Case Summary (G.R. No. 172378)
Background and Procedural History
Silicon Philippines, Inc., registered as a Value Added Tax (VAT) taxpayer and a preferred pioneer enterprise, filed a claim on May 21, 1999, for a credit/refund of unutilized input VAT amounting to ₱31,902,507.50 for the period October 1 to December 31, 1998. The claim included ₱15,170,082.00 paid on imported/locally purchased capital equipment and ₱16,732,425.50 attributable to zero-rated export sales. Due to respondent's inaction, petitioner filed a petition for review with the CTA Division on December 27, 2000.
Claims and Defenses Before the CTA Division
Petitioner asserted its entitlement by showing it made zero-rated export sales amounting to over ₱3 billion, accounted for foreign currency payments properly, and paid the input VAT which was unutilized against any output tax. The respondent defended by raising procedural and substantive objections, including the non-compliance with proof of payment dates, failure to meet statutory requirements of Section 229 of the Tax Code, and the general rule that tax refunds are strictly construed against claimants.
CTA Division Decision and Reconsideration
The CTA Division partly granted the claim for input VAT refund on capital goods, reducing the approved amount to ₱9,898,867.00 after disallowing items not considered capital goods under RR No. 7-95, such as training materials and office supplies. The claim for refund of input VAT on zero-rated sales was denied for failure to present an Authority to Print (ATP) from the BIR and for absence of the required ATP number and “zero-rated” printed on the export sales invoices. Motions for reconsideration by both parties were denied, with the court highlighting the lack of a valid permit during the relevant period.
CTA En Banc Ruling
The CTA En Banc denied Silicon Philippines’ petition for review, emphasizing strict compliance with statutory and regulatory requirements. It underscored that:
- The ATP printing on invoices serves as a government safeguard per Section 238 of the NIRC.
- The term “zero-rated” must appear on invoices reflecting zero-rated sales pursuant to Section 4.108-1 of RR No. 7-95.
- Tax refund claims, being exemptions from government revenue, must be proved strictly with full compliance to legal formalities.
- The items claimed as capital goods must be shown to be used directly or indirectly in production or sale of taxable goods; petitioner failed to prove that for certain disallowed items.
The CTA En Banc affirmed the denial of the refund claim for input VAT on zero-rated sales and the reduction of the amount for capital goods.
Issues Presented
- Whether the CTA En Banc erred in denying the input VAT refund on zero-rated sales due to non-presentation of ATP and absence of the word “zero-rated” on invoices.
- Whether the CTA erroneously limited the input VAT refund on capital goods to ₱9,898,867.00.
Petitioner’s Arguments
Petitioner claimed that:
- The NIRC Sections 113 and 237 do not require the printing of ATP nor the word “zero-rated” on invoices.
- Absence of these details should not invalidate the claim for refund.
- Cited Intel Technology Philippines, Inc. v. CIR, which held failure to print ATP on invoices should not outright deny refund claims.
- Argued that detailed proof showed all goods were used in production, thus qualifying for input VAT refund as capital goods.
Respondent’s Arguments
Respondent maintained that:
- Section 238 of the NIRC mandates securing an ATP, and associated regulations require its visible printing as a control mechanism.
- Section 4.108-1 of RR No. 7-95 requires the word “zero-rated” to safeguard against improper input tax claims.
- Petitioner failed to establish that all items claimed qualified as capital goods in compliance with Section 4.106-1 of RR No. 7-95.
Supreme Court’s Ruling
Credit/Refund for Input VAT on Zero-Rated Sales
The Court recognized two distinct claims for input VAT refunds: one attributable to zero-rated sales (Section 112[A] of the NIRC) and one on capital goods (Section 112[B]). For zero-rated sales, the four requisites under Section 112(A) include VAT registration, engagement in zero-rated sales, timely filing, and input VAT attributable to such sales.
ATP Requirement: The Court clarified that while the ATP number need not be printed on invoices or receipts (following Intel Technology case), securing an ATP is mandatory as a preliminary requirement under Section 238 of the NIRC. Without proof of having obtained ATP from the BIR, the export sales invoices lack probative value in substantiating zero-rated sales for refund claims.
