tax cases2

8/10/2019 Tax Cases2

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Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. 193007 July 19, 2011

RENATO V. DIAZ a! AURORA MA. ". TIM#O$,Petitioners,vs.

T%E SECRETAR& O" "INANCE a! T%E COMMISSIONER O" INTERNA$ REVENUE,Respondents.

D E C I S I N

A#AD,J.:

Ma! toll fees collected b! toll"a! operators be sub#ected to value$ added ta%&

'he (acts and the Case

Petitioners Renato ). Dia* and Aurora Ma. (. 'i+bol petitioners- led this petition for declarator! relief/

assailin0 the validit! of the i+pendin0 i+position of value$added ta% )A'- b! the Bureau of Internal

Revenue BIR- on the collections of toll"a! operators.

Petitioners clai+ that, since the )A' "ould result in increased toll fees, the! have an interest as re0ular

users of toll"a!s in stoppin0 the BIR action. Additionall!, Dia* clai+s that he sponsored the approval of

Republic Act 11/2 the /334 E%panded )A' 5a" or E)A' 5a"- and Republic Act 6474 the /331 National

Internal Revenue Code or the NIRC- at the 8ouse of Representatives. 'i+bol, on the other hand, clai+s

that she served as Assistant Secretar! of the Depart+ent of 'rade and Industr! and consultant of the

'oll Re0ulator! Board 'RB- in the past ad+inistration.

Petitioners alle0e that the BIR atte+pted durin0 the ad+inistration of President 9loria Macapa0al$

Arro!o to i+pose )A' on toll fees. 'he i+position "as deferred, ho"ever, in vie" of the consistent

opposition of Dia* and other sectors to such +ove. But, upon President Beni0no C. A:uino III;s

assu+ption of osale of services> that are sub#ect to )A'? that a toll fee is a >user;s ta%,> not a

sale of services? that to i+pose )A' on toll fees "ould a+ount to a ta% on public service? and that, since

)A' "as never factored into the for+ula for co+putin0 toll fees, its i+position "ould violate the non$

i+pair+ent clause of the constitution.

n Au0ust /@, 7=/= the Court issued a te+porar! restrainin0 order 'R-, en#oinin0 the

i+ple+entation of the )A'. 'he Court re:uired the 0overn+ent, represented b! respondents Cesar ).

Purisi+a, Secretar! of the Depart+ent of (inance, and i+ S. acinto$8enares, Co++issioner of Internal

Revenue, to co++ent on the petition "ithin /= da!s fro+ notice. 7 5ater, the Court issued another

resolution treatin0 the petition as one for prohibition.@

n Au0ust 7@, 7=/= the


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(inall!, the 0overn+ent contends that the non$inclusion of )A' in the para+etric for+ula for co+putin0

toll rates cannot e%e+pt toll"a! operators fro+ )A'. In an! event, it cannot be clai+ed that the ri0hts

of toll"a! operators to a reasonable rate of return "ill be i+paired b! the )A' since this is i+posed on

top of the toll rate. (urther, the i+position of )A' on toll fees "ould have ver! +ini+al eect on

+otorists usin0 the toll"a!s.

In their repl!2to the 0overn+ent;s co++ent, petitioners point out that toll"a! operators cannot be

re0arded as franchise 0rantees under the NIRC since the! do not hold le0islative franchises. (urther,

the BIR intends to collect the )A' b! roundin0 o the toll rate and puttin0 an! e%cess collection in an

escro" account. But this "ould be ille0al since onl! the Con0ress can +odif! )A' rates and authori*e itsdisburse+ent. (inall!, BIR Revenue Me+orandu+ Circular 2@$7=/= BIR RMC 2@$7=/=-, "hich directs

toll co+panies to record an accu+ulated input )A' of *ero balance in their boos as of Au0ust /2,

7=/=, contravenes Section /// of the NIRC "hich 0rants entities that rst beco+e liable to )A' a

transitional input ta% credit of 7F on be0innin0 inventor!. (or this reason, the )A' on toll fees cannot be

i+ple+ented.

'he Issues Presented

'he case presents t"o procedural issuesG

/. Hhether or not the Court +a! treat the petition for declarator! relief as one for prohibition?

and

7. Hhether or not petitioners Dia* and 'i+bol have le0al standin0 to le the action.

'he case also presents t"o substantive issuesG

/. Hhether or not the 0overn+ent is unla"full! e%pandin0 )A' covera0e b! includin0 toll"a!

operators and toll"a! operations in the ter+s >franchise 0rantees> and >sale of services> under

Section /=6 of the Code? and

7. Hhether or not the i+position of )A' on toll"a! operators a- a+ounts to a ta% on ta% and not

a ta% on services? b- "ill i+pair the toll"a! operators; ri0ht to a reasonable return of invest+ent

under their 'As? and c- is not ad+inistrativel! feasible and cannot be i+ple+ented.

'he Court;s Rulin0s

A. n the Procedural IssuesG

n Au0ust 74, 7=/= the Court issued a resolution, treatin0 the petition as one for prohibition rather

than one for declarator! relief, the characteri*ation that petitioners Dia* and 'i+bol 0ave their action.

'he 0overn+ent has sou0ht reconsideration of the Court;s resolution,1 ho"ever, ar0uin0 that

petitioners; alle0ations clearl! +ade out a case for declarator! relief, an action over "hich the Court

has no ori0inal #urisdiction. 'he 0overn+ent adds, +oreover, that the petition does not +eet the

re:uire+ents of Rule 2 for actions for prohibition since the BIR did not e%ercise #udicial, :uasi$#udicial,

or +inisterial functions "hen it sou0ht to i+pose )A' on toll fees. Besides, petitioners Dia* and 'i+bol

has a plain, speed!, and ade:uate re+ed! in the ordinar! course of la" a0ainst the BIR action in the

for+ of an appeal to the Secretar! of (inance.

But there are precedents for treatin0 a petition for declarator! relief as one for prohibition if the case

has far$reachin0 i+plications and raises :uestions that need to be resolved for the public 0ood. 6'he

Court has also held that a petition for prohibition is a proper re+ed! to prohibit or nullif! acts ofe%ecutive o


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ni0ht+are "ith no solution. Conse:uentl!, it is not onl! the ri0ht, but the dut! of the Court to tae

co0ni*ance of and resolve the issues that the petition raises.

Althou0h the petition does not strictl! co+pl! "ith the re:uire+ents of Rule 2, the Court has a+ple

po"er to "aive such technical re:uire+ents "hen the le0al :uestions to be resolved are of 0reat

i+portance to the public. 'he sa+e +a! be said of the re:uire+ent of locus standi "hich is a +ere

procedural re:uisite./=

B. n the Substantive IssuesG

ne. 'he relevant la" in this case is Section /=6 of the NIRC, as a+ended. )A' is levied, assessed, and

collected, accordin0 to Section /=6, on the 0ross receipts derived fro+ the sale or e%chan0e of services

as "ell as fro+ the use or lease of properties. 'he third para0raph of Section /=6 denes >sale or

e%chan0e of services> as follo"sG

'he phrase sale or e%chan0e of services; +eans the perfor+ance of all inds of services in the

Philippines for others for a fee, re+uneration or consideration, includin0 those perfor+ed or rendered

b! construction and service contractors? stoc, real estate, co++ercial, custo+s and i++i0ration

broers? lessors of propert!, "hether personal or real? "arehousin0 services? lessors or distributors of

cine+ato0raphic l+s? persons en0a0ed in +illin0, processin0, +anufacturin0 or repacin0 0oods forothers? proprietors, operators or eepers of hotels, +otels, resthouses, pension houses, inns, resorts?

proprietors or operators of restaurants, refresh+ent parlors, cafes and other eatin0 places, includin0

clubs and caterers? dealers in securities? lendin0 investors? transportation contractors on their transport

of 0oods or car0oes, includin0 persons "ho transport 0oods or car0oes for hire and other do+estic

co++on carriers b! land relative to their transport of 0oods or car0oes? co++on carriers b! air and sea

relative to their transport of passen0ers, 0oods or car0oes fro+ one place in the Philippines to another

place in the Philippines? sales of electricit! b! 0eneration co+panies, trans+ission, and distribution

co+panies? services of franchise 0rantees of electric utilities, telephone and tele0raph, radio and

television broadcastin0 and all other franchise 0rantees e%cept those under Section //3 of this Code

and non$life insurance co+panies e%cept their crop insurances-, includin0 suret!, delit!, inde+nit!

and bondin0 co+panies? and si+ilar services re0ardless of "hether or not the perfor+ance thereof

calls for the e%ercise or use of the ph!sical or +ental faculties. Jnderscorin0 supplied-

It is plain fro+ the above that the la" i+poses )A' on >all inds of services> rendered in the Philippines

for a fee, includin0 those specied in the list. 'he enu+eration of aected services is not e%clusive.//B!

:ualif!in0 >services> "ith the "ords >all inds,> Con0ress has 0iven the ter+ >services> an all$

enco+passin0 +eanin0. 'he listin0 of specic services are intended to illustrate ho" pervasive and

broad is the )A';s reach rather than establish concrete li+its to its application. 'hus, ever! activit! that

can be i+a0ined as a for+ of >service> rendered for a fee should be dee+ed included unless so+e

provision of la" especiall! e%cludes it.

No", do toll"a! operators render services for a fee& Presidential Decree P.D.- ///7 or the 'oll

peration Decree establishes the le0al basis for the services that toll"a! operators render. Essentiall!,

toll"a! operators construct, +aintain, and operate e%press"a!s, also called toll"a!s, at the operators;

e%pense. 'oll"a!s serve as alternatives to re0ular public hi0h"a!s that +eander throu0h populated

areas and branch out to local roads. 'ra


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4. Proprietors, operators or eepers of hotels, +otels, resthouses, pension houses, inns, resorts?

