Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 193007

July 19, 2011

RENATO V. DIAZ and AURORA MA. F. TIMBOL, Petitioners,

vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, Respondents.
DECISION
ABAD, J.:
May toll fees collected by tollway operators be subjected to value- added tax?
The Facts and the Case
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief 1
assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal
Revenue (BIR) on the collections of tollway operators.
Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as regular
users of tollways in stopping the BIR action. Additionally, Diaz claims that he sponsored the approval of
Republic Act 7716 (the 1994 Expanded VAT Law or EVAT Law) and Republic Act 8424 (the 1997 National
Internal Revenue Code or the NIRC) at the House of Representatives. Timbol, on the other hand, claims
that she served as Assistant Secretary of the Department of Trade and Industry and consultant of the
Toll Regulatory Board (TRB) in the past administration.
Petitioners allege that the BIR attempted during the administration of President Gloria MacapagalArroyo to impose VAT on toll fees. The imposition was deferred, however, in view of the consistent
opposition of Diaz and other sectors to such move. But, upon President Benigno C. Aquino IIIs
assumption of office in 2010, the BIR revived the idea and would impose the challenged tax on toll fees
beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees
within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "users tax," not a
sale of services; that to impose VAT on toll fees would amount to a tax on public service; and that, since
VAT was never factored into the formula for computing toll fees, its imposition would violate the nonimpairment clause of the constitution.
On August 13, 2010 the Court issued a temporary restraining order (TRO), enjoining the
implementation of the VAT. The Court required the government, represented by respondents Cesar V.
Purisima, Secretary of the Department of Finance, and Kim S. Jacinto-Henares, Commissioner of Internal
Revenue, to comment on the petition within 10 days from notice. 2 Later, the Court issued another
resolution treating the petition as one for prohibition. 3
On August 23, 2010 the Office of the Solicitor General filed the governments comment. 4 The
government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including
tollway operations, except where the law provides otherwise; that the Court should seek the meaning
and intent of the law from the words used in the statute; and that the imposition of VAT on tollway
operations has been the subject as early as 2003 of several BIR rulings and circulars. 5
The government also argues that petitioners have no right to invoke the non-impairment of contracts
clause since they clearly have no personal interest in existing toll operating agreements (TOAs)
between the government and tollway operators. At any rate, the non-impairment clause cannot limit
the States sovereign taxing power which is generally read into contracts.

Finally, the government contends that the non-inclusion of VAT in the parametric formula for computing
toll rates cannot exempt tollway operators from VAT. In any event, it cannot be claimed that the rights
of tollway operators to a reasonable rate of return will be impaired by the VAT since this is imposed on
top of the toll rate. Further, the imposition of VAT on toll fees would have very minimal effect on
motorists using the tollways.
In their reply6 to the governments comment, petitioners point out that tollway operators cannot be
regarded as franchise grantees under the NIRC since they do not hold legislative franchises. Further,
the BIR intends to collect the VAT by rounding off the toll rate and putting any excess collection in an
escrow account. But this would be illegal since only the Congress can modify VAT rates and authorize its
disbursement. Finally, BIR Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010), which directs
toll companies to record an accumulated input VAT of zero balance in their books as of August 16,
2010, contravenes Section 111 of the NIRC which grants entities that first become liable to VAT a
transitional input tax credit of 2% on beginning inventory. For this reason, the VAT on toll fees cannot be
implemented.
The Issues Presented
The case presents two procedural issues:
1. Whether or not the Court may treat the petition for declaratory relief as one for prohibition;
and
2. Whether or not petitioners Diaz and Timbol have legal standing to file the action.
The case also presents two substantive issues:
1. Whether or not the government is unlawfully expanding VAT coverage by including tollway
operators and tollway operations in the terms "franchise grantees" and "sale of services" under
Section 108 of the Code; and
2. Whether or not the imposition of VAT on tollway operators a) amounts to a tax on tax and not
a tax on services; b) will impair the tollway operators right to a reasonable return of investment
under their TOAs; and c) is not administratively feasible and cannot be implemented.
The Courts Rulings
A. On the Procedural Issues:
On August 24, 2010 the Court issued a resolution, treating the petition as one for prohibition rather
than one for declaratory relief, the characterization that petitioners Diaz and Timbol gave their action.
The government has sought reconsideration of the Courts resolution, 7 however, arguing that
petitioners allegations clearly made out a case for declaratory relief, an action over which the Court
has no original jurisdiction. The government adds, moreover, that the petition does not meet the
requirements of Rule 65 for actions for prohibition since the BIR did not exercise judicial, quasi-judicial,
or ministerial functions when it sought to impose VAT on toll fees. Besides, petitioners Diaz and Timbol
has a plain, speedy, and adequate remedy in the ordinary course of law against the BIR action in the
form of an appeal to the Secretary of Finance.
But there are precedents for treating a petition for declaratory relief as one for prohibition if the case
has far-reaching implications and raises questions that need to be resolved for the public good. 8 The
Court has also held that a petition for prohibition is a proper remedy to prohibit or nullify acts of
executive officials that amount to usurpation of legislative authority. 9
Here, the imposition of VAT on toll fees has far-reaching implications. Its imposition would impact, not
only on the more than half a million motorists who use the tollways everyday, but more so on the
governments effort to raise revenue for funding various projects and for reducing budgetary deficits.
To dismiss the petition and resolve the issues later, after the challenged VAT has been imposed, could
cause more mischief both to the tax-paying public and the government. A belated declaration of nullity
of the BIR action would make any attempt to refund to the motorists what they paid an administrative

nightmare with no solution. Consequently, it is not only the right, but the duty of the Court to take
cognizance of and resolve the issues that the petition raises.
Although the petition does not strictly comply with the requirements of Rule 65, the Court has ample
power to waive such technical requirements when the legal questions to be resolved are of great
importance to the public. The same may be said of the requirement of locus standi which is a mere
procedural requisite.10
B. On the Substantive Issues:
One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is levied, assessed, and
collected, according to Section 108, on the gross receipts derived from the sale or exchange of services
as well as from the use or lease of properties. The third paragraph of Section 108 defines "sale or
exchange of services" as follows:
The phrase sale or exchange of services means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or rendered
by construction and service contractors; stock, real estate, commercial, customs and immigration
brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for
others; proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including
clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport
of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic
common carriers by land relative to their transport of goods or cargoes; common carriers by air and sea
relative to their transport of passengers, goods or cargoes from one place in the Philippines to another
place in the Philippines; sales of electricity by generation companies, transmission, and distribution
companies; services of franchise grantees of electric utilities, telephone and telegraph, radio and
television broadcasting and all other franchise grantees except those under Section 119 of this Code
and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity
and bonding companies; and similar services regardless of whether or not the performance thereof
calls for the exercise or use of the physical or mental faculties. (Underscoring supplied)
It is plain from the above that the law imposes VAT on "all kinds of services" rendered in the Philippines
for a fee, including those specified in the list. The enumeration of affected services is not exclusive. 11 By
qualifying "services" with the words "all kinds," Congress has given the term "services" an allencompassing meaning. The listing of specific services are intended to illustrate how pervasive and
broad is the VATs reach rather than establish concrete limits to its application. Thus, every activity that
can be imagined as a form of "service" rendered for a fee should be deemed included unless some
provision of law especially excludes it.
Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the Toll
Operation Decree establishes the legal basis for the services that tollway operators render. Essentially,
tollway operators construct, maintain, and operate expressways, also called tollways, at the operators
expense. Tollways serve as alternatives to regular public highways that meander through populated
areas and branch out to local roads. Traffic in the regular public highways is for this reason slowmoving. In consideration for constructing tollways at their expense, the operators are allowed to collect
government-approved fees from motorists using the tollways until such operators could fully recover
their expenses and earn reasonable returns from their investments.
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latters use of the
tollway facilities over which the operator enjoys private proprietary rights 12 that its contract and the law
recognize. In this sense, the tollway operator is no different from the following service providers under
Section 108 who allow others to use their properties or facilities for a fee:
1. Lessors of property, whether personal or real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;

4. Proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land relative to their
transport of goods or cargoes; and
7. Common carriers by air and sea relative to their transport of passengers, goods or cargoes
from one place in the Philippines to another place in the Philippines.
It does not help petitioners cause that Section 108 subjects to VAT "all kinds of services" rendered for a
fee "regardless of whether or not the performance thereof calls for the exercise or use of the physical or
mental faculties." This means that "services" to be subject to VAT need not fall under the traditional
concept of services, the personal or professional kinds that require the use of human knowledge and
skills.
And not only do tollway operators come under the broad term "all kinds of services," they also come
under the specific class described in Section 108 as "all other franchise grantees" who are subject to
VAT, "except those under Section 119 of this Code."
Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio
and/or television broadcasting companies with gross annual incomes of less than P10 million and gas
and water utilities) that Section 119 13 spares from the payment of VAT. The word "franchise" broadly
covers government grants of a special right to do an act or series of acts of public concern. 14
Petitioners of course contend that tollway operators cannot be considered "franchise grantees" under
Section 108 since they do not hold legislative franchises. But nothing in Section 108 indicates that the
"franchise grantees" it speaks of are those who hold legislative franchises. Petitioners give no reason,
and the Court cannot surmise any, for making a distinction between franchises granted by Congress
and franchises granted by some other government agency. The latter, properly constituted, may grant
franchises. Indeed, franchises conferred or granted by local authorities, as agents of the state,
constitute as much a legislative franchise as though the grant had been made by Congress itself. 15 The
term "franchise" has been broadly construed as referring, not only to authorizations that Congress
directly issues in the form of a special law, but also to those granted by administrative agencies to
which the power to grant franchises has been delegated by Congress. 16
Tollway operators are, owing to the nature and object of their business, "franchise grantees." The
construction, operation, and maintenance of toll facilities on public improvements are activities of
public consequence that necessarily require a special grant of authority from the state. Indeed,
Congress granted special franchise for the operation of tollways to the Philippine National Construction
Company, the former tollway concessionaire for the North and South Luzon Expressways. Apart from
Congress, tollway franchises may also be granted by the TRB, pursuant to the exercise of its delegated
powers under P.D. 1112.17 The franchise in this case is evidenced by a "Toll Operation Certificate." 18
Petitioners contend that the public nature of the services rendered by tollway operators excludes such
services from the term "sale of services" under Section 108 of the Code. But, again, nothing in Section
108 supports this contention. The reverse is true. In specifically including by way of example electric
utilities, telephone, telegraph, and broadcasting companies in its list of VAT-covered businesses, Section
108 opens other companies rendering public service for a fee to the imposition of VAT. Businesses of a
public nature such as public utilities and the collection of tolls or charges for its use or service is a
franchise.19
Nor can petitioners cite as binding on the Court statements made by certain lawmakers in the course of
congressional deliberations of the would-be law. As the Court said in South African Airways v.
Commissioner of Internal Revenue,20 "statements made by individual members of Congress in the
consideration of a bill do not necessarily reflect the sense of that body and are, consequently, not
controlling in the interpretation of law." The congressional will is ultimately determined by the language
of the law that the lawmakers voted on. Consequently, the meaning and intention of the law must first
be sought "in the words of the statute itself, read and considered in their natural, ordinary, commonly

accepted and most obvious significations, according to good and approved usage and without resorting
to forced or subtle construction."
Two. Petitioners argue that a toll fee is a "users tax" and to impose VAT on toll fees is tantamount to
taxing a tax.21 Actually, petitioners base this argument on the following discussion in Manila
International Airport Authority (MIAA) v. Court of Appeals: 22
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like
"roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State.
The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute a
"port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and
Buildings are properties of public dominion and thus owned by the State or the Republic of the
Philippines.
x x x The operation by the government of a tollway does not change the character of the road as one
for public use. Someone must pay for the maintenance of the road, either the public indirectly through
the taxes they pay the government, or only those among the public who actually use the road through
the toll fees they pay upon using the road. The tollway system is even a more efficient and equitable
manner of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is for
public dominion or not. Article 420 of the Civil Code defines property of public dominion as "one
intended for public use." Even if the government collects toll fees, the road is still "intended for public
use" if anyone can use the road under the same terms and conditions as the rest of the public. The
charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and
other conditions for the use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines,
constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees
does not change the character of MIAA as an airport for public use. Such fees are often termed users
tax. This means taxing those among the public who actually use a public facility instead of taxing all
the public including those who never use the particular public facility. A users tax is more equitable a
principle of taxation mandated in the 1987 Constitution."23 (Underscoring supplied)
Petitioners assume that what the Court said above, equating terminal fees to a "users tax" must also
pertain to tollway fees. But the main issue in the MIAA case was whether or not Paraaque City could
sell airport lands and buildings under MIAA administration at public auction to satisfy unpaid real estate
taxes. Since local governments have no power to tax the national government, the Court held that the
City could not proceed with the auction sale. MIAA forms part of the national government although not
integrated in the department framework." 24 Thus, its airport lands and buildings are properties of public
dominion beyond the commerce of man under Article 420(1) 25 of the Civil Code and could not be sold at
public auction.
As can be seen, the discussion in the MIAA case on toll roads and toll fees was made, not to establish a
rule that tollway fees are users tax, but to make the point that airport lands and buildings are
properties of public dominion and that the collection of terminal fees for their use does not make them
private properties. Tollway fees are not taxes. Indeed, they are not assessed and collected by the BIR
and do not go to the general coffers of the government.
It would of course be another matter if Congress enacts a law imposing a users tax, collectible from
motorists, for the construction and maintenance of certain roadways. The tax in such a case goes
directly to the government for the replenishment of resources it spends for the roadways. This is not
the case here. What the government seeks to tax here are fees collected from tollways that are
constructed, maintained, and operated by private tollway operators at their own expense under the
build, operate, and transfer scheme that the government has adopted for expressways. 26 Except for a
fraction given to the government, the toll fees essentially end up as earnings of the tollway operators.
In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense.
A tax is imposed under the taxing power of the government principally for the purpose of raising
revenues to fund public expenditures. 27 Toll fees, on the other hand, are collected by private tollway
operators as reimbursement for the costs and expenses incurred in the construction, maintenance and

operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees
are charged for the use of public facilities, therefore, they are not government exactions that can be
properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority,
toll fees may be demanded by either the government or private individuals or entities, as an attribute
of ownership.28
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as
an indirect tax. In indirect taxation, a distinction is made between the liability for the tax and burden of
the tax. The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods,
properties or services to the buyer. In such a case, what is transferred is not the sellers liability but
merely the burden of the VAT.29
Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its
burden since the amount of VAT paid by the former is added to the selling price. Once shifted, the VAT
ceases to be a tax30 and simply becomes part of the cost that the buyer must pay in order to purchase
the good, property or service.
Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway
operator. Under Section 105 of the Code, 31 VAT is imposed on any person who, in the course of trade or
business, sells or renders services for a fee. In other words, the seller of services, who in this case is the
tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the tollway
user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a
"users tax." VAT is assessed against the tollway operators gross receipts and not necessarily on the
toll fees. Although the tollway operator may shift the VAT burden to the tollway user, it will not make
the latter directly liable for the VAT. The shifted VAT burden simply becomes part of the toll fees that
one has to pay in order to use the tollways. 32
Three. Petitioner Timbol has no personality to invoke the non-impairment of contract clause on behalf of
private investors in the tollway projects. She will neither be prejudiced by nor be affected by the
alleged diminution in return of investments that may result from the VAT imposition. She has no interest
at all in the profits to be earned under the TOAs. The interest in and right to recover investments solely
belongs to the private tollway investors.
Besides, her allegation that the private investors rate of recovery will be adversely affected by
imposing VAT on tollway operations is purely speculative. Equally presumptuous is her assertion that a
stipulation in the TOAs known as the Material Adverse Grantor Action will be activated if VAT is thus
imposed. The Court cannot rule on matters that are manifestly conjectural. Neither can it prohibit the
State from exercising its sovereign taxing power based on uncertain, prophetic grounds.
Four. Finally, petitioners assert that the substantiation requirements for claiming input VAT make the
VAT on tollway operations impractical and incapable of implementation. They cite the fact that, in order
to claim input VAT, the name, address and tax identification number of the tollway user must be
indicated in the VAT receipt or invoice. The manner by which the BIR intends to implement the VAT by
rounding off the toll rate and putting any excess collection in an escrow account is also illegal, while
the alternative of giving "change" to thousands of motorists in order to meet the exact toll rate would
be a logistical nightmare. Thus, according to them, the VAT on tollway operations is not administratively
feasible.33
Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax
system should be capable of being effectively administered and enforced with the least inconvenience
to the taxpayer. Non-observance of the canon, however, will not render a tax imposition invalid "except
to the extent that specific constitutional or statutory limitations are impaired." 34 Thus, even if the
imposition of VAT on tollway operations may seem burdensome to implement, it is not necessarily
invalid unless some aspect of it is shown to violate any law or the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway
operations. Any declaration by the Court that the manner of its implementation is illegal or
unconstitutional would be premature. Although the transcript of the August 12, 2010 Senate hearing
provides some clue as to how the BIR intends to go about it, 35 the facts pertaining to the matter are not

