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CIR vs. Magsaysay Lines, Inc. , et. al G.R.

146984, 28 July 2006 Having determined that respondent’s purchase transactions are subject to a zero VAT
rate, the SC has determined that tax refund or credit is in order.
Facts:
Because of a government program of privatization, National Development
Company(N Contex Corp. v. CIR
C) decided to sell its National Marine Corporation(NMC) shares and five of its ships. In July 2, 2004
a VAT uling, it was held that the sale was subject to VAT since NDC was a VAT Quisumbing, J.
registered enterprise and the transaction is incident to its normal VAT Francis G. Francisco
registered activity of leasing out personal property.
SUMMARY: Contex is an SBMA-registered firm which exempts it from all local and
Issue: national internal revenue taxes except for the preferential tax provided for in Section
Whether or not the sale by NDC whose VAT- 12 (c) of RA 7227. Contex Corp. also registered with the BIR as a non-VAT
registered activity is leasing out personal property is subject to VAT considering that s taxpayer. Contex is claiming a tax credit for 10% VAT passed by its suppliers to
uch sale was made pursuant to a government program of privatization. Contex when Contex purchased materials from such suppliers. SC held that Contex
although it is true that the Contex Corp. should not have been liable for the VAT
Ruling: inadvertently passed on to it by its supplier since such sale to an SBMA-registered
No, the sale of the vessels is not subject to VAT since it was not in the ord firm is a zero-rated sale on the part of the supplier, Contex Corp. is not the proper
inary course of trade or business of NDC. “Course of business” is what is usually done party to claim such VAT refund. Contex Corp. is registered as a NON-VAT taxpayer
in the management of trade or business. It connotes regularity. In the case at bar, the and thus, is exempt from VAT. As an exempt VAT taxpayer, it is not allowed any tax
sale was an isolated transaction. The sale which was involuntary and made pursuant t credit on VAT (input tax) previously paid.
o the declared policy of government for privatization could no longer be repeated or ca
rried on with regularity. It should be emphasized that the normal VAT- DOCTRINE: (a) VAT Exemption. An exemption means that the sale of goods or
registered activity of NDC is leasing personal property. Any sale, barter, or exchange o properties and/or services and the use or lease of properties is not subject to VAT
f goods or services not in the course of trade or business is not subject to tax. (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously
paid. This is a case wherein the VAT is removed at the exempt stage (i.e., at the
GR No. 153866 CIR vs. Seagate point of the sale, barter or exchange of the goods or properties). The person making
the exempt sale of goods, properties or services shall not bill any output tax to his
FACTS: Respondent is a resident foreign corporation duly registered with the 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
Securities and Exchange Commission to do business in the Philippines and is
exempt from VAT is not entitled to any input tax on such purchase despite the
registered with the Philippine Export Zone Authority (PEZA). The respondent is Value
issuance of a VAT invoice or receipt.
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), (b) Zero-rated Sales. These are sales by VAT-registered persons which are
was filed on 4 October 1999, but no final action has been received by the respondent subject to 0% rate, meaning the tax burden is not passed on to the purchaser. A
from the petitioner on the claim for VAT refund. CIR asserts that by virtue of the PEZA 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
registration alone of respondent, the latter is not subject to the VAT. Consequently, the
of goods, properties or services related to such zero-rated sale shall be available as
capital goods and services respondent has purchased are not considered used in the tax credit or refund in accordance with these regulations.
VAT business, and no VAT refund or credit is due.
FACTS: Contex Corp. is engaged in manufacturing hospital textiles and garments and
ISSUE: Whether or not Seagate, a VAT-Registered PEZA Enterprise is entitled to tax other hospital supplies for export. Its place of business is the Subic Bay Freeport
refund or credit. Zone (SBFZ) and is duly registered with the Subic Bay Metropolitan Authority (SBMA)
as a Subic Bay Freeport Enterprise, pursuant to RA 7227. As an SBMA-registered
HELD: Yes, Seagate is entitled to refund or credit. As a PEZA-registered enterprise firm, Contex Corp. is exempt from all local and national internal revenue taxes except
within a special economic zone, respondent is entitled to the fiscal incentives and for the preferential tax provided for in Section 12 (c) of RA 7227. Contex Corp. also
benefit provided for in either PD 66 or EO 226. It shall, moreover, enjoy all privileges, registered with the BIR as a non-VAT taxpayer.
benefits, advantages or exemptions under both Republic Act Nos. (RA) 7227 and From 1997-1998, Contex Corp. purchased supplies and materials necessary in the
7844. conduct of its manufacturing business. The suppliers of these goods shifted unto
Respondent, which as an entity is exempt, is different from its transactions which are Contex Corp. the 10% VAT on the purchased items, which led the Contex Corp. to pay
not exempt. The end result, however, is that it is not subject to the VAT. The non- input taxes. Believing it was exempt from VAT, Contex Corp. filed two applications for
taxability of transactions that are otherwise taxable is merely a necessary incident to tax refund or tax credit of the VAT it paid.
the tax exemption conferred by law upon it as an entity, not upon the transactions
themselves. When no response was made from the BIR Regional Director, Contex Corp. elevated
the matter to the CTA which granted only a partial refund stating that Contex Corp.
misread Sections 106(A)(2)(a) and 112(A) of the Tax Code. The tax court stressed
The petitioner’s assertion that the capital goods and services respondent has
that these provisions apply only to those entities registered as VAT taxpayers whose
purchased are not considered used in the VAT business, and thus no VAT refund or sales are zero-rated. Contex Corp. does not fall under this category, since it is a non-
credit is due is non sequitur. On this matter, the SC held that by the VAT’s very nature VAT taxpayer. Nonetheless, CTA held that the Contex Corp. is exempt from the
as a tax on consumption, the capital goods and services respondent has purchased imposition of input VAT on its purchases of supplies and materials and all that Contex
are subject to the VAT, although at zero rate. Corp. is required to pay is a 5% preferential tax. Contex appealed to the CA.

