CIR v.

Seagate Technology DOCTRINE: Business companies registered in and operating from the Special
Effectivity of Zero-rated Transactions with PEZA | February 11, 2005| Panganiban, J. Economic Zone in Naga, Cebu -- like herein respondent -- are entities exempt from all
internal revenue taxes and the implementing rules relevant thereto, including the
Nature of Case/Keywords: value-added taxes or VAT. Although export sales are not deemed
Digest maker: exempt transactions, they are nonetheless zero-rated. Hence, in the present case,
SUMMARY: Respondent is a resident foreign corporation duly registered with the the distinction between exempt entities and exempt transactions has little
Securities and Exchange Commission to do business in the Philippines and is significance, because the net result is that the taxpayer is not liable for the VAT.
registered with the Philippine Export Zone Authority (PEZA). The respondent is a Respondent, a VAT-registered enterprise, has complied with all requisites for
Value Added Tax-registered entity and accordingly filed for the VAT returns. An claiming a tax refund of or credit for the input VAT it paid on capital goods it
administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 purchased. Thus, the Court of Tax Appeals and the Court of Appeals did not err in
with supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject ruling that it is entitled to such refund or credit.
of this Petition for Review), was filed on 4 October 1999 but no final action was
received by the respondent from the petitioner on the claim for VAT refund. Hence, FACTS:
petitioner was sued in his official capacity. The Tax Court rendered a decision granting  Respondent is a resident foreign corporation duly registered with the Securities
the claim for refund and CTA affirmed the decision. and Exchange Commission to do business in the Philippines, with principal office
address at the new Cebu Township One, Special Economic Zone, Barangay Cantao-
In this petition for certiorari, the issue is whether or not respondent is entitled to the an, Naga, Cebu;
refund or issuance of Tax Credit Certificate in the amount of P12,122,922.66 o Registered with the Philippine Export Zone Authority (PEZA) and has
representing alleged unutilized input VAT paid on capital goods purchased for the been issued PEZA Certificate No. 97-044 pursuant to Presidential
period April 1, 1998 to June 30, 1999. The court found the petition is unmeritorious. Decree No. 66, as amended, to engage in the manufacture of
As a PEZA-registered enterprise within a special economic zone, respondent is recording components primarily used in computers for export. Such
entitled to the fiscal incentives and benefit provided for in either PD 66 or EO 226. It registration was made on 6 June 1997;
shall, moreover, enjoy all privileges, benefits, advantages or exemptions under both o VAT [(Value Added Tax)]-registered entity
Republic Act Nos. (RA) 7227 and 7844. Respondent as an entity is exempt from o VAT returns for the period 1 April 1998 to 30 June 1999 have been
internal revenue laws and regulations. This exemption covers both direct and indirect filed by respondent;
taxes, stemming from the very nature of the VAT as a tax on consumption, for which  Petitioner is sued in his official capacity, having been duly appointed and
the direct liability is imposed on one person but the indirect burden is passed on to empowered to perform the duties of his office, including, among others, the duty
another. Respondent, as an exempt entity, can neither be directly charged for the to act and approve claims for refund or tax credit;
VAT on its sales nor indirectly made to bear, as added cost to such sales, the  An administrative claim for refund of VAT input taxes in the amount
equivalent VAT on its purchases. The exemption is both express and pervasive, of P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04 VAT
among other reasons, since RA 7916 states that “no taxes, local and national, shall input taxes subject of this Petition for Review), was filed on 4 October 1999 with
be imposed on business establishments operating within the ecozone.” Even though Revenue District Office No. 83, Talisay Cebu;
the VAT is not imposed on the entity but on the transaction, it may still be passed on  No final action has been received by respondent from petitioner on respondents
and, therefore, indirectly imposed on the same entity -- a patent circumvention of claim for VAT refund, prompting respondent to elevate the case to the CTA by way
the law. That no VAT shall be imposed directly upon business establishments of Petition for Review in order to toll the running of the two-year prescriptive