sufficiently established for the Court to pass judgment on. Besides, any concern about how the VAT on
tollway operations will be enforced must first be addressed to the BIR on whom the task of
implementing tax laws primarily and exclusively rests. The Court cannot preempt the BIRs discretion
on the matter, absent any clear violation of law or the Constitution.
For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which directs
toll companies to record an accumulated input VAT of zero balance in their books as of August 16,
2010, the date when the VAT imposition was supposed to take effect. The issuance allegedly violates
Section 111(A)36 of the Code which grants first time VAT payers a transitional input VAT of 2% on
beginning inventory.
In this connection, the BIR explained that BIR RMC 63-2010 is actually the product of negotiations with
tollway operators who have been assessed VAT as early as 2005, but failed to charge VAT-inclusive toll
fees which by now can no longer be collected. The tollway operators agreed to waive the 2%
transitional input VAT, in exchange for cancellation of their past due VAT liabilities. Notably, the right to
claim the 2% transitional input VAT belongs to the tollway operators who have not questioned the
circulars validity. They are thus the ones who have a right to challenge the circular in a direct and
proper action brought for the purpose.
Conclusion
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT
laws coverage when she sought to impose VAT on tollway operations. Section 108(A) of the Code
clearly states that services of all other franchise grantees are subject to VAT, except as may be
provided under Section 119 of the Code. Tollway operators are not among the franchise grantees
subject to franchise tax under the latter provision. Neither are their services among the VAT-exempt
transactions under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege,
then it would have been well for the law to clearly say so. Tax exemptions must be justified by clear
statutory grant and based on language in the law too plain to be mistaken. 37 But as the law is written,
no such exemption obtains for tollway operators. The Court is thus duty-bound to simply apply the law
as it is found.1avvphi1
Lastly, the grant of tax exemption is a matter of legislative policy that is within the exclusive
prerogative of Congress. The Courts role is to merely uphold this legislative policy, as reflected first
and foremost in the language of the tax statute. Thus, any unwarranted burden that may be perceived
to result from enforcing such policy must be properly referred to Congress. The Court has no discretion
on the matter but simply applies the law.
The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or the
Expanded Value-Added Tax law was passed. It is only now, however, that the executive has earnestly
pursued the VAT imposition against tollway operators. The executive exercises exclusive discretion in
matters pertaining to the implementation and execution of tax laws. Consequently, the executive is
more properly suited to deal with the immediate and practical consequences of the VAT imposition.
WHEREFORE, the Court DENIES respondents Secretary of Finance and Commissioner of Internal
Revenues motion for reconsideration of its August 24, 2010 resolution, DISMISSES the petitioners
Renato V. Diaz and Aurora Ma. F. Timbols petition for lack of merit, and SETS ASIDE the Courts
temporary restraining order dated August 13, 2010.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 157594
March 9, 2010
TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
In this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, petitioner Toshiba
Information Equipment (Philippines), Inc. (Toshiba) seeks the reversal and setting aside of (1) the
Decision2 dated August 29, 2002 of the Court of Appeals in CA-G.R. SP No. 63047, which found that
Toshiba was not entitled to the credit/refund of its unutilized input Value-Added Tax (VAT) payments
attributable to its export sales, because it was a tax-exempt entity and its export sales were VATexempt transactions; and (2) the Resolution 3 dated February 19, 2003 of the appellate court in the
same case, which denied the Motion for Reconsideration of Toshiba. The herein assailed judgment of
the Court of Appeals reversed and set aside the Decision 4 dated October 16, 2000 of the Court of Tax
Appeals (CTA) in CTA Case No. 5762 granting the claim for credit/refund of Toshiba in the amount of
P1,385,282.08.
Toshiba is a domestic corporation principally engaged in the business of manufacturing and exporting
of electric machinery, equipment systems, accessories, parts, components, materials and goods of all
kinds, including those relating to office automation and information technology and all types of
computer hardware and software, such as but not limited to HDD-CD-ROM and personal computer
printed circuit board.5 It is registered with the Philippine Economic Zone Authority (PEZA) as an
Economic Zone (ECOZONE) export enterprise in the Laguna Technopark, Inc., as evidenced by
Certificate of Registration No. 95-99 dated September 27, 1995. 6 It is also registered with Regional
District Office No. 57 of the Bureau of Internal Revenue (BIR) in San Pedro, Laguna, as a VAT-taxpayer
with Taxpayer Identification No. (TIN) 004-739-137. 7
In its VAT returns for the first and second quarters of 1997, 8 filed on April 14, 1997 and July 21, 1997,
respectively, Toshiba declared input VAT payments on its domestic purchases of taxable goods and
services in the aggregate sum of P3,875,139.65,9 with no zero-rated sales. Toshiba subsequently
submitted to the BIR on July 23, 1997 its amended VAT returns for the first and second quarters of
1997,10 reporting the same amount of input VAT payments but, this time, with zero-rated sales totaling
P7,494,677,000.00.11
On March 30, 1999, Toshiba filed with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback
Center of the Department of Finance (DOF One-Stop Shop) two separate applications for tax
credit/refund12 of its unutilized input VAT payments for the first half of 1997 in the total amount of
P3,685,446.73.13
The next day, on March 31, 1999, Toshiba likewise filed with the CTA a Petition for Review 14 to toll the
running of the two-year prescriptive period under Section 230 of the Tax Code of 1977, 15 as amended.16
In said Petition, docketed as CTA Case No. 5762, Toshiba prayed that
[A]fter due hearing, judgment be rendered ordering [herein respondent Commissioner of Internal
Revenue (CIR)] to refund or issue to [Toshiba] a tax refund/tax credit certificate in the amount of
P3,875,139.65 representing unutilized input taxes paid on its purchase of taxable goods and services
for the period January 1 to June 30, 1997. 17
The Commissioner of Internal Revenue (CIR) opposed the claim for tax refund/credit of Toshiba, setting
up the following special and affirmative defenses in his Answer 18
5. [Toshibas] alleged claim for refund/tax credit is subject to administrative routinary
investigation/examination by [CIRs] Bureau;
6. [Toshiba] failed miserably to show that the total amount of P3,875,139.65 claimed as VAT input
taxes, were erroneously or illegally collected, or that the same are properly documented;
7. Taxes paid and collected are presumed to have been made in accordance with law; hence, not
refundable;

8. In an action for tax refund, the burden is on the taxpayer to establish its right to refund, and
failure to sustain the burden is fatal to the claim for refund;
9. It is incumbent upon [Toshiba] to show that it has complied with the provisions of Section 204
in relation to Section 229 of the Tax Code;
10. Well-established is the rule that claims for refund/tax credit are construed in strictissimi juris
against the taxpayer as it partakes the nature of exemption from tax. 19
Upon being advised by the CTA,20 Toshiba and the CIR filed a Joint Stipulation of Facts and Issues, 21
wherein the opposing parties "agreed and admitted" that
1. [Toshiba] is a duly registered value-added tax entity in accordance with Section 107 of the Tax
Code, as amended.
2. [Toshiba] is subject to zero percent (0%) value-added tax on its export sales in accordance
with then Section 100(a)(2)(A) of the Tax Code, as amended.
3. [Toshiba] filed its quarterly VAT returns for the first two quarters of 1997 within the legally
prescribed period.
xxxx
7. [Toshiba] is subject to zero percent (0%) value-added tax on its export sales.
8. [Toshiba] has duly filed the instant Petition for Review within the two-year prescriptive period
prescribed by then Section 230 of the Tax Code. 22
In the same pleading, Toshiba and the CIR jointly submitted the following issues for determination by
the CTA
Whether or not [Toshiba] has incurred input taxes in the amount of P3,875,139.65 for the period
January 1 to June 30, 1997 which are directly attributable to its export sales[.]
Whether or not the input taxes incurred by [Toshiba] for the period January 1 to June 30, 1997 have not
been carried over to the succeeding quarters[.]
Whether or not input taxes incurred by [Toshiba] for the first two quarters of 1997 have not been offset
against any output tax[.]
Whether or not input taxes incurred by [Toshiba] for the first two quarters of 1997 are properly
substantiated by official receipts and invoices. 23
During the trial before the CTA, Toshiba presented documentary evidence in support of its claim for tax
credit/refund, while the CIR did not present any evidence at all.
With both parties waiving the right to submit their respective memoranda, the CTA rendered its
Decision in CTA Case No. 5762 on October 16, 2000 favoring Toshiba. According to the CTA, the CIR
himself admitted that the export sales of Toshiba were subject to zero percent (0%) VAT based on
Section 100(a)(2)(A)(i) of the Tax Code of 1977, as amended. Toshiba could then claim tax credit or
refund of input VAT paid on its purchases of goods, properties, or services, directly attributable to such
zero-rated sales, in accordance with Section 4.102-2 of Revenue Regulations No. 7-95. The CTA, though,
reduced the amount to be credited or refunded to Toshiba to P1,385,292.02.
The dispositive portion of the October 16, 2000 Decision of the CTA fully reads
WHEREFORE, [Toshibas] claim for refund of unutilized input VAT payments is hereby GRANTED but in a
reduced amount of P1,385,282.08 computed as follows:
1st Quarter
Amount of claimed input taxes filed with the
DOF One Stop Shop Center
P3,268,682.34

2nd Quarter

Total

P416,764.39

P3,685,446.73

P154,391.13

P 396,882.58

P 35,108.00

P1,887,545.65

Less: 1) Input taxes not properly

supported by VAT invoices and official
receipts
a.
Per
SGVs
verification
(Exh. I)
P 242,491.45
b. Per this courts further verification (Annex
A)
P1,852,437.65
P189,499.13 P2,300,164.65

Amount Refundable
P1,158,016.82
P227,265.26
P1,385,282.08
Respondent Commissioner of Internal Revenue is ORDERED to REFUND to [Toshiba] or in the
alternative, ISSUE a TAX CREDIT CERTIFICATE in the amount of P1,385,282.08 representing unutilized
input taxes paid by [Toshiba] on its purchases of taxable goods and services for the period January 1 to
June 30, 1997.24
Both Toshiba and the CIR sought reconsideration of the foregoing CTA Decision.
Toshiba asserted in its Motion for Reconsideration 25 that it had presented proper substantiation for the
P1,887,545.65 input VAT disallowed by the CTA.
The CIR, on the other hand, argued in his Motion for Reconsideration 26 that Toshiba was not entitled to
the credit/refund of its input VAT payments because as a PEZA-registered ECOZONE export enterprise,
Toshiba was not subject to VAT. The CIR invoked the following statutory and regulatory provisions
Section 24 of Republic Act No. 791627

SECTION 24. Exemption from Taxes Under the National Internal Revenue Code. Any provision of
existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall
be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five
percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall
be remitted to the national government. x x x.
Section 103(q) of the Tax Code of 1977, as amended
Sec. 103. Exempt transactions. The following shall be exempt from the value-added tax:
xxxx
(q) Transactions which are exempt under special laws, except those granted under Presidential Decree
Nos. 66, 529, 972, 1491, and 1950, and non-electric cooperatives under Republic Act No. 6938, or
international agreements to which the Philippines is a signatory.
Section 4.103-1 of Revenue Regulations No. 7-95
SEC. 4.103-1. Exemptions. (A) In general. An exemption means that the sale of goods or properties
and/or services and the use or lease of properties is not subject to VAT (output tax) and the seller is not
allowed any 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 said transaction is not subject to VAT. On the other hand, a VAT-registered
purchaser of VAT-exempt goods, properties or services which are exempt from VAT is not entitled to any
input tax on such purchase despite the issuance of a VAT invoice or receipt.
The CIR contended that under Section 24 of Republic Act No. 7916, a special law, all businesses and
establishments within the ECOZONE were to remit to the government five percent (5%) of their gross
income earned within the zone, in lieu of all taxes, including VAT. This placed Toshiba within the ambit
of Section 103(q) of the Tax Code of 1977, as amended, which exempted from VAT the transactions that
were exempted under special laws. Following Section 4.103-1(A) of Revenue Regulations No. 7-95, the
VAT-exemption of Toshiba meant that its sale of goods was not subject to output VAT and Toshiba as
seller was not allowed any tax credit on the input VAT it had previously paid.
On January 17, 2001, the CTA issued a Resolution 28 denying both Motions for Reconsideration of Toshiba
and the CIR.
The CTA took note that the pieces of evidence referred to by Toshiba in its Motion for Reconsideration
were insufficient substantiation, being mere schedules of input VAT payments it had purportedly paid
for the first and second quarters of 1997. While the CTA gives credence to the report of its
commissioned certified public accountant (CPA), it does not render its decision based on the findings of
the said CPA alone. The CTA has its own CPA and the tax court itself conducts an
investigation/examination of the documents presented. The CTA stood by its earlier disallowance of the
amount of P1,887,545.65 as tax credit/refund because it was not supported by VAT invoices and/or
official receipts.1avvphi1
The CTA refused to consider the argument that Toshiba was not entitled to a tax credit/refund under
Section 24 of Republic Act No. 7916 because it was only raised by the CIR for the first time in his Motion
for Reconsideration. Also, contrary to the assertions of the CIR, the CTA held that Section 23, and not
Section 24, of Republic Act No. 7916, applied to Toshiba. According to Section 23 of Republic Act No.
7916
SECTION 23. Fiscal Incentives. Business establishments operating within the ECOZONES shall be
entitled to the fiscal incentives as provided for under Presidential Decree No. 66, the law creating the
Export Processing Zone Authority, or those provided under Book VI of Executive Order No. 226,
otherwise known as the Omnibus Investment Code of 1987.
Furthermore, tax credits for exporters using local materials as inputs shall enjoy the benefits provided
for in the Export Development Act of 1994.
Among the fiscal incentives granted to PEZA-registered enterprises by the Omnibus Investments Code
of 1987 was the income tax holiday, to wit
Art. 39. Incentives to Registered Enterprises. All registered enterprises shall be granted the following
incentives to the extent engaged in a preferred area of investment:
(a) Income Tax Holiday.
(1) For six (6) years from commercial operation for pioneer firms and four (4) years for
non-pioneer firms, new registered firms shall be fully exempt from income taxes levied by
the national government. Subject to such guidelines as may be prescribed by the Board,
the income tax exemption will be extended for another year in each of the following cases:
(i) The project meets the prescribed ratio of capital equipment to number of workers
set by the Board;
(ii) Utilization of indigenous raw materials at rates set by the Board;
(iii) The net foreign exchange savings or earnings amount to at least US$500,000.00
annually during the first three (3) years of operation.
The preceding paragraph notwithstanding, no registered pioneer firm may avail of this
incentive for a period exceeding eight (8) years.
(2) For a period of three (3) years from commercial operation, registered expanding firms
shall be entitled to an exemption from income taxes levied by the National Government
proportionate to their expansion under such terms and conditions as the Board may
determine: Provided, however, That during the period within which this incentive is availed
of by the expanding firm it shall not be entitled to additional deduction for incremental
labor expense.

(3) The provision of Article 7(14) notwithstanding, registered firms shall not be entitled to
any extension of this incentive.
The CTA pointed out that Toshiba availed itself of the income tax holiday under the Omnibus
Investments Code of 1987, so Toshiba was exempt only from income tax but not from other taxes such
as VAT. As a result, Toshiba was liable for output VAT on its export sales, but at zero percent (0%) rate,
and entitled to the credit/refund of the input VAT paid on its purchases of goods and services relative to
such zero-rated export sales.
Unsatisfied, the CIR filed a Petition for Review 29 with the Court of Appeals, docketed as CA-G.R. SP No.
63047.
In its Decision dated August 29, 2002, the Court of Appeals granted the appeal of the CIR, and reversed
and set aside the Decision dated October 16, 2000 and the Resolution dated January 17, 2001 of the
CTA. The appellate court ruled that Toshiba was not entitled to the refund of its alleged unused input
VAT payments because it was a tax-exempt entity under Section 24 of Republic Act No. 7916. As a
PEZA-registered corporation, Toshiba was liable for remitting to the national government the five
percent (5%) preferential rate on its gross income earned within the ECOZONE, in lieu of all other
national and local taxes, including VAT.
The Court of Appeals further adjudged that the export sales of Toshiba were VAT-exempt, not zerorated, transactions. The appellate court found that the Answer filed by the CIR in CTA Case No. 5762 did
not contain any admission that the export sales of Toshiba were zero-rated transactions under Section
100(a)(2)(A) of the Tax Code of 1977, as amended. At the least, what was admitted by the CIR in said
Answer was that the Tax Code provisions cited in the Petition for Review of Toshiba in CTA Case No.
5762 were correct. As to the Joint Stipulation of Facts and Issues filed by the parties in CTA Case No.
5762, which stated that Toshiba was subject to zero percent (0%) VAT on its export sales, the appellate
court declared that the CIR signed the said pleading through palpable mistake. This palpable mistake in
the stipulation of facts should not be taken against the CIR, for to do otherwise would result in
suppressing the truth through falsehood. In addition, the State could not be put in estoppel by the
mistakes or errors of its officials or agents.
Given that Toshiba was a tax-exempt entity under Republic Act No. 7916, a special law, the Court of
Appeals concluded that the export sales of Toshiba were VAT-exempt transactions under Section 109(q)
of the Tax Code of 1997, formerly Section 103(q) of the Tax Code of 1977. Therefore, Toshiba could not
claim refund of its input VAT payments on its domestic purchases of goods and services.
The Court of Appeals decreed at the end of its August 29, 2002 Decision
WHEREFORE, premises considered, the appealed decision of the Court of Tax Appeals in CTA Case No.
5762, is hereby REVERSED and SET ASIDE, and a new one is hereby rendered finding [Toshiba], being a
tax exempt entity under R.A. No. 7916, not entitled to refund the VAT payments made in its domestic
purchases of goods and services. 30
Toshiba filed a Motion for Reconsideration31 of the aforementioned Decision, anchored on the following
arguments: (a) the CIR never raised as an issue before the CTA that Toshiba was tax-exempt under
Section 24 of Republic Act No. 7916; (b) Section 24 of Republic Act No. 7916, subjecting the gross
income earned by a PEZA-registered enterprise within the ECOZONE to a preferential rate of five
percent (5%), in lieu of all taxes, did not apply to Toshiba, which availed itself of the income tax holiday
under Section 23 of the same statute; (c) the conclusion of the CTA that the export sales of Toshiba
were zero-rated was supported by substantial evidence, other than the admission of the CIR in the Joint
Stipulation of Facts and Issues; and (d) the judgment of the CTA granting the refund of the input VAT
payments was supported by substantial evidence and should not have been set aside by the Court of
Appeals.
In a Resolution dated February 19, 2003, the Court of Appeals denied the Motion for Reconsideration of
Toshiba since the arguments presented therein were mere reiterations of those already passed upon
and found to be without merit by the appellate court in its earlier Decision. The Court of Appeals,
however, mentioned that it was incorrect for Toshiba to say that the issue of the applicability of Section
24 of Republic Act No. 7916 was only raised for the first time on appeal before the appellate court. The
said issue was adequately raised by the CIR in his Motion for Reconsideration before the CTA, and was
even ruled upon by the tax court.
Hence, Toshiba filed the instant Petition for Review with the following assignment of errors
5.1 THE HONORABLE COURT OF APPEALS ERRED WHEN IT RULED THAT [TOSHIBA], BEING A
PEZA-REGISTERED ENTERPRISE, IS EXEMPT FROM VAT UNDER SECTION 24 OF R.A. 7916, AND
FURTHER HOLDING THAT [TOSHIBAS] EXPORT SALES ARE EXEMPT TRANSACTIONS UNDER
SECTION 109 OF THE TAX CODE.
5.2 THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO DISMISS OUTRIGHT AND
GAVE DUE COURSE TO [CIRS] PETITION NOTWITHSTANDING [CIRS] FAILURE TO ADEQUATELY
RAISE IN ISSUE DURING THE TRIAL IN THE COURT OF TAX APPEALS THE APPLICABILITY OF
SECTION 24 OF R.A. 7916 TO [TOSHIBAS] CLAIM FOR REFUND.
5.3 THE HONORABLE COURT OF APPEALS ERRED WHEN [IT] RULED THAT THE COURT OF TAX
APPEALS FINDINGS, WITH REGARD [TOSHIBAS] EXPORT SALES BEING ZERO RATED SALES FOR
VAT PURPOSES, WERE BASED MERELY ON THE ADMISSIONS MADE BY [CIRS] COUNSEL AND NOT
SUPPORTED BY SUBSTANTIAL EVIDENCE.
5.4 THE HONORABLE COURT OF APPEALS ERRED WHEN IT REVERSED THE DECISION OF THE
COURT OF TAX APPEALS GRANTING [TOSHIBAS] CLAIM FOR REFUND[;] 32
and the following prayer