Seagate has complied with all the requisites for VAT refund or credit. First, respondent CIR still argued that from its very nature, the value-added tax is a burden passed on
is a VAT-registered entity. Second, the input taxes paid on the capital goods of by a VAT registered person to the end users; hence, the direct liability for the tax lies
respondent are duly supported by VAT invoices and have not been offset against any with the suppliers and not Contex. The CA agreed with the CIR and reversed the CTA.
output taxes. ISSUES: WON the VAT exemption embodied in RA 7227 does not apply to Contex
Corp. as a purchaser.
To summarize, special laws expressly grant preferential tax treatment to business
establishments registered and operating within an ecozone, which by law is HELD: Yes, it cannot apply to Contex as purchaser. Contex Corp.’s claim, for
considered as a separate customs territory. As such, respondent is exempt from all exemption from VAT for its purchases of supplies and raw materials is incongruous
internal revenue taxes, including the VAT, and regulations pertaining thereto. Its sales with its claim that it is VAT-Exempt, for only VAT-Registered entities can claim Input
transactions intended for export may not be exempt, but like its purchase transactions, VAT Credit/Refund.
they are zero-rated. No prior application for the effective zero rating of its transactions RATIO: Contex Corp. argues that RA 7227 clearly mandate that no local and national
is necessary. Being VAT-registered and having satisfactorily complied with all the taxes shall be imposed upon SBFZ-registered firms and hence, said law should govern
requisites for claiming a tax refund of or credit for the input VAT paid on capital goods the case. Contex Corp. also cites regulations issued by both the SBMA and BIR
purchased, respondent is entitled to such VAT refund or credit. clearly providing that the tax exemption provided for by RA 7227 includes exemption
from the imposition of VAT on purchases of supplies and materials.
CIR takes the view that while RA 7227 does grant tax exemptions, such grant is Commonwealth Management and Services Corporation (COMASERCO) is a domestic
not all-encompassing but is limited only to those taxes for which a SBFZ-registered corporation. It is an affiliate of Philippine American Life Insurance Co. (Philamlife). It
business may be directly liable. Hence, SBFZ locators are not relieved from the was organized by the latter to perform collection, consultative and other technical
indirect taxes that may be shifted to them by a VAT-registered seller. services, including functioning as an internal auditor, of Philamlife and its other
affiliates.
Exemptions from VAT are granted by express provision of the Tax Code or special
laws. Under VAT, the transaction can have preferential treatment in the following
ways: In 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private
respondent COMASERCO for deficiency value-added tax (VAT) amounting to
P351,851.00 for taxable year 1988. In the same year, COMASERCO filed with the
(a) VAT Exemption. An exemption means that the sale of goods or properties BIR, a letter-protest objecting to the latter’s finding of deficiency VAT. Afterwards, the
and/or services and the use or lease of properties is not subject to VAT (output tax)
Commissioner of Internal Revenue sent a collection letter to COMASERCO
and the seller is not allowed any tax credit on VAT (input tax) previously paid. This is a
demanding payment of the deficiency VAT. The following month of the same year,
case wherein the VAT is removed at the exempt stage (i.e., at the point of the sale,
barter or exchange of the goods or properties). COMASERCO filed with the CTA a petition for review contesting the Commissioner’s
assessment. COMASERCO asserted that: 1) it was on a “no-profit, reimbursement-of-
cost-only” basis; 2) it was not engaged in the business of providing services to
The person making the exempt sale of goods, properties or services shall not bill any Philamlife and its affiliates; 3) COMASERCO was established to ensure operational
output tax to his customers because the said transaction is not subject to VAT. On the orderliness and administrative efficiency of Philamlife and its affiliates, not on the sale
other hand, a VAT-registered purchaser of VAT-exempt goods/properties or services
of services; and 4) it even did not generate profit but suffered a net loss in taxable year
which are exempt from VAT is not entitled to any input tax on such purchase despite
the issuance of a VAT invoice or receipt. 1988. Thus, it was not liable to pay VAT.