. 5endin0 investors for use of +one!-?

2. 'ransportation contractors on their transport of 0oods or car0oes, includin0 persons "ho

transport 0oods or car0oes for hire and other do+estic co++on carriers b! land relative to their

transport of 0oods or car0oes? and

1. Co++on carriers b! air and sea relative to their transport of passen0ers, 0oods or car0oes

fro+ one place in the Philippines to another place in the Philippines.

It does not help petitioners; cause that Section /=6 sub#ects to )A' >all inds of services> rendered for a

fee >re0ardless of "hether or not the perfor+ance thereof calls for the e%ercise or use of the ph!sical or

+ental faculties.> 'his +eans that >services> to be sub#ect to )A' need not fall under the traditional

concept of services, the personal or professional inds that re:uire the use of hu+an no"led0e and

sills.

And not onl! do toll"a! operators co+e under the broad ter+ >all inds of services,> the! also co+e

under the specic class described in Section /=6 as >all other franchise 0rantees> "ho are sub#ect to

)A', >e%cept those under Section //3 of this Code.>

'oll"a! operators are franchise 0rantees and the! do not belon0 to e%ceptions the lo"$inco+e radio

andKor television broadcastin0 co+panies "ith 0ross annual inco+es of less than P/= +illion and 0as

and "ater utilities- that Section //3/@spares fro+ the pa!+ent of )A'. 'he "ord >franchise> broadl!

covers 0overn+ent 0rants of a special ri0ht to do an act or series of acts of public concern./4

Petitioners of course contend that toll"a! operators cannot be considered >franchise 0rantees> under

Section /=6 since the! do not hold le0islative franchises. But nothin0 in Section /=6 indicates that the

>franchise 0rantees> it speas of are those "ho hold le0islative franchises. Petitioners 0ive no reason,

and the Court cannot sur+ise an!, for +ain0 a distinction bet"een franchises 0ranted b! Con0ress

and franchises 0ranted b! so+e other 0overn+ent a0enc!. 'he latter, properl! constituted, +a! 0rantfranchises. Indeed, franchises conferred or 0ranted b! local authorities, as a0ents of the state,

constitute as +uch a le0islative franchise as thou0h the 0rant had been +ade b! Con0ress itself./'he

ter+ >franchise> has been broadl! construed as referrin0, not onl! to authori*ations that Con0ress

directl! issues in the for+ of a special la", but also to those 0ranted b! ad+inistrative a0encies to

"hich the po"er to 0rant franchises has been dele0ated b! Con0ress. /2

'oll"a! operators are, o"in0 to the nature and ob#ect of their business, >franchise 0rantees.> 'he

construction, operation, and +aintenance of toll facilities on public i+prove+ents are activities of

public conse:uence that necessaril! re:uire a special 0rant of authorit! fro+ the state. Indeed,

Con0ress 0ranted special franchise for the operation of toll"a!s to the Philippine National ConstructionCo+pan!, the for+er toll"a! concessionaire for the North and South 5u*on E%press"a!s. Apart fro+

Con0ress, toll"a! franchises +a! also be 0ranted b! the 'RB, pursuant to the e%ercise of its dele0ated

po"ers under P.D. ///7./1'he franchise in this case is evidenced b! a >'oll peration Certicate.>/6

Petitioners contend that the public nature of the services rendered b! toll"a! operators e%cludes such

services fro+ the ter+ >sale of services> under Section /=6 of the Code. But, a0ain, nothin0 in Section

/=6 supports this contention. 'he reverse is true. In specicall! includin0 b! "a! of e%a+ple electric

utilities, telephone, tele0raph, and broadcastin0 co+panies in its list of )A'$covered businesses, Section

/=6 opens other co+panies renderin0 public service for a fee to the i+position of )A'. Businesses of a

public nature such as public utilities and the collection of tolls or char0es for its use or service is a

franchise./3

Nor can petitioners cite as bindin0 on the Court state+ents +ade b! certain la"+aers in the course of

con0ressional deliberations of the "ould$be la". As the Court said in South African Air"a!s v.

Co++issioner of Internal Revenue,7= >state+ents +ade b! individual +e+bers of Con0ress in the

consideration of a bill do not necessaril! reLect the sense of that bod! and are, conse:uentl!, not

controllin0 in the interpretation of la".> 'he con0ressional "ill is ulti+atel! deter+ined b! the lan0ua0e

of the la" that the la"+aers voted on. Conse:uentl!, the +eanin0 and intention of the la" +ust rst

be sou0ht >in the "ords of the statute itself, read and considered in their natural, ordinar!, co++onl!
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accepted and +ost obvious si0nications, accordin0 to 0ood and approved usa0e and "ithout resortin0

to forced or subtle construction.>

'"o. Petitioners ar0ue that a toll fee is a >user;s ta%> and to i+pose )A' on toll fees is tanta+ount to

ta%in0 a ta%.7/ Actuall!, petitioners base this ar0u+ent on the follo"in0 discussion in Manila

International Airport Authorit! MIAA- v. Court of AppealsG77

No one can dispute that properties of public do+inion +entioned in Article 47= of the Civil Code, lie

>roads, canals, rivers, torrents, ports and brid0es constructed b! the State,> are o"ned b! the State.

'he ter+ >ports> includes seaports and airports. 'he MIAA Airport 5ands and Buildin0s constitute a>port> constructed b! the State. Jnder Article 47= of the Civil Code, the MIAA Airport 5ands and

Buildin0s are properties of public do+inion and thus o"ned b! the State or the Republic of the

Philippines.

% % % 'he operation b! the 0overn+ent of a toll"a! does not chan0e the character of the road as one

for public use. So+eone +ust pa! for the +aintenance of the road, either the public indirectl! throu0h

the ta%es the! pa! the 0overn+ent, or onl! those a+on0 the public "ho actuall! use the road throu0h

the toll fees the! pa! upon usin0 the road. 'he toll"a! s!ste+ is even a +ore e


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operation of the toll"a!s, as "ell as to assure the+ a reasonable +ar0in of inco+e. Althou0h toll fees

are char0ed for the use of public facilities, therefore, the! are not 0overn+ent e%actions that can be

properl! treated as a ta%. 'a%es +a! be i+posed onl! b! the 0overn+ent under its soverei0n authorit!,

toll fees +a! be de+anded b! either the 0overn+ent or private individuals or entities, as an attribute

of o"nership.76

Parentheticall!, )A' on toll"a! operations cannot be dee+ed a ta% on ta% due to the nature of )A' as

an indirect ta%. In indirect ta%ation, a distinction is +ade bet"een the liabilit! for the ta% and burden of

the ta%. 'he seller "ho is liable for the )A' +a! shift or pass on the a+ount of )A' it paid on 0oods,

properties or services to the bu!er. In such a case, "hat is transferred is not the seller;s liabilit! but+erel! the burden of the )A'.73

'hus, the seller re+ains directl! and le0all! liable for pa!+ent of the )A', but the bu!er bears its

burden since the a+ount of )A' paid b! the for+er is added to the sellin0 price. nce shifted, the )A'

ceases to be a ta%@=and si+pl! beco+es part of the cost that the bu!er +ust pa! in order to purchase

the 0ood, propert! or service.

Conse:uentl!, )A' on toll"a! operations is not reall! a ta% on the toll"a! user, but on the toll"a!

operator. Jnder Section /= of the Code, @/)A' is i+posed on an! person "ho, in the course of trade or

business, sells or renders services for a fee. In other "ords, the seller of services, "ho in this case is thetoll"a! operator, is the person liable for )A'. 'he latter +erel! shifts the burden of )A' to the toll"a!

user as part of the toll fees.

(or this reason, )A' on toll"a! operations cannot be a ta% on ta% even if toll fees "ere dee+ed as a

>user;s ta%.> )A' is assessed a0ainst the toll"a! operator;s 0ross receipts and not necessaril! on the

toll fees. Althou0h the toll"a! operator +a! shift the )A' burden to the toll"a! user, it "ill not +ae

the latter directl! liable for the )A'. 'he shifted )A' burden si+pl! beco+es part of the toll fees that

one has to pa! in order to use the toll"a!s.@7

'hree. Petitioner 'i+bol has no personalit! to invoe the non$i+pair+ent of contract clause on behalf of

private investors in the toll"a! pro#ects. She "ill neither be pre#udiced b! nor be aected b! thealle0ed di+inution in return of invest+ents that +a! result fro+ the )A' i+position. She has no interest

at all in the prots to be earned under the 'As. 'he interest in and ri0ht to recover invest+ents solel!

belon0s to the private toll"a! investors.

Besides, her alle0ation that the private investors; rate of recover! "ill be adversel! aected b!

i+posin0 )A' on toll"a! operations is purel! speculative. E:uall! presu+ptuous is her assertion that a

stipulation in the 'As no"n as the Material Adverse 9rantor Action "ill be activated if )A' is thus

i+posed. 'he Court cannot rule on +atters that are +anifestl! con#ectural. Neither can it prohibit the

State fro+ e%ercisin0 its soverei0n ta%in0 po"er based on uncertain, prophetic 0rounds.

(our. (inall!, petitioners assert that the substantiation re:uire+ents for clai+in0 input )A' +ae the

)A' on toll"a! operations i+practical and incapable of i+ple+entation. 'he! cite the fact that, in order

to clai+ input )A', the na+e, address and ta% identication nu+ber of the toll"a! user +ust be

indicated in the )A' receipt or invoice. 'he +anner b! "hich the BIR intends to i+ple+ent the )A' b!

roundin0 o the toll rate and puttin0 an! e%cess collection in an escro" account is also ille0al, "hile

the alternative of 0ivin0 >chan0e> to thousands of +otorists in order to +eet the e%act toll rate "ould

be a lo0istical ni0ht+are. 'hus, accordin0 to the+, the )A' on toll"a! operations is not ad+inistrativel!

feasible.@@

Ad+inistrative feasibilit! is one of the canons of a sound ta% s!ste+. It si+pl! +eans that the ta%

s!ste+ should be capable of bein0 eectivel! ad+inistered and enforced "ith the least inconvenience

to the ta%pa!er. Non$observance of the canon, ho"ever, "ill not render a ta% i+position invalid >e%cept

to the e%tent that specic constitutional or statutor! li+itations are i+paired.>@4 'hus, even if the

i+position of )A' on toll"a! operations +a! see+ burdenso+e to i+ple+ent, it is not necessaril!

invalid unless so+e aspect of it is sho"n to violate an! la" or the Constitution.

