CIR Vs Sekisui Jushi Phils

2/22/22, 11:48 PM SUPREME COURT REPORTS ANNOTATED VOLUME 496
206 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Sekisui Jushi
Philippines, Inc.
*
G.R. No. 149671. July 21, 2006.
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs. SEKISUI JUSHI PHILIPPINES, INC., respondent.
Taxation; Value-Added Tax; A Philippine Export Zone

Authority (PEZA)-registered enterprise is given the option to
choose between two fiscal incentives: a) a five percent preferential
tax rate on its gross income under the said law; or b) an income tax
holiday provided under Executive Order No. 226 or the Omnibus
Investment Code of 1987, as amended.—An entity registered with
the PEZA as an ecozone may be covered by the VAT system.
Section 23 of Republic Act 7916, as amended, gives a PEZA-
registered enterprise the option to choose between two fiscal
incentives: a) a five percent preferential tax rate on its gross
income under the said law; or b) an income tax holiday provided
under Executive Order No. 226 or the Omnibus Investment Code
of 1987, as amended. If the entity avails itself of the five percent
preferential tax rate under the first scheme, it is exempt from all
taxes, including the VAT;under the second, it is exempt from
income taxes for a number of years, but not from other national
internal revenue taxes like the VAT.
_______________
* FIRST DIVISION.
207
VOL. 496, JULY 21, 2006 207
Philippines, Inc.
https://central.com.ph/sfsreader/session/0000017f221f0c8e58c7f600000d00d40059004a/t/?o=False 1/10
Court of Tax Appeals; Absent a sufficient showing of error,

findings of the Court of Tax Appeals (CTA) as affirmed by the
Court of Appeals (CA) are deemed conclusive.—The CA and CTA
found that respondent had availed itself of the fiscal incentive of
an income tax holiday under Executive Order No. 226. This Court
respects that factual finding. Absent a sufficient showing of error,
findings of the CTA as affirmed by the CA are deemed conclusive.
Moreover, a perusal of the pleadings and supporting documents
before us indicates that when it registered as a VAT-entity—a
fact admitted by the parties—respondent intended to avail itself
of the income tax holiday. Verily, being a question of fact, the type
of fiscal incentive chosen cannot be a subject of this Petition,
which should raise only questions of law.
Taxation; While an ecozone is geographically within the

Philippines, it is deemed a separate customs territory and is
regarded in law as foreign soil; Sales by suppliers from outside the
borders of the ecozone to this separate customs territory are
deemed as exports and treated as export sales.—Notably, while an
ecozone is geographically within the Philippines, it is deemed a
separate customs territory and is regarded in law as foreign soil.
Sales by suppliers from outside the borders of the ecozone to this
separate customs territory are deemed as exports and treated as
export sales. These sales are zero-rated or subject to a tax rate of
zero percent.
Value Added Tax (VAT); Since 100 percent of the products of

respondent are exported, all its transactions are deemed export
sales and are thus Value Added Tax (VAT) zero-rated.—On the
other hand, since 100 percent of the products of respondent are
exported, all its transactions are deemed export sales and are
thus VAT zero-rated. It has been shown that respondent has no
output tax with which it could offset its paid input tax. Since the
subject input tax it paid for its domestic purchases of capital
goods and services remained unutilized, it can claim a refund for
the input VAT previously charged by its suppliers. The amount of
P4,3775102.26 is excess input taxes that justify a refund.
PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.
208

Philippines, Inc.
The Law Firm of Ingles, Laurel, Dolino, Calderon for

respondent.
PANGANIBAN, C.J.:
Business enterprises registered with the Philippine Export

