awlibary It is now a settled rule that based on the Cross Border Doctrine, PEZA-registered enterprises, such as Toshiba, are VAT-exempt and no VAT can be passed on to them. The Court explained in the Toshiba case that PEZA-registered enterprise, which would necessarily be located within ECOZONES, are VAT-exempt entities, not because of Section 24 of Rep. Act No. 7916, as amended, which imposes the five percent (5%) preferential tax rate on gross income of PEZA-registered enterprises, in lieu of all taxes; but, rather, because of Section 8 of the same statute which establishes the fiction that ECOZONES are foreign territory.chanroblesvirtua|awlibary x x x x The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of 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 ten percent (10%) VAT.chanroblesvirtua|awlibary Applying said doctrine to the sale of goods, properties, and services to and from the ECOZONES, the BIR issued Revenue Memorandum Circular (RMC) No. 74-99, on 15 October 1999. Of particular interest to the present Petition is Section 3 thereof, which reads SECTION 3. Tax Treatment of Sales Made by a VAT Registered Supplier from the Customs Territory, to a PEZA Registered Enterprise.
cralawThis Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to the benefit of the zero percent (0%) VAT for sales made to the aforementioned ECOZONE enterprises and shall serve as sufficient compliance to the requirement for prior approval of zero-rating imposed by Revenue Regulations No. 7-95 effective as of the date of the issuance of this Circular.chanroblesvirtua|awlibary Indubitably, no output VAT may be passed on to an ECOZONE enterprise since it is a VAT-exempt entity. x x x. The Court, nevertheless, noted in the Toshiba case that the rule which considers any sale by a supplier from the Customs Territory to a PEZA-registered enterprise as export sale, which should not be burdened by output VAT, was only clearly established on October 15, 1999, upon the issuance by the BIR of RMC No. 74-99. Prior to October 15, 1999, whether a PEZA-registered enterprise was exempt or subject to VAT depended on the type of fiscal incentives availed of by the said enterprise. According to the old rule, Section 23 of Rep. Act No. 7916, as amended, gives the PEZA-registered enterprise the option to choose between two sets of fiscal incentives: (a) The five percent (5%) preferential tax rate on its gross income under Rep. Act No. 7916, as amended; and (b) the income tax holiday provided under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, as amended.chanroblesvirtua|awlibary The five percent (5%) preferential tax rate on gross income under Rep. Act No. 7916, as amended, is in lieu of all taxes. Except for real property taxes, no other national or local tax may be imposed on a PEZA-registered enterprise availing of this particular fiscal incentive, not even an indirect tax like VAT.chanroblesvirtua|awlibary Alternatively, Book VI of Exec. Order No. 226, as amended, grants income tax holiday to registered pioneer and non-pioneer enterprises for six-year and four-year periods, respectively. Those availing of this incentive are exempt only from income tax, but shall be subject to all other taxes, including the ten percent (10%) VAT.chanroblesvirtua|awlibary This old rule clearly did not take into consideration the Cross Border Doctrine essential to the VAT system or the fiction of the ECOZONE as a foreign territory. It relied totally on the choice of fiscal incentives of the PEZA-registered enterprise. Again, for emphasis, the old VAT rule for PEZA-registered enterprises was based on their choice of fiscal incentives: (1) If the PEZA-registered enterprise chose the five percent (5%) preferential tax on its gross income, in lieu of all taxes, as provided by Rep. Act No. 7916, as amended, then it would be VAT-exempt; (2) If the PEZA-registered enterprise availed of the income tax holiday under Exec. Order No. 226, as amended, it shall be subject to VAT at ten percent (10%). Such distinction was abolished by RMC No. 74-99, which categorically declared that all sales of goods, properties, and services made by a VAT-registered supplier from the Customs Territory to an ECOZONE enterprise shall be subject to VAT, at zero percent (0%) rate, regardless of the latters type or class of PEZA registration; and, thus, affirming the nature of a PEZA-registered or an ECOZONE enterprise as a VAT-exempt entity. To recall, Toshiba is herein claiming the refund of unutilized input VAT payments on its local purchases of goods and services attributable to its export sales for the first and second quarters of 1997. Such export sales took place before October 15, 1999, when the old rule on the VAT treatment of PEZA-registered enterprises still applied. Under this old rule, it was not only possible, but even acceptable, for Toshiba, availing itself of the income tax holiday option under Section 23 of Republic Act No. 7916, in relation to Section 39 of the Omnibus Investments Code of 1987, to be subject to VAT, both indirectly (as purchaser to whom the seller shifts the VAT burden) and directly (as seller whose sales were subject to VAT, either at ten percent [10%] or zero percent [0%]).chanroblesvirtua|awlibary A VAT-registered seller of goods and/or services who made zero-rated sales can claim tax credit or refund of the input VAT paid on its purchases of goods, properties, or services relative to such zero-rated sales, in accordance with Section 4.102-2 of Revenue Regulations No. 7-95, which provides Sec. 4.102-2. Zero-rating. (a) In general. - 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.chanroblesvirtua|awlibary The BIR, as late as July 15, 2003, when it issued RMC No. 42-2003, accepted applications for credit/refund of input VAT on purchases prior to RMC No. 74-99, filed by PEZA-registered enterprises which availed themselves of the income tax holiday. The BIR answered Question Q-5(1) of RMC No. 42-2003 in this wise Q-5: Under Revenue Memorandum Circular (RMC) No. 74-99, purchases by PEZA-registered firms automatically qualify as zero-rated without seeking prior approval from the BIR effective October 1999.
