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.
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 relief1 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
Macapagal-Arroyo 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 non-impairment 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 all-encompassing 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 slow-moving. 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 VATcovered 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 tax 30 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 dutybound to simply apply the law as it is found.
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.

G.R. No. 157594

March 9, 2010

TOSHIBA
INFORMATION
EQUIPMENT
(PHILS.),
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

INC.,

Petitioner,

In this Petition for Review on Certiorari 1 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 VAT-exempt 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 Answer18
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

2nd Quarter

Total

P416,764.39

P3,685,446.73

P 242,491.45

P154,391.13

P 396,882.58

b. Per this courts further

verification (Annex A)
P189,499.13 P2,300,164.65

P1,852,437.65

P 35,108.00

P1,887,545.65

Amount Refundable

P1,158,016.82

P227,265.26

P1,385,282.08

Amount of claimed input taxes

filed with the DOF One Stop Shop
Center
P3,268,682.34
Less: 1) Input taxes not properly
supported by VAT invoices and
official receipts
a. Per SGVs verification
(Exh. I)

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 VATregistered 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 Resolution28 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 Review29 with the Court of Appeals, docketed as CAG.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
zero-rated, 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 Reconsideration 31 of the aforementioned Decision, anchored on the
following arguments: (a) the CIR never raised as an issue before the CTA that Toshiba was taxexempt 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 VAT-exempt 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 VATexemptions 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 Resolution 43 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 CTAapproved 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 Stipulation 53 of Toshiba and the CIR
was a more recent pleading than the Answer54 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
VAT-exempt 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 VATexempt 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 VATexempt 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. 03298 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. 03298 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 VATexempt 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 PEZAregistered 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 PEZAregistered 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 PEZA-registered 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
zero-rated 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 Q5(1) of RMC No. 42-2003 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
PEZA-registered 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. 74-99, 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 PEZAregistered 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
VAT-exempt 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 4.104-5 62 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.

G.R. No. 153866

February 11, 2005

COMMISSIONER
OF
INTERNAL
REVENUE,
vs.
SEAGATE TECHNOLOGY (PHILIPPINES), respondent.

petitioner,

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 Review 1 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 4.1031 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 twoyear 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 benefits 8 provided for in either PD 66 9 or EO 226.10 It shall,
moreover, enjoy all privileges, benefits, advantages or exemptions under both Republic Act Nos.
(RA) 722711 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.
Comparatively, the same exemption from internal revenue laws and regulations applies if EO
226 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, local taxes
and licenses, and real property taxes.
A privilege available to respondent under the provision in RA 7227 on tax and duty-free
importation of raw materials, capital and equipment -- is, ipso facto, also accorded to the zone
under RA 7916. Furthermore, the latter law -- notwithstanding other existing laws, rules and
regulations to the contrary -- extends to that zone the provision stating that no local or national
taxes shall be imposed therein. No exchange control policy shall be applied; and free markets for
foreign exchange, gold, securities and future shall be allowed and maintained. 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.

In the same vein, respondent benefits under RA 7844 from negotiable tax credits 24 for locallyproduced 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 and exemption from PD
1853.
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 VATregistered 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 self-enforcement 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
taxes40 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 services51 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 rating54 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 VATregistered 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 zone77 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 registered90 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 products100 -- 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 non-exemption 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 laws109 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 7916117 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 incentives120 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
rating140 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 obeyed146 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 nonpioneer 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.

G.R. Nos. 141104 & 148763

June 8, 2007

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
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.
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 "zero-rated 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 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 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, 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 REOPENING 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
Applied For

21 August 1990

2nd
Quarter, P 54,014,722.04
1990

21 November 1990

3rd
Quarter, 75,304,774.77
1990

19 February 1991

4th
Quarter, 43,829,766.10
1990

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

CTA Case No.

Covered

20 July 1992

2nd
Quarter, 4831
1990

9 October 1992

3rd
Quarter, 4859
1990

14 January 1993

4th
Quarter, 4944
1990

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, dated 30 October 1997, dismissed the Petitions mainly on the
ground that the prescriptive periods for filing the same had expired. In a Resolution, 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 CAG.R. SP No. 46718. On 15 September 2000, the Court of Appeals rendered its Decision, 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, 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 ZERORATING 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 VATregistered 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 VAT16 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/ (Application w/ (Case w/ CTA)
BIR)
BIR)

2nd Quarter, 20 July 1990

1990

21 August 1990

3rd Quarter, 18 October 21

1990
1990
1990

20 July 1992

November 9 October 1992

4th Quarter, 20
January 19 February 1991 14
1990
1991
1993

1st
Quarter, 20 April 1992 -1992

January

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 VATregistered taxpayer filed an application for refund with respondent Commissioner within the twoyear 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 zerorate.
"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 zero-rating 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 BOIregistered 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 exportoriented BOI-registered 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 BOI-registered 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
export-oriented 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 valueadded 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 zerorated 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
Total Sales
X
Total

of

Amount

Zero-rated

of

Input

Sale

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% VAToutput 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. 5-87, 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. 2-88, 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 wellsettled 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 non-compliance 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 reopening 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, 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 reopening 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,
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.
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 reopening 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.
As elucidated by this Court in another case, 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. 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. 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.
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. 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.
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.