Zone Authority (PEZA) may choose between two fiscal
incentive schemes: (1) to pay a five percent, preferential tax
rate on its gross income and thus be exempt from all other
taxes; or (b) to enjoy an income tax holiday, in which case it
is not exempt from applicable national revenue taxes
including the value-added tax (VAT). The present
respondent, which availed itself of the second tax incentive
scheme, has proven that all its transactions were export
sales. Hence they should be VAT zero-rated.
The Case
1
Before us is a Petition for Review under Rule 45 of the2
Rules of Court, challenging the August 16, 2001 Decision
of the Court of Appeals (CA) in CA-G.R. SP No. 64679.
3
The
assailed Decision upheld the April 26, 2001 Decision of the
Court of Tax Appeals (CTA) in CTA Case No. 5751. The CA
Decision disposed as follows:
“WHEREFORE, premises considered, the present petition for

review is hereby DENIED DUE COURSE and accordingly
DISMISSED for lack of merit. The Decision dated April 26, 2001
of the Court of Tax Appeals
4
in CTA Case No. 5751 is hereby
AFFIRMED and UPHELD.”
_______________
1 Rollo, pp. 8-18.

2 Id., at pp. 22-27. Special Twelfth Division. Penned by Justice Martin
S. Villarama, Jr., with the concurrence of Justices Conrado M. Vasquez,
Jr. (Division chair) and Eliezer R. De los Santos (member).
3 Id., at pp. 28-39. Penned by Judge Amancio Q. Saga and concurred in
by Presiding Judge Ernesto D. Acosta (now CTA Presiding Justice).
4 Assailed CA Decision, p. 6; Rollo, p. 27.
209
VOL. 496, JULY 21, 2006 209

Philippines, Inc.
On the other hand, the dispositive portion of the CTA

Decision reads:
“WHEREFORE, the instant Petition for Review is PARTIALLY

GRANTED. [Petitioner] is hereby ordered to refund or to issue a
Tax Credit Certificate in favor of the [Respondent] in the amount
of P4,377,102.26 representing excess input5 taxes paid for the
period covering January 1 to June 30, 1997.”
The Facts
6
The uncontested facts are narrated by the CA as follows:
“Respondent is a domestic corporation duly organized and

existing under and by virtue of the laws of the Philippines with
principal office located at the Special Export Processing Zone,
Laguna Technopark, Bi an, Laguna. It is principally engaged in
the business of manufacturing, importing, exporting, buying,
selling, or otherwise dealing in, at wholesale such goods as
strapping bands and other packaging materials and goods of
similar nature, and any and all equipment, materials, supplies
used or employed in or related to the manufacture of such
finished products.
“Having registered with the Bureau of Internal Revenue (BIR)
as a value-added tax (VAT) taxpayer, respondent filed its
quarterly returns with the BIR, for the period January 1 to June
30, 1997, reflecting therein input taxes in the amount of
P4,631,132.70 paid by it in connection with its domestic purchase
of capital goods and services. Said input taxes remained
unutilized since respondent has not engaged in any business
activity or transaction for which it may be liable for output tax
and for which said input taxes may be credited.
“On November 11, 1998, respondent filed with the One-Stop-
Shop Inter-Agency Tax Credit and Duty Drawback Center of the
Department of Finance (CENTER-DOF) two (2) separate
applications for tax credit/refund of VAT input taxes paid for the
period January 1 to March 31, 1997 and April 1 to June 30, 1997,
respectively. There being no action on its application for tax
credit/refund
_______________
5 CTA Decision, p. 11; Rollo, p. 38.

6 The Petition quoted them in full.
210

Philippines, Inc.
under Section 112 (B) of the 1997 National Internal Revenue Code
(Tax Code), as amended, private respondent filed, within the two
(2)-year prescriptive period under Section 229 of said Code, a
petition for review with the Court of Tax Appeals on March 26,
1999.
“Petitioner filed its Answer to the petition asseverating that:
(1) said claim for tax credit/refund is subject to administrative
routinary investigation by the BIR; (2) respondent miserably
failed to show that the amount claimed as VAT input taxes were
erroneously collected or that the same were properly documented;
(3) taxes due and collected are presumed to have been made in
accordance with law, hence, not refundable; (4) the burden of
proof is on the taxpayer to establish his right to a refund in an
action for tax refund. Failure to discharge such duty is fatal to his
action; (5) respondent should show that it complied with the
provisions of Section 204 in relation to Section 229 of the 1997
Tax Code; and (6) claims for refund are strictly construed against
the taxpayer as it partakes of the nature of a tax exemption. 7
Hence, petitioner prayed for the denial of respondent’s petition.”
Ruling of the Court of Tax Appeals
The CTA ruled that respondent was entitled to the refund.