8ere, it re+ains to be seen ho" the ta%in0 authorit! "ill actuall! i+ple+ent the )A' on toll"a!

operations. An! declaration b! the Court that the +anner of its i+ple+entation is ille0al or

unconstitutional "ould be pre+ature. Althou0h the transcript of the Au0ust /7, 7=/= Senate hearin0

provides so+e clue as to ho" the BIR intends to 0o about it, @the facts pertainin0 to the +atter are not
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Republic of the PhilippinesSUPREME COURT

Manila(IRS' DI)ISING.R. No. 1'7'9( Ma)*+ 9, 2010TOS%I#A IN"ORMATION EUIPMENT -P%I$S., INC.,Petitioner,vs.

COMMISSIONER O" INTERNA$ REVENUE,Respondent.D E C I S I N$EONARDO/DE CASTRO,J.:In this Petition for Revie" on Certiorari/ under Rule 4 of the Rules of Court, petitioner 'oshibaInfor+ation E:uip+ent Philippines-, Inc. 'oshiba- sees the reversal and settin0 aside of /- theDecision7dated Au0ust 73, 7==7 of the Court of Appeals in CA$9.R. SP No. 2@=41, "hich found that

'oshiba "as not entitled to the creditKrefund of its unutili*ed input )alue$Added 'a% )A'- pa!+entsattributable to its e%port sales, because it "as a ta%$e%e+pt entit! and its e%port sales "ere )A'$e%e+pt transactions? and 7- the Resolution@dated (ebruar! /3, 7==@ of the appellate court in thesa+e case, "hich denied the Motion for Reconsideration of 'oshiba. 'he herein assailed #ud0+ent ofthe Court of Appeals reversed and set aside the Decision4dated ctober /2, 7=== of the Court of 'a%Appeals C'A- in C'A Case No. 127 0rantin0 the clai+ for creditKrefund of 'oshiba in the a+ount of

P/,@6,767.=6.'oshiba is a do+estic corporation principall! en0a0ed in the business of +anufacturin0 and e%portin0of electric +achiner!, e:uip+ent s!ste+s, accessories, parts, co+ponents, +aterials and 0oods of allinds, includin0 those relatin0 to o


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6. In an action for ta% refund, the burden is on the ta%pa!er to establish its ri0ht to refund, andfailure to sustain the burden is fatal to the clai+ for refund?3. It is incu+bent upon 'oshibaQ to sho" that it has co+plied "ith the provisions of Section 7=4in relation to Section 773 of the 'a% Code?/=. Hell$established is the rule that clai+s for refundKta% credit are construed in strictissimi jurisa0ainst the ta%pa!er as it partaes the nature of e%e+ption fro+ ta%./3

Jpon bein0 advised b! the C'A,7='oshiba and the CIR led a oint Stipulation of (acts and Issues,7/

"herein the opposin0 parties >a0reed and ad+itted> that /. 'oshibaQ is a dul! re0istered value$added ta% entit! in accordance "ith Section /=1 of the 'a%Code, as a+ended.

7. 'oshibaQ is sub#ect to *ero percent =F- value$added ta% on its e%port sales in accordance"ith then Section /==a-7-A- of the 'a% Code, as a+ended.@. 'oshibaQ led its :uarterl! )A' returns for the rst t"o :uarters of /331 "ithin the le0all!prescribed period.% % % %1. 'oshibaQ is sub#ect to *ero percent =F- value$added ta% on its e%port sales.6. 'oshibaQ has dul! led the instant Petition for Revie" "ithin the t"o$!ear prescriptive periodprescribed b! then Section 7@= of the 'a% Code.77

In the sa+e pleadin0, 'oshiba and the CIR #ointl! sub+itted the follo"in0 issues for deter+ination b!the C'A Hhether or not 'oshibaQ has incurred input ta%es in the a+ount of P@,61,/@3.2 for the period

anuar! / to une @=, /331 "hich are directl! attributable to its e%port sales.Q

Hhether or not the input ta%es incurred b! 'oshibaQ for the period anuar! / to une @=, /331 have notbeen carried over to the succeedin0 :uarters.QHhether or not input ta%es incurred b! 'oshibaQ for the rst t"o :uarters of /331 have not been oseta0ainst an! output ta%.QHhether or not input ta%es incurred b! 'oshibaQ for the rst t"o :uarters of /331 are properl!substantiated b! o


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SEC'IN 74. E%e+ption fro+ 'a%es Jnder the National Internal Revenue Code. An! provision ofe%istin0 la"s, rules and re0ulations to the contrar! not"ithstandin0, no ta%es, local and national, shallbe i+posed on business establish+ents operatin0 "ithin the ECONE. In lieu of pa!in0 ta%es, vepercent F- of the 0ross inco+e earned b! all businesses and enterprises "ithin the ECONE shallbe re+itted to the national 0overn+ent. % % %.Section /=@:- of the 'a% Code of /311, as a+endedSec. /=@. E%e+pt transactions. 'he follo"in0 shall be e%e+pt fro+ the value$added ta%G% % % %:- 'ransactions "hich are e%e+pt under special la"s, e%cept those 0ranted under Presidential DecreeNos. 22, 73, 317, /43/, and /3=, and non$electric cooperatives under Republic Act No. 23@6, or

international a0ree+ents to "hich the Philippines is a si0nator!.Section 4./=@$/ of Revenue Re0ulations No. 1$3SEC. 4./=@$/. E%e+ptions. A- In 0eneral. An e%e+ption +eans that the sale of 0oods or propertiesandKor services and the use or lease of properties is not sub#ect to )A' output ta%- and the seller is notallo"ed an! ta% credit on )A' input ta%- previousl! paid.

'he person +ain0 the e%e+pt sale of 0oods, properties or services shall not bill an! output ta% to hiscusto+ers because the said transaction is not sub#ect to )A'. n the other hand, a )A'$re0isteredpurchaser of )A'$e%e+pt 0oods, properties or services "hich are e%e+pt fro+ )A' is not entitled to an!input ta% on such purchase despite the issuance of a )A' invoice or receipt.

'he CIR contended that under Section 74 of Republic Act No. 13/2, a special la", all businesses andestablish+ents "ithin the ECONE "ere to re+it to the 0overn+ent ve percent F- of their 0rossinco+e earned "ithin the *one, in lieu of all ta%es, includin0 )A'. 'his placed 'oshiba "ithin the a+bit

of Section /=@:- of the 'a% Code of /311, as a+ended, "hich e%e+pted fro+ )A' the transactions that"ere e%e+pted under special la"s. (ollo"in0 Section 4./=@$/A- of Revenue Re0ulations No. 1$3, the)A'$e%e+ption of 'oshiba +eant that its sale of 0oods "as not sub#ect to output )A' and 'oshiba asseller "as not allo"ed an! ta% credit on the input )A' it had previousl! paid.n anuar! /1, 7==/, the C'A issued a Resolution76den!in0 both Motions for Reconsideration of 'oshibaand the CIR.

'he C'A too note that the pieces of evidence referred to b! 'oshiba in its Motion for Reconsideration"ere insu


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@- 'he provision of Article 1/4- not"ithstandin0, re0istered r+s shall not be entitled toan! e%tension of this incentive.

'he C'A pointed out that 'oshiba availed itself of the inco+e ta% holida! under the +nibusInvest+ents Code of /361, so 'oshiba "as e%e+pt onl! fro+ inco+e ta% but not fro+ other ta%es suchas )A'. As a result, 'oshiba "as liable for output )A' on its e%port sales, but at *ero percent =F- rate,and entitled to the creditKrefund of the input )A' paid on its purchases of 0oods and services relative tosuch *ero$rated e%port sales.Jnsatised, the CIR led a Petition for Revie"73"ith the Court of Appeals, doceted as CA$9.R. SP No.2@=41.In its Decision dated Au0ust 73, 7==7, the Court of Appeals 0ranted the appeal of the CIR, and reversed

and set aside the Decision dated ctober /2, 7=== and the Resolution dated anuar! /1, 7==/ of theC'A. 'he appellate court ruled that 'oshiba "as not entitled to the refund of its alle0ed unused input)A' pa!+ents because it "as a ta%$e%e+pt entit! under Section 74 of Republic Act No. 13/2. As aPEOA$re0istered corporation, 'oshiba "as liable for re+ittin0 to the national 0overn+ent the vepercent F- preferential rate on its 0ross inco+e earned "ithin the ECONE, in lieu of all othernational and local ta%es, includin0 )A'.

'he Court of Appeals further ad#ud0ed that the e%port sales of 'oshiba "ere )A'$e%e+pt, not *ero$rated, transactions. 'he appellate court found that the Ans"er led b! the CIR in C'A Case No. 127 didnot contain an! ad+ission that the e%port sales of 'oshiba "ere *ero$rated transactions under Section/==a-7-A- of the 'a% Code of /311, as a+ended. At the least, "hat "as ad+itted b! the CIR in saidAns"er "as that the 'a% Code provisions cited in the Petition for Revie" of 'oshiba in C'A Case No.127 "ere correct. As to the oint Stipulation of (acts and Issues led b! the parties in C'A Case No.

