REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

SPECIAL SECOND DIVISION

WELLS FARGO CTA Case No. 9617

ENTERPRISE GLOBAL
SERVICES, LLC-
PHILIPPINES, Members:
Petitioner,
CASTANEDA, JR., Chairperson
and
MANAHAN, 11.

-versus-

COMMISSIONER OF Promulgated:
INTERNAL REVENUE, MAR
1 1 2019
Respondent. /
J7 ~~ /TI!."" •
x--------------------------------------------------------------------- ------------x

DECISION

CASTANEDA, JR., J.:

Before this Court is a claim for refund via a Petition for Review 1
filed on May 19, 2017, by petitioner Wells Fargo Enterprise Global
Services, LLC-Philippines, in the amount of Twenty-Eight Million Five
Hundred Fifty-One Thousand Thirty-Five Pesos and Sixty-Nine
Centavos (P28,551,035.69) representing unutilized input value-added
tax (VAT) attributable to its zero-rated sales for the taxable year
January to December 2015. r

1 Docket (Vol. I), pp. 10-28.

 DECISION
CTA CASE NO. 9617
Page 2 of 17

THE FACTS

Petitioner is the duly licensed Philippine branch office of Wells

Fargo Enterprise Global Services, LLC, a company duly organized and
existing under the laws of the State of Delaware, United States of
America. It is a duly registered VAT taxpayer with Tax Identification
Number 008-725-483-000. It has its principal office in the Philippines
at the Wells Fargo Center, 1180 Wells Fargo Drive, McKinley Hill
Cyberpark, Taguig City. 2 It is also registered with the Philippine
Economic Zone Authority (PEZA) as an Ecozone IT Enterprise at the
McKinley Hill Cyberpark with Certificate of Registration No. 14-0973
dated July 1, 2014.

Petitioner is engaged in providing administrative back office, call

center, information technology, support, training and other allied
services related to the foregoing services. 4

On the other hand, respondent Commissioner of Internal

Revenue (CIR) is the government official charged with the
administration and enforcement of national internal revenue laws,
including the granting of refunds and tax credits of taxes erroneously
or illegally collected. He holds office at the BIR National Office Building,
BIR Road, Diliman, Quezon City.

During taxable year 2015, petitioner filed with the Bureau of

Internal Revenue (BIR) its Quarterly VAT returns in the aggregate
amount of P28,551,035.69, broken down as follows:

:~Qt,JA,RrE'R CLOSE OF INPUT VAT

~ff2b15
DATE FILED
QUARTER CLAIMED
1st
April 27, 2015 March 31, 2015 p 6,870,228.09
(Exh. "P-76'')
2nd July 24, 2015
(Exh. "P-77" June 30, 2015 7,409,086.47
and "P-78) July 30, 2015
3rd
October 27, 2015 September 30, 2015 6,990,727.45
( Exh. "P-79'')

2 Par. 1, Jointly Stipulated Facts, Joint Stipulation of Facts and Issue (JSFI), Docket (Vol. II), p. 769.
3 Exhibit "P-108".
4 Exhibit "P-4".
 DECISION
CTA CASE NO. 9617
Page 3 of 17

4th
January 25, 2016 December 31, 2015 7,280,993.68
(Exh. "P-80'')
Jf)JAL P28,S5l',(JSS.69

Thereafter, on February 24, 2017, petitioner filed an

administrative claim for refund, via an Application for Tax
Credits/Refunds (BIR Form No. 1914)5 and a Letter re: Application for
Tax Refund 6 dated February 10, 2016, with BIR Revenue District Office
(RDO) No. 44 for its alleged excess unutilized input VAT for the period
January to December 2015 in the amount of P28,551,035.69.

On May 19, 2017, petitioner received a letter7 dated April 11,

2017 from Regional Director Glen A. Geraldina of BIR Revenue Region
No. 8, denying its application for VAT refund. Thus, on June 19, 2017,
petitioner elevated its case to this Court via a Petition for Review.

Then, on August 18, 2017, respondent filed, through registered

mail, his Answer8 interposing the following Special and Affirmative
Defenses, viz.:

"SPECIAL AND AFFIRMATIVE DEFENSES

4. Respondent reiterates and repleads the preceding

paragraphs of the Answer as part of his Special and Affirmative
Defenses which are discussed hereunder:

5. Petitioner's claim for refund or issuance of tax credit

certificate was denied in accordance with the provisions of
RMC No. 74-99, Section 106(A)(2)(a)(5) of the Tax Code and
RMO No. 50-2007.

