VALUE ADDED TAX CASES

ABAKADA Guro Party List vs. Ermita

G.R. No. 168056 September 1, 2005

Facts:
ABAKADA GURO Party List, et al., filed a petition for prohibition o questioning the constitutionality of
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National
Internal Revenue Code (NIRC).
Section 4 imposes a 10% VAT on sale of goods and properties;
Section 5 imposes a 10% VAT on importation of goods; and
Section 6 imposes a 10% VAT on sale of services and use or lease of properties;

These provisions contain a provision which authorizing the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions
have been satisfied.

Issues:
Whether or not there is a violation of Article VI, Section 24 of the Constitution.

Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the
Constitution.

Whether or not there is a violation of the due process and equal protection of the Constitution.

Ruling:
No, the revenue bill exclusively originated in the House of Representatives, the Senate was acting within
its constitutional power to introduce amendments to the House bill when it included provisions in
Senate Bill No. 1950 amending corporate income taxes, percentage, and excise and franchise taxes.

No, there is no undue delegation of legislative power but only of the discretion as to the execution of a
law. This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate
power when it describes what job must be done, who must do it, and what is the scope of his authority;
in our complex economy that is frequently the only way in which the legislative process can go forward.
In this case, it is not a delegation of legislative power but a delegation of ascertainment of facts upon
which enforcement and administration of the increased rate under the law is contingent.

No, the power of the State to make reasonable and natural classifications for the purposes of taxation
has long been established. Whether it relates to the subject of taxation, the kind of property, the rates
to be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the
State’s power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such
power absent a clear showing of unreasonableness, discrimination, or arbitrariness.
Tolentino v. Secretary of Finance
Arturo Tolentino v. Secretary of Finance and Commissioner of Internal Revenue
G.R. No. 115455; October 30, 1995
Mendoza, J.:

FACTS:
The present case involves motions seeking reconsideration of the Court’s decision dismissing the
petitions for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded
Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several
petitioners.

The Philippine Press Institute, Inc. (PPI) contends that by removing the exemption of the press from the
VAT while maintaining those granted to others, the law discriminates against the press. At any rate, it is
averred, “even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional”,
citing in support of the case of Murdock v. Pennsylvania.

Chamber of Real Estate and Builders Associations, Invc., (CREBA), on the other hand, asserts that R.A.
No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt
without reasonable basis and (3) violates the rule that taxes should be uniform and equitable and that
Congress shall “evolve a progressive system of taxation”.

Further, the Cooperative Union of the Philippines (CUP), argues that legislature was to adopt a definite
policy of granting tax exemption to cooperatives that the present Constitution embodies provisions on
cooperatives. To subject cooperatives to the VAT would, therefore, be to infringe a constitutional policy.

ISSUE:
Whether or not, based on the aforementioned grounds of the petitioners, the Expanded Value-Added
Tax Law should be declared unconstitutional.

RULING:
No. With respect to the first contention, it would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The reason
is simple: by granting exemptions, the State does not forever waive the exercise of its sovereign
prerogative. Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax
burden to which other businesses have long ago been subject. The PPI asserts that it does not really
matter that the law does not discriminate against the press because “even nondiscriminatory taxation
on constitutionally guaranteed freedom is unconstitutional.”

The Court was speaking in that case (Murdock v. Pennsylvania) of a license tax, which, unlike an ordinary
tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior
restraint on the exercise of its right. The VAT is, however, different. It is not a license tax. It is not a tax
on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or
exchange of goods or properties or the sale or exchange of services and the lease of properties purely
for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any
more than to make the press pay income tax or subject it to general regulation is not to violate its
freedom under the Constitution.
Anent the first contention of CREBA, it has been held in an early case that even though such taxation
may affect particular contracts, as it may increase the debt of one person and lessen the security of
another, or may impose additional burdens upon one class and release the burdens of another, still the
tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of
any existing contract in its true legal sense. It is next pointed out that while Section 4 of R.A. No. 7716
exempts such transactions as the sale of agricultural products, food items, petroleum, and medical and
veterinary services, it grants no exemption on the sale of real property which is equally essential. The
sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and
services was already exempt under Section 103, pars. (b) (d) (1) of the NIRC before the enactment of
R.A. No. 7716.

Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these transactions while
subjecting those of petitioner to the payment of the VAT. Finally, it is contended that R.A. No. 7716 also
violates Art. VI, Section 28(1) which provides that “The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of taxation”. Nevertheless, equality and uniformity of
taxation mean that all taxable articles or kinds of property of the same class be taxed at the same rate.
The taxing power has the authority to make reasonable and natural classifications for purposes of
taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all
persons, firms, and corporations placed in similar situation.

Furthermore, the Constitution does not really prohibit the imposition of indirect taxes which, like the
VAT, are regressive. What it simply provides is that Congress shall “evolve a progressive system of
taxation.” The constitutional provision has been interpreted to mean simply that “direct taxes are . . . to
be preferred [and] as much as possible, indirect taxes should be minimized.” The mandate to Congress is
not to prescribe, but to evolve, a progressive tax system.

As regards the contention of CUP, it is worth noting that its theory amounts to saying that under the
Constitution cooperatives are exempt from taxation. Such theory is contrary to the Constitution under
which only the following are exempt from taxation: charitable institutions, churches, and parsonages, by
reason of Art. VI, §28 (3), and non-stock, non-profit educational institutions by reason of Art. XIV, §4 (3).
With all the foregoing ratiocinations, it is clear that the subject law bears no constitutional infirmities
and is thus upheld.

CIR vs. Magsaysay Lines, Inc. , et. al G.R. 146984, 28 July 2006

Facts:
Because of a government program of privatization, National Development Company (NDC) decided to
sell its National Marine Corporation (NMC) shares and five of its ships. In a VAT Ruling, 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 such 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 ordinary 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 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. Any sale, barter, or exchange of goods or services not in the
course of trade or business is not subject to tax.

Philippine Acetylene Co. Inc v CIR (1967)

Philippine Acetylene Co. Inc. v CIR GR No L-19707, August 17, 1967

FACTS:
Philippine Acetylene Co. Inc. is engaged in the manufacture and sale of oxygen and acetylene gases. It
sold its products to the National Power Corporation (Napocor), an agency of the Philippine Government,
and the Voice of America (VOA), an agency of the United States Government. When the commissioner
assessed deficiency sales tax and surcharges against the company, the company denied liability for the
payment of tax on the ground that both Napocor and VOA are exempt from taxes.

ISSUE:
Is Philippine Acetylene Co. liable for tax?

RULING:
Yes. Sales tax are paid by the manufacturer or producer who must make a true and complete return of
the amount of his, her or its gross monthly sales, receipts or earnings or gross value of output actually
removed from the factory or mill, warehouse and to pay the tax due thereon. The tax imposed by
Section 186 of the Tax Code is a tax on the manufacturer or producer and not a tax on the purchaser
except probably in a very remote and inconsequential sense. Accordingly, its levy on the sales made to
tax- exempt entities like the Napocor is permissible.

On the other hand, there is nothing in the language of the Military Bases Agreement to warrant the
general exemption granted by General Circular V-41 (1947). Thus, the expansive construction of the tax
exemption is void; and the sales to the VOA are subject to the payment of percentage taxes under
Section 186 of the Tax Code. Therefore, tax exemption is strictly construed and exemption will not be
held to confer unless the terms under which it is granted clearly and distinctly show that such was the
intention.

CIR v American Rubber Company (1966)

CIR v American Rubber Company GR No L-19667, November 29, 1966

FACTS:
American Rubber Company sold its rubber products locally and as prescribed by the Commissioner’s
regulation, the company declared the same for tax purposes in which the Commissioner accordingly
assessed. The company paid under protest the corresponding sales taxes thereon, claiming exemption
under Section 188b of the Tax Code, and subsequently claimed refund. With the Commissioner refusing
to do so, the case was brought before the Court of Tax Appeals, which upheld the Commissioner’s stand
that the company is not entitled to recover the sales tax that had been separately billed to its
customers, and paid by the latter.

ISSUE:
Whether plaintiff is or is not entitled to recover the sales tax paid by it, but passed on to and paid by the
buyers of its products

RULING:
Refund is proper. The sales tax is by law imposed directly, not on the thing sold, but on the act (sale) of
the manufacturer, producer or importer who is exclusively made liable for its time payment. There is no
proof that the tax paid by plaintiff is the very money paid by its customers. Where the tax money paid
by the plaintiff came from is really no concern of the Government. Anyway, once recovered, the plaintiff
must hold the refund taxes in trust for the individual purchasers who advanced payment thereof, and
whose names must appear in plaintiff’s records.