127, "hich stated that 'oshiba "as sub#ect to *ero percent =F- )A' on its e%port sales, the appellatecourt declared that the CIR si0ned the said pleadin0 throu0h palpable +istae. 'his palpable +istae inthe stipulation of facts should not be taen a0ainst the CIR, for to do other"ise "ould result insuppressin0 the truth throu0h falsehood. In addition, the State could not be put in estoppel b! the+istaes or errors of its o


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H8ERE(RE, pre+ises considered, Petitioner 'S8IBA IN(RMA'IN EJIPMEN' P8I5S.-, INC. +ostrespectfull! pra!s that the decision and resolution of the 8onorable Court of Appeals, reversin0 thedecision of the C'A in C'A Case No. 127, be set aside and further pra!s that a ne" one be renderedA((IRMIN9 AND JP85DIN9 the Decision of the C'A pro+ul0ated on ctober /2, 7=== in C'A Case No.127.ther reliefs, "hich the 8onorable Court +a! dee+ #ust and e:uitable under the circu+stances, arelie"ise pra!ed for.@@

'he Petition is i+pressed "ith +erit.'he CIR did not ti+el! raise before the C'A the issues on the )A'$e%e+ptions of 'oshiba and its e%portsales.

Jpon the failure of the CIR to ti+el! plead and prove before the C'A the defenses or ob#ections that'oshiba "as )A'$e%e+pt under Section 74 of Republic Act No. 13/2, and that its e%port sales "ere )A'$e%e+pt transactions under Section /=@:- of the 'a% Code of /311, as a+ended, the CIR is dee+ed tohave "aived the sa+e.Durin0 the pendenc! of C'A Case No. 127, the proceedin0s before the C'A "ere 0overned b! theRules of the Court of 'a% Appeals,@4"hile the Rules of Court "ere applied suppletoril!.@

Rule 3, Section / of the Rules of Court providesGSEC'IN /. Defenses and ob#ections not pleaded. Defenses and ob#ections not pleaded either in a+otion to dis+iss or in the ans"er are dee+ed "aived. 8o"ever, "hen it appears fro+ the pleadin0sor the evidence on record that the court has no #urisdiction over the sub#ect +atter, that there isanother action pendin0 bet"een the sa+e parties for the sa+e cause, or that the action is barred b! aprior #ud0+ent or b! statute of li+itations, the court shall dis+iss the clai+.

'he CIR did not ar0ue strai0ht a"a! in his Ans"er in C'A Case No. 127 that 'oshiba had no ri0ht to thecreditKrefund of its input )A' pa!+ents because the latter "as )A'$e%e+pt and its e%port sales "ere)A'$e%e+pt transactions. 'he Pre$'rial Brief@2 of the CIR "as e:uall! bereft of such alle0ations orar0u+ents. 'he CIR passed up the opportunit! to prove the supposed )A'$e%e+ptions of 'oshiba and itse%port sales "hen the CIR chose not to present an! evidence at all durin0 the trial before the C'A. @18e+issed another opportunit! to present the said issues before the C'A "hen he "aived the sub+issionof a Me+orandu+.@6'he CIR had "aited until the C'A alread! rendered its Decision dated ctober /2,7=== in C'A Case No. 127, "hich 0ranted the clai+ for creditKrefund of 'oshiba, before assertin0 in hisMotion for Reconsideration that 'oshiba "as )A'$e%e+pt and its e%port sales "ere )A'$e%e+pttransactions.

'he CIR did not oer an! e%planation as to "h! he did not ar0ue the )A'$e%e+ptions of 'oshiba and itse%port sales before and durin0 the trial held b! the C'A, onl! doin0 so in his Motion for Reconsideration

of the adverse C'A #ud0+ent. Surel!, said defenses or ob#ections "ere alread! available to the CIR"hen the CIR led his Ans"er to the Petition for Revie" of 'oshiba in C'A Case No. 127.It is a%io+atic in pleadin0s and practice that no ne" issue in a case can be raised in a pleadin0 "hichb! due dili0ence could have been raised in previous pleadin0s.@3'he Court cannot si+pl! 0rant the pleaof the CIR that the procedural rules be rela%ed based on the 0eneral aver+ent of the interest ofsubstantive #ustice. It should not be for0otten that the rst and funda+ental concern of the rules ofprocedure is to secure a #ust deter+ination of ever! action. 4=Procedural rules are desi0ned to facilitatethe ad#udication of cases. Courts and liti0ants alie are en#oined to abide strictl! b! the rules. Hhile incertain instances, the Court allo"s a rela%ation in the application of the rules, it never intends to for0ea "eapon for errin0 liti0ants to violate the rules "ith i+punit!. 'he liberal interpretation and applicationof rules appl! onl! in proper cases of de+onstrable +erit and under #ustiable causes andcircu+stances. Hhile it is true that liti0ation is not a 0a+e of technicalities, it is e:uall! true that ever!

case +ust be prosecuted in accordance "ith the prescribed procedure to ensure an orderl! and speed!ad+inistration of #ustice. Part! liti0ants and their counsel are "ell advised to abide b!, rather thanLaunt, procedural rules for these rules illu+ine the path of the la" and rationali*e the pursuit of

#ustice.4/'he CIR #udiciall! ad+itted that 'oshiba "as )A'$re0istered and its e%port sales "ere sub#ect to )A' at*ero percent =F- rate.More i+portantl!, the ar0u+ents of the CIR that 'oshiba "as )A'$e%e+pt and the latter;s e%port sales"ere )A'$e%e+pt transactions are inconsistent "ith the e%plicit ad+issions of the CIR in the ointStipulation of (acts and Issues oint Stipulation- that 'oshiba "as a re0istered )A' entit! and that it"as sub#ect to *ero percent =F- )A' on its e%port sales.

'he oint Stipulation "as e%ecuted and sub+itted b! 'oshiba and the CIR upon bein0 advised to do sob! the C'A at the end of the pre$trial conference held on une 7@, /333. 47'he approval of the oint

Stipulation b! the C'A, in its Resolution4@dated ul! /7, /333, +ared the cul+ination of the pre$trialprocess in C'A Case No. 127.Pre$trial is an ans"er to the clarion call for the speed! disposition of cases. Althou0h it "asdiscretionar! under the /34= Rules of Court, it "as +ade +andator! under the /324 Rules and thesubse:uent a+end+ents in /331. It has been hailed as >the +ost i+portant procedural innovation inAn0lo$Sa%on #ustice in the nineteenth centur!.>44

'he nature and purpose of a pre$trial have been laid do"n in Rule /6, Section 7 of the Rules of CourtGSEC'IN 7. Nature and purpose. 'he pre$trial is +andator!. 'he court shall considerG

a- 'he possibilit! of an a+icable settle+ent or of a sub+ission to alternative +odes of disputeresolution?b- 'he si+plication of the issues?c- 'he necessit! or desirabilit! of a+end+ents to the pleadin0s?
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d- 'he possibilit! of obtainin0 stipulations or ad+issions of facts and of docu+ents to avoidunnecessar! proof?e- 'he li+itation of the nu+ber of "itnesses?f- 'he advisabilit! of a preli+inar! reference of issues to a co++issioner?0- 'he propriet! of renderin0 #ud0+ent on the pleadin0s, or su++ar! #ud0+ent, or of dis+issin0the action should a valid 0round therefor be found to e%ist?h- 'he advisabilit! or necessit! of suspendin0 the proceedin0s? andi- Such other +atters as +a! aid in the pro+pt disposition of the action. E+phasis ours.-

'he ad+ission havin0 been +ade in a stipulation of facts at pre$trial b! the parties, it +ust be treatedas a #udicial ad+ission.4Jnder Section 4, Rule /73 of the Rules of Court, a #udicial ad+ission re:uires

no proof. 'he ad+ission +a! be contradicted onl! b! a sho"in0 that it "as +ade throu0h palpable+istae or that no such ad+ission "as +ade. 'he Court cannot li0htl! set aside a #udicial ad+issionespeciall! "hen the opposin0 part! relied upon the sa+e and accordin0l! dispensed "ith further proofof the fact alread! ad+itted. An ad+ission +ade b! a part! in the course of the proceedin0s does notre:uire proof.42

In the instant case, a+on0 the facts e%pressl! ad+itted b! the CIR and 'oshiba in their C'A$approvedoint Stipulation are that 'oshiba >is a dul! re0istered value$added ta% entit! in accordance "ith Section/=1 of the 'a% Code, as a+ended,Q>41 that >is sub#ect to *ero percent =F- value$added ta% on itse%port sales in accordance "ith then Section /==a-7-A- of the 'a% Code, as a+ended.>46'he CIR "asbound b! these ad+issions, "hich he could not eventuall! contradict in his Motion for Reconsiderationof the C'A Decision dated ctober /2, 7===, b! ar0uin0 that 'oshiba "as actuall! a )A'$e%e+pt entit!and its e%port sales "ere )A'$e%e+pt transactions. bviousl!, 'oshiba could not have been sub#ect to

)A' and e%e+pt fro+ )A' at the sa+e ti+e. Si+ilarl!, the e%port sales of 'oshiba could not have beensub#ect to *ero percent =F- )A' and e%e+pt fro+ )A' as "ell.