WHEREFORE, premises considered, Petitioner TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC. most
respectfully prays that the decision and resolution of the Honorable Court of Appeals, reversing the
decision of the CTA in CTA Case No. 5762, be set aside and further prays that a new one be rendered
AFFIRMING AND UPHOLDING the Decision of the CTA promulgated on October 16, 2000 in CTA Case No.
5762.
Other reliefs, which the Honorable Court may deem just and equitable under the circumstances, are
likewise prayed for.33
The Petition is impressed with merit.
The CIR did not timely raise before the CTA the issues on the VAT-exemptions of Toshiba and its export
sales.
Upon the failure of the CIR to timely plead and prove before the CTA the defenses or objections that
Toshiba was VAT-exempt under Section 24 of Republic Act No. 7916, and that its export sales were VATexempt transactions under Section 103(q) of the Tax Code of 1977, as amended, the CIR is deemed to
have waived the same.
During the pendency of CTA Case No. 5762, the proceedings before the CTA were governed by the
Rules of the Court of Tax Appeals,34 while the Rules of Court were applied suppletorily. 35
Rule 9, Section 1 of the Rules of Court provides:
SECTION 1. Defenses and objections not pleaded. Defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived. However, when it appears from the pleadings
or the evidence on record that the court has no jurisdiction over the subject matter, that there is
another action pending between the same parties for the same cause, or that the action is barred by a
prior judgment or by statute of limitations, the court shall dismiss the claim.
The CIR did not argue straight away in his Answer in CTA Case No. 5762 that Toshiba had no right to the
credit/refund of its input VAT payments because the latter was VAT-exempt and its export sales were
VAT-exempt transactions. The Pre-Trial Brief 36 of the CIR was equally bereft of such allegations or
arguments. The CIR passed up the opportunity to prove the supposed VAT-exemptions of Toshiba and its
export sales when the CIR chose not to present any evidence at all during the trial before the CTA. 37 He
missed another opportunity to present the said issues before the CTA when he waived the submission
of a Memorandum.38 The CIR had waited until the CTA already rendered its Decision dated October 16,
2000 in CTA Case No. 5762, which granted the claim for credit/refund of Toshiba, before asserting in his
Motion for Reconsideration that Toshiba was VAT-exempt and its export sales were VAT-exempt
transactions.
The CIR did not offer any explanation as to why he did not argue the VAT-exemptions of Toshiba and its
export sales before and during the trial held by the CTA, only doing so in his Motion for Reconsideration
of the adverse CTA judgment. Surely, said defenses or objections were already available to the CIR
when the CIR filed his Answer to the Petition for Review of Toshiba in CTA Case No. 5762.
It is axiomatic in pleadings and practice that no new issue in a case can be raised in a pleading which
by due diligence could have been raised in previous pleadings. 39 The Court cannot simply grant the plea
of the CIR that the procedural rules be relaxed based on the general averment of the interest of
substantive justice. It should not be forgotten that the first and fundamental concern of the rules of
procedure is to secure a just determination of every action. 40 Procedural rules are designed to facilitate
the adjudication of cases. Courts and litigants alike are enjoined to abide strictly by the rules. While in
certain instances, the Court allows a relaxation in the application of the rules, it never intends to forge
a weapon for erring litigants to violate the rules with impunity. The liberal interpretation and application
of rules apply only in proper cases of demonstrable merit and under justifiable causes and
circumstances. While it is true that litigation is not a game of technicalities, it is equally true that every
case must be prosecuted in accordance with the prescribed procedure to ensure an orderly and speedy
administration of justice. Party litigants and their counsel are well advised to abide by, rather than
flaunt, procedural rules for these rules illumine the path of the law and rationalize the pursuit of
justice.41
The CIR judicially admitted that Toshiba was VAT-registered and its export sales were subject to VAT at
zero percent (0%) rate.
More importantly, the arguments of the CIR that Toshiba was VAT-exempt and the latters export sales
were VAT-exempt transactions are inconsistent with the explicit admissions of the CIR in the Joint
Stipulation of Facts and Issues (Joint Stipulation) that Toshiba was a registered VAT entity and that it
was subject to zero percent (0%) VAT on its export sales.
The Joint Stipulation was executed and submitted by Toshiba and the CIR upon being advised to do so
by the CTA at the end of the pre-trial conference held on June 23, 1999. 42 The approval of the Joint
Stipulation by the CTA, in its Resolution43 dated July 12, 1999, marked the culmination of the pre-trial
process in CTA Case No. 5762.
Pre-trial is an answer to the clarion call for the speedy disposition of cases. Although it was
discretionary under the 1940 Rules of Court, it was made mandatory under the 1964 Rules and the
subsequent amendments in 1997. It has been hailed as "the most important procedural innovation in
Anglo-Saxon justice in the nineteenth century." 44
The nature and purpose of a pre-trial have been laid down in Rule 18, Section 2 of the Rules of Court:
SECTION 2. Nature and purpose. The pre-trial is mandatory. The court shall consider:
(a) The possibility of an amicable settlement or of a submission to alternative modes of dispute
resolution;
(b) The simplification of the issues;
(c) The necessity or desirability of amendments to the pleadings;

(d) The possibility of obtaining stipulations or admissions of facts and of documents to avoid
unnecessary proof;
(e) The limitation of the number of witnesses;
(f) The advisability of a preliminary reference of issues to a commissioner;
(g) The propriety of rendering judgment on the pleadings, or summary judgment, or of dismissing
the action should a valid ground therefor be found to exist;
(h) The advisability or necessity of suspending the proceedings; and
(i) Such other matters as may aid in the prompt disposition of the action. (Emphasis ours.)
The admission having been made in a stipulation of facts at pre-trial by the parties, it must be treated
as a judicial admission.45 Under Section 4, Rule 129 of the Rules of Court, a judicial admission requires
no proof. The admission may be contradicted only by a showing that it was made through palpable
mistake or that no such admission was made. The Court cannot lightly set aside a judicial admission
especially when the opposing party relied upon the same and accordingly dispensed with further proof
of the fact already admitted. An admission made by a party in the course of the proceedings does not
require proof.46
In the instant case, among the facts expressly admitted by the CIR and Toshiba in their CTA-approved
Joint Stipulation are that Toshiba "is a duly registered value-added tax entity in accordance with Section
107 of the Tax Code, as amended[,]" 47 that "is subject to zero percent (0%) value-added tax on its
export sales in accordance with then Section 100(a)(2)(A) of the Tax Code, as amended." 48 The CIR was
bound by these admissions, which he could not eventually contradict in his Motion for Reconsideration
of the CTA Decision dated October 16, 2000, by arguing that Toshiba was actually a VAT-exempt entity
and its export sales were VAT-exempt transactions. Obviously, Toshiba could not have been subject to
VAT and exempt from VAT at the same time. Similarly, the export sales of Toshiba could not have been
subject to zero percent (0%) VAT and exempt from VAT as well.
The CIR cannot escape the binding effect of his judicial admissions.
The Court disagrees with the Court of Appeals when it ruled in its Decision dated August 29, 2002 that
the CIR could not be bound by his admissions in the Joint Stipulation because (1) the said admissions
were "made through palpable mistake" 49 which, if countenanced, "would result in falsehood, unfairness
and injustice";50 and (2) the State could not be put in estoppel by the mistakes of its officials or agents.
This ruling of the Court of Appeals is rooted in its conclusion that a "palpable mistake" had been
committed by the CIR in the signing of the Joint Stipulation. However, this Court finds no evidence of
the commission of a mistake, much more, of a palpable one.
The CIR does not deny that his counsel, Atty. Joselito F. Biazon, Revenue Attorney II of the BIR, signed
the Joint Stipulation, together with the counsel of Toshiba, Atty. Patricia B. Bisda. Considering the
presumption of regularity in the performance of official duty, 51 Atty. Biazon is presumed to have read,
studied, and understood the contents of the Joint Stipulation before he signed the same. It rests on the
CIR to present evidence to the contrary.
Yet, the Court observes that the CIR himself never alleged in his Motion for Reconsideration of the CTA
Decision dated October 16, 2000, nor in his Petition for Review before the Court of Appeals, that Atty.
Biazon committed a mistake in signing the Joint Stipulation. Since the CIR did not make such an
allegation, neither did he present any proof in support thereof. The CIR began to aver the existence of a
palpable mistake only after the Court of Appeals made such a declaration in its Decision dated August
29, 2002.
Despite the absence of allegation and evidence by the CIR, the Court of Appeals, on its own, concluded
that the admissions of the CIR in the Joint Stipulation were due to a palpable mistake based on the
following deduction
Scrutinizing the Answer filed by [the CIR], we rule that the Joint Stipulation of Facts and Issues signed
by [the CIR] was made through palpable mistake. Quoting paragraph 4 of its Answer, [the CIR] states:
"4. He ADMITS the allegations contained in paragraph 5 of the petition only insofar as the cited
provisions of Tax Code is concerned, but SPECIFICALLY DENIES the rest of the allegations therein for
being mere opinions, arguments or gratuitous assertions on the part of [Toshiba] and/or because they
are mere erroneous conclusions or interpretations of the quoted law involved, the truth of the matter
being those stated hereunder
x x x x"
And paragraph 5 of the petition for review filed by [Toshiba] before the CTA states:
"5. Petitioner is subject to zero percent (0%) value-added tax on its export sales in accordance with
then Section 100(a)(2)(A) of the Tax Code x x x.
x x x x"
As we see it, nothing in said Answer did [the CIR] admit that the export sales of [Toshiba] were indeed
zero-rated transactions. At the least, what was admitted only by [the CIR] concerning paragraph 4 of
his Answer, is the fact that the provisions of the Tax Code, as cited by [Toshiba] in its petition for review
filed before the CTA were correct.52
The Court of Appeals provided no explanation as to why the admissions of the CIR in his Answer in CTA
Case No. 5762 deserved more weight and credence than those he made in the Joint Stipulation. The
appellate court failed to appreciate that the CIR, through counsel, Atty. Biazon, also signed the Joint
Stipulation; and that absent evidence to the contrary, Atty. Biazon is presumed to have signed the Joint
Stipulation willingly and knowingly, in the regular performance of his official duties. Additionally, the
Joint Stipulation53 of Toshiba and the CIR was a more recent pleading than the Answer 54 of the CIR. It
was submitted by the parties after the pre-trial conference held by the CTA, and subsequently approved
by the tax court. If there was any discrepancy between the admissions of the CIR in his Answer and in

the Joint Stipulation, the more logical and reasonable explanation would be that the CIR changed his
mind or conceded some points to Toshiba during the pre-trial conference which immediately preceded
the execution of the Joint Stipulation. To automatically construe that the discrepancy was the result of a
palpable mistake is a wide leap which this Court is not prepared to take without substantial basis.
The judicial admissions of the CIR in the Joint Stipulation are not intrinsically false, wrong, or illegal, and
are consistent with the ruling on the VAT treatment of PEZA-registered enterprises in the previous
Toshiba case.
There is no basis for believing that to bind the CIR to his judicial admissions in the Joint Stipulation
that Toshiba was a VAT-registered entity and its export sales were zero-rated VAT transactions would
result in "falsehood, unfairness and injustice." The judicial admissions of the CIR are not intrinsically
false, wrong, or illegal. On the contrary, they are consistent with the ruling of this Court in a previous
case involving the same parties, Commissioner of Internal Revenue v. Toshiba Information Equipment
(Phils.) Inc.55 (Toshiba case), explaining the VAT treatment of PEZA-registered enterprises.
In the Toshiba case, Toshiba sought the refund of its unutilized input VAT on its purchase of capital
goods and services for the first and second quarters of 1996, based on Section 106(b) of the Tax Code
of 1977, as amended.56 In the Petition at bar, Toshiba is claiming refund of its unutilized input VAT on its
local purchase of goods and services which are attributable to its export sales for the first and second
quarters of 1997, pursuant to Section 106(a), in relation to Section 100(a)(1)(A)(i) of the Tax Code of
1977, as amended, which read
SEC. 106. Refunds or tax credits of creditable input tax. (a) Any VAT-registered person, whose sales
are zero-rated or effectively zero-rated, may, within two (2) years after the close of the taxable quarter
when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input
tax due or paid attributable to such sales, except transitional input tax, to the extent that such input
tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales
under Section 100(a)(2)(A)(i),(ii) and (b) and Section 102(b)(1) and (2), the acceptable foreign currency
exchange proceeds thereof has been duly accounted for in accordance with the regulations of the
Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated
or effectively zero-rated sale and also in taxable or exempt sale of goods or properties of services, and
the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of
the transactions, it shall be allocated proportionately on the basis of the volume sales.
SEC. 100. Value-added tax on sale of goods or properties. (a) Rate and base of tax. x x x
xxxx
(2) The following sales by VAT-registered persons shall be subject to 0%:
(A) Export sales. The term "export sales" means:
(i) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective
of any shipping arrangement that may be agreed upon which may influence or determine the
transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its
equivalent in goods or services, and accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipnas (BSP).
Despite the difference in the legal bases for the claims for credit/refund in the Toshiba case and the
case at bar, the CIR raised the very same defense or objection in both that Toshiba and its
transactions were VAT-exempt. Hence, the ruling of the Court in the former case is relevant to the
present case.
At the outset, the Court establishes that there is a basic distinction in the VAT-exemption of a person
and the VAT-exemption of a transaction
It would seem that petitioner CIR failed to differentiate between VAT-exempt transactions from VATexempt entities. In the case of Commissioner of Internal Revenue v. Seagate Technology (Philippines),
this Court already made such distinction
An exempt transaction, on the one hand, involves goods or services which, by their nature, are
specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the
tax status VAT-exempt or not of the party to the transaction
An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a
special law or an international agreement to which the Philippines is a signatory, and by virtue of which
its taxable transactions become exempt from VAT x x x. 57
In effect, the CIR is opposing the claim for credit/refund of input VAT of Toshiba on two grounds: (1) that
Toshiba was a VAT-exempt entity; and (2) that its export sales were VAT-exempt transactions.
It is now a settled rule that based on the Cross Border Doctrine, PEZA-registered enterprises, such as
Toshiba, are VAT-exempt and no VAT can be passed on to them. The Court explained in the Toshiba case
that
PEZA-registered enterprise, which would necessarily be located within ECOZONES, are VAT-exempt
entities, not because of Section 24 of Rep. Act No. 7916, as amended, which imposes the five percent
(5%) preferential tax rate on gross income of PEZA-registered enterprises, in lieu of all taxes; but,
rather, because of Section 8 of the same statute which establishes the fiction that ECOZONES are
foreign territory.
xxxx
The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no VAT shall be
imposed to form part of the cost of goods destined for consumption outside of the territorial border of
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 use or consumption within the Philippines shall
be imposed with ten percent (10%) VAT.

Applying said doctrine to the sale of goods, properties, and services to and from the ECOZONES, the
BIR issued Revenue Memorandum Circular (RMC) No. 74-99, on 15 October 1999. Of particular interest
to the present Petition is Section 3 thereof, which reads
SECTION 3. Tax Treatment of Sales Made by a VAT Registered Supplier from the Customs Territory, to a
PEZA Registered Enterprise.
(1) If the Buyer is a PEZA registered enterprise which is subject to the 5% special tax regime, in
lieu of all taxes, except real property tax, pursuant to R.A. No. 7916, as amended:
(a) Sale of goods (i.e., merchandise). This shall be treated as indirect export hence,
considered subject to zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and
Sec. 23 of R.A. No. 7916, in relation to ART. 77(2) of the Omnibus Investments Code.
(b) Sale of service. This shall be treated subject to zero percent (0%) VAT under the
"cross border doctrine" of the VAT System, pursuant to VAT Ruling No. 032-98 dated Nov.
5, 1998.
(2) If Buyer is a PEZA registered enterprise which is not embraced by the 5% special tax regime,
hence, subject to taxes under the NIRC, e.g., Service Establishments which are subject to taxes
under the NIRC rather than the 5% special tax regime:
(a) Sale of goods (i.e., merchandise). This shall be treated as indirect export hence,
considered subject to zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and
Sec. 23 of R.A. No. 7916 in relation to ART. 77(2) of the Omnibus Investments Code.
(b) Sale of Service. This shall be treated subject to zero percent (0%) VAT under the
"cross border doctrine" of the VAT System, pursuant to VAT Ruling No. 032-98 dated Nov.
5, 1998.
(3) In the final analysis, any sale of goods, property or services made by a VAT registered
supplier from the Customs Territory to any registered enterprise operating in the ecozone,
regardless of the class or type of the latters PEZA registration, is actually qualified and thus
legally entitled to the zero percent (0%) VAT. Accordingly, all sales of goods or property to such
enterprise made by a VAT registered supplier from the Customs Territory shall be treated subject
to 0% VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC, in relation to ART. 77(2) of the Omnibus
Investments Code, while all sales of services to the said enterprises, made by VAT registered
suppliers from the Customs Territory, shall be treated effectively subject to the 0% VAT, pursuant
to Section 108(B)(3), NIRC, in relation to the provisions of R.A. No. 7916 and the "Cross Border
Doctrine" of the VAT system.
This Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to
the benefit of the zero percent (0%) VAT for sales made to the aforementioned ECOZONE enterprises
and shall serve as sufficient compliance to the requirement for prior approval of zero-rating imposed by
Revenue Regulations No. 7-95 effective as of the date of the issuance of this Circular.
Indubitably, no output VAT may be passed on to an ECOZONE enterprise since it is a VAT-exempt entity.
x x x.58
The Court, nevertheless, noted in the Toshiba case that the rule which considers any sale by a supplier
from the Customs Territory to a PEZA-registered enterprise as export sale, which should not be
burdened by output VAT, was only clearly established on October 15, 1999, upon the issuance by the
BIR of RMC No. 74-99. Prior to October 15, 1999, whether a PEZA-registered enterprise was exempt or
subject to VAT depended on the type of fiscal incentives availed of by the said enterprise. 59 The old rule,
then followed by the BIR, and recognized and affirmed by the CTA, the Court of Appeals, and this Court,
was described as follows
According to the old rule, Section 23 of Rep. Act No. 7916, as amended, gives the PEZA-registered
enterprise the option to choose between two sets of fiscal incentives: (a) The five percent (5%)
preferential tax rate on its gross income under Rep. Act No. 7916, as amended; and (b) the income tax
holiday provided under Executive Order No. 226, otherwise known as the Omnibus Investment Code of
1987, as amended.
The five percent (5%) preferential tax rate on gross income under Rep. Act No. 7916, as amended, is in
lieu of all taxes. Except for real property taxes, no other national or local tax may be imposed on a
PEZA-registered enterprise availing of this particular fiscal incentive, not even an indirect tax like VAT.
Alternatively, Book VI of Exec. Order No. 226, as amended, grants income tax holiday to registered
pioneer and non-pioneer enterprises for six-year and four-year periods, respectively. Those availing of
this incentive are exempt only from income tax, but shall be subject to all other taxes, including the ten
percent (10%) VAT.
This old rule clearly did not take into consideration the Cross Border Doctrine essential to the VAT
system or the fiction of the ECOZONE as a foreign territory. It relied totally on the choice of fiscal
incentives of the PEZA-registered enterprise. Again, for emphasis, the old VAT rule for PEZA-registered
enterprises was based on their choice of fiscal incentives: (1) If the PEZA-registered enterprise chose
the five percent (5%) preferential tax on its gross income, in lieu of all taxes, as provided by Rep. Act
No. 7916, as amended, then it would be VAT-exempt; (2) If the PEZA-registered enterprise availed of the
income tax holiday under Exec. Order No. 226, as amended, it shall be subject to VAT at ten percent
(10%). Such distinction was abolished by RMC No. 74-99, which categorically declared that all sales of
goods, properties, and services made by a VAT-registered supplier from the Customs Territory to an
ECOZONE enterprise shall be subject to VAT, at zero percent (0%) rate, regardless of the latters type or
class of PEZA registration; and, thus, affirming the nature of a PEZA-registered or an ECOZONE
enterprise as a VAT-exempt entity. 60