In 1995, the CTA rendered a decision in favor of the Commissioner with slight
(b) Zero-rated Sales. These are sales by VAT-registered persons which are subject modifications. COMASERCO was liable to pay the amount of P335,831.01. During the
to 0% rate, meaning the tax burden is not passed on to the purchaser. A zero-rated same year, COMASERCO filed with the CA, a petition for review of the decision of the
sale by a VAT-registered person, which is a taxable transaction for VAT purposes,
CTA. The CA ruled in favor of the respondent and based its decision in another tax
shall not result in any output tax. However, the input tax on his purchases of goods,
case involving the same parties where it was held that COMASERCO was not liable to
properties or services related to such zero-rated sale shall be available as tax credit or
refund in accordance with these regulations. pay fixed and contractor’s tax and it was not engaged in business of providing services
to Philamlife and its affiliates. Hence, this petition was filed before the SC.

Under Zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In Issue:
contrast, exemption only removes the VAT at the exempt stage, and it will actually Whether or not COMASERCO is engaged in the sale of services, thus liable to pay
increase, rather than reduce the total taxes paid by the exempt firm’s business or non-
VAT.
retail customers. It is for this reason that a sharp distinction must be made between
zero-rating and exemption in designating a value-added tax.
Held:
Contex Corp. rightly claims that it is indeed VAT-Exempt and is even registered as a Yes. Contrary to COMASERCO’s contention, Sec. 105 of the Tax Code states that
NON-VAT taxpayer. As such, it is exempt from VAT on all its sales and importations of even a non-stock, non-profit, organization or government entity, is liable to pay VAT on
goods and services. the sale of goods or services. VAT is a tax on transactions, imposed at every stage of
the distribution process on the sale, barter, exchange of goods or property, and on the
However, Contex Corp.’s claim for exemption from VAT for its purchases is
performance of services, even in the absence of profit attributable thereto. The term “in
incongruous with its claim that it is VAT-Exempt, for only VAT-Registered entities can
the course of trade or business” requires the regular conduct or pursuit of a
claim Input VAT Credit/Refund.
commercial or an economic activity, regardless of whether or not the entity is profit-
While it is true that the Contex Corp. should not have been liable for the VAT oriented.
inadvertently passed on to it by its supplier since such is a zero-rated sale on the part
of the supplier, the Contex Corp. is not the proper party to claim such VAT refund. As long as the entity provides service for a fee, remuneration or consideration, then
the service rendered is subject to VAT. Because taxes are the lifeblood of the nation,
Under the NIRC, “Sales to persons or entities whose exemption under special laws, statutes that allow exemptions are construed strictly against the grantee and liberally
e.g. R.A. No. 7227 duly registered and accredited enterprises with Subic Bay in favor of the government. Section 109 of the Tax Code enumerates the transactions
Metropolitan Authority (SBMA) and Clark Development Authority (CDA), R. A. No. exempted from VAT. The services rendered by COMASERCO do not fall within the
7916, Philippine Economic Zone Authority (PEZA), or international agreements, e.g. exemptions. It falls under Section 108 of the Tax Code in which it defines the phrase
Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc. to “sale of services” as the performance of all kinds of services for others for a fee,
which the Philippines is a signatory effectively subject such sales to zero-rate.” remuneration or consideration.