It would need to tend to perpetuate illegal taxation; for the individual customers to whom the tax is
ultimately shifted will ordinarily not care to sue for its recovery, in view of the small amount paid by
each and the high cost of litigation for the reclaiming of an illegal tax. Insofar, therefore, as it favors the
imposition, collection and retention of illegal taxes, and encourages a multiplicity of suits, the tax court’s
ruling under appeal violates morals and public policy.

OMMISSIONER OF INTERNAL REVENUE, petitioner, vs. JOHN GOTAMCO & SONS, INC. and THE COURT
OF TAX APPEALS, respondents.

FACTS:
The World Health Organization (WHO), an international organization, entered into a Host Agreement
with the Republic of the Philippines on July 22, 1951. In the agreement, WHO’S assets, income and other
properties shall be exempt from all direct and indirect taxes. WHO decided to construct a building to
house its own offices, as well as the other United Nations offices stationed in Manila.

In inviting bids for the construction of the building, WHO informed the bidders that the building to be
constructed belonged to an international organization with diplomatic status and thus exempt from the
payment of all fees, licenses, and taxes, and that therefore their bids “must take this into account and
should not include items for such taxes, licenses and other payments to Government agencies.” The
construction contract was awarded to respondent John Gotamco & Sons, Inc. on February 10, 1958.

On June 3, 1958, the Commissioner of Internal Revenue stated that “as the 3% contractor’s tax is not a
direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, the same is
not covered by . . . the Host Agreement.”

On January 2, 1960, the WHO issued a certification that the bid of Gotamco should be exempted from
any taxes in connection with the construction of the WHO office building because taxes or fees in
connection with the construction of the building is an indirect tax to WHO.
On January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to Gotamco
demanding payment of P 16,970.40, representing the 3% contractor’s tax plus surcharges on the gross
receipts it received from the WHO in the construction of the latter’s building.
Respondent Gotamco appealed the Commissioner’s decision to the Court of Tax Appeals, which after
trial rendered a decision, in favor of Gotamco and reversed the Commissioner’s decision.

ISSUES:
1. Whether or not the 3% contractor’s tax assessed on Gotamco is an “indirect tax”.
2. Whether respondent John Gotamco & Sons, Inc. should pay the 3% contractor’s tax under
Section 191 of the National Internal Revenue Code on the gross receipts it realized from the
construction of the World Health Organization office building in Manila.

RULING:
The Petitioner’s position is that the contractor’s tax “is in the nature of an excise tax which is a charge
imposed upon the performance of an act, the enjoyment of a privilege or the engaging in an occupation.
. . It is a tax due primarily and directly on the contractor, not on the owner of the building. Since this tax
has no bearing upon the WHO, it cannot be deemed an indirect taxation upon it.”

The Court agreed with the Court of Tax Appeals in rejecting this contention of the petitioner. The CA
stated: The contractor’s tax is of course payable by the contractor but in the last analysis it is the owner
of the building that shoulders the burden of the tax because the same is shifted by the contractor to the
owner as a matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on the WHO
because, although it is payable by the petitioner, the latter can shift its burden on the WHO. In the last
analysis it is the WHO that will pay the tax indirectly through the contractor and it certainly cannot be
said that ‘this tax has no bearing upon the World Health Organization.

The Host Agreement, in specifically exempting the WHO from “indirect taxes,” contemplates taxes
which, although not imposed upon or paid by the Organization directly, form part of the price paid or to
be paid by it. The 3% contractor’s tax would be within this category and should be viewed as a form of
an “indirect tax” On the Organization, as the payment thereof or its inclusion in the bid price would have
meant an increase in the construction cost of the building.

APPEALED DECISION AFFIRMED.

Contex Corporation vs Commissioner of Internal Revenue (G.R. No.151135, July 2, 2004)

Facts:
Petitioner Contex Corporation (CONTEX) is a domestic corporation engaged in the business of
manufacturing hospital textiles and garments and other hospital supplies for export. Petitioner’s place
of business is at the Subic Bay Freeport Zone (SBFZ). It is duly registered with the Subic Bay
Metropolitan Authority (SBMA) as a Subic Bay Freeport Enterprise, pursuant to the provisions of RA
7227.