'he CIR cannot escape the bindin0 eect of his #udicial ad+issions.'he Court disa0rees "ith the Court of Appeals "hen it ruled in its Decision dated Au0ust 73, 7==7 thatthe CIR could not be bound b! his ad+issions in the oint Stipulation because /- the said ad+issions"ere >+ade throu0h palpable +istae>43"hich, if countenanced, >"ould result in falsehood, unfairnessand in#ustice>?=and 7- the State could not be put in estoppel b! the +istaes of its o. Petitioner is sub#ect to *ero percent =F- value$added ta% on its e%port sales in accordance "iththen Section /==a-7-A- of the 'a% Code % % %.% % % %>

As "e see it, nothin0 in said Ans"er did the CIRQ ad+it that the e%port sales of 'oshibaQ "ere indeed*ero$rated transactions. At the least, "hat "as ad+itted onl! b! the CIRQ concernin0 para0raph 4 ofhis Ans"er, is the fact that the provisions of the 'a% Code, as cited b! 'oshibaQ in its petition for revie"led before the C'A "ere correct.7

'he Court of Appeals provided no e%planation as to "h! the ad+issions of the CIR in his Ans"er in C'ACase No. 127 deserved +ore "ei0ht and credence than those he +ade in the oint Stipulation. 'heappellate court failed to appreciate that the CIR, throu0h counsel, Att!. Bia*on, also si0ned the ointStipulation? and that absent evidence to the contrar!, Att!. Bia*on is presu+ed to have si0ned the ointStipulation "illin0l! and no"in0l!, in the re0ular perfor+ance of his o


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the oint Stipulation, the +ore lo0ical and reasonable e%planation "ould be that the CIR chan0ed his+ind or conceded so+e points to 'oshiba durin0 the pre$trial conference "hich i++ediatel! precededthe e%ecution of the oint Stipulation. 'o auto+aticall! construe that the discrepanc! "as the result of apalpable +istae is a "ide leap "hich this Court is not prepared to tae "ithout substantial basis.

'he #udicial ad+issions of the CIR in the oint Stipulation are not intrinsicall! false, "ron0, or ille0al, andare consistent "ith the rulin0 on the )A' treat+ent of PEOA$re0istered enterprises in the previous

'oshiba case.'here is no basis for believin0 that to bind the CIR to his #udicial ad+issions in the oint Stipulation that 'oshiba "as a )A'$re0istered entit! and its e%port sales "ere *ero$rated )A' transactions "ouldresult in >falsehood, unfairness and in#ustice.> 'he #udicial ad+issions of the CIR are not intrinsicall!

false, "ron0, or ille0al. n the contrar!, the! are consistent "ith the rulin0 of this Court in a previouscase involvin0 the sa+e parties, Co++issioner of Internal Revenue v. 'oshiba Infor+ation E:uip+entPhils.- Inc.'oshiba case-, e%plainin0 the )A' treat+ent of PEOA$re0istered enterprises.In the 'oshiba case, 'oshiba sou0ht the refund of its unutili*ed input )A' on its purchase of capital0oods and services for the rst and second :uarters of /332, based on Section /=2b- of the 'a% Codeof /311, as a+ended.2In the Petition at bar, 'oshiba is clai+in0 refund of its unutili*ed input )A' on itslocal purchase of 0oods and services "hich are attributable to its e%port sales for the rst and second:uarters of /331, pursuant to Section /=2a-, in relation to Section /==a-/-A-i- of the 'a% Code of/311, as a+ended, "hich read SEC. /=2. Refunds or ta% credits of creditable input ta%. a- An! )A'$re0istered person, "hose salesare *ero$rated or eectivel! *ero$rated, +a!, "ithin t"o 7- !ears after the close of the ta%able :uarter"hen the sales "ere +ade, appl! for the issuance of a ta% credit certicate or refund of creditable input

ta% due or paid attributable to such sales, e%cept transitional input ta%, to the e%tent that such inputta% has not been applied a0ainst output ta%G Provided, however, 'hat in the case of *ero$rated salesunder Section /==a-7-A-i-,ii- and b- and Section /=7b-/- and 7-, the acceptable forei0n currenc!e%chan0e proceeds thereof has been dul! accounted for in accordance "ith the re0ulations of theBan0o Sentral n0 Pilipinas BSP-G Provided, further, 'hat "here the ta%pa!er is en0a0ed in *ero$ratedor eectivel! *ero$rated sale and also in ta%able or e%e+pt sale of 0oods or properties of services, andthe a+ount of creditable input ta% due or paid cannot be directl! and entirel! attributed to an! one ofthe transactions, it shall be allocated proportionatel! on the basis of the volu+e sales.SEC. /==. )alue$added ta% on sale of 0oods or properties. a- Rate and base of ta%. % % %

% % % %7- 'he follo"in0 sales b! )A'$re0istered persons shall be sub#ect to =FGA- E%port sales. 'he ter+ >e%port sales> +eansG

i- 'he sale and actual ship+ent of 0oods fro+ the Philippines to a forei0n countr!, irrespectiveof an! shippin0 arran0e+ent that +a! be a0reed upon "hich +a! inLuence or deter+ine thetransfer of o"nership of the 0oods so e%ported and paid for in acceptable forei0n currenc! or itse:uivalent in 0oods or services, and accounted for in accordance "ith the rules and re0ulationsof the Ban0o Sentral n0 Pilipnas BSP-.

Despite the dierence in the le0al bases for the clai+s for creditKrefund in the 'oshiba case and thecase at bar, the CIR raised the ver! sa+e defense or ob#ection in both that 'oshiba and itstransactions "ere )A'$e%e+pt. 8ence, the rulin0 of the Court in the for+er case is relevant to thepresent case.At the outset, the Court establishes that there is a basic distinction in the )A'$e%e+ption of a personand the )A'$e%e+ption of a transaction It "ould see+ that petitioner CIR failed to dierentiate bet"een )A'$e%e+pt transactions fro+ )A'$

e%e+pt entities. In the case of Co++issioner of Internal Revenue v. Sea0ate 'echnolo0! Philippines-,this Court alread! +ade such distinction An e%e+pt transaction, on the one hand, involves 0oods or services "hich, b! their nature, arespecicall! listed in and e%pressl! e%e+pted fro+ the )A' under the 'a% Code, "ithout re0ard to theta% status )A'$e%e+pt or not of the part! to the transactionWAn e%e+pt part!, on the other hand, is a person or entit! 0ranted )A' e%e+ption under the 'a% Code, aspecial la" or an international a0ree+ent to "hich the Philippines is a si0nator!, and b! virtue of "hichits ta%able transactions beco+e e%e+pt fro+ )A' % % %. 1

In eect, the CIR is opposin0 the clai+ for creditKrefund of input )A' of 'oshiba on t"o 0roundsG /- that'oshiba "as a )A'$e%e+pt entit!? and 7- that its e%port sales "ere )A'$e%e+pt transactions.It is no" a settled rule that based on the Cross Border Doctrine, PEOA$re0istered enterprises, such as

'oshiba, are )A'$e%e+pt and no )A' can be passed on to the+. 'he Court e%plained in the 'oshiba case

that PEOA$re0istered enterprise, "hich "ould necessaril! be located "ithin ECONES, are )A'$e%e+ptentities, not because of Section 74 of Rep. Act No. 13/2, as a+ended, "hich i+poses the ve percentF- preferential ta% rate on 0ross inco+e of PEOA$re0istered enterprises, in lieu of all ta%es? but,rather, because of Section 6 of the sa+e statute "hich establishes the ction that ECONES areforei0n territor!.% % % %

'he Philippine )A' s!ste+ adheres to the Cross Border Doctrine, accordin0 to "hich, no )A' shall bei+posed to for+ part of the cost of 0oods destined for consu+ption outside of the territorial border ofthe ta%in0 authorit!. 8ence, actual e%port of 0oods and services fro+ the Philippines to a forei0ncountr! +ust be free of )A'? "hile, those destined for use or consu+ption "ithin the Philippines shallbe i+posed "ith ten percent /=F- )A'.
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Appl!in0 said doctrine to the sale of 0oods, properties, and services to and fro+ the ECONES, theBIR issued Revenue Me+orandu+ Circular RMC- No. 14$33, on / ctober /333. f particular interestto the present Petition is Section @ thereof, "hich reads SEC'IN @. 'a% 'reat+ent of Sales Made b! a )A' Re0istered Supplier fro+ the Custo+s 'erritor!, to aPEOA Re0istered Enterprise.

/- If the Bu!er is a PEOA re0istered enterprise "hich is sub#ect to the F special ta% re0i+e, inlieu of all ta%es, e%cept real propert! ta%, pursuant to R.A. No. 13/2, as a+endedG

a- Sale of 0oods i.e., +erchandise-. 'his shall be treated as indirect e%port hence,considered sub#ect to *ero percent =F- )A', pursuant to Sec. /=2A-7-a--, NIRC andSec. 7@ of R.A. No. 13/2, in relation to AR'. 117- of the +nibus Invest+ents Code.

b- Sale of service. 'his shall be treated sub#ect to *ero percent =F- )A' under the>cross border doctrine> of the )A' S!ste+, pursuant to )A' Rulin0 No. =@7$36 dated Nov., /336.

7- If Bu!er is a PEOA re0istered enterprise "hich is not e+braced b! the F special ta% re0i+e,hence, sub#ect to ta%es under the NIRC, e.0., Service Establish+ents "hich are sub#ect to ta%esunder the NIRC rather than the F special ta% re0i+eG

a- Sale of 0oods i.e., +erchandise-. 'his shall be treated as indirect e%port hence,considered sub#ect to *ero percent =F- )A', pursuant to Sec. /=2A-7-a--, NIRC andSec. 7@ of R.A. No. 13/2 in relation to AR'. 117- of the +nibus Invest+ents Code.b- Sale of Service. 'his shall be treated sub#ect to *ero percent =F- )A' under the>cross border doctrine> of the )A' S!ste+, pursuant to )A' Rulin0 No. =@7$36 dated Nov., /336.