Since the transaction is deemed zero-rated, Contex Corp.’s supplier may claim an
Input VAT credit with no corresponding Output VAT liability. Thus, no Output VAT may CIR vs American Express, GR No. 152609, June 29, 2005
be passed on to the Contex Corp..
Facts:
Contex Corp. is registered as a NON-VAT taxpayer and thus, is exempt from VAT. As
an exempt VAT taxpayer, it is not allowed any tax credit on VAT (input tax) previously Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was tasked
paid. with servicing a unit of AMEX-Hongkong Branch and facilitating the collections of
AMEX-HK receivables from card members situated in the Philippines and payment to
Thus, even assuming that exemption from the burden of VAT on Contex Corp.’s service establishments in the Philippines.
purchases did exist, Contex Corp. is still not entitled to any tax credit or refund on the
input tax previously paid as Contex Corp. is an exempt VAT taxpayer. It filed with BIR a letter-request for the refund of its 1997 excess input taxes, citing as
basis Section 110B of the 1997 Tax Code, which held that “xxx Any input tax
It is the Contex Corp.’s suppliers who are the proper parties to claim the tax credit and attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered
accordingly refund the Contex Corp. of the VAT erroneously passed on to the latter. person may at his option be refunded or credited against other internal revenue taxes,
subject to the provisions of Section 112.”
DISPOSITIVE: The petition is DENIED. Contex cannot claim a tax refund for its
purchases. In addition, respondent relied on VAT Ruling No. 080-89, which read, “In Reply, please
be informed that, as a VAT registered entity whose service is paid for in acceptable
CIR vs. CA and Comaserco foreign currency which is remitted inwardly to the Philippine and accounted for in
G.R. No. 125355 March 30, 2000 accordance with the rules and regulations of the Central Bank of the Philippines, your
service income is automatically zero rated xxx”
Facts:
Petitioner claimed, among others, that the claim for refund should be construed strictly
against the claimant as they partake of the nature of tax exemption.
CTA rendered a decision in favor of respondent, holding that its services are subject to is not the case, taxpayers can circumvent just by stipulating payment in foreign
zero-rate. CA affirmed this decision and further held that respondent’s services were currency.
“services other than the processing, manufacturing or repackaging of goods for
persons doing business outside the Philippines” and paid for in acceptable foreign The refund was partially allowed since Burmeister secured a ruling from the BIR
currency and accounted for in accordance with the rules and regulations of BSP. allowing zero-rating of its sales to foreign consortium. However, the ruling is only valid
until the time that CIR filed its Answer in the CTA which is deemed revocation of the
Issue: previously-issued ruling. The Court said the revocation can not retroact since none of
the instances in Section 246 (bad faith, omission of facts, etc.) are present.
W/N AMEX Phils is entitled to refund

