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ARTICLE 8 of the Civil Code of the Philippines provides that "[j]udicial decisions applying or interpreting the laws or the Constitution shall form part of the legal system of the Philippines."
Thus, in several cases, courts held that "It is emphatically the province and duty of the judicial department to say what the law is."1
Thus, in several cases, courts held that "It is emphatically the province and duty of the judicial department to say what the law is."1
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Clearly, the decisions of the Supreme Court (SC) have the status of a law which must be observed and followed, whether we agree with them or not.
In a recent case involving a claim for refund of unutilized input value added tax (VAT), the SC promulgated a decision which appears to be entirely different from a decision it issued involving a similar case in 2007.
The 2007 case involved a claim for input VAT refund filed by an entity who was registered both as a VAT taxpayer and an economic zone enterprise with the Philippine Economic Zone Authority.
The SC ruled that even if the invoices covering the entity’s export sales do not show Bureau of Internal Revenue (BIR) authority to print and the Taxpayer’s Identification Number (TIN-V), such omission or failure is not sufficient basis to deny the claim for VAT refund/tax credit considering that this requirement is not reflected in Sections 113 and 237 of the Tax Code.
The relevant part of the SC decision reads as follows:
"In a claim for refund or issuance of a tax credit certificate attributable to zero-rated sales, what is to be closely scrutinized is the documentary substantiation of the input VAT paid, as may be proven by other export documents, rather than the supporting documents for the zero-rated export sales. And since petitioner has established by sufficient evidence that it is entitled to a refund or issuance of a tax credit certificate, in accordance with the requirements of Sections 106(A)(2)(a)(1) and 112(A) of the Tax Code, then its claim should not be denied, notwithstanding its failure to state on the invoices the BIR authority to print and the TIN-V. Worthy of mentioning again is the fact that even the CTA [Court of Tax Appeals] and the CA [Court of Appeals] have found petitioner to be legally entitled to a claim for refund or issuance of tax credit certificate of its unutilized VAT input taxes on domestic purchases of goods and services attributable to its zero-rated sales."
Clearly from this decision, in a claim for VAT refund, the critical requirement is the substantiation of the input VAT and not the documentation of the zero-rated sales.
In other words, for as long as the input VAT is supported by duly issued VAT invoices and/or official receipts in compliance with the procedures and invoicing requirements of the Tax Code, the validity of the refund should be upheld regardless of omissions of certain information in the VAT invoices and/or official receipts supporting the zero-rated sales.
However, in the recent decision of the SC, this rule appears to have been completely revoked.
In this case, the entity filed a claim for refund/tax credit of its unused input VAT pertaining to its zero-rated sales. Although the input VAT was properly supported, the claim was denied at the administrative level and later by both the Court of Tax Appeals and Court of Appeals, principally because the entity failed to comply with one of the invoicing requirements provided under Section 113(B)(2)(c) of the Tax Code, i.e., the term "zero-rated sales" is not written or imprinted on the invoices supporting the entity’s zero-rated sales.
The entity countered on two grounds:
• the invoicing and accounting requirements laid down in Revenue Regulations No. 7-95 were merely "compliance requirements", which were not indispensable to establish claim for refund of excess and unutilized input VAT; and
• the express requirement that the term "zero-rated sales" shall be written or printed prominently on the VAT invoice or official receipt for zero-rated sales appeared only after Section 113 of the Tax Code was amended by Section 11 of Republic Act No. 9337. This law took effect only on July 1, 2005, or long after the entity filed its claim for refund in 2000 and 2001, and therefore cannot be given retroactive effect.
The SC denied the input VAT claim principally on the ground that the applicant failed to show that it has satisfactorily complied with the documentary and evidentiary requirements for an administrative claim for refund or tax credit as provided under Revenue Regulations No. 7-95, particularly Section 4.108-1 thereof. This section requires among others, that the term "zero-rated sales" shall be written or printed prominently on the VAT invoice or receipt in case of zero-rated sales. Although this requirement of Revenue Regulations No. 7-95 was incorporated in the Tax Code only in 2005 pursuant to Republic Act No. 9337, this does not constitute undue expansion of the scope of the legislation it seeks to implement.
The SC emphatically stated that Revenue Regulations No. 7-95 proceeds from the rule-making power of the Secretary of Finance as mandated in the Tax Code and that the subsequent incorporation of Section 4-108-1 of Revenue Regulations No. 7-95 in the Tax Code actually confirmed "the validity of the imprinting requirement on VAT invoices or official receipts -- a case falling under the principle of legislative approval of administrative interpretation by reenactment."
The SC also gave credence to the findings of the CTA, to wit: "It must be noted that the CTA is a highly specialized court dedicated exclusively to the study and consideration of revenue-related problems, in which it has necessarily developed an expertise. Hence its factual findings, when supported by substantial evidence, will not be disturbed on appeal."
This new ruling of the Supreme Court is a complete turnaround from its previous position on the matter as enunciated in the 2007 case mentioned above.
While many may not agree with this principle, taxpayers subject to zero-rated sales should see to it that their zero-rated sales are properly documented with invoices and/or official receipts showing the term "zero-rated sales" on them, in order to ensure that their claim for input VAT refund/credit will not later be invalidated.
1 P. 53, Statutory Construction by Ruben Agpalo, 1998, citing Marbury v. Madison, 1 Cranch 137 (1803); San Miguel Corp. v. Avelino, G.R. No. 39699, March 14, 1979, 89 SCRA 69 (1979); Chinese Flour Importers’ Assn. v. Price Stabilization Board, 89 Phil. 439 (1951).
2 P. 53, Statutory Construction by Ruben Agpalo, 1998, citing Endencia v. David, 93 Phil. 696 (1953).
The author is a Senior Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of PricewaterhouseCoopers global network. Readers may send feedback via e-mail to juan.r.bernardino.jr@ph.pwc.com.
Views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from such article; the author will be personally liable for any consequent damages or other liabilities.
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