@- In the nal anal!sis, an! sale of 0oods, propert! or services +ade b! a )A' re0isteredsupplier fro+ the Custo+s 'erritor! to an! re0istered enterprise operatin0 in the eco*one,re0ardless of the class or t!pe of the latter;s PEOA re0istration, is actuall! :ualied and thusle0all! entitled to the *ero percent =F- )A'. Accordin0l!, all sales of 0oods or propert! to suchenterprise +ade b! a )A' re0istered supplier fro+ the Custo+s 'erritor! shall be treated sub#ectto =F )A', pursuant to Sec. /=2A-7-a--, NIRC, in relation to AR'. 117- of the +nibusInvest+ents Code, "hile all sales of services to the said enterprises, +ade b! )A' re0isteredsuppliers fro+ the Custo+s 'erritor!, shall be treated eectivel! sub#ect to the =F )A', pursuantto Section /=6B-@-, NIRC, in relation to the provisions of R.A. No. 13/2 and the >Cross BorderDoctrine> of the )A' s!ste+.

'his Circular shall serve as a su


16/38

'o recall, 'oshiba is herein clai+in0 the refund of unutili*ed input )A' pa!+ents on its local purchasesof 0oods and services attributable to its e%port sales for the rst and second :uarters of /331. Suche%port sales too place before ctober /, /333, "hen the old rule on the )A' treat+ent of PEOA$re0istered enterprises still applied. Jnder this old rule, it "as not onl! possible, but even acceptable, for

'oshiba, availin0 itself of the inco+e ta% holida! option under Section 7@ of Republic Act No. 13/2, inrelation to Section @3 of the +nibus Invest+ents Code of /361, to be sub#ect to )A', both indirectl!as purchaser to "ho+ the seller shifts the )A' burden- and directl! as seller "hose sales "ere sub#ectto )A', either at ten percent /=FQ or *ero percent =FQ-.A )A'$re0istered seller of 0oods andKor services "ho +ade *ero$rated sales can clai+ ta% credit orrefund of the input )A' paid on its purchases of 0oods, properties, or services relative to such *ero$

rated sales, in accordance "ith Section 4./=7$7 of Revenue Re0ulations No. 1$3, "hich provides Sec. 4./=7$7. Oero$ratin0. a- In 0eneral. $ A *ero$rated sale b! a )A'$re0istered person, "hich is ata%able transaction for )A' purposes, shall not result in an! output ta%. 8o"ever, the input ta% on hispurchases of 0oods, properties or services related to such *ero$rated sale shall be available as ta%credit or refund in accordance "ith these re0ulations.

'he BIR, as late as ul! /, 7==@, "hen it issued RMC No. 47$7==@, accepted applications forcreditKrefund of input )A' on purchases prior to RMC No. 14$33, led b! PEOA$re0istered enterprises"hich availed the+selves of the inco+e ta% holida!. 'he BIR ans"ered uestion $/- of RMC No. 47$7==@ in this "ise $G Jnder Revenue Me+orandu+ Circular RMC- No. 14$33, purchases b! PEOA$re0istered r+sauto+aticall! :ualif! as *ero$rated "ithout seein0 prior approval fro+ the BIR eective ctober /333.

/- Hill the SS$D( Center still accept applications fro+ PEOA$re0istered clai+ants "ho "ere

alle0edl! billed )A' b! their suppliers before and durin0 the eectivit! of the RMC b! issuin0 )A'invoicesKreceipts&% % % %

A$/-G If the PEOA$re0istered enterprise is pa!in0 the F preferential ta% in lieu of allother ta%es, the said PEOA$re0istered ta%pa!er cannot clai+ 'CC or refund for the )A' paidon purchases. 8o"ever, if the ta%pa!er is availin0 of the inco+e ta% holida!, it can clai+)A' credit providedG

a. 'he ta%pa!er$clai+ant is )A'$re0istered?b. Purchases are evidenced b! )A' invoices or receipts, "hichever is applicable,"ith shifted )A' to the purchaser prior to the i+ple+entation of RMC No. 14$33? andc. 'he supplier issues a s"orn state+ent under penalties of per#ur! that it shiftedthe )A' and declared the sales to the PEOA$re0istered purchaser as ta%able sales in

its )A' returns.(or invoicesKreceipts issued upon the eectivit! of RMC No. 14$33, the clai+s for input )A' b! PEOA$re0istered co+panies, re0ardless of the t!pe or class of PEOA$re0istration, should be denied. E+phasesours.-Conse:uentl!, the CIR cannot herein insist that all PEOA$re0istered enterprises are )A'$e%e+pt in ever!instance. RMC No. 47$7==@ contains an e%press acno"led0e+ent b! the BIR that prior to RMC No. 14$33, there "ere PEOA$re0istered enterprises liable for )A' and entitled to creditKrefund of input )A' paidunder certain conditions.

'his Court alread! re#ected in the 'oshiba case the ar0u+ent that sale transactions of a PEOA$re0isteredenterprise "ere )A'$e%e+pt under Section /=@:- of the 'a% Code of /311, as a+ended, ratiocinatin0that Section /=@:- of the 'a% Code of /311, as a+ended, relied upon b! petitioner CIR, relates to )A'$

e%e+pt transactions. 'hese are transactions e%e+pted fro+ )A' b! special la"s or internationala0ree+ents to "hich the Philippines is a si0nator!. Since such transactions are not sub#ect to )A', thesellers cannot pass on an! output )A' to the purchasers of 0oods, properties, or services, and the! +a!not clai+ ta% creditKrefund of the input )A' the! had paid thereon.Section /=@:- of the 'a% Code of /311, as a+ended, cannot appl! to transactions of respondent

'oshiba because althou0h the said section reco0ni*es that transactions covered b! special la"s +a! bee%e+pt fro+ )A', the ver! sa+e section provides that those fallin0 under Presidential Decree No. 22are not. Presidential Decree No. 22, creatin0 the E%port Processin0 Oone Authorit! EPOA-, is theprecursor of Rep. Act No. 13/2, as a+ended, under "hich the EPOA evolved into the PEOA.Conse:uentl!, the e%ception of Presidential Decree No. 22 fro+ Section /=@:- of the 'a% Code of /311,as a+ended, e%tends lie"ise to Rep. Act No. 13/2, as a+ended.2/E+phasis ours.-In li0ht of the #udicial ad+issions of 'oshiba, the C'A correctl! conned itself to the other factual issues

sub+itted for resolution b! the parties.In accord "ith the ad+itted facts that 'oshiba "as a )A'$re0istered entit! and that its e%port sales"ere *ero$rated transactions the stated issues in the oint Stipulation "ere li+ited to other factual+atters, particularl!, on the co+pliance b! 'oshiba "ith the rest of the re:uire+ents for creditKrefundof input )A' on *ero$rated transactions. 'hus, durin0 trial, 'oshiba concentrated on presentin0 evidenceto establish that it incurred P@,61,/@3.2 of input )A' for the rst and second :uarters of /331 "hich"ere directl! attributable to its e%port sales? that said a+ount of input )A' "ere not carried over to thesucceedin0 :uarters? that said a+ount of input )A' has not been applied or oset a0ainst an! output)A' liabilit!? and that said a+ount of input )A' "as properl! substantiated b! o


17/38

/- 'he a+ended :uarterl! )A' returns of 'oshiba for /331 sho"ed that it +ade no other sales,e%cept *ero$rated e%port sales, for the entire !ear, in the su+ of P7,=6@,@=,===.== for the rst:uarter and P,4//,@17,===.== for the second :uarter. 'hat bein0 the case, all input )A'alle0edl! incurred b! 'oshiba for the rst t"o :uarters of /331, in the a+ount of P@,61,/@3.2,"as directl! attributable to its *ero$rated sales for the sa+e period.7- 'oshiba did carr!$over the P@,61,/@3.2 input )A' it reportedl! incurred durin0 the rst t"o:uarters of /331 to succeedin0 :uarters, until the rst :uarter of /333. Despite the carr!$over ofthe sub#ect input )A' of P@,61,/@3.2, the clai+ of 'oshiba "as not aected because it later ondeducted the said a+ount as >)A' RefundK'CC Clai+ed> fro+ its total available input )A' ofP2,64/,426./1 for the rst :uarter of /333.

@- Still, the C'A could not allo" the creditKrefund of the total input )A' of P@,61,/@3.2 bein0clai+ed b! 'oshiba because not all of said a+ount "as actuall! incurred b! the co+pan! anddul! substantiated b! invoices and o


18/38

Before us is a Petition for Revie"/under Rule 4 of the Rules of Court, seein0 to set aside the Ma! 71,7==7 Decision7of the Court of Appeals CA- in CA$9R SP No. 22=3@. 'he decretal portion of the Decisionreads as follo"sG45%ERE"ORE, fore0oin0 pre+ises considered, the petition for revie" is DENIEDfor lac of +erit.>@

'he (acts'he CA :uoted the facts narrated b! the Court of 'a% Appeals C'A-, as follo"sG>As #ointl! stipulated b! the parties, the pertinent facts % % % involved in this case are as follo"sG/. RespondentQ is a resident forei0n corporation dul! re0istered "ith the Securities and E%chan0eCo++ission to do business in the Philippines, "ith principal o(or his part, petitionerQ % % % raised the follo"in0 Special and AA clai+ant has the burden of proof to establish the factual basis of his or her clai+ for ta%creditKrefund.>4. Clai+s for ta% refundKta% credit are construed in strictissi+i #uris; a0ainst the ta%pa!er. 'his is due tothe fact that clai+s for refundKcredit partae ofQ the nature of an e%e+ption fro+ ta%. 'hus, it isincu+bent upon the respondentQ to prove that it is indeed entitled to the refundKcredit sou0ht. (ailureon the part of the respondentQ to prove the sa+e is fatal to its clai+ for ta% credit. 8e "ho clai+se%e+ption +ust be able to #ustif! his clai+ b! the clearest 0rant of or0anic or statutor! la". Ane%e+ption fro+ the co++on burden cannot be per+itted to e%ist upon va0ue i+plications?. 9rantin0, "ithout ad+ittin0, that respondentQ is a Philippine Econo+ic Oone Authorit! PEOA-re0istered Eco*one Enterprise, then its business is not sub#ect to )A' pursuant to Section 74 of RepublicAct No. RAQ- 13/2 in relation to Section /=@ of the 'a% Code, as a+ended. As respondent;sQ business

is not sub#ect to )A', the capital 0oods and services it alle0ed to have purchased are considered notused in )A' ta%able business. As such, respondentQ is not entitled to refund of input ta%es on suchcapital 0oods pursuant to Section 4./=2./ of Revenue Re0ulations No. RRQ-1$3, and of input ta%es onservices pursuant to Section 4./=@ of said re0ulations.2. RespondentQ +ust sho" co+pliance "ith the provisions of Section 7=4 C- and 773 of the /331 'a%Code on lin0 of a "ritten clai+ for refund "ithin t"o 7- !ears fro+ the date of pa!+ent of ta%.;>n ul! /3, 7==/, the 'a% Court rendered a decision 0rantin0 the clai+ for refund.>4