Held: THE COMMISIONER OF INTERNAL REVENUE, Petitioner, 
 vs.
 ACESITE


(PHILIPPINES) HOTEL CORPORATION, Respondent.
Yes. Section 102 of the Tax Code provides for the VAT on sale of services and use or
FACTS:
lease of properties. Section 102B particularly provides for the services or transactions
1. Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leases
subject to 0% rate:
6,768.53 square meters of the hotel’s premises to the Philippine Amusement and
(1) Processing, manufacturing or repacking goods for other persons doing business Gaming Corporation for casino operations and caters food and beverages to
outside the Philippines which goods are subsequently exported, where the services PAGCOR’s casino patrons through the hotel’s restaurant outlets.
are paid for in acceptable foreign currency and accounted for in accordance with the 2.For the period January 96 to April 1997, Acesite incurred VAT amounting to
rules and regulations of the BSP; 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
(2) Services other than those mentioned in the preceding subparagraph, e.g. those in the amount assessed to PAGCOR but the latter refused to pay the taxes on account
rendered by hotels and other service establishments, the consideration for which is of its tax exempt status.1awphi1.net
paid for in acceptable foreign currency and accounted for in accordance with the rules 3. PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the
and regulations of the BSP latter paid the VAT to the Commissioner of Internal Revenue.
4.However, Acesite belatedly arrived at the conclusion that its transaction with
Under subparagraph 2, services performed by VAT-registered persons in the PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity.
Philippines (other than the processing, manufacturing or repackaging of goods for 5. Acesite filed an administrative claim for refund with the CIR but the latter failed to
persons doing business outside the Philippines), when paid in acceptable foreign resolve the same. Acesite filed a petition with the Court of Tax Appeals
currency and accounted for in accordance with the R&R of BSP, are zero-rated. CTA Decision: Petitioner is subject to zero percent tax insofar as its gross income
Respondent renders service falling under the category of zero rating. 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
As a general rule, the VAT system uses the destination principle as a basis for the 10% EVAT on its sales of food and services and gross rentals, respectively from
jurisdictional reach of the tax. Goods and services are taxed only in the country where PAGCOR shall be refunded to the petitioner..
they are consumed. Thus, exports are zero-rated, while imports are taxed. CA Decision: PAGCOR was not only exempt from direct taxes but was also
exempt from indirect taxes like the VAT and consequently, the transactions
In the present case, the facilitation of the collection of receivables is different from the between respondent Acesite and PAGCOR were "effectively zero-rated" because they
utilization of consumption of the outcome of such service. While the facilitation is done involved the rendition of services to an entity exempt from indirect taxes.
in the Philippines, the consumption is not. The services rendered by respondent are ISSUE/S: (1) whether PAGCOR’s tax exemption privilege includes the indirect tax of
performed upon its sending to its foreign client the drafts and bulls it has gathered from VAT to entitle Acesite to zero percent (0%) VAT rate; and (2) whether the zero percent
service establishments here, and are therefore, services also consumed in the (0%) VAT rate under then Section 102 (b)(3) of the Tax Code (now Section 108 (B)(3)
Philippines. Under the destination principle, such service is subject to 10% VAT. of the Tax Code of 1997) legally applies to Acesite.
HELD:
However, the law clearly provides for an exception to the destination principle; that is 1. Yes. PAGCOR is exempt from payment of indirect taxes
0% VAT rate for services that are performed in the Philippines, “paid for in acceptable It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an
foreign currency and accounted for in accordance with the R&R of BSP.” The exemption from the payment of taxes. Section 13 of P.D. 1869 pertinently provides
respondent meets the following requirements for exemption, and thus should be zero- exemption.
rated: Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or
operator refers to PAGCOR. Although the law does not specifically mention
(1) Service be performed in the Philippines PAGCOR’s exemption from indirect taxes, PAGCOR is undoubtedly exempt from
such taxes because the law exempts from taxes persons or entities contracting
(2) The service fall under any of the categories in Section 102B of the Tax Code
with PAGCOR in casino operations. Although, differently worded, the provision
(3) It be paid in acceptable foreign currency accounted for in accordance with BSP clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by