To recall, Toshiba is herein claiming the refund of unutilized input VAT payments on its local purchases
of goods and services attributable to its export sales for the first and second quarters of 1997. Such
export sales took place before October 15, 1999, when the old rule on the VAT treatment of PEZAregistered enterprises still applied. Under this old rule, it was not only possible, but even acceptable, for
Toshiba, availing itself of the income tax holiday option under Section 23 of Republic Act No. 7916, in
relation to Section 39 of the Omnibus Investments Code of 1987, to be subject to VAT, both indirectly
(as purchaser to whom the seller shifts the VAT burden) and directly (as seller whose sales were subject
to VAT, either at ten percent [10%] or zero percent [0%]).
A VAT-registered seller of goods and/or services who made zero-rated sales can claim tax credit or
refund of the input VAT paid on its purchases of goods, properties, or services relative to such zerorated sales, in accordance with Section 4.102-2 of Revenue Regulations No. 7-95, which provides
Sec. 4.102-2. Zero-rating. (a) In general. - A 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 of goods, properties or services related to such zero-rated sale shall be available as tax
credit or refund in accordance with these regulations.
The BIR, as late as July 15, 2003, when it issued RMC No. 42-2003, accepted applications for
credit/refund of input VAT on purchases prior to RMC No. 74-99, filed by PEZA-registered enterprises
which availed themselves of the income tax holiday. The BIR answered Question Q-5(1) of RMC No. 422003 in this wise
Q-5: Under Revenue Memorandum Circular (RMC) No. 74-99, purchases by PEZA-registered firms
automatically qualify as zero-rated without seeking prior approval from the BIR effective October 1999.
1) Will the OSS-DOF Center still accept applications from PEZA-registered claimants who were
allegedly billed VAT by their suppliers before and during the effectivity of the RMC by issuing VAT
invoices/receipts?
xxxx
A-5(1): If the PEZA-registered enterprise is paying the 5% preferential tax in lieu of all
other taxes, the said PEZA-registered taxpayer cannot claim TCC or refund for the VAT paid
on purchases. However, if the taxpayer is availing of the income tax holiday, it can claim
VAT credit provided:
a. The taxpayer-claimant is VAT-registered;
b. Purchases are evidenced by VAT invoices or receipts, whichever is applicable,
with shifted VAT to the purchaser prior to the implementation of RMC No. 74-99; and
c. The supplier issues a sworn statement under penalties of perjury that it shifted
the VAT and declared the sales to the PEZA-registered purchaser as taxable sales in
its VAT returns.
For invoices/receipts issued upon the effectivity of RMC No. 74-99, the claims for input VAT by PEZAregistered companies, regardless of the type or class of PEZA-registration, should be denied. (Emphases
ours.)
Consequently, the CIR cannot herein insist that all PEZA-registered enterprises are VAT-exempt in every
instance. RMC No. 42-2003 contains an express acknowledgement by the BIR that prior to RMC No. 7499, there were PEZA-registered enterprises liable for VAT and entitled to credit/refund of input VAT paid
under certain conditions.
This Court already rejected in the Toshiba case the argument that sale transactions of a PEZA-registered
enterprise were VAT-exempt under Section 103(q) of the Tax Code of 1977, as amended, ratiocinating
that
Section 103(q) of the Tax Code of 1977, as amended, relied upon by petitioner CIR, relates to VATexempt transactions. These are transactions exempted from VAT by special laws or international
agreements to which the Philippines is a signatory. Since such transactions are not subject to VAT, the
sellers cannot pass on any output VAT to the purchasers of goods, properties, or services, and they may
not claim tax credit/refund of the input VAT they had paid thereon.
Section 103(q) of the Tax Code of 1977, as amended, cannot apply to transactions of respondent
Toshiba because although the said section recognizes that transactions covered by special laws may be
exempt from VAT, the very same section provides that those falling under Presidential Decree No. 66
are not. Presidential Decree No. 66, creating the Export Processing Zone Authority (EPZA), is the
precursor of Rep. Act No. 7916, as amended, under which the EPZA evolved into the PEZA.
Consequently, the exception of Presidential Decree No. 66 from Section 103(q) of the Tax Code of 1977,
as amended, extends likewise to Rep. Act No. 7916, as amended. 61 (Emphasis ours.)
In light of the judicial admissions of Toshiba, the CTA correctly confined itself to the other factual issues
submitted for resolution by the parties.
In accord with the admitted facts that Toshiba was a VAT-registered entity and that its export sales
were zero-rated transactions the stated issues in the Joint Stipulation were limited to other factual
matters, particularly, on the compliance by Toshiba with the rest of the requirements for credit/refund
of input VAT on zero-rated transactions. Thus, during trial, Toshiba concentrated on presenting evidence
to establish that it incurred P3,875,139.65 of input VAT for the first and second quarters of 1997 which
were directly attributable to its export sales; that said amount of input VAT were not carried over to the
succeeding quarters; that said amount of input VAT has not been applied or offset against any output
VAT liability; and that said amount of input VAT was properly substantiated by official receipts and
invoices.
After what truly appears to be an exhaustive review of the evidence presented by Toshiba, the CTA
made the following findings

(1) The amended quarterly VAT returns of Toshiba for 1997 showed that it made no other sales,
except zero-rated export sales, for the entire year, in the sum of P2,083,305,000.00 for the first
quarter and P5,411,372,000.00 for the second quarter. That being the case, all input VAT
allegedly incurred by Toshiba for the first two quarters of 1997, in the amount of P3,875,139.65,
was directly attributable to its zero-rated sales for the same period.
(2) Toshiba did carry-over the P3,875,139.65 input VAT it reportedly incurred during the first two
quarters of 1997 to succeeding quarters, until the first quarter of 1999. Despite the carry-over of
the subject input VAT of P3,875,139.65, the claim of Toshiba was not affected because it later on
deducted the said amount as "VAT Refund/TCC Claimed" from its total available input VAT of
P6,841,468.17 for the first quarter of 1999.
(3) Still, the CTA could not allow the credit/refund of the total input VAT of P3,875,139.65 being
claimed by Toshiba because not all of said amount was actually incurred by the company and
duly substantiated by invoices and official receipts. From the P3,875,139.65 claim, the CTA
deducted the amounts of (a) P189,692.92, which was in excess of the P3,685,446.23 input VAT
Toshiba originally claimed in its application for credit/refund filed with the DOF One-Stop Shop;
(b) P396,882.58, which SGV & Co., the commissioned CPA, disallowed for being improperly
substantiated, i.e., supported only by provisional acknowledgement receipts, or by documents
other than official receipts, or not supported by TIN or TIN VAT or by any document at all; (c)
P1,887,545.65, which the CTA itself verified as not being substantiated in accordance with
Section 4.104-562 of Revenue Regulations No. 7-95, in relation to Sections 108 63 and 23864 of the
Tax Code of 1977, as amended; and (d) P15,736.42, which Toshiba already applied to its output
VAT liability for the fourth quarter of 1998.
(4) Ultimately, Toshiba was entitled to the credit/refund of unutilized input VAT payments
attributable to its zero-rated sales in the amounts of P1,158,016.82 and P227,265.26, for the first
and second quarters of 1997, respectively, or in the total amount of P1,385,282.08.
Since the aforementioned findings of fact of the CTA are borne by substantial evidence on record,
unrefuted by the CIR, and untouched by the Court of Appeals, they are given utmost respect by this
Court.
The Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its
functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an
expertise on the subject unless there has been an abuse or improvident exercise of authority. 65 In
Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal
Revenue,66 this Court more explicitly pronounced
Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the
highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA
441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature of its
function is dedicated exclusively to the consideration of tax problems, has necessarily developed an
expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or
improvident exercise of authority. Such findings can only be disturbed on appeal if they are not
supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax
Court. In the absence of any clear and convincing proof to the contrary, this Court must presume that
the CTA rendered a decision which is valid in every respect.
WHEREFORE, the assailed Decision dated August 29, 2002 and the Resolution dated February 19, 2003
of the Court of Appeals in CA-G.R. SP No. 63047 are REVERSED and SET ASIDE, and the Decision dated
October 16, 2000 of the Court of Tax Appeals in CTA Case No. 5762 is REINSTATED. Respondent
Commissioner of Internal Revenue is ORDERED to REFUND or, in the alternative, to ISSUE a TAX CREDIT
CERTIFICATE in favor of petitioner Toshiba Information Equipment (Phils.), Inc. in the amount of
P1,385,282.08, representing the latters unutilized input VAT payments for the first and second quarters
of 1997. No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 153866
February 11, 2005
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
SEAGATE TECHNOLOGY (PHILIPPINES), respondent.
DECISION
PANGANIBAN, J.:
Business companies registered in and operating from the Special Economic Zone in Naga, Cebu -- like
herein respondent -- are entities exempt from all internal revenue taxes and the implementing rules
relevant thereto, including the value-added taxes or VAT. Although export sales are not deemed exempt
transactions, they are nonetheless zero-rated. Hence, in the present case, the distinction between
exempt entities and exempt transactions has little significance, because the net result is that the
taxpayer is not liable for the VAT. Respondent, a VAT-registered enterprise, has complied with all
requisites for claiming a tax refund of or credit for the input VAT it paid on capital goods it purchased.
Thus, the Court of Tax Appeals and the Court of Appeals did not err in ruling that it is entitled to such
refund or credit.
The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the May 27,
2002 Decision2 of the Court of Appeals (CA) in CA-GR SP No. 66093. The decretal portion of the Decision
reads as follows:
"WHEREFORE, foregoing premises considered, the petition for review is DENIED for lack of merit."3
The Facts
The CA quoted the facts narrated by the Court of Tax Appeals (CTA), as follows:
"As jointly stipulated by the parties, the pertinent facts x x x involved in this case are as follows:
1. [Respondent] is a resident foreign corporation duly registered with the Securities and Exchange
Commission to do business in the Philippines, with principal office address at the new Cebu Township
One, Special Economic Zone, Barangay Cantao-an, Naga, Cebu;
2. [Petitioner] is sued in his official capacity, having been duly appointed and empowered to perform
the duties of his office, including, among others, the duty to act and approve claims for refund or tax
credit;
3. [Respondent] is registered with the Philippine Export Zone Authority (PEZA) and has been issued
PEZA Certificate No. 97-044 pursuant to Presidential Decree No. 66, as amended, to engage in the
manufacture of recording components primarily used in computers for export. Such registration was
made on 6 June 1997;
4. [Respondent] is VAT [(Value Added Tax)]-registered entity as evidenced by VAT Registration
Certification No. 97-083-000600-V issued on 2 April 1997;
5. VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by [respondent];
6. 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), was filed on 4 October 1999 with Revenue District Office No. 83, Talisay Cebu;
7. No final action has been received by [respondent] from [petitioner] on [respondents] claim for VAT
refund.
"The administrative claim for refund by the [respondent] on October 4, 1999 was not acted upon by the
[petitioner] prompting the [respondent] to elevate the case to [the CTA] on July 21, 2000 by way of
Petition for Review in order to toll the running of the two-year prescriptive period.
"For his part, [petitioner] x x x raised the following Special and Affirmative Defenses, to wit:
1. [Respondents] alleged claim for tax refund/credit is subject to administrative routinary
investigation/examination by [petitioners] Bureau;
2. Since taxes are presumed to have been collected in accordance with laws and regulations, the
[respondent] has the burden of proof that the taxes sought to be refunded were erroneously or illegally
collected x x x;
3. In Citibank, N.A. vs. Court of Appeals, 280 SCRA 459 (1997), the Supreme Court ruled that:
"A claimant has the burden of proof to establish the factual basis of his or her claim for tax
credit/refund."
4. 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 nature of an exemption from tax. Thus, it is
incumbent upon the [respondent] to prove that it is indeed entitled to the refund/credit sought. Failure
on the part of the [respondent] to prove the same is fatal to its claim for tax credit. He who claims
exemption must be able to justify his claim by the clearest grant of organic or statutory law. An
exemption from the common burden cannot be permitted to exist upon vague implications;
5. Granting, without admitting, that [respondent] is a Philippine Economic Zone Authority (PEZA)
registered Ecozone Enterprise, then its business is not subject to 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
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 Regulations No. ([RR])7-95, and of input taxes on
services pursuant to Section 4.103 of said regulations.
6. [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 from the date of payment of tax.
"On July 19, 2001, the Tax Court rendered a decision granting the claim for refund." 4
Ruling of the Court of Appeals
The CA affirmed the Decision of the CTA granting the claim for refund or issuance of a tax credit
certificate (TCC) 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.
The appellate court reasoned that 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
payments were -- to the extent of the refundable value -- duly supported by VAT invoices or official
receipts, and were not yet offset against any output VAT liability.
Hence this Petition.5

Sole Issue
Petitioner submits 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 P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the
period April 1, 1998 to June 30, 1999." 6
The Courts Ruling
The Petition is unmeritorious.
Sole Issue:
Entitlement of a VAT-Registered PEZA Enterprise to a Refund of or Credit for Input VAT
No doubt, as a PEZA-registered enterprise within a special economic zone, 7 respondent is entitled to the
fiscal incentives and benefits8 provided for in either PD 669 or EO 226.10 It shall, moreover, enjoy all
privileges, benefits, advantages or exemptions under both Republic Act Nos. (RA) 7227 11 and 7844.12
Preferential Tax Treatment Under Special Laws
If it avails itself of PD 66, notwithstanding the provisions of other laws to the contrary, respondent shall
not be subject to internal revenue laws and regulations for raw materials, supplies, articles, equipment,
machineries, spare parts and wares, except those prohibited by law, brought into the zone to be stored,
broken up, repacked, assembled, installed, sorted, cleaned, graded or otherwise processed,
manipulated, manufactured, mixed or used directly or indirectly in such activities. 13 Even so,
respondent would enjoy a net-operating loss carry over; accelerated depreciation; foreign exchange
and financial assistance; and exemption from export taxes, local taxes and licenses. 14
Comparatively, the same exemption from internal revenue laws and regulations applies if EO 226 15 is
chosen. Under this law, respondent shall further be entitled to an income tax holiday; additional
deduction for labor expense; simplification of customs procedure; unrestricted use of consigned
equipment; access to a bonded manufacturing warehouse system; privileges for foreign nationals
employed; tax credits on domestic capital equipment, as well as for taxes and duties on raw materials;
and exemption from contractors taxes, wharfage dues, taxes and duties on imported capital equipment
and spare parts, export taxes, duties, imposts and fees, 16 local taxes and licenses, and real property
taxes.17
A privilege available to respondent under the provision in RA 7227 on tax and duty-free importation of
raw materials, capital and equipment18 -- is, ipso facto, also accorded to the zone 19 under RA 7916.
Furthermore, the latter law -- notwithstanding other existing laws, rules and regulations to the contrary
-- extends20 to that zone the provision stating that no local or national taxes shall be imposed therein. 21
No exchange control policy shall be applied; and free markets for foreign exchange, gold, securities and
future shall be allowed and maintained. 22 Banking and finance shall also be liberalized under minimum
Bangko Sentral regulation with the establishment of foreign currency depository units of local
commercial banks and offshore banking units of foreign banks. 23
In the same vein, respondent benefits under RA 7844 from negotiable tax credits 24 for locally-produced
materials used as inputs. Aside from the other incentives possibly already granted to it by the Board of
Investments, it also enjoys preferential credit facilities 25 and exemption from PD 1853.26
From the above-cited laws, it is immediately clear that petitioner enjoys preferential tax treatment. 27 It
is not subject to internal revenue laws and regulations and is even entitled to tax credits. The VAT on
capital goods is an internal revenue tax from which petitioner as an entity is exempt. Although the
transactions involving such tax are not exempt, petitioner as a VAT-registered person, 28 however, is
entitled to their credits.
Nature of the VAT and the Tax Credit Method
Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent levied on
every importation of goods, whether or not in the course of trade or business, or imposed on each sale,
barter, exchange or lease of goods or properties or on each rendition of services in the course of trade
or business29 as they pass along the production and distribution chain, the tax being limited only to the
value added30 to such goods, properties or services by the seller, transferor or lessor. 31 It is an indirect
tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or
services.32 As such, it should be understood not in the context of the person or entity that is primarily,
directly and legally liable for its payment, but in terms of its nature as a tax on consumption. 33 In either
case, though, the same conclusion is arrived at.
The law34 that originally imposed the VAT in the country, as well as the subsequent amendments of that
law, has been drawn from the tax credit method.35 Such method adopted the mechanics and selfenforcement features of the VAT as first implemented and practiced in Europe and subsequently
adopted in New Zealand and Canada. 36 Under the present method that relies on invoices, an entity can
credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases,
inputs and imports.37
If at the end of a taxable quarter the output taxes 38 charged by a seller39 are equal to the input taxes 40
passed on by the suppliers, no payment is required. It is when the output taxes exceed the input taxes
that the excess has to be paid. 41 If, however, the input taxes exceed the output taxes, the excess shall
be carried over to the succeeding quarter or quarters. 42 Should the input taxes result from zero-rated or
effectively zero-rated transactions or from the acquisition of capital goods, 43 any excess over the output
taxes shall instead be refunded44 to the taxpayer or credited45 against other internal revenue taxes. 46
Zero-Rated and Effectively Zero-Rated Transactions
Although both are taxable and similar in effect, zero-rated transactions differ from effectively zero-rated
transactions as to their source.

