Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

149671 July 21, 2006

On the other hand, the dispositive portion of the !T' Decision reads, <(!EREFORE, the instant Petition for Revie$ is PARTIALL) GRANTE*. APetitionerB is hereb( ordered to refund or to issue a Ta% !redit !ertificate in favor of the ARespondentB in the a+ount of P3,;99,-76.65 representin# e%cess input ta%es paid for the period coverin# Canuar( - to Cune ;7, -::9.<4 T$% F&+,' The uncontested5 facts are narrated b( the !' as follo$s, <Respondent is a do+estic corporation dul( or#ani2ed and e%istin# under and b( virtue of the la$s of the Philippines $ith principal office located at the Special %port Processin# &one, @a#una Technopar?, "iDan, @a#una. It is principall( en#a#ed in the business of +anufacturin#, i+portin#, e%portin#, bu(in#, sellin#, or other$ise dealin# in, at $holesale such #oods as strappin# bands and other pac?a#in# +aterials and #oods of si+ilar nature, and an( and all eEuip+ent, +aterials, supplies used or e+plo(ed in or related to the +anufacture of such finished products. <1avin# re#istered $ith the "ureau of Internal Revenue )"IR* as a value0 added ta% )V'T* ta%pa(er, respondent filed its Euarterl( returns $ith the "IR, for the period Canuar( - to Cune ;7, -::9, reflectin# therein input ta%es in the a+ount of P3,5;-,-;6.97 paid b( it in connection $ith its do+estic purchase of capital #oods and services. Said input ta%es re+ained unutili2ed since respondent has not en#a#ed in an( business activit( or transaction for $hich it +a( be liable for output ta% and for $hich said input ta%es +a( be credited. <On Nove+ber --, -::F, respondent filed $ith the One0Stop0Shop Inter0 '#enc( Ta% !redit and Dut( Dra$bac? !enter of the Depart+ent of Finance )! NT R0DOF* t$o )6* separate applications for ta% creditGrefund of V'T input ta%es paid for the period Canuar( - to March ;-, -::9 and 'pril - to Cune ;7, -::9, respectivel(. There bein# no action on its

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SE ISUI JUS!I P!ILIPPINES, INC., respondent. D PANGANI"AN, C.J.# "usiness enterprises re#istered $ith the Philippine %port &one 'uthorit( )P &'* +a( choose bet$een t$o fiscal incentive sche+es, )-* to pa( a five percent preferential ta% rate on its #ross inco+e and thus be e%e+pt fro+ all other ta%es. or )b* to en/o( an inco+e ta% holida(, in $hich case it is not e%e+pt fro+ applicable national revenue ta%es includin# the value0added ta% )V'T*. The present respondent, $hich availed itself of the second ta% incentive sche+e, has proven that all its transactions $ere e%port sales. 1ence, the( should be V'T 2ero0rated. T$% C&'% "efore us is a Petition for Revie$ - under Rule 34 of the Rules of !ourt, challen#in# the 'u#ust -5, 677- Decision6 of the !ourt of 'ppeals )!'* in !'08R SP No. 5359:. The assailed Decision upheld the 'pril 65, 677- Decision ; of the !ourt of Ta% 'ppeals )!T'* in !T' !ase No. 494-. The !' Decision disposed as follo$s, <=1 R FOR , pre+ises considered, the present petition for revie$ is hereb( D NI D D> !O>RS and accordin#l( DISMISS D for lac? of +erit. The Decision dated 'pril 65, 677- of the !ourt of Ta% 'ppeals in !T' !ase No. 494- is hereb( 'FFIRM D and >P1 @D.<3 !ISION

application for ta% creditGrefund under Section --6 )"* of the -::9 National Internal Revenue !ode )Ta% !ode*, as a+ended, private respondent filed, $ithin the t$o )6*0(ear prescriptive period under Section 66: of said !ode, a petition for revie$ $ith the !ourt of Ta% 'ppeals on March 65, -:::. <Petitioner filed its 'ns$er to the petition asseveratin# that, )-* said clai+ for ta% creditGrefund is sub/ect to ad+inistrative routinar( investi#ation b( the "IR. )6* respondent +iserabl( failed to sho$ that the a+ount clai+ed as V'T input ta%es $ere erroneousl( collected or that the sa+e $ere properl( docu+ented. );* ta%es due and collected are presu+ed to have been +ade in accordance $ith la$, hence, not refundable. )3* the burden of proof is on the ta%pa(er to establish his ri#ht to a refund in an action for ta% refund. Failure to dischar#e such dut( is fatal to his action. )4* respondent should sho$ that it co+plied $ith the provisions of Section 673 in relation to Section 66: of the -::9 Ta% !ode. and )5* clai+s for refund are strictl( construed a#ainst the ta%pa(er as it parta?es of the nature of a ta% e%e+ption. 1ence, petitioner pra(ed for the denial of respondentHs petition.<9 Rul-./ o0 ,$% Cou1, o0 T&2 A33%&l' The !T' ruled that respondent $as entitled to the refund. =hile the co+pan( $as re#istered $ith the P &' as an eco2one and $as, as such, e%e+pt fro+ inco+e ta%, it availed itself of the fiscal incentive under %ecutive Order No. 665. It thereb( sub/ected itself to other internal revenue ta%es li?e the V'T. F The !T' then found that onl( input ta%es a+ountin# to P3,;99,-76.65 $ere dul( substantiated b( invoices and Official Receipts,: $hile those a+ountin# to P643,;-;.3; had not been sufficientl( proven and $ere thus disallo$ed.-7 Rul-./ o0 ,$% Cou1, o0 A33%&l' The !ourt of 'ppeals upheld the Decision of the !T'. 'ccordin# to the !', respondent had co+plied $ith the procedural and substantive reEuire+ents for a clai+ b( -* sub+ittin# receipts, invoices, and supportin# papers as evidence. 6*