As an SBMA-registered firm, petitioner is exempt from all local and national internal revenue taxes
except for the 5% preferential tax provided in RA 7227. Petitioner also registered with the BIR as a
The Court of Appeals reversed the CTA’s ruling, hence, this petition.
Issue/s:
Was COMASERCO engaged in the sale of services, and thus, liable to pay VAT?

Held:
Yes. Section 99 of the National Internal Revenue Code of 1986 provides that: “Any person who, in the
course of trade or business, sells, barters or exchanges goods, renders services, or engages in similar
transactions and any person, who, imports goods shall be subject to VAT imposed in Sections 100 to 102
of this Code. The Higher Court clarified the meaning of the term “in the course of trade or business” by
citing Section 105 of RA 8424 which took effect on January 1, 1998. The phrase “in the course of trade
or business” means the regular conduct or pursuit of a commercial or an economic activity, including
transactions incidental thereto, by any person regardless of whether or not the person engaged therein
is a non-stock, non-profit organization (irrespective of the disposition of its net income and whether or
not it sells exclusively to members or their guests), or government entity.

It is immaterial whether the primary purpose of a corporation indicates that it receives payments for
services rendered to its affiliates on a reimbursement-of-cost basis only, without realizing profit, for
purposes of determining liability for VAT on services rendered. As long as the entity provides services
for a fee, remuneration or consideration, then the service rendered is subject to VAT.

Secondly, it is a rule that business taxes are the lifeblood of the nation, statutes that allow exemptions
are construed strictly against the grantee and liberally in favor of the government. Otherwise stated,
any exemption from the payment of a tax must be clearly stated in the language of the law, it cannot be
merely implied therefrom. In the case of the VAT, Section 109, RA 8424 clearly enumerates the
transactions exempted from VAT. The services rendered by COMASERCO do not fall within the
exemptions.

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.

Having determined that respondent’s purchase transactions are subject to a zero VAT rate, the SC has
determined that tax refund or credit is in order.

Commissioner of Internal Revenue vs. Acesite (Philippines) Hotel Corporation, 516 SCRA 93, G.R. No.
147295. February 16, 2007
Velasco, JR., J.

Facts:
Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along United Nations Avenue
in Manila. It leases 6,768.53 square meters of the hotel’s premises to the Philippine Amusement and
Gaming Corporation [hereafter, PAGCOR] for casino operations. It also caters food and beverages to
PAGCOR’s casino patrons through the hotel’s restaurant outlets. For the period January (sic) 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.

Thus, 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 [hereafter, CIR] as it feared the legal consequences of
non-payment of the tax. 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. On 21 May 1998, Acesite
filed an administrative claim for refund with the CIR but the latter failed to resolve the same. Thus on 29
May 1998, Acesite filed a petition with the Court of Tax Appeals [hereafter, CTA] which was decided in
this wise:
As earlier stated, Petitioner is subject to zero percent tax pursuant to Section 102 (b)(3) [now 106(A)(C)]
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, as a matter of course, be
refunded to the petitioner for having been inadvertently remitted to the respondent.

Thus, taking into consideration the prescribed portion of Petitioner’s claim for refund of P98,743.40, and
considering further the principle of ‘solutio indebiti’ which requires the return of what has been
delivered through mistake, Respondent must refund to the Petitioner the amount of P30,054,148.64.
Upon appeal by petitioner, the CA affirmed in toto the decision of the CTA holding that 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. Thus, the CA affirmed the
CTA’s determination by ruling that respondent Acesite was entitled to a refund of PhP 30,054,148.64
from petitioner.

Issue:
Whether PAGCOR’s tax exempton privilege includes indirect tax of VAT to entitle Acesite to zero percent
(0%) VAT rate and thus, entitled the latter a claim for refund?

Held:
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.

The VAT exemption extend 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%.
xxxx
(b) Transactions subject to zero percent (0%) rated.—
xxxx
(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).
The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such
exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from
the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc., where the absolute
tax exemption of the World Health Organization (WHO) upon an international agreement was upheld.
We held in said case that the exemption of contractee WHO should be implemented to mean that the
entity or person exempt is the contractor itself who constructed the building owned by contractee
WHO, and such does not violate the rule that tax exemptions are personal because the manifest
intention of the agreement is to exempt the contractor so that no contractor’s tax may be shifted to the
contractee WHO. Thus, the proviso in P.D. 1869, extending the exemption to entities or individuals
dealing with PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be
shifted to PAGCOR.

