G.R. No.

172378               January 17, 2011

SILICON PHILIPPINES, INC., (Formerly INTEL PHILIPPINES MANUFACTURING,

DECISION

DEL CASTILLO, J.:

The burden of proving entitlement to a refund lies with the claimant.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the
September 30, 2005 Decision1 and the April 20, 2006 Resolution2 of the Court of Tax Appeals
(CTA) En Banc.

Factual Antecedents

Petitioner Silicon Philippines, Inc., a corporation duly organized and existing under and by virtue of
the laws of the Republic of the Philippines, is engaged in the business of designing, developing,
manufacturing and exporting advance and large-scale integrated circuit components or
"IC’s."3 Petitioner is registered with the Bureau of Internal Revenue (BIR) as a Value Added Tax
(VAT) taxpayer 4 and with the Board of Investments (BOI) as a preferred pioneer enterprise.5

On May 21, 1999, petitioner filed with the respondent Commissioner of Internal Revenue (CIR),
through the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department
of Finance (DOF), an application for credit/refund of unutilized input VAT for the period October 1,
1998 to December 31, 1998 in the amount of ₱31,902,507.50, broken down as follows:

Amount
Tax Paid on Imported/Locally Purchased ₱ 15,170,082.00
Capital Equipment
Total VAT paid on Purchases per Invoices 16,732,425.50
Received During the Period for which
this Application is Filed
Amount of Tax Credit/Refund Applied For ₱ 31,902,507.506

Proceedings before the CTA Division

On December 27, 2000, due to the inaction of the respondent, petitioner filed a Petition for Review
with the CTA Division, docketed as CTA Case No. 6212. Petitioner alleged that for the 4th quarter of
1998, it generated and recorded zero-rated export sales in the amount of ₱3,027,880,818.42, paid to
petitioner in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas;7 and that for the said period, petitioner paid input VAT
in the total amount of ₱31,902,507.50,8 which have not been applied to any output VAT.9

To this, respondent filed an Answer10 raising the following special and affirmative defenses, to wit:

8. The petition states no cause of action as it does not allege the dates when the taxes
sought to be refunded/credited were actually paid;
 9. It is incumbent upon herein petitioner to show that it complied with the provisions of
Section 229 of the Tax Code as amended;

10. Claims for refund are construed strictly against the claimant, the same being in the
nature of exemption from taxes (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA
95; Manila Electric Co. vs. Commissioner of Internal Revenue, 67 SCRA 35);

11. One who claims to be exempt from payment of a particular tax must do so under clear
and unmistakable terms found in the statute (Asiatic Petroleum vs. Llanes, 49 Phil. 466;
Union Garment Co. vs. Court of Tax Appeals, 4 SCRA 304);

12. In an action for refund, the burden is upon the taxpayer to prove that he is entitled
thereto, and failure to sustain the same is fatal to the action for refund. Furthermore, as
pointed out in the case of William Li Yao vs. Collector (L-11875, December 28, 1963),
amounts sought to be recovered or credited should be shown to be taxes which are
erroneously or illegally collected; that is to say, their payment was an independent single act
of voluntary payment of a tax believed to be due and collectible and accepted by the
government, which had therefor become part of the State moneys subject to expenditure and
perhaps already spent or appropriated; and

13. Taxes paid and collected are presumed to have been made in accordance with the law
and regulations, hence not refundable.11

On November 18, 2003, the CTA Division rendered a Decision12 partially granting petitioner’s claim
for refund of unutilized input VAT on capital goods. Out of the amount of ₱15,170,082.00, only
₱9,898,867.00 was allowed to be refunded because training materials, office supplies, posters,
banners, T-shirts, books, and other similar items purchased by petitioner were not considered capital
goods under Section 4.106-1(b) of Revenue Regulations (RR) No. 7-95 (Consolidated Value-Added
Tax Regulations).13 With regard to petitioner’s claim for credit/refund of input VAT attributable to its
zero-rated export sales, the CTA Division denied the same because petitioner failed to present an
Authority to Print (ATP) from the BIR;14 neither did it print on its export sales invoices the ATP and
the word "zero-rated."15 Thus, the CTA Division disposed of the case in this wise:

WHEREFORE, in view of the foregoing the instant petition for review is hereby PARTIALLY
GRANTED. Respondent is ORDERED to ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner
in the reduced amount of P9,898,867.00 representing input VAT on importation of capital goods.
However, the claim for refund of input VAT attributable to petitioner's alleged zero-rated sales in the
amount of P16,732,425.50 is hereby DENIED for lack of merit.