Rulin0 of the Court of Appeals'he CA a


19/38


20/38

Oero$rated transactions 0enerall! refer to the e%port sale of 0oods and suppl! of services.41'he ta% rateis set at *ero.46Hhen applied to the ta% base, such rate obviousl! results in no ta% char0eable a0ainstthe purchaser. 'he seller of such transactions char0es no output ta%,43but can clai+ a refund of or a ta%credit certicate for the )A' previousl! char0ed b! suppliers.Eectivel! *ero$rated transactions, ho"ever, refer to the sale of 0oods =or suppl! of services/ topersons or entities "hose e%e+ption under special la"s or international a0ree+ents to "hich thePhilippines is a si0nator! eectivel! sub#ects such transactions to a *ero rate. 7A0ain, as applied to theta% base, such rate does not !ield an! ta% char0eable a0ainst the purchaser. 'he seller "ho char0es*ero output ta% on such transactions can also clai+ a refund of or a ta% credit certicate for the )A'previousl! char0ed b! suppliers.

'ero %atin& and "(emptionIn ter+s of the )A' computation, *ero ratin0 and e%e+ption are the sa+e, but the e(tent of reliefthatresults fro+ either one of the+ is not.Appl!in0 the destination principle@ to the e%portation of 0oods, auto+atic *ero ratin0 4 is pri+aril!intended to be en#o!ed b! the seller "ho is directl! and le0all! liable for the )A', +ain0 such sellerinternationall! co+petitive b! allo"in0 the refund or credit of input ta%es that are attributable to e%portsales.Eective *ero ratin0, on the contrar!, is intended to benet the purchaser "ho, not bein0directl! and le0all! liable for the pa!+ent of the )A', "ill ulti+atel! bear the burden of the ta% shiftedb! the suppliers.In both instances of *ero ratin0, there is total relieffor the purchaser fro+ the burden of the ta%. 2Butin an e%e+ption there is onl!partial relief,1because the purchaser is not allo"ed an! ta% refund of orcredit for input ta%es paid.6

"(empt $ransaction and "(empt Part'he ob#ect of e%e+ption fro+ the )A' +a! either be the transaction itself or an! of the parties to thetransaction.3

An e(empt transaction, on the one hand, involves 0oods or services "hich, b! their nature, arespecicall! listed in and e%pressl! e%e+pted fro+ the )A' under the 'a% Code, "ithout re0ard to theta% status $$ )A'$e%e+pt or not $$ of the part! to the transaction.2= Indeed, such transaction is notsub#ect to the )A', but the seller is not allo"ed an! ta% refund of or credit for an! input ta%es paid.An e(empt part, on the other hand, is a person or entit! 0ranted )A' e%e+ption under the 'a% Code, aspecial la" or an international a0ree+ent to "hich the Philippines is a si0nator!, and b! virtue of "hichits ta%able transactions beco+e e%e+pt fro+ the )A'. 2/Suchpartis also not sub#ect to the )A', but+a! be allo"ed a ta% refund of or credit for input ta%es paid, dependin0 on its re0istration as a )A' ornon$)A' ta%pa!er.

As +entioned earlier, the )A' is a ta% on consu+ption, the a+ount of "hich +a! be shifted or passedon b! the seller to the purchaser of the 0oods, properties or services. 27Hhile the liabilitis i+posed onone person, the burden+a! be passed on to another. 'herefore, if a special la" +erel! e%e+pts apart! as a seller fro+ its direct liabilit! for pa!+ent of the )A', but does not relieve the sa+e part! as apurchaser fro+ its indirect burden of the )A' shifted to it b! its )A'$re0istered suppliers, the purchasetransaction is not e%e+pt. Appl!in0 this principle to the case at bar, the purchase transactions enteredinto b! respondent are not )A'$e%e+pt.Special la"s +a! certainl! e%e+pt transactions fro+ the )A'.2@8o"ever, the 'a% Code provides thatthose fallin0 under PD 22 are not. PD 22 is the precursor of RA 13/2 $$ the special la" under "hichrespondent "as re0istered. 'he purchase transactionsit entered into are, therefore, not )A'$e%e+pt.

'hese are sub#ect to the )A'? respondent is re:uired to re0ister.Its sales transactions, ho"ever, "ill either be *ero$rated or ta%ed at the standard rate of /= percent, 24

dependin0 a0ain on the application of the destination principle.2

If respondent enters into such sales transactions "ith a purchaser $$ usuall! in a forei0n countr! $$ foruse or consu+ption outside the Philippines, these shall be sub#ect to = percent. 22If entered into "ith apurchaser for use or consu+ption in the Philippines, then these shall be sub#ect to /= percent, 21unlessthe purchaser is e%e+pt fro+ the indirect burden of the )A', in "hich case it shall also be *ero$rated.Since the purchases of respondent are not e%e+pt fro+ the )A', the rate to be applied is *ero. Itse%e+ption under both PD 22 and RA 13/2 eectivel! sub#ects such transactions to a *ero rate, 26

because the eco*one "ithin "hich it is re0istered is +ana0ed and operated b! the PEOA as a separatecustoms territor.23'his +eans that in such *one is created the le0al ction of forei0n territor!. 1=Jnderthe cross-border principle1/of the )A' s!ste+ bein0 enforced b! the Bureau of Internal Revenue BIR-,17

no )A' shall be i+posed to for+ part of the cost of 0oods destined for consu+ption outside of theterritorial border of the ta%in0 authorit!. If e%ports of 0oods and services fro+ the Philippines to a

forei0n countr! are free of the )A',1@then the sa+e rule holds for such e%ports fro+ the nationalterritor! $$ e%cept specicall! declared areas $$ to an eco*one.Sales +ade b! a )A'$re0istered person in the custo+s territor! to a PEOA$re0istered entit! areconsidered e%ports to a forei0n countr!? conversel!, sales b! a PEOA$re0istered entit! to a )A'$re0istered person in the custo+s territor! are dee+ed i+ports fro+ a forei0n countr!. 14An eco*one $$indubitabl! a 0eo0raphical territor! of the Philippines $$ is, ho"ever, re0arded in la" as forei0n soil. 1

'his le0al ction is necessar! to 0ive +eanin0ful eect to the policies of the special la" creatin0 the*one.12If respondent is located in an e%port processin0 *one11"ithin that eco*one, sales to the e%portprocessin0 *one, even "ithout bein0 actuall! e%ported, shall in fact be vie"ed as constructivele(ported under E 772.16 Considered as e%port sales,13 such purchase transactions b! respondent"ould indeed be sub#ect to a *ero rate.6=

$a( "(emptions road and "(press
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Appl!in0 the special la"s "e have earlier discussed, respondent as an entit! is e%e+pt fro+ internalrevenue la"s and re0ulations.

'his e%e+ption covers bothdirect and indirect ta%es, ste++in0 fro+ the ver! nature of the )A' as ata% on consu+ption, for "hich the direct liabilitis i+posed on one person but the indirect burden ispassed on to another. Respondent, as an e%e+pt entit!, can neither be directl! char0ed for the )A' onits sales nor indirectl! +ade to bear, as added cost to such sales, the e:uivalent )A' on its purchases.)bi le( non distin&uit, nec nos distin&uere debemus. Hhere the la" does not distin0uish, "e ou0ht notto distin0uish.Moreover, the e%e+ption is both e%press and pervasive for the follo"in0 reasonsG/irst, RA 13/2 states that >no ta%es, local and national, shall be i+posed on business establish+ents

operatin0 "ithin the eco*one.>6/Since this la" does not e%clude the )A' fro+ the prohibition, it isdee+ed included. "(ceptio 0rmat re&ulam in casibus non e(ceptis. An e%ception conr+s the rule incases not e%cepted? that is, a thin0 not bein0 e%cepted +ust be re0arded as co+in0 "ithin the purvie"of the 0eneral rule.Moreover, even thou0h the )A' is not i+posed on the entit! but on the transaction, it +a! still bepassed on and, therefore, indirectl! i+posed on the sa+e entit! $$ a patent circu+vention of the la".