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. In UST Cooperative Store v. City of Manila,6 we explained that "there is erroneous payment
of taxes when a taxpayer pays under a mistake of fact, as for the instance in a case where he is not
aware of an existing exemption in his favor at the time the payment was made."7 Such payment is held
to be not voluntary and, therefore, can be recovered or refunded.

FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE-

Transitional Input Value Added Tax

FACTS:
Petitioner was a real estate developer that bought from the national government a parcel of land that
used to be the Fort Bonifacio military reservation. At the time of the said sale there was as yet no VAT
imposed so Petitioner did not pay any VAT on its purchase. Subsequently, Petitioner sold two parcels of
land to Metro Pacific Corp. In reporting the said sale for VAT purposes (because the VAT had already
been imposed in the interim), Petitioner claimed transitional input VAT corresponding to its inventory of
land. The BIR disallowed the claim of presumptive input VAT and thereby assessed Petitioner for
deficiency VAT.

ISSUE:
Is Petitioner entitled to claim the transitional input VAT on its sale of real properties given its nature as a
real estate dealer and if so (i) is the transitional input VAT applied only to the improvements on the real
property or is it applied on the value of the entire real property and (ii) should there have been a
previous tax payment for the transitional input VAT to be creditable?

HELD:
YES. Petitioner is entitled to claim transitional input VAT based on the value of not only the
improvements but on the value of the entire real property and regardless of whether there was in fact
actual payment on the purchase of the real property or not.

The amendments to the VAT law do not show any intention to make those in the real estate business
subject to a different treatment from those engaged in the sale of other goods or properties or in any
other commercial trade or business. On the scope of the basis for determining the available transitional
input VAT, the CIR has no power to limit the meaning and coverage of the term "goods" in Section 105
of the Tax Code without statutory authority or basis. The transitional input tax credit operates to benefit
newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of their
beginning inventory of goods, materials and supplies.
Toshiba Information Equipment (Phils.) Inc. v. CIR, G.R. No. 157594, 09 March 2010
05MAR
[LEONARDO-DE CASTRO, J.]

FACTS
Toshiba is a domestic corporation registered with the Philippine Economic Zone Authority (PEZA) as an
Economic Zone (ECOZONE) export enterprise.It filed two separate applications for tax credit/refund of
its unutilized input VAT payments. The CIR denied the application. On appeal, the CTA ruled that Toshiba
is entitled to the credit/refund of the input VAT paid on its purchases of goods and services relative to
such zero-rated export sales. The Court of Appeals reversed the decision of the CTA in the petition for
review stating that Toshiba is a tax exempt entity under R.A. No. 7916 thus not entitled to refund the
VAT payments made in the domestic purchase of goods and services.

ISSUE
Is Toshiba entitled to VAT refund?

HELD
YES. 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%])

Coral Bay v. CIR

Topic: VAT
Doctrine:
 VAT is an indirect tax that may be shifted
 A company registered in the ecozone is vat exempt

Facts:
 This appeal is brought by a taxpayer whose claim for the refund or credit pertaining to its
alleged unutilized input tax for the third and fourth quarters of the year 2002 amounting to
P50,124,086.75
 The petitioner, a domestic corporation engaged in the manufacture of nickel and/or cobalt
mixed sulphide, is a VAT entity registered with the Bureau of Internal Revenue (BIR). It is also
registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export Enterprise
at the Rio Tuba Export Processing Zone under PEZA Certificate of Registration dated December
27, 2002
 On August 5, 2003,2 the petitioner filed its Amended VAT Return declaring unutilized input tax
from its domestic purchases of capital goods
 On June 14, 2004,3 it filed with Revenue District Office No. 36 in Palawan its Application for Tax
Credits/Refund (BIR Form 1914) together with supporting documents.
 the petitioner elevated its claim to the CTA on July 8, 2004 by petition for review, praying for the
refund of the aforesaid input VAT
CTA division ruling:
 the claim for tax refund is denied
 petitioner was not entitled to the refund of alleged unutilized input VAT following Section
106(A)(2)(a)(5) of the National Internal Revenue Code (NIRC) of 1997, as amended, in relation to
Article 77(2) of the Omnibus Investment Code and conformably with the Cross Border Doctrine.
 the CTA in Division cited Commissioner of Internal Revenue v. Toshiba Information Equipment
(Phils) Inc. and Revenue Memorandum Circular ("RMC") No. 42-03.7chanrobleslaw

CTA en banc ruling :

 affirmed division ruling that tax refund should be denied.