Zero-rated transactions generally refer to the export sale of goods and supply of services. 47 The tax rate
is set at zero.48 When applied to the tax base, such rate obviously results in no tax chargeable against
the purchaser. The seller of such transactions charges no output tax, 49 but can claim a refund of or a tax
credit certificate for the VAT previously charged by suppliers.
Effectively zero-rated transactions, however, refer to the sale of goods 50 or supply of services 51 to
persons or entities whose exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects such transactions to a zero rate. 52 Again, as applied to the
tax base, such rate does not yield any tax chargeable against the purchaser. The seller who charges
zero output tax on such transactions can also claim a refund of or a tax credit certificate for the VAT
previously charged by suppliers.
Zero Rating and Exemption
In terms of the VAT computation, zero rating and exemption are the same, but the extent of relief that
results from either one of them is not.
Applying the destination principle53 to the exportation of goods, automatic zero rating 54 is primarily
intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such seller
internationally competitive by allowing the refund or credit of input taxes that are attributable to export
sales.55 Effective zero rating, on the contrary, is intended to benefit the purchaser who, not being
directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted
by the suppliers.
In both instances of zero rating, there is total relief for the purchaser from the burden of the tax. 56 But
in an exemption there is only partial relief,57 because the purchaser is not allowed any tax refund of or
credit for input taxes paid.58
Exempt Transaction >and Exempt Party
The object of exemption from the VAT may either be the transaction itself or any of the parties to the
transaction.59
An exempt transaction, on the one hand, involves goods or services which, by their nature, are
specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the
tax status -- VAT-exempt or not -- of the party to the transaction.60 Indeed, such transaction is not
subject to the VAT, but the seller is not allowed any tax refund of or credit for any input taxes paid.
An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a
special law or an international agreement to which the Philippines is a signatory, and by virtue of which
its taxable transactions become exempt from the VAT. 61 Such party is also not subject to the VAT, but
may be allowed a tax refund of or credit for input taxes paid, depending on its registration as a VAT or
non-VAT taxpayer.
As mentioned earlier, the VAT is a tax on consumption, the amount of which may be shifted or passed
on by the seller to the purchaser of the goods, properties or services. 62 While the liability is imposed on
one person, the burden may be passed on to another. Therefore, if a special law merely exempts a
party as a seller from its direct liability for payment of the VAT, but does not relieve the same party as a
purchaser from its indirect burden of the VAT shifted to it by its VAT-registered suppliers, the purchase
transaction is not exempt. Applying this principle to the case at bar, the purchase transactions entered
into by respondent are not VAT-exempt.
Special laws may certainly exempt transactions from the VAT. 63 However, the Tax Code provides that
those falling under PD 66 are not. PD 66 is the precursor of RA 7916 -- the special law under which
respondent was registered. The purchase transactions it entered into are, therefore, not VAT-exempt.
These are subject to the VAT; respondent is required to register.
Its sales transactions, however, will either be zero-rated or taxed at the standard rate of 10 percent, 64
depending again on the application of the destination principle.65
If respondent enters into such sales transactions with a purchaser -- usually in a foreign country -- for
use or consumption outside the Philippines, these shall be subject to 0 percent. 66 If entered into with a
purchaser for use or consumption in the Philippines, then these shall be subject to 10 percent, 67 unless
the purchaser is exempt from the indirect burden of the VAT, in which case it shall also be zero-rated.
Since the purchases of respondent are not exempt from the VAT, the rate to be applied is zero. Its
exemption under both PD 66 and RA 7916 effectively subjects such transactions to a zero rate, 68
because the ecozone within which it is registered is managed and operated by the PEZA as a separate
customs territory.69 This means that in such zone is created the legal fiction of foreign territory. 70 Under
the cross-border principle71 of the VAT system being enforced by the Bureau of Internal Revenue (BIR), 72
no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the
territorial border of the taxing authority. If exports of goods and services from the Philippines to a
foreign country are free of the VAT, 73 then the same rule holds for such exports from the national
territory -- except specifically declared areas -- to an ecozone.
Sales made by a VAT-registered person in the customs territory to a PEZA-registered entity are
considered exports to a foreign country; conversely, sales by a PEZA-registered entity to a VATregistered person in the customs territory are deemed imports from a foreign country. 74 An ecozone -indubitably a geographical territory of the Philippines -- is, however, regarded in law as foreign soil. 75
This legal fiction is necessary to give meaningful effect to the policies of the special law creating the
zone.76 If respondent is located in an export processing zone 77 within that ecozone, sales to the export
processing zone, even without being actually exported, shall in fact be viewed as constructively
exported under EO 226.78 Considered as export sales,79 such purchase transactions by respondent
would indeed be subject to a zero rate. 80
Tax Exemptions Broad and Express

Applying the special laws we have earlier discussed, respondent as an entity is exempt from internal
revenue laws and regulations.
This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as a
tax on consumption, for which the direct liability is imposed on one person but the indirect burden is
passed on to another. Respondent, as an exempt entity, can neither be directly charged for the VAT on
its sales nor indirectly made to bear, as added cost to such sales, the equivalent VAT on its purchases.
Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not distinguish, we ought not
to distinguish.
Moreover, the exemption is both express and pervasive for the following reasons:
First, RA 7916 states that "no taxes, local and national, shall be imposed on business establishments
operating within the ecozone." 81 Since this law does not exclude the VAT from the prohibition, it is
deemed included. Exceptio firmat regulam in casibus non exceptis. An exception confirms the rule in
cases not excepted; that is, a thing not being excepted must be regarded as coming within the purview
of the general rule.
Moreover, even though the VAT is not imposed on the entity but on the transaction, it may still be
passed on and, therefore, indirectly imposed on the same entity -- a patent circumvention of the law.
That no VAT shall be imposed directly upon business establishments operating within the ecozone
under RA 7916 also means that no VAT may be passed on and imposed indirectly. Quando aliquid
prohibetur ex directo prohibetur et per obliquum. When anything is prohibited directly, it is also
prohibited indirectly.
Second, when RA 8748 was enacted to amend RA 7916, the same prohibition applied, except for real
property taxes that presently are imposed on land owned by developers. 82 This similar and repeated
prohibition is an unambiguous ratification of the laws intent in not imposing local or national taxes on
business enterprises within the ecozone.
Third, foreign and domestic merchandise, raw materials, equipment and the like "shall not be subject to
x x x internal revenue laws and regulations" under PD 66 83 -- the original charter of PEZA (then EPZA)
that was later amended by RA 7916.84 No provisions in the latter law modify such exemption.
Although this exemption puts the government at an initial disadvantage, the reduced tax collection
ultimately redounds to the benefit of the national economy by enticing more business investments and
creating more employment opportunities.85
Fourth, even the rules implementing the PEZA law clearly reiterate that merchandise -- except those
prohibited by law -- "shall not be subject to x x x internal revenue laws and regulations x x x" 86 if
brought to the ecozones restricted area 87 for manufacturing by registered export enterprises, 88 of which
respondent is one. These rules also apply to all enterprises registered with the EPZA prior to the
effectivity of such rules.89
Fifth, export processing zone enterprises registered 90 with the Board of Investments (BOI) under EO 226
patently enjoy exemption from national internal revenue taxes on imported capital equipment
reasonably needed and exclusively used for the manufacture of their products; 91 on required supplies
and spare part for consigned equipment; 92 and on foreign and domestic merchandise, raw materials,
equipment and the like -- except those prohibited by law -- brought into the zone for manufacturing. 93 In
addition, they are given credits for the value of the national internal revenue taxes imposed on
domestic capital equipment also reasonably needed and exclusively used for the manufacture of their
products,94 as well as for the value of such taxes imposed on domestic raw materials and supplies that
are used in the manufacture of their export products and that form part thereof. 95
Sixth, the exemption from local and national taxes granted under RA 7227 96 are ipso facto accorded to
ecozones.97 In case of doubt, conflicts with respect to such tax exemption privilege shall be resolved in
favor of the ecozone.98
And seventh, the tax credits under RA 7844 -- given for imported raw materials primarily used in the
production of export goods, 99 and for locally produced raw materials, capital equipment and spare parts
used by exporters of non-traditional products 100 -- shall also be continuously enjoyed by similar
exporters within the ecozone.101 Indeed, the latter exporters are likewise entitled to such tax
exemptions and credits.
Tax Refund as Tax Exemption
To be sure, statutes that grant tax exemptions are construed strictissimi juris102 against the taxpayer103
and liberally in favor of the taxing authority. 104
Tax refunds are in the nature of such exemptions. 105 Accordingly, the claimants of those refunds bear
the burden of proving the factual basis of their claims; 106 and of showing, by words too plain to be
mistaken, that the legislature intended to exempt them. 107 In the present case, all the cited legal
provisions are teeming with life with respect to the grant of tax exemptions too vivid to pass unnoticed.
In addition, respondent easily meets the challenge.
Respondent, which as an entity is exempt, is different from its transactions which are not exempt. The
end result, however, is that it is not subject to the VAT. The non-taxability of transactions that are
otherwise taxable is merely a necessary incident to the tax exemption conferred by law upon it as an
entity, not upon the transactions themselves. 108 Nonetheless, its exemption as an entity and the nonexemption of its transactions lead to the same result for the following considerations:
First, the contemporaneous construction of our tax laws by BIR authorities who are called upon to
execute or administer such laws 109 will have to be adopted. Their prior tax issuances have held
inconsistent positions brought about by their probable failure to comprehend and fully appreciate the
nature of the VAT as a tax on consumption and the application of the destination principle.110 Revenue
Memorandum Circular No. (RMC) 74-99, however, now clearly and correctly provides that any VAT-

registered suppliers sale of goods, property or services from the customs territory to any registered
enterprise operating in the ecozone -- regardless of the class or type of the latters PEZA registration -is legally entitled to a zero rate.111
Second, the policies of the law should prevail. Ratio legis est anima. The reason for the law is its very
soul.
In PD 66, the urgent creation of the EPZA which preceded the PEZA, as well as the establishment of
export processing zones, seeks "to encourage and promote foreign commerce as a means of x x x
strengthening our export trade and foreign exchange position, of hastening industrialization, of
reducing domestic unemployment, and of accelerating the development of the country." 112
RA 7916, as amended by RA 8748, declared that by creating the PEZA and integrating the special
economic zones, "the government shall actively encourage, promote, induce and accelerate a sound
and balanced industrial, economic and social development of the country x x x through the
establishment, among others, of special economic zones x x x that shall effectively attract legitimate
and productive foreign investments."113
Under EO 226, the "State shall encourage x x x foreign investments in industry x x x which shall x x x
meet the tests of international competitiveness[,] accelerate development of less developed regions of
the country[,] and result in increased volume and value of exports for the economy." 114 Fiscal incentives
that are cost-efficient and simple to administer shall be devised and extended to significant projects "to
compensate for market imperfections, to reward performance contributing to economic
development,"115 and "to stimulate the establishment and assist initial operations of the enterprise." 116
Wisely accorded to ecozones created under RA 7916 117 was the governments policy -- spelled out
earlier in RA 7227 -- of converting into alternative productive uses 118 the former military reservations
and their extensions,119 as well as of providing them incentives 120 to enhance the benefits that would be
derived from them121 in promoting economic and social development.122
Finally, under RA 7844, the State declares the need "to evolve export development into a national
effort"123 in order to win international markets. By providing many export and tax incentives, 124 the
State is able to drive home the point that exporting is indeed "the key to national survival and the
means through which the economic goals of increased employment and enhanced incomes can most
expeditiously be achieved."125
The Tax Code itself seeks to "promote sustainable economic growth x x x; x x x increase economic
activity; and x x x create a robust environment for business to enable firms to compete better in the
regional as well as the global market." 126 After all, international competitiveness requires economic and
tax incentives to lower the cost of goods produced for export. State actions that affect global
competition need to be specific and selective in the pricing of particular goods or services. 127
All these statutory policies are congruent to the constitutional mandates of providing incentives to
needed investments,128 as well as of promoting the preferential use of domestic materials and locally
produced goods and adopting measures to help make these competitive. 129 Tax credits for domestic
inputs strengthen backward linkages. Rightly so, "the rule of law and the existence of credible and
efficient public institutions are essential prerequisites for sustainable economic development." 130
VAT Registration, Not Application for Effective Zero Rating, Indispensable to VAT Refund
Registration is an indispensable requirement under our VAT law. 131 Petitioner alleges that respondent did
register for VAT purposes with the appropriate Revenue District Office. However, it is now too late in the
day for petitioner to challenge the VAT-registered status of respondent, given the latters prior
representation before the lower courts and the mode of appeal taken by petitioner before this Court.
The PEZA law, which carried over the provisions of the EPZA law, is clear in exempting from internal
revenue laws and regulations the equipment -- including capital goods -- that registered enterprises will
use, directly or indirectly, in manufacturing. 132 EO 226 even reiterates this privilege among the
incentives it gives to such enterprises. 133 Petitioner merely asserts that by virtue of the PEZA
registration alone of respondent, the latter is not subject to the VAT. Consequently, the capital goods
and services respondent has purchased are not considered used in the VAT business, and no VAT refund
or credit is due.134 This is a non sequitur. By the VATs very nature as a tax on consumption, the capital
goods and services respondent has purchased are subject to the VAT, although at zero rate.
Registration does not determine taxability under the VAT law.
Moreover, the facts have already been determined by the lower courts. Having failed to present
evidence to support its contentions against the income tax holiday privilege of respondent,135 petitioner
is deemed to have conceded. It is a cardinal rule that "issues and arguments not adequately and
seriously brought below cannot be raised for the first time on appeal." 136 This is a "matter of
procedure"137 and a "question of fairness."138 Failure to assert "within a reasonable time warrants a
presumption that the party entitled to assert it either has abandoned or declined to assert it." 139
The BIR regulations additionally requiring an approved prior application for effective zero rating 140
cannot prevail over the clear VAT nature of respondents transactions. The scope of such regulations is
not "within the statutory authority x x x granted by the legislature. 141
First, a mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot
purport to do any more than interpret the latter. 142 The courts will not countenance one that overrides
the statute it seeks to apply and implement.143
Other than the general registration of a taxpayer the VAT status of which is aptly determined, no
provision under our VAT law requires an additional application to be made for such taxpayers
transactions to be considered effectively zero-rated. An effectively zero-rated transaction does not and
cannot become exempt simply because an application therefor was not made or, if made, was denied.
To allow the additional requirement is to give unfettered discretion to those officials or agents who,

without fluid consideration, are bent on denying a valid application. Moreover, the State can never be
estopped by the omissions, mistakes or errors of its officials or agents. 144
Second, grantia argumenti that such an application is required by law, there is still the presumption of
regularity in the performance of official duty. 145 Respondents registration carries with it the
presumption that, in the absence of contradictory evidence, an application for effective zero rating was
also filed and approval thereof given. Besides, it is also presumed that the law has been obeyed 146 by
both the administrative officials and the applicant.
Third, even though such an application was not made, all the special laws we have tackled exempt
respondent not only from internal revenue laws but also from the regulations issued pursuant thereto.
Leniency in the implementation of the VAT in ecozones is an imperative, precisely to spur economic
growth in the country and attain global competitiveness as envisioned in those laws.
A VAT-registered status, as well as compliance with the invoicing requirements, 147 is sufficient for the
effective zero rating of the transactions of a taxpayer. The nature of its business and transactions can
easily be perused from, as already clearly indicated in, its VAT registration papers and photocopied
documents attached thereto. Hence, its transactions cannot be exempted by its mere failure to apply
for their effective zero rating. Otherwise, their VAT exemption would be determined, not by their nature,
but by the taxpayers negligence -- a result not at all contemplated. Administrative convenience cannot
thwart legislative mandate.
Tax Refund or Credit in Order
Having determined that respondents purchase transactions are subject to a zero VAT rate, the tax
refund or credit is in order.
As correctly held by both the CA and the Tax Court, respondent had chosen the fiscal incentives in EO
226 over those in RA 7916 and PD 66. It opted for the income tax holiday regime instead of the 5
percent preferential tax regime.
The latter scheme is not a perfunctory aftermath of a simple registration under the PEZA law, 148 for EO
226149 also has provisions to contend with. These two regimes are in fact incompatible and cannot be
availed of simultaneously by the same entity. While EO 226 merely exempts it from income taxes, the
PEZA law exempts it from all taxes.
Therefore, respondent can be considered exempt, not from the VAT, but only from the payment of
income tax for a certain number of years, depending on its registration as a pioneer or a non-pioneer
enterprise. Besides, the remittance of the aforesaid 5 percent of gross income earned in lieu of local
and national taxes imposable upon business establishments within the ecozone cannot outrightly
determine a VAT exemption. Being subject to VAT, payments erroneously collected thereon may then be
refunded or credited.
Even if it is argued that respondent is subject to the 5 percent preferential tax regime in RA 7916,
Section 24 thereof does not preclude the VAT. One can, therefore, counterargue that such provision
merely exempts respondent from taxes imposed on business. To repeat, the VAT is a tax imposed on
consumption, not on business. Although respondent as an entity is exempt, the transactions it enters
into are not necessarily so. The VAT payments made in excess of the zero rate that is imposable may
certainly be refunded or credited.
Compliance with All Requisites for VAT Refund or Credit
As further enunciated by the Tax Court, respondent complied with all the requisites for claiming a VAT
refund or credit.150
First, respondent is a VAT-registered entity. This fact alone distinguishes the present case from Contex,
in which this Court held that the petitioner therein was registered as a non-VAT taxpayer. 151 Hence, for
being merely VAT-exempt, the petitioner in that case cannot claim any VAT refund or credit.
Second, the input taxes paid on the capital goods of respondent are duly supported by VAT invoices and
have not been offset against any output taxes. Although enterprises registered with the BOI after
December 31, 1994 would no longer enjoy the tax credit incentives on domestic capital equipment -- as
provided for under Article 39(d), Title III, Book I of EO 226 152 -- starting January 1, 1996, respondent
would still have the same benefit under a general and express exemption contained in both Article
77(1), Book VI of EO 226; and Section 12, paragraph 2 (c) of RA 7227, extended to the ecozones by RA
7916.
There was a very clear intent on the part of our legislators, not only to exempt investors in ecozones
from national and local taxes, but also to grant them tax credits. This fact was revealed by the
sponsorship speeches in Congress during the second reading of House Bill No. 14295, which later
became RA 7916, as shown below:
"MR. RECTO. x x x Some of the incentives that this bill provides are exemption from national and local
taxes; x x x tax credit for locally-sourced inputs x x x."
xxxxxxxxx
"MR. DEL MAR. x x x To advance its cause in encouraging investments and creating an environment
conducive for investors, the bill offers incentives such as the exemption from local and national taxes, x
x x tax credits for locally sourced inputs x x x." 153
And third, no question as to either the filing of such claims within the prescriptive period or the validity
of the VAT returns has been raised. Even if such a question were raised, the tax exemption under all the
special laws cited above is broad enough to cover even the enforcement of internal revenue laws,
including prescription.154
Summary
To summarize, special laws expressly grant preferential tax treatment to business establishments
registered and operating within an ecozone, which by law is considered as a separate customs territory.

As such, respondent is exempt from all internal revenue taxes, including the VAT, and regulations
pertaining thereto. It has opted for the income tax holiday regime, instead of the 5 percent preferential
tax regime. As a matter of law and procedure, its registration status entitling it to such tax holiday can
no longer be questioned. Its sales transactions intended for export may not be exempt, but like its
purchase transactions, they are zero-rated. No prior application for the effective zero rating of its
transactions is necessary. Being VAT-registered and having satisfactorily complied with all the requisites
for claiming a tax refund of or credit for the input VAT paid on capital goods purchased, respondent is
entitled to such VAT refund or credit.
WHEREFORE, the Petition is DENIED and the Decision AFFIRMED. No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. Nos. 141104 & 148763
June 8, 2007
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court are the consolidated cases involving the unsuccessful claims of herein petitioner Atlas
Consolidated Mining and Development Corporation (petitioner corporation) for the refund/credit of the
input Value Added Tax (VAT) on its purchases of capital goods and on its zero-rated sales in the taxable
quarters of the years 1990 and 1992, the denial of which by the Court of Tax Appeals (CTA), was
affirmed by the Court of Appeals.
Petitioner corporation is engaged in the business of mining, production, and sale of various mineral
products, such as gold, pyrite, and copper concentrates. It is a VAT-registered taxpayer. It was initially
issued VAT Registration No. 32-A-6-002224, dated 1 January 1988, but it had to register anew with the
appropriate revenue district office (RDO) of the Bureau of Internal Revenue (BIR) when it moved its
principal place of business, and it was re-issued VAT Registration No. 32-0-004622, dated 15 August
1990.1
G.R. No. 141104
Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992. 2 It alleged that it
likewise filed with the BIR the corresponding application for the refund/credit of its input VAT on its
purchases of capital goods and on its zero-rated sales in the amount of P26,030,460.00.3 When its
application for refund/credit remained unresolved by the BIR, petitioner corporation filed on 20 April
1994 its Petition for Review with the CTA, docketed as CTA Case No. 5102. Asserting that it was a "zerorated VAT person," it prayed that the CTA order herein respondent Commissioner of Internal Revenue
(respondent Commissioner) to refund/credit petitioner corporation with the amount of P26,030,460.00,
representing the input VAT it had paid for the first quarter of 1992. The respondent Commissioner
opposed and sought the dismissal of the petition for review of petitioner corporation for failure to state
a cause of action. After due trial, the CTA promulgated its Decision 4 on 24 November 1997 with the
following disposition
WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED on the
ground of prescription, insufficiency of evidence and failure to comply with Section 230 of the Tax
Code, as amended. Accordingly, the petition at bar is hereby DISMISSED for lack of merit.
The CTA denied the motion for reconsideration of petitioner corporation in a Resolution 5 dated 15 April
1998.
When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the appellate court, in its
Decision,6 dated 6 July 1999, dismissed the appeal of petitioner corporation, finding no reversible error
in the CTA Decision, dated 24 November 1997. The subsequent motion for reconsideration of petitioner
corporation was also denied by the Court of Appeals in its Resolution, 7 dated 14 December 1999.
Thus, petitioner corporation comes before this Court, via a Petition for Review on Certiorari under Rule
45 of the Revised Rules of Court, assigning the following errors committed by the Court of Appeals
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF REVENUE REGULATIONS
NO. 2-88 THAT AT LEAST 70% OF THE SALES OF THE [BOARD OF INVESTMENTS (BOI)]REGISTERED FIRM MUST CONSIST OF EXPORTS FOR ZERO-RATING TO APPLY.
II
THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED TO SUBMIT SUFFICIENT
EVIDENCE SINCE FAILURE TO SUBMIT PHOTOCOPIES OF VAT INVOICES AND RECEIPTS IS NOT A
FATAL DEFECT.
III

THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM WAS FILED BEYOND THE
PRESCRIPTIVE PERIOD SINCE THE JUDICIAL CLAIM WAS FILED WITHIN TWO (2) YEARS FROM THE
FILING OF THE VAT RETURN.
IV
THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE RE-OPENING OF THE
CASE FOR PETITIONER TO PRESENT ADDITIONAL EVIDENCE. 8
G.R. No. 148763
G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented above, except
that it relates to the claims of petitioner corporation for refund/credit of input VAT on its purchases of
capital goods and on its zero-rated sales made in the last three taxable quarters of 1990.
Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth quarters of
1990, on 20 July 1990, 18 October 1990, and 20 January 1991, respectively. It submitted separate
applications to the BIR for the refund/credit of the input VAT paid on its purchases of capital goods and
on its zero-rated sales, the details of which are presented as follows
Date of Application

Period Covered

Amount
For

Applied

21 August 1990

2nd
1990

Quarter, P 54,014,722.04

21 November 1990

3rd
1990

Quarter, 75,304,774.77

19 February 1991

4th
1990

Quarter, 43,829,766.10

When the BIR failed to act on its applications for refund/credit, petitioner corporation filed with the CTA
the following petitions for review
Date Filed

Period Covered

CTA Case No.