While the company was registered with the PEZA as an
ecozone and was, as such, exempt from income tax, it
availed itself of the fiscal incentive under Executive Order
No. 226. It thereby subjected 8
itself to other internal
revenue taxes like the VAT. The CTA then found that only
input taxes amounting to P4,377,102.26 were9 duly
substantiated by invoices and Official Receipts, while
those amounting to P254,313.43 10had not been sufficiently
proven and were thus disallowed.
_______________
7 Assailed CA Decision, pp. 1-2; Rollo, pp. 22-23.

8 CTA Decision, p. 10; id., at p. 37.
9 Id., at p. 11; id., at p. 38.
10 Id., at pp. 10-11; id., at pp. 37-38.
211
VOL. 496, JULY 21, 2006 211

Philippines, Inc.
Ruling of the Court of Appeals
The Court of Appeals upheld the Decision of the CTA.

According to the CA, respondent had complied with the
procedural and substantive requirements for a claim by 1)
submitting receipts, invoices, and supporting papers as
evidence; 2) paying the subject input taxes on capital goods;
3) not applying the input taxes against any output tax
liability; and 4) filing the claim within the two-year
prescriptive
11
period under Section 229 of the 1997 Tax
Code. 12
Hence, this Petition.
The Issue
Petitioner raises this sole issue for our consideration:
“Whether or not respondent is entitled to the refund or issuance of

tax credit certificate in the amount of P4,377,102.26 as alleged
unutilized input taxes paid on domestic purchase of capital goods13
and services for the period covering January 1 to June 30, 1997.”
The Court’s Ruling
The Petition has no merit.
Sole Issue:
Entitlement
to Refund
To support the issue raised, petitioner advances the

following arguments:
_______________
11 Assailed CA Decision, p. 5; Rollo, p. 26.

12 To resolve old cases, the Court created the Committee on Zero
Backlog of Cases on January 26, 2006. Consequently, the Court resolved
to prioritize the adjudication of long-pending cases by redistributing them
among all the justices. This case was recently reraffled and assigned to
the undersigned ponente for study and report.
13 Petition, p. 4; Rollo, p. 11.
212

Philippines, Inc.
“I . The Court of Appeals erred in not holding that

respondent being registered with the Philippine
Economic Zone Authority (PEZA) as an [e]cozone
[e]xport [enterprise, its business is not subject to
VAT pursuant to Section 24 of Republic Act No.
7916 in relation to Section 103 (now Sec, 109) of the
Tax Code, as amended by R.A. 7716.
“II . The Court of Appeals erred in not holding that
since respondent is EXEMPT from Value-Added
Tax (VAT), the capital goods and services it
purchased are considered not used in VAT taxable
business, hence, is not allowed any tax
credit/refund on VAT input tax previously paid on
such capital goods pursuant to Section 4.106-1 of
Revenue Regulations No. 7-95, and of input taxes
paid on services pursuant to Section 4.103-1 of the
same regulations.
“III . The Court of Appeals erred in not holding that tax
refunds being in the nature of tax exemptions 14
are
construed strictissimi juris against claimants.”
These issues have previously been addressed by this Court

in Commissioner of Internal 15
Revenue v. Toshiba
Information Equipment (Phils.), Commissioner
16
of Internal
Revenue v. Cebu Toyo Corporation, and Commissioner 17
of
Internal Revenue v. Seagate Technology (Philippines).18
An entity registered with the PEZA as an ecozone may
be covered by the VAT system. Section 23 of Republic Act
7916, as amended, gives a PEZA-registered enterprise the
option to choose between two fiscal incentives: a) a five
percent preferential tax rate on its gross income under the
said law; or b) an income tax holiday provided under
Executive Order No. 226
_______________
14 Id., at pp. 4-5; id., at pp. 11-12.