R&R granting tax exempt status to persons dealing with PAGCOR in casino
operations. The unmistakable conclusion is that PAGCOR is not liable for the
. CIR v Bursmeiters & Wain Scandinavian P30,152,892.02 VAT and neither is Acesite as the latter is effectively subject to zero
GR 153205; January 22, 2007 percent rate under Sec. 108 B (3). R.A. 8424. (Emphasis supplied.)
2. The manner of charging VAT does not make PAGCOR liable to said tax
Facts: A foreign consortium, parent company of Burmeister, entered into an O&M It is true that VAT can either be incorporated in the value of the goods, properties, or
contract with NPC. The foreign entity then subcontracted the actual O&M to services sold or leased, in which case it is computed as 1/11 of such value, or charged
Burmeister. NPC paid the foreign consortium a mixture of currencies while the as an additional 10% to the value. Verily, the seller or lessor has the option to follow
consortium, in turn, paid Burmeister foreign currency inwardly remitted into the either way in charging its clients and customer. In the instant case, Acesite followed
Philippines. BIR did not want to grant refund since the services are “not destined for the latter method, that is, charging an additional 10% of the gross sales and rentals.
consumption abroad” (or the destination principle). Be that as it may, the use of either method, and in particular, the first method, does not
denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.
Issue: Are the receipts of Burmeister entitled to VAT zero-rated status? 3. Yes. VAT exemption extends to Acesite
Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite,
Held: PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the the latter is not liable for the payment of it as it is exempt in this particular transaction
period covered prior to the filing of CIR’s Answer in the CTA. 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.
The claim has no merit since the consortium, which was the recipient of services 8424), which provides:
rendered by Burmeister, was deemed doing business within the Philippines since its Section 102. Value-added tax on sale of services – (a) Rate and base of tax – There
15-year O&M with NPC can not be interpreted as an isolated transaction. 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
In addition, the services referring to ‘processing, manufacturing, repacking’ and the following services performed in the Philippines by VAT-registered persons shall be
‘services other than those in (1)’ of Sec. 102 both require (i) payment in foreign subject to 0%
currency; (ii) inward remittance; (iii) accounted for by the BSP; AND (iv) that the (3) Services rendered to persons or entities whose exemption under special
service recipient is doing business outside the Philippines. The Court ruled that if this laws or international agreements to which the Philippines is a signatory effectively
subjects the supply of such services to zero (0%) rate (emphasis supplied).
4. Acesite paid VAT by mistake
Considering the foregoing discussion, there are undoubtedly erroneous payments of RULING:
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 YES. Respondents availed of an income tax holiday as provided in the Omnibus
mistake of fact, that is, when it was not aware that the transactions it had with Investments Code ( EO 226). It is one of the fiscal incentives granted to PEZA-
PAGCOR were zero-rated at the time it made the payments. registered enterprises and one of the options to its tax burden. Both the CA and CTA
Solutio indebiti applies to the Government found that respondent availed of the income tax holiday for four (4) years as it was
Tax refunds are based on the principle of quasi-contract or solutio indebiti and the shown in their Annual Corporate Income Tax Returns. In it also is where respondent
pertinent laws governing this principle are found in Arts. 2142 and 2154 of the Civil specified that it was availing of the tax relief under EO 226. Hence, respondent is not
Code. When money is paid to another under the influence of a mistake of fact, that is exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is
to say, on the mistaken supposition of the existence of a specific fact, where it would engaged in taxable rather than exempt transactions.
not have been known that the fact was otherwise, it may be recovered.
Action for refund strictly construed; Acesite discharged the burden of proof Taxable transactions are those transactions which are subject to value-added tax
Since an action for a tax refund partakes of the nature of an exemption, which cannot either at the rate of ten percent (10%) or zero percent (0%). In taxable transactions,
be allowed unless granted in the most explicit and categorical language, it is strictly the seller shall be entitled to tax credit for the value-added tax paid on purchases and
construed against the claimant who must discharge such burden convincingly.11 leases of goods, properties or services.