Requirement to Print "Zero-Rated": The Court firmly held that printing the word “zero-rated” on sales invoices is a substantive requirement under regulatory authority (Section 4.108-1 of RR No. 7-95), promulgated pursuant to Section 244 of the NIRC. This serves as an essential safeguard to prevent improper claims of input VAT refund.
Consequences of Non-Compliance: Failure to present proof of ATP and failure to print the word “zero-rated” on invoices are fatal defects. The absence of the latter particularly invalidates the claim regardless of other evidence submitted.
Therefore, the denial by the CTA was upheld due to petitioner’s failure to present both proof of ATP and the required “zero-rated” indication.
Credit/Refund for Input VAT on Capital Goods
Capital goods, as defined in Section 4.106-1(b) of RR No. 7-95, are goods with a useful life exceeding one year and treated as depreciable assets used directly or indirectly in producing or selling taxable goods or services.
The Court agreed with the CTA's assessment disallowing the portion of petitioner’s claim relating to items like training materials, office supplies, banners, T-shirts, and books, since petitioner failed to sufficiently prove these were capital goods used in the production or sale of taxable goods or services.
The reduction of the refundable input VAT amount from ₱15,170,082.00 to ₱9,898,867.00 was there
Case Syllabus (G.R. No. 172378)
Background and Nature of the Case
- Petitioner Silicon Philippines, Inc., formerly Intel Philippines Manufacturing, Inc., is a corporation engaged in designing, developing, manufacturing, and exporting advanced integrated circuit components.
- The petitioner is registered as a VAT taxpayer with the Bureau of Internal Revenue (BIR) and as a preferred pioneer enterprise with the Board of Investments (BOI).
- The case arises from petitioner’s application for credit/refund of unutilized input VAT for the last quarter of 1998, specifically the period from October 1 to December 31, 1998, amounting to P31,902,507.50.
- The claim covered two main components: VAT paid on capital equipment (P15,170,082.00) and VAT paid on purchases related to zero-rated export sales (P16,732,425.50).
- The petitioner sought redress through the Court of Tax Appeals (CTA) due to inaction by the Commissioner of Internal Revenue (CIR).
Proceedings Before the Court of Tax Appeals (CTA) Division
- Petitioner filed a Petition for Review with the CTA Division on December 27, 2000, alleging zero-rated export sales for the said period amounting to over P3 billion, paid in acceptable foreign currency and compliant with BSP regulations.
- Petitioner asserted payment of input VAT totaling P31,902,507.50 not applied against any output VAT.
- The CIR answered, raising special and affirmative defenses including the lack of alleged payment dates, requirements under Section 229 of the Tax Code, the strict construction of refund claims, and the presumption of lawfulness in tax collection.
- The CTA Division’s Decision on November 18, 2003 partially granted the refund for input VAT on capital goods but reduced the allowable refund to P9,898,867.00, excluding items such as training materials, office supplies, and similar goods not considered capital goods under the applicable Revenue Regulations.
- The request for refund of input VAT on zero-rated sales was denied due to failure to present an Authority to Print (ATP) from the BIR and absence of the word “zero-rated” on the export sales invoices.
- Motions for reconsideration filed by both petitioner and respondent were denied by the CTA Division in a Resolution dated August 10, 2004. The Court emphasized the lack of BIR approval for printing sales invoices relevant to the claim period and questioned the probative value of the petitioner’s documents.
Ruling of the CTA En Banc
- Petitioner elevated the case to the CTA En Banc, which on September 30, 2005, affirmed the CTA Division’s ruling denying the petition for lack of merit.
- The En Banc stressed the legal requirement under Section 238 of the 1997 National Internal Revenue Code (NIRC) that persons engaged in business must secure an ATP from the BIR prior to printing sales invoices.
- The requirement that invoices for zero-rated sales display the word "zero-rated" was clarified as mandatory under Revenue Regulations No. 7-95 pursuant to Section 244 of the NIRC.
- The En Banc highlighted the nature of tax refunds as exemptions that must be strictly construed against claimants.
- The court found no error in the reduction of the refundable