6. Taxes paid and collected are presumed to have been

made in accordance with law, hence, not refundable.

7. Petitioner's claim for refund or issuance of tax credit in

the amount of P28,551,035.69 representing its alleged excess
and unutilized input VAT for taxable year 2015 were not fully fr-

5 Exhibit "1".
6 Exhibit "1-B".
7 Exhibit "2".
8 Docket (Vol. I), pp. 285-287.
DECISION
CTA CASE NO. 9617
Page 4 of 17

substantiated by proper documents, such as sales invoices and

official receipts, pursuant to Revenue Regulations No. 7-95 in
relation to Section 113 and 237 of the 1997 Tax Code.

8. In an action for refund/credit, the burden of proof is on

petitioner to establish its right to claim for refund and failure
to adduce sufficient proof is fatal to the claim for tax
refund/credit.

9. It is incumbent upon the latter to show that it has

complied with the provisions under Section 204 (C) in relation
to Section 229 of the Tax Code. Otherwise, its failure to prove
the same is fatal to its claim for refund.

10. Claims for refund are construed strictly against

petitioner since the same partakes the nature of exemption
from taxation (Commissioner of Internal Revenue vs.
Ledesma, 31 SCRA 95) and as such, they are looked upon
with disfavor (Western Minolco Corp, vs. Commissioner
of Internal Revenue, 124 SCRA 1211)."

On August 29, 2017, a Notice of Pre-Trial Conference9 was issue

by this Court, setting the case for pre-trial conference on September
14, 2017 at 1:30 p.m. and, also, ordering both parties to submit their
respective pre-trial briefs.

However, on September 8, 2017, petitioner filed an Urgent

Motion for the Resetting of Pre-Trial Conference 10 on the ground that
it was not able to coordinate with its witnesses for the taking of their
respective direct testimonies and that one of its witnesses needs
adequate time to make travel arrangements since she holds office in
the State of North Carolina, Unites States of America. Thus, having no
objection from respondent, this Court, in an Order 11 dated September
14, 2017, granted petitioner's plea for the resetting of the pre-trial
conference on October 26, 2017 at 1:30 pm.

On September 11, 2017, respondent filed, through a licensed

private courier service, his Respondent's Pre-Trial Brief12 while~

9 Ibid, pp. 289-290.

10 Id., pp. 291-294.
11 Id., p. 302.
12 Id., pp. 296-299.
DECISION
CfA CASE NO. 9617
Page 5 of 17

petitioner, on the other hand, submitted its Pre-Trial Brief1 3 on October

23, 2017.

Afterwards, in a Submission 14 filed on October 23, 2017,

petitioner attached the Judicial Affidavits of its intended witnesses,
namely: Mr. Siegfred A. Sorbito, Tax Accountant at Wells Fargo
Enterprise Global Services, LLC-Philippines; 15 Mr. Enrique Juan C.
Vera, Assistant Secretary at Wells Fargo Enterprise Global Services,
LLC-Philippines; 16 and, Ms. Christy Miller Long, Strategic Planning
Manager at Wells Fargo Bank, N.A., 17 pursuant to the Judicial Affidavit
Rule 18 in relation to CTA Circular No. 01-2013 dated July 1, 2013, as
amended by CTA En Bane Resolution No. 15-2013 dated September
24, 2013.

During the pre-trial conference, this Court issued an Order19

dated October 26, 2017, granting the parties a period of fifteen (15)
days within which to file their joint stipulation of facts and issues.
Complying thereon, a Joint Stipulation of Facts and Issue20 was
submitted by the parties on November 10, 2017.

On December 1, 2017, a Pre-Trial Order21 was issued by this

Court which deemed, among others, the pre-trial as terminated and,
further, set the initial presentation of evidence for the petitioner on
December 11, 2017 at 9:00a.m.

Thereafter trial ensued.

On January 19, 2017, petitioner filed, through a licensed private

courier service, a Submission 22 attaching therewith a Supplement to
the Judicial Affidavit of Siegfred A. Sorbito dated January 18, 2017. ~

13 Docket (Vol. II), pp. 644-660.

14 Docket (Vol. I), pp. 304-309.
1s Docket (Vol. II), pp. 310-346.
16 Ibid, pp. 347-355.
17 Id., pp. 356-367.
18 A.M. No. 12-8-8-SC which took effect on January 1, 2013.