CIR vs Toshiba Information Equipment (Phil.) G.R. No. 150154, 9 August 2005 An exemption means that the sale of goods, properties or services and the use or
lease of properties is not subject to VAT (output tax) and the seller is not allowed any
Facts: tax credit on VAT (input tax) previously paid. The person making the exempt sale of
goods, properties or services shall not bill any output tax to his customers because the
Toshiba was claiming a refund for the input tax it paid on unutilized capital goods purc said transaction is not subject to VAT. Thus, a VAT-registered purchaser of goods,
hased. However, the CIR said that it cannot because the capital goods and services it properties or services that are VAT-exempt, is not entitled to any input tax on such
purchased are considered not used in VAT taxable business and therefore, it is not ent purchases despite the issuance of a VAT invoice or receipt.
itled to refund of input taxes. Toshiba, on the other hand, contended that it is PEZA-
registered and located within the ecozone and therefore for, VAT-exempt entity. The court also held that respondent is subjected to VAT at 0% rate as it is engaged in
the export business.

Issue:
FACTS:
Whether or not Toshiba is entitled to refund for the input tax it paid on unutilized capital
Both cases involved applications for tax refund of the input VAT by
goods purchased considering that it is registered with PEZA and located within the ec
ozone. petitioner corporation on its zero-rated sales in the taxable quarters of the years 1990
and 1992. The Court of Tax Appeals and Court of Appeals denied the claims for failure
Ruling: to meet the requirements of Sec 2 of Revenue Regulation No. 2-88 which provides
that, sale of raw materials to export-oriented BOI-registered enterprises whose export
Yes. CIR failed to differentiate between VAT-exempt transactions from VAT- sales, under rules and regulations of the BOI, exceed 70% of the total annual
exempt entities. An exempt transactions are transactions specifically listed in and expr production, shall be subject to zero-rate.
essly exempted from VAT under the Tax Code without regard to the tax status, VAT-
exempt or not, of the taxpayer. An exempt party, on the other hand, is a person or entit Petitioner corporation assails the validity of said regulation contending that it imposes
y granted VAT- additional requirements, not found in Sec 100(a) of the Tax Code of 1977. Also that,
exemption under the Tax Code, special law or an international agreement to which the PASAR and PHILPHOS to whom the sale were made are registered not only with BOI,
Philippines is a signatory and by virtue of which its taxable transactions become exem
but also with the then Export Processing Zone Authority.
pt from VAT.
Under Sec. 100(a) of the Tax Code, Export Sales are subject to 0% VAT and “Export
Toshiba, a PEZA-registered and located within a ecozone is a VAT-
exempt entity because of Sec 8 of Ta 7916 which establishes the fiction that ecozones Sale” means the sale and shipment of goods from the Philippines to a foreign country,
are foreign territory. Therefore, a supplier from the custom territory cannot pass on out irrespective of any shipping arrangement that may be agreed upon which may
put VAT to an ecozone enterprise, like Toshiba, since it is exempt. influence or determine the transfer of ownership of the goods so exported, or foreign
currency denominates sales.
CIR VS CEBU TOYO
FACTS: ISSUE:

Respondent Cebu Toyo Corporation is a domestic corporation engaged in the Whether or not petitioner corporation is entitled to the refund of input VAT.
manufacture of lenses and various optical components. Its principal office is located at
the Mactan Export Processing Zone (MEPZ) in Lapu-Lapu City, Cebu and is a HELD:
subsidiary of Toyo Lens Corporation, a non-resident corporation organized under the
laws of Japan. It is a zone export enterprise registered with the Philippine Economic YES, petitioner corporation is entitled to tax refund of input VAT. The Supreme Court
Zone Authority (PEZA), pursuant PD 66 and is also registered with the BIR as a VAT held that Sec 2 of Revenue Regulation No. 2-88 should not have been applied.
taxpayer. PASAR and PHILPHOS, in addition to being registered with BOI, were also registered
with EPZA and located within an export-processing zone. The transactions were
The sales of respondent are considered export sales subject to VAT at 0% rate under considered export sale.
Section 106 of the NIRC, as amended.
According to the Destination Principle, goods and services are taxed only in the
Respondent then filed, an application for tax credit/refund of VAT paid for the period country where these are consumed. In connection with the said principle, the
April 1, 1996 to December 31, 1997 amounting to P4,439,827.21 representing excess Cross Border Doctrine mandates that no VAT shall be imposed to form part of
VAT input payments. Respondents claim that they can avail of the tax credits as they the cost of the goods destined for consumption outside the territorial border of
are VAT-registered exporter of goods at the rate of 0%. 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
The CIR oppose such stating that they are not entitled to the tax credit as the claims
use or consumption within the Philippines shall be imposed with 10% VAT(Now
for refund are strictly construed against respondents as it is of the nature of tax
exemption. 12% under R.A. No 9337). Export processing zones are to be managed as a
separate customs territory from the rest of the Philippines and, thus, for tax
The CTA granted the motion partially to the respondents as they only lowered the tax purposes, are effectively considered as foreign territory. For this reason, sales
credits to P2,158,714.46 representing unutilized input tax payments. The CIR filed a by persons from the Philippine customs territory to those inside the export
petition with the CA which was denied. processing zones are already taxed as exports.

ISSUE: Whether Cebu Toyo Corporation can avail of the tax credits. FACTS:
Mirant filed its final adjusted Annual Income Tax Return for fiscal year ending 1999
declaring a net loss. It then amended the said return this time reflecting an increased
net loss and showing that it opted to carry over as tax credit its overpayment to the
succeeding taxable year. This excess tax credit was unutilized in 2000 as Mirant still
reported a net loss. Mirant then filed a claim for refund of its excess creditable income
tax for 1999.

ISSUE:

Can Mirant claim for refund its excess credits from 1999?

HELD:

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