Case Summary (G.R. No. 153205)
Key Dates
• February 14, 1995 – BIR Ruling No. 023-95 granting zero-rate VAT status upon registration as a VAT taxpayer and payment in acceptable foreign currency
• May 26, 1995 – Respondent’s VAT registration
• 1996 – Quarterly VAT returns filed showing zero-rated sales and input VAT claims; later amended under VAP to compute and pay output VAT of ₱6,994,659.67
• January 7, 1999 – VAT Ruling No. 003-99 reconfirming zero-rate treatment
• December 27, 1999 – Petition for review with the Court of Tax Appeals (CTA) to toll prescription
• August 8, 2001 – CTA Decision ordering issuance of tax credit certificate for ₱6,994,659.67
• April 16, 2002 – Court of Appeals affirmance of CTA Decision
• January 22, 2007 – Supreme Court Resolution denying the petition for review under Rule 45
Applicable Law
• 1987 Philippine Constitution (1987)
• National Internal Revenue Code of 1986, as amended (Sections 102(a), 102(b) [renumbered Section 108(b) effective January 1, 1998])
• Revenue Regulations No. 5-96 and No. 7-95 (implementing VAT provisions)
• BSP regulations on foreign currency remittance and reporting
• Principle of solutio indebiti and Tax Code Section 246 on non-retroactivity of revocations
Factual Background
A foreign consortium secured a fifteen-year contract with NAPOCOR to operate and maintain two power barges in Mindanao. The consortium formed the respondent as its Philippine subcontractor. NAPOCOR’s fees, partly non-Peso, were remitted abroad; the consortium in turn paid respondent in foreign currency inwardly remitted and BSP–accounted. Respondent registered as VAT taxpayer, originally treated its services as zero-rated under BIR Ruling No. 023-95, and filed quarterly VAT returns for 1996 showing zero-rated sales and input VAT claims. Believing Revenue Regulations No. 5-96 required a 10% output VAT as of April 1996, respondent amended its 1996 return under the Voluntary Assessment Program and paid ₱6,994,659.67. After securing a reconfirming ruling (VAT Ruling No. 003-99), it filed for a tax credit certificate.
CTA Decision
The CTA held that respondent’s services were zero-rated under Tax Code Section 108(b)(2) (formerly Section 102(b)(2)) since payments were in acceptable foreign currency, inwardly remitted, BSP-accounted, and rendered by a VAT-registered person to a foreign client. Applying the principle of solutio indebiti, the CTA ordered issuance of a tax credit certificate for the excess output VAT.
Court of Appeals Ruling
The Court of Appeals affirmed, rejecting the Commissioner’s argument that respondent’s services had to be “destined for consumption abroad” or limited to project studies, information services, or architectural designs. It found that Section 108(b)(2) requires only (1) payment in acceptable foreign currency inwardly remitted and BSP-accounted and (2) VAT registration. The appellate court also deemed administrative requirements adding foreign-destination stipulations void, as beyond mere implementation of the Tax Code.
Issue
Whether the respondent is entitled to a refund or tax credit certificate for the ₱6,994,659.67 of output VAT it paid in 1996, allegedly in error under zero-rate entitlement.
Supreme Court Ruling
The petition for review by the Commissioner of Internal Revenue was denied on the following grounds:
- Non-retroactivity of revocation. The Commissioner’s revocation of BIR Ruling No. 023-95 and VAT Ruling No. 003-99 upon filing the Answer in the CTA cannot be applied retroactively under Tax Code Section 246, as it would prejudice the
Case Syllabus (G.R. No. 153205)
Parties and Contractual Arrangements
- Petitioner: Commissioner of Internal Revenue (CIR).
- Respondent: Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (BWSCMI), a domestic corporation organized under Philippine law, principal address in Davao City.
- Foreign Consortium: BWSC-Denmark, Mitsui Engineering and Shipbuilding Ltd., and Mitsui & Co., Ltd., which contracted with National Power Corporation (NAPOCOR) to operate and maintain two 100-megawatt power barges for a 15-year term.
- Respondent’s Role: Subcontractor appointed by BWSC-Denmark to perform actual operation and maintenance of the barges and related duties in the Philippines.
VAT Registration and Ruling
- BWSCMI applied for and received BIR Ruling No. 023-95 (Feb. 14, 1995), declaring its services zero-rated for VAT if paid in acceptable foreign currency and accounted for under BSP rules.
- Respondent registered as a VAT taxpayer (RDO No. 113, May 26, 1995).
- For 1996, BWSCMI filed quarterly VAT returns reporting zero-rated sales of ₱147,317,189.62 and input taxes of ₱3,361,174.14.
Voluntary Assessment and Amended VAT Return
- On December 29, 1997, BWSCMI availed itself of the BIR’s Voluntary Assessment Program (VAP), misreading Revenue Regulations No. 5-96 to apply a 10% VAT on services rendered from April–December 1996 (₱103,558,338.11) while zero-rating January–March 1996 (₱43,893,951.07).
- BWSCMI computed and paid an output VAT liability of ₱6,994,659.67 for 1996.
- On January 7, 1999, the VAT Review Committee issued Ruling No. 003-99, reconfirming that BWSCMI’s services are subject to 0% VAT.
Claim for Tax Credit Certificate
- April 22, 1999: BWSCMI filed a claim for issuance of a tax credit certificate (TCC) for ₱6,994,659.67, asserting