19 Docket (Vol. II), p. 768.

20 Ibid, pp. 769-771.
21 Id., pp. 779-787.
22 Id., pp. 808-809.
DECISION
CTA CASE NO. 9617
Page 6 of 17

Then, on February 6, 2018, petitioner filed a Formal Offer of

Evidence 23, formally offering Exhibits "P-1" to "P-113-A", inclusive of
sub-markings, as its documentary evidence. Consequently, in
Resolution 24 dated March 21, 2018, this Court admitted all of
petitioner's exhibits except for Exhibit "P-101", for petitioner's failure
to correspond the document offered with that of the document
identified. With the admission of the said exhibits, petitioner was
deemed to have rested its case. Thus, the initial presentation of
evidence for the respondent was set on April11, 2018 at 8:30a.m., as
previously scheduled.

During the initial presentation of evidence for the respondent, 25

petitioner manifested its oral motion for reconsideration for the denied
Exhibit "P-101". Having no objection from respondent, this Court
granted petitioner's motion. Furthermore, respondent also manifested
that he has no witness to present in the present case, which was then
noted by this Court. After which, the parties were given a period of
thirty (30) days within which to file their respective memoranda.

In compliance therewith, petitioner filed, through registered

mail, its Memorandum 26 on June 11, 2018, while respondent, on the
other hand, failed to submit his memorandum, as per Records
Verification Report 27 dated June 20, 2018.

Accordingly, in a Resolution 28 dated June 29, 2018, the present

case was deemed submitted for decision.

THE ISSUE

As stipulated upon by the parties, the sole issue29 to be resolved

is whether petitioner is entitled to a refund of its excess and unutilized
input VAT attributable to its zero-rated sales for the period January to
December 2015 in the amount of P28,551,035.69. ?z-

23 !d., pp. 869-889.

24 Docket (Vol. III), pp. 1162-1164.
25 Minutes of the Hearing, ibid, p. 1165.
26 Docket (Vol. III), pp. 1177-1223.
27 Ibid, p. 1225.
28 Id., p. 1226.
29
Jointly Stipulated Issue, JSFI, Docket (Vol. II), p. 770.
DECISION
CfA CASE NO. 9617
Page 7 of 17

Petitioner's Arguments

Petitioner mainly insists that it is entitled to refund the unutilized

input VAT payments on its domestic purchases, attributable to its zero-
rated sales, for the period January to December 2015, for having
complied with the requisites of VAT refund. Petitioner claims that it has
satisfactorily shown that (1) it is a VAT-registered entity; (2) it is
engaged in zero-rated or effectively zero-rated sales for the period
January to December 2015; (3) its unapplied and unutilized input VAT
for the period January to December 2015 arose from its purchases of
taxable goods and services, which are properly substantiated by VAT
invoices and/or official receipts issued in accordance with Sections 113
and 237 of the Tax Code, and are directly attributable to its zero-rated
sales; (4) that the unapplied and unutilized input VAT for the period
January to December 2015 which does not constitute transitional input
taxes, have not been carried over, and have not been applied against
output taxes, during and in the succeeding taxable quarters; and (5)
it had timely filed its administrative claim and the subject petition for
review within the prescribed periods.

Respondent's Counter-Arguments

On the other hand, respondent asserts that petitioner's claim for

refund or issuance of tax credit certificate should be denied in
accordance with the provisions of Revenue Memorandum Circular
(RMC) No. 74-99, Section 106(A)(2)(a)(5) of the Tax Code and
Revenue Memorandum Order No. 50-2007. Respondent also insist that
petitioner's claim for refund or issuance of tax credit in the amount of
P28,551,035.69 representing its alleged excess and unutilized input
VAT for taxable year 2015 were not fully substantiated by proper
documents, such as sales invoices and official receipts, pursuant to
Revenue Regulations No. 7-95 in relation to Section 113 and 237 of
the Tax Code. Thus, considering that claims for refund are construed
strictly against the taxpayer-claimant since the same partakes the
nature of exemption from taxation, claims for such are looked upon
with disfavor. Jv
DECISION
CTA CASE NO. 9617
Page 8 of 17

THIS COURT'S RULING

After due consideration of the arguments, this Court finds the

present Petition bereft of merit.