SO ORDERED.16

Not satisfied with the Decision, petitioner moved for reconsideration.17 It claimed that it is not
required to secure an ATP since it has a "Permit to Adopt Computerized Accounting Documents
such as Sales Invoice and Official Receipts" from the BIR.18 Petitioner further argued that because all
its finished products are exported to its mother company, Intel Corporation, a non-resident
corporation and a non-VAT registered entity, the printing of the word "zero-rated" on its export sales
invoices is not necessary.19

On its part, respondent filed a Motion for Partial Reconsideration20 contending that petitioner is not
entitled to a credit/refund of unutilized input VAT on capital goods because it failed to show that the
goods imported/purchased are indeed capital goods as defined in Section 4.106-1 of RR No. 7-95.21
The CTA Division denied both motions in a Resolution22 dated August 10, 2004. It noted that:

[P]etitioner’s request for Permit to Adopt Computerized Accounting Documents such as Sales
Invoice and Official Receipt was approved on August 31, 2001 while the period involved in this case
was October 31, 1998 to December 31, 1998 x x x. While it appears that petitioner was previously
issued a permit by the BIR Makati Branch, such permit was only limited to the use of computerized
books of account x x x. It was only on August 31, 2001 that petitioner was permitted to generate
computerized sales invoices and official receipts [provided that the BIR Permit Number is printed] in
the header of the document x x x.

xxxx

Thus, petitioner’s contention that it is not required to show its BIR permit number on the sales
invoices runs counter to the requirements under the said "Permit." This court also wonders why
petitioner was issuing computer generated sales invoices during the period involved (October 1998
to December 1998) when it did not have an authority or permit. Therefore, we are convinced that
such documents lack probative value and should be treated as inadmissible, incompetent and
immaterial to prove petitioner’s export sales transaction.

xxxx

ACCORDINGLY, the Motion for Reconsideration and the Supplemental Motion for Reconsideration
filed by petitioner as well as the Motion for Partial Reconsideration of respondent are hereby
DENIED for lack of merit. The pronouncement in the assailed decision is REITERATED.

SO ORDERED 23

Ruling of the CTA En Banc

Undaunted, petitioner elevated the case to the CTA En Banc via a Petition for Review,24 docketed as
EB Case No. 23.

On September 30, 2005, the CTA En Banc issued the assailed Decision25 denying the petition for
lack of merit. Pertinent portions of the Decision read:

This Court notes that petitioner raised the same issues which have already been thoroughly
discussed in the assailed Decision, as well as, in the Resolution denying petitioner's Motion for
Partial Reconsideration.

With regard to the first assigned error, this Court reiterates that, the requirement of [printing] the BIR
permit to print on the face of the sales invoices and official receipts is a control mechanism adopted
by the Bureau of Internal Revenue to safeguard the interest of the government.

This requirement is clearly mandated under Section 238 of the 1997 National Internal Revenue
Code, which provides that:

SEC. 238. Printing of Receipts or Sales or Commercial Invoice. – All persons who are engaged in
business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or
commercial invoices before a printer can print the same.
The above mentioned provision seeks to eliminate the use of unregistered and double or multiple
sets of receipts by striking at the very root of the problem — the printer (H. S. de Leon, The National
Internal Revenue Code Annotated, 7th Ed., p. 901). And what better way to prove that the required
permit to print was secured from the Bureau of Internal Revenue than to show or print the same on
the face of the invoices. There can be no other valid proof of compliance with the above provision
than to show the Authority to Print Permit number [printed] on the sales invoices and official receipts.

With regard to petitioner’s failure to print the word "zero-rated" on the face of its export sales
invoices, it must be emphasized that Section 4.108-1 of Revenue Regulations No. 7-95 specifically
requires that all value-added tax registered persons shall, for every sale or lease of goods or
properties or services, issue duly registered invoices which must show the word "zero-rated"
[printed] on the invoices covering zero-rated sales.

It is not enough that petitioner prove[s] that it is entitled to its claim for refund by way of substantial
evidence. Well settled in our jurisprudence [is] that tax refunds are in the nature of tax exemptions
and as such, they are regarded as in derogation of sovereign authority (Commissioner of Internal
Revenue vs. Ledesma, 31 SCRA 95). Thus, tax refunds are construed in strictissimi juris against the
person or entity claiming the same (Commissioner of Internal Revenue vs. Procter & Gamble
Philippines Manufacturing Corporation, 204 SCRA 377; Commissioner of Internal Revenue vs.
Tokyo Shipping Co., Ltd., 244 SCRA 332).

In this case, not only should petitioner establish that it is entitled to the claim but it must most
importantly show proof of compliance with the substantiation requirements as mandated by law or
regulations.