'hat no )A' shall be i+posed directl! upon business establish+ents operatin0 "ithin the eco*oneunder RA 13/2 also +eans that no )A' +a! be passed on and i+posed indirectl!. uando ali2uid

prohibetur e( directo prohibetur et per obli2uum. Hhen an!thin0 is prohibited directl!, it is alsoprohibited indirectl!.Second, "hen RA 6146 "as enacted to a+end RA 13/2, the sa+e prohibition applied, e%cept for realpropert! ta%es that presentl! are i+posed on land o"ned b! developers. 67'his si+ilar and repeated

prohibition is an una+bi0uous ratication of the la";s intent in not i+posin0 local or national ta%es onbusiness enterprises "ithin the eco*one.$hird, forei0n and do+estic +erchandise, ra" +aterials, e:uip+ent and the lie >shall not be sub#ect to% % % internal revenue la"s and re0ulations> under PD 226@$$ the ori0inal charter of PEOA then EPOA-that "as later a+ended b! RA 13/2.64No provisions in the latter la" +odif! such e%e+ption.Althou0h this e%e+ption puts the 0overn+ent at an initial disadvanta0e, the reduced ta% collectionulti+atel! redounds to the benet of the national econo+! b! enticin0 +ore business invest+ents andcreatin0 +ore e+plo!+ent opportunities.6

/ourth,even the rules i+ple+entin0 the PEOA la" clearl! reiterate that +erchandise $$ e%cept thoseprohibited b! la" $$ >shall not be sub#ect to % % % internal revenue la"s and re0ulations % % %> 62 ifbrou0ht to the eco*one;s restricted area61for +anufacturin0 b! re0istered e%port enterprises,66of "hichrespondent is one. 'hese rules also appl! to all enterprises re0istered "ith the EPOA prior to the

eectivit! of such rules.63/ifth, e%port processin0 *one enterprises re0istered3="ith the Board of Invest+ents BI- under E 772patentl! en#o! e%e+ption fro+ national internal revenue ta%es on i+ported capital e:uip+entreasonabl! needed and e%clusivel! used for the +anufacture of their products?3/on re:uired suppliesand spare part for consi0ned e:uip+ent?37and on forei0n and do+estic +erchandise, ra" +aterials,e:uip+ent and the lie $$ e%cept those prohibited b! la" $$ brou0ht into the *one for +anufacturin0.3@Inaddition, the! are 0iven credits for the value of the national internal revenue ta%es i+posed ondo+estic capital e:uip+ent also reasonabl! needed and e%clusivel! used for the +anufacture of theirproducts,34as "ell as for the value of such ta%es i+posed on do+estic ra" +aterials and supplies thatare used in the +anufacture of their e%port products and that for+ part thereof.3

Si(th, the e%e+ption fro+ local and national ta%es 0ranted under RA 1771 32are ipso facto accorded toeco*ones.31In case of doubt, conLicts "ith respect to such ta% e%e+ption privile0e shall be resolved in

favor of the eco*one.36

And seventh,the ta% credits under RA 1644 $$ 0iven for i+ported ra" +aterials pri+aril! used in theproduction of e%port 0oods,33and for locall! produced ra" +aterials, capital e:uip+ent and spare partsused b! e%porters of non$traditional products/== $$ shall also be continuousl! en#o!ed b! si+ilare%porters "ithin the eco*one./=/ Indeed, the latter e%porters are lie"ise entitled to such ta%e%e+ptions and credits.$a( %efund as $a( "(emption

'o be sure, statutes that 0rant ta% e%e+ptions are construed strictissimi juris/=7a0ainst the ta%pa!er/=@

and liberall! in favor of the ta%in0 authorit!./=4

'a% refunds are in the nature of such e%e+ptions./=Accordin0l!, the clai+ants of those refunds bearthe burden of provin0 the factual basis of their clai+s? /=2and of sho"in0, b! "ords too plain to be+istaen, that the le0islature intended to e%e+pt the+. /=1 In the present case, all the cited le0al

provisions are tee+in0 "ith life "ith respect to the 0rant of ta% e%e+ptions too vivid to pass unnoticed.In addition, respondent easil! +eets the challen0e.Respondent, "hich as an entit! is e%e+pt, is dierent fro+ its transactions "hich are not e%e+pt. 'heend result, ho"ever, is that it is not sub#ect to the )A'. 'he non$ta%abilit! of transactions that areother"ise ta%able is +erel! a necessar! incident to the ta% e%e+ption conferred b! la" upon it as anentit!, not upon the transactions the+selves./=6Nonetheless, its e%e+ption as an entit! and the non$e%e+ption of its transactions lead to the sa+e result for the follo"in0 considerationsG/irst, the conte+poraneous construction of our ta% la"s b! BIR authorities "ho are called upon toe%ecute or ad+inister such la"s/=3 "ill have to be adopted. 'heir prior ta% issuances have heldinconsistent positions brou0ht about b! their probable failure to co+prehend and full! appreciate thenature of the )A' as a ta% on consu+ption and the application of the destination principle.//=RevenueMe+orandu+ Circular No. RMC- 14$33, ho"ever, no" clearl! and correctl! provides that an! )A'$
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re0istered supplier;s sale of 0oods, propert! or services fro+ the custo+s territor! to an! re0isteredenterprise operatin0 in the eco*one $$ re0ardless of the class or t!pe of the latter;s PEOA re0istration $$is le0all! entitled to a *ero rate.///

Second, the policies of the la" should prevail. Ratio le0is est ani+a. 'he reason for the la" is its ver!soul.In PD 22, the ur0ent creation of the EPOA "hich preceded the PEOA, as "ell as the establish+ent ofe%port processin0 *ones, sees >to encoura0e and pro+ote forei0n co++erce as a +eans of % % %stren0thenin0 our e%port trade and forei0n e%chan0e position, of hastenin0 industriali*ation, ofreducin0 do+estic une+plo!+ent, and of acceleratin0 the develop+ent of the countr!.>//7

RA 13/2, as a+ended b! RA 6146, declared that b! creatin0 the PEOA and inte0ratin0 the special

econo+ic *ones, >the 0overn+ent shall activel! encoura0e, pro+ote, induce and accelerate a soundand balanced industrial, econo+ic and social develop+ent of the countr! % % % throu0h theestablish+ent, a+on0 others, of special econo+ic *ones % % % that shall eectivel! attract le0iti+ateand productive forei0n invest+ents.>//@

Jnder E 772, the >State shall encoura0e % % % forei0n invest+ents in industr! % % % "hich shall % % %+eet the tests of international co+petitiveness,Q accelerate develop+ent of less developed re0ions ofthe countr!,Q and result in increased volu+e and value of e%ports for the econo+!.>//4(iscal incentivesthat are cost$etoco+pensate for +aret i+perfections, to re"ard perfor+ance contributin0 to econo+icdevelop+ent,>//and >to sti+ulate the establish+ent and assist initial operations of the enterprise.>//2

Hisel! accorded to eco*ones created under RA 13/2//1"as the 0overn+ent;s polic! $$ spelled outearlier in RA 1771 $$ of convertin0 into alternative productive uses //6the for+er +ilitar! reservations

and their e%tensions,//3as "ell as of providin0 the+ incentives/7=to enhance the benets that "ould bederived fro+ the+/7/in pro+otin0 econo+ic and social develop+ent./77

(inall!, under RA 1644, the State declares the need >to evolve e%port develop+ent into a nationaleort>/7@ in order to "in international +arets. B! providin0 +an! e%port and ta% incentives, /74 theState is able to drive ho+e the point that e%portin0 is indeed >the e! to national survival and the+eans throu0h "hich the econo+ic 0oals of increased e+plo!+ent and enhanced inco+es can +oste%peditiousl! be achieved.>/7

'he 'a% Code itself sees to >pro+ote sustainable econo+ic 0ro"th % % %? % % % increase econo+icactivit!? and % % % create a robust environ+ent for business to enable r+s to co+pete better in there0ional as "ell as the 0lobal +aret.>/72After all, international co+petitiveness re:uires econo+ic andta% incentives to lo"er the cost of 0oods produced for e%port. State actions that aect 0lobalco+petition need to be specic and selective in the pricin0 of particular 0oods or services./71

All these statutor! policies are con0ruent to the constitutional +andates of providin0 incentives toneeded invest+ents,/76as "ell as of pro+otin0 the preferential use of do+estic +aterials and locall!produced 0oods and adoptin0 +easures to help +ae these co+petitive./73'a% credits for do+esticinputs stren0then bac"ard lina0es. Ri0htl! so, >the rule of la" and the e%istence of credible ande/@=

#A$ %e&istration, !ot Application for "+ective 'ero %atin&, Indispensable to #A$ %efundRe0istration is an indispensable re:uire+ent under our )A' la"./@/Petitioner alle0es that respondent didre0ister for )A' purposes "ith the appropriate Revenue District /@2 'his is a >+atter ofprocedure>/@1and a >:uestion of fairness.>/@6(ailure to assert >"ithin a reasonable ti+e "arrants a

presu+ption that the part! entitled to assert it either has abandoned or declined to assert it.> /@3

'he BIR re0ulations additionall! re:uirin0 an approved prior application for eective *ero ratin0/4=

cannot prevail over the clear )A' nature of respondent;s transactions. 'he scope of such re0ulations isnot >"ithin the statutor! authorit! % % % 0ranted b! the le0islature./4/

/irst, a +ere ad+inistrative issuance, lie a BIR re0ulation, cannot a+end the la"? the for+er cannotpurport to do an! +ore than interpret the latter./47'he courts "ill not countenance one that overridesthe statute it sees to appl! and i+ple+ent./4@

ther than the 0eneral re0istration of a ta%pa!er the )A' status of "hich is aptl! deter+ined, noprovision under our )A' la" re:uires an additional application to be +ade for such ta%pa!er;stransactions to be considered eectivel! *ero$rated. An eectivel! *ero$rated transaction does not andcannot beco+e e%e+pt si+pl! because an application therefor "as not +ade or, if +ade, "as denied.

'o allo" the additional re:uire+ent is to 0ive unfettered discretion to those o


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"ithout Luid consideration, are bent on den!in0 a valid application. Moreover, the State can never beestopped b! the o+issions, +istaes or errors of its o


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As such, respondent is e%e+pt fro+ all internal revenue ta%es, includin0 the )A', and re0ulationspertainin0 thereto. It has opted for the inco+e ta% holida! re0i+e, instead of the percent preferentialta( re&ime.As a +atter of la" and procedure, its re0istration status entitlin0 it to such ta% holida! canno lon0er be :uestioned. Its sales transactions intended for e%port +a! not

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