20 July 1992

2nd
1990

Quarter, 4831

9 October 1992

3rd
1990

Quarter, 4859

14 January 1993

4th
1990

Quarter, 4944

which were eventually consolidated. The respondent Commissioner contested the foregoing Petitions
and prayed for the dismissal thereof. The CTA ruled in favor of respondent Commissioner and in its
Decision,9 dated 30 October 1997, dismissed the Petitions mainly on the ground that the prescriptive
periods for filing the same had expired. In a Resolution, 10 dated 15 January 1998, the CTA denied the
motion for reconsideration of petitioner corporation since the latter presented no new matter not
already discussed in the court's prior Decision. In the same Resolution, the CTA also denied the
alternative prayer of petitioner corporation for a new trial since it did not fall under any of the grounds
cited under Section 1, Rule 37 of the Revised Rules of Court, and it was not supported by affidavits of
merits required by Section 2 of the same Rule.
Petitioner corporation appealed its case to the Court of Appeals, where it was docketed as CA-G.R. SP
No. 46718. On 15 September 2000, the Court of Appeals rendered its Decision, 11 finding that although
petitioner corporation timely filed its Petitions for Review with the CTA, it still failed to substantiate its
claims for the refund/credit of its input VAT for the last three quarters of 1990. In its Resolution, 12 dated
27 June 2001, the appellate court denied the motion for reconsideration of petitioner corporation,
finding no cogent reason to reverse its previous Decision.
Aggrieved, petitioner corporation filed with this Court another Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court, docketed as G.R. No. 148763, raising the following issues
A.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER'S CLAIM IS
BARRED UNDER REVENUE REGULATIONS NOS. 2-88 AND 3-88 I.E., FOR FAILURE TO PTOVE [ sic]
THE 70% THRESHOLD FOR ZERO-RATING TO APPLY AND FOR FAILURE TO ESTABLISH THE
FACTUAL BASIS FOR THE INSTANT CLAIM.
B.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT THERE IS NO BASIS TO
GRANT PETITIONER'S MOTION FOR NEW TRIAL.
There being similarity of parties, subject matter, and issues, G.R. Nos. 141104 and 148763 were
consolidated pursuant to a Resolution, dated 4 September 2006, issued by this Court. The ruling of this
Court in these cases hinges on how it will resolve the following key issues: (1) prescription of the claims
of petitioner corporation for input VAT refund/credit; (2) validity and applicability of Revenue
Regulations No. 2-88 imposing upon petitioner corporation, as a requirement for the VAT zero-rating of
its sales, the burden of proving that the buyer companies were not just BOI-registered but also
exporting 70% of their total annual production; (3) sufficiency of evidence presented by petitioner

corporation to establish that it is indeed entitled to input VAT refund/credit; and (4) legal ground for
granting the motion of petitioner corporation for re-opening of its cases or holding of new trial before
the CTA so it could be given the opportunity to present the required evidence.
Prescription
The prescriptive period for filing an application for tax refund/credit of input VAT on zero-rated sales
made in 1990 and 1992 was governed by Section 106(b) and (c) of the Tax Code of 1977, as amended,
which provided that
SEC. 106. Refunds or tax credits of input tax. x x x.
(b) Zero-rated or effectively zero-rated sales. Any person, except those covered by paragraph
(a) above, whose sales are zero-rated may, within two years after the close of the quarter when
such sales were made, apply for the issuance of a tax credit certificate or refund of the input
taxes attributable to such sales to the extent that such input tax has not been applied against
output tax.
xxxx
(e) Period within which refund of input taxes may be made by the Commissioner. The
Commissioner shall refund input taxes within 60 days from the date the application for refund
was filed with him or his duly authorized representative. No refund of input taxes shall be allowed
unless the VAT-registered person files an application for refund within the period prescribed in
paragraphs (a), (b) and (c) as the case may be.
By a plain reading of the foregoing provision, the two-year prescriptive period for filing the application
for refund/credit of input VAT on zero-rated sales shall be determined from the close of the quarter
when such sales were made.
Petitioner contends, however, that the said two-year prescriptive period should be counted, not from
the close of the quarter when the zero-rated sales were made, but from the date of filing of the
quarterly VAT return and payment of the tax due 20 days thereafter, in accordance with Section 110(b)
of the Tax Code of 1977, as amended, quoted as follows
SEC. 110. Return and payment of value-added tax. x x x.
(b) Time for filing of return and payment of tax. The return shall be filed and the tax paid within
20 days following the end of each quarter specifically prescribed for a VAT-registered person
under regulations to be promulgated by the Secretary of Finance: Provided, however, That any
person whose registration is cancelled in accordance with paragraph (e) of Section 107 shall file
a return within 20 days from the cancellation of such registration.
It is already well-settled that the two-year prescriptive period for instituting a suit or proceeding for
recovery of corporate income tax erroneously or illegally paid under Section 230 13 of the Tax Code of
1977, as amended, was to be counted from the filing of the final adjustment return. This Court already
set out in ACCRA Investments Corporation v. Court of Appeals, 14 the rationale for such a rule, thus
Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch as
the respondent Commissioner by his own rules and regulations mandates that the corporate
taxpayer opting to ask for a refund must show in its final adjustment return the income it
received from all sources and the amount of withholding taxes remitted by its withholding agents
to the Bureau of Internal Revenue. The petitioner corporation filed its final adjustment return for
its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case of
Commissioner of Internal Revenue v. Asia Australia Express, Ltd. (G.R. No. 85956), we ruled that
the two-year prescriptive period within which to claim a refund commences to run, at the
earliest, on the date of the filing of the adjusted final tax return. Hence, the petitioner
corporation had until April 15, 1984 within which to file its claim for refund.
Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the
respondent Commissioner who failed to take any action thereon and considering further that the
non-resolution of its claim for refund with the said Commissioner prompted ACCRAIN to reiterate
its claim before the Court of Tax Appeals through a petition for review on April 13, 1984, the
respondent appellate court manifestly committed a reversible error in affirming the holding of
the tax court that ACCRAIN's claim for refund was barred by prescription.
It bears emphasis at this point that the rationale in computing the two-year prescriptive period
with respect to the petitioner corporation's claim for refund from the time it filed its final
adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made
profits or incurred losses in its business operations. The "date of payment", therefore, in
ACCRAIN's case was when its tax liability, if any, fell due upon its filing of its final adjustment
return on April 15, 1982.
In another case, Commissioner of Internal Revenue v. TMX Sales, Inc.,15 this Court further expounded on
the same matter
A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is
warranted under the circumstances to lay down a categorical pronouncement on the question as
to when the two-year prescriptive period in cases of quarterly corporate income tax commences
to run. A full-blown decision in this regard is rendered more imperative in the light of the reversal
by the Court of Tax Appeals in the instant case of its previous ruling in the Pacific Procon case.
Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted in
relation to the other provisions of the Tax Code in order to give effect the legislative intent and to
avoid an application of the law which may lead to inconvenience and absurdity. In the case of
People vs. Rivera (59 Phil. 236 [1933]), this Court stated that statutes should receive a sensible
construction, such as will give effect to the legislative intention and so as to avoid an unjust or an

absurd conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR

INCONVENIENS ET ABSURDUM. Where there is ambiguity, such interpretation as will avoid
inconvenience and absurdity is to be adopted. Furthermore, courts must give effect to the
general legislative intent that can be discovered from or is unraveled by the four corners of the
statute, and in order to discover said intent, the whole statute, and not only a particular provision
thereof, should be considered. (Manila Lodge No. 761, et al. vs. Court of Appeals, et al. 73 SCRA
162 [1976) Every section, provision or clause of the statute must be expounded by reference to
each other in order to arrive at the effect contemplated by the legislature. The intention of the
legislator must be ascertained from the whole text of the law and every part of the act is to be
taken into view. (Chartered Bank vs. Imperial, 48 Phil. 931 [1921]; Lopez vs. El Hoger Filipino, 47
Phil. 249, cited in Aboitiz Shipping Corporation vs. City of Cebu, 13 SCRA 449 [1965]).
Thus, in resolving the instant case, it is necessary that we consider not only Section 292 (now
Section 230) of the National Internal Revenue Code but also the other provisions of the Tax Code,
particularly Sections 84, 85 (now both incorporated as Section 68), Section 86 (now Section 70)
and Section 87 (now Section 69) on Quarterly Corporate Income Tax Payment and Section 321
(now Section 232) on keeping of books of accounts. All these provisions of the Tax Code should
be harmonized with each other.
xxxx
Therefore, the filing of a quarterly income tax returns required in Section 85 (now Section 68)
and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be
considered mere installments of the annual tax due. These quarterly tax payments which are
computed based on the cumulative figures of gross receipts and deductions in order to arrive at
a net taxable income, should be treated as advances or portions of the annual income tax due,
to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 (now
Section 69) which provides for the filing of adjustment returns and final payment of income tax.
Consequently, the two-year prescriptive period provided in Section 292 (now Section 230) of the
Tax Code should be computed from the time of filing the Adjustment Return or Annual Income
Tax Return and final payment of income tax.
In the case of Collector of Internal Revenue vs. Antonio Prieto (2 SCRA 1007 [1961]), this Court
held that when a tax is paid in installments, the prescriptive period of two years provided in
Section 306 (Section 292) of the National Internal Revenue Code should be counted from the
date of the final payment. This ruling is reiterated in Commissioner of Internal Revenue vs.
Carlos Palanca (18 SCRA 496 [1966]), wherein this Court stated that where the tax account was
paid on installment, the computation of the two-year prescriptive period under Section 306
(Section 292) of the Tax Code, should be from the date of the last installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year
prescriptive period should be counted from the filing of the Adjustment Return on April 15,1982,
TMX Sales, Inc. is not yet barred by prescription.
The very same reasons set forth in the afore-cited cases concerning the two-year prescriptive period for
claims for refund of illegally or erroneously collected income tax may also apply to the Petitions at bar
involving the same prescriptive period for claims for refund/credit of input VAT on zero-rated sales.
It is true that unlike corporate income tax, which is reported and paid on installment every quarter, but
is eventually subjected to a final adjustment at the end of the taxable year, VAT is computed and paid
on a purely quarterly basis without need for a final adjustment at the end of the taxable year. However,
it is also equally true that until and unless the VAT-registered taxpayer prepares and submits to the BIR
its quarterly VAT return, there is no way of knowing with certainty just how much input VAT 16 the
taxpayer may apply against its output VAT; 17 how much output VAT it is due to pay for the quarter or
how much excess input VAT it may carry-over to the following quarter; or how much of its input VAT it
may claim as refund/credit. It should be recalled that not only may a VAT-registered taxpayer directly
apply against his output VAT due the input VAT it had paid on its importation or local purchases of
goods and services during the quarter; the taxpayer is also given the option to either (1) carry over any
excess input VAT to the succeeding quarters for application against its future output VAT liabilities, or
(2) file an application for refund or issuance of a tax credit certificate covering the amount of such input
VAT.18 Hence, even in the absence of a final adjustment return, the determination of any output VAT
payable necessarily requires that the VAT-registered taxpayer make adjustments in its VAT return every
quarter, taking into consideration the input VAT which are creditable for the present quarter or had
been carried over from the previous quarters.
Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to establish that it
does have refundable or creditable input VAT, and the same has not been applied against its output VAT
liabilities information which are supposed to be reflected in the taxpayer's VAT returns. Thus, an
application for refund/credit must be accompanied by copies of the taxpayer's VAT return/s for the
taxable quarter/s concerned.
Lastly, although the taxpayer's refundable or creditable input VAT may not be considered as illegally or
erroneously collected, its refund/credit is a privilege extended to qualified and registered taxpayers by
the very VAT system adopted by the Legislature. Such input VAT, the same as any illegally or
erroneously collected national internal revenue tax, consists of monetary amounts which are currently
in the hands of the government but must rightfully be returned to the taxpayer. Therefore, whether
claiming refund/credit of illegally or erroneously collected national internal revenue tax, or input VAT,
the taxpayer must be given equal opportunity for filing and pursuing its claim.

For the foregoing reasons, it is more practical and reasonable to count the two-year prescriptive period
for filing a claim for refund/credit of input VAT on zero-rated sales from the date of filing of the return
and payment of the tax due which, according to the law then existing, should be made within 20 days
from the end of each quarter. Having established thus, the relevant dates in the instant cases are
summarized and reproduced below
Period Covered

Date of Filing Date

of
Filing Date of Filing
(Return w/ BIR) (Application w/ BIR) (Case w/ CTA)

2nd
1990

Quarter, 20 July 1990

3rd
1990

Quarter, 18
1990

October 21 November 1990

9 October 1992

4th
1990

Quarter, 20
1991

January 19 February 1991

14 January 1993

1st
1992

Quarter, 20 April 1992

21 August 1990

--

20 July 1992

20 April 1994

The above table readily shows that the administrative and judicial claims of petitioner corporation for
refund of its input VAT on its zero-rated sales for the last three quarters of 1990 were all filed within the
prescriptive period.
However, the same cannot be said for the claim of petitioner corporation for refund of its input VAT on
its zero-rated sales for the first quarter of 1992. Even though it may seem that petitioner corporation
filed in time its judicial claim with the CTA, there is no showing that it had previously filed an
administrative claim with the BIR. Section 106(e) of the Tax Code of 1977, as amended, explicitly
provided that no refund of input VAT shall be allowed unless the VAT-registered taxpayer filed an
application for refund with respondent Commissioner within the two-year prescriptive period. The
application of petitioner corporation for refund/credit of its input VAT for the first quarter of 1992 was
not only unsigned by its supposed authorized representative, Ma. Paz R. Semilla, Manager-Finance and
Treasury, but it was not dated, stamped, and initialed by the BIR official who purportedly received the
same. The CTA, in its Decision,19 dated 24 November 1997, in CTA Case No. 5102, made the following
observations
This Court, likewise, rejects any probative value of the Application for Tax Credit/Refund of VAT
Paid (BIR Form No. 2552) [Exhibit "B'] formally offered in evidence by the petitioner on account of
the fact that it does not bear the BIR stamp showing the date when such application was filed
together with the signature or initial of the receiving officer of respondent's Bureau. Worse still, it
does not show the date of application and the signature of a certain Ma. Paz R. Semilla indicated
in the form who appears to be petitioner's authorized filer.
A review of the records reveal that the original of the aforecited application was lost during the
time petitioner transferred its office (TSN, p. 6, Hearing of December 9, 1994). Attempt was
made to prove that petitioner exerted efforts to recover the original copy, but to no avail. Despite
this, however, We observe that petitioner completely failed to establish the missing dates and
signatures abovementioned. On this score, said application has no probative value in
demonstrating the fact of its filing within two years after the [filing of the VAT return for the
quarter] when petitioner's sales of goods were made as prescribed under Section 106(b) of the
Tax Code. We believe thus that petitioner failed to file an application for refund in due form and
within the legal period set by law at the administrative level. Hence, the case at bar has failed to
satisfy the requirement on the prior filing of an application for refund with the respondent before
the commencement of a judicial claim for refund, as prescribed under Section 230 of the Tax
Code. This fact constitutes another one of the many reasons for not granting petitioner's judicial
claim.
As pointed out by the CTA, in serious doubt is not only the fact of whether petitioner corporation timely
filed its administrative claim for refund of its input VAT for the first quarter of 1992, but also whether
petitioner corporation actually filed such administrative claim in the first place. For failing to prove that
it had earlier filed with the BIR an application for refund/credit of its input VAT for the first quarter of
1992, within the period prescribed by law, then the case instituted by petitioner corporation with the
CTA for the refund/credit of the very same tax cannot prosper.
Revenue Regulations No. 2-88 and the 70% export requirement
Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on the gross
selling price or gross value in money of goods sold, bartered or exchanged. Yet, the same provision
subjected the following sales made by VAT-registered persons to 0% VAT
(1) Export sales; and
(2) Sales to persons or entities whose exemption under special laws or international agreements
to which the Philippines is a signatory effectively subjects such sales to zero-rate.
"Export Sales" means the sale and shipment or exportation of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods so exported, or foreign currency
denominated sales. "Foreign currency denominated sales", means sales to nonresidents of goods