15 466 SCRA 211, August 9, 2005.
16 451 SCRA 447, February 16, 2005.
17 451 SCRA 132, February 11, 2005.
18 An ecozone refers to a selected area that is or has a potential to be

developed as agro-industrial, industrial, tourist/recreational, commercial,
banking, investment and financial centers. See Republic Act No. 7916,
otherwise known as “The Special Economic Zone Act of 1995,” Chapter 1,
Sec. 4(a).
213
VOL. 496, JULY 21, 2006 213

Philippines, Inc.
or the Omnibus Investment Code of 1987, as amended. If

the entity avails itself of the five percent preferential tax
rate under the first19 scheme, it is exempt from all taxes,
including the VAT; under the second, 20
it is exempt from
income taxes for a number of years, but not 21
from other
national internal revenue taxes like the VAT.
The CA and CTA found that respondent had availed
itself of the fiscal incentive of an income tax holiday under
Executive Order No. 226. This Court respects that factual
finding. Absent a sufficient showing of error, findings of the
22
CTA as affirmed by the CA are deemed conclusive.
Moreover, a perusal of the pleadings and supporting
documents before us indicates that when it registered as a
VAT-entity—a fact admitted by the parties—respondent 23
intended to avail itself of the income tax holiday. Verily,
being a question of fact, the type of fiscal incentive chosen
cannot be a subject of this Petition, which should raise only
questions of law.
By availing itself of the income tax holiday, respondent
became subject to the VAT. It correctly registered as a VAT
taxpayer, because its transactions were not VAT-exempt.
_______________
19 Commissioner of Internal Revenue v. Toshiba Information Equipment

(Phils.), Inc., supra note 15; Commissioner of Internal Revenue v. Cebu
Toyo Corporation, supra note 16.
20 The income tax holiday is for a period of 6 years for pioneer
enterprises and 4 years for non-pioneer enterprises. (Executive Order No.
226, as amended, Art. 39).
21 Supra note 19.
22 Commissioner of Internal Revenue vs. Toshiba Information
Equipment (Phils.), Inc., supra note 15.
While Republic Act No. 9282, elevated the CTA to the level of the CA, the rule
stands, because findings of trial courts—for which specialization is conferred—are
accorded respect and finality when supported by substantial evidence.
23 CTA Decision, p. 6; Rollo, p. 33.
214

Philippines, Inc.
Notably, while an ecozone is geographically within24 the

Philippines, it is deemed a separate
25
customs territory and
is regarded in law as foreign soil. Sales by suppliers from
outside the borders of the ecozone26to this separate customs
territory
27
are deemed as exports and treated as export
sales. These28sales are zero-rated or subject to a tax rate of
zero percent.
Notwithstanding the fact that its purchases should have
been zero-rated, respondent was able to prove that it had
paid input taxes m the amount of P4,377,102,26. The CTA
found, and the CA affirmed, that this amount was 29
substantially supported by invoices and Official Receipts;
and petitioner has not challenged the computation.
Accordingly, this Court upholds the findings of the CTA
and the CA.
On the other hand, since
30
100 percent of the products of
respondent are exported, all its transactions are deemed
export sales and are thus VAT zero-rated. It has been
shown that respondent has no 31
output tax with which it
could offset its paid input tax. Since the subject input tax
it paid for its domestic purchases of capital goods and
services remained unutilized, it can claim a refund for32
the
input VAT previously charged by its suppliers. The
amount of P4,377,102.26 is excess input taxes that justify a
refund.
_______________
24 Republic Act No. 7916, as amended, Sec. 8.