cralawFor invoices/receipts issued upon the effectivity of RMC No. 74-99, the claims for input VAT by PEZA-registered companies, regardless of the type or class of PEZA-registration, should be denied. (Emphases ours.) Consequently, the CIR cannot herein insist that all PEZA-registered enterprises are VAT-exempt in every instance. RMC No. 42-2003 contains an express acknowledgement by the BIR that prior to RMC No. 74-99, there were PEZA-registered enterprises liable for VAT and entitled to credit/refund of input VAT paid under certain conditions.chanroblesvirtua|awlibary This Court already rejected in the Toshiba case the argument that sale transactions of a PEZA-registered enterprise were VAT-exempt under Section 103(q) of the Tax Code of 1977, as amended, ratiocinating that Section 103(q) of the Tax Code of 1977, as amended, relied upon by petitioner CIR, relates to VAT-exempt transactions. These are transactions exempted from VAT by special laws or international agreements to which the Philippines is a signatory. Since such transactions are not subject to VAT, the sellers cannot pass on any output VAT to the purchasers of goods, properties, or services, and they may not claim tax credit/refund of the input VAT they had paid thereon.chanroblesvirtua|awlibary Section 103(q) of the Tax Code of 1977, as amended, cannot apply to transactions of respondent Toshiba because although the said section recognizes that transactions covered by special laws may be exempt from VAT, the very same section provides that those falling under Presidential Decree No. 66 are not. Presidential Decree No. 66, creating the Export Processing Zone Authority (EPZA), is the precursor of Rep. Act No. 7916, as amended, under which the EPZA evolved into the PEZA. Consequently, the exception of Presidential Decree No. 66 from Section 103(q) of the Tax Code of 1977, as amended, extends likewise to Rep. Act No. 7916, as amended. In light of the judicial admissions of Toshiba, the CTA correctly confined itself to the other factual issues submitted for resolution by the parties.chanroblesvirtua|awlibary In accord with the admitted facts that Toshiba was a VAT-registered entity and that its export sales were zero-rated transactions the stated issues in the Joint Stipulation were limited to other factual matters, particularly, on the compliance by Toshiba with the rest of the requirements for credit/refund of input VAT on zero-rated transactions. Thus, during trial, Toshiba concentrated on presenting evidence to establish that it incurred After what truly appears to be an exhaustive review of the evidence presented by Toshiba, the CTA made the following findings
cralawSince the aforementioned findings of fact of the CTA are borne by substantial evidence on record, unrefuted by the CIR, and untouched by the Court of Appeals, they are given utmost respect by this Court.chanroblesvirtua|awlibary The Court will not lightly set aside 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. Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect. In Sea-Land Service Inc. v. Court of Appeals G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect.chanroblesvirtua|awlibary WHEREFORE, the assailed Decision dated August 29, 2002 and the Resolution dated February 19, 2003 of the Court of Appeals in CA-G.R. SP No. 63047 are REVERSED and SET ASIDE, and the Decision dated October 16, 2000 of the Court of Tax Appeals in CTA Case No. 5762 is REINSTATED. Respondent Commissioner of Internal Revenue is ORDERED to REFUND or, in the alternative, to ISSUE a TAX CREDIT CERTIFICATE in favor of petitioner Toshiba Information Equipment (Phils.), Inc. in the amount of SO ORDERED. TERESITA J. LEONARDO-DE CASTRO WE CONCUR: REYNATO S. PUNO
MARTIN S. VILLARAMA, JR. C E R T I F I C A T I O N Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO cralaw Endnotes:
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