This Court shall determine first whether or not the Petition for
Review was timely filed. The pertinent provisions of the National
Internal Revenue Code (NIRC) of 1997, as amended, are Sections 112
(C) and 204 (C) which respectively reads, viz.:

"SEC. 112. Refunds or Tax Credits of Input Tax.-

XXX

(C) Period within which Refund or Tax Credit of Input

Taxes shall be Made. - In proper cases, the Commissioner shall
grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the
date of submission of complete documents in support of the
application filed in accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund
or tax credit, or the failure on the part of the Commissioner to
act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt
of the decision denying the claim or after the expiration of the
one hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.

X X X."

"SECTION 204. Authority of the Commissioner to

Compromise/ Abate and Refund or Credit Taxes. - The
Commissioner may-

XXX

(C) Credit or refund taxes erroneously or illegally received

or penalties imposed without authority, refund the value of
internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for use ?<-
DECISION
CfA CASE NO. 9617
Page 9 of 17

and refund their value upon proof of destruction. No credit or

refund of taxes or penalties shall be allowed unless the
taxpayer files in writing with the Commissioner a claim for
credit or refund within two (2) years after the payment of the
tax or penalty: Provided, however, That a return filed showing
an overpayment shall be considered as a written claim for
credit or refund.

X X X."

Based above, Section 112 (C) of the NIRC of 1997, states that
respondent has one hundred twenty (120) days from the date of
submission of complete supporting documents within which to act on
the administrative claim for tax refund/credit. Thereafter, the taxpayer
may, in case of an adverse ruling or inaction thereof, elevate the
matter via a Petition for Review to this Court within thirty (30) days
from receipt of the adverse decision or after the lapse of the 120-day
period.

Notably, in cases of inaction, the 120+30 day period is

mandatory. As propounded by the Supreme Court in the consolidated
cases of Commissioner of Internal Revenue vs. San Roque Power
Corporation, Taganito Mining Corporation vs. Commissioner ofInternal
Revenue, Phi/ex Mining Corporation vs. Commissioner of Internal
Revenue30 , "[t]he law is clear, plain, and unequivocal: 'x x x the
Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days
from the date of submission of complete documents.' Following the
well-settled verba legis doctrine, this law should be applied exactly as
worded since it is clear, plain, and unequivocal."

Also, in the case of Commissioner of Internal Revenue vs.

Mindanao II Geothermal Partnership (Mindanao II/1, the Supreme
Court concluded that (1) it is only the administrative claim that must
be filed within the two-year prescriptive period; and (2) the two-year
prescriptive period begins to run from the close of the taxable quarter
when the relevant sales were made. tc-

30 G.R. Nos. 187485, 196113 and 197156, February 12, 2013.

31 G.R. No. 191498, January 15, 2014.
DECISION
CTA CASE NO. 9617
Page 10 of 17

Nonetheless, a summary of the rules on prescriptive periods

involving claims for the refund of input VAT was provided in Mindanao
II Geothermal Partnership vs. Commissioner of Internal Revenue and
Mindanao I Geothermal Partnership v. Commissioner of Internal
Revenu& 2, as follows:

"Summary of Rules on Prescriptive Periods Involving VAT

We summarize the rules on the determination of the

prescriptive period for filing a tax refund or credit of unutilized
input VAT as provided in Section 112 of the 1997 Tax Code,
as follows:

(1) An administrative claim must be filed with the CIR

within two years after the close of the taxable quarter when
the zero-rated or effectively zero-rated sales were made.

(2) The CIR has 120 days from the date of submission of
complete documents in support of the administrative claim
within which to decide whether to grant a refund or issue a
tax credit certificate. The 120-day period may extend beyond
the two-year period from the filing of the administrative claim
if the claim is filed in the later part of the two-year period. If
the 120-day period expires without any decision from the CIR,
then the administrative claim may be considered to be denied
by inaction.

(3) A judicial claim must be filed with the CTA within 30

days from the receipt of the CIR's decision denying the
administrative claim or from the expiration of the 120-day
period without any action from the CIR.

( 4) All taxpayers, however, can rely on BIR Ruling No.

DA- 489-03 from the time of its issuance on 10 December
2003 up to its reversal by this Court in Aichi on 6 October
2010, as an exception to the mandatory and jurisdictional
120+30 day periods."