The main contention of the corporation?

 petitioner contends that Toshiba is not applicable inasmuch as the unutilized input VAT subject
of its claim w(as incurred from May 1, 2002 to December 31, 2002 as a VAT-registered taxpayer,
not as a PEZA-registered enterprise; that during the period subject of its claim, it was not yet
registered with PEZA because it was only on December 27, 2002 that its Certificate of
Registration was issued;12 that until then, it could not have refused the payment of VAT on its
purchases because it could not present any valid proof of zero-rating to its VAT-registered
suppliers; and that it complied with all the procedural and substantive requirements under the
law and regulations for its entitlement to the refund.

Sc ruling:
 the appeal of the corporation is bereft of merit
 The petitioner's insistence, that Toshiba is not applicable because Toshiba Information
Equipment (Phils) Inc., the taxpayer involved thereat, was a PEZA-registered entity during the
time subject of the claim for tax refund or credit, is unwarranted
 The most significant difference between Toshiba and this case is that Revenue Memorandum
Circular No. 74-9916 was not yet in effect at the time Toshiba Information Equipment (Phils) Inc.
brought its claim for refund. Regardless of the distinction, however, Toshiba actually discussed
the VAT implication of PEZA-registered enterprises and ECOZONE-located enterprises in its
entirety, which renders Toshiba applicable to the petitioner's case.

What is the old VAT rule?

(1) if the PEZA-registered enterprise chose the 5% preferential tax on its gross income in lieu of all taxes,
as provided by Republic Act No. 7916, as amended, then it was VAT-exempt; and
(2) if the PEZA-registered enterprise availed itself of the income tax holiday under Executive Order No.
226, as amended, it was subject to VAT at 10%17(now, 12%).
 Based on this old rule, Toshiba allowed the claim for refund or credit on the part
of Toshiba Information Equipment (Phils) Inc.
 With the issuance of RMC 74-99, the distinction under the old rule was disregarded and the new
circular took into consideration the two important principles of the Philippine VAT system: the
 Cross Border Doctrine
 and the Destination Principle.
RMC No. 74-99, significance?....
  The rule that any sale by a VAT-registered supplier from the Customs Territory to a PEZA-
registered enterprise shall be considered an export sale and subject to zero percent (0%) VAT
was clearly established only on 15 October 1999, upon the issuance of RMC No. 74-99
 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.

What is the old rule again? (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%).
 This distinction was abolished by RM no. 74-99
 RM no. 74-99 ,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 tatter's type or class of PEZA
registration; and, thus, affirming the nature of a PEZA-registered or an ECOZONE enterprise as
a VAT-exempt entity
 fiction that an ECOZONE is a foreign tenitory separate and distinct from the customs territory
 Accordingly, the sales made by suppliers from a customs territory to a purchaser located within
an ECOZONE will be considered as exportations.
 . Following the Philippine VAT system's adherence to the Cross Border Doctrine and Destination
Principle, the VAT implications are that "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

According to the toshiba case. Why are company’s registered in ecozone VAT exempt?
 because of Section 8 of the same statute which establishes the fiction that ECOZONES are
foreign territory.
 The petitioner's principal office was located in Barangay Rio Tuba, Bataraza, Palawan.21 Its plant
site was specifically located inside the Rio Tuba Export Processing Zone — a special economic
zone (ECOZONE) created by Proclamation No. 304, Series of 2002, in relation to Republic Act No.
7916. As such, the purchases of goods and services by the petitioner that were destined for
consumption within the ECOZONE should be free of VAT; hence, no input VAT should then be
paid on such purchases, rendering the petitioner not entitled to claim a tax refund or credit.
Verily, if the petitioner had paid the input VAT, the CTA was correct in holding that the
petitioner's proper recourse was not against the Government but against the seller who had
shifted to it the output VAT
 Vat is an indirect tax which can be shifted
 In the meantime, the claim for input tax credit by the exporter-buyer should be denied without
prejudice to the claimant's right to seek reimbursement of the VAT paid, if any, from its supplier.
 Note that the claim of tax refund is in the nature of a tax exemption. It is therefore the burden
of the claimant to prove that it is entitled to such refund.