The rest of the assigned errors pertain to the alleged errors of the First Division: in finding that the
petitioner failed to comply with the substantiation requirements provided by law in proving its claim
for refund; in reducing the amount of petitioner’s tax credit for input vat on importation of capital
goods; and in denying petitioner’s claim for refund of input vat attributable to petitioner’s zero-rated
sales.

It is petitioner’s contention that it has clearly established its right to the tax credit or refund by way of
substantial evidence in the form of material and documentary evidence and it would be improper to
set aside with haste the claimed input VAT on capital goods expended for training materials, office
supplies, posters, banners, t-shirts, books and the like because Revenue Regulations No. 7-95
defines capital goods as to include even those goods which are indirectly used in the production or
sale of taxable goods or services.

Capital goods or properties, as defined under Section 4.106-1(b) of Revenue Regulations No. 7-95,
refer "to goods or properties with estimated useful life greater than one year and which are treated
as depreciable assets under Section 29 (f), used directly or indirectly in the production or sale of
taxable goods or services."

Considering that the items (training materials, office supplies, posters, banners, t-shirts, books and
the like) purchased by petitioner as reflected in the summary were not duly proven to have been
used, directly or indirectly[,] in the production or sale of taxable goods or services, the same cannot
be considered as capital goods as defined above[. Consequently,] the same may not x x x then [be]
claimed as such.

WHEREFORE, in view of the foregoing, this instant Petition for Review is hereby DENIED DUE
COURSE and hereby DISMISSED for lack of merit. This Court's Decision of November 18, 2003 and
Resolution of August 10, 2004 are hereby AFFIRMED in all respects.
SO ORDERED.26

Petitioner sought reconsideration of the assailed Decision but the CTA En Banc denied the
Motion27 in a Resolution28 dated April 20, 2006.

Issues

Hence, the instant Petition raising the following issues for resolution:

(1) whether the CTA En Banc erred in denying petitioner’s claim for credit/ refund of input
VAT attributable to its zero-rated sales in the amount of ₱16,732,425.00 due to its failure:

(a) to show that it secured an ATP from the BIR and to indicate the same in its export
sales invoices; and

(b) to print the word "zero-rated" in its export sales invoices.29

(2) whether the CTA En Banc erred in ruling that only the amount of ₱9,898,867.00 can be
classified as input VAT paid on capital goods.30

Petitioner’s Arguments

Petitioner posits that the denial by the CTA En Banc of its claim for refund of input VAT attributable
to its zero-rated sales has no legal basis because the printing of the ATP and the word "zero-rated"
on the export sales invoices are not required under Sections 113 and 237 of the National Internal
Revenue Code (NIRC).31 And since there is no law requiring the ATP and the word "zero-rated" to be
indicated on the sales invoices,32 the absence of such information in the sales invoices should not
invalidate the petition33 nor result in the outright denial of a claim for tax credit/refund.34 To support its
position, petitioner cites Intel Technology Philippines, Inc. v. Commissioner of Internal
Revenue,35 where Intel’s failure to print the ATP on the sales invoices or receipts did not result in the
outright denial of its claim for tax credit/refund.36 Although the cited case only dealt with the printing
of the ATP, petitioner submits that the reasoning in that case should also apply to the printing of the
word "zero-rated."37 Hence, failure to print of the word "zero-rated" on the sales invoices should not
result in the denial of a claim.

As to the claim for refund of input VAT on capital goods, petitioner insists that it has sufficiently
proven through testimonial and documentary evidence that all the goods purchased were used in the
production and manufacture of its finished products which were sold and exported.38

Respondent’s Arguments

To refute petitioner’s arguments, respondent asserts that the printing of the ATP on the export sales
invoices, which serves as a control mechanism for the BIR, is mandated by Section 238 of the
NIRC;39 while the printing of the word "zero-rated" on the export sales invoices, which seeks to
prevent purchasers of zero-rated sales or services from claiming non-existent input VAT
credit/refund,40 is required under RR No. 7-95, promulgated pursuant to Section 244 of the
NIRC.41 With regard to the unutilized input VAT on capital goods, respondent counters that petitioner
failed to show that the goods it purchased/imported are capital goods as defined in Section 4.106-1
of RR No. 7-95. 42

Our Ruling
The petition is bereft of merit.

Before us are two types of input VAT credits. One is a credit/refund of input VAT attributable to zero-
rated sales under Section 112 (A) of the NIRC, and the other is a credit/refund of input VAT on
capital goods pursuant to Section 112 (B) of the same Code.

Credit/refund of input VAT on zero-rated sales

In a claim for credit/refund of input VAT attributable to zero-rated sales, Section 112 (A)43 of the
NIRC lays down four requisites, to wit:

1) the taxpayer must be VAT-registered;

2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated;

3) the claim must be filed within two years after the close of the taxable quarter when such
sales were made; and

4) the creditable input tax due or paid must be attributable to such sales, except the
transitional input tax, to the extent that such input tax has not been applied against the
output tax.