pa(in# the sub/ect input ta%es on capital #oods. ;* not appl(in# the input ta%es a#ainst an( output ta% liabilit(. and 3* filin# the clai+ $ithin the t$o0(ear prescriptive period under Section 66: of the -::9 Ta% !ode.-1ence, this Petition.-6 T$% I''u% Petitioner raises this sole issue for our consideration, <=hether or not respondent is entitled to the refund or issuance of ta% credit certificate in the a+ount ofP3,;99,-76.65 as alle#ed unutili2ed input ta%es paid on do+estic purchase of capital #oods and services for the period coverin# Canuar( - to Cune ;7, -::9.<-; T$% Cou1,4' Rul-./ The Petition has no +erit. Sol% E.,-,l%5%., ,o R%0u.6 To support the issue raised, petitioner advances the follo$in# ar#u+ents, <I. The !ourt of 'ppeals erred in not holdin# that respondent bein# re#istered $ith the Philippine cono+ic &one 'uthorit( )P &'* as an AeBco2one AeB%port AeBnterprise, its business is not sub/ect to V'T pursuant to Section 63 of Republic 'ct No. 9:-5 in relation to Section -7; )no$ Sec. -7:* of the Ta% !ode, as a+ended b( R.'. 99-5. <II. The !ourt of 'ppeals erred in not holdin# that since respondent is I MPT fro+ Value0'dded Ta% )V'T*, the capital #oods and services it purchased are considered not used in V'T ta%able business, hence, is not allo$ed an( ta% creditGrefund on V'T input ta% previousl( paid on such capital #oods pursuant to Section 3.-750- of Revenue Re#ulations No. 90:4, I''u%#

and of input ta%es paid on services pursuant to Section 3.-7;0- of the sa+e re#ulations. <III. The !ourt of 'ppeals erred in not holdin# that ta% refunds bein# in the nature of ta% e%e+ptions are construed strictissi+i /uris a#ainst clai+ants.<-3 These issues have previousl( been addressed b( this !ourt in !o++issioner of Internal Revenue v. Toshiba Infor+ation Euip+ent )Phils.* ,-4 !o++issioner of Internal Revenue v. !ebu To(o !orporation ,-5 and!o++issioner of Internal Revenue v. Sea#ate Technolo#( )Philippines*.-9 'n entit( re#istered $ith the P &' as an eco2one -F +a( be covered b( the V'T s(ste+. Section 6; of Republic 'ct 9:-5, as a+ended, #ives a P &'0re#istered enterprise the option to choose bet$een t$o fiscal incentives, a* a five percent preferential ta% rate on its #ross inco+e under the said la$. or b* an inco+e ta% holida( provided under %ecutive Order No. 665 or the O+nibus Invest+ent !ode of -:F9, as a+ended. If the entit( avails itself of the five percent preferential ta% rate under the first sche+e, it is e%e+pt fro+ all ta%es, includin# the V'T. -: under the second, it is e%e+pt fro+ inco+e ta%es for a nu+ber of (ears, 67 but not fro+ other national internal revenue ta%es li?e the V'T.6The !' and !T' found that respondent had availed itself of the fiscal incentive of an inco+e ta% holida( under %ecutive Order No. 665. This !ourt respects that factual findin#. 'bsent a sufficient sho$in# of error, findin#s of the !T' as affir+ed b( the !' are dee+ed conclusive.66 Moreover, a perusal of the pleadin#s and supportin# docu+ents before us indicates that $hen it re#istered as a V'T0 entit( 00 a fact ad+itted b( the parties 00 respondent intended to avail itself of the inco+e ta% holida(.6; Veril(, bein# a Euestion of fact, the t(pe of fiscal incentive chosen cannot be a sub/ect of this Petition, $hich should raise onl( Euestions of la$. "( availin# itself of the inco+e ta% holida(, respondent beca+e sub/ect to the V'T. It correctl( re#istered as a V'T ta%pa(er, because its transactions $ere not V'T0 e%e+pt.

Notabl(, $hile an eco2one is #eo#raphicall( $ithin the Philippines, it is dee+ed a separate custo+s territor(63 and is re#arded in la$ as forei#n soil. 64 Sales b( suppliers fro+ outside the borders of the eco2one to this separate custo+s territor( are dee+ed as e%ports65 and treated as e%port sales.69 These sales are 2ero0rated or sub/ect to a ta% rate of 2ero percent.6F Not$ithstandin# the fact that its purchases should have been 2ero0rated, respondent $as able to prove that it had paid input ta%es in the a+ount of P3,;99,-76.65. The !T' found, and the !' affir+ed, that this a+ount $as substantiall( supported b( invoices and Official Receipts. 6: and petitioner has not challen#ed the co+putation. 'ccordin#l(, this !ourt upholds the findin#s of the !T' and the !'. On the other hand, since -77 percent of the products of respondent are e%ported,;7 all its transactions are dee+ed e%port sales and are thus V'T 2ero0 rated. It has been sho$n that respondent has no output ta% $ith $hich it could offset its paid input ta%.;- Since the sub/ect input ta% it paid for its do+estic purchases of capital #oods and services re+ained unutili2ed, it can clai+ a refund for the input V'T previousl( char#ed b( its suppliers. ;6 The a+ount of P3,;99,-76.65 is e%cess input ta%es that /ustif( a refund. (!EREFORE, the Petition is *ENIE* and the assailed Decision AFFIRME*. No costs, as petitioner is a #overn+ent a#enc(. SO OR*ERE*