operating within the ecozone under RA 7916 also means that no VAT may be passed period.
on and imposed indirectly. Quando aliquid prohibetur ex directo prohibetur et per
obliquum. When anything is prohibited directly, it is also prohibited indirectly. Special Petitioner’s special and affirmative defenses:
laws expressly grant preferential tax treatment to business establishments registered  Respondents alleged claim for tax refund/credit is subject to administrative
and operating within an ecozone, which by law is considered as a separate customs routinary investigation/examination by petitioners Bureau;
territory. As such, respondent is exempt from all internal revenue taxes, including the  Since taxes are presumed to have been collected in accordance with laws and
VAT, and regulations pertaining thereto. Thus, the petition is denied and the decision regulations, the respondent has the burden of proof that the taxes sought to be
of lower courts affirmed refunded were erroneously or illegally collected
 In Citibank, N.A. vs. Court of Appeals, 280 SCRA 459 (1997), the Supreme Court payments were -- to the extent of the refundable value -- duly supported by
ruled that: A claimant has the burden of proof to establish the factual basis of his VAT invoices or official receipts, and were not yet offset against any output VAT
or her claim for tax credit/refund. liability.
 Claims for tax refund/tax credit are construed in strictissimi juris against the
taxpayer. This is due to the fact that claims for refund/credit [partake of] the
ISSUE/S & RATIO:
nature of an exemption from tax. Thus, it is incumbent upon the [respondent] to
WON respondent is entitled to the refund or issuance of Tax Credit Certificate in the
prove that it is indeed entitled to the refund/credit sought. Failure on the part of
amount of P12,122,922.66 representing alleged unutilized input VAT paid on capital
the [respondent] to prove the same is fatal to its claim for tax credit. He who
goods purchased for the period April 1, 1998 to June 30, 1999 -- YES
claims exemption must be able to justify his claim by the clearest grant of organic
(insert ratio here)
or statutory law. An exemption from the common burden cannot be permitted to
exist upon vague implications;
(insert ratio here)
 Granting, without admitting, that [respondent] is a Philippine Economic Zone
Authority (PEZA) registered Ecozone Enterprise, then its business is not subject to
(insert ratio here)1
VAT pursuant to Section 24 of Republic Act No. ([RA]) 7916 in relation to Section
103 of the Tax Code, as amended. As [respondents] business is not subject to VAT,
the capital goods and services it alleged to have purchased are considered not
DISPOSITIVE PORTION: (insert dispositive portion here)
used in VAT taxable business. As such, [respondent] is not entitled to refund of
input taxes on such capital goods pursuant to Section 4.106.1 of Revenue
SEPARATE OPINIONS:
Regulations No. ([RR])7-95, and of input taxes on services pursuant to Section
Name of Justice
4.103 of said regulations.
(insert opinion here)
 Respondent must show compliance with the provisions of Section 204 (C) and 229
of the 1997 Tax Code on filing of a written claim for refund within two (2) years
NOTE/S:
from the date of payment of tax.
Other things the Court may have said
CTA | Granted the claim for refund

CA | Affirmed the decision of the CTA granting the claim for refund or issuance of a tax
credit certificate in favor of respondent in the reduced amount of P12,122,922.66.
This sum represented the unutilized but substantiated input VAT paid on capital goods
purchased for the period covering April 1, 1998 to June 30, 1999.

- respondent had availed itself only of the fiscal incentives under Executive
Order No. (EO) 226 (otherwise known as the Omnibus Investment Code of
1987), not of those under both Presidential Decree No. (PD) 66, as amended,
and Section 24 of RA 7916. Respondent was, therefore, considered exempt
only from the payment of income tax when it opted for the income tax holiday
in lieu of the 5 percent preferential tax on gross income earned. As a VAT-
registered entity, though, it was still subject to the payment of other national
internal revenue taxes, like the VAT.

- Moreover, the CA held that neither Section 109 of the Tax Code nor Sections
4.106-1 and 4.103-1 of RR 7-95 were applicable. Having paid the input VAT on
the capital goods it purchased, respondent correctly filed the administrative
and judicial claims for its refund within the two-year prescriptive period. Such

1 Insert footnotes here