To prove that it is engaged in zero-rated sales, petitioner presented export sales invoices,
certifications of inward remittance, export declarations, and airway bills of lading for the fourth
quarter of 1998. The CTA Division, however, found the export sales invoices of no probative value in
establishing petitioner’s zero-rated sales for the purpose of claiming credit/refund of input VAT
because petitioner failed to show that it has an ATP from the BIR and to indicate the ATP and the
word "zero-rated" in its export sales invoices.44 The CTA Division cited as basis Sections
113,45 23746 and 23847 of the NIRC, in relation to Section 4.108-1 of RR No. 7-95.48

We partly agree with the CTA.

Printing the ATP on the invoices or receipts is not required

It has been settled in Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue 49 that
the ATP need not be reflected or indicated in the invoices or receipts because there is no law or
regulation requiring it.50 Thus, in the absence of such law or regulation, failure to print the ATP on the
invoices or receipts should not result in the outright denial of a claim or the invalidation of the
invoices or receipts for purposes of claiming a refund.51

ATP must be secured from the BIR

But while there is no law requiring the ATP to be printed on the invoices or receipts, Section 238 of
the NIRC expressly requires persons engaged in business to secure an ATP from the BIR prior to
printing invoices or receipts. Failure to do so makes the person liable under Section 26452 of the
NIRC.

This brings us to the question of whether a claimant for unutilized input VAT on zero-rated sales is
required to present proof that it has secured an ATP from the BIR prior to the printing of its invoices
or receipts.
We rule in the affirmative.

Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated or
effectively zero-rated. To prove this, duly registered invoices or receipts evidencing zero-rated sales
must be presented. However, since the ATP is not indicated in the invoices or receipts, the only way
to verify whether the invoices or receipts are duly registered is by requiring the claimant to present
its ATP from the BIR. Without this proof, the invoices or receipts would have no probative value for
the purpose of refund. In the case of Intel, we emphasized that:

It bears reiterating that while the pertinent provisions of the Tax Code and the rules and regulations
implementing them require entities engaged in business to secure a BIR authority to print invoices or
receipts and to issue duly registered invoices or receipts, it is not specifically required that the BIR
authority to print be reflected or indicated therein. Indeed, what is important with respect to the BIR
authority to print is that it has been secured or obtained by the taxpayer, and that invoices or receipts
are duly registered.53 (Emphasis supplied)

Failure to print the word "zero-rated" on the sales invoices is fatal to a claim for refund of input VAT 1awphi1

Similarly, failure to print the word "zero-rated" on the sales invoices or receipts is fatal to a claim for
credit/refund of input VAT on zero-rated sales.

In Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita Business

All told, the non-presentation of the ATP and the failure to indicate the word "zero-rated" in the
invoices or receipts are fatal to a claim for credit/refund of input VAT on zero-rated sales. The failure
to indicate the ATP in the sales invoices or receipts, on the other hand, is not. In this case, petitioner
failed to present its ATP and to print the word "zero-rated" on its export sales invoices. Thus, we find
no error on the part of the CTA in denying outright petitioner’s claim for credit/refund of input VAT
attributable to its zero-rated sales.

Credit/refund of input VAT on capital goods

Capital goods are defined under Section 4.106-1(b) of RR No. 7-95

To claim a refund of input VAT on capital goods, Section 112 (B)56 of the NIRC requires that:

1. the claimant must be a VAT registered person;

2. the input taxes claimed must have been paid on capital goods;

3. the input taxes must not have been applied against any output tax liability; and

4. the administrative claim for refund must have been filed within two (2) years after the close
of the taxable quarter when the importation or purchase was made.

Corollarily, Section 4.106-1 (b) of RR No. 7-95 defines capital goods as follows:
"Capital goods or properties" refer to goods or properties with estimated useful life greater that one
year and which are treated as depreciable assets under Section 29 (f),57 used directly or indirectly in
the production or sale of taxable goods or services.

Based on the foregoing definition, we find no reason to deviate from the findings of the CTA that
training materials, office supplies, posters, banners, T-shirts, books, and the other similar items
reflected in petitioner’s Summary of Importation of Goods are not capital goods. A reduction in the
refundable input VAT on capital goods from ₱15,170,082.00 to ₱9,898,867.00 is therefore in order.

WHEREFORE, the Petition is hereby DENIED. The assailed Decision dated September 30, 2005
and the Resolution dated April 20, 2006 of the Court of Tax Appeals En Banc are hereby
AFFIRMED.

SO ORDERED.