25 Commissioner of Internal Avenue v. Seagate Technology
(Philippines), supra note 17.
26 Commissioner of Internal Revenue v. Toshiba Information Equipment
(Phils.), supra note 15.
27 Id.
28 TAX CODE, Sec. 106(A)(2)(a)(5).
29 CTA Decision, pp. 6 and 11; Rollo, pp. 33 and 38.
30 Id., at p. 7; id., at p. 34.
31 Assailed CA Decision, p. 5; id., at p. 26.

32 Commissioner of Internal Revenue v. Seagate Technology
(Philippines), supra note 17.
215
VOL. 496, JULY 21, 2006 215

Seventh Day Adventist Conference Church of Southern
Philippines, Inc.
vs. Northeastern Mindanao Mission
of Seventh Day
Adventist, Inc.
WHEREFORE, the Petition is DENIED and the assailed

Decision AFFIRMED, No costs, as petitioner is a
government agency.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Callejo, Sr. and

Chico-Nazario, JJ., concur.
Petition denied, assailed decision affirmed.
Note.—Those who claim to be exempt from the payment

of a particular tax must do so under clear and
unmistakable terms found in the statute. (Commissioner of
Internal Revenue vs. Solidbank Corporation, 416 SCRA 436
[2003])
——o0o——
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2/22/22, 11:48 PM SUPREME COURT REPORTS ANNOTATED VOLUME 496

206 SUPREME COURT REPORTS ANNOTATED

COMMISSIONER OF INTERNAL REVENUE, petitioner,

Taxation; Value-Added Tax; A Philippine Export Zone

VOL. 496, JULY 21, 2006 207

Commissioner of Internal Revenue vs. Sekisui Jushi

Court of Tax Appeals; Absent a sufficient showing of error,

Taxation; While an ecozone is geographically within the

Value Added Tax (VAT); Since 100 percent of the products of

PETITION for review on certiorari of a decision of the

The facts are stated in the opinion of the Court.

208 SUPREME COURT REPORTS ANNOTATED

The Law Firm of Ingles, Laurel, Dolino, Calderon for

Business enterprises registered with the Philippine Export

“WHEREFORE, premises considered, the present petition for

1 Rollo, pp. 8-18.

VOL. 496, JULY 21, 2006 209

On the other hand, the dispositive portion of the CTA

“WHEREFORE, the instant Petition for Review is PARTIALLY

“Respondent is a domestic corporation duly organized and

5 CTA Decision, p. 11; Rollo, p. 38.

210 SUPREME COURT REPORTS ANNOTATED

Ruling of the Court of Tax Appeals

The CTA ruled that respondent was entitled to the refund.

7 Assailed CA Decision, pp. 1-2; Rollo, pp. 22-23.

VOL. 496, JULY 21, 2006 211

Ruling of the Court of Appeals

The Court of Appeals upheld the Decision of the CTA.

Petitioner raises this sole issue for our consideration:

“Whether or not respondent is entitled to the refund or issuance of

The Court’s Ruling

The Petition has no merit.

To support the issue raised, petitioner advances the

11 Assailed CA Decision, p. 5; Rollo, p. 26.

212 SUPREME COURT REPORTS ANNOTATED

“I . The Court of Appeals erred in not holding that

These issues have previously been addressed by this Court

14 Id., at pp. 4-5; id., at pp. 11-12.

18 An ecozone refers to a selected area that is or has a potential to be

VOL. 496, JULY 21, 2006 213

or the Omnibus Investment Code of 1987, as amended. If

19 Commissioner of Internal Revenue v. Toshiba Information Equipment

accorded respect and finality when supported by substantial evidence.

23 CTA Decision, p. 6; Rollo, p. 33.

214 SUPREME COURT REPORTS ANNOTATED

Notably, while an ecozone is geographically within24 the

24 Republic Act No. 7916, as amended, Sec. 8.

31 Assailed CA Decision, p. 5; id., at p. 26.

VOL. 496, JULY 21, 2006 215

WHEREFORE, the Petition is DENIED and the assailed

Ynares-Santiago, Austria-Martinez, Callejo, Sr. and

Petition denied, assailed decision affirmed.

Note.—Those who claim to be exempt from the payment

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