Going to the present case, petitioner's claim pertains to its

alleged unapplied and unutilized input VAT attributable to its zero-
rated sales on purchases of capital goods, and input VAT on local ?z-
32 G.R. Nos. 193301 and 194637, March 11, 2013.
DECISION
CTA CASE NO. 9617
Page 11 of 17

purchases of goods and services, other than capital goods, in the

amount of P28,551,035.69, for taxable year 2015. Counting from
March 31, 2015 (end of pt quarter of taxable year 2015), June 30,
2015 (end of 2nd quarter of taxable year 2015), September 30, 2015
(end of 3rd quarter taxable year 2015) and December 31, 2015 (end of
4th quarter taxable year 2015), petitioner had until March 31, 2017,
June 30, 2017, September 30, 2017 and December 31, 2017,
respectively, within which to file its claim for refund in the
administrative level. Thus, having filed a claim for refund or issuance
of a tax credit certificate with the BIR RDO No. 44 of Makati on
February 24, 2017, petitioner's administrative claim for refund was
seasonably filed within the two (2) year prescriptive period.

As to its judicial claim, petitioner had thirty (30) days from May
19, 2017, the date when it received the decision denying petitioner's
administrative claim, within which to file its judicial appeal. Considering
that petitioner filed its judicial claim with this Court on June 19, 2017, 33
then, the same was timely filed and within the prescriptive period.

That having been settled, this Court shall now address the
question of whether petitioner has sufficiently established the factual
and legal bases for its application for refund/credit of input VAT.

Foremost, the issue presented to this court is not novel.

In fact, the Supreme Court in the case of Coral Bay Nickel

Corporation vs. Commissioner of Internal Revenufi34 (hereinafter
referred to as "Coral Bay}, citing Commissioner of Internal Revenue
vs. Toshiba Information Equipment (Phils) Inc. 35, had the occasion to
rule that, to wit:

"The rule that any sale by a VAT-registered supplier from

the Customs Territory to a PEZA-registered enterprise shall be
considered an export sale and subject to zero percent (0°/o)
VAT was clearly established only on 15 October 1999, upon
the issuance of RMC No. 74-99. Prior to the said date,
however, whether or not a PEZA-registered enterprise was
VAT-exempt depended on the type of fiscal incentives availed /k-
33 June 18, 2017 falls on a Sunday.
34 G.R. No. 190506, June 13, 2016.
3s GR. No. 150154, August 9, 2005.
DECISION
CTA CASE NO. 9617
Page 12 of 17

of by the said enterprise. This old rule on VAT-exemption or

liability of PEZA-registered enterprises, followed by the BIR,
also recognized and affirmed by the CTA, the Court of
Appeals, and even this Court, cannot be lightly disregarded
considering the great number of PEZA-registered enterprises
which did rely on it to determine its tax liabilities, as well as,
its privileges.

According to the old rule, Section 23 of Rep. Act No. 7916,

as amended, gives the PEZA-registered enterprise the option
to choose between two sets of fiscal incentives: (a) The five
percent (5°/o) preferential tax rate on its gross income under
Rep. Act No. 7916, as amended; and (b) the income tax
holiday provided under Executive Order No. 226, otherwise
known as the Omnibus Investment Code of 1987, as
amended.

XXX

This old rule clearly did not take into consideration

the Cross-Border Doctrine essential to the VAT system
or the fiction of the ECOZONE as a foreign territory. It
relied totally on the choice of fiscal incentives of the PEZA-
registered enterprise. Again, for emphasis, the old VAT rule
for PEZA-registered enterprises was based on their choice of
fiscal incentives: (1) If the PEZA-registered enterprise chose
the five percent (5°/o) preferential tax on its gross income, in
lieu of all taxes, as provided by Rep. Act No. 7916, as
amended, then it would be VAT-exempt; (2) If the PEZA-
registered enterprise availed of the income tax holiday under
Exec. Order No. 226, as amended, it shall be subject to VAT
at ten percent ( 10°/o ). Such distinction was abolished by
RMC No. 74-99, which categorically declared that all
sales of goods, properties, and services made by a
VAT-registered supplier from the Customs Territory to
an ECOZONE enterprise shall be subject to VAT, at zero
percent (0%) rate, regardless of the latter's type or
class of PEZA registration; and, thus, affirming the
nature ofa PEZA-registered or an ECOZONE enterprise
as a VAT-exempt entity."~
DECISION
CTA CASE NO. 9617
Page 13 of 17