assembled or manufactured in the Philippines, for delivery to residents in the Philippines and
paid for in convertible foreign currency remitted through the banking system in the Philippines.
These are termed zero-rated sales. A zero-rated sale is still considered a taxable transaction for VAT
purposes, although the VAT rate applied is 0%. A sale by a VAT-registered taxpayer of goods and/or
services taxed at 0% shall not result in any output VAT, while the input VAT on its purchases of goods or
services related to such zero-rated sale shall be available as tax credit or refund. 20
Petitioner corporation questions the validity of Revenue Regulations No. 2-88 averring that the said
regulations imposed additional requirements, not found in the law itself, for the zero-rating of its sales
to Philippine Smelting and Refining Corporation (PASAR) and Philippine Phosphate, Inc. (PHILPHOS),
both of which are registered not only with the BOI, but also with the then Export Processing Zone
Authority (EPZA).21
The contentious provisions of Revenue Regulations No. 2-88 read
SEC. 2. Zero-rating. (a) Sales of raw materials to BOI-registered exporters. Sales of raw
materials to export-oriented BOI-registered enterprises whose export sales, under rules and
regulations of the Board of Investments, exceed seventy percent (70%) of total annual
production, shall be subject to zero-rate under the following conditions:
"(1) The seller shall file an application with the BIR, ATTN.: Division, applying for zerorating for each and every separate buyer, in accordance with Section 8(d) of Revenue
Regulations No. 5-87. The application should be accompanied with a favorable
recommendation from the Board of Investments."
"(2) The raw materials sold are to be used exclusively by the buyer in the manufacture,
processing or repacking of his own registered export product;
"(3) The words "Zero-Rated Sales" shall be prominently indicated in the sales invoice. The
exporter (buyer) can no longer claim from the Bureau of Internal Revenue or any other
government office tax credits on their zero-rated purchases;
(b) Sales of raw materials to foreign buyer. Sales of raw materials to a nonresident foreign
buyer for delivery to a resident local export-oriented BOI-registered enterprise to be used in
manufacturing, processing or repacking of the said buyer's goods and paid for in foreign
currency, inwardly remitted in accordance with Central Bank rules and regulations shall be
subject to zero-rate.
It is the position of the respondent Commissioner, affirmed by the CTA and the Court of Appeals, that
Section 2 of Revenue Regulations No. 2-88 should be applied in the cases at bar; and to be entitled to
the zero-rating of its sales to PASAR and PHILPHOS, petitioner corporation, as a VAT-registered seller,
must be able to prove not only that PASAR and PHILPHOS are BOI-registered corporations, but also that
more than 70% of the total annual production of these corporations are actually exported. Revenue
Regulations No. 2-88 merely echoed the requirement imposed by the BOI on export-oriented
corporations registered with it.
While this Court is not prepared to strike down the validity of Revenue Regulations No. 2-88, it finds
that its application must be limited and placed in the proper context. Note that Section 2 of Revenue
Regulations No. 2-88 referred only to the zero-rated sales of raw materials to export-oriented BOIregistered enterprises whose export sales, under BOI rules and regulations, should exceed seventy
percent (70%) of their total annual production.
Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-rating of the sales
made by petitioner corporation to PASAR and PHILPHOS. At the onset, it must be emphasized that
PASAR and PHILPHOS, in addition to being registered with the BOI, were also registered with the EPZA
and located within an export-processing zone. Petitioner corporation does not claim that its sales to
PASAR and PHILPHOS are zero-rated on the basis that said sales were made to export-oriented BOIregistered corporations, but rather, on the basis that the sales were made to EPZA-registered
enterprises operating within export processing zones. Although sales to export-oriented BOI-registered
enterprises and sales to EPZA-registered enterprises located within export processing zones were both
deemed export sales, which, under Section 100(a) of the Tax Code of 1977, as amended, shall be
subject to 0% VAT distinction must be made between these two types of sales because each may have
different substantiation requirements.
The Tax Code of 1977, as amended, gave a limited definition of export sales, to wit: "The sale and
shipment or exportation of goods from the Philippines to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may influence or determine the transfer of ownership of
the goods so exported, or foreign currency denominated sales." Executive Order No. 226, otherwise
known as the Omnibus Investments Code of 1987 - which, in the years concerned (i.e., 1990 and 1992),
governed enterprises registered with both the BOI and EPZA, provided a more comprehensive definition
of export sales, as quoted below:
"ART. 23. "Export sales" shall mean the Philippine port F.O.B. value, determined from invoices,
bills of lading, inward letters of credit, landing certificates, and other commercial documents, of
export products exported directly by a registered export producer or the net selling price of
export product sold by a registered export producer or to an export trader that subsequently
exports the same: Provided, That sales of export products to another producer or to an export
trader shall only be deemed export sales when actually exported by the latter, as evidenced by
landing certificates of similar commercial documents: Provided, further, That without actual
exportation the following shall be considered constructively exported for purposes of this
provision: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2)
sales to export processing zones; (3) sales to registered export traders operating bonded trading

warehouses supplying raw materials used in the manufacture of export products under
guidelines to be set by the Board in consultation with the Bureau of Internal Revenue and the
Bureau of Customs; (4) sales to foreign military bases, diplomatic missions and other agencies
and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked
products whether paid for in foreign currency or not: Provided, further, That export sales of
registered export trader may include commission income; and Provided, finally, That exportation
of goods on consignment shall not be deemed export sales until the export products consigned
are in fact sold by the consignee.
Sales of locally manufactured or assembled goods for household and personal use to Filipinos
abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under
the Internal Export Program of the government and paid for in convertible foreign currency
inwardly remitted through the Philippine banking systems shall also be considered export sales.
(Underscoring ours.)
The afore-cited provision of the Omnibus Investments Code of 1987 recognizes as export sales the
sales of export products to another producer or to an export trader, provided that the export products
are actually exported. For purposes of VAT zero-rating, such producer or export trader must be
registered with the BOI and is required to actually export more than 70% of its annual production.
Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also considers
constructive exportation as export sales. Among other types of constructive exportation specifically
identified by the said provision are sales to export processing zones. Sales to export processing zones
are subjected to special tax treatment. Article 77 of the same Code establishes the tax treatment of
goods or merchandise brought into the export processing zones. Of particular relevance herein is
paragraph 2, which provides that "Merchandise purchased by a registered zone enterprise from the
customs territory and subsequently brought into the zone, shall be considered as export sales and the
exporter thereof shall be entitled to the benefits allowed by law for such transaction."
Such tax treatment of goods brought into the export processing zones are only consistent with the
Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres. According
to the Destination Principle,22 goods and services are taxed only in the country where these are
consumed. In connection with the said principle, the Cross Border Doctrine 23 mandates that no VAT shall
be imposed to form part of the cost of the goods destined for consumption outside the territorial border
of 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 use or consumption within the Philippines shall be
imposed with 10% VAT.24 Export processing zones25 are to be managed as a separate customs territory
from the rest of the Philippines and, thus, for tax purposes, are effectively considered as foreign
territory. For this reason, sales by persons from the Philippine customs territory to those inside the
export processing zones are already taxed as exports.
Plainly, sales to enterprises operating within the export processing zones are export sales, which, under
the Tax Code of 1977, as amended, were subject to 0% VAT. It is on this ground that petitioner
corporation is claiming refund/credit of the input VAT on its zero-rated sales to PASAR and PHILPHOS.
The distinction made by this Court in the preceding paragraphs between the zero-rated sales to exportoriented BOI-registered enterprises and zero-rated sales to EPZA-registered enterprises operating
within export processing zones is actually supported by subsequent development in tax laws and
regulations. In Revenue Regulations No. 7-95, the Consolidated VAT Regulations, as amended, 26 the BIR
defined with more precision what are zero-rated export sales
(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective
of any shipping arrangement that may be agreed upon which may influence or determine the
transfer of ownership of the goods so exported paid for in acceptable foreign currency or its
equivalent in goods or services, and accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP);
(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a
resident local export-oriented enterprise to be used in manufacturing, processing, packing or
repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
(3) The sale of raw materials or packaging materials to an export-oriented enterprise whose
export sales exceed seventy percent (70%) of total annual production;
Any enterprise whose export sales exceed 70% of the total annual production of the preceding
taxable year shall be considered an export-oriented enterprise upon accreditation as such under
the provisions of the Export Development Act (R.A. 7844) and its implementing rules and
regulations;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise
known as the Omnibus Investments Code of 1987, and other special laws, e.g. Republic Act No.
7227, otherwise known as the Bases Conversion and Development Act of 1992.
The Tax Code of 1997, as amended, 27 later adopted the foregoing definition of export sales, which are
subject to 0% VAT.
This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88, which applied
to zero-rated export sales to export-oriented BOI-registered enterprises, should not be applied to the
applications for refund/credit of input VAT filed by petitioner corporation since it based its applications

on the zero-rating of export sales to enterprises registered with the EPZA and located within export
processing zones.
Sufficiency of evidence
There can be no dispute that the taxpayer-claimant has the burden of proving the legal and factual
bases of its claim for tax credit or refund, but once it has submitted all the required documents, it is the
function of the BIR to assess these documents with purposeful dispatch. 28 It therefore falls upon herein
petitioner corporation to first establish that its sales qualify for VAT zero-rating under the existing laws
(legal basis), and then to present sufficient evidence that said sales were actually made and resulted in
refundable or creditable input VAT in the amount being claimed (factual basis).
It would initially appear that the applications for refund/credit filed by petitioner corporation cover only
input VAT on its purportedly zero-rated sales to PASAR and PHILPHOS; however, a more thorough
perusal of its applications, VAT returns, pleadings, and other records of these cases would reveal that it
is also claiming refund/credit of its input VAT on purchases of capital goods and sales of gold to the
Central Bank of the Philippines (CBP).
This Court finds that the claims for refund/credit of input VAT of petitioner corporation have sufficient
legal bases.
As has been extensively discussed herein, Section 106(b)(2), in relation to Section 100(a)(2) of the Tax
Code of 1977, as amended, allowed the refund/credit of input VAT on export sales to enterprises
operating within export processing zones and registered with the EPZA, since such export sales were
deemed to be effectively zero-rated sales.29 The fact that PASAR and PHILPHOS, to whom petitioner
corporation sold its products, were operating inside an export processing zone and duly registered with
EPZA, was never raised as an issue herein. Moreover, the same fact was already judicially recognized in
the case Atlas Consolidated Mining & Development Corporation v. Commissioner of Internal Revenue. 30
Section 106(c) of the same Code likewise permitted a VAT-registered taxpayer to apply for refund/credit
of the input VAT paid on capital goods imported or locally purchased to the extent that such input VAT
has not been applied against its output VAT. Meanwhile, the effective zero-rating of sales of gold to the
CBP from 1989 to 199131 was already affirmed by this Court in Commissioner of Internal Revenue v.
Benguet Corporation,32 wherein it ruled that
At the time when the subject transactions were consummated, the prevailing BIR regulations
relied upon by respondent ordained that gold sales to the Central Bank were zero-rated. The BIR
interpreted Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which prescribed
that gold sold to the Central Bank shall be considered export and therefore shall be subject to the
export and premium duties. In coming out with this interpretation, the BIR also considered Sec.
169 of Central Bank Circular No. 960 which states that all sales of gold to the Central Bank are
considered constructive exports. x x x.
This Court now comes to the question of whether petitioner corporation has sufficiently established the
factual bases for its applications for refund/credit of input VAT. It is in this regard that petitioner
corporation has failed, both in the administrative and judicial level.
Applications for refund/credit of input VAT with the BIR must comply with the appropriate revenue
regulations. As this Court has already ruled, Revenue Regulations No. 2-88 is not relevant to the
applications for refund/credit of input VAT filed by petitioner corporation; nonetheless, the said
applications must have been in accordance with Revenue Regulations No. 3-88, amending Section 16 of
Revenue Regulations No. 5-87, which provided as follows
SECTION 16. Refunds or tax credits of input tax.
xxxx
(c) Claims for tax credits/refunds. Application for Tax Credit/Refund of Value-Added Tax Paid (BIR
Form No. 2552) shall be filed with the Revenue District Office of the city or municipality where
the principal place of business of the applicant is located or directly with the Commissioner,
Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be
submitted together with the application. The original copy of the said invoice/receipt, however,
shall be presented for cancellation prior to the issuance of the Tax Credit Certificate or refund. In
addition, the following documents shall be attached whenever applicable:
xxxx
"3. Effectively zero-rated sale of goods and services.
"i) photo copy of approved application for zero-rate if filing for the first time.
"ii) sales invoice or receipt showing name of the person or entity to whom the sale
of goods or services were delivered, date of delivery, amount of consideration, and
description of goods or services delivered.
"iii) evidence of actual receipt of goods or services.
"4. Purchase of capital goods.
"i) original copy of invoice or receipt showing the date of purchase, purchase price,
amount of value-added tax paid and description of the capital equipment locally
purchased.
"ii) with respect to capital equipment imported, the photo copy of import entry
document for internal revenue tax purposes and the confirmation receipt issued by
the Bureau of Customs for the payment of the value-added tax.
"5. In applicable cases,
where the applicant's zero-rated transactions are regulated by certain government agencies, a
statement therefrom showing the amount and description of sale of goods and services, name of

persons or entities (except in case of exports) to whom the goods or services were sold, and date
of transaction shall also be submitted.
In all cases, the amount of refund or tax credit that may be granted shall be limited to the
amount of the value-added tax (VAT) paid directly and entirely attributable to the zero-rated
transaction during the period covered by the application for credit or refund.
Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods and
services, and the VAT paid (inputs) on purchases of goods and services cannot be directly
attributed to any of the aforementioned transactions, the following formula shall be used to
determine the creditable or refundable input tax for zero-rated sale:
Amount
of
Zero-rated
Sale
Total Sales
X
Total
Amount
of
Input
Taxes
=
Amount Creditable/Refundable
In case the application for refund/credit of input VAT was denied or remained unacted upon by the BIR,
and before the lapse of the two-year prescriptive period, the taxpayer-applicant may already file a
Petition for Review before the CTA. If the taxpayer's claim is supported by voluminous documents, such
as receipts, invoices, vouchers or long accounts, their presentation before the CTA shall be governed by
CTA Circular No. 1-95, as amended, reproduced in full below
In the interest of speedy administration of justice, the Court hereby promulgates the following
rules governing the presentation of voluminous documents and/or long accounts, such as
receipts, invoices and vouchers, as evidence to establish certain facts pursuant to Section 3(c),
Rule 130 of the Rules of Court and the doctrine enunciated in Compania Maritima vs. Allied Free
Workers Union (77 SCRA 24), as well as Section 8 of Republic Act No. 1125:
1. The party who desires to introduce as evidence such voluminous documents must, after
motion and approval by the Court, present:
(a) a Summary containing, among others, a chronological listing of the numbers, dates
and amounts covered by the invoices or receipts and the amount/s of tax paid; and (b) a
Certification of an independent Certified Public Accountant attesting to the correctness of
the contents of the summary after making an examination, evaluation and audit of the
voluminous receipts and invoices. The name of the accountant or partner of the firm in
charge must be stated in the motion so that he/she can be commissioned by the Court to
conduct the audit and, thereafter, testify in Court relative to such summary and
certification pursuant to Rule 32 of the Rules of Court.
2. The method of individual presentation of each and every receipt, invoice or account for
marking, identification and comparison with the originals thereof need not be done before the
Court or Clerk of Court anymore after the introduction of the summary and CPA certification. It is
enough that the receipts, invoices, vouchers or other documents covering the said accounts or
payments to be introduced in evidence must be pre-marked by the party concerned and
submitted to the Court in order to be made accessible to the adverse party who desires to check
and verify the correctness of the summary and CPA certification. Likewise, the originals of the
voluminous receipts, invoices or accounts must be ready for verification and comparison in case
doubt on the authenticity thereof is raised during the hearing or resolution of the formal offer of
evidence.
Since CTA Cases No. 4831, 4859, 4944,33 and 5102,34 were still pending before the CTA when the said
Circular was issued, then petitioner corporation must have complied therewith during the course of the
trial of the said cases.
In Commissioner of Internal Revenue v. Manila Mining Corporation,35 this Court denied the claim of
therein respondent, Manila Mining Corporation, for refund of the input VAT on its supposed zero-rated
sales of gold to the CBP because it was unable to substantiate its claim. In the same case, this Court
emphasized the importance of complying with the substantiation requirements for claiming
refund/credit of input VAT on zero-rated sales, to wit
For a judicial claim for refund to prosper, however, respondent must not only prove that it is a
VAT registered entity and that it filed its claims within the prescriptive period. It must
substantiate the input VAT paid by purchase invoices or official receipts.
This respondent failed to do.
Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87 provides the
requirements in claiming tax credits/refunds.
xxxx
Under Section 8 of RA1125, the CTA is described as a court of record. As cases filed before it are
litigated de novo, party litigants should prove every minute aspect of their cases. No evidentiary
value can be given the purchase invoices or receipts submitted to the BIR as the rules on
documentary evidence require that these documents must be formally offered before the CTA.
This Court thus notes with approval the following findings of the CTA:
x x x [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output tax
but this does not ipso fact mean that [the seller] is entitled to the amount of refund sought
as it is required by law to present evidence showing the input taxes it paid during the year
in question. What is being claimed in the instant petition is the refund of the input taxes
paid by the herein petitioner on its purchase of goods and services. Hence, it is necessary

for the Petitioner to show proof that it had indeed paid the input taxes during the year
1991. In the case at bar, Petitioner failed to discharge this duty. It did not adduce in
evidence the sales invoice, receipts or other documents showing the input value added
tax on the purchase of goods and services.
xxx
Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides categorically
that the Court of Tax Appeals shall be a court of record and as such it is required to
conduct a formal trial (trial de novo) where the parties must present their evidence
accordingly if they desire the Court to take such evidence into consideration. (Emphasis and
italics supplied)
A "sales or commercial invoice" is a written account of goods sold or services rendered indicating
the prices charged therefor or a list by whatever name it is known which is used in the ordinary
course of business evidencing sale and transfer or agreement to sell or transfer goods and
services.
A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or
other settlement between seller and buyer of goods, debtor or creditor, or person rendering
services and client or customer.
These sales invoices or receipts issued by the supplier are necessary to substantiate the actual
amount or quantity of goods sold and their selling price, and taken collectively are the best
means to prove the input VAT payments. 36
Although the foregoing decision focused only on the proof required for the applicant for refund/credit to
establish the input VAT payments it had made on its purchases from suppliers, Revenue Regulations No.
3-88 also required it to present evidence proving actual zero-rated VAT sales to qualified buyers, such
as (1) photocopy of the approved application for zero-rate if filing for the first time; (2) sales invoice or
receipt showing the name of the person or entity to whom the goods or services were delivered, date of
delivery, amount of consideration, and description of goods or services delivered; and (3) the evidence
of actual receipt of goods or services.
Also worth noting in the same decision is the weight given by this Court to the certification by the
independent certified public accountant (CPA), thus
Respondent contends, however, that the certification of the independent CPA attesting to the
correctness of the contents of the summary of suppliers' invoices or receipts which were
examined, evaluated and audited by said CPA in accordance with CTA Circular No. 1-95 as
amended by CTA Circular No. 10-97 should substantiate its claims.
There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which
either expressly or impliedly suggests that summaries and schedules of input VAT payments,
even if certified by an independent CPA, suffice as evidence of input VAT payments.
xxxx
The circular, in the interest of speedy administration of justice, was promulgated to avoid the
time-consuming procedure of presenting, identifying and marking of documents before the Court.
It does not relieve respondent of its imperative task of pre-marking photocopies of sales receipts
and invoices and submitting the same to the court after the independent CPA shall have
examined and compared them with the originals. Without presenting these pre-marked
documents as evidence from which the summary and schedules were based, the court cannot
verify the authenticity and veracity of the independent auditor's conclusions.
There is, moreover, a need to subject these invoices or receipts to examination by the CTA in
order to confirm whether they are VAT invoices. Under Section 21 of Revenue Regulation, No. 587, all purchases covered by invoices other than a VAT invoice shall not be entitled to a refund of
input VAT.
xxxx
While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are
not ends in themselves but are primarily intended as tools in the administration of justice, the
presentation of the purchase receipts and/or invoices is not mere procedural technicality which
may be disregarded considering that it is the only means by which the CTA may ascertain and
verify the truth of the respondent's claims.
The records further show that respondent miserably failed to substantiate its claims for input VAT
refund for the first semester of 1991. Except for the summary and schedules of input VAT
payments prepared by respondent itself, no other evidence was adduced in support of its claim.
As for respondent's claim for input VAT refund for the second semester of 1991, it employed the
services of Joaquin Cunanan & Co. on account of which it (Joaquin Cunanan & Co.) executed a
certification that:
We have examined the information shown below concerning the input tax payments made
by the Makati Office of Manila Mining Corporation for the period from July 1 to December
31, 1991. Our examination included inspection of the pertinent suppliers' invoices and
official receipts and such other auditing procedures as we considered necessary in the
circumstances. x x x
As the certification merely stated that it used "auditing procedures considered necessary" and
not auditing procedures which are in accordance with generally accepted auditing principles and
standards, and that the examination was made on "input tax payments by the Manila Mining
Corporation," without specifying that the said input tax payments are attributable to the sales of