Petition of corporation is denied

CIR v. Benguet Corp
G.R. Nos. 134587 and 134588; January 8, 2005

Facts:
Benguet Corporation is a domestic corporation engaged in the exploration, development and operation
of mineral resources, and the sale or marketing thereof to various entities. It is a VAT registered
enterprise.

The transactions in question occurred during the period between 1988 and 1991. Under Sec. 99 of
NIRC as amended by E.O. 273 s. 1987 then in effect, any person who, in the course of trade or business,
sells, barters or exchanges goods, renders services, or engages in similar transactions and any person
who imports goods is liable for output VAT at rates of either 10% or 0% (zero-rated) depending on the
classification of the transaction under Sec. 100 of the NIRC.

In January of 1988, Benguet applied for and was granted by the BIR zero-rated status on its sale of gold
to Central Bank. On 28 August 1988 VAT Ruling No. 3788-88 was issued which declared that the sale of
gold to Central Bank is considered as export sale subject to zero-rate pursuant to
Section 100 of the Tax Code, as amended by EO 273.

Relying on its zero-rated status and the above issuances, Benguet sold gold to the Central Bank during
the period of 1 August 1989 to 31 July 1991 and entered into transactions that resulted in input VAT
incurred in relation to the subject sales of gold. It then filed applications for tax refunds/credits
corresponding to input VAT.

However, such request was not granted due to BIR VAT Ruling No. 008-92 dated 23 January 1992 that
was issued subsequent to the consummation of the subject sales of gold to the Central Ban`k which
provides that sales of gold to the Central Bank shall not be considered as export sales and thus, shall
be subject to 10% VAT. BIR VAT Ruling No. 008-92 withdrew, modified, and superseded all inconsistent
BIR issuances.
Both petitioner and Benguet agree that the retroactive application of VAT Ruling No. 008-92 is valid only
if such application would not be prejudicial to the Benguet pursuant Sec. 246 of the NIRC.

Issues:
(1) WON Benguet’s sale of gold to the Central Bank during the
period when such was classified by BIR issuances as zerorated could be taxed validly at a 10% rate after
the consummation of the transactions involved; (2) WON there was prejudice to Benguet Corp due to
the new BIR VAT Ruling.

Held:
(1) NO. At the time when the subject transactions were consummated, the prevailing BIR regulations
relied upon by Benguet ordained that gold sales to the Central Bank were zero-rated. Benguet should
not be faulted for relying on the BIRs interpretation of the said laws and regulations.

While it is true, as CIR alleges, that government is not estopped from collecting taxes which remain
unpaid on account of the errors or mistakes of its agents and/or officials and there could be no vested
right arising from an erroneous interpretation of law, these principles must give way to
exceptions based on and in keeping with the interest of justice and fair play. (then the Court cited the
ABS-CBN case).
(2) YES. The adverse effect is that Benguet Corp became the unexpected and unwilling debtor to the BIR
of the amount equivalent to the total VAT cost of its product, a liability it previously could have
recovered from the BIR in a zero-rated scenario or at least passed on to the Central Bank had it known it
would have been taxed at a 10% rate. Thus, it is clear that Benguet suffered economic prejudice when it
consummated sales of gold to the Central Bank were taken out of the zero-rated category. The change
in the VAT rating of Benguet’s transactions with the Central Bank resulted in the twin loss of its
exemption from payment of output VAT and its opportunity to recover input VAT, and at the same time
subjected it to the 10% VAT sans the option to pass on this cost to the Central Bank, with the total
prejudice in money terms being equivalent to the 10% VAT levied on its sales of gold to the Central
Bank.

Even assuming that the right to recover Benguets excess payment of income tax has not yet prescribed,
this relief would only address Benguet’s overpayment of income tax but not the other burdens
discussed above. Verily, this remedy is not a feasible option for Benguet because the very reason why it
was issued a deficiency tax assessment is that its input VAT was not enough to offset its retroactive
output VAT. Indeed, the burden of having to go through an unnecessary and cumbersome refund
process is prejudice enough.