From the foregoing, prior to the effectivity of RMC No. 74-99, the
old VAT rule for PEZA-registered enterprises was based on their choice
of fiscal incentives, namely: ( 1) if the PEZA-registered enterprise chose
the 5°/o preferential tax on its gross income in lieu of all taxes, as
provided by Republic Act No. 7916, as amended, then it was VAT-
exempt; and (2) if the PEZA-registered enterprise availed itself of the
income tax holiday under Executive Order No. 226, as amended, it was
subject to VAT at 10°/o (now, 12°/o). However, now, with the issuance
of RMC No. 74-99, the distinction under the old rule was disregarded
and the new circular took into consideration the two important
principles of the Philippine VAT system: the Cross-Border Doctrine and
the Destination Principle.

According to the Destination Principle, goods and services are

taxed only in the country where these are consumed. In connection
with the said principle, the Cross-Border Doctrine mandates that no
VAT shall be imposed to form part of the cost of the goods destined
for consumption outside the territorial border of the taxing authority.
Hence, actual export of goods and services from the Philippines to a
foreign country must be free of VAT, while those destined for use or
consumption within the PhiiJppines shall be imposed with [12%]
VAT. Export processing zones are to be managed as a separate
customs territory from the rest of the Philippines and, thus, for tax
purposes, are effectively considered as foreign territory. For this
reason, sales by persons from the Philippine customs territory to those
inside the export processing zones are already taxed as exports. 36

Relative thereto, sales of goods, properties and services by a

VAT-registered supplier from the custom territory to an Ecozone
enterprise shall be treated as export sales. Said sales therefore, shall
be subject to VAT at zero percent (0°/o) rate. Accordingly, no output
VAT shall be shifted to or passed on to PEZA-registered enterprises;
which, obviously, no input VAT shall be paid by PEZA-registered
enterprises from said purchases as a result. There being no input VAT
paid by PEZA-registered enterprises, it necessarily follows that they are
not entitled to refund, or issuance of tax credit certificate from their
purchases of goods and services. Jt-

36 Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, G.R. Nos.
141104 & 148763, June 8, 2007; citing Commissioner of Internal Revenue v. Seagate Technology
(Philippines), G.R. No. 153866, February 11, 2005.
DECISION
CTA CASE NO. 9617
Page 14 of 17

Again, Petitioner is registered as an Ecozone IT Enterprise at the

McKinley Hill CyberPark, a PEZA-registered IT Park/Ecozone pursuant
to PEZA Resolution No. 00-411, as amended, in relation to Republic
Act No. 791637, as amended. Accordingly, applying the foregoing
discussion, the purchases of goods and services by petitioner that were
destined for consumption within the IT Park/Ecozone should be free of
VAT; hence, no input VAT therefore should be paid on such purchases,
thereby rendering petitioner as not entitled to claim tax refund or
credit.

Furthermore, sales of goods or property by a PEZA-registered

enterprise to another PEZA-registered enterprise (i.e., Intra Ecozone
Sales of Goods) shall also be exempt from VAT. 38 An exemption means
that the sale of goods, properties or services and the use or lease of
properties is not subject to VAT (output tax) and the seller is not
allowed any tax credit on VAT (input tax) previously paid. The person
making the exempt sale of goods, properties or services shall not bill
any output tax to his customers because the said transaction is not
subject to VAT. Thus, a VAT-registered purchaser of goods, properties
or services that are VAT-exempt, is not entitled to any input tax on
such purchases despite the issuance of a VAT invoice or receipt. 39

As a result, petitioner is not entitled to any input tax on its

purchases of goods from other PEZA-registered enterprises
considering that the same are VAT-exempt transactions.

With regard to petitioner's contention that the incentives granted

by the PEZA apply only to registered operations of the Ecozone
enterprise, thus, making RMC No. 74-99 inapplicable in this case, this
Court reiterates that for as long as the PEZA-registered purchaser is
located and operating within the Ecozone, sellers from the Customs
Territory cannot pass on any output VAT to it for any sale of goods or
services destined for consumption within the Ecozone~

37
"An Act Providing for the Legal Framework and Mechanisms for the Creation, Operation, Administration,
and Coordination of Special Economic Zones in the Philippines, Creating for this Purpose, the Philippine
Economic Zone Authority (PEZA), and for Other Purposes", dated February 21, 1995.