gold to the Central Bank, this Court cannot rely thereon and regard it as sufficient proof of the
respondent's input VAT payments for the second semester. 37
As for the Petition in G.R. No. 141104, involving the input VAT of petitioner corporation on its zero-rated
sales in the first quarter of 1992, this Court already found that the petitioner corporation failed to
comply with Section 106(b) of the Tax Code of 1977, as amended, imposing the two-year prescriptive
period for the filing of the application for refund/credit thereof. This bars the grant of the application for
refund/credit, whether administratively or judicially, by express mandate of Section 106(e) of the same
Code.
Granting arguendo that the application of petitioner corporation for the refund/credit of the input VAT
on its zero-rated sales in the first quarter of 1992 was actually and timely filed, petitioner corporation
still failed to present together with its application the required supporting documents, whether before
the BIR or the CTA. As the Court of Appeals ruled
In actions involving claims for refund of taxes assessed and collected, the burden of proof rests
on the taxpayer. As clearly discussed in the CTA's decision, petitioner failed to substantiate its
claim for tax refunds. Thus:
"We note, however, that in the cases at bar, petitioner has relied totally on Revenue
Regulations No. 2-88 in determining compliance with the documentary requirements for a
successful refund or issuance of tax credit. Unmentioned is the applicable and specific
amendment later introduced by Revenue Regulations No. 3-88 dated April 7, 1988 (issued
barely after two months from the promulgation of Revenue Regulations No. 2-88 on
February 15, 1988), which amended Section 16 of Revenue Regulations No. 5-87 on
refunds or tax credits of input tax. x x x.
xxxx
"A thorough examination of the evidence submitted by the petitioner before this court
reveals outright the failure to satisfy documentary requirements laid down under the
above-cited regulations. Specifically, petitioner was not able to present the following
documents, to wit:
"a) sales invoices or receipts;
"b) purchase invoices or receipts;
"c) evidence of actual receipt of goods;
"d) BOI statement showing the amount and description of sale of goods, etc.
"e) original or attested copies of invoice or receipt on capital equipment locally
purchased; and
"f) photocopy of import entry document and confirmation receipt on imported
capital equipment.
"There is the need to examine the sales invoices or receipts in order to ascertain the
actual amount or quantity of goods sold and their selling price. Without them, this Court
cannot verify the correctness of petitioner's claim inasmuch as the regulations require that
the input taxes being sought for refund should be limited to the portion that is directly and
entirely attributable to the particular zero-rated transaction. In this instance, the best
evidence of such transaction are the said sales invoices or receipts.
"Also, even if sales invoices are produced, there is the further need to submit evidence
that such goods were actually received by the buyer, in this case, by CBP, Philp[h]os and
PASAR.
xxxx
"Lastly, this Court cannot determine whether there were actual local and imported
purchase of capital goods as well as domestic purchase of non-capital goods without the
required purchase invoice or receipt, as the case may be, and confirmation receipts.
"There is, thus, the imperative need to submit before this Court the original or attested
photocopies of petitioner's invoices or receipts, confirmation receipts and import entry
documents in order that a full ascertainment of the claimed amount may be achieved.
"Petitioner should have taken the foresight to introduce in evidence all of the missing
documents abovementioned. Cases filed before this Court are litigated de novo. This
means that party litigants should endeavor to prove at the first instance every minute
aspect of their cases strictly in accordance with the Rules of Court, most especially on
documentary evidence." (pp. 37-42, Rollo)
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign
authority, and should be construed in strictissimi juris against the person or entity claiming the
exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant of
organic or statute law and should not be permitted to stand on vague implications (Asiatic
Petroleum Co. v. Llanes, 49 Phil. 466; Northern Phil. Tobacco Corp. v. Mun. of Agoo, La Union, 31
SCRA 304; Reagan v. Commissioner, 30 SCRA 968; Asturias Sugar Central, Inc. v. Commissioner
of Customs, 29 SCRA 617; Davao Light and Power Co., Inc. v. Commissioner of Customs, 44 SCRA
122).
There is no cogent reason to fault the CTA's conclusion that the SGV's certificate is "selfdestructive", as it finds comfort in the very SGV's stand, as follows:
"It is our understanding that the above procedure are sufficient for the purpose of the
Company. We make no presentation regarding the sufficiency of these procedures for such
purpose. We did not compare the total of the input tax claimed each quarter against the
pertinent VAT returns and books of accounts. The above procedures do not constitute an

audit made in accordance with generally accepted auditing standards. Accordingly, we do

not express an opinion on the company's claim for input VAT refund or credit. Had we
performed additional procedures, or had we made an audit in accordance with generally
accepted auditing standards, other matters might have come to our attention that we
would have accordingly reported on."
The SGV's "disclaimer of opinion" carries much weight as it is petitioner's independent auditor.
Indeed, SGV expressed that it "did not compare the total of the input tax claimed each quarter
against the VAT returns and books of accounts." 38
Moving on to the Petition in G.R. No. 148763, concerning the input VAT of petitioner corporation on its
zero-rated sales in the second, third, and fourth quarters of 1990, the appellate court likewise found
that petitioner corporation failed to sufficiently establish its claims. Already disregarding the
declarations made by the Court of Appeals on its erroneous application of Revenue Regulations No. 288, quoted hereunder is the rest of the findings of the appellate court after evaluating the evidence
submitted in accordance with the requirements under Revenue Regulations No. 3-88
The Secretary of Finance validly adopted Revenue Regulations [No.] x x x 3-98 pursuant to Sec.
245 of the National Internal Revenue Code, which recognized his power to "promulgate all
needful rules and regulations for the effective enforcement of the provisions of this Code." Thus,
it is incumbent upon a taxpayer intending to file a claim for refund of input VATs or the issuance
of a tax credit certificate with the BIR x x x to prove sales to such buyers as required by Revenue
Regulations No. 3-98. Logically, the same evidence should be presented in support of an action
to recover taxes which have been paid.
x x x Neither has [herein petitioner corporation] presented sales invoices or receipts showing
sales of gold, copper concentrates, and pyrite to the CBP, [PASAR], and [PHILPHOS], respectively,
and the dates and amounts of the same, nor any evidence of actual receipt by the said buyers of
the mineral products. It merely presented receipts of purchases from suppliers on which input
VATs were allegedly paid. Thus, the Court of Tax Appeals correctly denied the claims for refund of
input VATs or the issuance of tax credit certificates of petitioner [corporation]. Significantly, in the
resolution, dated 7 June 2000, this Court directed the parties to file memoranda discussing,
among others, the submission of proof for "its [petitioner's] sales of gold, copper concentrates,
and pyrite to buyers." Nevertheless, the parties, including the petitioner, failed to address this
issue, thereby necessitating the affirmance of the ruling of the Court of Tax Appeals on this
point.39
This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for well-settled is
the general rule that the jurisdiction of this Court in cases brought before it from the Court of Appeals,
by way of a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, is limited to
reviewing or revising errors of law; findings of fact of the latter are conclusive. 40 This Court is not a trier
of facts. It is not its function to review, examine and evaluate or weigh the probative value of the
evidence presented.41
The distinction between a question of law and a question of fact is clear-cut. It has been held that
"[t]here is a question of law in a given case when the doubt or difference arises as to what the law is on
a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or
falsehood of alleged facts."42
Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on these sales
in the amount it had declared in its returns; whether all the input VAT subject of its applications for
refund/credit can be attributed to its zero-rated sales; and whether it had not previously applied the
input VAT against its output VAT liabilities, are all questions of fact which could only be answered after
reviewing, examining, evaluating, or weighing the probative value of the evidence it presented, and
which this Court does not have the jurisdiction to do in the present Petitions for Review on Certiorari
under Rule 45 of the revised Rules of Court.
Granting that there are exceptions to the general rule, when this Court looked into questions of fact
under particular circumstances, 43 none of these exist in the instant cases. The Court of Appeals, in both
cases, found a dearth of evidence to support the claims for refund/credit of the input VAT of petitioner
corporation, and the records bear out this finding. Petitioner corporation itself cannot dispute its noncompliance with the requirements set forth in Revenue Regulations No. 3-88 and CTA Circular No. 1-95,
as amended. It concentrated its arguments on its assertion that the substantiation requirements under
Revenue Regulations No. 2-88 should not have applied to it, while being conspicuously silent on the
evidentiary requirements mandated by other relevant regulations.
Re-opening of cases/holding of new trial before the CTA
This Court now faces the final issue of whether the prayer of petitioner corporation for the re-opening of
its cases or holding of new trial before the CTA for the reception of additional evidence, may be
granted. Petitioner corporation prays that the Court exercise its discretion on the matter in its favor,
consistent with the policy that rules of procedure be liberally construed in pursuance of substantive
justice.
This Court, however, cannot grant the prayer of petitioner corporation.
An aggrieved party may file a motion for new trial or reconsideration of a judgment already rendered in
accordance with Section 1, Rule 37 of the revised Rules of Court, which provides
SECTION 1. Grounds of and period for filing motion for new trial or reconsideration. Within the
period for taking an appeal, the aggrieved party may move the trial court to set aside the
judgment or final order and grant a new trial for one or more of the following causes materially
affecting the substantial rights of said party:

(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have
guarded against and by reason of which such aggrieved party has probably been impaired in his
rights; or
(b) Newly discovered evidence, which he could not, with reasonable diligence, have discovered
and produced at the trial, and which if presented would probably alter the result.
Within the same period, the aggrieved party may also move fore reconsideration upon the
grounds that the damages awarded are excessive, that the evidence is insufficient to justify the
decision or final order, or that the decision or final order is contrary to law.
In G.R. No. 148763, petitioner corporation attempts to justify its motion for the re-opening of its cases
and/or holding of new trial before the CTA by contending that the "[f]ailure of its counsel to adduce the
necessary evidence should be construed as excusable negligence or mistake which should constitute
basis for such re-opening of trial as for a new trial, as counsel was of the belief that such evidence was
rendered unnecessary by the presentation of unrebutted evidence indicating that respondent
[Commissioner] has acknowledged the sale of [sic] PASAR and [PHILPHOS] to be zero-rated." 44 The CTA
denied such motion on the ground that it was not accompanied by an affidavit of merit as required by
Section 2, Rule 37 of the revised Rules of Court. The Court of Appeals affirmed the denial of the motion,
but apart from this technical defect, it also found that there was no justification to grant the same.
On the matter of the denial of the motion of the petitioner corporation for the re-opening of its cases
and/or holding of new trial based on the technicality that said motion was unaccompanied by an
affidavit of merit, this Court rules in favor of the petitioner corporation. The facts which should
otherwise be set forth in a separate affidavit of merit may, with equal effect, be alleged and
incorporated in the motion itself; and this will be deemed a substantial compliance with the formal
requirements of the law, provided, of course, that the movant, or other individual with personal
knowledge of the facts, take oath as to the truth thereof, in effect converting the entire motion for new
trial into an affidavit.45 The motion of petitioner corporation was prepared and verified by its counsel,
and since the ground for the motion was premised on said counsel's excusable negligence or mistake,
then the obvious conclusion is that he had personal knowledge of the facts relating to such negligence
or mistake. Hence, it can be said that the motion of petitioner corporation for the re-opening of its
cases and/or holding of new trial was in substantial compliance with the formal requirements of the
revised Rules of Court.
Even so, this Court finds no sufficient ground for granting the motion of petitioner corporation for the
re-opening of its cases and/or holding of new trial.
In G.R. No. 141104, petitioner corporation invokes the Resolution, 46 dated 20 July 1998, by the CTA in
another case, CTA Case No. 5296, involving the claim of petitioner corporation for refund/credit of input
VAT for the third quarter of 1993. The said Resolution allowed the re-opening of CTA Case No. 5296,
earlier dismissed by the CTA, to give the petitioner corporation the opportunity to present the missing
export documents.
The rule that the grant or denial of motions for new trial rests on the discretion of the trial court, 47 may
likewise be extended to the CTA. When the denial of the motion rests upon the discretion of a lower
court, this Court will not interfere with its exercise, unless there is proof of grave abuse thereof. 48
That the CTA granted the motion for re-opening of one case for the presentation of additional evidence
and, yet, deny a similar motion in another case filed by the same party, does not necessarily
demonstrate grave abuse of discretion or arbitrariness on the part of the CTA. Although the cases
involve identical parties, the causes of action and the evidence to support the same can very well be
different. As can be gleaned from the Resolution, dated 20 July 1998, in CTA Case No. 5296, petitioner
corporation was claiming refund/credit of the input VAT on its zero-rated sales, consisting of actual
export sales, to Mitsubishi Metal Corporation in Tokyo, Japan. The CTA took into account the
presentation by petitioner corporation of inward remittances of its export sales for the quarter involved,
its Supply Contract with Mitsubishi Metal Corporation, its 1993 Annual Report showing its sales to the
said foreign corporation, and its application for refund. In contrast, the present Petitions involve the
claims of petitioner corporation for refund/credit of the input VAT on its purchases of capital goods and
on its effectively zero-rated sales to CBP and EPZA-registered enterprises PASAR and PHILPHOS for the
second, third, and fourth quarters of 1990 and first quarter of 1992. There being a difference as to the
bases of the claims of petitioner corporation for refund/credit of input VAT in CTA Case No. 5926 and in
the Petitions at bar, then, there are resulting variances as to the evidence required to support them.
Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No. 5296, invoked by petitioner
corporation, emphasizes that the decision of the CTA to allow petitioner corporation to present evidence
"is applicable pro hac vice or in this occasion only as it is the finding of [the CTA] that petitioner
[corporation] has established a few of the aforementioned material points regarding the possible
existence of the export documents together with the prior and succeeding returns for the quarters
involved, x x x" [Emphasis supplied.] Therefore, the CTA, in the present cases, cannot be bound by its
ruling in CTA Case No. 5296, when these cases do not involve the exact same circumstances that
compelled it to grant the motion of petitioner corporation for re-opening of CTA Case No. 5296.
Finally, assuming for the sake of argument that the non-presentation of the required documents was
due to the fault of the counsel of petitioner corporation, this Court finds that it does not constitute
excusable negligence or mistake which would warrant the re-opening of the cases and/or holding of
new trial.
Under Section 1, Rule 37 of the Revised Rules of Court, the "negligence" must be excusable and
generally imputable to the party because if it is imputable to the counsel, it is binding on the client. To
follow a contrary rule and allow a party to disown his counsel's conduct would render proceedings

indefinite, tentative, and subject to re-opening by the mere subterfuge of replacing the counsel. What
the aggrieved litigant should do is seek administrative sanctions against the erring counsel and not ask
for the reversal of the court's ruling.49
As elucidated by this Court in another case, 50 the general rule is that the client is bound by the action of
his counsel in the conduct of his case and he cannot therefore complain that the result of the litigation
might have been otherwise had his counsel proceeded differently. It has been held time and again that
blunders and mistakes made in the conduct of the proceedings in the trial court as a result of the
ignorance, inexperience or incompetence of counsel do not qualify as a ground for new trial. If such
were to be admitted as valid reasons for re-opening cases, there would never be an end to litigation so
long as a new counsel could be employed to allege and show that the prior counsel had not been
sufficiently diligent, experienced or learned.
Moreover, negligence, to be "excusable," must be one which ordinary diligence and prudence could not
have guarded against.51 Revenue Regulations No. 3-88, which was issued on 15 February 1988, had
been in effect more than two years prior to the filing by petitioner corporation of its earliest application
for refund/credit of input VAT involved herein on 21 August 1990. CTA Circular No. 1-95 was issued only
on 25 January 1995, after petitioner corporation had filed its Petitions before the CTA, but still during
the pendency of the cases of petitioner corporation before the tax court. The counsel of petitioner
corporation does not allege ignorance of the foregoing administrative regulation and tax court circular,
only that he no longer deemed it necessary to present the documents required therein because of the
presentation of alleged unrebutted evidence of the zero-rated sales of petitioner corporation. It was a
judgment call made by the counsel as to which evidence to present in support of his client's cause,
later proved to be unwise, but not necessarily negligent.
Neither is there any merit in the contention of petitioner corporation that the non-presentation of the
required documentary evidence was due to the excusable mistake of its counsel, a ground under
Section 1, Rule 37 of the revised Rules of Court for the grant of a new trial. "Mistake," as it is referred to
in the said rule, must be a mistake of fact, not of law, which relates to the case. 52 In the present case,
the supposed mistake made by the counsel of petitioner corporation is one of law, for it was grounded
on his interpretation and evaluation that Revenue Regulations No. 3-88 and CTA Circular No. 1-95, as
amended, did not apply to his client's cases and that there was no need to comply with the
documentary requirements set forth therein. And although the counsel of petitioner corporation
advocated an erroneous legal position, the effects thereof, which did not amount to a deprivation of his
client's right to be heard, must bind petitioner corporation. The question is not whether petitioner
corporation succeeded in establishing its interests, but whether it had the opportunity to present its
side.53
Besides, litigation is a not a "trial and error" proceeding. A party who moves for a new trial on the
ground of mistake must show that ordinary prudence could not have guarded against it. A new trial is
not a refuge for the obstinate. 54 Ordinary prudence in these cases would have dictated the presentation
of all available evidence that would have supported the claims for refund/credit of input VAT of
petitioner corporation. Without sound legal basis, counsel for petitioner corporation concluded that
Revenue Regulations No. 3-88, and later on, CTA Circular No. 1-95, as amended, did not apply to its
client's claims. The obstinacy of petitioner corporation and its counsel is demonstrated in their failure,
nay, refusal, to comply with the appropriate administrative regulations and tax court circular in
pursuing the claims for refund/credit, now subject of G.R. Nos. 141104 and 148763, even though these
were separately instituted in a span of more than two years. It is also evident in the failure of petitioner
corporation to address the issue and to present additional evidence despite being given the opportunity
to do so by the Court of Appeals. As pointed out by the appellate court, in its Decision, dated 15
September 2000, in CA-G.R. SP No. 46718
x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to file
memoranda discussing, among others, the submission of proof for "its [petitioner's] sales of gold,
copper concentrates, and pyrite to buyers." Nevertheless, the parties, including the petitioner,
failed to address this issue, thereby necessitating the affirmance of the ruling of the Court of Tax
Appeals on this point.55
Summary
Hence, although this Court agreed with the petitioner corporation that the two-year prescriptive period
for the filing of claims for refund/credit of input VAT must be counted from the date of filing of the
quarterly VAT return, and that sales to EPZA-registered enterprises operating within economic
processing zones were effectively zero-rated and were not covered by Revenue Regulations No. 2-88, it
still denies the claims of petitioner corporation for refund of its input VAT on its purchases of capital
goods and effectively zero-rated sales during the second, third, and fourth quarters of 1990 and the
first quarter of 1992, for not being established and substantiated by appropriate and sufficient
evidence. Petitioner corporation is also not entitled to the re-opening of its cases and/or holding of new
trial since the non-presentation of the required documentary evidence before the BIR and the CTA by its
counsel does not constitute excusable negligence or mistake as contemplated in Section 1, Rule 37 of
the revised Rules of Court.
WHEREFORE, premises considered, the instant Petitions for Review are hereby DENIED, and the
Decisions, dated 6 July 1999 and 15 September 2000, of the Court of Appeals in CA-G.R. SP Nos. 47607
and 46718, respectively, are hereby AFFIRMED. Costs against petitioner.
Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, JJ., concur.