ACCENTURE, INC, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondents. G.R. No.
190102. July 11, 2012. SERENO, J

FACTS:
Accenture is a domestic corporation claiming an administrative claim for VAT refund or the issuance of
Tax Credit Certificate (TCC) filed with the DOF in 1 July 2004. The DOF did not act on the claim. Thus,
Accenture filed a petition for review with the CTA.

In 13 November 2008, CTA denied the petition of Accenture for failing to prove that the latter's sale of
services to the alleged foreign clients qualified for zero percent VAT. CTA ruled that Accenture's services
would qualify for zero-rating under the 1997 Tax Code only if the recipient of the services was doing
business outside of the Philippines, similar to the 2007 SC ruling on the case of CIR v. Burmeister and
Wain Scandinavian Contractor Mindanao, Inc. (Burmeister) Accenture questions the Division's
application to this case of the pronouncements made in Burmeister.

According to petitioner, the provision applied to the present case was Section 102 (b) of the 1977 Tax
Code, and not Section 108 (B) of the 1997 Tax Code, which was the law effective when the subject
transactions were entered into and a refund was applied for.

ISSUE: Whether or not Accenture is entitled to the VAT refund

RULING:
No. Accenture failed to prove that services were rendered for non-residents. The Amex case did not rule
that the services to recipients need not be doing business outside the Philippines but only that the
consumption need not be abroad. However, Accenture failed to prove that the clients/service recipients
are doing business outside the Philippines as they only submitted the Securities and Exchange
Commission (SEC) certifications showing that their clients have not established any branch offices in the
Philippines and billing statements issued to the said clients. The Court ruled that while it did prove that
its clients are foreign, there was no proof that they were doing business outside the Philippines.

HELD: Instant petition is DENIED. The decision of CTA En Banc is AFFIRMED.

FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE-

Transitional Input Value Added Tax

FACTS:
Petitioner was a real estate developer that bought from the national government a parcel of land that
used to be the Fort Bonifacio military reservation. At the time of the said sale there was as yet no VAT
imposed so Petitioner did not pay any VAT on its purchase. Subsequently, Petitioner sold two parcels of
land to Metro Pacific Corp. In reporting the said sale for VAT purposes (because the VAT had already
been imposed in the interim), Petitioner claimed transitional input VAT corresponding to its inventory of
land. The BIR disallowed the claim of presumptive input VAT and thereby assessed Petitioner for
deficiency VAT.

ISSUE:
Is Petitioner entitled to claim the transitional input VAT on its sale of real properties given its nature as a
real estate dealer and if so (i) is the transitional input VAT applied only to the improvements on the real
property or is it applied on the value of the entire real property and (ii) should there have been a
previous tax payment for the transitional input VAT to be creditable?

HELD:
YES. Petitioner is entitled to claim transitional input VAT based on the value of not only the
improvements but on the value of the entire real property and regardless of whether there was in fact
actual payment on the purchase of the real property or not.

The amendments to the VAT law do not show any intention to make those in the real estate business
subject to a different treatment from those engaged in the sale of other goods or properties or in any
other commercial trade or business. On the scope of the basis for determining the available transitional
input VAT, the CIR has no power to limit the meaning and coverage of the term "goods" in Section 105
of the Tax Code without statutory authority or basis. The transitional input tax credit operates to benefit
newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of their
beginning inventory of goods, materials and supplies.

Mindanao II Geothermal Partnership vs. CIR G.R. 193301, 11 March 2013

Facts:
Mindanao II Geothermal Partnership sold its fully depreciated Nissan Patrol, CIR said that the sale is
subject to VAT. Mindanao, in its defense, asserted that the sale is not incidental transaction in the
course of its business, hence, an isolated transaction that should not have been subject to VAT.

Issue:
Whether or not an isolated transaction can be an incidental transaction for purposes of VAT liability.

Ruling:
Yes, just because a transaction is said to be an isolated one, it does not follow that it cannot be an
incidental transaction. Mindanao II’s business is to convert the steam supplied to it by PNOC-EDC into
electricity and to deliver the electricity to NPC. In the course of business, Mindanao II bought and
eventually sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao II’s property,
plant and equipment. Therefore, the sale of the Nissan Patrol is an incidental transaction made in the
course of business which should be liable for VAT.