38 Revenue Memorandum Circular No. 74-99 dated October 15, 1999.

39 Commissioner ofInternal Revenue vs. Cebu Toyo Corporation, G.R. No. 149073, February 16, 2005.
DECISION
CTA CASE NO. 9617
Page 15 of 17

This is clear from Section 840 of Republic Act No. 7916, as

amended, which mandates that the PEZA shall manage and operate
the Ecozone as a separate customs territory. The provision thereby
establishes the fiction that an ECOZONE is a foreign territory separate
and distinct from the customs territory. Accordingly, the sales made by
suppliers from a customs territory to a purchaser located within an
Ecozone will be considered as exportations. Following the Philippine
VAT system's adherence to the Cross-Border Doctrine and Destination
Principle, the VAT implications are that "no VAT shall be imposed to
form part of the cost of goods destined for consumption outside of the
territorial border of the taxing authority". 41

Moreover, it also bears stressing that all claims for input VAT by
PEZA-registered companies, regardless of the type or class of PEZA-
registration, which involves invoices/receipts issued after the effectivity
of RMC No. 74-99, shall be denied. Considering that petitioner's claim
for refund pertains to input VAT on its domestic purchases of goods
and services from January to December 2015, which is long after the
effectivity of RMC No. 74-99, petitioner is therefore not entitled to
refund of VAT.

However, all is not lost for petitioner. Parenthetically, Article 2242

of the Civil Code of the Philippines embodies the principle that no
person may unjustly enrich oneself at the expense of another (Nemo
cum alteris detrimento locupletari potest). Verily, there is unjust
enrichment when (1) a person is unjustly benefited, and (2) such
benefit is derived at the expense of or with damages to another. 43 The
said principle is equally true in the field of taxation, particularly in cases
involving claims for refunds.

In the case of Coral Bayt/4, the Supreme Court ruled that if

petitioner had paid the input VAT, petitioner's proper recourse was not
against the government but against the seller who had shifted to it the
output VAT following RMC No. 42-03, which provides: ft--

40 "SEC. 8. ECOZONE to be Operated and Managed as Separate Customs Territory. -The ECOZONE shall be
managed and operated by the PEZA as separate customs territory."
41 Coral Bay Nickel Corporation vs. Commissioner of Internal Revenue, G.R. No. 190506, June 13, 2016; citing

Commissioner of Internal Revenue vs. Toshiba Information Equipment (Phils) Inc., G.R. No. 150154, August
9, 2005.
42 "Article 22. Every person who through an act of performance by another, or any other means, acquires

or comes into possession of something at the expense of the latter without just or legal ground, shall return
the same to him."
43
Grandteq Industrial Steel Products, Inc., eta!. vs. Edna Margallo, G.R. No. 181393, July 28, 2009.
44 Supra No. 33.
DECISION
CTA CASE NO. 9617
Page 16 of 17

In case the supplier alleges that it reported such sale as a

taxable sale, the substantiation of remittance of the output
taxes of the seller (input taxes of the exporter-buyer) can only
be established upon the thorough audit of the suppliers' VAT
returns and corresponding books and records. It is, therefore,
imperative that the processing office recommends to the
concerned BIR Office the audit of the records of the seller.

In the meantime, the claim for input tax credit by the

exporter-buyer should be denied without prejudice to the
claimant's right to seek reimbursement of the VAT paid, if any,
from its supplier.

We should also take into consideration the nature of VAT as an

indirect tax. Although the seller is statutorily liable for the payment of
VAT, the amount of the tax is allowed to be shifted or passed on to
the buyer. However, reporting and remittance of the VAT paid to the
BIR remained to be the seller/supplier's obligation. Hence, the proper
party to seek the tax refund or credit should be the suppliers, not the
petitioner. 45

WHEREFORE, premises considered, the Petition for Review is

hereby DENIED for lack of merit.

SO ORDERED.

~~c.~~~,~~.
Jt1ANITO C. CASTANED( JR.
Associate Justice

45 Ibid
DECISION
CTA CASE NO. 9617
Page 17 of 17

/CONCUR:

c~/~-~
CATHERINE T. MANAHAN
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached

in consultation before the case was assigned to the writer of the
opinion of the Court's Division.

~~C-~~Q.
iCJANI"TO C. CASTAN ED~ !IR.
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the

Division Chairperson's Attestation, it is hereby certified that the
conclusions in the above Decision were reached in consultation before
the case was assigned to the writer of the opinion of the Court.

Presiding Justice